Notes to Consolidated Financial Statements
(in thousands, except per share data)
1. Basis of Presentation and Summary of Significant Accounting Policies
The Company is a global agricultural company with more than 145 years of experience delivering value-added products and services to businesses and customers. The Company is a trusted provider of responsibly sourced, independently verified, sustainable, and traceable products and ingredients.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and pursuant to the rules and regulations of the Securities and Exchange Commission applicable to annual reporting on Form 10-K.
Going Concern
In an effort to address the Company's maturing long-term debt, the Company contemplated a number of actions, including reviewing of strategic business alternatives, evaluating and developing plans for a partial monetization of its interests in certain subsidiaries in the Other Products and Services segment, and implementing a global operations efficiency program. After implementing certain of these actions, evaluating other financing alternatives, and the impact of the COVID-19 pandemic, the Company determined that it will not have liquidity to fund near-term operations. As a result, the Company and certain of its subsidiaries commenced the Chapter 11 Cases on June 15, 2020. See Note 28. "Subsequent Events" to the "Notes to Consolidated Financial Statements" for additional information, including the definitions of certain capitalized terms used in Note 1. The Company and such subsidiaries operated as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 of the Bankruptcy Code and the orders of the Bankruptcy Court until their emergence from bankruptcy. The Company’s other subsidiaries were not part of the Chapter 11 Cases, and have continued to operate in the ordinary course of business.
The accompanying consolidated financial statements and related notes have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases. As a result of the Company's financial condition and the near-term maturities of substantial indebtedness, substantial doubt existed as of March 31, 2020 that the Company would be able to continue as a going concern. Based on the confirmation of the Plan by the Bankruptcy Court and the effectiveness of the Plan, there is no longer substantial doubt about the Company’s ability to continue as a going concern.
COVID-19
The Company has been closely monitoring the impact of the disease caused by the novel coronavirus ("COVID-19") on the Company and its workforce since January 2020. In March 2020, the World Health Organization recognized the outbreak of COVID-19 as a global pandemic. The COVID-19 pandemic and government actions implemented to contain the further spread of COVID-19 have severely restricted economic activity around the world. The Company’s businesses have been classified as an “essential” business under governmental shelter-in-place and similar orders in many of the jurisdictions in which we operate. As such, the Company is still able to produce and sell products. The Company’s production facilities are still operating but, in some instances, at lower production levels than planned due to the shelter in-place mandates. While the Company’s supply chains and distribution channels have experienced delays, the Company currently has adequate supply of products to meet forecasted demand for fiscal 2021.
The Company implemented various measures to reduce the spread of the virus including working from home, restricting visitors to production locations, splitting production workforce, reducing the on-site production workforce levels, screening workers before they enter facilities, implementing social distancing, and encouraging employees to adhere to prevention measures recommended by the Center for Disease Control and the World Health Organization.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. Intercompany accounts and transactions have been eliminated.
Equity Method Investments
The Company’s equity method investments and its cost method investments are non-marketable securities. When not required to consolidate its investment in another entity, the Company uses the equity method if it (i) can exercise significant influence over the other entity, and (ii) holds common stock and/or in-substance common stock of the other entity. Under the equity method, investments are carried at cost, plus or minus the Company’s equity in the increases or decreases of the investee’s net assets after the date of acquisition. The Company continually monitors its equity method investments for factors indicating
other-than-temporary impairment. The Company's proportionate share of the net income or loss of these entities is included in income from unconsolidated affiliates, net within the consolidated statements of operations. Dividends received from the investee reduce the carrying amount of the investment. Distributions from equity method investees are accounted for based on the cumulative earnings approach to determine whether they represent a return of investment, or a return on investment.
Variable Interest Entities
The Company holds variable interests in multiple variable interest entities, which primarily procure or process inventory on behalf of the Company or are securitization entities. These variable interests relate to equity investments, receivables, guarantees, and securitized receivables. The Company is not the primary beneficiary of the majority of these entities as it does not have the power to direct the activities that most significantly impact the economic performance of the entities, due to the entities’ management and board of directors’ structure. As a result, the majority of these variable interest entities are not consolidated. The Company holds a majority voting interest and is the primary beneficiary of its variable interest in Humble Juice Co., LLC, a consolidated entity for which the related intercompany accounts and transactions have been eliminated. Creditors of the Company’s variable interest entities do not have recourse against the general credit of the Company.
The Company's investments in unconsolidated variable interest entities are classified as investments in unconsolidated affiliates in the consolidated balance sheets. The Company's receivables with variable interest entities are classified as long-term notes receivable, related parties and accounts receivable, related parties in the consolidated balance sheets. The Company's maximum exposure to loss in these variable interest entities is represented by the investments, receivables, guarantees, and the deferred purchase price on the sale of securitized receivables.
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. These estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results may differ from the Company's estimates and assumptions. Estimates are used in accounting for, among other things, revenue recognition, pension and postretirement health care benefits, inventory reserves, accounts receivable reserves, bank loan guarantees to suppliers and unconsolidated subsidiaries, useful lives for depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, deferred tax assets and uncertain income tax positions, intrastate tax credits in Brazil, fair value determinations of financial assets and liabilities, including derivatives, securitized beneficial interests, and counterparty risk.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation in the restructuring and asset impairment charges in the consolidated statements of cash flows, and the components within inventory.
Subsequent to the issuance of the fiscal year ended March 31, 2019 financial statements, management identified a classification error of an additional investment in consolidated affiliates in the consolidated statements of cash flows. During the fiscal year ended March 31, 2020, the Company restated its consolidated statements of cash flows to correct the misclassification. The misclassification resulted in an understatement of net cash provided by investing activities and an understatement of net cash used by financing activities of $13,470 in the consolidated statement of cash flows related to additional investments in consolidated affiliates. This restatement did not affect the consolidated balance sheets, consolidated statements of operations, or consolidated statements of stockholder's equity for any period.
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. In reviewing operations, the Company concluded that the economic characteristics of Leaf - North America operations were dissimilar from the other Leaf geographic operating segments in Africa, Asia, Europe, and South America, which have been consolidated into one reportable segment, "Leaf - Other Regions". The five other operating segments are aggregated into the "Other Products and Services" reportable segment as they do not meet the quantitative thresholds to be individually reportable. These segment groupings are consistent with information used by the chief operating decision maker to assess performance and allocate resources.
The types of products and services from which each reportable segment derived its revenues during the reported periods are as follows:
•Leaf - North America ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - North America is more concentrated on processing and other activities compared to the rest of the world.
•Leaf - Other Regions ships tobacco to manufacturers of cigarettes and other consumer tobacco products around the world. Leaf - Other Regions sells a small amount of processed but un-threshed flue-cured and burley tobacco in loose-leaf and bundle form to certain customers.
•Other Products and Services primarily consists of cannabis and e-liquid products. Cannabis was legalized for adult use in Canada on October 17, 2018. The cannabis products of the Company's Canadian subsidiaries are sold primarily to municipally-owned retailers in the provinces of Prince Edward Island, Ontario, New Brunswick, and Nova Scotia in the Canadian market. E-liquids products are sold through retailers and directly to consumers via e-commerce platforms and other distribution channels.
The Company evaluates the operating performance of its segments based upon information included in management reports. Corporate general expenses are allocated to the segments based upon segment selling, general, and administrative expenses.
Revenue Recognition
The Company's revenue consists primarily of the sale of processed tobacco and fees charged for processing and related services to the manufacturers of tobacco products. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company’s performance obligations are satisfied when the transfer of control of the distinct product or service to the customer occurs. For products, control is transferred and revenue is recognized at a point in time, in accordance with the shipping terms of the contract. For services, control is transferred and revenue is recognized over time using the input method based on a kilogram of packed tobacco. A kilogram of processed tobacco (or tobacco processing services resulting in a kilogram of processed tobacco) is the only material and distinct performance obligation for the Company’s tobacco revenue streams. Consideration is attributed to the performance of this obligation. The Company does not disclose information related to its unsatisfied performance obligations with an expected duration of one year or less.
Revenue is measured as the amount of consideration to which the Company expects to be entitled to receive in exchange for transferring goods or providing services. Contract costs primarily include labor, material, shipping and handling, and overhead expenses.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company records product and supply contract intangible assets for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year, and if such costs are material. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. Capitalized costs to obtain a contract are classified as other intangible assets, net in the consolidated balance sheets.
Contract Balances
The Company generally records a receivable when revenue is recognized as the timing of revenue recognition may differ from the timing of payment from customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. The Company applied a practical expedient not to adjust the transaction price for the effects of financing components when the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service is one year or less. As a result, where the timing of revenue recognition differs from the timing of payment, the Company determined its contracts do not include a significant financing component.
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the trade receivables, net balance. The Company determines the allowance based on historical experience and other currently available information. The provision for doubtful accounts is recorded in selling, general, and administrative expenses in the statements of consolidated operations.
Significant Judgments
The Company has identified two main forms of variable consideration in its contracts with customers: warehousing fees for storing customer-controlled tobacco until the customer requests shipment and claims resulting from tobacco that does not meet customer specifications. Warehousing fees are either included in the price of tobacco based on the customers' best estimate of the date they will request shipment or separately charged using a per-day storage rate. When the Company enters into a contract with a customer, the price communicated is the amount of consideration the Company expects to receive. Price adjustments for tobacco not meeting customer specifications for shrinkage, improper blend, or chemical makeup, etc. are handled through a claims allowance that is assessed quarterly. Since the Company has a large number of customer contracts with similar characteristics, the volume of tobacco sold each year is substantial, and the Company has historical data related to claims, the Company is able to estimate the amount of expected claims using the expected value method.
Taxes Collected from Customers
Certain subsidiaries are subject to value-added taxes on local sales. Value-added taxes on local sales are recorded in sales and other operating revenues and cost of goods and services sold in the consolidated statements of operations.
Shipping and Handling
The Company elected to account for shipping and handling as activities to fulfill its performance obligations, regardless of when control transfers. Shipping and handling fees that are billed to customers are recognized in sales and other operating revenues and the associated shipping and handling costs are recognized in cost of goods and services sold in the statements of consolidated operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less and are stated at cost, which approximates fair value.
Inventories, Net
Costs in inventory include processed tobacco inventory, unprocessed tobacco inventory, other tobacco related, and other inventory. Costs of unprocessed tobacco inventories are determined by the average cost method, which include the cost of green tobacco. Costs of processed tobacco inventories are determined by the average cost method, which include both the cost of unprocessed tobacco, as well as direct and indirect costs related to processing the product. Costs of other non-tobacco inventory are determined by the first-in, first-out method, which include costs of packing materials, non-tobacco agricultural products, and agricultural supplies including seed, fertilizer, herbicides, and pesticides.
Inventories are carried at the lower of cost or net realizable value (“LCM”). The Company evaluates its inventories for LCM adjustments by country and type of inventory. Processed tobacco and unprocessed tobacco are evaluated separately for LCM purposes. The Company compares the cost of its processed tobacco to net realizable value based on the estimated selling price of similar grades when evaluating those balances for LCM adjustments. The Company also considers whether its processed tobacco is committed to a customer, whereby the expected sales price is utilized in determining the net realizable value for committed tobacco. In addition, the Company writes-down inventory balances for estimates of obsolescence. LCM and obsolescence inventory write-downs are recorded in cost of goods and services sold within the consolidated statements of operations.
Advances to Suppliers, Net
The Company purchases seeds, fertilizer, pesticides, and other products related to growing tobacco and advances them to farmers to assist in crop production. These seasonal advances are short term, represent prepaid inventory, and are recorded as advances to suppliers. Upon delivery of tobacco, part of the purchase price to the supplier is paid in cash and part through a reduction of the advance balance. The advances applied to the delivery are reclassified from advances to unprocessed inventory.
The Company also has noncurrent advances, which generally represent the cost of advances to farmers for infrastructure, such as curing barns, recovered through the delivery of tobacco to the Company by the suppliers. Suppliers may not be able to settle the entire amount of advances due in a given year. In these situations, the Company may allow the suppliers to deliver tobacco over future crop years to recover its advances. Noncurrent advances to suppliers are recorded in other noncurrent assets in the consolidated balance sheets.
The Company accounts for its advances to suppliers using a cost accumulation model, which reports advances at the lower of cost or recoverable amounts exclusive of the mark-up and interest. The mark-up and interest on its advances are recognized upon delivery of tobacco as a decrease in the cost of the current crop. Unrecovered advances are recorded in cost of goods and services sold in the consolidated statements of operations for abnormal yield adjustments or unrecovered advances from prior crops. Normal yield adjustments are capitalized into the cost of the current crop and are recorded in cost of goods and services sold as that crop is sold.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over fair value of net assets acquired and is allocated to the appropriate reporting unit when acquired. A reporting unit is an operating segment, or one level below an operating segment, referred to as a component. The components within the Company’s operating segments are aggregated into ten reporting units due to their similar economic characteristics. Goodwill is not subject to amortization and is tested for impairment annually, on the first day of the fourth quarter of the fiscal year, or whenever events and circumstances indicate that impairment may have occurred.
The Company utilized a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the Company’s quantitative assessments, the Company utilized the discounted cash flow (“DCF”) method of the income approach. The future cash flows of the Company’s reporting units were projected based on estimates of future revenues, gross margins, operating income, excess net working capital, capital
expenditures, and other factors. The Company utilized estimated revenue growth rates and cash flow projections. The discount rates utilized in the DCF method were based on a weighted-average cost of capital ("WACC") determined from relevant market comparisons and adjusted for specific reporting unit risks, country risk premiums, and capital structure. A terminal value estimated growth rate was applied to the final year of the projected period and reflected the Company’s estimate of perpetual growth. The Company then calculated a present value of the respective cash flows for each reporting unit to arrive at an estimate of fair value under the income approach. The Company then reconciled the estimated fair value of its reporting units to its total public market capitalization as of the valuation date. An implied control premium was calculated based on the Company’s stock price as of the valuation date and compared to control premiums paid in recent industry transactions for reasonableness. The carrying amount of goodwill exceeded its fair value. As a result, the Company recorded an impairment charge.
The Company has intangible assets with definite useful lives. These intangible assets are assessed annually and tested for impairment whenever factors indicate that the carrying amount may not be recoverable. Production and supply contracts are amortized based on the expected realization of the benefit over the term of the contracts ranging from three to five years. The trade name, customer relationship, and license intangibles are amortized on a straight-line basis over eight, eight to twenty years, and five to twenty years, respectively. The amortization period is the term of the contract or, if no term is specified in the contract, management’s best estimate of the useful life based on past experience. Internally developed software is amortized on a straight-line basis over three to five years once the software testing is complete. Events and changes in circumstance may either result in a revision in the estimated useful life or impairment of an intangible. Amortization expense associated with finite-lived intangible assets is recorded in selling, general, and administrative expenses in the consolidated statements of operations, except for production and supply contracts which is recorded against the associated revenues.
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 generally 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 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, those lease contracts with durations of twelve months or lease, in the consolidated balance sheets.
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.
Property, Plant, and Equipment, Net
Property, plant, and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over a range of 20 to 30 years. Machinery and equipment are depreciated over a range of three to ten years. Repairs and maintenance costs are expensed as incurred. The cost of major improvements are capitalized. Upon sale or disposition of an asset, the cost and related accumulated depreciation are removed from the balance sheet accounts and the resulting gain or loss is included in other income, net in the consolidated statements of operations.
Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures.
Capitalized Interest
Interest is capitalized on significant construction in progress using the weighted average interest rate during the capitalization period.
Guarantees
The Company's guarantees are primarily related to bank loans to suppliers for crop production financing. The Company guarantees bank loans of certain unconsolidated subsidiaries in Asia and South America. Under longer-term arrangements, the Company may 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 fair value of the Company's guarantees are recorded in accrued expenses and other current liabilities in the consolidated balance sheets and included in crop costs, except for the joint venture in Brazil, which are included in accounts receivable, related parties.
In Brazil, certain suppliers obtain government subsidized rural credit financing from local banks that is guaranteed by the Company. Upon delivery of tobacco, the Company remits payments to the local banks on behalf of the suppliers before paying the supplier. Amounts owed to suppliers are recorded in accounts payable in the consolidated balance sheets. Rural credit financing repayment is due to local banks based on contractual due dates.
Income Taxes
The Company uses the asset and liability method to account for income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
The Company’s annual tax rate is based on its income, 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 reviews its tax positions quarterly and adjusts the balances as new information becomes available.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. The Company evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings, and available tax planning strategies. As these sources of income inherently rely on estimates, the Company uses historical experience and short and long-range business forecasts to provide insight.
The Company believes it is more likely than not that a majority of the deferred income tax assets may not be realized and has established a valuation allowance against those deferred income assets. Although expiration is not assured for the deferred income tax assets, we believe it is more likely than not that the deferred tax assets will fully expire within the applicable statutory expiration periods. However, deferred tax assets could become realizable in the near term if our overall capital structure is improved. The Company believes it is more likely than not the remaining deferred tax assets will be fully recoverable within the applicable statutory expiration periods.
Pension and Other Postretirement Benefits
Retirement Benefits
The Company sponsors multiple benefit plans. The Company has a defined benefit plan that provides retirement benefits for certain U.S. salaried personnel based on years of service rendered, age, and compensation. The Company also maintains various other excess benefit and supplemental plans that provide additional benefits to certain individuals in key positions and individuals whose compensation and the resulting benefits that would have actually been paid are limited by regulations imposed by the Internal Revenue Code. In addition, a Supplemental Retirement Account Plan ("SRAP") defined contribution plan is maintained. Additional non-U.S. plans sponsored by certain subsidiaries cover certain of the full-time employees located in Germany, Turkey, and the United Kingdom.
Postretirement Health and Life Insurance Benefits
The Company provides certain health and life insurance benefits to retired U.S. employees (and their eligible dependents) who meet specified age and service requirements. The plan excludes new employees after September 2005 and caps the Company’s annual cost commitment to postretirement benefits for retirees. The Company retains the right, subject to existing agreements, to modify or eliminate these postretirement health and life insurance benefits in the future. The Company provides certain health and life insurance benefits to retired Brazilian directors and certain retirees located in Europe including their eligible dependents who meet specified requirements.
Plan Assets
The Company's policy is to contribute amounts to the plans sufficient to meet or exceed funding requirements of local governmental rules and regulations. Funding of our qualified defined benefit pension plans is determined in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended by the Pension Protection Act of 2006.
The Company's investment objectives for plan assets are to generate consistent total investment return to pay anticipated plan benefits, while minimizing long-term costs and portfolio volatility. The financial objectives underlying this policy include maintaining plan contributions at a reasonable level relative to benefits provided and assuring unfunded obligations do not grow to a level that would adversely affect the Company's financial health. Portfolio performance is measured against investment objectives and objective benchmarks, including but not limited to: Citibank 90 Day Treasury Bill, Bloomberg Barclays Intermediate Govt/Credit, Bloomberg Barclays Aggregate, Russell 1000 Value, Russell 1000 Growth, Russell 2500 Value, Russell 2500 Growth, MSCI EAFE, HFR Absolute Return, and HFR Equity Hedge. The portfolio objective is to exceed the actuarial return on assets assumption. Management and the plan's consultant regularly review portfolio allocations and periodically rebalance the portfolio to the targeted allocations according to the guidelines set forth in the Company's investment policy. Equity securities do not include the Company's common stock. The Company's diversification and risk control processes serve to minimize the concentration and experience of risk. There are no significant concentrations of risk, in terms of sector, industry, geography, or individual company or companies.
In order to project the long-term investment return for the total portfolio, estimates are prepared for the total return of each major asset class over the subsequent 10-year period, or longer. Those estimates are based on a combination of factors including the current market interest rates and valuation levels, consensus earnings expectations and historical long-term risk premiums. To determine the aggregate return for the pension trust, the projected return of each individual asset class is then weighted according to the allocation to that investment area in the trust’s long-term asset allocation policy.
