UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED December 31, 2018.2019.
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.
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| 001-13684 | |
| (Commission File Number) |
Pyxus International, Inc.
(Exact name of registrant as specified in its charter)
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| Virginia | | | | 54-1746567 | 001-13684 | 54-1746567 |
________________ | _____________________________ | ____________________ |
| (State or other jurisdiction of incorporation) | (Commission File Number) | | | (I.R.S. Employer Identification No.) |
| | | | |
| 8001 Aerial Center Parkway | | | | |
| Morrisville, | | North Carolina | | 27560 | |
| (Address of principal executive offices) | | | | (Zip Code) |
8001 Aerial Center Parkway
Morrisville, NC 27560-8417
(Address of principal executive offices)
(919) 379-4300
(Registrant’s telephone number, including area code)
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| Title of Each Class | Trading Symbol | Name of Exchange On Which Registered |
| Common Stock (no par value) | PYX | New York Stock Exchange |
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 [X]☒ No [ ]☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]☒ 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. (Check one):
Large Accelerated Filer [] Accelerated Filer [X] Non-Accelerated filer []
Smaller Reporting Company [] Emerging Growth Company []
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 [X]☒
As of January 31, 2019,2020, the registrant had 9,080,9849,177,268 shares outstanding of Common Stock (no par value) excluding 785,313 shares owned by a wholly owned subsidiary.
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-Q/A (this “Amendment”) of Pyxus Intenational, Inc. (the “Company”) amends the Company’s Form 10-Q for the period ended December 31, 2018 filed with the Securities and Exchange Commission on February 11, 2019 (the “Initial Form 10-Q”) to correct an error appearing in the certification filed as Exhibit 32 thereto which referred to the “Form 10-Q for the period ended September 30, 2018” instead of the “Form 10-Q for the period ended December 31, 2018.” Because the Company is refiling this corrected certification as Exhibit 32 to this Amendment, it is required to refile a complete Form 10-Q for the period ended December 31, 2018, including the certifications filed as Exhibits 31.01 and 31.02. Other than the correction to Exhibit 32 described above, updating the dates on the signature page and the certifications filed as Exhibits 31.01, 31.02 and 32, the inclusion on the cover page that this Amendment is Amendment No. 1 on Form 10-Q/A and the inclusion of this Explanatory Note, the information set forth in this Amendment is identical to that included in the Initial Form 10-Q. This Amendment does not otherwise change or update the disclosures set forth in the Initial Form 10-Q as originally filed and does not otherwise reflect events occurring after the original filing of the Initial Form 10-Q.
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| Pyxus International, Inc. and Subsidiaries | | | |
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| Table of Contents | | | |
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| Forward-Looking Statements | | | 3 |
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| Part I. | | | |
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| Item 1. | Financial Statements (Unaudited) | |
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| | Three and Nine Months Ended December 31, 20182019 and 2017 2018 | |
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| | Three and Nine Months Ended December 31, 20182019 and 2017 2018 | |
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| | December 31, 20182019 and 20172018 and March 31, 20182019 | |
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| | Three and Nine Months Ended December 31, 20182019 and 2017 2018 | |
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| | Nine Months Ended December 31, 20182019 and 20172018 | |
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| Item 2. | | |
| | of Financial Condition and Results of Operations | |
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| Item 3. | | |
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| Item 4. | | |
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| Part II. | | | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 6. | | |
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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 changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of 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, changes in costs incurred in supplying products and related services, uncertainties with respect to the impact of regulation associated with new business lines, including the risk of obtaining anticipated regulatory approvals in Canada and for nicotine e-liquids products in the United States, uncertainties regarding the regulation of the production and distribution of 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 retail and product-line expansion, the impact of increasing competition in the new business lines, uncertainties regarding obtaining financing to fund planned 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 our 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, 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 | Pyxus International, Inc. and Subsidiaries | | Pyxus International, Inc. and Subsidiaries | |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | | |
| Three and Nine Months Ended December 31, 2018 and 2017 | | |
| 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 December 31, | | Nine Months Ended December 31, | |
| (in thousands, except per share data) | (in thousands, except per share data) | | 2018 | 2017 | 2018 | 2017 | (in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 |
| Sales and other operating revenues | Sales and other operating revenues | | $ | 524,487 | $ | 477,783 | $ | 1,210,351 | $ | 1,202,115 | Sales and other operating revenues | $ | 363,260 | | $ | 524,487 | | $ | 1,022,911 | | $ | 1,210,351 | |
| Cost of goods and services sold | Cost of goods and services sold | | 449,776 | 404,282 | 1,045,042 | 1,030,648 | Cost of goods and services sold | 308,133 | | 449,776 | | 867,852 | | 1,045,042 | |
| Gross profit | Gross profit | | 74,711 | 73,501 | 165,309 | 171,467 | Gross profit | 55,127 | | 74,711 | | 155,059 | | 165,309 | |
| Selling, general, and administrative expenses | Selling, general, and administrative expenses | | 41,680 | 34,283 | 118,759 | 102,248 | Selling, general, and administrative expenses | 45,911 | | 41,680 | | 142,551 | | 118,759 | |
| Other income, net | | 7,991 | 1,019 | 13,473 | 9,909 | |
| Other (expense) income, net | | Other (expense) income, net | (401) | | 7,991 | | 4,061 | | 13,473 | |
| Restructuring and asset impairment charges | Restructuring and asset impairment charges | | 1,667 | — | 3,390 | — | Restructuring and asset impairment charges | 672 | | 1,667 | | 892 | | 3,390 | |
| Operating income | Operating income | | 39,355 | 40,237 | 56,633 | 79,128 | Operating income | 8,143 | | 39,355 | | 15,677 | | 56,633 | |
| Debt retirement expense (benefit) | | (1,281) | — | (1,754) | (2,975) | |
| Interest expense (includes debt amortization of $2,325 and $2,734 for the three months and $7,020 and $7,921 for the nine months ended December 31, 2018 and 2017, respectively) | | 33,947 | 33,564 | 102,182 | 101,105 | |
| Debt retirement benefit | | 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) | | 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 | |
| Interest income | Interest income | | 962 | 601 | 2,587 | 2,295 | Interest income | 442 | | 962 | | 2,966 | | 2,587 | |
| Income (loss) before income taxes and other items | | 7,651 | 7,274 | (41,208) | (16,707) | |
| Income tax expense (benefit) | | 17,354 | (73,282) | 26,900 | (66,233) | |
| Equity in net income of investee companies | | 4,701 | 7,770 | 6,852 | 7,121 | |
| Net (loss) income | | (5,002) | 88,326 | (61,256) | 56,647 | |
| Net income (loss) attributable to noncontrolling interests | | 93 | (130) | (769) | (289) | |
| Net (loss) income attributable to Pyxus International, Inc. | | $ | (5,095) | $ | 88,456 | $ | (60,487) | $ | 56,936 | |
| (Loss) income before income taxes and other items | | (Loss) income before income taxes and other items | (23,615) | | 7,651 | | (82,703) | | (41,208) | |
| Income tax (benefit) expense | | Income tax (benefit) expense | (914) | | 17,354 | | 25,238 | | 26,900 | |
| Income from unconsolidated affiliates | | Income from unconsolidated affiliates | 255 | | 4,701 | | 6,728 | | 6,852 | |
| Net loss | | Net loss | (22,446) | | (5,002) | | (101,213) | | (61,256) | |
| Net (loss) income attributable to noncontrolling interests | | Net (loss) income attributable to noncontrolling interests | (453) | | 93 | | (905) | | (769) | |
| Net loss attributable to Pyxus International, Inc. | | Net loss attributable to Pyxus International, Inc. | $ | (21,993) | | $ | (5,095) | | $ | (100,308) | | $ | (60,487) | |
| | (Loss) earnings per share: | | | |
| Loss per share: | | Loss per share: | |
| Basic | Basic | | $ | (0.56) | $ | 9.83 | $ | (6.69) | $ | 6.34 | Basic | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | |
| Diluted | Diluted | | $ | (0.56) | $ | 9.80 | $ | (6.69) | $ | 6.32 | Diluted | $ | (2.40) | | $ | (0.56) | | $ | (10.98) | | $ | (6.69) | |
| | Weighted average number of shares outstanding: | Weighted average number of shares outstanding: | | | Weighted average number of shares outstanding: | |
| Basic | Basic | | 9,068 | 9,001 | 9,048 | 8,982 | Basic | 9,166 | | 9,068 | | 9,137 | | 9,048 | |
| Diluted | Diluted | | 9,068 | 9,029 | 9,048 | 9,009 | Diluted | 9,166 | | 9,068 | | 9,137 | | 9,048 | |
| | See "Notes to Condensed Consolidated Financial Statements" | See "Notes to Condensed Consolidated Financial Statements" | | See "Notes to Condensed Consolidated Financial Statements" | |
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| Pyxus International, Inc. and Subsidiaries | | | | |
| Condensed Consolidated Statements of Comprehensive Loss | | | | |
| (Unaudited) | | | | |
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| 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) | |
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| 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) | |
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| See "Notes to Condensed Consolidated Financial Statements" | | | | |
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| Pyxus International, Inc. and Subsidiaries | | | | |
| CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME | | | | |
| Three and Nine Months Ended December 31, 2018 and 2017 | | | | |
| (Unaudited) | | | | |
| | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands) | 2018 | 2017 | 2018 | 2017 |
| Net (loss) income | $ | (5,002) | $ | 88,326 | $ | (61,256) | $ | 56,647 |
| | | | |
| Other comprehensive (loss) income, net of tax: | | | | |
| Currency translation adjustment | (2,310) | 725 | (7,628) | 6,817 |
| Defined benefit pension amounts reclassified to income | 285 | 459 | 853 | 1,376 |
| Change in pension liability for settlements | (1,162) | — | (391) | — |
| Change in the fair value of derivatives designated as cash flow hedges | (3,752) | (64) | (3,752) | (626) |
| Amounts reclassified to income for derivatives | 2,161 | 656 | 1,445 | 727 |
| Total other comprehensive (loss) income, net of tax | (4,778) | 1,776 | (9,473) | 8,294 |
| Total comprehensive (loss) income | (9,780) | 90,102 | (70,729) | 64,941 |
| Comprehensive loss attributable to noncontrolling interests | (430) | (130) | (1,216) | (289) |
| Comprehensive (loss) income attributable to Pyxus International, Inc. | $ | (9,350) | $ | 90,232 | $ | (69,513) | $ | 65,230 |
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| See "Notes to Condensed Consolidated Financial Statements" | | | | |
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Pyxus International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | | | | | | |
| (in thousands) | | | | December 31, 2018 | December 31, 2017 | March 31, 2018 |
| ASSETS | | | | | | |
| Current assets | | | | | | |
| Cash and cash equivalents | | | | $ | 209,160 | $ | 209,490 | $ | 264,660 |
| Restricted cash | | | | 6,335 | 2,210 | 2,984 |
| Trade receivables, net | | | | 268,747 | 222,451 | 285,554 |
| Other receivables | | | | 21,305 | 18,366 | 18,845 |
| Accounts receivable, related parties | | | | 5,077 | 9,832 | 8,188 |
| Inventories | | | | 827,782 | 905,680 | 698,087 |
| Advances to tobacco suppliers | | | | 51,135 | 69,872 | 30,482 |
| Recoverable income taxes | | | | 8,538 | 19,025 | 5,994 |
| Prepaid expenses | | | | 17,325 | 17,730 | 17,181 |
| Other current assets | | | | 16,212 | 16,774 | 17,628 |
| Total current assets | | | | 1,431,616 | 1,491,430 | 1,349,603 |
| Restricted cash | | | | 389 | 539 | 389 |
| Investments in unconsolidated affiliates | | | | 68,351 | 67,069 | 68,151 |
| Goodwill | | | | 34,109 | 16,463 | 27,546 |
| Other intangible assets | | | | 70,074 | 41,837 | 70,724 |
| Deferred income taxes, net | | | | 106,610 | 128,979 | 130,520 |
| Long-term recoverable income taxes | | | | 898 | — | 1,795 |
| Other deferred charges | | | | 2,634 | 3,848 | 3,388 |
| Other noncurrent assets | | | | 44,256 | 54,552 | 60,234 |
| Property, plant, and equipment, net | | | | 264,782 | 249,471 | 254,281 |
| Total assets | | | | $ | 2,023,719 | $ | 2,054,188 | $ | 1,966,631 |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
| Current liabilities | | | | | | |
| Notes payable to banks | | | | $ | 583,407 | $ | 536,170 | $ | 427,277 |
| Accounts payable | | | | 49,373 | 46,678 | 76,506 |
| Accounts payable, related parties | | | | 18,372 | 22,939 | 14,835 |
| Advances from customers | | | | 45,900 | 31,646 | 24,128 |
| Accrued expenses and other current liabilities | | | | 98,233 | 92,446 | 88,380 |
| Income taxes payable | | | | 6,513 | 14,902 | 6,767 |
| Current portion of long-term debt | | | | 165 | 142 | 164 |
| Total current liabilities | | | | 801,963 | 744,923 | 638,057 |
| Long-term taxes payable | | | | 10,718 | 15,110 | 10,027 |
| Long-term debt | | | | 897,195 | 918,820 | 920,143 |
| Deferred income taxes | | | | 12,437 | 15,649 | 28,937 |
| Liability for unrecognized tax benefits | | | | 11,026 | 10,522 | 11,191 |
| Pension, postretirement, and other long-term liabilities | | | | 72,013 | 76,442 | 75,448 |
| Total liabilities | | | | 1,805,352 | 1,781,466 | 1,683,803 |
| Commitments and contingencies | | | | | | |
| Stockholders’ equity | December 31, 2018 | December 31, 2017 | March 31, 2018 | | | |
| Common Stock—no par value: | | | | | | |
| Authorized shares | 250,000 | 250,000 | 250,000 | | | |
| Issued shares | 9,866 | 9,794 | 9,808 | 474,603 | 473,156 | 473,476 |
| Retained deficit | | | | (213,905) | (151,848) | (156,348) |
| Accumulated other comprehensive loss | | | | (57,218) | (51,753) | (45,262) |
| Total stockholders’ equity of Pyxus International, Inc. | | | | 203,480 | 269,555 | 271,866 |
| Noncontrolling interests | | | | 14,887 | 3,167 | 10,962 |
| Total stockholders’ equity | | | | 218,367 | 272,722 | 282,828 |
| Total liabilities and stockholders’ equity | | | | $ | 2,023,719 | $ | 2,054,188 | $ | 1,966,631 |
| 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" | | | | | | |
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| Pyxus International, Inc. and Subsidiaries | | | | | | | |
| CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY | | | | | | | |
| Nine Months Ended December 31, 2018 | | | | | | | |
| (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 | — | (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 | — | (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 | — | (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 |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pyxus International, Inc. and Subsidiaries | | | | | | | |
| CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY | | | | | | | |
| Nine Months Ended December 31, 2017 | | | | | | | |
| (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, 2017 | $ | 472,349 | $ | (208,784) | $ | (22,293) | $ | (36,654) | $ | (1,100) | $ | 3,192 | $ | 206,710 |
| Net loss | — | (32,543) | — | — | — | (90) | (32,633) |
| Stock-based compensation | 291 | — | — | — | — | — | 291 |
| Other comprehensive income (loss), net of tax | — | — | 3,742 | 459 | (562) | — | 3,639 |
| Balance, June 30, 2017 | 472,640 | (241,327) | (18,551) | (36,195) | (1,662) | 3,102 | 178,007 |
| Net income (loss) | — | 1,024 | — | — | — | (68) | 956 |
| Restricted stock surrender | (2) | — | — | — | — | — | (2) |
| Stock-based compensation | 253 | — | — | — | — | — | 253 |
| Other comprehensive income, net of tax | — | — | 2,349 | 459 | 71 | — | 2,879 |
| Balance, September 30, 2017* | 472,892 | (240,304) | (16,202) | (35,736) | (1,591) | 3,033 | 182,092 |
| Net income (loss) | — | 88,456 | — | — | — | (130) | 88,326 |
| Restricted stock surrender | (6) | — | — | — | — | — | (6) |
| Stock-based compensation | 270 | — | — | — | — | — | 270 |
| Purchase of additional investment in subsidiary | — | — | — | — | — | 264 | 264 |
| Other comprehensive income, net of tax | — | — | 726 | 458 | 592 | — | 1,776 |
| Balance, December 31, 2017 | $ | 473,156 | $ | (151,848) | $ | (15,476) | $ | (35,278) | $ | (999) | $ | 3,167 | $ | 272,722 |
| | | | | | | |
| *Amounts may not equal column totals due to rounding | | | | | | | |
| | | | | | | |
| See "Notes to Condensed Consolidated Financial Statements" | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 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" | | | | | | | |
| Pyxus International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended December 31, 2018 and 2017 (Unaudited) | | |
Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) | | Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) | |
| | | | Nine Months Ended December 31, | |
| (in thousands) | (in thousands) | December 31, 2018 | December 31, 2017 | (in thousands) | 2019 | 2018 |
| OPERATING ACTIVITIES: | | |
| Net (loss) income | $ | (61,256) | $ | 56,647 | |
| Adjustments to reconcile net income to net cash used by operating activities: | | |
| Operating Activities: | | Operating Activities: | |
| Net loss | | Net loss | $ | (101,213) | | $ | (61,256) | |
| Adjustments to reconcile net loss to net cash used by operating activities: | | Adjustments to reconcile net loss to net cash used by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 26,887 | 24,845 | Depreciation and amortization | 26,003 | | 26,887 | |
| Debt amortization/interest | Debt amortization/interest | 8,739 | 9,514 | Debt amortization/interest | 9,356 | | 8,739 | |
| Debt retirement benefit | Debt retirement benefit | (1,754) | (2,975) | Debt retirement benefit | — | | (1,754) | |
| (Gain) loss on foreign currency transactions | (1,220) | 4,951 | |
| Restructuring and asset impairment charges | 3,390 | — | |
| Gain on foreign currency transactions | | Gain on foreign currency transactions | (3,921) | | (1,220) | |
| Asset impairment charges | | Asset impairment charges | 260 | | 891 | |
| Gain on sale of property, plant, and equipment | Gain on sale of property, plant, and equipment | (2,155) | (89) | Gain on sale of property, plant, and equipment | (168) | | (2,155) | |
