UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 2019.June 30, 2020.
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
| | |
| 001-13684 | |
| (Commission File Number) |
Pyxus International,Old Holdco, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | |
| Virginia | | | | 54-1746567 | |
| (State or other jurisdiction of incorporation) | | | | (I.R.S. Employer Identification No.) |
| | | | |
| 8001 Aerial Center Parkway | | | | |
| Morrisville, | | North Carolina | | 27560 | |
| (Address of principal executive offices) | | | | (Zip Code) |
(919) 379-4300
(Registrant’s telephone number, including area code)
Pyxus International, Inc.
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of Each Class | Trading Symbol | Name of Exchange On Which Registered |
Common Stock (no par value) | PYX | New York Stock Exchange |
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| Title of Each Class | Trading Symbol | Name of Exchange On Which Registered |
| Common Stock (no par value) | (1) | (1) |
(1) On June 30, 2020, the New York Stock Exchange filed a Notification of Removal from Listing and/or Registration under Section 12(b) of the Securities Exchange Act of 1934 on Form 25 with the Securities and Exchange Commission with respect to the registrant’s common stock (no par value) which became effective to strike the registrant’s common stock from listing on the New York Stock Exchange 10 days thereafter and will become effective to withdraw the registrant’s common stock from registration under Section 12(b) of the Act 90 days thereafter (or such shorter period as the Securities and Exchange Commission may determine).
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 ☐☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒☐ No ☐☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company' in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated filer ☐
Smaller Reporting Company ☒ Emerging 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 ☒
As of JanuaryJuly 31, 2020, the registrant had 9,177,2689,975,875 shares outstanding of Common Stock (no par value) excluding 785,313 shares owned by a wholly owned subsidiary.
.
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| Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries | | | |
| Table of Contents | | | |
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| Part I. | | | |
| Item 1. | Financial Statements (Unaudited) | |
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| | Three and Nine Months Ended December 31,June 30, 2020 and 2019 and 2018 | |
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| | Three and Nine Months Ended December 31,June 30, 2020 and 2019 and 2018 | |
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| | December 31,June 30, 2020 and 2019 and 2018 and March 31, 20192020 | |
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| | Three and Nine Months Ended December 31,June 30, 2020 and 2019 and 2018 | |
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| | NineThree Months Ended December 31,June 30, 2020 and 2019 and 2018 | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
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| Part II. | | | |
| Item 1. | | |
| Item 1A. | | |
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| Item 6. | | |
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Forward-Looking StatementsPRELIMINARY NOTE
This Form 10-Q is being filed by Old Holdco, Inc. which was formerly named “Pyxus International, Inc.” (the “Company,” “Pyxus,” “we,” or “us,” which terms, when used with respect to periods commencing after the effectiveness of the Plan (as defined below), would include New Pyxus (as defined in "Note 1. Basis of Presentation and Significant Accounting Policies" and "Note 22. Subsequent Events" to the "Notes to Consolidated Financial Statements"), unless the context would indicate otherwise). This Form 10-Q is being signed concurrently with the effectiveness of the Plan.
Bankruptcy Proceedings
On June 15, 2020 (the "Petition Date"), the Company (then named Pyxus International, Inc.) 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 (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged chapter 11 plan of reorganization (“Prepack Plan”) that effectuates a financial restructuring of the Company’s secured debt (the “Restructuring”). The Company commenced solicitation of the Prepack Plan with a related disclosure statement (“Disclosure Statement”) on June 14, 2020. The Chapter 11 Cases have been administered jointly under the caption In re Pyxus International, Inc., et al. 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. This Form 10-K is being signed concurrently with the effectiveness of the Plan. These and other related matters are discussed in greater detail in the "Note 1. Basis of Presentation and Significant Accounting Policies" and "Note 22. Subsequent Events" to the "Notes to Consolidated Financial Statements" for additional information.
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 the 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
•risks and uncertainties relating to the Chapter 11 Cases, including but not limited to: whether our leaf tobacco customers, farmers and other suppliers might lose confidence in us as a result of the Chapter 11 Cases and may seek to establish alternative commercial relationships, whether, as a result of the Chapter 11 Cases, foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level may lose confidence in us and cease to provide such funding, and uncertainty and continuing risks associated with our ability to achieve our goals and continue as a going concern;
•risk and uncertainties related to our 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, including impacts from the strain of coronavirus reported to have recently surfaced in Wuhan, China,and changes in costs incurred in supplying products and related services,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 our
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 us or shippers to temporarily suspend operations in affected areas, whether our 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 some period of time, negative consumer purchasing behavior with respect to our products or the products of our leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and the extent to which the impact of the COVID-19 pandemic on our operations and the demand for our products may not coincide with impacts experienced in the United States due to the international scope of our operations, including in emerging markets that have only recently experienced COVID-19 outbreaks; and
•risks and uncertainties related to our new business lines, including with respect to the impact of regulation associated with new business lines, including the risk of obtaining anticipated regulatory approvals for cannabis products in Canada and for nicotine e-liquids products in the United States, uncertainties regarding the regulation of the production and distribution of industrial hemp products and continued compliance with applicable regulatory requirements, uncertainties with respect to the development of the industries and markets of the new business lines, consumer acceptance of products offered by the new business lines, uncertainties with respect to the timing and extent of retailgeographic and product-line expansion, the impact of increasing competition in the new business lines, uncertainties regarding obtaining financing to fund plannedthe viability of facilities expansions, the possibility of delays in the completion of facilities expansions and uncertainties regarding the potential production yields of new or expanded facilities, as well as the progress of legalization of cannabis for medicinal and adult recreational uses in other jurisdictions.
A further list and description of these risks, uncertainties, and other factors can be found in the “Risk Factors” section of ourthe Company's annual report on Form 10-K for the fiscal year ended March 31, 2019, in Part II, Item 1A "Risk Factors" in the Company's Quarterly Reports on Form 10-Q for the periods ended June 30, 2019 and September 30, 2019, and in Part II, Item 1A of this report,2020 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.
Part I. Financial Information
Item 1. Financial Statements
| | Pyxus International, Inc. and Subsidiaries | | |
| Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries | | Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries | |
| (Debtor-in-Possession) | | (Debtor-in-Possession) | |
| Condensed Consolidated Statements of Operations | Condensed Consolidated Statements of Operations | | Condensed Consolidated Statements of Operations | |
| (Unaudited) | (Unaudited) | | (Unaudited) | |
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | | Three Months Ended June 30, | |
| (in thousands, except per share data) | (in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | (in thousands, except per share data) | | 2020 | 2019 | |
| Sales and other operating revenues | Sales and other operating revenues | $ | 363,260 | | $ | 524,487 | | $ | 1,022,911 | | $ | 1,210,351 | | Sales and other operating revenues | | $ | 262,809 | | $ | 276,670 | | |
| Cost of goods and services sold | Cost of goods and services sold | 308,133 | | 449,776 | | 867,852 | | 1,045,042 | | Cost of goods and services sold | | 243,183 | | 236,958 | | |
| Gross profit | Gross profit | 55,127 | | 74,711 | | 155,059 | | 165,309 | | Gross profit | | 19,626 | | 39,712 | | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | 45,911 | | 41,680 | | 142,551 | | 118,759 | | Selling, general, and administrative expenses | | 60,757 | | 49,377 | | |
| Other (expense) income, net | Other (expense) income, net | (401) | | 7,991 | | 4,061 | | 13,473 | | Other (expense) income, net | | (2,392) | | 2,948 | | |
| Restructuring and asset impairment charges | Restructuring and asset impairment charges | 672 | | 1,667 | | 892 | | 3,390 | | Restructuring and asset impairment charges | | 73 | | 212 | | |
| Operating income | 8,143 | | 39,355 | | 15,677 | | 56,633 | | |
| Debt retirement benefit | — | | (1,281) | | — | | (1,754) | | |
| Interest expense (includes debt amortization of $2,559 and $2,325 for the three months and $7,478 and $7,020 for the nine months in 2019 and 2018, respectively) | 32,200 | | 33,947 | | 101,346 | | 102,182 | | |
| Operating loss | | Operating loss | | (43,596) | | (6,929) | | |
| Debt retirement expense | | Debt retirement expense | | 828 | | — | | |
| Interest expense (includes debt amortization of $2,760 and $2,208 for 2020 and 2019, respectively) | | Interest expense (includes debt amortization of $2,760 and $2,208 for 2020 and 2019, respectively) | | 31,262 | | 33,812 | | |
| Interest income | Interest income | 442 | | 962 | | 2,966 | | 2,587 | | Interest income | | 755 | | 1,154 | | |
| (Loss) income before income taxes and other items | (23,615) | | 7,651 | | (82,703) | | (41,208) | | |
| Reorganization items: | | Reorganization items: | | | |
| Professional fees | | Professional fees | | (2,573) | | — | | |
| United States trustee fees | | United States trustee fees | | (518) | | — | | |
| Write-off of unamortized debt issuance costs and discount | | Write-off of unamortized debt issuance costs and discount | | (4,020) | | — | | |
| DIP financing fees | | DIP financing fees | | (19,755) | | — | | |
| Loss before income taxes and other items | | Loss before income taxes and other items | | (101,797) | | (39,587) | | |
| Income tax (benefit) expense | Income tax (benefit) expense | (914) | | 17,354 | | 25,238 | | 26,900 | | Income tax (benefit) expense | | (8,168) | | 23,453 | | |
| Income from unconsolidated affiliates | Income from unconsolidated affiliates | 255 | | 4,701 | | 6,728 | | 6,852 | | Income from unconsolidated affiliates | | 820 | | 877 | | |
| Net loss | Net loss | (22,446) | | (5,002) | | (101,213) | | (61,256) | | Net loss | | (92,809) | | (62,163) | | |
| Net (loss) income attributable to noncontrolling interests | (453) | | 93 | | (905) | | (769) | | |
| Net loss attributable to noncontrolling interests | | Net loss attributable to noncontrolling interests | | (648) | | (366) | | |
| Net loss attributable to Pyxus International, Inc. | Net loss attributable to Pyxus International, Inc. | $ | (21,993) | | $ | (5,095) | | $ | (100,308) | | $ | (60,487) | | Net loss attributable to Pyxus International, Inc. | | $ | (92,161) | | $ | (61,797) | | |
| | Loss per share: | Loss per share: | | Loss per share: | | | |
| Basic | Basic | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | | Basic | | $ | (9.24) | | $ | (6.79) | | |
| Diluted | Diluted | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | | Diluted | | $ | (9.24) | | $ | (6.79) | | |
| | Weighted average number of shares outstanding: | Weighted average number of shares outstanding: | | Weighted average number of shares outstanding: | | | |
| Basic | Basic | 9,166 | | 9,068 | | 9,137 | | 9,048 | | Basic | | 9,976 | | 9,100 | | |
| Diluted | Diluted | 9,166 | | 9,068 | | 9,137 | | 9,048 | | Diluted | | 9,976 | | 9,100 | | |
| | See "Notes to Condensed Consolidated Financial Statements" | See "Notes to Condensed Consolidated Financial Statements" | | See "Notes to Condensed Consolidated Financial Statements" | |
| | | | | | | | | | | | | | |
| Pyxus International, Inc. and Subsidiaries | | | | |
| Condensed Consolidated Statements of Comprehensive Loss | | | | |
| (Unaudited) | | | | |
| | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands) | 2019 | 2018 | 2019 | 2018 |
| Net loss | $ | (22,446) | | $ | (5,002) | | $ | (101,213) | | $ | (61,256) | |
| | | | |
| Other comprehensive income (loss), net of tax: | | | | |
| Currency translation adjustment | 1,871 | | (2,310) | | (474) | | (7,628) | |
| Defined benefit pension amounts reclassified to income | 312 | | 285 | | 934 | | 853 | |
| Change in pension liability for settlements | 799 | | (1,162) | | (1,213) | | (391) | |
| Change in the fair value of derivatives designated as cash flow hedges | — | | (3,752) | | (147) | | (3,752) | |
| Amounts reclassified to income for derivatives | 576 | | 2,161 | | 2,520 | | 1,445 | |
| Total other comprehensive income (loss), net of tax | 3,558 | | (4,778) | | 1,620 | | (9,473) | |
| Total comprehensive loss | (18,888) | | (9,780) | | (99,593) | | (70,729) | |
| Comprehensive loss attributable to noncontrolling interests | (405) | | (430) | | (846) | | (1,216) | |
| Comprehensive loss attributable to Pyxus International, Inc. | $ | (18,483) | | $ | (9,350) | | $ | (98,747) | | $ | (69,513) | |
| | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | |
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) | | | | | | |
| (in thousands) | | | | December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Assets | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | | | $ | 72,230 | | $ | 209,160 | | $ | 192,043 | |
| Restricted cash | | | | 2,359 | | 6,335 | | 5,378 | |
| Trade receivables, net | | | | 180,404 | | 268,747 | | 290,097 | |
| Other receivables | | | | 12,257 | | 21,305 | | 20,900 | |
| Accounts receivable, related parties | | | | 6,418 | | 5,077 | | 5,633 | |
| Notes receivable, related parties | | | | 406 | | — | | 150 | |
| Inventories | | | | 871,850 | | 827,782 | | 668,171 | |
| Advances to tobacco suppliers | | | | 61,536 | | 51,135 | | 19,754 | |
| Recoverable income taxes | | | | 9,751 | | 8,538 | | 5,421 | |
| Prepaid expenses | | | | 22,447 | | 17,325 | | 15,934 | |
| Other current assets | | | | 14,345 | | 16,212 | | 15,027 | |
| Total current assets | | | | 1,254,003 | | 1,431,616 | | 1,238,508 | |
| Restricted cash | | | | 389 | | 389 | | 389 | |
| Long-term notes receivable, related parties | | | | 7,466 | | 742 | | 545 | |
| Investments in unconsolidated affiliates | | | | 69,368 | | 68,351 | | 69,459 | |
| Goodwill | | | | 34,570 | | 34,109 | | 34,336 | |
| Other intangible assets, net | | | | 67,404 | | 70,074 | | 71,781 | |
| Deferred income taxes, net | | | | 115,947 | | 106,610 | | 116,451 | |
| Long-term recoverable income taxes | | | | 2,618 | | 898 | | 3,067 | |
| Other deferred charges | | | | 1,421 | | 2,634 | | 2,175 | |
| Other noncurrent assets | | | | 48,533 | | 43,514 | | 46,168 | |
| Right-of-use assets | | | | 43,372 | | — | | — | |
| Property, plant, and equipment, net | | | | 303,956 | | 264,782 | | 276,396 | |
| Total assets | | | | $ | 1,949,047 | | $ | 2,023,719 | | $ | 1,859,275 | |
| Liabilities and Stockholders’ Equity | | | | | | |
| Current liabilities | | | | | | |
| Notes payable to banks | | | | $ | 580,346 | | $ | 583,407 | | $ | 428,961 | |
| Accounts payable | | | | 61,076 | | 49,373 | | 87,049 | |
| Accounts payable, related parties | | | | 11,077 | | 18,372 | | 19,054 | |
| Advances from customers | | | | 19,227 | | 45,900 | | 16,436 | |
| Accrued expenses and other current liabilities | | | | 103,351 | | 98,233 | | 91,282 | |
| Income taxes payable | | | | 15,444 | | 6,513 | | 3,728 | |
| Operating leases payable | | | | 14,033 | | — | | — | |
| Current portion of long-term debt | | | | 325 | | 165 | | 332 | |
| Total current liabilities | | | | 804,879 | | 801,963 | | 646,842 | |
| Long-term taxes payable | | | | 8,523 | | 10,718 | | 10,718 | |
| Long-term debt | | | | 902,461 | | 897,195 | | 898,386 | |
| Deferred income taxes | | | | 30,396 | | 12,437 | | 26,813 | |
| Liability for unrecognized tax benefits | | | | 12,233 | | 11,026 | | 11,189 | |
| Long-term leases | | | | 28,206 | | — | | — | |
| Pension, postretirement, and other long-term liabilities | | | | 70,315 | | 72,013 | | 73,308 | |
| Total liabilities | | | | 1,857,013 | | 1,805,352 | | 1,667,256 | |
| Commitments and contingencies | | | | | | |
| Stockholders’ equity | December 31, 2019 | December 31, 2018 | March 31, 2019 | | | |
| Common Stock—no par value: | | | | | | |
| Authorized shares | 250,000 | | 250,000 | | 250,000 | | | | |
| Issued shares | 9,963 | | 9,866 | | 9,881 | | 469,450 | | 474,603 | | 468,936 | |
| Retained deficit | | | | (324,192) | | (213,905) | | (223,884) | |
| Accumulated other comprehensive loss | | | | (59,781) | | (57,218) | | (61,342) | |
| Total stockholders’ equity of Pyxus International, Inc. | | | | 85,477 | | 203,480 | | 183,710 | |
| Noncontrolling interests | | | | 6,557 | | 14,887 | | 8,309 | |
| Total stockholders’ equity | | | | 92,034 | | 218,367 | | 192,019 | |
| Total liabilities and stockholders’ equity | | | | $ | 1,949,047 | | $ | 2,023,719 | | $ | 1,859,275 | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | | | |
| | | | | | | | | | |
| Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries | | | | |
| (Debtor-in-Possession) | | | | |
| Condensed Consolidated Statements of Comprehensive Loss | | | | |
| (Unaudited) | | | | |
| | | | |
| | | Three Months Ended June 30, | |
| (in thousands) | | | 2020 | 2019 |
| Net loss | | | $ | (92,809) | | $ | (62,163) | |
| | | | |
| Other comprehensive (loss) income, net of tax: | | | | |
| Foreign currency translation adjustment | | | (140) | | (400) | |
| Pension and other postretirement benefit plans | | | 494 | | 311 | |
| | | | |
| Cash flow hedges | | | (531) | | 369 | |
| Total other comprehensive (loss) income, net of tax | | | (177) | | 280 | |
| Total comprehensive loss | | | (92,986) | | (61,883) | |
| Comprehensive loss attributable to noncontrolling interests | | | (724) | | (336) | |
| Comprehensive loss attributable to Pyxus International, Inc. | | | $ | (92,262) | | $ | (61,547) | |
| | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | |
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| Pyxus International, Inc. and Subsidiaries | | | | | | | |
| Condensed Statements of Consolidated Stockholders' Equity | | | | | | | |
| (Unaudited) | | | | | | | |
| | | | | | | |
| Attributable to Pyxus 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 Stockholders' Equity |
| Balance, March 31, 2019 | $ | 468,936 | | $ | (223,884) | | $ | (21,979) | | $ | (36,749) | | $ | (2,614) | | $ | 8,309 | | $ | 192,019 | |
| Net loss attributable to Pyxus International, Inc. | — | | (61,797) | | — | | — | | — | | (366) | | (62,163) | |
| Stock-based compensation | 429 | | — | | — | | — | | — | | — | | 429 | |
| | | | | | | |
| Other comprehensive (loss) income, net of tax | — | | — | | (430) | | 311 | | 369 | | 30 | | 280 | |
| Balance, June 30, 2019 | 469,365 | | (285,681) | | (22,409) | | (36,438) | | (2,245) | | 7,973 | | 130,565 | |
| Net loss attributable to Pyxus International, Inc. | — | | (16,518) | | — | | — | | — | | (86) | | (16,604) | |
| Restricted stock surrender | (12) | | — | | — | | — | | — | | — | | (12) | |
| Stock-based compensation | 383 | | — | | — | | — | | — | | — | | 383 | |
| Dividends paid | — | | — | | — | | — | | — | | (480) | | (480) | |
| Other comprehensive (loss) income, net of tax | — | | — | | (1,925) | | (1,701) | | 1,428 | | (19) | | (2,217) | |
| Balance, September 30, 2019 | 469,736 | | (302,199) | | (24,334) | | (38,139) | | (817) | | 7,388 | | 111,635 | |
| Net loss attributable to Pyxus International, Inc. | — | | (21,993) | | — | | — | | — | | (453) | | (22,446) | |
| | | | | | | |
| Stock-based compensation | 242 | | — | | — | | — | | — | | — | | 242 | |
| | | | | | | |
| Purchase of noncontrolling interests in a subsidiary | (528) | | — | | 33 | | — | | — | | (426) | | (921) | |
| Other comprehensive income, net of tax | — | | — | | 1,789 | | 1,111 | | 576 | | 48 | | 3,524 | |
| Balance, December 31, 2019 | $ | 469,450 | | $ | (324,192) | | $ | (22,512) | | $ | (37,028) | | $ | (241) | | $ | 6,557 | | $ | 92,034 | |
| | | | | | | | | | | | | | | | | | | | |
Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries (Debtor-in-Possession) Condensed Consolidated Balance Sheets (Unaudited) | | | | | | |
| (in thousands) | | | | June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Assets | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | | | $ | 172,795 | | $ | 164,135 | | $ | 170,208 | |
| Restricted cash | | | | 2,649 | | 3,137 | | 2,486 | |
| Trade receivables, net | | | | 159,392 | | 193,076 | | 226,742 | |
| Other receivables | | | | 10,788 | | 10,522 | | 12,997 | |
| Accounts receivable, related parties | | | | 4,589 | | 17,239 | | 5,030 | |
| Notes receivable, related parties | | | | 400 | | 150 | | 406 | |
| Inventories, net | | | | 832,223 | | 817,663 | | 730,019 | |
| Advances to tobacco suppliers, net | | | | 32,535 | | 41,264 | | 38,877 | |
| Recoverable income taxes | | | | 16,873 | | 8,182 | | 7,562 | |
| Prepaid expenses | | | | 30,836 | | 20,448 | | 23,383 | |
| Other current assets | | | | 14,170 | | 15,006 | | 14,658 | |
| Total current assets | | | | 1,277,250 | | 1,290,822 | | 1,232,368 | |
| Restricted cash | | | | 389 | | 389 | | 389 | |
| Long-term notes receivable, related parties | | | | — | | — | | 7,450 | |
| Investments in unconsolidated affiliates | | | | 57,479 | | 64,535 | | 67,967 | |
| Goodwill | | | | 6,120 | | 34,547 | | — | |
| Other intangible assets, net | | | | 64,957 | | 70,778 | | 65,948 | |
| Deferred income taxes, net | | | | — | | 113,666 | | 2 | |
| Long-term recoverable income taxes | | | | 2,628 | | 2,638 | | 3,038 | |
| | | | | | |
| Other noncurrent assets | | | | 46,089 | | 53,845 | | 48,434 | |
| Right-of-use assets | | | | 39,602 | | 45,969 | | 41,471 | |
| Property, plant, and equipment, net | | | | 298,154 | | 288,386 | | 295,996 | |
| Total assets | | | | $ | 1,792,668 | | $ | 1,965,575 | | $ | 1,763,063 | |
| Liabilities and Stockholders’ Equity | | | | | | |
| Current liabilities | | | | | | |
| Notes payable to banks | | | | $ | 524,266 | | $ | 520,828 | | $ | 540,157 | |
| DIP financing | | | | 131,700 | | — | | — | |
| Accounts payable | | | | 84,078 | | 85,060 | | 67,094 | |
| Accounts payable, related parties | | | | 19,775 | | 20,773 | | 11,820 | |
| Advances from customers | | | | 22,100 | | 18,779 | | 18,810 | |
| Advances from related parties | | | | 4,030 | | — | | — | |
| Accrued expenses and other current liabilities | | | | 91,989 | | 104,392 | | 89,928 | |
| Income taxes payable | | | | 2,735 | | 18,314 | | 5,049 | |
| Operating leases payable | | | | 10,978 | | 15,275 | | 11,160 | |
| Current portion of long-term debt | | | | 273,524 | | 334 | | 45,048 | |
| Total current liabilities | | | | 1,165,175 | | 783,755 | | 789,066 | |
| Long-term taxes payable | | | | 7,623 | | 8,660 | | 8,543 | |
| Long-term debt | | | | 3,238 | | 899,672 | | 904,316 | |
| Deferred income taxes | | | | 25,603 | | 33,668 | | 22,903 | |
| Liability for unrecognized tax benefits | | | | 12,229 | | 8,544 | | 12,311 | |
| Long-term leases | | | | 25,121 | | 28,876 | | 27,843 | |
| Pension, postretirement, and other long-term liabilities | | | | 73,869 | | 71,835 | | 74,389 | |
| Total liabilities not subject to compromise | | | | 1,312,858 | | 1,835,010 | | 1,839,371 | |
| Liabilities subject to compromise | | | | | | |
| Debt subject to compromise | | | | 635,686 | | — | | — | |
| Accrued interest on debt subject to compromise | | | | 13,421 | | — | | — | |
| Total liabilities subject to compromise | | | | 649,107 | | — | | — | |
| Total liabilities | | | | 1,961,965 | | 1,835,010 | | 1,839,371 | |
| Commitments and contingencies | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pyxus International, Inc. and Subsidiaries | | | | | | | |
| Condensed Statements of Consolidated Stockholders' Equity | | | | | | | |
| (Unaudited) | | | | | | | |
| | | | | | | |
| Attributable to Pyxus 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 Stockholders' Equity |
| Balance, March 31, 2018 | $ | 473,476 | | $ | (156,348) | | $ | (12,682) | | $ | (32,580) | | $ | — | | $ | 10,962 | | $ | 282,828 | |
| Net loss attributable to Pyxus International, Inc. | — | | (759) | | — | | — | | — | | (654) | | (1,413) | |
| Stock-based compensation | 295 | | — | | — | | — | | — | | — | | 295 | |
| Purchase of investment in subsidiary | — | | — | | — | | — | | — | | 5,531 | | 5,531 | |
| Other comprehensive (loss) income, net of tax | — | | — | | (5,136) | | 366 | | (1,496) | | (175) | | (6,441) | |
| Balance, June 30, 2018 | 473,771 | | (157,107) | | (17,818) | | (32,214) | | (1,496) | | 15,664 | | 280,800 | |
| Net loss attributable to Pyxus International, Inc. | — | | (54,634) | | — | | — | | — | | (208) | | (54,842) | |
| Restricted stock surrender | (8) | | — | | — | | — | | — | | — | | (8) | |
| Stock-based compensation | 458 | | — | | — | | — | | — | | — | | 458 | |
| Other comprehensive (loss) income, net of tax | — | | — | | (257) | | 973 | | 780 | | 251 | | 1,747 | |
| Balance, September 30, 2018 | 474,221 | | (211,741) | | (18,075) | | (31,241) | | (716) | | 15,707 | | 228,155 | |