The Company’s plan assets primarily consist of cash and cash equivalents, equity securities, fixed income securities, equity and fixed income funds, real estate investments, and diversified investments. Plan assets are measured at fair value annually on March 31, the measurement date. The following are descriptions, valuation methodologies, and inputs used to determine the fair value of each major category of plan assets:
•Cash and cash equivalents include short-term investment funds, primarily in diversified portfolios of investment grade money market instruments that are valued using quoted market prices or other valuation methods, and classified within Level 1 or Level 2 of the fair value hierarchy.
•Equity securities are investments in common stock of domestic and international corporations in a variety of industry sectors, and are valued primarily using quoted market prices and generally classified within Level 1 in the fair value hierarchy.
•Fixed income securities include U.S. Treasuries and agencies, debt obligations of foreign governments, and debt obligations in corporations of domestic and foreign issuers. The fair value of fixed income securities is based on observable prices for identical or comparable assets, adjusted by benchmark curves, sector grouping, matrix pricing, broker/dealer quotes, and issuer spreads, and are generally classified within Level 1 or Level 2 in the fair value hierarchy.
•Investments in equity and fixed income mutual funds are publicly traded and valued primarily using quoted market prices and generally classified within Level 1 in the fair value hierarchy. Investments in commingled funds used in certain non-U.S. pension plans are not publicly traded, but the underlying assets held in these funds are traded in active markets and the prices for these assets are readily observable. Holdings in these commingled funds are generally classified as Level 2 investments.
•Real estate investments include those in private limited partnerships that invest in various domestic and international commercial and residential real estate projects and publicly traded REIT securities. The fair values of private real estate assets are typically determined by using income and/or cost approaches or comparable sales approach, taking into consideration discount and capitalization rates, financial conditions, local market conditions, and the status of the capital markets, and are generally classified within Level 3 in the fair value hierarchy. Publicly traded REIT securities are valued primarily using quoted market prices and are generally classified within Level 1 in the fair value hierarchy.
•Diversified investments include those in limited partnerships that invest in non-publicly traded companies and mutual funds with an absolute return strategy. Their investment strategies include leveraged buyouts, venture capital, distressed investments, and investments in natural resources. These investments are valued using inputs such as trading multiples of comparable public securities, merger and acquisition activity and pricing data from the most recent equity financing taking into consideration illiquidity, and are classified within Level 3 in the fair value hierarchy. Mutual fund
investments with absolute return strategies are publicly traded and valued using quoted market prices and are generally classified within Level 1 in the fair value hierarchy.
Foreign Currency Translation and Remeasurement
The Company translates assets and liabilities of its foreign subsidiaries from their respective functional currencies to USD using exchange rates in effect at period end, except for non-monetary balance sheet accounts, which are translated at historical exchange rates. The Company's results of operations and its cash flows are translated using average exchange rates for each reporting period. Resulting currency translation adjustments are reflected as a separate component of accumulated other comprehensive loss in the consolidated balance sheets.
The financial statements of foreign subsidiaries, for which the USD is the functional currency and which have certain transactions denominated in a local currency, are remeasured into USD. The remeasurement of local currencies into USD results in remeasurement adjustments that are included in net income. Exchange gains (losses) from remeasurement are recorded in cost of goods and services sold and other income, net within the consolidated statements of operations.
Securitized Receivables
The Company sold trade receivables to unaffiliated financial institutions under three accounts receivable securitization facilities. Under the facilities, the receivables sold for cash are removed from the consolidated balance sheets. Under the first and second facilities, a portion of the purchase price for the receivables is paid by the unaffiliated financial institutions in cash and the balance is a deferred purchase price receivable, which is paid as payments on the receivables are collected from account debtors.
The net cash proceeds received by the Company in cash at the time of sale (cash purchase price) are included as cash used by operating activities in the statements of consolidated cash flows. The deferred purchase price receivable represents a continuing involvement and a beneficial interest in the transferred financial assets and is recognized at fair value as part of the sale transaction. The deferred purchase price receivables are included in trade and other receivables, net in the consolidated balance sheets and are valued using unobservable inputs (i.e., Level three inputs), primarily discounted cash flow. On April 1, 2018, the Company adopted ASU No. 2016-15 and in accordance with this guidance, the net cash proceeds received by the Company as deferred purchase price are included in net cash provided by investing activities in the statements of consolidated cash flows. Additionally, cash obtained as a beneficial interest for transferring trade receivables in a securitization transaction has been added as a noncash disclosure to the statements of consolidated cash flows.
The difference between the carrying amount of the receivables sold under these facilities and the sum of the cash and fair value of the other assets received at the time of transfer is recognized as a loss on sale of the related receivables and recorded in other income, net in the statements of consolidated operations. Program costs are recorded in other income, net in the statements of consolidated operations.
Stock-Based Compensation
The Company’s shareholders approved the 2016 Incentive Plan (the “2016 Plan”) at its Annual Meeting of Shareholders on August 12, 2016. The 2016 Plan is the successor to the 2007 Incentive Plan (the “2007 Plan”), which was amended on August 11, 2011 and August 6, 2009. The 2016 Plan is an omnibus plan that provides the Company the flexibility to grant a variety of stock-based awards including stock options, restricted stock, restricted stock units, performance-based restricted stock units, and cash-settled awards to its officers, directors, and employees. For stock-based awards without performance conditions, the Company recognizes stock-based compensation cost on a straight-line basis over the vesting period of the award. For stock-based awards with performance conditions, the Company recognizes stock-based compensation cost using the accelerated attribution method over the requisite service period when the Company determines it is probable that the performance condition will be satisfied. The Company estimates forfeitures of stock-based awards using historical experience. Stock-based compensation expense is included in selling, general, and administrative expenses in the statements of consolidated operations.
Restricted Stock Awards
Restricted stock is a form of common stock that is fully vested on the grant date, is nontransferable, and is not forfeitable, unless certain conditions are satisfied. The fair value of restricted shares is determined using the quoted market value of the Company’s stock on the grant date and is recognized as compensation cost on the grant date.
Restricted Stock Units
Restricted stock units differ from restricted stock in that zero shares are issued until restrictions lapse. Certain restricted stock units vest ratably over a three-year period and others vest 50% in the first year and 25% in each of the second and third years. The fair value of the restricted stock units is determined using the quoted market value of the Company’s stock on grant date and is recognized as compensation cost over the vesting period.
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 does not hold derivatives contracts for speculative or trading purposes.
Derivative financial instruments are recorded in other current assets and other current liabilities in the consolidated balance sheets and are measured at fair value. Changes in fair value are recognized in earnings, unless the derivative is designated and qualifies to be in a hedge accounting relationship. For derivatives designated in a hedge accounting relationship, the Company evaluates hedge effectiveness at inception and on an ongoing basis. If a hedge relationship is no longer expected to be effective, the derivative in that relationship is de-designated and hedge accounting is discontinued.
Changes in fair value of foreign currency derivatives designated in cash flow hedging relationships are recorded in accumulated other comprehensive loss in the consolidated balance sheets and reclassified to earnings when the hedged item affects earnings. Cash flows from derivatives are classified in the consolidated statements of cash flows in the same category as the cash flows from the underlying hedged items.
The Company has elected not to offset fair value amounts recognized for derivative instruments with the same counterparty under a master netting agreement.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards 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 in the consolidated balance sheets 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.
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 and its related amendments are intended to provide 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 primarily impacts trade receivables. This guidance was early adopted by the Company as of April 1, 2020 using the modified retrospective approach. The adoption of this new accounting standard did not have a material impact on the Company's financial condition, results of operations, or cash flows.
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 by the Company as of April 1, 2020 using a retrospective approach. The Company does not expect the new accounting standard to have a material impact on the Company's financial condition, results of operations, or cash flows.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocations, the methodology for calculating income taxes during interim periods when there are changes in tax laws or when year-to-date losses exceed anticipated losses, and the recognition of deferred tax liabilities for outside basis differences in foreign investments. This guidance also simplifies aspects of the accounting for franchise taxes that are partially based on income, separate financial statements of legal entities not subject to tax, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The guidance is effective for the Company on April 1, 2021, with early adoption permitted. The Company is currently evaluating the impact that this new accounting standard will have on its consolidated financial statements and related disclosures.
3. Revenue Recognition
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process customer-owned green tobacco. During processing, ownership remains with the customers. Other products and services revenue is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue. The following disaggregates sales and other operating revenues by major source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended March 31,
|
|
|
|
2020
|
2019
|
|
2020
|
2019
|
|
Leaf - North America:
|
|
|
|
|
|
|
Product revenue
|
$
|
77,997
|
|
$
|
97,055
|
|
|
$
|
192,545
|
|
$
|
249,980
|
|
|
Processing and other revenues
|
7,289
|
|
6,899
|
|
|
32,162
|
|
35,738
|
|
|
Total sales and other operating revenues
|
85,286
|
|
103,954
|
|
|
224,707
|
|
285,718
|
|
|
|
|
|
|
|
|
|
Leaf - Other Regions:
|
|
|
|
|
|
|
Product revenue
|
410,519
|
|
478,877
|
|
|
1,236,041
|
|
1,456,280
|
|
|
Processing and other revenues
|
4,259
|
|
2,707
|
|
|
46,575
|
|
43,559
|
|
|
Total sales and other operating revenues
|
414,778
|
|
481,584
|
|
|
1,282,616
|
|
1,499,839
|
|
|
|
|
|
|
|
|
|
Other Products and Services:
|
|
|
|
|
|
|
Total sales and other operating revenues
|
4,286
|
|
5,703
|
|
|
19,938
|
|
16,036
|
|
|
|
|
|
|
|
|
|
Total sales and other operating revenues
|
$
|
504,350
|
|
$
|
591,241
|
|
|
$
|
1,527,261
|
|
$
|
1,801,593
|
|
Significant Judgments
The following summarizes activity in the claims allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended March 31,
|
|
|
|
2020
|
2019
|
|
2020
|
2019
|
|
Balance, beginning of period
|
$
|
1,270
|
|
$
|
1,410
|
|
|
$
|
1,460
|
|
$
|
1,100
|
|
|
Additions
|
177
|
|
595
|
|
|
2,018
|
|
2,853
|
|
|
Payments
|
(317)
|
|
(545)
|
|
|
(2,348)
|
|
(2,493)
|
|
|
Balance, end of period
|
$
|
1,130
|
|
$
|
1,460
|
|
|
$
|
1,130
|
|
$
|
1,460
|
|
Contract Balances
The following summarizes activity in the allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Years Ended March 31,
|
|
|
|
2020
|
2019
|
|
2020
|
2019
|
|
Balance, beginning of period
|
(7,247)
|
|
(9,113)
|
|
|
$
|
(13,381)
|
|
$
|
(7,048)
|
|
|
Additions
|
(8,646)
|
|
(4,513)
|
|
|
(8,644)
|
|
(6,657)
|
|
|
Write-offs
|
—
|
|
245
|
|
|
6,132
|
|
324
|
|
|
Balance, end of period
|
(15,893)
|
|
(13,381)
|
|
|
(15,893)
|
|
(13,381)
|
|
|
Trade receivables
|
242,635
|
|
303,478
|
|
|
242,635
|
|
303,478
|
|
|
Trade receivables, net
|
$
|
226,742
|
|
$
|
290,097
|
|
|
$
|
226,742
|
|
$
|
290,097
|
|
Assets Recognized from the Costs to Obtain a Contract with a Customer
Other Income, Net
The following summarizes the significant components of other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
|
|
|
|
|
Other sales of assets and expenses
|
$
|
(10,053)
|
|
$
|
2,497
|
|
$
|
3,379
|
|
|
Sales of Brazilian intrastate trade tax credits
|
9,039
|
|
10,418
|
|
11,835
|
|
|
Receipt of funds held in escrow
|
—
|
|
—
|
|
3,235
|
|
|
Gain on sales of fixed assets
|
6,539
|
|
2,080
|
|
3,612
|
|
|
Losses on sale of receivables
|
(4,803)
|
|
(6,816)
|
|
(7,679)
|
|
|
Gain from insurance claims
|
1,411
|
|
6,038
|
|
—
|
|
|
Total
|
$
|
2,133
|
|
$
|
14,217
|
|
$
|
14,382
|
|
Taxes Collected from Customers
Value-added taxes were $25,187, $23,188, and $26,033 for the years ended March 31, 2020, 2019, and 2018, respectively.
4. Acquisitions
Figr East
On January 25, 2018, a Canadian subsidiary of the Company, acquired 75.0% of the equity in Figr East. Figr East is fully licensed to produce and sell medicinal cannabis in the Canadian Province of Prince Edward Island. Figr East sells its products directly to patients and through distributors. The Company acquired its interest in Figr East in exchange for consideration consisting of approximately $32,468 cash, subject to certain post-closing adjustments. The consolidation of Figr East has been treated as a purchase business combination and as such, the fair value of the assets and liabilities have been recorded at their fair value. The fair value of the non-controlling interest was $8,117.
For the year ended March 31, 2018, the Company incurred $499 of acquisition-related expenses, primarily consisting of consulting fees, which were accounted for separately from the business combination and expensed as incurred within selling, general, and administrative expenses in the consolidated statements of operations.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments that had no impact on the purchase price. The acquisition allowed the Company to expand its product portfolio into the medical cannabis industry in Canada. The following table summarizes the fair values of the assets acquired and liabilities assumed as of January 25, 2018:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
436
|
|
|
Other receivables
|
442
|
|
|
Inventories
|
2,221
|
|
|
Other current assets
|
64
|
|
|
Property, plant and equipment
|
5,378
|
|
|
Goodwill
|
11,597
|
|
|
Other intangible assets
|
30,520
|
|
|
Total assets acquired
|
50,658
|
|
|
Accounts payable
|
725
|
|
|
Deferred income tax liabilities
|
9,348
|
|
|
Total liabilities
|
10,073
|
|
|
Fair value of equity interest
|
$
|
40,585
|
|
The amounts of revenue, operating loss, and net loss of Figr East in the consolidated statements of operations from and including January 25, 2018 to March 31, 2018 were $235, $(412), and $(288), respectively. As a result, the impact to basic and diluted earnings per share was $(0.03) and $(0.03), respectively.
Unaudited pro forma information summarizes the combined results of the Company and Figr East for the years ended March 31, 2018, as if the companies were combined as of April 1, 2016. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the reconsolidation taken place at the beginning of each period or results of future periods. The following information has been adjusted for intercompany eliminations as required for consolidation accounting: unaudited pro forma revenue, operating loss, and net loss for the year ended March 31, 2018 were $2,008, $(466), and $(181), respectively. Unaudited pro forma basic and diluted earnings per share were $(0.02) and $(0.02), respectively.
On March 22, 2019, the Canadian subsidiary of the Company acquired an additional 18.0% interest in Figr East for $13,470 in cash. On October 15, 2019, the Canadian subsidiary of the Company acquired an additional 1.2% interest in Figr East for $911 in cash. As result of these equity positions acquired, the subsidiary's ownership level in Figr East increased to 94.3%. Transaction costs associated with the acquisition of additional interest are expensed as incurred within selling, general, and
administrative expenses in the consolidated statements of operations. Below are the effects of changes in the Company’s ownership interest in Figr East on the Company’s equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Net (loss) income attributable to Pyxus International, Inc. shareholders
|
$
|
(264,661)
|
|
$
|
(70,467)
|
|
$
|
52,436
|
|
|
Decrease in Pyxus International, Inc. equity for purchase of 22.3522 shares in 2019 and 1.4972 shares in 2020 of Figr East:
|
|
|
|
|
Paid in capital
|
(528)
|
|
(6,056)
|
|
—
|
|
|
Accumulated other comprehensive income (loss)
|
33
|
|
(461)
|
|
—
|
|
|
Change from net (loss) income attributable to Pyxus International, Inc. shareholders and transfer from noncontrolling interest
|
$
|
(265,156)
|
|
$
|
(76,984)
|
|
$
|
52,436
|
|
Humble Juice
On April 2, 2018, the Company acquired 51.0% of the equity in Humble Juice. Humble Juice sells e-liquid products and related merchandise. The Company acquired its interest in Humble Juice in exchange for consideration consisting of approximately $9,000 cash and $446 contingent consideration, subject to certain post-closing adjustments. The consolidation of Humble Juice has been treated as a business combination. The assets and liabilities were recorded at their fair value. The fair value of the non-controlling interest was $5,086.
For the year ended March 31, 2019, the Company incurred $12 of acquisition-related expenses, primarily consisting of consulting fees, which were accounted for separately from the business combination and expensed as incurred within selling, general, and administrative expenses in the consolidated statements of operations.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments. The acquisition allowed the Company to expand its e-liquid product portfolio. The following summarizes the fair values of the assets acquired and liabilities assumed as of April 2, 2018:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
308
|
|
|
Other receivables
|
56
|
|
|
Inventories
|
1,048
|
|
|
Other current assets
|
6
|
|
|
Property, plant, and equipment
|
8
|
|
|
Goodwill
|
7,174
|
|
|
Other intangible assets
|
5,950
|
|
|
Total assets acquired
|
14,550
|
|
|
Accounts payable
|
18
|
|
|
|
|
|
Total liabilities
|
18
|
|
|
Fair value of equity interest
|
$
|
14,532
|
|
Revenue, operating loss, and net loss of Humble in the consolidated statements of operations from and including April 2, 2018 to June 30, 2018 were $2,487, $(501), and $(256), respectively. As a result, the impact to basic and diluted earnings per share was $(0.03) and $(0.03), respectively.
Unaudited pro forma information summarizes the results of Humble for the years ended March 31, 2019, as if the companies were combined as of April 1, 2017. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the reconsolidation taken place at the beginning of each period or results of future periods. The following information has been adjusted for intercompany eliminations as required for consolidation accounting: unaudited pro forma revenue, operating income, and net income for the three months ended June 30, 2017 were $1,764, $526, and $266, respectively. Unaudited pro forma basic and diluted earnings per share were $0.03 and $0.03, respectively.
5. Cash, Cash Equivalents, and Restricted Cash
The following summarizes the composition of restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Compensating balance for short-term borrowings
|
$
|
893
|
|
$
|
1,225
|
|
|
Escrow
|
1,450
|
|
2,894
|
|
|
Other
|
532
|
|
1,648
|
|
|
Total
|
$
|
2,875
|
|
$
|
5,767
|
|
As of March 31, 2020 and 2019, the Company held $0 and $1,082, respectively, in the Zimbabwe Real Time Gross Settlement (“RTGS”) Dollar. RTGS is a local currency equivalent that, as of March 31, 2020, was exchanged at a government specified rate of 25:1 with the USD.
The Company's Canadian cannabis businesses held $1,297 and $779 of cash, included in cash and cash equivalents, as of March 31, 2020 and 2019, respectively.
6. Inventories, Net
The following summarizes the composition of inventories, net:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Processed tobacco
|
$
|
485,764
|
|
$
|
455,163
|
|
|
Unprocessed tobacco
|
178,782
|
|
183,607
|
|
|
Other tobacco related
|
24,071
|
|
26,385
|
|
|
Other(1)
|
41,402
|
|
3,016
|
|
|
Total
|
$
|
730,019
|
|
$
|
668,171
|
|
|
(1) Represents inventory from the other products and services segment.
|
|
|
The following summarizes inventory write-downs:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
|
|
LCM
|
$
|
6,051
|
|
$
|
3,888
|
|
|
|
Obsolescence
|
1,707
|
|
—
|
|
|
|
Total
|
$
|
7,758
|
|
$
|
3,888
|
|
|
7. Advances to Suppliers, Net
The mark-up and interest on advances to suppliers, net capitalized, or to be capitalized into inventory for the current crop, were $15,468 and $11,341 as of March 31, 2020 and 2019, respectively. Unrecoverable advances and other costs capitalized, or to be capitalized into the current crop, were $6,916 and $4,895 as of March 31, 2020 and 2019, respectively.