| Gain on insurance proceeds received for destroyed buildings | Gain on insurance proceeds received for destroyed buildings | (6,460) | — | Gain on insurance proceeds received for destroyed buildings | — | | (6,460) | |
| Equity in net income of unconsolidated affiliates, net of dividends | (1,486) | (5,025) | |
| Bad debt expenses (recovery) | 2,136 | (122) | |
| Income from unconsolidated affiliates, net of dividends | | Income from unconsolidated affiliates, net of dividends | (128) | | (1,486) | |
| Bad debt expense | | Bad debt expense | — | | 2,136 | |
| Stock-based compensation | Stock-based compensation | 1,155 | 869 | Stock-based compensation | 1,054 | | 1,155 | |
| Changes in operating assets and liabilities, net | Changes in operating assets and liabilities, net | (317,612) | (519,946) | Changes in operating assets and liabilities, net | (323,681) | | (315,113) | |
| Other, net | Other, net | 11,143 | 1,129 | Other, net | 5,220 | | 11,143 | |
| Net cash used by operating activities | Net cash used by operating activities | (338,493) | (430,202) | Net cash used by operating activities | (387,218) | | (338,493) | |
| | INVESTING ACTIVITIES: | | |
| Investing Activities: | | Investing Activities: | |
| Purchases of property, plant, and equipment | Purchases of property, plant, and equipment | (35,327) | (17,395) | Purchases of property, plant, and equipment | (51,479) | | (35,327) | |
| Proceeds from sale of property, plant, and equipment | Proceeds from sale of property, plant, and equipment | 5,179 | 1,832 | Proceeds from sale of property, plant, and equipment | 1,844 | | 5,179 | |
| Collections on beneficial interests on securitized trade receivables | Collections on beneficial interests on securitized trade receivables | 171,565 | 183,610 | Collections on beneficial interests on securitized trade receivables | 174,741 | | 171,565 | |
| Loans to unconsolidated affiliates | | Loans to unconsolidated affiliates | (5,250) | | — | |
| Insurance proceeds received for destroyed buildings | Insurance proceeds received for destroyed buildings | 6,460 | — | Insurance proceeds received for destroyed buildings | — | | 6,460 | |
| Payments to acquire controlling interests, net of cash acquired | Payments to acquire controlling interests, net of cash acquired | (8,692) | — | Payments to acquire controlling interests, net of cash acquired | — | | (8,692) | |
| Payments to acquire equity method investment | — | (10,000) | |
| Other, net | Other, net | (886) | (119) | Other, net | (240) | | (886) | |
| Net cash provided by investing activities | Net cash provided by investing activities | 138,299 | 157,928 | Net cash provided by investing activities | 119,616 | | 138,299 | |
| | FINANCING ACTIVITIES: | | |
| Financing Activities: | | Financing Activities: | |
| Net proceeds from short-term borrowings | Net proceeds from short-term borrowings | 173,548 | 48,159 | Net proceeds from short-term borrowings | 156,784 | | 173,548 | |
| Repayment of long-term borrowings | Repayment of long-term borrowings | (25,132) | (34,961) | Repayment of long-term borrowings | (91) | | (25,132) | |
| Debt issuance cost | Debt issuance cost | (5,072) | (5,010) | Debt issuance cost | (5,245) | | (5,072) | |
| | Purchase of noncontrolling interests in a subsidiary | | Purchase of noncontrolling interests in a subsidiary | (921) | | — | |
| Other, net | Other, net | (459) | (72) | Other, net | (480) | | (459) | |
| Net cash provided by financing activities | Net cash provided by financing activities | 142,885 | 8,116 | Net cash provided by financing activities | 150,047 | | 142,885 | |
| | Effect of exchange rate changes on cash | Effect of exchange rate changes on cash | 5,160 | 978 | Effect of exchange rate changes on cash | (5,277) | | 5,160 | |
| | Decrease in cash, cash equivalents, and restricted cash | Decrease in cash, cash equivalents, and restricted cash | (52,149) | (263,180) | Decrease in cash, cash equivalents, and restricted cash | (122,832) | | (52,149) | |
| Cash and cash equivalents at beginning of period | Cash and cash equivalents at beginning of period | 264,660 | 473,110 | Cash and cash equivalents at beginning of period | 192,043 | | 264,660 | |
| Restricted cash at beginning of period | Restricted cash at beginning of period | 3,373 | 2,309 | Restricted cash at beginning of period | 5,767 | | 3,373 | |
| Cash, cash equivalents, and restricted cash at end of period | Cash, cash equivalents, and restricted cash at end of period | $ | 215,884 | $ | 212,239 | Cash, cash equivalents, and restricted cash at end of period | $ | 74,978 | | $ | 215,884 | |
| | Other information: | Other information: | | Other information: | |
| Cash paid for income taxes | Cash paid for income taxes | $ | 19,650 | $ | 12,719 | Cash paid for income taxes | $ | 13,768 | | $ | 19,650 | |
| Cash paid for interest | Cash paid for interest | 81,622 | 79,083 | Cash paid for interest | 80,191 | | 81,622 | |
| Cash received from interest | Cash received from interest | (2,340) | (1,647) | Cash received from interest | (2,839) | | (2,340) | |
| | | | | | |
| Noncash investing activities: | | Noncash investing activities: | |
| Purchases of property, plant, and equipment included in accounts payable | | Purchases of property, plant, and equipment included in accounts payable | $ | 4,590 | | $ | 1,501 | |
| Sales of property, plant, and equipment included in notes receivable | | 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 | Non-cash amounts obtained as a beneficial interest in exchange for transferring
trade receivables in a securitization transaction | 161,943 | 177,259 | 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" | See "Notes to Condensed Consolidated Financial Statements" | | See "Notes to Condensed Consolidated Financial Statements" | |
Pyxus International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSNotes to Condensed Consolidated Financial Statements
(in thousands)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Significant Accounting Policies
The Company changed its name from Alliance One International, Inc. toaccompanying condensed consolidated financial statements represent the consolidation of Pyxus International, Inc. on September 12, 2018. Due(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 seasonal nature of the Company’s business, the results of operationsinformation and footnotes required by U.S. GAAP for any fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year.annual financial statements. In the opinion of management, allthe normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. All intercompanyIntercompany accounts and transactions have been eliminated.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) forcondensed consolidated interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.2019. 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 assets and related lease liabilities based 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 the consolidated balance sheet.
As applicable borrowing rates are 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 based 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. As a result of this realignment, the reportable segments now include Leaf - North America, Leaf - Other Regions, and Other Products and Services. Prior
Reclassifications
Certain prior period segment financial information hasamounts have been revisedreclassified to conform to the current year presentation.
Taxes Collected from Customers
Certain subsidiaries are subject to value-added taxes on local sales. The amounts included in sales and other operating revenues and costpresentation of goods and services sold were $4,858 and $2,703 for the three months ended December 31, 2018 and 2017, respectively, and $14,692 and $13,801 for the nine months ended December 31, 2018 and 2017, respectively.
Restricted Cash
As of December 31, 2018 and 2017, and March 31, 2018, $1,220, $2,006 and $1,261 of cash was held on deposit as a compensating balance for short-term borrowings, respectively. As of December 31, 2018 and 2017, and March 31, 2018, zero, zero, and $1,487 of cash was restricted for capital investment, respectively. As of December 31, 2018 and 2017, and March 31, 2018, $2,314, zero, and zero of cash was held in escrow from receipt of customer payments.
As of December 31, 2018, the Company held $2,644 in the Zimbabwe Real Time Gross Settlement (“RTGS”) system. RTGS is a local currency equivalent that provides for exchange 1:1 with the U.S. Dollar ("USD"). In order to exchange RTGS units to USD, the Company must obtain foreign currency resources from the Reserve Bank of Zimbabwe subject to the monetary and exchange control policy in Zimbabwe.
Property, Plant, and Equipment
Total property and equipment purchases for the nine months ended December 31, 2018 and 2017 included $1,501 and $279 that were unpaid and included in accounts payable, respectively. Property and equipment sales for the nine months ended December 31, 2018 and 2017 included $1,473 and zero that were uncollected and included in receivables, respectively.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Capitalized Interest
Interest is capitalized on significant construction in progress using the weighted average interest rate during the capitalization period. Interest of $1,578 and zero was capitalized for the three months and nine months ended December 31, 2018 and 2017, respectively. Capitalized interest of $1,197 is included in property, plant, and equipment, netnotes receivable, related parties in the condensed consolidated balance
sheets. Capitalized interest of $381 is included in investments in unconsolidated affiliatessheets, restructuring and asset impairment charges in the condensed consolidated
balance sheets.statement of cash flows, and the components within inventory, see "Note 17. Inventories" for more information.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In May 2014,February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09,2016-02, Revenue RecognitionLeases (Topic 606): Revenue from Contracts with Customers.842) ASU 2014-09 outlines. Under this guidance, a comprehensive new revenue recognitionlessee recognizes assets and liabilities on its balance sheet for most leases, and retains a dual model thatapproach for assessing lease classification and recognizing expense. This guidance requires a company to recognize revenue to depictenhanced disclosures regarding the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts.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 onduring the first quarter beginning April 1, 2018 for all contracts using2019 under the modified retrospective approach.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 did not have a material impact onrequires enhanced disclosures regarding the condensed consolidated financial statements. The adoptionamount, timing, and uncertainty of this guidance resulted in additional disclosures.cash flows arising from lease arrangements. See "Note 2. Revenue Recognition"14. Leases" for more information.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the classification of certain cash receipts and cash payments to reduce the diversity in practice on how these activities are presented on the statement of cash flows. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes as of December 31, 2017 to the condensed consolidated statement cash flows: cash collections from beneficial interests of $183,610 was reclassified from operating activities to investing activities and $177,259 obtained as a beneficial interest for transferring trade receivables in a securitization transaction has been added as a non-cash disclosure.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):Restricted Cash. ASU 2016-18 clarifies the presentation of restricted cash on the statement of cash flows to reduce diversity in practice on how restricted cash is presented on the statement of cash flows. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes: a reclassification of $2,749 and $3,373 from other current and other long-term assets in total to separately stated line items for restricted cash in the condensed consolidated balance sheets as of December 31, 2017 and March 31, 2018, respectively; the change in restricted cash of $440 presented in investing activities in the consolidated statements of cash flows is eliminated as of December 31, 2017; and the inclusion of $2,749 of restricted cash in the calculation of cash, cash equivalents, and restricted cash at the end of the period in the condensed consolidated statements of cash flows as of December 31, 2017.
In MarchJanuary 2017, the FASB issued ASU No. 2017-07,2017-04, Compensation-Retirement BenefitsIntangibles-Goodwill and Other (Topic 715)350): ImprovingSimplifying the PresentationTest for Goodwill Impairment. ASU 2017-04 simplifies the test for goodwill impairment as it eliminates step two of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 was issuedthe goodwill impairment test by no longer requiring an entity to increasecompare the consistency, transparency, and usefulnessimplied fair value of financial informationa reporting unit’s goodwill with the carrying amount of retirement benefits by disaggregatingthat goodwill. Under this new standard, goodwill impairment is measured as the service cost component fromexcess of the other componentsreporting unit's carrying value over fair value, limited to the amount of net benefit cost.goodwill. The Company will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is needed. This guidance has been early adopted this guidanceby the Company as of December 31, 2019 on April 1, 2018 using the retrospective approach.a prospective basis. The adoption of this guidance resulted in a reclassification of $342 and $1,026 from selling, general, and administrative expenses to interest expense in the condensed consolidated statement of operations for the three months and nine months ended December 31, 2017, respectively. See "Note 13. Pension and Other Postretirement Benefits" for more information.
In August 2017, the FASB issued ASU No. 2017-12, Derivative and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 was issued to better align risk and management activities to financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company early adopted this guidance on April 1, 2018 using the modified retrospective approach. The adoption of this guidancenew accounting standard did not have a material impact on the condensed consolidatedCompany's financial statements and related disclosures.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassificationcondition, results of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts (the "Tax Act"). The tax effects unrelated to the Tax Act are released from accumulated other comprehensive income using either the specific identification approachoperations, or the portfolio approach based on the nature of the underlying item. The Company adopted this guidance on December 31, 2018 using modified retrospective approach. The adoption of this guidance resulted in a reclassification of $2,931 of stranded tax effects from accumulated other comprehensive loss to retained deficit due to reduction in federal corporate tax rate. The stranded tax effects are derived from the deferred tax balance on pension obligations as a result of the lower U.S. Federal Corporate tax rate.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The Company adopted this guidance prospectively on September 30, 2018. The adoption of this guidance resulted in the addition of the weighted average of the significant observable inputs used to develop Level 3 fair value measurements in its disclosures. See "Note 17. Fair Value Measurements" for more information.cash flows.
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Subsequently, the FASB has issued ASUs which further clarify this guidance. ASU 2016-02 requires lessees to recognize right-of-use assets and liabilities arising from leases on the balance sheet. In addition, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. This guidance will be adopted using a modified retrospective approach and is effective for the Company on April 1, 2019. The Company has formed a project team to evaluate and implement this guidance. The Company has completed a scoping assessment of leasing arrangements and service agreements. The Company has elected to adopt an accounting policy for all asset classes to include both the lease and non-lease components as a single component and account for it as a lease. The Company has elected to utilize the transition practical expedients, as prescribed in ASC 842-10-65-1(f). The adoption of this guidance is expected to materially increase assets and liabilities on the consolidated balance sheets. The impact on our results of operations and cash flows is not expected to be material. The Company does not expect the adoption of this guidance to have a material impact on its existing debt covenants.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This guidanceBased on the Company's scoping assessment, ASU 2016-13 will primarily impact trade receivables. The adoption of this new accounting standard will be adopteddone 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, 2020. The Company is evaluating the effect that2023, with early adoption of this guidance will have on its consolidated financial statements and related disclosures.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 removes disclosures, clarifies specificupdates disclosure requirements and adds disclosure requirements.for defined benefit plans. This guidance will be adopted using a retrospective approach and is effective for the Company on March 31, 2020.2021. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on April 1, 2020. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
3. Restricted Cash
2. REVENUE RECOGNITIONThe 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. 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 Company does not disclose information related to its unsatisfied performance obligations with an expected duration of one year or less. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company’s performance obligations are satisfied when the transfer of control of the distinct product or service to the customer occurs. For products, control is transferred and revenue is recognized at a point in time, in accordance with the shipping terms of the contract. For services, control is transferred and
2. REVENUE RECOGNITION (continued)
revenue is recognized over time using the input method based on a kilogram of packed tobacco. The Company applied a practical expedient to account for shipping and handling costs as costs to fulfill its performance obligations, irrespective of when control transfers. A kilogram of processed tobacco (or tobacco processing services resulting in a kilogram of processed tobacco) is the material and distinct performance obligation for the Company’s tobacco revenue streams; therefore, consideration is attributed to the performance of this obligation. Revenue is measured as the amount of consideration to which the Company expects to be entitled to receive in exchange for transferring goods or providing services. Contract costs primarily include labor, material, shipping and handling, and overhead expenses. Certain subsidiaries are subject to value-added taxes on local sales. These amounts have been included in sales and other operating revenues and cost of goods and services sold.
