Notes to Condensed Consolidated Financial Statements
(in thousands)
1. Basis of Presentation and Significant Accounting Policies
The accompanying condensed consolidated financial statements represent the consolidation of Pyxus International, Inc. (the "Company" or "Pyxus") and all companies that Pyxus directly or indirectly controls, either through majority ownership or otherwise. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. Intercompany accounts and transactions have been eliminated.
These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2019. The year-end condensed balance sheet data was derived from the audited financial statements. Due to the seasonal nature of the Company’s business, the results of operations for a fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year.
Leases
The Company measures right-of-use assets and related lease liabilities based on the present value of remaining lease payments, including in-substance fixed payments, the current payment amount when payments depend on an index or rate (e.g., inflation adjustments, market renewals), and the amount the Company believes is probable to be paid to the lessor under residual value guarantees, when applicable. Lease contracts may include fixed payments for non-lease components, such as maintenance, which are included in the measurement of lease liabilities for certain asset classes based on the Company’s election to combine lease and non-lease components. The Company does not recognize short-term leases on the consolidated balance sheet.
As applicable borrowing rates are not typically implied within the lease arrangements, the Company discounts lease payments based on its estimated incremental borrowing rate at lease commencement, or modification, which is based on the Company’s estimated credit rating, the lease term at commencement, and the contract currency of the lease arrangement.
Segments
During the three months ended December 31, 2018, the Company realigned its reportable segments to reflect changes to how the business is managed and results are reviewed by the Company's chief operating decision maker. In connection with the "One Tomorrow Transformation" initiative, the Company changed its organizational structure to support its diversified business lines. Prior to the realignment, the Company assessed financial information based on geographic regions. The Company's diversification efforts have resulted in management placing emphasis on data by business line in addition to the historical focus by geography. As a result of this realignment, the reportable segments now include Leaf - North America, Leaf - Other Regions, and Other Products and Services.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation of notes receivable, related parties in the condensed consolidated balance sheets, restructuring and asset impairment charges in the condensed consolidated statement of cash flows, and the components within inventory, see "Note 17. Inventories" for more information.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842). Under this guidance, a lessee recognizes assets and liabilities on its balance sheet for most leases, and retains a dual model approach for assessing lease classification and recognizing expense. This guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leasing arrangements. The FASB subsequently issued updates to provide clarification on specific topics, including adoption guidance, practical expedients, and interim transition disclosure requirements. The Company adopted this guidance during the first quarter beginning April 1, 2019 under the modified retrospective approach, which does not require adjustments to comparative periods or require modified disclosures for those comparative periods. The guidance provides a number of optional practical expedients in transition. The Company elected the package of transition practical expedients. The Company implemented changes to its accounting policies, systems, and controls to align with the new guidance. There is a material impact on the consolidated balance sheet from
applying this guidance, which resulted in the recognition of new right-of-use assets of $43,900 and lease liabilities of $42,064 as of April 1, 2019 associated with the Company’s operating leases. The impact on the results of operations, cash flows, and existing debt covenants is not material. The adoption of this guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from lease arrangements. See "Note 14. Leases" for more information.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 simplifies the test for goodwill impairment as it eliminates step two of the goodwill impairment test by no longer requiring an entity to compare the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this new standard, goodwill impairment is measured as the excess of the reporting unit's carrying value over fair value, limited to the amount of goodwill. The Company will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is needed. This guidance has been early adopted by the Company as of December 31, 2019 on a prospective basis. The adoption of this new accounting standard did not have a material impact on the Company's financial condition, results of operations, or cash flows.
Recent Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. Based on the Company's scoping assessment, ASU 2016-13 will primarily impact trade receivables. The adoption of this new accounting standard will be done using a modified retrospective approach, and is not expected to have a material impact on the Company\'s financial condition, results of operations, or cash flows. This new accounting standard will be effective for the Company on April 1, 2023, with early adoption permitted.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 updates disclosure requirements for defined benefit plans. This guidance will be adopted using a retrospective approach and is effective for the Company on March 31, 2021. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
3. Restricted Cash
The following summarizes the restricted cash balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
March 31, 2019
|
Compensating balance for short-term borrowings
|
|
$
|
940
|
|
$
|
1,220
|
|
$
|
1,225
|
|
|
|
|
|
Escrow
|
|
1,363
|
|
2,314
|
|
2,894
|
|
Other
|
445
|
|
3,190
|
|
$
|
1,648
|
|
Total
|
$
|
2,748
|
|
$
|
6,724
|
|
$
|
5,767
|
|
As of December 31, 2019 and 2018, and March 31, 2019, the Company held $0, $2,644, and $1,082, respectively, in the Zimbabwe Real Time Gross Settlement (“RTGS”) Dollar. RTGS is a local currency equivalent that as of December 31, 2019 was exchanged at a government specified rate of 16.8:1 with the U.S. Dollar ("USD").
4. Revenue Recognition
The Company derives revenue from contracts with customers, primarily from the sale of processed tobacco and fees charged for processing and related services to the manufacturers of tobacco products. The following disaggregates sales and other operating revenues by the Company's significant revenue streams:
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Leaf - North America:
|
|
|
|
|
Product revenue
|
$
|
39,148
|
|
$
|
60,280
|
|
$
|
114,548
|
|
$
|
152,725
|
|
Processing and other revenues
|
13,868
|
|
17,570
|
|
24,873
|
|
29,039
|
|
Total sales and other operating revenues
|
53,016
|
|
77,850
|
|
139,421
|
|
181,764
|
|
|
|
|
|
|
Leaf - Other Regions:
|
|
|
|
|
Product revenue
|
293,564
|
|
432,423
|
|
825,522
|
|
977,503
|
|
Processing and other revenues
|
12,936
|
|
9,296
|
|
42,316
|
|
40,752
|
|
Total sales and other operating revenues
|
306,500
|
|
441,719
|
|
867,838
|
|
1,018,255
|
|
|
|
|
|
|
Other Products and Services:
|
|
|
|
|
Total sales and other operating revenues
|
3,744
|
|
4,918
|
|
15,652
|
|
10,332
|
|
|
|
|
|
|
Total sales and other operating revenues
|
$
|
363,260
|
|
$
|
524,487
|
|
$
|
1,022,911
|
|
$
|
1,210,351
|
|
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process green tobacco owned and provided by the customers. During processing, ownership remains with the customers and the Company is engaged to perform processing services. Other products and services is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue.