| Net (loss) income attributable to Pyxus International, Inc. | — | | (5,095) | | — | | — | | — | | 93 | | (5,002) | |
| Restricted stock surrender | (20) | | — | | — | | — | | — | | — | | (20) | |
| Stock-based compensation | 402 | | — | | — | | — | | — | | — | | 402 | |
| Dividends paid | — | | — | | — | | — | | — | | (390) | | (390) | |
| Impact of adoption of ASU 2018-02 | — | | 2,931 | | — | | (2,931) | | — | | — | | — | |
| Other comprehensive loss, net of tax | — | | — | | (1,787) | | (877) | | (1,591) | | (523) | | (4,778) | |
| Balance, December 31, 2018 | $ | 474,603 | | $ | (213,905) | | $ | (19,862) | | $ | (35,049) | | $ | (2,307) | | $ | 14,887 | | $ | 218,367 | |
| | | | | | | |
| *Amounts may not equal column totals due to rounding | | | | | | | |
| | | | | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | | | June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Stockholders’ equity | June 30, 2020 | June 30, 2019 | March 31, 2020 | | | |
| Common Stock—no par value: | | | | | | |
| Authorized shares | 250,000 | | 250,000 | | 250,000 | | | | |
| Issued shares | 9,976 | | 9,917 | | 9,976 | | 469,794 | | 469,365 | | 469,677 | |
| Retained deficit | | | | (580,706) | | (285,681) | | (488,545) | |
| Accumulated other comprehensive loss | | | | (59,233) | | (61,092) | | (59,132) | |
| Total stockholders’ equity of Pyxus International, Inc. | | | | (170,145) | | 122,592 | | (78,000) | |
| Noncontrolling interests | | | | 848 | | 7,973 | | 1,692 | |
| Total stockholders’ equity | | | | (169,297) | | 130,565 | | (76,308) | |
| Total liabilities and stockholders’ equity | | | | $ | 1,792,668 | | $ | 1,965,575 | | $ | 1,763,063 | |
| | | | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries | | | | | | | |
| (Debtor-in-Possession) | | | | | | | |
| Condensed Statements of Consolidated Stockholders' Equity | | | | | | | |
| (Unaudited) | | | | | | | |
| | | | | | | |
| 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, 2020 | $ | 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 | $ | 469,794 | | $ | (580,706) | | $ | (22,573) | | $ | (36,660) | | $ | — | | $ | 848 | | $ | (169,297) | |
| | | | | | | |
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| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance, March 31, 2019 | $ | 468,936 | | $ | (223,884) | | $ | (21,979) | | $ | (36,749) | | $ | (2,614) | | $ | 8,309 | | $ | 192,019 | |
| Net loss attributable to Pyxus International, Inc. | — | | (61,797) | | — | | — | | — | | (366) | | (62,163) | |
| Stock-based compensation | 429 | | — | | — | | — | | — | | — | | 429 | |
| | | | | | | |
| Other comprehensive (loss) income, net of tax | — | | — | | (430) | | 311 | | 369 | | 30 | | 280 | |
| Balance, June 30, 2019 | $ | 469,365 | | $ | (285,681) | | $ | (22,409) | | $ | (36,438) | | $ | (2,245) | | $ | 7,973 | | $ | 130,565 | |
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| | | | | | | |
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| | | | | | | |
| | | | | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | | | | |
| | | | | | | | |
Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) | | |
| Nine Months Ended December 31, | |
| (in thousands) | 2019 | 2018 |
| Operating Activities: | | |
| Net loss | $ | (101,213) | | $ | (61,256) | |
| Adjustments to reconcile net loss to net cash used by operating activities: | | |
| Depreciation and amortization | 26,003 | | 26,887 | |
| Debt amortization/interest | 9,356 | | 8,739 | |
| Debt retirement benefit | — | | (1,754) | |
| Gain on foreign currency transactions | (3,921) | | (1,220) | |
| Asset impairment charges | 260 | | 891 | |
| Gain on sale of property, plant, and equipment | (168) | | (2,155) | |
| Gain on insurance proceeds received for destroyed buildings | — | | (6,460) | |
| Income from unconsolidated affiliates, net of dividends | (128) | | (1,486) | |
| Bad debt expense | — | | 2,136 | |
| Stock-based compensation | 1,054 | | 1,155 | |
| Changes in operating assets and liabilities, net | (323,681) | | (315,113) | |
| Other, net | 5,220 | | 11,143 | |
| Net cash used by operating activities | (387,218) | | (338,493) | |
| | |
| Investing Activities: | | |
| Purchases of property, plant, and equipment | (51,479) | | (35,327) | |
| Proceeds from sale of property, plant, and equipment | 1,844 | | 5,179 | |
| Collections on beneficial interests on securitized trade receivables | 174,741 | | 171,565 | |
| Loans to unconsolidated affiliates | (5,250) | | — | |
| Insurance proceeds received for destroyed buildings | — | | 6,460 | |
| Payments to acquire controlling interests, net of cash acquired | — | | (8,692) | |
| Other, net | (240) | | (886) | |
| Net cash provided by investing activities | 119,616 | | 138,299 | |
| | |
| Financing Activities: | | |
| Net proceeds from short-term borrowings | 156,784 | | 173,548 | |
| Repayment of long-term borrowings | (91) | | (25,132) | |
| Debt issuance cost | (5,245) | | (5,072) | |
| | |
| Purchase of noncontrolling interests in a subsidiary | (921) | | — | |
| Other, net | (480) | | (459) | |
| Net cash provided by financing activities | 150,047 | | 142,885 | |
| | |
| Effect of exchange rate changes on cash | (5,277) | | 5,160 | |
| | |
| Decrease in cash, cash equivalents, and restricted cash | (122,832) | | (52,149) | |
| Cash and cash equivalents at beginning of period | 192,043 | | 264,660 | |
| Restricted cash at beginning of period | 5,767 | | 3,373 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 74,978 | | $ | 215,884 | |
| | |
| Other information: | | |
| Cash paid for income taxes | $ | 13,768 | | $ | 19,650 | |
| Cash paid for interest | 80,191 | | 81,622 | |
| Cash received from interest | (2,839) | | (2,340) | |
| | | | |
| Noncash investing activities: | | |
| Purchases of property, plant, and equipment included in accounts payable | $ | 4,590 | | $ | 1,501 | |
| Sales of property, plant, and equipment included in notes receivable | 662 | | 1,473 | |
Non-cash amounts obtained as a beneficial interest in exchange for transferring
trade receivables in a securitization transaction | 151,149 | | 161,943 | |
| | |
| See "Notes to Condensed Consolidated Financial Statements" | | |
| | | | | | | | |
Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries (Debtor-in-Possession) Condensed Consolidated Statements of Cash Flows (Unaudited) | | |
| Three Months Ended June 30, | |
| (in thousands) | 2020 | 2019 |
| Operating Activities: | | |
| Net loss | $ | (92,809) | | $ | (62,163) | |
| Adjustments to reconcile net loss to net cash used by operating activities: | | |
| Depreciation and amortization | 10,026 | | 8,810 | |
| Debt amortization/interest | 3,434 | | 2,818 | |
| | |
| Gain on foreign currency transactions | (5,006) | | (2,232) | |
| | |
| | |
| | |
| Income from unconsolidated affiliates, net of dividends | 4,359 | | 5,328 | |
| Reorganization items | 15,703 | | — | |
| | |
| | |
| Changes in operating assets and liabilities, net | (49,285) | | (119,629) | |
| Other, net | 13,292 | | (2,854) | |
| Net cash used by operating activities | (100,286) | | (169,922) | |
| | |
| Investing Activities: | | |
| Purchases of property, plant, and equipment | (5,002) | | (19,344) | |
| | |
| Collections on beneficial interests on securitized trade receivables | 53,949 | | 72,266 | |
| | |
| | |
| Payments to acquire businesses, net of cash acquired | (4,805) | | — | |
| Other, net | 33 | | (319) | |
| Net cash provided by investing activities | 44,175 | | 52,603 | |
| | |
| Financing Activities: | | |
| Net repayments and proceeds from short-term borrowings | (19,517) | | 92,524 | |
| Proceeds from DIP facility | 131,700 | | — | |
| Repayment of revolving loans facilities | (44,900) | | — | |
| | |
| Proceeds from long term borrowings | 2,606 | | — | |
| Debt issuance cost | (1,758) | | (3,368) | |
| DIP financing fees | (9,085) | | — | |
| | |
| | |
| Other, net | (384) | | (85) | |
| Net cash provided by financing activities | 58,662 | | 89,071 | |
| | |
| Effect of exchange rate changes on cash | 199 | | (1,901) | |
| | |
| Increase (decrease) in cash, cash equivalents, and restricted cash | 2,750 | | (30,149) | |
| Cash and cash equivalents at beginning of period | 170,208 | | 192,043 | |
| Restricted cash at beginning of period | 2,875 | | 5,767 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 175,833 | | $ | 167,661 | |
| | |
| Other information: | | |
| Cash paid for income taxes, net | $ | 2,173 | | $ | 5,222 | |
| Cash paid for interest | 18,803 | | 19,187 | |
| Cash received from interest | (903) | | (1,630) | |
| Cash paid for reorganization items | 2,078 | | — | |
| | |
| Noncash investing activities: | | |
| Purchases of property, plant, and equipment included in accounts payable | $ | 690 | | $ | 6,545 | |
| Sales of property, plant, and equipment included in notes receivable | 409 | | 1,930 | |
Non-cash amounts obtained as a beneficial interest in exchange for transferring
trade receivables in a securitization transaction | 47,120 | | 46,882 | |
| | |
| See "Notes to Condensed Consolidated Financial Statements" | | |
Old Holdco, Inc. (formerly Pyxus International, Inc.) and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands)
thousands, except per share data)
1. Basis of Presentation and Significant Accounting Policies
The 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. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the 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. Intercompany accounts and transactions have been eliminated.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019.2020. The year-end condensed balance sheet data was derived from the audited financial statements. Due to the seasonal nature of the 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.
Leases
The Company measures right-of-use assetsapplied Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 852 – Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements, which specifies the accounting and financial reporting requirements for entities reorganizing through Chapter 11 bankruptcy proceedings. These requirements include distinguishing transactions associated with the reorganization separate from activities related leaseto the ongoing operations of the business. Accordingly, pre-petition liabilities basedthat may be impacted by the Chapter 11 proceedings have been classified as liabilities subject to compromise on the present value of remaining lease payments, including in-substance fixed payments, the current payment amount when payments depend on an index or rate (e.g., inflation adjustments, market renewals), and the amount the Company believes is probable to be paid to the lessor under residual value guarantees, when applicable. Lease contracts may include fixed payments for non-lease components, such as maintenance, which are included in the measurement of lease liabilities for certain asset classes based on the Company’s election to combine lease and non-lease components. The Company does not recognize short-term leases on thecondensed consolidated balance sheet.sheet as of June 30, 2020.
AsBankruptcy Proceedings
On June 15, 2020 (the "Petition Date"), Pyxus International, Inc. and its 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 (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged chapter 11 plan of reorganization (“Prepack Plan”) that effectuates a financial restructuring of the Company’s secured debt (the “Restructuring”). The Company commenced solicitation of the Prepack Plan with a related disclosure statement (“Disclosure Statement”) on June 14, 2020. The Chapter 11 Cases have been administered jointly under the caption In re Pyxus International, Inc., et al.
In the Chapter 11 Cases, the Bankruptcy Court granted the Debtors' motions to continue to operate as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable borrowing ratesprovisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure its ability to continue operating in the ordinary course of business both domestically and internationally, the Debtors also filed with the Bankruptcy Court a variety of “first day” relief motions, including authority to pay employee wages and benefits and vendors and suppliers in the ordinary course of business, which motions were granted by the Bankruptcy Court. Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the Debtors, as well as most litigation then pending against these entities, have been subject to an automatic stay during the pendency of the Chapter 11 Cases.
The commencement of the Chapter 11 Cases constituted an event of default, and caused an automatic and immediate acceleration of repayment obligations under the Company's 8.500% Senior Secured First Lien Notes due 2021 ("the First Lien Notes"), its 9.875% Senior Secured Second Lien Notes due 2021 ("the Second Lien Notes"), and the Company's asset-based revolving credit facility ("the ABL Facility"). However, any efforts to enforce such payment obligations are automatically stayed as of the Petition Date, and are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Borrowings under the ABL Facility were not typically implied within the lease arrangements, the Company discounts lease payments based on its estimated incremental borrowing rate at lease commencement, or modification, which is basedavailable commencing on the Company’s estimated credit rating, the lease term at commencement, and the contract currency of the lease arrangement.
Segments
During the three months ended December 31, 2018, the Company realigned its reportable segments to reflect changes to how the business is managed and results are reviewed by the Company's chief operating decision maker. In connection with the "One Tomorrow Transformation" initiative, the Company changed its organizational structure to support its diversified business lines. Prior to the realignment, the Company assessed financial information based on geographic regions. The Company's diversification efforts have resulted in management placing emphasis on data by business line in addition to the historical focus by geography. AsPetition Date as a result of this realignment,event of default.
On June 14, 2020, the reportable segments nowDebtors entered into a Restructuring Support Agreement with holders (collectively, the “Consenting Noteholders”) of greater than 92% of the First Lien Notes and greater than 67% of the Second Lien Notes. As set forth in the RSA, including in the term sheets attached thereto (including all exhibits, annexes and schedules attached thereto, the Debtors and Consenting Noteholders agreed to the terms of the Restructuring, which was contemplated to be implemented through the Prepack Plan. On June 15, 2020, the Debtors commenced the Chapter 11 Cases to implement the Prepack Plan. Refer to "Note 22. Subsequent Events" for more information.
Liabilities Subject to Compromise
The condensed consolidated balance sheets include Leaf - North America, Leaf - Other Regions,amounts classified as liabilities subject to compromise, which represent pre-petition liabilities that have been allowed as claims in the Chapter 11 Cases, although they may be settled for less. The Company evaluated these liabilities throughout the Chapter 11 Cases and Other Productsadjusted amounts as necessary. Liabilities subject to compromise included the Company's Second Lien Notes and Services.related interest. Upon confirmation of the Plan of Reorganization by the Bankruptcy Court, claims and interests with respect to the First Lien Notes were discharged. As a result, liabilities subject to compromise does not include the Company's First Lien Notes and related interest.
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 in the condensed consolidated statements of operations. Reorganization items included professional fees pertaining to the Chapter 11 Cases, United States trustee fees, DIP financing fees, and the write-off of unamortized debt issuance cost and discount.
Contract Balances
The Company generally records a receivable when revenue is recognized as the timing of revenue recognition may differ from the timing of payment from customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. The Company's trade receivables do not bear interest, and they are recorded at the invoiced amount less an estimated allowance for expected credit losses. In addition to estimating an allowance based on specific identification of certain receivables that have a higher probability of not being paid, the Company also records an estimate for expected credit losses for the remaining receivables in the aggregate using a loss-rate method that considers historical bad debts, age of customer receivable balances, and current customer receivable balances. Additionally, the Company considers future reasonable and supportable forecasts of economic conditions to adjust historical loss rate percentages as necessary. Balances are written-off when determined to be uncollectible. Refer to "Note 3. Revenue Recognition" for a summary of the activity in the allowance for expected credit losses.
Reclassifications
Certain priorPrior period amounts have been reclassified to conform to the current year presentation of notes receivable, related parties in the condensed consolidated balance sheets, restructuring and asset impairment chargescertain items in the condensed consolidated statementstatements of cash flows, and the components within inventory, see "Note 17. Inventories"7. Inventories, Net" for more information.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In FebruaryJune 2016, the FinancialFASB issued Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-02,2016-13, LeasesFinancial Instruments-Credit Losses (Topic 842). Under this guidance, a lessee recognizes assets and liabilities326): Measurement of Credit Losses on its balance sheet for most leases, and retains a dual model approach for assessing lease classification and recognizing expense. This guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements. The FASB subsequently issued updates to provide clarification on specific topics, including adoption guidance, practical expedients, and interim transition disclosure requirements. The Company adopted this guidance during the first quarter beginning April 1, 2019 under the modified retrospective approach, which does not require adjustments to comparative periods or require modified disclosures for those comparative periods. The guidance provides a number of optional practical expedients in transition. The Company elected the package of transition practical expedients. The Company implemented changes to its accounting policies, systems, and controls to align with the new guidance. There is a material impact on the consolidated balance sheet from
applying this guidance, which resulted in the recognition of new right-of-use assets of $43,900 and lease liabilities of $42,064 as of April 1, 2019 associated with the Company’s operating leases. The impact on the results of operations, cash flows, and existing debt covenants is not material. The adoption of this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from lease arrangements. See "Note 14. Leases" for more information.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill ImpairmentFinancial Instruments. ASU 2017-04 simplifies2016-13 and its related amendments are intended to provide financial statement users with more decision-useful information about the test for goodwill impairment as it eliminates step two of the goodwill impairment testexpected credit losses on financial assets held at amortized cost and other commitments to extend credit held by no longer requiring an entity to compare the implied fair value of a reporting unit’s goodwill withentity at each reporting date. Based on the carrying amount of that goodwill. Under this new standard, goodwill impairment is measured as the excess of the reporting unit's carrying value over fair value, limited to the amount of goodwill. The Company will continue to have the option to perform a qualitativeCompany's scoping assessment, to determine if a quantitative impairment test is needed.ASU 2016-13 primarily impacts trade receivables. This guidance has beenwas early adopted by the Company as of December 31, 2019 on a prospective basis.April 1, 2020 using the modified retrospective approach. The adoption of this new accounting standard did not have a material impact on the Company's financial condition, results of operations, or cash flows.
Recent Accounting Pronouncements Not Yet Adopted
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. Based on the Company's scoping assessment, ASU 2016-13 will primarily impact trade receivables. The adoption of this new accounting standard will be done using a modified retrospective approach, and is not expected to have a material impact on the Company's financial condition, results of operations, or cash flows. This new accounting standard will be effective for the Company on April 1, 2023, with early adoption permitted.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 updates disclosure requirements for defined benefit plans. This guidance will bewas adopted using a retrospective approach and was effective beginning in the first quarter of fiscal year 2021. This new accounting standard did not have a material impact on the Company's financial condition, results of operations, or cash flows; however, expanded disclosures will be required in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2021.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod 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 accounting for franchise taxes that are partially based on income, separate financial statements of legal entities not subject to tax, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for the Company on March 31, 2021.April 1, 2021, with early adoption permitted. The Company is currently evaluating the effectimpact that adoption of this guidancenew accounting standard will have on its consolidated financial statements and related disclosures.
3. Restricted Cash
The following summarizes the restricted cash balance:
| | | | | | | | | | | |
| December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Compensating balance for short-term borrowings | | $ | 940 | | $ | 1,220 | | $ | 1,225 | |
| | | |
| Escrow | | 1,363 | | 2,314 | | 2,894 | |
| Other | 445 | | 3,190 | | $ | 1,648 | |
| Total | $ | 2,748 | | $ | 6,724 | | $ | 5,767 | |
As of December 31, 2019 and 2018, and March 31, 2019, the Company held $0, $2,644, and $1,082, respectively, in the Zimbabwe Real Time Gross Settlement (“RTGS”) Dollar. RTGS is a local currency equivalent that as of December 31, 2019 was exchanged at a government specified rate of 16.8:1 with the U.S. Dollar ("USD").
4.3. Revenue Recognition
The Company derives revenue from contracts with customers, primarily from the sale of processed tobacco and fees charged for processing and related services to the manufacturers of tobacco products. The following disaggregates sales and other operating revenues by the Company's significant revenue streams:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Leaf - North America: | | | | |
| Product revenue | $ | 39,148 | | $ | 60,280 | | $ | 114,548 | | $ | 152,725 | |
| Processing and other revenues | 13,868 | | 17,570 | | 24,873 | | 29,039 | |
| Total sales and other operating revenues | 53,016 | | 77,850 | | 139,421 | | 181,764 | |
| | | | |
| Leaf - Other Regions: | | | | |
| Product revenue | 293,564 | | 432,423 | | 825,522 | | 977,503 | |
| Processing and other revenues | 12,936 | | 9,296 | | 42,316 | | 40,752 | |
| Total sales and other operating revenues | 306,500 | | 441,719 | | 867,838 | | 1,018,255 | |
| | | | |
| Other Products and Services: | | | | |
| Total sales and other operating revenues | 3,744 | | 4,918 | | 15,652 | | 10,332 | |
| | | | |
| Total sales and other operating revenues | $ | 363,260 | | $ | 524,487 | | $ | 1,022,911 | | $ | 1,210,351 | |
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process customer-owned green tobacco owned and provided by the customers.tobacco. During processing, ownership remains with the customers and the Company is engaged to perform processing services.customers. Other products and services venue is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue. The following disaggregates sales and other operating revenues by major source:
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Leaf - North America: | | | | |
| Product revenue | $ | 25,918 | | $ | 31,141 | | | |
| Processing and other revenues | 3,979 | | 3,809 | | | |
| Total sales and other operating revenues | 29,897 | | 34,950 | | | |
| | | | |
| Leaf - Other Regions: | | | | |
| Product revenue | 218,356 | | 225,147 | | | |
| Processing and other revenues | 9,383 | | 10,623 | | | |
| Total sales and other operating revenues | 227,739 | | 235,770 | | | |
| | | | |
| Other Products and Services: | | | | |
| Total sales and other operating revenues | 5,173 | | 5,950 | | | |
| | | | |
| Total sales and other operating revenues | $ | 262,809 | | $ | 276,670 | | | |
The following summarizes activity in the allowance for doubtful accounts:expected credit losses:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| | 2019 | 2018 | 2019 | 2018 | | 2020 | 2019 | |
| Balance, beginning of period | Balance, beginning of period | $ | (7,242) | | $ | (7,324) | | $ | (13,381) | | $ | (7,055) | | Balance, beginning of period | $ | (15,893) | | $ | (13,381) | | |
| Additions | (5) | | (1,774) | | — | | (2,136) | | |
| | Write-offs | Write-offs | — | | (15) | | 6,134 | | 78 | | Write-offs | 908 | | 6,131 | | |
| Balance, end of period | Balance, end of period | (7,247) | | (9,113) | | (7,247) | | (9,113) | | Balance, end of period | (14,985) | | (7,250) | | |
| Trade receivables | Trade receivables | 187,651 | | 277,860 | | 187,651 | | 277,860 | | Trade receivables | 174,377 | | 200,326 | | |
| Trade receivables, net | Trade receivables, net | $ | 180,404 | | $ | 268,747 | | $ | 180,404 | | $ | 268,747 | | Trade receivables, net | $ | 159,392 | | $ | 193,076 | | |
5.4. Income Taxes
Accounting for Uncertainty in Income Taxes
As of December 31, 2019,June 30, 2020, the Company’s unrecognized tax benefits totaled $16,331,$20,843, of which $13,122$10,316 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 of December 31, 2019,June 30, 2020, accrued interest and penalties totaled $1,235$1,198 and $756,$728, respectively. The Company expects to continue accruing interest expense related to the unrecognized tax benefits described above. The Company may be subject to fluctuations in the unrecognized tax benefit due to currency exchange rate movements.
