| | | | | | | | | | | | | | | | |
| Year Ended March 31, 2023 |
| Weighted Average Remaining Useful Life | Beginning Carrying Amount, Net | | Amortization Expense | | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | |
| Customer relationships | 9.4 years | $ | 23,568 | | | $ | (3,086) | | | $ | 20,482 | |
| Technology | 5.2 years | 11,471 | | | (2,596) | | | 8,875 | |
| Trade names | 11.4 years | 10,022 | | | (807) | | | 9,215 | |
| Total | | $ | 45,061 | | | $ | (6,489) | | | $ | 38,572 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended March 31, 2022 |
| Weighted Average Remaining Useful Life | Beginning Carrying Amount, Net | Additions | Amortization Expense | Disposition of Humble Juice(1) | Impairment (2) | Ending Intangible Assets, Net |
| Intangibles subject to amortization: | | | | | | | |
| Customer relationships | 10.3 years | $ | 27,730 | | $ | — | | $ | (2,427) | | $ | (1,735) | | $ | — | | $ | 23,568 | |
| Technology | 5.8 years | 12,858 | | 840 | | (2,227) | | — | | — | | 11,471 | |
| Trade names | 12.4 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 | |
|
(2) $372 of the impairment occurred during the three-month period ended December 31, 2021. The remaining $31,814 of impairment occurred during the three-month period ended March 31, 2022. |
Goodwill
During the year ended March 31, 2022, the Company performed its annual assessment of goodwill for its reporting units. The assessment of qualitative factors indicated that it was more likely than not that the fair value of each reporting unit was less than its carrying value primarily due to a sustained decline in the implied value of the Company's long-term debt and equity based on public trading as well as uncertainty in the Company's estimate of timing for future operating results due to the recent economic effects of the COVID-19 pandemic, including related variants. As a result, the Company performed a quantitative impairment test by comparing the fair value of each reporting unit to its carrying value. The fair value for each reporting unit was determined using the DCF method of the income approach. The quantitative impairment test conducted for each reporting unit concluded that the fair value of each reporting unit was less than its carrying value. The excess of carrying value over fair value for each reporting unit exceeded the amount of goodwill that was allocated to the reporting unit, leading the Company to record a full impairment of goodwill at each reporting unit as follows:
| | | | | |
| Year Ended March 31, 2022 |
| Leaf - Africa | $ | 8,341 | |
| Leaf - Asia | 6,311 | |
| Leaf - Europe | 5,566 | |
| Leaf - North America | 3,901 | |
| Leaf - South America | 5,730 | |
| E-liquids | 1,965 | |
| Total | $ | 31,814 | |
Other Intangible Assets, Net
The following summarizes the estimated intangible asset amortization expense for the next five years and beyond:
| | | | | | | | | | | | | | | | |
| For Fiscal Years Ended | Customer Relationships | | Technology(1) | | Trade Names | Total |
| 2024 | $ | 2,175 | | | $ | 1,659 | | | $ | 807 | | $ | 4,641 | |
| 2025 | 2,175 | | | 1,585 | | | 807 | | 4,567 | |
| 2026 | 2,175 | | | 1,465 | | | 807 | | 4,447 | |
| 2027 | 2,175 | | | 1,490 | | | 807 | | 4,472 | |
| 2028 | 2,175 | | | 1,543 | | | 807 | | 4,525 | |
| Thereafter | 9,607 | | | 1,133 | | | 5,180 | | 15,920 | |
| Total | $ | 20,482 | | | $ | 8,875 | | | $ | 9,215 | | $ | 38,572 | |
(1) Estimated amortization expense for technology is based on costs accumulated as of March 31, 2023. These estimates will change as new costs are incurred and until the software is placed into service.
14. Leases
The following summarizes lease costs for operating leases:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Operating lease costs | $ | 14,203 | | $ | 14,752 | |
| Variable and short-term lease costs | 8,023 | | 7,991 | |
| Total lease costs | $ | 22,226 | | $ | 22,743 | |
The following summarizes weighted average information associated with the measurement of remaining operating leases:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Weighted average remaining lease term | 5.9 years | 6.2 years |
| Weighted average discount rate | 14.4% | 12.8% |
The following summarizes supplemental cash flow information related to operating leases:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Cash paid for amounts included in the measurement of lease liabilities - operating cash flows used by operating leases | $ | 13,607 | | $ | 13,677 | |
| Right-of-use assets obtained in exchange for new operating leases - noncash | 9,967 | | 7,054 | |
The following reconciles maturities of operating lease liabilities to the lease liabilities reflected in the consolidated balance sheets as of March 31, 2023:
| | | | | |
| 2024 | $ | 13,014 | |
| 2025 | 8,500 | |
| 2026 | 6,771 | |
| 2027 | 5,726 | |
| 2028 | 4,373 | |
| Thereafter | 13,798 | |
| Total future minimum lease payments | 52,182 | |
| Less: amounts related to imputed interest | 17,878 | |
| Present value of future minimum lease payments | 34,304 | |
| Less: operating lease liabilities, current | 8,723 | |
| Operating lease liabilities, non-current | $ | 25,581 | |
15. Property, Plant, and Equipment, Net
The following summarizes property, plant, and equipment, net:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Land | $ | 31,132 | | $ | 32,023 | |
| Buildings | 43,911 | | 43,465 | |
| Machinery and equipment | 83,984 | | 77,243 | |
| Total | 159,027 | | 152,731 | |
Less: accumulated depreciation (1) | (25,629) | | (15,210) | |
| Total property, plant, and equipment, net | $ | 133,398 | | $ | 137,521 | |
(1) This balance was partially reduced by the disposition of certain fully depreciated assets during the year ended March 31, 2023. |
The following summarizes depreciation expense recorded in cost of goods and services sold and selling, general, and administrative expenses:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Depreciation expense recorded in cost of goods and services sold | $ | 10,132 | | $ | 8,908 | |
| Depreciation expense recorded in selling, general, and administrative expenses | 2,346 | | 2,272 | |
| Total depreciation | $ | 12,478 | | $ | 11,180 | |
16. Debt Arrangements
The following table summarizes the Company’s debt financing as of the dates set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding | | | | | | |
| Interest | | March 31, 2023 | March 31, 2022 | Long Term Debt Repayment Schedule by Fiscal Year |
| Rate | | 2024 | 2025 | 2026 | 2027 | 2028 | Later |
| Senior secured credit facilities: | | | | | | | | | | |
| ABL Credit Facility | 4.8 | % | (1) | $ | 25,000 | | $ | 90,000 | | $ | — | | $ | — | | $ | — | | $ | 25,000 | | $ | — | | $ | — | |
DDTL Term Loans (2) | 11.2 | % | (1) | — | | 107,832 | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | |
| Senior secured notes: | | | | | | | | | | |
10.0% Notes due 2024 (3) | 10.0 | % | (1) | 19,931 | | 270,762 | | — | | 19,931 | | — | | — | | — | | — | |
8.5% Notes due 2027 (4) | 8.8 | % | (1) | 253,483 | | — | | — | | — | | — | | — | | 253,483 | | — | |
| | | | | | | | | | |
| Senior secured term loans: | | | | | | | | | | |
Intabex Term Loans (5) | 12.8 | % | (1) | 186,194 | | — | | — | | — | | — | | — | | 186,194 | | — | |
Pyxus Term Loans (6) | 12.8 | % | (1) | 133,393 | | — | | — | | — | | — | | — | | 133,393 | | — | |
Exit Facility Loans (7) | 10.9 | % | (1) | — | | 219,500 | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | |
| Other debt: | | | | | | | | | | |
| Other long-term debt | 7.5 | % | (1) | 504 | | 239 | | 75 | | — | | 429 | | — | | — | | — | |
Notes payable to banks (8) | 6.8 | % | (1) | 382,544 | | 378,612 | | 382,544 | | — | | — | | — | | — | | — | |
| Total debt | | | $ | 1,001,049 | | $ | 1,066,945 | | $ | 382,619 | | $ | 19,931 | | $ | 429 | | $ | 25,000 | | $ | 573,070 | | $ | — | |
| | | | | | | | | | |
Short-term (8) | | | $ | 382,544 | | $ | 378,612 | | | | | | | |
| Long-term: | | | | | | | | | | |
| Current portion of long-term debt | | | $ | 75 | | $ | 107,856 | | | | | | | |
| Long-term debt | | | 618,430 | | 580,477 | | | | | | | |
| | | $ | 618,505 | | $ | 688,333 | | | | | | | |
| | | | | | | | | | |
| Letters of credit | | | $ | 11,684 | | $ | 9,038 | | | | | | | |
| | | | | | | | | | |
(1) Weighted average rate for the twelve months ended March 31, 2023. As the 8.5% Notes due 2027, Intabex Term Loans, and the Pyxus Term Loans have not been outstanding for a trailing twelve-month period, the interest rate is the weighted average from inception through March 31, 2023. |
(2) The DDTL Term Loans were issued in the refinancing of the prior DDTL facility on July 28, 2022, which included a partial principal payment of $9,000 and an exit fee payment of $5,250. Subsequent to this refinancing, on February 6, 2023, the DDTL Term Loans were exchanged for $102,000 (inclusive of a $2,000 exit fee) of Intabex Term Loans. |
(3) On February 6, 2023, $260,452 of the 10.0% Notes due 2024 were exchanged for 8.5% Notes due 2027. The remaining 10.0% Notes due 2024 outstanding of $19,931 is net of a debt discount of $460. Total repayment at maturity is $20,391. |
(4) Balance of $253,483 is net of a debt discount of $6,969. Total repayment at maturity is $260,452. |
(5) Balance of $186,194 is net of a debt discount of $2,839. Total repayment at maturity is $189,033, which includes a $2,000 exit fee payable upon repayment |
(6) Balance of $133,393 is net of a debt premium of $2,844. Total repayment at maturity is $130,550. |
(7) On February 6, 2023, $189,033, representing 40.0%, of the Exit Facility Loans were exchanged for Intabex Term Loans, and $130,550, representing the remaining 60.0%, of the Exit Facility Loans were exchanged for Pyxus Term Loans. |
(8) Primarily foreign seasonal lines of credit. |
Outstanding Senior Secured Debt
ABL Credit Facility
On February 8, 2022, our wholly owned subsidiary, Pyxus Holdings, Inc. ("Pyxus Holdings"), certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the "Borrowers"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc. ("Pyxus Parent"), as guarantors, entered into an ABL Credit Agreement (as amended, 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 provide for the ongoing working capital and general corporate purposes of the Borrowers, the Company, Pyxus Parent, and their subsidiaries. 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. The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:
•85% of eligible accounts receivable, plus
•the lesser of (i) 85% of the book value of Eligible Extended Terms Receivables (as defined in the ABL Credit Agreement) and (ii) $5,000, plus
•90% of eligible credit insured accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the net-orderly-liquidation value percentage of eligible inventory, minus
•applicable reserves.
