UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X]☒ QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 2017.September 30, 2021.
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
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000-25734 |
(Commission File Number) |
Alliance OnePyxus International, Inc.
(Exact name of registrant as specified in its charter)
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Virginia | 001-13684 | 54-174656785-2386250 |
________________ | _____________________________ | ____________________ |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer
Identification No.) |
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8001 Aerial Center Parkway | | |
Morrisville, | | North Carolina | | 27560 |
(Address of principal executive offices) | | (Zip Code) |
8001 Aerial Center Parkway
Morrisville, NC 27560-8417
(Address of principal executive offices)
(919) 379-4300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and "emerging growth company' in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐
Non-accelerated filer ☒
Accelerated Filer [] Accelerated Filer [X] Non-Accelerated filer [] (Do not check if a smaller☐
Smaller reporting company)company ☒
Smaller Reporting Company [] Emerging Growth Company []
growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. []☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]☐ No [X]☒
Indicate by check mark if the registrant has filed all documents and reports required to be filed under Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of JanuaryOctober 31, 2018,2021, the registrant had 9,008,72524,999,947 shares outstanding of Common Stock (no par value) excluding 785,313 shares owned by a wholly owned subsidiary.
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Pyxus International, Inc. and Subsidiaries |
Table of Contents |
| Page No. |
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Part I. | | |
| Item 1. | Financial Statements (Unaudited) | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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Part II. | | |
| Item 1. | | |
| Item 1A. | | |
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Alliance One | | | |
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| Item 6. | | |
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Part I. Financial Information
Item 1. Financial Statements
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Pyxus International, Inc. and Subsidiaries |
Condensed Consolidated Statements of Operations |
(Unaudited) |
| |
| Successor | Predecessor |
(in thousands, except per share data) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Sales and other operating revenues | $ | 394,201 | | $ | 117,834 | | $ | 184,791 | |
Cost of goods and services sold | 342,147 | | 107,466 | | 159,411 | |
Gross profit | 52,054 | | 10,368 | | 25,380 | |
Selling, general, and administrative expenses | 37,925 | | 15,684 | | 27,101 | |
Other (expense) income, net | (1,816) | | (1,933) | | 1,853 | |
Restructuring and asset impairment charges | 6,859 | | 1,217 | | 493 | |
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Operating income (loss) | 5,454 | | (8,466) | | (361) | |
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Loss on deconsolidation of subsidiaries | 2,456 | | — | | — | |
Interest expense, net | 28,477 | | 8,149 | | 14,683 | |
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Reorganization items, net | — | | — | | 132,850 | |
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(Loss) income before income taxes and other items | (25,479) | | (16,615) | | 117,806 | |
Income tax (benefit) expense | (14,128) | | (10,583) | | 8,460 | |
Income from unconsolidated affiliates | 1,328 | | 234 | | 1,538 | |
Net (loss) income | (10,023) | | (5,798) | | 110,884 | |
Net loss attributable to noncontrolling interests | (342) | | (485) | | (314) | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (9,681) | | $ | (5,313) | | $ | 111,198 | |
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(Loss) earnings per share: | | | |
Basic | $ | (0.39) | | $ | (0.21) | | $ | 11.15 | |
Diluted | $ | (0.39) | | $ | (0.21) | | $ | 11.12 | |
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Weighted average number of shares outstanding: | | | |
Basic | 25,000 | | 25,000 | | 9,976 | |
Diluted | 25,000 | | 25,000 | | 9,999 | |
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See "Notes to Condensed Consolidated Financial Statements" | |
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Pyxus International, Inc. and Subsidiaries |
Condensed Consolidated Statements of Operations |
(Unaudited) |
| |
| Successor | Predecessor |
(in thousands, except per share data) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Sales and other operating revenues | $ | 727,491 | | $ | 117,834 | | $ | 447,600 | |
Cost of goods and services sold | 633,317 | | 107,466 | | 402,594 | |
Gross profit | 94,174 | | 10,368 | | 45,006 | |
Selling, general, and administrative expenses | 71,770 | | 15,684 | | 87,858 | |
Other expense, net | (1,654) | | (1,933) | | (539) | |
Restructuring and asset impairment charges | 7,092 | | 1,217 | | 566 | |
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Operating income (loss) | 13,658 | | (8,466) | | (43,957) | |
Loss on deconsolidation of subsidiaries | 2,456 | | — | | — | |
Debt retirement expense | — | | — | | 828 | |
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Interest expense, net | 55,317 | | 8,149 | | 45,190 | |
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Reorganization items, net | — | | — | | 105,984 | |
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(Loss) income before income taxes and other items | (44,115) | | (16,615) | | 16,009 | |
Income tax (benefit) expense | (22,567) | | (10,583) | | 292 | |
(Loss) income from unconsolidated affiliates | (103) | | 234 | | 2,358 | |
Net (loss) income | (21,651) | | (5,798) | | 18,075 | |
Net loss attributable to noncontrolling interests | (462) | | (485) | | (962) | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (21,189) | | $ | (5,313) | | $ | 19,037 | |
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(Loss) earnings per share: | | | |
Basic | $ | (0.85) | | $ | (0.21) | | $ | 1.91 | |
Diluted | $ | (0.85) | | $ | (0.21) | | $ | 1.91 | |
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Weighted average number of shares outstanding: | | | |
Basic | 25,000 | | 25,000 | | 9,976 | |
Diluted | 25,000 | | 25,000 | | 9,992 | |
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See "Notes to Condensed Consolidated Financial Statements" | |
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Pyxus International, Inc. and Subsidiaries |
Condensed Consolidated Statements of Comprehensive (Loss) Income |
(Unaudited) |
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| Successor | Predecessor |
(in thousands) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Net (loss) income | $ | (10,023) | | $ | (5,798) | | $ | 110,884 | |
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Other comprehensive (loss) income, net of tax: | | | |
Foreign currency translation adjustment | (1,591) | | (807) | | 4,517 | |
Pension and other postretirement benefit plans | (512) | | — | | 240 | |
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Cash flow hedges | (2,896) | | — | | — | |
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Total other comprehensive (loss) income, net of tax | (4,999) | | (807) | | 4,757 | |
Total comprehensive (loss) income | (15,022) | | (6,605) | | 115,641 | |
Comprehensive loss attributable to noncontrolling interests | (342) | | (464) | | (306) | |
Comprehensive (loss) income attributable to Pyxus International, Inc. | $ | (14,680) | | $ | (6,141) | | $ | 115,947 | |
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| Successor | Predecessor |
(in thousands) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Net (loss) income | $ | (21,651) | | $ | (5,798) | | $ | 18,075 | |
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Other comprehensive income (loss), net of tax: | | | |
Foreign currency translation adjustment | (902) | | (807) | | 4,377 | |
Pension and other postretirement benefit plans | (512) | | — | | 734 | |
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Cash flow hedges | 1,432 | | — | | (531) | |
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Total other comprehensive income (loss), net of tax | 18 | | (807) | | 4,580 | |
Total comprehensive (loss) income | (21,633) | | (6,605) | | 22,655 | |
Comprehensive loss attributable to noncontrolling interests | (462) | | (464) | | (1,030) | |
Comprehensive (loss) income attributable to Pyxus International, Inc. | $ | (21,171) | | $ | (6,141) | | $ | 23,685 | |
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See "Notes to Condensed Consolidated Financial Statements" | |
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) |
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| | | | Successor |
(in thousands) | September 30, 2021 | | September 30, 2020 | March 31, 2021 |
Assets | | | | |
Current assets | | | | |
Cash and cash equivalents | $ | 127,636 | | | $ | 125,551 | | $ | 92,705 | |
Restricted cash | 3,028 | | | 23,285 | | 4,619 | |
Trade receivables, net | 204,927 | | | 155,531 | | 175,912 | |
Other receivables | 18,757 | | | 14,685 | | 27,920 | |
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Inventories, net | 802,428 | | | 844,693 | | 727,893 | |
Advances to tobacco suppliers, net | 36,140 | | | 48,068 | | 43,569 | |
Recoverable income taxes | 34,090 | | | 15,524 | | 4,781 | |
Prepaid expenses | 32,718 | | | 39,456 | | 29,532 | |
Other current assets | 15,895 | | | 15,024 | | 15,569 | |
Total current assets | 1,275,619 | | | 1,281,817 | | 1,122,500 | |
Restricted cash | 389 | | | 389 | | 389 | |
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Investments in unconsolidated affiliates | 87,420 | | | 67,859 | | 96,356 | |
Goodwill | 36,853 | | | 54,876 | | 36,853 | |
Other intangible assets, net | 49,353 | | | 66,024 | | 51,417 | |
Deferred income taxes, net | 7,063 | | | 11,313 | | 7,063 | |
Long-term recoverable income taxes | 4,166 | | | 3,468 | | 4,133 | |
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Other noncurrent assets | 38,487 | | | 44,699 | | 40,355 | |
Right-of-use assets | 38,967 | | | 34,677 | | 40,259 | |
Property, plant, and equipment, net | 137,239 | | | 173,177 | | 140,137 | |
Total assets | $ | 1,675,556 | | | $ | 1,738,299 | | $ | 1,539,462 | |
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Liabilities and Stockholders’ Equity | | | | |
Current liabilities | | | | |
Notes payable to banks | $ | 457,699 | | | $ | 457,916 | | $ | 372,174 | |
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Accounts payable | 72,138 | | | 91,665 | | 125,876 | |
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Advances from customers | 33,520 | | | 21,962 | | 12,120 | |
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Accrued expenses and other current liabilities | 72,574 | | | 81,129 | | 71,656 | |
Income taxes payable | — | | | 7,166 | | 8,254 | |
Operating leases payable | 8,418 | | | 10,088 | | 9,529 | |
Current portion of long-term debt | 121,926 | | | 123 | | 2,122 | |
Total current liabilities | 766,275 | | | 670,049 | | 601,731 | |
Long-term taxes payable | 6,703 | | | 7,623 | | 7,623 | |
Long-term debt | 543,233 | | | 550,196 | | 551,235 | |
Deferred income taxes | 16,285 | | | 10,885 | | 12,944 | |
Liability for unrecognized tax benefits | 15,850 | | | 12,677 | | 14,835 | |
Long-term leases | 29,495 | | | 22,748 | | 29,508 | |
Pension, postretirement, and other long-term liabilities | 65,496 | | | 75,088 | | 67,646 | |
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Total liabilities | 1,443,337 | | | 1,349,266 | | 1,285,522 | |
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) |
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| | | | Successor |
(in thousands) | September 30, 2021 | | September 30, 2020 | March 31, 2021 |
Commitments and contingencies | 0 | | 0 | 0 |
Stockholders’ equity | | | | |
Common Stock—no par value: | | | | |
Authorized shares (250,000 for all periods) | | | | |
Issued shares (25,000 for all periods) | 391,089 | | | 391,402 | | 391,089 | |
Retained deficit | (157,883) | | | (5,313) | | (136,686) | |
Accumulated other comprehensive loss | (6,715) | | | (828) | | (6,733) | |
Total stockholders’ equity of Pyxus International, Inc. | 226,491 | | | 385,261 | | 247,670 | |
Noncontrolling interests | 5,728 | | | 3,772 | | 6,270 | |
Total stockholders’ equity | 232,219 | | | 389,033 | | 253,940 | |
Total liabilities and stockholders’ equity | $ | 1,675,556 | | | $ | 1,738,299 | | $ | 1,539,462 | |
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See "Notes to Condensed Consolidated Financial Statements" |
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Pyxus International, Inc. and Subsidiaries |
Condensed Statements of Consolidated Stockholders' Equity |
(Unaudited) |
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| Attributable to Pyxus International, Inc. | | |
| | | Accumulated Other Comprehensive Loss | | |
(in thousands) | Common Stock | Retained Deficit | Currency Translation Adjustment | Pensions, Net of Tax | Derivatives, Net of Tax | Noncontrolling Interests | Total Stockholders' Equity |
Balance, March 31, 2021 (Successor) | $ | 391,089 | | $ | (136,686) | | $ | (4,649) | | $ | 541 | | $ | (2,625) | | $ | 6,270 | | $ | 253,940 | |
Net loss attributable to Pyxus International, Inc. | — | | (11,508) | | — | | — | | — | | (120) | | (11,628) | |
Other | — | | (8) | | — | | — | | — | | 8 | | — | |
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Other comprehensive income, net of tax | — | | — | | 689 | | — | | 4,328 | | — | | 5,017 | |
Balance, June 30, 2021 (Successor) | 391,089 | | (148,202) | | (3,960) | | 541 | | 1,703 | | 6,158 | | 247,329 | |
Net loss attributable to Pyxus International, Inc. | — | | (9,681) | | — | | — | | — | | (342) | | (10,023) | |
Other | — | | — | | — | | — | | — | | (88) | | (88) | |
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Other comprehensive loss, net of tax | — | | — | | (1,591) | | (512) | | (2,896) | | — | | (4,999) | |
Balance, September 30, 2021 (Successor) | $ | 391,089 | | $ | (157,883) | | $ | (5,551) | | $ | 29 | | $ | (1,193) | | $ | 5,728 | | $ | 232,219 | |
See "Notes to Condensed Consolidated Financial Statements"
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Pyxus International, Inc. and Subsidiaries |
Condensed Statements of Consolidated Stockholders' Equity |
(Unaudited) |
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| Attributable to Pyxus International, Inc. | | |
| | | Accumulated Other Comprehensive Loss | | |
(in thousands) | Common Stock | Retained (Deficit) Earnings | Currency Translation Adjustment | Pensions, Net of Tax | Derivatives, Net of Tax | Noncontrolling Interests | Total Stockholders' Equity |
Balance, March 31, 2020 (Predecessor) | $ | 469,677 | | $ | (488,545) | | $ | (22,509) | | $ | (37,154) | | $ | 531 | | $ | 1,692 | | $ | (76,308) | |
Net loss attributable to Pyxus International, Inc. | — | | (92,161) | | — | | — | | — | | (648) | | (92,809) | |
Stock-based compensation | 117 | | — | | — | | — | | — | | — | | 117 | |
Dividends paid | — | | — | | — | | — | | — | | (120) | | (120) | |
Other comprehensive (loss) income, net of tax | — | | — | | (64) | | 494 | | (531) | | (76) | | (177) | |
Balance, June 30, 2020 (Predecessor) | 469,794 | | (580,706) | | (22,573) | | (36,660) | | — | | 848 | | (169,297) | |
Net income attributable to Pyxus International, Inc. | — | | 111,198 | | — | | — | | — | | (314) | | 110,884 | |
Stock-based compensation | 8 | | — | | — | | — | | — | | — | | 8 | |
Dividends paid | — | | — | | — | | — | | — | | (180) | | (180) | |
Change in investment in subsidiaries | (1,655) | | — | | — | | — | | — | | (461) | | (2,116) | |
Other comprehensive income, net of tax | — | | — | | 4,509 | | 240 | | — | | 8 | | 4,757 | |
Cancellation of Predecessor equity | (468,147) | | 469,508 | | 18,064 | | 36,420 | | — | | 99 | | 55,944 | |
Balance, August 31, 2020 (Predecessor) | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
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Balance, September 1, 2020 (Successor) | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
Issuance of Successor common stock | 391,402 | | — | | — | | — | | — | | — | | 391,402 | |
Fresh start adjustment to noncontrolling interests | — | | — | | — | | — | | — | | 4,359 | | 4,359 | |
Net loss attributable to Pyxus International, Inc. | — | | (5,313) | | — | | — | | — | | (485) | | (5,798) | |
Dividends paid | — | | — | | — | | — | | — | | (123) | | (123) | |
Other comprehensive (loss) income, net of tax | — | | — | | (828) | | — | | — | | 21 | | (807) | |
Balance, September 30, 2020 (Successor) | $ | 391,402 | | $ | (5,313) | | $ | (828) | | $ | — | | $ | — | | $ | 3,772 | | $ | 389,033 | |
See "Notes to Condensed Consolidated Financial Statements"
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) |
| Successor | Predecessor |
(in thousands) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Operating Activities: | | | |
Net (loss) income | $ | (21,651) | | $ | (5,798) | | $ | 18,075 | |
Adjustments to reconcile net loss to net cash used by operating activities: | | | |
Depreciation and amortization | 8,170 | | 3,495 | | 16,580 | |
Loss on deconsolidation of subsidiaries | 2,456 | | — | | — | |
Debt amortization/interest | 11,656 | | 1,527 | | 4,862 | |
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Loss (gain) on foreign currency transactions | 2,605 | | 4,674 | | (11,077) | |
Asset impairment charges | 5,689 | | 295 | | 213 | |
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(Loss) income from unconsolidated affiliates, net of dividends | 9,248 | | (257) | | 2,915 | |
Reorganization items, net | — | | — | | (130,215) | |
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Changes in operating assets and liabilities, net | (243,504) | | (17,875) | | (67,544) | |
Other, net | (5,813) | | (2,990) | | (15,870) | |
Net cash used by operating activities | (231,144) | | (16,929) | | (182,061) | |
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Investing Activities: | | | |
Purchases of property, plant, and equipment | (8,568) | | (1,331) | | (7,757) | |
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Collections on beneficial interests on securitized trade receivables | 82,649 | | 10,926 | | 74,328 | |
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DIP loan to deconsolidated subsidiary | (5,229) | | — | | — | |
Collection of DIP loan from deconsolidated subsidiary | 10,996 | | — | | — | |
Payments to acquire businesses, net of cash acquired | — | | — | | (4,805) | |
Other, net | 386 | | 374 | | (109) | |
Net cash provided by investing activities | 80,234 | | 9,969 | | 61,657 | |
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Financing Activities: | | | |
Net proceeds and repayments from short-term borrowings | 85,047 | | 3,455 | | (99,969) | |
Proceeds from DIP facility | — | | — | | 206,700 | |
Repayment of DIP facility | — | | — | | (213,418) | |
Proceeds from DDTL facility | 117,600 | | — | | — | |
Proceeds from term loan facility | — | | — | | 213,418 | |
Proceeds from 10.0% first lien notes | — | | — | | 280,844 | |
Repayment of 8.5% first lien notes | — | | — | | (280,844) | |
Proceeds from revolving loans facilities | — | | 37,500 | | 27,438 | |
Repayment of revolving loans facilities | (11,000) | | — | | (44,900) | |
Proceeds from long-term borrowings | 150 | | 449 | | 2,568 | |
Repayment of second lien notes | — | | — | | (1,199) | |
Share repurchases | — | | — | | (1,000) | |
Debt issuance costs | (6,300) | | (2,452) | | (8,486) | |
DIP financing fees | — | | — | | (9,344) | |
| | | |
| | | |
Other debt restructuring costs | — | | — | | (7,574) | |
Other, net | (24) | | (123) | | (565) | |
Net cash provided by financing activities | 185,473 | | 38,829 | | 63,669 | |
| | | |
Effect of exchange rate changes on cash | (1,223) | | (620) | | 1,628 | |
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) |
| Successor | Predecessor |
(in thousands) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Increase (decrease) in cash, cash equivalents, and restricted cash | 33,340 | | 31,249 | | (55,107) | |
Cash and cash equivalents at beginning of period | 92,705 | | 93,138 | | 170,208 | |
Restricted cash at beginning of period | 5,008 | | 24,838 | | 2,875 | |
Cash, cash equivalents, and restricted cash at end of period | $ | 131,053 | | $ | 149,225 | | $ | 117,976 | |
| | | |
Other information: | | | |
Cash paid for income taxes, net | $ | 12,030 | | $ | 2,990 | | $ | 5,560 | |
Cash paid for interest, net | 41,838 | | 3,716 | | 52,877 | |
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Cash paid for reorganization items | — | | — | | 7,314 | |
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Noncash investing and financing activities: | | | |
Purchases of property, plant, and equipment included in accounts payable | 283 | | 1,102 | | 1,759 | |
| | | |
Noncash amounts obtained as a beneficial interest in exchange for transferring trade receivables in a securitization transaction | 91,742 | | 12,309 | | 66,821 | |
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| | | |
Cancellation of second lien notes | — | | — | | (634,487) | |
| | | |
| | | |
See "Notes to Condensed Consolidated Financial Statements" | | | |
| | | | | | | | | | | |
| |
| | | |
Pyxus International, Inc. and Subsidiaries |
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Table of Contents |
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| Page No. |
Part I. | | |
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| Item 1. | Financial Statements (Unaudited) | |
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| Three and Nine Months Ended December 31, 2017 and 2016 | |
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| Three and Nine Months Ended December 31, 2017 and 2016 | |
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| December 31, 2017 and 2016 and March 31, 2017 | |
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| Nine Months Ended December 31, 2017 and 2016 | |
| | |
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| Nine Months Ended December 31, 2017 and 2016 | |
| |
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(in thousands, except per share data) |
| | | |
| | |
| Item 2. | | |
| | of Financial Condition and Results of Operations | |
| | | |
| Item 3. | | |
| | | |
| Item 4. | | |
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Part II. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 5. | | |
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| Item 6. | | |
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Part I. Financial Information
Item 1. Financial Statements
|
| | | | | | | | | | | | | |
Alliance One International, Inc. and Subsidiaries |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
Three and Nine Months Ended December 31, 2017 and 2016 |
(Unaudited) |
|
| Three Months Ended December 31, | Nine Months Ended December, |
(in thousands, except per share data) | 2017 | 2016 | 2017 | 2016 |
| | | | |
Sales and other operating revenues | $ | 477,783 |
| $ | 454,535 |
| $ | 1,202,115 |
| $ | 1,105,060 |
|
Cost of goods and services sold | 404,282 |
| 389,383 |
| 1,030,648 |
| 955,576 |
|
Gross profit | 73,501 |
| 65,152 |
| 171,467 |
| 149,484 |
|
Selling, general and administrative expenses | 34,625 |
| 28,736 |
| 103,274 |
| 100,904 |
|
Other income, net | 1,019 |
| 2,688 |
| 9,909 |
| 4,311 |
|
Restructuring and asset impairment charges | — |
| 450 |
| — |
| 1,068 |
|
Operating income | 39,895 |
| 38,654 |
| 78,102 |
| 51,823 |
|
Debt retirement expense (benefit) | — |
| 2,339 |
| (2,975 | ) | 2,339 |
|
Interest expense (includes debt amortization of $2,734 and $2,649 for the three months and $7,921 and $8,846 for the nine months in 2017 and 2016, respectively) | 33,222 |
| 35,129 |
| 100,079 |
| 97,635 |
|
Interest income | 601 |
| 1,845 |
| 2,295 |
| 5,888 |
|
Income (loss) before income taxes and other items | 7,274 |
| 3,031 |
| (16,707 | ) | (42,263 | ) |
Income tax expense (benefit) | (73,282 | ) | 20,977 |
| (66,233 | ) | 20,774 |
|
Equity in net income of investee companies | 7,770 |
| 2,351 |
| 7,121 |
| 290 |
|
Net income (loss) | 88,326 |
| (15,595 | ) | 56,647 |
| (62,747 | ) |
Net income attributable to noncontrolling interests | 130 |
| 138 |
| 289 |
| 127 |
|
Net income (loss) attributable to Alliance One International, Inc. | $ | 88,456 |
| $ | (15,457 | ) | $ | 56,936 |
| $ | (62,620 | ) |
| | | | |
Earnings (loss) per share: | | | | |
Basic | $ | 9.83 |
| $ | (1.73 | ) | $ | 6.34 |
| $ | (7.02 | ) |
Diluted | $ | 9.80 |
| $ | (1.73 | ) | $ | 6.32 |
| $ | (7.02 | ) |
| | | | |
Weighted average number of shares outstanding: | | | | |
Basic | 9,001 |
| 8,941 |
| 8,982 |
| 8,923 |
|
Diluted | 9,029 |
| 8,941 |
| 9,009 |
| 8,923 |
|
| | | | | |
See "Notes to Condensed Consolidated Financial Statements" |
|
| | | | | | | | | | | | |
Alliance One International, Inc. and Subsidiaries |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) |
Three and Nine Months Ended December 31, 2017 and 2016 |
(Unaudited) |
| | | | |
| |
| Three Months Ended December 31, | Nine Months Ended December 31, |
(in thousands) | 2017 | 2016 | 2017 | 2016 |
| | | | |
Net income (loss) | $ | 88,326 |
| $ | (15,595 | ) | $ | 56,647 |
| $ | (62,747 | ) |
| | | | |
Other comprehensive income (loss), net of tax: | | | | |
Currency translation adjustment | 725 |
| (4,529 | ) | 6,817 |
| (7,388 | ) |
Defined benefit pension amounts reclassified to income: | | | | |
Settlement | — |
| 1,120 |
| — |
| 1,120 |
|
Amounts reclassified to income | 459 |
| 461 |
| 1,376 |
| 1,382 |
|
Change in the fair value of derivatives designated as cash flow hedges | (64 | ) | — |
| (626 | ) | — |
|
Amounts reclassified to income for derivatives | 656 |
| — |
| 727 |
| — |
|
Total other comprehensive income (loss), net of tax | 1,776 |
| (2,948 | ) | 8,294 |
| (4,886 | ) |
Total comprehensive income (loss) | 90,102 |
| (18,543 | ) | 64,941 |
| (67,633 | ) |
Comprehensive income attributable to noncontrolling interests | 130 |
| 138 |
| 289 |
| 127 |
|
Comprehensive income (loss) attributable to Alliance One International, Inc. | $ | 90,232 |
| $ | (18,405 | ) | $ | 65,230 |
| $ | (67,506 | ) |
| |
See "Notes to Condensed Consolidated Financial Statements" | |
|
| | | | | | | | | | | | | | | |
Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) |
(in thousands) | December 31, 2017 | December 31, 2016 | March 31, 2017 |
ASSETS | | | |
Current assets | | | |
Cash and cash equivalents | $ | 209,490 |
| $ | 296,490 |
| $ | 473,110 |
|
Trade receivables, net | 222,451 |
| 175,860 |
| 239,558 |
|
Other receivables | 18,366 |
| 94,321 |
| 14,627 |
|
Accounts receivable, related parties | 9,832 |
| 12,015 |
| 8,133 |
|
Inventories | 905,680 |
| 845,133 |
| 678,325 |
|
Advances to tobacco suppliers | 69,872 |
| 97,037 |
| 54,713 |
|
Recoverable income taxes | 19,025 |
| 16,065 |
| 7,389 |
|
Prepaid expenses | 17,730 |
| 18,012 |
| 17,924 |
|
Current derivative asset | — |
| — |
| 943 |
|
Other current assets | 18,984 |
| 15,615 |
| 15,354 |
|
Total current assets | 1,491,430 |
| 1,570,548 |
| 1,510,076 |
|
| | | |
Investments in unconsolidated affiliates | 67,069 |
| 52,797 |
| 52,328 |
|
Goodwill | 16,463 |
| 16,463 |
| 16,463 |
|
Other intangible assets | 41,837 |
| 47,317 |
| 46,136 |
|
Deferred income taxes, net | 128,979 |
| 45,079 |
| 38,507 |
|
Other deferred charges | 3,848 |
| 4,819 |
| 5,397 |
|
Other noncurrent assets | 55,091 |
| 37,490 |
| 46,454 |
|
Property, plant and equipment, net | 249,471 |
| 261,802 |
| 256,511 |
|
Total assets | $ | 2,054,188 |
| $ | 2,036,315 |
| $ | 1,971,872 |
|
| | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
Current liabilities | | | |
Notes payable to banks | $ | 536,170 |
| $ | 558,095 |
| $ | 475,863 |
|
Accounts payable | 46,678 |
| 50,400 |
| 89,434 |
|
Due to related parties | 22,939 |
| 7,258 |
| 9,773 |
|
Advances from customers | 31,646 |
| 17,504 |
| 30,925 |
|
Accrued expenses and other current liabilities | 92,446 |
| 90,372 |
| 91,332 |
|
Income taxes | 14,902 |
| 10,562 |
| 5,377 |
|
Long-term debt current | 142 |
| 10,356 |
| 10,046 |
|
Total current liabilities | 744,923 |
| 744,547 |
| 712,750 |
|
| | | |
Long-term taxes payable | 15,110 |
| — |
| — |
|
Long-term debt | 918,820 |
| 969,253 |
| 942,959 |
|
Deferred income taxes | 15,649 |
| 25,298 |
| 17,608 |
|
Liability for unrecognized tax benefits | 10,522 |
| 10,220 |
| 10,073 |
|
Pension, postretirement and other long-term liabilities | 76,442 |
| 78,809 |
| 81,772 |
|
Total liabilities | 1,781,466 |
| 1,828,127 |
| 1,765,162 |
|
| | | | | | |
Commitments and contingencies |
|
|
|
|
|
|
Stockholders’ equity | December 31, 2017 | December 31, 2016 | March 31, 2017 | | | |
Common Stock—no par value: | | | | | | |
Authorized shares | 250,000 |
| 250,000 |
| 250,000 |
| | | |
Issued shares | 9,794 |
| 9,735 |
| 9,748 |
| 473,156 |
| 471,979 |
| 472,349 |
|
Retained deficit | (151,848 | ) | (208,476 | ) | (208,784 | ) |
Accumulated other comprehensive loss | (51,753 | ) | (58,734 | ) | (60,047 | ) |
Total stockholders’ equity of Alliance One International, Inc. | 269,555 |
| 204,769 |
| 203,518 |
|
Noncontrolling interests | 3,167 |
| 3,419 |
| 3,192 |
|
Total stockholders’ equity | 272,722 |
| 208,188 |
| 206,710 |
|
Total liabilities and stockholders’ equity | $ | 2,054,188 |
| $ | 2,036,315 |
| $ | 1,971,872 |
|
See "Notes to Condensed Consolidated Financial Statements" |
|
| | | | | | | | | | | | | | | | | | | | | |
Alliance One International, Inc. and Subsidiaries CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (Unaudited) |
| | | | |
| Attributable to Alliance One International, Inc. | | |
| | | Accumulated Other Comprehensive Loss | | |
(in thousands) | Common Stock | Retained Deficit | Currency Translation Adjustment | Pensions, Net of Tax | Loss on Derivatives, Net of Tax | Noncontrolling Interests | Total Equity |
| | | | | | | |
Balance, March 31, 2016 | $ | 470,830 |
| $ | (145,856 | ) | $ | (14,046 | ) | $ | (39,802 | ) | $ | — |
| $ | 3,546 |
| $ | 274,672 |
|
Net loss | — |
| (62,620 | ) | — |
| — |
| — |
| (127 | ) | (62,747 | ) |
Restricted stock surrender | (31 | ) | — |
| — |
| — |
| — |
| — |
| (31 | ) |
Stock-based compensation | 1,180 |
| — |
| — |
| — |
| — |
| — |
| 1,180 |
|
Other comprehensive income (loss), net of tax | — |
| — |
| (7,388 | ) | 2,502 |
| — |
| — |
| (4,886 | ) |
Balance, December 31, 2016 | $ | 471,979 |
| $ | (208,476 | ) | $ | (21,434 | ) | $ | (37,300 | ) | $ | — |
| $ | 3,419 |
| $ | 208,188 |
|
| | | | | | | |
Balance, March 31, 2017 | $ | 472,349 |
| $ | (208,784 | ) | $ | (22,293 | ) | $ | (36,654 | ) | $ | (1,100 | ) | $ | 3,192 |
| $ | 206,710 |
|
Net income (loss) | — |
| 56,936 |
| — |
| — |
| — |
| (289 | ) | 56,647 |
|
Restricted stock surrender | (8 | ) | — |
| — |
| — |
| — |
| — |
| (8 | ) |
Stock-based compensation | 815 |
| — |
| — |
| — |
| — |
| — |
| 815 |
|
Purchase of additional investment in subsidiary | — |
| — |
| — |
| — |
| — |
| 264 |
| 264 |
|
Other comprehensive income, net of tax | — |
| — |
| 6,817 |
| 1,376 |
| 101 |
| — |
| 8,294 |
|
Balance, December 31, 2017 | $ | 473,156 |
| $ | (151,848 | ) | $ | (15,476 | ) | $ | (35,278 | ) | $ | (999 | ) | $ | 3,167 |
| $ | 272,722 |
|
| | | | | | | |
See "Notes to Condensed Consolidated Financial Statements"
|
|
| | | | | | |
Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended December 31, 2017 and 2016 (Unaudited) |
|
|
(in thousands) | December 31, 2017 | December 31, 2016 |
Operating activities | | |
Net income (loss) | $ | 56,647 |
| $ | (62,747 | ) |
Adjustments to reconcile net income (loss) to net cash used by operating activities: | | |
Depreciation and amortization | 24,845 |
| 25,859 |
|
Debt amortization/interest | 9,514 |
| 10,142 |
|
Debt retirement (benefit) expense | (2,975 | ) | 2,339 |
|
Loss (gain) on foreign currency transactions | 4,951 |
| (10,780 | ) |
Restructuring and asset impairment charges | — |
| 1,068 |
|
Gain on sale of property, plant and equipment | (89 | ) | (490 | ) |
Bad debt recovery | (122 | ) | (2,801 | ) |
Equity in net (income) loss of unconsolidated affiliates, net of dividends | (5,025 | ) | 4,194 |
|
Stock-based compensation | 869 |
| 1,360 |
|
Changes in operating assets and liabilities, net | (336,336 | ) | (10,588 | ) |
Other, net | 1,129 |
| 180 |
|
Net cash used by operating activities | (246,592 | ) | (42,264 | ) |
| | |
Investing activities | | |
Purchases of property, plant and equipment | (17,395 | ) | (9,483 | ) |
Proceeds from sale of property, plant and equipment | 1,832 |
| 771 |
|
Payments to acquire equity method investments | (10,000 | ) | — |
|
Restricted cash | (440 | ) | — |
|
Other, net | (119 | ) | 66 |
|
Net cash used by investing activities | (26,122 | ) | (8,646 | ) |
| |
Financing activities | | |
Net proceeds from short-term borrowings | 48,159 |
| 93,552 |
|
Proceeds from long-term borrowings | — |
| 472,484 |
|
Repayment of long-term borrowings | (34,961 | ) | (400,355 | ) |
Debt issuance cost | (5,010 | ) | (17,618 | ) |
Debt retirement cost | (72 | ) | (73 | ) |
Net cash provided by financing activities | 8,116 |
| 147,990 |
|
| | |
Effect of exchange rate changes on cash | 978 |
| (310 | ) |
| |
(Decrease) increase in cash and cash equivalents | (263,620 | ) | 96,770 |
|
Cash and cash equivalents at beginning of period | 473,110 |
| 199,720 |
|
Cash and cash equivalents at end of period | $ | 209,490 |
| $ | 296,490 |
|
| | |
Other information: | | |
Cash paid for income taxes | $ | 12,719 |
| $ | 7,147 |
|
Cash paid for interest | 79,083 |
| 64,322 |
|
Cash received from interest | 1,647 |
| 5,888 |
|
| | |
See "Notes to Condensed Consolidated Financial Statements" |
Alliance One International, Inc. and Subsidiaries
Alliance One International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Significant Accounting Policies
DueThe accompanying condensed consolidated financial statements represent the consolidation of Pyxus International, Inc. (the "Company" or "Pyxus") and all companies that Pyxus directly or indirectly controls, either through majority ownership or otherwise. The terms the “Company,” “Pyxus,” “we,” or “us” when used with respect to periods commencing prior to the seasonal natureeffectiveness of the Company’s business,Plan (as defined below), refer to Old Pyxus (as defined below), unless the resultscontext would indicate otherwise. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of operationsAmerica ("U.S. GAAP") for any fiscal quarter areinterim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not necessarily indicative ofinclude the operating results that may be attainedinformation and footnotes required by U.S. GAAP for other quarters or a full fiscal year.annual financial statements. In the opinion of management, allthe normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. All intercompanyIntercompany accounts and transactions have been eliminated.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) forcondensed consolidated interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2017.