The following summarizes the classification of advances to suppliers:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Current
|
$
|
38,877
|
|
$
|
19,754
|
|
|
Noncurrent
|
1,076
|
|
1,740
|
|
|
Total
|
$
|
39,953
|
|
$
|
21,494
|
|
There were $171 and $1,339 of expenses for unrecovered advances from abnormal yield adjustments or unrecovered amounts from prior crops for the years ended March 31, 2020 and 2019, respectively.
8. Property, Plant, and Equipment, Net
The following summarizes property, plant, and equipment, net:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Land
|
$
|
33,229
|
|
$
|
32,251
|
|
|
Buildings
|
253,306
|
|
228,580
|
|
|
Machinery and equipment
|
188,140
|
|
177,750
|
|
|
Total
|
474,675
|
|
438,581
|
|
|
Less: accumulated depreciation
|
(178,679)
|
|
(162,185)
|
|
|
Total property, plant, and equipment, net
|
$
|
295,996
|
|
$
|
276,396
|
|
The following summarizes depreciation expense recorded in cost of goods and services sold and selling, general, and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Depreciation expense recorded in cost of goods and services sold
|
$
|
26,035
|
|
$
|
26,532
|
|
$
|
26,967
|
|
|
Depreciation expense recorded in selling, general, and administrative expenses
|
3,351
|
|
3,157
|
|
2,382
|
|
Capitalized Interest
The following summarizes capitalized interest:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Capitalized interest, net at beginning of year
|
2,929
|
|
—
|
|
|
Interest capitalized to property, plant, and equipment, net
|
2,960
|
|
2,003
|
|
|
Interest capitalized to investments in unconsolidated affiliates
|
—
|
|
953
|
|
|
Capitalized interest depreciated or amortized
|
(123)
|
|
(27)
|
|
|
Capitalized interest, net at end of year
|
5,766
|
|
2,929
|
|
9. Leases
The Company does not have material finance leases.
The following summarizes weighted-average information associated with the measurement of remaining operating lease as of March 31, 2020:
|
|
|
|
|
|
|
|
Weighted-average remaining lease term
|
5.0 years
|
|
Weighted-average discount rate
|
9.7%
|
The following summarizes lease costs for operating leases:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
March 31, 2020
|
|
Operating lease costs
|
$
|
16,792
|
|
|
Variable and short-term lease costs
|
6,710
|
|
|
Total lease costs
|
$
|
23,502
|
|
Leases costs for operating leases was $20,846 and $21,829 for the years ended March 31, 2019 and 2018, respectively.
The following summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
March 31, 2020
|
|
Operating cash flows impact - operating leases
|
$
|
15,625
|
|
|
Right-of-use assets obtained in exchange for new operating leases
|
10,377
|
|
The following reconciles maturities of operating lease liabilities to the lease liabilities reflected in the consolidated balance sheets as of March 31, 2020:
|
|
|
|
|
|
|
|
2021
|
$
|
14,343
|
|
|
2022
|
10,480
|
|
|
2023
|
7,403
|
|
|
2024
|
5,428
|
|
|
2025
|
3,229
|
|
|
Thereafter
|
8,244
|
|
|
Total future minimum lease payments
|
49,127
|
|
|
Less: amounts related to imputed interest
|
10,124
|
|
|
Present value of future minimum lease payments
|
39,003
|
|
|
Less: operating lease liabilities, current
|
11,160
|
|
|
Operating lease liabilities, non-current
|
$
|
27,843
|
|
During the year ended March 31, 2020, a wholly owned subsidiary of the Company completed a sale-leaseback transaction for a facility in Europe. Net proceeds from the sale were $7,084. Under the lease agreement, the Company may continue to occupy the space rent free until March 31, 2021. The transaction resulted in a gain of $6,400, which is included in other income, net in the consolidated statements of operations.
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
|
|
10. Goodwill and Other Intangible Assets, Net
The following summarizes the changes in the Company's goodwill and other intangible assets, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Intangibles
|
|
|
|
|
|
|
|
Goodwill
|
Customer Relationships
|
Production and Supply Contracts
|
Internally Developed Software
|
Licenses (3)
|
Trade Names
|
Total
|
|
Weighted average remaining useful life in years as of March 31, 2020
|
|
8.66
|
3.00
|
3.96
|
16.95
|
6.00
|
|
|
March 31, 2018 balance:
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
27,546
|
|
$
|
58,530
|
|
$
|
14,893
|
|
$
|
18,812
|
|
$
|
30,339
|
|
$
|
—
|
|
$
|
150,120
|
|
|
Accumulated amortization
|
—
|
|
(25,005)
|
|
(8,774)
|
|
(17,828)
|
|
(243)
|
|
—
|
|
(51,850)
|
|
|
Net March 31, 2018 balance
|
27,546
|
|
33,525
|
|
6,119
|
|
984
|
|
30,096
|
|
—
|
|
98,270
|
|
|
Additions (1) (2)
|
7,174
|
|
5,450
|
|
—
|
|
1,105
|
|
2,991
|
|
500
|
|
17,220
|
|
|
Amortization expense
|
—
|
|
(4,022)
|
|
(1,894)
|
|
(563)
|
|
(1,401)
|
|
(63)
|
|
(7,943)
|
|
|
Impact of foreign currency translation
|
(384)
|
|
—
|
|
—
|
|
—
|
|
(1,046)
|
|
—
|
|
(1,430)
|
|
|
Net March 31, 2019 balance
|
34,336
|
|
34,953
|
|
4,225
|
|
1,526
|
|
30,640
|
|
437
|
|
106,117
|
|
|
Additions
|
—
|
|
—
|
|
—
|
|
2,468
|
|
195
|
|
—
|
|
2,663
|
|
|
Amortization expense
|
—
|
|
(4,022)
|
|
(549)
|
|
(691)
|
|
(1,666)
|
|
(63)
|
|
(6,991)
|
|
|
Impairment
|
(33,759)
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(33,759)
|
|
|
Impact of foreign currency translation
|
(577)
|
|
—
|
|
—
|
|
—
|
|
(1,505)
|
|
—
|
|
(2,082)
|
|
|
Net March 31, 2020 balance
|
$
|
—
|
|
$
|
30,931
|
|
$
|
3,676
|
|
$
|
3,303
|
|
$
|
27,664
|
|
$
|
374
|
|
$
|
65,948
|
|
(1) Additions to goodwill, customer relationships, and trade names relate to the acquisition of Humble Juice. Additions to licenses relates to Figr East, Figr Norfolk, and Alliance One Specialty Products, LLC.
(2) Goodwill activity relates to the Other Products and Services segment.
(3) Certain of the Company's license intangibles are subject to annual renewal.
Goodwill
As of January 1, 2020, the date of the Company’s annual goodwill impairment testing for fiscal 2020, the Company allocated $2,795, $13,669, $10,933, and $7,174 of goodwill to the Leaf - North America, Leaf - Africa, Other Products and Services - Cannabis, and Other Products and Services - E-liquids reporting units, respectively. As of January 1, 2020, the estimated fair value of the Other Products and Services - E-liquids reporting unit significantly exceeded its carrying value and the estimated fair value of the Leaf - North America, Leaf - Africa, and Other Products and Services - Cannabis reporting units exceeded the carrying value by 8.9%, 3.1%, and 5.9%, respectively.
Based on the sustained decline in the implied value of the Company's long-term debt based on public trading and share price, delays in refinancing the Company's long-term debt, delays with monetizing a portion of the Figr business, as well as uncertainty in the estimate of future operating results due, in part, to the economic effects of the COVID-19 pandemic, the Company concluded that a triggering event occurred in the fourth quarter of fiscal year 2020. As a result, the Company performed a test of its goodwill for impairment (the "Year-End Test") for its reporting units as of March 31, 2020. Based on the Year-End Test, the Company recognized non-cash impairment losses to write-off the carrying values of its goodwill.
The following summarizes impairment charges to goodwill:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
March 31, 2020
|
|
Leaf - North America
|
$
|
2,795
|
|
|
Leaf - Other Regions
|
13,669
|
|
|
Other Products and Services - Cannabis
|
10,121
|
|
|
Other Products and Services - E-liquids
|
7,174
|
|
|
Total
|
$
|
33,759
|
|
Other Intangible Assets, Net
The carrying value of other intangible assets as of March 31, 2020 represents customer relationships, production and supply contracts, internally developed software, licenses, and trade names. Amortization expense associated with finite-lived intangible assets was $6,991, $7,943, and $5,982 for the years ended March 31, 2020, 2019, and 2018, respectively.
The following summarizes the estimated intangible asset amortization expense for the next five years and beyond:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal Years Ended
|
Customer Relationships
|
Production and Supply Contracts
|
Internally Developed Software(1)
|
Licenses
|
Trade Names
|
Total
|
|
2021
|
$
|
4,022
|
|
$
|
870
|
|
$
|
918
|
|
$
|
1,747
|
|
$
|
63
|
|
$
|
7,620
|
|
|
2022
|
4,022
|
|
1,397
|
|
846
|
|
1,745
|
|
63
|
|
8,073
|
|
|
2023
|
4,022
|
|
1,397
|
|
764
|
|
1,742
|
|
63
|
|
7,988
|
|
|
2024
|
4,022
|
|
12
|
|
520
|
|
1,742
|
|
63
|
|
6,359
|
|
|
2025
|
4,022
|
|
—
|
|
255
|
|
1,689
|
|
63
|
|
6,029
|
|
|
Later
|
10,821
|
|
—
|
|
—
|
|
18,999
|
|
59
|
|
29,879
|
|
|
|
$
|
30,931
|
|
$
|
3,676
|
|
$
|
3,303
|
|
$
|
27,664
|
|
$
|
374
|
|
$
|
65,948
|
|
(1) Estimated amortization expense for the internally developed software is based on costs accumulated as of March 31, 2020. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
11. Equity Method Investments
The following summarizes the Company's equity method investments as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investee 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
|
%
|
5,515
|
|
|
Criticality LLC
|
U.S.
|
extraction of cannabidiol from industrial hemp
|
40
|
%
|
865
|
|
|
Nicotine River, LLC
|
U.S.
|
produce consumable e-liquids
|
40
|
%
|
1,840
|
|
|
Oryantal Tutun Paketleme
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
Operations statement:
|
2020
|
2019
|
2018
|
|
Sales
|
$
|
293,163
|
|
$
|
332,245
|
|
$
|
317,183
|
|
|
Gross profit
|
50,209
|
|
52,309
|
|
53,161
|
|
|
Net income
|
16,667
|
|
22,855
|
|
23,954
|
|
|
Company's dividends received
|
7,348
|
|
7,300
|
|
2,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Balance sheet:
|
2020
|
2019
|
|
Current assets
|
$
|
145,207
|
|
$
|
152,661
|
|
|
Property, plant, and equipment and other assets
|
56,481
|
|
53,103
|
|
|
Current liabilities
|
82,377
|
|
89,791
|
|
|
Long-term obligations and other liabilities
|
6,296
|
|
3,222
|
|
Of the amounts presented above, the following summarizes the financial information of the Company's significant equity investee, China Brasil Tobacos Exportadora SA ("CBT"):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
Operations statement:
|
2020
|
2019
|
2018
|
|
Sales
|
$
|
170,092
|
|
$
|
191,966
|
|
$
|
200,609
|
|
|
Gross profit
|
27,297
|
|
32,075
|
|
32,989
|
|
|
Net income
|
13,446
|
|
16,502
|
|
16,575
|
|
|
Net income attributable to CBT
|
6,589
|
|
8,086
|
|
8,122
|
|
|
|
|
|
|
12. Debt Arrangements
Excluding all long-term credit agreements, the Company has typically financed its non-U.S. operations with uncommitted unsecured short-term seasonal lines of credit arrangements with a number of banks. These operating lines are seasonal in nature, normally extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. At March 31, 2020 and 2019, the Company may borrow up to a total $745,516 and $795,934, subject to limitations as provided for in agreement governing the ABL facility (as defined below), respectively. The weighted average variable interest rate for the years ending March 31, 2020 and 2019 was 6.9% and 6.6%, respectively. Certain of the foreign seasonal lines of credit of approximately $187,787 and $147,120 have inventories of $124,541 and $63,989 as collateral at March 31, 2020 and 2019, respectively. At March 31, 2020 and 2019, respectively, $893 and $1,225 were held on deposit as a compensating balance.
The terms of the First Lien Notes, the Second Lien Notes, and the ABL Facility (each, as defined below), are summarized below. See Note 28. "Subsequent Events” for a discussion of the effect of the commencement and proceedings in the Chapter 11 Cases on the First Lien Notes, the Second Lien Notes, and the ABL Facility.
First Lien Notes
On October 14, 2016, the Company issued $275,000 in aggregate principal amount of 8.5% senior secured first lien notes due 2021 (the “First Lien Notes”), at an issue price of 99.085% of the face amount thereof. The First Lien Notes, which bear interest at a rate of 8.5% per year, are payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning April 15, 2017, to holders of record at the close of business on the preceding April 1 and October 1, respectively. The First Lien Notes are scheduled to mature on April 15, 2021. The First Lien Notes are guaranteed on a senior secured basis by Pyxus’ subsidiaries, Alliance One Specialty Products, LLC, Alliance One International, LLC, and Alliance One North America, LLC (the “Current Guarantors”), and any future material domestic subsidiaries are required to guarantee the First Lien Notes on a senior secured basis. The Current Guarantors and any future guarantors of the First Lien Notes are referred to as the “guarantors.”
Pyxus’ and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) and under the ABL Facility (as defined below) and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are secured by first-priority liens on substantially all of Pyxus’ and the guarantors’ tangible and intangible assets, subject to certain exceptions and permitted liens (the “Collateral”). Pyxus’ and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have first-priority in the waterfall set forth in a senior lien intercreditor agreement entered into in connection with the issuance of the First Lien Notes and the establishment of the ABL Facility (the “Senior Lien Intercreditor Agreement”) in respect of the liens on the Collateral that is not ABL Priority Collateral (as defined below), including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus or a guarantor (except that, in the case of foreign subsidiaries, only capital stock of only direct foreign subsidiaries that are material are to be pledged and only 65% of the voting capital stock and 100% of the non-voting capital stock are to be pledged), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “Notes Priority Collateral”). Pyxus’ and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Notes Priority Collateral. Pyxus’ and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Collateral consisting of accounts receivable, inventories, cash (other than identifiable cash proceeds of the Notes Priority Collateral), deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “ABL Priority Collateral”). Pyxus’ and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and
obligations in respect of certain hedging arrangements) have first-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the ABL Priority Collateral.
If a change of control (as defined in the indenture governing the First Lien Notes) occurs at any time, holders of the First Lien Notes will have the right, at their option, to require the Company to repurchase all or a portion of the First Lien Notes for cash at a price equal to 101% of the principal amount of First Lien Notes being repurchased, plus accrued and unpaid interest, to, but excluding, the date of repurchase. The indenture governing the First Lien Notes restricts (subject to exceptions and qualifications) the Company's ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends and make other restricted payments (including restricted investments), sell assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with its affiliates, enter into certain sale and leaseback transactions, create certain dividend and payment restrictions on its restricted subsidiaries, and designate its subsidiaries as unrestricted subsidiaries.
ABL Facility
On October 14, 2016, the Company entered into an ABL credit agreement (the “ABL Credit Agreement”) with certain bank lenders establishing a senior secured revolving asset-based lending facility (the “ABL Facility”) of $60,000 subject to a borrowing base composed of its eligible accounts receivable and inventory. The ABL Facility may be used for revolving credit loans, swingline loans and letters of credit from time to time up to an initial maximum principal amount of $60,000, subject to the limitations described below in this paragraph. Under certain conditions, Pyxus may solicit the ABL Facility lenders or other prospective lenders to provide additional revolving loan commitments under the ABL Facility in an aggregate amount not to exceed $15,000 (less the aggregate principal amount of any notes exceeding $275,000 issued under the First Lien Notes Indenture). The maximum amount available under the revolving 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) 85% of the appraised net-orderly-liquidation value of eligible inventory or (ii) 65% 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).
The borrowing base is subject to a $25,000 deduction and customary reserves, which are to be established by the agent for the ABL Facility lenders in its permitted discretion from time to time. At March 31, 2020, $44,900 in borrowings were outstanding under the ABL Facility and $15,100 was available for borrowing. Borrowing is permitted under the ABL Credit 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 $180,000. At March 31, 2020, the Company’s unrestricted cash and cash equivalents was $170,208.
In addition, loans under the ABL Facility shall not be made if after incurrence of such loans there will be more than $180,000 of unrestricted cash and cash equivalents in the aggregate in the consolidated balance sheet of the Company and its subsidiaries. The ABL Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the ABL Facility bear interest at an annual rate equal to LIBOR plus 250 basis points or 150 basis points above base rate, as applicable, with a fee on unused borrowings initially at an annual rate of 50 basis points until March 31, 2017 and thereafter at annual rates of either 37.5 or 50 basis points based on average quarterly historical utilization under the ABL Facility. The ABL Facility is scheduled to mature on January 14, 2021.
In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Facility, unrestricted cash and cash equivalents on the Company’s consolidated balance sheet exceeding $180,000 for a period of seven consecutive business days, and certain casualty and condemnation events.
The Company’s obligations under the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are (a) guaranteed by the Current Guarantors and are required to be guaranteed by each material domestic subsidiary of Pyxus (collectively with the Company, the “Credit Parties”) and (b) secured by the Collateral.
The liens and other security interests granted by the Credit Parties on the Collateral for the benefit of the ABL Lenders (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on a pari passu basis with the security interests securing the First Lien Notes, with respective priorities in a waterfall with respect to portions of the Collateral as set forth in the Senior Lien Intercreditor Agreement described above.
Under the terms of the ABL Facility, if (i) an event of default has occurred and is continuing or (ii) excess borrowing availability under the ABL Facility (based on the lesser of the commitments thereunder and the borrowing base) (the “Excess Availability”) falls below the greater of (x) $12,500 and (y) 25% of the lesser of (A) the commitments under the ABL Facility
at such time and (B) the borrowing base at such time (such greater amount being the “Cash Dominion Threshold”) for more than three consecutive business days, the Credit Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Credit Parties, including concentration accounts, and will restrict the Credit Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, or (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than the Cash Dominion Threshold for a period of 30 consecutive days.
The ABL Credit Agreement governing the ABL Facility contains a covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.00 to 1.00 during any period commencing when Excess Availability is less than the greater of (x) $10,000 and (y) 20% of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Financial Covenant Threshold”) until such time as Excess Availability has been equal to or greater than the Financial Covenant Threshold for a period of 30 consecutive days.
The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s ability to, among other things incur certain guarantees, merge, consolidate or dispose of substantially all of its assets, grant liens on assets, pay dividends, redeem stock or make other distributions or restricted payments, create certain dividend and payment restrictions on subsidiaries, repurchase or redeem capital stock or prepay subordinated or certain other material debt (including the First Lien Notes and the Company’s senior secured second lien notes due 2021), make certain investments, agree to restrictions on the payment of dividends to Pyxus by its subsidiaries, sell or otherwise dispose of assets, including equity interests of subsidiaries, enter into transactions with affiliates, enter into certain sale and leaseback transactions.