During the nine months ended December 31, 2019, the Company reached an income tax settlement with the Kenyan Revenue Authority for $1,558 for a previously recorded uncertain tax position. In addition, a previous accrual to settle asserted issues for years 2009 to 2016 in Zimbabwe of $964 was reduced by $952 to account for the exchange rate impact of the local currency equivalent. An existing accrual for transfer pricing issues in Malawi was increased by an additional $2,772 to account for the Company's evolving negotiations with tax authorities. Also, the Company increased an existing accrual related to U.S. transition tax of $931, resulting from changes in accrued tax pools. The U.S. federal net operating loss was reduced to reflect the impacts of certain tax accounting methods on Global Intangible Low-Taxed Income ("GILTI").
The Company does not expect significant 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 taken by the Company 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, 2019,June 30, 2020, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2017. The Company's tax attributes from prior periods remain subject to adjustment. Open tax years in state and foreign jurisdictions generally range from three to six years.
Provision for the Three and Nine Months Ended December 31, 2019June 30, 2020
The effective tax rate for the three months ended December 31,June 30, 2020 and 2019 was 8.0% and 2018 was 3.9% and 226.8%, respectively. The effective tax rate for the nine months ended December 31, 2019 and 2018 was (30.5)% and (65.3)(59.2)%, respectively. For the three and nine months ended December 31,June 30, 2020 and 2019, and 2018, the effective rate differed from the U.S. statutory rate of 21% due to the impact of non-deductible interest, net foreign exchange effects, and Subpart F income.the expected jurisdictional mix of earnings. The primary differences in the effective tax rates year-over-year are the impact of net foreign exchange effects, increases in non-deductible interest, as well as Subpart Fforeign income and variationtaxed in the U.S., variations in the expected jurisdictional mix of earnings.earnings, and variations in included/excluded entities per adherence to ASC 240-270.
For the nine months ended December 31, 2019, theThe Company's quarterly provision for income taxes has been calculated using the annual effective tax rate method (“AETR method”), which applies an estimated annual effective tax rate to pre-tax income or loss. The Company expects the recorded current benefit to be utilized by year-end through offsets to current tax. For the ninethree months ended December 31, 2019,June 30, 2020, the Company recorded the net tax effects of excluded entities and certain discrete events, which resulted in an income tax expensebenefits of $2,252. This$360 and $276, respectively. The discrete income tax expensebenefits are primarily related to the impact of changes in uncertain tax positions and changes in foreign exchange impacts. ComparableFor the three months ended June 30, 2019, the Company recorded the tax effects of discrete events resulting in additional income tax benefit of $2,601. These discrete income tax benefits are primarily related to the impact of changes in uncertain tax positions, an adjustment made to the deemed repatriation tax liability as a result of retroactive regulatory guidance issued during the quarter, and changes in foreign exchange impacts.
5. Loss Per Share
The following summarizes the computation of loss per share:
| | | | | | | | |
| Three Months Ended June 30, | |
| (in thousands, except per share data) | 2020 | 2019 |
| Basic loss per share: | | |
| Net loss attributable to Pyxus International, Inc. | $ | (92,161) | | $ | (61,797) | |
| Shares: | | |
Weighted average number of shares outstanding(1) | 9,976 | | 9,100 | |
| Basic loss per share | $ | (9.24) | | $ | (6.79) | |
| | |
| Diluted loss per share: | | |
| Net loss attributable to Pyxus International, Inc. | $ | (92,161) | | $ | (61,797) | |
| Shares: | | |
Weighted average number of shares outstanding(1) | 9,976 | | 9,100 | |
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(2) | — | | — | |
| Adjusted weighted average number of shares outstanding | 9,976 | | 9,100 | |
| Diluted loss per share | $ | (9.24) | | $ | (6.79) | |
| (1) 0 and 785 shares of common stock were owned by a wholly owned subsidiary as of June 30, 2020 and 2019, respectively. | | |
| (2) 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 20 and 62 for the three months ended June 30, 2020 and 2019, respectively. | | |
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:
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Antidilutive stock options and other awards | 427 | | 427 | | | |
| Antidilutive stock options and other awards under stock-based compensation programs excluded based on reporting a net loss for the period | 24 | | — | | | |
| Total common stock equivalents excluded from diluted loss per share | 451 | | 427 | | | |
| Weighted average exercise price | $ | 56.86 | | $ | 60.00 | | | |
6. Cash, Cash Equivalents, and Restricted Cash
The following summarizes the composition of restricted cash:
| | | | | | | | | | | |
| June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Compensating balance for short-term borrowings | $ | 900 | | $ | 1,230 | | $ | 893 | |
| | | |
| Escrow | 1,363 | | 1,397 | | 1,450 | |
| Other | 775 | | 899 | | $ | 532 | |
| Total | $ | 3,038 | | $ | 3,526 | | $ | 2,875 | |
7. Inventories, Net
The following summarizes the composition of inventories, net:
| | | | | | | | | | | |
| June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Processed tobacco | $ | 534,833 | | $ | 553,890 | | $ | 485,764 | |
| Unprocessed tobacco | 237,227 | | 234,766 | | 178,782 | |
| Other tobacco related | 21,779 | | 24,145 | | 24,071 | |
Other(1) | 38,384 | | 4,862 | | 41,402 | |
| Total | $ | 832,223 | | $ | 817,663 | | $ | 730,019 | |
| (1) Represents inventory from the other products and services segment. | | | |
During the quarter ended June 30, 2020, the Company recorded a $15,056 inventory LCM write-down of its inventory from the other products and services segment due to a shift in expected future products mix in response to market supply conditions and continued market price compression.
8. Acquisitions
On December 18, 2017, the Company completed a purchase of a 40.0% 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 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 the settlement of the Company's $7,450 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 (expense) income, net within the condensed consolidated statements of operations for the three months ended June 30, 2020. The assets and liabilities were recorded at their fair value.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments. The acquisition allowed 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 | |
Revenue, operating loss, and net loss of Criticality in the consolidated statements of operations from and including April 22, 2020 to June 30, 2020 were $17, $(791), and $(910), respectively. As a result, the impact to basic and diluted earnings per share was $(0.09) and $(0.09), respectively. Unaudited pro forma information was not separately stated due to the close proximity of the acquisition date to the beginning of the Company's fiscal year.
9. Equity Method Investments
The following summarizes the Company's equity method investments as of June 30, 2020:
| | | | | | | | | | | | | | |
| Entity Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference |
| Adams International Ltd. | Thailand | purchase and process tobacco | 49 | % | — | |
| Alliance One Industries India Private Ltd. | India | purchase and process tobacco | 49 | % | — | |
| China Brasil Tobacos Exportadora SA | Brazil | purchase and process tobacco | 49 | % | 5,189 | |
| Nicotine River, LLC | U.S. | produce consumable e-liquids | 40 | % | 1,778 | |
| Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | Turkey | process tobacco | 50 | % | — | |
| Purilum, LLC | U.S. | produce flavor formulations and consumable e-liquids | 50 | % | — | |
| Siam Tobacco Export Company | Thailand | purchase and process tobacco | 49 | % | — | |
The following summarizes financial information for these equity method investments:
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Operations statement: | | | | |
| Sales | $ | 35,711 | | $ | 46,233 | | | |
| Gross profit | 6,949 | | 9,507 | | | |
| Net income | 2,309 | | 3,100 | | | |
| Company's dividends received | 5,064 | | 6,094 | | | |
| | | | | | | | | | | |
| June 30, | | |
| 2020 | 2019 | March 31, 2020 |
| Balance sheet: | | | |
| Current assets | $ | 232,176 | | $ | 236,389 | | $ | 145,207 | |
| Property, plant, and equipment and other assets | 50,679 | | 55,023 | | 56,481 | |
| Current liabilities | 174,367 | | 184,526 | | 82,377 | |
| Long-term obligations and other liabilities | 6,107 | | 3,354 | | 6,296 | |
Of the amounts presented above, the following summarizes financial information for China Brasil Tobacos Exportadora SA ("CBT"):
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Operations statement: | | | | |
| Sales | $ | 14,328 | | $ | 18,391 | | | |
| Gross profit | 2,148 | | 2,212 | | | |
| Net income (loss) | 915 | | (35) | | | |
| Net income (loss) attributable to CBT | 448 | | (17) | | | |
10. 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:
| | | | | | | | | | | |
| June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Investments in variable interest entities | $ | 51,509 | | $ | 57,541 | | $ | 62,407 | |
| Receivables with variable interest entities | 2,039 | | 14,500 | | 10,099 | |
| Guaranteed amounts to variable interest entities (not to exceed) | 60,937 | | 63,584 | | 59,792 | |
11. Goodwill and Other Intangible Assets, Net
The following summarizes the changes in the Company's goodwill and other intangible assets, net:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | | |
| | Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization (1) | Impact of Foreign Currency Translation | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 8.45 years | $ | 63,980 | | $ | — | | $ | (34,054) | | $ | — | | $ | 29,926 | |
Production and supply contracts (2) | 2.75 years | 7,000 | | — | | (3,354) | | — | | 3,646 | |
| Internally developed software | 3.60 years | 22,385 | | — | | (19,427) | | 17 | | 2,975 | |
Licenses (3) | 16.75 years | 30,886 | | — | | (3,754) | | 919 | | 28,051 | |
| Trade names | 5.75 years | 500 | | — | | (141) | | — | | 359 | |
| Intangibles not subject to amortization: | | | | | | |
Goodwill (4) | | — | | 6,120 | | — | | — | | 6,120 | |
| Total | | $ | 124,751 | | $ | 6,120 | | $ | (60,730) | | $ | 936 | | $ | 71,077 | |
(1) Amortization expense across intangible asset classes for the three months ended June 30, 2020 was $1,839.
(2) Production and supply contract with a gross carrying amount of $7,893 was fully amortized and removed during the year ended March 31, 2020.
(3) Certain of the Company's license intangibles are subject to annual renewal.
(4) Goodwill of $6,120 relates to the Other Products and Services segment.
| | | | | | | | | | | | | | | | | | | | |
| Year Ended March 31, 2020 | | | | | |
| Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization (1) | Impact of Foreign Currency Translation | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 8.66 years | $ | 63,980 | | $ | — | | $ | (33,049) | | $ | — | | $ | 30,931 | |
| Production and supply contracts | 3.00 years | 14,893 | | — | | (11,217) | | — | | 3,676 | |
| Internally developed software | 3.96 years | 19,917 | | 2,468 | | (19,082) | | — | | 3,303 | |
Licenses (2) | 16.95 years | 33,330 | | 195 | | (3,310) | | (2,551) | | 27,664 | |
| Trade names | 6.00 years | 500 | | — | | (126) | | — | | 374 | |
| | | | | | |
| | | | | | |
| Total | | $ | 132,620 | | $ | 2,663 | | $ | (66,784) | | $ | (2,551) | | $ | 65,948 | |
(1) Amortization expense across intangible asset classes for the fiscal year ended March 31, 2020 was $6,991.
(2) Certain of the Company's license intangibles are subject to annual renewal.
The following summarizes the estimated intangible asset amortization expense for the six months ended Septembernext five years and beyond:
| | | | | | | | | | | | | | | | | | | | |
For Fiscal
Years Ended | Customer
Relationships | Production
and Supply
Contracts | Internally Developed Software(1) | Licenses | Trade Names | Total |
| 2021 (excluding the three months ended June 30, 2020) | $ | 3,016 | | $ | 841 | | $ | 579 | | $ | 1,347 | | $ | 47 | | $ | 5,830 | |
| 2022 | 4,022 | | 1,397 | | 851 | | 1,793 | | 63 | | 8,126 | |
| 2023 | 4,022 | | 1,397 | | 768 | | 1,790 | | 63 | | 8,040 | |
| 2024 | 4,022 | | 11 | | 520 | | 1,790 | | 63 | | 6,406 | |
| 2025 | 4,022 | | — | | 257 | | 1,735 | | 63 | | 6,077 | |
| Thereafter | 10,822 | | — | | — | | 19,596 | | 60 | | 30,478 | |
| $ | 29,926 | | $ | 3,646 | | $ | 2,975 | | $ | 28,051 | | $ | 359 | | $ | 64,957 | |
(1) Estimated amortization expense for the internally developed software is based on costs accumulated as of June 30, 2018 was calculated using2020. These estimates will change as new costs are incurred and until the discrete methodsoftware is placed into service in all locations.
12. Debt Arrangements
The following summarizes debt and notes payable:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | June 30, 2020 | | | |
| Outstanding | | | | Lines and | | | |
| March 31, | | June 30, | | Letters | | Interest | |
| (in thousands) | 2020 | | 2020 | | Available | | Rate | |
| Senior secured credit facility: | | | | | | | | |
| ABL facility | $ | 44,900 | | | $ | — | | | $ | — | | | 4.1 | % | (1) |
| Senior notes: | | | | | | | | |
8.5% senior secured first lien notes (2) | 272,871 | | | 273,377 | | | — | | | 8.5 | % | |
9.875% senior secured second lien notes (3) | 630,737 | | | 635,686 | | | — | | | 9.9 | % | |
| Other long-term debt | 856 | | | 3,385 | | | 387 | | | 8.0 | % | (1) |
Notes payable to banks (4) | 540,157 | | | 524,266 | | | 234,953 | | | 6.6 | % | (1) |
| DIP Financing | — | | | 131,700 | | | 75,000 | | | 11.9 | % | |
| Total debt | $ | 1,489,521 | | | $ | 1,568,414 | | | $ | 310,340 | | | | |
| Short-term | 540,157 | | | 655,966 | | | | | | |
| Long-term: | | | | | | | | |
| Current portion of long-term debt | $ | 45,048 | | | $ | 273,524 | | | | | | |
| Long-term debt | 904,316 | | | 3,238 | | | | | | |
| $ | 949,364 | | | $ | 276,762 | | | | | | |
| Debt subject to compromise: | | | | | | | | |
9.875% senior secured second lien notes (3) | $ | — | | | $ | 635,686 | | | | | | |
| | | | | | | | |
| Letters of credit | 7,027 | | | 5,880 | | | 2,765 | | | | |
| Total credit available | | | | | $ | 313,105 | | | | |
| | | | | | | | |
| (1) Weighted average rate for the trailing twelve months ended June 30, 2020. | | | | | | | | |
| (2) Repayment of $273,377 is net of original issue discount of $517 and unamortized debt issuance costs of $1,106. Total repayment will be $275,000. | | | | | | | | |
| (3) Upon commencement of the Chapter 11 Cases on June 15, 2020, the carrying amount of the Second Lien Notes was adjusted to write-off the original issue discount of $2,305 and the unamortized debt issuance costs of $1,715 to reorganization items. The Second Lien Notes are classified as liabilities subject to compromise within the condensed consolidated balance sheets as of June 30, 2020. | | | | | | | | |
| (4) Primarily foreign seasonal lines of credit. | | | | | | | | |
Debtor-in-Possession Financing
The commencement of the Chapter 11 Cases on June 15, 2020 constituted an event of default, and caused an automatic and immediate acceleration of repayment obligations under the First Lien Notes, the Second Lien Notes, and the ABL Facility.
However, any efforts to enforce such payment obligations are automatically stayed as allowedof the Petition Date, and are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Borrowings under ASC 740-270, Accounting for Income Taxes - Interim Reporting. Using the discrete method,ABL Facility were not available commencing on the Petition Date as a result of this event of default.
In June 2020, the Company determined currentdrew down $131,700 in initial funding from the DIP Facility. The proceeds from the DIP Facility were used to (a) pay down the outstanding amount drawn on the ABL Facility of $44,900; (b) pay related transaction costs, fees, and deferred income tax expenseexpenses associated with the repayment and termination of the ABL Facility; (c) provide working capital for other general corporate purposes in accordance with the Budget; (d) make adequate protection payments as ifauthorized by the interimBankruptcy Court in the DIP Order; (e) pay obligations arising from or related to the Carve Out (as defined below); and (f) pay restructuring costs incurred in connection with the Chapter 11 Cases. Drawn amounts under the DIP Facility bear interest at either (1) an Alternate Base Rate plus 9.25%, per annum or (2) 10.25% plus the LIBOR Rate, per annum, with a LIBOR floor of 1.5%. Undrawn amounts under the DIP Facility are subject to a ticking fee of 3.0% per annum calculated on a daily basis on the aggregate daily unused amount, accruing commencing on June 17, 2020 and until such commitments have terminated, which ticking fee is due and payable in arrears on the earlier to occur of a borrowing upon entry of a final order and the date on which such commitments have terminated. During the continuance of an event of default (as further described in the DIP Credit Agreement), the overdue amounts under the DIP Facility bear interest at an additional 2% per annum above the interest rate otherwise applicable.
The maturity date of the DIP Facility is the earliest of (a) December 17, 2020; (b) the date of the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code) of a plan of reorganization; (c) the date on which Pyxus and its subsidiaries consummate a sale of all or substantially all of their assets pursuant to section 363 of the Bankruptcy Code or otherwise; or (d) such earlier date on which the loans shall become due and payable by acceleration or otherwise in accordance with the terms of the DIP Credit Agreement and the other related documents.
Under the DIP Facility, the DIP Lenders and Cortland Capital Market Services LLC, as collateral agent, subject to the Carve Out and the terms of the DIP Order and, in each case, other than certain excluded assets, are at all times secured, by (i) a first priority senior priming security interest in and lien upon the DIP Priming Collateral (as defined in the DIP Order); (ii) a first priority senior security interest in and lien upon the DIP Priority Collateral (as defined in the DIP Order), and (iii) a junior security interest in and lien upon DIP Junior Collateral (as defined in the DIP Order). The DIP Lenders and collateral agent are also secured by security interests in substantially all of the assets of certain non-debtor subsidiaries of Pyxus. The Debtors’ obligations to the DIP Lenders and the liens and superpriority claims are subject in each case to a carve out (the “Carve Out”), subject to a cap, that accounts for certain statutory fees, committee professional fees and post-notice professional fees payable in connection with the Chapter 11 Cases.
The DIP Credit Agreement also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, material inaccuracy of representations and warranties, covenant defaults, certain events under the Employee Retirement Income Security Act of 1974 and change of control. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code and certain other events related to the impairment of the DIP Lenders’ rights or liens granted under the DIP Credit Agreement.
Upon the effectiveness of the Plan, claims under the DIP Facility are satisfied in the manner set forth in the Plan and the DIP Facility terminates. Refer to "Note 22. Subsequent Events" for more information.
Foreign Seasonal Lines of Credit
On May 19, 2020, the Company amended the terms of its $105,000 of foreign seasonal lines of credit with the Standard Bank of South Africa Limited (“Standard”). The amendment reduced the total credit limit to $85,000 and changed the maturity date from April 30, 2020 to March 31, 2021 or May 1, 2021, depending on the line of credit.
On June 29, 2020, the Company amended the terms of its $255,000 of the original aggregate maximum borrowing availability under the existing foreign seasonal lines of credit with Eastern and Southern African Trade and Development Bank (“TDB”). The amendment changed the anniversary date for renewal to July 31, 2020 and extended the review period werefor subsequent renewals from March 31, 2020 to July 31, 2020.
13. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under 3 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 annual period,unaffiliated financial institution. As of June 30, 2020, the investment limit under the first facility was $125,000 of trade receivables. Under the second and no discrete events were separately identified.third facilities, the Company offers receivables for sale to unaffiliated financial institutions, which are then subject to acceptance by the unaffiliated financial institutions. As of
June 30, 2020, the investment limit under the second facility was $125,000 of trade receivables. As of June 30, 2020, the investment limit under the third facility was variable based on qualifying sales.
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 $5,663, $6,348, and $9,586 as of June 30, 2020 and 2019, and March 31, 2020, respectively.
The following summarizes the accounts receivable securitization information:
| | | | | | | | | | | |
| June 30, | | March 31, |
| 2020 | 2019 | 2020 |
| Receivables outstanding in facility | $ | 60,324 | | $ | 78,258 | | $ | 135,439 | |
| Beneficial interests | 14,949 | | 14,648 | | 27,021 | |
| Servicing liability | 7 | | — | | 43 | |
| | | | | | | | |
| Three Months Ended June 30, | |
| 2020 | 2019 |
| Cash proceeds for the period ended: | | |
| Cash purchase price | $ | 108,007 | | $ | 103,517 | |
| Deferred purchase price | 53,949 | | 72,266 | |
| Service fees | 131 | | 137 | |
| Total | $ | 162,087 | | $ | 175,920 | |
6.14. 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 guaranteed loans should the supplier default. If default occurs, the Company has recourse against its various suppliers and their production assets. The Company also guarantees bank loans of certain unconsolidated subsidiaries in Asia and South America. The following summarizes amounts guaranteed and the fair value of those guarantees:
| | | December 31, 2019 | December 31, 2018 | March 31, 2019 | | June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Amounts guaranteed (not to exceed) | Amounts guaranteed (not to exceed) | $ | 119,342 | | $ | 176,762 | | $ | 143,298 | | Amounts guaranteed (not to exceed) | $ | 110,712 | | $ | 127,738 | | $ | 138,953 | |
Amounts outstanding under guarantee(1) | Amounts outstanding under guarantee(1) | 37,624 | | 79,336 | | 103,846 | | Amounts outstanding under guarantee(1) | 48,339 | | 90,535 | | 48,565 | |
| Fair value of guarantees | Fair value of guarantees | 1,112 | | 2,890 | | 3,714 | | Fair value of guarantees | 3,312 | | 3,136 | | 2,791 | |
| 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 | — | | — | | 18,659 | | Amounts due to local banks on behalf of suppliers and included in accounts payable | 14,206 | | 24,131 | | 6,849 | |
(1) Of the guarantees outstanding at December 31, 2019,June 30, 2020, most expire within one year.
7. Goodwill and Intangibles15. Fair Value Measurements
The following summarizes the changes in goodwillfinancial assets and other intangible assets:liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended December 31, 2019 | | | | | |
| | Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization (1) | Impact of Foreign Currency Translation | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 8.88 years | $ | 63,980 | | $ | — | | $ | (32,043) | | $ | — | | $ | 31,937 | |
| Production and supply contracts | 2.25 years | 14,893 | | — | | (11,210) | | — | | 3,683 | |
| Internally developed software | 3.27 years | 19,917 | | 243 | | (18,807) | | — | | 1,353 | |
Licenses (2) | 17.26 years | 32,284 | | 118 | | (3,010) | | 648 | | 30,040 | |
| Trade names | 6.25 years | 500 | | — | | (109) | | — | | 391 | |
| Intangibles not subject to amortization: | | | | | | |
| Goodwill | | 34,336 | | — | | — | | 234 | | 34,570 | |
| Total | | $ | 165,910 | | $ | 361 | | $ | (65,179) | | $ | 882 | | $ | 101,974 | |
(1) Amortization expense across intangible asset classes for the nine months ended December 31, 2019 was $5,386.