Taxes Collected from Customers
Certain subsidiaries are subject2021 filed on June 29, 2021. Due to value-added taxes on local sales. These amounts have been included in Sales and Cost of Sales and were $2,703 and $5,412 for the three months ended December 31, 2017 and 2016, respectively, and $13,801 and $18,003 for the nine months ended December 31, 2017 and 2016, respectively.
Other Deferred Charges
Other deferred charges are primarily deferred financing costs that are amortized over the lifeseasonal nature of the debt.Company’s business, the results of operations for a fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year.
Cash and Cash Equivalents
As of December 31, 2017, theThe Company held $1,079 in the Zimbabwe Real Time Gross Settlement (“RTGS”) System. RTGS is a local currency equivalent that is exchanged 1:1 with the U.S. Dollar ("USD"). In order to convert these units to USD, the Company must obtain foreign currency resources from the Reserve Bank of Zimbabwe subject to the monetary and exchange control policy in Zimbabwe.
New Accounting Standards
Recent Adopted Accounting Pronouncements
In July 2015, theapplied Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Codification (“ASC”) Topic 852 – Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements. For periods subsequent to the commencement of the Chapter 11 Cases (as defined below), ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors (as defined below) from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date (as defined below). The Company elected to apply fresh start reporting using a convenience date of August 31, 2020 (the “Fresh Start Reporting Date”). The Company evaluated and concluded that the events between the Effective Date and the Fresh Start Reporting Date were not material to the Company's financial reporting on both a quantitative or qualitative basis. See “Note 4. Fresh Start Reporting” for additional information.Due to the application of fresh start reporting, the pre-emergence and post-emergence periods are not comparable. The lack of comparability is emphasized by the use of a “black line” to separate the Predecessor and Successor periods in the condensed consolidated financial statements and footnote tables. References to “Successor” relate to our financial position after August 31, 2020 and results of operations for periods commencing after August 31, 2020. References to “Predecessor” relate to our financial position on or before August 31, 2020 and results of operations for periods ending on or before August 31, 2020.
Bankruptcy Proceedings
On June 15, 2020 (the "Petition Date"), Old Holdco, Inc. (then named Pyxus International, Inc.) (“Old Pyxus”) and its then subsidiaries Alliance One International, LLC, Alliance One North America, LLC, Alliance One Specialty Products, LLC, and GSP Properties, LLC (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged Chapter 11 plan of reorganization to effectuate a financial restructuring (the “Restructuring”) of Old Pyxus’ secured debt. On August 21, 2020, the Bankruptcy Court issued an order (the “Confirmation Order”) confirming the Amended Joint Prepackaged Chapter 11 Plan of Reorganization (the “Plan”) filed by the Debtors in the Chapter 11 Cases. On August 24, 2020 (the “Effective Date”), the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc., which is a subsidiary of the Company. Pursuant to the Confirmation Order and the Plan, at the effectiveness of the Plan all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company were delivered to certain creditors of Old Pyxus. See “Note 3. Emergence from Voluntary Reorganization under Chapter 11” for additional information.
Reclassifications
Certain prior period amounts relating to balances with related parties have been reclassified to conform to the current year presentation in the condensed consolidated balance sheets. See "Note 23. Related Party Transactions" for additional information.
Interest expense and interest income amounts reported in prior periods have been reclassified to conform to the current year's net presentation of interest expense in the condensed consolidated statements of operations. Cash paid for interest and cash received from interest as reported under other information in the condensed consolidated statements of cash flows have been reclassified to conform to the current year's net presentation of cash paid for interest. Asset impairment charges reported as changes in operating assets and liabilities, net in prior periods have been reclassified to conform to the current year's presentation.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting StandardStandards Update ("ASU") No. 2015-11, Inventory.2019-12, Simplifying the Accounting for Income Taxes. ASU 2015-112019-12 eliminates certain exceptions related to the approach for intra-period tax allocations, the methodology for calculating income taxes during interim periods when there are changes in tax laws or when year-to-date losses exceed anticipated losses, and the recognition of deferred tax liabilities for outside basis differences in foreign investments. This guidance also simplifies aspects of the measurement of inventory. Under the previous accounting guidance, an entity measured inventory at the lower of cost or market with market defined as one of three different measures. The primary objective of this accounting guidance is to require a single measurement of inventory at the lower of cost and net realizable value. The Company adopted this guidancefor franchise taxes that are partially based on April 1, 2017. There was no impact on the consolidatedincome, separate financial statements of legal entities not subject to tax, and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014,clarifies the FASB issued ASU No. 2014-09, Revenue Recognition (Topic 606), Revenue from Contracts with Customers. ASU 2014-09 outlinesaccounting for transactions that result in a comprehensive new revenue recognition model that requires a company to recognize revenue to depictstep-up in the transfertax basis of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services.goodwill. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. This guidance isbecame effective for the Company on April 1, 2018 and the modified retrospective approach upon adoption is expected.2021. The implementation group for this ASU is continuing to evaluate the impact of this guidance on the consolidated financial statements and related disclosures, business processes, systems, and controls. The Company has identified certain revenue streams for which the timing of revenue recognition could be impacted by this new ASU. While the Company does not expect the adoption of this guidance to have a material impact to the consolidated financial statements, the Company does expect the adoption of this guidance to result in additional disclosures.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities. ASU 2016-01 requires equity investments (excluding equity method investments) to be measured at fair value with changes in fair value recognized in net income. This guidance is effective for the Company on April 1, 2018. The Company doesnew accounting standard did not expect the adoption of this guidance to have a material impact on the Company's financial condition, results of operations, cash flows, or disclosures.
3. Emergence from Voluntary Reorganization under Chapter 11
Bankruptcy Proceedings
On June 15, 2020, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware to implement a prepackaged Chapter 11 plan of reorganization in order to effectuate a financial restructuring of the Debtors’ debt.
Reorganization Items
Expenditures, gains, and losses that are realized or incurred by the Debtors subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as reorganization items, net in the condensed consolidated statements of operations, and include the following:
| | | | | | | | |
| Predecessor |
| Two months ended August 31, 2020 | Five months ended August 31, 2020 |
Reorganization items, net: | | |
Gain on settlement of liabilities subject to compromise | 462,304 | | 462,304 | |
Professional fees | (27,953) | | (30,526) | |
United States trustee fees | (452) | | (970) | |
Write-off of unamortized debt issuance costs and discount | (1,283) | | (5,303) | |
Issuance of exit facility shares and DIP financing fees | (188,783) | | (208,538) | |
Other debt restructuring costs | (19,442) | | (19,442) | |
Fresh start reporting adjustments | (91,541) | | (91,541) | |
| $ | 132,850 | | $ | 105,984 | |
Summary Features of the Plan of Reorganization
On the Effective Date, the Plan became effective in accordance with its consolidated financial statementsterms, and related disclosures.the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc. (“Pyxus Holdings”), which is a subsidiary of the Company. Under the Plan, all suppliers, vendors, employees, trade partners, foreign lenders, and landlords were unimpaired and were satisfied in full in the ordinary course of business, and the existing trade and customer contracts and terms of Old Pyxus were maintained by the Company and its subsidiaries. Commencing upon the Effective Date, the Company, through its subsidiaries, continued to operate in the ordinary course the business formerly operated by Old Pyxus. Old Pyxus, which retained no assets, has commenced a dissolution process and is being wound down.
Treatment of Claims and Interests
The Plan treated claims against and interest in Old Pyxus upon the effectiveness of the Plan as follows:
•Other Secured Claims (as defined in the Plan) were either (i) paid in full in cash, (ii) satisfied by delivery of collateral securing any such Claim (as defined in the Plan) and payment of any required interest, or (iii) reinstated.
•Other Priority Claims (as defined in the Plan) were paid in full in cash.
•Holders of First Lien Notes Claims (as defined in the Plan) received (i) payment in full in cash of all accrued and unpaid interest on such First Lien Notes, and (ii) the Notes (as defined below).
•Holders (as defined in the Plan) of Second Lien Notes Claims (as defined in the Plan) received, at the Holder’s election, (i) their pro rata share of the Company's common stock distributed in connection with the effectiveness of the Plan or (ii) cash equal to 2.00% of the principal amount of all Second Lien Notes beneficially owned by such Holder.
•Lenders under Foreign Credit Lines (as defined in the Plan) were paid in the ordinary course of business in accordance with the terms of the relevant agreement.
•General Unsecured Claims (as defined in the Plan) were paid in the ordinary course of business.
•The existing common stock, and rights to acquire common stock, of Old Pyxus was discharged, cancelled, released, and extinguished and of no further force or effect.
Third-Party Releases
Upon the effectiveness of the Plan, certain Holders of Claims and Interests (as such terms are defined in the Plan) with respect to the Debtors, except as otherwise specified in the Plan or Confirmation Order, were deemed to release and discharge the Released Parties (as defined in the Plan) from certain claims, obligations, rights, suits, damages, causes of action and liabilities in connection with the Chapter 11 Cases.
Transactions in Connection with Emergence
As contemplated by the Plan, certain transactions were effected on or prior to the effectiveness of the Plan, including the following:
•Three new Virginia corporations (i.e., the Company (then known as “Pyxus One, International,Inc.”), Pyxus Parent, Inc. and Subsidiaries
Pyxus Holdings) were organized.
•Pyxus Parent, Inc. issued all of its equity interests to the Company in exchange for 25,000 shares of common stock, no par value, of the Company (such common stock is referred to as “New Common Stock” and the 25,000 shares of which are referred to as the “Equity Consideration”). Pyxus Holdings then issued all of its equity interests to Pyxus Parent, Inc. in exchange for the Equity Consideration.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements Not Yet Adopted(continued)
In February 2016,•Pyxus Holdings entered into the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 requires lesseesABL Credit Agreement (as defined below) to recognize rightborrow cash under the ABL Credit Facility (as defined below) which together with cash on-hand was sufficient to fund (1) the distributions to holders of use assets and liabilities arising from leases on the balance sheet. In addition, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognitionAllowed Second Lien Notes Claims (as defined in the income statement. This guidance also requires disclosures aboutPlan) that elected to take the amount, timing,Second Lien Notes Cash Option (as defined in the Plan) and uncertainty(2) the Existing Equity Cash Pool (as defined in the Plan) (collectively such amount of cash flows arising from leases. This guidance may be adopted using a modified retrospective approach and is effective for the Company on April 1, 2020. The Company has formed a project teamreferred to evaluate and implement this guidance. The Company has elected to adopt an accounting policy, for all asset classes, to include both the lease and non-lease components as a single component and account for it as a lease. The Company has elected to utilize the transition practical expedients, as prescribed in ASC 842-10-65-1(f). The adoption of this guidance is expected to materially increase assets and liabilities on the consolidated balance sheets. The Company does not expect the adoption of this guidance to have a material impact on its existing debt covenants.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This guidance is effective for the Company on April 1, 2020. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the classification of certain cash receipts and cash payments to reduce the diversity in practice on how these activities are presented on the statement of cash flows. This guidance is effective for the Company on April 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 clarifies the presentation of restricted cash on the statement of cash flows to reduce diversity in practice on how restricted cash is presented on the statement of cash flows. This guidance is effective for the Company on April 1, 2018. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates the requirement to determine implied goodwill in measuring an impairment loss. Upon adoption, goodwill impairment will be measured as the excess“Cash Consideration”).
•Pursuant to an Asset Purchase Agreement, Old Pyxus transferred to Pyxus Holdings all of its assets (including by assuming and assigning all of Old Pyxus’ Executory Contracts and Unexpired Leases (as such terms are defined in the reporting unit’s carrying value over fair value, limitedPlan) to Pyxus Holdings in accordance with the amountPlan, other than those Executory Contracts and Unexpired Leases that were rejected) and Pyxus Holdings assumed all of goodwill. This guidance is effectiveOld Pyxus’ obligations that are not discharged under the Plan (including all of Old Pyxus’ obligations to satisfy Allowed Administrative Claims, Allowed Professional Fee Claims, Allowed Other Secured Claims, Allowed Other Priority Claims, Allowed Foreign Credit Line Claims, Allowed General Unsecured Claims, Allowed Debtor Intercompany Claims, and Allowed Debtor Intercompany Claims as set forth in the Plan (as such terms are defined in the Plan)) in exchange for (i) Pyxus Holdings transferring the CompanyEquity Consideration to Old Pyxus, (ii) Pyxus Holdings transferring the Cash Consideration to Old Pyxus, (iii) Pyxus Holdings issuing the Notes (as defined below) under the Indenture (as defined below) which, on April 1, 2020. Early adoption is permitted. The Company does not expect the adoptionbehalf of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07Old Pyxus, was issued to increase the consistency, transparency,Holders of Allowed First Lien Notes Claims (as defined in the Plan) as set forth in the Plan, and usefulness(iv) Pyxus Holdings issuing the Term Loans (as defined below) under the Term Loan Credit Facility (as defined below) which, on behalf of financial information of retirement benefits by disaggregating the service cost component from the other components of net benefit cost. This guidance is effective for the Company on April 1, 2019. Early adoption is permitted. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
In August 2017, the FASB issued ASU No. 2017-12, Derivative and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12Old Pyxus, was issued to better align riskthe holders of the DIP Facility Claims (as defined in the Plan) as set forth in the Plan. In addition to the transfer of assets to Pyxus Holdings, Pyxus Holdings made an offer of employment to all employees of Old Pyxus and management activitiesall such employees became employed by Pyxus Holdings, or a designated subsidiary, upon the effectiveness of the Plan on the same terms and conditions existing immediately prior to financial reporting for hedging relationships through changes to both the designationeffectiveness of the Plan.
•The Company and measurement guidance for qualifying hedging relationshipsPyxus Parent, Inc., along with each applicable subsidiary of the Company, guaranteed the Notes, the Term Loan Credit Facility, and the presentation of hedge results. The amendments to cash flow and net investment hedge relationships that exist on the date of adoption are applied using a modified retrospective approach. The presentation and disclosure requirements apply prospectively. This guidance is effectiveABL Credit Facility.
•Old Pyxus provided for the distribution of (i) the Notes to the Holders of Allowed First Lien Notes Claims pursuant to the Plan, (ii) approximately 12,500 shares of New Common Stock to Holders of Allowed Second Lien Notes Claims (as defined in the Plan) that elected to receive New Common Stock under the Second Lien Notes Stock Option (as defined in the Plan) pursuant to the Plan, (iii) cash to the Holders of Allowed Second Lien Notes Claims that elected to take or are deemed to elect to take the Second Lien Notes Cash Option (as defined in the Plan), (iv) cash to the Qualifying Holders (as defined in the Plan) of the common stock of Old Pyxus pursuant to the Plan, (v) the Term Loans under the Term Loan Credit Facility and approximately 11,100 shares of New Common Stock to the Holders of the DIP Facility Claims pursuant to the Plan, and (vi) approximately 1,400 shares of New Common Stock in satisfaction of the Second Lien Notes RSA Fee Shares (as defined in the Plan) and in satisfaction of the Backstop Fee Shares (as defined in the Plan) to the persons entitled thereto pursuant to the terms and conditions of the Restructuring Support Agreement, dated June 14, 2020, by and among Old Pyxus and certain of its creditors party thereto, which was filed as Exhibit 10.1 to the Current Report on Form 8-K of Old Pyxus filed on June 15, 2020.
•Old Pyxus changed its name to Old Holdco, Inc., and the Company on April 1, 2019. Early adoption is permitted. changed its name to Pyxus International, Inc.
•The Company is evaluatingelected a board of directors, initially comprising J. Pieter Sikkel, Holly Kim, and Patrick Fallon, and appointed as its officers the effect that adoptionindividuals serving as officers of this guidance will have on its consolidated financial statements and related disclosures.Old Pyxus to the same offices held immediately prior to the effectiveness of the Old Plan.
2. INCOME TAXES
Accounting for Uncertainty in Income Taxes
As of December 31, 2017, the Company’s unrecognized tax benefits totaled $8,058, all of which would impact the Company’s effective tax rate if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. as Successor Issuer
As a result of December 31, 2017, accrued interest and penalties totaled $1,815 and $939, respectively. The Company expects to continue accruing interest expense related to the unrecognized tax benefits described above. Additionally,these transactions, the Company mayis deemed to be the successor issuer to Old Pyxus under Rule 12g‑3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result, the shares of New Common Stock were deemed to be registered under Section 12(g) of the Exchange Act and the Company was thereby deemed to be subject to fluctuationsthe informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder and, in accordance therewith, is required to file reports and other information with the Securities and Exchange Commission.
ABL Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit ABL Credit Agreement (the “ABL Credit Agreement”), dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish an asset-based revolving credit facility (the “ABL Credit Facility”). A detailed description of the ABL Credit Agreement and ABL Credit Facility is included in the unrecognized tax benefit due to currency exchange rate movements.
Alliance One International, Inc. and Subsidiaries
2. INCOME TAXES (continued)
AccountingCompany's Annual Report on Form 10-K for Uncertainty in Income Taxes (continued)
During the three months ended December 31, 2017, the Company recognized a previously unrecognized tax benefit in connection with an uncertain tax position pertaining to the pricing of certain intercompany cross-border transactions. The total amount of the income tax benefit recognized in the current period totaled approximately $7,185. The Company’s change in judgment with regards to the recognition of this uncertain tax position was the result of further analysis after a recent U.S. Tax Court decision which provided favorable precedent to support the recognition of the tax benefit associated with the Company’s position.
The Company does not currently foresee any changes in the amount of its unrecognized tax benefits in the next twelve months but acknowledges circumstances can change due to unexpected developments in the law. In certain jurisdictions, tax authorities have challenged positions that the Company has taken that resulted in recognizing benefits that are material to its financial statements. The Company believes it is more likely than not that it will prevail in these situations and accordingly has not recorded liabilities for these positions. The Company expects the challenged positions to be settled at a time greater than twelve months from its balance sheet date.
The Company and its subsidiaries file a U.S. federal consolidated income tax return as well as returns in several U.S. states and a number of foreign jurisdictions. As of December 31, 2017, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31,
2015; however,2021. See "Note 16. Debt Arrangements" for additional information with respect to the ABL Credit Agreement and the ABL Credit Facility.
Term Loan Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit Term Loan Credit Agreement (the “Term Loan Credit Agreement”), dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Alter Domus (US) LLC, as administrative agent and collateral agent to establish a term loan credit facility in an aggregate principal amount of approximately $213,400 (the “Term Loan Credit Facility”). A detailed description of the Term Loan Credit Agreement and Term Loan Credit Facility is included in the Company's net operating loss carryovers from prior periods remain subjectAnnual Report on Form 10-K for the fiscal year ended March 31, 2021. See "Note 16. Debt Arrangements"for additional information with respect to adjustment. Open tax yearsthe Term Loan Credit Agreement and the Term Loan Credit Facility.
Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280,800 in stateaggregate principal amount of its 10.00% Senior Secured First Lien Notes due 2024 (the “Notes”) to holders of Allowed First Lien Notes Claims (as defined in the Plan) pursuant to an Indenture (the “Indenture”) dated as of the Effective Date among Pyxus Holdings, the initial guarantors party thereto, and foreign jurisdictions generally range from threeWilmington Trust, National Association, as trustee, and collateral agent. A detailed description of the Notes and the Indenture is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021. See "Note 16. Debt Arrangements" for additional information with respect to six years.the Notes and the Indenture.
Enactment of Tax Cuts and Jobs Act (“Tax Act”)Shareholders Agreement
On December 22, 2017,August 24, 2020, the Tax CutsCompany entered into a Shareholders Agreement (the “Shareholders Agreement”), among the Company and Jobs Act of 2017 (“Tax Act”) was enacted. In response, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which allows issuers to recognize provisional estimatesinvestors listed therein, each other beneficial owner of the impactCompany's common stock as of the Tax Act in their financial statements, or in circumstances where estimates cannotdate of the Shareholder Agreement deemed to be made,a party thereto pursuant to disclosethe Plan and recognize at a later date.other persons that may from time to time become parties thereto (collectively, the “Investors”). The Shareholders Agreement provides that each of Glendon Capital Management,
L.P. (together with its affiliates, the “Glendon Investor”) and Monarch Alternative Capital LP (together with its affiliates, the “Monarch Investor”) shall be entitled to nominate 2 individuals to serve on the 7-member board of December 31, 2017,directors of the Company has not completed its accounting related to the enactmentso long as it beneficially owns at least 20% of the Tax Act but has determined that reasonable estimates can be made for the impactoutstanding shares of the U.S. statutory rate change on its U.S. deferred tax assets and liabilities, the impactCompany's common stock, or 1 individual to serve as such a director if it beneficially owns fewer than 20% of the law change on its assessmentoutstanding shares but at least 10% of the realizabilityoutstanding shares. The Shareholders Agreement provides that the Investors shall take all necessary action to elect such nominees of each of the U.S. deferred tax assets,Glendon Investor and the impact of the so-called transition tax on its tax payable position. The discrete net tax effects of the aforementioned items resulted in a one-time benefit of $59,431; consisting of a valuation allowance release on remeasured net deferred tax assets in the U.S. and other effects of tax reform totaling a net tax benefit of $92,606, partially offset by the transition tax expense net of foreign tax credits of $33,175.
In reaching these estimates, the Company utilized all available instructional guidance to the Tax Act issued by the regulatory bodies in the U.S., including the U.S. Department of the Treasury, prior to February 8, 2018. However, these estimates are not capable of finalization given the lack of regulatory guidance in many areas,Monarch Investor as directors, as well as the complexity in acquiringelection of the data required to calculate the impact on its tax accounts. The Company will revise and conclude its accounting as and when additional information is obtained, which in many cases is contingent on the timingchief executive officer of issuance of regulatory guidance.
For these reasons, the ultimate impact may differ from these provisional amounts due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made,as a director and changes based on additional regulatory guidanceother individuals qualifying as independent directors to be selected by Investors that maybeneficially own 5% or more of the outstanding shares of common stock of the Company, as determined by a majority of the shares of the Company's common stock beneficially owned by such Investors. The Shareholders Agreement provides that the chairperson of the board of directors of the Company is to be issued. Acknowledging this uncertainty, accountingelected by a majority of the directors that had been nominated by the Glendon Investor (the “Glendon Directors”) and those that had been nominated by the Monarch Investor (the “Monarch Directors”), with the chairperson of such board to be elected by the board of directors of the Company if the Glendon Directors and Monarch Directors are together fewer than three in number or fail to appoint a chairperson. The Shareholders Agreement also includes provisions for the impactsremoval and replacement of the Tax Act is expected to be completed withinGlendon Directors at the next twelve months. Any future adjustments made torequest of the provisional effects will be reportedGlendon Investor and the removal and replacement of the Monarch Directors at the request of the Monarch Director, as a component of income tax expense from continuing operations in the reporting period in which any such adjustments are determined.
The Company continues to analyze the impact ofwell as provisions which will be effective in future years. Relevant to the current financial statements, the Company's selection of an accounting policy with respect to the calling and quorum of meetings of the board of directors of the Company, membership of committees of the board of directors of the Company, and compensation and insurance of members of the board of directors of the Company.
The Shareholders Agreement also provides for tag-along rights for Investors beneficially owning 1% or more of the outstanding shares of the Company's common stock (the “1% Investors”) upon the transfer by an Investor or group of Investors of 20% or more of the outstanding shares of the Company's common stock, drag-along rights upon the transfer of shares by an Investor or group of Investors of 50% or more of the outstanding shares of the Company's common stock, rights of first offer with respect to the transfer by an Investor, subject to certain exceptions, of 1% or more of the outstanding shares of the Company common stock, pre-emptive rights to the 1% Investors upon issuance of new Global Intangible Low-Taxed Income (“GILTI”securities by the Company, and demand and piggyback registration rights.
The Shareholders Agreement includes the agreement of the Investors not to transfer shares of common stock of the Company (i) in violation of federal and state securities laws, (ii) in a transfer that would cause the Company to be regarded as an “investment company” under the Investment Company Act of 1940, as amended, (iii) in a transfer, at any time that the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, that would cause the number of holders of the Company's common stock to exceed specified thresholds, or (iv) in a transfer that is, to the knowledge of the transferor after reasonable inquiry, (A) to any specified competitor of the Company (B) or to a person that would become either a beneficial owner of 5% of the outstanding common stock of the Company or a “5-percent shareholder” within the meaning of Section 382 of the Internal Revenue Code and the regulations promulgated thereunder (collectively, a “5% Holder”) tax rules will depend,. The Shareholders Agreement provides that the board of directors may waive these restrictions, provided that any waiver of the restriction with respect to a person that would become a 5% Holder upon such transfer may be waived only if the transferee enters into a joinder agreeing to be bound by the Shareholders Agreement.
4. Fresh Start Reporting
In connection with the emergence from Chapter 11 Cases, the Company qualified for fresh start reporting as (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor Company and (ii) the preliminary reorganization value of the Company's assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. In accordance with ASC 852, with the application of fresh start reporting, the Company allocated the preliminary reorganization value to its individual assets and liabilities based on their estimated fair values. The Effective Date estimated fair values of certain of the Company's assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets.
Reorganization Value
The reorganization value represents the fair value of the Company’s total assets before considering liabilities and is intended to approximate the amount a willing buyer would pay for the Company’s assets immediately after restructuring. The reorganization value was derived from the enterprise value, which represents the estimated fair value of an entity’s long-term debt and equity. As set forth in the Plan, the enterprise value (excluding cash) of the Company was estimated to be in the range of $1,251,000 to $1,524,000 with a midpoint of $1,388,000. The Company estimated its enterprise value to be $1,252,379, which is near the low point of the range. The Company believes utilizing an estimated enterprise value near the low point of the range is appropriate due to the identification of Level 1 trading activity that indicated the estimated enterprise value was near the low point of the range, the Company's performance lagging behind plan (due in part to the continued impact of the COVID-19 pandemic), and the utilization of an increased discount rate for the Other Products and Services long-term projections.
The estimated enterprise value is not necessarily indicative of actual value or financial results. Changes in the economy or the financial markets could result in a different estimated enterprise value. The calculated enterprise value relies on analyzing its foreign incomethe three methodologies listed below collectively. The actual value of the business is subject to determine whether it expectscertain uncertainties and contingencies that are difficult to havepredict and will fluctuate with changes in various factors affecting the financial conditions and prospects of the business.
The following reconciles the estimated enterprise value to the estimated fair value of the Successor common stock as of the Fresh Start Reporting Date:
| | | | | |
Enterprise value, excluding cash | $ | 1,252,379 | |
Plus: cash, cash equivalents, and restricted cash | 117,587 | |
Less: fair value of debt | (974,205) | |
Fair value of Successor stockholders’ equity | $ | 395,761 | |
Shares issued upon emergence | 25,000 | |
Per share value | $ | 15.83 | |
The following reconciles estimated enterprise value to the reorganization value of the Successor assets to be allocated to individual assets as of the Fresh Start Reporting Date:
| | | | | |
Enterprise value, excluding cash | $ | 1,252,379 | |
Plus: cash, cash equivalents, and restricted cash | 117,587 | |
Plus: working capital liabilities | 170,905 | |
Plus: other operating liabilities | 54,700 | |
Plus: non-operating liabilities | 113,954 | |
Reorganization value of Successor assets | $ | 1,709,525 | |
With the assistance of financial advisors, the Company determined the estimated enterprise value and the corresponding estimated equity value of the Successor by considering various valuation methods, including (i) discounted cash flow method, (ii) guideline public company method, and (iii) selected transaction analysis method.
In order to estimate the enterprise value using the discounted cash flow analysis approach, the Company’s estimated future U.S. taxable income inclusionscash flow projections through 2024, plus a terminal value calculated using a capitalization rate applied to normalized cash flows were discounted to an assumed present value using our estimated weighted average cost of capital (12%), which represents the internal rate of return.
The identified intangible assets of $70,999, which principally consisted of trade names, technology, licenses, and customer relationships, were also valued with the assistance of financial advisors and were estimated based on either the relief-from-royalty or multi-period excess earnings methods. Significant assumptions included discount rates and certain assumptions that form the basis of the forecasted results such as revenue growth rates, margins, customer attrition, and royalty rates. Some of these estimates are inherently uncertain and may be affected by future economic and market conditions.
Condensed Consolidated Balance Sheet
The adjustments set forth in the following condensed consolidated balance sheet as of August 31, 2020 reflect the effects of the transactions contemplated by the Plan and executed on the Fresh Start Reporting Date (reflected in the column entitled “Reorganization Adjustments”) as well as the fair value and other required accounting adjustments resulting from the adoption of fresh start reporting (reflected in the column entitled “Fresh Start Reporting Adjustments”). Pre-petition liabilities that were allowed as claims in the Chapter 11 Cases are classified as liabilities subject to compromise within the condensed consolidated balance sheet.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | As of August 31, 2020 |
| | | Fresh Start Reporting Adjustments | | |
Predecessor | Reorganization Adjustments | | As Reported at September 30, 2020 | As Adjusted at December 31, 2020 | | Successor |
Assets | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | $ | 111,427 | | $ | (18,289) | | (1) | $ | — | | $ | — | | | $ | 93,138 | |
Restricted cash | 2,949 | | 21,500 | | (2) | — | | — | | | 24,449 | |
Trade receivables, net | 152,309 | | — | | | — | | — | | | 152,309 | |
Other receivables | 13,227 | | — | | | — | | — | | | 13,227 | |
Accounts receivable, related parties | 2,780 | | — | | | — | | — | | | 2,780 | |
| | | | | | | |
Inventories, net | 861,851 | | — | | | — | | — | | | 861,851 | |
Advances to tobacco suppliers, net | 44,061 | | — | | | — | | — | | | 44,061 | |
Recoverable income taxes | 5,830 | | — | | | — | | — | | | 5,830 | |
Prepaid expenses | 34,350 | | — | | | — | | — | | | 34,350 | |
Other current assets | 15,059 | | — | | | — | | — | | | 15,059 | |
Total current assets | 1,243,843 | | 3,211 | | | — | | — | | | 1,247,054 | |
Restricted cash | 389 | | — | | | — | | — | | | 389 | |
| | | | | | | |
Investments in unconsolidated affiliates | 54,460 | | — | | | 13,291 | | 30,531 | | (13) | | 84,991 | |
Goodwill | 6,120 | | — | | | 48,756 | | 31,815 | | (14) | | 37,935 | |
Other intangible assets, net | 64,924 | | — | | | 1,596 | | 6,075 | | (15) | | 70,999 | |
Deferred income taxes, net | 125 | | — | | | 9,638 | | 7,484 | | (16) | | 7,609 | |
Long-term recoverable income taxes | 3,130 | | — | | | — | | — | | | 3,130 | |
| | | | | | | |
Other noncurrent assets | 45,821 | | 3,139 | | (3) | (310) | | (310) | | (17) | | 48,650 | |
Right-of-use assets | 39,576 | | — | | | (4,281) | | (4,281) | | (18) | | 35,295 | |
Property, plant, and equipment, net | 299,293 | | — | | | (124,965) | | (125,820) | | (19) | | 173,473 | |
Total assets | $ | 1,757,681 | | $ | 6,350 | | | $ | (56,275) | | $ | (54,506) | | | $ | 1,709,525 | |
| | | | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities | | | | | | | |
Notes payable to banks | $ | 461,783 | | $ | — | | | $ | — | | $ | — | | | $ | 461,783 | |
DIP financing | 206,700 | | (206,700) | | (4) | | — | | — | | | — | |
Accounts payable | 58,813 | | 334 | | (5) | | 25 | | 25 | | | 59,172 | |
Accounts payable, related parties | 26,125 | | — | | | — | | — | | | 26,125 | |
Advances from customers | 23,967 | | — | | | — | | — | | | 23,967 | |
| | | | | | | |
Accrued expenses and other current liabilities | 113,118 | | (31,853) | | (6) | | (1,792) | | (1,792) | | (20) | | 79,473 | |
Income taxes payable | 8,319 | | — | | | — | | — | | | 8,319 | |
Operating leases payable | 11,083 | | — | | | (992) | | (992) | | (21) | | 10,091 | |
Current portion of long-term debt | 90 | | — | | | — | | — | | | 90 | |
Total current liabilities | 909,998 | | (238,219) | | | (2,759) | | (2,759) | | | 669,020 | |
Long-term taxes payable | 7,623 | | — | | | — | | — | | | 7,623 | |
Long-term debt | 277,090 | | 250,546 | | (7) | | (15,304) | | (15,304) | | (22) | | 512,332 | |
Deferred income taxes | 20,749 | | 91 | | (8) | | (10,070) | | (7,742) | | (23) | | 13,098 | |
Liability for unrecognized tax benefits | 13,420 | | — | | | — | | — | | | 13,420 | |
Long-term leases | 25,728 | | — | | | (2,263) | | (2,263) | | (21) | | 23,465 | |
Pension, postretirement, and other long-term liabilities | 71,898 | | — | | | 3,467 | | 3,467 | | (24) | | 75,365 | |
Total liabilities not subject to compromise | 1,326,506 | | 12,418 | | | (26,929) | | (24,601) | | | 1,314,323 | |
Liabilities subject to compromise | | | | | | | |
Debt subject to compromise | 635,686 | | (635,686) | | (9) | | — | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued interest on debt subject to compromise | 26,156 | | (26,156) | | (9) | | — | | — | | | — | |
Total liabilities subject to compromise | 661,842 | | (661,842) | | | — | | — | | | — | |
Total liabilities | 1,988,348 | | (649,424) | | | (26,929) | | (24,601) | | | 1,314,323 | |
| | | | | | | |
Stockholders’ equity | | | | | | | |
Common Stock—no par value: | | | | | | | |
Predecessor common stock (shares) | 9,976 | | (9,976) | | | — | | — | | | — | |
Successor common stock (shares) | — | | 25,000 | | | — | | — | | | 25,000 | |
Predecessor additional paid-in capital | 468,147 | | (468,147) | | (10) | | — | | — | | | — | |
Successor additional paid-in capital | — | | 391,402 | | (11) | | — | | (313) | | | 391,089 | |
Retained deficit | (644,250) | | 728,160 | | (12) | | (83,910) | | (83,910) | | (25) | | — | |
Accumulated other comprehensive loss | (54,484) | | — | | | 54,484 | | 54,484 | | (26) | | — | |
Total stockholders’ equity (deficit) of Pyxus International, Inc. | (230,587) | | 651,415 | | | (29,426) | | (29,739) | | | 391,089 | |
Noncontrolling interests | (80) | | 4,359 | | | 80 | | (166) | | | 4,113 | |
Total stockholders’ equity (deficit) | (230,667) | | 655,774 | | | (29,346) | | (29,905) | | | 395,202 | |
Total liabilities and stockholders’ equity | $ | 1,757,681 | | $ | 6,350 | | | $ | (56,275) | | $ | (54,506) | | | $ | 1,709,525 | |
(1) The following summarizes the change in cash and cash equivalents:
| | | | | |
Proceeds from ABL Credit Facility, net of debt issuance costs | $ | 26,861 | |
Repayment of DIP Facility | (213,418) | |
Proceeds from Term Loan Credit Facility | 213,418 | |
Proceeds from 10.0% first lien notes | 280,844 | |
Repayment of 8.5% first lien notes | (280,844) | |
Payment to fund professional fee escrow account | (21,500) | |
Payment of other professional and administrative fees | (11,828) | |
Payment of accrued interest on DIP Facility | (494) | |
Payment to holders of Predecessor second lien notes that elected the cash option | (1,199) | |
Payment to holders of Predecessor common stock | (1,000) | |
Payment of accrued interest on prepetition Predecessor first lien notes | (9,129) | |
| $ | (18,289) | |
(2) Represents the funding of an escrow account for professional fees associated with the Chapter 11 Cases.