The ABL credit agreement restricts the Company from paying any dividends during the term of this facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the Company's First Lien Notes and its senior secured second lien notes due 2021 contain similar restrictions and also prohibits 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. At March 31, 2020, the Company did not satisfy this fixed charge coverage ratio.
Senior Secured Second Lien Notes
On August 1, 2013, the Company issued $735,000 in aggregate principal amount of its 9.875% senior secured second lien notes due 2021 (the "Second Lien Notes"). The Second Lien Notes were sold at 98% of the face value, for gross proceeds of approximately $720,300. The Second Lien Notes bear interest at a rate of 9.875% per year, payable semi-annually in arrears in cash on January 15 and July 15 of each year, beginning January 15, 2014, to holders of record at the close of business on the preceding January 1 and July 1, respectively. The Second Lien Notes are scheduled to mature on July 15, 2021. The Second Lien Notes are secured by a second priority lien on specified property of Pyxus International, Inc., Alliance One International, LLC, and Alliance One North America, LLC. The indenture governing the Second Lien Notes restricts (subject to exceptions and qualifications) the Company's ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends and make other restricted payments (including restricted investments), sell assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with its affiliates, enter into certain sale and leaseback transactions, create certain dividend and payment restrictions on its restricted subsidiaries, and designate its subsidiaries as unrestricted subsidiaries.
The Second Lien Notes are guaranteed by Alliance One International, LLC and Alliance One North America, LLC. The indenture governing the Second Lien Notes requires the Company's future material domestic subsidiaries to also guarantee the Second Lien Notes. If a change of control (as defined in the indenture governing the Second Lien Notes) occurs at any time, holders of the Second Lien Notes will have the right, at their option, to require the Company to repurchase all or a portion of the Second Lien Notes for cash at a price equal to 101% of the principal amount of Second Lien Notes being repurchased, plus accrued and unpaid interest and special interest, excluding, the date of repurchase. In connection with the issuance of the Second Lien Notes, the Company entered into a registration rights agreement that requires the Company to pay additional special interest on the Second Lien Notes, at increasing annual rates up to a maximum of 1.0% per year, if the Company fails to timely comply with its registration obligations thereunder. Pursuant to the registration rights agreement, on December 20, 2013, the Company completed a registered exchange offer in which it offered to exchange for the outstanding Second Lien Notes an equal amount of new Second Lien Notes having identical terms in all material respects. During the year ended March 31, 2020, the Company did not purchase Second Lien Notes on the open market. During the year ended March 31, 2019, the Company purchased $27,260 of the Second Lien Notes on the open market. All purchased securities were canceled leaving $635,686 of the Second Lien Notes outstanding at March 31, 2019. Associated costs paid were $68 and related discounts were $(2,293) resulting in net cash repayment of $25,987 and recorded in repayment of long-term borrowings in the consolidated statements of cash flows. Deferred financing costs and amortization of original issue discount of $472 were accelerated.
Covenants Limiting Dividends
The ABL Credit Agreement restricts the Company from paying any dividends during the term of the ABL Facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the First Lien Notes and the Second Lien Notes contain similar restrictions and also 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. At March 31, 2020, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio and failure to meet this fixed charge coverage ratio does not constitute an event of default.
Foreign Seasonal Lines of Credit
As of March 31, 2020, the Company did not have any long-term foreign seasonal lines of credit outstanding.
Summary of Debt
The following table summarizes the Company’s debt financing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Lines and
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
March 31, 2020
|
Letters
|
Interest
|
|
Long Term Debt Repayment Schedule by Fiscal Year
|
|
|
|
|
|
|
|
|
|
Available
|
Rate
|
|
2021
|
2022
|
2023
|
2024
|
2025
|
Later
|
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
ABL Facility (1)
|
—
|
|
44,900
|
|
15,100
|
|
4.3
|
%
|
(2)
|
44,900
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
8.5% senior secured first lien notes due 2021 (3)
|
270,883
|
|
272,871
|
|
—
|
|
8.5
|
%
|
|
—
|
|
272,871
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
9.875% senior secured second lien notes due 2021 (4)
|
627,147
|
|
630,737
|
|
—
|
|
9.9
|
%
|
|
—
|
|
630,737
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term debt
|
688
|
|
856
|
|
66
|
|
5.2
|
%
|
(2)
|
148
|
|
148
|
|
148
|
|
148
|
|
79
|
|
185
|
|
|
Notes payable to banks (5)
|
428,961
|
|
540,157
|
|
192,561
|
|
6.9
|
%
|
(2)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
Total debt
|
$
|
1,327,679
|
|
$
|
1,489,521
|
|
$
|
207,727
|
|
|
|
$
|
45,048
|
|
903,756
|
|
$
|
148
|
|
$
|
148
|
|
$
|
79
|
|
$
|
185
|
|
|
Short-term (5)
|
$
|
428,961
|
|
$
|
540,157
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt current
|
$
|
332
|
|
$
|
45,048
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
898,386
|
|
904,316
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
898,718
|
|
$
|
949,364
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
$
|
5,399
|
|
$
|
7,027
|
|
5,772
|
|
|
|
|
|
|
|
|
|
|
Total credit available
|
|
|
$
|
213,499
|
|
|
|
|
|
|
|
|
|
(1) As of March 31, 2020, $15,100 was available under the ABL facility. Borrowing is permitted under the ABL Credit 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 $180,000. At March 31, 2020, the Company’s unrestricted cash and cash equivalents did not exceed $180,000.
(2) Weighted average rate for the twelve months ended March 31, 2020.
(3) Repayment of $272,871 is net of original issue discount of $673 and unamortized debt issuance of $1,456. Total repayment will be $275,000.
(4) Repayment of $630,737 is net of original issue discount of $2,823 and unamortized debt issuance of $2,126. Total repayment will be $635,686.
(5) Primarily foreign seasonal lines of credit.
13. (Loss) Earnings Per Share
The following summarizes the computation of (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
(in thousands, except per share data)
|
|
2020
|
2019
|
2018
|
|
Basic (loss) earnings per share:
|
|
|
|
|
|
Net (loss) income attributable to Pyxus International, Inc.
|
|
$
|
(264,661)
|
|
$
|
(70,467)
|
|
$
|
52,436
|
|
|
Shares:
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding
|
|
9,148
|
|
9,054
|
|
8,989
|
|
|
Basic (loss) earnings per share
|
|
$
|
(28.93)
|
|
$
|
(7.78)
|
|
$
|
5.83
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share:
|
|
|
|
|
|
Net (loss) income attributable to Pyxus International, Inc.
|
|
$
|
(264,661)
|
|
$
|
(70,467)
|
|
$
|
52,436
|
|
|
Shares:
|
|
|
|
|
|
Weighted average number of shares outstanding(1)
|
|
9,148
|
|
9,054
|
|
8,989
|
|
|
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)
|
|
—
|
|
—
|
|
33
|
|
|
Adjusted weighted average number of shares outstanding
|
|
9,148
|
|
9,054
|
|
9,022
|
|
|
Diluted (loss) earnings per share
|
|
$
|
(28.93)
|
|
$
|
(7.78)
|
|
$
|
5.81
|
|
|
(1) 785 shares of common stock were owned by a wholly owned subsidiary as of March 31, 2020, 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 23 and 63 for the years ended March 31, 2020 and 2019, respectively.
|
|
|
|
|
Certain potentially dilutive options were not included in the computation of (loss) earnings 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) earnings per share, weighted for the portion of the period they were outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Antidilutive stock options and other awards
|
427
|
|
427
|
|
427
|
|
|
Antidilutive stock options and other awards under stock-based compensation programs excluded based on reporting a net loss for the period
|
25
|
|
—
|
|
—
|
|
|
Total common stock equivalents excluded from diluted loss per share
|
452
|
|
427
|
|
427
|
|
|
Weighted average exercise price
|
$
|
56.64
|
|
$
|
60.00
|
|
$
|
60.00
|
|
14. Other Comprehensive (Loss) Income
The following summarizes changes in each component of accumulated other comprehensive loss, net of tax, attributable to the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
Pensions, Net of Tax
|
Derivatives, Net of Tax
|
Accumulated Other Comprehensive Loss
|
|
Balances at March 31, 2017
|
$
|
(22,293)
|
|
$
|
(36,654)
|
|
$
|
(1,100)
|
|
$
|
(60,047)
|
|
|
Other comprehensive income (loss) before reclassifications
|
9,611
|
|
(2,121)
|
|
1,100
|
|
8,590
|
|
|
Amounts reclassified to net income, net of tax
|
—
|
|
6,195
|
|
—
|
|
6,195
|
|
|
Other comprehensive income, net of tax
|
9,611
|
|
4,074
|
|
1,100
|
|
14,785
|
|
|
Balances at March 31, 2018
|
(12,682)
|
|
(32,580)
|
|
—
|
|
(45,262)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(9,297)
|
|
4,145
|
|
(4,513)
|
|
(9,665)
|
|
|
Impact of adoption of ASU 2018-02
|
—
|
|
(2,931)
|
|
—
|
|
(2,931)
|
|
|
Amounts reclassified to net loss, net of tax
|
—
|
|
(5,383)
|
|
1,899
|
|
(3,484)
|
|
|
Other comprehensive loss, net of tax
|
(9,297)
|
|
(4,169)
|
|
(2,614)
|
|
(16,080)
|
|
|
Balances at March 31, 2019
|
(21,979)
|
|
(36,749)
|
|
(2,614)
|
|
(61,342)
|
|
|
Other comprehensive (loss) income before reclassifications
|
(530)
|
|
(2,825)
|
|
(186)
|
|
(3,541)
|
|
|
Amounts reclassified to net loss, net of tax
|
—
|
|
2,420
|
|
3,331
|
|
5,751
|
|
|
Other comprehensive (loss) income, net of tax
|
(530)
|
|
(405)
|
|
3,145
|
|
2,210
|
|
|
Balances at March 31, 2020
|
$
|
(22,509)
|
|
$
|
(37,154)
|
|
$
|
531
|
|
$
|
(59,132)
|
|
The following summarizes amounts by component, reclassified from accumulated other comprehensive loss to net (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Affected Line Item in the Consolidated
|
|
|
2020
|
2019
|
2018
|
Statements of Operations
|
|
Pension and postretirement plans(1):
|
|
|
|
|
|
Actuarial loss
|
$
|
3,111
|
|
$
|
3,238
|
|
$
|
2,513
|
|
Interest expense
|
|
Amortization of prior service cost (credit)
|
(666)
|
|
(666)
|
|
(667)
|
|
Interest expense
|
|
Deferred income tax benefit
|
—
|
|
(7,607)
|
|
4,448
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss) to net income (loss), gross
|
2,445
|
|
(5,035)
|
|
6,294
|
|
|
|
Tax effects of amounts reclassified from accumulated other comprehensive loss to net income
|
(25)
|
|
(348)
|
|
(99)
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, net
|
$
|
2,420
|
|
$
|
(5,383)
|
|
$
|
6,195
|
|
|
|
|
|
|
|
|
|
(1) Amounts are included in net periodic benefit costs for pension and postretirement plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
Affected Line Item in the Consolidated
|
|
|
2020
|
2019
|
2018
|
Statements of Operations
|
|
Derivatives:
|
|
|
|
|
|
Losses reclassified to cost of goods sold
|
$
|
3,331
|
|
$
|
1,899
|
|
$
|
1,818
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, gross
|
3,331
|
|
1,899
|
|
1,818
|
|
Cost of goods and services sold
|
|
Tax effects of amounts reclassified from accumulated other comprehensive loss to net income
|
—
|
|
(399)
|
|
(382)
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss to net income, net
|
$
|
3,331
|
|
$
|
1,500
|
|
$
|
1,436
|
|
|
15. Guarantees
The following summarizes amounts guaranteed and the fair value of those guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Amounts guaranteed (not to exceed)
|
$
|
138,953
|
|
$
|
143,298
|
|
|
Amounts outstanding under guarantee(1)
|
48,565
|
|
103,846
|
|
|
Fair value of guarantees
|
2,791
|
|
3,714
|
|
(1) The guarantees outstanding at March 31, 2020 expire within one year.
As of March 31, 2020 and 2019, the Company had balances of $6,849 and $18,659 due to local banks on behalf of suppliers for government subsidized rural credit financing.
16. Stock–Based Compensation
The following summarizes stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Restricted stock awards
|
$
|
517
|
|
$
|
563
|
|
$
|
441
|
|
|
Restricted stock units
|
714
|
|
981
|
|
682
|
|
|
Other
|
—
|
|
—
|
|
66
|
|
|
Compensation expense for stock-based compensation plans
|
$
|
1,231
|
|
$
|
1,544
|
|
$
|
1,189
|
|
|
|
|
|
|
|
Unrecognized stock-based compensation expense
|
$
|
501
|
|
$
|
1,221
|
|
$
|
1,095
|
|
The following summarizes the maximum number of shares available for issuance and the number of remaining shares available for issuance as of March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Plan
|
2007 Plan
|
Total
|
|
Maximum number of shares available for issuance
|
1,800
|
|
209
|
|
2,009
|
|
|
Number of remaining shares available for issuance
|
1,142
|
|
209
|
|
1,351
|
|
Total equity awards outstanding are 493 shares, inclusive of 427 share awards granted and outstanding under the 2007 plan and 66 share awards granted under the 2016 Plan. Shares issued are new shares which have been authorized and designated for award under the plans.
Restricted Stock Awards
The following summarizes the activity in restricted stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Restricted at March 31, 2017
|
—
|
|
|
$
|
—
|
|
|
Granted
|
28
|
|
|
26.05
|
|
|
Vested
|
(28)
|
|
|
26.05
|
|
|
Restricted at March 31, 2018
|
—
|
|
|
—
|
|
|
Granted
|
32
|
|
|
17.48
|
|
|
Vested
|
(32)
|
|
|
17.48
|
|
|
Restricted at March 31, 2019
|
—
|
|
|
—
|
|
|
Granted
|
49
|
|
|
10.63
|
|
|
Vested
|
(49)
|
|
|
10.63
|
|
|
Restricted at March 31, 2020
|
—
|
|
|
—
|
|
Restricted Stock Units
The following summarizes the activity in restricted stock units:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding at March 31, 2017
|
104
|
|
|
$
|
16.84
|
|
|
Granted
|
58
|
|
|
11.75
|
|
|
Vested
|
(45)
|
|
|
17.61
|
|
|
Forfeited
|
(1)
|
|
|
17.99
|
|
|
Outstanding at March 31, 2018
|
116
|
|
|
14.01
|
|
|
Granted
|
68
|
|
|
15.94
|
|
|
Vested
|
(56)
|
|
|
14.35
|
|
|
Forfeited
|
(4)
|
|
|
14.84
|
|
|
Outstanding at March 31, 2019
|
124
|
|
|
14.90
|
|
|
Granted
|
2
|
|
|
18.29
|
|
|
Vested
|
(60)
|
|
|
15.09
|
|
|
Forfeited
|
(2)
|
|
|
14.57
|
|
|
Outstanding at March 31, 2020
|
64
|
|
|
14.81
|
|
17. Derivative Financial Instruments
As of March 31, 2020 and 2019, accumulated other comprehensive loss includes $531 and $2,614, net of tax of $0 and $695, for unrealized losses related to designated cash flow hedges, respectively. The Company recorded losses of $3,331, $1,899, and $1,818 in its cost of goods and services sold for the years ended March 31, 2020, 2019, and 2018, respectively. The Company recorded current derivative assets of $0 and $186 as of March 31, 2020 and 2019, respectively. There were no derivatives contracts outstanding as of March 31, 2020.
18. Income Taxes
Accounting for Uncertainty in Income Taxes
As of March 31, 2020, 2019, and 2018, the Company’s unrecognized tax benefits totaled $19,481, $11,663, and $8,342, respectively, of which $10,648 would impact the Company’s March 31, 2020 effective tax rate, if recognized. The following summarizes the changes to unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Balance at April 1
|
$
|
11,663
|
|
$
|
8,342
|
|
$
|
15,196
|
|
|
Increase for current year tax positions
|
6,425
|
|
447
|
|
482
|
|
|
Increase (reductions) for prior year tax positions
|
4,177
|
|
7,048
|
|
(7,296)
|
|
|
Impact of changes in exchange rates
|
(1,226)
|
|
(227)
|
|
(40)
|
|
|
Reduction for settlements
|
(1,558)
|
|
(3,947)
|
|
—
|
|
|
Balance at March 31
|
$
|
19,481
|
|
$
|
11,663
|
|
$
|
8,342
|
|
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended March 31, 2020 and 2019, the Company reduced interest, penalties, and related exchange losses pertaining to unrecognized tax benefits of $(33) and $(1,096), respectively. As of March 31, 2020, accrued interest and penalties totaled $1,209 and $815, respectively. During the year ending March 31, 2020, the Company reduced its accrued interest and penalties by $263 related to the expiration of statute of limitations. As of March 31, 2019, accrued interest and penalties totaled $1,175 and $883, respectively.
During the fiscal year ending March 31, 2020, the Company’s total liability for unrecognized tax benefits, including the related interest and penalties, and associated exchange losses, increased from $13,720 to $21,505. The change in the liability for unrecognized tax benefits relates to additional reserves recorded in the U.S. of $6,280, expiration of statute of limitations of approximately $185 and increases related to prior period foreign positions of approximately $2,880. Of the change in the liability for unrecognized tax benefits, unrecognized tax benefits of $1,532 and $4,799 were recorded as a reduction of the foreign tax credit and the U.S. federal net operating loss carryforward, respectively. The U.S. federal foreign tax credit carryforward was reduced for certain positions reflected in the computation of the transition tax as filed on the U.S. tax return in the fourth quarter. The Company amended its March 31, 2018 U.S. Federal income tax return to account for the impact of, (i) the release of final Regulations under IRC Section 965 and (ii) changes in underlying facts and circumstances. U.S. federal net operating loss carryforward was reduced to reflect the impacts of certain tax accounting methods on global intangible low-taxed income (“GILTI”).
To the extent that they represent an underpayment of taxes, the Company expects to continue accruing interest expenses related to the remaining unrecognized tax benefits. Additionally, the Company is subject to fluctuations in the unrecognized tax liability due to currency exchange rate movements.