(2) Certain of the Company's license intangibles are subject to annual renewal. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2020 | | | | June 30, 2019 | | | | March 31, 2020 | | |
| | | 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 | $ | — | | $ | — | | $ | — | | | $ | 3 | | $ | — | | $ | 3 | | | $ | — | | $ | — | | $ | — | |
| Securitized beneficial interests | — | | 14,949 | | 14,949 | | | — | | 14,648 | | 14,648 | | | — | | 27,021 | | 27,021 | |
| Total assets | $ | — | | $ | 14,949 | | $ | 14,949 | | | $ | 3 | | $ | 14,648 | | $ | 14,651 | | | $ | — | | $ | 27,021 | | $ | 27,021 | |
| Financial Liabilities: | | | | | | | | | | | |
| Long-term debt | $ | 318,060 | | $ | 3,804 | | $ | 321,864 | | | $ | 814,766 | | $ | 623 | | $ | 815,389 | | | $ | 358,782 | | $ | 848 | | $ | 359,630 | |
| Guarantees | — | | 3,312 | | 3,312 | | | — | | 3,136 | | 3,136 | | | — | | 2,791 | | 2,791 | |
| Total liabilities | $ | 318,060 | | $ | 7,116 | | $ | 325,176 | | | $ | 814,766 | | $ | 3,759 | | $ | 818,525 | | | $ | 358,782 | | $ | 3,639 | | $ | 362,421 | |
| | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended March 31, 2019 | | | | | |
| Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions (1) | Accumulated Amortization (2) | Impact of Foreign Currency Translation | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 9.55 years | $ | 58,530 | | $ | 5,450 | | $ | (29,027) | | $ | — | | $ | 34,953 | |
| Production and supply contracts | 2.93 years | 14,893 | | — | | (10,668) | | — | | 4,225 | |
| Internally developed software | 3.79 years | 18,812 | | 1,105 | | (18,391) | | — | | 1,526 | |
Licenses (3) | 18.08 years | 30,339 | | 2,991 | | (1,644) | | (1,046) | | 30,640 | |
| Trade names | 7.00 years | — | | 500 | | (63) | | — | | 437 | |
| Intangibles not subject to amortization: | | | | | | |
Goodwill (4) | | 27,546 | | 7,174 | | — | | (384) | | 34,336 | |
| Total | | $ | 150,120 | | $ | 17,220 | | $ | (59,793) | | $ | (1,430) | | $ | 106,117 | |
(1) Additions to goodwill, customer relationships, and trade names relate•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 acquisition of Humble Juice Co., LLC ("Humble Juice"). Additions to licenses relates to Canada's Island Garden ("Figr East"), Figr Norfolk,valuation include market expectations, the Company's credit risk, and Alliance One Specialty Products, LLC.
(2) Amortization expense across intangible asset classes for the fiscal year ended March 31, 2019 was $7,943.
(3) Certaincontractual terms of the Company's license intangibles are subject to annual renewal.debt instrument.
(4) Goodwill activity relates
•Derivatives: The fair value of derivatives is based on using the discounted cash flow analysis of the expected future cash flows. The primary inputs to the Other Productsvaluation include forward yield curves, implied volatilities, LIBOR rates, and Services segment.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 rate of 15.0% and the Company’s historical loss rates ranging between 2.2% to 10.0% as of June 30, 2020. The historical loss rate was weighted by the principal balance of the loans.
•Securitized beneficial interests: The fair value of securitized beneficial interests is based on using the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 70 to 72 days and discount rates of 2.0% to 3.6% as of June 30, 2020. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
•Long-term debt: The fair value of the long-term debt is based on the present value of future payments. The primary inputs to this valuation include treasury notes interest of 0.3% to 0.6% and borrowing rates of 7.0% to 10.7%. The borrowing rates were weighted by average loans outstanding.
The following summarizes the estimated future intangible asset amortization expense:reconciliation of changes in Level 3 instruments measured on a recurring basis:
| | | | | | | | | | | | | | | | | | | | |
For Fiscal
Years Ended | Customer
Relationships | Production
and Supply
Contracts | Internally Developed Software(1) | Licenses | Trade Names | Total |
| 2020 (excluding the nine months ended December 31, 2019) | $ | 1,005 | | $ | 1,674 | | $ | 137 | | $ | 462 | | $ | 16 | | $ | 3,294 | |
| 2021 | 4,022 | | 1,397 | | 435 | | 1,847 | | 63 | | 7,764 | |
| 2022 | 4,022 | | 612 | | 361 | | 1,845 | | 63 | | 6,903 | |
| 2023 | 4,022 | | — | | 290 | | 1,841 | | 63 | | 6,216 | |
| 2024 | 4,022 | | — | | 130 | | 1,841 | | 63 | | 6,056 | |
| Thereafter | 14,844 | | — | | — | | 22,204 | | 123 | | 37,171 | |
| $ | 31,937 | | $ | 3,683 | | $ | 1,353 | | $ | 30,040 | | $ | 391 | | $ | 67,404 | |
(1) Estimated amortization expense for the internally developed software is based on costs accumulated as of December 31, 2019. These estimates will change as new costs are incurred and until the software is placed into service in all locations. | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 | | | | Three Months Ended June 30, 2019 | | | | |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees | | Securitized Beneficial Interests | Long-Term Debt | Guarantees | | |
| Beginning balance | $ | 27,021 | | $ | 848 | | $ | 2,791 | | | $ | 40,332 | | $ | 703 | | $ | 3,714 | | | |
| Issuances of sales of receivables/guarantees | 47,120 | | — | | 647 | | | 46,882 | | — | | 293 | | | |
| Settlements | (57,902) | | (100) | | (117) | | | (71,623) | | (83) | | (879) | | | |
| Additions | — | | 3,056 | | — | | | — | | 3 | | — | | | |
| (Losses) gains recognized in earnings | (1,290) | | — | | (9) | | | (943) | | — | | 8 | | | |
| Ending balance | $ | 14,949 | | $ | 3,804 | | $ | 3,312 | | | $ | 14,648 | | $ | 623 | | $ | 3,136 | | | |
For the three months ended June 30, 2020 and 2019, the impact to earnings attributable to the change in unrealized losses on securitized beneficial interests were $468 and $946, respectively.
8. 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, advances, guarantees,
16. Pension and securitized receivables. The Company is not the primary beneficiary of the majority of its variable interests, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities due to the entities’ management and board of directors' structure. As a result, the majority of these variable interest entities are not consolidated. The Company holds a majority voting interest and is the primary beneficiary of its variable interest in Humble Juice, a consolidated entity for which the related intercompany accounts and transactions have been eliminated.Other Postretirement Benefits
The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:components of net periodic benefit cost:
| | | | | | | | | | | |
| December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Investment in variable interest entities | $ | 63,320 | | $ | 62,156 | | $ | 64,281 | |
| Advances to variable interest entities | 11,301 | | 2,817 | | 3,273 | |
| Guaranteed amounts to variable interest entities (not to exceed) | 61,566 | | 73,278 | | 67,027 | |
| | | | | | | | | | |
| Defined Benefit Plans | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Operating expenses: | | | | |
| Service cost | $ | 106 | | $ | 117 | | | |
| Interest expense: | | | | |
| Interest expense | 957 | | 1,029 | | | |
| Expected return on plan assets | (740) | | (1,121) | | | |
| Amortization of prior service cost | 10 | | 10 | | | |
| | | | |
| Actuarial loss | 521 | | 456 | | | |
| Net periodic pension cost | $ | 854 | | $ | 491 | | | |
| | | | |
The Company's investment in and advances to unconsolidated variable interest entities are classified as investments in unconsolidated affiliates and accounts receivable, related parties, respectively, in the condensed consolidated balance sheets. The Company's maximum exposure to loss in these variable interest entities is represented by the investments, advances, guarantees, and the deferred purchase price on the sale of securitized receivables as disclosed in "Note 19. Securitized Receivables".
9. Segment Information
The Company's operations are managed and reported in 10 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. These segment groupings are consistent with information used by the chief operating decision maker to assess performance and allocate resources. 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 highly 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 involves the sale of cannabis and e-liquid products. Cannabis was legalized for adult use in Canada on October 17, 2018. The cannabis products produced by certain of the Company's subsidiaries have been sold in the Canadian market, primarily to municipally-owned retailers. E-liquids products are sold to consumers via e-commerce platforms and other distribution channels, and retail stores. | | | | | | | | | | |
| Other Postretirement Benefits | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Operating expenses: | | | | |
| Service cost | $ | 2 | | $ | 2 | | | |
| Interest expense: | | | | |
| Interest expense | 69 | | 82 | | | |
| Amortization of prior service cost | (176) | | (177) | | | |
| Actuarial loss | 94 | | 109 | | | |
| Net periodic pension cost | $ | (11) | | $ | 16 | | | |
The following summarizes operating resultscontributions to pension plans and assets by segment:postretirement health and life insurance benefits:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Sales and other operating revenues: | | | | |
| Leaf - North America | $ | 53,016 | | $ | 77,850 | | $ | 139,421 | | $ | 181,764 | |
| Leaf - Other Regions | 306,500 | | 441,719 | | 867,838 | | 1,018,255 | |
| Other Products and Services | 3,744 | | 4,918 | | 15,652 | | 10,332 | |
| Total sales and other operating revenues | $ | 363,260 | | $ | 524,487 | | $ | 1,022,911 | | $ | 1,210,351 | |
| | | | |
| Operating income (loss): | | | | |
| Leaf - North America | $ | 2,609 | | $ | 2,870 | | $ | 5,880 | | $ | 7,888 | |
| Leaf - Other Regions | 25,508 | | 44,133 | | 59,016 | | 70,010 | |
| Other Products and Services | (19,974) | | (7,648) | | (49,219) | | (21,265) | |
| Total operating income | $ | 8,143 | | $ | 39,355 | | $ | 15,677 | | $ | 56,633 | |
| | | | | | | | | | | |
| December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Segment assets: | | | |
| Leaf - North America | $ | 319,433 | | $ | 318,295 | | $ | 243,248 | |
| Leaf - Other Regions | 1,408,705 | | 1,598,879 | | 1,488,226 | |
| Other Products and Services | 220,909 | | 106,545 | | 127,801 | |
| Total assets | $ | 1,949,047 | | $ | 2,023,719 | | $ | 1,859,275 | |
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Contributions made during the period | $ | 875 | | $ | 1,565 | | | |
| Contributions expected for the remainder of the fiscal year | 6,306 | | 5,557 | | | |
| Total | $ | 7,181 | | $ | 7,122 | | | |
10. Loss Per Share
The following summarizes the computation of loss per share:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 |
| Basic loss per share: | | | | |
| Net loss attributable to Pyxus International, Inc. | $ | (21,993) | | $ | (5,095) | | $ | (100,308) | | $ | (60,487) | |
| Shares: | | | | |
Weighted average number of shares outstanding(1) | 9,166 | | 9,068 | | 9,137 | | 9,048 | |
| Basic loss per share | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | |
| | | | |
| Diluted loss per share: | | | | |
| Net loss attributable to Pyxus International, Inc. | $ | (21,993) | | $ | (5,095) | | $ | (100,308) | | $ | (60,487) | |
| Shares: | | | | |
Weighted average number of shares outstanding(1) | 9,166 | | 9,068 | | 9,137 | | 9,048 | |
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(2) | — | | — | | — | | — | |
| Adjusted weighted average number of shares outstanding | 9,166 | | 9,068 | | 9,137 | | 9,048 | |
| Diluted loss per share | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | |
| (1) 785 shares of common stock were owned by a wholly owned subsidiary as of December 31, 2019 and 2018. | | | | |
| (2) 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 10 and 66 for the three months ended December 31, 2019 and 2018, respectively, and 28 and 62 for the nine months ended December 31, 2019 and 2018, respectively. | | | | |
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:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Antidilutive stock options and other awards | 452 | | 427 | | 450 | | 427 | |
| Antidilutive stock options and other awards under stock-based compensation programs excluded based on reporting a net loss for the period | — | | — | | — | | — | |
| Total common stock equivalents excluded from diluted loss per share | 452 | | 427 | | 450 | | 427 | |
| Weighted average exercise price | $ | 56.66 | | $ | 60.00 | | $ | 56.98 | | $ | 60.00 | |
11. Stock-Based Compensation
The following summarizes the Company's stock-based compensation expense related to awards granted under its various employee and non-employee stock incentive plans:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands) | 2019 | 2018 | 2019 | 2018 |
| Stock-based compensation expense | | $ | 242 | | $ | 402 | | $ | 1,054 | | $ | 1,155 | |
| Stock-based compensation expense payable in cash | — | | — | | — | | — | |
The following summarizes the Company's stock-based compensation awards:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands, except grant date fair value) | 2019 | 2018 | 2019 | 2018 |
| Restricted stock | | | | |
| Number granted | 11 | | 13 | | 39 | | 26 | |
| Grant date fair value | $ | 8.94 | | $ | 11.86 | | $ | 12.41 | | $ | 17.04 | |
| Restricted stock units | | | | |
| Number granted | — | | 5 | | 2 | | 66 | |
| Grant date fair value | $ | — | | $ | 14.32 | | $ | 18.29 | | $ | 15.94 | |
| Performance-based stock units | | | | |
| Number granted | — | | — | | — | | 30 | |
| Grant date fair value | $ | — | | $ | — | | $ | — | | $ | 16.00 | |
Restricted stock units granted during the nine months ended December 31, 2019 vest ratably over a three-year period.
12.17. Contingencies and Other Information
Brazilian Tax Credits
The government in the Brazilian State of 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. The assessment for intrastate trade tax credits taken is $3,268$2,405 and the total assessment including penalties and interest at December 31, 2019June 30, 2020 is $11,598.$8,610. 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. The assessment for intrastate trade tax credits taken is $2,827$2,081 and the total assessment including penalties and interest at December 31, 2019June 30, 2020 is $7,551.$5,594. 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 Brazil State of Rio Grande do Sul and the State of Santa Catarina. These jurisdictions permit the sale or transfer of excess credits to third parties, however approval must be obtained from the tax
authorities. The Company has agreements with the state governments regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $11,313.$11,371. The intrastate trade tax credits are 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 estimates 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 believes the amount of IPI credits that were used to offset other federal taxes in 2004 and 2005 are realizable beyond a reasonable doubt. Accordingly, at March 31, 2013, the Company recorded the $24,142 IPI credits it realized in the Statements of Consolidated Operations in Other Income. 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.
Other Matters
On October 8, 2019, the City of New York filed a complaint in U.S. District Court against 24 e-liquids companies, including the Company’s Humble Juice subsidiary, seeking an injunction to prevent sales of e-cigarette products to residents of New York City without adequate age-verification systems and to prohibit marketing e-cigarettes to New York City residents under the age of 21, as well as statutory damages and compensation to the city for the costs of abating underage e-cigarette use. On December 16, 2019, Humble Juice filed its answer to the compliant, denying that it lacked adequate age-verification systems and the allegations underlying the City's claim for relief, as well as asserting several affirmative defenses. Humble Juice intends to vigorously defend this matter.
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.
Asset Retirement Obligations
In accordance with generally accepted accounting principles, theThe 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 1 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 because 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.
13. Debt Arrangements
The following summarizes debt and notes payable:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2019 | | | |
| Outstanding | | | | Lines and | | | |
| March 31, | | December 31, | | Letters | | Interest | |
| (in thousands) | 2019 | | 2019 | | Available | | Rate | |
| Senior secured credit facility: | | | | | | | | |
ABL facility (1) | $ | — | | | $ | — | | | $ | 60,000 | | | — | % | (2) | |
| Senior notes: | | | | | | | | |
8.5% senior secured first lien notes due 2021 (3) | 270,883 | | | 272,369 | | | — | | | 8.5 | % | |
9.875% senior secured second lien notes due 2021 (4) | 627,147 | | | 629,821 | | | — | | | 9.9 | % | |
| Other long-term debt | 688 | | | 596 | | | — | | | 5.2 | % | (2) | |
Notes payable to banks (5) | 428,961 | | | 580,346 | | | 258,436 | | | 7.1 | % | (2) | |
| Total debt | $ | 1,327,679 | | | $ | 1,483,132 | | | $ | 318,436 | | | | |
| Short-term | $ | 428,961 | | | $ | 580,346 | | | | | | |
| Long-term: | | | | | | | | |
| Current portion of long-term debt | $ | 332 | | | $ | 325 | | | | | | |
| Long-term debt | 898,386 | | | 902,461 | | | | | | |
| $ | 898,718 | | | $ | 902,786 | | | | | | |
| Letters of credit | $ | 5,399 | | | $ | 7,151 | | | 5,740 | | | | |
| Total credit available | | | | | $ | 324,176 | | | | |
| | | | | | | | |
| (1) As of December 31, 2019, 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 million. | | | | | | | | |
| (2) Weighted average rate for the trailing twelve months ended December 31, 2019. | | | | | | | | |
| (3) Repayment of $272,369 is net of original issue discount of $826 and unamortized debt issuance of $1,805. Total repayment will be $275,000. | | | | | | | | |
| (4) Repayment of $629,821 is net of original issue discount of $3,328 and unamortized debt issuance of $2,537. Total repayment will be $635,686. | | | | | | | | |
| (5) Primarily foreign seasonal lines of credit. | | | | | | | | |
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 restrictions, subject to certain exceptions and baskets, that 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, 2019, the Company did not satisfy this fixed charge coverage ratio. The Company may not satisfy this ratio from time to time and failure to meet this fixed charge coverage ratio does not constitute an event of default.
ABL Facility
The ABL credit agreement restricts the Company from paying dividends during the term of this facility subject to the satisfaction of specified financial ratios.
14. Leases
The Company has operating leases for land, buildings, automobiles, and other equipment that expire at various dates through 2040. Leases for real estate generally have initial terms ranging from 2 to 15 years, excluding renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years excluding renewal options. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes. These lease terms may include optional renewals, terminations or purchases, which are considered in the Company’s assessments when such options are reasonably certain to be exercised.
The following summarizes weighted-average information associated with the measurement of remaining operating lease as of December 31, 2019:
| | | | | |
Weighted-average remaining lease term | 5.2 years |
Weighted-average discount rate | 9.6% | |
The following summarizes lease costs for operating leases:
| | | | | | | | |
| Three Months Ended | Nine Months Ended |
| December 31, 2019 | December 31, 2019 |
| Operating lease costs | $ | 4,268 | | $ | 12,567 | |
| Variable and short-term lease costs | 1,830 | | 5,089 | |
| Total lease costs | $ | 6,098 | | $ | 17,656 | |
The following summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:
| | | | | | | | |
| Three Months Ended | Nine Months Ended |
| December 31, 2019 | December 31, 2019 |
| Operating cash flows impact - operating leases | $ | 3,051 | | $ | 11,864 | |
| Right-of-use assets obtained in exchange for new operating leases | 1,111 | | 5,504 | |
The following reconciles maturities of operating lease liabilities to the lease liabilities reflected in the condensed consolidated balance sheet as of December 31, 2019:
| | | | | |
| 2020 (excluding the nine months ended December 31, 2019) | $ | 4,458 | |
| 2021 | 13,452 | |
| 2022 | 10,741 | |
| 2023 | 6,904 | |
| 2024 | 5,662 | |
| Thereafter | 12,545 | |
| Total future minimum lease payments | 53,762 | |
| Less: amounts related to imputed interest | 11,523 | |
| Present value of future minimum lease payments | 42,239 | |
| Less: operating lease liabilities, current | 14,033 | |
| Operating lease liabilities, non-current | $ | 28,206 | |
The Company continuously monitors and may negotiate contract amendments that include extensions or modifications to existing leases. The following presents the future minimum rental commitments under noncancelable operating leases as of March 31, 2019:
| | | | | |
| 2020 | $ | 15,651 | |
| 2021 | 10,554 | |
| 2022 | 8,483 | |
| 2023 | 6,735 | |
| 2024 | 5,356 | |
| Thereafter | 7,324 | |
| Total | $ | 54,103 | |
15. Derivative Financial Instruments
The Company uses forward or option currency contracts to protect against volatility associated with certain non-U.S. dollar denominated forecasted transactions. These contracts are for green tobacco purchases, processing costs, and selling, general, and administrative costs. As of December 31, 2019 and 2018, accumulated other comprehensive loss includes $241 and $2,307, net of tax of $64 and $613, for unrealized losses related to designated cash flow hedges, respectively. The Company recorded losses of $729 and $3,189 in its cost of goods and services sold for the three and nine months ended December 31, 2019, respectively. The Company recorded a current derivative asset of $1,029 as of December 31, 2018, included in the condensed consolidated balance sheets. There were 0 derivatives contracts outstanding as of December 31, 2019.
16. Pension and Other Postretirement Benefits
The following summarizes the components of net periodic benefit cost:
| | | | | | | | | | | | | | |
| Pension Benefits | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Operating expenses: | | | | |
| Service cost | $ | 117 | | $ | 120 | | $ | 352 | | $ | 359 | |
| Interest expense: | | | | |
| Interest expense | 1,029 | | 1,155 | | 3,088 | | 3,464 | |
| Expected return on plan assets | (1,121) | | (1,286) | | (3,363) | | (3,858) | |
| Amortization of prior service cost | 10 | | 11 | | 31 | | 32 | |
Settlement loss(1) | 271 | | 91 | | 819 | | 609 | |
| Actuarial loss | 456 | | 422 | | 1,368 | | 1,267 | |
| Net periodic pension cost | $ | 762 | | $ | 513 | | $ | 2,295 | | $ | 1,873 | |
| (1) During the three and nine months ended December 31, 2019 and 2018, the Company's cash payments activity triggered settlement accounting. Settlement losses are recorded in interest expense. | | | | |
| | | | | | | | | | | | | | |
| Other Postretirement Benefits | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Operating expenses: | | | | |
| Service cost | $ | 2 | | $ | 4 | | $ | 5 | | $ | 11 | |
| Interest expense: | | | | |
| Interest expense | 82 | | 83 | | 246 | | 248 | |
| Amortization of prior service cost | (177) | | (177) | | (531) | | (532) | |
| Actuarial loss | 109 | | 109 | | 328 | | 328 | |
| Net periodic pension cost | $ | 16 | | $ | 19 | | $ | 48 | | $ | 55 | |
The following summarizes contributions to pension plans and postretirement health and life insurance benefits:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Contributions made during the period | $ | 1,277 | | $ | 1,399 | | $ | 4,457 | | $ | 4,890 | |
| Contributions expected for the remainder of the fiscal year | | | | | 2,665 | | 2,357 | |
| Total | | | | | $ | 7,122 | | $ | 7,247 | |
17. Inventories
Inventories consist of the following:
| | | | | | | | | | | |
| December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Processed tobacco | $ | 703,124 | | $ | 698,092 | | $ | 455,163 | |
| Unprocessed tobacco | 116,456 | | 107,206 | | 183,607 | |
| Other tobacco related | 20,960 | | 19,771 | | 26,385 | |
Other(1) | 31,310 | | 2,713 | | 3,016 | |
| Total | $ | 871,850 | | $ | 827,782 | | $ | 668,171 | |
| (1) Represents inventory from the other products and services segment. | | | |
18. Other Comprehensive Loss
The changes in accumulated other comprehensive loss and the related tax effect are due to pension and other postretirement benefits and derivatives activity and reclassifications to the condensed consolidated statements of operations, as shown on the condensed consolidated statements of comprehensive loss. The following summarizes pension and other postretirement benefits and derivatives that wereamounts reclassified from accumulated other comprehensive loss to interest expense and cost of goods and services sold within the condensed consolidated statement of operations:net income:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | Affected Line Item in the Condensed Consolidated | | | Three Months Ended June 30, | | Affected Line Item in the Condensed Consolidated | |
| | 2019 | 2018 | 2019 | 2018 | Statements of Operations | | | 2020 | 2019 | | Statements of Operations | |
| Pension and other postretirement benefits*: | | | |
Pension and other postretirement benefits(1): | | Pension and other postretirement benefits(1): | | | | |
| Actuarial loss | Actuarial loss | $ | 560 | | $ | 534 | | $ | 1,680 | | $ | 1,601 | | | | Actuarial loss | $ | 605 | | $ | 560 | | | | |
| Amortization of prior service cost | Amortization of prior service cost | (165) | | (167) | | (495) | | (502) | | | | Amortization of prior service cost | (165) | | (165) | | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, gross | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 395 | | 367 | | 1,185 | | 1,099 | | | | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 440 | | 395 | | | | |
| Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | (83) | | (82) | | (251) | | (246) | | | | Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | — | | (84) | | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, net | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | 312 | | $ | 285 | | $ | 934 | | $ | 853 | | Interest expense | | | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | 440 | | $ | 311 | | | Interest expense | |
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | Affected Line Item in the Condensed Consolidated | | | Three Months Ended June 30, | | Affected Line Item in the Condensed Consolidated | |
| | 2019 | 2018 | 2019 | 2018 | Statements of Operations | | | 2020 | 2019 | | Statements of Operations | |
| Derivatives: | Derivatives: | | | Derivatives: | | | | |
| Losses reclassified to cost of goods sold | Losses reclassified to cost of goods sold | $ | 729 | | $ | 458 | | $ | 3,189 | | $ | 1,445 | | | | Losses reclassified to cost of goods sold | $ | 164 | | $ | 651 | | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, gross | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 729 | | 458 | | 3,189 | | 1,445 | | | | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 164 | | 651 | | | | |
| Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | (153) | | (96) | | (669) | | (303) | | | | Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | (694) | | (137) | | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, net | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | 576 | | $ | 362 | | $ | 2,520 | | $ | 1,142 | | Cost of goods and services sold | | | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | (530) | | $ | 514 | | | Cost of goods and services sold | |
|
19. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under 3 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 December 31, 2019, the investment limit under the first facility was $125,000 of trade receivables. Under the second and third facilities, the Company offers receivables for sale to unaffiliated financial institutions, which are then subject to acceptance by the unaffiliated financial institutions. As of December 31, 2019, the investment limit under the second facility was $125,000 of trade receivables. As of December 31, 2019, the investment limit under the third facility was variable based on qualifying sales.
