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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) |
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| (in thousands) | June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 165,441 | | $ | 79,593 | | $ | 198,777 | |
| Restricted cash | 9,495 | | 2,538 | | 2,148 | |
| Trade receivables, net | 155,976 | | 198,241 | | 247,677 | |
| Other receivables | 26,859 | | 33,711 | | 12,511 | |
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| Inventories, net | 980,070 | | 854,042 | | 749,427 | |
| Advances to tobacco suppliers, net | 44,070 | | 36,706 | | 48,932 | |
| Recoverable income taxes | 8,747 | | 10,894 | | 7,906 | |
| Prepaid expenses | 44,513 | | 35,217 | | 34,817 | |
| Other current assets | 16,672 | | 19,713 | | 25,452 | |
| Total current assets | 1,451,843 | | 1,270,655 | | 1,327,647 | |
| Restricted cash | — | | 389 | | 389 | |
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| Investments in unconsolidated affiliates | 87,139 | | 85,651 | | 95,420 | |
| Goodwill | — | | 36,853 | | — | |
| Other intangible assets, net | 42,052 | | 49,935 | | 45,061 | |
| Deferred income taxes, net | 8,871 | | 10,179 | | 6,498 | |
| Long-term recoverable income taxes | 4,571 | | 4,167 | | 4,588 | |
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| Other noncurrent assets | 46,456 | | 42,127 | | 45,424 | |
| Right-of-use assets | 35,636 | | 41,540 | | 35,979 | |
| Property, plant, and equipment, net | 135,878 | | 140,332 | | 137,521 | |
| Total assets | $ | 1,812,446 | | $ | 1,681,828 | | $ | 1,698,527 | |
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| Liabilities and Stockholders’ Equity | | | |
| Current liabilities | | | |
| Notes payable to banks | $ | 545,224 | | $ | 403,792 | | $ | 378,612 | |
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| Accounts payable | 144,915 | | 88,807 | | 179,012 | |
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| Advances from customers | 46,071 | | 29,631 | | 52,998 | |
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| Accrued expenses and other current liabilities | 91,054 | | 91,426 | | 82,239 | |
| Income taxes payable | 6,729 | | 4,110 | | 5,592 | |
| Operating leases payable | 8,535 | | 8,961 | | 8,065 | |
| Current portion of long-term debt | 13,781 | | 2,686 | | 107,856 | |
| Total current liabilities | 856,309 | | 629,413 | | 814,374 | |
| Long-term taxes payable | 5,783 | | 6,703 | | 6,703 | |
| Long-term debt | 678,777 | | 669,793 | | 580,477 | |
| Deferred income taxes | 9,925 | | 14,254 | | 11,670 | |
| Liability for unrecognized tax benefits | 12,173 | | 15,883 | | 14,401 | |
| Long-term leases | 26,473 | | 31,843 | | 28,604 | |
| Pension, postretirement, and other long-term liabilities | 59,748 | | 66,610 | | 60,927 | |
| Total liabilities | 1,649,188 | | 1,434,499 | | 1,517,156 | |
| Commitments and contingencies | | | |
| Stockholders’ equity | | | |
Common Stock—no par value: | | | |
Authorized shares (250,000 for all periods) | | | |
Issued shares (25,000 for all periods) | 390,290 | | 391,089 | | 390,290 | |
| Retained deficit | (233,476) | | (148,202) | | (218,813) | |
| Accumulated other comprehensive income (loss) | 3,248 | | (1,716) | | 3,804 | |
| Total stockholders’ equity of Pyxus International, Inc. | 160,062 | | 241,171 | | 175,281 | |
| Noncontrolling interests | 3,196 | | 6,158 | | 6,090 | |
| Total stockholders’ equity | 163,258 | | 247,329 | | 181,371 | |
| Total liabilities and stockholders’ equity | $ | 1,812,446 | | $ | 1,681,828 | | $ | 1,698,527 | |
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See "Notes to Condensed Consolidated Financial Statements" |
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| Pyxus International, Inc. and Subsidiaries |
| Condensed Statements of Consolidated Stockholders' Equity |
| (Unaudited) |
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| | | Accumulated Other Comprehensive Income (Loss) | | |
| (in thousands) | Common
Stock | Retained
Deficit | Currency Translation Adjustment | Pensions,
Net of Tax | Derivatives, Net of Tax | Noncontrolling
Interests | Total Stockholders' Equity |
| Balance, March 31, 2022 | $ | 390,290 | | $ | (218,813) | | $ | (8,873) | | $ | 6,328 | | $ | 6,349 | | $ | 6,090 | | $ | 181,371 | |
| Net loss attributable to Pyxus International, Inc. | — | | (14,663) | | — | | — | | — | | 158 | | (14,505) | |
| Other | — | | — | | — | | — | | — | | (3,052) | | (3,052) | |
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| Other comprehensive loss, net of tax | — | | — | | 947 | | — | | (1,503) | | — | | (556) | |
| Balance, June 30, 2022 | $ | 390,290 | | $ | (233,476) | | $ | (7,926) | | $ | 6,328 | | $ | 4,846 | | $ | 3,196 | | $ | 163,258 | |
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| Balance, March 31, 2021 | $ | 391,089 | | $ | (136,686) | | $ | (4,649) | | $ | 541 | | $ | (2,625) | | $ | 6,270 | | $ | 253,940 | |
| Net loss attributable to Pyxus International, Inc. | — | | (11,508) | | — | | — | | — | | (120) | | (11,628) | |
| Other | — | | (8) | | — | | — | | — | | 8 | | — | |
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| Other comprehensive income, net of tax | — | | — | | 689 | | — | | 4,328 | | — | | 5,017 | |
| Balance, June 30, 2021 | $ | 391,089 | | $ | (148,202) | | $ | (3,960) | | $ | 541 | | $ | 1,703 | | $ | 6,158 | | $ | 247,329 | |
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See "Notes to Condensed Consolidated Financial Statements"
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Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) |
| (in thousands) | Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Operating Activities: | | |
| Net loss | $ | (14,505) | | $ | (11,628) | |
| Adjustments to reconcile net loss to net cash used by operating activities: | | |
| Depreciation and amortization | 5,929 | | 4,066 | |
| Loss on deconsolidation/disposition of subsidiaries | 599 | | — | |
| Debt amortization/interest | 5,530 | | 6,132 | |
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| Loss on foreign currency transactions | 39 | | 1,325 | |
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| Income from unconsolidated affiliates, net of dividends | 7,773 | | 10,567 | |
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| Changes in operating assets and liabilities, net | | |
| Trade and other receivables | 26,612 | | (59,058) | |
| Inventories and advances to tobacco suppliers | (228,994) | | (118,268) | |
| Deferred items | (8,214) | | (3,643) | |
| Recoverable income taxes | (796) | | (5,971) | |
| Payables and accrued expenses | (25,249) | | (17,950) | |
| Advances from customers | (6,997) | | 17,515 | |
| Prepaid expenses | (6,027) | | (367) | |
| Income taxes | 1,313 | | (4,320) | |
| Other operating assets and liabilities | 3,396 | | 118 | |
| Other, net | (2,899) | | (4,475) | |
| Net cash used by operating activities | (242,490) | | (185,957) | |
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| Investing Activities: | | |
| Purchases of property, plant, and equipment | (2,210) | | (3,815) | |
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| Collections on beneficial interests on securitized trade receivables | 45,468 | | 37,681 | |
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| DIP loan to deconsolidated subsidiary | — | | (5,229) | |
| Proceeds from settlement of debt claims from deconsolidated subsidiaries | 2,011 | | — | |
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| Other, net | 1,766 | | 1,017 | |
| Net cash provided by investing activities | 47,035 | | 29,654 | |
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| Financing Activities: | | |
| Net proceeds and repayments from short-term borrowings | 170,419 | | 29,015 | |
| Proceeds from DDTL facility | — | | 117,600 | |
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| Debt issuance costs | (2,036) | | (6,148) | |
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| Other, net | 372 | | 129 | |
| Net cash provided by financing activities | 168,755 | | 140,596 | |
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| Effect of exchange rate changes on cash | 322 | | 514 | |
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| Decrease in cash, cash equivalents, and restricted cash | (26,378) | | (15,193) | |
| Cash and cash equivalents at beginning of period | 198,777 | | 92,705 | |
| Restricted cash at beginning of period | 2,537 | | 5,008 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 174,936 | | $ | 82,520 | |
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| Other information: | | |
| Cash paid for income taxes, net | $ | 5,027 | | $ | 4,871 | |
| Cash paid for interest, net | 12,704 | | 15,856 | |
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| Noncash investing activities: | | |
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| Noncash amounts obtained as a beneficial interest in exchange for transferring trade receivables in a securitization transaction | 29,033 | | 38,498 | |
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| See "Notes to Condensed Consolidated Financial Statements" | | |
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Pyxus International, Inc. and Subsidiaries |
Notes to Condensed Consolidated Financial Statements |
(in thousands, except per share data) |
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1. Basis of Presentation and Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements represent the consolidation of Pyxus International, Inc. (the "Company", "Pyxus", "we", or "us") and all companies that Pyxus directly or indirectly controls, either through majority ownership or otherwise. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. Intercompany accounts and transactions have been eliminated.