The Company does not foresee settling material positions currently accrued for in the next twelve months. In addition, it is reasonably possible that the Company's unrecognized tax benefits may decrease in the next twelve months by $363 due to the expiration of the statute of limitations, but the Company must acknowledge circumstances can change due to unexpected developments in the law. In certain jurisdictions, tax authorities have challenged positions that the Company has taken that resulted in recognizing benefits that are material to its financial statements. The Company believes it is more likely than not that it will prevail in these situations and accordingly have 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 March 31, 2020, the Company’s earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2017. Open tax years in state and foreign jurisdictions generally range from three to six years. In applicable jurisdictions, the Company’s tax attributes from prior periods remain subject to adjustment
Income Tax Provision
The components of loss before income taxes, equity in net income of investee companies, and minority interests consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
U.S.
|
$
|
(111,532)
|
|
$
|
(86,315)
|
|
$
|
(86,087)
|
|
|
Non-U.S.
|
(32,883)
|
|
43,398
|
|
69,958
|
|
|
Total
|
$
|
(144,415)
|
|
$
|
(42,917)
|
|
$
|
(16,129)
|
|
The details of the amount shown for income taxes in the statements of consolidated operations and comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Current
|
|
|
|
|
Federal
|
$
|
(1,115)
|
|
$
|
2,018
|
|
$
|
8,247
|
|
|
State
|
—
|
|
—
|
|
—
|
|
|
Non-U.S.
|
22,065
|
|
22,741
|
|
22,972
|
|
|
|
$
|
20,950
|
|
$
|
24,759
|
|
$
|
31,219
|
|
|
Deferred
|
|
|
|
|
Federal
|
$
|
102,658
|
|
$
|
6,129
|
|
$
|
(98,785)
|
|
|
State
|
—
|
|
—
|
|
—
|
|
|
Non-U.S.
|
8,181
|
|
6,952
|
|
8,802
|
|
|
|
$
|
110,839
|
|
$
|
13,081
|
|
$
|
(89,983)
|
|
|
Total
|
$
|
131,789
|
|
$
|
37,840
|
|
$
|
(58,764)
|
|
The reasons for the difference between income tax expense based on income before income taxes, equity in net income of investee companies, and minority interests and the amount computed by applying the U.S. statutory federal income tax rate to income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Tax benefit at U.S. statutory rate
|
$
|
(30,328)
|
|
$
|
(9,013)
|
|
$
|
(5,098)
|
|
|
Effect of non-U.S. income taxes
|
(1,951)
|
|
462
|
|
(2,137)
|
|
|
Tax on future remittances
|
10,561
|
|
(1,038)
|
|
(22,735)
|
|
|
Foreign tax credits
|
78
|
|
(173)
|
|
1,328
|
|
|
Change in valuation allowance
|
117,553
|
|
17,622
|
|
(106,804)
|
|
|
Increase (decrease) in reserves for uncertain tax positions
|
10,807
|
|
5,304
|
|
(5,871)
|
|
|
Change in tax rates
|
822
|
|
(66)
|
|
66,935
|
|
|
Exchange effects and currency translation
|
10,896
|
|
12,904
|
|
8,282
|
|
|
Permanent items
|
3,791
|
|
(677)
|
|
(78)
|
|
|
Benefit (expense) on income tax payable/recoverable adjustments
|
810
|
|
(1,163)
|
|
109
|
|
|
Deductible dividends
|
(2,140)
|
|
(3,046)
|
|
(3,338)
|
|
|
Withholding tax expense
|
2,225
|
|
2,577
|
|
1,868
|
|
|
Benefit of other tax credits
|
(721)
|
|
(377)
|
|
(3,176)
|
|
|
Nondeductible interest
|
2,767
|
|
1,624
|
|
1,052
|
|
|
Transition tax after foreign tax credits
|
(1,227)
|
|
1,827
|
|
10,899
|
|
|
U.S. taxes on non-U.S. earnings
|
2,071
|
|
11,073
|
|
—
|
|
|
Goodwill impairment
|
5,775
|
|
—
|
|
—
|
|
|
Actual tax expense (benefit)
|
$
|
131,789
|
|
$
|
37,840
|
|
$
|
(58,764)
|
|
The following summarizes deferred tax liabilities (assets):
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Deferred tax assets:
|
|
|
|
Reserves and accruals
|
$
|
(11,418)
|
|
$
|
(20,539)
|
|
|
Tax credits
|
(1,486)
|
|
(3,159)
|
|
|
Tax loss carryforwards
|
(93,024)
|
|
(88,924)
|
|
|
Derivative transactions
|
(698)
|
|
(1,580)
|
|
|
Postretirement and other benefits
|
(15,586)
|
|
(15,465)
|
|
|
Unrealized exchange loss
|
(7,296)
|
|
(7,793)
|
|
|
Non-deductible interest carryforward
|
(28,364)
|
|
(13,607)
|
|
|
Other
|
(5,209)
|
|
(1,531)
|
|
|
Gross deferred tax assets
|
(163,081)
|
|
(152,598)
|
|
|
Valuation allowance
|
151,058
|
|
36,524
|
|
|
Total deferred tax assets
|
$
|
(12,023)
|
|
$
|
(116,074)
|
|
|
Deferred tax liabilities:
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
$
|
17,254
|
|
$
|
5,516
|
|
|
Intangible assets
|
12,251
|
|
13,936
|
|
|
Fixed assets
|
5,419
|
|
6,984
|
|
|
Total deferred tax liabilities
|
$
|
34,924
|
|
$
|
26,436
|
|
|
Net deferred tax liability (asset)
|
$
|
22,901
|
|
$
|
(89,638)
|
|
The following summarizes the breakdown between deferred tax (assets) liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Noncurrent asset
|
$
|
(2)
|
|
$
|
(116,451)
|
|
|
Noncurrent liability
|
22,903
|
|
26,813
|
|
|
Net deferred tax liability (asset)
|
$
|
22,901
|
|
$
|
(89,638)
|
|
The following summarizes the change in the Company's valuation allowance for deferred tax assets:
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
$
|
131,774
|
|
|
Changes to expenses(3)
|
(466)
|
|
|
Changes to other accounts(2)
|
(274)
|
|
|
Deductions(1)(4)
|
(111,292)
|
|
|
Balance at March 31, 2018
|
$
|
19,742
|
|
|
Changes to expenses
|
18,073
|
|
|
Changes to other accounts(2)
|
(156)
|
|
|
Deductions(1)
|
(1,135)
|
|
|
Balance at March 31, 2019
|
$
|
36,524
|
|
|
Changes to expenses(5)
|
117,633
|
|
|
Changes to other accounts(2)
|
(1,207)
|
|
|
Deductions(1)
|
(1,926)
|
|
|
Other
|
34
|
|
|
Balance at March 31, 2020
|
$
|
151,058
|
|
(1) Currency translation and direct write-off
(2) Accumulated other comprehensive loss
(3) Deferred tax on unremitted earnings of foreign subsidiaries
(4) Release of U.S. valuation allowance and adjustments of $114,288 due to Tax Cut and Jobs Act
(5) Build of global valuation allowances related to the Company’s financial position
During the year ended March 31, 2020, the net deferred tax asset balance decreased by $1,700 for certain adjustments not included in the deferred tax expense (benefit), primarily for deferred tax assets related to pension accruals recorded in equity as part of other comprehensive income loss, currency translation adjustments, and other items not included in the deferred tax expense (benefit).
For the year ended March 31, 2020, the valuation allowance increased by $114,535, which is inclusive of $(1,207) related to adjustments to other comprehensive income and $(1,926) due to currency translation adjustments. The valuation allowance increased primarily due to changes in facts and circumstance around the Company’s ability to rely on future income to support realization of deferred tax assets, which totaled $117,668. The valuation allowance is based on the Company's assessment that it is more likely than not that a majority of deferred tax assets, primarily U.S. net operating losses, deferred interest expense, and foreign tax credits, will not be realized in the foreseeable future. This is principally due to the impact of the Company's current and foreseeable capital structure.
At March 31, 2020, the Company has U.S federal tax loss carryovers of $370,444, non-U.S. tax loss carryovers of $55,159, and U.S. state tax loss carryovers of $627,890. Of the U.S. federal tax loss carryovers, $358,739 will expire in 2031 and thereafter and $11,705 can be carried forward indefinitely. Of the non-U.S. tax loss carryovers, $10,802 will expire within the next five years, $41,239 will expire in later years, and $3,118 can be carried forward indefinitely. Of the U.S. state tax loss carryovers, $1,495 will expire within the next five years, $614,383 will expire in later years, and $12,013 can be carried forward indefinitely. The Company is recognizing a tax benefit related to tax losses generated in the current year of $4,758 to be utilized in foreign jurisdictions. As of March 31, 2020, the Company has foreign tax credit carryovers in the U.S. of $4,555, of which $2,663 will expire within the next five years. These amounts reflect gross net operating losses ("NOLs") and foreign tax credits for tax return basis, which are different from financial statement attributes primarily due to the reduction of the financial statement NOLs and foreign tax credits under the FASB's guidance on accounting for uncertainty in income taxes. As of March 31, 2020, the Company had Canadian investment tax credit carryforwards of approximately $274 that will expire beyond five years.
Realization of deferred tax assets is dependent on generating sufficient taxable income in the appropriate timeframe and of the appropriate character. Although expiration is not assured, the Company believes it is more likely than not that a majority of the deferred tax assets will not be realized. As a result, the Company has recorded a valuation allowance on its deferred tax assets. The amount of the deferred tax assets considered realizable could be reduced or increased if estimates of future taxable income change during the carryover period.
A provision of $17,254 has been made for U.S. and foreign taxes that may result from future remittances of foreign earnings of $203,510. No provision has been made for U.S. or foreign taxes that may result from future remittances of approximately $381,046 at March 31, 2020 and $486,678 at March 31, 2019 of undistributed earnings of foreign subsidiaries because the Company expects that such earnings will be reinvested overseas indefinitely. Due to the one-time transition tax on foreign earnings required by the 2017 Tax Cuts and Jobs Act and fiscal 2020 earnings being subject to GILTI inclusion, additional taxes due with respect to such earnings or the excess of the amount for financial reporting over the tax basis of the Company’s foreign investments would generally be limited to foreign withholding taxes if the Company’s indefinite reinvestment assertion changes. Determination of the amount of any unrecognized deferred income tax liability on these unremitted earnings is not practicable.
CARES Act
Included in the CARES Act are numerous income tax provisions. Some of the provisions are related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property. These amendments allow, for taxable years beginning in 2019 and 2020, the base for interest deductibility to increase from 30% to 50% of EBITDA. The Company assessed the tax impact of the CARES Act and did not identify items that that would require revision to the Company's accounting for income taxes.
19. Pension and Other Postretirement Benefits
Defined Benefit Plans
The following summarizes benefit obligations, plan assets, and funded status for the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
|
|
March 31,
|
|
March 31,
|
|
March 31,
|
|
|
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
|
Benefit obligation, beginning
|
$
|
82,099
|
|
$
|
88,283
|
|
$
|
65,886
|
|
$
|
66,228
|
|
$
|
147,985
|
|
$
|
154,511
|
|
|
Service cost
|
250
|
|
250
|
|
211
|
|
206
|
|
461
|
|
456
|
|
|
Interest cost
|
2,562
|
|
3,028
|
|
1,420
|
|
1,527
|
|
3,982
|
|
4,555
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses (gains)
|
3,740
|
|
(57)
|
|
(3,946)
|
|
4,222
|
|
(206)
|
|
4,165
|
|
|
Settlements/special termination benefits
|
(2,574)
|
|
(4,630)
|
|
—
|
|
(440)
|
|
(2,574)
|
|
(5,070)
|
|
|
Effects of currency translation
|
—
|
|
—
|
|
(1,843)
|
|
(3,120)
|
|
(1,843)
|
|
(3,120)
|
|
|
Benefits paid
|
(5,081)
|
|
(4,775)
|
|
(2,537)
|
|
(2,737)
|
|
(7,618)
|
|
(7,512)
|
|
|
Benefit obligation, ending
|
$
|
80,996
|
|
$
|
82,099
|
|
$
|
59,191
|
|
$
|
65,886
|
|
$
|
140,187
|
|
$
|
147,985
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning
|
$
|
32,568
|
|
$
|
37,659
|
|
$
|
63,579
|
|
$
|
63,106
|
|
$
|
96,147
|
|
$
|
100,765
|
|
|
Actual return on plan assets
|
(590)
|
|
738
|
|
1,634
|
|
4,183
|
|
1,044
|
|
4,921
|
|
|
Employer contributions
|
4,025
|
|
3,576
|
|
1,519
|
|
2,540
|
|
5,544
|
|
6,116
|
|
|
Plan settlements
|
(2,574)
|
|
(4,630)
|
|
—
|
|
(468)
|
|
(2,574)
|
|
(5,098)
|
|
|
Effects of currency translation
|
—
|
|
—
|
|
(2,122)
|
|
(3,045)
|
|
(2,122)
|
|
(3,045)
|
|
|
Benefits paid
|
(5,081)
|
|
(4,775)
|
|
(2,537)
|
|
(2,737)
|
|
(7,618)
|
|
(7,512)
|
|
|
Fair value of plan assets, ending
|
$
|
28,348
|
|
$
|
32,568
|
|
$
|
62,073
|
|
$
|
63,579
|
|
$
|
90,421
|
|
$
|
96,147
|
|
|
Funded status of the plan
|
$
|
(52,648)
|
|
$
|
(49,531)
|
|
$
|
2,882
|
|
$
|
(2,307)
|
|
$
|
(49,766)
|
|
$
|
(51,838)
|
|
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,
|
|
March 31,
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Noncurrent benefit asset recorded in other noncurrent assets
|
$
|
—
|
|
$
|
—
|
|
$
|
14,745
|
|
$
|
10,389
|
|
|
Accrued current benefit liability recorded in accrued expenses and other current liabilities
|
(3,264)
|
|
(3,151)
|
|
(1,227)
|
|
(1,167)
|
|
|
Accrued noncurrent benefit liability recorded in pension, postretirement, and other long-term liabilities
|
(49,384)
|
|
(46,380)
|
|
(10,636)
|
|
(11,529)
|
|
|
Funded status of the plan
|
$
|
(52,648)
|
|
$
|
(49,531)
|
|
$
|
2,882
|
|
$
|
(2,307)
|
|
The following summarizes pension obligations for the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
|
March 31,
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Information for pension plans with accumulated benefit:
|
|
|
|
|
|
|
obligation in excess of plan assets:
|
|
|
|
|
|
|
|
Projected benefit obligation
|
$
|
80,996
|
|
$
|
82,099
|
|
$
|
31,012
|
|
$
|
33,171
|
|
|
|
Accumulated benefit obligation
|
80,996
|
|
82,099
|
|
30,400
|
|
32,559
|
|
|
|
Fair value of plan assets
|
28,348
|
|
32,568
|
|
19,147
|
|
20,475
|
|
The following summarizes the net periodic pension cost (benefit) for the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
|
Service cost
|
$
|
250
|
|
$
|
250
|
|
$
|
280
|
|
$
|
211
|
|
$
|
206
|
|
$
|
183
|
|
|
Interest cost
|
2,562
|
|
3,028
|
|
2,818
|
|
1,420
|
|
1,527
|
|
1,496
|
|
|
Expected return on plan assets
|
(1,990)
|
|
(2,265)
|
|
(2,382)
|
|
(2,415)
|
|
(2,667)
|
|
(2,817)
|
|
|
Amortization of actuarial losses
|
964
|
|
934
|
|
1,102
|
|
901
|
|
741
|
|
952
|
|
|
Amortization of prior service cost
|
40
|
|
40
|
|
40
|
|
2
|
|
2
|
|
3
|
|
|
|
|
|
|
|
|
|
|
Special termination benefits
|
—
|
|
—
|
|
—
|
|
—
|
|
28
|
|
9
|
|
|
Settlement charges
|
812
|
|
1,206
|
|
—
|
|
—
|
|
(75)
|
|
—
|
|
|
Net periodic pension cost (benefit)
|
$
|
2,638
|
|
$
|
3,193
|
|
$
|
1,858
|
|
$
|
119
|
|
$
|
(238)
|
|
$
|
(174)
|
|
The following summarizes activity in accumulated other comprehensive loss for the defined benefit pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. and Non-U.S. Pension
|
U.S. and Non-U.S. Post-retirement
|
Total
|
|
Prior service (cost) credit
|
$
|
(402)
|
|
$
|
1,596
|
|
$
|
1,194
|
|
|
Net actuarial losses
|
(41,100)
|
|
(4,507)
|
|
(45,607)
|
|
|
Impact of adoption of ASU 2018-02
|
(2,931)
|
|
—
|
|
(2,931)
|
|
|
Deferred taxes
|
10,781
|
|
(186)
|
|
10,595
|
|
|
Balance at March 31, 2019
|
$
|
(33,652)
|
|
$
|
(3,097)
|
|
$
|
(36,749)
|
|
|
Prior service credit (cost)
|
$
|
44
|
|
$
|
(732)
|
|
$
|
(688)
|
|
|
Net actuarial (losses) gains
|
(236)
|
|
552
|
|
316
|
|
|
|
|
|
|
|
Deferred taxes
|
(53)
|
|
20
|
|
(33)
|
|
|
Total change for 2020
|
$
|
(245)
|
|
$
|
(160)
|
|
$
|
(405)
|
|
|
Prior service (cost) credit
|
$
|
(358)
|
|
$
|
864
|
|
$
|
506
|
|
|
Net actuarial losses
|
(41,336)
|
|
(3,955)
|
|
(45,291)
|
|
|
Impact of adoption of ASU 2018-02
|
(2,931)
|
|
—
|
|
(2,931)
|
|
|
Deferred taxes
|
10,728
|
|
(166)
|
|
10,562
|
|
|
Balance at March 31, 2020
|
$
|
(33,897)
|
|
$
|
(3,257)
|
|
$
|
(37,154)
|
|
The following assumptions were used to determine the expense for the pension, postretirement, other post-employment, and employee savings plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
|
Discount rate
|
3.79%
|
3.91%
|
3.87%
|
2.50%
|
2.75%
|
2.59%
|
|
Rate of increase in future compensation
|
Not applicable
|
Not applicable
|
Not applicable
|
5.99%
|
6.04%
|
5.91%
|
|
Expected long-term rate of return on plan assets
|
6.75%
|
6.75%
|
7.00%
|
3.90%
|
4.46%
|
4.70%
|
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,
|
|
March 31,
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Discount rate
|
3.34%
|
3.79%
|
2.58%
|
2.50%
|
|
Rate of increase in future compensation
|
Not applicable
|
Not applicable
|
5.75%
|
5.99%
|
Net loss and prior service costs for the combined U.S. and non-U.S. pension plans expected to be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2021 is $(1,251) and $(873), respectively.