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 $7,504 and $5,208 as of December 31, 2019 and March 31, 2019, respectively, and increased by $78 as of December 31, 2018.
The following summarizes the accounts receivable securitization information:
| | | | | | | | | | | |
| December 31, | | March 31, |
| 2019 | 2018 | 2019 |
| Receivables outstanding in facility | $ | 69,741 | | $ | 92,445 | | $ | 210,672 | |
| Beneficial interests | 14,385 | | 24,659 | | 40,332 | |
| Servicing liability | 5 | | 26 | | 90 | |
| | | | | | | | |
| Nine Months Ended December 31, | |
| 2019 | 2018 |
| Cash proceeds for the period ended: | | |
| Cash purchase price | $ | 331,187 | | $ | 416,526 | |
| Deferred purchase price | 174,741 | | 171,565 | |
| Service fees | 355 | | 435 | |
| Total | $ | 506,283 | | $ | 588,526 | |
20. Fair Value Measurements
The following summarizes the financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2019 | | | | December 31, 2018 | | | | March 31, 2019 | | |
| | | 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 | $ | — | | $ | — | | $ | — | | | $ | 1,029 | | $ | — | | $ | 1,029 | | | $ | 186 | | $ | — | | $ | 186 | |
| Securitized beneficial interests | — | | 14,385 | | 14,385 | | | — | | 24,659 | | 24,659 | | | — | | 40,332 | | 40,332 | |
| Total assets | $ | — | | $ | 14,385 | | $ | 14,385 | | | $ | 1,029 | | $ | 24,659 | | $ | 25,688 | | | $ | 186 | | $ | 40,332 | | $ | 40,518 | |
| Financial Liabilities: | | | | | | | | | | | |
| Long-term debt | $ | 558,401 | | $ | 620 | | $ | 559,021 | | | $ | 742,047 | | $ | 708 | | $ | 742,755 | | | $ | 830,082 | | $ | 703 | | $ | 830,785 | |
| Guarantees | — | | 1,112 | | 1,112 | | | — | | 2,890 | | 2,890 | | | — | | 3,714 | | 3,714 | |
| Total liabilities | $ | 558,401 | | $ | 1,732 | | $ | 560,133 | | | $ | 742,047 | | $ | 3,598 | | $ | 745,645 | | | $ | 830,082 | | $ | 4,417 | | $ | 834,499 | |
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 determined using 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 determined using 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% to 75.8% and the Company’s historical loss rates ranging between 2.2% to 10.0% as of December 31, 2019. The historical loss rate was weighted by the principal balance of the loans.
•Securitized beneficial interests: The fair value of securitized beneficial interests is determined using the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 77 to 80 days and discount rates of 1.7% to 4.3% as of December 31, 2019. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
The following summarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:
| | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2019 | | Nine Months Ended December 31, 2019 | | | |
| Securitized Beneficial Interests | Guarantees | Securitized Beneficial Interests | Guarantees | | |
| Beginning balance | $ | 25,579 | | $ | 1,026 | | $ | 40,332 | | $ | 3,714 | | | |
| Issuances of sales of receivables/guarantees | 42,857 | | 478 | | 151,150 | | 1,323 | | | |
| Settlements | (53,158) | | (408) | | (174,000) | | (3,937) | | | |
| (Losses) gains recognized in earnings | (893) | | 16 | | (3,097) | | 12 | | | |
| Ending balance | $ | 14,385 | | $ | 1,112 | | $ | 14,385 | | $ | 1,112 | | | |
| | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2018 | | Nine Months Ended December 31, 2018 | | | |
| Securitized Beneficial Interests | Guarantees | Securitized Beneficial Interests | Guarantees | | |
| Beginning balance | $ | 17,512 | | $ | 1,861 | | $ | 48,715 | | $ | 5,864 | | | |
| Issuances of sales of receivables/guarantees | 71,047 | | 1,585 | | 161,943 | | 2,988 | | | |
| Settlements | (62,432) | | (569) | | (183,450) | | (6,109) | | | |
| (Losses) gains recognized in earnings | (1,468) | | 13 | | (2,549) | | 147 | | | |
| Ending balance | $ | 24,659 | | $ | 2,890 | | $ | 24,659 | | $ | 2,890 | | | |
For the nine months ended December 31, 2019 and 2018, the impact to earnings attributable to the change in unrealized losses on securitized beneficial interests were $691 and $643, respectively.
21. Related Party Transactions
The Company engages in transactions with related parties primarily for the procuring and processing of inventory. The following summarizes sales and purchases transactions with related parties:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| | 2019 | 2018 | 2019 | 2018 | | 2020 | 2019 | |
| Sales | Sales | $ | 1,535 | | $ | 475 | | $ | 15,312 | | $ | 14,238 | | Sales | $ | 7,228 | | $ | 7,504 | | |
| Purchases | Purchases | 41,116 | | 46,281 | | 96,252 | | 98,784 | | Purchases | 18,727 | | 21,355 | | |
The Company’s accounts receivable, notes receivable, and accounts payable, balancesand advances with related parties, as presented onin the condensed consolidated balance sheets, relate to transactions with equity method investments located in Asia, South America, North America, and Europe which grow, purchase, process, and sell tobacco, hemp, or produce consumable e-liquids.investees.
22. Equity Method Investments
20. Segment Information
The Company's operations are managed and reported in 10 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 cannabis, e-liquid products, and industrial hemp. Cannabis was legalized for adult use in Canada on October 17, 2018. The cannabis products produced by certain of the Company's Canadian subsidiaries are sold primarily to municipally-owned retailers in the provinces of British Columbia, New Brunswick, Nova Scotia, Ontario, and Prince Edward Island in the Canadian market. E-liquids products are sold to consumers through retailers and directly to consumers via e-commerce platforms and other distribution channels.
The following summarizes the Company's equity method investments as of December 31, 2019:segment information:
| | | | | | | | | | | | | | |
| Entity Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference |
| Adams International Ltd. | Thailand | | purchase and process tobacco | | 49 | % | — | |
| Alliance One Industries India Private Ltd. | India | | purchase and process tobacco | | 49 | % | — | |
| China Brasil Tobacos Exportadora SA | Brazil | | purchase and process tobacco | | 49 | % | 5,841 | |
| Criticality LLC | U.S. | | extraction of cannabidiol from industrial hemp | | 40 | % | 881 | |
| Nicotine River, LLC | U.S. | | produce consumable e-liquids | | 40 | % | 1,902 | |
| Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | Turkey | | process tobacco | | 50 | % | — | |
| Purilum, LLC | U.S. | | produce flavor formulations and consumable e-liquids | | 50 | % | — | |
| Siam Tobacco Export Company | Thailand | | purchase and process tobacco | | 49 | % | — | |
| | | | | | | | | | |
| Three Months Ended June 30, | | | |
| 2020 | 2019 | | |
| Sales and other operating revenues: | | | | |
| Leaf - North America | $ | 29,897 | | $ | 34,950 | | | |
| Leaf - Other Regions | 227,739 | | 235,770 | | | |
| Other Products and Services | 5,173 | | 5,950 | | | |
| Total sales and other operating revenues | $ | 262,809 | | $ | 276,670 | | | |
| | | | |
| Operating loss: | | | | |
| Leaf - North America | $ | (833) | | $ | 762 | | | |
| Leaf - Other Regions | (6,182) | | 7,034 | | | |
| Other Products and Services | (36,581) | | (14,725) | | | |
| Total operating loss | $ | (43,596) | | $ | (6,929) | | | |
| | | | | | | | | | | |
| June 30, 2020 | June 30, 2019 | March 31, 2020 |
| Segment assets: | | | |
| Leaf - North America | $ | 283,715 | | $ | 257,707 | | $ | 266,253 | |
| Leaf - Other Regions | 1,334,372 | | 1,540,147 | | 1,284,317 | |
| Other Products and Services | 174,581 | | 167,721 | | 212,493 | |
| Total assets | $ | 1,792,668 | | $ | 1,965,575 | | $ | 1,763,063 | |
21. Condensed Combined Debtor-In-Possession Financial Information
The following summarizes financial informationstatements below represent the unaudited condensed combined financial statements of the Debtors as of and for these equity method investments:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Operations statement: | | | | |
| Sales | $ | 61,515 | | $ | 128,731 | | $ | 256,885 | | $ | 221,938 | |
| Gross profit | 9,462 | | 20,705 | | 44,235 | | 37,531 | |
| Net income | 1,506 | | 10,433 | | 16,599 | | 16,009 | |
| Company's dividends received | 267 | | — | | 6,841 | | 5,556 | |
| | | | | | | | | | | |
| December 31, | | |
| 2019 | 2018 | March 31, 2019 |
| Balance sheet: | | | |
| Current assets | $ | 166,989 | | $ | 235,951 | | $ | 152,661 | |
| Property, plant, and equipment and other assets | 57,320 | | 52,233 | | 53,103 | |
| Current liabilities | 103,622 | | 174,688 | | 89,791 | |
| Long-term obligations and other liabilities | 6,054 | | 3,320 | | 3,222 | |
Of the amounts presented above, the following summarizes financial information for China Brasil Tobacos Exportadora SA ("CBT"):
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Operations statement: | | | | |
| Sales | $ | 22,521 | | $ | 78,405 | | $ | 158,955 | | $ | 116,486 | |
| Gross profit | 3,338 | | 13,492 | | 25,359 | | 19,471 | |
| Net income | 1,041 | | 8,918 | | 11,929 | | 10,638 | |
| Net income attributable to CBT | 510 | | 4,370 | | 5,845 | | 5,213 | |
| | | | | | | | |
| Debtors Condensed Combined Statement of Operations | | |
| (Unaudited) | | |
| | |
| | Three Months Ended |
| (in thousands) | | June 30, 2020 |
| Sales and other operating revenues | | $ | 190,806 | |
| Cost of goods and services sold | | 167,534 | |
| Gross profit | | 23,272 | |
| Selling, general, and administrative expenses | | 43,151 | |
| Other expense, net | | (2,536) | |
| Operating loss | | (22,415) | |
| Debt retirement expense | | 828 | |
| Interest expense | | 21,403 | |
| Interest income | | 1,514 | |
| Reorganization items: | | |
| Professional fees | | (2,573) | |
| United States trustee fees | | (518) | |
| Write-off of unamortized debt issuance costs and discount | | (4,020) | |
| DIP financing fees | | (19,755) | |
| Loss before income taxes and other items | | (69,998) | |
| Income tax benefit | | (160) | |
| Equity in earnings of subsidiaries | | (34,859) | |
| Net loss | | (104,697) | |
| Net loss attributable to noncontrolling interests | | — | |
| Net loss attributable to Pyxus International, Inc. | | $ | (104,697) | |
| | |
| | |
23. Restructuring and Asset Impairment Charges
The Company announced a cost-saving initiative and restructuring plan to re-purpose its Argentinian subsidiary for storage and special projects during the quarter ended December 31, 2019, with tobacco processing to be provided by a third party going forward. Total costs related to severance for affected employees, and impairment and other one-time costs associated with fixed assets are estimated to be $4,300 and $141, respectively, and are expected to be incurred by March 31, 2020. For the three months ended December 31, 2019, the Company incurred $621 and $141 for severance and impairment related charges, respectively.
During the fiscal year ended March 31, 2019, the Company incurred costs associated with the closure of a processing facility in the Leaf - Other Regions segment in order to process tobacco in the affected area under a third-party processing arrangement going forward, the consolidation of the Company's U.S. green tobacco processing operations into its Wilson, North Carolina facility, and the re-purposing of its Farmville, North Carolina facility for storage and special projects.
The following summarizes the Company's restructuring and asset impairment charges:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Employee separation charges | $ | 531 | | $ | 1,122 | | $ | 632 | | $ | 2,499 | |
| Asset impairment and other non-cash charges | 141 | | 545 | | 260 | | 891 | |
| Restructuring and asset impairment charges | $ | 672 | | $ | 1,667 | | $ | 892 | | $ | 3,390 | |
The following summarizes the activity in the restructuring accrual for employee separation and other cash charges recorded in the Company's Leaf - North America and Leaf - Other Regions segments:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Nine Months Ended December 31, | | | |
| 2019 | | 2018 | | 2019 | | 2018 | |
| Leaf - North America | | Leaf - Other Regions | | Leaf - North America | | Leaf - Other Regions | | Leaf - North America | | Leaf - Other Regions | | Leaf - North America | | Leaf - Other Regions | |
| Beginning balance | $ | 266 | | $ | 214 | | $ | 107 | | $ | 889 | | $ | 1,621 | | $ | 222 | | $ | — | | $ | 107 | |
| Period charges | — | | 531 | | 892 | | 230 | | 8 | | 624 | | 1,139 | | 1,360 | |
| Payments | (251) | | (646) | | (73) | | (328) | | (1,614) | | (747) | | (213) | | (676) | |
| Ending balance | $ | 15 | | $ | 99 | | $ | 926 | | $ | 791 | | $ | 15 | | $ | 99 | | $ | 926 | | $ | 791 | |
The following summarizes the asset impairment and other non-cash charges recorded in the Company's Leaf - North America and Leaf - Other Regions segments:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2019 | 2018 | 2019 | 2018 |
| Leaf - North America | $ | — | | $ | 545 | | $ | — | | $ | 545 | |
| Leaf - Other Regions | 141 | | — | | 260 | | 346 | |
| | | | |
| Total | $ | 141 | | $ | 545 | | $ | 260 | | $ | 891 | |
| | | | | | | | |
Debtors Condensed Consolidated Balance Sheet (Unaudited) | | |
| (in thousands) | | June 30, 2020 |
| Assets | | |
| Current assets | | |
| Cash and cash equivalents | | $ | 66,063 | |
| Trade receivables, net | | 84,327 | |
| Accounts receivable, related parties | | 60,648 | |
| Notes receivable, related parties | | 57,803 | |
| Inventories, net | | 184,469 | |
| Advances to tobacco suppliers, net | | 84,275 | |
| Prepaid expenses | | 8,334 | |
| Other current assets | | 5,399 | |
| Total current assets | | 551,318 | |
| Investment in subsidiaries | | 1,431,249 | |
| Other intangible assets, net | | 13,146 | |
| Property, plant, and equipment, net | | 51,843 | |
| Total assets | | $ | 2,047,556 | |
| Liabilities and Stockholders’ Equity | | |
| Current liabilities | | |
| DIP Financing | | $ | 131,700 | |
| Notes payable, related parties | | 30,000 | |
| Accounts payable | | 18,951 | |
| Accounts payable, related parties | | 195,591 | |
| Advances from customers | | 14,611 | |
| Accrued expenses | | 43,051 | |
| Other current liabilities | | 3,402 | |
| Current portion of long-term debt | | 273,377 | |
| Total current liabilities | | 710,683 | |
| Long-term taxes payable | | 7,623 | |
| Liability for unrecognized tax benefits | | 9,015 | |
| Deferred tax liabilities | | 6,755 | |
| Pension and postretirement liabilities | | 84,162 | |
| Other long-term liabilities | | 5,004 | |
| Total liabilities not subject to compromise | | 823,242 | |
| Debt subject to compromise | | 635,686 | |
| Accrued interest on debt subject to compromise | | 13,421 | |
| Total liabilities subject to compromise | | 649,107 | |
| Total liabilities | | 1,472,349 | |
| Stockholders’ equity | | 575,207 | |
| Total liabilities and stockholders’ equity | | $ | 2,047,556 | |
| | | | | | | | | |
Debtors Condensed Consolidated Statement of Cash Flows (Unaudited) | | | |
| | Three Months Ended | |
| (in thousands) | | June 30, 2020 | |
| Operating Activities: | | | |
| Net loss | | $ | (104,697) | | |
| Adjustments to reconcile net loss to net cash used by operating activities: | | | |
| Depreciation and amortization | | 2,745 | | |
| Debt amortization/interest | | 1,738 | | |
| Debt retirement expense | | 657 | | |
| Reorganization items | | 15,703 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Changes in operating assets and liabilities, net | | (107,138) | | |
| Other, net | | 20,206 | | |
| Net cash used by operating activities | | (170,786) | | |
| | | |
| Investing Activities: | | | |
| Purchases of property, plant, and equipment | | (396) | | |
| | | |
| Collections on beneficial interests on securitized trade receivables | | 51,533 | | |
| | | |
| | | |
| | | |
| | | |
| Net cash provided by investing activities | | 51,137 | | |
| | | |
| Financing Activities: | | | |
| | | |
| Repayment of revolving loans facilities | | (44,900) | | |
| Proceeds from DIP facility | | 131,700 | | |
| | | |
| | | |
| | | |
| DIP financing fees | | (9,085) | | |
| Other, net | | (171) | | |
| | | |
| | | |
| Net cash provided by financing activities | | 77,544 | | |
| | | |
| Effect of exchange rate changes on cash | | (164) | | |
| | | |
| Decrease in cash, cash equivalents, and restricted cash | | (42,269) | | |
| Cash and cash equivalents at beginning of period | | 108,332 | | |
| Restricted cash at beginning of period | | — | | |
| Cash, cash equivalents, and restricted cash at end of period | | 66,063 | | |
| | | |
| Other information: | | | |
| Cash paid for income taxes, net | | 52 | | |
| Cash paid for interest | | 11,881 | | |
| Cash received from interest | | 1,514 | | |
| Cash paid for reorganization items | | 2,078 | | |
| | | |
| Noncash investing activities: | | | |
| | | |
| Non-cash amounts obtained as a beneficial interest in exchange for transferring trade receivables in a securitization transaction | | 47,120 | | |
22. Subsequent Events
Debtor-in-Possession Financing
On July 21, 2020, following the Bankruptcy Court's final approval of the DIP facility in an aggregate principal amount of $206,700, the Company borrowed the remaining $75,000 available under the DIP Facility.
Foreign Seasonal Lines of Credit
On August 13, 2020, the Company entered into an Amendment and Restatement Agreement ("the Agreement") with TDB. The Agreement sets forth the terms that govern and supersede the terms of the separate existing foreign seasonal lines of credit for various subsidiaries of the Company with TDB. The original aggregate maximum borrowing availability under the existing foreign seasonal lines of credit was $255,000 and the aggregate borrowings outstanding were $240,500 as of August 13, 2020. Subject to certain conditions, the Agreement increases the Company's maximum aggregate borrowing capacity to $285,000.
Loans under the Agreement will bear interest at LIBOR plus 6%. The Agreement terminates on June 30, 2021, and may be renewed at TDB’s discretion.
Nicotine River, LLC Ownership Exchange
On August 14, 2020, the Company exchanged its 40% ownership interest in Nicotine River, LLC for an additional 14.3% interest in Humble Juice Co, LLC ("Humble"), increasing the Company's ownership interest in Humble to 65.3%. Humble is a consolidated subsidiary of the Company.
Bankruptcy Proceedings
On August 21, 2020, the Bankruptcy Court entered an order (“Confirmation Order”) pursuant to the Bankruptcy Code, which approved and confirmed the Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Pyxus and Its Affiliated Debtors (as supplemented and amended, the “Plan”). After the satisfaction or waiver of the conditions precedent of the Plan, the Debtors intend to effect the transactions contemplated by the Plan and emerge from Chapter 11 protection. The Confirmation Order and Plan are filed as Exhibit 2.1 and Exhibit 2.2 to the Company’s Form 8-K filed on August 24, 2020, respectively, are filed as exhibits to this Form 10-K and incorporated herein by reference.
Summary Features of the Plan of Reorganization
Pursuant to the Plan, the business assets and operations of the Company will vest in a new Virginia corporation, Pyxus Holdings, Inc., which will be an indirect subsidiary of an additional Virginia corporation (“New Pyxus”) which will be renamed Pyxus International, Inc. upon completion of such transfer of assets and operations. Under the Plan, all suppliers, vendors, employees, trade partners, foreign lenders and landlords will be unimpaired by the Plan and will be satisfied in full in the ordinary course of business, and the Company’s existing trade and customer contracts and terms will be maintained. New Pyxus will continue to operate the Company’s business in the ordinary course.
Treatment of Claims and Interests
The Plan provides for the following treatment of claims against and interest in the Company upon the effectiveness of the Plan:
•Other Secured Claims (as defined in the Plan) will either (i) be paid in full in cash, (ii) be satisfied by delivery of collateral securing any such Claim (as defined in the Plan) and payment of any required interest or (iii) be reinstated.
•Other Priority Claims (as defined in the Plan) will be paid in full in cash.
•Holders of First Lien Notes Claims (as defined in the Plan) will receive (i) payment in full in cash of all accrued and unpaid interest on such First Lien Notes, and (ii) their pro rata share of the Exit Secured Notes (as defined in the Plan).
•Holders (as defined in the Plan) of Second Lien Notes Claims (as defined in the Plan) will receive, at the Holder’s election, (i) their pro rata share of Second Lien Notes Common Stock Pool (as defined in 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) will be paid in the ordinary course of business in accordance with the terms of the relevant agreement.
•General Unsecured Claims (as defined in the Plan) will be paid in the ordinary course of business.
•The existing common stock of the Company shall be discharged, cancelled, released, and extinguished and of no further force or effect.
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., Pyxus One, Inc. (“New Pyxus”), Pyxus Parent, Inc. and Pyxus Holdings, Inc.) were organized.
•Pyxus Parent, Inc. issued all of its equity interests to Pyxus One, Inc. in exchange for 25,000,000 shares of New Pyxus common stock, 0 par value (such common stock is referred to as “New Common Stock” and the 25,000,000 shares of which are referred to as the “Equity Consideration”). Pyxus Holdings, Inc. then issued all of its equity interests to Pyxus Parent, Inc. in exchange for the Equity Consideration.
•Pyxus Holdings, Inc. entered into the Exit ABL Facility (as defined below) to borrow cash under Exit ABL Facility which together with cash on-hand is sufficient to fund (1) the distributions to holders of Allowed Second Lien Notes Claims (as defined in the Plan) that elected to take the Second Lien Notes Cash Option (as defined in the Plan) and (2)
the Existing Equity Cash Pool (as defined in the Plan) (collectively such amount of cash is referred to as the “Cash Consideration”).
•Pursuant to an Asset Purchase Agreement, Pyxus transferred to Pyxus Holdings, Inc. all of its assets (including by assuming and assigning all of Pyxus’ Executory Contracts and Unexpired Leases (as such terms are defined in the Plan) to Pyxus Holdings, Inc. in accordance with the Plan, other than those Executory Contracts and Unexpired Leases that were rejected) and Pyxus Holdings, Inc. assumed all of Pyxus’ obligations that are not discharged under the Plan (including all of 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, Inc. transferring the Equity Consideration to Pyxus, (ii) Pyxus Holdings, Inc. transferring the Cash Consideration to Pyxus, (iii) Pyxus Holdings, Inc. issuing the Exit Secured Notes (as defined below) under the Exit Secured Notes Indenture (as defined below) which, on behalf of Pyxus, was issued to the Holders of Allowed First Lien Notes Claims (as defined in the Plan) as set forth in the Plan, and (iv) Pyxus Holdings, Inc. issuing the Exit Term Loans (as defined below) under the Exit Term Facility (as defined below) which, on behalf of Old Pyxus, was issued to the 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, Inc., Pyxus Holdings, Inc. made an offer of employment to all employees of Pyxus and all such employees became employed by Pyxus Holdings, Inc., or a designated subsidiary, upon the effectiveness of the Plan on the same terms and conditions existing immediately prior to the effectiveness of the Plan.
•New Pyxus and Pyxus Parent, Inc., along with each applicable subsidiary of New Pyxus, guaranteed the Exit Secured Notes, the Exit Term Facility and the Exit ABL Facility.
•Pyxus provided for the distribution of (i) Exit Secured Notes to the Holders of Allowed First Lien Notes Claims pursuant to the Plan, (ii) New Common Stock from the Second Lien Notes Common Stock Pool (as defined in the Plan) 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 Pyxus pursuant to the Plan, and (v) the Exit Term Loans under the Exit Term Facility and the Exit Facility Shares to the Holders of the DIP Facility Claims pursuant to the Plan.