At March 31, 2023, $75,000 was available for borrowing under the ABL Credit Facility, after reducing availability by the aggregate borrowings under the ABL Credit Facility of $25,000 outstanding on that date and the $20,000 of Domestic Availability (as defined in the ABL Credit Agreement) required to be maintained. Weighted average borrowings outstanding under the ABL Credit Facility during the fiscal year ended March 31, 2023 were $70,247.
The ABL Credit Facility permits both base rate borrowings and borrowings based upon the Bloomberg-Short-Term Bank Yield Index rate ("BSBY"). Borrowings under the ABL Credit Facility bear interest at an annual rate equal to one, three, or six-month reserve-adjusted BSBY Rate plus 300 basis points or 200 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points.
The ABL Credit Agreement was amended on May 23, 2023, which extended the maturity of the ABL Credit Facility to February 8, 2027. The outstanding amount under the ABL Credit Facility is recorded as noncurrent as of March 31, 2023, and the long-term debt repayment schedule in the table above reflects the ABL Credit Facility's extended maturity. Refer to "Note 27. Subsequent Events" for additional information.
The ABL Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee upon the permanent reduction of commitments under the ABL Credit Facility of 300 basis points for terminations in the first year after entry into the ABL Credit Agreement, 200 basis points for terminations in the second year and 100 basis points for termination in the third year. In addition, customary mandatory prepayments of the loans under the ABL Credit Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears and, with respect to BSBY loans, accrued interest is payable monthly and on the last day of any applicable interest period.
The Borrowers’ obligations under the ABL Credit Facility (and certain related obligations) are (a) guaranteed by Pyxus Parent, and the Company and all of Pyxus Holdings’ wholly owned domestic subsidiaries, and each of Pyxus Holdings’ future wholly owned domestic subsidiaries is required to guarantee the ABL Credit Facility on a senior secured basis (collectively, the "ABL Loan Parties") and (b) secured by the collateral, as described below, which is owned by the ABL Loan Parties.
Cash Dominion. Under the terms of the ABL Credit Facility, if (i) an event of default has occurred and is continuing, (ii) excess borrowing availability under the ABL Credit Facility (based on the lesser of the commitments thereunder and the borrowing base) (the "Excess Availability") falls below 10% of the total commitments under the ABL Credit Facility at such time, or (iii) Domestic Availability (as defined in the ABL Credit Agreement) being less than $20,000, the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Credit Facility with the cash deposited
in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a "Dominion Period") shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than 10% of the total commitments under the ABL Credit Facility for a period of 30 consecutive days and no event of default is continuing, or (iii) if arising as a result of Domestic Availability being less than $20,000, Domestic Availability is greater than $20,000 for a period of 30 consecutive days and no event of default is continuing.
Covenants. The ABL Credit Agreement governing the ABL Credit Facility contains (i) a springing covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.10 to 1.00 during any Dominion Period and (ii) a covenant requiring Domestic Availability greater than $20,000 at all times until audited financial statements for fiscal year ending March 31, 2023 are delivered under the ABL Credit Agreement.
The ABL Credit Agreement governing the ABL Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•enter into sale and leaseback transactions;
•consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries (as defined in the ABL Credit Agreement).
On March 31, 2023, the Borrowers were in compliance with all covenants under the ABL Credit Agreement.
Intabex Term Loans
Pursuant to (i) an exchange offer (the "DDTL Facility Exchange") made to, and accepted by, holders of 100.0% of the outstanding term loans (the "DDTL Term Loans") under the Amended and Restated Term Loan Credit Agreement, effectuated pursuant to that certain Amendment and Restatement Agreement, dated as of June 2, 2022 (the "DDTL Credit Agreement"), by and among Intabex Netherlands B.V., as borrower ("Intabex"), the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto and (ii) an exchange offer (the "Exit Facility Exchange") made to, and accepted by, holders of 100.0% of the outstanding term loans (the "Exit Term Loans") under the Exit Term Loan Credit Agreement, dated as of August 24, 2020 (the "Exit Term Loan Credit Agreement"), by and among Pyxus Holdings, as borrower, the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto, on February 6, 2023, Pyxus Holdings entered into the Intabex Term Loan Credit Agreement, dated as of February 6, 2023 (the "Intabex Term Loan Credit Agreement"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus (US) LLC ("Alter Domus"), as administrative agent and senior collateral agent. The Intabex Term Loan Credit Agreement established a term loan credit facility in an aggregate principal amount of approximately $189,033 (the "Intabex Credit Facility"), under which term loans in the full aggregate principal amount of the Intabex Credit Facility (the "Intabex Term Loans") were deemed made in exchange for (i) $100,000 principal amount of the DDTL Term Loans, plus an additional $2,000 on account of the exit fee payable under the DDTL Credit Agreement and (ii) approximately $87,033 principal amount of Exit Term Loans, representing 40.0% of the outstanding principal amount thereof (including the applicable accrued and unpaid PIK interest thereon).
The Intabex Term Loans bear interest, at Pyxus Holdings’ option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Intabex Term Loans are stated to mature on December 31, 2027.
The Intabex Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.
The Intabex Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates;
designate subsidiaries as unrestricted subsidiaries; and, in the case of Intabex, undertake business activities and sell certain subsidiaries.
On March 31, 2023, Pyxus Holdings and the guarantors under the Intabex Term Loan Credit Agreement were in compliance with all covenants under the Intabex Term Loan Credit Agreement.
Pyxus Term Loans
Pursuant to the Exit Facility Exchange, on February 6, 2023, Pyxus Holdings entered into the Pyxus Term Loan Credit Agreement, dated as of February 6, 2023 (the "Pyxus Term Loan Credit Agreement"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus, as administrative agent and senior collateral agent, to establish a term loan credit facility in an aggregate principal amount of approximately $130,550 (the "Pyxus Credit Facility"), under which term loans in the full aggregate principal amount of the Pyxus Credit Facility (the "Pyxus Term Loans" and, together with the Intabex Term Loans, the "New Term Loans") were deemed made in exchange for 60.0% of the outstanding principal amount of Exit Term Loans (including the applicable accrued and unpaid PIK interest thereon).
The Pyxus Term Loans bear interest, at Pyxus Holdings’ option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Pyxus Term Loans are stated to mature on December 31, 2027.
The Pyxus Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.
The Pyxus Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.
On March 31, 2023, Pyxus Holdings and the guarantors under the Pyxus Term Loan Credit Agreement were in compliance with all covenants under the Pyxus Term Loan Credit Agreement.
