Pyxus International, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
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| Successor | Predecessor |
| (in thousands) | Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Operating activities: | | | | |
| Net (loss) income | $ | (82,054) | | $ | (143,006) | | $ | 18,075 | | $ | (270,319) | |
| Adjustments to reconcile net (loss) income to net cash used by operating activities: | | | | |
| Depreciation and amortization | 16,676 | | 11,839 | | 16,580 | | 35,828 | |
| Loss on deconsolidation/disposition of subsidiaries | 10,701 | | 70,242 | | — | | — | |
| Debt amortization/interest | 22,639 | | 11,272 | | 4,862 | | 12,875 | |
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| Loss (gain) on foreign currency transactions | 2,885 | | (4,512) | | (11,077) | | 14,105 | |
| Asset impairment charges | 37,925 | | 4,001 | | 213 | | 34,813 | |
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| Bad debt expenses (recovery) | 4,404 | | 5,700 | | (1,037) | | 8,644 | |
| Income from unconsolidated affiliates, net of dividends | 4 | | (11,735) | | 2,915 | | 820 | |
| Reorganization items, net | — | | — | | (130,215) | | — | |
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| Changes in operating assets and liabilities, net: | | | | |
| Trade and other receivables | (261,908) | | (128,114) | | 10,101 | | (186,334) | |
| Inventories and advances to tobacco suppliers | (31,461) | | 112,062 | | (123,833) | | (82,639) | |
| Deferred items | (10,929) | | 3,309 | | 637 | | 105,977 | |
| Recoverable income taxes | (2,603) | | (1,189) | | 1,737 | | (2,955) | |
| Payables and accrued expenses | 59,324 | | 44,923 | | 3,821 | | (15,607) | |
| Advances from customers | 41,168 | | (4,801) | | 562 | | 3,354 | |
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| Prepaid expenses | 4,710 | | 6,941 | | (2,812) | | (16,945) | |
| Income taxes | (2,799) | | 457 | | 4,188 | | 2,462 | |
| Other operating assets and liabilities | 3,173 | | (17,044) | | 39,092 | | (11,388) | |
| Other, net | (10,620) | | (4,820) | | (15,870) | | 8,687 | |
| Net cash used by operating activities | (198,765) | | (44,475) | | (182,061) | | (358,622) | |
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| Investing activities: | | | | |
| Purchases of property, plant, and equipment | (14,827) | | (16,628) | | (7,757) | | (61,063) | |
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| Proceeds from sale of property, plant, and equipment | 4,084 | | 947 | | 311 | | 9,677 | |
| Collections on beneficial interests on securitized trade receivables | 189,440 | | 94,062 | | 74,328 | | 240,994 | |
| Loans to unconsolidated affiliates | — | | — | | — | | (5,250) | |
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| DIP loan to deconsolidated subsidiary | (5,229) | | (5,790) | | — | | — | |
| Collection of DIP loan from deconsolidated subsidiary | 10,996 | | — | | — | | — | |
| Payments to acquire businesses, net of cash acquired | — | | — | | (4,805) | | — | |
| Other, net | (3,223) | | (767) | | (420) | | (3,005) | |
| Net cash provided by investing activities | 181,241 | | 71,824 | | 61,657 | | 181,353 | |
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| Financing activities: | | | | |
| Net proceeds (repayments) of short-term borrowings | 9,208 | | (83,895) | | (99,969) | | 122,524 | |
| Proceeds from DIP facility | — | | — | | 206,700 | | — | |
| Repayment of DIP facility | — | | — | | (213,418) | | — | |
| Proceeds from DDTL facility | 117,600 | | — | | — | | — | |
| Repayment of DDTL facility | (15,375) | | — | | — | | — | |
| Proceeds from term loan facility | — | | — | | 213,418 | | — | |
Proceeds from 10.0% first lien notes | — | | — | | 280,844 | | — | |
Repayment of 8.5% first lien notes | — | | — | | (280,844) | | — | |
| Proceeds from revolving loan facilities | 115,394 | | 37,500 | | 27,438 | | 44,900 | |
| Repayment of revolving loan facilities | (93,500) | | — | | (44,900) | | — | |
| Debt issuance costs | (8,097) | | (3,291) | | (8,486) | | (6,313) | |
| Additional investment in consolidated affiliates | — | | — | | — | | (921) | |
| DIP financing fees | — | | — | | (9,344) | | — | |
| Other debt restructuring costs | — | | — | | (7,574) | | — | |
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| Other, net | (1,970) | | 368 | | (196) | | (315) | |
| Net cash provided (used) by financing activities | 123,260 | | (49,318) | | 63,669 | | 159,875 | |
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| Effect of exchange rate changes on cash | (2,135) | | 1,706 | | 1,628 | | (7,333) | |
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| Increase (decrease) in cash, cash equivalents, and restricted cash | 103,601 | | (20,263) | | (55,107) | | (24,727) | |
| Cash and cash equivalents at beginning of period | 92,705 | | 93,138 | | 170,208 | | 192,043 | |
| Restricted cash at beginning of period | 5,008 | | 24,838 | | 2,875 | | 5,767 | |
| Cash, cash equivalents, and restricted cash at end of period | $ | 201,314 | | $ | 97,713 | | $ | 117,976 | | $ | 173,083 | |
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| Other information: | | | | |
| Cash paid for income taxes, net | $ | 24,576 | | $ | 11,724 | | $ | 5,560 | | $ | 20,549 | |
| Cash paid for interest, net | 86,852 | | 42,870 | | 52,877 | | 117,113 | |
| Cash paid for reorganization items | — | | — | | 7,314 | | — | |
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| Noncash investing and financing activities: | | | | |
| Purchases of property, plant, and equipment included in accounts payable | 1,213 | | 1,060 | | 1,759 | | 2,087 | |
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| Noncash amounts obtained as a beneficial interest in exchange for transferring trade receivables in a securitization transaction | 205,515 | | 105,118 | | 66,821 | | 229,751 | |
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| Cancellation of second lien notes | — | | — | | (634,487) | | — | |
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| See "Notes to Consolidated Financial Statements" |
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Pyxus International, Inc. and Subsidiaries |
Notes to Consolidated Financial Statements |
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1. Basis of Presentation and Summary of Significant Accounting Policies
Pyxus International, Inc. (the "Company" or "Pyxus") is a global agricultural company with nearly 150 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. As the context requires, the "Company" and "Pyxus" also includes the consolidated subsidiaries of Pyxus International, Inc.
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.
The Company applied Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 852, Reorganizations ("ASC 852") in preparing the consolidated financial statements. For periods subsequent to the filing of a bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date (as each capitalized term is defined below). The Company elected to apply fresh start reporting using a convenience date of August 31, 2020 (the "Fresh Start Reporting Date"). The Company evaluated and concluded that the events between August 24, 2020 and August 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis. See "Note 4. Fresh Start Reporting" for additional information.
Due to the application of fresh start reporting, the pre-emergence and post-emergence periods are not comparable. The lack of comparability is emphasized by the use of a "black line" to separate the Predecessor and Successor periods in the consolidated financial statements and footnote tables. References to "Successor" relate to our financial position and results of operations after August 31, 2020. References to "Predecessor" relate to our financial position and results of operations on or before August 31, 2020.
Bankruptcy Proceedings
On June 15, 2020 (the "Petition Date"), Old Holdco, Inc. (then named Pyxus International, Inc.) ("Old Pyxus") and its then 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 with the Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") to implement a prepackaged Chapter 11 plan of reorganization to effectuate a financial restructuring (the "Restructuring") of Old Pyxus’ secured debt. On August 21, 2020, the Bankruptcy Court issued an order (the "Confirmation Order") confirming the Amended Joint Prepackaged Chapter 11 Plan of Reorganization (the "Plan") filed by the Debtors in the Chapter 11 Cases. On August 24, 2020 (the "Effective Date"), the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc., which is a subsidiary of the Company. Pursuant to the Confirmation Order and the Plan, at the effectiveness of the plan all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company were delivered to certain creditors of Old Pyxus. See "Note 3. Emergence from Voluntary Reorganization under Chapter 11" for additional information.
CCAA Proceeding
On January 21, 2021, Figr Norfolk Inc. ("Figr Norfolk") and Figr Brands, Inc. ("Figr Brands"), which are indirect subsidiaries of the Company, and Canada’s Island Garden Inc. ("Figr East", and together with Figr Norfolk and Figr Brands, the "Canadian Cannabis Subsidiaries"), which, prior to its sale on June 28, 2021 was an indirect subsidiary of the Company, applied for relief from their respective creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) (the "Canadian Court") in Ontario, Canada as Court File No. CV-21-00655373-00CL (the "CCAA Proceeding"). On January 21, 2021 (the "Order Date"), upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the "Monitor"). As a result of the commencement of the CCAA Proceeding and the appointment of the Monitor, and in accordance with U.S. generally accepted accounting principles, the Canadian Cannabis Subsidiaries were deconsolidated from the Company's financial statements as of the Order Date. See "Note 5. CCAA Proceeding and Deconsolidation of Subsidiaries" for additional information.