•Pyxus changed its name to Old Holdco, Inc., and New Pyxus changed its name to Pyxus International, Inc.
•New Pyxus elected a board of directors comprising J. Pieter Sikkel, Holly Kim, and Patrick Fallon and appointed as its officers the individuals serving as officers of Pyxus to the same offices held immediately prior to the effectiveness of the Plan.
Third Party Releases
Upon the effectiveness of the Plan, certain Holders of Claims and Interests (as such terms are defined in the Plan), 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.
Exit 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 Facility”). The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75.0 million, subject to the limitations described below in this paragraph. Under certain conditions, Pyxus Holdings may solicit the ABL Lenders to provide additional revolving loan commitments under the ABL Facility in an aggregate amount not to exceed $15.0 million. The ABL Facility is required to be drawn at all times in an amount greater than or equal to the lesser of (i) 25% of total commitments under the ABL Facility and (ii) $18.75 million.The amount available under the ABL Facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
•85% of eligible accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the appraised net-orderly-liquidation value of eligible inventory.
The ABL Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the ABL Facility bear interest at an annual rate equal to LIBOR plus 475 basis points or 375 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 100 basis points.
The ABL Facility matures on February 24, 2023, subject to extension on terms and conditions set forth in the ABL Credit Agreement. The ABL Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee of 50 basis points upon the permanent reduction of commitments under the ABL Facility, including maturity.In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears on the last business day of each calendar month and, with respect to LIBOR loans, accrued interest is payable monthly and on the last day of any applicable interest period. Pyxus Holdings’ obligations under the ABL Facility (and certain related obligations) are (a) guaranteed by Pyxus Holdings, Pyxus Parent, Inc. and the Company and all of Pyxus Holdings’ material domestic subsidiaries, and each of Pyxus Holdings’ future material domestic subsidiaries is required to guarantee the ABL Facility on a senior secured basis (including Pyxus Holdings, collectively, the “ABL Loan Parties”) and (b) secured by the Collateral, as described below, which is owned by the ABL Loan Parties.
The liens and other security interests granted by the ABL Loan Parties on the Collateral for the benefit of the lenders under the ABL Facility (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on ABL Priority Collateral (as defined in the ABL/Term Loan/Intercreditor Agreement) with the security interests securing the Term Loan Credit Facility and the Senior Secured First Lien Notes junior thereto, each as described below. The obligations of Pyxus Holdings and each other ABL Credit Party under the ABL Facility and any related guarantee have respective priorities in a waterfall with respect to portions of the Collateral as set forth in the ABL/Term Loan/Notes Intercreditor Agreement and the Term Loan/Notes Intercreditor Agreement described below.
Cash Dominion
Under the terms of the ABL Facility, if (i) an event of default has occurred and is continuing or (ii) excess borrowing availability under the ABL Facility (based on the lesser of the commitments thereunder and the borrowing base) (the “Excess Availability”) falls below the greater of (x) $7.5 million and (y) 10% of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Cash Dominion Threshold”), the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a “Dominion Period”) shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, or (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than the Cash Dominion Threshold for a period of 30 consecutive days.
Financial Covenants
The ABL Credit Agreement governing the ABL Facility contains a covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.00 to 1.00 during any Dominion Period.
Affirmative and Restrictive Covenants
The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company's and its restricted subsidiaries' ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of their assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries.
The description of the ABL Credit Agreement and the ABL Facility set forth herein is qualified in its entirety by reference to the ABL Credit Agreement filed as Exhibit 10.1 hereto, which is incorporated by reference herein.
Exit 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 $213.5 million (the “Term Loan Credit Facility”). The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, were converted into, or otherwise satisfied with the proceeds of, the Term Loan Credit Facility.
The Term Loan Credit Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the Term Loan Credit Facility bear interest at an annual rate equal to LIBOR plus 800 basis points or 700 basis points above base rate, as applicable. In addition to the cash interest payments, from and after the first anniversary of the Term Loan Credit Agreement, the term loans under the Term Loan Credit Facility bear “payment in kind” interest in an annual rate equal to 100 basis points, which rate increases by an additional 100 basis points on each of the second, third and fourth anniversaries of the Term Loan Credit Agreement.
The Term Loan Credit Facility matures on June 21, 2025. The Term Loan Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or penalty. In addition, customary mandatory prepayments of the loans under the Term Loan Credit Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the Term Loan Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears on the last business day of each calendar month and, with respect to LIBOR loans, accrued interest is payable monthly and on the last day of any applicable interest period.
Pyxus Holdings’ obligations under the ABL Facility (and certain related obligations) are (a) guaranteed by Pyxus Holdings, Pyxus Parent, Inc. and the Company, all of Pyxus Holdings’ material domestic subsidiaries and certain of Pyxus Holdings’ foreign subsidiaries, and each of Pyxus Holdings’ future material domestic subsidiaries is required to guarantee the Term Loan Credit Facility on a senior secured basis (including Pyxus Holdings, collectively, the “Term Facility Loan Parties”) and (b) secured by the Collateral, as described below, which is owned by the Term Facility Loan Parties.
The liens and other security interests granted by the Term Facility Loan Parties on the Collateral for the benefit of the lenders under the Term Loan Credit Facility (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on the Term Loan Priority Collateral and a junior lien on the ABL Priority Collateral and the Notes Priority Collateral (in each case as defined in the ABL/Term Loan/Notes Intercreditor Agreement and the Term Loan/Notes Intercreditor Agreement (together, the “Intercreditor Agreements”). The obligations of Pyxus Holdings and each other Term Facility Loan Party under the Term Loan Credit Facility and any related guarantee have respective priorities as set forth in the Intercreditor Agreements described below.
Affirmative and Restrictive Covenants
The Term Loan Credit Agreement governing the Term Loan Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company's and its restricted subsidiaries' ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of their assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries.
The description of the Term Loan Credit Agreement and the Term Loan Credit Facility set forth herein is qualified in its entirety by reference to the Term Loan Credit Agreement filed as Exhibit 10.2 hereto, which is incorporated by reference herein.
Exit Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280.8 million in aggregate 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 Wilmington Trust, National Association, as trustee, and collateral agent. The Notes bear interest at a rate of 10.00% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year, beginning February 15, 2020, to holders of record at the close of business on the preceding February 1 and August 1, respectively. The Notes mature on August 24, 2024.
Guarantees
The Notes are initially guaranteed on a senior secured basis by the Company, all of the Company’s material domestic subsidiaries (other than Pyxus Holdings) and the Foreign Guarantors, on a subordinated basis to the guarantees securing the Term Loan Facility and each of its future material domestic subsidiaries are required to guarantee the Notes on a senior secured basis.
Optional Redemption
At any time prior to August 24, 2022, Pyxus Holdings may redeem the Notes, in whole or in part, at a redemption price equal to the “make-whole” amount as set forth in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. On or after August 24, 2022, the Pyxus Holdings may on any one or more occasions redeem all or a part of the Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest on the Notes redeemed, to the applicable date of redemption, if redeemed during the periods specified below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:
| | | | | |
| Period | Percentage |
| From August 24, 2022 to August 23, 2023 | 105.0 | % |
| From August 24, 2023 to August 23, 2024 | 102.5 | % |
| On or after February 24, 2024 | 100.0 | % |
Mandatory Repurchase Offers
Upon a “Change of Control” (as defined in the Indenture), Pyxus Holdings will be required to make an offer to repurchase the Notes at a price in cash equal to 101% of the principal amount thereof. Upon certain asset sales, Pyxus Holdings may be required to make an offer to repurchase the Notes at a price in cash equal to 100% of the principal amount thereof.
Certain Covenants
The Indenture contains covenants that will impose restrictions on Pyxus Holdings, the Company and the Company’s subsidiaries (other than subsidiaries that may in the future be designated as “Unrestricted Subsidiaries” under the Indenture), including on their ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•enter into sale and leaseback transactions;
•consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets; and
•enter into transactions with affiliates.
The description of the Indenture and the Notes set forth herein is qualified in its entirety by reference to the Indenture, which includes the form of the Notes, filed as Exhibit 4.1 hereto, which is incorporated by reference herein.
Collateral
The liens and other security interests granted by Pyxus Holdings and the guarantors on the Collateral for the benefit of the noteholders are, subject to certain permitted liens, secured by first-priority security interests on the Notes Priority Collateral and a junior lien on the ABL Priority Collateral and the Term Loan Priority Collateral (in each case as defined in the Intercreditor Agreements. The obligations of Pyxus Holdings and each other guarantor have respective priorities with respect to the guarantees and the Collateral as set forth in the Intercreditor Agreements described below.
Intercreditor Agreements
The priority of the obligations under each of the Notes, the ABL Facility and the Term Loan Credit Facility are set forth in the two intercreditor agreements entered into in connection with the Plan, including the issuance of the Notes and the establishment of the ABL Facility and the Term Loan Credit Facility.
ABL/Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, (A) the holders of obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations and (B) the holders of obligations under the Notes, the guarantees thereof and certain related obligations, is governed by the ABL/Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the ABL Facility, the guarantees thereof and certain related obligations have first priority liens on the Collateral consisting of ABL Priority Collateral (as defined therein), including certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing entities and proceeds of the foregoing (other than identifiable cash proceeds of the Term Loan Priority Collateral or the Notes Priority Collateral, each as defined below), with the obligations under the Notes and the Term Loan Facility having junior priority liens on the ABL Priority Collateral. Pursuant to the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ collective obligations under the Term Loan Credit Facility and the Notes, the guarantees thereof and certain related obligations have first priority liens on the Notes Priority Collateral which consists of the Collateral that is not ABL Priority Collateral, including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus Holdings or a guarantor, existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other assets related to the foregoing and proceeds of the foregoing, with the obligations under the ABL Facility having junior priority liens on the Notes Priority Collateral.
Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between and among the holders of obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations and the holders of obligations under the Notes, the guarantees thereof and certain related obligations is governed by the Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations have senior priority liens on the Term Loan Priority Collateral consisting of (i) all assets and property of Pyxus Holdings and any domestic Guarantor constituting ABL Priority Collateral up to (A) $125,000 minus (B) the aggregate principal amount of loans and the aggregate face amount of letters of credit outstanding under the ABL Credit Agreement, and (ii) all assets and property of any Foreign Guarantor constituting Collateral securing the Term Loan Agreement, with the obligations under the Notes having junior priority liens on the Term Loan Priority Collateral (the "ABL Priority Collateral Cap"). The liens securing the Notes and the Term Loan Facility on the ABL Priority Collateral in excess of the ABL Priority Collateral Cap will be secured on a pari passu basis. Further, the guarantees of the Foreign Guarantors in respect of the Notes are subordinated in right of payments to the guarantees of the Foreign Guarantors in respect of the Term Loan Facility. Pursuant to the Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the Notes, the guarantees thereof and certain related obligations have first priority liens on all Notes Priority Collateral, with the obligations under the Term Loan Facility having junior priority liens on the Notes Priority Collateral.
Shareholders Agreement
On August 24, 2020, the Company entered into a Shareholders Agreement (the “Shareholders Agreement”), among the Company and the investors listed therein, each other beneficial owner of the Company's common stock as of the date of the Shareholder Agreement deemed to be a party thereto pursuant to the Plan and other persons that may from time to time become parties thereto (collectively, the “Investors”). The Shareholders Agreement provides that each of Glendon Capital Management LP (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 directors of the Company so long as it beneficially owns at least 20% of the outstanding shares of the Company's common stock, or 1 individual to serve as such a director if it beneficially owns fewer than 20% of the outstanding shares but at least 10% of the outstanding shares. The Shareholders Agreement provides that the Investors shall take all necessary action to elect such nominees of each of the Glendon Investor and the Monarch Investor as directors, as well as the election of the chief executive officer of the Company as a director and other individuals qualifying as independent directors to be selected by Investors that beneficially 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 elected 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 removal and replacement of the Glendon Directors at the request of the Glendon Investor and the removal and replacement of the Monarch Directors at the request of the Monarch Director, as well as provisions 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 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”). 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.
Dissolution and Successor Reporting
Pursuant to the Plan, the Company will, promptly following the effectiveness of the Plan, commence proceedings for the dissolution and winding up the affairs of the Company. During such period, the Company���s corporate existence will continue, but its activities will be limited to those matters appropriate to the winding up and liquidation of its business and affairs.
Following the effectiveness of the Plan, the common stock of New Pyxus will be deemed to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12g-3 thereunder. Accordingly, following the effectiveness of the Plan, New Pyxus will be obligated to file with the Securities and Exchange Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other filings and to otherwise comply with requirements applicable to entities with a class of securities so registered.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Overview
At Pyxus, we believe everything we do is to transform people’s lives so that together we can grow a better world. Pyxus provides responsibly produced, independently verified, and traceable agricultural products, ingredients, and services to businesses and customers. Headquartered in the Research Triangle Park region of North Carolina, we contract with growers across five continents to help them produce sustainable, compliant crops.
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. 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.
We are committed to responsible crop production which 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-to-sale, our SENTRISM traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity.
We are continuing our transformation journey designed to diversify the Company's products and services by leveraging our core strengths in agronomy and traceability. In general, our diversification focuses on products that are value-added, and require some degree of processing, which plays well to our strengths, as well as offeringand offer higher margin potential than our core tobacco leaf business. To support these new business lines, we have broad geographic processing capabilities, a diversified product offering, an established customer base for our core leaf tobacco business, and a growing customer base.
Our strategy to transform into a global agricultural company with a significant presence across multiple consumer products categories has enabled us to achieve significant progress in positioning Pyxus to enhance value for our stakeholders. We are committed to driving improved results and we remain focused on strengthening our leaf business while continuing to invest in our new startup business ventures to position them for growth. Additionally, we continue to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment, for which plans to date have not progressed as initially anticipated but are continuing to develop, and to address the Company's maturing long-term debt.
We believe our success depends on our ability to drive enhanced value, not only for our shareholders, but for all of our stakeholders. Driven by our united purpose—to transform people's lives, so that together we can grow a better world—we are committed to the execution of our strategy for the benefit of our contracted farmers, employees, customers, affiliates, and shareholders.
Our consolidated operations are managed and reported in ten 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
COVID-19
We continue to monitor the impact of the COVID-19 outbreak on our Company and our workforce. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a global pandemic. The COVID-19 pandemic and government actions implemented to contain further spread of COVID-19 have severely restricted economic activity around the world. Our businesses have been classified as an "essential" business under governmental shelter-in-place and similar orders in many of the jurisdictions in which we operate. As such, we are still able to produce and sell products. Our production facilities are still operating but, in some instances, at lower production levels than planned due to the shelter in-place mandates. While our supply chains and distribution channels continue to experience delays, we currently have adequate supply of products to meet the near-term forecasted demand. We continue to monitor the measures we implemented to reduce the spread of COVID-19. We make timely updates and improvements, as necessary.
Broad economic factors from the COVID-19 pandemic, including increasing unemployment rates and reduced consumer spending, 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 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. 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.
Bankruptcy Proceedings
On June 15, 2020 (the "Petition Date"), the Company (then named Pyxus International, Inc.) 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 (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged chapter 11 plan of reorganization (“Prepack Plan”) that effectuates a financial restructuring of the Company’s secured debt (the “Restructuring”). The Company commenced solicitation of the Prepack Plan with a related disclosure statement (“Disclosure Statement”) on June 14, 2020. The Chapter 11 Cases have been administered jointly under the caption In re Pyxus International, Inc., et al. 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. This Form 10-K is being signed concurrently with the effectiveness of the Plan. These and other related
During the pendency of the Chapter 11 Cases, we expect our financial results to be volatile as restructuring activities and expenses, contract terminations and rejections, and claims assessments significantly impact our consolidated financial statements. As a result, our historical financial performance is likely not indicative of our financial performance after the date of the filing of the Chapter 11 Cases. In addition, we have incurred significant professional fees and other costs in connection with preparation for the Chapter 11 Cases and expect that we will continue to incur significant professional fees and costs throughout the Chapter 11 Cases. See Note 22. "Subsequent Events" to the "Notes to Consolidated Financial Statements" for additional information.
If the Company meets the criteria set forth in Accounting Standards Codification Topic 852 – Reorganizations (“ASC 852”), New Pyxus will adopt the fresh start accounting rules upon emergence from Chapter 11, in which case its assets and liabilities will be recorded at fair value as of the fresh start reporting date, which may differ materially from the recorded values of assets and liabilities on our consolidated balance sheets. The accompanying consolidated financial statements do not reflect the adoption of fresh start accounting.
| | | | | | | | | | | | | | |
| Three Months Ended December 31, 2019 and 2018 | | | | |
| Three Months Ended December 31, | | | |
| | | Change | |
| (in millions) | 2019 | 2018 | $ | % |
| Sales and other operating revenues | $ | 363.3 | | $ | 524.5 | | $ | (161.2) | | (30.7) | |
| Cost of goods and services sold | 308.1 | | 449.8 | | (141.7) | | (31.5) | |
| Gross profit* | 55.1 | | 74.7 | | (19.6) | | (26.2) | |
| Selling, general, and administrative expenses | 45.9 | | 41.7 | | 4.2 | | 10.1 | |
| Other (expense) income, net | (0.4) | | 8.0 | | (8.4) | | (105.0) | |
| Restructuring and asset impairment charges | 0.7 | | 1.7 | | (1.0) | | (58.8) | |
| Operating income* | 8.1 | | 39.4 | | (31.3) | | (79.4) | |
| Debt retirement benefit | — | | (1.3) | | 1.3 | | 100.0 | |
| Interest expense | 32.2 | | 33.9 | | (1.7) | | (5.0) | |
| Interest income | 0.4 | | 1.0 | | (0.6) | | (60.0) | |
| Income tax (benefit) expense | (0.9) | | 17.4 | | (18.3) | | (105.2) | |
| Income from unconsolidated affiliates | 0.3 | | 4.7 | | (4.4) | | (93.6) | |
| Net (loss) income attributable to noncontrolling interests | (0.5) | | 0.1 | | (0.6) | | (600.0) | |
| Net loss attributable to Pyxus International, Inc.* | $ | (22.0) | | $ | (5.1) | | $ | (16.9) | | (331.4) | |
| | | | |
| * Amounts may not equal column totals due to rounding | | | | |
| | | | | | | | | | | | | | |
| Three Months Ended June 30, 2020 and 2019 | | | | |
| Three Months Ended June 30, | | | |
| | | Change | |
| (in millions) | 2020 | 2019 | $ | % |
| Sales and other operating revenues | $ | 262.8 | | $ | 276.7 | | $ | (13.9) | | (5.0) | |
| Cost of goods and services sold | 243.2 | | 237.0 | | 6.2 | | 2.6 | |
| Gross profit | 19.6 | | 39.7 | | (20.1) | | (50.6) | |
| Selling, general, and administrative expenses | 60.8 | | 49.4 | | 11.4 | | 23.1 | |
| Other (expense) income, net | (2.4) | | 2.9 | | (5.3) | | (182.8) | |
| Restructuring and asset impairment charges | 0.1 | | 0.2 | | (0.1) | | (50.0) | |
| Operating loss* | (43.6) | | (6.9) | | (36.7) | | (531.9) | |
| Debt retirement expense | 0.8 | | — | | 0.8 | | 100.0 | |
| Interest expense | 31.3 | | 33.8 | | (2.5) | | (7.4) | |
| Interest income | 0.8 | | 1.2 | | (0.4) | | (33.3) | |
| Reorganization items | (26.9) | | — | | (26.9) | | (100.0) | |
| Income tax (benefit) expense | (8.2) | | 23.5 | | (31.7) | | (134.9) | |
| Income from unconsolidated affiliates | 0.8 | | 0.9 | | (0.1) | | (11.1) | |
| Net (loss) income attributable to noncontrolling interests | (0.6) | | (0.4) | | (0.2) | | (50.0) | |
| Net loss attributable to Pyxus International, Inc.* | $ | (92.2) | | $ | (61.8) | | $ | (30.4) | | (49.2) | |
| | | | |
| * Amounts may not equal column totals due to rounding | | | | |
Sales and other operating revenues decreased $161.2$13.9 million or 30.7%5.0% to $363.3$262.8 million for the three months ended December 31, 2019June 30, 2020 from $524.5$276.7 million for the three months ended December 31, 2018.June 30, 2019. This decrease was due to a 27.5% decrease in volume and a 6.9%7.9% decrease in average sales prices. The decrease in volume wasprices attributable to flue-cured oversupply conditions and unfavorable foreign exchange rate fluctuations in South America. This decrease was partially offset by a 3.4% increase in volume primarily due to the timing of shipments in the Leaf - Other Regions segment in Africa and Asia, and the impact of Hurricane Florence reducing the prior year U.S. crop size (which impacted carryover shipments) and foreign tariffs on U.S. tobacco reducing Leaf - North America segment volumes. The decrease in average sales price was driven(delayed by the Leaf - Other Regions segment product mix having a lower concentrationCOVID-19 pandemic from the fourth quarter of laminafiscal 2020 to the first quarter of fiscal 2021). This increase in volume was partially offset by the timing of shipments in South America.America (delayed by the COVID-19 pandemic from the first quarter of fiscal 2021 to future quarters).
Cost of goods and services sold decreased $141.7increased $6.2 million or 31.5%2.6% to $308.1$243.2 million for the three months ended December 31, 2019June 30, 2020 from $449.8$237.0 million for the three months ended December 31, 2018.June 30, 2019. This decreaseincrease was mainly due to a decrease$15.1 million inventory LCM write-down of industrial hemp inventory driven by a shift in the Leaf - North Americaexpected future products mix in response to market supply conditions and Leaf - Other Regions segment sales and other operating revenues and favorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment resulting in lower leaf raw materials prices in Africa and South America.continued market price compression.
Gross profit as a percent of sales increaseddecreased to 15.2%7.5% for the three months ended December 31, 2019June 30, 2020 from 14.2%14.3% for three months ended December 31, 2018.June 30, 2019. This increasedecrease was attributableprimarily due to favorablea $15.1 million LCM write-down of industrial hemp inventory described above as well as unfavorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment resulting in lower leafhigher raw materials prices and higher conversion costs in Africa and South America. This increase wasThese decreases were partially offset by higher Leaf - North America and Leaf - Other Regionlower conversion costs due to lower volumes.in Africa.
Selling, general, and administrative expense ("SG&A")expenses increased $4.2$11.4 million or 10.1%23.1% to $45.9$60.8 million or the three months ended June 30, 2020 from $49.4 million or the three months ended June 30, 2019. This increase was driven by expenses for the Chapter 11 Cases that were incurred prior to the Petition Date.
Reorganization items increased $26.9 million or 100.0% for the three months ended December 31, 2019 from $41.7 million for the three months ended December 31, 2018. SG&AJune 30, 2020 as a percent of sales increased to 12.6% for the three months ended December 31, 2019 from 8.0% for the three months ended December 31, 2018. These increases were primarily related to branding, marketing, and advertising expenses to support growthresult of the Figr cannabinoid brand and costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment. These increases were partially offset by current year savings due to restructuring initiatives enacted in the Leaf - North America segment in the prior year.Chapter 11 Cases.