The following summarizes activity in the allowance for doubtful accounts:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Balance, beginning of period
|
$
|
(7,242)
|
|
$
|
(7,324)
|
|
$
|
(13,381)
|
|
$
|
(7,055)
|
|
Additions
|
(5)
|
|
(1,774)
|
|
—
|
|
(2,136)
|
|
Write-offs
|
—
|
|
(15)
|
|
6,134
|
|
78
|
|
Balance, end of period
|
(7,247)
|
|
(9,113)
|
|
(7,247)
|
|
(9,113)
|
|
Trade receivables
|
187,651
|
|
277,860
|
|
187,651
|
|
277,860
|
|
Trade receivables, net
|
$
|
180,404
|
|
$
|
268,747
|
|
$
|
180,404
|
|
$
|
268,747
|
|
5. Income Taxes
Accounting for Uncertainty in Income Taxes
As of December 31, 2019, the Company’s unrecognized tax benefits totaled $16,331, of which $13,122 would impact the Company’s effective tax rate, if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2019, accrued interest and penalties totaled $1,235 and $756, respectively. The Company expects to continue accruing interest expense related to the unrecognized tax benefits described above. The Company may be subject to fluctuations in the unrecognized tax benefit due to currency exchange rate movements.
During the nine months ended December 31, 2019, the Company reached an income tax settlement with the Kenyan Revenue Authority for $1,558 for a previously recorded uncertain tax position. In addition, a previous accrual to settle asserted issues for years 2009 to 2016 in Zimbabwe of $964 was reduced by $952 to account for the exchange rate impact of the local currency equivalent. An existing accrual for transfer pricing issues in Malawi was increased by an additional $2,772 to account for the Company's evolving negotiations with tax authorities. Also, the Company increased an existing accrual related to U.S. transition tax of $931, resulting from changes in accrued tax pools. The U.S. federal net operating loss was reduced to reflect the impacts of certain tax accounting methods on Global Intangible Low-Taxed Income ("GILTI").
The Company does not expect significant changes in the amount of its unrecognized tax benefits in the next twelve months but acknowledges circumstances can change due to unexpected developments in the law. In certain jurisdictions, tax authorities have challenged positions taken by the Company that resulted in recognizing benefits that are material to its financial statements. The Company believes it is more likely than not that it will prevail in these situations and accordingly has not recorded liabilities for these positions. The Company expects the challenged positions to be settled at a time greater than twelve months from its balance sheet date.
The Company and its subsidiaries file a U.S. federal consolidated income tax return as well as returns in several U.S. states and a number of foreign jurisdictions. As of December 31, 2019, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2017. The Company's tax attributes from prior periods remain subject to adjustment. Open tax years in state and foreign jurisdictions generally range from three to six years.
Provision for the Three and Nine Months Ended December 31, 2019
The effective tax rate for the three months ended December 31, 2019 and 2018 was 3.9% and 226.8%, respectively. The effective tax rate for the nine months ended December 31, 2019 and 2018 was (30.5)% and (65.3)%, respectively. For the three and nine months ended December 31, 2019 and 2018, the effective rate differed from the U.S. statutory rate of 21% due to the impact of non-deductible interest, net foreign exchange effects and Subpart F income. The primary differences in the effective tax rates year-over-year are the impact of net foreign exchange effects, increases in non-deductible interest, as well as Subpart F income, and variation in expected jurisdictional mix of earnings.
For the nine months ended December 31, 2019, the Company's quarterly provision for income taxes has been calculated using the annual effective tax rate method (“AETR method”), which applies an estimated annual effective tax rate to pre-tax income or loss. For the nine months ended December 31, 2019, the Company recorded the net tax effects of certain discrete events, which resulted in an income tax expense of $2,252. This discrete income tax expense primarily related to the impact of changes in uncertain tax positions and changes in foreign exchange impacts. Comparable tax expense for the six months ended September 30, 2018 was calculated using the discrete method as allowed under ASC 740-270, Accounting for Income Taxes - Interim Reporting. Using the discrete method, the Company determined current and deferred income tax expense as if the interim period were an annual period, and no discrete events were separately identified.
6. Guarantees
In certain markets, the Company guarantees bank loans to suppliers to finance their crops. Under longer-term arrangements, the Company may also guarantee financing on suppliers’ construction of curing barns or other tobacco production assets. Guaranteed loans are generally repaid concurrent with the delivery of tobacco to the Company. The Company is obligated to repay guaranteed loans should the supplier default. If default occurs, the Company has recourse against its various suppliers and their production assets. The Company also guarantees bank loans of certain unconsolidated subsidiaries in Asia and South America. The following summarizes amounts guaranteed and the fair value of those guarantees:
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|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
March 31, 2019
|
Amounts guaranteed (not to exceed)
|
$
|
119,342
|
|
$
|
176,762
|
|
$
|
143,298
|
|
Amounts outstanding under guarantee(1)
|
37,624
|
|
79,336
|
|
103,846
|
|
Fair value of guarantees
|
1,112
|
|
2,890
|
|
3,714
|
|
Amounts due to local banks on behalf of suppliers and included in accounts payable
|
—
|
|
—
|
|
18,659
|
|
(1) Of the guarantees outstanding at December 31, 2019, most expire within one year.
7. Goodwill and Intangibles
The following summarizes the changes in goodwill and other intangible assets:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31, 2019
|
|
|
|
|
|
|
Weighted Average Remaining Useful Life
|
Beginning Gross Carrying Amount
|
Additions
|
Accumulated Amortization (1)
|
Impact of Foreign Currency Translation
|
Ending Intangible Assets, Net
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
Customer relationships
|
8.88 years
|
$
|
63,980
|
|
$
|
—
|
|
$
|
(32,043)
|
|
$
|
—
|
|
$
|
31,937
|
|
Production and supply contracts
|
2.25 years
|
14,893
|
|
—
|
|
(11,210)
|
|
—
|
|
3,683
|
|
Internally developed software
|
3.27 years
|
19,917
|
|
243
|
|
(18,807)
|
|
—
|
|
1,353
|
|
Licenses (2)
|
17.26 years
|
32,284
|
|
118
|
|
(3,010)
|
|
648
|
|
30,040
|
|
Trade names
|
6.25 years
|
500
|
|
—
|
|
(109)
|
|
—
|
|
391
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
Goodwill
|
|
34,336
|
|
—
|
|
—
|
|
234
|
|
34,570
|
|
Total
|
|
$
|
165,910
|
|
$
|
361
|
|
$
|
(65,179)
|
|
$
|
882
|
|
$
|
101,974
|
|
(1) Amortization expense across intangible asset classes for the nine months ended December 31, 2019 was $5,386.