Plan Assets
The following summarizes asset allocations and the percentage of the fair value of plan assets by asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Allocations
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
March 31, 2020
|
March 31,
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2020
|
2019
|
|
Asset category:
|
|
|
|
|
|
|
Cash and cash equivalents
|
—
|
%
|
3.6
|
%
|
1.4
|
%
|
9.1
|
%
|
1.2
|
%
|
|
Equity securities
|
36.0
|
%
|
34.8
|
%
|
35.2
|
%
|
14.6
|
%
|
14.4
|
%
|
|
Debt securities
|
24.0
|
%
|
22.4
|
%
|
23.4
|
%
|
68.2
|
%
|
46.6
|
%
|
|
Real estate and other investments
|
40.0
|
%
|
39.2
|
%
|
40.0
|
%
|
8.1
|
%
|
37.8
|
%
|
|
Total
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
The fair values for the pension plans by asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
March 31, 2020
|
|
|
|
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Cash and cash equivalents
|
$
|
1,018
|
|
$
|
547
|
|
$
|
471
|
|
$
|
—
|
|
|
U.S. equities / equity funds
|
6,795
|
|
6,795
|
|
—
|
|
—
|
|
|
International equities / equity funds
|
3,058
|
|
3,058
|
|
—
|
|
—
|
|
|
U.S. fixed income funds
|
5,593
|
|
5,593
|
|
—
|
|
—
|
|
|
International fixed income funds
|
784
|
|
784
|
|
—
|
|
—
|
|
|
Other investments:
|
|
|
|
|
|
Diversified funds
|
8,017
|
|
8,017
|
|
—
|
|
—
|
|
|
Real estate and other (1)
|
3,083
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
$
|
28,348
|
|
$
|
24,794
|
|
$
|
471
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
|
March 31, 2019
|
|
|
|
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Cash and cash equivalents
|
$
|
463
|
|
$
|
—
|
|
$
|
463
|
|
$
|
—
|
|
|
U.S. equities / equity funds
|
7,963
|
|
7,963
|
|
—
|
|
—
|
|
|
International equities / equity funds
|
3,516
|
|
3,516
|
|
—
|
|
—
|
|
|
U.S. fixed income funds
|
6,669
|
|
6,669
|
|
—
|
|
—
|
|
|
International fixed income funds
|
962
|
|
962
|
|
—
|
|
—
|
|
|
Other investments:
|
|
|
|
|
|
Diversified funds
|
9,525
|
|
9,525
|
|
—
|
|
—
|
|
|
Real estate and other (1)
|
3,470
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
$
|
32,568
|
|
$
|
28,635
|
|
$
|
463
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Pension Plans
|
March 31, 2020
|
|
|
|
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Cash and cash equivalents
|
$
|
5,641
|
|
$
|
5,641
|
|
$
|
—
|
|
$
|
—
|
|
|
U.S. equities / equity funds
|
5,906
|
|
5,906
|
|
—
|
|
—
|
|
|
International equities / equity funds
|
1,812
|
|
1,812
|
|
—
|
|
—
|
|
|
Global equity funds
|
1,312
|
|
1,312
|
|
—
|
|
—
|
|
|
U.S. fixed income funds
|
4,995
|
|
4,995
|
|
—
|
|
—
|
|
|
International fixed income funds
|
33,330
|
|
12,009
|
|
21,321
|
|
—
|
|
|
Global fixed income funds
|
3,994
|
|
3,994
|
|
—
|
|
—
|
|
|
Other investments:
|
|
|
|
|
|
Diversified funds
|
3,223
|
|
—
|
|
3,223
|
|
—
|
|
|
Real estate and other (1)
|
1,795
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
$
|
62,008
|
|
$
|
35,669
|
|
$
|
24,544
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Pension Plans
|
March 31, 2019
|
|
|
|
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|
Cash and cash equivalents
|
$
|
745
|
|
$
|
745
|
|
$
|
—
|
|
$
|
—
|
|
|
U.S. equities / equity funds
|
5,589
|
|
5,589
|
|
—
|
|
—
|
|
|
International equities / equity funds
|
2,191
|
|
2,191
|
|
—
|
|
—
|
|
|
Global equity funds
|
1,379
|
|
1,379
|
|
—
|
|
—
|
|
|
U.S. fixed income funds
|
6,617
|
|
6,617
|
|
—
|
|
—
|
|
|
International fixed income funds
|
23,034
|
|
2,220
|
|
20,814
|
|
—
|
|
|
Other investments:
|
|
|
|
|
|
Diversified funds
|
22,012
|
|
—
|
|
22,012
|
|
—
|
|
|
Real estate and other (1)
|
2,012
|
|
—
|
|
—
|
|
—
|
|
|
Total
|
$
|
63,579
|
|
$
|
18,741
|
|
$
|
42,826
|
|
$
|
—
|
|
(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, 2020
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
|
Fair Value
|
Unfunded Commitments
|
Redemption Frequency
|
Redemption Notice Period
|
|
Diversified funds
|
$
|
—
|
|
None
|
Self-Liquidating
|
None
|
|
$
|
8
|
|
None
|
Self-Liquidating
|
None
|
|
Real estate and other
|
4,879
|
|
None
|
Quarterly
|
60 Days
|
|
5,482
|
|
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,
|
|
March 31,
|
|
March 31,
|
|
|
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
|
Benefit obligation, beginning
|
$
|
4,445
|
|
$
|
4,372
|
|
$
|
2,278
|
|
$
|
2,112
|
|
$
|
6,723
|
|
$
|
6,484
|
|
|
Service cost
|
7
|
|
7
|
|
—
|
|
7
|
|
7
|
|
14
|
|
|
Interest cost
|
151
|
|
154
|
|
161
|
|
151
|
|
312
|
|
305
|
|
|
Effect of currency translation
|
—
|
|
—
|
|
(577)
|
|
(291)
|
|
(577)
|
|
(291)
|
|
|
Actuarial losses
|
27
|
|
225
|
|
125
|
|
413
|
|
152
|
|
638
|
|
|
Benefits paid
|
(180)
|
|
(313)
|
|
(131)
|
|
(114)
|
|
(311)
|
|
(427)
|
|
|
Benefit obligation, ending
|
$
|
4,450
|
|
$
|
4,445
|
|
$
|
1,856
|
|
$
|
2,278
|
|
$
|
6,306
|
|
$
|
6,723
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Employer contributions
|
180
|
|
313
|
|
131
|
|
114
|
|
311
|
|
427
|
|
|
Benefits paid
|
(180)
|
|
(313)
|
|
(131)
|
|
(114)
|
|
(311)
|
|
(427)
|
|
|
Fair value of plan assets, ending
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
Funded status of the plan
|
$
|
(4,450)
|
|
$
|
(4,445)
|
|
$
|
(1,856)
|
|
$
|
(2,278)
|
|
$
|
(6,306)
|
|
$
|
(6,723)
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
Total
|
|
|
|
March 31,
|
|
March 31,
|
|
March 31,
|
|
|
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
|
Accrued current benefit liability recorded in accrued expenses and other current liabilities
|
$
|
(355)
|
|
$
|
(335)
|
|
$
|
(133)
|
|
$
|
(153)
|
|
$
|
(488)
|
|
$
|
(488)
|
|
|
Accrued non-current benefit liability recorded in pension, postretirement, and other long-term liabilities
|
(4,095)
|
|
(4,110)
|
|
(1,723)
|
|
(2,125)
|
|
(5,818)
|
|
(6,235)
|
|
|
Funded status of the plan
|
$
|
(4,450)
|
|
$
|
(4,445)
|
|
$
|
(1,856)
|
|
$
|
(2,278)
|
|
$
|
(6,306)
|
|
$
|
(6,723)
|
|
The following summarizes net periodic benefit costs for the postretirement health and life insurance benefits plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
2020
|
2019
|
2018
|
|
Service cost
|
$
|
7
|
|
$
|
7
|
|
$
|
7
|
|
$
|
—
|
|
$
|
7
|
|
$
|
7
|
|
|
Interest cost
|
151
|
|
154
|
|
141
|
|
161
|
|
151
|
|
190
|
|
|
Prior service credit
|
(699)
|
|
(699)
|
|
(698)
|
|
(9)
|
|
(10)
|
|
(11)
|
|
|
Actuarial losses
|
385
|
|
402
|
|
418
|
|
49
|
|
31
|
|
40
|
|
|
Net periodic benefit costs (income)
|
$
|
(156)
|
|
$
|
(136)
|
|
$
|
(132)
|
|
$
|
201
|
|
$
|
179
|
|
$
|
226
|
|
The following assumptions were used to determine non-U.S. Plan postretirement benefit obligations:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Discount rate
|
7.94
|
%
|
7.98
|
%
|
|
Health care cost trend rate assumed for next year
|
7.07
|
%
|
7.33
|
%
|
|
Ultimate trend rate
|
7.07
|
%
|
7.33
|
%
|
A one-percentage-point change in assumed health care cost trend rates would not have a significant effect on the amounts reported for health care plans. The annual rate of increase in the per capita cost of covered health care benefits is not applicable as the Company’s annual cost commitment to the benefits is capped and not adjusted for future medical inflation.
Prior service credits of $706 and unrecognized net actuarial losses of $(376) are expected to be amortized from accumulated comprehensive loss into postretirement healthcare benefits net periodic benefit cost for the combined U.S. and non-U.S. postretirement benefits during fiscal 2021.
Cash Flows
The Company expects to contribute $3,991 to its U.S. benefits plans and $1,827 to its non-U.S. benefit plans in fiscal 2021. The Company expects to contribute $488 to its combined U.S. and non-U.S. postretirement benefit plans in fiscal 2021. The Company’s contributions to the defined contribution plans were $4,747, $4,939, and $4,627 the years ended March 31, 2020, 2019, and 2018, respectively.
The following summarizes the expected benefit payments to be paid in future years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
U.S. Plans
|
Non-U.S. Plans
|
U.S. Plans
|
Non-U.S. Plans
|
|
|
March 31, 2020
|
March 31, 2020
|
March 31, 2020
|
March 31, 2020
|
|
2021
|
$
|
8,017
|
|
$
|
3,401
|
|
$
|
355
|
|
$
|
133
|
|
|
2022
|
6,294
|
|
2,865
|
|
305
|
|
132
|
|
|
2023
|
6,120
|
|
2,910
|
|
302
|
|
131
|
|
|
2024
|
6,032
|
|
3,003
|
|
297
|
|
131
|
|
|
2025
|
6,023
|
|
3,205
|
|
291
|
|
130
|
|
|
Years 2025-2029
|
27,189
|
|
16,166
|
|
1,380
|
|
639
|
|
20. Segment Information
The following summarizes segment information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Sales and other operating revenues:
|
|
|
|
|
Leaf - North America
|
$
|
224,707
|
|
$
|
285,718
|
|
$
|
451,383
|
|
|
Leaf - Other Regions
|
1,282,616
|
|
1,499,839
|
|
1,394,048
|
|
|
Other Products and Services
|
19,938
|
|
16,036
|
|
535
|
|
|
Total sales and other operating revenues
|
$
|
1,527,261
|
|
$
|
1,801,593
|
|
$
|
1,845,966
|
|
|
|
|
|
|
|
Operating (loss) income:
|
|
|
|
|
Leaf - North America
|
8,008
|
|
10,113
|
|
26,446
|
|
|
Leaf - Other Regions
|
69,149
|
|
112,180
|
|
88,742
|
|
|
Other Products and Services
|
(88,766)
|
|
(35,039)
|
|
(3,284)
|
|
|
Total operating (loss) income
|
$
|
(11,609)
|
|
$
|
87,254
|
|
$
|
111,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
Leaf - North America
|
Leaf - Other Regions
|
Other Products and Services
|
Total
|
|
Segment assets
|
$
|
266,253
|
|
$
|
1,284,317
|
|
$
|
212,493
|
|
$
|
1,763,063
|
|
|
Trade and other receivables, net
|
28,520
|
|
207,534
|
|
3,685
|
|
239,739
|
|
|
Equity in net assets of investee companies
|
—
|
|
56,456
|
|
11,075
|
|
67,531
|
|
|
Depreciation and amortization
|
7,186
|
|
24,187
|
|
4,455
|
|
35,828
|
|
|
Capital expenditures
|
3,930
|
|
14,551
|
|
38,362
|
|
56,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
Leaf - North America
|
Leaf - Other Regions
|
Other Products and Services
|
Total
|
|
Segment assets
|
$
|
243,248
|
|
$
|
1,488,226
|
|
$
|
127,801
|
|
$
|
1,859,275
|
|
|
Trade and other receivables, net
|
18,297
|
|
289,662
|
|
3,038
|
|
310,997
|
|
|
Goodwill
|
2,795
|
|
13,669
|
|
17,872
|
|
34,336
|
|
|
Equity in net assets of investee companies
|
—
|
|
57,161
|
|
11,845
|
|
69,006
|
|
|
Depreciation and amortization
|
7,065
|
|
25,695
|
|
2,987
|
|
35,747
|
|
|
Capital expenditures
|
4,594
|
|
17,325
|
|
30,793
|
|
52,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
|
|
Leaf - North America
|
Leaf - Other Regions
|
Other Products and Services
|
Total
|
|
Segment assets
|
$
|
366,495
|
|
$
|
1,528,859
|
|
$
|
71,277
|
|
$
|
1,966,631
|
|
|
Trade and other receivables, net
|
46,096
|
|
257,968
|
|
335
|
|
304,399
|
|
|
Goodwill
|
2,795
|
|
13,669
|
|
11,082
|
|
27,546
|
|
|
Equity in net assets of investee companies
|
—
|
|
57,434
|
|
9,935
|
|
67,369
|
|
|
Depreciation and amortization
|
7,435
|
|
25,754
|
|
409
|
|
33,598
|
|
|
Capital expenditures
|
4,649
|
|
17,017
|
|
1,632
|
|
23,298
|
|
The following summarizes geographic sales and other operating revenues by destination of the product shipped:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Sales and Other Operating Revenues:
|
|
|
|
|
United States
|
$
|
213,036
|
|
$
|
246,828
|
|
$
|
291,804
|
|
|
China
|
180,907
|
|
184,921
|
|
249,549
|
|
|
Indonesia
|
119,604
|
|
118,995
|
|
76,364
|
|
|
Belgium(1)
|
118,819
|
|
126,694
|
|
137,313
|
|
|
United Arab Emirates
|
100,375
|
|
78,329
|
|
72,183
|
|
|
Northern Africa
|
39,311
|
|
120,964
|
|
111,971
|
|
|
Other
|
755,209
|
|
924,862
|
|
906,782
|
|
|
Total
|
$
|
1,527,261
|
|
$
|
1,801,593
|
|
$
|
1,845,966
|
|
|
(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 customers, including affiliates, account for more than 10% of total sales and other operating revenues: Philip Morris International Inc. and China Tobacco International Inc. for the years ended March 31, 2020 and 2018, and Philip Morris International Inc., China Tobacco International Inc., and Imperial Brands, PLC for the year ended March 31, 2019.
The following summarizes geographic property, plant, and equipment by location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Property, Plant, and Equipment, Net:
|
|
|
|
|
Canada
|
$
|
66,823
|
|
$
|
40,027
|
|
$
|
8,590
|
|
|
Brazil
|
66,211
|
|
68,647
|
|
72,190
|
|
|
Zimbabwe
|
49,814
|
|
51,943
|
|
51,768
|
|
|
United States
|
47,023
|
|
49,600
|
|
54,233
|
|
|
Malawi
|
23,413
|
|
21,948
|
|
21,571
|
|
|
Tanzania
|
18,290
|
|
16,908
|
|
18,884
|
|
|
Other
|
24,422
|
|
27,323
|
|
27,045
|
|
|
Total
|
$
|
295,996
|
|
$
|
276,396
|
|
$
|
254,281
|
|
21. Restructuring and Asset Impairment Charges
The Company continues to focus on efficiency and cost savings across its business. During the year ended March 31, 2020, the Company announced a cost saving initiative and restructuring plan to repurpose a processing facility in South America for storage and special projects and process tobacco under a third-party arrangement going forward. During the year ended March 31, 2019, the Company incurred costs associated with the closing of a processing facility in Europe to process tobacco under a third-party arrangement going forward and the consolidation of the Company's U.S. green tobacco processing operations into its Wilson, North Carolina facility and the repurposing of its Farmville, North Carolina facility for storage and special projects. During the year ended March 31, 2018, the asset impairment charges were incurred due to restructuring of certain operations in Africa.
The following summarizes the Company's restructuring and asset impairment charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Beginning balance
|
$
|
1,843
|
|
$
|
107
|
|
$
|
189
|
|
|
Period Charges:
|
|
|
|
|
Employee separation charges (recoveries)
|
4,592
|
|
4,055
|
|
(22)
|
|
|
Total employee separation and other cash charges (recoveries)
|
4,592
|
|
4,055
|
|
(22)
|
|
|
Payments
|
(6,028)
|
|
(2,319)
|
|
(60)
|
|
|
Ending balance
|
$
|
407
|
|
$
|
1,843
|
|
$
|
107
|
|
|
Asset impairment and other noncash charges
|
1,054
|
|
891
|
|
404
|
|
|
Total restructuring and asset impairment charges
|
$
|
5,646
|
|
$
|
4,946
|
|
$
|
382
|
|
There are no employee separation and other cash charges recorded in the Company's Other Products and Services segment. The following summarizes the employee separation and other cash charges recorded in the Company’s Leaf - North America and Leaf - Other Regions segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
Leaf - North America
|
Leaf - Other Regions
|
Leaf - North America
|
Leaf - Other Regions
|
Leaf - North America
|
Leaf - Other Regions
|
|
Beginning balance
|
$
|
1,621
|
|
$
|
222
|
|
$
|
—
|
|
$
|
107
|
|
$
|
60
|
|
$
|
129
|
|
|
Period charges (recoveries)
|
8
|
|
4,584
|
|
2,668
|
|
1,387
|
|
—
|
|
(22)
|
|
|
Payments
|
(1,629)
|
|
(4,399)
|
|
(1,047)
|
|
(1,272)
|
|
(60)
|
|
—
|
|
|
Ending balance
|
$
|
—
|
|
$
|
407
|
|
$
|
1,621
|
|
$
|
222
|
|
$
|
—
|
|
$
|
107
|
|
The following summarizes asset impairment and other noncash charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Leaf - North America
|
$
|
—
|
|
$
|
545
|
|
$
|
—
|
|
|
Leaf - Other Regions
|
772
|
|
346
|
|
404
|
|
|
Other Products and Services
|
282
|
|
—
|
|
—
|
|
|
Total
|
$
|
1,054
|
|
$
|
891
|
|
$
|
404
|
|
22. Related Party Transactions
The following summarizes sales and purchases with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
|
|
|
2020
|
2019
|
2018
|
|
Sales
|
$
|
16,245
|
|
$
|
15,480
|
|
$
|
25,257
|
|
|
Purchases
|
120,084
|
|
137,017
|
|
101,096
|
|
The Company’s accounts receivable, related parties and accounts payable, related parties, as presented in the consolidated balance sheets, relate to transactions with equity method investees.
23. 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 $2,534 and the total assessment including penalties and interest at March 31, 2020 is $9,039. 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 $2,192 and the total assessment including penalties and interest at March 31, 2020 is $5,875. 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 $9,378. 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 other income, net in the consolidated statements of operations. 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 (the “City”) filed a complaint in U.S. District Court for the Eastern District of New York (the “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. Humble Juice and the City agreed to resolve the City’s claims without further litigation with the entry of a consent order, approved by the District Court on February 24, 2020, under which Humble Juice, while not admitting to any violation of law, agreed to certain age-verification and age-gating
procedures and volume limits for website orders with respect to residents of New York City, to specified penalties for failure to comply with these requirements in the future and to the payment of $1 to the City.
In addition to the above-mentioned matter, 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
The Company has identified an asset retirement obligation (“ARO”) associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO 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.
24. Variable Interest Entities
The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Investments in variable interest entities
|
$
|
62,407
|
|
$
|
64,281
|
|
|
Receivables with variable interest entities
|
10,099
|
|
3,273
|
|
|
Guaranteed amounts to variable interest entities (not to exceed)
|
59,792
|
|
67,027
|
|
25. Securitized Receivables
During the year ended March 31, 2020, the Company sold 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. Following the sale and transfer of the receivables to the special purpose entity, the receivables are isolated from the Company and its affiliates, and upon the sale and transfer of the receivables from the special purpose entity to the unaffiliated financial institutions, 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, 2020, the investment limit of this facility was $125,000 of trade receivables.
For the first facility, the Company incurred facility costs of $1,010 and $930 during the years ended March 31, 2020 and 2019, respectively. The 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.
Under the first facility, the special purpose entity is provided an option to terminate the facility agreement upon the failure of the Company to maintain a minimum shareholder’s equity balance. As of December 31, 2019 and March 31, 2020, the Company did not maintain the minimum shareholder's equity balance, which would have allowed the special purpose entity the option to terminate the facility agreement. The special purpose entity opted not to terminate the facility agreement and acceptance of receivables continued under the facility. The Company and the special purpose entity have executed a waiver and an amendment to the facility agreement with effective dates of December 31, 2019 and March 31, 2020, respectively, which resolved the Company's failure to maintain a minimum shareholders' equity balance.
For the second and third facilities, 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. Under the first and second facilities, the Company does not receive servicing fee from the unaffiliated financial institution and as a result, has established a servicing liability based upon unobservable inputs, primarily discounted cash flow. As of March 31, 2020, the investment limit under the second facility was $125,000 of trade receivables. As of March 31, 2020, the investment limit under the third facility was variable based on qualifying sales.
As servicer of the first and second facilities, the Company may receive funds that are due to the unaffiliated financial institutions which are net settled on the next settlement date. As of March 31, 2020 and 2019, trade receivables, net in the consolidated balance sheets has been reduced by $9,586 and $5,208 as a result of the net settlement, respectively. See Note 26. "Fair Value Measurements" for further information.
The second and third facilities do not contain restrictive covenants.