These condensed consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed on June 14, 2022. 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.
Segment Information
During the year ended March 31, 2022, the Company reevaluated its operating and reportable segments under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280 - Segment Reporting. As a result of this reevaluation, effective as of the fourth quarter of the fiscal year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category and are aggregated into one reportable segment for financial reporting purposes: Leaf. Based on our reevaluation, the Company concluded that the economic characteristics of our five Leaf region operations in North America, South America, Europe, Asia, and Africa were similar. Each geographic region derives its revenues mainly from shipping processed tobacco to manufacturers of cigarettes and other consumer tobacco products around the world, with a smaller percentage of revenue in each region being derived from performing third-party tobacco processing services. The three product category operating segments other than Leaf do not individually or in the aggregate meet the quantitative and qualitative thresholds to be individually reportable and have been combined and reported in the "All Other" category for purposes of reconciliation of respective balances for the Leaf segment to the condensed consolidated financial statements. Prior-period segment financial information has been revised to conform to the current-year presentation. See "Note 19. Segment Information" for additional information.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In November 2021, the FASB issued Accounting Standards Update ("ASU") No. 2021-10, Disclosures by Business Entities about Government Assistance. This ASU created ASC Topic 832, Government Assistance, and requires certain information be disclosed regarding assistance received from a government entity when either a grant or contribution accounting model is applied. The new disclosures are required for annual periods for transactions with a government entity that are within the scope of the Topic. The new disclosure guidance was adopted prospectively and became effective for the Company on April 1, 2022. The adoption of this new accounting standard is not expected to have a material impact on the Company's annual disclosures for fiscal year 2023.
3. Revenue Recognition
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process customer-owned green tobacco. During processing, ownership remains with the customers. All Other revenue is primarily composed of revenue from the sale of e-liquids and non-tobacco agriculture product revenue. The following disaggregates sales and other operating revenues by major source, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment (the Company's sole reportable segment) to the condensed consolidated financial statements:
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| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
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| Leaf: | | |
| Product revenue | $ | 322,884 | | $ | 311,741 | |
| Processing and other revenues | 17,742 | | 18,117 | |
| Total sales and other operating revenues | 340,626 | | 329,858 | |
| All Other: | | |
| Total sales and other operating revenues | 3,279 | | 3,432 | |
| Total sales and other operating revenues | $ | 343,905 | | $ | 333,290 | |
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The following summarizes activity in the allowance for expected credit losses:
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| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Balance, beginning of period | $ | (24,541) | | $ | (20,900) | |
| Additions | (165) | | (380) | |
| Write-offs | 1,376 | | 147 | |
| Balance, end of period | (23,330) | | (21,133) | |
| Trade receivables | 179,306 | | 219,374 | |
| Trade receivables, net | $ | 155,976 | | $ | 198,241 | |
4. Income Taxes
The Company's quarterly provision for income taxes has generally been calculated using the annual effective tax rate method ("AETR method"), which applies an estimated annual effective tax rate to pre-tax income or loss. The AETR method was used to calculate the provision for income taxes for the prior fiscal years, for which the Company reported income tax benefits in each prior reporting period. As of June 30, 2022, the AETR method produced an unreliable estimate of the Company’s annual effective tax rate; therefore, the Company recorded its interim income tax provision using the discrete method, as allowed under ASC 740-270, Income Taxes - Interim Reporting. Using the discrete method, the Company determined current and deferred income tax expense as if the three-month interim period of the current fiscal year were an annual period.
The effective tax rate for the three months ended June 30, 2022 and 2021 was 4.5% and 45.3%, respectively. For the three months ended June 30, 2022 and 2021, the difference between the Company’s effective rate and the U.S. statutory rate of 21% is primarily due to the impact of net foreign exchange effects, non-deductible interest, and variations in the expected jurisdictional mix of earnings.
5. Loss Per Share
The following summarizes the computation of loss per share:
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| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Basic and diluted loss per share: | | |
| Net loss attributable to Pyxus International, Inc. | $ | (14,663) | | $ | (11,508) | |
| Shares: | | |
| Weighted average number of shares outstanding | 25,000 | | 25,000 | |
| Basic and diluted loss per share | $ | (0.59) | | $ | (0.46) | |
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6. Inventories, Net
The following summarizes the composition of inventories, net:
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| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Processed tobacco | $ | 646,539 | | $ | 584,791 | | $ | 517,613 | |
| Unprocessed tobacco | 290,913 | | 232,893 | | 193,406 | |
| Other tobacco related | 33,739 | | 25,471 | | 29,694 | |
All Other | 8,879 | | 10,887 | | 8,714 | |
| Total | $ | 980,070 | | $ | 854,042 | | $ | 749,427 | |
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7. CCAA Proceeding and Deconsolidation of Subsidiaries
On January 21, 2021, Figr Norfolk Inc. ("Figr Norfolk"), Figr Brands, Inc. ("Figr Brands"), and Canada’s Island Garden Inc. ("Figr East," and together with Figr Norfolk and Figr Brands, the "Canadian Cannabis Subsidiaries"), which, prior to their sale, were indirect subsidiaries of the Company, applied for relief from their respective creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) (the "Canadian Court") in Ontario, Canada as Court File No. CV-21-00655373-00CL (the "CCAA Proceeding"). On January 21, 2021 (the "Order Date"), upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the "Monitor"). The administration of the CCAA Proceeding, including the Canadian Court's appointment of the Monitor and the related authority of the Monitor, including approval rights with respect to significant actions of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding, resulted in the Company losing control (in accordance with U.S. GAAP) of the Canadian Cannabis Subsidiaries at that time, and the deconsolidation on January 20, 2021 of the Canadian cannabis Subsidiaries' assets and liabilities and elimination of their equity components from the Company's consolidated financial statements as of January 21, 2021. Prior to the deconsolidation of the Canadian Cannabis Subsidiaries, they comprised an operating segment within the Other Products and Services reportable segment, which upon the Company's reevaluation of operating and reportable segments effective during the fourth quarter of the year ended March 31, 2022 is presented in the All Other category. Upon deconsolidation, the Company accounts for its investments in the Canadian Cannabis Subsidiaries using the cost method of accounting.
On January 29, 2021, the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be conducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries. On January 28, 2022, a sale of the assets of Figr Norfolk for a purchase price of Cdn.$5,000 was completed. On June 28, 2021, a sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an aggregate purchase price of Cdn.$24,750 was completed. On February 2, 2022, Figr Norfolk and Figr Brands obtained approval to make cash distributions to their creditors pursuant to a distribution protocol approved by the Canadian Court. In the three months ended June 30, 2022, the Company received $2,011 in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. On April 21, 2022, Figr Norfolk and Figr Brands obtained approval from the Canadian Court to terminate the CCAA Proceedings and commence bankruptcy proceedings under Canada's Bankruptcy and Insolvency Act (the "BIA Proceedings") to complete certain corporate and tax-related wind-up activities. On May 13, 2022, Figr Norfolk and Figr Brands commenced the BIA Proceedings. On June 13, 2022, the CCAA Proceedings were formally terminated.
Related Party Relationship
The commencement of the CCAA Proceeding, the appointment of the Monitor, and the subsequent deconsolidation of the Canadian Cannabis Subsidiaries results in transactions with the Canadian Cannabis Subsidiaries no longer being eliminated in consolidation. As such, transactions between the Company and the Canadian Cannabis Subsidiaries, including loans under the debtor-in-possession financing facility (the "Canadian DIP Facility") from another non-U.S. subsidiary of Pyxus (the "DIP Lender") provided during the pendency of the CCAA Proceedings, which were fully repaid on July 8, 2021, are treated as related party transactions. See "Note 18. Related Party Transactions" for transactions between the Company and the Canadian Cannabis Subsidiaries.