(2) Certain of the Company's license intangibles are subject to annual renewal.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended March 31, 2019
|
|
|
|
|
|
|
Weighted Average Remaining Useful Life
|
Beginning Gross Carrying Amount
|
Additions (1)
|
Accumulated Amortization (2)
|
Impact of Foreign Currency Translation
|
Ending Intangible Assets, Net
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
Customer relationships
|
9.55 years
|
$
|
58,530
|
|
$
|
5,450
|
|
$
|
(29,027)
|
|
$
|
—
|
|
$
|
34,953
|
|
Production and supply contracts
|
2.93 years
|
14,893
|
|
—
|
|
(10,668)
|
|
—
|
|
4,225
|
|
Internally developed software
|
3.79 years
|
18,812
|
|
1,105
|
|
(18,391)
|
|
—
|
|
1,526
|
|
Licenses (3)
|
18.08 years
|
30,339
|
|
2,991
|
|
(1,644)
|
|
(1,046)
|
|
30,640
|
|
Trade names
|
7.00 years
|
—
|
|
500
|
|
(63)
|
|
—
|
|
437
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
Goodwill (4)
|
|
27,546
|
|
7,174
|
|
—
|
|
(384)
|
|
34,336
|
|
Total
|
|
$
|
150,120
|
|
$
|
17,220
|
|
$
|
(59,793)
|
|
$
|
(1,430)
|
|
$
|
106,117
|
|
(1) Additions to goodwill, customer relationships, and trade names relate to the acquisition of Humble Juice Co., LLC ("Humble Juice"). Additions to licenses relates to Canada's Island Garden ("Figr East"), Figr Norfolk, and Alliance One Specialty Products, LLC.
(2) Amortization expense across intangible asset classes for the fiscal year ended March 31, 2019 was $7,943.
(3) Certain of the Company's license intangibles are subject to annual renewal.
(4) Goodwill activity relates to the Other Products and Services segment.
The following summarizes the estimated future intangible asset amortization expense:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal
Years Ended
|
Customer
Relationships
|
Production
and Supply
Contracts
|
Internally Developed Software(1)
|
Licenses
|
Trade Names
|
Total
|
2020 (excluding the nine months ended December 31, 2019)
|
$
|
1,005
|
|
$
|
1,674
|
|
$
|
137
|
|
$
|
462
|
|
$
|
16
|
|
$
|
3,294
|
|
2021
|
4,022
|
|
1,397
|
|
435
|
|
1,847
|
|
63
|
|
7,764
|
|
2022
|
4,022
|
|
612
|
|
361
|
|
1,845
|
|
63
|
|
6,903
|
|
2023
|
4,022
|
|
—
|
|
290
|
|
1,841
|
|
63
|
|
6,216
|
|
2024
|
4,022
|
|
—
|
|
130
|
|
1,841
|
|
63
|
|
6,056
|
|
Thereafter
|
14,844
|
|
—
|
|
—
|
|
22,204
|
|
123
|
|
37,171
|
|
|
$
|
31,937
|
|
$
|
3,683
|
|
$
|
1,353
|
|
$
|
30,040
|
|
$
|
391
|
|
$
|
67,404
|
|
(1) Estimated amortization expense for the internally developed software is based on costs accumulated as of December 31, 2019. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
8. Variable Interest Entities
The Company holds variable interests in multiple entities that primarily procure or process inventory or are securitization entities. These variable interests relate to equity investments, advances, guarantees, and securitized receivables. The Company is not the primary beneficiary of the majority of its variable interests, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities due to the entities’ management and board of directors' structure. As a result, the majority of these variable interest entities are not consolidated. The Company holds a majority voting interest and is the primary beneficiary of its variable interest in Humble Juice, a consolidated entity for which the related intercompany accounts and transactions have been eliminated.
The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
March 31, 2019
|
Investment in variable interest entities
|
$
|
63,320
|
|
$
|
62,156
|
|
$
|
64,281
|
|
Advances to variable interest entities
|
11,301
|
|
2,817
|
|
3,273
|
|
Guaranteed amounts to variable interest entities (not to exceed)
|
61,566
|
|
73,278
|
|
67,027
|
|
The Company's investment in and advances to unconsolidated variable interest entities are classified as investments in unconsolidated affiliates and accounts receivable, related parties, respectively, in the condensed consolidated balance sheets. The Company's maximum exposure to loss in these variable interest entities is represented by the investments, advances, guarantees, and the deferred purchase price on the sale of securitized receivables as disclosed in "Note 19. Securitized Receivables".
9. Segment Information
The Company's operations are managed and reported in ten operating segments that are organized by product category and geographic area and aggregated into three reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. These segment groupings are consistent with information used by the chief operating decision maker to assess performance and allocate resources. The types of products and services from which each reportable segment derives its revenues are as follows:
•Leaf - North America ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - North America is more highly concentrated on processing and other activities compared to the rest of the world.
•Leaf - Other Regions ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - Other Regions sells a small amount of processed but un-threshed flue-cured and burley tobacco in loose-leaf and bundle form to certain customers.
•Other Products and Services primarily involves the sale of cannabis and e-liquid products. Cannabis was legalized for adult use in Canada on October 17, 2018. The cannabis products produced by certain of the Company's subsidiaries have been sold in the Canadian market, primarily to municipally-owned retailers. E-liquids products are sold to consumers via e-commerce platforms and other distribution channels, and retail stores.