As a result of a sale process under an order issued by the Canadian Court in the CCAA Proceeding, the sale of Figr East and certain intangible assets of Figr Brands was completed on June 28, 2021 and the sale of assets of Figr Norfolk was completed
on January 28, 2022. Pursuant to the CCAA Proceeding, the Company received funds in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. See "Note 30. Subsequent Events" for additional information.
Deconsolidation
In accordance with ASC 810, Consolidation ("ASC 810"), a parent company must deconsolidate a subsidiary as of the date the parent ceases to have a controlling financial interest in that subsidiary, or if the parent no longer has the power to direct the activities that most significantly affect the subsidiary’s economic performance. As a result of the CCAA Proceeding and the appointment of the Monitor, the Company lost control of the Canadian Cannabis Subsidiaries and they were deconsolidated from the Company's financial statements as of the Order Date. See "Note 5. CCAA Proceeding and Deconsolidation of Subsidiaries" for additional information.
Related Party Relationship
The commencement of the CCAA Proceeding and the subsequent deconsolidation results in transactions with the Canadian Cannabis Subsidiaries no longer being eliminated in consolidation. As such, transactions between the Company and the Canadian Cannabis Subsidiaries are treated as related party transactions. See "Note 28. Related Party Transactions" for transactions between the Company and the Canadian Cannabis Subsidiaries from January 21, 2021 to March 31, 2022.
Discontinued Operations
The Company determined the Canadian Cannabis Subsidiaries do not meet the qualifications as outlined under ASC 205-20, Discontinued Operations ("ASC 205-20") to be reported as discontinued operations. The Company reached this conclusion as the Canadian Cannabis Subsidiaries do not represent, individually or in the aggregate, a 'strategic shift' that has a major effect on the consolidated operations and financial results of the Company.
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 Criticality, 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. See "Note 28. Related Party Transactions" for additional information. 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, determining the entity's enterprise value upon emergence from the
Chapter 11 Cases, 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
Interest expense and interest income amounts reported in prior periods were reclassified to conform to the current year's net presentation of interest expense in the consolidated statements of operations. Cash paid for interest and cash received from interest as reported under other information in the consolidated statements of cash flows were reclassified to conform to the current year's net presentation of cash paid for interest.
Certain prior period amounts were reclassified to conform to the current year presentation in the consolidated statements of cash flows.
Certain prior period amounts were reclassified to conform to the current year presentation in other (expense) income, net summary. See "Note 7. Other (Expense) Income, Net" for additional information.
Certain prior period amounts were reclassified to conform to the current year presentation in the reconciliation 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. See "Note 9. Income Taxes" for additional information.
Certain prior period amounts relating to balances with related parties were reclassified to conform to the current year presentation in the consolidated balance sheets. See "Note 28. Related Party Transactions" for additional information.
Segment Information
As of March 31, 2021, the Company had nine operating segments that were organized by product category and geographic area and were aggregated into three reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. During the year ended March 31,2022, the Company reevaluated its operating and reportable segments under ASC Topic 280 - Segment Reporting in response to the effectiveness of the Plan in August 2020, the appointment of a new Board of Directors during the seven months ended March 31, 2021, the outcomes achieved from cost savings and restructuring initiatives implemented during the five months ended August 31, 2020 and the seven months ended March 31, 2021, the Company's exit from its industrial hemp, CBD, and Canadian cannabis businesses during the seven months ended March 31, 2021, and changes to business operations as a result of the COVID-19 pandemic. As a result of this reevaluation, effective during the fourth quarter of the year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category and are aggregated into one reportable segment for financial reporting purposes: Leaf. Based on our reevaluation, the Company concluded that the economic characteristics of our five Leaf region operations in North America, South America, Europe, Asia, and Africa were similar. Each geographic region derives its revenues mainly from shipping processed tobacco to manufacturers of cigarettes and other consumer tobacco products around the world, with a smaller percentage of revenue in each region being derived from performing third party tobacco processing services. The three product category operating segments other than Leaf do not individually or in the aggregate meet the quantitative and qualitative thresholds to be individually reportable and have been combined and reported in the "All Other" category for purposes of reconciliation of respective balances for the Leaf segment to the consolidated financial statements. Prior period amounts included in "Note 29. Segment Information" have been recast retrospectively to reflect the changes in reportable segments. The one Leaf reportable segment is consistent with information used by the chief operating decision maker to assess performance, make operating decisions, and allocate resources. The Company evaluates the operating performance of its one segment 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.
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's trade receivables do not bear interest, and they are recorded at the invoiced amount less an estimated allowance for expected credit losses. In addition to estimating an allowance based on specific identification of certain receivables that have a higher probability of not being paid, the Company also records an estimate for expected credit losses for the remaining receivables in the aggregate using a loss-rate method that considers historical bad debts, age of customer receivable balances, and current customer receivable balances. Additionally, the Company considers future reasonable and supportable forecasts of economic conditions to adjust historical loss rate percentages, as necessary. Balances are written-off when determined to be uncollectible. The provision for expected credit losses is recorded in selling, general, and administrative expenses in the consolidated statements of operations.
Significant Judgments
The Company 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 consolidated statements of operations.
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 from temporary differences between the financial reporting and tax bases of assets and liabilities and 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 portion of the deferred income tax assets may expire as unused and has established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, the Company believes it is more likely than not such remaining deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable.
The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.
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, 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 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 Tobacco Suppliers, Net
The Company purchases seeds, fertilizer, pesticides, and other products related to growing tobacco and advances them to tobacco suppliers to assist in crop production. These seasonal advances are short term, represent prepaid inventory, and are recorded as advances to tobacco 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 tobacco suppliers for infrastructure, such as curing barns, recovered through the delivery of tobacco to the Company by the tobacco suppliers. Tobacco 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 farmers to deliver tobacco over future crop years to recover its advances. Noncurrent advances to tobacco suppliers are recorded in other noncurrent assets in the consolidated balance sheets.
The Company accounts for its advances to tobacco 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
The Company recorded goodwill upon emergence from the Chapter 11 Cases in accordance with ASC 852. Goodwill represents the excess of reorganization value over fair value of identified assets and liabilities allocated to each reporting unit. 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 eight 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's annual goodwill impairment test performed for the year ended March 31, 2022 resulted in goodwill being fully impaired. See "Note 16. Goodwill and Other Intangibles, Net" for additional information.
The Company utilizes a qualitative assessment to evaluate whether it is more likely than not that the estimated fair value of a reporting unit is less than its carrying value. If the Company's qualitative assessment indicates that it is more likely than not that the estimated fair value of a reporting unit exceeds its carrying value, no further analysis is performed. Otherwise, the Company performs a quantitative assessment using the discounted cash flow ("DCF") method of the income approach. The future cash flows of the Company’s reporting units are projected based on estimates of future revenues, gross margins, operating income, excess net working capital, capital expenditures, and other factors. The Company utilizes estimated revenue growth rates and cash flow projections. The discount rates utilized in the DCF method are based on a weighted-average cost of capital determined from relevant market comparisons and adjusted for specific reporting unit risks, country risk premiums, and capital structure. A terminal value estimated growth rate is applied to the final year of the projected period and reflects the Company’s
estimate of perpetual growth. The Company then calculates 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 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. The trade name, customer relationship, and technology intangibles are amortized on a straight-line basis over fourteen, nine to twelve years, and eight 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. Technology includes internally developed software, which 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.
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 less, 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 nine to forty years. Machinery and equipment are depreciated over a range of two to nineteen 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 (expense) 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.
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 other receivables.
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.
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.
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 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: FTSE 90 Day Treasury Bill, Bloomberg Intermediate Govt/Credit, Bloomberg 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. The Company is exploring partial risk transfer and or full plan terminations. As a result, investment strategies across the plans have been modified to reflect a shorter plan horizon and a secondary objective to minimize plan funding level volatility through partial or full liability driven investment strategies. 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.
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 (expense) income, net within the consolidated statements of operations.
Securitized Receivables
The Company sold trade receivables to unaffiliated financial institutions under multiple accounts receivable securitization facilities. Under the facilities, the receivables sold for cash are removed from the consolidated balance sheets. Under some of the 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. The net cash proceeds received by the Company as deferred purchase price are included in net cash provided by investing activities in the consolidated statements of 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 consolidated statements of 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
(expense) income, net in the statements of consolidated operations. Program costs are recorded in other (expense) income, net in the consolidated statements of operations.