8. Equity Method Investments
The following summarizes the Company's equity method investments as of June 30, 2022:
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| Investee Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference |
| Adams International Ltd. | Thailand | purchase and process tobacco | 49 | % | $ | (4,526) | |
| Alliance One Industries India Private Ltd. | India | purchase and process tobacco | 49 | % | (5,770) | |
| China Brasil Tobacos Exportadora SA | Brazil | purchase and process tobacco | 49 | % | 45,124 | |
| Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş. | Turkey | process tobacco | 50 | % | (416) | |
| Purilum, LLC | U.S. | produce flavor formulations and consumable e-liquids | 50 | % | 4,589 | |
| Siam Tobacco Export Company | Thailand | purchase and process tobacco | 49 | % | (6,098) | |
The following summarizes financial information for these equity method investments:
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| Operations statement: | Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Sales | $ | 69,382 | | $ | 31,432 | |
| Gross profit | 14,089 | | 3,666 | |
| Net income | 8,330 | | (2,900) | |
| Company's dividends received | 11,522 | | 8,848 | |
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| Balance sheet: | June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Current assets | $ | 441,973 | | $ | 290,750 | | $ | 375,015 | |
| Property, plant, and equipment and other assets | 37,876 | | 45,068 | | 42,841 | |
| Current liabilities | 367,743 | | 228,716 | | 289,816 | |
| Long-term obligations and other liabilities | 2,249 | | 3,400 | | 2,999 | |
9. Variable Interest Entities
The Company holds variable interests in multiple entities that primarily procure or process inventory or are securitization entities. These variable interests relate to equity investments, receivables, guarantees, and securitized receivables. The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
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| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Investments in variable interest entities | $ | 80,446 | | $ | 78,903 | | $ | 88,118 | |
| Receivables with variable interest entities | 16,825 | | 19,671 | | 2,211 | |
| Guaranteed amounts to variable interest entities (not to exceed) | 64,610 | | 55,987 | | 55,884 | |
10. Other Intangible Assets, Net
The following summarizes the changes in the Company's goodwill and other intangible assets, net:
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| Three months ended June 30, 2022 |
| | Weighted Average Remaining Useful Life | Beginning Carrying Amount, Net | | Amortization Expense | | | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | | |
| Customer relationships | 10.17 years | $ | 23,568 | | | $ | (1,455) | | | | $ | 22,113 | |
| Technology | 5.82 years | 11,471 | | | (1,352) | | | | 10,119 | |
| Trade names | 12.17 years | 10,022 | | | (202) | | | | 9,820 | |
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| Total | | $ | 45,061 | | | $ | (3,009) | | | | $ | 42,052 | |
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| Year ended March 31, 2022 |
| Weighted Average Remaining Useful Life | Beginning Carrying Amount, Net | Additions | Amortization Expense | Disposition of Humble Juice | Impairment | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | | |
| Customer relationships | 10.30 years | $ | 27,730 | | $ | — | | $ | (2,427) | | $ | (1,735) | | $ | — | | $ | 23,568 | |
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| Technology | 5.80 years | 12,858 | | 840 | | (2,227) | | — | | — | | 11,471 | |
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| Trade names | 12.42 years | 10,829 | | — | | (807) | | — | | — | | 10,022 | |
| Intangibles not subject to amortization: | | | | | | | |
| Goodwill | | 36,853 | | — | | — | | (4,667) | | (32,186) | | — | |
| Total | | $ | 88,270 | | $ | 840 | | $ | (5,461) | | $ | (6,402) | | $ | (32,186) | | $ | 45,061 | |
11. Debt Arrangements
The following summarizes debt and notes payable:
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| | June 30, | June 30, | March 31, |
| (in thousands) | Interest Rate | 2022 | 2021 | 2022 |
| Senior secured credit facilities: | | | | | |
| ABL Credit Facility | 3.5 | % | (1) | $ | 90,000 | | $ | — | | $ | 90,000 | |
| Exit ABL Credit Facility | 5.8 | % | (1) | — | | 67,500 | | — | |
DDTL Facility (2) | 10.7 | % | (1) | 109,751 | | 117,353 | | 107,832 | |
| Senior secured notes: | | | | | |
10.0% senior secured first lien notes (3) | 10.0 | % | | 271,678 | | 268,168 | | 270,762 | |
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Exit Term Loan Credit Facility (4) | 9.6 | % | (1) | 220,518 | | 216,533 | | 219,500 | |
| Other long-term debt | 1.9 | % | (1) | 611 | | 2,925 | | 239 | |
Notes payable to banks (5) | 5.8 | % | (1) | 545,224 | | 403,792 | | 378,612 | |
| Total debt | | | $ | 1,237,782 | | $ | 1,076,271 | | $ | 1,066,945 | |
Short-term (5) | | | $ | 545,224 | | $ | 403,792 | | $ | 378,612 | |
| Long-term: | | | | | |
| Current portion of long-term debt | | | $ | 13,781 | | $ | 2,686 | | $ | 107,856 | |
| Long-term debt | | | 678,777 | | 669,793 | | 580,477 | |
| | | $ | 692,558 | | $ | 672,479 | | $ | 688,333 | |
| | | | | |
| Letters of credit | | | $ | 14,430 | | $ | 4,804 | | $ | 9,038 | |
| | | | | |
(1) Weighted average rate for the trailing twelve months ended June 30, 2022. As the ABL Credit Facility has not been outstanding for a trailing twelve-month period, the interest rate is the weighted average rate from inception through June 30, 2022. |
(2) Balance of $109,751 is net of original issue discount of $499. Total repayment will be $110,250, which includes a $5,250 exit fee payable upon repayment. |
(3) Balance of $271,678 is net of original issue discount of $9,166. Total repayment will be $280,844. |
(4) The aggregate balance of the Term Loan Credit Facility of $220,518 includes $5,436 of accrued paid-in-kind interest. |
| (5) Primarily foreign seasonal lines of credit. |
ABL Credit Facility
On February 8, 2022, Pyxus Holdings, certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the "Borrowers"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc., as parent guarantors, entered into an ABL Credit Agreement (the "ABL Credit Agreement"), dated as of February 8, 2022, by and among Pyxus Holdings, as Borrower Agent, the Borrowers and parent guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, to establish an asset-based revolving credit facility (the "ABL Credit Facility"), the proceeds of which may be used to refinance existing senior bank debt, pay fees and expenses related to the ABL Credit Facility, partially fund capital expenditures, and provide for the ongoing working capital needs of the Borrowers. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $100,000, subject to the limitations described below in this paragraph. The ABL Credit Facility includes a $20,000 uncommitted accordion feature that permits Pyxus Holdings, under certain conditions, to solicit the lenders under the ABL Credit Facility to provide additional revolving loan commitments to increase the aggregate amount of the revolving loan commitments under the ABL Credit Facility not to exceed a maximum principal amount of $120,000. A detailed description of the ABL Credit Agreement is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At June 30, 2022, Pyxus Holdings was in compliance with the covenants under the ABL Credit Agreement.
Exit ABL Credit Facility
On August 24, 2020, Pyxus Holdings entered into the Exit ABL Credit Agreement to establish the Exit ABL Credit Facility. The Exit ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75,000, subject to certain limitations. On February 8, 2022, Pyxus Holdings terminated the Exit ABL Credit Agreement and repaid $56,500 outstanding thereunder with proceeds from the initial borrowing under the ABL Credit Facility.
DDTL Facility
On April 23, 2021, Intabex Netherlands B.V. ("Intabex"), an indirect wholly owned subsidiary of the Company, entered into a Term Loan Credit Agreement (the "DDTL Facility Credit Agreement"), dated as of April 23, 2021 (the "Closing Date"), by and among (i) Intabex, as borrower, (ii) the Company, Pyxus Parent, Inc., Pyxus Holdings, Inc., Alliance One International, LLC, Alliance One International Holdings, Ltd, as guarantors (collectively, the "Parent Guarantors"), (iii) certain funds managed by Glendon Capital Management, L.P. and Monarch Alternative Capital LP, as lenders (collectively and, together with any other lender that is or becomes a party thereto as a lender, the "DDTL Facility Lenders"), and (iv) Alter Domus (US) LLC, as administrative agent and collateral agent (the "DDTL Agent"). The DDTL Facility Credit Agreement established a $120,000 delayed-draw term loan credit facility (the "DDTL Facility") under which the full amount has been drawn (the "DDTL Loans"). After that date, a fund managed by Owl Creek Asset Management, L.P. became a lender under the DDTL Facility. The proceeds of the DDTL Loans were used to provide working capital and for other general corporate purposes of Intabex, the Guarantors (as defined below) and their subsidiaries.