The following disaggregates sales and other operating revenues by major source:the Company's significant revenue streams:
| | | Three Months Ended December 31, 2018 | Nine Months Ended December 31, 2018 | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| | | 2019 | 2018 | 2019 | 2018 |
| Leaf - North America: | Leaf - North America: | | Leaf - North America: | |
| Product revenue | Product revenue | $ | 60,280 | $ | 152,725 | Product revenue | $ | 39,148 | | $ | 60,280 | | $ | 114,548 | | $ | 152,725 | |
| Processing and other revenues | Processing and other revenues | 17,570 | 29,039 | Processing and other revenues | 13,868 | | 17,570 | | 24,873 | | 29,039 | |
| Total sales and other operating revenues | Total sales and other operating revenues | 77,850 | 181,764 | Total sales and other operating revenues | 53,016 | | 77,850 | | 139,421 | | 181,764 | |
| | Leaf - Other Regions: | Leaf - Other Regions: | | Leaf - Other Regions: | |
| Product revenue | Product revenue | 432,423 | 977,503 | Product revenue | 293,564 | | 432,423 | | 825,522 | | 977,503 | |
| Processing and other revenues | Processing and other revenues | 9,296 | 40,752 | Processing and other revenues | 12,936 | | 9,296 | | 42,316 | | 40,752 | |
| Total sales and other operating revenues | Total sales and other operating revenues | 441,719 | 1,018,255 | Total sales and other operating revenues | 306,500 | | 441,719 | | 867,838 | | 1,018,255 | |
| | Other Products and Services: | Other Products and Services: | | Other Products and Services: | |
Total sales and other operating revenues1 | 4,918 | 10,332 | |
| Total sales and other operating revenues | | Total sales and other operating revenues | 3,744 | | 4,918 | | 15,652 | | 10,332 | |
| | Total sales and other operating revenues | Total sales and other operating revenues | $ | 524,487 | $ | 1,210,351 | Total sales and other operating revenues | $ | 363,260 | | $ | 524,487 | | $ | 1,022,911 | | $ | 1,210,351 | |
| (1) Other products and services is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue. | | |
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process green tobacco owned and provided by the customers. During processing, ownership remains with the customers and the Company is engaged to perform processing services. Other products and services is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company records product and supply contract intangible assets for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year, and if such costs are material. The Company applied a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. Capitalized costs to obtain a contract as of December 31, 2018 were $4,896 and classified as other intangible assets. See "Note 5. Goodwill and Intangibles” for more information.
Significant Judgments
The Company has identified two main forms of variable consideration in its contracts with customers: warehousing fees for storing customer-controlled tobacco until the customer requests shipment and claims resulting from tobacco that do not meet customer specifications. Warehousing fees are built into the price of tobacco based on the customers' best estimate of the date they will request shipment or separately charged using a per-day storage rate. When the Company enters into a contract with a customer, the price communicated is the amount of consideration the Company expects to receive. Price adjustments for tobacco not meeting customer specifications for shrinkage, improper blend or chemical makeup, etc. are handled through a claims allowance that is assessed quarterly.
2. REVENUE RECOGNITION (continued)
The following summarizes activity in the claims allowance:
| | | | | | | | |
| Three Months Ended December 31, 2018 | Nine Months Ended December 31, 2018 |
| | |
| Balance, beginning of period | $ | 1,360 | $ | 1,100 |
| Additions | 526 | 2,258 |
| Payments | (476) | (1,948) |
| Balance, end of period | $ | 1,410 | $ | 1,410 |
Contract Balances
The Company generally records a receivable when revenue is recognized. 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 applied a practical expedient not to adjust the transaction price for the effects of financing components as the Company expects that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. As a result, where the timing of revenue recognition differs from the timing of payment, the Company determined its contracts do not include a significant financing component.
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the trade receivables, net balance. The Company determines the allowance based on historical experience, and other currently available information. The following summarizes activity in the allowance for doubtful accounts:
| | | Three Months Ended December 31, 2018 | Nine Months Ended December 31, 2018 | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| | | 2019 | 2018 | 2019 | 2018 |
| Balance, beginning of period | Balance, beginning of period | $ | (7,324) | $ | (7,055) | Balance, beginning of period | $ | (7,242) | | $ | (7,324) | | $ | (13,381) | | $ | (7,055) | |
| Additions | Additions | (1,774) | (2,136) | Additions | (5) | | (1,774) | | — | | (2,136) | |
| Writes-offs | (15) | 78 | |
| Write-offs | | Write-offs | — | | (15) | | 6,134 | | 78 | |
| Balance, end of period | Balance, end of period | (9,113) | Balance, end of period | (7,247) | | (9,113) | | (7,247) | | (9,113) | |
| Trade receivables | Trade receivables | 277,860 | Trade receivables | 187,651 | | 277,860 | | 187,651 | | 277,860 | |
| Trade receivables, net | Trade receivables, net | $ | 268,747 | $ | 268,747 | Trade receivables, net | $ | 180,404 | | $ | 268,747 | | $ | 180,404 | | $ | 268,747 | |
3. INCOME TAXES5. Income Taxes
Accounting for Uncertainty in Income Taxes
As of December 31, 2018,2019, the Company’s unrecognized tax benefits totaled $9,153,$16,331, of which $8,912$13,122 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, 2018,2019, accrued interest and penalties totaled $1,176$1,235 and $939,$756, 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, 2018,2019, the Company reached an income tax settlement with the Kenyan Revenue Authority for $1,166. An$1,558 for a previously recorded uncertain tax position had previously been recorded of $2,692, which resulted in a favorable adjustment to tax expense (as the amount was settled for less than it was accrued) which totaled $1,526. Furthermore, the Company recorded additional unrecognized tax benefits of $1,987 for a return position taken in Kenya related to currency exchange losses on its amended Kenyan tax return for years 2013 - 2015.position. In addition, the Company entered into negotiations with the Zimbabwe Revenue Authority during its amnesty programa previous accrual to settle asserted issues. The Company has thus far paid $2,988 and has accrued anotherissues for years 2009 to 2016 in Zimbabwe of $964 in anticipationwas reduced by $952 to account for the exchange rate impact of the settlement. These amounts have not previously beenlocal 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 as an uncertain tax position.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 currently foresee anyexpect 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 thattaken by the Company has taken that resulted in recognizing benefits that are material to its financial statements. The Company believes it is more likely than not that it will prevail in these situations and accordingly has not
3. INCOME TAXES (continued)
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, 2018,2019, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2015; however, the2017. The Company's net operating loss carryoverstax attributes from prior periods remain subject to adjustment. Open tax years in state and foreign jurisdictions generally range from three to six years.
Enactment of Tax Cuts and Jobs Act (“Tax Act”)
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accountingProvision for the Three and Nine Months Ended December 31, 2019
The effective tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment daterate for companies to complete the accounting under ASC Topic 740—Income Taxes. As a result of the Tax Act, and in accordance with SAB 118, the Company recorded provisional tax expense in the three months ended December 31, 2017 related to the deemed repatriation tax, the revaluation of deferred tax assets,2019 and adjustments to liabilities related to the repatriation of foreign earnings.
During the nine months ended December 31, 2018 the Company recorded adjustments to the provisional tax expense initially recorded in the December 31, 2017 financial statements upon adoption of the Tax Act. An adjustment of $1,827 was made, increasing the deemed repatriation tax liability. As a result of this adjustment, deferred taxes related to future remittances of foreign earnings were impacted by an immaterial amount. The changes were a result of additional regulatory guidance that was issued, as well as further analysis of the Tax Act3.9% and the Company’s facts and circumstances. Additionally, the Company will continue to be impacted by the expanded interest limitation and the tax on Global Intangible Low-Taxed Income (“GILTI”), which the Company has elected to treat as a period cost if and when incurred. As of December 31, 2018, the Company has completed the accounting for the income tax effects of the Tax Act.
Provision for the Nine Months Ended December 31, 2018
The effective tax rate used for the nine months ended December 31, 2018 and 2017 was (65.3)% and 396.4%226.8%, respectively. The primary difference in the effective tax rate this year compared to last year is the impact of U.S. tax reform, which resulted in a change in the taxability of operations, principally due to the impact of the new section 163(j) interest addback and GILTI. The impact was accentuated by the net foreign exchange effects. The significant difference in the effective tax rate for the nine months ended December 31, 2019 and 2018 was (30.5)% and (65.3)%, respectively. For the three and nine months ended December 31, 2019 and 2018, the effective rate differed from the U.S. federal statutory rate is primarilyof 21% due to the impact of U.S. tax reform and changes resulting fromnon-deductible interest, net foreign exchange effects.effects and Subpart F income. 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 F income, and variation in expected jurisdictional mix of earnings.
TheFor the nine months ended December 31, 2019, the Company's quarterly provision for income taxes has historically 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. Consistent withFor the periodnine months ended December 31, 2019, the Company recorded the net tax effects of certain discrete events, which resulted in an income tax expense of $2,252. This discrete income tax expense primarily related to the impact of changes in uncertain tax positions and changes in foreign exchange impacts. Comparable tax expense for the six months ended September 30, 2018 the Company recorded its interim income tax provisionwas calculated using the discrete method as of December 31, 2018, as allowed under ASC 740-270, Accounting for Income Taxes - Interim Reporting. The Company utilized the discrete method, rather than the AETR method, due to significant variations in income tax expense, primarily driven by U.S. tax reform, relative to projected annual pre-tax income (loss) that would have resulted in a disproportionate and unreliable effective tax rate under the AETR method.Reporting. Using the discrete method, the Company determined current and deferred income tax expense as if the interim period were an annual period.period, and no discrete events were separately identified.
4. GUARANTEES6. 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, 2018 | December 31, 2017 | March 31, 2018 | | December 31, 2019 | December 31, 2018 | March 31, 2019 |
| Amounts guaranteed (not to exceed) | Amounts guaranteed (not to exceed) | $ | 176,762 | $ | 165,333 | $ | 150,900 | Amounts guaranteed (not to exceed) | $ | 119,342 | | $ | 176,762 | | $ | 143,298 | |
Amounts outstanding under guarantee | Amounts outstanding under guarantee | 79,336 | 96,154 | 126,835 | Amounts outstanding under guarantee | 37,624 | | 79,336 | | 103,846 | |
| Fair value of guarantees | Fair value of guarantees | 2,890 | 2,913 | 5,864 | Fair value of guarantees | 1,112 | | 2,890 | | 3,714 | |
| 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 | |
(1) Of the guarantees outstanding at December 31, 2018,2019, most expire within one year. As of December 31, 2018 and 2017, and March 31, 2018, respectively, the Company had balances of zero, zero, and $14,807 due to local banks on behalf of suppliers included in accounts payable in the condensed consolidated balance sheets.
5. GOODWILL AND INTANGIBLES7. Goodwill and Intangibles
The following summarizes the changes in goodwill and other intangible assets:
| | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | | |
| | Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization | Impact of Foreign Currency Translation | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 9.77 years | $ | 58,530 | $ | 5,450 | $ | (28,021) | $ | — | $ | 35,959 |
| Production and supply contracts | 3.10 years | 14,893 | — | (9,997) | — | 4,896 |
| Internally developed software | 3.66 years | 18,812 | 759 | (18,229) | — | 1,342 |
| Licenses | 19.11 years | 30,339 | 17 | (1,277) | (1,655) | 27,424 |
| Trade names | 7.25 years | — | 500 | (47) | — | 453 |
| Intangibles not subject to amortization: | | | | | | |
| Goodwill | | 27,546 | 7,174 | — | (611) | 34,109 |
| Total | | $ | 150,120 | $ | 13,900 | $ | (57,571) | $ | (2,266) | $ | 104,183 |
(2) Certain of the Company's license intangibles are subject to annual renewal.
| | | March 31, 2018 | | | Twelve Months Ended March 31, 2019 | |
| | | Weighted Average Remaining Useful Life | Beginning Gross Carrying Amount | Additions | Accumulated Amortization | Ending Intangible Assets, Net | | 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: | Intangibles subject to amortization: | | Intangibles subject to amortization: | |
| Customer relationships | Customer relationships | 10.85 years | $ | 58,530 | $ | — | $ | (25,005) | $ | 33,525 | Customer relationships | 9.55 years | $ | 58,530 | | $ | 5,450 | | $ | (29,027) | | $ | — | | $ | 34,953 | |
| Production and supply contracts | Production and supply contracts | 3.82 years | 14,893 | — | (8,774) | 6,119 | Production and supply contracts | 2.93 years | 14,893 | | — | | (10,668) | | — | | 4,225 | |
| Internally developed software | Internally developed software | 2.82 years | 18,581 | 231 | (17,828) | 984 | Internally developed software | 3.79 years | 18,812 | | 1,105 | | (18,391) | | — | | 1,526 | |
Licenses | Licenses | 19.84 years | — | 30,339 | (243) | 30,096 | Licenses | 18.08 years | 30,339 | | 2,991 | | (1,644) | | (1,046) | | 30,640 | |
| Trade names | | Trade names | 7.00 years | — | | 500 | | (63) | | — | | 437 | |
| Intangibles not subject to amortization: | Intangibles not subject to amortization: | | Intangibles not subject to amortization: | |
| Goodwill | | 16,463 | 11,083 | — | 27,546 | |
Goodwill (4) | | Goodwill (4) | | 27,546 | | 7,174 | | — | | (384) | | 34,336 | |
| Total | Total | | $ | 108,467 | $ | 41,653 | $ | (51,850) | $ | 98,270 | Total | | $ | 150,120 | | $ | 17,220 | | $ | (59,793) | | $ | (1,430) | | $ | 106,117 | |
(1) Additions to goodwill, customer relationships, and trade names relate to the acquisition of Humble Juice Co., LLC ("Humble Juice"). Additions to licenses relates to Canada's Island Garden ("Figr East"), Figr Norfolk, 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) Certain of the Company's license intangibles are subject to annual renewal.
(4) Goodwill activity relates to the Other Products and Services segment.
The following summarizes the estimated future intangible asset amortization expense:
| | | | | | | | | | | | | | | | | | | | |
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 | |
| | | | | | | | | | | | | | | | | | | | |
For Fiscal
Years Ended | Customer
Relationships | Production
and Supply
Contracts | Internally
Developed
Software* | Licenses | Trade Names | Total |
| January 1, 2019 through March 31, 2019 | $ | 1,005 | $ | 516 | $ | 139 | $ | 360 | $ | 16 | $ | 2,036 |
| 2020 | 4,022 | 1,741 | 445 | 1,439 | 63 | 7,710 |
| 2021 | 4,022 | 1,397 | 284 | 1,439 | 63 | 7,205 |
| 2022 | 4,022 | 1,242 | 211 | 1,437 | 63 | 6,975 |
| 2023 | 4,022 | — | 179 | 1,434 | 63 | 5,698 |
| Later | 18,866 | — | 84 | 21,315 | 185 | 40,450 |
| $ | 35,959 | $ | 4,896 | $ | 1,342 | $ | 27,424 | $ | 453 | $ | 70,074 |
*(1) Estimated amortization expense for the internally developed software is based on costs accumulated as of December 31, 2018.2019. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
6. VARIABLE INTEREST ENTITIES8. Variable Interest Entities
The Company holds variable interests in multiple entities that primarily procure or process inventory on behalf of the Company and other parties or are securitization entities. These variable interests relate to equity investments, advances, guarantees, made by the Company, and securitized receivables. The Company is not the primary beneficiary of the majority of its variable interests, in variable interest entities, 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’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, Co., LLC, a consolidated entity for which the related intercompany accounts and transactions have been eliminated.
The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
As of December 31, 2018
| | | | | | | | | | | |
| 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 | |
The Company's investment in and 2017, and March 31, 2018, the Company’s investment inadvances to unconsolidated variable interest entities was $62,156, $66,287, and $64,208, respectively, and isare classified as investments in unconsolidated affiliates and accounts receivable, related parties, respectively, in the condensed consolidated balance sheets. The Company’s advancesCompany's maximum exposure to loss in these variable interest entities as of December 31, 2018 and 2017, and March 31, 2018 were $2,817, $9,832, and $5,895, respectively, and classified as accounts receivable, related parties inis represented by the condensed consolidated balance sheets. The Company guaranteed an amount to two variable interest entities not to exceed $73,278, $73,223, and $65,487 as of December 31, 2018 and 2017, and March 31, 2018, respectively. The investments, advances, guarantees, and the deferred purchase price on the sale of securitized receivables as disclosed in "Note 16. Sale of19. Securitized Receivables" in these variable interest entities represent the Company’s maximum exposure to loss..
7. SEGMENT INFORMATION
9. Segment Information
The Company's operations are managed and reported in ten10 operating segments that are organized by product category and geographic area and aggregated into three3 reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. In reviewing operations, the Company concluded that the economic characteristics of Leaf - North America operations were dissimilar from the other Leaf geographic operating segments in Africa, Asia, Europe, and South America, which have been consolidated into one reportable segment "Leaf - Other Regions". The five other operating segments are aggregated into the "Other Products and Services" reportable segment as they do not meet the quantitative thresholds to be individually reportable. 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. In addition, 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. In addition, the Leaf - Other Regions sellsells 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 consistsinvolves the sale of cannabis and e-liquid products. Cannabis was legalized for adult use in Canada on October 17, 2018. The Company's cannabis products produced by certain of the Company's subsidiaries have been sold in the Canadian market, primarily to municipally-owned retailers in the Canadian market.retailers. E-liquids products are sold to consumers via e-commerce platforms and other distribution channels, and retail stores.