Stock-Based Compensation
Prior to the Company’s emergence from the Chapter 11 Cases, Old Pyxus’ 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 provided 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. The Company estimated forfeitures of stock-based awards using historical experience. Stock-based compensation expense was included in selling, general, and administrative expenses in the consolidated statements of operations.
Subsequent to the Company’s emergence from the Chapter 11 Cases, the Company’s Board of Directors adopted the 2020 Incentive Plan (the "2020 Plan") on November 18, 2020. The 2020 Plan provides the Company the flexibility to grant a variety of stock-based awards including stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance share awards, and incentive 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, if any, is included in selling, general, and administrative expenses in the consolidated statements of operations.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update ("ASU") No. 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intra-period 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 stepup in the tax basis of goodwill. The guidance became effective for the Company on April 1, 2021. The adoption of this new accounting standard did not have a material impact on the Company's financial condition, results of operations, cash flows, or disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In November 2021, the FASB issued ASU No. 2021-10, Disclosures by Business Entities about Government Assistance. This ASU created ASC Topic 832, Government Assistance, and requires certain information be disclosed regarding assistance received from a government entity when either a grant or contribution accounting model is applied. The new disclosures are required for annual periods for transactions with a government entity that are within the scope of the Topic. The new disclosure guidance will be adopted prospectively and is effective for the Company's fiscal year beginning April 1, 2022. The Company will adopt this guidance in the first quarter of fiscal 2023 and does not expect the adoption to have a material impact on its disclosures.
3. Emergence from Voluntary Reorganization under Chapter 11
Bankruptcy Proceedings
On June 15, 2020, the Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Delaware to implement a prepackaged Chapter 11 plan of reorganization in order to effectuate a financial restructuring of the Debtors’ debt. On August 21, 2020, the Bankruptcy Court entered the Confirmation Order pursuant to the Bankruptcy Code, which approved and confirmed the Amended Joint Prepackaged Chapter 11 Plan of Reorganization of Pyxus International, Inc. and Its Affiliated Debtors.
Reorganization Items
Expenditures, gains, and losses that are realized or incurred by the Debtors subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as reorganization items, net in the consolidated statements of operations, and include the following:
| | | | | |
| |
| Five months ended August 31, 2020 |
| Reorganization items, net | |
| Gain on settlement of liabilities subject to compromise | $ | 462,304 | |
| Professional fees | (30,526) | |
| United States trustee fees | (970) | |
| Write-off of unamortized debt issuance costs and discount | (5,303) | |
| Issuance of exit facility shares and DIP financing fees | (208,538) | |
| Other debt restructuring costs | (19,442) | |
| Fresh start reporting adjustments | (91,541) | |
| Total | $ | 105,984 | |
Summary Features of the Plan of Reorganization
On the Effective Date, the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc. ("Pyxus Holdings"), which is a subsidiary of the Company. Under the Plan, all suppliers, vendors, employees, trade partners, foreign lenders, and landlords were unimpaired and were satisfied in full in the ordinary course of business, and the existing trade and customer contracts and terms of Old Pyxus were maintained by the Company and its subsidiaries. Commencing upon the Effective Date, the Company, through its subsidiaries, continued to operate the Old Pyxus business in the ordinary course. Old Pyxus, which retained no assets, has commenced a dissolution process and is being wound down.
Treatment of Claims and Interests
The Plan treated claims against and interest in Old Pyxus upon the effectiveness of the Plan as follows:
•Other Secured Claims (as defined in the Plan) were either (i) paid in full in cash, (ii) satisfied by delivery of collateral securing any such Claim (as defined in the Plan) and payment of any required interest, or (iii) reinstated.
•Other Priority Claims (as defined in the Plan) were paid in full in cash.
•Holders of First Lien Notes Claims (as defined in the Plan) received (i) payment in full in cash of all accrued and unpaid interest on such First Lien Notes, and (ii) the Notes (as defined below).
•Holders (as defined in the Plan) of Second Lien Notes Claims (as defined in the Plan) received, at the Holder’s election, (i) their pro rata share of the Company's common stock distributed in connection with the effectiveness of 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) were paid in the ordinary course of business in accordance with the terms of the relevant agreement.
•General Unsecured Claims (as defined in the Plan) were paid in the ordinary course of business.
•The existing common stock, and rights to acquire common stock, of Old Pyxus was discharged, cancelled, released, and extinguished and of no further force or effect.
Third Party Releases
Upon the effectiveness of the Plan, certain Holders of Claims and Interests (as such terms are defined in the Plan) with respect to the Debtors, 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.
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., the Company (then known as "Pyxus One, Inc."), Pyxus Parent, Inc. and Pyxus Holdings) were organized.
•Pyxus Parent, Inc. issued all of its equity interests to the Company in exchange for 25,000 shares of common stock, no par value, of the Company (such common stock is referred to as "New Common Stock" and the 25,000 shares of which are referred to as the "Equity Consideration"). Pyxus Holdings then issued all of its equity interests to Pyxus Parent, Inc. in exchange for the Equity Consideration.
•Pyxus Holdings entered into the Exit ABL Credit Agreement (as defined below) to borrow cash under the Exit ABL Credit Facility (as defined below) which together with cash on-hand was 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, Old Pyxus transferred to Pyxus Holdings all of its assets (including by assuming and assigning all of Old Pyxus’ Executory Contracts and Unexpired Leases (as such terms are defined in the Plan) to Pyxus Holdings in accordance with the Plan, other than those Executory Contracts and Unexpired Leases that were rejected) and Pyxus Holdings assumed all of Old Pyxus’ obligations that are not discharged under the Plan (including all of Old 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 transferring the Equity Consideration to Old Pyxus, (ii) Pyxus Holdings transferring the Cash Consideration to Old Pyxus, (iii) Pyxus Holdings issuing the Notes (as defined below) under the Indenture (as defined below) which, on behalf of Old 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 issuing the Exit Term Loans (as defined below) under the Exit Term Loan Credit 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, Pyxus Holdings made an offer of employment to all employees of Old Pyxus and all such employees became employed by Pyxus Holdings, 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.
•The Company and Pyxus Parent, Inc., along with each applicable subsidiary of the Company, guaranteed the Notes, the Exit Term Loan Credit Facility, and the Exit ABL Credit Facility.
•Old Pyxus provided for the distribution of (i) the Notes to the Holders of Allowed First Lien Notes Claims pursuant to the Plan, (ii) approximately 12,500 shares of New Common Stock 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 Old Pyxus pursuant to the Plan, (v) the Exit Term Loans under the Exit Term Loan Credit Facility and approximately 11,100 shares of New Common Stock to the Holders of the DIP Facility Claims pursuant to the Plan, and (vi) approximately 1,400 shares of New Common Stock in satisfaction of the Second Lien Notes RSA Fee Shares (as defined in the Plan) and in satisfaction of the Backstop Fee Shares (as defined in the Plan) to the persons entitled thereto pursuant to the terms and conditions of the Restructuring Support Agreement, dated June 14, 2020, by and among Old Pyxus and certain of its creditors party thereto, which was filed as Exhibit 10.1 to the Current Report on Form 8-K of Old Pyxus filed on June 15, 2020. •Old Pyxus changed its name to Old Holdco, Inc., and the Company changed its name to Pyxus International, Inc.
•The Company elected a Board of Directors, initially comprising J. Pieter Sikkel, Holly Kim, and Patrick Fallon, and appointed as its officers the individuals serving as officers of Old Pyxus to the same offices held immediately prior to the effectiveness of the Old Plan.
The Company as Successor Issuer
As a result of these transactions, the Company is deemed to be the successor issuer to Old Pyxus under Rule 12g‑3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result, the shares of New Common Stock were deemed to be registered under Section 12(g) of the Exchange Act and the Company was thereby deemed to be subject to the informational requirements of the Exchange Act, and the rules and regulations promulgated thereunder and, in accordance therewith, is required to file reports and other information with the Securities and Exchange Commission.
Exit ABL Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit ABL Credit Agreement (the "Exit ABL Credit Agreement"), dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish an asset-based revolving credit facility (the "Exit ABL Credit Facility"). The Exit ABL Credit Facility provided for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75,000, subject to certain limitations. Refer to "Note 19. Debt Arrangements" for a description of the Exit ABL Credit Agreement and the Exit ABL Credit Facility.
Exit Term Loan Credit Facility
On the Effective Date, Pyxus Holdings entered into an Exit Term Loan Credit Agreement (the "Exit 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 $213,418 (the "Exit Term Loan Credit Facility"). The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility (the "DIP Facility"), and related fees, were converted into, or otherwise satisfied with the proceeds of, the Exit Term Loan Credit Facility. The loans made under the Exit Term Loan Credit Facility (the "Exit Term Loans") and the Exit Term Loan Credit Facility mature on February 24, 2025. Refer to "Note 19. Debt Arrangements" for a description of the Exit Term Loan Credit Agreement, the Exit Term Loan Credit Facility and the Exit Term Loans.
Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280,844 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 mature on August 24, 2024. Refer to "Note 19. Debt Arrangements" for a description of the Notes and the Indenture.
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's 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 the Company's 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 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.
4. Fresh Start Reporting
In connection with the emergence from Chapter 11 Cases, the Company qualified for fresh start reporting as (i) the holders of existing voting shares of the Predecessor received less than 50% of the voting shares of the Successor Company and (ii) the preliminary reorganization value of the Company's assets immediately prior to confirmation of the Plan was less than the post-petition liabilities and allowed claims. In accordance with ASC 852, with the application of fresh start reporting, the Company allocated the preliminary reorganization value to its individual assets and liabilities based on their estimated fair values. The Effective Date estimated fair values of certain of the Company's assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets.
Reorganization Value
The reorganization value represents the fair value of the Company’s total assets before considering liabilities and is intended to approximate the amount a willing buyer would pay for the Company’s assets immediately after restructuring. The reorganization value was derived from the enterprise value, which represents the estimated fair value of an entity’s long-term debt and equity. As set forth in the Plan, the enterprise value (excluding cash) of the Company was estimated to be in the range of $1,251,000 to $1,524,000 with a midpoint of $1,388,000. The Company estimated its enterprise value to be $1,252,379, which is near the low point of the range. The Company believes utilizing an estimated enterprise value near the low point of the range is appropriate due to the identification of Level 1 trading activity that indicated the estimated enterprise value was near the low point of the range, the Company's performance lagging behind plan (due in part to the continued impact of the COVID-19 pandemic), and the utilization of an increased discount rate for the All Other long-term projections.
The estimated enterprise value is not necessarily indicative of actual value or financial results. Changes in the economy or the financial markets could result in a different estimated enterprise value. The calculated enterprise value relies on the three methodologies listed below collectively. The actual value of the business is subject to certain uncertainties and contingencies that are difficult to predict and will fluctuate with changes in various factors affecting the financial conditions and prospects of the business.
The following reconciles the estimated enterprise value to the estimated fair value of the Successor common stock as of the Fresh Start Reporting Date:
| | | | | |
| Enterprise value, excluding cash | $ | 1,252,379 | |
| Plus: cash, cash equivalents, and restricted cash | 117,587 | |
| Less: fair value of debt | (974,205) | |
| Fair value of Successor stockholders’ equity | $ | 395,761 | |
| Shares issued upon emergence | 25,000 | |
| Per share value | $ | 15.83 | |
The following reconciles estimated enterprise value to the reorganization value of the Successor assets to be allocated to individual assets as of the Fresh Start Reporting Date:
| | | | | |
| Enterprise value, excluding cash | $ | 1,252,379 | |
| Plus: cash, cash equivalents, and restricted cash | 117,587 | |
| Plus: working capital liabilities | 170,905 | |
| Plus: other operating liabilities | 54,700 | |
| Plus: non-operating liabilities | 113,954 | |
| Reorganization value of Successor assets | $ | 1,709,525 | |
With the assistance of financial advisors, the Company determined the estimated enterprise value and the corresponding estimated equity value of the Successor by considering various valuation methods, including (i) discounted cash flow method, (ii) guideline public company method, and (iii) selected transaction analysis method.
In order to estimate the enterprise value using the discounted cash flow analysis approach, the Company’s estimated future cash flow projections through 2024, plus a terminal value calculated using a capitalization rate applied to normalized cash flows were discounted to an assumed present value using our estimated weighted average cost of capital (12%), which represents the internal rate of return.
The identified intangible assets of $70,999, which principally consisted of trade names, technology, licenses, and customer relationships, were also valued with the assistance of financial advisors and were estimated based on either the relief-from-royalty or multi-period excess earnings methods. Significant assumptions included discount rates and certain assumptions that form the basis of the forecasted results such as revenue growth rates, margins, customer attrition, and royalty rates. Some of these estimates are inherently uncertain and may be affected by future economic and market conditions.
Consolidated Balance Sheet
The adjustments set forth in the following consolidated balance sheet as of August 31, 2020 reflect the effects of the transactions contemplated by the Plan and executed on the Fresh Start Reporting Date (reflected in the column entitled "Reorganization Adjustments") as well as the fair value and other required accounting adjustments resulting from the adoption of fresh start reporting (reflected in the column entitled "Fresh Start Reporting Adjustments"). Pre-petition liabilities that were allowed as claims in the Chapter 11 Cases are classified as liabilities subject to compromise within the consolidated balance sheet. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| August 31, 2020 |
| | | Fresh Start Reporting Adjustments | | |
| Predecessor | Reorganization Adjustments | | | As Reported at September 30, 2020 | As Adjusted at December 31, 2020 | | Successor |
| Assets | | | | | | | | |
| Current assets | | | | | | | | |
| Cash and cash equivalents | $ | 111,427 | | $ | (18,289) | | | (1) | $ | — | | $ | — | | | $ | 93,138 | |
| Restricted cash | 2,949 | | 21,500 | | | (2) | — | | — | | | 24,449 | |
| Trade receivables, net | 152,309 | | — | | | | — | | — | | | 152,309 | |
| Other receivables | 13,227 | | — | | | | — | | — | | | 13,227 | |
| Accounts receivable, related parties | 2,780 | | — | | | | — | | — | | | 2,780 | |
| | | | | | | | |
| Inventories, net | 861,851 | | — | | | | — | | — | | | 861,851 | |
| Advances to tobacco suppliers, net | 44,061 | | — | | | | — | | — | | | 44,061 | |
| Recoverable income taxes | 5,830 | | — | | | | — | | — | | | 5,830 | |
| Prepaid expenses | 34,350 | | — | | | | — | | — | | | 34,350 | |
| Other current assets | 15,059 | | — | | | | — | | — | | | 15,059 | |
| Total current assets | 1,243,843 | | 3,211 | | | | — | | — | | | 1,247,054 | |
| Restricted cash | 389 | | — | | | | — | | — | | | 389 | |
| | | | | | | | |
| Investments in unconsolidated affiliates | 54,460 | | — | | | | 13,291 | | 30,531 | | (13) | 84,991 | |
| Goodwill | 6,120 | | — | | | | 48,756 | | 31,815 | | (14) | 37,935 | |
| Other intangible assets, net | 64,924 | | — | | | | 1,596 | | 6,075 | | (15) | 70,999 | |
| Deferred income taxes, net | 125 | | — | | | | 9,638 | | 7,484 | | (16) | 7,609 | |
| Long-term recoverable income taxes | 3,130 | | — | | | | — | | — | | | 3,130 | |
| | | | | | | | |
| Other noncurrent assets | 45,821 | | 3,139 | | | (3) | (310) | | (310) | | (17) | 48,650 | |
| Right-of-use assets | 39,576 | | — | | | | (4,281) | | (4,281) | | (18) | 35,295 | |
| Property, plant, and equipment, net | 299,293 | | — | | | | (124,965) | | (125,820) | | (19) | 173,473 | |
| Total assets | $ | 1,757,681 | | $ | 6,350 | | | | $ | (56,275) | | $ | (54,506) | | | $ | 1,709,525 | |
| Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities | | | | | | | | |
| Notes payable to banks | $ | 461,783 | | $ | — | | | | $ | — | | $ | — | | | $ | 461,783 | |
| DIP financing | 206,700 | | (206,700) | | | (4) | — | | — | | | — | |
| Accounts payable | 58,813 | | 334 | | | (5) | 25 | | 25 | | | 59,172 | |
| Accounts payable, related parties | 26,125 | | — | | | | — | | — | | | 26,125 | |
| Advances from customers | 23,967 | | — | | | | — | | — | | | 23,967 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrued expenses and other current liabilities | 113,118 | | (31,853) | | | (6) | (1,792) | | (1,792) | | (20) | 79,473 | |
| Income taxes payable | 8,319 | | — | | | | — | | — | | | 8,319 | |
| Operating leases payable | 11,083 | | — | | | | (992) | | (992) | | (21) | 10,091 | |
| Current portion of long-term debt | 90 | | — | | | | — | | — | | | 90 | |
| Total current liabilities | 909,998 | | (238,219) | | | | (2,759) | | (2,759) | | | 669,020 | |
| Long-term taxes payable | 7,623 | | — | | | | — | | — | | | 7,623 | |
| Long-term debt | 277,090 | | 250,546 | | | (7) | (15,304) | | (15,304) | | (22) | 512,332 | |