(3) Represents the capitalization of debt issuance costs related to GILTI and, if so, what the impact is expected to be. The Company is currently inABL Credit Facility.
(4) Represents the process of analyzing its structure in lightconversion of the Tax ActDIP Facility that was exchanged for the Term Loans, and accordingly reclassified to long-term debt.
(5) Reflects the recognition of payables for professional fees to be paid subsequent to the Company's emergence from Chapter 11 Cases.
(6) The following summarizes the net change in accrued expenses and other current liabilities:
| | | | | |
Payment of accrued interest on the DIP Facility | $ | (494) | |
Payment of accrued interest on the Predecessor first lien notes | (9,129) | |
Settlement of accrued backstop fee through the issuance of common stock | (18,000) | |
Reclassification of DIP Facility exit fee to long-term debt | (6,718) | |
Recognition of accrued interest from the Effective Date to the Convenience Date | 1,044 | |
Accrual for professional fees | 1,444 | |
| $ | (31,853) | |
(7) The following summarizes the changes in long-term debt:
| | | | | |
Draw on the ABL Credit Facility | $ | 30,000 | |
Issuance of the Term Loans (1) | 213,418 | |
Conversion of redemption fee on Predecessor first lien notes to Successor Notes | 5,843 | |
Derecognition of the original issue discount and the debt issuance costs on Predecessor first lien notes | 1,285 | |
| $ | 250,546 | |
(1) Includes $6,718 related to the DIP Facility exit fee | |
(8) Represents the recognition of deferred tax liabilities as a result has not yet made a policy decision regarding whetherof the cumulative tax impact of the reorganization adjustments herein.
(9) Represents the settlement of liabilities subject to record deferred taxescompromise in accordance with the GILTI provisions.Plan, which resulted in a gain on the discharge of the Predecessor second lien notes as follows:
| | | | | |
Debt subject to compromise | $ | 635,686 | |
Accrued interest on debt subject to compromise | 26,156 | |
Total second lien notes discharged | 661,842 | |
Payment to holders of second lien notes electing cash option | (1,199) | |
Value of common stock issued to holders of second lien notes | (198,339) | |
Gain on discharge of second lien notes | $ | 462,304 | |
(10) Represents the cancellation of Predecessor common stock.
(11) The changes in Successor additional paid-in capital were as follows:
| | | | | |
Value of Successor common stock, second lien notes | $ | 198,339 | |
Value of Successor common stock, other | 193,063 | |
| $ | 391,402 | |
(12) Represents $260,013 of cumulative impact to Predecessor retained deficit as a result of the reorganization adjustments described above and $468,147 for the elimination of Predecessor common stock.
(13) Represents fair value adjustments to the Company's equity method investments.
(14) Represents reorganization value in excess of value allocable to tangible and intangible assets.
(15) Represents the fair value adjustments to recognize the customer relationships, licenses, technology (inclusive of patents and know how), trade names, and internally developed software intangible assets.
(16) Represents the recognition of deferred tax assets as a result of the cumulative tax impact of the fresh start adjustments herein.
(17) Represents an adjustment to pension assets of ($352), partially offset by other adjustments of $42.
(18) Represents the fair value adjustments to right-of-use lease assets.
(19) Represents the following fair value adjustments to property, plant, and equipment, net:
| | | | | | | | | | | |
| Predecessor Historical Value | Fair Value Adjustment | Successor Fair Value |
Land | $ | 33,562 | | $ | (104) | | $ | 33,458 | |
Buildings | 259,255 | | (195,797) | | 63,458 | |
Machinery and equipment | 198,708 | | (122,151) | | 76,557 | |
Total | 491,525 | | (318,052) | | 173,473 | |
Less: Accumulated Depreciation | (192,232) | | 192,232 | | — | |
Total property, plant, and equipment, net | $ | 299,293 | | $ | (125,820) | | $ | 173,473 | |
(20) Represents the revaluation of the current pension liability of ($1,800), partially offset by an adjustment to financing leases of $8.
(21) Represents the Company's recalculation of lease obligations using a higher incremental borrowing rate applicable upon emergence from Chapter 11 Cases and commensurate with the new capital structure.
(22) Represents the fair value adjustment to the first lien notes.
(23) Represents the adjustment of deferred tax liabilities as a result of the cumulative tax impact of the fresh start valuation adjustments herein.
(24) Represents the recalculation of the present value of the Company's pension liability.
(25) Represents the cumulative impact of the remeasurement of assets and liabilities from fresh start reporting, $7,631 of tax effect of reorganization items, and the elimination of Predecessor's accumulated other comprehensive losses for the five months ended August 31, 2020.
(26) Represents the derecognition of accumulated other comprehensive loss as a result of reorganization pension adjustments, and the elimination of Predecessor's foreign currency translation adjustments.
5. CCAA Proceeding and Deconsolidation of Subsidiaries
On January 21, 2021, Figr Norfolk Inc. (“Figr Norfolk”) and Figr Brands, Inc. (“Figr Brands”), which are indirect subsidiaries of the Company, and Canada’s Island Garden Inc. (“Figr East,” and together with Figr Norfolk and Figr Brands, the “Canadian Cannabis Subsidiaries”), which, prior to its sale on June 28, 2021 was an indirect subsidiary of the Company, applied for relief from their respective creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court of Justice (Commercial List) (the “Canadian Court”) in Ontario, Canada as Court File No. CV-21-00655373-00CL (the “CCAA Proceeding”). On January 21, 2021 (the “Order Date”), upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the “Monitor”).
The Company has historically accrued U.S. deferred taxesorder issued by the Canadian Court in connection withthe CCAA Proceeding on the Order Date included the following relief:
•approval for the Canadian Cannabis Subsidiaries to borrow under a debtor-in-possession financing facility (the “Canadian DIP Facility”) from another non-U.S. subsidiary of Pyxus (the "DIP Lender") in an initial amount of up to Cdn.$8,000, which following approval by the Canadian Court was increased to Cdn.$16,000;
•a stay of proceedings in respect of the Canadian Cannabis Subsidiaries and the directors and officers of the Canadian Cannabis Subsidiaries (the “Canadian Directors and Officers”) and the Monitor; and
•the granting of super priority charges against the property of the Canadian Cannabis Subsidiaries in favor of: (a) certain foreign earnings which were not consideredadministrative professionals; (b) the Canadian Directors and Officers; and (c) the DIP Lender for amounts borrowed under the Canadian DIP Facility.
On January 29, 2021, the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be permanently reinvested as these earnings were expectedconducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries.
On May 10, 2021, a definitive agreement for the sale of the assets of Figr Norfolk was entered into for a purchase price of Cdn.$5,000. On June 10, 2021, the Canadian Court approved the sale agreement. The consummation of the sale under this agreement is subject to approval of the buyers by Health Canada and the satisfaction of certain other conditions.
On May 25, 2021, a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an aggregate purchase price of Cdn.$24,750. On June 10, 2021, the Canadian Court approved the sale agreement. On June 25, 2021, Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands. The sale of Figr East and certain intangible assets of Figr Brands was completed on June 28, 2021.
As discussed below, the amount of recovery that the Company may receive from the pending sale of the assets of Figr Norfolk, the completed sale of the outstanding equity of Figr East, and the completed sale of certain intangible assets of Figr Brands will be impacted by the amount of claims against the Canadian Cannabis Subsidiaries submitted in the CCAA Proceeding, the extent to which such claims are approved by the Canadian Court, and the extent to which the Company's interest in the Canadian Cannabis Subsidiaries are determined by the Canadian Court to be distributeddebt claims entitled to recovery on the same basis as other unsecured creditor claims with respect to the U.S. However,Canadian Cannabis Subsidiaries.
Canadian DIP Financing
Pursuant to the so-called transition tax,Canadian DIP Facility, the DIP Lender provided Figr Brands with secured debtor-in-possession financing to permit Figr Brands, the parent entity of Figr East and Figr Norfolk, to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses to be paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as describedmay be agreed to by the DIP Lender. On July 8, 2021, the loans under the Tax Act, hasCanadian DIP Facility were fully repaid to the DIP Lender.
Deconsolidation of Subsidiaries
While the Canadian Cannabis Subsidiaries were at the time of the commencement of the CCAA Proceedings majority owned by the Company, the administration of the CCAA Proceeding, including the Canadian Court’s appointment of the Monitor and the related authority of the Monitor, including approval rights with respect to significant actions of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding, resulted in immediatethe Company losing control (in accordance with U.S. taxationGAAP) of our previously untaxed foreign earningsthe Canadian Cannabis Subsidiaries at that time, and the deconsolidation of the Canadian Cannabis Subsidiaries’ assets and liabilities and elimination of their equity components from the Company’s consolidated financial statements as of DecemberJanuary 21, 2021. The Canadian Cannabis Subsidiaries’ financial results are included in the Company’s consolidated results through January 20, 2021, which is the day prior to the Order Date. Prior to the deconsolidation of the Canadian Cannabis Subsidiaries, they comprised an operating segment within the Other Products and Services reportable segment. Upon deconsolidation, the Company accounts for its investment in the Canadian Cannabis Subsidiaries using the cost method of accounting.
Prior to the deconsolidation, the carrying value of the Company's related party note receivable from the Canadian Cannabis Subsidiaries was $153,860. The Company fully impaired its equity investment in the Canadian Cannabis Subsidiaries, effective as of the Order Date, based on the Canadian Cannabis Subsidiaries carrying a retained deficit of $77,518 and based on offers the Company received to buy the Canadian Cannabis Subsidiaries or certain assets and the allocation of consideration among the assets to be sold, as reflected in the sales agreements approved by the Canadian Court. Following consummation of the contemplated sales of the Canadian Cannabis Subsidiaries, and after repayment of the Canadian DIP Facility and satisfaction of administrative expenses from the CCAA Proceeding, the Company estimated recovering aggregate net cash consideration of $6,100, which represents the fair value of the related party note receivable retained by the Company as of March 31, 2017.2021. As a result, the Company has reversedrecorded a net loss of $70,242 for the U.S. deferred taxes previously recognizedyear ended March 31, 2021 associated with the deconsolidation of the Canadian Cannabis Subsidiaries.
As of September 30, 2021, the Company's adjusted fair value estimate of the related party note receivable was $3,519, which resulted in a loss on those foreign earnings that were not considered to be permanently reinvested. No additional income taxes have been provided in connection with any remaining untaxed foreign earnings or any additional outside basis differencethe deconsolidation of the Canadian Cannabis Subsidiaries of $2,456 recorded within the condensed consolidated statements of operations for the three and six months ended September 30, 2021. The amount of recovery with respect to our investmentsthe related party note receivable is dependent on the actual amount of administrative claims in our foreign subsidiariesthe CCAA Proceeding, the amount of claims of unsecured creditors against the Canadian Cannabis Subsidiaries submitted in the CCAA Proceeding, the extent to which such claims are approved by the Canadian Court, and the extent to which the Company’s interest in the Canadian Cannabis Subsidiaries are determined by the Canadian Court to be debt claims entitled to recovery on the same basis as other unsecured creditor claims with respect to the Canadian Cannabis Subsidiaries, all of which matters are presently uncertain. In the event the Company's interests are not treated as debt claims by the Canadian Court, the Company assesses whether these investments continuemay be unable to be indefinitely reinvestedrecover a substantial portion or all of the estimated fair value of the related-party note receivable and may incur additional impairment with respect thereto.
Related Party Relationship
The commencement of the CCAA Proceeding, the appointment of the Monitor, and the subsequent deconsolidation of the Canadian Cannabis Subsidiaries results in our foreign operations, excepttransactions with the Canadian Cannabis Subsidiaries no longer being eliminated in consolidation. As such, transactions between the Company and the Canadian Cannabis Subsidiaries, during their respective period of ownership by the Company, are treated as related-party transactions. See "Note 23. Related Party Transactions" for certain taxable basis differences in foreign equity investees.
transactions between the Company and the Canadian Cannabis Subsidiaries.
Alliance One International, Inc.-23-
6. Revenue Recognition
Product revenue is primarily processed tobacco sold to the customer. Processing and Subsidiariesother revenues are mainly contracts to process customer-owned green tobacco. During processing, ownership remains with the customers. For the period ended September 30, 2020, the other products and services revenue was primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue. For the period ended September 30, 2021, the other products and services revenue was primarily composed of e-liquids product revenue. The following disaggregates sales and other operating revenues by major source:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
| | | |
Leaf - North America: | | | |
Product revenue | $ | 83,726 | | $ | 17,105 | | $ | 25,293 | |
Processing and other revenues | 6,795 | | 2,872 | | 2,544 | |
Total sales and other operating revenues | 90,521 | | 19,977 | | 27,837 | |
| | | |
Leaf - Other Regions: | | | |
Product revenue | 273,990 | | 89,409 | | 137,546 | |
Processing and other revenues | 26,444 | | 7,579 | | 15,212 | |
Total sales and other operating revenues | 300,434 | | 96,988 | | 152,758 | |
| | | |
Other Products and Services: | | | |
Total sales and other operating revenues | 3,246 | | 869 | | 4,196 | |
| | | |
Total sales and other operating revenues | $ | 394,201 | | $ | 117,834 | | $ | 184,791 | |
| | | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
| | | |
Leaf - North America: | | | |
Product revenue | $ | 130,010 | | $ | 17,105 | | $ | 51,211 | |
Processing and other revenues | 10,279 | | 2,872 | | 6,523 | |
Total sales and other operating revenues | 140,289 | | 19,977 | | 57,734 | |
| | | |
Leaf - Other Regions: | | | |
Product revenue | 539,447 | | 89,409 | | 355,902 | |
Processing and other revenues | 41,077 | | 7,579 | | 24,595 | |
Total sales and other operating revenues | 580,524 | | 96,988 | | 380,497 | |
| | | |
Other Products and Services: | | | |
Total sales and other operating revenues | 6,678 | | 869 | | 9,369 | |
| | | |
Total sales and other operating revenues | $ | 727,491 | | $ | 117,834 | | $ | 447,600 | |
| | | |
The following summarizes activity in the allowance for expected credit losses:
2. INCOME TAXES (continued)
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
| | | |
Balance, beginning of period | $ | (21,133) | | $ | (15,361) | | $ | (14,985) | |
Additions | (2,508) | | — | | — | |
Write-offs | — | | 270 | | (376) | |
Balance, end of period | (23,641) | | (15,091) | | (15,361) | |
Trade receivables | 228,568 | | 170,622 | | 167,670 | |
Trade receivables, net | $ | 204,927 | | $ | 155,531 | | $ | 152,309 | |
Provision
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
| | | |
Balance, beginning of period | $ | (20,900) | | $ | (15,361) | | $ | (15,893) | |
Additions | (2,888) | | — | | — | |
Write-offs | 147 | | 270 | | 532 | |
Balance, end of period | (23,641) | | (15,091) | | (15,361) | |
Trade receivables | 228,568 | | 170,622 | | 167,670 | |
Trade receivables, net | $ | 204,927 | | $ | 155,531 | | $ | 152,309 | |
7. Restructuring and Asset Impairment Charges
The Company continued its focus on cost saving initiatives. The employee separation and impairment charges are primarily related to the write-off of the Company's remaining industrial hemp cannabidiol ("CBD") extraction equipment and the continued restructuring of certain leaf operations. The following summarizes the Company's restructuring and asset impairment charges:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Employee separation charges | $ | 1,256 | | $ | 922 | | $ | 313 | |
Asset impairment and other non-cash charges | 5,603 | | 295 | | 180 | |
Restructuring and asset impairment charges | $ | 6,859 | | $ | 1,217 | | $ | 493 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Employee separation charges | $ | 1,403 | | $ | 922 | | $ | 353 | |
Asset impairment and other non-cash charges | 5,689 | | 295 | | 213 | |
Restructuring and asset impairment charges | $ | 7,092 | | $ | 1,217 | | $ | 566 | |
The following summarizes the activity in the restructuring accrual for employee separation and other cash charges by reportable segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
| Other Products and Services | Leaf - North America | Leaf - Other Regions | Leaf - North America | Leaf - Other Regions | Leaf - North America | Leaf - Other Regions |
Beginning balance | $ | 1,902 | | $ | 689 | | $ | 659 | | $ | 312 | | $ | 255 | | $ | — | | $ | 321 | |
Period charges | 7 | | 215 | | 1,034 | | 922 | | — | | 312 | | — | |
Payments | (197) | | (407) | | (1,597) | | (60) | | (26) | | — | | (66) | |
Ending balance | $ | 1,712 | | $ | 497 | | $ | 96 | | $ | 1,174 | | $ | 229 | | $ | 312 | | $ | 255 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
| Other Products and Services | Leaf - North America | Leaf - Other Regions | Leaf - North America | Leaf - Other Regions | Leaf - North America | Leaf - Other Regions |
Beginning balance | $ | 2,141 | | $ | 1,406 | | $ | 1,063 | | $ | 312 | | $ | 255 | | $ | — | | $ | 407 | |
Period charges | 21 | | 215 | | 1,167 | | 922 | | — | | 312 | | 40 | |
Payments | (450) | | (1,124) | | (2,134) | | (60) | | (26) | | — | | (192) | |
Ending balance | $ | 1,712 | | $ | 497 | | $ | 96 | | $ | 1,174 | | $ | 229 | | $ | 312 | | $ | 255 | |
The following summarizes the Nine Months Ended December 31, 2017asset impairment and other non-cash charges by reportable segment:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Leaf - North America | $ | — | | $ | — | | $ | (8) | |
Leaf - Other Regions | (21) | | 295 | | 188 | |
Other Products and Services | 5,624 | | — | | — | |
Total | $ | 5,603 | | $ | 295 | | $ | 180 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Leaf - North America | $ | — | | $ | — | | $ | 17 | |
Leaf - Other Regions | 65 | | 295 | | 196 | |
Other Products and Services | 5,624 | | — | | — | |
Total | $ | 5,689 | | $ | 295 | | $ | 213 | |
8. Income Taxes
The effective tax rate used for the ninesix months ended December 31, 2017 was 396.4% compared to (49.2)% forSeptember 30, 2021, the nineone month ended September 30, 2020, and the five months ended DecemberAugust 31, 2016. The2020 was 51.2%, 63.7%, and 1.8%, respectively. For the six months ended September 30, 2021, the one month ended September 30, 2020, and the five months ended August 31, 2020, the difference between the Company’s effective tax rates for these periods are based on the current estimate of full year results including the effect of taxes related to discrete events which are recorded in the interim period in which they occur. The primary difference in the effective tax rate this year compared to last year is due to the impact of the Tax Act, which included the direct impact of the transition tax expense as well as the indirect benefit associated with the release ofand the U.S. federal valuation allowance that was previously recorded against our U.S. federal deferred tax assets.
For the nine months ended December 31, 2017, the Company recorded the net tax effectsstatutory rate of certain discrete events, including the changes in U.S. tax law resulting from the Tax Act, which resulted in an income tax benefit of $56,086, bringing the effective tax rate estimated for the nine months of 60.7% to 396.4%. This discrete income tax benefit relates primarily to the impact of U.S. tax reform which resulted in a net benefit due to the release of the valuation allowance which was partially offset by the transition tax. For the nine months ended December 31, 2016, the Company recorded the tax effects of a discrete event resulting in additional income tax expense of $6,821, bringing the effective tax rate estimated for the nine months of (33.0)% to (49.2)%. This discrete income tax expense relates primarily to net exchange losses on income tax accounts, net exchange losses related to liabilities for unrecognized tax benefits, and the release of uncertain tax positions. The significant difference in the estimated effective tax rate for the nine months ended December 31, 2017 from the U.S. federal statutory rate21% is primarily due to the impact of net foreign exchange effects, non-deductible interest, and variations in the Tax Act.expected jurisdictional mix of earnings. The change in the effective rate for the six months ended September 30, 2021 was primarily due to improved operational results and changes in the U.S. tax profile resulting from the Company's emergence from the Chapter 11 Cases. As of September 30, 2021, the Company recorded additional tax benefit to current taxes receivable as it expects the year-to-date loss to offset current taxes payable throughout the remainder of the current year.
3. GUARANTEES
9. (Loss) Earnings Per Share
The following summarizes the computation of (loss) earnings per share:
| | | | | | | | | | | |
| Successor | Predecessor |
(in thousands, except per share data) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Basic (loss) earnings per share: | | | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (9,681) | | $ | (5,313) | | $ | 111,198 | |
Shares: | | | |
Weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,976 | |
Basic (loss) earnings per share | $ | (0.39) | | $ | (0.21) | | $ | 11.15 | |
| | | |
Diluted (loss) earnings per share: | | | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (9,681) | | $ | (5,313) | | $ | 111,198 | |
Shares: | | | |
Weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,976 | |
Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price (1) | — | | — | | 23 | |
Adjusted weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,999 | |
Diluted (loss) earnings per share | $ | (0.39) | | $ | (0.21) | | $ | 11.12 | |
|
(1) Outstanding restricted shares, shares applicable to stock options, and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share. The dilutive shares would have been 0 for the three months ended September 30, 2021. |
| | | | | | | | | | | |
| Successor | Predecessor |
(in thousands, except per share data) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Basic (loss) earnings per share: | | | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (21,189) | | $ | (5,313) | | $ | 19,037 | |
Shares: | | | |
Weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,976 | |
Basic (loss) earnings per share | $ | (0.85) | | $ | (0.21) | | $ | 1.91 | |
| | | |
Diluted (loss) earnings per share: | | | |
Net (loss) income attributable to Pyxus International, Inc. | $ | (21,189) | | $ | (5,313) | | $ | 19,037 | |
Shares: | | | |
Weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,976 | |
Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price (1) | — | | — | | 16 | |
Adjusted weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,992 | |
Diluted (loss) earnings per share | $ | (0.85) | | $ | (0.21) | | $ | 1.91 | |
|
(1) Outstanding restricted shares, shares applicable to stock options, and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share. The dilutive shares would have been 0 for the six months ended September 30, 2021. |
Certain potentially dilutive options were not included in the computation of loss per diluted share because their effect would be
antidilutive. Potential common shares are also considered antidilutive in the event of a net loss. The number of potential shares
outstanding that were considered antidilutive and that were excluded from the computation of diluted loss per share, weighted
for the portion of the period they were outstanding were as follows:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Antidilutive stock options and other awards | — | | — | | 427 | |
| | | |
| | | |
Weighted average exercise price | $ | — | | $ | — | | $ | 56.86 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Antidilutive stock options and other awards | — | | — | | 427 | |
| | | |
| | | |
Weighted average exercise price | $ | — | | $ | — | | $ | 56.86 | |
10. Restricted Cash
The following summarizes the composition of restricted cash:
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Compensating balance for short-term borrowings | $ | 2,051 | | $ | 970 | | $ | 1,017 | |
| | | |
Escrow (1) | 949 | | 22,172 | | 3,459 | |
Other | 418 | | 532 | | $ | 532 | |
Total | $ | 3,418 | | $ | 23,674 | | $ | 5,008 | |
(1) As of September 30, 2020, funds held in escrow was primarily related to professional fees for services rendered during the Chapter 11 Cases.
11. Inventories, Net
The following summarizes the composition of inventories, net:
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Processed tobacco | $ | 605,424 | | $ | 639,698 | | $ | 534,711 | |
Unprocessed tobacco | 162,676 | | 147,128 | | 156,915 | |
Other tobacco related | 21,374 | | 18,123 | | 25,979 | |
Other(1) | 12,954 | | 39,744 | | 10,288 | |
Total | $ | 802,428 | | $ | 844,693 | | $ | 727,893 | |
(1) Represents inventory from the Other Products and Services segment. |
12. Acquisitions
On December 18, 2017, the Company completed a purchase of a 40.0% interest in Criticality, a North Carolina-based industrial hemp company that was engaged in CBD extraction and other applications for industrial hemp in accordance with a pilot program authorized under the federal Agriculture Act of 2014 and applicable North Carolina law. On April 22, 2020, the Company acquired the remaining 60.0% of the equity in Criticality in exchange for consideration consisting of $5,000 cash and $7,450 for the settlement of the Company's note receivable from Criticality, subject to certain post-closing adjustments.
The acquisition of Criticality was a business combination achieved in stages, which required the Company to remeasure its previously held equity interest in Criticality at its acquisition date fair value. This remeasurement resulted in a loss of
approximately $2,667 being recorded in other income (expense), net within the condensed consolidated statements of operations for the five months ended August 31, 2020. The assets and liabilities were recorded at their fair value.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments. The intent of the acquisition was to allow the Company to expand its industrial hemp production and product portfolio. The following summarizes the fair values of the assets acquired and liabilities assumed as of April 22, 2020:
| | | | | |
Cash and cash equivalents | $ | 195 | |
Accounts receivable | 1,528 | |
Advances to suppliers | 1,043 | |
Inventories | 3,823 | |
Other current assets | 181 | |
Property, plant, and equipment | 5,060 | |
Goodwill | 6,120 | |
| |
Total assets acquired | 17,950 | |
Accounts payable | 1,654 | |
Notes payable | 7,450 | |
Other current liabilities | 513 | |
| |
Total liabilities | 9,617 | |
Fair value of equity interest | $ | 8,333 | |
The following summarizes the revenue, operating loss, and net loss for Criticality as well as the resulting impact to basic and diluted (loss) earnings per share:
| | | | | | | | |
| Successor | Predecessor |
| One month ended September 30, 2020 | Two months ended August 31, 2020 |
Revenue | 3 | | — | |
Operating loss | (1,131) | | (2,326) | |
Net loss | (1,170) | | (2,408) | |
| | |
Impact to (loss) earnings per share: | | |
Basic | (0.05) | | (0.24) | |
Diluted | (0.05) | | (0.24) | |
| | | | | | | | |
| Successor | Predecessor |
| One month ended September 30, 2020 | Five months ended August 31, 2020 |
Revenue | 3 | | — | |
Operating loss | (1,131) | | (3,117) | |
Net loss | (1,170) | | (3,317) | |
| | |
Impact to (loss) earnings per share: | | |
Basic | (0.05) | | (0.33) | |
Diluted | (0.05) | | (0.33) | |
In December 2020, the Company commenced actions to exit operations of the industrial hemp businesses, including the production and sale of products containing extracts of industrial hemp, including CBD products, by Criticality.
13. Equity Method Investments
The following summarizes the Company's equity method investments as of September 30, 2021:
| | | | | | | | | | | | | | |
| Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference (1) |
Adams International Ltd. | Thailand | purchase and process tobacco | 49 | % | $ | (4,526) | |
Alliance One Industries India Private Ltd. | India | purchase and process tobacco | 49 | % | (5,770) | |
China Brasil Tobacos Exportadora SA | Brazil | purchase and process tobacco | 49 | % | 46,326 | |
Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | Turkey | process tobacco | 50 | % | (416) | |
Purilum, LLC | U.S. | produce flavor formulations and consumable e-liquids | 50 | % | 4,589 | |
Siam Tobacco Export Company | Thailand | purchase and process tobacco | 49 | % | (6,098) | |
(1) The basis difference for the Company's equity method investments is primarily due to $30,531 of fair value adjustments from fresh start reporting that were recorded in the fiscal year-ended March 31, 2021.
The following summarizes financial information for these equity method investments:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Operations statement: | | | |
Sales | $ | 32,513 | | $ | 13,006 | | $ | 31,841 | |
Gross profit | 2,448 | | 2,248 | | 7,202 | |
Net income | 3,206 | | 738 | | 3,560 | |
Company's dividends received | 18 | | — | | 40 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Operations statement: | | | |
Sales | $ | 63,945 | | $ | 13,006 | | $ | 67,553 | |
Gross profit | 6,114 | | 2,248 | | 14,151 | |
Net income | 306 | | 738 | | 5,869 | |
Company's dividends received | 8,866 | | — | | 5,104 | |
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Balance sheet: | | | |
Current assets | $ | 280,561 | | $ | 246,852 | | $ | 224,106 | |
Property, plant, and equipment and other assets | 43,675 | | 42,544 | | 43,648 | |
Current liabilities | 214,321 | | 185,187 | | 138,833 | |
Long-term obligations and other liabilities | 3,144 | | 4,185 | | 3,937 | |
14. Variable Interest Entities
The Company holds variable interests in multiple entities that primarily procure or process inventory or are securitization entities. These variable interests relate to equity investments, receivables, guarantees, and securitized receivables. The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Investments in variable interest entities | $ | 80,205 | | $ | 61,432 | | $ | 89,560 | |
Receivables with variable interest entities | 7,721 | | 1,541 | | 13,497 | |
Guaranteed amounts to variable interest entities (not to exceed) | 55,991 | | 56,040 | | 56,067 | |
15. Goodwill and Other Intangible Assets, Net
The following summarizes the changes in the Company's goodwill and other intangible assets, net:
| | | | | | | | | | | | | | | | | |
| Successor |
| Six months ended September 30, 2021 |
| Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization (1) | Ending Intangible Assets, Net |
Intangibles subject to amortization: | | | | | |
Customer relationships | 10.61 years | $ | 29,200 | | $ | — | | $ | (2,729) | | $ | 26,471 | |
Technology | 6.23 years | 15,080 | | 840 | | (3,464) | | 12,456 | |
Trade names | 12.92 years | 11,300 | | — | | (874) | | 10,426 | |
Intangibles not subject to amortization: | | | | | |
Goodwill | | 36,853 | | — | | — | | 36,853 | |
Total | | $ | 92,433 | | $ | 840 | | $ | (7,067) | | $ | 86,206 | |
(1) Amortization expense across intangible asset classes for the six months ended September 30, 2021 was $2,905.
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| Seven months ended March 31, 2021 |
| Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization (1) | Deconsolidation of Canadian Cannabis Subsidiaries | Impairment | Ending Intangible Assets, Net |
Intangibles subject to amortization: | | | | | | | |
Customer relationships | 11.10 years | $ | 29,200 | | $ | — | | $ | (1,470) | | $ | — | | $ | — | | $ | 27,730 | |
| | | | | | | |
Technology | 6.66 years | 11,000 | | 4,080 | | (2,222) | | — | | — | | 12,858 | |
Licenses | 0.00 years | 19,000 | | — | | (924) | | (18,076) | | — | | — | |
Trade names | 13.42 years | 11,800 | | — | | (497) | | (474) | | — | | 10,829 | |
Intangibles not subject to amortization: | | | | | | | |
Goodwill | | 37,935 | | — | | — | | — | | (1,082) | | 36,853 | |
Total | | $ | 108,935 | | $ | 4,080 | | $ | (5,113) | | $ | (18,550) | | $ | (1,082) | | $ | 88,270 | |
(1) Amortization expense across intangible asset classes for the seven months ended March 31, 2021 was $5,113.
The following summarizes the estimated intangible asset amortization expense for the next five years and beyond:
| | | | | | | | | | | | | | |
For Fiscal Years Ended March 31 | Customer Relationships | Technology | Trade Names | Total |
2022 (excluding the six months ended September 30, 2021) | $ | 1,260 | | $ | 985 | | $ | 404 | | $ | 2,649 | |
2023 | 2,519 | | 1,970 | | 807 | | 5,296 | |
2024 | 2,519 | | 2,138 | | 807 | | 5,464 | |
2025 | 2,519 | | 1,987 | | 807 | | 5,313 | |
2026 | 2,519 | | 1,713 | | 807 | | 5,039 | |
Thereafter | 15,135 | | 3,663 | | 6,794 | | 25,592 | |
| $ | 26,471 | | $ | 12,456 | | $ | 10,426 | | $ | 49,353 | |
16. Debt Arrangements
The following summarizes debt and notes payable:
| | | | | | | | | | | | | | | | | |
| Successor |
| Outstanding | Lines and Letters Available | Interest Rate |
| March 31, | September 30, | September 30, |
(in thousands) | 2021 | 2021 | 2021 |
Senior secured credit facilities: | | | | | |
| | | | | |
ABL Credit Facility | $ | 67,500 | | $ | 56,500 | | $ | 18,500 | | 5.8 | % | (1) |
DDTL Facility (2) | — | | 119,263 | | — | | 10.6 | % | (1) |
Senior secured notes: | | | | | |
| | | | | |
| | | | | |
10.0% senior secured first lien notes (3) | 267,353 | | 269,007 | | — | | 10.0 | % | |
| | | | | |
Term Loan Credit Facility (4) | 215,594 | | 217,510 | | — | | 9.6 | % | (1) |
Other long-term debt | 2,910 | | 2,879 | | 314 | | 2.3 | % | (1) |
Notes payable to banks (5) | 372,174 | | 457,699 | | 167,016 | | 6.2 | % | (1) |
Total debt | $ | 925,531 | | $ | 1,122,858 | | $ | 185,830 | | | |
Short-term | $ | 372,174 | | $ | 457,699 | | | | |
Long-term: | | | | | |
Current portion of long-term debt | $ | 2,122 | | $ | 121,926 | | | | |
Long-term debt | 551,235 | | 543,233 | | | | |
| $ | 553,357 | | $ | 665,159 | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Letters of credit | $ | 2,468 | | $ | 9,244 | | $ | 3,332 | | | |
Total credit available | | | $ | 189,162 | | | |
| | | | | |
(1) Weighted average rate for the trailing twelve months ended September 30, 2021. |
(2) Balance of $119,263 is net of original issue discount of $6,737. Total repayment will be $126,000, which includes an estimated $6,000 exit fee payable upon repayment. |
(3) Balance of $269,007 is net of original issue discount of $11,837. Total repayment will be $280,844. |
(4) Upon emergence from the Chapter 11 Cases on the Effective Date, the DIP Facility entered into at the Petition Date converted into the Term Loan Credit Facility. The aggregate balance of the Term Loan Credit Facility of $217,510 includes $4,092 of accrued paid-in-kind interest. The 9.6% interest rate does not include the paid-in-kind interest which is (a) 1.0% per annum from and after the first anniversary of the Effective Date until the second anniversary of the Effective Date, (b) 2.0% per annum from and after the second anniversary of the Effective Date until the third anniversary of the Effective Date, (c) 3.0% per annum from and after the third anniversary of the Effective Date until the fourth anniversary of the Effective Date and (d) from and after the fourth anniversary of the Effective Date, 4.0% per annum. |
(5) Primarily foreign seasonal lines of credit. |
ABL Credit Facility
On the Effective Date, Pyxus Holdings entered into the ABL Credit Agreement, dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish the ABL Credit Facility. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75,000, subject to certain limitations. A detailed description of the ABL Credit Agreement and ABL Credit Facility is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021. At September 30, 2021, Pyxus Holdings was in compliance with the covenants under the ABL Credit Agreement. At September 30, 2021, $18,500 was available for borrowing under the ABL Credit Facility, after reducing availability by the aggregate borrowings under the ABL Credit Facility of $56,500 outstanding on that date.