8.50% Senior Secured Notes due 2027
Pursuant to an exchange offer (the "Notes Exchange" and, together with the DDTL Facility Exchange and the Exit Facility Exchange, the "Debt Exchange Transactions") made by Pyxus Holdings and accepted by holders of approximately 92.7% of the aggregate principal amount of the outstanding 10.0% Senior Secured First Lien Notes due 2024 issued by Pyxus Holdings (the "2024 Notes") pursuant to that certain Indenture, dated as of August 24, 2020 (the "2024 Notes Indenture"), by and among Pyxus Holdings, the guarantors party thereto and the trustee, collateral agent, registrar and paying agent thereunder, on February 6, 2023, Pyxus Holdings issued approximately $260,452 in aggregate principal amount of 8.5% Senior Secured Notes due December 31, 2027 (the "2027 Notes" and, together with the New Term Loans, the "New Secured Debt") to the exchanging holders of the 2024 Notes for an equal principal amount of 2024 Notes. The 2027 Notes were issued pursuant to the Indenture, dated as of February 6, 2023 (the "2027 Notes Indenture"), among Pyxus Holdings, the guarantors party thereto, and Wilmington Trust, National Association, as trustee, and Alter Domus, as collateral agent.
The 2027 Notes bear interest at a rate of 8.5% per annum, which interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Interest accrues on the 2027 Notes from the date of issuance and is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023. The 2027 Notes are stated to mature on December 31, 2027.
At any time from time to time, Pyxus Holdings may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100.0% of the principal amount of 2027 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
The 2027 Notes Indenture contains customary affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.
On March 31, 2023, Pyxus Holdings and the guarantors of the 2027 Notes were in compliance with all covenants under the 2027 Notes Indenture.
Guarantees and Collateral
The obligations of Pyxus Holdings under the ABL Credit Agreement and the New Secured Debt are fully and unconditionally guaranteed by the Company, Pyxus Parent and all of the Company’s domestic subsidiaries and certain of the Company’s foreign subsidiaries, subject to certain limitations (the "Senior Secured Debt Obligors"). In addition, under the Intabex Term Loan Credit Facility, Intabex and Alliance One International Tabak B.V. (which were obligors under the DDTL Term Loans) also guarantee the Intabex Credit Facility (together, the "Specified Intabex Obligors") but do not guarantee the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement. In addition, certain assets of the Specified Intabex Obligors (which were pledged as collateral for the DDTL Term Loans) are pledged as collateral to secure the Intabex Term Loans (the "Intabex Collateral") but do not secure the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement.
The Senior Secured Debt Obligors’ obligations under the ABL Credit Agreement are secured by (i) a first-priority senior lien the ABL Priority Collateral (as defined in the ABL/New Secured Debt Intercreditor Agreement (as defined below)), which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets and proceeds of the foregoing of the Senior Secured Debt Obligors, and (ii) a junior-priority lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral. The New Secured Debt is secured by (i) a first-priority senior lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral and (ii) a junior-priority lien on the ABL Priority Collateral. The Intabex Term Loans are further secured by a first-priority lien on the Intabex Collateral.
The obligations under the New Secured Debt share a single lien, held by Alter Domus, as senior collateral agent (the "Senior Collateral Agent"), on the Collateral (as defined below) subject to the payment waterfall pursuant to the intercreditor arrangements described below.
Intercreditor Agreements
The priority of the obligations under the ABL Credit Agreement and the New Secured Debt are set forth in the two intercreditor agreements entered into in connection with consummation of the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange.
ABL/New Secured Debt Intercreditor Agreement. On February 6, 2023, Pyxus Holdings, Inc., the guarantors party thereto, PNC Bank, National Association, as ABL Agent, Alter Domus, as Pyxus Term Loan Administrative Agent, Intabex Term Loan Administrative Agent and Senior Collateral Agent, and Wilmington Trust, National Association, as Senior Notes Trustee entered into an Amended and Restated ABL Intercreditor Agreement, dated as of February 6, 2023 (the "ABL/New Secured Debt Intercreditor Agreement") to provide for the intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, the holders of obligations under the New Secured Debt, the guarantees thereof and certain related obligations. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations have first-priority senior liens on the ABL Priority Collateral, which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing entities and proceeds of the foregoing, with the obligations under the New Secured Debt having junior-priority liens on the ABL Priority Collateral. Pursuant to the ABL/New Secured Debt Intercreditor Agreement, Pyxus Holdings’ collective obligations under the New Secured Debt, the guarantees thereof and certain related obligations have first-priority senior liens on the collateral that is not ABL Priority Collateral, including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus Holdings or a guarantor (other than the Intabex Collateral), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other assets related to the foregoing and proceeds of the foregoing, with the obligations under the ABL Credit Facility having junior-priority liens on such collateral, other than real property. The ABL Credit Facility is not secured by real property.
New Secured Debt Intercreditor Agreement. On February 6, 2023, the New Secured Debt Obligors, together with the representative for the holders of the New Secured Debt and the Senior Collateral Agent, entered into the Intercreditor and Collateral Agency Agreement, dated as of February 6, 2023 (the "New Secured Debt Intercreditor Agreement"), pursuant to which the Senior Collateral Agent, serves as joint collateral agent for the benefit of the holders of the 2027 Notes, the Pyxus Term Loans and the Intabex Term Loans with respect to all common collateral securing such indebtedness (the "Collateral"; which excludes Intabex Collateral). The New Secured Debt Intercreditor Agreement provides that Collateral or proceeds thereof received in connection with or upon the exercise of secured creditor remedies will be distributed (subject to the provisions described in the next paragraph) first to holders of the New Secured Debt on a pro rata basis based on the aggregate
principal amount of each class of New Secured Debt, and then to holders of future junior debt secured by such Collateral on a pro rata basis based on the aggregate principal amount of each class of future junior debt (and in each case permitted refinancing indebtedness thereof).
Exercise of rights and remedies against the Collateral and certain rights in a bankruptcy or insolvency proceeding (including the right to object to debtor-in-possession financing or to credit bid) by the Senior Collateral Agent will be controlled first by the holders of a majority in principal amount of the New Term Loans (including, in any event, each holder holding at least 20.0% of the New Term Loans as of February 6, 2023, provided such holder holds at least 15.0% of the New Term Loans as of the date of determination), second, after repayment in full of the New Term Loans, by the holders of a majority in principal amount of the 2027 Notes and last, after repayment in full of the New Term Loans and the 2027 Notes, by holders of a majority in principal amount of any future junior debt secured by the Collateral. Any such future junior debt will be subject to certain customary waivers of rights in a bankruptcy or insolvency proceeding in favor of the Senior Collateral Agent, including, but not limited to, with respect to debtor-in-possession financing, adequate protection and credit bidding.
Refinanced Senior Secured Debt
Exit ABL Credit Facility
On August 24, 2020, Pyxus Holdings entered into the Exit ABL Credit Agreement, dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish an asset-based revolving credit facility ("the Exit ABL Credit Facility"), which permitted borrowings in an initial maximum principal amount of $75,000, subject to certain limitations. The Exit ABL Credit Facility could 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. Under certain conditions, Pyxus Holdings was permitted to solicit the ABL Lenders to provide additional revolving loan commitments under the Exit ABL Credit Facility in an aggregate amount not to exceed $15,000. The Exit ABL Credit Facility was required to be drawn at all times in an amount greater than or equal to the lesser of (i) 25% of total commitments under the Exit ABL Credit Facility and (ii) $18,750. The amount available under the Exit ABL Credit Facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
•85% of eligible accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the appraised net-orderly-liquidation value of eligible inventory.
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 (the “DDTL Closing Date”), Intabex entered into a Term Loan Credit Agreement (as amended on May 21, 2021, the "Initial DDTL Facility Credit Agreement"), dated as of April 23, 2021, by and among (i) Intabex, as borrower, (ii) the Company, Pyxus Parent, Pyxus Holdings, Alliance One International, LLC, Alliance One International Holdings, Ltd, as guarantors (collectively, the "Parent Guarantors"), (iii) the lenders thereto, which included certain funds managed by Glendon Capital Management, L.P., Monarch Alternative Capital LP, and Owl Creek Asset Management, L.P. (collectively and, together other lenders that became parties thereto as lenders, the "DDTL Facility Lenders"), and (iv) Alter Domus, as administrative agent and collateral agent. The Initial DDTL Facility Credit Agreement established a $120,000 delayed-draw term loan credit facility (the "Initial DDTL Facility") under which the full amount has been drawn (the "Initial DDTL Loans") by March 31, 2022. The proceeds of the Initial DDTL Loans were used to provide working capital and for other general corporate purposes of Intabex, the guarantors of the Initial DDTL Loans and their subsidiaries. Amounts prepaid or repaid in respect of Initial DDTL Loans were not permitted to be reborrowed under the Initial DDTL Facility.