| Deferred income taxes | 20,749 | | 91 | | | (8) | (10,070) | | (7,742) | | (23) | 13,098 | |
| Liability for unrecognized tax benefits | 13,420 | | — | | | | — | | — | | | 13,420 | |
| Long-term leases | 25,728 | | — | | | | (2,263) | | (2,263) | | (21) | 23,465 | |
| Pension, postretirement, and other long-term liabilities | 71,898 | | — | | | | 3,467 | | 3,467 | | (24) | 75,365 | |
| Total liabilities not subject to compromise | 1,326,506 | | 12,418 | | | | (26,929) | | (24,601) | | | 1,314,323 | |
| Liabilities subject to compromise | | | | | | | | |
| Debt subject to compromise | 635,686 | | (635,686) | | | (9) | — | | — | | | — | |
| Accrued interest on debt subject to compromise | 26,156 | | (26,156) | | | (9) | — | | — | | | — | |
| Total liabilities subject to compromise | 661,842 | | (661,842) | | | | — | | — | | | — | |
| Total liabilities | 1,988,348 | | (649,424) | | | | (26,929) | | (24,601) | | | 1,314,323 | |
| | | | | | | | |
| Stockholders’ equity | | | | | | | | |
Common Stock— no par value: | | | | | | | | |
| Predecessor common stock (shares) | 9,976 | | (9,976) | | | | — | | — | | | — | |
| Successor common stock (shares) | — | | 25,000 | | | | — | | — | | | 25,000 | |
| Predecessor additional paid-in capital | 468,147 | | (468,147) | | | (10) | — | | — | | | — | |
| Successor additional paid-in capital | — | | 391,402 | | | (11) | — | | (313) | | | 391,089 | |
| Retained deficit | (644,250) | | 728,160 | | | (12) | (83,910) | | (83,910) | | (25) | — | |
| Accumulated other comprehensive loss | (54,484) | | — | | | | 54,484 | | 54,484 | | (26) | — | |
| Total stockholders’ equity (deficit) of Pyxus International, Inc. | (230,587) | | 651,415 | | | | (29,426) | | (29,739) | | | 391,089 | |
| Noncontrolling interests | (80) | | 4,359 | | | | 80 | | (166) | | | 4,113 | |
| Total stockholders’ equity (deficit) | (230,667) | | 655,774 | | | | (29,346) | | (29,905) | | | 395,202 | |
| Total liabilities and stockholders’ equity | $ | 1,757,681 | | $ | 6,350 | | | | $ | (56,275) | | $ | (54,506) | | | $ | 1,709,525 | |
(1) The following summarizes the change in cash and cash equivalents:
| | | | | |
| Proceeds from Exit ABL Credit Facility, net of debt issuance costs | $ | 26,861 | |
| Repayment of DIP Facility | (213,418) | |
| Proceeds from Exit Term Loan Credit Facility | 213,418 | |
Proceeds from 10.0% first lien notes | 280,844 | |
Repayment of 8.5% first lien notes | (280,844) | |
| Payment to fund professional fee escrow account | (21,500) | |
| Payment of other professional and administrative fees | (11,828) | |
| Payment of accrued interest on DIP Facility | (494) | |
| Payment to holders of Predecessor second lien notes that elected the cash option | (1,199) | |
| Payment to holders of Predecessor common stock | (1,000) | |
| Payment of accrued interest on prepetition Predecessor first lien notes | (9,129) | |
| $ | (18,289) | |
(2) Represents the funding of an escrow account for professional fees associated with the Chapter 11 Cases.
(3) Represents the capitalization of debt issuance costs related to the Exit ABL Credit Facility.
(4) Represents the conversion of the DIP Facility that was exchanged for the Exit Term Loan, and accordingly reclassified to long-term debt.
(5) Reflects the recognition of payables for professional fees to be paid subsequent to the Company's emergence from Chapter 11 Cases.
(6) The following summarizes the net change in accrued expenses and other current liabilities:
| | | | | |
| Payment of accrued interest on the DIP Facility | $ | (494) | |
| Payment of accrued interest on the Predecessor first lien notes | (9,129) | |
| Settlement of accrued backstop fee through the issuance of common stock | (18,000) | |
| Reclassification of DIP Facility exit fee to long-term debt | (6,718) | |
| Recognition of accrued interest from the Effective Date to the Convenience Date | 1,044 | |
| Accrual for professional fees | 1,444 | |
| $ | (31,853) | |
(7) The following summarizes the changes in long-term debt:
| | | | | |
| Draw on the Exit ABL Credit Facility | $ | 30,000 | |
Issuance of the Exit Term Loans (1) | 213,418 | |
| Conversion of redemption fee on Predecessor first lien notes to Successor Notes | 5,843 | |
| Derecognition of the original issue discount and the debt issuance costs on Predecessor first lien notes | 1,285 | |
| $ | 250,546 | |
(1) Includes $6,718 related to the DIP Facility exit fee | |
(8) Represents the recognition of deferred tax liabilities as a result of the cumulative tax impact of the reorganization adjustments herein.
(9) Represents the settlement of liabilities subject to compromise in accordance with the Plan, which resulted in a gain on the discharge of the Predecessor second lien notes as follows:
| | | | | |
| Debt subject to compromise | $ | 635,686 | |
| Accrued interest on debt subject to compromise | 26,156 | |
| Total second lien notes discharged | 661,842 | |
| Payment to holders of second lien notes electing cash option | (1,199) | |
| Value of common stock issued to holders of second lien notes | (198,339) | |
| Gain on discharge of second lien notes | $ | 462,304 | |
(10) Represents the cancellation of Predecessor common stock.
(11) The changes in Successor additional paid-in capital were as follows:
| | | | | |
| Value of Successor common stock, second lien notes | $ | 198,339 | |
| Value of Successor common stock, other | 193,063 | |
| $ | 391,402 | |
(12) Represents $260,013 of cumulative impact to Predecessor retained deficit as a result of the reorganization adjustments described above and $468,147 for the elimination of Predecessor common stock.
(13) Represents fair value adjustments to the Company's equity method investments.
(14) Represents reorganization value in excess of value allocable to tangible and intangible assets.
(15) Represents the fair value adjustments to recognize the customer relationships, licenses, technology (inclusive of patents and know how), trade names, and internally developed software intangible assets.
(16) Represents the recognition of deferred tax assets as a result of the cumulative tax impact of the fresh start adjustments herein.
(17) Represents an adjustment to pension assets of ($352), partially offset by other adjustments of $42.
(18) Represents the fair value adjustments to right-of-use lease assets.
(19) Represents the following fair value adjustments to property, plant, and equipment, net:
| | | | | | | | | | | |
| Predecessor
Historical Value | Fair Value
Adjustment | Successor
Fair Value |
| Land | $ | 33,562 | | $ | (104) | | $ | 33,458 | |
| Buildings | 259,255 | | (195,797) | | 63,458 | |
| Machinery and equipment | 198,708 | | (122,151) | | 76,557 | |
| Total | 491,525 | | (318,052) | | 173,473 | |
| Less: Accumulated Depreciation | (192,232) | | 192,232 | | — | |
| Total property, plant, and equipment, net | $ | 299,293 | | $ | (125,820) | | $ | 173,473 | |
(20) Represents the revaluation of the current pension liability of ($1,800), partially offset by an adjustment to financing leases of $8.
(21) Represents the Company's recalculation of lease obligations using a higher incremental borrowing rate applicable upon emergence from Chapter 11 Cases and commensurate with the new capital structure.
(22) Represents the fair value adjustment to the first lien notes.
(23) Represents the adjustment of deferred tax liabilities as a result of the cumulative tax impact of the fresh start valuation adjustments herein.
(24) Represents the recalculation of the present value of the Company's pension liability.
(25) Represents the cumulative impact of the remeasurement of assets and liabilities from fresh start reporting, $7,631 of tax effect of reorganization items, and the elimination of Predecessor's accumulated other comprehensive losses for the five months ended August 31, 2020.
(26) Represents the derecognition of accumulated other comprehensive loss as a result of reorganization pension adjustments, and the elimination of Predecessor's foreign currency translation adjustments.
5. CCAA Proceeding and Deconsolidation of Subsidiaries
On January 21, 2021, the Canadian Cannabis Subsidiaries applied for relief from their respective creditors pursuant to the CCAA Proceeding. On the Order Date, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Monitor. The order issued by the Canadian Court in the CCAA Proceeding on the Order Date included the following relief:
•approval for the Canadian Cannabis Subsidiaries to borrow under a debtor-in-possession financing facility (the "Canadian DIP Facility") from another non-U.S. subsidiary of Pyxus (the "DIP Lender") in an initial amount of up to Cdn.$8,000, which following approval by the Canadian Court was increased to Cdn.$16,000;
•a stay of proceedings in respect of the Canadian Cannabis Subsidiaries and the directors and officers of the Canadian Cannabis Subsidiaries (the "Canadian Directors and Officers") and the Monitor; and
•the granting of super priority charges against the property of the Canadian Cannabis Subsidiaries in favor of: (a) certain administrative professionals; (b) the Canadian Directors and Officers; and (c) the DIP Lender for amounts borrowed under the Canadian DIP Facility.