Term Loan Credit Facility
On the Effective Date, Pyxus Holdings entered into the Term Loan Credit Agreement, dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Alter Domus (US) LLC, as administrative agent and collateral agent to establish the Term Loan Credit Facility in an aggregate principal amount of approximately $213,418. The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, was converted into, or otherwise satisfied with the proceeds of, the Term Loan Credit Facility. A detailed description of the Term Loan Credit Agreement and Term Loan Credit Facility is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021. At September 30, 2021, Pyxus Holdings was in compliance with the covenants under the Term Loan Credit Agreement.
Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280,844 in aggregate principal amount of the Notes to holders of Allowed First Lien Notes Claims (as defined in the Plan) pursuant to the Indenture dated as of the Effective Date among Pyxus Holdings, the initial guarantors party thereto, and Wilmington Trust, National Association, as trustee and collateral agent. A detailed description of the Notes and the Indenture is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021. At September 30, 2021, Pyxus Holdings was in compliance with the covenants under the Indenture.
DDTL Facility
On April 23, 2021, Intabex Netherlands B.V. (“Intabex”), an indirect wholly owned subsidiary of the Company, entered into a Term Loan Credit Agreement (the “DDTL Facility Credit Agreement”), dated as of April 23, 2021 (the "Closing Date"), by and among (i) Intabex, as borrower, (ii) the Company, Pyxus Parent, Inc., Pyxus Holdings, Inc., Alliance One International, LLC, Alliance One International Holdings, Ltd, as guarantors (collectively, the “Parent Guarantors”), (iii) certain funds managed by Glendon Capital Management, L.P. and Monarch Alternative Capital LP, as lenders (collectively and, together with any other lender that is or becomes a party thereto as a lender, the “DDTL Facility Lenders”), and (iv) Alter Domus (US) LLC, as administrative agent and collateral agent. The DDTL Facility Credit Agreement established a $120,000 delayed-draw term loan credit facility (the “DDTL Facility”) under which the full amount has been drawn (the “DDTL Loans”). The proceeds of the DDTL Loans were used to provide working capital and for other general corporate purposes of Intabex, the Guarantors (as defined below) and their subsidiaries.
The DDTL Facility and all DDTL Loans made thereunder mature on July 31, 2022. The DDTL Loans may be prepaid by Intabex at any time without premium or penalty other than the Exit Fee described below and, in the case of any prepayment of LIBOR loans, subject to customary breakage. At September 30, 2021, the aggregate principal amount outstanding was $119,263, net of original issue discount of $6,737, which includes an estimated $6,000 exit fee payable upon repayment. Amounts prepaid or repaid in respect of DDTL Loans may not be reborrowed under the DDTL Facility.
Interest on the aggregate principal amount of outstanding DDTL Loans accrues at an annual rate of LIBOR plus 9.00%, subject to a LIBOR floor of 1.50%, for LIBOR loans or, for loans that are not LIBOR loans, at an annual rate of an alternative base rate (as specified in the DDTL Facility Credit Agreement) plus 8.00%. Interest is to be paid in arrears in cash upon prepayment, acceleration, maturity, and on the last day of each interest period (and every three months in the case of interest periods in excess of three months) for LIBOR loans and on the last day of each calendar month for loans that are not LIBOR loans. Pursuant to the DDTL Facility Credit Agreement, the DDTL Facility Lenders received a non-refundable commitment fee equal to 2.00% of the aggregate commitments under the DDTL Facility, paid in cash in full on the Closing Date and netted from the proceeds of the DDTL Loan borrowed on the Closing Date. The DDTL Facility Credit Agreement provides for the payment by Intabex to the DDTL Facility Lenders of a non-refundable exit fee (the “Exit Fee”) in the amounts set forth in the table below in respect of any DDTL Loans repaid (whether prepaid voluntarily or paid following acceleration or at maturity). The Exit Fee is deemed to have been earned on the Closing Date, and is due and payable in cash on each date of repayment or termination, as applicable, in respect of the DDTL Loans or commitments repaid or terminated on such date, as applicable.
| | | | | |
Loan Repayment Date | Exit Fee |
On or before September 30, 2021 | 1.00% |
After September 30, 2021 and on or before December 31, 2021 | 2.50% |
After December 31, 2021 and on or before March 31, 2022 | 3.50% |
After March 31, 2022 | 5.00% |
The obligations of Intabex under the DDTL Facility Credit Agreement (and certain related obligations) are (a) guaranteed by the Parent Guarantors and Alliance One International Tabak B.V., an indirect subsidiary of the Company, and each of the Company’s domestic and foreign subsidiaries that is or becomes a guarantor of borrowings under the Term Loan Credit Agreement (which subsidiaries are referred to collectively, together with the Parent Guarantors, as the “Guarantors”), and (b) are secured by the pledge of all of the outstanding equity interests of (i) Alliance One Brasil Exportadora de Tabacos Ltda. (“AO Brazil”), which principally operates the Company’s leaf tobacco operations in Brazil, and (ii) Alliance One International Tabak B.V., which owns a 0.001% interest of AO Brazil.
Affirmative and Restrictive Covenants
The DDTL Facility Credit Agreement contains representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults applicable to the Company and its subsidiaries similar to those included in the Exit Term Loan Credit Agreement, including covenants that limit the Company’s ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make certain investments and other restricted payments;
•enter into limitations on its ability to pay dividends, make loans or otherwise transfer assets to its immediate parent entity or to its subsidiaries;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;
•enter into transactions with affiliates; and
•engage directly or indirectly in any business other than the businesses engaged in by it and its subsidiaries are currently engaged.
In addition, the DDTL Facility Credit Agreement includes a customary “passive holding company” covenant that contains certain additional restrictions on Intabex and its subsidiaries’ activities and requirements for Intabex to provide to the DDTL Facility Lenders certain periodic financial and operating reports for the Guarantors and their subsidiaries on a consolidated basis.
At September 30, 2021, Intabex and each Guarantor was in compliance with the covenants under the DDTL Facility Credit Agreement.
Related Party Transaction
Based on a Schedule 13D filed with the SEC on September 3, 2020 by Glendon Capital Management, L.P., Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., Glendon Capital Management, L.P. reported beneficial ownership of 7,939 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on a Schedule 13D filed with the SEC on September 3, 2020 by Monarch Alternative Capital LP, MDRA GP LP and Monarch GP LLC, Monarch Alternative Capital LP reported beneficial ownership of 6,033 shares of the Company’s common stock, representing approximately 24.1% of the outstanding shares of the Company’s common stock. Pursuant to the Shareholders Agreement, Holly Kim and Patrick Fallon were designated to serve as directors of Pyxus and each continues to serve as a director of Pyxus. Ms. Kim is a Partner at Glendon Capital Management, L.P. and Mr. Fallon is a Managing Principal at Monarch Alternative Capital LP.
The DDTL Facility Credit Agreement, any and all borrowings thereunder and the guaranty transactions described above were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm’s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.
African Seasonal Lines of Credit
On August 13, 2020, certain then subsidiaries of Old Pyxus, which are now subsidiaries of the Company, Alliance One International Holdings, Ltd. (“AOI Holdings”) and the subsidiaries in Kenya, Malawi, Tanzania, Uganda, and Zambia (collectively, the “African Subsidiaries”) entered into an Amendment and Restatement Agreement (the “Initial TDB Facility Agreement”) with Eastern and Southern African Trade and Development Bank (“TDB”). On August 24, 2020, AOI Holdings, the African Subsidiaries, the Company, Pyxus Parent, Inc., Pyxus Holdings, and TDB entered into a Second Amendment and Restatement Agreement (the “TDB Facility Agreement”) to amend and restate the Initial TDB Facility Agreement to add the Company, Pyxus Parent, Inc., and Pyxus Holdings as guarantors thereunder and to otherwise amend provisions thereof to permit the consummation of the transactions contemplated by the Plan. The TDB Facility Agreement sets forth the terms that govern the foreign seasonal lines of credit of each of the African Subsidiaries with TDB and supersedes the prior terms in effect. These lines of credit provide borrowings to fund the purchase of leaf tobacco in the respective jurisdictions to be repaid upon the sale of that tobacco. The original aggregate maximum borrowing availability under these separate existing foreign seasonal lines of credit was $255,000, and the aggregate borrowings were $240,485 as of August 13, 2020. Subject to certain conditions, the TDB Facility Agreement increased the maximum aggregate borrowing capacity to $285,000, less the amount of outstanding loans borrowed under the existing foreign seasonal lines of credit with TDB. Loans under the TDB Facility Agreement bear interest at LIBOR plus 6%.
On June 24, 2021, the Company, and certain of its subsidiaries, including the African Subsidiaries, entered into an Amendment Agreement (the “Amendment Agreement”) with TDB to amend the TDB Facility Agreement, which governs the terms of the separate foreign seasonal lines of credit of each of the African Subsidiaries with TDB. The Amendment Agreement became effective on June 28, 2021 and amended the TDB Facility Agreement as follows:
•It extended the term of the separate lines of credit of each of the Company’s subsidiaries in Malawi, Tanzania, and Zambia to June 25, 2022;
•It decreased the lending commitment with respect to the line of credit of the Company’s Malawi subsidiary from $120,000 to $80,000, effective from and including June 28, 2021;
•It includes provisions allowing for an increase in the lending commitment with respect to the line of credit of the Company’s Tanzania subsidiary from $70,000 to $85,000, subject to the satisfaction of certain documentation requirements;
•It terminated the separate lines of credit of the Companies’ subsidiaries in Kenya and Uganda, effective from and including June 30, 2021 (with outstanding borrowings thereunder to be repaid by June 30, 2021); and
•It required the Company and such subsidiaries to enter into an agreement to amend and restate the TDB Agreement by August 13, 2021 to reflect items specified in the Amendment Agreement.
On August 12, 2021, the Company and certain subsidiaries of the Company, including the Company’s subsidiaries in Malawi, Tanzania, and Zambia (the “African Subsidiary Borrowers”), entered into the Third Amendment and Restatement Agreement (the “Restated TDB Agreement”) with TDB to amend and restate the Second Amendment and Restatement Agreement dated August 24, 2020, as amended by an amendment letter dated December 30, 2020, an amendment letter dated February 19, 2021 and the Amendment Agreement dated as of June 24, 2021. The Restated TDB Agreement sets forth the terms that govern the foreign seasonal lines of credit of each of the African Subsidiary Borrowers with TDB and supersedes the prior terms in effect. The Restated TDB Agreement provides for a lending commitment with respect to the line of credit of the Company’s Malawi subsidiary of $80.0 million, a lending commitment with respect to the line of credit of the Company’s Tanzania subsidiary of $85.0 million, and a lending commitment with respect to the line of credit of the Company’s Zambia subsidiary of $40.0 million, in each case with current borrowing availability reduced by the amount of outstanding loans borrowed under the respective existing line of credit with TDB. Loans under the Restated TDB Agreement bear interest at LIBOR plus 6%. The Restated TDB Agreement terminates on June 30, 2024, unless terminated sooner at TDB’s discretion on June 30, 2022 or June 30, 2023. The terms of the Restated TDB Agreement may also be modified at TDB’s discretion on those dates. Borrowings under the Restated TDB Agreement are due upon the termination of the Restated TDB Agreement.
Pursuant to the Restated TDB Agreement, each of the Company and its subsidiaries, Pyxus Parent, Inc., and Pyxus Holdings, guarantee the obligations of the African Subsidiary Borrowers under the Restated TDB Agreement. In addition, the Restated TDB Agreement provides that obligations of each African Subsidiary Borrower under the Restated TDB Agreement are secured by a first priority pledge of:
•tobacco purchased by that African Subsidiary Borrower that is financed by TDB;
•intercompany receivables arising from the sale of the tobacco financed by TDB;
•customer receivables arising from the sale of the tobacco financed by TDB; and
•such African Subsidiary Borrower's local collection account receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement also requires Alliance One International, LLC, a subsidiary of the Company, to pledge customer receivables arising from the sale of the tobacco financed by TDB and pledge its collection accounts designated for receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement contains affirmative and negative covenants (subject, in each case, to customary and other exceptions and qualifications), including covenants that limit the ability of the African Subsidiary Borrowers to, among other things:
•grant liens on assets;
•incur additional indebtedness (including guarantees and other contingent obligations);
•sell or otherwise dispose of property or assets;
•maintain a specified amount of pledged accounts receivable and inventory;
•make changes in the nature of its business;
•enter into burdensome contracts; and
•effect certain modifications or terminations of customer contracts.
The Restated TDB Agreement contains events of default including, but not limited to, nonpayment of principal or interest, violation of covenants, breaches of representations and warranties, cross-default to other debt, bankruptcy and other insolvency events, invalidity of loan documentation, certain changes of control of the Company and the other loan parties, termination of material licenses, and material adverse changes.
At September 30, 2021, the Company and its subsidiaries party to the Restated TDB Agreement were, after giving effect to TDB's consent to certain investments by one of the African Subsidiary Borrowers, in compliance with all such covenants under the Restated TDB Agreement and $51,677 was available for borrowing under the Restated TDB Agreement, after reducing availability by the aggregate borrowings under the Restated TDB Agreement of $153,323 outstanding on that date.
Short-Term Borrowings
In addition to these credit arrangements, the Company has typically financed its non-U.S. operations with uncommitted unsecured short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are secured by inventories as collateral.
17. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under 2 accounts receivable securitization facilities. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells 100% of the receivables to an unaffiliated financial institution. As of September 30, 2021, the limit under the first facility was $125,000 of trade receivables. Under the second facility, the Company offers receivables for sale to unaffiliated financial institutions, which are then subject to acceptance by the unaffiliated financial institutions. As of September 30, 2021, the limit under the second facility was $125,000 of trade receivables.
As the servicer of these facilities, the Company may receive funds that are due to the unaffiliated financial institutions, which are net settled on the next settlement date. As a result of the net settlement, trade and other receivables, net in the condensed consolidated balance sheets has been reduced by $4,843, $4,185, and $3,651 as of September 30, 2021 and 2020, and March 31, 2021, respectively.
The following summarizes the accounts receivable securitization information:
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Receivables outstanding in facility | $ | 119,254 | | $ | 67,016 | | $ | 90,693 | |
Beneficial interests | 26,055 | | 13,471 | | 19,370 | |
Servicing liability | 49 | | — | | 14 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Cash proceeds for the period ended: | | | |
Cash purchase price | $ | 216,497 | | $ | 41,692 | | $ | 151,817 | |
Deferred purchase price | 82,649 | | 10,926 | | 74,328 | |
Service fees | 276 | | 25 | | 218 | |
Total | $ | 299,422 | | $ | 52,643 | | $ | 226,363 | |
18. Guarantees
In certain markets, the Company guarantees bank loans to suppliers to finance their crops. Under longer-term arrangements, the Company may also guarantee financing on suppliers’ construction of curing barns or other tobacco production assets. Guaranteed loans are generally repaid concurrent with the delivery of tobacco to the Company. The Company is obligated to repay any guaranteed loanloans should the supplier default. If default occurs, the Company has recourse against the supplier.its various suppliers and their production assets. The Company also guarantees bank loans of certain unconsolidated subsidiaries in Asia and Brazil.
a lease obligation for a former unconsolidated subsidiary. The following table summarizes amounts guaranteed and the fair value of those guarantees:
| | | | | | | | | | Successor |
| December 31, 2017 | December 31, 2016 | March 31, 2017 | | September 30, 2021 | September 30, 2020 | March 31, 2021 |
Amounts guaranteed (not to exceed) | $ | 165,333 |
| $ | 184,096 |
| $ | 194,656 |
| Amounts guaranteed (not to exceed) | $ | 93,982 | | $ | 84,345 | | $ | 93,489 | |
Amounts outstanding under guarantee(1) | 96,154 |
| 86,218 |
| 106,465 |
| 14,777 | | 13,456 | | 30,111 | |
Fair value of guarantees | 2,913 |
| 4,759 |
| 7,126 |
| Fair value of guarantees | 343 | | 491 | | 1,740 | |
Amounts due to local banks on behalf of suppliers and included in accounts payable | | Amounts due to local banks on behalf of suppliers and included in accounts payable | — | | — | | 10,930 | |
(1) Of the guarantees outstanding at December 31, 2017, allSeptember 30, 2021, most expire within one year.
19. Derivative Financial Instruments
As of September 30, 2021, accumulated other comprehensive loss includes $728, net of $465 of tax, for net unrealized gains related to designated cash flow hedges. The Company recorded a net gain of $(647) and $(1,062) in cost of goods and services sold for the three and six months ended September 30, 2021, respectively. The Company recorded a net gain of $(180) in selling, general, and administrative expenses for the three and six months ended September 30, 2021. The Company recorded current derivative assets of $1,523 and current derivative liabilities of $634 as of September 30, 2021 included in the condensed consolidated balance sheets. The U.S. Dollar notional amount of derivative contracts outstanding as of September 30, 2021 was $72,522.
20. Fair Value Measurements
The following summarizes the financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
| | Total | | | Total | | | Total |
| Level 2 | Level 3 | at Fair Value | Level 2 | Level 3 | at Fair Value | Level 2 | Level 3 | at Fair Value |
Financial Assets: | | | | | | | | | |
Derivative financial instruments | $ | 1,523 | | $ | — | | $ | 1,523 | | $ | — | | $ | — | | $ | — | | $ | 917 | | $ | — | | $ | 917 | |
Securitized beneficial interests | — | | 26,056 | | 26,056 | | — | | 13,471 | | 13,471 | | — | | 19,370 | | 19,370 | |
Total assets | $ | 1,523 | | $ | 26,056 | | $ | 27,579 | | $ | — | | $ | 13,471 | | $ | 13,471 | | $ | 917 | | $ | 19,370 | | $ | 20,287 | |
Financial Liabilities: | | | | | | | | | |
Long-term debt | $ | 446,770 | | $ | 3,127 | | $ | 449,897 | | $ | 500,549 | | $ | 3,714 | | $ | 504,263 | | $ | 467,795 | | $ | 3,162 | | $ | 470,957 | |
Guarantees | — | | 343 | | 343 | | — | | 491 | | 491 | | — | | 1,740 | | 1,740 | |
Total liabilities | $ | 446,770 | | $ | 3,470 | | $ | 450,240 | | $ | 500,549 | | $ | 4,205 | | $ | 504,754 | | $ | 467,795 | | $ | 4,902 | | $ | 472,697 | |
Level 2 measurements
•Debt: The fair value of debt is based on the market price for similar financial instruments or model-derived valuations with observable inputs. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
•Derivatives: The fair value of derivatives is based on the discounted cash flow analysis of the expected future cash flows. The primary inputs to the valuation include forward yield curves, implied volatilities, LIBOR rates, and credit valuation adjustments.
Level 3 measurements
•Guarantees: The fair value of guarantees is recorded in Accrued Expenses and Other Current Liabilities inbased the Condensed Consolidated Balance Sheets and included in crop costs except fordiscounted cash flow analysis of the joint venture in Brazil which is included in Accounts Receivable, Related Parties.
In Brazil, certain suppliers obtain government subsidized rural credit financing from local banks that is guaranteedexpected future cash flows or historical loss rates. The primary inputs to the discounted cash flow analysis of the expected future cash flows include historical loss rates ranging between 0.6% to 10.0% as of September 30, 2021. The historical loss rate was weighted by the Company. The Company withholds amounts owed to suppliers related to the rural credit financingprincipal balance of the supplier upon deliveryloans.
•Securitized beneficial interests: The fair value of tobaccosecuritized beneficial interests is based on using the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 103 to 107 days and discount rates of 1.4% to 3.5% as of September 30, 2021. The discount rate was weighted by the Company.outstanding interest. Payment speed was weighted by the average days outstanding.
•Long-term debt: The Company remits payments to the local banks on behalffair value of the guaranteed suppliers. Rural credit financing repaymentlong-term debt is due to local banks based on contractual due dates. Asthe present value of March 31, 2017, the Company had $20,860 duefuture payments. The primary inputs to local banks on behalfthis valuation include treasury notes interest of suppliers included in Accounts Payable in the Condensed Consolidated Balance Sheets. There1.0% to 1.4% and borrowing rates of 7.0% to 10.7%. The borrowing rates were no similar balances as of December 31, 2017 and 2016.weighted by average loans outstanding.
Alliance One International, Inc. and Subsidiaries
4. GOODWILL AND INTANGIBLES
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not subject to amortization, but rather is tested for impairment annually or whenever events and circumstances indicate that impairment may have occurred. The Company has chosen the first day of the last quarter of its fiscal year as the date to perform its annual goodwill impairment test.
The following table presents goodwillsummarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees | Securitized Beneficial Interests | Long-Term Debt | Guarantees | Securitized Beneficial Interests | Long-Term Debt | Guarantees |
Beginning balance | $ | 20,271 | | $ | 3,164 | | $ | 1,962 | | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | | $ | 14,949 | | $ | 3,804 | | $ | 3,313 | |
Issuances of sales of receivables/guarantees | 53,243 | | — | | 274 | | 12,308 | | — | | 147 | | 19,702 | | — | | 19 | |
Settlements | (45,979) | | (37) | | (1,678) | | (9,793) | | (178) | | (917) | | (23,137) | | — | | (2,075) | |
Additions | — | | — | | — | | — | | — | | — | | — | | 88 | | — | |
(Losses) gains recognized in earnings | (1,479) | | — | | (215) | | (203) | | — | | 5 | | (355) | | — | | (1) | |
Ending balance | $ | 26,056 | | $ | 3,127 | | $ | 343 | | $ | 13,471 | | $ | 3,714 | | $ | 491 | | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees | Securitized Beneficial Interests | Long-Term Debt | Guarantees | Securitized Beneficial Interests | Long-Term Debt | Guarantees |
Beginning balance | $ | 19,370 | | $ | 3,162 | | $ | 1,740 | | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | | $ | 27,021 | | $ | 848 | | $ | 2,791 | |
Issuances of sales of receivables/guarantees | 91,741 | | — | | 497 | | 12,308 | | — | | 147 | | 66,821 | | — | | 667 | |
Settlements | (82,674) | | (37) | | (1,704) | | (9,793) | | (178) | | (917) | | (81,038) | | (100) | | (2,192) | |
Additions | — | | 2 | | — | | — | | — | | — | | — | | 3,144 | | — | |
(Losses) gains recognized in earnings | (2,381) | | — | | (190) | | (203) | | — | | 5 | | (1,645) | | — | | (10) | |
Ending balance | $ | 26,056 | | $ | 3,127 | | $ | 343 | | $ | 13,471 | | $ | 3,714 | | $ | 491 | | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | |
For the six months ended September 30, 2021, one month ended September 30, 2020, and intangible assets as of Decemberfive months ended August 31, 2017 and March 31, 2017:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | March 31, 2017 |
| Weighted Average Remaining Useful Life | Gross Carrying Amount | Additions | Accumulated Amortization | Intangible Assets, Net | | Gross Carrying Amount | Additions | Accumulated Amortization | Intangible Assets, Net |
Intangibles subject to amortization: | | | | | | | | | | |
Customer relationship intangible | 11.08 years | $ | 58,530 |
| $ | — |
| $ | (24,170 | ) | $ | 34,360 |
| | $ | 58,530 |
| $ | — |
| $ | (21,664 | ) | $ | 36,866 |
|
Production and supply contract intangibles | 3.91 years | 14,893 |
| — |
| (8,343 | ) | 6,550 |
| | 14,893 |
| — |
| (7,043 | ) | 7,850 |
|
Internally developed software intangible | 1.97 years | 18,581 |
| — |
| (17,654 | ) | 927 |
| | 18,502 |
| 79 |
| (17,161 | ) | 1,420 |
|
Intangibles not subject to amortization: | |
|
| | | | | | | | |
Goodwill (1) | | 16,463 |
| — |
| — |
| 16,463 |
| | 16,463 |
| — |
| — |
| 16,463 |
|
Total | | $ | 108,467 |
| $ | — |
| $ | (50,167 | ) | $ | 58,300 |
| | $ | 108,388 |
| $ | 79 |
| $ | (45,868 | ) | $ | 62,599 |
|
(1) Goodwill of $2,794 relates2020, the impact to earnings attributable to the North America segmentchange in unrealized losses on securitized beneficial interests were $826, $53, and $13,669 relates to the$263, respectively.
21. Pension and Other Regions segment.
The following table summarizes the estimated future intangible asset amortization expense:
|
| | | | | | | | | | | | |
For Fiscal Years Ended | Customer Relationship Intangible | Production and Supply Contract Intangible | Internally Developed Software Intangible* | Total |
January 1, 2018 through March 31, 2018 | $ | 835 |
| $ | 191 |
| $ | 154 |
| $ | 1,180 |
|
2019 | 3,340 |
| 1,467 |
| 427 |
| 5,234 |
|
2020 | 3,340 |
| 1,401 |
| 247 |
| 4,988 |
|
2021 | 3,340 |
| 1,397 |
| 86 |
| 4,823 |
|
2022 | 3,340 |
| 1,397 |
| 13 |
| 4,750 |
|
Later | 20,165 |
| 697 |
| — |
| 20,862 |
|
| $ | 34,360 |
| $ | 6,550 |
| $ | 927 |
| $ | 41,837 |
|
* Estimated amortization expense for the internally developed software is based on costs accumulated as of December 31, 2017. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
5. VARIABLE INTEREST ENTITIES
The Company holds variable interests in nine joint ventures that are accounted for under the equity method of accounting. These joint ventures primarily procure or process inventory on behalf of the Company and the other joint venture partners. The variable interests relate to equity investments and advances made by the Company to the joint ventures. In addition, the Company guarantees two of its joint ventures' borrowings which represent a variable interest in those joint ventures. The Company is not the primary beneficiary, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities as a result of the entities’ management and board of directors' structure. Therefore, these entities are not consolidated. As of December 31, 2017 and 2016, and March 31, 2017, the Company’s investment in these joint ventures was $66,287, $51,781, and $51,443, respectively, and is classified as Investments in Unconsolidated Affiliates in the Condensed Consolidated Balance Sheets. The Company’s advances to these joint ventures as of December 31, 2017 and 2016, and March 31, 2017, respectively, were $9,832, $12,015, and $8,133 and are classified as Accounts Receivable, Related Parties in the Condensed Consolidated Balance Sheets. The Company guaranteed an amount to two joint ventures not to exceed $73,223, $85,004, and $96,378 as of
Alliance One International, Inc. and Subsidiaries
5. VARIABLE INTEREST ENTITIES (continued)
December 31, 2017 and 2016, and March 31, 2017, respectively. The investments, advances, and guarantees in these joint ventures represent the Company’s maximum exposure to loss.
6. SEGMENT INFORMATION
The Company purchases, processes, sells, and stores leaf tobacco. Tobacco is purchased in more than 35 countries and shipped to approximately 90 countries. The sales, logistics, and billing functions of the Company are primarily concentrated in service centers outside of the producing areas to facilitate access to its major customers. Within certain quality and grade constraints, tobacco is fungible and customers may choose to fulfill their needs from any of the areas where the Company purchases tobacco.
Selling, logistics, billing, and administrative overhead, including depreciation, which originates primarily from the Company’s corporate and sales offices, are allocated to the segments based upon segment operating income. Intercompany transactions are allocated to the operating segment that either purchases or processes the tobacco.
Postretirement Benefits
The following table presentssummarizes the summary segment informationnet periodic pension cost for the three months and nine months ended December 31, 2017 and 2016: defined benefit pension plans:
| | | | | | | | | | | |
| Defined Benefit Plans |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Operating expenses: | | | |
Service cost | $ | 99 | | $ | 36 | | $ | 70 | |
Interest expense: | | | |
Interest expense | 677 | | 226 | | 638 | |
Expected return on plan assets | (728) | | (244) | | (494) | |
Amortization of prior service cost | (1) | | — | | 7 | |
Settlement loss1 | (70) | | — | | — | |
Actuarial loss | 4 | | — | | 347 | |
| | | |
Net periodic pension cost | $ | (19) | | $ | 18 | | $ | 568 | |
(1) Settlement accounting is triggered if the lump sums paid during a fiscal year exceeds the sum of the plan's service and interest cost. During the second quarter of fiscal 2022, the Company determined it was probable that a settlement would occur based on the lump sum cash payments activity incurred in the six months ended September 30, 2021. Settlement losses are recorded in interest expense. |
|
| | | | | | | | | | | | |
| Three Months Ended December 31, | Nine Months Ended December 31, |
| 2017 | 2016 | 2017 | 2016 |
Sales and other operating revenues: | | | | |
North America | $ | 120,689 |
| $ | 108,869 |
| $ | 245,307 |
| $ | 217,629 |
|
Other regions | 357,094 |
| 345,666 |
| 956,808 |
| 887,431 |
|
Total revenue | $ | 477,783 |
| $ | 454,535 |
| $ | 1,202,115 |
| $ | 1,105,060 |
|
| | | | |
Operating income: | | | | |
North America | $ | 7,340 |
| $ | 5,685 |
| $ | 13,463 |
| $ | 8,366 |
|
Other regions | 32,555 |
| 32,969 |
| 64,639 |
| 43,457 |
|
Total operating income | 39,895 |
| 38,654 |
| 78,102 |
| 51,823 |
|
Debt retirement expense (benefit) | — |
| 2,339 |
| (2,975 | ) | 2,339 |
|
Interest expense | 33,222 |
| 35,129 |
| 100,079 |
| 97,635 |
|
Interest income | 601 |
| 1,845 |
| 2,295 |
| 5,888 |
|
Income (loss) before income taxes and other items | $ | 7,274 |
| $ | 3,031 |
| $ | (16,707 | ) | $ | (42,263 | ) |
| | | | | | | | | | | |
| Defined Benefit Plans |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Operating expenses: | | | |
Service cost | $ | 198 | | $ | 36 | | $ | 176 | |
Interest expense: | | | |
Interest expense | 1,354 | | 226 | | 1,594 | |
Expected return on plan assets | (1,456) | | (244) | | (1,234) | |
Amortization of prior service cost | (2) | | — | | 17 | |
Settlement loss1 | (70) | | — | | — | |
Actuarial loss | 8 | | — | | 868 | |
| | | |
Net periodic pension cost | $ | 32 | | $ | 18 | | $ | 1,421 | |
(1) Settlement accounting is triggered if the lump sums paid during a fiscal year exceeds the sum of the plan's service and interest cost. During the second quarter of fiscal 2022, the Company determined it was probable that a settlement would occur based on the lump sum cash payments activity incurred in the six months ended September 30, 2021. Settlement losses are recorded in interest expense. |
|
| | | | | | | | | |
| December 31, 2017 | December 31, 2016 | March 31, 2017 |
Segment assets: | | | |
North America | $ | 495,950 |
| $ | 465,925 |
| $ | 375,782 |
|
Other regions | 1,558,238 |
| 1,570,390 |
| 1,596,090 |
|
Total assets | $ | 2,054,188 |
| $ | 2,036,315 |
| $ | 1,971,872 |
|
7. EARNINGS PER SHARE
The weighted average number of common shares outstanding is reported as the weighted average of the total shares of common stock outstanding, net of shares of common stock held by a wholly owned subsidiary. Shares of common stock owned by the subsidiary were 785 as of December 31, 2017 and 2016. This subsidiary waives its right to receive dividends and it does not have the right to vote.
Certain potentially dilutive options were not included in the computation of earnings per diluted share because their exercise prices were greater than the average market price of the shares of common stock during the period and their effect would be
antidilutive. These shares totaled 427 at a weighted average exercise price of $60.00 per share as of December 31, 2017 and 459 at a weighted average exercise price of $61.05 per share as of December 31, 2016. Diluted net loss per share as of December 31, 2016 was the same as basic net loss per share as the effects of potentially dilutive items were anti-dilutive given the Company’s net loss.