The following summarizes operating results and assets by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Sales and other operating revenues:
|
|
|
|
|
Leaf - North America
|
$
|
53,016
|
|
$
|
77,850
|
|
$
|
139,421
|
|
$
|
181,764
|
|
Leaf - Other Regions
|
306,500
|
|
441,719
|
|
867,838
|
|
1,018,255
|
|
Other Products and Services
|
3,744
|
|
4,918
|
|
15,652
|
|
10,332
|
|
Total sales and other operating revenues
|
$
|
363,260
|
|
$
|
524,487
|
|
$
|
1,022,911
|
|
$
|
1,210,351
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
Leaf - North America
|
$
|
2,609
|
|
$
|
2,870
|
|
$
|
5,880
|
|
$
|
7,888
|
|
Leaf - Other Regions
|
25,508
|
|
44,133
|
|
59,016
|
|
70,010
|
|
Other Products and Services
|
(19,974)
|
|
(7,648)
|
|
(49,219)
|
|
(21,265)
|
|
Total operating income
|
$
|
8,143
|
|
$
|
39,355
|
|
$
|
15,677
|
|
$
|
56,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
March 31, 2019
|
Segment assets:
|
|
|
|
Leaf - North America
|
$
|
319,433
|
|
$
|
318,295
|
|
$
|
243,248
|
|
Leaf - Other Regions
|
1,408,705
|
|
1,598,879
|
|
1,488,226
|
|
Other Products and Services
|
220,909
|
|
106,545
|
|
127,801
|
|
Total assets
|
$
|
1,949,047
|
|
$
|
2,023,719
|
|
$
|
1,859,275
|
|
10. Loss Per Share
The following summarizes the computation of loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
(in thousands, except per share data)
|
2019
|
2018
|
2019
|
2018
|
Basic loss per share:
|
|
|
|
|
Net loss attributable to Pyxus International, Inc.
|
$
|
(21,993)
|
|
$
|
(5,095)
|
|
$
|
(100,308)
|
|
$
|
(60,487)
|
|
Shares:
|
|
|
|
|
Weighted average number of shares outstanding(1)
|
9,166
|
|
9,068
|
|
9,137
|
|
9,048
|
|
Basic loss per share
|
$
|
(2.40)
|
|
$
|
(0.56)
|
|
$
|
(10.98)
|
|
$
|
(6.69)
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
Net loss attributable to Pyxus International, Inc.
|
$
|
(21,993)
|
|
$
|
(5,095)
|
|
$
|
(100,308)
|
|
$
|
(60,487)
|
|
Shares:
|
|
|
|
|
Weighted average number of shares outstanding(1)
|
9,166
|
|
9,068
|
|
9,137
|
|
9,048
|
|
Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
Adjusted weighted average number of shares outstanding
|
9,166
|
|
9,068
|
|
9,137
|
|
9,048
|
|
Diluted loss per share
|
$
|
(2.40)
|
|
$
|
(0.56)
|
|
$
|
(10.98)
|
|
$
|
(6.69)
|
|
(1) 785 shares of common stock were owned by a wholly owned subsidiary as of December 31, 2019 and 2018.
|
|
|
|
|
(2) Outstanding restricted shares, shares applicable to stock options, and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share. The dilutive shares would have been 10 and 66 for the three months ended December 31, 2019 and 2018, respectively, and 28 and 62 for the nine months ended December 31, 2019 and 2018, respectively.
|
|
|
|
|
Certain potentially dilutive options were not included in the computation of loss per diluted share because their effect would be antidilutive. Potential common shares are also considered antidilutive in the event of a net loss. The number of potential shares outstanding that were considered antidilutive and that were excluded from the computation of diluted loss per share, weighted for the portion of the period they were outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Antidilutive stock options and other awards
|
452
|
|
427
|
|
450
|
|
427
|
|
Antidilutive stock options and other awards under stock-based compensation programs excluded based on reporting a net loss for the period
|
—
|
|
—
|
|
—
|
|
—
|
|
Total common stock equivalents excluded from diluted loss per share
|
452
|
|
427
|
|
450
|
|
427
|
|
Weighted average exercise price
|
$
|
56.66
|
|
$
|
60.00
|
|
$
|
56.98
|
|
$
|
60.00
|
|
11. Stock-Based Compensation
The following summarizes the Company's stock-based compensation expense related to awards granted under its various employee and non-employee stock incentive plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
(in thousands)
|
2019
|
2018
|
2019
|
2018
|
Stock-based compensation expense
|
|
$
|
242
|
|
$
|
402
|
|
$
|
1,054
|
|
$
|
1,155
|
|
Stock-based compensation expense payable in cash
|
—
|
|
—
|
|
—
|
|
—
|
|
The following summarizes the Company's stock-based compensation awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
(in thousands, except grant date fair value)
|
2019
|
2018
|
2019
|
2018
|
Restricted stock
|
|
|
|
|
Number granted
|
11
|
|
13
|
|
39
|
|
26
|
|
Grant date fair value
|
$
|
8.94
|
|
$
|
11.86
|
|
$
|
12.41
|
|
$
|
17.04
|
|
Restricted stock units
|
|
|
|
|
Number granted
|
—
|
|
5
|
|
2
|
|
66
|
|
Grant date fair value
|
$
|
—
|
|
$
|
14.32
|
|
$
|
18.29
|
|
$
|
15.94
|
|
Performance-based stock units
|
|
|
|
|
Number granted
|
—
|
|
—
|
|
—
|
|
30
|
|
Grant date fair value
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
16.00
|
|
Restricted stock units granted during the nine months ended December 31, 2019 vest ratably over a three-year period.
12. Contingencies and Other Information
Brazilian Tax Credits
The government in the Brazilian State of Parana ("Parana") issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. The assessment for intrastate trade tax credits taken is $3,268 and the total assessment including penalties and interest at December 31, 2019 is $11,598. On March 18, 2014, the government in Brazilian State of Santa Catarina also issued a tax assessment with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. The assessment for intrastate trade tax credits taken is $2,827 and the total assessment including penalties and interest at December 31, 2019 is $7,551. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazil State of Rio Grande do Sul and the State of Santa Catarina. These jurisdictions permit the sale or transfer of excess credits to third parties, however approval must be obtained from the tax authorities. The Company has agreements with the state governments regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $11,313. The intrastate trade tax credits are monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
In 1969, the Brazilian government created a tax credit program that allowed companies to earn IPI tax credits (“IPI credits”) based on the value of their exports. The government began to phase out this program in 1979, which resulted in numerous lawsuits between taxpayers and the Brazilian government. The Company has a long legal history with respect to credits it earned while the IPI credit program was in effect. In 2001, the Company won a claim related to certain IPI credits it earned between 1983 and 1990. The Brazilian government appealed this decision and numerous rulings and appeals were rendered on behalf of both the government and the Company from 2001 through 2013. Because of this favorable ruling, the Company began to use these earned IPI credits to offset federal taxes in 2004 and 2005, until it received a Judicial Order to suspend the IPI offsetting in 2005. The value of the federal taxes offset in 2004 and 2005 was $24,142 and the Company established a reserve on these credits at the time of offsetting as they were not yet realizable due to the legal uncertainty that existed. Specifically, the Company extinguished other federal tax liabilities using IPI credits and recorded a liability in Pension, Postretirement and Other Long-Term Liabilities to reflect that the credits were not realizable at that time due to the prevalent legal uncertainty. On March 7, 2013, the Brazilian Supreme Court rendered a final decision in favor of the Company that recognized the validity of the IPI credits and secured the Company's right to benefit from the IPI credits earned from March 1983 to October 1990. This final decision expressly stated the Company has the right to the IPI credits. The Company estimates the total amount of the IPI credits to be approximately $94,316 at March 31, 2013. Since the March 2013 ruling definitively (without the government's ability to appeal) granted the Company the ownership of the IPI credits generated between 1983 and 1990, the Company believes the amount of IPI credits that were used to offset other federal taxes in 2004 and 2005 are realizable beyond a reasonable doubt. Accordingly, at March 31, 2013, the Company recorded the $24,142 IPI credits it realized in the Statements of Consolidated Operations in Other Income. No further benefit has been recognized pending the outcome of the judicial procedure to ascertain the final amount as those amounts have not yet been realized.