The obligations of Intabex under the DDTL Facility Credit Agreement (and certain related obligations) are (a) guaranteed by the Parent Guarantors and Alliance One International Tabak B.V., an indirect subsidiary of the Company, and each of the Company’s domestic and foreign subsidiaries that is or becomes a guarantor of borrowings under the Term Loan Credit Agreement (which subsidiaries are referred to collectively, together with the Parent Guarantors, as the "Guarantors"), and (b) are secured by the pledge of all of the outstanding equity interests of (i) Alliance One Brasil Exportadora de Tabacos Ltda. ("AO Brazil"), which principally operates the Company’s leaf tobacco operations in Brazil, and (ii) Alliance One International Tabak B.V., which owns a 0.001% interest of AO Brazil.
A detailed description of the DDTL Facility Credit Agreement is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At June 30, 2022, Intabex and each Guarantor was in compliance with the covenants under the DDTL Facility Credit Agreement.
As described below, the DDTL Facility Credit Agreement was amended and restated on July 28, 2022. The portion of the DDTL Facility that was refinanced on a long-term basis, effective July 28, 2022, is classified as noncurrent and recorded in Long-term debt within the condensed consolidated balance sheet as of June 30, 2022.
Amendment and Restatement of DDTL Facility Credit Agreement
On June 2, 2022, Intabex, the Company and the Guarantors entered into an Amendment and Restatement Agreement dated as of June 2, 2022 (the "Amendment and Restatement Agreement") with the DDTL Facility Lenders and the DDTL Agent to, subject to the satisfaction of customary closing conditions, amend and restate the DDTL Facility Credit Agreement as set forth in the form of an Amended and Restated Term Loan Credit Agreement (the "Amended Credit Agreement"), appended to the Amendment and Restatement Agreement, among (i) Intabex, as borrower, (ii) the Company and the Guarantors, (iii) the DDTL Facility Lenders and any other lender that becomes a party thereto (collectively, the "Term Loan Lenders"), and (iv) the DDTL Agent, as administrative agent and collateral agent. On July 28, 2022, following the satisfaction of the conditions to effectiveness specified in the Amendment and Restatement Agreement, the amendment and restatement of the DDTL Facility Credit Agreement by the Amended Credit Agreement became effective. See "Note 20. Subsequent Events" for additional information.
The Amended Credit Agreement establishes a $100,000 term loan credit facility (the "Term Loan Facility") and requires that Intabex use the net proceeds of the loans made thereunder (the "Term Loans") and other funds to repay in full its obligations under the DDTL Facility Credit Agreement, including the outstanding principal of, and accrued and unpaid interest on, borrowings under the DDTL Facility on the Amendment and Restatement Effectiveness Date and the payment of fees and expenses incurred in connection with repaying such borrowings and entering into the Amended Credit Agreement.
The Term Loans mature on December 2, 2023. The Amended Credit Agreement provides that the Term Loans may be prepaid at any time, with a 2.0% fee due with respect to any principal payment made after the one-year anniversary of the Amendment and Restatement Effectiveness Date, including a payment made at maturity. The Amended Credit Agreement further provides that amounts of principal that are prepaid may not be reborrowed under the Term Loan Facility. Under the Amended Credit Agreement, interest on the outstanding principal amount of the Term Loans accrues at an annual rate of SOFR plus 7.5%, subject to a SOFR floor of 1.0%, for "SOFR loans" or, for loans that are not SOFR loans, at an annual rate of an alternate base rate (as specified in the Amended Credit Agreement and subject to a specified floor) plus 6.5%. Interest is to be paid in arrears in cash upon prepayment, acceleration, maturity, and on the last day of each interest period (which may be one, three or six months) for SOFR loans and on the last day of each calendar quarter for loans that are not SOFR loans. Pursuant to the Amended Credit Agreement, the Term Loan Lenders received on the Amendment and Restatement Effectiveness Date a non-refundable commitment fee equal to 3.0% of the aggregate commitments under the Term Loan Facility and a closing fee equal to 1.0% of the aggregate commitments under the Term Loan Facility, as original issue discount.
Under the Amended Credit Agreement, the obligations of Intabex under the Amended Credit Agreement (and certain related obligations) continue to be guaranteed and secured by the same guarantors of, and the same collateral securing, Intabex’s obligations under the DDTL Facility Credit Agreement.
Related Party Transactions
Based on a Schedule 13D filed with the SEC on September 3, 2020 by Glendon Capital Management, L.P. (the "Glendon Investor"), Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., the Glendon Investor reported beneficial ownership of 7,939 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on Form 4 filed with the SEC on July 15, 2021, as well as a Schedule 13D filed with the SEC on September 3, 2020 by Monarch Alternative Capital LP (the "Monarch Investor"), MDRA GP LP and Monarch GP LLC, the Monarch Investor reported beneficial ownership of 6,140 shares of the Company’s common stock, representing approximately 24.6% of the outstanding shares of the Company’s common stock. Based on a Schedule 13G/A filed with the SEC on February 10, 2022 by Owl Creek Asset Management, L.P. and Jeffrey A. Altman, Owl Creek Asset Management, L.P. is the investment manager of certain funds and reported beneficial ownership of 2,405 shares of the Company’s common stock on December 31, 2021, representing approximately 9.6% of the outstanding shares of the Company’s common stock. Pursuant to the Shareholders Agreement, Holly Kim and Patrick Fallon were designated to serve as directors of Pyxus and each continues to serve as a director of Pyxus. Ms. Kim is a Partner at Glendon Capital Management, L.P. and Mr. Fallon is a Managing Principal at Monarch Alternative Capital LP.
The DDTL Facility Credit Agreement, the Amendment and Restatement Agreement, the Amended Credit Agreement and any and all borrowings under the DDTL Facility Credit Agreement and the Amended Credit Agreement and the guaranty transactions described above were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm’s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.
Senior Secured First Lien Notes
On the August 24, 2020, Pyxus Holdings issued approximately $280,844 in aggregate principal amount of the Notes to holders of Allowed First Lien Notes Claims pursuant to the Indenture dated as of August 24, 2020 (the "Indenture") among Pyxus Holdings, the initial guarantors party thereto, and Wilmington Trust, National Association, as trustee and collateral agent. A detailed description of the Notes and the Indenture is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At June 30, 2022, Pyxus Holdings was in compliance with the covenants under the Indenture.
Exit Term Loan Credit Facility
On August 24, 2020, Pyxus Holdings entered into the Exit Term Loan Credit Agreement by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Alter Domus (US) LLC, as administrative agent and collateral agent to establish the Exit Term Loan Credit Facility in an aggregate principal amount of approximately $213,418. The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, was converted into, or otherwise satisfied with the proceeds of, the Exit Term Loan Credit Facility. A detailed description of the Exit Term Loan Credit Agreement and Exit Term Loan Credit Facility is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At June 30, 2022, Pyxus Holdings was in compliance with the covenants under the Exit Term Loan Credit Agreement.
Short-Term Seasonal Lines of Credit
Excluding all long-term credit agreements, the Company has typically financed its non-U.S. operations with uncommitted short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are secured by trade receivables and inventories as collateral.
African Lines of Credit
On June 30, 2022, the Company and certain subsidiaries of the Company, including the Company’s subsidiaries in Malawi, Tanzania and Zambia (the "African Subsidiary Borrowers"), entered into the Fourth Amendment and Restatement Agreement dated as of June 27, 2022 (the "Restated TDB Agreement") with Eastern and Southern African Trade and Development Bank ("TDB") to amend and restate the Third Amendment and Restatement Agreement dated August 12, 2021 among them. The Restated TDB Agreement sets forth the terms that govern the foreign seasonal lines of credit of each of the African Subsidiary Borrowers with TDB and supersedes the prior terms in effect. The Restated TDB Agreement provides for a lending commitment with respect to the line of credit of the Company’s Malawi subsidiary of $100,000, a lending commitment with respect to the line of credit of the Company’s Tanzania subsidiary of $70,000, and a lending commitment with respect to the line of credit of the Company’s Zambia subsidiary of $15,000, in each case with current borrowing availability reduced by the
amount of outstanding loans borrowed under the respective prior-existing line of credit with TDB. The prior-existing outstanding loans under the Restated TDB Agreement bear interest at LIBOR plus 6.0% and new loans made under the Restated TDB Agreement bear interest at LIBOR plus 5.5%. The Restated TDB Agreement terminates on June 30, 2024, unless terminated sooner at TDB’s discretion on June 30, 2023. The terms of the Restated TDB Agreement may also be modified at TDB’s discretion on that date. Borrowings under the Restated TDB Agreement are due upon the termination of the Restated TDB Agreement.