Alliance One International, Inc. and Subsidiaries
7. EARNINGS PER SHARE (continued)
The following table summarizes the computation of earnings per sharenet periodic pension cost (income) for the three monthspostretirement health and nine months ended December 31, 2017life insurance benefits plans:
| | | | | | | | | | | |
| Other Postretirement Benefits |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Operating expenses: | | | |
Service cost | $ | 2 | | $ | 1 | | $ | 1 | |
Interest expense: | | | |
Interest expense | 49 | | 18 | | 46 | |
Amortization of prior service cost | — | | — | | (118) | |
Actuarial loss | (3) | | — | | 63 | |
Net periodic benefit cost (income) | $ | 48 | | $ | 19 | | $ | (8) | |
| | | | | | | | | | | |
| Other Postretirement Benefits |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Operating expenses: | | | |
Service cost | $ | 4 | | $ | 1 | | $ | 3 | |
Interest expense: | | | |
Interest expense | 98 | | 18 | | 114 | |
Amortization of prior service cost | — | | — | | (294) | |
Actuarial loss | (6) | | — | | 157 | |
Net periodic benefit cost (income) | $ | 96 | | $ | 19 | | $ | (20) | |
The following summarizes contributions to pension plans and 2016.postretirement health and life insurance benefits:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Contributions made during the period | $ | 1,553 | | $ | 651 | | $ | 1,066 | |
| | | |
| | | |
|
| | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, |
(in thousands, except per share data) | 2017 | | 2016 | | 2017 | | 2016 | |
Basic Earnings (Loss) | | | | | | | | |
Net income (loss) attributable to Alliance One International, Inc. | $ | 88,456 |
| | $ | (15,457 | ) | | $ | 56,936 |
| | $ | (62,620 | ) | |
Shares | | | | | | | | |
Weighted average number of shares outstanding | 9,001 |
| | 8,941 |
| | 8,982 |
| | 8,923 |
| |
Basic Earnings (Loss) Per Share | $ | 9.83 |
| | $ | (1.73 | ) | | $ | 6.34 |
| | $ | (7.02 | ) | |
| | | | | | | | |
Diluted Earnings (Loss) | | | | | | | | |
Net income (loss) attributable to Alliance One International, Inc. | $ | 88,456 |
| | $ | (15,457 | ) | | $ | 56,936 |
| | $ | (62,620 | ) | |
Shares | | | | | | | | |
Weighted average number of common shares outstanding | 9,001 |
| | 8,941 |
| | 8,982 |
| | 8,923 |
| |
Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price | 28 |
|
| — |
| * | 27 |
|
| — |
| * |
Adjusted weighted average number of common shares outstanding | 9,029 |
| | 8,941 |
| | 9,009 |
| | 8,923 |
| |
Diluted Earnings (Loss) Per Share | $ | 9.80 |
| | $ | (1.73 | ) | | $ | 6.32 |
| | $ | (7.02 | ) | |
* All outstanding restricted shares and shares applicable to stock options and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share. |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Contributions made during the period | $ | 3,056 | | $ | 651 | | $ | 1,941 | |
Contributions expected for the remainder of the fiscal year | 2,815 | | 3,245 | | — | |
Total | $ | 5,871 | | $ | 3,896 | | $ | 1,941 | |
8. STOCK-BASED COMPENSATION22. Contingencies and Other Information
Brazilian Tax Credits
The Company recorded stock-based compensation expense related to stock-based awards granted under its various employee and non-employee stock incentive plans of $271 and $395 for the three months ended December 31, 2017 and 2016, respectively, of which zero and $60, respectively, were for stock-based awards payable in cash and $869 and $1,360 for the nine months ended December 31, 2017 and 2016, respectively, of which $54 and $180, respectively, were for stock-based awards payable in cash.
The Company’s shareholders approved the 2016 Incentive Plan (the "2016 Plan") at its annual meeting on August 12, 2016, which is the successor to the 2007 Incentive Plan (the “2007 Plan”) as amended on August 11, 2011 and August 6, 2009. The 2016 Plan is an omnibus plan that provides the flexibility to grant a variety of equity awards including stock options, stock appreciation rights, stock awards, stock units, performance awards, and incentive awards to officers, directors, and employees of the Company.
During the three months and nine months ended December 31, 2017 and 2016, respectively, the Company made the following stock-based compensation awards:
|
| | | | | | | | | | | | |
| Three Months Ended December 31, | Nine Months Ended December 31, |
(in thousands, except grant date fair value) | 2017 | 2016 | 2017 | 2016 |
Restricted Stock | | | | |
Number Granted | 7 |
| 8 |
| 22 |
| 21 |
|
Grant Date Fair Value | $ | 13.25 |
| $ | 19.20 |
| $ | 12.85 |
| $ | 18.15 |
|
Restricted Stock Units | | | | |
Number Granted | — |
| — |
| 57 |
| 56 |
|
Grant Date Fair Value | $ | — |
| $ | — |
| $ | 11.75 |
| $ | 17.76 |
|
Performance-Based Stock Units | | | | |
Number Granted | — |
| — |
| 29 |
| 28 |
|
Grant Date Fair Value | $ | — |
| $ | — |
| $ | 11.75 |
| $ | 17.76 |
|
Restricted stock consists of shares issued to non-employee directors of the Company which are not subject to a minimum vesting period. Restricted stock units differ from restricted stock in that shares are not issued until the restrictions lapse. Restricted stock
units granted during the three months ended December 31, 2017 vest ratably over a three-year period. Under the terms of the performance-based stock units, shares issued will be contingent upon the achievement of specified business performance goals.
Alliance One International, Inc. and Subsidiaries
9. CONTINGENCIES AND OTHER INFORMATION
The government in the Brazilian State of Parana (“Parana”("Parana") issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. TheAt September 30, 2021, the assessment for intrastate trade tax credits taken is $3,978$2,422 and the total assessment including penalties and interest at December 31, 2017 is $13,222.$8,794. On March 18, 2014, the government in Brazilian State of Santa Catarina also issued a tax assessment with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. At September 30, 2021, the assessment for intrastate trade tax credits taken is $2,095 and the total assessment including penalties and interest is $5,695. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazilian State of Santa Catarina and theBrazil State of Rio Grande do Sul. These jurisdictions permitThis jurisdiction permits the sale or transfer of excess credits to third parties. However,parties, however approval must be obtained from the tax authorities. The Company has an agreement with the state governmentsgovernment regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $1,646 as of December 31, 2017, which is net of impairment charges based on management’s expectations about future realization.$10,578. The intrastate trade tax credits will continue to beare monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
In 1969, the Brazilian government created a tax credit program that allowed companies to earn IPI tax credits (“IPI credits”) based on the value of their exports. The government began to phase out this program in 1979, which resulted in numerous lawsuits between taxpayers and the Brazilian government. The Company has a long legal history with respect to credits it earned while the IPI credit program was in effect. In 2001, the Company won a claim related to certain IPI credits it earned between 1983 and 1990. The Brazilian government appealed this decision and numerous rulings and appeals were rendered on behalf of both the government and the Company from 2001 through 2013. Because of this favorable ruling, the Company began to use these earned
IPI credits to offset federal taxes in 2004 and 2005, until it received a Judicial Order to suspend the IPI offsetting in 2005. The value of the federal taxes offset in 2004 and 2005 was $24,142 and the Company established a reserve on these credits at the time of offsetting as they were not yet realizable due to the legal uncertainty that existed. Specifically, the Company extinguished other federal tax liabilities using IPI credits and recorded a liability in Pension, Postretirement and Other Long-Term Liabilities to reflect that the credits were not realizable at that time due to the prevalent legal uncertainty. On March 7, 2013, the Brazilian Supreme Court rendered a final decision in favor of the Company that recognized the validity of the IPI credits and secured the Company's right to benefit from the IPI credits earned from March 1983 to October 1990. This final decision expressly stated the Company has the right to the IPI credits. The Company estimated the total amount of the IPI credits to be approximately $94,316 at March
31, 2013. Since the March 2013 ruling definitively (without the government's ability to appeal) granted the Company the ownership of the IPI credits generated between 1983 and 1990 the Company believed the amount of IPI credits that were used to offset other
federal taxes in 2004 and 2005 were realizable beyond a reasonable doubt. Accordingly, and at March 31, 2013, the Company recorded the $24,142 IPI credits it realized in the Statements of Consolidated Operations in Other Income, net. No further benefit has been recognized pending the outcome of the judicial procedure to ascertain the final amount as those amounts have not yet been
realized.
Mindo, S.r.l., the purchaser in 2004 of the Company's Italian subsidiary Dimon Italia, S.r.l., asserted claims against a subsidiary of the Company arising out of that sale transaction in an action filed before the Court of Rome on April 12, 2007. The claim involved a guaranty letter issued by a consolidated subsidiary of the Company in connection with the sale transaction, and sought the recovery of €7,400 plus interest and costs.On November 11, 2013, the court issued its judgment in favor of the Company’s subsidiary, rejecting the claims asserted by Mindo, S.r.l., and awarding the Company’s subsidiary legal costs of €0.5 million. On December 23, 2014, Mindo, S.r.l. appealed the judgment of the Court of Rome to the Court of Appeal of Rome. A hearing before the Court of Appeal of Rome was held on June 12, 2015, which was adjourned pending a further hearing set for February 2018. The outcome of, and timing of a decision on, the appeal are uncertain and therefore no amounts have been recorded.Matters
In addition to the above-mentioned matter,matters, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
In accordance with generally accepted accounting principles, theAsset Retirement Obligations
The Company records all knownidentified an asset retirement obligations (“ARO”obligation ("ARO") for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with one1 of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO becauseas the fair value of restoring the land at this site cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because the land restoration is not required until title is returned to the government, and the Company has no current or future plans to return the title. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.
Alliance One International, Inc. and Subsidiaries
10. DEBT ARRANGEMENTS
The ABL credit agreement restricts the Company from paying any dividends during the term of this facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the Company's outstanding 8.5% senior secured first lien notes due 2021 and its outstanding 9.875% senior secured second lien notes due 2021 contain similar restrictions and also prohibit the payment of dividends and other distributions if the Company fails to satisfy a ratio of consolidated EBITDA to fixed charges of at least 2.0 to 1.0. As of December 31, 2017, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio and failure to meet this fixed charge coverage ratio does not constitute an event of default.
During the nine months ended December 31, 2017, the Company purchased $28,645 of its existing $691,591 of the 9.875% senior secured second lien notes on the open market. All purchased securities were canceled leaving $662,946 of the 9.875% senior secured second lien notes outstanding as of December 31, 2017.23. Related discounts were $3,730 resulting in net cash repayment of $24,915 and were recorded in Repayment of Long-Term Borrowings in the Condensed Consolidated Statements of Cash Flows. Associated costs paid were $72, and deferred financing costs and amortization of original issue discount of $683 were accelerated.
11. DERIVATIVE FINANCIAL INSTRUMENTS
Party Transactions
The Company uses forward or option currency contracts to protect against volatility associatedengages in transactions with certain non-U.S. dollar denominated forecasted transactions. These contracts are for green tobacco purchases, processing costs, and selling, general and administrative costs. Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivative instruments designated as hedging instruments are recorded each period according to the determination of the derivative's effectiveness. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the change in fair value of the derivatives is recognized in Cost of Goods and Services Sold immediately as incurred.
As of December 31, 2017, Other Comprehensive Loss includes $999, net of tax, of unrealized gains related to designated cash flow hedges. These contracts did not qualify for hedge accounting as defined by generally accepted accounting principles in the previous years. There were no gains or losses recordedits equity method investees primarily for the three monthsprocuring and nine months ended December 31, 2016.processing of inventory. The Company recorded losses of $656following summarizes sales and $598 in its Cost of Goods and Services Sold for the three months and nine months ended December 31, 2017, respectively. The Company recorded a current derivative asset of $943 as of March 31, 2017. There was no current derivative asset as of December 31, 2017 and 2016.purchases transactions with related parties:
The Company has elected not to offset fair value amounts recognized for derivative instruments with the same counterparty under a master netting agreement. See Note 16 “Fair Value Measurements” to the “Notes to Condensed Consolidated Financial Statements” for further information of fair value methodology.
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Sales | $ | 8,176 | | $ | 539 | | $ | 6,325 | |
Purchases | 25,331 | | 18,919 | | 19,928 | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Sales | $ | 18,813 | | $ | 539 | | $ | 13,483 | |
Purchases | 47,673 | | 18,919 | | 38,655 | |
12. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has multiple benefit plans at several locations. The Company has a defined benefit plan that provides retirement benefits for substantially all U.S. salaried personnel based on years of service rendered, age, and compensation. The Company also maintains various other excess benefit and supplemental plans that provide additional benefits to (1) certain individuals whose compensation,the following related party balances included in its condensed consolidated balances sheets:
| | | | | | | | | | | | | | |
| Successor | Location in the Condensed Consolidated Balance Sheets |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Accounts receivable, related parties | $ | 5,611 | | $ | 3,773 | | $ | 3,585 | | Other receivables |
Notes receivable, related parties | 3,519 | | — | | 11,890 | | Other receivables |
| | | | |
Accounts payable, related parties | 13,451 | | 34,815 | | 22,376 | | Accounts payable |
Advances from related parties | 14,550 | | — | | — | | Advances from customers |
| | | | |
| | | | |
Transactions with the Glendon Investor and the resulting benefits that would have actually been paid, are limited by regulations imposedMonarch Investor
On April 23, 2021, the Company and certain of its subsidiaries with certain funds managed by the Internal Revenue Code and (2) certain individuals in key positions. The Company funds these plans in amounts consistent with the funding requirements of federal law and regulations. The Company also provides certain health and life insurance benefits to retired employees, and their eligible dependents, who meet specified age and service requirements.
Additional non-U.S. defined benefit plans sponsored by certain subsidiaries cover certain full-time employees located in Germany, Turkey,Glendon Investor and the
United Kingdom.Monarch Investor, as lenders, and related matters entered into a $120,000 delayed-draw credit facility agreement (see "Note 16. Debt Arrangements" for additional information).
Alliance One International, Inc.Accrued expenses and Subsidiaries
12. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued)
The componentsother current liabilities as presented in the condensed consolidated balance sheets as of the Company's net periodic benefit cost were as follows:
|
| | | | | | | | | | | | |
| Pension Benefits |
| Three Months Ended December 31, | Nine Months Ended December 31, |
| 2017 | 2016 | 2017 | 2016 |
Service cost | $ | 116 |
| $ | 120 |
| $ | 349 |
| $ | 360 |
|
Interest expense | 1,063 |
| 1,176 |
| 3,189 |
| 3,528 |
|
Expected return on plan assets | (1,264 | ) | (1,403 | ) | (3,793 | ) | (4,209 | ) |
Amortization of prior service cost | 10 |
| 10 |
| 31 |
| 30 |
|
Actuarial loss | 511 |
| 524 |
| 1,533 |
| 1,572 |
|
Settlement loss | — |
| 1,120 |
| — |
| 1,120 |
|
Net periodic pension cost | $ | 436 |
| $ | 1,547 |
| $ | 1,309 |
| $ | 2,401 |
|
|
| | | | | | | | | | | | |
| Other Postretirement Benefits |
| Three Months Ended December 31, | Nine Months Ended December 31, |
| 2017 | 2016 | 2017 | 2016 |
Service cost | $ | 3 |
| $ | 3 |
| $ | 10 |
| $ | 9 |
|
Interest expense | 85 |
| 67 |
| 254 |
| 201 |
|
Amortization of prior service cost | (178 | ) | (177 | ) | (533 | ) | (531 | ) |
Actuarial loss | 115 |
| 104 |
| 345 |
| 312 |
|
Net periodic pension cost (benefit) | $ | 25 |
| $ | (3 | ) | $ | 76 |
| $ | (9 | ) |
For the nine months ended DecemberSeptember 30, 2021 and 2020, and March 31, 2017, contributions2021, includes $4,369, $2,192, and $2,309, respectively, of $4,191 and $273 were made to pension plans and postretirement health and life insurance benefits, respectively, for fiscal 2018. Additional contributions to pension plans and postretirement health and life insurance benefits of approximately $2,132 and $207, respectively, are expected during the remainder of fiscal 2018.
13. INVENTORIES
The following table summarizes the Company’s costs in inventory:
|
| | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 | | March 31, 2017 |
Processed tobacco | $ | 786,227 |
| | $ | 716,743 |
| | $ | 424,984 |
|
Unprocessed tobacco | 98,800 |
| | 102,668 |
| | 220,625 |
|
Other | 20,653 |
| | 25,722 |
| | 32,716 |
|
Total inventory | $ | 905,680 |
| | $ | 845,133 |
| | $ | 678,325 |
|
14. OTHER COMPREHENSIVE LOSS
The following table sets forth the amounts of each component of Accumulated Other Comprehensive Losses, net of tax, attributableinterest payable to the Company:
|
| | | | | | | | | |
| December 31, | December 31, | March 31, |
| 2017 | 2016 | 2017 |
Currency translation adjustments | $ | (15,476 | ) | $ | (21,434 | ) | $ | (22,293 | ) |
Pensions, net of tax | (35,278 | ) | (37,300 | ) | (36,654 | ) |
Derivatives, net of tax | (999 | ) | — |
| (1,100 | ) |
Total accumulated other comprehensive losses | $ | (51,753 | ) | $ | (58,734 | ) | $ | (60,047 | ) |
Alliance One International, Inc. and Subsidiaries
14. OTHER COMPREHENSIVE LOSS (continued)
The movements in accumulated other comprehensive lossesGlendon Investor and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement are shown onMonarch Investor. Interest expense as presented in the condensed consolidated statements of comprehensive income or lossoperations includes $8,537 and $16,036 for three and six months ended September 30, 2021, respectively, and $2,192 for the ninethree and six months ended September 30, 2020, that relates to the Glendon Investor and the Monarch Investor.
Transactions with the Deconsolidated Canadian Cannabis Subsidiaries
In connection with the CCAA Proceeding, the DIP Lender, another non-U.S. subsidiary of the Company, provided Figr Brands with secured debtor-in-possession financing to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as agreed to by the DIP Lender.
As of September 30, 2021 and 2020, and March 31, 2021, the outstanding loan balance under the Canadian DIP Facility was $0, $0, and $5,790, respectively, and is included in other receivables within the condensed consolidated balance sheets. As of September 30, 2021 and 2020, and March 31, 2021, other receivables as presented in the condensed consolidated balance sheets also includes $0, $0, and $59, respectively, of interest receivable associated with the loans under the Canadian DIP Facility due from the Canadian Cannabis Subsidiaries. For the three and six months ended September 30, 2021, respectively, the Canadian Cannabis Subsidiaries have incurred $19 and $184 in interest expense associated with the Canadian DIP Facility, which is considered income to the Company and is recorded in interest expense, net within the condensed consolidated statements of operations. On July 8, 2021, the loans under the Canadian DIP Facility were fully repaid to the DIP Lender.
As of September 30, 2021 and 2020, and March 31, 2021, the fair value of the related party note receivable retained by the Company from the Canadian Cannabis Subsidiaries was $3,519, $0, and $6,100, respectively, and is recorded in other receivables within the condensed consolidated balance sheets. See "Note 5. CCAA Proceeding and Deconsolidation of Subsidiaries" for additional information.
24. Segment Information
The Company's operations are managed and reported in 9 operating segments that are organized by product category and geographic area and aggregated into 3 reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. The types of products and services from which each reportable segment derives its revenues are as follows:
•Leaf - North America ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - North America is more concentrated on processing and other activities compared to the rest of the world.
•Leaf - Other Regions ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - Other Regions sells a small amount of processed but un-threshed flue-cured and burley tobacco in loose-leaf and bundle form to certain customers.
•Other Products and Services primarily consists of e-liquid products and industrial hemp and included, for periods prior to the Order Date, the Canadian Cannabis Subsidiaries. E-liquids and industrial hemp products are sold through retailers and directly to consumers via e-commerce platforms and other distribution channels. The Canadian Cannabis Subsidiaries collectively operate businesses, under licenses issued by Health Canada, for the production and sale of cannabis products to retailers in Canada.
The following summarizes segment information:
| | | | | | | | | | | |
| Successor | Predecessor |
| Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 |
Sales and other operating revenues: | | | |
Leaf - North America | $ | 90,521 | | $ | 19,977 | | $ | 27,837 | |
Leaf - Other Regions | 300,434 | | 96,988 | | 152,758 | |
Other Products and Services | 3,246 | | 869 | | 4,196 | |
Total sales and other operating revenues | $ | 394,201 | | $ | 117,834 | | $ | 184,791 | |
| | | |
Operating income (loss): | | | |
Leaf - North America | $ | 8,502 | | $ | 905 | | $ | 1,210 | |
Leaf - Other Regions | 9,881 | | 3,892 | | 5,153 | |
Other Products and Services | (12,929) | | (13,263) | | (6,724) | |
Total operating income (loss) | $ | 5,454 | | $ | (8,466) | | $ | (361) | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 |
Sales and other operating revenues: | | | |
Leaf - North America | $ | 140,289 | | $ | 19,977 | | $ | 57,734 | |
Leaf - Other Regions | 580,524 | | 96,988 | | 380,497 | |
Other Products and Services | 6,678 | | 869 | | 9,369 | |
Total sales and other operating revenues | $ | 727,491 | | $ | 117,834 | | $ | 447,600 | |
| | | |
Operating income (loss): | | | |
Leaf - North America | $ | 11,098 | | $ | 905 | | $ | 376 | |
Leaf - Other Regions | 21,821 | | 3,892 | | (1,028) | |
Other Products and Services | (19,261) | | (13,263) | | (43,305) | |
Total operating income (loss) | $ | 13,658 | | $ | (8,466) | | $ | (43,957) | |
| | | | | | | | | | | |
| Successor |
| September 30, 2021 | September 30, 2020 | March 31, 2021 |
Segment assets: | | | |
Leaf - North America | $ | 315,593 | | $ | 271,593 | | $ | 247,265 | |
Leaf - Other Regions | 1,293,640 | | 1,275,117 | | 1,204,993 | |
Other Products and Services | 66,323 | | 191,589 | | 87,204 | |
Total assets | $ | 1,675,556 | | $ | 1,738,299 | | $ | 1,539,462 | |
25. Subsequent Events
Operating and Reportable Segment Considerations
The Company is reevaluating its operating and reportable segments under ASC Topic 280 – Segment Reporting following the effectiveness of the Plan in August 2020, the appointment of a new Board of Directors in fiscal 2021, the outcomes achieved from cost savings initiatives implemented in fiscal 2021, the Company's exit from its industrial hemp, CBD, and Canadian cannabis businesses in 2021, and the impact the COVID-19 pandemic has had on the Company's global operations. These events are changing how the Company is managed and the information used by Management to assess the Company's performance and allocation of its resources. The Company expects to conclude this evaluation during the three months ended December 31, 20172021.
Item 2. Management’s Discussion and 2016.Analysis of Financial Condition and Results of Operations
The following table sets forth amounts
Forward-Looking Statements
Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by component, reclassifiedthe use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets,” and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from Accumulated Other Comprehensive Loss to earningsthose anticipated, estimated, or projected. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the three monthsyear ended March 31, 2021 and nine months ended December 31, 2017in our other filings with the Securities and 2016:Exchange Commission. These risks and uncertainties include:
|
| | | | | | | | | | | | |
| Three Months Ended December 31, | Nine Months Ended December 31, |
| 2017 | 2016 | 2017 | 2016 |
Pension and postretirement plans*: | | | | |
Actuarial loss | $ | 626 |
| $ | 628 |
| $ | 1,878 |
| $ | 1,883 |
|
Amortization of prior service cost | (167 | ) | (167 | ) | (502 | ) | (501 | ) |
Settlement loss | — |
| 1,120 |
| — |
| 1,120 |
|
Amounts reclassified from accumulated other comprehensive losses to net income | $ | 459 |
| $ | 1,581 |
| $ | 1,376 |
| $ | 2,502 |
|
* Amounts are•risks related to our indebtedness, including that the Company has substantial debt which may adversely affect it by limiting future sources of financing, interfering with its ability to pay interest, and principal on its indebtedness and subjecting it to additional risks, the Company requires a significant amount of cash to service indebtedness and its ability to generate cash depends on many factors beyond its control, the Company may not be able to refinance or renew its indebtedness, including indebtedness due within one year, which may have a material adverse effect on its financial condition, the Company may not be able to satisfy the covenants included in net periodic benefitits financing arrangements, which could result in the default of its outstanding debt obligations, and despite current indebtedness levels, the Company may still be able to incur substantially more debt, which could exacerbate further the risks associated with its significant leverage;
•risks and uncertainties relating to the Chapter 11 Cases and the Company's liquidity and business strategy, including but not limited to: whether the Company’s leaf tobacco customers, farmers and other suppliers might lose confidence in Pyxus as a result of the Chapter 11 Cases or otherwise and may seek to establish alternative commercial relationships, whether, as a result of the Chapter 11 Cases or otherwise, foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level may lose confidence in Pyxus and cease to provide such funding, uncertainty and continuing risks associated with the Company’s ability to achieve its goals, which may adversely affect the Company's liquidity, unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity, and the Company’s Board of Directors, as reconstituted in connection with the Chapter 11 Cases, may implement further changes in the Company’s business strategy that could affect the scope of its operations, including the countries in which it continues to operate and the business lines that it continues to pursue, and may result in the recognition of restructuring or asset impairment charges;
•risk and uncertainties related to the Company’s leaf tobacco operations, including changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of short-term seasonal financing, political instability, currency and interest rate fluctuations, shifts in the global supply and demand position for tobacco products, changes in tax laws and regulations or the interpretation of tax laws and regulations, resolution of tax matters, adverse weather conditions, the impact of disasters or other unusual events affecting international commerce, and changes in costs incurred in supplying products and related services;
•risks and uncertainties related to the COVID-19 pandemic, including possible delays in shipments of leaf tobacco, including from the closure or restricted activities at ports or other channels, disruptions to the Company’s operations or the operations of suppliers and customers resulting from restrictions on the ability of employees and others in the supply chain to travel and work, border closures, determinations by Pyxus or shippers to temporarily suspend operations in affected areas, whether the Company’s operations that have been classified as “essential” under various governmental orders restricting business activities will continue to be so classified or, even if so classified, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of our facilities to be halted for pensionsome period of time, negative consumer purchasing behavior with respect to the Company’s products or the products of its leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and postretirement plans.the extent to which the impact of the COVID-19 pandemic on the Company’s operations and the demand for its products may not coincide with impacts experienced in the United States due to the international scope of its operations, including in emerging and other markets in which the Company operates where the timing and severity of COVID-19 outbreaks and the pace of COVID-19 vaccinations and treatments may differ from those in the United States; and
•risks and uncertainties related to the Company’s Other Products and Services segment, including that the e-liquids business has a limited operating history, is in a developing market, may not generate the results that the Company anticipates and has needed, and may continue to need, significant investment to fund continued operations and
expansion, that its technologies, processes and formulations may become obsolete, that government approvals necessary for the continued sale of certain e-liquids products may not be obtained, the impact of increasing competition, uncertainties with respect to the development of the industry and market, including the level of consumer demand for such products, the potential for product liability claims, uncertainties with respect to the extent of consumer acceptance of the products offered by the e-liquids business, the impact of regulation associated with the e‑liquids business, including the risk of obtaining anticipated regulatory approvals, and risks and uncertainties related to the CCAA Proceeding (as defined below), including whether the remaining sale transaction with respect to the Canadian Cannabis Subsidiaries (as defined below) will be successfully completed within the anticipated time frame or at all and the extent of any recovery, or additional impairment, that Pyxus may recognize with respect to its investment in these subsidiaries.
We do not undertake to update any forward-looking statements that we make from time to time.
Executive Summary
Despite COVID-related shipping constraints that face many industries, the first half of fiscal 2022 reflects improved demand, increased leaf volumes, and improved operational performance. During the second quarter we continued to catch-up from prior-period shipping delays driven by the pandemic and customer shipping instructions. In addition, we continue to monitor the impact of COVID on our Company and our workforce, and adjust our operations to protect the health and safety of our employees while maintaining business continuity. The leaf business continues to be impacted by COVID-related shipping constraints, including vessel and equipment availability, port congestion, and rising freight costs. We are taking proactive steps to mitigate these challenges, including taking steps to accelerate shipments, exploring new ports for product export, and working closely with customers to determine if there are ways to expedite the process flow for their operations. We estimate that between $90 million and $120 million of revenue was delayed from the first half of the year into future quarters due to COVID-related shipping constraints. Despite these challenges, we continue to manage our working capital closely. Consistent with our expectations, inventory at September 30, 2021 decreased $42.3 million or 5.0% to $802.4 million when compared to September 30, 2020. In addition, our uncommitted inventory decreased compared to the prior year. Our customers continue to look for ways to reduce complexity in their supply chains through partnerships with suppliers who support their environmental, social, and governance ("ESG") objectives. The strengthening of our business in a sustainable manner remains a priority as our global team works together to achieve our purpose of growing a better world.
Overview
Historically, Pyxus’ core business has been as a tobacco leaf merchant, purchasing, processing, packing, storing and shipping tobacco to manufacturers of cigarettes and other consumer tobacco products throughout the world. Through our predecessor companies, we have a long operating history in the leaf tobacco industry with some customer relationships beginning in the early 1900s.
We are committed to responsible crop production that supports economic viability for the grower, provides a safe working atmosphere for those involved in crop production and minimizes negative environmental impact. Our agronomists maintain frequent contact with growers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. Throughout the entire production process, from seed through processing and final shipment, our SENTRISM traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity.
In an increasing number of markets, we also provide agronomy expertise for growing leaf tobacco. Our contracted tobacco grower base often produces a significant volume of non-tobacco crop utilizing the agronomic assistance that our team provides. Pyxus is working to find markets for these crops as part of our ongoing efforts to improve farmer livelihoods and the communities in which they live.
Our consolidated operations are managed and reported in nine operating segments that are organized by product category and geographic area and aggregated into three reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. See "Note 12 "Pension and Postretirement Benefits"24. Segment Information" to the "Notes to Condensed Consolidated Financial Statements" for furtheradditional information.
Operating and Reportable Segment Considerations
15. SALE OF RECEIVABLES
The Company sells trade receivables to unaffiliated financial institutionsis reevaluating its operating and reportable segments under two accounts receivable securitization programs. UnderASC Topic 280 – Segment Reporting following the first program,effectiveness of the Plan in August 2020, the appointment of a new Board of Directors in fiscal 2021, the outcomes achieved from cost savings initiatives implemented in fiscal 2021, the Company's exit from its industrial hemp, CBD, and Canadian cannabis businesses in 2021, and the impact the COVID-19 pandemic has had on the Company's global operations. These events are changing how the Company continuously sells a designated pool of trade receivablesis managed and the information used by Management to a special purpose entity, which in turn sells 100% ofassess performance and allocate resources. The Company expects to conclude this evaluation during the receivables to an unaffiliated financial institution. During the ninethree months ended December 31, 2017,2021.
U.S. Bankruptcy Proceedings
On June 15, 2020, Old Holdco, Inc. (then named Pyxus International, Inc.) (“Old Pyxus”) and its then subsidiaries Alliance One International, LLC, Alliance One North America, LLC, Alliance One Specialty Products, LLC and GSP Properties, LLC
(collectively, the investment limit“Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of this program was adjusted from up to $100,000 trade receivables to up to $155,000 trade receivables. The agreementthe United States Bankruptcy Code with the Bankruptcy Court for the second programDistrict of Delaware (the “Bankruptcy Court”) to implement a prepackaged Chapter 11 plan of reorganization to effectuate a financial restructuring (the “Restructuring”) of Old Pyxus’ secured debt. On August 21, 2020, the Bankruptcy Court issued an order (the “Confirmation Order”) confirming the Amended Joint Prepackaged Chapter 11 Plan of Reorganization (the “Plan”) filed by the Debtors in the Chapter 11 Cases. On August 24, 2020 (the "Effective Date"), the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc., which is an uncommitted program, wherebyindirect subsidiary of the Company. Pursuant to the Confirmation Order and the Plan, at the effectiveness of the Plan, all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company offers receivables for salewere delivered to certain creditors of Old Pyxus. Accordingly, upon the respective unaffiliated financial institution, which are then subject to acceptance byeffectiveness of the unaffiliated financial institution.
Under the programs,Plan the Company, receives a cash payment and a deferred purchase price receivable in exchange for receivables sold. Following the sale and transfer of the receivables to the unaffiliated financial institutions, the receivables are isolated from the Company andthrough its affiliates, and effective control of the receivables is passed to the unaffiliated financial institutions, which have all rights, including the right to pledge or sell the receivables.
Development of Businesses
Beginning in 2017, we undertook a strategic process designed to diversify the Company's products and services by leveraging our core strengths in agronomy and traceability. In general, our diversification strategy focused on products that were value-added, required some degree of processing and offered a higher margin potential than our core tobacco leaf business. In support of this strategy, the Company made investments in businesses that focused on e-liquids, industrial hemp/CBD, and legal cannabis in Canada.
Following the effectiveness of the Plan and the election of additional members of our Board of Directors in October 2020, our Board of Directors determined to exit the industrial hemp, CBD and Canadian cannabis businesses in light of the Company’s limited capital resources and the continuing capital requirements to develop and expand these early-stage businesses. In December 2020, the Company commenced actions to exit operations of the industrial hemp businesses, including the production and sale of products containing extracts of industrial hemp, including CBD products. The Company’s CBD extraction facility has ceased operations.
CCAA Proceeding
On January 21, 2021, Figr Norfolk Inc. (“Figr Norfolk”) and Figr Brands, Inc. (“Figr Brands”), which are indirect subsidiaries of the Company, and Canada’s Island Garden Inc. (“Figr East,” and together with Figr Norfolk and Figr Brands, the “Canadian Cannabis Subsidiaries”), which, prior to its sale on June 28, 2021 was an indirect subsidiary of the Company, applied for relief from their respective creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court of Justice (Commercial List) (the “Canadian Court”) in Ontario, Canada as Court File No. CV-21-00655373-00CL (the “CCAA Proceeding”). On January 21, 2021, upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the “Monitor”). On January 29, 2021, the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be conducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries.
On May 10, 2021, a definitive agreement for the sale of the assets of Figr Norfolk was entered into for an estimated purchase price of Cdn.$5.0 million. On June 10, 2021, the Canadian Court approved the sale agreement. The consummation of the sale under this agreement is subject to approval of the buyers by Health Canada and the satisfaction of certain other conditions.
On May 25, 2021, a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an estimated aggregate purchase price of Cdn.$24.8 million. On June 10, 2021, the Canadian Court approved the sale agreement. On June 25, 2021, Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands. The sale of Figr East and certain intangible assets of Figr Brands was completed on June 28, 2021.
The Company is serviceramount of both facilities andrecovery that the Company may receive fundsfrom the pending sale of the assets of Figr Norfolk, the completed sale of the outstanding equity of Figr East, and the completed sale of certain intangible assets of Figr Brands will be impacted by the amount of claims against the Canadian Cannabis Subsidiaries submitted in the CCAA Proceeding, the extent to which such claims are approved by the Canadian Court, and the extent to which the Company's interest in the Canadian Cannabis Subsidiaries are determined by the Canadian Court to be debt claims entitled to recovery on the same basis as other unsecured creditor claims with respect to the Canadian Cannabis Subsidiaries.
COVID-19
We continue to monitor the impact of the COVID-19 pandemic on our Company and workforce as well as the impact of COVID-related shipping constraints. The COVID-19 pandemic and government actions implemented to contain further spread of COVID-19 have severely restricted economic activity around the world, and the onset of new variants of COVID-19 threaten to prolong the effects of the pandemic. Our production facilities are still operating but, in some instances, at lower production levels than planned due to social distancing requirements and safety practices implemented in accordance with Company policy. We continue to monitor the measures we implemented to reduce the spread of COVID-19 and make updates and improvements, as necessary. While our supply chains and distribution channels continue to experience delays due to COVID-19 in certain markets, we currently have adequate supply of products to meet the near-term forecasted demand. In addition, shipping constraints have resulted in delays in shipments to customers, which my continue for the remainder of the fiscal year and beyond.