Other Matters
On October 8, 2019, the City of New York filed a complaint in U.S. District Court against 24 e-liquids companies, including the Company’s Humble Juice subsidiary, seeking an injunction to prevent sales of e-cigarette products to residents of New York City without adequate age-verification systems and to prohibit marketing e-cigarettes to New York City residents under the age of 21, as well as statutory damages and compensation to the city for the costs of abating underage e-cigarette use. On December 16, 2019, Humble Juice filed its answer to the compliant, denying that it lacked adequate age-verification systems and the allegations underlying the City's claim for relief, as well as asserting several affirmative defenses. Humble Juice intends to vigorously defend this matter.
In addition to the above-mentioned matters, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Asset Retirement Obligations
In accordance with generally accepted accounting principles, the Company records all known asset retirement obligations (“ARO”) for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO because the fair value of restoring the land at this site cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because the land restoration is not required until title is returned to the government, and the Company has no current or future plans to return the title. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.
13. Debt Arrangements
The following summarizes debt and notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
Outstanding
|
|
|
|
Lines and
|
|
|
|
|
March 31,
|
|
December 31,
|
|
Letters
|
|
Interest
|
|
(in thousands)
|
2019
|
|
2019
|
|
Available
|
|
Rate
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
ABL facility (1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,000
|
|
|
—
|
%
|
(2)
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
8.5% senior secured first lien notes due 2021 (3)
|
270,883
|
|
|
272,369
|
|
|
—
|
|
|
8.5
|
%
|
|
9.875% senior secured second lien notes due 2021 (4)
|
627,147
|
|
|
629,821
|
|
|
—
|
|
|
9.9
|
%
|
|
Other long-term debt
|
688
|
|
|
596
|
|
|
—
|
|
|
5.2
|
%
|
(2)
|
|
Notes payable to banks (5)
|
428,961
|
|
|
580,346
|
|
|
258,436
|
|
|
7.1
|
%
|
(2)
|
|
Total debt
|
$
|
1,327,679
|
|
|
$
|
1,483,132
|
|
|
$
|
318,436
|
|
|
|
|
Short-term
|
$
|
428,961
|
|
|
$
|
580,346
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
332
|
|
|
$
|
325
|
|
|
|
|
|
|
Long-term debt
|
898,386
|
|
|
902,461
|
|
|
|
|
|
|
|
$
|
898,718
|
|
|
$
|
902,786
|
|
|
|
|
|
|
Letters of credit
|
$
|
5,399
|
|
|
$
|
7,151
|
|
|
5,740
|
|
|
|
|
Total credit available
|
|
|
|
|
$
|
324,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) As of December 31, 2019, the full amount of the ABL facility was available. Borrowing is permitted under the ABL facility only to the extent that, after consideration of the application of the proceeds of the borrowing, the Company’s unrestricted cash and cash equivalents would not exceed $180 million.
|
|
|
|
|
|
|
|
|
(2) Weighted average rate for the trailing twelve months ended December 31, 2019.
|
|
|
|
|
|
|
|
|
(3) Repayment of $272,369 is net of original issue discount of $826 and unamortized debt issuance of $1,805. Total repayment will be $275,000.
|
|
|
|
|
|
|
|
|
(4) Repayment of $629,821 is net of original issue discount of $3,328 and unamortized debt issuance of $2,537. Total repayment will be $635,686.
|
|
|
|
|
|
|
|
|
(5) Primarily foreign seasonal lines of credit.
|
|
|
|
|
|
|
|
|
The indentures governing the Company's outstanding 8.5% senior secured first lien notes due 2021 and its outstanding 9.875% senior secured second lien notes due 2021 contain restrictions, subject to certain exceptions and baskets, that prohibit the payment of dividends and other distributions if the Company fails to satisfy a ratio of consolidated EBITDA to fixed charges of at least 2.0 to 1.0. As of December 31, 2019, the Company did not satisfy this fixed charge coverage ratio. The Company may not satisfy this ratio from time to time and failure to meet this fixed charge coverage ratio does not constitute an event of default.
ABL Facility
The ABL credit agreement restricts the Company from paying dividends during the term of this facility subject to the satisfaction of specified financial ratios.
14. Leases
The Company has operating leases for land, buildings, automobiles, and other equipment that expire at various dates through 2040. Leases for real estate generally have initial terms ranging from 2 to 15 years, excluding renewal options. Leases for equipment typically have initial terms ranging from 2 to 5 years excluding renewal options. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes. These lease terms may include optional renewals, terminations or purchases, which are considered in the Company’s assessments when such options are reasonably certain to be exercised.