Pursuant to the Restated TDB Agreement, each of the Company and its subsidiaries, Pyxus Parent, Inc. and Pyxus Holdings, Inc., guarantee the obligations of the African Subsidiary Borrowers under the Restated TDB Agreement. In addition, the Restated TDB Agreement provides that obligations of each African Subsidiary Borrower under the Restated TDB Agreement are secured by a first priority pledge of:
• tobacco purchased by that African Subsidiary Borrower that is financed by TDB;
• intercompany receivables arising from the sale of the tobacco financed by TDB;
• customer receivables arising from the sale of the tobacco financed by TDB; and
• such African Subsidiary Borrower’s local collection account receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement also requires Alliance One International, LLC, a subsidiary of the Company, to pledge customer receivables arising from the sale of the tobacco financed by TDB and pledge its collection accounts designated for receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement contains affirmative and negative covenants (subject, in each case, to customary and other exceptions and qualifications), including covenants that limit the ability of the African Subsidiary Borrowers to, among other things:
• Grant liens on assets;
• Incur additional indebtedness (including guarantees and other contingent obligations);
• Sell or otherwise dispose of property or assets;
• Maintain a specified amount of pledged accounts receivable and inventory;
• Make changes in the nature of its business;
• Enter into burdensome contracts; and
• Effect certain modifications or terminations of customer contracts.
The Restated TDB Agreement contains events of default including, but not limited to, nonpayment of principal or interest, violation of covenants, breaches of representations and warranties, cross-default to other debt, bankruptcy and other insolvency events, invalidity of loan documentation, certain changes of control of the Company and the other loan parties, termination of material licenses and material adverse changes.
At June 30, 2022, the Company and its subsidiaries party to the Restated TDB Agreement were in compliance with all such covenants under the Restated TDB Agreement and $55,642 was available for borrowing under the Restated TDB Agreement, after reducing availability by the aggregate borrowings under the Restated TDB Agreement of $129,358 outstanding on that date.
12. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under three accounts receivable securitization facilities, which are subject to annual renewal. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells 100% of the receivables to an unaffiliated financial institution. As of June 30, 2022, the investment limit of this facility was $100,000 of trade receivables.
For the other facilities, the Company offers trade receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. As of June 30, 2022, the investment limit under the second facility was $80,000 of trade receivables. As of June 30, 2022, the investment limit under the third facility was variable based on qualifying sales.
As the servicer of the first and second facilities, the Company may receive funds that are due to the unaffiliated financial institutions, which are net settled on the next settlement date. As of June 30, 2022 and 2021, and March 31, 2022, trade
receivables, net in the condensed consolidated balance sheets has been reduced by $14,893, $4,724, and $1,872 as a result of the net settlement, respectively. Refer to "Note 15. Fair Value Measurements" for additional information. The following summarizes the accounts receivable securitization information:
| | | | | | | | | | | |
| |
| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Receivables outstanding in facility | $ | 179,761 | | $ | 66,671 | | $ | 131,092 | |
| Beneficial interests | 22,762 | | 20,271 | | 28,072 | |
| | | |
| | | | | | | | |
| | |
| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Cash proceeds for the period ended: | | |
| Cash purchase price | $ | 153,449 | | $ | 90,012 | |
| Deferred purchase price | 45,468 | | 37,681 | |
| Total | $ | 198,917 | | $ | 127,693 | |
13. Guarantees
In certain markets, the Company guarantees bank loans for suppliers to finance their crops. The Company also guarantees bank loans of certain unconsolidated subsidiaries. The following summarizes amounts guaranteed and the fair value of those guarantees:
| | | | | | | | | | | |
| |
| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Amounts guaranteed (not to exceed) | $ | 118,615 | | $ | 95,272 | | $ | 114,208 | |
Amounts outstanding under guarantee (1) | 45,552 | | 32,461 | | 49,413 | |
| Fair value of guarantees | 2,601 | | 1,962 | | 2,956 | |
| Amounts due to local banks on behalf of suppliers for government subsidized rural credit financing | 6,376 | | 12,216 | | 15,781 | |
(1) Most of the guarantees outstanding at June 30, 2022 expire within one year. |
14. Derivative Financial Instruments
The Company uses forward or option currency contracts to manage risks associated with foreign currency exchange rates on foreign operations. These contracts are for green tobacco purchases, processing costs, and selling, general, and administrative expenses. The Company recorded a net gain of $862 and $415 from its derivative financial instruments in cost of goods and services sold for the three months ended June 30, 2022 and 2021, respectively. As of June 30, 2022 and 2021, the Company recorded current derivative assets of $560 and $4,896 within other current assets, respectively. The U.S. Dollar notional amount of derivative contracts outstanding as of June 30, 2022 and 2021 was $7,259 and $53,436, respectively.
15. Fair Value Measurements
The following summarizes the financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| | Total | | | Total | | | Total |
| Level 2 | Level 3 | at Fair Value | Level 2 | Level 3 | at Fair Value | Level 2 | Level 3 | at Fair Value |
| Financial Assets: | | | | | | | | | |
| Derivative financial instruments | $ | 560 | | $ | — | | $ | 560 | | $ | 4,896 | | $ | — | | $ | 4,896 | | $ | 9,867 | | $ | — | | $ | 9,867 | |
| Securitized beneficial interests | — | | 22,762 | | 22,762 | | — | | 20,271 | | 20,271 | | — | | 28,072 | | 28,072 | |
| Total assets | $ | 560 | | $ | 22,762 | | $ | 23,322 | | $ | 4,896 | | $ | 20,271 | | $ | 25,167 | | $ | 9,867 | | $ | 28,072 | | $ | 37,939 | |
| Financial Liabilities: | | | | | | | | | |
| Long-term debt | $ | 430,573 | | $ | 660 | | $ | 431,233 | | $ | 450,724 | | $ | 3,164 | | $ | 453,888 | | $ | 447,843 | | $ | 246 | | $ | 448,089 | |
| Guarantees | — | | 2,601 | | 2,601 | | — | | 1,962 | | 1,962 | | — | | 2,956 | | 2,956 | |
| Total liabilities | $ | 430,573 | | $ | 3,261 | | $ | 433,834 | | $ | 450,724 | | $ | 5,126 | | $ | 455,850 | | $ | 447,843 | | $ | 3,202 | | $ | 451,045 | |
The following summarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| | |
| Three months ended June 30, 2022 | | Three months ended June 30, 2021 |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees | | | | Securitized Beneficial Interests | Long-Term Debt | Guarantees |
| Beginning balance | $ | 28,072 | | $ | 246 | | $ | 2,956 | | | | | $ | 19,370 | | $ | 3,162 | | $ | 1,740 | |
| Issuances of sales of receivables/guarantees | — | | — | | 206 | | | | | — | | — | | 223 | |
| Settlements | (33,361) | | — | | (535) | | | | | (36,695) | | — | | (26) | |
| Additions | 29,033 | | 414 | | — | | | | | 38,498 | | 2 | | — | |
| (Losses) gains recognized in earnings | (982) | | — | | (26) | | | | | (902) | | — | | 25 | |
| Ending balance | $ | 22,762 | | $ | 660 | | $ | 2,601 | | | | | $ | 20,271 | | $ | 3,164 | | $ | 1,962 | |
For the three months ended June 30, 2022 and 2021, the impact to earnings attributable to the change in unrealized losses on securitized beneficial interests was $618 and $319, respectively.
16. Pension and Other Postretirement Benefits
On November 19, 2021, the Compensation Committee of the Company's Board of Directors approved a resolution to terminate the Company's U.S. defined benefit pension plan ("U.S. Pension Plan"). Termination of the U.S. Pension Plan is a twelve-to-eighteen month process. The Company will settle benefits directly with vested participants electing a lump sum payout and purchase a group annuity contract to administer future payments to the remaining U.S. Pension Plan participants. Based on the estimated value of assets held in the U.S. Pension Plan, the Company estimates that a cash contribution of between $3,000 and $5,000 will be required to fully fund the U.S. Pension Plan's liabilities upon termination. In addition, the Company expects to record a pension settlement charge at plan termination, which includes the reclassification of unrecognized pension gains and losses within accumulated other comprehensive income (loss) to other (expense) income, net within the Company's condensed consolidated statements of operations. The Company does not have an estimate for this future settlement charge. The amount of unrecognized pension gains within accumulated other comprehensive income (loss) related to the U.S. Pension Plan is approximately $5,401 at June 30, 2022.