Interest on the aggregate principal amount of outstanding Initial DDTL Loans accrued at an annual rate of LIBOR plus 9.0%, subject to a LIBOR floor of 1.5%, for LIBOR loans or, for loans that are not LIBOR loans, at an annual rate of an alternative base rate (as specified in the Initial DDTL Facility Credit Agreement) plus 8.0%. Pursuant to the Initial DDTL Facility Credit Agreement, the DDTL Facility Lenders received a non-refundable commitment fee equal to 2.0% of the aggregate commitments under the Initial DDTL Facility, paid in cash in full on the DDTL Closing Date and netted from the proceeds of the Initial DDTL Loans borrowed on the DDTL Closing Date. The Initial DDTL Facility Credit Agreement provided for the payment by Intabex to the DDTL Facility Lenders of a non-refundable exit fee (the "Exit Fee") in the amounts set forth in the table below in respect of any Initial DDTL Loans repaid (whether prepaid voluntarily or paid following acceleration or at maturity). The Exit Fee was deemed to have been earned on the DDTL Closing Date, and was due and payable in cash on each date of repayment or termination, as applicable, in respect of the Initial DDTL Loans or commitments repaid or terminated on such date, as applicable.
| | | | | |
| Loan Repayment Date | Exit Fee |
| On or before September 30, 2021 | 1.0% |
| After September 30, 2021 and on or before December 31, 2021 | 2.5% |
| After December 31, 2021 and on or before March 31, 2022 | 3.5% |
| After March 31, 2022 | 5.0% |
The obligations of Intabex under the Initial DDTL Facility Credit Agreement (and certain related obligations) were (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 was or became a guarantor of borrowings under the Exit Term Loan Credit Agreement and (b) was 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.
The Initial DDTL Credit Facility Agreement was amended and restated by the DDTL Credit Agreement, which established a $100,000 term loan credit facility (the "DDTL Term Loan Facility") and required that Intabex use the net proceeds of the DDTL Term Loans made thereunder and other funds to repay in full its obligations under the Initial DDTL Facility Credit Agreement, including the outstanding principal of, and accrued and unpaid interest on, borrowings under the Initial DDTL Facility and the payment of fees and expenses incurred in connection with repaying such borrowings and incurring the DDTL Term Loans under the DDTL Credit Agreement. The DDTL Credit Agreement provided for a 2.0% fee due with respect to any principal payment made after the one-year anniversary of the incurrence of the DDTL Term Loans, including a payment made at maturity. The DDTL Credit Agreement further provided that amounts of principal that were prepaid may not be reborrowed under the DDTL Term Loan Facility. Interest on the outstanding principal amount of the DDTL Term Loans accrued 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 DDTL Credit Agreement and subject to a specified floor) plus 6.5%. Pursuant to the DDTL Credit Agreement, the DDTL Facility Lenders received a non-refundable commitment fee equal to 3.0% of the aggregate commitments under the DDTL Term Loan Facility and a closing fee equal to 1.0% of the aggregate commitments under the DDTL Term Loan Facility, as original issue discount. Under the DDTL Credit Agreement, the obligations of Intabex under the Amended Credit Agreement (and certain related obligations) continued to be guaranteed and secured by the same guarantors of, and the same collateral securing, Intabex’s obligations under the Initial DDTL Facility Credit Agreement. The DDTL Term Loans were stated to mature on December 2, 2023.
The DDTL Term Loans were exchanged upon consummation of the DDTL Facility Exchange on February 6, 2023.
Exit Term Loan Credit Facility
On August 24, 2020, pursuant to the Exit Term Loan Credit Agreement, Pyxus Holdings became obligated with respect to the Exit Term Loans in an aggregate principal amount of approximately $213,418. The Exit Term Loans accrued interest at an annual rate equal to LIBOR plus 800 basis points or 700 basis points above base rate, as applicable. In addition to the cash interest payments, from and after August 24, 2021, the Exit Term Loans accrued "payment in kind" (PIK) interest in an annual rate equal to 100 basis points, which rate increased by an additional 100 basis points on August 24, 2022 and was further scheduled to increase by an additional 100 basis points each of the third and fourth anniversaries of the date of the Exit Term Loan Credit Agreement. The Exit Term Loans were stated to mature on February 24, 2025.
Pyxus Holdings’ obligations under the Exit Term Loan Credit Agreement (and certain related obligations) were (a) guaranteed by Pyxus Parent, Inc. and the Company, all of Pyxus Holdings’ material domestic subsidiaries and certain of Pyxus Holdings’ foreign subsidiaries, and each of Pyxus Holdings’ material domestic subsidiaries was required to guarantee the Exit Term Loan Credit Agreement on a senior secured basis and (b) secured by specified collateral owned by Pyxus Holdings and such guarantors.
The Exit Term Loans were exchanged upon consummation of the DDTL Facility Exchange and the Exit Facility Exchange on February 6, 2023.
Related Party Transactions
The Company, Pyxus Parent and Pyxus Holdings (collectively, the "Holding Companies") entered into a Support and Exchange Agreement, effective as of December 27, 2022 (as amended, including by joinders thereto, the "Support Agreement"), with a group of creditors, including Glendon Capital Management LP, Monarch Alternative Capital LP, Nut Tree Capital Management, L.P., Intermarket Corporation and Owl Creek Asset Management, L.P. on behalf of certain funds managed by them and/or certain of their advisory clients, as applicable (collectively, the "Supporting Holders"), holding in aggregate:
•approximately 99.7% of the DDTL Term Loans outstanding under the DDTL Credit Agreement;
•approximately 68.1% of the Exit Term Loans outstanding under the Exit Term Loan Credit Agreement; and
•approximately 64.1% of the 2024 Notes outstanding under the 2024 Notes Indenture.
Pursuant to the Support Agreement, the Supporting Holders agreed to participate in the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange. Based on a Schedule 13D/A filed with the SEC on January 4, 2023 by Glendon Capital Management, L.P. (the "Glendon Investor"), Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., Glendon Capital Management, L.P. reported beneficial ownership of 7,939 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on a Schedule 13D/A filed with the SEC on January 23, 2023, by Monarch Alternative Capital LP (the "Monarch Investor"), MDRA GP LP and Monarch GP LLC, Monarch Alternative Capital LP 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. A representative of the Glendon Investor and a representative of the Monarch Investor served as directors of Pyxus at the time the Company and its applicable subsidiaries entered into the Initial DDTL Credit Facility Agreement, the amendments thereto (including the DDTL Credit Agreement) and the Support Agreement, effected borrowings under the Initial DDTL Credit Facility Agreement and the DDTL Credit Agreement and commenced the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange. The Initial DDTL Credit Facility Agreement and the amendments thereto (including the DDTL Credit Agreement), any and all borrowings thereunder, the related guaranty transactions, the Support Agreement, the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange, including the Intabex Term Loan Credit Agreement, the Intabex Term Loans, the Pyxus Term Loan Credit Agreement, the Pyxus Term Loans, the 2027 Notes and the 2027 Notes Indenture 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.
Other Outstanding Debt
2024 Notes
In conjunction with the Notes Exchange, Pyxus Holdings received consents from requisite holders of 2024 Notes to amend the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents to, among other things, (i) eliminate most of the restrictive covenants and certain of the affirmative covenants in the 2024 Notes Indenture, (ii) eliminate the change of control repurchase obligation in the 2024 Notes Indenture, (iii) subordinate the 2024 Notes in right of payment to existing and future senior indebtedness (including the New Secured Debt), (iv) eliminate certain events of default and (v) release all of the collateral securing the 2024 Notes. On February 6, 2023, the relevant parties to the 2024 Notes Indenture entered into the Second Supplemental Indenture, dated as of February 6, 2023 (the "2024 Notes Supplemental Indenture"), to the 2024 Notes Indenture, pursuant to which the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents were amended to effect these changes.
The 2024 Notes bear interest at a rate of 10.0% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year. The 2024 Notes are stated to mature on August 24, 2024. At March 31, 2023, the remaining 2024 Notes outstanding is $19,931, net of a debt discount of $460. The total repayment amount due at maturity is $20,391.
On March 31, 2023, Pyxus Holdings and the guarantors of the 2024 Notes were in compliance with all covenants under the 2024 Notes Indenture, as amended by the 2024 Notes Supplemental Indenture.
Foreign Seasonal Lines of Credit
Excluding its 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 365 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 or at specified dates. These loans are generally renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are guaranteed by the Company and certain of its subsidiaries. At March 31, 2023, the total borrowing capacity under individual foreign seasonal lines of credit range up to $131,840. At March 31, 2023 and 2022, the Company was permitted to borrow under foreign seasonal lines of credit up to a total $716,080 and $673,288, respectively, subject to limitations under the ABL Credit Agreement and the agreements governing the New Secured Debt. The weighted average variable interest rate for the years ended March 31, 2023 and 2022 was 6.8% and 6.1%, respectively. Certain of the foreign seasonal lines of credit with aggregate outstanding borrowings at March 31, 2023 and 2022 of $84,640 and $109,412, respectively, are secured by trade receivables and inventories as collateral. At March 31, 2023 and 2022, respectively, $1,195 and $971 of cash was held on
deposit as a compensating balance. At March 31, 2023, the Company and its subsidiaries were in compliance with the covenants associated with the short-term seasonal lines of credit.
17. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under four accounts receivable securitization facilities, two of 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. Following the sale and transfer of the receivables to the special purpose entity, the receivables are isolated from the Company and its affiliates, and effective control of the receivables is passed to the unaffiliated financial institution, which has all rights, including the right to pledge or sell the receivables. The first facility requires a minimum level of deferred purchase price be retained by the Company in connection with the sales of the receivables to the unaffiliated financial institution. The Company continues to service, administer, and collect the receivables on behalf of the special purpose entity and receives a servicing fee of 0.5% of serviced receivables per annum. As the Company estimates the expected fee it receives in return for its obligation to service these receivables is at fair value, no servicing assets or liabilities are recognized. Servicing fees are recorded as a reduction of selling, general, and administrative expenses within the statements of consolidated operations. As of March 31, 2023, the investment limit of this facility was $100,000 of trade receivables.
Under the second facility, the Company offers trade receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. Following the sale and transfer of the receivables to the unaffiliated financial institution, the receivables are isolated from the Company and its affiliates, and effective control of the receivables is passed to the unaffiliated financial institution, which has all rights, including the right to pledge or sell the receivables. Although the Company continues to service, administer, and collect the receivables on behalf of the unaffiliated financial institution, the Company does not receive a servicing fee, and as a result, has established a servicing liability based upon unobservable inputs, primarily discounted cash flow. As of March 31, 2023, the investment limit under the second facility was $110,000 of trade receivables.
As servicer for 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 March 31, 2023 and 2022, trade receivables, net in the consolidated balance sheets has been reduced by $3,193 and $1,872 as a result of the net settlement, respectively. Refer to "Note 20. Fair Value Measurements" for additional information.
Under the third and fourth facilities, the Company offers trade receivables for sale to unaffiliated financial institutions, which are then subject to acceptance by the unaffiliated financial institutions. Following the sale and transfer of the receivables to the unaffiliated financial institution, the receivables are isolated from the Company and its affiliates, and effective control of the receivables is passed to the unaffiliated financial institution, which has all rights, including the right to pledge or sell the receivables. As of March 31, 2023, the investment limits under the third and fourth facilities were variable based on qualifying sales.
The following summarizes the Company's accounts receivable outstanding in the securitization facilities, which represents trade receivables sold into the program that have not been collected from the customer, and related beneficial interests, which represents the Company's residual interest in receivables sold that have not been collected from the customer:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Receivables outstanding in facility | $ | 173,979 | | $ | 131,092 | |
| Beneficial interest | 19,522 | | 28,072 | |
| | |
Cash proceeds from the sale of trade receivables is comprised of a combination of cash and a deferred purchase price receivable. Deferred purchase price receivable is realized after the collection of the underlying trade receivables sold by the purchasers. The following summarizes the Company's cash purchase price and deferred purchase price:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Cash proceeds for the period ended: | | |
| Cash purchase price | $ | 696,404 | | $ | 441,054 | |
| Deferred purchase price | 165,262 | | 189,440 | |
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18. 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:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Amounts guaranteed (not to exceed) | $ | 152,032 | | $ | 114,208 | |
Amounts outstanding under guarantee(1) | 83,420 | | 49,413 | |
| Fair value of guarantees | 5,262 | | 2,956 | |
| Amounts due to local banks on behalf of suppliers for government subsidized rural credit financing | 12,529 | | 15,781 | |
(1) Most of the guarantees outstanding at March 31, 2023 expire within one year. | | |
19. 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 $6,764 from its derivative financial instruments in cost of goods and services sold for the year ended March 31, 2023. The Company recorded a net gain of $2,482 from its derivative financial instruments in cost of goods and services sold for the year ended March 31, 2022.
As of March 31, 2023 and 2022, accumulated other comprehensive income includes $(2,777) and $8,975, respectively, net of $1,690 and $(3,025) of tax, respectively, for net unrealized (losses) and gains related to designated cash flow hedges. As of March 31, 2023 and 2022, the Company recorded current derivative assets of $3,970 and $9,867 within other current assets, respectively. The U.S. Dollar notional amount of derivative contracts outstanding as of March 31, 2023 and 2022 was $63,622 and $61,690, respectively.
20. Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The inputs used to measure fair value are prioritized based on a three-level valuation hierarchy, which is comprised of observable and non-observable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These three levels of inputs create the following fair value hierarchy:
•Level 1 inputs - Quoted prices in active markets for identical assets or liabilities.
•Level 2 inputs - Quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, and observable inputs (other than quoted prices) for the assets or liabilities.
•Level 3 inputs - Unobservable inputs for the assets or liabilities.
The following summarizes assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
| Level 2 | Level 3 | Total Assets /
Liabilities
at Fair Value | | Level 2 | Level 3 | Total Assets /
Liabilities
at Fair Value |
| Financial assets | | | | | | | |
| Derivative financial instruments | $ | 3,970 | | $ | — | | $ | 3,970 | | | $ | 9,867 | | $ | — | | $ | 9,867 | |
| Securitized beneficial interests | — | | 19,522 | | 19,522 | | | — | | 28,072 | | 28,072 | |
| Total assets | $ | 3,970 | | $ | 19,522 | | $ | 23,492 | | | $ | 9,867 | | $ | 28,072 | | $ | 37,939 | |
| Financial liabilities | | | | | | | |
Long-term debt(1) | $ | 523,758 | | $ | 514 | | $ | 524,272 | | | $ | 447,843 | | $ | 246 | | $ | 448,089 | |
| Guarantees | — | | 5,262 | | 5,262 | | | — | | 2,956 | | 2,956 | |
| Total liabilities | $ | 523,758 | | $ | 5,776 | | $ | 529,534 | | | $ | 447,843 | | $ | 3,202 | | $ | 451,045 | |
(1) This fair value measurement disclosure does not affect the consolidated balance sheets. |
Level 2 measurements
•Debt: The fair value of debt is based on the market price for similar financial instruments or model-derived valuations with observable inputs. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
•Derivatives: The fair value of derivatives is based on the discounted cash flow analysis of the expected future cash flows. The primary inputs to the valuation include forward yield curves, implied volatilities, LIBOR rates, and credit valuation adjustments.
Level 3 measurements
•Guarantees: The fair value of guarantees is based on the discounted cash flow analysis of the expected future cash flows or historical loss rates. The historical loss rate was weighted by the principal balance of the loans.
•Securitized beneficial interests: The fair value of securitized beneficial interests is based on the present value of future expected cash flows. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
•Debt: The fair value of debt is based on the present value of future payments. The primary inputs to this valuation include treasury notes interest and borrowing rates. The borrowing rates were weighted by average loans outstanding.
Reconciliation of Change in Recurring Level 3 Balances
The following summarizes the changes in Level 3 instruments measured on a recurring basis.
| | | | | | | | | | | |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees |
| Beginning balance at March 31, 2021 | $ | 19,370 | | $ | 3,162 | | $ | 1,740 | |
| Sales of receivables/issuance of guarantees | 205,517 | | — | | 3,151 | |
| Settlements | (192,141) | | (2,918) | | (1,749) | |
| Additions | — | | 2 | | — | |
| Losses recognized in earnings | (4,674) | | — | | (186) | |
| Ending balance at March 31, 2022 | $ | 28,072 | | $ | 246 | | $ | 2,956 | |
| Sales of receivables/issuance of guarantees | 166,165 | | | 6,187 | |
| Settlements | (164,679) | | (37) | | (1,864) | |
| Additions | — | | 305 | | — | |
| Losses recognized in earnings | (10,036) | | — | | (2,017) | |
| Ending balance at March 31, 2023 | $ | 19,522 | | $ | 514 | | $ | 5,262 | |
The amount of total losses included in earnings for the years ended March 31, 2023 and 2022 are attributable to the change in unrealized losses relating to assets still held at the respective dates was $659 and $1,148 on securitized beneficial interests. Gains and losses included in earnings are reported in other expense, net.
Information about Fair Value Measurements Using Significant Unobservable Inputs
The following summarizes significant unobservable inputs and the valuation techniques utilized:
| | | | | | | | | | | | | | |
| Fair value at March 31, 2023 | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| Securitized Beneficial Interests | $ | 19,522 | | Discounted Cash Flow | Discount Rate | 2.3% to 7.3% |
| Payment Speed | 38 days to 88 days |
| Guarantees | $ | 5,262 | | Historical Loss | Historical Loss | 1.2% to 40.0% |
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| Fair value at March 31, 2022 | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| Securitized Beneficial Interests | $ | 28,072 | | Discounted Cash Flow | Discount Rate | 2.8% to 3.9% |
| Payment Speed | 91 days to 103 days |
| Guarantees | $ | 2,956 | | Historical Loss | Historical Loss | 0.6% to 44.6% |
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21. Pension and Other Postretirement Benefits
Defined Benefit Plans
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"). During the nine months ended December 31, 2022, the Company settled benefits with vested participants that elected a lump sum payout and made a cash contribution of $5,300 to fully fund the U.S. Pension Plan's liabilities in preparation to purchase a group annuity contract to administer future payments to the remaining U.S. Pension Plan participants. In addition, the Company recorded a pension settlement charge of $2,588 during the nine months ended December 31, 2022, which included the recognition of unrecognized pension gains within accumulated other comprehensive loss within the Company's consolidated statements of operations. Termination of the U.S. Pension Plan occurred during the three-month period ended December 31, 2022.