The following summarizes weighted-average information associated with the measurement of remaining operating lease as of December 31, 2019:
|
|
|
|
|
|
Weighted-average remaining lease term
|
5.2 years
|
Weighted-average discount rate
|
9.6%
|
|
The following summarizes lease costs for operating leases:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
December 31, 2019
|
December 31, 2019
|
Operating lease costs
|
$
|
4,268
|
|
$
|
12,567
|
|
Variable and short-term lease costs
|
1,830
|
|
5,089
|
|
Total lease costs
|
$
|
6,098
|
|
$
|
17,656
|
|
The following summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
Nine Months Ended
|
|
December 31, 2019
|
December 31, 2019
|
Operating cash flows impact - operating leases
|
$
|
3,051
|
|
$
|
11,864
|
|
Right-of-use assets obtained in exchange for new operating leases
|
1,111
|
|
5,504
|
|
The following reconciles maturities of operating lease liabilities to the lease liabilities reflected in the condensed consolidated balance sheet as of December 31, 2019:
|
|
|
|
|
|
2020 (excluding the nine months ended December 31, 2019)
|
$
|
4,458
|
|
2021
|
13,452
|
|
2022
|
10,741
|
|
2023
|
6,904
|
|
2024
|
5,662
|
|
Thereafter
|
12,545
|
|
Total future minimum lease payments
|
53,762
|
|
Less: amounts related to imputed interest
|
11,523
|
|
Present value of future minimum lease payments
|
42,239
|
|
Less: operating lease liabilities, current
|
14,033
|
|
Operating lease liabilities, non-current
|
$
|
28,206
|
|
The Company continuously monitors and may negotiate contract amendments that include extensions or modifications to existing leases. The following presents the future minimum rental commitments under noncancelable operating leases as of March 31, 2019:
|
|
|
|
|
|
2020
|
$
|
15,651
|
|
2021
|
10,554
|
|
2022
|
8,483
|
|
2023
|
6,735
|
|
2024
|
5,356
|
|
Thereafter
|
7,324
|
|
Total
|
$
|
54,103
|
|
15. Derivative Financial Instruments
The Company uses forward or option currency contracts to protect against volatility associated with certain non-U.S. dollar denominated forecasted transactions. These contracts are for green tobacco purchases, processing costs, and selling, general, and administrative costs. As of December 31, 2019 and 2018, accumulated other comprehensive loss includes $241 and $2,307, net of tax of $64 and $613, for unrealized losses related to designated cash flow hedges, respectively. The Company recorded losses of $729 and $3,189 in its cost of goods and services sold for the three and nine months ended December 31, 2019, respectively. The Company recorded a current derivative asset of $1,029 as of December 31, 2018, included in the condensed consolidated balance sheets. There were no derivatives contracts outstanding as of December 31, 2019.
16. Pension and Other Postretirement Benefits
The following summarizes the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Operating expenses:
|
|
|
|
|
Service cost
|
$
|
117
|
|
$
|
120
|
|
$
|
352
|
|
$
|
359
|
|
Interest expense:
|
|
|
|
|
Interest expense
|
1,029
|
|
1,155
|
|
3,088
|
|
3,464
|
|
Expected return on plan assets
|
(1,121)
|
|
(1,286)
|
|
(3,363)
|
|
(3,858)
|
|
Amortization of prior service cost
|
10
|
|
11
|
|
31
|
|
32
|
|
Settlement loss(1)
|
271
|
|
91
|
|
819
|
|
609
|
|
Actuarial loss
|
456
|
|
422
|
|
1,368
|
|
1,267
|
|
Net periodic pension cost
|
$
|
762
|
|
$
|
513
|
|
$
|
2,295
|
|
$
|
1,873
|
|
(1) During the three and nine months ended December 31, 2019 and 2018, the Company's cash payments activity triggered settlement accounting. Settlement losses are recorded in interest expense.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Operating expenses:
|
|
|
|
|
Service cost
|
$
|
2
|
|
$
|
4
|
|
$
|
5
|
|
$
|
11
|
|
Interest expense:
|
|
|
|
|
Interest expense
|
82
|
|
83
|
|
246
|
|
248
|
|
Amortization of prior service cost
|
(177)
|
|
(177)
|
|
(531)
|
|
(532)
|
|
Actuarial loss
|
109
|
|
109
|
|
328
|
|
328
|
|
Net periodic pension cost
|
$
|
16
|
|
$
|
19
|
|
$
|
48
|
|
$
|
55
|
|
The following summarizes contributions to pension plans and postretirement health and life insurance benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Contributions made during the period
|
$
|
1,277
|
|
$
|
1,399
|
|
$
|
4,457
|
|
$
|
4,890
|
|
Contributions expected for the remainder of the fiscal year
|
|
|
|
|
2,665
|
|
2,357
|
|
Total
|
|
|
|
|
$
|
7,122
|
|
$
|
7,247
|
|
17. Inventories
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
December 31, 2018
|
March 31, 2019
|
Processed tobacco
|
$
|
703,124
|
|
$
|
698,092
|
|
$
|
455,163
|
|
Unprocessed tobacco
|
116,456
|
|
107,206
|
|
183,607
|
|
Other tobacco related
|
20,960
|
|
19,771
|
|
26,385
|
|
Other(1)
|
31,310
|
|
2,713
|
|
3,016
|
|
Total
|
$
|
871,850
|
|
$
|
827,782
|
|
$
|
668,171
|
|
(1) Represents inventory from the other products and services segment.
|
|
|
|
18. Other Comprehensive Loss
The changes in accumulated other comprehensive loss and the related tax effect are due to pension and other postretirement benefits and derivatives activity and reclassifications to the condensed consolidated statements of operations, as shown on the condensed consolidated statements of comprehensive loss. The following summarizes pension and other postretirement benefits and derivatives that were reclassified from accumulated other comprehensive loss to interest expense and cost of goods and services sold within the condensed consolidated statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
Affected Line Item in the Condensed Consolidated
|
|
|
|
2019
|
2018
|
2019
|
2018
|
Statements of Operations
|
|
|
Pension and other postretirement benefits*:
|
|
|
|
|
|
|
|
Actuarial loss
|
$
|
560
|
|
$
|
534
|
|
$
|
1,680
|
|
$
|
1,601
|
|
|
|
|
Amortization of prior service cost
|
(165)
|
|
(167)
|
|
(495)
|
|
(502)
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, gross
|
395
|
|
367
|
|
1,185
|
|
1,099
|
|
|
|
|
Tax effects of amounts reclassified from accumulated other comprehensive loss to net income
|
(83)
|
|
(82)
|
|
(251)
|
|
(246)
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, net
|
$
|
312
|
|
$
|
285
|
|
$
|
934
|
|
$
|
853
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
Affected Line Item in the Condensed Consolidated
|
|
|
|
2019
|
2018
|
2019
|
2018
|
Statements of Operations
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
Losses reclassified to cost of goods sold
|
$
|
729
|
|
$
|
458
|
|
$
|
3,189
|
|
$
|
1,445
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, gross
|
729
|
|
458
|
|
3,189
|
|
1,445
|
|
|
|
|
Tax effects of amounts reclassified from accumulated other comprehensive loss to net income
|
(153)
|
|
(96)
|
|
(669)
|
|
(303)
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, net
|
$
|
576
|
|
$
|
362
|
|
$
|
2,520
|
|
$
|
1,142
|
|
Cost of goods and services sold
|
|
|
|
|
|
|
|
|
|
|
|
19. Securitized Receivables
The Company sells trade receivables to unaffiliated financial institutions under three accounts receivable securitization facilities. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells 100% of the receivables to an unaffiliated financial institution. As of December 31, 2019, the investment limit under the first facility was $125,000 of trade receivables. Under the second and third facilities, the Company offers receivables for sale to unaffiliated financial institutions, which are then subject to acceptance by the unaffiliated financial institutions. As of December 31, 2019, the investment limit under the second facility was $125,000 of trade receivables. As of December 31, 2019, the investment limit under the third facility was variable based on qualifying sales.