17. Contingencies and Other Information
Brazilian Tax Credits
The government in the Brazilian State of Parana ("Parana") issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. At June 30, 2022, the assessment for intrastate trade tax credits taken is $2,515 and the total assessment including penalties and interest is $9,386. On March 18, 2014, the government in Brazilian State of Santa Catarina also issued a tax assessment with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. At June 30, 2022, the assessment for intrastate trade tax credits taken is $2,175 and the total assessment including penalties and interest is $6,057. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the
Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazil State of Rio Grande do Sul. This jurisdiction permits the sale or transfer of excess credits to third parties, however approval must be obtained from the tax authorities. The Company has an agreement with the state government regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $16,708. The intrastate trade tax credits are monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
Other Matters
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, they are being vigorously defending and the Company does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Asset Retirement Obligations
The Company identified an asset retirement obligation ("ARO") associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO as 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.
18. Related Party Transactions
The Company engages in transactions with its equity method investees primarily for the procuring and processing of inventory. The following summarizes sales and purchases transactions with related parties:
| | | | | | | | |
| | |
| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Sales | $ | 10,622 | | $ | 10,637 | |
| Purchases | 25,841 | | 22,342 | |
The Company included the following related party balances in its condensed consolidated balances sheets:
| | | | | | | | | | | | | | |
| | |
| June 30, 2022 | June 30, 2021 | March 31, 2022 | Location in the Condensed Consolidated Balance Sheets |
| Accounts receivable, related parties | $ | 17,750 | | $ | 4,138 | | $ | 1,896 | | Other receivables |
| Notes receivable, related parties | — | | 17,301 | | 1,431 | | Other receivables |
| | | | |
| Accounts payable, related parties | 10,403 | | 15,124 | | 41,747 | | Accounts payable |
| Advances from related parties | 1,342 | | 14,550 | | 15,240 | | Advances from customers |
| | | | |
| | | | |
Transactions with Significant Shareholders
On August 24, 2020, the Company entered into an Exit Term Loan Credit Agreement and issued Senior Secured First Lien Notes with certain lenders, including the Glendon Investor and the Monarch Investor.
On April 23, 2021, the Company and certain of its subsidiaries with certain funds managed by the Glendon Investor and the Monarch Investor, as lenders, and related matters entered into a $120,000 delayed-draw credit facility agreement (see "Note 11. Debt Arrangements" for additional information). After that date, a fund managed by Owl Creek Asset Management, L.P. became a lender under the DDTL Facility. On December 30, 2021, the Company repaid $15,375 of the DDTL facility. On June 2, 2022, Intabex, the Company and the Guarantors entered into an Amendment and Restatement Agreement with the DDTL Facility Lenders and the DDTL Agent to amend and restate the DDTL Facility Credit Agreement as set forth in Amended Credit Agreement, which became effective on July 28, 2022 (see "Note 11. Debt Arrangements" and "Note 20. Subsequent Events" for additional information).
Accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets as of June 30, 2022 and 2021, and March 31, 2022, includes $5,953, $6,361, and $3,984, respectively, of interest payable to the Glendon Investor,
the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P. Interest expense as presented in the condensed consolidated statements of operations includes $8,097 and $7,499 for the three months ended June 30, 2022 and 2021, respectively, that relates to the Glendon Investor, the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P.
Transactions with the Deconsolidated Canadian Cannabis Subsidiaries
In connection with the CCAA Proceeding, the DIP Lender, another non-U.S. subsidiary of the Company, provided Figr Brands with secured debtor-in-possession financing to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as agreed to by the DIP Lender.
As of June 30, 2022 and 2021, and March 31, 2022, the outstanding loan balance under the Canadian DIP Facility was $0, $11,082, and $0, respectively, and is included in other receivables within the condensed consolidated balance sheets. On July 8, 2021, the loans under the Canadian DIP Facility were fully repaid to the DIP Lender.
19. Segment Information
The following summarizes segment information, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment (the Company's sole reportable segment) to the condensed consolidated financial statements:
| | | | | | | | |
| | |
| Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Sales and other operating revenues: | | |
| Leaf | $ | 340,626 | | $ | 329,858 | |
| All Other | 3,279 | | 3,432 | |
| Consolidated sales and other operating revenues | $ | 343,905 | | $ | 333,290 | |
| | |
| Segment operating income: | | |
| Leaf | $ | 11,629 | | $ | 14,778 | |
| All Other | (4,377) | | (6,341) | |
| Segment operating income | 7,252 | | 8,437 | |
| | |
| Restructuring and asset impairment charges | 300 | | 233 | |
| | |
| Consolidated operating income | $ | 6,952 | | $ | 8,204 | |
| | | | | | | | | | | |
| |
| June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Segment assets: | | | |
| Leaf | $ | 1,760,557 | | $ | 1,598,242 | | $ | 1,641,552 | |
| All Other | 51,889 | | 83,586 | | 56,975 | |
| Total assets | $ | 1,812,446 | | $ | 1,681,828 | | $ | 1,698,527 | |
20. Subsequent Events
On July 28, 2022, the Amended Credit Agreement became effective (see "Note 11. Debt Arrangements" for additional information). In connection with the effectiveness of the Amended Credit Agreement, the Glendon Investor, the Monarch Investor, and a fund managed by Owl Creek Asset Management, L.P. received $5,119 of the aggregate $5,250 in exit fee payments from the repayment of the principal amount under the DDTL Facility. The Glendon Investor, the Monarch Investor and a fund managed by Owl Creek Asset Management, L.P. received in the aggregate $3,900 of the total $4,000 in commitment and closing fees, which were reflected as original issue discount, paid to all Term Loan Lenders in connection with the aggregate $97,500 principal amount of the Term Loans made by them of the total $100,000 aggregate principal amount of the Term Loans made by all Term Loan Lenders.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended March 31, 2022 and in our other filings with the Securities and Exchange Commission. These risks and uncertainties include:
•risks related to the Company's indebtedness, including that the Company has substantial debt which may adversely affect it by limiting future sources of financing, interfering with its ability to pay interest, and principal on its indebtedness and subjecting it to additional risks, the Company requires a significant amount of cash to service indebtedness and its ability to generate cash depends on many factors beyond its control, the Company may not be able to refinance or renew its indebtedness, which may have a material adverse effect on its financial condition, the Company may not be able to satisfy the covenants included in its financing arrangements, which could result in the default of its outstanding debt obligations, and despite current indebtedness levels, the Company may still be able to incur substantially more debt, which could exacerbate further the risks associated with its significant leverage;
•risks and uncertainties relating to the Company's liquidity, including but not limited to: whether foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level cease to provide such funding, uncertainty and continuing risks associated with the Company’s ability to achieve its goals and continue as a going concern, and unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity;
•risk and uncertainties related to the Company’s leaf tobacco operations, including changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of short-term seasonal financing, political instability, currency and interest rate fluctuations, the impact of high inflation, 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 climate change on weather patterns in tobacco-growing regions, the impact of disasters or other unusual events affecting international commerce, the impacts of potential international sanctions on the Company's ability to sell or source tobacco in certain regions, potential changes in governmental regulations applicable to tobacco products, and changes in costs incurred in supplying products and related services; and
•risks and uncertainties related to the COVID-19 pandemic, including possible delays in shipments of leaf tobacco, including from the closure or restricted activities at ports or other channels, disruptions to the Company’s operations or the operations of suppliers and customers resulting from restrictions on the ability of employees and others in the supply chain to travel and work, border closures, determinations by Pyxus or shippers to temporarily suspend operations in affected areas, whether the Company’s operations that have been classified as "essential" under various governmental orders restricting business activities will continue to be so classified or, even if so classified, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of the Company's facilities to be halted for some period of time, negative consumer purchasing behavior with respect to the Company’s products or the products of its leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and the extent to which the impact of the COVID-19 pandemic on the Company’s operations and the demand for its products may not coincide with impacts experienced in the United States due to the international scope of its operations, including in emerging and other markets in which the Company operates where the timing and severity of COVID-19 outbreaks and the pace of COVID-19 vaccinations may differ from those in the United States.
We do not undertake to update any forward-looking statements that we may make from time to time.