The Company evaluates thefollowing summarizes operating performance of its segments based upon information included in management reports. Corporate general expenses are allocated to the segments based upon segment selling, general,results and administrative expenses. Other than those described previously, the accounting policies of each segment are the same and are described in assets by segment:
| | | | | | | | | | | | | | |
| 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 | |
7. SEGMENT INFORMATION (continued)10. Loss Per Share
The following summarizes segment information and includes information for periods other than the three and nine months ended December 31, 2018 and 2017 in lightcomputation of the segment re-alignment:loss per share:
| | | | | | | | | | | |
| Three Months Ended December 31, | | |
| 2018 | 2017 | 2016 |
| Sales and other operating revenues: | | | |
| Leaf - North America | $ | 77,850 | $ | 120,689 | $ | 108,869 |
| Leaf - Other Regions | 441,719 | 357,094 | 345,666 |
| Other Products and Services | 4,918 | — | — |
| Total sales and other operating revenues | $ | 524,487 | $ | 477,783 | $ | 454,535 |
| | | |
| Operating income (loss): | | | |
| Leaf - North America | $ | 2,870 | $ | 7,340 | $ | 5,685 |
| Leaf - Other Regions | 44,133 | 32,897 | 34,390 |
| Other Products and Services | (7,648) | — | — |
| Total operating income | $ | 39,355 | $ | 40,237 | $ | 40,075 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | | | |
| Nine Months Ended December 31, | | |
| 2018 | 2017 | 2016 |
| Sales and other operating revenues: | | | |
| Leaf - North America | $ | 181,764 | $ | 245,307 | $ | 217,629 |
| Leaf - Other Regions | 1,018,255 | 956,808 | 887,431 |
| Other Products and Services | 10,332 | — | — |
| Total sales and other operating revenues | $ | 1,210,351 | $ | 1,202,115 | $ | 1,105,060 |
| | | |
| Operating income (loss): | | | |
| Leaf - North America | $ | 7,888 | $ | 13,463 | $ | 8,366 |
| Leaf - Other Regions | 70,010 | 65,665 | 45,480 |
| Other Products and Services | (21,265) | — | — |
| Total operating income | $ | 56,633 | $ | 79,128 | $ | 53,846 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | | | | | | | |
| Years Ended March 31, | | |
| 2018 | 2017 | |
| Sales and other operating revenues: | | | |
| Leaf - North America | $ | 451,383 | $ | 396,217 | |
| Leaf - Other Regions | 1,394,048 | 1,318,533 | |
| Other Products and Services | 535 | — | |
| Total sales and other operating revenues | $ | 1,845,966 | $ | 1,714,750 | |
| | | |
| Operating income (loss): | | | |
| Leaf - North America | $ | 26,446 | $ | 15,333 | |
| Leaf - Other Regions | 88,742 | 72,009 | |
| Other Products and Services | (3,284) | — | |
| Total operating income | $ | 111,904 | $ | 87,342 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
7. SEGMENT INFORMATION (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2018 | | | | December 31, 2017 | | | |
| Leaf - North America | Leaf - Other Regions | Other Products and Services | Total | Leaf - North America | Leaf - Other Regions | Other Products and Services | Total |
| Total assets | $ | 318,295 | $ | 1,598,879 | $ | 106,545 | $ | 2,023,719 | $ | 495,950 | $ | 1,558,238 | $ | — | $ | 2,054,188 |
| Trade and other receivables, net | 22,724 | 266,104 | 1,224 | 290,052 | 34,042 | 206,775 | — | 240,817 |
| Goodwill | 2,795 | 13,669 | 17,645 | 34,109 | 2,794 | 13,669 | — | 16,463 |
| Equity in net assets of investee companies | — | 55,283 | 12,285 | 67,568 | — | 56,808 | 9,479 | 66,287 |
| Depreciation and amortization | 5,365 | 19,398 | 2,124 | 26,887 | 5,572 | 19,273 | — | 24,845 |
| Capital expenditures* | 3,011 | 13,263 | 18,900 | 35,174 | 4,461 | 12,801 | — | 17,262 |
*Capital expenditures in this table are presented as activity for the nine months ended December 31, 2018 and 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2018 | | | | March 31, 2017 | | | |
| Leaf - North America | Leaf - Other Regions | Other Products and Services | Total | Leaf - North America | Leaf - Other Regions | Other Products and Services | Total |
| Total assets | $ | 366,495 | $ | 1,528,859 | $ | 71,277 | $ | 1,966,631 | $ | 375,782 | $ | 1,596,090 | $ | — | $ | 1,971,872 |
| Trade and other receivables, net | 46,096 | 257,968 | 335 | 304,399 | 40,212 | 213,973 | — | 254,185 |
| Goodwill | 2,795 | 13,669 | 11,082 | 27,546 | 2,794 | 13,669 | — | 16,463 |
| Equity in net assets of investee companies | — | 57,434 | 9,935 | 67,369 | — | 51,832 | (389) | 51,443 |
| Depreciation and amortization | 7,435 | 25,754 | 409 | 33,598 | 7,543 | 26,933 | — | 34,476 |
| Capital expenditures | 4,649 | 17,017 | 1,632 | 23,298 | 3,638 | 9,099 | — | 12,737 |
8. EARNINGS PER SHARE
The weighted average number of common shares outstanding is reported as the weighted average of the total shares of common stock outstanding, net of shares of common stock held by a wholly owned subsidiary. Shares of common stock owned by the subsidiary were 785 as of December 31, 2018 and 2017. This subsidiary waives its right to receive dividends and it does not have the right to vote these shares. | | | | | | | | | | | | | | |
| 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 earningsloss per diluted share because their exercise prices were greater than the average market price of the shares of common stock during the period and their effect would be antidilutive. ThesePotential common shares totaled 427 atare also considered antidilutive in the event of a weighted average exercise pricenet loss. The number of $60.00 per share aspotential shares outstanding that were considered antidilutive and that were excluded from the computation of December 31, 2018 and 2017. Diluted netdiluted loss per share, weighted for the portion of the period they were outstanding were as of December 31, 2018 was the same as basic net loss per share as the effects of potentially dilutive items were antidilutive given the Company’s net loss.
8. EARNINGS PER SHARE (continued)follows:
The following summarizes the computation of earnings per share: | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | | Nine Months Ended December 31, | | | |
| (in thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 | |
| Basic (loss) income per share: | | | | | | | | |
| Net (loss) income attributable to Pyxus International, Inc. | $ | (5,095) | | $ | 88,456 | | $ | (60,487) | | $ | 56,936 | |
| Shares: | | | | | | | | |
| Weighted average number of shares outstanding | 9,068 | | 9,001 | | 9,048 | | 8,982 | |
| Basic (loss) income per share | $ | (0.56) | | $ | 9.83 | | $ | (6.69) | | $ | 6.34 | |
| | | | | | | | |
| Diluted (loss) income per share: | | | | | | | | |
| Net (loss) income attributable to Pyxus International, Inc. | $ | (5,095) | | $ | 88,456 | | $ | (60,487) | | $ | 56,936 | |
| Shares: | | | | | | | | |
| Weighted average number of shares outstanding | 9,068 | | 9,001 | | 9,048 | | 8,982 | |
| Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price | — | * | 28 | | — | * | 27 | |
| Adjusted weighted average number of shares outstanding | 9,068 | | 9,029 | | 9,048 | | 9,009 | |
| Diluted (loss) income per share | $ | (0.56) | | $ | 9.80 | | $ | (6.69) | | $ | 6.32 | |
| *All outstanding restricted shares and shares applicable to stock options and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share. | | | | | | | | |
Net income for the three and nine months ended December 31, 2017 were favorably impacted by a net tax benefit of $73.3 million primarily attributable to the impact of the 2017 U.S. Tax Reform Act.
9. STOCK-BASED COMPENSATION11. 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 | — | | — | | — | | — | |
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands) | 2018 | 2017 | 2018 | 2017 |
| Stock-based compensation expense | $ | 402 | $ | 271 | $ | 1,155 | $ | 869 |
| Stock-based compensation expense payable in cash | — | — | — | 54 |
The following summarizes the Company's stock-based compensation awards:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| (in thousands, except grant date fair value) | (in thousands, except grant date fair value) | 2018 | 2017 | 2018 | 2017 | (in thousands, except grant date fair value) | 2019 | 2018 | 2019 | 2018 |
| Restricted stock | Restricted stock | | Restricted stock | |
| Number granted | Number granted | 13 | 7 | 26 | 22 | Number granted | 11 | | 13 | | 39 | | 26 | |
| Grant date fair value | Grant date fair value | $ | 11.86 | $ | 13.25 | $ | 17.04 | $ | 12.85 | Grant date fair value | $ | 8.94 | | $ | 11.86 | | $ | 12.41 | | $ | 17.04 | |
| Restricted stock units | Restricted stock units | | Restricted stock units | |
| Number granted | Number granted | 5 | — | 66 | 57 | Number granted | — | | 5 | | 2 | | 66 | |
| Grant date fair value | Grant date fair value | $ | 14.32 | $ | — | $ | 15.94 | $ | 11.75 | Grant date fair value | $ | — | | $ | 14.32 | | $ | 18.29 | | $ | 15.94 | |
| Performance-based stock units | Performance-based stock units | | Performance-based stock units | |
| Number granted | Number granted | — | 30 | 29 | Number granted | — | | — | | — | | 30 | |
| Grant date fair value | Grant date fair value | $ | — | $ | — | $ | 16.00 | $ | 11.75 | Grant date fair value | $ | — | | $ | — | | $ | — | | $ | 16.00 | |
Restricted stock units granted during the nine months ended December 31, 20182019 vest ratably over a three-yearthree-year period.
-20-12. Contingencies and Other Information
10. CONTINGENCIES AND OTHER INFORMATION
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 $3,399$3,268 and the total assessment including penalties and interest at December 31, 20182019 is $11,743.$11,598. 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 and the total assessment including penalties and interest at December 31, 2019 is $7,551. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazilian State of Santa Catarina and theBrazil State of Rio Grande do Sul.Sul and the State of Santa Catarina. These jurisdictions permit the sale or transfer of excess credits to third parties. However,parties, however approval must be obtained from the tax authorities. The Company has an agreementagreements with the state governments regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $7,138 as of December 31, 2018, which is net of impairment charges based on management’s expectations about future realization.$11,313. The intrastate trade tax credits will continue to beare monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
In 1969, the Brazilian government created a tax credit program that allowed companies to earn IPI tax credits (“IPI credits”) based on the value of their exports. The government began to phase out this program in 1979, which resulted in numerous lawsuits between taxpayers and the Brazilian government. The Company has a long legal history with respect to credits it earned while the IPI credit program was in effect. In 2001, the Company won a claim related to certain IPI credits it earned between 1983 and 1990. The Brazilian government appealed this decision and numerous rulings and appeals were rendered on behalf of both the government and the Company from 2001 through 2013. Because of this favorable ruling, the Company began to use these earned IPI credits to offset federal taxes in 2004 and 2005, until it received a Judicial Order to suspend the IPI offsetting in 2005. The value of the federal taxes offset in 2004 and 2005 was $24,142 and the Company established a reserve on these credits at the time of offsetting as they were not yet realizable due to the legal uncertainty that existed. Specifically, the Company extinguished other federal tax liabilities using IPI credits and recorded a liability in pension, postretirementPension, Postretirement and other long-term liabilitiesOther 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 estimatedestimates 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 believedbelieves the amount of IPI credits that were used to offset other federal taxes in 2004 and 2005 wereare realizable beyond a reasonable doubt. Accordingly, and at March 31, 2013, the Company recorded the $24,142 IPI credits it realized in the statementsStatements of consolidated operationsConsolidated Operations in other income, net.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.
Certain
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. ShouldHowever, 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 GAAP,generally accepted accounting principles, the Company records all known asset retirement obligations (“ARO”) for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with one1 of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under GAAPgenerally 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.
11. DEBT ARRANGEMENTS
ABL Facility13. Debt Arrangements
The ABL credit agreement restricts the Company from paying any dividends during the term of this facility subject to the satisfaction of specified financial ratios. In addition, thefollowing 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 similar restrictions, subject to certain exceptions and
11. DEBT ARRANGEMENTS (continued)
also 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, 2018,2019, 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.
Senior Secured Second Lien NotesABL 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.
During
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 nine months endedreal 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, 2018,2019:
| | | | | |
| 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 Company purchased $27,260measurement of its existing 9.875% senior secured second lien notes onlease 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 open market. The purchased securities were canceled leaving $635,686 of the Second Lien Notes outstanding at December 31, 2018. Related discounts were $2,293 resulting in net cash repayment of $24,967 and recorded in repayment of long-term borrowingslease liabilities reflected in the condensed consolidated statementsbalance sheet as of cash flows. Associated costs paid were $68December 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 deferred financing costs and amortizationmay 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 original issue discount of $472 were accelerated. March 31, 2019:
| | | | | |
| 2020 | $ | 15,651 | |
| 2021 | 10,554 | |
| 2022 | 8,483 | |
| 2023 | 6,735 | |
| 2024 | 5,356 | |
| Thereafter | 7,324 | |
| Total | $ | 54,103 | |
12. DERIVATIVE FINANCIAL INSTRUMENTS
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, 20182019 and 2017,2018, accumulated other comprehensive loss includes $2,307$241 and $999,$2,307, net of tax of $613$64 and zero,$613, for unrealized losses related to designated cash flow hedges, respectively. The Company recorded losses of $458$729 and $1,445$3,189 in its cost of goods and services sold for the three months and nine months ended December 31, 2018, respectively. For the nine months ended December 31, 2018, $987 was from the discontinuance of a portion of the Company’s cash flow hedges. The Company recorded losses of $656 and $598 in its cost of goods and services sold for the three months and nine months ended December 31, 2017,2019, respectively. The Company recorded a current derivative asset of $1,029 zero, and zero as of December 31, 2018, and 2017, and March 31, 2018, respectively, included onin the condensed consolidated balance sheets.
There were 0 derivatives contracts outstanding as of December 31, 2019.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
16. Pension and Other Postretirement Benefits
The following summarizes the components of net periodic benefit cost:
| | | Pension Benefits | | | Pension Benefits | |
| | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| | 2018 | 2017 | 2018 | 2017 | | 2019 | 2018 | 2019 | 2018 |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
| Service cost | Service cost | $ | 120 | $ | 116 | $ | 359 | $ | 349 | Service cost | $ | 117 | | $ | 120 | | $ | 352 | | $ | 359 | |
| Interest expense: | Interest expense: | | Interest expense: | |
| Interest expense | Interest expense | 1,155 | 1,063 | 3,464 | 3,189 | Interest expense | 1,029 | | 1,155 | | 3,088 | | 3,464 | |
| Expected return on plan assets | Expected return on plan assets | (1,286) | (1,264) | (3,858) | (3,793) | Expected return on plan assets | (1,121) | | (1,286) | | (3,363) | | (3,858) | |
| Amortization of prior service cost | Amortization of prior service cost | 11 | 10 | 32 | 31 | Amortization of prior service cost | 10 | | 11 | | 31 | | 32 | |
Settlement loss | Settlement loss | 91 | — | 609 | — | Settlement loss | 271 | | 91 | | 819 | | 609 | |
| Actuarial loss | Actuarial loss | 422 | 511 | 1,267 | 1,533 | Actuarial loss | 456 | | 422 | | 1,368 | | 1,267 | |
| Net periodic pension cost | Net periodic pension cost | $ | 513 | $ | 436 | $ | 1,873 | $ | 1,309 | 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. | | (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, | |
| 2018 | 2017 | 2018 | 2017 |
| Operating expenses: | | | | |
| Service cost | $ | 4 | $ | 3 | $ | 11 | $ | 10 |
| Interest expense: | | | | |
| Interest expense | 83 | 85 | 248 | 254 |
| Amortization of prior service cost | (177) | (178) | (532) | (533) |
| Actuarial loss | 109 | 115 | 328 | 345 |
| Net periodic pension cost | $ | 19 | $ | 25 | $ | 55 | $ | 76 |
13. PENSION AND OTHER POSTRETIREMENT BENEFITS (continued) | | | | | | | | | | | | | | |
| 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 | |
For the nine months ended December 31, 2018, contributions were made to pension plans and postretirement health and life insurance benefits of approximately $4,629 and $261, respectively. AdditionalThe following summarizes contributions to pension plans and postretirement health and life insurance benefits of approximately $2,101 and $256, respectively, are expected during the remainder of fiscal 2019. During the three months and nine months ended December 31, 2018, the Company's cash payments activity triggered settlement accounting, which resulted in $91 and $609 of settlement loss recorded in interest expense, respectively.