Broad economic impacts from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending in some markets in which we operate, may extend billing and collection cycles. Deterioration in the collectability of accounts receivable from extended billing and collection cycles would adversely affect our results of operations, financial condition, and cash flows, leading to working capital constraints. If general economic conditions in the markets in which we operate continue to deteriorate or remain uncertain for an extended period of time, our business, results of operations, financial condition, and cash flows will be adversely affected. Due to the geographic scope of our operations, including emerging markets, and our sale to customers around the world, our operations and the demand for our products are subject to the impact of the COVID-19 on a global scale. Improving economic conditions in the United States, for example, may not coincide with improvements in our results of operations because of our exposure to the impact of COVID-19 elsewhere in the world, particularly in emerging markets that lack access to adequate COVID-19 vaccines and medical treatments. We cannot predict the extent or duration of the COVID pandemic, the effects of the COVID pandemic on the global, national or local economy, or the effect of the COVID pandemic on our business, financial position, results of operations, and cash flows.
Fresh Start Reporting
The Company applied Financial Accounting Standards Board ASC Topic 852 – Reorganizations in preparing the condensed consolidated financial statements. For periods subsequent to the commencement of the Chapter 11 Cases, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. Our financial results for the two and five months ended August 31, 2020 are referred to as those of the “Predecessor.” Our financial results for the one month ended September 30, 2020, and for the three and six months ended September 30, 2021 are referred to as those of the “Successor.” Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with fresh start reporting, which requires that we report on our results for the periods prior to the Effective Date separately from the period following the Effective Date. The Company elected to apply fresh start reporting using a convenience date of August 31, 2020. The Company evaluated and concluded the events between August 24, 2020 and August 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis. Refer to "Note 4. Fresh Start Reporting" to the "Notes to Condensed Consolidated Financial Statements" for additional information. We do not believe that reviewing the results of these periods in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance. Management believes that operating metrics for the Successor period when combined with the Predecessor period provides more meaningful comparisons to other periods and are useful in identifying current business trends. Accordingly, in addition to presenting our results of operations as reported in our Condensed Consolidated Financial Statements in accordance with U.S. GAAP, the tables and discussions below also present the combined results for the three months and six months ended September 30, 2020. The combined results (referenced as “Combined (Non-GAAP)” or “combined”) for the three months and six months ended September 30, 2020 represent the sum of the reported amounts for the Predecessor period July 1, 2020 through August 31, 2020 combined with the Successor period from September 1, 2020 through September 30, 2020 and the Predecessor period from April 1, 2020 through August 31, 2020 combined with the Successor period from September 1, 2020 through September 30, 2020, respectively. These combined results are not considered to be prepared in accordance with U.S. GAAP and have not been prepared as pro forma results under applicable regulations. The combined operating results are presented for supplemental purposes only, may not reflect the actual results we would have achieved absent our emergence from bankruptcy, may not be indicative of future results and should not be viewed as a substitute for the financial results of the Predecessor period and Successor period presented in accordance with U.S. GAAP. In the following discussion of results of operations, comparisons of combined results for the three and six month periods ended September 30, 2020 are to the comparable U.S. GAAP measures for the respective three and six month periods ended September 30, 2021.
Results of Operations
| | | | | | | | | | | | | | | | |
Three Months Ended September 30, 2021 and 2020 |
| | | | | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 | Three months ended September 30, 2020 | | |
Sales and other operating revenues | $ | 394.2 | | $ | 117.8 | | $ | 184.8 | | $ | 302.6 | | | |
Cost of goods and services sold | 342.1 | | 107.5 | | 159.4 | | 266.9 | | | |
Gross profit* | 52.1 | | 10.4 | | 25.4 | | 35.8 | | | |
Selling, general, and administrative expenses | 37.9 | | 15.7 | | 27.1 | | 42.8 | | | |
Other (expense) income, net | (1.8) | | (1.9) | | 1.9 | | — | | | |
Restructuring and asset impairment charges | 6.9 | | 1.2 | | 0.5 | | 1.7 | | | |
| | | | | | |
Operating income (loss)* | 5.5 | | (8.5) | | (0.4) | | (8.9) | | | |
Loss on deconsolidation of subsidiaries | 2.5 | | — | | — | | — | | | |
| | | | | | |
| | | | | | |
Interest expense, net | 28.5 | | 8.1 | | 14.7 | | 22.8 | | | |
| | | | | | |
Reorganization items | — | | — | | 132.9 | | 132.9 | | | |
Income tax (benefit) expense | (14.1) | | (10.6) | | 8.5 | | (2.1) | | | |
Income from unconsolidated affiliates | 1.3 | | 0.2 | | 1.5 | | 1.7 | | | |
Net loss attributable to noncontrolling interests | (0.3) | | (0.5) | | (0.3) | | (0.8) | | | |
Net (loss) income attributable to Pyxus International, Inc.* | $ | (9.7) | | $ | (5.3) | | $ | 111.2 | | $ | 105.9 | | | |
| | | | | | |
* Amounts may not equal column totals due to rounding |
Sales and other operating revenues increased $91.6 million, or 30.3%, to $394.2 million for the three months ended September 30, 2021 from $302.6 million for the combined three months ended September 30, 2020. This increase was due to a 12.2% increase in leaf volume from $82.9 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current quarter and an 18.3% increase in leaf average sales price driven by product mix having a higher concentration of lamina. These increases were partially offset by the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and the decrease in e-liquids revenue related to a general industry slow-down amid evolving regulations.
Cost of goods and services sold increased $75.2 million, or 28.2%, to $342.1 million for the three months ended September 30, 2021 from $266.9 million for the combined three months ended September 30, 2020. This increase was mainly due to the unaffiliated financial institutions, which are net settled onincrease in sales and other operating revenues.
Gross profit as a percent of sales increased to 13.2% for the next settlement date. As a resultthree months ended September 30, 2021 from 11.8% for the combined three months ended September 30, 2020. This increase was attributable to lower conversion costs per kilo, customer mix, and the deconsolidation of the net settlement, Trade and Other Receivables, NetCanadian Cannabis Subsidiaries in the Condensed Consolidated Balance Sheets has been reducedfourth quarter of fiscal 2021. This increase was partially offset by $7,953, $7,359,foreign currency fluctuations and $11,985higher shipping costs.
Selling, general, and administrative ("SG&A") expenses decreased $4.9 million, or 11.4%, to $37.9 million for the three months ended September 30, 2021 from $42.8 million for the combined three months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 9.6% for the three months ended September 30, 2021 from 14.1% for the combined three months ended September 30, 2020. These decreases were mainly due to increased sales and other operating revenues, the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives.
Restructuring and asset impairment charges increased $5.2 million or 305.9% to $6.9 million for the three months ended September 30, 2021 from $1.7 million for the combined three months ended September 30, 2020 due to the write-off of the Company's remaining industrial hemp CBD extraction equipment and the continued restructuring of certain leaf operations.
Interest expense, net increased $5.7 million or 25.0% to $28.5 million for the three months ended September 30, 2021 from $22.8 million for the combined three months ended September 30, 2020 due to the borrowings under the DDTL Facility in the current fiscal year.
Reorganization items of $132.9 million were incurred in the prior fiscal year as a result of the net settlementChapter 11 Cases.
| | | | | | | | | | | | | | | | |
Leaf - North America Supplemental Information |
| | | | | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions, except per kilo amounts) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 | Three months ended September 30, 2020 | | |
Kilos sold | 12.8 | | 2.9 | | 4.4 | | 7.3 | | | |
Tobacco sales and other operating revenues: | | | | | | |
Sales and other operating revenues | $ | 83.7 | | $ | 17.1 | | $ | 25.3 | | $ | 42.4 | | | |
Average price per kilo | 6.54 | | 5.90 | | 5.75 | | 5.81 | | | |
Processing and other revenues | 6.8 | | 2.9 | | 2.5 | | 5.4 | | | |
Total sales and other operating revenues | 90.5 | | 20.0 | | 27.8 | | 47.8 | | | |
Tobacco cost of goods sold: | | | | | | |
Tobacco costs | 69.4 | | 13.5 | | 19.4 | | 32.9 | | | |
Transportation, storage, and other period costs | 3.6 | | 1.3 | | 3.0 | | 4.3 | | | |
Derivative financial instrument and exchange losses (gains) | — | | (0.1) | | — | | (0.1) | | | |
Total tobacco cost of goods sold | 73.0 | | 14.7 | | 22.4 | | 37.1 | | | |
Average cost per kilo | 5.70 | | 5.07 | | 5.09 | | 5.08 | | | |
Processing and other revenues cost of services sold | 4.9 | | 2.4 | | 1.7 | | 4.1 | | | |
Total cost of goods and services sold | 77.9 | | 17.1 | | 24.1 | | 41.2 | | | |
Gross profit | 12.6 | | 2.9 | | 3.7 | | 6.6 | | | |
Selling, general, and administrative expenses | 3.5 | | 1.8 | | 2.3 | | 4.1 | | | |
Other expense, net | (0.5) | | (0.1) | | (0.2) | | (0.3) | | | |
Restructuring and asset impairment charges | 0.1 | | 0.1 | | — | | 0.1 | | | |
Operating income | $ | 8.5 | | $ | 0.9 | | $ | 1.2 | | $ | 2.1 | | | |
Total sales and other operating revenues increased $42.7 million, or 89.3%, to $90.5 million for the three months ended September 30, 2021 from $47.8 million for the combined three months ended September 30, 2020. This increase was primarily due to 75.3% higher volume from $44.7 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current quarter and a 12.6% increase in average sales price driven by product mix having a higher concentration of lamina.
Cost of goods and services sold increased $36.7 million, or 89.1%, to $77.9 million for the three months ended September 30, 2021 from $41.2 million for the combined three months ended September 30, 2020. This increase was mainly due to the increase in total sales and other operating revenues.
Gross profit as a percent of December 31, 2017sales decreased to 13.9% for the three months ended September 30, 2021 from 13.8% for the combined three months ended September 30, 2020. This decrease was primarily due to customer mix. This decrease was partially offset by lower conversion costs per kilo.
SG&A expenses as a percent of sales decreased to 3.9% for the three months ended September 30, 2021 from 8.6% for the combined three months ended September 30, 2020 driven by increased total sales and 2016,other operating revenues and March 31, 2017, respectively.savings from fiscal 2021 restructuring initiatives.
The difference between
| | | | | | | | | | | | | | | | |
Leaf - Other Regions Supplemental Information |
| | | | | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions, except per kilo amounts) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 | Three months ended September 30, 2020 | | |
Kilos sold | 73.6 | | 25.7 | | 44.0 | | 69.7 | | | |
Tobacco sales and other operating revenues: | | | | | | |
Sales and other operating revenues | $ | 273.9 | | $ | 89.4 | | $ | 137.6 | | $ | 227.0 | | | |
Average price per kilo | 3.72 | | 3.48 | | 3.13 | | 3.26 | | | |
Processing and other revenues | 26.5 | | 7.6 | | 15.2 | | 22.8 | | | |
Total sales and other operating revenues | 300.4 | | 97.0 | | 152.8 | | 249.8 | | | |
Tobacco cost of goods sold: | | | | | | |
Tobacco costs | 223.5 | | 72.6 | | 109.2 | | 181.8 | | | |
Transportation, storage, and other period costs | 15.8 | | 5.9 | | 8.4 | | 14.3 | | | |
Derivative financial instrument and exchange (gains) losses | (0.7) | | 0.4 | | (0.1) | | 0.3 | | | |
Total tobacco cost of goods sold | 238.6 | | 78.9 | | 117.5 | | 196.4 | | | |
Average cost per kilo | 3.24 | | 3.07 | | 2.67 | | 2.82 | | | |
Processing and other revenues cost of services sold | 19.6 | | 5.3 | | 12.7 | | 18.0 | | | |
Total cost of goods and services sold | 258.2 | | 84.2 | | 130.2 | | 214.4 | | | |
Gross profit | 42.2 | | 12.8 | | 22.6 | | 35.4 | | | |
Selling, general, and administrative expenses | 30.1 | | 8.4 | | 17.3 | | 25.7 | | | |
Other (expense) income, net | (1.0) | | 0.6 | | 0.4 | | 1.0 | | | |
Restructuring and asset impairment charges | 1.2 | | 1.1 | | 0.5 | | 1.6 | | | |
Operating income | $ | 9.9 | | $ | 3.9 | | $ | 5.2 | | $ | 9.1 | | | |
Total sales and other operating revenues increased $50.6 million, or 20.3%, to $300.4 million for the carrying amountthree months ended September 30, 2021 from $249.8 million for the combined three months ended September 30, 2020. This increase was due to a 5.6% increase in volume from $38.2 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current quarter and a 14.1% increase in average sales price driven by product mix having a higher concentration of lamina.
Cost of goods and services sold increased $43.8 million, or 20.4%, to $258.2 million for the three months ended September 30, 2021 from $214.4 million for the combined three months ended September 30, 2020. This increase was mainly due to the increase in total sales and other operating revenues.
Gross profit as a percent of sales was 14.0% for the three months ended September 30, 2021 from 14.2% for the combined three months ended September 30, 2020. This decrease was primarily due to foreign currency fluctuations and higher shipping costs. This decrease was partially offset by lower conversion costs per kilo.
SG&A expenses as a percent of sales decreased to 10.0% for the three months ended September 30, 2021 from 10.3% for the combined three months ended September 30, 2020 driven by increased total sales and other operating revenues.
| | | | | | | | | | | | | | | | |
Other Products and Services Supplemental Information |
| | | | | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions) | Three months ended September 30, 2021 | One month ended September 30, 2020 | Two months ended August 31, 2020 | Three months ended September 30, 2020 | | |
Sales and other operating revenues | $ | 3.3 | | $ | 0.9 | | $ | 4.2 | | $ | 5.1 | | | |
Cost of goods and services sold | 5.9 | | 6.3 | | 5.2 | | 11.5 | | | |
Gross loss | (2.6) | | (5.4) | | (1.0) | | (6.4) | | | |
Selling, general, and administrative expenses | 4.4 | | 5.5 | | 7.4 | | 12.9 | | | |
Other (expense) income, net | (0.3) | | (2.4) | | 1.7 | | (0.7) | | | |
Restructuring and asset impairment charges | 5.6 | | — | | — | | — | | | |
| | | | | | |
Operating loss | $ | (12.9) | | $ | (13.3) | | $ | (6.7) | | $ | (20.0) | | | |
Sales and other operating revenues decreased $1.8 million, or 35.3%, to $3.3 million for the three months ended September 30, 2021 from $5.1 million for the combined three months ended September 30, 2020. This decrease was primarily due to the deconsolidation of the receivables sold under these programs and the sum of the cash and fair value of the other assets received at the time of transfer is recognized as a loss on sale of the related receivables and recorded in Other Income, net in the Condensed Consolidated Statements of Operations.
Alliance One International, Inc. andCanadian Cannabis Subsidiaries
15. SALE OF RECEIVABLES (continued)
The following table summarizes the Company’s accounts receivable securitization information as of the dates shown:
|
| | | | | | | | | |
| December 31, | March 31, |
| 2017 | 2016 | 2017 |
Receivables outstanding in facility | $ | 125,581 |
| $ | 108,464 |
| $ | 200,084 |
|
Beneficial interest | 26,272 |
| 21,081 |
| 38,206 |
|
Servicing liability | 55 |
| 45 |
| 101 |
|
| | | |
Cash proceeds for the nine months ended December 31: | | | |
Cash purchase price | $ | 402,402 |
| $ | 416,754 |
| $ | 648,730 |
|
Deferred purchase price | 183,610 |
| 180,879 |
| 231,658 |
|
Service fees | 359 |
| 400 |
| 492 |
|
Total | $ | 586,371 |
| $ | 598,033 |
| $ | 880,880 |
|
16. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Inputs utilized in valuation techniques to measure fair value may be observable
or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect the Company's market assumptions.
The fair value hierarchy categorizes these inputs into the following three levels:
Level 1 - Quoted prices for identical assets or liabilities in active markets.
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 - Significant inputs to the valuation model are unobservable.
The following table summarizes the items measured at fair value on a recurring basis:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | December 31, 2016 | | March 31, 2017 |
| | Total Assets / | | | | Total Assets / | | | | Total Assets / |
| | Liabilities | | | | Liabilities | | | | Liabilities |
| Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value |
Assets | | | | | | | | | | | |
Derivative financial instruments | $ | — |
| $ | — |
| $ | — |
| | $ | — |
| $ | — |
| $ | — |
| | $ | 943 |
| $ | — |
| $ | 943 |
|
Securitized beneficial interests | — |
| 26,272 |
| 26,272 |
| | — |
| 21,081 |
| 21,081 |
| | — |
| 38,206 |
| 38,206 |
|
Total assets | $ | — |
| $ | 26,272 |
| $ | 26,272 |
| | $ | — |
| $ | 21,081 |
| $ | 21,081 |
| | $ | 943 |
| $ | 38,206 |
| $ | 39,149 |
|
Liabilities | | | | | | | | | | | |
Long-term debt | $ | 877,647 |
| $ | — |
| $ | 877,647 |
| | $ | 901,076 |
| $ | — |
| $ | 901,076 |
| | $ | 867,825 |
| $ | — |
| $ | 867,825 |
|
Guarantees | — |
| 2,913 |
| 2,913 |
| | — |
| 4,759 |
| 4,759 |
| | — |
| 7,126 |
| 7,126 |
|
Total liabilities | $ | 877,647 |
| $ | 2,913 |
| $ | 880,560 |
| | $ | 901,076 |
| $ | 4,759 |
| $ | 905,835 |
| | $ | 867,825 |
| $ | 7,126 |
| $ | 874,951 |
|
Alliance One International, Inc. and Subsidiaries
16. FAIR VALUE MEASUREMENTS (continued)
Level 2 measurements
Debt: The fair value of debt is based on the market price for similar financial instruments or model-derived valuations whose inputs are observable. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
Derivatives: The fair value of derivatives is based on the discounted cash flow analysis of the expected future cash flows. The primary inputs to the valuation include forward yield curves, implied volatilities, LIBOR rates, and credit valuation adjustments.
Level 3 measurements
Guarantees: The fair value of guarantees is based on the discounted cash flow analysis of the expected future cash flows or historical loss rates. The primary inputs to the discounted cash flow analysis include market interest rates ranging between 15.0% and 35.0% and the Company’s historical loss rates ranging between 2.6% and 8.9% as of December 31, 2017.
Securitized beneficial interests: The fair value of securitized beneficial interests is based on the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 67 to 85 days and discount rates of 3.2% to 4.0% as of December 31, 2017.
The following table presents the reconciliation of changes in Level 3 instruments measured on a recurring basis:
|
| | | | | | | | | | | | |
| Three Months Ended December 31, 2017 | Nine Months Ended December 31, 2017 |
| Securitized Beneficial Interests | Guarantees | Securitized Beneficial Interests | Guarantees |
Beginning balance | $ | 23,668 |
| $ | 2,770 |
| $ | 38,206 |
| $ | 7,126 |
|
Issuances of guarantees/sales of receivables | 66,496 |
| 1,128 |
| 177,259 |
| 3,193 |
|
Settlements | (62,407 | ) | (993 | ) | (186,582 | ) | (6,946 | ) |
(Losses) gains recognized in earnings | (1,485 | ) | 8 |
| (2,611 | ) | (460 | ) |
Ending balance, December 31, 2017 | $ | 26,272 |
| $ | 2,913 |
| $ | 26,272 |
| $ | 2,913 |
|
|
| | | | | | | | | | | | |
| Three Months Ended December 31, 2016 | Nine Months Ended December 31, 2016 |
| Securitized Beneficial Interest | Guarantees | Securitized Beneficial Interest | Guarantees |
Beginning balance | $ | 29,371 |
| $ | 4,467 |
| $ | 40,368 |
| $ | 7,350 |
|
Issuances of guarantees/sales of receivables | 61,371 |
| 1,272 |
| 164,228 |
| 5,397 |
|
Settlements | (68,503 | ) | (980 | ) | (181,230 | ) | (7,960 | ) |
Losses recognized in earnings | (1,158 | ) | — |
| (2,285 | ) | (28 | ) |
Ending balance, December 31, 2016 | $ | 21,081 |
| $ | 4,759 |
| $ | 21,081 |
| $ | 4,759 |
|
Unrealized losses for securitized beneficial interests as of December 31, 2017 and 2016, and March 31, 2017 were $650, $922, and $1,722, respectively. Gains and losses included in earnings are reported in Other Income, net in the Condensed Consolidated Statement of Operations.
Alliance One International, Inc. and Subsidiaries
17. RELATED PARTY TRANSACTIONS
The Company’s operating subsidiaries engage in transactions with related parties in the normal course of business. The Company's operating subsidiaries have entered into transactions with affiliates of the Company for the purpose of procuring or processing inventory.
The following is a summary of sales and purchases with related parties of the Company:
|
| | | | | | | | | | | | |
| Three Months Ended December 31, | Nine Months Ended December 31, |
| 2017 | 2016 | 2017 | 2016 |
Sales | $ | 447 |
| $ | 383 |
| $ | 23,503 |
| $ | 39,303 |
|
Purchases | 35,563 |
| 11,687 |
| 73,500 |
| 39,231 |
|
The Company’s due to related parties and accounts receivable, related parties balances are disclosed in the Condensed Consolidated Balance Sheets and are primarily with its equity method investments located in Asia, South America, North America, and Europe, which purchase and process tobacco or produce consumable e-liquids.
18. INVESTEE COMPANIES
The Company has equity method investments in companies in India, Thailand, Turkey, and Brazil that purchase and process tobacco. The investees and ownership percentages are as follows: Alliance One Industries India Private Ltd. (India) 49%, Siam Tobacco Export Company (Thailand) 49%, Adams International Ltd. (Thailand) 49%, Oryantal Tutun Paketleme 50%, and China Brasil Tobacos Exportadora SA (“CBT”) 49%. The Company also has a 50% interest in Purilum, LLC, a U.S. company that develops, produces, and sells consumable e-liquids to manufacturers and distributors of e-vapor products. On August 21, 2017, the Company completed a purchase of a 40% interest in an additional e-liquid company. The difference between the book basis of the Company's 40% interest and the fair value of the investment recorded was $2,481. As of December 31, 2017, the basis difference remained $2,481. On December 18, 2017, the Company completed a purchase of a 40% interest in Criticality LLC ("Criticality"), a North Carolina-based industrial hemp company that is engaged in cannabidiol ("CBD") extraction and other applications for industrial hemp in accordance with a pilot program authorized under the federal Agriculture Act of 2014 and applicable North Carolina law.
On March 26, 2014, upon the disposition of 51% interest in CBT, the difference between the book basis of the Company’s 49% interest and the fair value of the investment recorded created a basis difference of $15,990. The Company evaluated the contributed assets and identified basis differences in certain accounts, including inventory, intangible assets, and deferred taxes. The basis differences are being amortized over the respective estimated lives of these assets and liabilities, which range from one to ten years. The Company’s earnings from the equity method investment are reduced by amortization expense related to these basis differences. As of December 31, 2017, the basis difference was $8,939.
19. SUBSEQUENT EVENTS
On January 25, 2018, a Canadian subsidiary of the Company acquired a 75% equity position in Canada’s Island Garden Inc. (“CIG”). CIG is fully licensed to produce and sell medicinal cannabis in the Canadian province of Prince Edward Island. CIG sells its products directly to patients and through distributors. In January, 2018, CIG signed a Memorandum of Understanding with the province of Prince Edward Island to be one of three suppliers under the provincial Cannabis Board.
On January 29, 2018, the same Canadian subsidiary of the Company acquired an 80% equity position in Goldleaf Pharm Inc. ("Goldleaf"), a late-stage applicant to produce and sell medicinal cannabis located in the Canadian province of Ontario.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
The following executive overview for the nine months ended December 31, 2017 is intended to provide significant highlights of the discussion and analysis that follows.
Financial Results
Fiscal year 2018 continues to progress in line with our expectations. We achieved solid sales growth during the third quarter when compared to last year. Excluding Africa, global market conditions have been positive and weather patterns good, supporting better growing conditions. The heavy North American hurricane season did not materially affect our contracted flue cured crop and qualities are generally good. Additionally, we anticipate that, in the fourth quarter we will catch up with delayed shipments, which resultedof fiscal 2021 and the decrease in e-liquids revenue related to a general industry slow-down amid evolving regulations.
Cost of goods and services sold decreased $5.6 million, or 48.7%, to $5.9 million for the three months ended September 30, 2021 from a prolonged shortage of containers in South America and China. Compared$11.5 million for the combined three months ended September 30, 2020. This decrease was mainly due to the priordeconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021.
Gross loss as a percent of sales decreased to 78.8% for the three months ended September 30, 2021 from 125.5% for the combined three months ended September 30, 2020. This decrease was primarily attributable to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021.
SG&A expenses decreased $8.5 million, or 65.9%, to $4.4 million for the three months ended September 30, 2021 from $12.9 million for the combined three months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 133.3% for the three months ended September 30, 2021 from 252.9% for the combined three months ended September 30, 2020. These decreases were mainly due to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and savings from fiscal 2021 restructuring initiatives.
Restructuring and asset impairment charges were $5.6 million for the three months ended September 30, 2021 primarily due to the write-off of the Company's remaining industrial hemp CBD extraction equipment.
| | | | | | | | | | | | | | | | |
Six Months Ended September 30, 2021 and 2020 |
| | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 | Six months ended September 30, 2020 | | |
Sales and other operating revenues | $ | 727.5 | | $ | 117.8 | | $ | 447.6 | | $ | 565.4 | | | |
Cost of goods and services sold | 633.3 | | 107.5 | | 402.6 | | 510.1 | | | |
Gross profit* | 94.2 | | 10.4 | | 45.0 | | 55.4 | | | |
Selling, general, and administrative expenses | 71.8 | | 15.7 | | 87.9 | | 103.6 | | | |
Other expense, net | (1.7) | | (1.9) | | (0.5) | | (2.4) | | | |
Restructuring and asset impairment charges | 7.1 | | 1.2 | | 0.6 | | 1.8 | | | |
| | | | | | |
Operating income (loss)* | 13.7 | | (8.5) | | (44.0) | | (52.5) | | | |
Loss on deconsolidation of subsidiaries | 2.5 | | — | | — | | — | | | |
Debt retirement expense | — | | — | | 0.8 | | 0.8 | | | |
| | | | | | |
Interest expense, net | 55.3 | | 8.1 | | 45.2 | | 53.3 | | | |
| | | | | | |
Reorganization items | — | | — | | 106.0 | | 106.0 | | | |
Income tax (benefit) expense | (22.6) | | (10.6) | | 0.3 | | (10.3) | | | |
(Loss) income from unconsolidated affiliates | (0.1) | | 0.2 | | 2.4 | | 2.6 | | | |
Net loss attributable to noncontrolling interests | (0.5) | | (0.5) | | (1.0) | | (1.5) | | | |
Net (loss) income attributable to Pyxus International, Inc.* | $ | (21.2) | | $ | (5.3) | | $ | 19.0 | | $ | 13.7 | | | |
* Amounts may not equal column totals due to rounding | | | | | |
Sales and other operating revenues increased $162.1 million or 28.7% to $727.5 million for the six months ended September 30, 2021 from $565.4 million for the combined six months ended September 30, 2020. This increase was due to a 10.6% increase in leaf volume from $160.1 million shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current fiscal year and a 17.8% increase in leaf average selling prices driven by product mix having a higher concentration of lamina. These increases were partially offset by the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and the decrease in e-liquids revenue related to a general industry slow-down amid evolving regulations.
Cost of goods and services sold increased $123.2 million or 24.2% to $633.3 million for the six months ended September 30, 2021 from $510.1 million for the combined six months ended September 30, 2020. This increase was mainly due to the increase in total sales and other operating revenues.
Gross profit as a percent of sales increased $97.0to 12.9% for the six months ended September 30, 2021 from 9.8% for the combined six months ended September 30, 2020. This increase was attributable to lower conversion costs per kilo, customer mix, and the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021. This increase was partially offset by foreign currency fluctuations and higher shipping costs.
SG&A expenses decreased $31.8 million or 8.8%30.7% to $1,202.1$71.8 million attributablefor the six months ended September 30, 2021 from $103.6 million for the combined six months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 9.9% for the six months ended September 30, 2021 from 18.3% for the combined six months ended September 30, 2020. These decreases were driven by increased sales and other operating revenues, the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives.
Restructuring and asset impairment charges increased $5.3 million or 294.4% to $7.1 million for the six months ended September 30, 2021 from $1.8 million for the combined six months ended September 30, 2020. This increase was primarily due to the write-off of the Company's remaining industrial hemp CBD extraction equipment and the continued restructuring of certain leaf operations.
Interest expense, net increased $2.0 million or 3.8% to $55.3 million for the six months ended September 30, 2021 from $53.3 million for the combined six months ended September 30, 2020. This increase was due to borrowings under the DDTL Facility in the current fiscal year.
Reorganization items of $106.0 million were incurred in the prior fiscal year as a 7.5%result of the Chapter 11 Cases.
| | | | | | | | | | | | | | | | |
Leaf - North America Supplemental Information |
| | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions, except per kilo amounts) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 | Six months ended September 30, 2020 | | |
Kilos sold | 20.0 | | 2.9 | | 9.5 | | 12.4 | | | |
Tobacco sales and other operating revenues: | | | | | | |
Sales and other operating revenues | $ | 130.0 | | $ | 17.1 | | $ | 51.2 | | $ | 68.3 | | | |
Average price per kilo | 6.50 | | 5.90 | | 5.39 | | 5.51 | | | |
Processing and other revenues | 10.3 | | 2.9 | | 6.5 | | 9.4 | | | |
Total sales and other operating revenues | 140.3 | | 20.0 | | 57.7 | | 77.7 | | | |
Tobacco cost of goods sold: | | | | | | |
Tobacco costs | 106.2 | | 13.5 | | 39.3 | | 52.8 | | | |
Transportation, storage, and other period costs | 7.5 | | 1.3 | | 5.6 | | 6.9 | | | |
Derivative financial instrument and exchange (gains) losses | — | | (0.1) | | 0.3 | | 0.2 | | | |
Total tobacco cost of goods sold | 113.7 | | 14.7 | | 45.2 | | 59.9 | | | |
Average cost per kilo | 5.69 | | 5.07 | | 4.76 | | 4.83 | | | |
Processing and other revenues cost of services sold | 7.2 | | 2.4 | | 4.4 | | 6.8 | | | |
Total cost of goods and services sold | 120.9 | | 17.1 | | 49.6 | | 66.7 | | | |
Gross profit | 19.4 | | 2.9 | | 8.1 | | 11.0 | | | |
Selling, general, and administrative expenses | 7.4 | | 1.8 | | 7.2 | | 9.0 | | | |
Other expense, net | (0.8) | | (0.1) | | (0.5) | | (0.6) | | | |
Restructuring and asset impairment charges | 0.1 | | 0.1 | | — | | 0.1 | | | |
Operating income | $ | 11.1 | | $ | 0.9 | | $ | 0.4 | | $ | 1.3 | | | |
Total sales and other operating revenues increased $62.6 million or 80.6% to $140.3 million for the six months ended September 30, 2021 from $77.7 million for the combined six months ended September 30, 2020. This increase was due to 61.3% higher volume from $57.1 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current fiscal year and an 18.0% increase in average sales price due to product mix primarily in South America, North America, Asia and Europe. Total costshaving a higher concentration of lamina.
Cost of goods and services sold increased by 7.9% which improved gross profit by 14.7%$54.2 million or 81.3% to $171.5$120.9 million for the six months ended September 30, 2021 from $66.7 million for the combined six months ended September 30, 2020. This increase was mainly due to the increase in total sales and grossother operating revenues.
Gross profit as a percentagepercent of sales decreased to 13.8% for the six months ended September 30, 2021 from 13.5%14.2% for the combined six months ended September 30, 2020. This decrease was primarily due to customer mix. This decrease was partially offset by lower conversion costs per kilo.
SG&A expenses decreased $1.6 million or 17.8% to $7.4 million for the six months ended September 30, 2021 from $9.0 million for the combined six months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 5.3% for the six months ended September 30, 2021 from 11.6% for the combined six months ended September 30, 2020. These decreases were driven by savings from restructuring initiatives.
| | | | | | | | | | | | | | | | |
Leaf - Other Regions Supplemental Information |
| | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions, except per kilo amounts) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 | Six months ended September 30, 2020 | | |
Kilos sold | 135.5 | | 25.7 | | 102.5 | | 128.2 | | | |
Tobacco sales and other operating revenues: | | | | | | |
Sales and other operating revenues | $ | 539.4 | | $ | 89.4 | | $ | 355.9 | | $ | 445.3 | | | |
Average price per kilo | 3.98 | | 3.48 | | 3.47 | | 3.47 | | | |
Processing and other revenues | 41.1 | | 7.6 | | 24.6 | | 32.2 | | | |
Total sales and other operating revenues | 580.5 | | 97.0 | | 380.5 | | 477.5 | | | |
Tobacco cost of goods sold: | | | | | | |
Tobacco costs | 438.5 | | 72.6 | | 292.0 | | 364.6 | | | |
Transportation, storage, and other period costs | 31.3 | | 5.9 | | 16.9 | | 22.8 | | | |
Derivative financial instrument and exchange losses (gains) | 1.4 | | 0.4 | | (1.6) | | (1.2) | | | |
Total tobacco cost of goods sold | 471.2 | | 78.9 | | 307.3 | | 386.2 | | | |
Average cost per kilo | 3.48 | | 3.07 | | 3.00 | | 3.01 | | | |
Processing and other revenues cost of services sold | 29.7 | | 5.3 | | 20.0 | | 25.3 | | | |
Total cost of goods and services sold | 500.9 | | 84.2 | | 327.3 | | 411.5 | | | |
Gross profit | 79.6 | | 12.8 | | 53.2 | | 66.0 | | | |
Selling, general, and administrative expenses | 55.5 | | 8.4 | | 54.5 | | 62.9 | | | |
Other (expense) income, net | (0.9) | | 0.6 | | 0.8 | | 1.4 | | | |
Restructuring and asset impairment charges | 1.4 | | 1.1 | | 0.5 | | 1.6 | | | |
Operating income (loss) | $ | 21.8 | | $ | 3.9 | | $ | (1.0) | | $ | 2.9 | | | |
Total sales and other operating revenues increased $103.0 million or 21.6% to $580.5 million for the six months ended September 30, 2021 from $477.5 million for the combined six months ended September 30, 2020. This increase was due to a 14.7% increase in average sales prices due to product mix having a higher concentration of lamina and a 5.7% increase in volume from $103.1 million shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the current fiscal year.
Cost of goods and services sold increased $89.4 million or 21.7% to $500.9 million for the six months ended September 30, 2021 from $411.5 million for the combined six months ended September 30, 2020. This increase was mainly due to the increase in total sales and other operating revenues.
Gross profit as a percent of sales was 13.7% for the six months ended September 30, 2021 and 13.8% for the combined six months ended September 30, 2020. This decrease was primarily due to foreign currency fluctuations and higher shipping costs. This decrease was offset by lower conversion costs per kilo.