On January 29, 2021, the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be conducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries.
On May 10, 2021, a definitive agreement for the sale of the assets of Figr Norfolk was entered into for a purchase price of Cdn.$5,000. On June 10, 2021, the Canadian Court approved the sale agreement. The consummation of the sale under this agreement occurred on January 28, 2022.
On May 25, 2021, a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an aggregate purchase price of Cdn.$24,750. On June 10, 2021, the Canadian Court approved the sale agreement. On June 25, 2021, Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands. The sale of Figr East and certain intangible assets of Figr Brands was completed on June 28, 2021.
Canadian DIP Financing
Pursuant to the Canadian DIP Facility, the DIP Lender provided Figr Brands with secured debtor-in-possession financing to permit Figr Brands, the parent entity of Figr East and Figr Norfolk, to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses to be paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as may be agreed to by the DIP Lender. On July 8, 2021, the loans under the Canadian DIP Facility were fully repaid to the DIP Lender.
Deconsolidation of Subsidiaries
While the Canadian Cannabis Subsidiaries were at the time of the commencement of the CCAA Proceedings majority owned by the Company, the administration of the CCAA Proceeding, including the Canadian Court’s appointment of the Monitor and the related authority of the Monitor, including approval rights with respect to significant actions of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding, resulted in the Company losing control (in accordance with U.S. GAAP) of the Canadian Cannabis Subsidiaries at that time, and the deconsolidation of the Canadian Cannabis Subsidiaries’ assets and liabilities and elimination of their equity components from the Company’s consolidated financial statements as of January 21, 2021. The Canadian Cannabis Subsidiaries’ financial results are included in the Company’s consolidated results through January 20, 2021, which is the day prior to the Order Date. Prior to the deconsolidation of the Canadian Cannabis Subsidiaries, they comprised an operating segment within the Other Products and Services reportable segment, which upon the Company's reevaluation of operating and reportable segments effective during the fourth quarter of the year ended March 31, 2022 is presented in the All Other category. Upon deconsolidation, the Company accounts for its investment in the Canadian Cannabis Subsidiaries using the cost method of accounting.
Prior to the deconsolidation, the carrying value of the Company's related party note receivable from the Canadian Cannabis Subsidiaries was $153,860. The Company fully impaired its equity investment in the Canadian Cannabis Subsidiaries, effective as of the Order Date, based on the Canadian Cannabis Subsidiaries carrying a retained deficit of $77,518 and based on offers the Company received to buy the Canadian Cannabis Subsidiaries or certain assets and the allocation of consideration among the assets to be sold, as reflected in the sales agreements approved by the Canadian Court. Following consummation of the contemplated sales of the Canadian Cannabis Subsidiaries, and after repayment of the Canadian DIP Facility and satisfaction of
administrative expenses from the CCAA Proceeding, the Company estimated recovering aggregate net cash consideration of $6,100, which represents the fair value of the related party note receivable retained by the Company as of March 31, 2021. As a result, the Company recorded a net loss of $70,242 for the year ended March 31, 2021 associated with the deconsolidation of the Canadian Cannabis Subsidiaries.
As of March 31, 2022, the Company's adjusted related party note receivable was $1,431, which resulted in a $4,537 loss in the year ended March 31, 2022 on the deconsolidation/disposition of subsidiaries recorded within the consolidated statements of operations. Pursuant to the CCAA Proceeding, the Company received funds in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. See "Note 30. Subsequent Events" for additional information.
Related Party Relationship
The commencement of the CCAA Proceeding, the appointment of the Monitor, and the subsequent deconsolidation of the Canadian Cannabis Subsidiaries results in transactions with the Canadian Cannabis Subsidiaries no longer being eliminated in consolidation. As such, transactions between the Company and the Canadian Cannabis Subsidiaries, during their respective period of ownership by the Company, are treated as related-party transactions. See "Note 28. Related Party Transactions" for transactions between the Company and the Canadian Cannabis Subsidiaries.
6. Revenue Recognition
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process customer-owned green tobacco. During processing, ownership remains with the customers. All Other revenue is primarily composed of revenue from the sale of e-liquids and non-tobacco agriculture product revenue. The following disaggregates sales and other operating revenues by major source, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment (the Company's sole reportable segment to the consolidated financial statements):
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Leaf: | | | | |
| Product revenue | $ | 1,531,805 | | $ | 814,507 | | $ | 407,113 | | $ | 1,428,586 | |
| Processing and other revenues | 95,433 | | 49,939 | | 31,118 | | 78,737 | |
| Total sales and other operating revenues | 1,627,238 | | 864,446 | | 438,231 | | 1,507,323 | |
| | | | |
| All Other: | | | | |
| Total sales and other operating revenues | 12,624 | | 19,882 | | 9,369 | | 19,938 | |
| | | | |
| Total sales and other operating revenues | $ | 1,639,862 | | $ | 884,328 | | $ | 447,600 | | $ | 1,527,261 | |
Significant Judgments
The following summarizes activity in the claims allowance:
| | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Balance, beginning of period | $ | 1,830 | | $ | 880 | | $ | 1,130 | |
| Additions | 1,586 | | 2,963 | | 642 | |
| Payments | (2,286) | | (2,013) | | (892) | |
| Balance, end of period | $ | 1,130 | | $ | 1,830 | | $ | 880 | |
Contract Balances
The following summarizes activity in the allowance for expected credit losses:
| | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Balance, beginning of period | $ | (20,900) | | $ | (15,361) | | $ | (15,893) | |
| Additions | (4,212) | | (5,809) | | — | |
| Write-offs | 571 | | 270 | | 532 | |
| Balance, end of period | (24,541) | | (20,900) | | (15,361) | |
| Trade receivables | 272,218 | | 196,812 | | 167,670 | |
| Trade receivables, net | $ | 247,677 | | $ | 175,912 | | $ | 152,309 | |
Taxes Collected from Customers
Value-added taxes were $27,274, $21,819, and $25,187 for the years ended March 31, 2022, 2021, and 2020, respectively.
7. Other (Expense) Income, Net
The following summarizes the significant components of other (expense) income, net:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Losses on sale of receivables | $ | (5,833) | | $ | (2,784) | | $ | (2,907) | | $ | (4,803) | |
| Foreign currency (losses) gains | (2,776) | | 14,902 | | — | | — | |
| Loss on settlement for Brazilian IPI credits | — | | (12,666) | | — | | — | |
| Sales of Brazilian tax credits | — | | — | | 2,938 | | 9,039 | |
| Other, net | 1,689 | | (9,377) | | (682) | | (8,642) | |
| | | | |
| Gain on sale of fixed assets | 3,818 | | 310 | | 112 | | 6,539 | |
| Total | $ | (3,102) | | $ | (9,615) | | $ | (539) | | $ | 2,133 | |
8. Restructuring and Asset Impairment Charges
The Company has continued its focus on cost saving initiatives. The employee separation and impairment charges are primarily related to continued wind down of the Company's industrial hemp cannabidiol ("CBD") operations and the continued restructuring of certain leaf operations. The following summarizes the Company's restructuring and asset impairment charges:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| | | | |
| | | | |
| Employee separation charges | $ | 2,292 | | $ | 7,816 | | $ | 353 | | $ | 4,592 | |
| | | | |
| | | | |
| | | | |
| Asset impairment and other noncash charges | 5,739 | | 4,001 | | 213 | | 1,054 | |
| Total restructuring and asset impairment charges | $ | 8,031 | | $ | 11,817 | | $ | 566 | | $ | 5,646 | |
9. Income Taxes
As described in "Note 3. Emergence from Voluntary Reorganization under Chapter 11", on August 24, 2020, as part of the Chapter 11 plan of reorganization, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, which is an indirect subsidiary of the Company. Commencing upon the Effective Date, the Company, through its subsidiaries, continued to operate the Old Pyxus business in the ordinary course. Old Pyxus, which retained no assets, has commenced a dissolution and is being wound down. The tax attributes generated by Old Pyxus’ foreign subsidiaries (net operating loss carryforwards and income tax credits) survived the Chapter 11 proceedings and the Company expects, to the extent that a valuation allowance is not applicable, to use these tax attributes to reduce future tax liabilities. With regard to the U.S., tax attributes not utilized as part of the Chapter 11
proceedings or asset sale to Pyxus Holdings pursuant to the Plan will expire unutilized. The Company entered into a transfer agreement with Old Pyxus to transfer and assume the liability for unpaid installment payments of Old Pyxus under Internal Revenue Code Section 965(h) (i.e. transition tax) in the amount of $8,543.