The following summarizes benefit obligations, plan assets, and funded status for the defined benefit pension plans:
| | | | | | | | | | | |
| U.S. Plans | Non-U.S. Plans | Total |
| Year Ended March 31, 2023 |
| Benefit obligation, beginning | $ | 62,797 | | $ | 58,931 | | $ | 121,728 | |
| Service cost | 300 | | 176 | | 476 | |
| Interest cost | 1,711 | | 1,564 | | 3,275 | |
| Plan amendments | — | | 139 | | 139 | |
| Actuarial gains | (4,106) | | (10,220) | | (14,326) | |
| Plan settlements | (21,390) | | (720) | | (22,110) | |
| Effects of currency translation | — | | (2,356) | | (2,356) | |
| Benefits paid | (3,602) | | (2,843) | | (6,445) | |
| Benefit obligation, ending | $ | 35,710 | | $ | 44,671 | | $ | 80,381 | |
| | | |
| Fair value of plan assets, beginning | $ | 19,812 | | $ | 66,801 | | $ | 86,613 | |
| Actual return on plan assets | (3,974) | | (10,027) | | (14,001) | |
| Employer contributions | 9,154 | | 1,758 | | 10,912 | |
| Plan settlements | (21,390) | | (720) | | (22,110) | |
| Effects of currency translation | — | | (2,942) | | (2,942) | |
| | | |
| Benefits paid | (3,602) | | (2,843) | | (6,445) | |
| Fair value of plan assets, ending | $ | — | | $ | 52,027 | | $ | 52,027 | |
| Funded status of the plan | $ | (35,710) | | $ | 7,356 | | $ | (28,354) | |
| | | | | | | | | | | |
| U.S. Plans | Non-U.S. Plans | Total |
| Year Ended March 31, 2022 |
| Benefit obligation, beginning | $ | 76,223 | | $ | 66,433 | | $ | 142,656 | |
| Service cost | 215 | | 174 | | 389 | |
| Interest cost | 1,467 | | 1,187 | | 2,654 | |
| | | |
| Actuarial gains | (2,948) | | (3,669) | | (6,617) | |
| Plan settlements | (7,600) | | (114) | | (7,714) | |
| Effects of currency translation | — | | (1,971) | | (1,971) | |
| Benefits paid | (4,560) | | (3,109) | | (7,669) | |
| Benefit obligation, ending | $ | 62,797 | | $ | 58,931 | | $ | 121,728 | |
| | | |
| Fair value of plan assets, beginning | $ | 27,109 | | $ | 69,692 | | $ | 96,801 | |
| Actual return on plan assets | 806 | | 1,038 | | 1,844 | |
| Employer contributions | 4,057 | | 1,325 | | 5,382 | |
| Plan settlements | (7,600) | | (114) | | (7,714) | |
| Effects of currency translation | — | | (2,031) | | (2,031) | |
| | | |
| Benefits paid | (4,560) | | (3,109) | | (7,669) | |
| Fair value of plan assets, ending | $ | 19,812 | | $ | 66,801 | | $ | 86,613 | |
| Funded status of the plan | $ | (42,985) | | $ | 7,870 | | $ | (35,115) | |
The following summarizes amounts reported in the consolidated balance sheets for the defined benefit pension plans:
| | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| March 31, 2023 | March 31, 2022 | | March 31, 2023 | March 31, 2022 |
| Noncurrent benefit asset recorded in other noncurrent assets | $ | — | | $ | — | | | $ | 13,731 | | $ | 15,443 | |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | (3,290) | | (3,305) | | | (972) | | (878) | |
| Accrued noncurrent benefit liability recorded in pension, postretirement, and other long-term liabilities | (32,420) | | (39,680) | | | (5,403) | | (6,695) | |
| Funded status of the plan | $ | (35,710) | | $ | (42,985) | | | $ | 7,356 | | $ | 7,870 | |
The following summarizes pension obligations for the defined benefit pension plans:
| | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans(1) |
| March 31, 2023 | March 31, 2022 | | March 31, 2023 | March 31, 2022 |
| Information for pension plans with accumulated benefit obligation in excess of plan assets: | | | | | |
| Projected benefit obligation | $ | 35,710 | | $ | 62,797 | | | $ | 6,375 | | $ | 7,573 | |
| Accumulated benefit obligation | 35,710 | | 62,797 | | | 5,998 | | 7,009 | |
| Fair value of plan assets | — | | 19,812 | | | — | | — | |
(1) Certain of the Company's non-U.S. defined benefit pension plans in Europe were over funded as of March 31, 2023 and 2022.
The following summarizes activity in accumulated other comprehensive income for the defined benefit plans:
| | | | | | | | | | | |
| U.S. and Non-U.S. Pension | U.S. and Non-U.S. Post-retirement | Total |
| Prior service credit | $ | 56 | | $ | — | | $ | 56 | |
| Net actuarial gains | 4,645 | | 1,383 | | 6,028 | |
| | | |
| Deferred taxes | 459 | | (215) | | 244 | |
| Balance at March 31, 2022 | $ | 5,160 | | $ | 1,168 | | $ | 6,328 | |
| | | |
| Prior service cost | (138) | | — | | (138) | |
| Net actuarial gains | 1,238 | | 609 | | 1,847 | |
| | | |
| Deferred taxes | 372 | | (74) | | 298 | |
| Total change for 2023 | $ | 1,472 | | $ | 535 | | $ | 2,007 | |
| | | |
| Prior service cost | (82) | | — | | (82) | |
| Net actuarial gains | 5,883 | | 1,992 | | 7,875 | |
| | | |
| Deferred taxes | 831 | | (289) | | 542 | |
| Balance at March 31, 2023 | $ | 6,632 | | $ | 1,703 | | $ | 8,335 | |
The following assumptions were used to determine the expense for the pension plans:
| | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| March 31, 2023 | March 31, 2022 | | March 31, 2023 | March 31, 2022 |
| Discount rate | 3.75% | 2.83% | | 2.98% | 2.17% |
| Rate of increase in future compensation | Not applicable | Not applicable | | 7.31% | 5.28% |
| Expected long-term rate of return on plan assets | Not applicable | 5.75% | | 2.16% | 2.12% |
| Interest crediting rate | 4.28% | 4.25% | | Not applicable | Not applicable |
The following weighted average assumptions were used to determine the benefit obligations for the pension plans:
| | | | | | | | | | | | | | | | | |
| U.S. Plans | | Non-U.S. Plans |
| March 31, 2023 | March 31, 2022 | | March 31, 2023 | March 31, 2022 |
| Discount rate | 5.08% | 3.74% | | 4.94% | 2.98% |
| Rate of increase in future compensation | Not applicable | Not applicable | | 5.72% | 7.31% |
| Interest crediting rate | Not applicable | 4.28% | | Not applicable | Not applicable |
Plan Assets
The following summarizes asset allocations and the percentage of the fair value of plan assets by asset category:
| | | | | | | | | | | | |
| | | | Non-U.S. Plans |
| | | | | March 31, 2023 | March 31, 2022 |
| Asset category: | | | | | | |
| Cash and cash equivalents | | | | | 11.5 | % | 10.6 | % |
| Equity securities | | | | | 20.3 | % | 20.7 | % |
| Debt securities | | | | | 14.8 | % | 66.5 | % |
| Insurance contracts | | | | | 50.9 | % | — | % |
| Real estate and other investments | | | | | 2.5 | % | 2.2 | % |
| Total | | | | | 100.0 | % | 100.0 | % |
The fair values for the pension plans by asset category are as follows:
| | | | | | | | | | | | | | |
| Non-U.S. Pension Plans | March 31, 2023 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 5,964 | | $ | 5,964 | | $ | — | | $ | — | |
| U.S. equities / equity funds | 6,669 | | 6,669 | | — | | — | |
| International equities / equity funds | 3,909 | | 3,909 | | — | | — | |
| | | | |
| U.S. fixed income funds | 5,364 | | 5,364 | | — | | — | |
| International fixed income funds | 2,334 | | 2,334 | | — | | — | |
| Insurance contracts | 26,472 | | — | | 26,472 | | — | |
Real estate and other (1) | 1,315 | | 1,315 | | — | | — | |
| Total | $ | 52,027 | | $ | 25,555 | | $ | 26,472 | | $ | — | |
| | | | | | | | | | | | | | |
| Non-U.S. Pension Plans | March 31, 2022 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 7,073 | | $ | 7,073 | | $ | — | | $ | — | |
| U.S. equities / equity funds | 9,268 | | 9,268 | | — | | — | |
| International equities / equity funds | 2,818 | | 2,818 | | — | | — | |
| Global equity funds | 1,748 | | 1,748 | | — | | — | |
| U.S. fixed income funds | 5,753 | | 5,753 | | — | | — | |
| International fixed income funds | 34,313 | | 10,448 | | 23,865 | | — | |
| Global fixed income funds | 4,371 | | 4,371 | | — | | — | |
| | | | |
Real estate and other (1) | 1,457 | | — | | — | | — | |
| Total | $ | 66,801 | | $ | 41,479 | | $ | 23,865 | | $ | — | |
(1) Certain investments that are measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. |
The following summarizes the plan assets recognized and measured at fair value using the net asset value and the inputs used to determine the fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
| Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period | | Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period |
| | | | | | | | | |
| Real estate and other | $ | 1,315 | | None | Quarterly | 60 Days | | $ | 3,907 | | None | Quarterly | 60 Days |
Postretirement Health and Life Insurance Benefits