Income tax expense decreased $18.3 million or 105.2% to a $0.9benefit was $8.2 million benefit for the three months ended December 31, 2019 from a $17.4June 30, 2020, compared to income tax expense of $23.5 million expense for the three months ended December 31, 2018.June 30, 2019. This decreasechange was primarily due to a change in the effective tax rate to 3.9%8.0% for three months ended December 31, 2019June 30, 2020 from 226.8%(59.2)% for the three months ended December 31, 2018,June 30, 2019 driven by net foreign exchange effects, increases in non-deductible interest, foreign income taxed in the U.S., and variation in the occurrenceexpected jurisdictional mix of certain discrete items during the three months ended December 31, 2019.earnings.
| | Leaf - North America Supplemental Information | Leaf - North America Supplemental Information | | Leaf - North America Supplemental Information | |
| | Three Months Ended December 31, | | | Three Months Ended June 30, | |
| | | Change | | | | Change | |
| (in millions, except per kilo amounts) | (in millions, except per kilo amounts) | 2019 | 2018 | $ | % | (in millions, except per kilo amounts) | 2020 | 2019 | $ | % |
| Kilos sold | Kilos sold | 7.3 | | 11.1 | | (3.8) | | (34.2) | | Kilos sold | 5.1 | | 6.6 | | (1.5) | | (22.7) | |
| Tobacco sales and other operating revenues: | Tobacco sales and other operating revenues: | | Tobacco sales and other operating revenues: | |
| Sales and other operating revenues | Sales and other operating revenues | $ | 39.1 | | $ | 60.3 | | $ | (21.2) | | (35.2) | | Sales and other operating revenues | $ | 25.9 | | $ | 31.1 | | $ | (5.2) | | (16.7) | |
| Average price per kilo | Average price per kilo | 5.36 | | 5.43 | | (0.07) | | (1.3) | | Average price per kilo | 5.08 | | 4.71 | | 0.37 | | 7.9 | |
| Processing and other revenues | Processing and other revenues | 13.9 | | 17.6 | | (3.7) | | (21.0) | | Processing and other revenues | 4.0 | | 3.8 | | 0.2 | | 5.3 | |
| Total sales and other operating revenues | Total sales and other operating revenues | 53.0 | | 77.9 | | (24.9) | | (32.0) | | Total sales and other operating revenues | 29.9 | | 34.9 | | (5.0) | | (14.3) | |
| Tobacco cost of goods sold: | Tobacco cost of goods sold: | | Tobacco cost of goods sold: | |
| Tobacco costs | Tobacco costs | 30.9 | | 49.0 | | (18.1) | | (36.9) | | Tobacco costs | 20.0 | | 24.4 | | (4.4) | | (18.0) | |
| Transportation, storage, and other period costs | Transportation, storage, and other period costs | 5.1 | | 3.2 | | 1.9 | | 59.4 | | Transportation, storage, and other period costs | 2.7 | | 3.2 | | (0.5) | | (15.6) | |
| Derivative financial instrument and exchange losses (gains) | Derivative financial instrument and exchange losses (gains) | 0.1 | | (0.1) | | 0.2 | | 200.0 | | Derivative financial instrument and exchange losses (gains) | 0.2 | | (0.1) | | 0.3 | | 300.0 | |
| Total tobacco cost of goods sold | Total tobacco cost of goods sold | 36.1 | | 52.1 | | (16.0) | | (30.7) | | Total tobacco cost of goods sold | 22.9 | | 27.5 | | (4.6) | | (16.7) | |
| Average cost per kilo | Average cost per kilo | 4.95 | | 4.69 | | 0.26 | | 5.5 | | Average cost per kilo | 4.49 | | 4.17 | | 0.32 | | 7.7 | |
| Processing and other revenues cost of services sold | Processing and other revenues cost of services sold | 10.9 | | 17.1 | | (6.2) | | (36.3) | | Processing and other revenues cost of services sold | 2.6 | | 2.2 | | 0.4 | | 18.2 | |
| Total cost of goods and services sold | Total cost of goods and services sold | 47.0 | | 69.2 | | (22.2) | | (32.1) | | Total cost of goods and services sold | 25.5 | | 29.7 | | (4.2) | | (14.1) | |
| Gross profit | Gross profit | 6.0 | | 8.7 | | (2.7) | | (31.0) | | Gross profit | 4.4 | | 5.2 | | (0.8) | | (15.4) | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | 2.8 | | 4.3 | | (1.5) | | (34.9) | | Selling, general, and administrative expenses | 4.9 | | 4.2 | | 0.7 | | 16.7 | |
| Other expense, net | Other expense, net | (0.7) | | (0.1) | | (0.6) | | (600.0) | | Other expense, net | (0.3) | | (0.2) | | (0.1) | | (50.0) | |
| Restructuring and asset impairment charges | (0.1) | | 1.5 | | (1.6) | | (106.7) | | |
| Operating income | $ | 2.6 | | $ | 2.8 | | (0.2) | | (7.1) | | |
| | Operating (loss) income | | Operating (loss) income | $ | (0.8) | | $ | 0.8 | | (1.6) | | (200.0) | |
Sales and other operating revenues decreased $24.9$5.0 million or 32.0%14.3% to $53.0$29.9 million for the three months ended December 31, 2019June 30, 2020 from $77.9$34.9 million for the three months ended December 31, 2018.June 30, 2019. This decrease was primarily due to 34.2%22.7% lower volume anddriven by the timing of shipments. This decrease was partially offset by a 1.3% decrease7.9% increase in average sales prices. The decrease in volume wasprices attributable to Hurricane Florence reducing the prior year U.S. crop size (which impacted carryover shipments) and foreign tariffs on U.S. tobacco. The decrease in average sales price was driven by product mix having a lowerhigher concentration of lamina.
Cost of goods and services sold decreased $22.2$4.2 million or 32.1%14.1% to $47.0$25.5 million for the three months ended December 31, 2019June 30, 2020 from $69.2$29.7 million for the three months ended December 31, 2018.June 30, 2019. This decrease was mainly due to the decrease in sales and other operating revenues.
Gross profit as a percent of sales increaseddecreased to 11.3%14.7% for the three months ended December 31, 2019June 30, 2020 from 11.2%14.9% for the three months ended December 31, 2018.June 30, 2019. This increasedecrease was attributable to current year savingshigher conversion costs due to restructuring initiatives enacted in the prior year.
SG&A decreased $1.5 million or 34.9% to $2.8 million for the three months ended December 31, 2019 from $4.3 million for the three months ended December 31, 2018. SG&A as a percent of sales decreased to 5.3% for the three months ended December 31, 2019 from 5.5% for the three months ended December 31, 2018. These decreases were related to lower allocations of general corporate services and current year savings due to restructuring initiatives enacted in the prior year.
| | Leaf - Other Regions Supplemental Information | Leaf - Other Regions Supplemental Information | | Leaf - Other Regions Supplemental Information | |
| | Three Months Ended December 31, | | | Three Months Ended June 30, | |
| | | Change | | | | Change | |
| (in millions, except per kilo amounts) | (in millions, except per kilo amounts) | 2019 | 2018 | $ | % | (in millions, except per kilo amounts) | 2020 | 2019 | $ | % |
| Kilos sold | Kilos sold | 77.6 | | 106.0 | | (28.4) | | (26.8) | | Kilos sold | 58.5 | | 54.9 | | 3.6 | | 6.6 | |
| Tobacco sales and other operating revenues: | Tobacco sales and other operating revenues: | | Tobacco sales and other operating revenues: | |
| Sales and other operating revenues | Sales and other operating revenues | $ | 293.5 | | $ | 432.4 | | $ | (138.9) | | (32.1) | | Sales and other operating revenues | $ | 218.3 | | $ | 225.2 | | $ | (6.9) | | (3.1) | |
| Average price per kilo | Average price per kilo | 3.78 | | 4.08 | | (0.30) | | (7.4) | | Average price per kilo | 3.73 | | 4.10 | | (0.37) | | (9.0) | |
| Processing and other revenues | Processing and other revenues | 13.0 | | 9.3 | | 3.7 | | 39.8 | | Processing and other revenues | 9.4 | | 10.6 | | (1.2) | | (11.3) | |
| Total sales and other operating revenues | Total sales and other operating revenues | 306.5 | | 441.7 | | (135.2) | | (30.6) | | Total sales and other operating revenues | 227.7 | | 235.8 | | (8.1) | | (3.4) | |
| Tobacco cost of goods sold: | Tobacco cost of goods sold: | | Tobacco cost of goods sold: | |
| Tobacco costs | Tobacco costs | 235.6 | | 345.3 | | (109.7) | | (31.8) | | Tobacco costs | 182.8 | | 183.2 | | (0.4) | | (0.2) | |
| Transportation, storage, and other period costs | Transportation, storage, and other period costs | 12.2 | | 22.2 | | (10.0) | | (45.0) | | Transportation, storage, and other period costs | 8.5 | | 12.8 | | (4.3) | | (33.6) | |
| Derivative financial instrument and exchange (gains) losses | Derivative financial instrument and exchange (gains) losses | (0.8) | | 2.9 | | (3.7) | | (127.6) | | Derivative financial instrument and exchange (gains) losses | (1.5) | | (0.9) | | (0.6) | | (66.7) | |
| Total tobacco cost of goods sold | Total tobacco cost of goods sold | 247.0 | | 370.4 | | (123.4) | | (33.3) | | Total tobacco cost of goods sold | 189.8 | | 195.1 | | (5.3) | | (2.7) | |
| Average cost per kilo | Average cost per kilo | 3.18 | | 3.49 | | (0.31) | | (8.9) | | Average cost per kilo | 3.24 | | 3.55 | | (0.31) | | (8.7) | |
| Processing and other revenues cost of services sold | Processing and other revenues cost of services sold | 9.8 | | 7.1 | | 2.7 | | 38.0 | | Processing and other revenues cost of services sold | 7.4 | | 8.5 | | (1.1) | | (12.9) | |
| Total cost of goods and services sold | Total cost of goods and services sold | 256.8 | | 377.5 | | (120.7) | | (32.0) | | Total cost of goods and services sold | 197.2 | | 203.6 | | (6.4) | | (3.1) | |
| Gross profit | Gross profit | 49.7 | | 64.2 | | (14.5) | | (22.6) | | Gross profit | 30.5 | | 32.2 | | (1.7) | | (5.3) | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | 25.3 | | 27.8 | | (2.5) | | (9.0) | | Selling, general, and administrative expenses | 37.1 | | 28.2 | | 8.9 | | 31.6 | |
| Other income, net | Other income, net | 1.9 | | 7.9 | | (6.0) | | (75.9) | | Other income, net | 0.4 | | 3.2 | | (2.8) | | (86.6) | |
| Restructuring and asset impairment charges | Restructuring and asset impairment charges | 0.8 | | 0.2 | | 0.6 | | 300.0 | | Restructuring and asset impairment charges | 0.1 | | 0.2 | | (0.2) | | (75.0) | |
| Operating income | $ | 25.5 | | $ | 44.1 | | $ | (18.6) | | (42.2) | | |
| Operating (loss) income* | | Operating (loss) income* | $ | (6.2) | | $ | 7.0 | | $ | (13.2) | | (188.9) | |
| * Amounts may not equal column totals due to rounding | | * Amounts may not equal column totals due to rounding | |
Sales and other operating revenues decreased $135.2$8.1 million or 30.6%3.4% to $306.5$227.7 million for the three months ended December 31, 2019June 30, 2020 from $441.7$235.8 million for the three months ended December 31, 2018.June 30, 2019. This decrease was due to a 26.8% decrease in volume and a 7.4%9.0% decrease in average sales prices. The decrease in volume wasprices attributable to flue-cured oversupply conditions and the timing of shipmentsunfavorable foreign exchange rate fluctuations in Africa and Asia. TheSouth America. This decrease in average sales price was drivenpartially offset by product mix having a lower concentration of lamina in South America.America and Africa. The 6.6% increase in volume was driven by the timing of shipments in Africa (delayed by the COVID-19 pandemic from the fourth quarter of fiscal 2020 to the first quarter of fiscal 2021). This increase in volume was partially offset by the timing of shipments in South America (delayed by the COVID-19 pandemic from the first quarter of fiscal 2021 to future quarters).
Cost of goods and services sold decreased $120.7$6.4 million or 32.0%3.1% to $256.8$197.2 million for the three months ended December 31, 2019June 30, 2020 from $377.5$203.6 million for the three months ended December 31, 2018.June 30, 2019. This decrease was mainly due to the decrease in sales and other operating revenues and favorable foreign currency exchange rate fluctuations resulting in lower raw materials prices in Africa and South America.revenues.
Gross profit as a percent of sales increaseddecreased to 16.2%13.4% for the three months ended December 31, 2019June 30, 2020 from 14.5%13.7% for the three months ended December 31, 2018.June 30, 2019. This increasedecrease was attributable to favorableunfavorable foreign currency exchange rate fluctuations resulting in lowerhigher raw materials prices and higher conversion costs in South America. These decreases were partially offset by lower conversion costs in Africa and South America.Africa.
SG&A decreased $2.5increased $8.9 million or 9.0%31.6% to $25.3$37.1 million for the three months ended December 31, 2019June 30, 2020 from $27.8$28.2 million for the three months ended December 31, 2018. This decrease was related to lower allocations of general corporate services.June 30, 2019. SG&A as a percent of sales increased to 8.3%16.3% for the three months ended December 31, 2019June 30, 2020 from 6.3%12.0% for the three months ended December 31, 2018. This increase wasJune 30, 2019. These increases were related to the decrease in sales and other operating revenues.revenues and higher allocations of general corporate services.
| | Other Products and Services Supplemental Information | Other Products and Services Supplemental Information | | Other Products and Services Supplemental Information | |
| | Three Months Ended December 31, | | | Three Months Ended June 30, | |
| | | Change | | | | Change | |
| (in millions) | (in millions) | 2019 | 2018 | $ | % | (in millions) | 2020 | 2019 | $ | % |
| Sales and other operating revenues | Sales and other operating revenues | $ | 3.7 | | $ | 4.9 | | $ | (1.2) | | (24.5) | | Sales and other operating revenues | $ | 5.2 | | $ | 6.0 | | $ | (0.8) | | (13.3) | |
| Cost of goods and services sold | Cost of goods and services sold | 4.3 | | 3.1 | | 1.2 | | 38.7 | | Cost of goods and services sold | 20.5 | | 3.7 | | 16.8 | | 454.1 | |
| Gross profit | (0.6) | | 1.8 | | (2.4) | | (133.3) | | |
| Gross (loss) profit | | Gross (loss) profit | (15.3) | | 2.3 | | (17.6) | | (765.2) | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | 17.8 | | 9.6 | | 8.2 | | 85.4 | | Selling, general, and administrative expenses | 18.7 | | 17.0 | | 1.7 | | 10.0 | |
| Other (expense) income, net | (1.6) | | 0.2 | | (1.8) | | (900.0) | | |
| Other expense, net | | Other expense, net | (2.5) | | — | | (2.5) | | (100.0) | |
| | Operating loss | Operating loss | $ | (20.0) | | $ | (7.6) | | $ | (12.4) | | (163.2) | | Operating loss | $ | (36.5) | | $ | (14.7) | | $ | (21.8) | | (148.5) | |
Sales and other operating revenues decreased $1.2$0.8 million or 24.5%13.3% to $3.7$5.2 million for the three months ended December 31, 2019June 30, 2020 from $4.9$6.0 million for the three months ended December 31, 2018.June 30, 2019. This decrease was primarily due to a decrease in cannabinoid revenue attributable to oversupply conditions on the timing of orders andCanadian cannabis market, a decrease in e-liquids revenue related to a general industry slow-down amid health and regulatory concerns. These decreases were partially offset by increased cannabinoid revenue driven by Figr products entering into two additional Canadian provinces: New Brunswickconcerns, and Ontario in December 2019.the global impact of the COVID-19 pandemic.
Cost of goods and services sold increased $1.2$16.8 million or 38.7%454.1% to $4.3$20.5 million for the three months ended December 31, 2019June 30, 2020 from $3.1$3.7 million for the three months ended December 31, 2018.June 30, 2019. This increase was mainly due to increased cannabinoid depreciation associated with the additional 210,000 square feeta $15.1 million LCM write-down of production capacity placed in-service at the Prince Edward Island facility.industrial hemp inventory driven by a shift in expected future products mix in response to market supply conditions and continued market price compression.
Gross loss as a percent of sales was (294.2)% for the three months ended June 30, 2020 compared to gross profit as a percent of sales decreased to (16.2)%of 38.3% for the three months ended December 31, 2019 from 36.7% for the three months ended December 31, 2018.June 30, 2019. This decrease in profitability was primarily attributable to higher conversion costs from lower sales volume and increase cannabinoid depreciation associated with the additional 210,000 square feet$15.1 million inventory LCM write-down of production capacity placed in-service at the Prince Edward Island facility.industrial hemp inventory described above.
SG&A increased $8.2$1.7 million or 85.4%10.0% to $17.8$18.7 million for the three months ended December 31, 2019June 30, 2020 from $9.6$17.0 million for the three months ended December 31, 2018.June 30, 2019. SG&A as a percent of sales increased to 481.1%359.6% for the three months ended December 31, 2019June 30, 2020 from 195.9%283.3% for the three months ended December 31, 2018.June 30, 2019. These increases arewere related to branding, marketing, and advertising expenses to support growth of the Figr cannabinoid brand and the costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment.
| | | | | | | | | | | | | | |
| Nine Months Ended December 31, 2019 and 2018 | | | | |
| Nine Months Ended December 31, | | | |
| (in millions) | | | Change | |
(percentage change is calculated based on thousands) | 2019 | 2018 | $ | % |
| Sales and other operating revenues | $ | 1,022.9 | | $ | 1,210.4 | | $ | (187.5) | | (15.5) | |
| Cost of goods and services sold | 867.9 | | 1,045.0 | | (177.1) | | (16.9) | |
| Gross profit* | 155.1 | | 165.4 | | (10.3) | | (6.2) | |
| Selling, general, and administrative expenses | 142.6 | | 118.8 | | 23.8 | | 20.0 | |
| Other income, net | 4.1 | | 13.5 | | (9.4) | | (69.6) | |
| Restructuring and asset impairment charges | 0.9 | | 3.4 | | (2.5) | | (73.5) | |
| Operating income* | 15.7 | | 56.6 | | (40.9) | | (72.3) | |
| Debt retirement benefit | — | | (1.8) | | 1.8 | | 100.0 | |
| Interest expense | 101.3 | | 102.2 | | (0.9) | | (0.9) | |
| Interest income | 3.0 | | 2.6 | | 0.4 | | 15.4 | |
| Income tax expense | 25.2 | | 26.9 | | (1.7) | | (6.3) | |
| Income from unconsolidated affiliates | 6.7 | | 6.9 | | (0.2) | | (2.9) | |
| Net loss attributable to noncontrolling interests | (0.9) | | (0.8) | | (0.1) | | (12.5) | |
| Net loss attributable to Pyxus International, Inc.* | $ | (100.3) | | $ | (60.5) | | (39.8) | | (65.8) | |
| | | | |
| * Amounts may not equal column totals due to rounding | | | | |
Sales and other operating revenues decreased $187.5 million or 15.5% to $1,022.9 million for the nine months ended December 31, 2019 from $1,210.4 million for the nine months ended December 31, 2018. This decrease was due to a 12.5% decrease in volume and a 5.0% decrease in averages sales price. The decrease in volume was attributable to flue-cured oversupply conditions, the timing of shipments in the Leaf - Other Regions segment in Africa, and the impact of Hurricane Florence reducing the prior year U.S. crop size (which impacted carryover shipments) and foreign tariffs on U.S. tobacco reducing Leaf - North America segment volumes. The decrease in average sales price was primarily due to product mix having a lower concentration of lamina. These decreases were partially offset by an increase in the Leaf - Other Regions segment volumes in South America due to the timing of shipments and the continued sales growth in the Other Products and Services segment.
Cost of goods and services sold decreased $177.1 million or 16.9% to $867.9 million for the nine months ended December 31, 2019 from $1,045.0 million for the nine months ended December 31, 2018. This decrease was mainly due to the decrease in sales and other operating revenues and favorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment resulting in lower raw materials prices in Africa and South America. These decreases were partially offset by the continued growthhigher allocations of the Other Products and Services segment.
Gross profit as a percent of sales increased to 15.2% for the nine months ended December 31, 2019 from 13.7% for the nine months ended December 31, 2018. This increase was attributable to favorable foreign currency exchange rate fluctuations in the Leaf - Other Regions segment resulting in lower raw materials prices and conversion costs in Africa and South America and the continued growth of the Other Products and Services segment.
SG&A increased $23.8 million or 20.0% to $142.6 million for the nine months ended December 31, 2019 from $118.8 million for the nine months ended December 31, 2018. SG&A as a percent of sales increased to 13.9% for the nine months ended December 31, 2019 from 9.8% for the nine months ended December 31, 2018. These increases were primarily related to branding, marketing, and advertising expenses to support growth of the Figr cannabinoid and Humble Juice e-liquid brands and the costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment. These increases were partially offset by current year savings due to restructuring initiatives enacted in the Leaf - North America segment in the prior year.
Income tax expense decreased $1.7 million or 6.3% to $25.2 million for the nine months ended December 31, 2019 from $26.9 million for the nine months ended December 31, 2018. This decrease was primarily due to the change in the effective tax rate to (30.5)% for the nine months ended December 31, 2019 from (65.3)% for the nine months ended December 31, 2018 and the occurrence of certain discrete items during the nine months ended December 31, 2019.general corporate services.
| | | | | | | | | | | | | | |
| Leaf - North America Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | | Change | |
| 2019 | 2018 | $ | % |
| Kilos sold | 21.6 | | 29.9 | | (8.3) | | (27.8) | |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 114.5 | | $ | 152.7 | | $ | (38.2) | | (25.0) | |
| Average price per kilo | 5.30 | | 5.11 | | 0.19 | | 3.7 | |
| Processing and other revenues | 24.9 | | 29.1 | | (4.2) | | (14.4) | |
| Total sales and other operating revenues | 139.4 | | 181.8 | | (42.4) | | (23.3) | |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 88.5 | | 123.4 | | (34.9) | | (28.3) | |
| Transportation, storage, and other period costs | 13.8 | | 9.1 | | 4.7 | | 51.6 | |
| Derivative financial instrument and exchange losses (gains) | 0.1 | | (0.2) | | 0.3 | | 150.0 | |
| Total tobacco cost of goods sold | 102.4 | | 132.3 | | (29.9) | | (22.6) | |
| Average cost per kilo | 4.74 | | 4.42 | | 0.32 | | 7.2 | |
| Processing and other revenues cost of services sold | 18.7 | | 25.9 | | (7.2) | | (27.8) | |
| Total cost of goods and services sold | 121.1 | | 158.2 | | (37.1) | | (23.5) | |
| Gross profit | 18.3 | | 23.6 | | (5.3) | | (22.5) | |
| Selling, general, and administrative expenses | 11.3 | | 13.5 | | (2.2) | | (16.3) | |
| Other expense, net | (1.2) | | (0.5) | | (0.7) | | (140.0) | |
| Restructuring and asset impairment charges | (0.1) | | 1.7 | | (1.8) | | (105.9) | |
| Operating income | $ | 5.9 | | $ | 7.9 | | $ | (2.0) | | (25.3) | |
Sales and other operating revenues decreased $42.4 million or 23.3% to $139.4 million for the nine months ended December 31, 2019 from $181.8 million for the nine months ended December 31, 2018. This decrease was due to a 27.8% decrease in volume attributable to Hurricane Florence reducing the prior year U.S. crop size (which impacted carryover shipments) and foreign tariffs on U.S. tobacco. This decrease was partially offset by a 3.7% increase in average sales price due to product mix having a higher concentration of lamina.
Cost of goods and services sold decreased $37.1 million or 23.5% to $121.1 million for the nine months ended December 31, 2019 from $158.2 million for the nine months ended December 31, 2018. This decrease was mainly due to lower volume.
Gross profit as a percent of sales increased to 13.1% for the nine months ended December 31, 2019 from 13.0% for the nine months ended December 31, 2018. This increase was attributable to current year savings due to restructuring initiatives enacted in the prior year.
SG&A decreased $2.2 million or 16.3% to $11.3 million for the nine months ended December 31, 2019 from $13.5 million for the nine months ended December 31, 2018 and was attributable to current year savings due to restructuring initiatives enacted in the prior year. SG&A as a percent of sales increased to 8.1% for the nine months ended December 31, 2019 from 7.4% for the nine months ended December 31, 2018 mainly due to lower volume.
| | | | | | | | | | | | | | |
| Leaf - Other Regions Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | | Change | |
| 2019 | 2018 | $ | % |
| Kilos sold | 213.3 | | 238.7 | | (25.4) | | (10.6) | |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 825.3 | | $ | 977.5 | | $ | (152.2) | | (15.6) | |
| Average price per kilo | 3.87 | | 4.10 | | (0.23) | | (5.6) | |
| Processing and other revenues | 42.5 | | 40.8 | | 1.7 | | 4.2 | |
| Total sales and other operating revenues | 867.8 | | 1,018.3 | | (150.5) | | (14.8) | |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 665.6 | | 796.9 | | (131.3) | | (16.5) | |
| Transportation, storage, and other period costs | 37.2 | | 51.7 | | (14.5) | | (28.0) | |
| Derivative financial instrument and exchange gains | (0.4) | | (2.3) | | 1.9 | | 82.6 | |
| Total tobacco cost of goods sold | 702.4 | | 846.3 | | (143.9) | | (17.0) | |
| Average cost per kilo | 3.29 | | 3.55 | | (0.26) | | (7.3) | |
| Processing and other revenues cost of services sold | 32.5 | | 32.6 | | (0.1) | | (0.3) | |
| Total cost of goods and services sold | 734.9 | | 878.9 | | (144.0) | | (16.4) | |
| Gross profit | 132.9 | | 139.4 | | (6.5) | | (4.7) | |
| Selling, general, and administrative expenses | 79.1 | | 81.4 | | (2.3) | | (2.8) | |
| Other income, net | 6.2 | | 13.8 | | (7.6) | | (55.1) | |
| Restructuring and asset impairment charges | 1.0 | | 1.7 | | (0.7) | | (41.2) | |
| Operating income | $ | 59.0 | | $ | 70.1 | | $ | (11.1) | | (15.8) | |
Sales and other operating revenues decreased $150.5 million or 14.8% to $867.8 million for the nine months ended December 31, 2019 from $1,018.3 million for the nine months ended December 31, 2018. This decrease was due to a 10.6% decrease in volume and a 5.6% decrease in average selling prices. The decrease in volume was attributable to flue-cured oversupply conditions and the timing of shipments in Africa. This decrease was partially offset by an increase in volume in South America due to the timing of shipments. The decrease in average selling prices was driven by product mix having a lower concentration of lamina.