Accounting for Uncertainty in Income Taxes
The following summarizes the changes to unrecognized tax benefits:
| | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Year Ended March 31, 2021 | Year Ended March 31, 2020 |
| Balance at April 1 | $ | 18,358 | | $ | 19,481 | | $ | 11,663 | |
| (Decrease) increase for prior year tax positions | (660) | | 128 | | 4,177 | |
| Increase for current year tax positions | — | | 4,232 | | 6,425 | |
| Reduction for settlements | — | | (130) | | (1,558) | |
| Reorganization and Fresh Start Reporting | — | | (5,246) | | — | |
| Impact of changes in exchange rates | 27 | | (107) | | (1,226) | |
Balance at March 31(1) | $ | 17,725 | | $ | 18,358 | | $ | 19,481 | |
(1) As of March 31, 2022, $14,138 would impact the Company's effective tax rate, if recognized. |
The following summarizes changes in the Company's accrued interest and penalties for unrecognized tax benefits:
| | | | | | | | |
| |
| Year Ended March 31, 2022 | Year Ended March 31, 2021 |
| Interest, beginning of period | $ | 1,474 | | $ | 1,209 | |
| Increase | 303 | | 265 | |
| Interest, end of period | $ | 1,777 | | $ | 1,474 | |
| | |
| Penalties, beginning of period | $ | 770 | | $ | 815 | |
| Increase (decrease) | 61 | | (45) | |
| Penalties, end of period | $ | 831 | | $ | 770 | |
To the extent unrecognized tax benefits represent an underpayment of taxes, the Company expects to continue accruing related interest expenses. During the year ended March 31, 2022, the Company’s total liability for unrecognized tax benefits, including the related interest and penalties, decreased from $20,602 to $20,333 primarily driven by the expiration of statute of limitations.
Due to the Company’s global operations, numerous tax audits may be ongoing throughout the world at any point in time. The Company's income tax liabilities are based on estimates of potential additional income taxes due upon the conclusion of such audits and are updated to reflect changes in facts and circumstances, as they become known. Due to the uncertain and complex application of tax regulations, it is possible that the resolution of audits may result in liabilities which could be materially different from these estimates. In such an event, the Company will record additional income tax expense or benefit in the period in which such resolution occurs or if estimates or judgments change. The Company does not expect to settle material uncertain tax positions that have been accrued in the next twelve months.
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, 2022, the Company’s earliest open tax year for U.S. federal income tax purposes was its year ended March 31, 2019. 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) income before income taxes and other items consisted of the following:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| U.S. | $ | (68,489) | | $ | (54,688) | | $ | 28,350 | | $ | (111,532) | |
| Non-U.S. | (10,875) | | (86,978) | | (12,341) | | (32,883) | |
| Total | $ | (79,364) | | $ | (141,666) | | $ | 16,009 | | $ | (144,415) | |
The details of the amount shown for income taxes in the consolidated statements of operations and the consolidated statements of comprehensive (loss) income are as follows:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Current | | | | |
| Federal | $ | 12 | | $ | 142 | | $ | 135 | | $ | (1,115) | |
| | | | |
| Non-U.S. | 16,515 | | 13,424 | | 10,718 | | 22,065 | |
| Total Current | 16,527 | | 13,566 | | 10,853 | | 20,950 | |
| | | | |
| Deferred | | | | |
| Federal | (243) | | 6,370 | | (6,823) | | 102,658 | |
| | | | |
| Non-U.S. | (3,644) | | (6,721) | | (3,738) | | 8,181 | |
| Total Deferred | (3,887) | | (351) | | (10,561) | | 110,839 | |
| Total | $ | 12,640 | | $ | 13,215 | | $ | 292 | | $ | 131,789 | |
The difference between income tax expense based on (loss) income before income taxes and other items and the amount computed by applying the U.S. statutory federal income tax rate to income are as follows:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Tax benefit at U.S. statutory rate | $ | (16,666) | | $ | (29,750) | | $ | 3,362 | | $ | (30,328) | |
| Benefit of other tax credits | (1,150) | | (222) | | (339) | | (721) | |
| Effect of non-U.S. income taxes | (961) | | (9,659) | | (1,914) | | (1,951) | |
| Tax on future remittances | (848) | | 3,305 | | (583) | | 10,561 | |
| Increase in reserves for uncertain tax positions | (315) | | 1,264 | | 1,346 | | 10,807 | |
| Deductible dividends | — | | (889) | | (1,237) | | (2,140) | |
| Reorganization/Fresh Start Reporting | — | | 38 | | (10,286) | | — | |
| Change in tax rates | 433 | | (934) | | 1,451 | | 822 | |
| Deconsolidation of Canadian Cannabis Subsidiaries | 1,134 | | 22,203 | | — | | — | |
| Withholding tax expense | 1,488 | | 1,797 | | 584 | | 2,225 | |
| Nondeductible interest | 2,610 | | 1,533 | | 915 | | 2,767 | |
| Permanent items | 3,410 | | 1,761 | | 314 | | 5,523 | |
| Section 59A waived deductions | 3,960 | | — | | — | | — | |
| Exchange effects and currency translation | 4,344 | | 5,778 | | 4,555 | | 10,896 | |
| Goodwill impairment | 7,148 | | — | | — | | 5,775 | |
| Change in valuation allowance | 8,053 | | 16,990 | | 2,124 | | 117,553 | |
| Actual tax expense | $ | 12,640 | | $ | 13,215 | | $ | 292 | | $ | 131,789 | |
The following summarizes deferred tax assets (liabilities):
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Deferred tax assets: | | |
| Non-deductible interest carryforward | $ | 23,074 | | $ | 16,446 | |
| Reserves and accruals | 21,896 | | 20,998 | |
| Tax loss carryforwards | 13,728 | | 6,792 | |
| Fixed assets | 2,965 | | 5,101 | |
| | |
| Postretirement and other benefits | — | | 787 | |
| Derivative transactions | — | | 1,157 | |
| Operating lease liabilities | 1,607 | | — | |
| Other | 5,001 | | 2,705 | |
| Gross deferred tax assets | 68,271 | | 53,986 | |
| Valuation allowance | (32,641) | | (25,273) | |
| Total deferred tax assets | $ | 35,630 | | $ | 28,713 | |
| | |
| Deferred tax liabilities: | | |
| Unremitted earnings of foreign subsidiaries | $ | (27,918) | | $ | (28,779) | |
| Derivative transactions | (2,790) | | — | |
| | |
| Intangible assets | (2,776) | | (2,510) | |
| Unrealized exchange gains | (1,568) | | (1,063) | |
| Operating lease right-of-use assets | (1,696) | | — | |
| Other | (4,054) | | (2,242) | |
| Total deferred tax liabilities | $ | (40,802) | | $ | (34,594) | |
| Net deferred tax liability | $ | (5,172) | | $ | (5,881) | |
The following summarizes the breakdown between deferred tax assets (liabilities):
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Noncurrent asset | $ | 6,498 | | $ | 7,063 | |
| Noncurrent liability | (11,670) | | (12,944) | |
| Net deferred tax liability | $ | (5,172) | | $ | (5,881) | |
The following summarizes the change in the Company's valuation allowance for deferred tax assets:
| | | | | |
| Balance at March 31, 2019 (Predecessor) | $ | 36,524 | |
Changes to expenses (1) | 117,667 | |
Changes to other accounts(2) | (1,207) | |
Deductions(3) | (1,926) | |
| |
| Balance at March 31, 2020 (Predecessor) | 151,058 | |
| Changes to expenses | 19,115 | |
Changes to other accounts(2) | 1,057 | |
Deductions(4) | (145,957) | |
| |
| Balance at March 31, 2021 (Successor) | 25,273 | |
| Changes to expenses | 8,624 | |
Changes to other accounts(2) | (1,256) | |
| |
| Balance at March 31, 2022 (Successor) | $ | 32,641 | |
(1) Recognition of global valuation allowances related to the Company’s financial position. |
(2) Other comprehensive (loss) income. |
(3) Currency translation and direct write-off. |
(4) Release of valuation allowance related to emergence from U.S. Chapter 11 Bankruptcy and related fresh start reporting as well as deconsolidation of the Canadian Cannabis Subsidiaries. |
Realization of deferred tax assets is dependent on generating sufficient taxable income in the appropriate timeframe and of the appropriate character. The Company believes that it is more likely than not that a portion of the deferred tax assets will be realized, but realization of all tax assets is not assured. As a result, the Company recorded a valuation allowance on its deferred tax assets not expected to be realized. The valuation allowance increased primarily due to the impact of U.S. derived deferred interest expense.