The following summarizes benefit obligations, plan assets, and funded status for the postretirement health and life insurance benefits plans:
| | | | | | | | | | | |
| U.S. Plans | Non-U.S. Plans | Total |
| March 31, 2023 |
| Benefit obligation, beginning | $ | 3,977 | | $ | 1,454 | | $ | 5,431 | |
| Service cost | 5 | | — | | 5 | |
| Interest cost | 134 | | 121 | | 255 | |
| Effect of currency translation | — | | (97) | | (97) | |
| Actuarial gains | (437) | | (288) | | (725) | |
| Benefits paid | (310) | | (75) | | (385) | |
| Benefit obligation, ending | $ | 3,369 | | $ | 1,115 | | $ | 4,484 | |
| | | |
| Fair value of plan assets, beginning | $ | — | | $ | — | | $ | — | |
| Employer contributions | 310 | | 75 | | 385 | |
| Benefits paid | (310) | | (75) | | (385) | |
| Fair value of plan assets, ending | $ | — | | $ | — | | $ | — | |
| Funded status of the plan | $ | (3,369) | | $ | (1,115) | | $ | (4,484) | |
| | | |
| U.S. Plans | Non-U.S. Plans | Total |
| March 31, 2023 |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | $ | (297) | | $ | (96) | | $ | (393) | |
| Accrued non-current benefit liability recorded in pension, postretirement, and other long-term liabilities | (3,072) | | (1,019) | | (4,091) | |
| Funded status of the plan | $ | (3,369) | | $ | (1,115) | | $ | (4,484) | |
| | | | | | | | | | | |
| U.S. Plans | Non-U.S. Plans | Total |
| March 31, 2022 |
| Benefit obligation, beginning | $ | 4,458 | | $ | 1,441 | | $ | 5,899 | |
| Service cost | 6 | | — | | 6 | |
| Interest cost | 97 | | 110 | | 207 | |
| Effect of currency translation | — | | 250 | | 250 | |
| Actuarial gains | (425) | | (251) | | (676) | |
| Benefits paid | (159) | | (96) | | (255) | |
| Benefit obligation, ending | $ | 3,977 | | $ | 1,454 | | $ | 5,431 | |
| | | |
| Fair value of plan assets, beginning | $ | — | | $ | — | | $ | — | |
| Employer contributions | 159 | | 96 | | 255 | |
| Benefits paid | (159) | | (96) | | (255) | |
| Fair value of plan assets, ending | $ | — | | $ | — | | $ | — | |
| Funded status of the plan | $ | (3,977) | | $ | (1,454) | | $ | (5,431) | |
| | | |
| U.S. Plans | Non-U.S. Plans | Total |
| March 31, 2022 |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | $ | (310) | | $ | (118) | | $ | (428) | |
| Accrued non-current benefit liability recorded in pension, postretirement, and other long-term liabilities | (3,667) | | (1,336) | | (5,003) | |
| Funded status of the plan | $ | (3,977) | | $ | (1,454) | | $ | (5,431) | |
The following assumptions were used to determine postretirement benefit obligations:
| | | | | | | | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans |
| Discount rate | 5.09 | % | 10.58 | % | | 3.75 | % | 9.50 | % |
| Health care cost trend rate assumed for next year | 5.49 | % | 9.40 | % | | 5.62 | % | 7.90 | % |
| | | | | |
Cash Flows
The Company expects to contribute the following to its benefit plans:
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Plans |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans |
| Fiscal Year 2024 | $ | 3,290 | | $ | 972 | | | $ | 297 | | $ | 96 | |
The Company's contributions to the defined contribution plans are as follows:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Contributions | $5,478 | 4,589 |
The following summarizes the expected benefit payments to be paid in future years, as of March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits | | |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans | | Total |
| 2024 | $ | 3,290 | | $ | 3,325 | | | $ | 297 | | $ | 96 | | | $ | 7,008 | |
| 2025 | 3,319 | | 3,313 | | | 289 | | 100 | | | 7,021 | |
| 2026 | 3,258 | | 3,089 | | | 284 | | 104 | | | 6,735 | |
| 2027 | 3,191 | | 3,186 | | | 279 | | 108 | | | 6,764 | |
| 2028 | 3,115 | | 3,167 | | | 275 | | 112 | | | 6,669 | |
| Thereafter | 14,170 | | 17,796 | | | 1,257 | | 617 | | | 33,840 | |
| Total | $ | 30,343 | | $ | 33,876 | | | $ | 2,681 | | $ | 1,137 | | | $ | 68,037 | |
22. 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 March 31, 2023, the assessment for intrastate trade tax credits taken is $2,599 and the total assessment including penalties and interest is $10,104. 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 March 31, 2023, the assessment for intrastate trade tax credits taken is $2,243 and the total assessment including penalties and interest is $6,457. 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 $17,210. 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 defended 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.
23. Other Comprehensive Income
The following summarizes changes in each component of accumulated other comprehensive income, net of tax, attributable to the Company:
| | | | | | | | | | | | | | |
| Currency Translation Adjustment | Pensions, Net of Tax | Derivatives, Net of Tax | Accumulated Other Comprehensive Income |
| Balances at March 31, 2021 | $ | (4,649) | | $ | 541 | | $ | (2,625) | | $ | (6,733) | |
| Other comprehensive (loss) income before reclassifications | (4,224) | | 6,209 | | 10,419 | | 12,404 | |
| Amounts reclassified to net loss, net of tax | — | | (422) | | (1,445) | | (1,867) | |
| Other comprehensive (loss) income, net of tax | (4,224) | | 5,787 | | 8,974 | | 10,537 | |
| Balances at March 31, 2022 | $ | (8,873) | | $ | 6,328 | | $ | 6,349 | | $ | 3,804 | |
| Other comprehensive income (loss) before reclassifications | 2,481 | | 1,873 | | 1,750 | | 6,104 | |
| Amounts reclassified to net loss, net of tax | — | | 134 | | (4,527) | | (4,393) | |
| Other comprehensive income (loss), net of tax | 2,481 | | 2,007 | | (2,777) | | 1,711 | |
| Balances at March 31, 2023 | $ | (6,392) | | $ | 8,335 | | $ | 3,572 | | $ | 5,515 | |
The following summarizes derivative amounts reclassified from accumulated other comprehensive income to net loss:
| | | | | | | | | | | |
| | Affected Line Item in the Consolidated |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 | Statements of Operations |
| Derivatives: | | | |
| Gain reclassified to cost of goods sold | $ | (6,764) | | $ | (2,672) | | |
| Amounts reclassified from equity to the income statement, gross | (6,764) | | (2,672) | | Cost of goods and services sold |
| Tax effects of amounts reclassified from accumulated other comprehensive income to net loss | 2,237 | | 1,227 | | |
| Amounts reclassified from equity to the income statement, net | $ | (4,527) | | $ | (1,445) | | |
24. Stock–Based Compensation
On November 18, 2020, the Board of Directors of the Company adopted the Pyxus International, Inc. 2020 Incentive Plan (the "Incentive Plan"), which was approved at the 2021 annual meeting of shareholders on August 19, 2021. The Incentive Plan permits the grant of options, stock appreciation rights (or SARs), stock awards, stock unit awards, performance share awards, and incentive awards. The number of shares of the Company’s common stock eligible to be issued under the Incentive Plan is 2,200 shares. The awards outstanding at March 31, 2023 under the Incentive Plan are restricted stock units for an aggregate of 706 shares that become eligible for vesting, subject to continued employment in equal annual increments generally on March 31 of each year, performance-based restricted stock units for an aggregate of 1,064 shares at the target performance level and stock units awarded to non-employee directors for an aggregate of 117 shares. The performance-based restricted stock units provide for the issuance of shares based of satisfaction of performance criteria over a three-year measurement period ending March 31, 2024, subject to continued employment, with payouts at 50% of the target level upon satisfaction of threshold performance levels, 100% of the target level upon satisfaction of target performance levels and 150% of the target level upon performance equaling or exceeding the maximum performance levels, with payouts interpolated for performance between these levels. Each of such time-vesting and performance-based restricted stock units is subject to an additional condition to vesting that the Company’s common stock be listed for trading on a national securities exchange or an approved foreign securities exchange by a specified date. As of March 31, 2023, the vesting requirements for these awards were not probable to occur. As a result, no stock-based compensation expense was recognized in the years ended March 31, 2023 and 2022.