Executive Summary
We have experienced strong demand thus far in fiscal 2023. As expected, our first quarter was consistent with the prior fiscal year, with increased demand and more normalized timing of shipments from Asia, partially offset by the timing of shipments from Africa and South America. As of June 30, 2022, our inventory increased $126.0 million compared to the prior year primarily due to higher new crop green tobacco prices and processing costs in South America, and accelerated new crop buying activities in certain key markets. In addition, our processed tobacco inventory continues to be more than 90% committed to specific customers. The overall increase in inventory and our committed inventory levels for processed tobacco position us to meet near-term demand and we expect to see stronger shipments in subsequent quarters in fiscal 2023, consistent with historical trends. Despite higher green tobacco prices and processing costs in South America, we were able to effectively manage our working capital to meet our purchasing goals for the current crop cycle.
Crop sizes in certain markets in Africa, Asia, and South America are below expectations due to the adverse impacts of prevailing La Nina weather patterns during the growing season, which has exacerbated supply shortages. We continue to engage with customers in transparent dialogue regarding the impact of inflation and La Nina on our business. In response to these and other market dynamics, we accelerated buying activities in certain key markets, and continued to invest in research trials, local programs, and additional training for our global agronomy team to further support our efforts to maximize grower efficiencies and yield despite unpredictable weather patterns. Moving forward, we are committed to recovering crop sizes, and aligning volumes in future years with customer expectations, as we work to deliver stakeholder value, and together, grow a better world.
Overview
Historically, Pyxus’ core business has been as a tobacco leaf merchant, purchasing, processing, packing, storing and shipping tobacco to manufacturers of cigarettes and other consumer tobacco products throughout the world. Through our predecessor companies, we have a long operating history in the leaf tobacco industry with some customer relationships beginning in the early 1900s.
We are committed to responsible crop production that supports economic viability for the supplier, provides a safe working atmosphere for those involved in crop production and minimizes negative environmental impact. Our agronomists maintain frequent contact with suppliers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. Throughout the entire production process, from seed through processing and final shipment, our SENTRI® traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity.
We also provide agronomy expertise for growing leaf tobacco in numerous markets. Our contracted tobacco grower base produces a significant volume of non-tobacco crop utilizing the agronomic assistance that our team provides. Pyxus works with our grower base, as needed, to find markets for these crops as part of our ongoing efforts to improve farmer livelihoods and the communities in which they live.
Historically, the Company had nine operating segments that were organized by product category and geographic area and were aggregated into three reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. During year ended March 31, 2022, the Company reevaluated its operating and reportable segments under ASC Topic 280 - Segment Reporting. As a result of this reevaluation, effective during the fourth quarter of the year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category and are aggregated into one reportable segment for financial reporting purposes: Leaf. An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results. See "Note 1. Basis of Presentation and Summary of Significant Accounting Policies" for additional information.
Results of Operations
| | | | | | | | | | | | | | |
Three Months Ended June 30, 2022 and 2021 |
| | | Change |
| (in millions, except per kilo amounts) | Three months ended June 30, 2022 | Three months ended June 30, 2021 | $ | % |
| Sales and other operating revenues | $ | 343.9 | | $ | 333.3 | | 10.6 | | 3.2 | |
| Cost of goods and services sold | 303.2 | | 291.2 | | 12.0 | | 4.1 | |
| Gross profit* | 40.8 | | 42.1 | | (1.3) | | (3.1) | |
| Selling, general, and administrative expenses | 34.6 | | 33.8 | | 0.8 | | 2.4 | |
| Other income, net | 1.1 | | 0.2 | | 0.9 | | 450.0 | |
| Restructuring and asset impairment charges | 0.3 | | 0.2 | | 0.1 | | 50.0 | |
| | | | |
| Operating income* | 7.0 | | 8.2 | | (1.2) | | (14.6) | |
| Loss on deconsolidation/disposition of subsidiaries | 0.6 | | — | | 0.6 | | 100.0 | |
| | | | |
| | | | |
| Interest expense, net | 25.5 | | 26.8 | | (1.3) | | (4.9) | |
| | | | |
| | | | |
| Income tax benefit | 0.9 | | 8.4 | | (7.5) | | (89.3) | |
| Income (loss) from unconsolidated affiliates | 3.7 | | (1.4) | | 5.1 | | 364.3 | |
| Net income (loss) attributable to noncontrolling interests | 0.2 | | (0.1) | | 0.3 | | 300.0 | |
| Net loss attributable to Pyxus International, Inc. | $ | (14.7) | | $ | (11.5) | | (3.2) | | (27.8) | |
| | | | |
| Leaf: | | | | |
| Sales and other operating revenues | $ | 322.9 | | $ | 311.7 | | 11.1 | | 3.6 | |
| Tobacco costs | 266.0 | | 251.8 | | 14.2 | | 5.6 | |
| Transportation, storage, and other period costs | 20.6 | | 21.5 | | (0.9) | | (4.1) | |
| Total cost of goods sold | 286.6 | | 273.3 | | 13.3 | | 4.9 | |
| Product revenue gross profit | 36.3 | | 38.5 | | (2.2) | | (5.7) | |
| Product revenue gross profit as a percent of sales | 11.2 | % | 12.3 | % | | |
| | | | |
| Kilos sold | 72.1 | | 69.1 | | 3.0 | | 4.3 | |
| Average price per kilo | $ | 4.48 | | $ | 4.51 | | (0.03) | | (0.7) | |
| Average cost per kilo | 3.98 | | 3.96 | | 0.02 | | 0.5 | |
| Average gross profit per kilo | 0.50 | | 0.55 | | (0.05) | | (9.1) | |
| | | | |
| Processing and other revenues | $ | 17.7 | | $ | 18.1 | | (0.4) | | (2.1) | |
| Processing and other revenues costs of services sold | 12.5 | | 12.4 | | 0.2 | | 1.2 | |
| Processing and other gross profit | 5.2 | | 5.7 | | (0.5) | | (9.2) | |
| Processing and other gross profit as a percent of sales | 29.3 | % | 31.6 | % | | |
| | | | |
| All Other: | | | | |
| Sales and other operating revenues | $ | 3.3 | | $ | 3.4 | | (0.2) | | (4.5) | |
| Cost of goods and services sold | 4.0 | | 5.5 | | (1.5) | | (27.5) | |
| Gross loss | (0.7) | | (2.1) | | 1.4 | | 65.7 | |
| Gross loss as a percent of sales | (21.6) | % | (60.2) | % | | |
| | | | |
| * Amounts may not equal column totals due to rounding |
Sales and other operating revenues increased $10.6 million, or 3.2%, to $343.9 million for the three months ended June 30, 2022 from $333.3 million for the three months ended June 30, 2021. This increase was primarily due to a 4.3% increase in leaf volume driven by greater demand and more normalized timing of shipments from Asia. This increase was partially offset by the timing of shipments from Africa and South America.
Cost of goods and services sold increased $12.0 million, or 4.1%, to $303.2 million for the three months ended June 30, 2022 from $291.2 million for the three months ended June 30, 2021. This increase was mainly due to the increase in sales and other operating revenues.
Gross profit decreased $1.3 million, or 3.1%, to $40.8 million for the three months ended June 30, 2022 from $42.1 million for the three months ended June 30, 2021. Gross profit as a percent of sales decreased to 11.9% for the three months ended June 30, 2022 from 12.6% for the three months ended June 30, 2021. These decreases were driven by delayed shipments from Africa and South America and were partially offset by accelerated shipments from Asia.
Income tax benefit decreased $7.5 million, or 89.3%, to $0.9 million for the three months ended June 30, 2022 from $8.4 million for the three months ended June 30, 2021. The decrease was driven by the Company utilizing a different method for estimating tax expense (benefit) for the period ended June 30, 2022. Using the discrete method for the period ended June 30, 2022, the Company determined current and deferred income tax expense (benefit) as if the interim three-month period was a year-end period, which resulted in the recognition of the fiscal 2023 year-to-date benefit in the quarter. Refer to See "Note 4. Income Taxes" to the "Notes to Condensed Consolidated Financial Statements" for additional information.
Liquidity and Capital Resources
Overview
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. 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. Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly compared to year end. The first three quarters generally represent the peak of our working capital requirements. Although we believe that our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months, we anticipate periods during which our liquidity needs for operations will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in a deficiency in liquidity. To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.
Debt Financing
We continue to finance our business with a combination of short-term and long-term credit lines, the long-term debt securities, advances from customers, and cash from operations when available. See "Note 11. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for summary of our short-term and long-term debt.