Cost of goods and services sold decreased $144.0 million or 16.4% to $734.9 million for the nine months ended December 31, 2019 from $878.9 million for the nine months ended December 31, 2018. This decrease was mainly due to the decrease in sales and other operating revenues and favorable foreign currency exchange rate fluctuations resulting in lower raw materials prices in Africa and South America.
Gross profit as a percent of sales increased to 15.3% for the nine months ended December 31, 2019 from 13.7% for the nine months ended December 31, 2018. This increase was attributable to favorable foreign currency exchange rate fluctuations resulting in lower raw materials prices and conversion costs in Africa and South America.
SG&A decreased $2.3 million or 2.8% to $79.1 million for the nine months ended December 31, 2019 from $81.4 million for the nine months ended December 31, 2018. This decrease was due to lower allocations of general corporate services. SG&A as a percent of sales increased to 9.1% for the nine months ended December 31, 2019 from 8.0% for the nine months ended December 31, 2018. This increase was related to the decrease in sales and other operating revenues.
Other income, net decreased $7.6 million or 55.1% to $6.2 million for the nine months ended December 31, 2019 from $13.8 million for the nine months ended December 31, 2018. This decrease was primarily due to the receipt of insurance proceeds in the prior year from the fiscal 2016 fire in Zimbabwe.
Restructuring and asset impairment charges decreased $0.7 million or 41.2% to $1.0 million for the nine months ended December 31, 2019 from $1.7 million for the nine months ended December 31, 2018 mainly due to a cost-saving and restructuring initiative to close a processing facility in Europe in the prior year.
| | | | | | | | | | | | | | |
| Other Products and Services Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | | Change | |
| 2019 | 2018 | $ | % |
| Sales and other operating revenues | $ | 15.7 | | $ | 10.3 | | $ | 5.4 | | 52.4 | |
| Cost of goods and services sold | 11.8 | | 7.9 | | 3.9 | | 49.4 | |
| Gross profit | 3.9 | | 2.4 | | 1.5 | | 62.5 | |
| Selling, general, and administrative expenses | 52.2 | | 23.9 | | 28.3 | | 118.4 | |
| Other (expense) income, net | (0.9) | | 0.2 | | (1.1) | | (550.0) | |
| | | | |
| Operating loss | $ | (49.2) | | $ | (21.3) | | $ | (27.9) | | (131.0) | |
Sales and other operating revenues increased $5.4 million or 52.4% to $15.7 million for the nine months ended December 31, 2019 from $10.3 million for the nine months ended December 31, 2018. This increase was primarily due to increased cannabinoid revenue attributable to sales in the provinces of Nova Scotia and Prince Edward Island following the legalization of the Canadian recreational cannabis market on October 17, 2018, as well as increased e-liquids product revenue attributable to additional product offerings and an expanding customer base. These increases were partially offset by a decrease in cannabinoid revenue attributable to the timing of orders and a decrease in e-liquids revenue related to a general industry slow-down amid health and regulatory concerns.
Cost of goods and services sold increased $3.9 million or 49.4% to $11.8 million for the nine months ended December 31, 2019 from $7.9 million for the nine months ended December 31, 2018. This increase was mainly due to the increase in sales.
Gross profit as a percent of sales increased to 24.8% for the nine months ended December 31, 2019 from 23.3% for the nine months ended December 31, 2018. This increase was due to lower conversion costs attributable to higher sales volume and was partially offset by higher overhead absorption related to the additional 210,000 square feet of cannabinoid production capacity placed in-service in Prince Edward Island.
SG&A increased $28.3 million or 118.4% to $52.2 million for the nine months ended December 31, 2019 from $23.9 million for the nine months ended December 31, 2018. SG&A as a percent of sales increased to 332.5% for the nine months ended December 31, 2019 from 232.0% for the nine months ended December 31, 2018. These increases were primarily related to branding, marketing, and advertising expenses to support growth of the Figr cannabinoid and Humble Juice e-liquid brands and the costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment.
Liquidity and Capital Resources
Overview
Working capital needs are seasonal within each geographic region. Our liquidityworking capital requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, crop size and quality, foreign currency, and interest rates, green tobacco prices, and customer mix,shipping requirements. Peak working capital requirements are generally during the first and second fiscal quarters. The leaf crop size,cycle includes buying, processing, and quality. Our leaf tobacco business is seasonal,shipping tobacco. As of June 30, 2020, Africa and Europe are generally purchasing and processing. Asia and South America are purchasing, processing, and selling activitiesselling. These crop seasons have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly comparedbeen delayed due to fiscal year-end.the COVID-19 pandemic. In North America, we are generally harvesting. Additionally, as we continue our transformation journey our liquidity requirements are increasingly affected by branding, marketing, and advertising expenses to support growth of the Other Products and Services segment, and legal and professional costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries inassociated with the Other Products and Services segment and to address the Company's maturing long-term debt.Chapter 11 Cases.
We may periodically seekDebtor-in-Possession Financing
The commencement of the Chapter 11 Cases constituted an event of default, and caused an automatic and immediate acceleration of repayment obligations under the First Lien Notes, the Second Lien Notes, and the ABL Facility. However, any efforts to repurchase our indebtedness through open market transactions, privately negotiated transactions, exchanges, or otherwise,enforce such payment obligations are automatically stayed as of the Petition Date, and are subject to the extentapplicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Borrowings under the ABL Facility were not prohibited by our financing agreements. Such transactions will dependavailable commencing on prevailing market conditions, our liquidity requirements, contractual restrictions,the Petition Date as a result of this event of default. As described below, the ABL Facility was terminated and other factors. The amounts involved may be material.repaid on June 17, 2020.
AsOn June 17, 2020, following its receipt on such date of December 31, 2019, we areinterim approval from the Bankruptcy Court (the “DIP Order”), the Company entered into a multiple draw superpriority secured debtor-in-possession term loan facility (the “DIP Facility”) in an aggregate principal amount of $206.7 million on the terms and conditions set forth 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 intoDIP credit agreement (the “DIP Credit Agreement”) between the first quarter of fiscal year 2021 as well as the purchaseCompany, certain holders of the new cropCompany’s 9.875% senior secured second lien notes due 2021 (the “DIP Lenders”) and Cortland Capital Market Services LLC, as administrative agent and collateral agent, which should begin mid-March. In Asia, the Indian Mysore and Indonesian crops are approaching the endis guaranteed by certain of the processingDebtors’ subsidiaries.
In June 2020, the Company received $131.7 million in initial proceeds from the DIP Facility. An additional $75.0 million in proceeds were received in July 2020 upon entry of a final order from the Bankruptcy Court approving the DIP Facility. Drawn amounts under the DIP Facility bear interest at either (1) an Alternate Base Rate plus 9.25%, per annum or (2) 10.25% plus the LIBOR Rate, per annum, with a LIBOR floor of 1.5%. Undrawn amounts under the DIP Facility are subject to a ticking fee of 3.0% per annum calculated on a daily basis on the aggregate daily unused amount, accruing commencing on June 17, 2020 and shippinguntil such commitments have terminated, which ticking fee is due and payable in full force. Europe continues shippingarrears on the earlier to occur of a borrowing upon entry of a final order and the date on which such commitments have terminated. During the continuance of an event of default (as further described in the DIP Credit Agreement), the overdue amounts under the DIP Facility bear interest at an additional 2% per annum above the interest rate otherwise applicable.
The proceeds from the DIP Facility were used, among other things, to (a) pay down the outstanding amount drawn on the ABL Facility (which occurred on June 17, 2020); (b) pay related transaction costs, fees and expenses; (c) provide working capital and for other general corporate purposes in accordance with the Budget; (d) make adequate protection payments as authorized by the Court in the DIP Order; (e) pay obligations arising from or related to the Carve Out (as defined below); and (f) pay restructuring costs incurred in connection with the Chapter 11 Cases.
The maturity date of the current crop andDIP Facility is preparing to purchase the new crop duringearliest of (a) December 17, 2020; (b) the fourth fiscal quarter. North America has completed flue cured processing with shipping winding down and has commenced the purchasing, processing and shippingdate of the burley crop which should continue into the fourth fiscal quarter, seasonally elevating its working capital requirements. Fluctuationsubstantial consummation (as defined in Section 1101(2) of the U.S. dollar versus manyBankruptcy Code) of a plan of reorganization; (c) the date on which Pyxus and its subsidiaries consummate a sale of all or substantially all of their assets pursuant to section 363 of the currenciesBankruptcy Code or otherwise; and (d) such earlier date on which the loans shall become due and payable by acceleration or otherwise in which we have costsaccordance with the terms of the DIP Credit Agreement and the other related documents.
Under the DIP Facility, the DIP Lenders and Cortland Capital Market Services LLC, as collateral agent, subject to the Carve Out and the terms of the DIP Order and, in each case, other than certain excluded assets, are at all times secured, by (i) a first priority senior priming security interest in and lien upon the DIP Priming Collateral (as defined in the DIP Order); (ii) a first priority senior security interest in and lien upon the DIP Priority Collateral (as defined in the DIP Order), and (iii) a junior security interest in and lien upon DIP Junior Collateral (as defined in the DIP Order). The DIP Lenders and collateral agent are also secured by security interests in substantially all of the assets of certain non-debtor subsidiaries of Pyxus. The Debtors’ obligations to the DIP Lenders and the liens and superpriority claims are subject in each case to a carve out (the “Carve Out”), subject to a cap, that accounts for certain statutory fees, committee professional fees and post-notice professional fees payable in connection with the Chapter 11 Cases.
The DIP Credit Agreement also includes certain customary representations and warranties, affirmative covenants and events of default, including, but not limited to, payment defaults, material inaccuracy of representations and warranties, covenant defaults, certain events under the Employee Retirement Income Security Act of 1974 and change of control. Certain bankruptcy-related events are also events of default, including, but not limited to, the dismissal by the Bankruptcy Court of any of the Chapter 11 Cases, the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code and certain other events related to the impairment of the DIP Lenders’ rights or liens granted under the DIP Credit Agreement.
Upon the effectiveness of the Plan, claims under the DIP Facility are satisfied in the manner set forth in the Plan and the DIP Facility terminates.
Foreign Seasonal Lines of Credit
On August 13, 2020, the Company entered into an Amendment and Restatement Agreement ("the Agreement") with TDB. The Agreement sets forth the terms that govern and supersede the terms of the separate existing foreign seasonal lines of credit for various subsidiaries of the Company with TDB. The original aggregate maximum borrowing availability under the existing foreign seasonal lines of credit was $255.0 million and the aggregate borrowings outstanding were $240.5 million as of August 13, 2020. Subject to certain conditions, the Agreement increases the Company's maximum aggregate borrowing capacity to $285.0 million. Loans under the Agreement will bear interest at LIBOR plus 6%. The Agreement terminates on June 30, 2021, and 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.be renewed at TDB’s discretion.
Working Capital
The following is a summary of items from the condensed consolidated balance sheets:
| | | December 31, | | March 31, | | June 30, | | March 31, |
| (in millions except for current ratio) | (in millions except for current ratio) | 2019 | 2018 | 2019 | (in millions except for current ratio) | 2020 | 2019 | 2020 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 72.2 | | $ | 209.2 | | $ | 192.0 | | Cash and cash equivalents | $ | 172.8 | | $ | 164.1 | | $ | 170.2 | |
| Trade and other receivables, net | Trade and other receivables, net | 192.7 | | 290.1 | | 311.0 | | Trade and other receivables, net | 170.2 | | 203.6 | | 239.7 | |
| Inventories and advances to tobacco suppliers | Inventories and advances to tobacco suppliers | 933.4 | | 878.9 | | 687.9 | | Inventories and advances to tobacco suppliers | 864.8 | | 858.9 | | 768.9 | |
| Total current assets | Total current assets | 1,254.0 | | 1,431.6 | | 1,238.5 | | Total current assets | 1,277.3 | | 1,290.8 | | 1,232.4 | |
| Notes payable to banks | Notes payable to banks | 580.3 | | 583.4 | | 429.0 | | Notes payable to banks | 524.3 | | 520.8 | | 540.2 | |
| Accounts payable | Accounts payable | 61.1 | | 49.4 | | 87.0 | | Accounts payable | 84.1 | | 85.1 | | 67.1 | |
| Advances from customers | Advances from customers | 19.2 | | 45.9 | | 16.4 | | Advances from customers | 22.1 | | 18.8 | | 18.8 | |
| Total current liabilities | Total current liabilities | 804.9 | | 802.0 | | 646.8 | | Total current liabilities | 1,165.2 | | 783.8 | | 789.1 | |
| Current ratio | Current ratio | 1.6 to 1 | | 1.8 to 1 | | 1.9 to 1 | | Current ratio | 1.1 to 1 | 1.6 to 1 |
| Working capital | Working capital | 449.1 | | 629.6 | | 591.7 | | Working capital | 112.1 | | 507.0 | | 443.3 | |
| Long-term debt | Long-term debt | 902.5 | | 897.2 | | 898.4 | | Long-term debt | 3.2 | | 899.7 | | 904.3 | |
| Stockholders’ equity attributable to Pyxus International, Inc. | Stockholders’ equity attributable to Pyxus International, Inc. | 85.5 | | 203.5 | | 183.7 | Stockholders’ equity attributable to Pyxus International, Inc. | (170.1) | | 122.6 | | (78.0) | |
Working capital decreased to $449.1$112.1 million at December 31, 2019June 30, 2020 from $629.6$507.0 million at December 31, 2018June 30, 2019 primarily resulting from a lower trade receivables balance due to decreased leaf tobacco sales.sales, along with increases in short term debt balances such as the First Lien Notes that became current in April, and the initial DIP financing that was executed in June.
Sources and Uses of Cash
Our primary sources of liquidity are cash generated from operations, cash collections from our securitized receivables, and short-term borrowings under our foreign seasonal lines of credit. We have typically financed our non-U.S. tobacco operations with uncommitted short-term foreign seasonal lines of credit at the local level.credit. These foreign lines of credit are seasonal in nature normally extending for a term of 180 to 270 days, corresponding to the tobacco crop cycle in that location.market. These short-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 short-term foreign seasonal lines of credit are typically renewed at the outset of each tobacco season. We maintain various other financing arrangements that are continually analyzed in order to meet the cash requirements of our businesses. See "Note 13. Debt12. "Debt Arrangements" for additional information.
We believe that our current cash balances, together with our borrowing availability, provides us with sufficient financial resources to meet our business requirements in the next 12 months, including the ability to meet our principal and interest payments under the terms of our debt financing agreements.
During the remainder of fiscal 2020, we expect to incur capital expenditures for routine replacement of equipment and investments intended to add value to our customers or increase efficiency in our leaf business, for value-added agriculture capabilities, and expansion of our production capacity in Canada.
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 and senior secured credit agreement or indentures, as permitted therein.
The information included below explains thefollowing summarizes our sources and uses of our cash flows for the nine months ended December 31, 2019 and 2018 as derived from our condensed consolidated financial statements:flows:
| | | Nine Months Ended December 31, | | | Three Months Ended June 30, | |
| (in thousands) | 2019 | 2018 | |
| (in millions) | | (in millions) | 2020 | 2019 |
| Operating activities | Operating activities | $ | (387,218) | | $ | (338,493) | | Operating activities | $ | (100.3) | | $ | (169.9) | |
| Investing activities | Investing activities | 119,616 | | 138,299 | | Investing activities | 44.2 | | 52.6 | |
| Financing activities | Financing activities | 150,047 | | 142,885 | | Financing activities | 58.7 | | 89.1 | |
| Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | (5,277) | | 5,160 | | Effect of exchange rate changes on cash | 0.2 | | (1.9) | |
| Decrease in cash, cash equivalents, and restricted cash | (122,832) | | (52,149) | | |
| Increase (decrease) in cash, cash equivalents, and restricted cash | | Increase (decrease) in cash, cash equivalents, and restricted cash | 2.8 | | (30.1) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 192,043 | | 264,660 | | Cash and cash equivalents at beginning of period | 170.2 | | 192.0 | |
| Restricted cash at beginning of period | Restricted cash at beginning of period | 5,767 | | 3,373 | | Restricted cash at beginning of period | 2.9 | | 5.8 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 74,978 | | $ | 215,884 | | |
| Cash, cash equivalents, and restricted cash at end of period* | | Cash, cash equivalents, and restricted cash at end of period* | $ | 175.8 | | $ | 167.7 | |
| | * Amounts may not equal column totals due to rounding | | * Amounts may not equal column totals due to rounding | |
Net cash used by operating activities increased $48.7decreased $69.6 million in the ninethree months ended December 31, 2019June 30, 2020 compared to the ninethree months ended December 31, 2018.June 30, 2019. The increasedecrease in cash used was primarily due to increaseddecreased inventory purchase requirementspurchases in Africa offset by smaller crop sizesdue to the delayed start of the buying season as well as lower inventory values in South America.America due to foreign exchange.
Net cash provided by investing activities decreased $18.7$8.4 million in the ninethree months ended December 31, 2019June 30, 2020 compared to the ninethree months ended December 31, 2018.June 30, 2019. The decrease in cash provided was primarily due to higher purchases for property, plant, and equipment relatedlower collections on beneficial interests on securitized trade receivables due to expansion oflower tobacco sales, partially offset by lower capital spending in the Other Products and Services segment.
Net cash provided by financing activities increased $7.2decreased $30.4 million in the ninethree months ended December 31, 2019June 30, 2020 compared to the ninethree months ended December 31, 2018. This increaseJune 30, 2019. The decrease is primarily due to lowerthe repayment of the ABL Facility, partially offset by higher net proceeds from short-term borrowings, due to decreaseswhich was driven by the receipt of initial DIP funds in purchasing requirements in South America and lower green inventory prices in Africa, partially offset by lower debt repayments on our senior notes.June 2020.
Fluctuation of the U.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.
Restricted cash as of December 31, 2019June 30, 2020 primarily consists of approximately $0.9 million in compensating balances held with lenders in various jurisdictions where we operate, and approximately $1.4 million held as escrow for bid bonds used in new customer tenders. See "Note 3.6. Cash, Cash Equivalents, and Restricted Cash" for additional information.
Approximately $55.2$103.4 million of our outstanding cash balance at December 31, 2019June 30, 2020 was held in foreign jurisdictions, which includes approximately $0.6$1.0 million held by our legal Canadian cannabis businesses. As a result of our cash needs abroad and legal restrictions with respect to repatriation of the proceeds from operations of our Canadian cannabis subsidiaries, it is our intention to permanently reinvest these funds in foreign jurisdictions regardless of the fact that the cost of repatriation would not have a material financial impact.
Debt Financing
We continue to finance our business with a combination of short-term and long-term seasonal credit lines, an ABL facility,the DIP Facility, long-term debt securities, advances from customers, and cash from operations when available. See a summary of our short-term and long-term debt as of December 31,June 30, 2020 and 2019 and 2018 at "Note 13.12. Debt Arrangements" for additional information. We will
continue to monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities that maintain flexibility and meet cost expectations.
Aggregated peak borrowings by facility occurring during the three months ended December 31, 2019 and 2018 were repaid with cash provided by operating activities.opportunities. Available credit as of December 31, 2019June 30, 2020 was $324.2$313.1 million comprised of $60.0 million under our ABL facility, $258.4$235.0 million of foreign seasonal lines of credit, $75.0 million of DIP financing, and $5.7$2.8 million of availability for letters of credit. Borrowing underUpon the ABL facility is permitted onlyEffective Date of the Plan, subject to satisfaction or waiver of certain conditions, we anticipate that we or our successor upon emergence from Chapter 11, will have access 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 million.Exit ABL Facility as described above.
No cash dividends were paid to shareholders during the three months ended December 31, 2019.June 30, 2020. The 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 the 9.875% senior secured second lien notes.First Lien Notes.
Zimbabwe Currency Considerations
The Company often holds Zimbabwe RTGS Dollars necessary for operations within Zimbabwe. As of December 31, 2019, the Company held $0 in the Zimbabwe RTGS Dollars. RTGS is a local currency equivalent that, as of December 31, 2019,June 30, 2020, was exchanged at a government specified rate of 16.8:57.36:1 with the U.S. Dollar ("USD"). In
order to convert these unitsZimbabwe RTGS Dollars to U.S. Dollars, we must obtain foreign currency resources from the Reserve Bank of Zimbabwe, subject to the monetary and exchange control policy in Zimbabwe. If the foreign exchange restrictions and government-imposed controls become severe, we may have to reassess our ability to control MTC.our Zimbabwe subsidiary, Mashonaland Tobacco Company ("MTC"). As of December 31, 2019,June 30, 2020, MTC has $90.4$83.4 million of net assets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no significant changes to our market risk exposures since March 31, 2019.2020. For a discussion of our exposure to market risk, refer to 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, 2019.2020.
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. Due to inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance (not absolute) that the objectives of the disclosure controls and procedures are met.
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, 2019.June 30, 2020. 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, 2019.June 30, 2020.
Changes in Internal Control over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our 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, our internal control over financial reporting.
There were no changes that occurred during the three months ended December 31, 2019June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
In addition to the other information set forth in this report and in our other filings with the Securities and Exchange Commission, investors should carefully consider our risk factors, which could materially affect our business, financial condition, or operating results. As of the date of this report, there are no material changes to the risk factors previously disclosed in Part I, Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2019, and in Part II, Item 1A "Risk Factors" in the Company's Quarterly Reports on Form 10-Q for the periods ended June 30, 2019 and September 30, 2019, except for updated information included in the following:2020.
The spread of the coronavirus could adversely affect our results of operations and our liquidity.
We are carefully monitoring the commercial impact from the spread of the coronavirus reported to have recently surfaced in Wuhan, China. To the extent that anticipated shipments are substantially delayed, either as a result of further spread of the virus or as a result of precautionary measures implemented by governments or commercial enterprises to limit the spread of this virus, anticipated sales may not occur within anticipated time frames and we could experience cash shortfalls from operations that could have a significant adverse effect on our results of operations and our ability to maintain adequate liquidity.
Item 6. Exhibits
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| | Order dated August 24, 2020 issued by the United States Bankruptcy Court for the District of Delaware in the case captioned In re Pyxus International, Inc., et al. (Case No. 20-11570 (LLS)), incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K, filed August 24, 2020 (SEC File No. 001-13684). |
| | Amended Joint Prepackaged Chapter 11 Plan of Reorganization filed by the Debtors in the case before the United States Bankruptcy Court for the District of Delaware captioned In re Pyxus International, Inc., et al. (Case No. 20-11570 (LLS)), incorporated by reference to Exhibit 2.2 of the Current Report on Form 8-K, filed August 24, 2020 (SEC File No. 001-13684). |
| | Executive Officer Retention Plan (filed herewith) |
| | Restructuring Support Agreement, dated June 14, 2020, by and among Pyxus International, Inc. and certain of its creditors party thereto incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed June 15, 2020 (SEC File No. 001-13684). |
| | Superpriority Secured Debtor-In-Possession Credit Agreement, dated as of June 17, 2020, by and among Pyxus International, Inc., as borrower, the guarantor parties thereto, the lenders parties thereto, and Cortland Capital Market Services LLC, as administrative agent and collateral agent incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed June 19, 2020 (SEC File No. 001-13684). |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| 101.INS | | XBRL Instance Document (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.*) |
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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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| | Pyxus International,Old Holdco, Inc. |
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Date: February 10,August 24, 2020 /s/ Philip C. Garofolo
Philip C. Garofolo
Vice President - Controller
(Principal Accounting Officer)