The following summarizes the Company’s accounts receivable securitization information as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2020
|
2019
|
|
Receivables outstanding in facility as of March 31:
|
$
|
135,439
|
|
$
|
210,672
|
|
|
Beneficial interest
|
$
|
27,021
|
|
$
|
40,332
|
|
|
Servicing liability
|
$
|
43
|
|
$
|
90
|
|
|
|
|
|
|
Cash proceeds for the years ended March 31:
|
|
|
|
Cash purchase price
|
$
|
523,521
|
|
$
|
672,333
|
|
|
Deferred purchase price
|
240,994
|
|
242,966
|
|
|
Service fees
|
455
|
|
576
|
|
|
Total
|
$
|
764,970
|
|
$
|
915,875
|
|
As of March 31, 2020 and 2019, accounts receivable sold and outstanding were $135,439 and $210,672, respectively.
26. 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, 2020
|
|
|
|
March 31, 2019
|
|
|
|
|
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
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
|
$
|
186
|
|
$
|
—
|
|
$
|
186
|
|
|
Securitized beneficial interests
|
—
|
|
27,021
|
|
27,021
|
|
|
—
|
|
40,332
|
|
40,332
|
|
|
Total assets
|
$
|
—
|
|
$
|
27,021
|
|
$
|
27,021
|
|
|
$
|
186
|
|
$
|
40,332
|
|
$
|
40,518
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
358,782
|
|
$
|
848
|
|
$
|
359,630
|
|
|
$
|
830,082
|
|
$
|
703
|
|
$
|
830,785
|
|
|
Guarantees
|
—
|
|
2,791
|
|
2,791
|
|
|
—
|
|
3,714
|
|
3,714
|
|
|
Total liabilities
|
$
|
358,782
|
|
$
|
3,639
|
|
$
|
362,421
|
|
|
$
|
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 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. Should the loss rate change 10% or 20%, the fair value of the guarantee at March 31, 2020 would change by $279 and $558, respectively. 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. Since the discount rate and the payment speed are components of the same equation, a change in either by 10% or 20% would change the value of the recorded beneficial interest at March 31, 2020 by $133 and $267, respectively. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days 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
|
Guarantees
|
|
Beginning balance March 31, 2018
|
$
|
48,715
|
|
$
|
5,864
|
|
|
Sales of receivables/issuance of guarantees
|
247,386
|
|
4,969
|
|
|
Settlements
|
(250,365)
|
|
(6,109)
|
|
|
Losses recognized in earnings
|
(5,404)
|
|
(1,010)
|
|
|
Ending balance at March 31, 2019
|
40,332
|
|
3,714
|
|
|
Sales of receivables/issuance of guarantees
|
229,751
|
|
2,982
|
|
|
Settlements
|
(238,437)
|
|
(3,802)
|
|
|
Losses recognized in earnings
|
(4,625)
|
|
(103)
|
|
|
Ending Balance at March 31, 2020
|
$
|
27,021
|
|
$
|
2,791
|
|
The amount of total losses included in earnings for the years ended March 31, 2020 and 2019 attributable to the change in unrealized losses relating to assets still held at the respective dates was $951 and $1,289 on securitized beneficial interests. Gains and losses included in earnings are reported in other income, 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, 2020
|
Valuation Technique
|
Unobservable Input
|
Range (Weighted Average)
|
|
Securitized Beneficial Interests
|
$
|
27,021
|
|
Discounted Cash Flow
|
Discount Rate
|
3.44% to 3.45%
|
|
|
|
|
Payment Speed
|
77 days to 100 days
|
|
Tobacco Supplier Guarantees
|
2,536
|
|
Historical Loss
|
Historical Loss
|
2.20% to 10.00%
|
|
|
255
|
|
Discounted Cash Flow
|
Market Interest Rate
|
15.00% to 75.80%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value at March 31, 2019
|
Valuation Technique
|
Unobservable Input
|
Range (Weighted Average)
|
|
Securitized Beneficial Interests
|
$
|
40,332
|
|
Discounted Cash Flow
|
Discount Rate
|
5.0% to 6.5%
|
|
|
|
|
Payment Speed
|
67 days to 80 days
|
|
Tobacco Supplier Guarantees
|
3,502
|
|
Historical Loss
|
Historical Loss
|
2.4% to 10.0%
|
|
|
212
|
|
Discounted Cash Flow
|
Market Interest Rate
|
15.0% to 70.0%
|
27. Selected Quarterly Financial Data (Unaudited)
The following summarizes selected quarterly financial information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2020
|
|
|
|
|
|
|
|
First
Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
Fiscal Year
|
|
Sales and other operating revenues
|
|
$
|
276,670
|
|
$
|
382,981
|
|
$
|
363,260
|
|
$
|
504,350
|
|
$
|
1,527,261
|
|
|
Gross profit
|
|
39,712
|
|
60,220
|
|
55,127
|
|
69,620
|
|
224,679
|
|
|
Other income (loss), net
|
|
2,948
|
|
1,514
|
|
(401)
|
|
(1,928)
|
|
2,133
|
|
|
Restructuring and asset impairment charges
|
|
212
|
|
8
|
|
672
|
|
4,754
|
|
5,646
|
|
|
Goodwill impairment
|
|
—
|
|
—
|
|
—
|
|
33,759
|
|
33,759
|
|
|
Net loss
|
|
(62,163)
|
|
(16,604)
|
|
(22,446)
|
|
(169,106)
|
|
(270,319)
|
|
|
Net loss attributable to noncontrolling interest
|
|
(366)
|
|
(86)
|
|
(453)
|
|
(4,753)
|
|
(5,658)
|
|
|
Net loss attributable to Pyxus International, Inc.
|
|
(61,797)
|
|
(16,518)
|
|
(21,993)
|
|
(164,353)
|
|
(264,661)
|
|
|
Per Share of Common Stock:
|
|
|
|
|
|
|
|
Basic loss attributable to Pyxus International, Inc. (1)
|
|
(6.79)
|
|
(1.81)
|
|
(2.40)
|
|
(17.91)
|
|
(28.93)
|
|
|
Diluted loss attributable to Pyxus International, Inc. (1)
|
|
(6.79)
|
|
(1.81)
|
|
(2.40)
|
|
(17.91)
|
|
(28.93)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, 2019
|
|
|
|
|
|
|
|
First
Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
Fiscal Year
|
|
Sales and other operating revenues
|
|
$
|
290,989
|
|
$
|
394,876
|
|
$
|
524,487
|
|
$
|
591,241
|
|
$
|
1,801,593
|
|
|
Gross profit
|
|
41,395
|
|
49,204
|
|
74,711
|
|
85,504
|
|
250,814
|
|
|
Other income, net
|
|
2,921
|
|
2,561
|
|
7,991
|
|
744
|
|
14,217
|
|
|
Restructuring and asset impairment charges
|
|
1,541
|
|
182
|
|
1,667
|
|
1,556
|
|
4,946
|
|
|
Net loss
|
|
(1,413)
|
|
(54,842)
|
|
(5,002)
|
|
(9,911)
|
|
(71,168)
|
|
|
Net (loss) income attributable to noncontrolling interests
|
|
(654)
|
|
(208)
|
|
93
|
|
68
|
|
(701)
|
|
|
Net loss attributable to Pyxus International, Inc.
|
|
(759)
|
|
(54,634)
|
|
(5,095)
|
|
(9,979)
|
|
(70,467)
|
|
|
Per Share of Common Stock:
|
|
|
|
|
|
|
|
Basic loss attributable to Pyxus International, Inc. (1)
|
|
(0.08)
|
|
(6.04)
|
|
(0.56)
|
|
(1.10)
|
|
(7.78)
|
|
|
Diluted loss attributable to Pyxus International, Inc. (1)
|
|
(0.08)
|
|
(6.04)
|
|
(0.56)
|
|
(1.10)
|
|
(7.78)
|
|
(1) The sum of the quarterly EPS amounts may not agree to the total for the year as basic and diluted EPS are computed independently for each of the periods presented
28. Subsequent Events
Criticality Acquisition
On April 22, 2020, the Company acquired the remaining 60.0% of the equity in Criticality, LLC in exchange for consideration consisting of $5,000 cash and the settlement of the Company's $7,450 note receivable from Criticality, subject to certain post-closing adjustments.
Inventories, Net
During the quarter ended June 30, 2020, the Company recorded a $15,056 inventory LCM write-down of its inventory from the other products and services segment due to a shift in expected future products mix in response to market supply conditions and continued market price compression.
Nicotine River, LLC Ownership Exchange
On August 14, 2020, the Company exchanged its 40.0% ownership interest in Nicotine River, LLC for an additional 14.3% interest in Humble Juice Co, LLC ("Humble"), increasing the Company's ownership interest in Humble to 65.3%. Humble is a consolidated subsidiary of the Company.
Foreign Seasonal Lines of Credit
On May 19, 2020, the Company amended the terms of its $105,000 of foreign seasonal lines of credit with the Standard Bank of South Africa Limited (“Standard”). The amendment reduced the total credit limit to $85,000 and changed the maturity date from April 30, 2020 to March 31, 2021 or May 1, 2021, depending on the line of credit.
On June 29, 2020, the Company amended the terms of its $255,000 of the original aggregate maximum borrowing availability under the existing foreign seasonal lines of credit with Eastern and Southern African Trade and Development Bank (“TDB”). The amendment changed the anniversary date for renewal to July 31, 2020 and extended the review period for subsequent renewals from March 31, 2020 to July 31, 2020.
On August 13, 2020, the Company entered into an Amendment and Restatement Agreement ("the Agreement") with TDB. The Agreement sets forth the terms that govern and supersede the terms of the separate existing foreign seasonal lines of credit for various subsidiaries of the Company with TDB. The original aggregate maximum borrowing availability under the existing foreign seasonal lines of credit was $255,000 and the aggregate borrowings outstanding were $240,500 as of August 13, 2020. Subject to certain conditions, the Agreement increases the Company's maximum aggregate borrowing capacity to $285,000. Loans under the Agreement will bear interest at LIBOR plus 6%. The Agreement terminates on June 30, 2021, and may be renewed at TDB’s discretion.
Bankruptcy Proceedings
On June 15, 2020, Pyxus International, Inc. and its subsidiaries Alliance One International, LLC, Alliance One North America, LLC, Alliance One Specialty Products, LLC and GSP Properties, LLC (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged chapter 11 plan of reorganization (“Prepack Plan”) that effectuates a financial restructuring of the Company’s secured debt (the “Restructuring”). The Company commenced solicitation of the Prepack Plan with a related disclosure statement (“Disclosure Statement”) on June 14, 2020. The Chapter 11 Cases have been administered jointly under the caption In re Pyxus International, Inc., et al.
The Debtors filed motions with the Bankruptcy Court seeking authorization to continue to operate its businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. To ensure its ability to continue operating in the ordinary course of business both domestically and internationally, the Debtors also filed with the Bankruptcy Court a variety of “first day” relief motions, including authority to pay employee wages and benefits and vendors and suppliers in the ordinary course of business. The Prepack Plan and the “first day” relief anticipate that vendors and other unsecured creditors who continue to work with the Debtors on existing terms will be paid in full and in the ordinary course of business.
Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the Debtors, as well as most litigation then pending against these entities, are subject to an automatic stay. Absent an order of the Bankruptcy Court providing otherwise, substantially all pre-petition liabilities are administered under a Chapter 11 plan of reorganization to be voted upon by creditors and other stakeholders, and approved by the Bankruptcy Court. However, under the Bankruptcy Code,
regulatory proceedings (as well as criminal proceedings) are generally not subject to an automatic stay and continue during the pendency of the Chapter 11 Cases.
The commencement of the Chapter 11 Cases constituted an event of default, and caused an automatic and immediate acceleration of repayment obligations under the First Lien Notes, the Second Lien Notes, and the ABL Facility. However, any efforts to enforce such payment obligations are automatically stayed as of the Petition Date, and are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Further borrowings under the ABL Facility are not available as a result of this event of default.
On June 14, 2020, the Debtors entered into a Restructuring Support Agreement (the “RSA”) with holders (collectively, the “Consenting Noteholders”) of greater than 92% of the First Lien Notes and greater than 67% of the Second Lien Notes. As set forth in the RSA, including in the term sheets attached thereto (including all exhibits, annexes and schedules attached thereto, the “Term Sheets”), the Debtors and Consenting Noteholders (collectively, the “RSA Parties”) agreed to the terms of the Restructuring, which was contemplated to be implemented through the Prepack Plan. On June 15, 2020, the Debtors commenced the Chapter 11 Cases to implement the Prepack Plan. The RSA contemplates a comprehensive deleveraging of the Debtors' balance sheet.
The commencement of the Chapter 11 Cases constituted an event of default, and caused an automatic and immediate acceleration of repayment obligations under the Company's 8.5% Senior Secured First Lien Notes due 2021 ("the First Lien Notes"), its 9.875% Senior Secured Second Lien Notes due 2021 ("the Second Lien Notes"), and the Company's asset-based revolving credit facility ("the ABL Facility"). However, any efforts to enforce such payment obligations are automatically stayed as of the Petition Date, and are subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. Borrowings under the ABL Facility were not available commencing on the Petition Date as a result of this event of default. As described below, the ABL Facility was terminated and repaid on June 17, 2020.
DIP Facility
On June 17, 2020, following its receipt on such date of interim approval from the Bankruptcy Court (the “DIP Order”), the Company entered into a multiple draw superpriority secured debtor-in-possession term loan facility (the “DIP Facility”) in an aggregate principal amount of $206.7 million on the terms and conditions set forth in the DIP credit agreement (the “DIP Credit Agreement”) between the Company, certain holders of the Company’s 9.875% senior secured second lien notes due 2021 (the “DIP Lenders”) and Cortland Capital Market Services LLC, as administrative agent and collateral agent, which is guaranteed by certain of the Debtors’ subsidiaries.
The DIP Facility provides $131.7 million in initial funding, with the ability for Pyxus to borrow up to an additional $75.0 million upon entry of a final order from the Bankruptcy Court approving the DIP Facility, which was issued on July 20, 2020. Drawn amounts under the DIP Facility bear interest at either (1) an Alternate Base Rate plus 9.25%, per annum or (2) 10.25% plus the LIBOR Rate, per annum, with a LIBOR floor of 1.5%. Undrawn amounts under the DIP Facility are subject to a ticking fee of 3.0% per annum calculated on a daily basis on the aggregate daily unused amount, accruing commencing on June 17, 2020 and until such commitments have terminated, which ticking fee is due and payable in arrears on the earlier to occur of a borrowing upon entry of a final order and the date on which such commitments have terminated. During the continuance of an event of default (as further described in the DIP Credit Agreement), the overdue amounts under the DIP Facility bear interest at an additional 2% per annum above the interest rate otherwise applicable.
The proceeds of the DIP Facility are to be used, among other things, to (a) effect the refinancing of the ABL Facility (which occurred on June 17, 2020); (b) pay related transaction costs, fees and expenses; (c) provide working capital and for other general corporate purposes in accordance with the Budget; (d) make adequate protection payments as authorized by the Court in the DIP Order; (e) pay obligations arising from or related to the Carve Out (as defined below); and (f) pay restructuring costs incurred in connection with the Chapter 11 Cases.
The maturity date of the DIP Facility is the earliest of (a) December 17, 2020; (b) the date of the substantial consummation (as defined in Section 1101(2) of the Bankruptcy Code) of a plan of reorganization; (c) the date on which Pyxus and its subsidiaries consummate a sale of all or substantially all of their assets pursuant to section 363 of the Bankruptcy Code or otherwise; and (d) such earlier date on which the loans shall become due and payable by acceleration or otherwise in accordance with the terms of the DIP Credit Agreement and the other related documents.
Under the DIP Facility, the DIP Lenders and Cortland Capital Market Services LLC, as collateral agent, subject to the Carve Out and the terms of the DIP Order and, in each case, other than certain excluded assets, are at all times during the pendency of the Chapter 11 Cases secured, by (i) a first priority senior priming security interest in and lien upon the DIP Priming Collateral (as defined in the DIP Order); (ii) a first priority senior security interest in and lien upon the DIP Priority Collateral (as defined in the DIP Order), and (iii) a junior security interest in and lien upon DIP Junior Collateral (as defined in the DIP Order). The DIP Lenders and collateral agent are also secured by security interests in substantially all of the assets of certain non-debtor
subsidiaries of Pyxus. The Debtors’ obligations to the DIP Lenders and the liens and superpriority claims are subject in each case to a carve out (the “Carve Out”), subject to a cap, that accounts for certain statutory fees, committee professional fees and post-notice professional fees payable in connection with the Chapter 11 Cases. Upon the effectiveness of the Plan, claims under the DIP Facility are satisfied in the manner described below and the DIP Facility terminates.
Confirmation Order
On August 21, 2020, the Bankruptcy Court entered an order (“Confirmation Order”) pursuant to the Bankruptcy Code, which approved and confirmed the Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Pyxus and Its Affiliated Debtors (as supplemented and amended, the “Plan”). After the satisfaction or waiver of the conditions precedent of the Plan, the Debtors intend to effect the transactions contemplated by the Plan and emerge from Chapter 11 protection. The Confirmation Order and Plan are filed as Exhibit 2.1 and Exhibit 2.2 to the Company’s Form 8-K filed on August 24, 2020, respectively, are filed as exhibits to this Form 10-K and incorporated herein by reference.
Summary Features of the Plan of Reorganization
Pursuant to the Plan, the business assets and operations of the Company will vest in a new Virginia corporation, Pyxus Holdings, Inc., which will be an indirect subsidiary of an additional Virginia corporation (“New Pyxus”) which will be renamed Pyxus International, Inc. upon completion of such transfer of assets and operations. Under the Plan, all suppliers, vendors, employees, trade partners, foreign lenders and landlords will be unimpaired by the Plan and will be satisfied in full in the ordinary course of business, and the Company’s existing trade and customer contracts and terms will be maintained. New Pyxus will continue to operate the Company’s business in the ordinary course.
Treatment of Claims and Interests
The Plan provides for the following treatment of claims against and interest in the Company upon the effectiveness of the Plan:
•Other Secured Claims (as defined in the Plan) will either (i) be paid in full in cash, (ii) be satisfied by delivery of collateral securing any such Claim (as defined in the Plan) and payment of any required interest or (iii) be reinstated.
•Other Priority Claims (as defined in the Plan) will be paid in full in cash.
•Holders of First Lien Notes Claims (as defined in the Plan) will receive (i) payment in full in cash of all accrued and unpaid interest on such First Lien Notes, and (ii) their pro rata share of the Exit Secured Notes (as defined in the Plan).
•Holders (as defined in the Plan) of Second Lien Notes Claims (as defined in the Plan) will receive, at the Holder’s election, (i) their pro rata share of Second Lien Notes Common Stock Pool (as defined in the Plan) or (ii) cash equal to 2.00% of the principal amount of all Second Lien Notes beneficially owned by such Holder.
•Lenders under Foreign Credit Lines (as defined in the Plan) will be paid in the ordinary course of business in accordance with the terms of the relevant agreement.
•General Unsecured Claims (as defined in the Plan) will be paid in the ordinary course of business.
•The existing common stock of the Company shall be discharged, cancelled, released, and extinguished and of no further force or effect.
Transactions in Connection with Emergence
As contemplated by the Plan, certain transactions were effected on or prior to the effectiveness of the Plan, including the following:
•Three new Virginia corporations (i.e., Pyxus One, Inc. (“New Pyxus”), Pyxus Parent, Inc. and Pyxus Holdings, Inc.) were organized.