As the servicer of these facilities, the Company may receive funds that are due to the unaffiliated financial institutions, which are net settled on the next settlement date. As a result of the net settlement, trade and other receivables, net in the condensed consolidated balance sheets has been reduced by $7,504 and $5,208 as of December 31, 2019 and March 31, 2019, respectively, and increased by $78 as of December 31, 2018.
The following summarizes the accounts receivable securitization information:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
March 31,
|
|
2019
|
2018
|
2019
|
Receivables outstanding in facility
|
$
|
69,741
|
|
$
|
92,445
|
|
$
|
210,672
|
|
Beneficial interests
|
14,385
|
|
24,659
|
|
40,332
|
|
Servicing liability
|
5
|
|
26
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
Cash proceeds for the period ended:
|
|
|
Cash purchase price
|
$
|
331,187
|
|
$
|
416,526
|
|
Deferred purchase price
|
174,741
|
|
171,565
|
|
Service fees
|
355
|
|
435
|
|
Total
|
$
|
506,283
|
|
$
|
588,526
|
|
20. Fair Value Measurements
The following summarizes the financial assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
December 31, 2018
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Total
|
|
|
|
Total
|
|
|
|
Total
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
1,029
|
|
$
|
—
|
|
$
|
1,029
|
|
|
$
|
186
|
|
$
|
—
|
|
$
|
186
|
|
Securitized beneficial interests
|
—
|
|
14,385
|
|
14,385
|
|
|
—
|
|
24,659
|
|
24,659
|
|
|
—
|
|
40,332
|
|
40,332
|
|
Total assets
|
$
|
—
|
|
$
|
14,385
|
|
$
|
14,385
|
|
|
$
|
1,029
|
|
$
|
24,659
|
|
$
|
25,688
|
|
|
$
|
186
|
|
$
|
40,332
|
|
$
|
40,518
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
558,401
|
|
$
|
620
|
|
$
|
559,021
|
|
|
$
|
742,047
|
|
$
|
708
|
|
$
|
742,755
|
|
|
$
|
830,082
|
|
$
|
703
|
|
$
|
830,785
|
|
Guarantees
|
—
|
|
1,112
|
|
1,112
|
|
|
—
|
|
2,890
|
|
2,890
|
|
|
—
|
|
3,714
|
|
3,714
|
|
Total liabilities
|
$
|
558,401
|
|
$
|
1,732
|
|
$
|
560,133
|
|
|
$
|
742,047
|
|
$
|
3,598
|
|
$
|
745,645
|
|
|
$
|
830,082
|
|
$
|
4,417
|
|
$
|
834,499
|
|
Level 2 measurements
•Debt: The fair value of debt is based on the market price for similar financial instruments or model-derived valuations with observable inputs. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
•Derivatives: The fair value of derivatives is determined using the discounted cash flow analysis of the expected future cash flows. The primary inputs to the valuation include forward yield curves, implied volatilities, LIBOR rates, and credit valuation adjustments.
Level 3 measurements
•Guarantees: The fair value of guarantees is determined using the discounted cash flow analysis of the expected future cash flows or historical loss rates. The primary inputs to the discounted cash flow analysis include market interest rates ranging between 15.0% to 75.8% and the Company’s historical loss rates ranging between 2.2% to 10.0% as of December 31, 2019. The historical loss rate was weighted by the principal balance of the loans.
•Securitized beneficial interests: The fair value of securitized beneficial interests is determined using the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of 77 to 80 days and discount rates of 1.7% to 4.3% as of December 31, 2019. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
The following summarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2019
|
|
Nine Months Ended December 31, 2019
|
|
|
|
|
Securitized Beneficial Interests
|
Guarantees
|
Securitized Beneficial Interests
|
Guarantees
|
|
|
Beginning balance
|
$
|
25,579
|
|
$
|
1,026
|
|
$
|
40,332
|
|
$
|
3,714
|
|
|
|
Issuances of sales of receivables/guarantees
|
42,857
|
|
478
|
|
151,150
|
|
1,323
|
|
|
|
Settlements
|
(53,158)
|
|
(408)
|
|
(174,000)
|
|
(3,937)
|
|
|
|
(Losses) gains recognized in earnings
|
(893)
|
|
16
|
|
(3,097)
|
|
12
|
|
|
|
Ending balance
|
$
|
14,385
|
|
$
|
1,112
|
|
$
|
14,385
|
|
$
|
1,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018
|
|
Nine Months Ended December 31, 2018
|
|
|
|
|
Securitized Beneficial Interests
|
Guarantees
|
Securitized Beneficial Interests
|
Guarantees
|
|
|
Beginning balance
|
$
|
17,512
|
|
$
|
1,861
|
|
$
|
48,715
|
|
$
|
5,864
|
|
|
|
Issuances of sales of receivables/guarantees
|
71,047
|
|
1,585
|
|
161,943
|
|
2,988
|
|
|
|
Settlements
|
(62,432)
|
|
(569)
|
|
(183,450)
|
|
(6,109)
|
|
|
|
(Losses) gains recognized in earnings
|
(1,468)
|
|
13
|
|
(2,549)
|
|
147
|
|
|
|
Ending balance
|
$
|
24,659
|
|
$
|
2,890
|
|
$
|
24,659
|
|
$
|
2,890
|
|
|
|
For the nine months ended December 31, 2019 and 2018, the impact to earnings attributable to the change in unrealized losses on securitized beneficial interests were $691 and $643, respectively.