benefits:
14. INVENTORIES | | | | | | | | | | | | | | |
| 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 following summarizes the Company’s costs in inventory:
| | | | | | | | | | | |
| December 31, 2018 | December 31, 2017 | March 31, 2018 |
| Processed | $ | 697,614 | $ | 786,227 | $ | 468,208 |
| Unprocessed | 109,351 | 98,800 | 204,149 |
| Other | 20,817 | 20,653 | 25,730 |
| Total inventory | $ | 827,782 | $ | 905,680 | $ | 698,087 |
15. OTHER COMPREHENSIVE (LOSS) INCOME
The movementschanges in accumulated other comprehensive loss and the related tax effects thateffect are due to current periodpension and other postretirement benefits and derivatives activity and reclassifications to the income statement arecondensed consolidated statements of operations, as shown on the condensed consolidated statements of comprehensive income.loss. The following summarizes the componentspension and other postretirement benefits and derivatives that were reclassified from accumulated other comprehensive loss to earnings:interest expense and cost of goods and services sold within the condensed consolidated statement of operations:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended December 31, | | Nine Months Ended December 31, | | Affected Line Item in the Condensed Consolidated | |
| | 2018 | 2017 | 2018 | 2017 | | 2019 | 2018 | 2019 | 2018 | Statements of Operations | |
| Pension and other postretirement benefits*: | Pension and other postretirement benefits*: | | Pension and other postretirement benefits*: | | |
| Actuarial loss | Actuarial loss | $ | 534 | $ | 626 | $ | 1,601 | $ | 1,878 | Actuarial loss | $ | 560 | | $ | 534 | | $ | 1,680 | | $ | 1,601 | | | |
| Amortization of prior service cost | Amortization of prior service cost | (167) | (502) | Amortization of prior service cost | (165) | | (167) | | (495) | | (502) | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, gross | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 367 | 459 | 1,099 | 1,376 | Amounts reclassified from accumulated other comprehensive loss to net income, gross | 395 | | 367 | | 1,185 | | 1,099 | | | |
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 | (82) | — | (246) | — | Tax effects of amounts reclassified from accumulated other comprehensive loss to net income | (83) | | (82) | | (251) | | (246) | | | |
| Amounts reclassified from accumulated other comprehensive loss to net income, net | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | 285 | $ | 459 | $ | 853 | $ | 1,376 | Amounts reclassified from accumulated other comprehensive loss to net income, net | $ | 312 | | $ | 285 | | $ | 934 | | $ | 853 | | Interest expense | | |
| | | | Three Months Ended December 31, | | Nine Months Ended December 31, | | Affected Line Item in the Condensed Consolidated | |
| | | 2019 | 2018 | 2019 | 2018 | Statements of Operations | |
| Derivatives: | | Derivatives: | | |
| Losses reclassified to cost of goods sold | | Losses reclassified to cost of goods sold | $ | 729 | | $ | 458 | | $ | 3,189 | | $ | 1,445 | | | |
| 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 | | | |
| 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) | | | |
| 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 | | |
|
16. SALE OF RECEIVABLES
19. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under two3 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. During the nine months endedAs of December 31, 2018,2019, the investment limit of this programunder the first facility was decreased from $155,000 trade receivables to $125,000 of trade receivables. Under the second facility,and third facilities, the Company offers receivables for sale to an unaffiliated financial institution,institutions, which are then subject to acceptance by the unaffiliated financial institution.institutions. As of December 31, 2018,2019, 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.
The Company isAs the servicer of boththese facilities, andthe 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 and reduced by $7,953 and $10,858 as of December 31, 2017 and March 31, 2018, respectively.
16. SALE OF RECEIVABLES (continued)2018.
The following summarizes the accounts receivable securitization information:
| | | | | | | | | | | |
| December 31, | | March 31, |
| 2018 | 2017 | 2018 |
| Receivables outstanding in facility | $ | 92,445 | $ | 125,581 | $ | 228,621 |
| Beneficial interest | 24,659 | 26,272 | 48,715 |
| Servicing liability | 26 | 55 | 81 |
| | | |
| Cash proceeds: | | | |
| Cash purchase price | $ | 416,526 | $ | 402,402 | $ | 694,517 |
| Deferred purchase price | 171,565 | 183,610 | 263,670 |
| Service fees | 435 | 359 | 473 |
| Total | $ | 588,526 | $ | 586,371 | $ | 958,660 |
| | | | | | | | | | | |
| 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 | |
17. FAIR VALUE MEASUREMENTS20. Fair Value Measurements
The following summarizes the itemsfinancial assets and liabilities measured at fair value on a recurring basis:
| | | December 31, 2018 | | | December 31, 2017 | | | March 31, 2018 | | | December 31, 2019 | | | December 31, 2018 | | | March 31, 2019 | |
| | Total Assets / | | | Total Assets / | | | Total Assets / | | | | Total | | Total | | Total |
| | Liabilities | | Liabilities | | Liabilities | Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value |
| Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value | | Level 2 | Level 3 | at Fair Value | |
| Assets | | | | | | |
| Financial Assets: | | Financial Assets: | | | | | |
| Derivative financial instruments | Derivative financial instruments | $ | 1,029 | $ | — | $ | 1,029 | | $ | — | $ | — | $ | — | | $ | — | $ | — | $ | — | Derivative financial instruments | $ | — | | $ | — | | $ | — | | | $ | 1,029 | | $ | — | | $ | 1,029 | | | $ | 186 | | $ | — | | $ | 186 | |
| Securitized beneficial interests | Securitized beneficial interests | — | 24,659 | | — | 26,272 | | — | 48,715 | Securitized beneficial interests | — | | 14,385 | | 14,385 | | | — | | 24,659 | | 24,659 | | | — | | 40,332 | | 40,332 | |
| Total assets | Total assets | $ | 1,029 | $ | 24,659 | $ | 25,688 | | $ | — | $ | 26,272 | $ | 26,272 | | $ | — | $ | 48,715 | $ | 48,715 | Total assets | $ | — | | $ | 14,385 | | $ | 14,385 | | | $ | 1,029 | | $ | 24,659 | | $ | 25,688 | | | $ | 186 | | $ | 40,332 | | $ | 40,518 | |
| Liabilities | | | | | | |
| Financial Liabilities: | | Financial Liabilities: | | | | | |
| Long-term debt | Long-term debt | $ | 742,047 | $ | 708 | $ | 742,755 | | $ | 877,647 | $ | — | $ | 877,647 | | $ | 911,264 | $ | 895 | $ | 912,159 | Long-term debt | $ | 558,401 | | $ | 620 | | $ | 559,021 | | | $ | 742,047 | | $ | 708 | | $ | 742,755 | | | $ | 830,082 | | $ | 703 | | $ | 830,785 | |
| Guarantees | Guarantees | — | 2,890 | | — | 2,913 | | — | 5,864 | Guarantees | — | | 1,112 | | 1,112 | | | — | | 2,890 | | 2,890 | | | — | | 3,714 | | 3,714 | |
| Total liabilities | Total liabilities | $ | 742,047 | $ | 3,598 | $ | 745,645 | | $ | 877,647 | $ | 2,913 | $ | 880,560 | | $ | 911,264 | $ | 6,759 | $ | 918,023 | 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 whose inputs are observable.with observable inputs. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
•Derivatives: The fair value of derivatives is based ondetermined 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 based ondetermined 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 of ranging between 15.0% to 70.0%75.8% and the Company’s historical loss rates of 2.4%ranging between 2.2% to 10.0% as of December 31, 2018.2019. The historical loss rate was weighted by the principal balance of the loans.
•Securitized beneficial interests: The fair value of securitized beneficial interests is based ondetermined using the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 6477 to 7380 days and discount rates of 5.0%1.7% to 7.3%4.3% as of December 31, 2018.2019. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
17. FAIR VALUE MEASUREMENTS (continued)
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 | | | |
| | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2017 | | Nine Months Ended December 31, 2017 | | | |
| Securitized Beneficial Interest | Guarantees | Securitized Beneficial Interest | Guarantees | | |
| Beginning balance | $ | 23,668 | $ | 2,770 | $ | 38,206 | $ | 7,126 | | |
| Issuances of sales of receivables/guarantees | 66,496 | 1,128 | 177,259 | 3,193 | | |
| Settlements | (62,407) | (993) | (186,582) | (6,946) | | |
| Losses recognized in earnings | (1,485) | 8 | (2,611) | (460) | | |
| Ending balance | $ | 26,272 | $ | 2,913 | $ | 26,272 | $ | 2,913 | | |
21. Related Party Transactions
The changeCompany engages in unrealized lossestransactions with related parties primarily for securitized beneficial interests asthe procuring and processing of December 31, 2018 and 2017, and March 31, 2018 were $643, $650, and $2,531, respectively.
18. RELATED PARTY TRANSACTIONS
inventory. The following summarizes sales and purchases with related parties:
| | | Three Months Ended December 31, | | Nine Months Ended December 31, | | | Three Months Ended December 31, | | Nine Months Ended December 31, | |
| | 2018 | 2017 | 2018 | 2017 | | 2019 | 2018 | 2019 | 2018 |
| Sales | Sales | $ | 475 | $ | 447 | $ | 14,238 | $ | 23,503 | Sales | $ | 1,535 | | $ | 475 | | $ | 15,312 | | $ | 14,238 | |
| Purchases | Purchases | 46,281 | 35,563 | 98,784 | 73,500 | Purchases | 41,116 | | 46,281 | | 96,252 | | 98,784 | |
During the three months ended December 31, 2018, the Company determined that purchasesThe Company’s accounts receivable, notes receivable, and accounts payable balances with related parties, reported in its related party transactions footnote inas presented on the financial statements for the three and six months ended September 30, 2018, included in its Form 10-Q for the period then ended, were not properly stated, which resulted in an understatement of the related party purchases. This change did not impact the condensed consolidated balance sheets, condensed consolidated statements of operationsrelate to transactions with equity method investments located in Asia, South America, North America, and Europe which grow, purchase, process, and sell tobacco, hemp, or the condensed consolidated statements of cash flows for any period. The revised purchases with related parties for the three and six months ended September 30, 2018 were $21,042 and $52,503, respectively.produce consumable e-liquids.
19. INVESTEE COMPANIES22. Equity Method Investments
The following summarizes the Company's equity method investments as of December 31, 2018:2019:
| | Investee Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference | |
| Entity Name | | Entity Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference |
| Adams International Ltd. | Adams International Ltd. | Thailand | | purchase and process tobacco | | 49 | % | — | Adams International Ltd. | Thailand | | purchase and process tobacco | | 49 | % | — | |
| Alliance One Industries India Private Ltd. | Alliance One Industries India Private Ltd. | India | | purchase and process tobacco | | 49 | % | — | Alliance One Industries India Private Ltd. | India | | purchase and process tobacco | | 49 | % | — | |
| China Brasil Tobacos Exportadora SA | China Brasil Tobacos Exportadora SA | Brazil | | purchase and process tobacco | | 49 | % | 7,475 | China Brasil Tobacos Exportadora SA | Brazil | | purchase and process tobacco | | 49 | % | 5,841 | |
| Criticality LLC | Criticality LLC | U.S. | | extraction of cannabidiol from industrial hemp | | 40 | % | 381 | Criticality LLC | U.S. | | extraction of cannabidiol from industrial hemp | | 40 | % | 881 | |
| Nicotine River, LLC | Nicotine River, LLC | U.S. | | produce consumable e-liquids | | 40 | % | 2,150 | Nicotine River, LLC | U.S. | | produce consumable e-liquids | | 40 | % | 1,902 | |
| Oryantal Tutun Paketleme | Turkey | | process tobacco | | 50 | % | — | |
| Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | | Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | Turkey | | process tobacco | | 50 | % | — | |
| Purilum, LLC | Purilum, LLC | U.S. | | produce flavor formulations and consumable e-liquids | | 50 | % | — | Purilum, LLC | U.S. | | produce flavor formulations and consumable e-liquids | | 50 | % | — | |
| Siam Tobacco Export Company | Siam Tobacco Export Company | Thailand | | purchase and process tobacco | | 49 | % | — | Siam Tobacco Export Company | Thailand | | purchase and process tobacco | | 49 | % | — | |
The following summarizes financial information 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 | |
20. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
23. Restructuring and Asset Impairment Charges
The Company continuesannounced a cost-saving initiative and restructuring plan to focus on efficiencyre-purpose its Argentinian subsidiary for storage and cost improvements. Duringspecial projects during the ninequarter 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, 2018,2019, the Company continued to respond to changesincurred $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 business, with two cost-saving and restructuring initiatives. The first initiative involves the closing of one of its foreign processing facilitiesLeaf - Other Regions segment in order to process tobacco in the affected area under a third-party processing arrangement going forward. The second initiative involvesforward, the consolidation of the Company's U.S. green tobacco processing operations into its Wilson, North Carolina facility, and the repurposingre-purposing of its Farmville, North Carolina facility for storage and special projects. The following summarizes restructuring and impairment charges:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2018 | 2017 | 2018 | 2017 |
| Employee separation charges | $ | 1,122 | $ | — | $ | 2,499 | $ | — |
| Asset impairment and other non-cash charges | 545 | — | 891 | — |
| Restructuring and asset impairment charges | $ | 1,667 | $ | — | $ | 3,390 | $ | — |
The following summarizes the liabilityCompany'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, | | | |
| 2018 | | 2017 | | 2018 | | 2017 | |
| 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 | $ | 107 | $ | 889 | $ | — | $ | — | $ | — | $ | 107 | $ | — | $ | — |
| Accruals | 892 | 230 | — | — | 1,139 | 1,360 | — | — |
| Payments | (73) | (328) | — | — | (213) | (676) | — | — |
| Ending balance | $ | 926 | $ | 791 | $ | — | $ | — | $ | 926 | $ | 791 | $ | — | $ | — |
There was no liability for employee separation charges recorded in the Other Products and Services segment.
20. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 by segment:
| | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Nine Months Ended December 31, | |
| 2018 | 2017 | 2018 | 2017 |
| Leaf - North America | $ | 545 | $ | — | $ | 545 | $ | — |
| Leaf - Other Regions | — | — | 346 | — |
| | | | |
| Total | $ | 545 | $ | — | $ | 891 | $ | — |
There were no asset impairments or other non-cash charges recorded in the Company's Leaf - North America and Leaf - Other Products and Services segment.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 | |
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.
EXECUTIVE OVERVIEW: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 offering higher margin potential than our core tobacco leaf business. To support these 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 changed its name from Alliance One International, Inc.with a significant presence across multiple consumer products categories has enabled us to achieve significant progress in positioning Pyxus International, Inc.to enhance value for our stakeholders. We are committed to driving improved results and we remain focused on September 12, 2018. The following executive overviewstrengthening 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 period ended December 31, 2018 is intendedOther Products and Services segment, for which plans to provide highlights ofdate have not progressed as initially anticipated but are continuing to develop, and to address the discussion and analysis that follows.Company's maturing long-term debt.
Financial ResultsWe 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.
| | | | | | | | | | | | | | |
| 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 | | | | |
Sales and other operating revenues increasingdecreased $161.2 million or 30.7% to $524.5$363.3 million a 9.8% increase from the same period last year. Gross profit as a percent of sales decreased from 15.4% for the three months ended December 31, 2017 to 14.2%2019 from $524.5 million for the three months ended December 31, 2018. This decrease was primarily due to unfavorable changesa 27.5% decrease in product mixvolume and a 6.9% decrease in North Americaaverage sales prices. The decrease in volume was attributable to flue-cured oversupply conditions, the timing of shipments in the Leaf - Other Regions segment in Africa and South America, higher conversion costs in North America attributable toAsia, 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 by the Leaf - Other Regions segment product mix having a lower concentration of lamina in South America.
Cost of goods and services sold decreased $141.7 million or 31.5% to $308.1 million for the three months ended December 31, 2019 from $449.8 million for the three months ended December 31, 2018. This decrease was mainly due to a decrease in the Leaf - North America 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.
Gross profit as a percent of sales increased to 15.2% for the three months ended December 31, 2019 from 14.2% for three 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 leaf raw materials prices in Africa and South America. This increase was partially offset by higher Leaf - North America and Leaf - Other Region conversion costs in South America attributabledue to crop size normalization. Total selling,lower volumes.
Selling, general, and administrative expense ("SG&A") increased $7.4$4.2 million or 21.6% from $34.310.1% to $45.9 million for the three months ended December 31, 2017 to2019 from $41.7 million for the three months ended December 31, 2018. SG&A as a percent of sales increased from 7.2%to 12.6% for the three months ended December 31, 2017 to2019 from 8.0% for the three months ended December 31, 2018. These increases were primarily related to branding, marketing, and advertising expenses to support growth 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.