SG&A expenses decreased $7.4 million or 11.8% to $55.5 million for the six months ended September 30, 2021 from $62.9 million for the combined six months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 9.6% for the six months ended September 30, 2021 from 13.2% for the combined six months ended September 30, 2020. These decreases were related to the increase in sales and other operating revenues and current year savings from restructuring initiatives.
| | | | | | | | | | | | | | | | |
Other Products and Services Supplemental Information |
| | | |
| Successor | Predecessor | Combined (Non-GAAP) | |
(in millions, except per kilo amounts) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 | Six months ended September 30, 2020 | | |
Sales and other operating revenues | $ | 6.7 | | $ | 0.9 | | $ | 9.4 | | $ | 10.3 | | | |
Cost of goods and services sold | 11.4 | | 6.3 | | 25.7 | | 32.0 | | | |
Gross loss | (4.7) | | (5.4) | | (16.3) | | (21.7) | | | |
Selling, general, and administrative expenses | 9.0 | | 5.5 | | 26.2 | | 31.7 | | | |
Other expense, net | — | | (2.4) | | (0.8) | | (3.2) | | | |
Restructuring and asset impairment charges | 5.6 | | — | | — | | — | | | |
| | | | | | |
Operating loss | $ | (19.3) | | $ | (13.3) | | $ | (43.3) | | $ | (56.6) | | | |
Sales and other operating revenues decreased $3.6 million or 35.0% to $6.7 million for the six months ended September 30, 2021 from $10.3 million for the combined six months ended September 30, 2020. This decrease was primarily due to the deconsolidation of the Canadian Cannabis Subsidiaries in the prior yearfourth quarter of fiscal 2021 and the decrease in e-liquids revenue related to 14.3%a general industry slow-down amid evolving regulations.
Cost of goods and services sold decreased $20.6 million or 64.4% to $11.4 million for the six months ended September 30, 2021 from $32.0 million for the combined six months ended September 30, 2020. This decrease was mainly due to the deconsolidation of the Canadian Cannabis Subsidiaries in the current year. Additionally, we are pleasedfourth quarter of fiscal 2021 and fiscal 2021 inventory write-downs, including inventory write-offs of cannabis and industrial hemp inventory.
Gross loss as a percent of sales decreased to report that operating income increased by 50.7% to $78.1 million when compared(70.1)% for the six months ended September 30, 2021 from (210.7)% for the combined six months ended September 30, 2020. This decrease was mainly due to the prior year.deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and the inventory write-downs described above.
SG&A expenses decreased $22.7 million or 71.6% to $9.0 million for the six months ended September 30, 2021 from $31.7 million for the combined six months ended September 30, 2020. SG&A expenses as a percent of sales decreased to 134.3% for the six months ended September 30, 2021 from 307.8% for the combined six months ended September 30, 2020. These decreases were mainly due to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and savings from fiscal 2021 restructuring initiatives.
Restructuring and asset impairment charges of $5.6 million for the six months ended September 30, 2021 were primarily due to the write-off of the Company's remaining industrial hemp CBD extraction equipment.
Liquidity and Capital Resources
Overview
Our liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size, and quality. Consistent with our plan, we utilized surplus cash to reduce long-term debt with the purchase and cancellation of $28.6 million of our 9.875% senior secured second lien notes, leaving $662.9 million at December 31, 2017. Our liquidity at quarter end was strong with available credit lines and cash of $543.8 million including available lines for letters of credit. We will continue to monitor and adjust funding sources as needed to enhance and drive various business opportunities that maintain flexibility and meet cost expectations.
Outlook
We are excited to announce that Alliance One has embarked on an ambitious transformation plan called “One Tomorrow.” This initiative will drive future growth opportunities and reshape our brand as the trusted provider of responsibly produced, independently verified, sustainable, and traceable agricultural products and services. As part of our “One Tomorrow” long-term business strategy, we are actively developing new business lines and building upon the strength of our core operations. Most of our new business lines focus on products that are value-added or require some degree of processing. These products generally have higher margin potential than our core business and play well to our strengths. In January, we successfully acquired majority stakes in two new joint ventures. This extension into high growth segments, namely e-liquids, industrial hemp and cannabis, expands Alliance One's presence in higher margin, fast-growing categories. We intend to broaden our business portfolio over the next three to four years by focusing on consumer-driven agricultural products, with increased operating margins when compared to our historical leaf processing business. Consistent with our commitment to high growth and incremental to our core leaf earnings, our goal is to generate a significantly increasing portion of our profit from new, higher-margin businesses by 2020. Included within our “One Tomorrow” transformation initiative is a continued focus on our core business. We recognize that building upon our core business requires us to remain focused on delivering high quality products and services to our core tobacco customers. Additionally, our contracted farmer base remains a priority for us, often producing a significant volume of non-tobacco crops utilizing the inputs and agronomic expertise that our team provides. Alliance One is working to find markets for these crops as part of our ongoing efforts to improve farmer livelihoods.
Future prospects for our business are bright. We are taking measured steps to strengthen our preferred supplier role with customers, further developing our position as a key supplier for both traditional requirements as well as next generation reduced risk products. Looking forward, we have begun to transform the company by diversifying our earnings stream through new businesses that are complementary to and help support each other by building on our core capabilities, institutional knowledge, operational expertise and corporate values. By developing a team for the future, creating an innovation-driven culture, and strengthening the balance sheet – we plan to redeploy invested capital with a goal of achieving net income growth over the next four years, ultimately improving shareholder value. These actions reflect our ongoing commitment to providing high-quality products while meeting evolving customer and consumer preferences. We are excited about developing and maximizing future opportunities to drive enhanced shareholder value.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
RESULTS OF OPERATIONS:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations and Supplemental Information |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
(in millions, except per kilo amounts) | | | Change | | | | | Change | | | |
(percentage change is calculated based on thousands) | 2017 |
| | $ |
| | % |
| | 2016 |
| | 2017 |
| | $ |
| | % |
| | 2016 |
| |
Kilos sold | 102.5 |
| | 0.9 |
| | 0.9 |
| | 101.6 |
| | 255.8 |
| | 4.2 |
| | 1.7 |
| | 251.6 |
| |
Tobacco sales and other operating revenues: | | | | | | | | | | | | | | | | |
Sales and other operating revenues | $ | 459.1 |
| | $ | 25.0 |
| | 5.8 |
| | $ | 434.1 |
| | $ | 1,129.5 |
| | $ | 95.5 |
| | 9.2 |
| | $ | 1,034.0 |
| |
Average price per kilo | 4.48 |
| | 0.21 |
| | 4.9 |
| | 4.27 |
| | 4.42 |
| | 0.31 |
| | 7.5 |
| | 4.11 |
| |
Processing and other revenues | 18.7 |
| | (1.7 | ) | | (8.3 | ) | | 20.4 |
| | 72.6 |
| | 1.5 |
| | 2.1 |
| | 71.1 |
| |
Total sales and other operating revenues | 477.8 |
| | 23.3 |
| | 5.1 |
| | 454.5 |
| | 1,202.1 |
| | 97.0 |
| | 8.8 |
| | 1,105.1 |
| |
Tobacco cost of goods sold: | | | | | | | | | | | | | | | | |
Tobacco costs | 365.6 |
| | 2.2 |
| | 0.6 |
| | 363.4 |
| | 918.4 |
| | 60.4 |
| | 7.0 |
| | 858.0 |
| |
Transportation, storage and other period costs | 24.9 |
| | 7.3 |
| | 41.5 |
| | 17.6 |
| | 60.3 |
| | 6.6 |
| | 12.3 |
| | 53.7 |
| |
Derivative financial instrument and exchange losses (gains) | (0.2 | ) | | 6.3 |
| | 96.9 |
| | (6.5 | ) | | 4.6 |
| | 13.3 |
| | 152.9 |
| | (8.7 | ) | |
Total tobacco cost of goods sold | 390.3 |
| | 15.8 |
| | 4.2 |
| | 374.5 |
| | 983.3 |
| | 80.3 |
| | 8.9 |
| | 903.0 |
| |
Average cost per kilo | 3.81 |
| | 0.12 |
| | 3.3 |
| | 3.69 |
| | 3.84 |
| | 0.25 |
| | 7.0 |
| | 3.59 |
| |
Processing and other revenues cost of services sold | 14.0 |
| | (0.8 | ) | | (5.4 | ) | | 14.8 |
| | 47.3 |
| | (5.3 | ) | | (10.1 | ) | | 52.6 |
| |
Total cost of goods and services sold | 404.3 |
| | 15.0 |
| | 3.9 |
| | 389.3 |
| | 1,030.6 |
| | 75.0 |
| | 7.9 |
| | 955.6 |
| |
Gross profit | 73.5 |
| | 8.3 |
| | 12.8 |
| | 65.2 |
| | 171.5 |
| | 22.0 |
| | 14.7 |
| | 149.5 |
| |
Selling, general and administrative expenses | 34.6 |
| | 5.9 |
| | 20.5 |
| | 28.7 |
| | 103.3 |
| | 2.4 |
| | 2.3 |
| | 100.9 |
| |
Other income, net | 1.0 |
| | (1.7 | ) | | (62.1 | ) | | 2.7 |
| | 9.9 |
| | 5.6 |
| | 129.9 |
| | 4.3 |
| |
Restructuring and asset impairment charges | — |
| | (0.5 | ) | | (100.0 | ) | | 0.5 |
| | — |
| | (1.1 | ) | | (100.0 | ) | | 1.1 |
| |
Operating income | 39.9 |
| | 1.2 |
| | 3.2 |
| | 38.7 |
| | 78.1 |
| | 26.3 |
| | 50.7 |
| | 51.8 |
| |
Debt retirement expense (income) | — |
| | (2.3 | ) | | (100.0 | ) | | 2.3 |
| | (3.0 | ) | | (5.3 | ) | | (227.2 | ) | | 2.3 |
| |
Interest expense | 33.2 |
| | (1.9 | ) | | (5.4 | ) | | 35.1 |
| | 100.1 |
| | 2.5 |
| | 2.5 |
| | 97.6 |
| |
Interest income | 0.6 |
| | (1.2 | ) | | (67.4 | ) | | 1.8 |
| | 2.3 |
| | (3.6 | ) | | (61.0 | ) | | 5.9 |
| |
Income tax expense (benefit) | (73.3 | ) | | (94.3 | ) | | (449.3 | ) | | 21.0 |
| | (66.2 | ) | | (87.0 | ) | | (418.8 | ) | | 20.8 |
| |
Equity in net income (loss) of investee companies | 7.8 |
| | 5.4 |
| | 230.5 |
| | 2.4 |
| | 7.1 |
| | 6.8 |
| | 2,355.5 |
| | 0.3 |
| |
Loss attributable to noncontrolling interests | (0.1 | ) | | — |
| | (5.8 | ) | | (0.1 | ) | | (0.3 | ) | | (0.2 | ) | | (127.6 | ) | | (0.1 | ) | |
Income (loss) attributable to Alliance One International, Inc. | $ | 88.5 |
| | $ | 104.0 |
| * | 672.3 |
| | $ | (15.5 | ) | * | $ | 56.9 |
| | $ | 119.5 |
| | 190.9 |
| | $ | (62.6 | ) |
|
| | | | | | | | | | | | | | | | |
* Amounts do not equal column totals due to rounding | | | | | | | | | |
Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016
Summary. Total sales and other operating revenues increased 5.1% to $477.8 million primarily attributable to a 4.9% increase in average sales prices due to product mix in Asia where lamina as a percentage of Asian sales was 32.6% higher this year compared to last year. Volumes increased slightly as volume increases in South America due to the current crop size normalizing after the smaller weather-related crop size last year and the timing of shipments in North America were offset by volume decreases in Africa due to short weather-related crops this year primarily in Malawi. Tobacco costs increased by only 0.6% driven by the impact of reduced volumes in Africa and the positive impact on conversion costs per kilo from normalized crop sizes in South America and
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016 (continued)
North America this year, following the smaller weather-related crop sizes last year, but were partially offset by the impact of the change in product mix in Asia. However, transportation, storage and other period costs increased 41.5% due to the costs associated with larger volumes in South America this year. The strengthening of most European currencies against the U.S. dollar this year was the primary driver behind the $6.3 million negative exchange impact on total tobacco cost of goods sold, which increased 4.2% compared to the same quarter in the prior year. Processing revenues and costs decreases were mainly due to the timing of services primarily from South America. For the current year quarter compared to the same quarter in the prior year, gross profit increased 12.8% to $73.5 million and gross profit as a percentage of sales improved from 14.3% in the prior year to 15.4% in the current year. Selling, general and administrative expense ("SG&A") increased by 20.5% primarily attributable to higher professional fees associated with our business development initiatives and the non-recurrence of a reversal of reserves for customer receivables due to recovery in the prior year. Other income, net in the current year is primarily related to the receipt of funds previously held in escrow in South America that are now covered by bond. Other income, net in the prior year is mainly related to the net insurance recovery for tobacco that had been lost by fire in Zimbabwe. With improved gross profit significantly offset by higher SG&A and lower other income, net, operating income improved 3.2% from the prior year to $39.9 million.
During the prior year, we refinanced our existing senior secured revolving credit facility with the issuance of $275.0 million of 8.5% senior secured first lien notes due 2021 and a $60.0 million ABL credit agreement. As a result, one-time debt retirement costs of $2.3 million were recorded for the accelerated amortization of debt issuance costs. Our interest costs decreased from the prior year primarily due to lower average borrowings on our long-term debt and seasonal lines of credit which were at lower average rates.
Our effective tax rate was (1,007.6)% this year compared to 692.1% last year. On December 22, 2017, the U.S. Tax Cuts and Jobs Act (“Tax Act”) was signed by President Trump. The Tax Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate tax rate from 35% to 21%, effective January 1, 2018, implementing a territorial tax system and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries. As a result of the Tax Act, we recorded a provisional discrete net tax benefit of $59.4 million due to a remeasurement of deferred tax assets and liabilities, release of the valuation allowance, and a so-called transition tax on deemed repatriation of deferred foreign income. Additionally, we are required to evaluate, on a recurring basis, if whether enough positive evidence exists to determine whether it is more-likely-than-not that deferred tax assets will be available to offset or reduce future taxes. As such, we reassessed the need for a valuation allowance against our U.S. deferred tax assets due to the Tax Act and concluded that a full valuation allowance on the U.S. deferred tax assets is not necessary. The reversal of the U.S. federal valuation allowance was due to anticipated refunds of AMT credits and anticipated future limitation of our interest expense deductions in the U.S. which we believe will allow us to be able to realize the deferred tax asset within the period that our net operating losses may be carried forward. In reaching this conclusion, we reviewed countervailing evidence, including our recent history of U.S. losses, but determined the positive evidence outweighed the negative evidence. However, we believe that our foreign tax credits will expire unutilized and have maintained a valuation allowance against those deferred tax assets. The tax benefit, including the release of the valuation allowance, and the tax charge represent provisional amounts and are our current best estimates. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Act and may change as we receive additional regulatory guidance. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in SEC Staff Accounting Bulletin 118. Other factors impacting the variance in the effective tax rate include, but are not limited to, differences in forecasted income for the respective years, differences in year-to-date income for the quarters, certain losses for which no tax benefit is recorded, and differences between discrete items recognized for the quarters that include changes in valuation allowances, net exchanges losses on income tax accounts, and net exchange gains related to liabilities for unrecognized tax benefits.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016 (continued)
North America Region
|
| | | | | | | | | | | | | | |
North America Region Supplemental Information |
| Three Months Ended December 31, |
(in millions, except per kilo amounts) | | | Change | | |
(percentage change is calculated based on thousands) | 2017 |
| | $ |
| | % |
| | 2016 |
|
Kilos sold | 16.2 |
| | 1.1 |
| | 7.3 |
| | 15.1 |
|
Tobacco sales and other operating revenues: | | | | | | | |
Sales and other operating revenues | $ | 102.9 |
| | $ | 10.5 |
| | 11.4 |
| | $ | 92.4 |
|
Average price per kilo | 6.35 |
| | 0.23 |
| | 3.8 |
| | 6.12 |
|
Processing and other revenues | 17.8 |
| | 1.4 |
| | 8.5 |
| | 16.4 |
|
Total sales and other operating revenues | 120.7 |
| | 11.9 |
| | 10.9 |
| | 108.8 |
|
Tobacco cost of goods sold: | | | | | | | |
Tobacco costs | 90.9 |
| | 8.8 |
| | 10.7 |
| | 82.1 |
|
Transportation, storage and other period costs | 4.1 |
| | (1.0 | ) | | (19.6 | ) | | 5.1 |
|
Derivative financial instrument and exchange (gains) losses | (0.7 | ) | | (0.3 | ) | | (75.0 | ) | | (0.4 | ) |
Total tobacco cost of goods sold | 94.3 |
| | 7.5 |
| | 8.6 |
| | 86.8 |
|
Average cost per kilo | 5.82 |
| | 0.07 |
| | 1.3 |
| | 5.75 |
|
Processing and other revenues cost of services sold | 13.6 |
| | (0.1 | ) | | (0.7 | ) | | 13.7 |
|
Total cost of goods and services sold | 107.9 |
| | 7.4 |
| | 7.4 |
| | 100.5 |
|
Gross profit | 12.8 |
| | 4.5 |
| | 54.2 |
| | 8.3 |
|
Selling, general and administrative expenses | 5.4 |
| | 2.8 |
| | 107.7 |
| | 2.6 |
|
Other income, net | — |
| | — |
| | — |
| | — |
|
Restructuring and asset impairment charges | — |
| | — |
| | — |
| | — |
|
Operating income | $ | 7.4 |
| | $ | 1.7 |
| | 29.8 |
| | $ | 5.7 |
|
Current volumes increased 7.3% driven by the timing of shipments and product mix increased average sales prices by 3.8% and average tobacco costs per kilo by 1.3%. As a result, revenues increased 10.9% this quarter compared to the same quarter last year and total cost of goods sold increased 8.6%. Average tobacco costs per kilo increases related to product mix were partially offset
by lower conversion costs per kilo due to the non-recurrence of the negative impact of last year’s smaller weather-related crop. As a result, gross profit increased 54.2% and gross profit as a percentage of sales increased from 7.6% last year to 10.6% this year. SG&A increased by 107.7% due to higher allocations for general corporate services. Primarily as a result of improved gross profit, operating income increased by 29.8% from the prior year to $7.4 million.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016 (continued)
Other Regions
|
| | | | | | | | | | | | | | |
Other Regions Supplemental Information |
| Three Months Ended December 31, |
(in millions, except per kilo amounts) | | | Change | | |
(percentage change is calculated based on thousands)
| 2017 |
| | $ |
| | % |
| | 2016 |
|
Kilos sold | 86.3 |
| | (0.2 | ) | | (0.2 | ) | | 86.5 |
|
Tobacco sales and other operating revenues: | | | | | | | |
Sales and other operating revenues | $ | 356.2 |
| | $ | 14.5 |
| | 4.2 |
| | $ | 341.7 |
|
Average price per kilo | 4.13 |
| | 0.18 |
| | 4.6 |
| | 3.95 |
|
Processing and other revenues | 0.9 |
| | (3.1 | ) | | (77.5 | ) | | 4.0 |
|
Total sales and other operating revenues | 357.1 |
| | 11.4 |
| | 3.3 |
| | 345.7 |
|
Tobacco cost of goods sold: | | | | | | | |
Tobacco costs | 274.7 |
| | (6.6 | ) | | (2.3 | ) | | 281.3 |
|
Transportation, storage and other period costs | 20.8 |
| | 8.3 |
| | 66.4 |
| | 12.5 |
|
Derivative financial instrument and exchange (gains) losses | 0.5 |
| | 6.6 |
| | 108.2 |
| | (6.1 | ) |
Total tobacco cost of goods sold | 296.0 |
| | 8.3 |
| | 2.9 |
| | 287.7 |
|
Average cost per kilo | 3.43 |
| | 0.10 |
| | 3.1 |
| | 3.33 |
|
Processing and other revenues cost of services sold | 0.4 |
| | (0.7 | ) | | (63.6 | ) | | 1.1 |
|
Total cost of goods and services sold | 296.4 |
| | 7.6 |
| | 2.6 |
| | 288.8 |
|
Gross profit | 60.7 |
| | 3.8 |
| | 6.7 |
| | 56.9 |
|
Selling, general and administrative expenses | 29.2 |
| | 3.1 |
| | 11.9 |
| | 26.1 |
|
Other income, net | 1.0 |
| | (1.7 | ) | | (63.0 | ) | | 2.7 |
|
Restructuring and asset impairment charges | — |
| | (0.5 | ) | | (100.0 | ) | | 0.5 |
|
Operating income | $ | 32.5 |
| | $ | (0.5 | ) | | (1.5 | ) | | $ | 33.0 |
|
Volumes were comparable to the same quarter in the prior year as volume increases in South America due to normalized crop sizes this year, following the smaller weather-related crop size last year, were offset by volume decreases in Africa due to short weather-related crops this year primarily in Malawi. Average sales prices increased 4.6% primarily from product mix in Asia. Mainly driven by the reduced volumes in Africa and the positive impact on conversion costs per kilo from the return to a more normal crop size in South America this year, tobacco costs decreased 2.3% from the prior year. Tobacco cost decreases were partially offset by the impact of product mix primarily from Asia. Transportation, storage and other period costs increased 66.4% mainly from costs associated with larger volumes in South America this year. Most European currencies strengthened against the U.S. dollar this year which was the primary driver behind the $6.6 million negative exchange impact on total tobacco cost of goods sold. These cost factors resulted in average tobacco costs per kilo increasing by 3.1%. Processing revenues declined 77.5% due to the timing of services provided primarily in South America with processing costs decreasing by 63.6%. For the current quarter compared to the same quarter in the prior year, total sales and other operating revenues increased 3.3% and total costs of goods and services sold increased by 2.6%. In addition, gross profit increased 6.7% to $60.7 million and gross profit as a percentage of sales improved from 16.5% to 17.0%. Increases in SG&A were due to higher professional fees related to our business development initiatives and the non-recurrence of a reversal of reserves for customer receivables due to recovery in the prior year. Other income, net in the current year is primarily related to the receipt of funds previously held in escrow in South America that are now covered by bond. Other income, net in the prior year is mainly related to the net insurance recovery for tobacco that had been lost by fire in Zimbabwe. With improved gross profit offset by higher SG&A and lower other income, net, operating income declined slightly by 1.5% when compared with the prior year.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Nine Months Ended December 31, 2017 Compared to Nine Months Ended December 31, 2016
Summary. Total sales and other operating revenues increased $97.0 million to $1,202.1 million attributable to a 7.5% increase in average sales price due to product mix primarily in South America, North America, Asia and Europe and a 1.7% increase in volumes. Current year sales included a higher ratio of lamina to byproducts than in the prior year. Volume increases were mainly driven by Asia due to the timing of shipments that were partially offset by volume decreases in Africa due to short weather-related crops this year primarily in Malawi. Tobacco costs per kilo increased 8.9% from product mix and the impact of European currency movement, partially offset by lower conversion costs from the current South America crop size normalizing after the smaller weather-related crop size last year. The larger South America crop size this year was the primary driver of processing and other revenues increasing 2.1%, with processing costs decreasing 10.1% from lower conversion costs. As a result, current year revenues increased by 8.8% with total costs of goods and services sold increasing by 7.9% which improved gross profit by 14.7% to $171.5 million and gross profit as a percentage of sales from 13.5% in the prior year to 14.3% in the current year. SG&A increased 2.3% primarily related to higher professional fees associated with our business development initiatives and the non-recurrence of a reversal of reserves for customer receivables in the prior year partially offset by reduced incentive compensation costs. Current year other income, net is mainly driven by sales of intrastate trade tax credits in South America and the receipt of South American funds previously held in escrow that are now covered by bond. Other income, net in the prior year is mainly related to the net insurance recovery for tobacco that had been lost by fire in Zimbabwe. Improved profitability increased operating income by 50.7% to $78.1 million when compared to the prior year.
During the current year, we purchased $28.6 million of our existing 9.875% senior secured second lien notes due 2021 at a discount, resulting in debt retirement income of $3.0 million. During the prior year, we refinanced our existing senior secured revolving credit facility with the issuance of $275.0 million of 8.5% senior secured first lien notes due 2021 and a $60.0 million ABL credit agreement. As a result, one-time debt retirement costs of $2.3 million were recorded for the accelerated amortization of debt issuance costs. Our interest costs increased from the prior year primarily due to higher average rates and slightly higher average balances on our seasonal lines of credit.
Our effective tax rate was 396.4% this year compared to (49.2)% last year. The variance in the effective tax rate between this year and last year is primarily the impact of the Tax Act including a provisional discrete net tax benefit of $59.4 million due to a remeasurement of deferred tax assets and liabilities, release of the valuation allowance, and a so-called transition tax on deemed repatriation of deferred foreign income. Additionally, we are required to evaluate, on a recurring basis, if whether enough positive evidence exists to determine whether it is more-likely-than-not that the deferred tax asset will be available to offset or reduce future taxes. As such, we reassessed the need for a valuation allowance against our U.S. deferred tax assets due to the Tax Act and concluded that a full valuation allowance on the U.S. deferred tax assets is not necessary. The reversal of the U.S. federal valuation allowance was due to anticipated refunds of AMT credits and anticipated future limitation of our interest expense deductions in the U.S. which we believe will allow us to be able to realize the deferred tax asset within the period that our net operating losses may be carried forward. In reaching this conclusion, we reviewed countervailing evidence, including our recent history of U.S. losses, but determined the positive evidence outweighed the negative evidence. However, we believe that our foreign tax credits will expire unutilized and have maintained a valuation allowance against those deferred tax assets. The tax benefit, including the release of the valuation allowance, and the tax charge represent provisional amounts and are our current best estimates. The provisional amounts incorporate assumptions made based upon our current interpretation of the Tax Act and may change as we receive additional regulatory guidance. Any additional impacts from the enactment of the Tax Act will be recorded as they are identified during the measurement period as provided for in SEC Staff Accounting Bulletin 118. Other factors impacting the variance in the effective tax rate include, but are not limited to, differences in forecasted income for the respective years, differences in year-to-date income for the periods, certain losses for which no tax benefit is recorded, and differences between discrete items recognized for the periods that include changes in valuation allowanced, net exchanges losses on income tax accounts, and net exchange gains related to liabilities for unrecognized tax benefits.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Nine Months Ended December 31, 2017 Compared to Nine Months Ended December 31, 2016 (continued)
North America Region
|
| | | | | | | | | | | | | | |
North America Region Supplemental Information |
| Nine Months Ended December 31, |
| | | Change | | |
| 2017 |
| | $ |
| | % |
| | 2016 |
|
Kilos sold | 36.3 |
| | 0.4 |
| | 1.1 |
| | 35.9 |
|
Tobacco sales and other operating revenues: | | | | | | | |
Sales and other operating revenues | $ | 215.4 |
| | $ | 27.2 |
| | 14.5 |
| | $ | 188.2 |
|
Average price per kilo | 5.93 |
| | 0.69 |
| | 13.2 |
| | 5.24 |
|
Processing and other revenues | 29.9 |
| | 0.4 |
| | 1.4 |
| | 29.5 |
|
Total sales and other operating revenues | 245.3 |
| | 27.6 |
| | 12.7 |
| | 217.7 |
|
Tobacco cost of goods sold: | | | | | | | |
Tobacco costs | 184.3 |
| | 25.0 |
| | 15.7 |
| | 159.3 |
|
Transportation, storage and other period costs | 10.1 |
| | (0.6 | ) | | (5.6 | ) | | 10.7 |
|
Derivative financial instrument and exchange losses | (0.7 | ) | | (0.3 | ) | | (75.0 | ) | | (0.4 | ) |
Total tobacco cost of goods sold | 193.7 |
| | 24.1 |
| | 14.2 |
| | 169.6 |
|
Average cost per kilo | 5.34 |
| | 0.62 |
| | 13.1 |
| | 4.72 |
|
Processing and other revenues cost of services sold | 21.2 |
| | (0.4 | ) | | (1.9 | ) | | 21.6 |
|
Total cost of goods and services sold | 214.9 |
| | 23.7 |
| | 12.4 |
| | 191.2 |
|
Gross profit | 30.4 |
| | 3.9 |
| | 14.7 |
| | 26.5 |
|
Selling, general and administrative expenses | 17.1 |
| | (0.5 | ) | | (2.8 | ) | | 17.6 |
|
Other income, net | 0.1 |
| | 0.1 |
| | 100.0 |
| | — |
|
Restructuring and asset impairment charges | — |
| | (0.5 | ) | | (100.0 | ) | | 0.5 |
|
Operating income | $ | 13.4 |
| | $ | 5.0 |
| | 59.5 |
| | $ | 8.4 |
|
Total sales and other operating revenues increased 12.7% primarily due to a 13.2% increase in average sales prices. The increase in average sales prices and the 13.1% increase in average tobacco costs per kilo are mainly driven by product mix. The current year sales included a higher ratio of lamina to byproducts than in the prior year but primarily include lamina of lower margin prior year crops. Volumes increased slightly by 1.1% as increases from the non-recurrence of the smaller weather-related crop last year were partially offset by reduced customer demand. Primarily attributable to product mix, gross margin increased 14.7% to $30.4 million this year and gross margin as a percentage of sales improved slightly from 12.2% to 12.4%. SG&A remained comparable with the prior year. Improved gross margin this year was the primary driver behind increasing operating income by 59.5% to $13.4 million compared to the prior year.
Alliance One International, Inc. and Subsidiaries
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations (continued)
Results of Operations (continued)
Nine Months Ended December 31, 2017 Compared to Nine Months Ended December 31, 2016 (continued)
Other Regions
|
| | | | | | | | | | | | | | |
Other Regions Supplemental Information |
| Nine Months Ended December 31, |
| | | Change | | |
| 2017 |
| | $ |
| | % |
| | 2016 |
|
Kilos sold | 219.5 |
| | 3.8 |
| | 1.8 |
| | 215.7 |
|
Tobacco sales and other operating revenues: | | | | | | | |
Sales and other operating revenues | $ | 914.1 |
| | $ | 68.3 |
| | 8.1 |
| | $ | 845.8 |
|
Average price per kilo | 4.16 |
| | 0.24 |
| | 6.1 |
| | 3.92 |
|
Processing and other revenues | 42.7 |
| | 1.1 |
| | 2.6 |
| | 41.6 |
|
Total sales and other operating revenues | 956.8 |
| | 69.4 |
| | 7.8 |
| | 887.4 |
|
Tobacco cost of goods sold: | | | | | | | |
Tobacco costs | 734.1 |
| | 35.4 |
| | 5.1 |
| | 698.7 |
|
Transportation, storage and other period costs | 50.2 |
| | 7.2 |
| | 16.7 |
| | 43.0 |
|
Derivative financial instrument and exchange gains | 5.3 |
| | 13.6 |
| | 163.9 |
| | (8.3 | ) |
Total tobacco cost of goods sold | 789.6 |
| | 56.2 |
| | 7.7 |
| | 733.4 |
|
Average cost per kilo | 3.60 |
| | 0.20 |
| | 5.9 |
| | 3.40 |
|
Processing and other revenues cost of services sold | 26.1 |
| | (4.9 | ) | | (15.8 | ) | | 31.0 |
|
Total cost of goods and services sold | 815.7 |
| | 51.3 |
| | 6.7 |
| | 764.4 |
|
Gross profit | 141.1 |
| | 18.1 |
| | 14.7 |
| | 123.0 |
|
Selling, general and administrative expenses | 86.2 |
| | 2.9 |
| | 3.5 |
| | 83.3 |
|
Other income, net | 9.8 |
| | 5.5 |
| | 127.9 |
| | 4.3 |
|
Restructuring and asset impairment charges | — |
| | (0.6 | ) | | (100.0 | ) | | 0.6 |
|
Operating income | $ | 64.7 |
| | $ | 21.3 |
| | 49.1 |
| | $ | 43.4 |
|
Total sales and other operating revenues increased 7.8% to $956.8 million primarily due to a 6.1 % increase in average sales prices per kilo primarily driven by product mix in South America, Asia and Europe and a 1.8% increase in volumes primarily from Asia due to the timing of shipments that was partially offset by volume decreases in Africa due to short weather-related crops this year primarily in Malawi. Average tobacco costs per kilo increased 5.9% from product mix and the impact of European currency movement partially offset by lower conversion costs from the current South America crop size normalizing after the smaller weather-related crop size last year. The larger South America crop size this year was the primary driver of processing and other revenues increasing by 2.6%, with processing costs decreasing by 15.8% from lower conversion costs. As a result, gross margin improved by 14.7% to $141.1 million and gross margin as a percentage of sales increased from 13.9% to 14.7%. SG&A increased 3.5% primarily related to higher professional fees related to our business development initiatives and the non-recurrence of a reversal of reserves for customer receivables in the prior year partially offset by reduced incentive compensation costs. Other income, net increases of $5.5 million were mainly driven by sales of intrastate trade tax credits in South America and the receipt of South American funds previously held in escrow that are now covered by bond. Improved profitability was the primary driver of operating income increasing by 49.1% to $64.7 million when compared to the prior year.
Alliance One International, Inc. and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES:
Overview
Our business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on handon-hand and outstanding indebtedness may bevary significantly greater or less than atcompared to fiscal year-end. We utilizeThe first three quarters generally represent the peak of our working capital requirements. Although we believe that our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months, we anticipate periods during which our liquidity needs for operations will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in excessa deficiency in liquidity. To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency. Based on the assumption that COVID-related shipping constraints are moderately resolved during the remainder of the fiscal year, we are projecting to generate sufficient cash flow from operations during the third and fourth quarter of the fiscal year to finance accounts receivable, inventory and advancessatisfy the indebtedness under the DDTL Facility. To the extent we are unable to tobacco suppliers in foreign countries, including Argentina, Brazil, Guatemala, Malawi, Tanzania, Turkey and Zambia. In addition, from time to time,fully satisfy the indebtedness under the DDTL Facility, we may electutilize cash flows from operations or cash on-hand to purchase, redeem, repay, retire or cancel indebtedness prior to stated maturity under our various foreign credit lines, senior secured credit agreement or indentures, as permitted therein.
As of December 31, 2017, we are in the process of repaying our South American related crop lines as we continue to ship inventory and collect receivables. In Africa, we continue to ship product which should continue into the first quarter of fiscal year 2019 as well as the purchasesatisfy a portion of the new crop which should begin mid-March. In Asia,DDTL Facility and refinance the Indian Mysore and Indonesian crops are approaching the end of the processing and shipping is in full force. Europe continues shipping of the current crop and is preparing to purchase the new crop during the fourth fiscal quarter. North America has completed flue cured processing with shipping winding down and has commenced the purchasing, processing and shipping of the burley crop which should continue into the fourth fiscal quarter, seasonally elevating its working capital requirements. Fluctuation of the U.S. dollar versus many of the currencies in which we have costs may continue to have an impact on our working capital requirements, as such, we will monitor and hedge foreign currency costs prudently, and as needed on a currency by currency basis.remainder.