21. Related Party Transactions
The Company engages in transactions with related parties primarily for the procuring and processing of inventory. The following summarizes sales and purchases with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Sales
|
$
|
1,535
|
|
$
|
475
|
|
$
|
15,312
|
|
$
|
14,238
|
|
Purchases
|
41,116
|
|
46,281
|
|
96,252
|
|
98,784
|
|
The Company’s accounts receivable, notes receivable, and accounts payable balances with related parties, as presented on the consolidated balance sheets, relate to transactions with equity method investments located in Asia, South America, North America, and Europe which grow, purchase, process, and sell tobacco, hemp, or produce consumable e-liquids.
22. Equity Method Investments
The following summarizes the Company's equity method investments as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entity Name
|
Location
|
Primary Purpose
|
The Company's Ownership Percentage
|
Basis Difference
|
Adams International Ltd.
|
Thailand
|
|
purchase and process tobacco
|
|
49
|
%
|
—
|
|
Alliance One Industries India Private Ltd.
|
India
|
|
purchase and process tobacco
|
|
49
|
%
|
—
|
|
China Brasil Tobacos Exportadora SA
|
Brazil
|
|
purchase and process tobacco
|
|
49
|
%
|
5,841
|
|
Criticality LLC
|
U.S.
|
|
extraction of cannabidiol from industrial hemp
|
|
40
|
%
|
881
|
|
Nicotine River, LLC
|
U.S.
|
|
produce consumable e-liquids
|
|
40
|
%
|
1,902
|
|
Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş.
|
Turkey
|
|
process tobacco
|
|
50
|
%
|
—
|
|
Purilum, LLC
|
U.S.
|
|
produce flavor formulations and consumable e-liquids
|
|
50
|
%
|
—
|
|
Siam Tobacco Export Company
|
Thailand
|
|
purchase and process tobacco
|
|
49
|
%
|
—
|
|
The following summarizes financial information for these equity method investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Operations statement:
|
|
|
|
|
Sales
|
$
|
61,515
|
|
$
|
128,731
|
|
$
|
256,885
|
|
$
|
221,938
|
|
Gross profit
|
9,462
|
|
20,705
|
|
44,235
|
|
37,531
|
|
Net income
|
1,506
|
|
10,433
|
|
16,599
|
|
16,009
|
|
Company's dividends received
|
267
|
|
—
|
|
6,841
|
|
5,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2019
|
2018
|
March 31, 2019
|
Balance sheet:
|
|
|
|
Current assets
|
$
|
166,989
|
|
$
|
235,951
|
|
$
|
152,661
|
|
Property, plant, and equipment and other assets
|
57,320
|
|
52,233
|
|
53,103
|
|
Current liabilities
|
103,622
|
|
174,688
|
|
89,791
|
|
Long-term obligations and other liabilities
|
6,054
|
|
3,320
|
|
3,222
|
|
Of the amounts presented above, the following summarizes financial information for China Brasil Tobacos Exportadora SA ("CBT"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Operations statement:
|
|
|
|
|
Sales
|
$
|
22,521
|
|
$
|
78,405
|
|
$
|
158,955
|
|
$
|
116,486
|
|
Gross profit
|
3,338
|
|
13,492
|
|
25,359
|
|
19,471
|
|
Net income
|
1,041
|
|
8,918
|
|
11,929
|
|
10,638
|
|
Net income attributable to CBT
|
510
|
|
4,370
|
|
5,845
|
|
5,213
|
|
23. Restructuring and Asset Impairment Charges
The Company announced a cost-saving initiative and restructuring plan to re-purpose its Argentinian subsidiary for storage and special projects during the quarter ended December 31, 2019, with tobacco processing to be provided by a third party going forward. Total costs related to severance for affected employees, and impairment and other one-time costs associated with fixed assets are estimated to be $4,300 and $141, respectively, and are expected to be incurred by March 31, 2020. For the three months ended December 31, 2019, the Company incurred $621 and $141 for severance and impairment related charges, respectively.
During the fiscal year ended March 31, 2019, the Company incurred costs associated with the closure of a processing facility in the Leaf - Other Regions segment in order to process tobacco in the affected area under a third-party processing arrangement going forward, the consolidation of the Company's U.S. green tobacco processing operations into its Wilson, North Carolina facility, and the re-purposing of its Farmville, North Carolina facility for storage and special projects.
The following summarizes the Company's restructuring and asset impairment charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Employee separation charges
|
$
|
531
|
|
$
|
1,122
|
|
$
|
632
|
|
$
|
2,499
|
|
Asset impairment and other non-cash charges
|
141
|
|
545
|
|
260
|
|
891
|
|
Restructuring and asset impairment charges
|
$
|
672
|
|
$
|
1,667
|
|
$
|
892
|
|
$
|
3,390
|
|
The following summarizes the activity in the restructuring accrual for employee separation and other cash charges recorded in the Company's Leaf - North America and Leaf - Other Regions segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
|
|
Nine Months Ended December 31,
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
Leaf - North America
|
|
Leaf - Other Regions
|
|
Leaf - North America
|
|
Leaf - Other Regions
|
|
Leaf - North America
|
|
Leaf - Other Regions
|
|
Leaf - North America
|
|
Leaf - Other Regions
|
|
Beginning balance
|
$
|
266
|
|
$
|
214
|
|
$
|
107
|
|
$
|
889
|
|
$
|
1,621
|
|
$
|
222
|
|
$
|
—
|
|
$
|
107
|
|
Period charges
|
—
|
|
531
|
|
892
|
|
230
|
|
8
|
|
624
|
|
1,139
|
|
1,360
|
|
Payments
|
(251)
|
|
(646)
|
|
(73)
|
|
(328)
|
|
(1,614)
|
|
(747)
|
|
(213)
|
|
(676)
|
|
Ending balance
|
$
|
15
|
|
$
|
99
|
|
$
|
926
|
|
$
|
791
|
|
$
|
15
|
|
$
|
99
|
|
$
|
926
|
|
$
|
791
|
|
The following summarizes the asset impairment and other non-cash charges recorded in the Company's Leaf - North America and Leaf - Other Regions segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31,
|
|
Nine Months Ended December 31,
|
|
|
2019
|
2018
|
2019
|
2018
|
Leaf - North America
|
$
|
—
|
|
$
|
545
|
|
$
|
—
|
|
$
|
545
|
|
Leaf - Other Regions
|
141
|
|
—
|
|
260
|
|
346
|
|
|
|
|
|
|
Total
|
$
|
141
|
|
$
|
545
|
|
$
|
260
|
|
$
|
891
|
|