25. 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:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Sales | $ | 22,695 | | $ | 25,575 | |
| Purchases | 158,140 | | 135,261 | |
The Company included the following related party balances in its consolidated balances sheets:
| | | | | | | | | | | | |
| March 31, 2023 | March 31, 2022 | | |
| Accounts receivable, related parties | $ | 3,090 | | $ | 1,896 | | | Other receivables |
| Notes receivable, related parties | — | | 1,431 | | | Other receivables |
| | | | |
| Accounts payable, related parties | 20,438 | | 41,747 | | | Accounts payable |
| Advances from related parties | 3,494 | | 15,240 | | | Advances from customers |
| | | | |
| | | | |
Transactions with Significant Shareholders
As described in "Note 16. Debt Arrangements," funds managed by the Glendon Investor, funds managed by the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P., (such funds are collectively referred to as the "Investor-Affiliated Funds") held 2024 Notes and/or Exit Term Loans, were parties to the Initial DDTL Facility Credit Agreement and amendments thereto (including the DDTL Credit Agreement) and the Support Agreement, and received the New Secured Debt pursuant to the Debt Exchange Transactions. The Company paid a total of $1,575 in transaction costs incurred by the parties receiving the New Secured Debt in the Debt Exchange Transactions, of which an aggregate $910 related to costs paid on behalf of the Investor-Affiliated Funds.
On December 30, 2021, the Investor-Affiliated Funds received $14,991 of the repayment of $15,375 principal amount of the Initial DDTL Loans. In connection with the effectiveness of the DDTL Credit Agreement on July 28, 2022, in addition to the deemed repayment of the Initial DDTL Loans, the Investor-Affiliated Funds received $5,119 of the aggregate $5,250 in exit fee payments from the repayment of the principal amount under the Initial DDTL Facility. In addition, the Investor-Affiliated Funds received in the aggregate $3,900 of the total $4,000 in commitment and closing fees with respect to the DDTL Credit Agreement, which were reflected as original issue discount, paid to all DDTL Facility Lenders in connection with the aggregate $97,500 principal amount of the DDTL Term Loans made by them of the total $100,000 aggregate principal amount of the DDTL Term Loans made by all DDTL Facility Lenders.
Accrued expenses and other current liabilities as presented in the consolidated balance sheets as of March 31, 2023 and 2022, includes $3,653 and $3,984, respectively, of interest payable to Investor-Affiliated Funds and CI Investments, Inc. ("CI Investments"), which is also a beneficial owner of greater than five percent of the Company's common stock. Interest expense as presented in the consolidated statements of operations includes $35,649 and $32,579 for the year ended March 31, 2023 and 2022 that relates to the Investor-Affiliated Funds and CI Investments.
26. 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 consolidated financial statements:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Sales and other operating revenues: | | |
| Leaf | $ | 1,900,558 | | $ | 1,627,238 | |
| All Other | 14,323 | | 12,624 | |
| Consolidated sales and other operating revenues | $ | 1,914,881 | | $ | 1,639,862 | |
| | |
| Segment operating income: | | |
| Leaf | $ | 117,056 | | $ | 106,159 | |
| All Other | (18,593) | | (24,225) | |
| Segment operating income | 98,463 | | 81,934 | |
| | |
| Restructuring and asset impairment charges | 4,685 | | 8,031 | |
| Goodwill impairment | — | | 32,186 | |
| Consolidated operating income | $ | 93,778 | | $ | 41,717 | |
| | | | | | | | | | | |
| March 31, 2023 |
| Leaf | All Other | Total |
| Segment assets | $ | 1,544,798 | | $ | 37,665 | | $ | 1,582,463 | |
| Trade and other receivables, net | 199,237 | | 411 | | 199,648 | |
| | | |
| Equity in net assets of investee companies | 93,754 | | 6,985 | | 100,739 | |
| Depreciation and amortization | 16,157 | | 2,980 | | 19,137 | |
| Capital expenditures | 13,565 | | 2,390 | | 15,955 | |
| | | | | | | | | | | |
| March 31, 2022 |
| Leaf | All Other | Total |
| Segment assets | $ | 1,641,552 | | $ | 56,975 | | $ | 1,698,527 | |
| Trade and other receivables, net | 255,756 | | 1,105 | | 256,861 | |
| | | |
| Equity in net assets of investee companies | 88,118 | | 6,785 | | 94,903 | |
| Depreciation and amortization | 14,763 | | 1,913 | | 16,676 | |
| Capital expenditures | 10,159 | | 4,438 | | 14,597 | |
The following summarizes geographic sales and other operating revenues by destination of the product shipped:
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Sales and Other Operating Revenues: | | |
| China | $ | 338,174 | | $ | 280,945 | |
| United States | 220,266 | | 209,953 | |
| United Arab Emirates | 182,306 | | 82,070 | |
| Indonesia | 170,492 | | 110,009 | |
Belgium(1) | 132,456 | | 89,748 | |
| Northern Africa | 52,428 | | 52,539 | |
| Russia | 20,175 | | 57,808 | |
| Other | 798,584 | | 756,790 | |
| Total | $ | 1,914,881 | | $ | 1,639,862 | |
(1) The Belgium destination represents a customer-owned storage and distribution center from which the tobacco will be shipped on to manufacturing facilities. |
The following summarizes the customers, including their respective affiliates, that account for more than 10.0% of total sales and other operating revenues for the respective periods, as indicated by an "x":
| | | | | | | | |
| Year Ended March 31, 2023 | Year Ended March 31, 2022 |
| Philip Morris International Inc. | x | x |
| China Tobacco International Inc. | x | x |
| British American Tobacco | x | x |
The following summarizes geographic property, plant, and equipment by location:
| | | | | | | | |
| March 31, 2023 | March 31, 2022 |
| Property, Plant, and Equipment, Net: | | |
| Malawi | $ | 31,213 | | $ | 30,961 | |
| Brazil | 29,163 | | 28,707 | |
| United States | 21,945 | | 21,960 | |
| Zimbabwe | 21,703 | | 22,217 | |
| Other | 12,006 | | 12,152 | |
| Jordan | 11,352 | | 11,571 | |
| Tanzania | 6,016 | | 9,953 | |
| Total | $ | 133,398 | | $ | 137,521 | |
|
27. Subsequent Events
On May 23, 2023, the ABL Credit Agreement was amended to extend the maturity of the ABL Credit Facility to February 8, 2027.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Pyxus International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pyxus International, Inc. and subsidiaries (the "Company") as of March 31, 2023 and 2022, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows, for each of the two years in the period ended March 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes — Accounting for Uncertainty in Income Taxes — Refer to Note 1 and Note 6 to the financial statements
Critical Audit Matter Description
The Company’s annual tax rate is based on its pre-tax income by jurisdiction, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties. The Company records unrecognized tax benefits in multiple jurisdictions and evaluates the future potential outcomes of tax positions, based upon interpretation of the country-specific tax law and the likelihood of future settlement. As of March 31, 2023, the Company’s recorded unrecognized tax benefits totaled $19.3 million. Conclusions on recognizing and measuring uncertain tax positions involved significant management estimates and judgment and included complex considerations of local tax laws and related regulations in the various jurisdictions in which the Company operates.
We identified uncertain tax positions as a critical accounting matter because of the significant estimates and assumptions involved in recording uncertain tax positions. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions utilized in the Company’s determination of uncertain tax positions included the following, among others:
•With the assistance of our income tax specialists, we read and evaluated management’s documentation, including relevant accounting policies, relevant authoritative tax literature, and information obtained by management from outside tax specialists and attorneys, that detailed the basis of the uncertain tax positions.
•With the assistance of our income tax specialists, we evaluated management’s judgement of the appropriate unit of account for the unrecognized tax benefits and audited the measurement calculations and the interest and penalties balances, as applicable.
•We challenged the reasonableness of management’s judgments regarding the future resolution of the uncertain tax positions, through evaluating the technical merits of the uncertain tax positions by considering how tax law, including statutes, regulations, and case law, impacted management’s judgments and through consideration of the Company’s history of settlements.
For those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information that could significantly change the recognition, measurement, or disclosure of the uncertain tax positions through review of correspondence with taxing authorities and evaluation of changes to issued guidance.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
June 6, 2023
We have served as the Company’s auditor since its fiscal 2006.