Working Capital
Our working capital decreased from $797.3 million at March 31, 2017 to $746.5 million at December 31, 2017. Our current ratio was 2.0 to 1 at December 31, 2017 and 2.1 to 1 at March 31, 2017. The decrease in working capital is primarily related to the seasonal buildup of African and South American inventories and advances to tobacco suppliers and the related seasonal increase of notes payable to finance the purchase and processing of these crops partially offset by lower cash balances and accounts payable in accordance with terms.
The following table is a summarysummarizes our working capital:
| | | | | | | | | | | |
| Successor |
(in millions except for current ratio) | September 30, 2021 | September 30, 2020 | March 31, 2021 |
Cash and cash equivalents | $ | 127.6 | | $ | 125.6 | | $ | 92.7 | |
Trade and other receivables, net | 214.6 | | 166.4 | | 188.4 | |
Inventories and advances to tobacco suppliers | 838.6 | | 892.8 | | 771.5 | |
Total current assets | 1,275.6 | | 1,281.8 | | 1,122.5 | |
Notes payable to banks | 457.7 | | 457.9 | | 372.2 | |
Accounts payable | 58.7 | | 56.9 | | 103.5 | |
Advances from customers | 19.0 | | 22.0 | | 12.1 | |
Current portion of long-term debt | 121.9 | | — | | 2.1 | |
Total current liabilities | 766.3 | | 670.0 | | 601.7 | |
Current ratio | 1.7 to 1 | 1.9 to 1 | 1.9 to 1 |
Working capital | 509.3 | | 611.8 | | 520.8 | |
Long-term debt | 543.2 | | 550.2 | | 551.2 | |
Stockholders’ equity attributable to Pyxus International, Inc. | 226.5 | | 385.3 | | 247.7 | |
Sources and Uses of items from the Condensed Consolidated Balance Sheets and Condensed Statements of Consolidated Cash Flows. Approximately $127.6 million of our outstanding cash balance at December 31, 2017 was held in foreign jurisdictions. As a result of our cash needs abroad, it is our intention to permanently reinvest these funds in foreign jurisdictions regardless of the fact that, due to the valuation allowance on foreign tax credit carryovers, the cost of repatriation would not have a material financial impact.
|
| | | | | | | | | | | | |
| | December 31, | | March 31, |
(in millions except for current ratio) | | 2017 | | 2016 | | 2017 |
Cash and cash equivalents | | $ | 209.5 |
| | $ | 296.5 |
| | $ | 473.1 |
|
Trade and other receivables, net | | 240.8 |
| | 270.2 |
| | 254.2 |
|
Inventories and advances to tobacco suppliers | | 975.6 |
| | 942.2 |
| | 733.0 |
|
Total current assets | | 1,491.4 |
| | 1,570.5 |
| | 1,510.1 |
|
Notes payable to banks | | 536.2 |
| | 558.1 |
| | 475.9 |
|
Accounts payable | | 46.7 |
| | 50.4 |
| | 89.4 |
|
Advances from customers | | 31.6 |
| | 17.5 |
| | 30.9 |
|
Total current liabilities | | 744.9 |
| | 744.5 |
| | 712.8 |
|
Current ratio | | 2.0 to 1 |
| | 2.1 to 1 |
| | 2.1 to 1 |
|
Working capital | | 746.5 |
| | 826.0 |
| | 797.3 |
|
Long-term debt | | 918.8 |
| | 969.3 |
| | 943.0 |
|
Stockholders’ equity attributable to Alliance One International, Inc. | | 269.6 |
| | 204.8 |
| | 203.5 |
|
Net cash provided (used) by: | | | | | | |
Operating activities | | (246.6 | ) | | (42.3 | ) | | 247.2 |
|
Investing activities | | (26.1 | ) | | (8.6 | ) | | (11.5 | ) |
Financing activities | | 8.1 |
| | 148.0 |
| | 38.2 |
|
Alliance One International, Inc. and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES: (continued)
Operating Cash Flows
Net cash used by operating activities increased $204.3 million in the nine months ended December 31, 2017 compared to the 2016 period. The increase in cash used was primarily due to the seasonal buildup of African and South American inventories and advances to tobacco suppliers due to a larger crop size in Brazil and the timing of shipments. Net cash used also increased due to reduced collections of accounts receivable in accordance with terms due to the timing of shipments.
Investing Cash Flows
Net cash used by investing activities increased $17.5 million in the nine months ended December 31, 2017 compared to the 2016 period. The increase in cash used was primarily due to payments to acquire certain equity method investments and increased purchases of property, plant and equipment in accordance with capital improvements plans for fiscal 2018. See Note 18 "Investee Companies" to the "Notes to Condensed Consolidated Financial Statements" for further information on equity method investments.
Financing Cash Flows
Net cash provided by financing activities decreased $139.9 million in the nine months ended December 31, 2017 compared to the 2016 period. This decrease is primarily due to lower net proceeds from long-term debt related to the debt refinancing that occurred in the prior year, lower net proceeds from short-term borrowings due to the timing of shipments when compared with the prior year and the purchase in the current year of $28.6 million of our existing 9.875% senior secured second lien notes due 2021 in the current year.
Debt Financing
We continue to finance our business with a combination of short-term and long-term seasonal credit lines, an ABL facility, long-term debt securities, customer advances and cash from operations when available. At December 31, 2017, we had cash of $209.5 million and total debt outstanding of $1,455.1 million comprised of $536.2 million of short-term notes payable to banks, $268.5 million of 8.5% senior secured first lien notes, $649.6 million of 9.875% senior secured second lien notes, and $0.8 million of other long-term debt. The $60.3 million seasonal increase in notes payable to banks from March 31, 2017 to December 31, 2017 results from the timing of borrowings under the African and Brazilian credit lines. Aggregated peak borrowings by facility occurring at any time during the three months ended December 31, 2017 and 2016, respectively, were $621.8 million at a weighted average interest rate of 5.9% and $652.7 million at a weighted average interest rate of 6.0%. Aggregated peak borrowings by facility occurring at any time during the three months ended December 31, 2017 and 2016 were repaid with cash provided by operating activities. Available credit as of December 31, 2017 was $334.3 million comprised of $60.0 million under our ABL facility, $268.4 million of notes payable to banks and $5.9 million of availability exclusively for letters of credit. Borrowing under the ABL facility is permitted only to the extent that, after consideration of the application of the proceeds of the borrowing, our unrestricted cash and cash equivalents would not exceed $180.0 million. At December 31, 2017, our unrestricted cash and cash equivalents exceeded $180.0 million. In fiscal 2018, we expect to incur capital expenditures of approximately $30.7 million for routine replacement of equipment as well as investment in assets intended to add value to our customers or increase efficiency.
No cash dividends were paid to shareholders during the quarter ended December 31, 2017 and payment of dividends is restricted under the terms of our ABL credit facility and the indentures governing the 8.5% senior secured first lien notes and our 9.875% senior secured second lien notes due 2021. We believe that ourOur primary sources of liquidity versusare cash generated from operations, cash collections from our requirements will be sufficient to fundsecuritized receivables, and short-term borrowings under our anticipated needs for the next twelve months.
Alliance One International, Inc. and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES: (continued)
Debt Financing (continued)
All debt agreements contain certain cross-default or cross-acceleration provisions. The following table summarizes our debt financing asforeign seasonal lines of December 31, 2017:
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| | | | | | | | | | | | | | | |
| | | December 31, 2017 | |
| Outstanding | | Lines and | | |
| March 31, | | December 31, | | Letters | | Interest | |
(in millions)
| 2017 | | 2017 | | Available | | Rate | |
Senior secured credit facility: | | | | | | | | |
ABL facility (1) | $ | — |
| | $ | — |
| | $ | 60.0 |
| | — | % | |
Senior notes: | | | | | | | | |
8.5% senior secured first lien notes due 2021 | 267.0 |
| | 268.5 |
| | — |
| | 8.5 | % | |
9.875% senior secured second lien notes due 2021 | 675.1 |
| | 649.6 |
| | — |
| | 9.9 | % | |
Long-term foreign seasonal borrowings | 10.0 |
| | — |
| | — |
| | 4.4 | % | (2) |
Other long-term debt | 0.9 |
| | 0.8 |
| | — |
| | 6.1 | % | (2) |
Notes payable to banks (3) | 475.9 |
| | 536.2 |
| | 268.4 |
| | 5.9 | % | (2) |
Total debt | $ | 1,428.9 |
| | $ | 1,455.1 |
| | 328.4 |
| | | |
Short-term | $ | 475.9 |
| | $ | 536.2 |
| | | | | |
Long-term: | | | | | | | | |
Long-term debt current | $ | 10.0 |
| | $ | 0.1 |
| | | | | |
Long-term debt | 943.0 |
| | 918.8 |
| | | | | |
| $ | 953.0 |
| | $ | 918.9 |
| | | | | |
Letters of credit | $ | 5.2 |
| | $ | 7.2 |
| | 5.9 |
| | | |
Total credit available | | | | | $ | 334.3 |
| | | |
|
(1) As of December 31, 2017, the full amount of the ABL facility was available. Borrowing is permitted under the ABL facility only to the extent that, after consideration of the application of the proceeds of the borrowing, the Company’s unrestricted cash and cash equivalents would not exceed $180.0 million. At December 31, 2017, the Company’s unrestricted cash and cash equivalents exceeded $180.0 million. |
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(2) Weighted average rate for the nine months ended December 31, 2017. |
|
| | | | | | | | |
(3) Primarily foreign seasonal lines of credit |
Foreign Seasonal Lines of Credit
credit. We have typically financed our non-U.S. tobacco operations with uncommitted unsecured short-term foreign seasonal lines of credit. These foreign lines of credit at the local level. These operating lines are generally seasonal in nature, normally extending for a term of 180 to 270 days, corresponding to the tobacco crop cycle in that location.market. These facilitiesshort-term foreign seasonal lines of credit are typically uncommitted in that theand provide lenders have the right to cease making loans and demand repayment of loans at any time.loans. These loansshort-term foreign seasonal lines of credit are typically renewed at the outset of each tobacco season. As of December 31, 2017, we had approximately $536.2 million drawn and outstanding on foreign seasonal lines with maximum capacity totaling $817.7 million subjectWe maintain various other financing arrangements to limitations as provided for inmeet the agreement governing our ABL credit facility. Additionally against these lines there was $13.1 million available in unused letter of credit capacity with $7.2 million issued but unfunded.
CRITICAL ACCOUNTING ESTIMATES:
Income Taxes
Our annual effective income tax rate is based on our jurisdictional mix of pretax income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex, subject to change and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties under ASC 740. We review our tax positions quarterly and adjust the balances as new information becomes available.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the impact from changes in or issuance of new tax law, the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates. To provide insight, we use our historical experience and our short and long-range business
Alliance One International, Inc. and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES: (continued)
CRITICAL ACCOUNTING ESTIMATES (continued)
Income Taxes(continued)
forecasts. As a result of the enactment of the Tax Act, we believe it is more likely than not that the majoritycash requirements of our deferred income tax assets in connections with our U.S. operations will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced. We continue to maintain a valuation allowance on certain U.S. deferred income tax assets which primarily relate to foreign tax credits which may only be utilized against future taxes otherwise due on certain foreign sources of taxable income. As a result, we believe it is more likely than not that these foreign tax credits will expire unutilized due to an insufficient amount of estimable future income from the appropriate source and therefore, we continue to maintain a valuation allowance against them.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED:
FACTORS THAT MAY AFFECT FUTURE RESULTS:We utilize capital in excess of cash flow from operations to finance accounts receivable, inventory, and advances to tobacco suppliers in foreign countries. In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.
Readers
The following summarizes our sources and uses of our cash flows:
| | | | | | | | | | | | | | |
| Successor | Predecessor | Combined (Non-GAAP) |
(in millions) | Six months ended September 30, 2021 | One month ended September 30, 2020 | Five months ended August 31, 2020 | Six months ended September 30, 2020 |
Operating activities | $ | (231.1) | | $ | (16.9) | | $ | (182.1) | | $ | (199.0) | |
Investing activities | 80.2 | | 10.0 | | 61.7 | | 71.7 | |
Financing activities | 185.5 | | 38.8 | | 63.7 | | 102.5 | |
Effect of exchange rate changes on cash | (1.2) | | (0.6) | | 1.6 | | 1.0 | |
Increase (decrease) in cash, cash equivalents, and restricted cash* | 33.3 | | 31.2 | | (55.1) | | (23.9) | |
Cash and cash equivalents at beginning of period | 92.7 | | 93.1 | | 170.2 | | 263.3 | |
Restricted cash at beginning of period | 5.0 | | 24.8 | | 2.9 | | 27.7 | |
Cash, cash equivalents, and restricted cash at end of period* | $ | 131.1 | | $ | 149.2 | | $ | 118.0 | | $ | 267.2 | |
| | | | |
* Amounts may not equal column totals due to rounding | | |
Net cash used by operating activities increased for the six months ended September 30, 2021 compared to the combined six months ended September 30, 2020, primarily driven by (excluding non-cash activities) higher receivables outstanding in the current period due to increased sales.
Net cash provided by investing activities increased for the six months ended September 30, 2021 compared to the combined six months ended September 30, 2020 primarily due to collection of the DIP loan made to the Canadian Cannabis Subsidiaries.
Net cash provided by financing activities increased for the six months ended September 30, 2021 compared to the combined six months ended September 30, 2020 primarily due to the borrowings under the DDTL Facility and higher net proceeds from short-term borrowings.
Approximately $107.5 million of our outstanding cash balance at September 30, 2021 was held in foreign jurisdictions, certain of which are cautionedsubject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds. Fluctuation of the statements containedU.S. dollar versus many of the currencies in which we have costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.
Debt Financing
We continue to finance our business with a combination of short-term and long-term seasonal credit lines, the long-term debt securities described above, advances from customers, and cash from operations when available. See "Note 16. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for summary of our short-term and long-term debt. We will continue to monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. Available credit as of September 30, 2021 was $189.2 million primarily comprised of $167.0 million of foreign seasonal lines of credit, $18.5 million from the ABL Credit Facility, and $3.3 million of availability for letters of credit.
No cash dividends were paid to shareholders during the three months ended September 30, 2021. The payment of dividends is restricted under the terms the ABL Credit Agreement, the Term Loan Credit Agreement, and the Indenture.
Critical Accounting Policies and Estimates
As of the date of this report, regarding expectations of our performance or other matters that may affect our business, results of operations or financial conditionthere are “forward-looking statements” as definedno material changes to the critical accounting policies and estimates previously disclosed in Part I, Item 7 "Critical Accounting Policies and Estimates" in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated or projected. Some of these risks and uncertainties include changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, political instability in sourcing locations, currency and interest rate fluctuations, shifts in the global supply and demand position for our tobacco products, and the impact of regulation and litigation on our customers. A further list and description of these risks, uncertainties and other factors can be found in the “Risk Factors” section of ourCompany's Annual Report on Form 10-K for the fiscal year ended March 31, 2017 in Part II, Item 1A of this report and in our other filings with the Securities and Exchange Commission. We do not undertake to update any forward-looking statements that we may make from time to time.2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
There have been no significant changes to our market risk exposures since March 31, 2017.2021. For a discussion onof our exposure to market risk, refer tosee Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2021.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) designed to provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. It should be noted that, because ofDue to inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable and not absolute, assurance (not absolute) that the objectives of the disclosure controls and procedures are met.
In connection with the preparation of this Quarterly Report on Form 10-Q, our
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as required by Rule 13a-15(b) of the Exchange Act), as of December 31, 2017.September 30, 2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective to provide reasonable assurance as of December 31, 2017.September 30, 2021.
Alliance One International, Inc. and Subsidiaries
Item 4. Controls and Procedures (continued)
Changes in Internal Control Overover Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Company’sour management, including the Company’sour Chief Executive Officer and Chief Financial Officer, have evaluated the Company’sour internal control over financial reporting to determine whether any changes occurred during the quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
There were no changes that occurred during the three months ended December 31, 2017September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company'sour internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Mindo, S.r.l., the purchaser in 2004 of the Company's Italian subsidiary Dimon Italia, S.r.l., asserted claims against a subsidiary of the Company arising out of that sale transaction in an action filed before the Court of Rome on April 12, 2007. The claim involved a guaranty letter issued by a consolidated subsidiary of the Company in connection with the sale transaction, See "Note 22. Contingencies and sought the recovery of €7.4 million plus interest and costs.On November 11, 2013, the court issued its judgment in favor of the Company’s subsidiary, rejecting the claims asserted by Mindo, S.r.l., and awarding the Company’s subsidiary legal costs of €0.05 million. On December 23, 2014, Mindo, S.r.l. appealed the judgment of the Court of RomeOther Information" to the Court of Appeal of Rome. A hearing before the Court of Appeal of Rome was held on June 12, 2015,"Notes to Condensed Consolidated Financial Statements" for additional information with respect to legal proceedings, which was adjourned pending a further hearing set for February 2018. The outcome of, and timing of a decision on, the appeal are uncertain.incorporated by reference herein.The Company received a subpoena from the SEC, dated November 28, 2016, for documents relating to the restatement of its financial statements for the years ended March 31, 2013, 2014 and 2015 and the three months ended June 30, 2015, which restatements were filed with the SEC on May 25, 2016. The Company is cooperating fully with the SEC and providing the requested materials.
In addition to the above-mentioned matters, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Item 1A. Risk Factors
In addition to the other information set forth in this report and in our other filings with the risk factors set forth below,Securities and Exchange Commission, investors should carefully consider our risk factors, which could materially affect our business, financial condition, or operating results. Except as set forth below, as of the date of this report, there are no material changes or updates to the risk factors discussedpreviously disclosed in Part I, Item 1A "Risk Factors" in the Company'sCompany's Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2021.
Our exposureThe Company may be required to foreign tax regimes,cease further sale of e-liquids products containing nicotine derived from tobacco pending determinations on applications filed with the FDA.
The Company and changes in U.S. or foreign tax regimes, could adversely impact our business.
We do business in countries that have tax regimes in which the rules are not clear, are not consistently applied andPurilum’s nicotine-containing vaping products are subject to sudden change. This is especially true with regardsubstantial and evolving regulation by the Food and Drug Administration (the “FDA”). The FDA has authority to international transfer pricing. Our earningsregulate e-liquids, e-cigarettes and other vaping products that contain (or are used to consume e-liquid containing) tobacco-derived ingredients (e.g., nicotine) as “tobacco products” under the federal Food, Drug and Cosmetic Act (the “Food, Drug and Cosmetic Act”), as amended by Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Control Act”). Via the issuance of the “Deeming Regulation” that became effective on August 8, 2016, the FDA began regulating e-liquids, e-cigarettes, and other vaping products that qualify as “tobacco products” under the Food, Drug and Cosmetic Act's requirements added by the Tobacco Control Act. The Deeming Regulations extended the FDA's “tobacco products” authorities to apply to most previously unregulated products that meet the statutory definition of “tobacco product,” including e-liquids, e-cigarettes and other vaping products that contain (or are used to consume e-liquid containing) tobacco-derived ingredients (“Deemed Tobacco Products”). Beginning August 8, 2016, Deemed Tobacco Products became subject to all existing statutory controls initially applicable only to cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco (including components, parts, and accessories of such products) as well as some existing and some new FDA regulations related to the sale and distribution of tobacco products.
The Food, Drug and Cosmetic Act requires that any Deemed Tobacco Product that was not commercially marketed as of the “grandfathering” date of February 15, 2007 obtain premarket authorization before it can be marketed in the United States. However, the FDA has announced a compliance policy for such Deemed Tobacco Products that qualify as “new tobacco products” under which the agency will not enforce these requirements for non-finished products (i.e., those intended solely for use in future manufacturing), which include certain products manufactured by Purilum. As modified by orders issued by the United States District Court for the District of Maryland, the FDA’s compliance policy also generally allows companies to market finished Deemed Tobacco Products that qualify as “new tobacco products” but that were on the U.S. market on August 8, 2016, until September 9, 2020, and the continued marketing of such products without otherwise-required authorization for up to one year during the FDA's review of a pending marketing application submitted by September 9, 2020.
FDA authorization to introduce a “new tobacco product” (or to continue marketing a “new tobacco product” covered by the compliance policy for Deemed Tobacco Products that were on the U.S. market on August 8, 2016) could be reducedobtained via any of the following three authorization pathways: (1) submission of a premarket tobacco product application (“PMTA”) and receipt of a marketing authorization order; (2) submission of a substantial equivalence report and receipt of a substantial equivalence order; or (3) submission of a request for an exemption from substantial equivalence requirements and receipt of a substantial equivalence exemption determination. Since there were few, if any, e-liquid, e-cigarette or other vaping products on the market as of February 15, 2007, there is no way to utilize the less onerous substantial equivalence or substantial equivalence exemption pathways that traditional tobacco corporations can utilize for cigarettes, smokeless tobacco, and other traditional tobacco products. In order to obtain marketing authorizations, manufacturers of practically all e-liquid, e-cigarette or other vaping products would have to use the PMTA pathway. The continued sale of any e-liquid product containing nicotine derived from tobacco for which a PMTA was filed by September 9, 2020 and continues to remain subject to pending FDA review is subject to the FDA’s enforcement discretion, as the one-year period following the September 9, 2020 application deadline has expired even though the FDA had not yet taken action to approve or deny the PMTA.
The Company’s subsidiaries, Humble Juice and Twelfth State Brands, filed PMTAs for their respective lines of finished Deemed New Tobacco Products by the uncertain and changing nature of these tax regimes. Certain of our subsidiaries are and may inSeptember 9, 2020 deadline. On September 16, 2021, Humble Juice received a Marketing Denial Order (the “MDO”) dated September 15, 2021 issued by the future be involved in tax matters in foreign countries. WhileFDA with respect to the outcome of any of these existing matters cannot be predictedPMTAs filed by
Humble Juice, denying the PMTAs with certainty, we are vigorously defending them and do not currently expect that any of them will have a material adverse effect on our business or financial position. However, should one or more of these matters be resolved in a manner adverserespect to our current expectation,Humble Juice’s product line other than its tobacco-flavored e-liquids products, the effect on our results of operationsPMTA for a particular fiscal reporting period could be material.
We seekwhich remains subject to optimize our tax footprint across all operations in U.S. and non-U.S. jurisdictions alike. These benefits are contingent upon existing tax laws and regulations infurther FDA review. On November 2, 2021, Humble Juice received notice dated November 2, 2021 from the U.S. and inFDA rescinding the countries in which our international operations are located. Future changes in domestic or international tax laws and regulations could adversely affect our ability to continue to realize these tax benefits. On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (“Tax Act”) which changed corporate tax rates, the taxation of foreign earnings and the deductibility of expenses, among other things. We estimate that the Tax Act could have a material impact on the recoverability of our deferred tax assets, could result in significant one-time changes in the period in which tax reform is enacted and as further regulations may be enacted, and could result in a material increase or decrease in the company’s effective tax rate. The final impact of the Tax Act may differ from these estimates, possibly materially, due to, among other things, changes in interpretations and assumptions made, additional guidance that may be issued, unexpected negative changes in business and market conditions that could reduce certain tax benefits, and actions taken by us asMDO. As a result of the Tax Act.FDA’s rescission of the MDO, the PMTAs submitted by both Humble Juice and Twelfth State Brands remain subject to FDA review.
Alliance One International, Inc. and Subsidiaries
Item 1A. Risk Factors (continued)
Risks RelatedThe Company cannot predict whether the PMTAs filed by the Company’s subsidiaries will ultimately be approved by the FDA to Our Recent Investmentspermit continued sale of these products. Further, the Company cannot predict whether the FDA, in New Business Strategies
Our recent investments as partits exercise of our expanded business strategy have been in companiesenforcement discretion with limited historiesrespect to Company products that are operating in newly developing markets and are subject to numerous risks and uncertainties.
Our minority investment in December 2017 in the Criticality joint venture and our indirect Canadian subsidiary’s investments to acquire majority interests in Goldleaf and CIG in January 2018, and the operation of these businesses, involve a high degree of risk. These investmentsPMTAs that are in businesses with limited operating histories-Criticality commenced operations in June, 2017, CIG commenced operations in August 2013, and Goldleaf proposes to commence operations upon receipt of requisite licenses and approvals. We cannot assure you that as these operations further develop they will be profitable or otherwise sustainable. While these businesses involve the cultivation and/or processing of agricultural products similar in certain ways to leaf tobacco, and accordingly share commonality with our agronomy, traceability and agricultural product processing expertise, they are subject to commercial and regulatory challenges different from our existing businesses and with respect to which we do not have the same level of experience. In addition, these businesses are subject to numerous additional risks and uncertainties, including the following:
Developing regulatory framework. In Canada, the cultivation and sale of cannabis (also known as marijuana) has been legal for medical use since 2001, subject to certain restrictions and compliance with applicable regulations. CIG currently cultivates and sells cannabis in Canada for this limited purpose pursuant to licenses and permits issued by applicable regulatory authorities, and Goldleaf proposes to do the same upon receipt of requisite licenses and permits. The Canadian federal government has announced an intention to enact legislation to legalize and regulate the cultivation, sale and use of cannabis for recreational use and a bill to that effect was passedunder pending review by the federal House of Commons in November 2017. That bill hasFDA, will continue not yet been passed by the federal Senate. The bill provides that each Canadian province will have the power to determine the method of distribution and sale, taxation and other matters pertainingseek enforcement to cannabis. While certain provinces, including Ontario and British Columbia, have taken actions in anticipation of enactment of the federal bill, additional required provincial regulations have yet to be adopted. In the event that federal and applicable provincial legislation and regulation are not enacted or adopted or are materially delayed, the growth opportunities of Goldleaf and CIG will be curtailed from levels anticipated in expectation of such legalization of cannabis for recreational use. In addition, in the event that such legislation and regulations are enacted and adopted, it is uncertain whether Goldleaf and CIG will be able to obtain all licenses, permits and other regulatory approvals required to allow them to cultivate and supply cannabis in Canada for recreational use.
The Criticality joint venture was formed to procure industrial hemp under the North Carolina Industrial Hemp Commission’s Pilot Program (the “Pilot Program”) and to extract cannabidiol (known as “CBD”), a non-psychoactive oil, for sale to consumers. In general, while hemp is classified as a controlled substance under U.S. federal law, pursuant to the Agricultural Act of 2014 (the “Farm Bill”) to the extent that industrial hemp is cultivated and processed as part of a state-supervised agricultural pilot program, it is exempt from regulation as a controlled substance. Local, state and federal laws and regulations applicable to the cultivation and processing of industrial hemp are broad in scope and subject to evolving interpretations, which could require Criticality to incur substantial costs associated with compliance or alter its business plan. In addition, violations of these laws (including provisions applicable to participation in the Pilot Program), or allegations of such violations, could disrupt its business and result in a material adverse effect on its operations. Moreover, the provisions of the Farm Bill that provide for the exemption of industrial hemp as a controlled substance expire in 2019. If such provisions are not renewed or otherwise extended, Criticality may no longer be permitted to pursue its business after the expiration of these provisions.
It is possible that regulations may be enacted in the future that will be directly applicable to these businesses with respect to the nature of the products produced by these businesses. We cannot predict the nature of any such future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on these businesses.
Necessity of rigorous compliance measures. The failure of one of these businesses to comply with regulatory requirements, including the implementation and effectiveness of rigorous controls over inventory, could result in fines, penalties, and the loss of necessary licenses and permits which could have a material adverse effect of the continued viability of such business and our investment in such business.
Success may attract better funded competitors. Even if the businesses in which we have invested are initially successful, such success, or the general maturing of the industry, may attract additional competition from larger competitors with greater capital resources which could adversely affect these businesses and our investment in these businesses.
Alliance One International, Inc. and Subsidiaries
Item 1A. Risk Factors (continued)
Risks Related to Our Recent Investments in New Business Strategies (continued)
Our recent investments as part of our expanded business strategy have been in companies with limited histories that are operating in newly developing markets and are subject to numerous risks and uncertainties. (continued)
Illicit competition. To the extent that an illicit market continues with respect to the products produced by these businesses, the costs incurred by these businesses to comply with regulatory requirements, as well as applicable excise and sales taxes, may make it difficult to compete with the illicit market or may dampen growth opportunities.
Violations of applicable law by Goldleaf or CIG, including an unlawful transfer of cannabis inventory to jurisdictions, including the United States, in whichprohibit the sale of such product is unlawfulproducts or within Canada other than for permitted use, may subject our companythat if it seeks enforcement will seek merely to potential criminal sanctions.
Although we believe the investments in Goldleaf and CIG are not prohibited under United States federal and state laws so long as Goldleaf and CIG’s operations remain in compliance with applicable Canadian and U.S. laws, under current U.S. law, it is unlawful to operate a business from the U.S. that engages in the possession, manufacture, distribution, and/orcease any further sale of a controlled substance,the products and not any additional remedies, including cannabis,fines or penalties.The failure to ultimately obtain FDA marketing authorizations in a foreign country where such activities are illegal. Although we anticipate that operational decisions of Goldleafresponse to these PMTAs could prevent the Company’s subsidiaries from marketing and CIG will be made by personnel not locatedselling their respective vaping products containing tobacco-derived ingredients in the United States and, fundingthus, may have a material effect on the business, financial condition, and results of Goldleaf and CIG, to the extent any additional funding is required, would be made by subsidiaries not located in the United States, there is a risk that if Goldleaf or CIG were to violate Canadian federal, provincial or local law with respect to the manufacture, distribution, and/or sale of cannabis, including an unlawful transfer of cannabis inventory to jurisdictions, including the United States, in which the sale of such product is unlawful or within Canada other than for permitted use, that may subject our company to potential criminal sanctions and civil forfeitures in the United States.
Further, under current U.S. law, it is unlawful to import controlled substances, including cannabis, into the United States, or to transport controlled substances through U.S. territorial waters, on U.S. flagged vessels and U.S. registered aircraft, or accompanied by U.S. citizens or resident aliens. Although we anticipate that Goldleaf and CIG will take precautions to ensure that their operations remain in compliance with all U.S. laws that might apply to the foreign exportation or transport of cannabis, there is a risk that if Goldleaf or CIG were to violate U.S. federal or state law with respect to the manufacture, distribution, sale and/or transport of cannabis, even outside the United States, that may subject our company to potential criminal sanctions and civil forfeitures in the United States.
In addition, United States federal and state laws applicable to the investment in these Canadian subsidiaries is subject to evolving interpretations. Although we do not believe that such activities of Goldleaf and CIG effected in compliance with applicable laws in Canada would result in a violation of United States federal or state laws by Alliance One International, Inc. or our United States-based subsidiaries, we cannot assure you that United States federal or state law enforcement agencies may not adopt different interpretations of applicable law or that our view of prevailing applicable law will be upheld if so challenged.
We may be unable to transmit any funds generated by Goldleaf and CIG to any United States entity and such funds may not be used to fund the payment of obligations of our U.S. based operations, including Alliance One.
An indirect Canadian subsidiary, itself owned by a foreign-based subsidiary of AOI, made its investment in Goldleaf and CIG with funds generated by operations of our foreign subsidiaries. We do not currently intend to patriate any funds generated by Goldleaf or CIG into the United States and certain United States federal laws may restrict us from doing so. Accordingly, funds generated by these subsidiaries, or by the potential future sale of either or both of these subsidiaries, may not be available to fund the payment of obligations of our U.S. based operations, including AOI.Company.
We may be adversely affected by customer, investor, lender and regulatory reactions to our investments in Goldleaf and CIG.
It is uncertain whether the activities of Goldleaf and CIG may adversely influence decisions of United States federal or state regulatory authorities with respect to Alliance One International, Inc. and its domestic subsidiaries, even if such Canadian subsidiaries are engaged in cannabis production and supply in compliance with the laws and authorization of the jurisdiction where the activity takes place. In addition, it is uncertain whether our tobacco customers, lenders and investors may react adversely to our investment in these businesses, although we do not presently believe that to be the case. Any such material adverse reaction may materially adversely affect our business, ability to renew or obtain additional necessary financing and/or the trading price of our common stock and publicly traded debt securities.
Alliance One International, Inc. and Subsidiaries
Item 1A. Risk Factors (continued)
Risks Related to Our Recent Investments in New Business Strategies (continued)
Our expansion into the sale and supply of e-liquid products to consumers subjects us to a number of risks.
The expansion of our business to include the sale by subsidiaries of e-liquid products to consumers, directly through the internet and through distributors and other channels, subjects us to additional risks and uncertainties. For example, such subsidiary may be held liable if any of its products is found to be the cause of, or a contributing factor in the cause of, personal injury of any type. Although we insure against such potential risks, such insurance may not fully cover potential liabilities and the cost of maintaining insurance is subject to change. Additionally, as more products are brought to market, we may need to increase such insurance coverage, which may adversely affect the profitability of this business. Similar potential product liability risks apply with respect to sale of other products to consumers, including by CIG and Goldleaf.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None.
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Item 6. Exhibits. |
| | Order dated August 21, 2020 of the U.S. Bankruptcy Court for the District of Delaware Approving the Adequacy of the Disclosure Statement and the Prepetition Solicitation Procedures and Confirming the Amended Joint Prepackaged Plan of Reorganization in Case No. 20-11570 (LSS), In re: Pyxus International, Inc. et al., incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Old Holdco, Inc., filed on August 24, 2020 (File No. 001-13684) |
| | Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Pyxus International, Inc. and Its Affiliated Debtors dated August 13, 2020, incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K of Old Holdco, Inc., filed on August 24, 2020 (File No. 001-13684) |
| | Third Amendment and Restatement Agreement dated 12 August 2021 among Pyxus International, Inc., Pyxus Parent, Inc., Pyxus Holdings, Inc., Alliance One International Holdings, Ltd., Alliance One Tobacco (Kenya) Limited, Alliance One Tobacco (Malawi) Limited, Alliance One Tobacco (Tanzania) Limited, Alliance One Tobacco (Uganda) Limited, Alliance One Zambia Limited and Eastern and Southern African Trade and Development Bank (filed herewith) |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
101.INS | | |
101.INS | | XBRL Instance Document (filed herewith)(the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH | | Inline XBRL Taxonomy Extension Schema (filed herewith) |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase (filed herewith) |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibits 101.*) |
Alliance One International, Inc. and Subsidiaries-60-
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SIGNATURE |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. |
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| Alliance OnePyxus International, Inc. |
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| /s/ Todd B. Compton | |
Date: February 8, 2018November 10, 2021 | | Todd B. Compton /s/ Philip C. Garofolo
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| | Philip C. Garofolo |
| | Vice President - Chief Accounting Officer and Controller |
| | (Principal Accounting Officer) |