Income tax expense decreased $18.3 million or 105.2% to a $0.9 million benefit for the three months ended December 31, 2019 from a $17.4 million expense for the three months ended December 31, 2018. This decrease was primarily due to a change in the effective tax rate to 3.9% for three months ended December 31, 2019 from 226.8% for the three months ended December 31, 2018, and the occurrence of certain discrete items during the three months ended December 31, 2019.
| | | | | | | | | | | | | | |
| Leaf - North America Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| | | Change | |
| (in millions, except per kilo amounts) | 2019 | 2018 | $ | % |
| Kilos sold | 7.3 | | 11.1 | | (3.8) | | (34.2) | |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 39.1 | | $ | 60.3 | | $ | (21.2) | | (35.2) | |
| Average price per kilo | 5.36 | | 5.43 | | (0.07) | | (1.3) | |
| Processing and other revenues | 13.9 | | 17.6 | | (3.7) | | (21.0) | |
| Total sales and other operating revenues | 53.0 | | 77.9 | | (24.9) | | (32.0) | |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 30.9 | | 49.0 | | (18.1) | | (36.9) | |
| Transportation, storage, and other period costs | 5.1 | | 3.2 | | 1.9 | | 59.4 | |
| Derivative financial instrument and exchange losses (gains) | 0.1 | | (0.1) | | 0.2 | | 200.0 | |
| Total tobacco cost of goods sold | 36.1 | | 52.1 | | (16.0) | | (30.7) | |
| Average cost per kilo | 4.95 | | 4.69 | | 0.26 | | 5.5 | |
| Processing and other revenues cost of services sold | 10.9 | | 17.1 | | (6.2) | | (36.3) | |
| Total cost of goods and services sold | 47.0 | | 69.2 | | (22.2) | | (32.1) | |
| Gross profit | 6.0 | | 8.7 | | (2.7) | | (31.0) | |
| Selling, general, and administrative expenses | 2.8 | | 4.3 | | (1.5) | | (34.9) | |
| Other expense, net | (0.7) | | (0.1) | | (0.6) | | (600.0) | |
| Restructuring and asset impairment charges | (0.1) | | 1.5 | | (1.6) | | (106.7) | |
| Operating income | $ | 2.6 | | $ | 2.8 | | (0.2) | | (7.1) | |
Sales and other operating revenues decreased $24.9 million or 32.0% to $53.0 million for the three months ended December 31, 2019 from $77.9 million for the three months ended December 31, 2018. This decrease was primarily due to 34.2% lower volume and a 1.3% decrease in average sales prices. The decrease in volume was 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 lower concentration of lamina.
Cost of goods and services sold decreased $22.2 million or 32.1% to $47.0 million for the three months ended December 31, 2019 from $69.2 million for the three months ended December 31, 2018. This decrease was mainly due to the inclusiondecrease in sales and other operating revenues.
Gross profit as a percent of new start-up business venturessales increased to 11.3% for the three months ended December 31, 2019 from 11.2% for the three 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 $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 | | | | |
| Three Months Ended December 31, | | | |
| | | Change | |
| (in millions, except per kilo amounts) | 2019 | 2018 | $ | % |
| Kilos sold | 77.6 | | 106.0 | | (28.4) | | (26.8) | |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 293.5 | | $ | 432.4 | | $ | (138.9) | | (32.1) | |
| Average price per kilo | 3.78 | | 4.08 | | (0.30) | | (7.4) | |
| Processing and other revenues | 13.0 | | 9.3 | | 3.7 | | 39.8 | |
| Total sales and other operating revenues | 306.5 | | 441.7 | | (135.2) | | (30.6) | |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 235.6 | | 345.3 | | (109.7) | | (31.8) | |
| Transportation, storage, and other period costs | 12.2 | | 22.2 | | (10.0) | | (45.0) | |
| Derivative financial instrument and exchange (gains) losses | (0.8) | | 2.9 | | (3.7) | | (127.6) | |
| Total tobacco cost of goods sold | 247.0 | | 370.4 | | (123.4) | | (33.3) | |
| Average cost per kilo | 3.18 | | 3.49 | | (0.31) | | (8.9) | |
| Processing and other revenues cost of services sold | 9.8 | | 7.1 | | 2.7 | | 38.0 | |
| Total cost of goods and services sold | 256.8 | | 377.5 | | (120.7) | | (32.0) | |
| Gross profit | 49.7 | | 64.2 | | (14.5) | | (22.6) | |
| Selling, general, and administrative expenses | 25.3 | | 27.8 | | (2.5) | | (9.0) | |
| Other income, net | 1.9 | | 7.9 | | (6.0) | | (75.9) | |
| Restructuring and asset impairment charges | 0.8 | | 0.2 | | 0.6 | | 300.0 | |
| Operating income | $ | 25.5 | | $ | 44.1 | | $ | (18.6) | | (42.2) | |
Sales and other operating revenues decreased $135.2 million or 30.6% to $306.5 million for the three months ended December 31, 2019 from $441.7 million for the three months ended December 31, 2018. This decrease was due to a 26.8% decrease in volume and a 7.4% decrease in average sales prices. The decrease in volume was attributable to flue-cured oversupply conditions and the timing of shipments in Africa and Asia. The decrease in average sales price was driven by product mix having a lower concentration of lamina in South America.
Cost of goods and services sold decreased $120.7 million or 32.0% to $256.8 million for the three months ended December 31, 2019 from $377.5 million for the three 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 16.2% for the three months ended December 31, 2019 from 14.5% for the three months ended December 31, 2018. This increase was attributable to favorable foreign currency exchange rate fluctuations resulting in lower raw materials prices and lower conversion costs in Africa and South America.
SG&A decreased $2.5 million or 9.0% to $25.3 million for the three months ended December 31, 2019 from $27.8 million for the three months ended December 31, 2018. This decrease was related to lower allocations of general corporate services. SG&A as a percent of sales increased to 8.3% for the three months ended December 31, 2019 from 6.3% for the three months ended December 31, 2018. This increase was related to the decrease in sales and other operating revenues.
| | | | | | | | | | | | | | |
| Other Products and Services Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| | | Change | |
| (in millions) | 2019 | 2018 | $ | % |
| Sales and other operating revenues | $ | 3.7 | | $ | 4.9 | | $ | (1.2) | | (24.5) | |
| Cost of goods and services sold | 4.3 | | 3.1 | | 1.2 | | 38.7 | |
| Gross profit | (0.6) | | 1.8 | | (2.4) | | (133.3) | |
| Selling, general, and administrative expenses | 17.8 | | 9.6 | | 8.2 | | 85.4 | |
| Other (expense) income, net | (1.6) | | 0.2 | | (1.8) | | (900.0) | |
| | | | |
| Operating loss | $ | (20.0) | | $ | (7.6) | | $ | (12.4) | | (163.2) | |
Sales and other operating revenues decreased $1.2 million or 24.5% to $3.7 million for the three months ended December 31, 2019 from $4.9 million for the three months ended December 31, 2018. This decrease was primarily due to 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. These decreases were partially offset by increased cannabinoid revenue driven by Figr products entering into two additional Canadian provinces: New Brunswick and Ontario in December 2019.
Cost of goods and services sold increased $1.2 million or 38.7% to $4.3 million for the three months ended December 31, 2019 from $3.1 million for the three months ended December 31, 2018. This increase was mainly due to increased cannabinoid depreciation associated with developingthe additional 210,000 square feet of production capacity placed in-service at the Prince Edward Island facility.
Gross profit as a percent of sales decreased to (16.2)% for the three months ended December 31, 2019 from 36.7% for the three months ended December 31, 2018. This decrease was attributable to higher conversion costs from lower sales volume and supporting these new business ventures.increase cannabinoid depreciation associated with the additional 210,000 square feet of production capacity placed in-service at the Prince Edward Island facility.
SG&A increased $8.2 million or 85.4% to $17.8 million for the three months ended December 31, 2019 from $9.6 million for the three months ended December 31, 2018. SG&A as a percent of sales increased to 481.1% for the three months ended December 31, 2019 from 195.9% for the three months ended December 31, 2018. These increases are 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 quarter’s performancedecrease was alsodue 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 growth 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.
| | | | | | | | | | | | | | |
| 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 ofdecreased $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 consolidationadditional 210,000 square feet of our U.S. green tobacco processing operations.cannabinoid production capacity placed in-service in Prince Edward Island.
LiquiditySG&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
Our liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size, and quality. During the three months and nine months ended December 31, 2018, we utilized surplus cash to reduce long-term debt with the purchase and cancellation of $9.4 million and $27.3 million of our 9.875% senior secured second lien notes, respectively, leaving $635.7 million outstanding as of December 31, 2018. As of December 31, 2018, the Company's available credit lines, letters of credit, and cash totaled $527.8 million. We will continue to monitor and adjust funding sources as needed to enhance and drive various business opportunities that maintain flexibility and meet cost expectations.
Outlook
It has been one year since we announced our "One Tomorrow" transformation plan, in which we revealed our pursuit of future growth opportunities and commitment to reshape our brand as the trusted provider of responsibly produced, independently verified, sustainable, and traceable agricultural products and services. Since that time, we have made tremendous progress developing higher margin, fast-growing categories and building upon the strength of our leaf operations, all while maintaining our commitment to delivering the high-quality products and services our customers expect from us.
We remain committed to the aggressive development of our global specialty product lines and strengthening our core competencies to drive improved operational and financial performance. Farmers are at the heart of everything we do and we continue to explore additional value-added products that will allow them to further expand and diversify their income. Driven by our united purpose of transforming people’s lives so that together we can grow a better world, we plan to continue making progress in execution of our ‘One Tomorrow’ strategy and accelerating value creation for all stakeholders.
RESULTS OF OPERATIONS:
| | | | | | | | | | | | | | |
| Condensed Consolidated Statement of Operations and Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| (in millions) | | Change | | |
(percentage change is calculated based on thousands) | 2018 | $ | % | 2017 |
| Sales and other operating revenues | $ | 524.5 | $ | 46.7 | 9.8 | $ | 477.8 |
| Cost of goods and services sold | 449.8 | 45.5 | 11.3 | 404.3 |
| Gross profit | 74.7 | 1.2 | 1.6 | 73.5 |
| Selling, general, and administrative expenses | 41.7 | 7.4 | 21.6 | 34.3 |
| Other income, net | 8.0 | 7.0 | 700.0 | 1.0 |
| Restructuring and asset impairment charges | 1.7 | 1.7 | 100.0 | — |
| Operating income* | 39.4 | (0.8) | (2.0) | 40.2 |
| Debt retirement expense (income) | (1.3) | (1.3) | (100.0) | — |
| Interest expense | 33.9 | 0.3 | 0.9 | 33.6 |
| Interest income | 1.0 | 0.4 | 66.7 | 0.6 |
| Income tax expense (benefit) | 17.4 | 90.7 | 123.7 | (73.3) |
| Equity in net income of investee companies | 4.7 | (3.1) | (39.7) | 7.8 |
| Net income (loss) attributable to noncontrolling interests | 0.1 | 0.2 | 200.0 | (0.1) |
| Net (loss) income attributable to Pyxus International, Inc.* | $ | (5.1) | $ | (93.6) | (105.8) | $ | 88.5 |
| | | | |
| * Amounts may not equal column totals due to rounding | | | | |
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017
Sales and other operating revenues increased $46.7 million or 9.8% from $477.8 million for the three months ended December 31, 2017 to $524.5 million for the three months ended December 31, 2018. This increase was primarily due to a 14.2% increase in volume attributable to larger crop sizes in Africa. This increase was partially offset by delayed tobacco shipments in South America, lower volume in North America attributable to Hurricane Florence reducing the U.S. crop size and foreign tariffs on U.S. tobacco, and a decrease in average sales price of 6.1%.
Cost of goods sold increased $45.5 million or 11.3% from $404.3 million for the three months ended December 31, 2017 to $449.8 million for the three months ended December 31, 2018. This increase was primarily due to the increase in volume.
Gross profit as a percent of sales decreased from 15.4% for the three months ended December 31, 2017 to 14.2% for the three months ended December 31, 2018. This decrease was primarily due to unfavorable changes in product mix in North America and South America, higher conversion costs in North America attributable to Hurricane Florence reducing the U.S. crop size, and higher conversion costs in South America attributable to crop size normalization.
Selling, general, and administrative expense ("SG&A") increased $7.4 million or 21.6% from $34.3 million for the three months ended December 31, 2017 to $41.7 million for the three months ended December 31, 2018. SG&A as a percent of sales increased from 7.2% for the three months ended December 31, 2017 to 8.0% for the three months ended December 31, 2018. These increases were primarily due to the inclusion of new start-up business ventures in the current year and increased costs associated with developing and supporting these new business ventures.
Other income, net increased $7.0 million or 700.0% from $1.0 million for the three months ended December 31, 2017 to $8.0 million for the three months ended December 31, 2018. This increase was primarily due to the receipt of final insurance proceeds from the fiscal 2016 fire in Zimbabwe.
Restructuring and asset impairment charges of $1.7 million for the three months ended December 31, 2018 were primarily related to a cost-saving and restructuring initiative to consolidate the Company’s U.S. green tobacco processing operations in Farmville, North Carolina into the Wilson, North Carolina facility and repurpose the Farmville facility for storage and special projects.
RESULTS OF OPERATIONS(continued)
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Leaf - North America Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | Change | | |
| 2018 | $ | % | 2017 |
| Kilos sold | 11.1 | (5.1) | (31.5) | 16.2 |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 60.3 | $ | (42.6) | (41.4) | $ | 102.9 |
| Average price per kilo | 5.43 | (0.92) | (14.5) | 6.35 |
| Processing and other revenues | 17.6 | (0.2) | (1.1) | 17.8 |
| Total sales and other operating revenues | 77.9 | (42.8) | (35.5) | 120.7 |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 49.0 | (41.9) | (46.1) | 90.9 |
| Transportation, storage, and other period costs | 3.2 | (0.9) | (22.0) | 4.1 |
| Derivative financial instrument and exchange losses (gains) | (0.1) | 0.6 | 85.7 | (0.7) |
| Total tobacco cost of goods sold | 52.1 | (42.2) | (44.8) | 94.3 |
| Average cost per kilo | 4.69 | (1.13) | (19.4) | 5.82 |
| Processing and other revenues cost of services sold | 17.1 | 3.5 | 25.7 | 13.6 |
| Total cost of goods and services sold | 69.2 | (38.7) | (35.9) | 107.9 |
| Gross profit | 8.7 | (4.1) | (32.0) | 12.8 |
| Selling, general, and administrative expenses | 4.3 | (1.1) | (20.4) | 5.4 |
| Other (expense) income, net | (0.1) | (0.1) | (100.0) | — |
| Restructuring and asset impairment charges | 1.5 | 1.5 | 100.0 | — |
| Operating income | $ | 2.8 | $ | (4.6) | (62.2) | $ | 7.4 |
Sales and other operating revenues decreased $42.8 million or 35.5% from $120.7 million for the three months ended December 31, 2017 to $77.9 million for the three months ended December 31, 2018. This decrease was primarily due to lower volume in North America attributable to Hurricane Florence reducing the U.S. crop size and foreign tariffs on U.S. tobacco.
Cost of goods sold decreased $42.2 million or 44.8% from $94.3 million for the three months ended December 31, 2017 to $52.1 million for the three months ended December 31, 2018. This decrease was primarily due to the decrease in volume.
Gross profit as a percent of sales increased from 10.6% for the three months ended December 31, 2017 to 11.2% for the three months ended December 31, 2018. This increase was primarily due to favorable changes in product mix. This increase was partially offset by higher conversion costs in North America attributable to Hurricane Florence reducing the U.S. crop size.
SG&A decreased $1.1 million or 20.4% from $5.4 million for the three months ended December 31, 2017 to $4.3 million for the three months ended December 31, 2018. This decrease was primarily due to lower allocations of general corporate services attributable to a change in the Company's reportable segments. SG&A as a percent of sales increased from 4.5% for the three months ended December 31, 2017 to 5.5% for the three months ended December 31, 2018. This increase was primarily due to the decrease in sales.
Restructuring and asset impairment charges of $1.5 million for the three months ended December 31, 2018 were related to a restructuring initiative to consolidate the Company’s U.S. green tobacco processing operations in Farmville, North Carolina into the Wilson, North Carolina facility and repurpose the Farmville facility for storage and special projects.