•Pyxus Parent, Inc. issued all of its equity interests to Pyxus One, Inc. in exchange for 25,000,000 shares of New Pyxus common stock, no par value (such common stock is referred to as “New Common Stock” and the 25,000,000 shares of which are referred to as the “Equity Consideration”). Pyxus Holdings, Inc. then issued all of its equity interests to Pyxus Parent, Inc. in exchange for the Equity Consideration.
•Pyxus Holdings, Inc. entered into the Exit ABL Facility (as defined below) to borrow cash under Exit ABL Facility which together with cash on-hand is sufficient to fund (1) the distributions to holders of Allowed Second Lien Notes Claims (as defined in the Plan) that elected to take the Second Lien Notes Cash Option (as defined in the Plan) and (2) the Existing Equity Cash Pool (as defined in the Plan) (collectively such amount of cash is referred to as the “Cash Consideration”).
•Pursuant to an Asset Purchase Agreement, Pyxus transferred to Pyxus Holdings, Inc. all of its assets (including by assuming and assigning all of Pyxus’ Executory Contracts and Unexpired Leases (as such terms are defined in the Plan) to Pyxus Holdings, Inc. in accordance with the Plan, other than those Executory Contracts and Unexpired Leases that were rejected) and Pyxus Holdings, Inc. assumed all of Pyxus’ obligations that are not discharged under the Plan (including all of Pyxus’ obligations to satisfy Allowed Administrative Claims, Allowed Professional Fee Claims, Allowed Other Secured Claims, Allowed Other Priority Claims, Allowed Foreign Credit Line Claims, Allowed General Unsecured Claims, Allowed Debtor Intercompany Claims and Allowed Debtor Intercompany Claims as set forth in the Plan (as such terms are defined in the Plan)) in exchange for (i) Pyxus Holdings, Inc. transferring the Equity Consideration to Pyxus, (ii) Pyxus Holdings, Inc. transferring the Cash Consideration to Pyxus, (iii) Pyxus Holdings, Inc. issuing the Exit Secured Notes (as defined below) under the Exit Secured Notes Indenture (as defined below) which, on behalf of Pyxus, was issued to the Holders of Allowed First Lien Notes Claims (as defined in the Plan) as set forth in the Plan, and (iv) Pyxus Holdings, Inc. issuing the Exit Term Loans (as defined below) under the Exit Term Facility (as defined below) which, on behalf of Old Pyxus, was issued to the holders of the DIP Facility Claims (as defined in the Plan) as set forth in the Plan. In addition to the transfer of assets to Pyxus Holdings, Inc., Pyxus Holdings, Inc. made an offer of employment to all employees of Pyxus and all such employees became employed by Pyxus Holdings, Inc., or a designated subsidiary, upon the effectiveness of the Plan on the same terms and conditions existing immediately prior to the effectiveness of the Plan.
•New Pyxus and Pyxus Parent, Inc., along with each applicable subsidiary of New Pyxus, guaranteed the Exit Secured Notes, the Exit Term Facility and the Exit ABL Facility.
•Pyxus provided for the distribution of (i) Exit Secured Notes to the Holders of Allowed First Lien Notes Claims pursuant to the Plan, (ii) New Common Stock from the Second Lien Notes Common Stock Pool (as defined in the Plan) to Holders of Allowed Second Lien Notes Claims (as defined in the Plan) that elected to receive New Common Stock under the Second Lien Notes Stock Option (as defined in the Plan) pursuant to the Plan, (iii) cash to the Holders of Allowed Second Lien Notes Claims that elected to take or are deemed to elect to take the Second Lien Notes Cash Option (as defined in the Plan), (iv) cash to the Qualifying Holders (as defined in the Plan) of the common stock of Pyxus pursuant to the Plan, and (v) the Exit Term Loans under the Exit Term Facility and the Exit Facility Shares to the Holders of the DIP Facility Claims pursuant to the Plan.
•Pyxus changed its name to Old Holdco, Inc., and New Pyxus changed its name to Pyxus International, Inc.
•New Pyxus elected a board of directors comprising J. Pieter Sikkel, Holly Kim, and Patrick Fallon and appointed as its officers the individuals serving as officers of Pyxus to the same offices held immediately prior to the effectiveness of the Plan.
Third Party Releases
Upon the effectiveness of the Plan, certain Holders of Claims and Interests (as such terms are defined in the Plan), except as otherwise specified in the Plan or Confirmation Order, were deemed to release and discharge the Released Parties (as defined in the Plan) from certain claims, obligations, rights, suits, damages, causes of action and liabilities in connection with the Chapter 11 Cases.
Exit ABL Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit ABL Credit Agreement (the “ABL Credit Agreement”), dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish an asset-based revolving credit facility (the “ABL Facility”). The ABL Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75.0 million, subject to the limitations described below in this paragraph. Under certain conditions, Pyxus Holdings may solicit the ABL Lenders to provide additional revolving loan commitments under the ABL Facility in an aggregate amount not to exceed $15.0 million. The ABL Facility is required to be drawn at all times in an amount greater than or equal to the lesser of (i) 25% of total commitments under the ABL Facility and (ii) $18.75 million. The amount available under the ABL Facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
•85% of eligible accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the appraised net-orderly-liquidation value of eligible inventory.
The ABL Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the ABL Facility bear interest at an annual rate equal to LIBOR plus 475 basis points or 375 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 100 basis points.
The ABL Facility matures on February 24, 2023, subject to extension on terms and conditions set forth in the ABL Credit Agreement. The ABL Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee of 50 basis points upon the permanent reduction of commitments under the ABL Facility, including maturity. In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears on the last business day of each calendar month and, with respect to LIBOR loans, accrued interest is payable monthly and on the last day of any applicable interest period. Pyxus Holdings’ obligations under the ABL Facility (and certain related obligations) are (a) guaranteed by Pyxus Holdings, Pyxus Parent, Inc. and the Company and all of Pyxus Holdings’ material domestic subsidiaries, and each of Pyxus Holdings’ future material domestic subsidiaries is required to guarantee the ABL Facility on a senior secured basis (including Pyxus Holdings, collectively, the “ABL Loan Parties”) and (b) secured by the Collateral, as described below, which is owned by the ABL Loan Parties.
The liens and other security interests granted by the ABL Loan Parties on the Collateral for the benefit of the lenders under the ABL Facility (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on ABL Priority Collateral (as defined in the ABL/Term Loan/Intercreditor Agreement) with the security interests securing the Term Loan Credit Facility and the Senior Secured First Lien Notes junior thereto, each as described below. The obligations of Pyxus Holdings and each other ABL Credit Party under the ABL Facility and any related guarantee have respective priorities in a waterfall with respect to portions of the Collateral as set forth in the ABL/Term Loan/Notes Intercreditor Agreement and the Term Loan/Notes Intercreditor Agreement described below.
Cash Dominion
Under the terms of the ABL Facility, if (i) an event of default has occurred and is continuing or (ii) excess borrowing availability under the ABL Facility (based on the lesser of the commitments thereunder and the borrowing base) (the “Excess Availability”) falls below the greater of (x) $7.5 million and (y) 10% of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Cash Dominion Threshold”), the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a “Dominion Period”) shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, or (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than the Cash Dominion Threshold for a period of 30 consecutive days.
Financial Covenants
The ABL Credit Agreement governing the ABL Facility contains a covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.00 to 1.00 during any Dominion Period.
Affirmative and Restrictive Covenants
The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries' ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of their assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries.
The description of the ABL Credit Agreement and the ABL Facility set forth herein is qualified in its entirety by reference to the ABL Credit Agreement filed as Exhibit 10.1 hereto, which is incorporated by reference herein.
Exit Term Loan Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit Term Loan Credit Agreement (the “Term Loan Credit Agreement”), dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Alter Domus (US) LLC, as administrative agent and collateral agent to establish a term loan credit facility in an aggregate principal amount of approximately $213.5 million (the “Term Loan Credit Facility”). The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, were converted into, or otherwise satisfied with the proceeds of, the Term Loan Credit Facility.
The Term Loan Credit Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the Term Loan Credit Facility bear interest at an annual rate equal to LIBOR plus 800 basis points or 700 basis points above base rate, as applicable. In addition to the cash interest payments, from and after the first anniversary of the Term Loan Credit Agreement, the term loans under the Term Loan Credit Facility bear “payment in kind” interest in an annual rate equal to 100 basis points, which rate increases by an additional 100 basis points on each of the second, third and fourth anniversaries of the Term Loan Credit Agreement.
The Term Loan Credit Facility matures on June 24, 2025. The Term Loan Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or penalty. In addition, customary mandatory prepayments of the loans under the Term Loan Credit Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the Term Loan Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears on the last business day of each calendar month and, with respect to LIBOR loans, accrued interest is payable monthly and on the last day of any applicable interest period.
Pyxus Holdings’ obligations under the ABL Facility (and certain related obligations) are (a) guaranteed by Pyxus Holdings, Pyxus Parent, Inc. and the Company, all of Pyxus Holdings’ material domestic subsidiaries and certain of Pyxus Holdings’ foreign subsidiaries, and each of Pyxus Holdings’ future material domestic subsidiaries, subject to certain limitations (the "Foreign Guarantors") is required to guarantee the Term Loan Credit Facility on a senior secured basis (including Pyxus Holdings collectively, the “Term Facility Loan Parties”) and (b) secured by the Collateral, as described below, which is owned by the Term Facility Loan Parties.
The liens and other security interests granted by the Term Facility Loan Parties on the Collateral for the benefit of the lenders under the Term Loan Credit Facility (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on the Term Loan Priority Collateral and a junior lien on the ABL Priority Collateral and the Notes Priority Collateral (in each case as defined in the ABL/Term Loan/Notes Intercreditor Agreement and the Term Loan/Notes Intercreditor Agreement (together, the “Intercreditor Agreements”). The obligations of Pyxus Holdings and each other Term Facility Loan Party under the Term Loan Credit Facility and any related guarantee have respective priorities as set forth in the Intercreditor Agreements described below.
Affirmative and Restrictive Covenants
The Term Loan Credit Agreement governing the Term Loan Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company's and its restricted subsidiaries' ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of their assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries.
The description of the Term Loan Credit Agreement and the Term Loan Credit Facility set forth herein is qualified in its entirety by reference to the Term Loan Credit Agreement filed as Exhibit 10.2 hereto, which is incorporated by reference herein.
Exit Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280.8 million in aggregate principal amount of its 10.00% Senior Secured First Lien Notes due 2024 (the “Notes”) to holders of Allowed First Lien Notes Claims (as defined in the Plan) pursuant to an Indenture (the “Indenture”) dated as of the Effective Date among Pyxus Holdings, the initial guarantors party thereto, and Wilmington Trust, National Association, as trustee, and collateral agent. The Notes bear interest at a rate of 10.00% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year, beginning February 15, 2020, to holders of record at the close of business on the preceding February 1 and August 1, respectively. The Notes mature on August 24, 2024.
Guarantees
The Notes are initially guaranteed on a senior secured basis by the Company, all of the Company’s material domestic subsidiaries (other than Pyxus Holdings) and the Foreign Guarantors, on a subordinated basis to the guarantees securing the Term Loan Facility and each of its future material domestic subsidiaries are required to guarantee the Notes on a senior secured basis.
Optional Redemption
At any time prior to August 24, 2022, Pyxus Holdings may redeem the Notes, in whole or in part, at a redemption price equal to the “make-whole” amount as set forth in the Indenture, plus accrued and unpaid interest, if any, to, but not including, the redemption date. On or after August 24, 2022, the Pyxus Holdings may on any one or more occasions redeem all or a part of the Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest on the Notes redeemed, to the applicable date of redemption, if redeemed during the periods specified below, subject to the rights of holders of Notes on the relevant record date to receive interest on the relevant interest payment date:
|
|
|
|
|
|
|
|
Period
|
Percentage
|
|
From August 24, 2022 to August 23, 2023
|
105.0
|
%
|
|
From August 24, 2023 to August 23, 2024
|
102.5
|
%
|
|
On or after February 24, 2024
|
100.0
|
%
|
Mandatory Repurchase Offers
Upon a “Change of Control” (as defined in the Indenture), Pyxus Holdings will be required to make an offer to repurchase the Notes at a price in cash equal to 101% of the principal amount thereof. Upon certain asset sales, Pyxus Holdings may be required to make an offer to repurchase the Notes at a price in cash equal to 100% of the principal amount thereof.
Certain Covenants
The Indenture contains covenants that will impose restrictions on Pyxus Holdings, the Company and the Company’s subsidiaries (other than subsidiaries that may in the future be designated as “Unrestricted Subsidiaries” under the Indenture), including on their ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•enter into sale and leaseback transactions;
•consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets; and
•enter into transactions with affiliates.
The description of the Indenture and the Notes set forth herein is qualified in its entirety by reference to the Indenture, which includes the form of the Notes, filed as Exhibit 4.1 hereto, which is incorporated by reference herein.
Collateral
The liens and other security interests granted by Pyxus Holdings and the guarantors on the Collateral for the benefit of the noteholders are, subject to certain permitted liens, secured by first-priority security interests on the Notes Priority Collateral and a junior lien on the ABL Priority Collateral and the Term Loan Priority Collateral (in each case as defined in the Intercreditor Agreements. The obligations of Pyxus Holdings and each other guarantor have respective priorities with respect to the guarantees and the Collateral as set forth in the Intercreditor Agreements described below.
Intercreditor Agreements
The priority of the obligations under each of the Notes, the ABL Facility and the Term Loan Credit Facility are set forth in the two intercreditor agreements entered into in connection with the Plan, including the issuance of the Notes and the establishment of the ABL Facility and the Term Loan Credit Facility.
ABL/Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, (A) the holders of obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations and (B) the holders of obligations under the Notes, the guarantees thereof and certain related obligations, is governed by the ABL/Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the ABL Facility, the guarantees thereof and certain related obligations have first priority liens on the Collateral consisting of ABL Priority Collateral (as defined therein), including certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing entities and proceeds of the foregoing (other than identifiable cash proceeds of the Term Loan Priority Collateral or the Notes Priority Collateral, each as defined below), with the obligations under the Notes and the Term Loan Facility having junior priority liens on the ABL Priority Collateral. Pursuant to the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ collective obligations under the Term Loan Credit Facility and the Notes, the guarantees thereof and certain related obligations have first priority liens on the Notes Priority Collateral which consists of the Collateral that is not ABL Priority Collateral, including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus Holdings or a guarantor, existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other assets related to the foregoing and proceeds of the foregoing, with the obligations under the ABL Facility having junior priority liens on the Notes Priority Collateral.
Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between and among the holders of obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations and the holders of obligations under the Notes, the guarantees thereof and certain related obligations is governed by the Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the Term Loan Credit Facility, the guarantees thereof and certain related obligations have senior priority liens on the Term Loan Priority Collateral consisting of (i) all assets and property of Pyxus Holdings and any domestic Guarantor constituting ABL Priority Collateral up to (A) $125,000 minus (B) the aggregate principal amount of loans and the aggregate face amount of letters of credit outstanding under the ABL Credit Agreement, and (ii) all assets and property of any Foreign Guarantor constituting Collateral securing the Term Loan Agreement, with the obligations under the Notes having junior priority liens on the Term Loan Priority Collateral (the "ABL Priority Collateral Cap"). The liens securing the Notes and the Term Loan Facility on the ABL Priority Collateral in excess of the ABL Priority Collateral Cap will be secured on a pari passu basis. Further, the guarantees of the Foreign Guarantors in respect of the Notes are subordinated in right of payments to the guarantees of the Foreign Guarantors in respect of the Term Loan Facility. Pursuant to the Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the Notes, the guarantees thereof and certain related obligations have first priority liens on all Notes Priority Collateral, with the obligations under the Term Loan Facility having junior priority liens on the Notes Priority Collateral.
Shareholders Agreement
On August 24, 2020, the Company entered into a Shareholders Agreement (the “Shareholders Agreement”), among the Company and the investors listed therein, each other beneficial owner of the Company's common stock as of the date of the Shareholder Agreement deemed to be a party thereto pursuant to the Plan and other persons that may from time to time become parties thereto (collectively, the “Investors”). The Shareholders Agreement provides that each of Glendon Capital Management LP (together with its affiliates, the “Glendon Investor”) and Monarch Alternative Capital LP (together with its affiliates, the “Monarch Investor”) shall be entitled to nominate two individuals to serve on the seven-member board of directors of the Company so long as it beneficially owns at least 20% of the outstanding shares of the Company common stock, or one individual to serve as such a director if it beneficially owns fewer than 20% of the outstanding shares but at least 10% of the outstanding shares. The Shareholders Agreement provides that the Investors shall take all necessary action to elect such nominees of each of the Glendon Investor and the Monarch Investor as directors, as well as the election of the chief executive officer of the Company as a director and other individuals qualifying as independent directors to be selected by Investors that beneficially own 5% or more of the outstanding shares of common stock of the Company, as determined by a majority of the shares of New Pyxus common stock beneficially owned by such Investors. The Shareholders Agreement provides that the chairperson of the board of directors of the Company is to be elected by a majority of the directors that had been nominated by
the Glendon Investor (the “Glendon Directors”) and those that had been nominated by the Monarch Investor (the “Monarch Directors”), with the chairperson of such board to be elected by the board of directors of the Company if the Glendon Directors and Monarch Directors are together fewer than three in number or fail to appoint a chairperson. The Shareholders Agreement also includes provisions for the removal and replacement of the Glendon Directors at the request of the Glendon Investor and the removal and replacement of the Monarch Directors at the request of the Monarch Director, as well as provisions with respect to the calling and quorum of meetings of the board of directors of the Company, membership of committees of the board of directors of the Company, and compensation and insurance of members of the board of directors of the Company.
The Shareholders Agreement also provides for tag-along rights for Investors beneficially owning 1% or more of the outstanding shares of the Company's common stock (the “1% Investors”) upon the transfer by an Investor or group of Investors of 20% or more of the outstanding shares of the Company's common stock, drag-along rights upon the transfer of shares by an Investor or group of Investors of 50% or more of the outstanding shares of the Company's common stock, rights of first offer with respect to the transfer by an Investor, subject to certain exceptions, of 1% or more of the outstanding shares of the Company's common stock, pre-emptive rights to the 1% Investors upon issuance of new securities by the Company, and demand and piggyback registration rights.
The Shareholders Agreement includes the agreement of the Investors not to transfer shares of common stock of the Company (i) in violation of federal and state securities laws, (ii) in a transfer that would cause the Company to be regarded as an “investment company” under the Investment Company Act of 1940, as amended, (iii) in a transfer, at any time that the Company is not subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, that would cause the number of holders of the Company's common stock to exceed specified thresholds, or (iv) in a transfer that is, to the knowledge of the transferor after reasonable inquiry, (A) to any specified competitor of the Company (B) or to a person that would become either a beneficial owner of 5% of the outstanding common stock of the Company or a “5-percent shareholder” within the meaning of Section 382 of the Internal Revenue Code and the regulations promulgated thereunder (collectively, a “5% Holder”). The Shareholders Agreement provides that the board of directors may waive these restrictions, provided that any waiver of the restriction with respect to a person that would become a 5% Holder upon such transfer may be waived only if the transferee enters into a joinder agreeing to be bound by the Shareholders Agreement.
Dissolution and Successor Reporting
Pursuant to the Plan, the Company will, promptly following the effectiveness of the Plan, commence proceedings for the dissolution and winding up the affairs of the Company. During such period, the Company’s corporate existence will continue, but its activities will be limited to those matters appropriate to the winding up and liquidation of its business and affairs.
Following the effectiveness of the Plan, the common stock of New Pyxus will be deemed to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12g-3 thereunder. Accordingly, following the effectiveness of the Plan, New Pyxus will be obligated to file with the Securities and Exchange Commission annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other filings and to otherwise comply with requirements applicable to entities with a class of securities so registered.