We continuously monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. From time to time we may take steps to reduce our debt or otherwise improve our financial position. Such actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and refinancing of debt. The amount of prepayments or the amount of debt that may be repurchased, refinanced, or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.
The following summaries our maximum borrowing amount under our short-term and long-term credit lines and letter of credit facilities and the remaining available amount after the reduction for outstanding borrowings and amounts reserved for outstanding letters of credit:
| | | | | | | | |
| June 30, 2022 |
| (in millions) | Maximum Borrowing Amount | Remaining Amount Available |
| | |
| ABL Credit Facility | $ | 100.0 | | $ | 10.0 | |
| Foreign seasonal lines of credit | 717.2 | | 171.9 | |
| Other long-term debt | 0.6 | | — | |
| Letters of credit | 18.3 | | 3.9 | |
| Total | $ | 836.1 | | $ | 185.8 | |
Net Debt
We refer to "Net debt", a non-GAAP measure, as total debt liabilities less cash and cash equivalents. We believe this non-GAAP financial measure is useful to monitor leverage and to evaluate changes to the Company's capital structure. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt and that cash held in certain jurisdictions can be applied to repay obligations owing in other jurisdictions and without reduction for applicable taxes. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.
| | | | | | | | | | | |
| (in millions) | June 30, 2022 | June 30, 2021 | March 31, 2022 |
Notes payable to banks(1) | $ | 545.2 | | $ | 403.8 | | $ | 378.6 | |
Current portion of long-term debt(2) | 13.8 | | 2.7 | | 107.9 | |
Long-term debt(3) | 678.8 | | 669.8 | | 580.5 | |
| Total debt liabilities | $ | 1,237.8 | | $ | 1,076.3 | | $ | 1,066.9 | |
| Less: Cash and cash equivalents | 165.4 | | 79.6 | | 198.8 | |
| Net debt | $ | 1,072.3 | | $ | 996.7 | | $ | 868.2 | |
| (1) The increase from June 30, 2021 to June 30, 2022 is due to higher borrowings under the Company's foreign seasonal lines of credit in Africa and South America driven by higher prices for green tobacco purchases. The increase from March 31, 2022 to June 30, 2022 is due to seasonality of the business, with higher working capital requirements in the first quarter of the fiscal year. |
| (2) The decrease from March 31, 2022 is due to reclassifying the portion of the outstanding amount under the DDTL Facility from current to noncurrent as of June 30, 2022 to the extent borrowings thereunder were refinanced under the Amendment and Restatement of the DDTL Facility Credit Agreement, which became effective prior to issuance of the Company's condensed consolidated financial statements for the three months ended June 30, 2022. |
| (3) The increase from March 31, 2022 is due to the reclassification of a portion of the outstanding amount under the DDTL Facility from current portion of long-term debt to long-term debt as of June 30, 2022 for the reason described above. The increase in long-term debt from June 30, 2021 is due to borrowings under the new ABL Credit Facility implemented in February 2022, which increased the maximum borrowing capacity from the Exit ABL Credit Facility that it refinanced. |
Working Capital
The following summarizes our working capital:
| | | | | | | | | | | |
| |
| (in millions except for current ratio) | June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Cash, cash equivalents, and restricted cash | $ | 174.9 | | $ | 82.1 | | $ | 200.9 | |
| Trade and other receivables, net | 182.8 | | 232.0 | | 260.2 | |
| Inventories and advances to tobacco suppliers | 1,024.1 | | 890.7 | | 798.4 | |
| Recoverable income taxes | 8.7 | | 10.9 | | 7.9 | |
| Prepaid expenses and other current assets | 61.2 | | 54.9 | | 60.3 | |
| Total current assets* | $ | 1,451.8 | | $ | 1,270.7 | | $ | 1,327.6 | |
| | | |
| Notes payable to banks | $ | 545.2 | | $ | 403.8 | | $ | 378.6 | |
| Accounts payable | 144.9 | | 88.8 | | 179.0 | |
| Advances from customers | 46.1 | | 29.6 | | 53.0 | |
| Accrued expenses and other current liabilities | 91.1 | | 91.4 | | 82.2 | |
| Income taxes payable | 6.7 | | 4.1 | | 5.6 | |
| Operating leases payable | 8.5 | | 9.0 | | 8.1 | |
| Current portion of long-term debt | 13.8 | | 2.7 | | 107.9 | |
| Total current liabilities | $ | 856.3 | | $ | 629.4 | | $ | 814.4 | |
| | | |
| Current ratio | 1.7 to 1 | 2.0 to 1 | 1.6 to 1 |
| Working capital | $ | 595.5 | | $ | 641.3 | | $ | 513.2 | |
| * Amounts may not equal column totals due to rounding | | | |
Working capital decreased from June 30, 2021 to June 30, 2022 by $45.8 million, or 7.1%, primarily due to delayed shipments from Africa and South America, increased foreign seasonal lines of credit mainly driven by higher green tobacco prices and processing costs in South America, and increased foreign seasonal lines of credit in Africa mainly driven by higher capacity and more efficient utilization.
Inventories
The following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:
| | | | | | | | | | | |
| (in millions) | June 30, 2022 | June 30, 2021 | March 31, 2022 |
| Committed | $ | 617.6 | | $ | 514.8 | | $ | 471.9 | |
| Uncommitted | 28.9 | | 70.0 | | 45.7 | |
| Total processed tobacco | $ | 646.5 | | $ | 584.8 | | $ | 517.6 | |
Total processed tobacco increased from June 30, 2021 to June 30, 2022 by $61.7 million, or 10.6%, primarily due to higher green tobacco prices and processing costs in South America, and accelerated buying activities in certain key markets. This increase was partially offset by the restructuring of certain African operations in the prior year where the Company no longer operates. See "Note 1. Basis of Presentation and Summary of Significant Accounting Policies" and "Note 6. Inventories" to the "Notes to Condensed Consolidated Financial Statements" for additional information.
Sources and Uses of Cash
We typically finance our non-U.S. tobacco operations with uncommitted short-term foreign seasonal lines of credit. These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 270 days, corresponding to the tobacco crop cycle in that market. These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans. These short-term foreign seasonal lines of credit are generally renewed at the outset of each tobacco season. We maintain various other financing arrangements to meet the cash requirements of our businesses. See "Note 11. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for additional information.
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.
As of June 30, 2022, our cash and cash equivalents was $165.4 million of which approximately $55.3 million was held in foreign jurisdictions, certain of which are subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds. 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.
The following summarizes the sources and uses of our cash flows:
| | | | | | | | |
| (in millions) | Three months ended June 30, 2022 | Three months ended June 30, 2021 |
| Operating activities | $ | (242.5) | | $ | (186.0) | |
| Investing activities | 47.0 | | 29.7 | |
| Financing activities | 168.8 | | 140.6 | |
| Effect of exchange rate changes on cash | 0.3 | | 0.5 | |
| Decrease in cash, cash equivalents, and restricted cash | $ | (26.4) | | $ | (15.2) | |
| | |
| | |
| | |
| | |
| |
Cash, cash equivalents, and restricted cash decreased by $11.2 million more during the three months ended June 30, 2022 compared to the decrease during the three months ended June 30, 2021. This decrease was primarily due to cash used by operating activities driven by delayed shipments from Africa and South America. This decrease was partially offset by cash provided by financing activities from higher foreign seasonal lines of credit mainly driven by higher green tobacco prices and processing costs in South America, increased foreign seasonal lines of credit in Africa mainly driven by higher capacity and more efficient utilization, and cash provided by investing activities from higher collections from securitized trade receivables.
Planned Capital Expenditures
Capital investments in our leaf operations have been made primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency. We have incurred approximately $2.2 million in capital expenditures for the three months ended June 30, 2022, and are expecting to incur an additional $20.0 million for the remainder of the fiscal year ending March 31, 2023.
Pension and Postretirement Health and Life Insurance Benefits
The following summarizes cash contributions to pension and postretirement health and life insurance benefits:
| | | | | |
| (in millions) | Three months ended June 30, 2022 |
| Contributions made during the period | $ | 1.4 | |
| Contributions expected for the remainder of the fiscal year | 3.2 | |
| Total | $ | 4.6 | |
No cash dividends were paid to shareholders during the three months ended June 30, 2022. The payment of dividends is restricted under the terms the ABL Credit Agreement, the Term Loan Credit Agreement, and the Indenture.
Critical Accounting Policies and Estimates
As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part I, Item 7 "Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022.