RESULTS OF OPERATIONS(continued)
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Leaf - Other Regions Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | Change | | |
| 2018 | $ | % | 2017 |
| Kilos sold | 106.0 | 19.7 | 22.8 | 86.3 |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 432.4 | $ | 76.2 | 21.4 | $ | 356.2 |
| Average price per kilo | 4.08 | (0.05) | (1.2) | 4.13 |
| Processing and other revenues | 9.3 | 8.4 | 933.3 | 0.9 |
| Total sales and other operating revenues | 441.7 | 84.6 | 23.7 | 357.1 |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 345.3 | 70.6 | 25.7 | 274.7 |
| Transportation, storage, and other period costs | 22.2 | 1.4 | 6.7 | 20.8 |
| Derivative financial instrument and exchange losses (gains) | 2.9 | 2.4 | 480.0 | 0.5 |
| Total tobacco cost of goods sold | 370.4 | 74.4 | 25.1 | 296.0 |
| Average cost per kilo | 3.49 | 0.06 | 1.7 | 3.43 |
| Processing and other revenues cost of services sold | 7.1 | 6.7 | 1675.0 | 0.4 |
| Total cost of goods and services sold | 377.5 | 81.1 | 27.4 | 296.4 |
| Gross profit | 64.2 | 3.5 | 5.8 | 60.7 |
| Selling, general, and administrative expenses | 27.8 | (1.1) | (3.8) | 28.9 |
| Other income, net | 7.9 | 6.9 | 690.0 | 1.0 |
| Restructuring and asset impairment charges | 0.2 | 0.2 | 100.0 | — |
| Operating income | $ | 44.1 | $ | 11.3 | 34.5 | $ | 32.8 |
Sales and other operating revenues increased $84.6 million or 23.7% from $357.1 million for the three months ended December 31, 2017 to $441.7 million for the three months ended December 31, 2018. This increase was primarily due to higher volume in Africa attributable to larger crop sizes. This increase was partially offset by delayed tobacco shipments in South America.
Cost of goods sold increased $74.4 million or 25.1% from $296.0 million for the three months ended December 31, 2017 to $370.4 million for the three months ended December 31, 2018. This increase was primarily due to the increase in volume.
Gross profit as a percent of sales decreased from 17.0% for the three months ended December 31, 2017 to 14.5% for the three months ended December 31, 2018. This decrease was primarily due to unfavorable changes in product mix in South America, higher conversion costs in South America attributable to crop size normalization, and the exchange impact on local currency denominated costs, primarily in Europe. This decrease was partially offset by lower conversion costs in Africa attributable to larger crop sizes.
SG&A decreased $1.1 million or 3.8% from $28.9 million for the three months ended December 31, 2017 to $27.8 million for the three months ended December 31, 2018. This decrease was primarily due to lower allocations of general corporate services attributable to a change in the Company's reportable segments. SG&A as a percent of sales decreased from 8.1% for the three months ended December 31, 2017 to 6.3% for the three months ended December 31, 2018. This decrease was primarily due to the increase in sales.
Other income, net increased $6.9 million or 690.0% from $1.0 million for the three months ended December 31, 2017 to $7.9 million for the three months ended December 31, 2018. This increase was primarily due to the receipt of final insurance proceeds from the fiscal 2016 fire in Zimbabwe.
RESULTS OF OPERATIONS(continued)
Three Months Ended December 31, 2018 Compared to Three Months Ended December 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Other Products and Services Supplemental Information | | | | |
| Three Months Ended December 31, | | | |
| (in millions) | | Change | | |
| 2018 | $ | % | 2017 |
| Sales and other operating revenues | $ | 4.9 | $ | 4.9 | 100.0 | $ | — |
| Cost of goods and services sold | 3.1 | 3.1 | 100.0 | — |
| Gross profit | 1.8 | 1.8 | 100.0 | — |
| Selling, general, and administrative expenses | 9.6 | 9.6 | 100.0 | — |
| Other income, net | 0.2 | 0.2 | 100.0 | — |
| Restructuring and asset impairment charges | — | — | — | — |
| Operating loss | $ | (7.6) | $ | (7.6) | (100.0) | $ | — |
Sales and other operating revenues of $4.9 million for the three months ended December 31, 2018 were primarily related to cannabis and e-liquids product revenue. The cannabis revenue was attributable to sales of legal medicinal and recreational cannabis in the Canadian market. The e-liquids product revenue was attributable to sales of e-liquid products in the U.S. market.
Gross profit as a percent of sales was 36.7% for the three months ended December 31, 2018.
SG&A of $9.6 million for the three months ended December 31, 2018 was related to the inclusion of these new start-up business ventures in the current year and increased costs associated with developing and supporting these new business ventures.
RESULTS OF OPERATIONS:
| | | | | | | | | | | | | | |
| Condensed Consolidated Statement of Operations and Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions) | | Change | | |
(percentage change is calculated based on thousands) | 2018 | $ | % | 2017 |
| Sales and other operating revenues | $ | 1,210.4 | $ | 8.3 | 0.7 | $ | 1,202.1 |
| Cost of goods and services sold | 1,045.0 | 14.4 | 1.4 | 1,030.6 |
| Gross profit | 165.4 | (6.1) | (3.6) | 171.5 |
| Selling, general, and administrative expenses | 118.8 | 16.6 | 16.2 | 102.2 |
| Other income, net | 13.5 | 3.6 | 36.4 | 9.9 |
| Restructuring and asset impairment charges | 3.4 | 3.4 | 100.0 | — |
| Operating income* | 56.6 | (22.5) | (28.4) | 79.1 |
| Debt retirement expense (income) | (1.8) | 1.2 | 40.0 | (3.0) |
| Interest expense | 102.2 | 1.1 | 1.1 | 101.1 |
| Interest income | 2.6 | 0.3 | 13.0 | 2.3 |
| Income tax expense (benefit) | 26.9 | 93.1 | 140.6 | (66.2) |
| Equity in net income of investee companies | 6.9 | (0.2) | (2.8) | 7.1 |
| Net income attributable to noncontrolling interests | (0.8) | (0.5) | (166.7) | (0.3) |
| Net (loss) income attributable to Pyxus International, Inc.* | $ | (60.5) | $ | (117.4) | (206.3) | $ | 56.9 |
| | | | |
| * Amounts may not equal column totals due to rounding | | | | |
Nine Months Ended December 31, 2018 Compared to Nine Months Ended December 31, 2017
Sales and other operating revenues increased $8.3 million or 0.7% from $1,202.1 million for the nine months ended December 31, 2017 to $1,210.4 million for the nine months ended December 31, 2018. This increase was primarily due to a 5.0% increase in volume attributable to larger crop sizes in Africa. This increase was partially offset by delayed tobacco shipments in South America, lower volume in North America attributable to Hurricane Florence reducing the U.S. crop size and foreign tariffs on U.S. tobacco, and a decrease in average sales price of 4.7%.
Cost of goods sold increased $14.4 million or 1.4% from $1,030.6 million for the nine months ended December 31, 2017 to $1,045.0 million for the nine months ended December 31, 2018. This increase was primarily due to the increase in volume.
Gross profit as a percent of sales decreased from 14.3% for the nine months ended December 31, 2017 to 13.7% for the nine months ended December 31, 2018. This decrease was primarily due to higher conversion costs in North America attributable to Hurricane Florence reducing the U.S. crop size, unfavorable changes in product mix in South America, and the exchange impact on local currency denominated costs, primarily in Europe.
SG&A increased $16.6 million or 16.2% from $102.2 million for the nine months ended December 31, 2017 to $118.8 million for the nine months ended December 31, 2018. SG&A as a percent of sales increased from 8.5% for the nine months ended December 31, 2017 to 9.8% for the nine months ended December 31, 2018. These increases were primarily due to the inclusion of new start-up business ventures in the current year and increased costs associated with developing and supporting these new business ventures.
Other income, net increased $3.6 million or 36.4% from $9.9 million for the nine months ended December 31, 2017 to $13.5 million for the nine months ended December 31, 2018. This increase was primarily due to the receipt of final insurance proceeds from the fiscal 2016 fire in Zimbabwe.
Restructuring and asset impairment charges of $3.4 million for the nine months ended December 31, 2018 were primarily related to a restructuring initiative to consolidate the Company’s U.S. green tobacco processing operations in Farmville, North Carolina into the Wilson, North Carolina facility and repurpose the Farmville facility for storage and special projects, and the decision to close one of the Company’s foreign processing facilities and process tobacco in the affected area under a third-party processing arrangement going forward.
RESULTS OF OPERATIONS(continued)
Nine Months Ended December 31, 2018 Compared to Nine Months EndedDecember 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Leaf - North America Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | Change | | |
| 2018 | $ | % | 2017 |
| Kilos sold | 29.9 | (6.4) | (17.6) | 36.3 |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 152.7 | $ | (62.7) | (29.1) | $ | 215.4 |
| Average price per kilo | 5.11 | (0.82) | (13.8) | 5.93 |
| Processing and other revenues | 29.1 | (0.8) | (2.7) | 29.9 |
| Total sales and other operating revenues | 181.8 | (63.5) | (25.9) | 245.3 |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 123.4 | (60.9) | (33.0) | 184.3 |
| Transportation, storage, and other period costs | 9.1 | (1.0) | (9.9) | 10.1 |
| Derivative financial instrument and exchange losses (gains) | (0.2) | 0.5 | 71.4 | (0.7) |
| Total tobacco cost of goods sold | 132.3 | (61.4) | (31.7) | 193.7 |
| Average cost per kilo | 4.42 | (0.92) | (17.2) | 5.34 |
| Processing and other revenues cost of services sold | 25.9 | 4.7 | 22.2 | 21.2 |
| Total cost of goods and services sold | 158.2 | (56.7) | (26.4) | 214.9 |
| Gross profit | 23.6 | (6.8) | (22.4) | 30.4 |
| Selling, general, and administrative expenses | 13.5 | (3.6) | (21.1) | 17.1 |
| Other (expense) income, net | (0.5) | (0.6) | (600.0) | 0.1 |
| Restructuring and asset impairment charges | 1.7 | 1.7 | 100.0 | — |
| Operating income | $ | 7.9 | $ | (5.5) | (41.0) | $ | 13.4 |
Sales and other operating revenues decreased $63.5 million or 25.9% from $245.3 million for the nine months ended December 31, 2017 to $181.8 million for the nine months ended December 31, 2018. This decrease was primarily due to lower volume in North America attributable to Hurricane Florence reducing the U.S. crop size and foreign tariffs on U.S. tobacco.
Cost of goods sold decreased $61.4 million or 31.7% from $193.7 million for the nine months ended December 31, 2017 to $132.3 million for the nine months ended December 31, 2018. This decrease was primarily due to the increase in volume.
Gross profit as a percent of sales increased from 12.4% for the nine months ended December 31, 2017 to 13.0% for the nine months ended December 31, 2018. This increase was primarily due to favorable changes in product mix. This increase was partially offset by higher conversion costs in North America attributable to Hurricane Florence reducing the U.S. crop size.
SG&A decreased $3.6 million or 21.1% from $17.1 million for the nine months ended December 31, 2017 to $13.5 million for the nine months ended December 31, 2018. This decrease was primarily due to lower allocations of general corporate services attributable to a change in the Company's reportable segments. SG&A as a percent of sales increased from 7.0% for the nine months ended December 31, 2017 to 7.4% for the nine months ended December 31, 2018. This increase was primarily due to the decrease in sales.
Restructuring and asset impairment charges of $1.7 million for the nine months ended December 31, 2018 were related to a restructuring initiative to consolidate the Company’s U.S. green tobacco processing operations in Farmville, North Carolina into the Wilson, North Carolina facility and repurpose the Farmville facility for storage and special projects
RESULTS OF OPERATIONS(continued)
Nine Months Ended December 31, 2018 Compared to Nine Months EndedDecember 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Leaf - Other Regions Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | Change | | |
| 2018 | $ | % | 2017 |
| Kilos sold | 238.7 | 19.2 | 8.7 | 219.5 |
| Tobacco sales and other operating revenues: | | | | |
| Sales and other operating revenues | $ | 977.5 | $ | 63.4 | 6.9 | $ | 914.1 |
| Average price per kilo | 4.10 | (0.06) | (1.4) | 4.16 |
| Processing and other revenues | 40.8 | (1.9) | (4.4) | 42.7 |
| Total sales and other operating revenues | 1,018.3 | 61.5 | 6.4 | 956.8 |
| Tobacco cost of goods sold: | | | | |
| Tobacco costs | 796.9 | 62.8 | 8.6 | 734.1 |
| Transportation, storage, and other period costs | 51.7 | 1.5 | 3.0 | 50.2 |
| Derivative financial instrument and exchange (gains) losses | (2.3) | (7.6) | (143.4) | 5.3 |
| Total tobacco cost of goods sold | 846.3 | 56.7 | 7.2 | 789.6 |
| Average cost per kilo | 3.55 | (0.05) | (1.4) | 3.60 |
| Processing and other revenues cost of services sold | 32.6 | 6.5 | 24.9 | 26.1 |
| Total cost of goods and services sold | 878.9 | 63.2 | 7.7 | 815.7 |
| Gross profit | 139.4 | (1.7) | (1.2) | 141.1 |
| Selling, general, and administrative expenses | 81.4 | (3.7) | (4.3) | 85.1 |
| Other income (expense) | 13.8 | 4.0 | 40.8 | 9.8 |
| Restructuring and asset impairment charges | 1.7 | 1.7 | 100.0 | — |
| Operating income | $ | 70.1 | $ | 4.3 | 6.5 | $ | 65.8 |
Sales and other operating revenues increased $61.5 million or 6.4% from $956.8 million for the nine months ended December 31, 2017 to $1,018.3 million for the nine months ended December 31, 2018. This increase was primarily due to a 5.0% increase in volume attributable to larger crop sizes in Africa. This increase was partially offset by delayed tobacco shipments in South America.
Cost of goods sold increased $63.2 million or 7.7% from $815.7 million for the nine months ended December 31, 2017 to $878.9 million for the nine months ended December 31, 2018. This increase was primarily due to the increase in volume.
Gross profit as a percent of sales decreased from 14.7% for the nine months ended December 31, 2017 to 13.7% for the nine months ended December 31, 2018. This decrease was primarily due to unfavorable changes in product mix in South America and the exchange impact on local currency denominated costs, primarily in Europe. This decrease was partially offset by lower conversion costs in Africa.
SG&A decreased $3.7 million or 4.3% from $85.1 million for the nine months ended December 31, 2017 to $81.4 million for the nine months ended December 31, 2018. This decrease was primarily due to lower allocations of general corporate services attributable to a change in the Company's reportable segments. SG&A as a percent of sales decreased from 8.9% for the nine months ended December 31, 2017 to 8.0% for the nine months ended December 31, 2018. This decrease was primarily due to the increase in sales.
Other income, net increased $4.0 million or 40.8% from $9.8 million for the nine months ended December 31, 2017 to $13.8 million for the nine months ended December 31, 2018. This increase was primarily due to the receipt of final insurance proceeds from the fiscal 2016 fire in Zimbabwe.
Restructuring and asset impairment charges of $1.7 million for the nine months ended December 31, 2018 were related to the decision to close one of the Company’s foreign processing facilities and process tobacco in the affected area under a third-party processing arrangement going forward.
RESULTS OF OPERATIONS(continued)
Nine Months Ended December 31, 2018 Compared to Nine Months EndedDecember 31, 2017 (continued)
| | | | | | | | | | | | | | |
| Other Products and Services Segment Supplemental Information | | | | |
| Nine Months Ended December 31, | | | |
| (in millions, except per kilo amounts) | | Change | | |
| 2018 | $ | % | 2017 |
| Sales and other operating revenues | $ | 10.3 | $ | 10.3 | 100.0 | $ | — |
| Cost of goods and services sold | 7.9 | 7.9 | 100.0 | — |
| Gross profit | 2.4 | 2.4 | 100.0 | — |
| Selling, general, and administrative expenses | 23.9 | 23.9 | 100.0 | — |
| Other income, net | 0.2 | 0.2 | 100.0 | — |
| Restructuring and asset impairment charges | — | — | — | — |
| Operating loss | $ | (21.3) | $ | (21.3) | (100.0) | $ | — |
Sales and other operating revenues of $10.3 million for the nine months ended December 31, 2018 were primarily related to cannabis and e-liquids product revenue. The cannabis revenue was attributable to sales of legal medicinal and recreational cannabis in the Canadian market. The e-liquids product revenue was attributable to sales of e-liquid products in the U.S. market.
Gross profit as a percent of sales was 23.3% for the nine months ended December 31, 2018.
SG&A of $23.9 million for the nine months ended December 31, 2018 was related to the inclusion of these new start-up business ventures in the current year and increased costs associated with developing and supporting these new business ventures.
LIQUIDITY AND CAPITAL RESOURCES:
Overview
Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on handon-hand and outstanding indebtedness may vary significantly compared to fiscal year-end. 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 in the Other Products and Services segment and to address the Company's maturing long-term debt.
We utilize capital in excess of cash flow from operationsmay periodically seek to finance accounts receivable, inventory, repurchase our indebtedness through open market transactions, privately negotiated transactions, exchanges, or otherwise, to the extent not prohibited by our financing agreements. Such transactions will depend on prevailing market conditions, our liquidity requirements, contractual restrictions,and advances to tobacco suppliers in foreign countries, including Argentina, Brazil, Guatemala, Malawi, Tanzania, Turkey, and Zambia. In addition, from time to time, weother factors. The amounts involved may 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.be material.
As of December 31, 2018,2019, we are in the process of repaying our South American related crop lines as we continue to ship inventory and collect receivables. In Africa, we continue to ship product which should continue into the first quarter of fiscal year 20202021 as well as the purchase of the new crop which should begin mid-March. In Asia, the Indian Mysore and Indonesian crops are approaching the end of the processing and shipping is in full force. Europe continues shipping of the current crop and is preparing to purchase the new crop during the fourth fiscal quarter. North America has completed flue cured processing with shipping winding down and has commenced the purchasing, processing and shipping of the burley crop which should continue into the fourth fiscal quarter, seasonally elevating its working capital requirements. Fluctuation of the U.S. dollar versus many of the currencies in which we have costs may continue to have an impact on our working capital requirements, as such, we will monitor and hedge foreign currency costs prudently, and as needed on a currency by currency basis.
Working Capital
Our working capital decreased from $711.5 million at March 31, 2018 to $629.6 million at December 31, 2018. Our current ratio was 1.8 to 1 at December 31, 2018 and 2.1 to 1 at March 31, 2018. The decrease in working capital was primarily due to the increase in short-term notes payable attributable to the seasonal buildup of South American and African crops. This increase was partially offset by lower seasonal increases in inventory attributable to Hurricane Florence.
The following is a summary of items from the condensed consolidated balance sheets and condensed statements of consolidated cash flows:sheets:
| | | December 31, | | March 31, | | December 31, | | March 31, |
| (in millions except for current ratio) | (in millions except for current ratio) | 2018 | 2017 | 2018 | (in millions except for current ratio) | 2019 | 2018 | 2019 |
| Cash and cash equivalents | Cash and cash equivalents | $ | 209.2 | $ | 209.5 | $ | 264.7 | Cash and cash equivalents | $ | 72.2 | | $ | 209.2 | | $ | 192.0 | |
| Trade and other receivables, net | Trade and other receivables, net | 290.1 | 240.8 | 304.4 | Trade and other receivables, net | 192.7 | | 290.1 | | 311.0 | |
| Inventories and advances to tobacco suppliers | Inventories and advances to tobacco suppliers | 878.9 | 975.6 | 728.6 | Inventories and advances to tobacco suppliers | 933.4 | | 878.9 | | 687.9 | |
| Total current assets | Total current assets | 1,431.6 | 1,491.4 | 1,349.6 | Total current assets | 1,254.0 | | 1,431.6 | | 1,238.5 | |
| Notes payable to banks | Notes payable to banks | 583.4 | 536.2 | 427.3 | Notes payable to banks | 580.3 | | 583.4 | | 429.0 | |
| Accounts payable | Accounts payable | 49.4 | 46.7 | 76.5 | Accounts payable | 61.1 | | 49.4 | | 87.0 | |
| Advances from customers | Advances from customers | 45.9 | 31.6 | 24.1 | Advances from customers | 19.2 | | 45.9 | | 16.4 | |
| Total current liabilities | Total current liabilities | 802.0 | 744.9 | 638.1 | Total current liabilities | 804.9 | | 802.0 | | 646.8 | |
| Current ratio | Current ratio | 1.8 to 1 | 2.0 to 1 | 2.1 to 1 | Current ratio | 1.6 to 1 | | 1.8 to 1 | | 1.9 to 1 | |
| Working capital | Working capital | 629.6 | 746.5 | 711.5 | Working capital | 449.1 | | 629.6 | | 591.7 | |
| Long-term debt | Long-term debt | 897.2 | 918.8 | 920.1 | Long-term debt | 902.5 | | 897.2 | | 898.4 | |
| Stockholders’ equity attributable to Pyxus International, Inc. | Stockholders’ equity attributable to Pyxus International, Inc. | 203.5 | 269.6 | 271.9 | Stockholders’ equity attributable to Pyxus International, Inc. | 85.5 | | 203.5 | | 183.7 |
| Net cash provided (used) by: | | |
| Operating activities | (338.5) | (430.2) | | |
| Investing activities | 138.3 | 157.9 | | |
| Financing activities | 142.9 | 8.1 | | |
Working capital decreased to $449.1 million at December 31, 2019 from $629.6 million at December 31, 2018 primarily due to decreased leaf tobacco sales.
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 seasonal lines of credit at the local level. 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. These short-term seasonal lines of credit are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These short-term 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. 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 the 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:
| | | | | | | | |
| Nine Months Ended December 31, | |
| (in thousands) | 2019 | 2018 |
| Operating activities | $ | (387,218) | | $ | (338,493) | |
| Investing activities | 119,616 | | 138,299 | |
| 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 | |
Net cash used by operating activities increased $48.7 million in the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018. The increase in cash used was primarily due to increased inventory purchase requirements in Africa offset by smaller crop sizes in South America.
Net cash provided by investing activities decreased $18.7 million in the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018. The decrease in cash provided was primarily due to higher purchases for property, plant, and equipment related to expansion of the Other Products and Services segment.
Net cash provided by financing activities increased $7.2 million in the nine months ended December 31, 2019 compared to the nine months ended December 31, 2018. This increase is primarily due to lower net proceeds from short-term borrowings due to decreases in purchasing requirements in South America and lower green inventory prices in Africa, partially offset by lower debt repayments on our senior notes.
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, 2019 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. Restricted Cash" for additional information.
Approximately $81.0$55.2 million of our outstanding cash balance at December 31, 20182019 was held in foreign jurisdictions.jurisdictions, which includes approximately $0.6 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.
LIQUIDITY AND CAPITAL RESOURCES(continued)
Operating Cash Flows
Net cash used by operating activities decreased $91.7 million in the nine months ended December 31, 2018 compared to the 2017 period. The decrease in cash used was primarily due to smaller crop size in North America attributable to Hurricane Florence.
Investing Cash Flows
Net cash provided by investing activities decreased $19.6 million in the nine months ended December 31, 2018 compared to the 2017 period. The decrease in cash provided was primarily due to higher purchases for property, plant, and equipment related to expansion of new business ventures and acquisition of certain majority-owned investments during the current year.
Financing Cash Flows
Net cash provided by financing activities increased $134.8 million in the nine months ended December 31, 2018 compared to the 2017 period. This increase is primarily due to higher net proceeds from short-term borrowings due to the timing of shipments when compared with the prior year and increases in purchasing requirements for the current African and South American crops.
Debt Financing
We continue to finance our business with a combination of short-term and long-term seasonal credit lines, an ABL facility, long-term debt securities,
customer advances
from customers, and cash from operations when available.
AtSee a summary of our short-term and long-term debt as of December 31,
2019 and 2018
we had cash of $209.2 millionat "Note 13. Debt Arrangements"for additional information. We will
continue to monitor and, total debt outstanding of $1,480.8 million comprised of $583.4 million of short-term notes payableas available, adjust funding sources as needed to banks, $270.4 million of 8.5% senior secured first lien notes, $626.3 million of 9.875% senior secured second lien notes,enhance and $0.7 million of other long-term debt. The $156.1 million seasonal increase in notes payable to banks from March 31, 2018 to December 31, 2018 results from the timing of borrowings under the Africandrive various business opportunities that maintain flexibility and Brazilian credit lines. meet cost expectations.
Aggregated peak borrowings by facility occurring at any time during the three months ended December 31, 20182019 and 2017, were $686.0 million at a weighted average interest rate of 6.8% and $621.8 million at a weighted average interest rate of 5.9%, respectively. Aggregated peak borrowings by facility occurring at any time during the three months ended December 31, 2018 and 2017 were repaid with cash provided by operating activities. Available credit as of December 31, 20182019 was $318.6$324.2 million comprised of $60.0 million under our ABL facility, $253.6$258.4 million of notes payable to banks,foreign seasonal lines of credit, and $5.0$5.7 million of availability for letters of credit. Borrowing under the ABL facility is permitted only to the extent that, after consideration of the application of the proceeds of the borrowing, our unrestricted cash and cash equivalents would not exceed $180.0$180 million. At December 31, 2018, our unrestricted cash and cash equivalents was $209.2 million. In fiscal 2019, we expect to incur capital expenditures of approximately $75.0 million. Approximately $26.0 million is expected to be expended for routine replacement of equipment and investments intended to add value to our customers or increase efficiency in our tobacco business. The remainder is expected to be expended for expansion of our production capacity in Canada with anticipated funding by future Canadian structure-finance products.
No cash dividends were paid to shareholders during the three months ended December 31, 2018 and the2019. 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. We believe
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, was exchanged at a government specified rate of 16.8:1 with the U.S. Dollar ("USD"). In order to convert these units 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 sourcesability to control MTC. As of liquidity will be sufficient to fund our anticipated needs for the next twelve months.December 31, 2019, MTC has $90.4 million of net assets.
LIQUIDITY AND CAPITAL RESOURCES(continued)
Debt Financing (continued)
All debt agreements contain certain cross-default or cross-acceleration provisions. The following table summarizes our debt financing as of December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2018 | | | |
| Outstanding | | | | Lines and | | | |
| March 31, | | December 31, | | Letters | | Interest | |
| (in millions) | 2018 | | 2018 | | Available | | Rate | |
| Senior secured credit facility: | | | | | | | | |
| ABL facility (1) | $ | — | | $ | — | | $ | 60.0 | | — | % | |
| Senior notes: | | | | | | | | |
| 8.5% senior secured first lien notes due 2021 | 268.9 | | 270.4 | | — | | 8.5 | % | |
| 9.875% senior secured second lien notes due 2021 | 650.5 | | 626.3 | | — | | 9.9 | % | |
| Other long-term debt | 0.9 | | 0.7 | | — | | 5.7 | % | (2) |
| Notes payable to banks (3) | 427.3 | | 583.4 | | 253.6 | | 6.5 | % | (2) |
| Total debt | $ | 1,347.6 | | $ | 1,480.8 | | $ | 313.6 | | | |
| Short-term | $ | 427.3 | | $ | 613.9 | | | | | |
| Long-term: | | | | | | | | |
| Current portion of long-term debt | $ | 0.2 | | $ | 0.2 | | | | | |
| Long-term debt | 920.1 | | 897.2 | | | | | |
| $ | 920.3 | | $ | 897.4 | | | | | |
| Letters of credit | $ | 4.8 | | $ | 4.4 | | 5.0 | | | |
| Total credit available | | | | | $ | 318.6 | | | |
| | | | | | | | |
| (1) As of December 31, 2018, the full amount of the ABL facility was available. Borrowing is permitted under the ABL facility only to the extent that, after consideration of the application of the proceeds of the borrowing, the Company’s unrestricted cash and cash equivalents would not exceed $180.0 million. At December 31, 2018, the Company’s unrestricted cash and cash equivalents was $209.2 million. | | | | | | | | |
| (2) Weighted average rate for the trailing twelve months ended December 31, 2018. | | | | | | | | |
| (3) Primarily foreign seasonal lines of credit. | | | | | | | | |
Foreign Seasonal Lines of Credit
We have typically financed our non-U.S. tobacco operations with uncommitted unsecured short-term seasonal lines of credit at the local level. These operating lines are seasonal in nature, normally extending for a term of 180 to 270 days, corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. As of December 31, 2018, we had $583.4 million drawn and outstanding on foreign seasonal lines with maximum capacity totaling $846.4 million subject to limitations as provided for in the agreement governing our ABL credit facility. Additionally, against these lines there was $9.4 million available in letter of credit capacity with $4.4 million issued but unfunded.
RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED:
FACTORS THAT MAY AFFECT FUTURE RESULTS:
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 changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, political instability in sourcing locations, currency and interest rate fluctuations, shifts in the global supply and demand position for our tobacco products, and the impact of regulation and litigation on our customers. A further list and description of these risks, uncertainties, and other factors can be found in the “Risk Factors” section of our annual report on Form 10-K for the fiscal year ended March 31, 2018, in Part II, Item 1A of this report and in our other filings with the Securities and Exchange Commission. We do not undertake to update any forward-looking statements that we may make from time to time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
There have been no significant changes to our market risk exposures since March 31, 2019. For a discussion of our exposure to market risk, refer to Part II, Item 1A “Risk Factors” for the three months ended December 31, 2018 and 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, 2018. 2019.
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.
In connection with the preparation of this quarterly report on Form 10-Q, ourOur 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, 2018.2019. 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, 2018.2019.
Changes in Internal Control Overover Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, the Company’sour management, including the Company’sour Chief Executive Officer and Chief Financial Officer, have evaluated the Company’sour internal control over financial reporting to determine whether any changes occurred during the quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
There were no changes that occurred during the three months ended December 31, 20182019 that have materially affected, or are reasonably likely to materially affect, the Company'sour internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceedings
See "Note 10.12. Contingencies and Other Information" for the information required by Regulation S-K Item 103 of the Exchange Act. On November 9, 2018, the Securities and Exchange Commission ("SEC") announced that the Company had agreed to settle charges that it had violated the reporting, books and records, and internal accounting control provisions of the federal securities laws in connection with matters relating to its Kenyan subsidiary, Alliance One Tobacco (Kenya) Ltd., that led to the restatement of the Company’s financial statements"Notes to Condensed Consolidated Financial Statements" for the years ended March 31, 2013, 2014 and 2015 and the three months ended June 30, 2015,additional information with respect to legal proceedings, which restatements were filed with the SEC on May 25, 2016. In connection with the settlement, the SEC issued an order finding that the Company violated reporting, books and records and internal accounting control provisions in connection with the matter and ordered the Company to cease and desist from committing or causing any future violations of these provisions of the federal securities laws. In its order, the SEC noted the remedial acts promptly undertakenis incorporated by the Company and the cooperation afforded by the Company to the SEC’s staff in its investigation of the matter. No fines or penalties were assessed against the Company or its subsidiaries in connection with this matter.reference herein.
In addition to the above-mentioned matters, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Item 1A. Risk Factors
The following setsIn addition to the other information set forth ain this report and in our other filings with the Securities and Exchange Commission, investors should carefully consider our risk factor revised fromfactors, which could materially affect our business, financial condition, or operating results. As of the "Risk Factors" includeddate of this report, there are no material changes to the risk factors previously disclosed in Part I, Item 3 of1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2018:2019, 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:
The spread of the coronavirus could adversely affect our results of operations and our liquidity.
We face increased risksare carefully monitoring the commercial impact from the spread of doing business duethe coronavirus reported to have recently surfaced in Wuhan, China. To the extent of our international operations.
We do business in more than 35 countries, some of which do not have stable economies or governments. Our international operationsthat anticipated shipments are subject to international business risks, including unsettled political conditions, uncertainty in the enforcement of legal obligations, including the collection of accounts receivable, fraud risks, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries. These risks are exacerbated in countries where we have advanced substantial sums or guaranteed local loans or lines of credit for the purchase of tobacco from suppliers. For example, in 2006substantially delayed, either as a result of further spread of the political environment, economic instability, foreign currency controlsvirus 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 governmental regulations in Zimbabwe, we deconsolidatedcould experience cash shortfalls from operations that could have a significant adverse effect on our Zimbabwe subsidiary, Mashonaland Tobacco Company LTD ("MTC"). Subsequently, we determined that the significant doubt aboutresults of operations and our ability to control MTC was eliminated and we have reconsolidated MTC as of March 31, 2016.
Our international operations are in areas where the demand is for the export of lower priced tobacco. We have significant investments in our purchasing, processing and exporting operations in Argentina, Brazil, Malawi, Tanzania and Turkey.
In recent years, economic problems in certain African countries have received wide publicity related to devaluation and appreciation of the local currency and inflation, including the classification of Malawi's economy as highly inflationary and the shortages of U.S. dollars in Zimbabwe for exchange for local currency equivalents. Devaluation and appreciation can affect our purchase costs of tobacco and our processing costs. In addition, we conduct business with suppliers and customers in countries that have relatively recently had or may be subject to dramatic political regime change. In the event of such dramatic changes in the government of such countries, we may be unable to continue to operate our business, or adequately enforce legal obligations, after the change in a manner consistent with prior practice. maintain adequate liquidity.
Item 6. Exhibits
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Item 6. Exhibits. | | |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
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| 101.INS | | XBRL Instance Document (filed herewith)(the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
| | XBRL Taxonomy Extension Schema (filed herewith) |
| | XBRL Taxonomy Extension Calculation Linkbase (filed herewith) |
| | XBRL Taxonomy Extension Definition Linkbase (filed herewith) |
| | XBRL Taxonomy Extension Label Linkbase (filed herewith) |
| | XBRL Taxonomy Extension Presentation Linkbase (filed herewith) |
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| SIGNATURE | | |
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| Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. | | |
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| | Pyxus International, Inc. |
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| | /s/ Philip C. Garofolo |
Date: March 26, 2019 | | Philip C. Garofolo
Vice President - Controller
(Principal Accounting Officer)
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Philip C. Garofolo
Vice President - Controller
(Principal Accounting Officer)