The following summarizes the gross amount and expiration dates of our operating loss carryforwards at March 31, 2022:
| | | | | | | | |
| Expiration Date | Amounts |
| U.S. federal and state net operating loss carryforwards | 2023-2027 | $ | — | |
| U.S. federal and state net operating loss carryforwards | Thereafter | 938 | |
| U.S. federal and state net operating loss carryforwards | Indefinite | 20,409 | |
| Non-U.S. net operating loss and tax credit carryforwards | 2023-2027 | 13,717 | |
| Non-U.S. net operating loss and tax credit carryforwards | Thereafter | 9,798 | |
| Non-U.S. net operating loss and tax credit carryforwards | Indefinite | 23,713 | |
| Total | | $ | 68,575 | |
Under current U.S. tax regulations, in general, repatriation of foreign earnings to the U.S. can be completed without incurring material incremental U.S. tax. However, repatriation of foreign earnings could subject the Company to U.S. state and non-U.S. jurisdictional taxes (including withholding taxes) on distributions or sales of minority owned investments.
The Company has not recorded a deferred tax liability for U.S. or foreign tax from foreign subsidiary unremitted earnings and profits where an indefinite reinvestment assertion was made on the basis that this group of foreign subsidiaries does not expect to have available excess cash and cash equivalents to remit in the foreseeable future or has specific needs for available excess cash. The unrecorded tax liability associated with indefinitely reinvested foreign subsidiary earnings is not practicable to estimate due to the inherent complexity of the Company's global operations.
10. (Loss) Earnings Per Share
The following summarizes the computation of (loss) earnings per share:
| | | | | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Basic (loss) earnings per share: | | | | |
| Net (loss) income attributable to Pyxus International, Inc. | $ | (82,119) | | $ | (136,686) | | $ | 19,037 | | $ | (264,661) | |
| Shares: | | | | |
| Weighted Average Number of Shares Outstanding | 25,000 | | 25,000 | | 9,976 | | 9,148 | |
| Basic (loss) earnings per share | $ | (3.28) | | $ | (5.47) | | $ | 1.91 | | $ | (28.93) | |
| | | | |
| Diluted (loss) earnings per share: | | | | |
| Net (loss) income attributable to Pyxus International, Inc. | $ | (82,119) | | $ | (136,686) | | $ | 19,037 | | $ | (264,661) | |
| Shares: | | | | |
| Weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,976 | | 9,148 | |
| 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 | — | | — | | 16 | | — | |
| Adjusted weighted average number of shares outstanding | 25,000 | | 25,000 | | 9,992 | | 9,148 | |
| Diluted (loss) earnings per share | $ | (3.28) | | $ | (5.47) | | $ | 1.91 | | $ | (28.93) | |
|
|
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:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Antidilutive stock options and other awards | — | | — | | 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 | — | | — | | 427 | | 452 | |
| Weighted average exercise price | $ | — | | $ | — | | $ | 56.86 | | $ | 56.64 | |
11. Inventories, Net
The following summarizes the composition of inventories, net, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment to the consolidated financial statements:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Processed tobacco | $ | 517,613 | | $ | 534,711 | |
| Unprocessed tobacco | 193,406 | | 156,915 | |
| Other tobacco related | 29,694 | | 25,979 | |
| All Other | 8,714 | | 10,288 | |
| Total | $ | 749,427 | | $ | 727,893 | |
12. Advances to Tobacco Suppliers, Net
The mark-up and interest on advances to tobacco suppliers, net capitalized, or to be capitalized into inventory for the current crop, were $16,619 and $14,139 as of March 31, 2022 and 2021, respectively. Unrecoverable advances and other costs capitalized, or to be capitalized into the current crop, were $6,814 and $6,183 as of March 31, 2022 and 2021, respectively.
The following summarizes the classification of advances to tobacco suppliers:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Current | $ | 48,932 | | $ | 43,569 | |
| Noncurrent | 428 | | 477 | |
| Total | $ | 49,360 | | $ | 44,046 | |
There were $10, $1,550, and $(68) of expenses (income) for unrecovered (recovered) advances from abnormal yield adjustments or unrecovered (recovered) amounts from prior crops for the year ended March 31, 2022, seven months ended March 31, 2021, and five months ended August 31, 2020, respectively.
13. Acquisitions and Dispositions
Acquisition of Criticality
On December 18, 2017, the Company completed a purchase of a 40.0% interest in Criticality, a North Carolina-based industrial hemp company that is engaged in CBD extraction and other applications for industrial hemp in accordance with a pilot program authorized under the federal Agriculture Act of 2014 and applicable North Carolina law. On April 22, 2020, the Company acquired the remaining 60.0% of the equity in Criticality in exchange for consideration consisting of $5,000 cash and $7,450 for the settlement of the Company's note receivable from Criticality, subject to certain post-closing adjustments.
The acquisition of Criticality was a business combination achieved in stages, which required the Company to remeasure its previously held equity interest in Criticality at its acquisition date fair value. This remeasurement resulted in a loss of approximately $2,667 being recorded in other (expense) income, net within the consolidated statements of operations for the five months ended August 31, 2020. The assets and liabilities were recorded at their fair value.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments. The intent of the acquisition was to allow the Company to expand its industrial hemp production and product portfolio. The following summarizes the fair values of the assets acquired and liabilities assumed as of April 22, 2020:
| | | | | |
| Cash and cash equivalents | $ | 195 | |
| Accounts receivable | 1,528 | |
| Advances to suppliers | 1,043 | |
| Inventories | 3,823 | |
| Other current assets | 181 | |
| Property, plant, and equipment | 5,060 | |
| Goodwill | 6,120 | |
| |
| Total assets acquired | 17,950 | |
| Accounts payable | 1,654 | |
| Notes payable | 7,450 | |
| Other current liabilities | 513 | |
| |
| Total liabilities | 9,617 | |
| Fair value of equity interest | $ | 8,333 | |
The following summarizes the revenue, operating loss, and net loss for Criticality as well as the resulting impact to basic and diluted (loss) earnings per share:
| | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Revenue | 214 | | 139 | | — | |
| Operating loss | (7,236) | | (5,713) | | (3,117) | |
| Net loss | (8,286) | | (12,224) | | (3,317) | |
| | | |
| Impact to (loss) earnings per share: | | | |
| Basic and Diluted | (0.33) | | (0.49) | | (0.33) | |
| | | |
In December 2020, the Company commenced actions to exit operations of the industrial hemp businesses, including the production and sale of products containing extracts of industrial hemp, including CBD products, by Criticality.
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. 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:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 | Year Ended
March 31, 2019 |
| Net (loss) income attributable to Pyxus International, Inc. shareholders | $ | (136,686) | | $ | 19,037 | | $ | (264,661) | | $ | (70,467) | |
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 | $ | (136,686) | | $ | 19,037 | | $ | (265,156) | | $ | (76,984) | |
On May 10, 2021, a definitive agreement for the sale of the assets of Figr Norfolk was entered into for an estimated purchase price of Cdn.$5,000. On June 10, 2021, the Canadian Court approved the sale agreement. The consummation of the sale under this agreement occurred on January 28, 2022.
On May 25, 2021, a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an estimated aggregate purchase price of Cdn.$24,750. On June 10, 2021, the Canadian Court approved the sale agreement. On June 25, 2021, Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands. The consummation of the sale of Figr East and certain intangible assets of Figr Brands occurred on June 28, 2021.
Disposition of Humble Juice Co., LLC
On November 23, 2021, the Company disposed of its ownership interests in Humble Juice Co., LLC ("Humble Juice"), a manufacturer and distributor of flavored e-liquids, in exchange for royalties on future revenue, which was recorded as other assets in the consolidated balance sheet as of March 31, 2022. Humble Juice's financial results are included in the Company's consolidated results through the transaction date within the All Other category. On the date of the transaction, Humble Juice's assets, liabilities, and equity components were eliminated from the Company's consolidated financial statements. The Company recognized a loss on the disposition of Humble Juice of $5,374 during the three months ended December 31, 2021.
14. Equity Method Investments
The following summarizes the Company's equity method investments as of March 31, 2022:
| | | | | | | | | | | | | | |
| Investee Name | Location | Primary Purpose | The Company's Ownership Percentage | Basis Difference(1) |
| Adams International Ltd. | Thailand | purchase and process tobacco | 49 | % | $ | (4,526) | |
| Alliance One Industries India Private Ltd. | India | purchase and process tobacco | 49 | % | (5,770) | |
| China Brasil Tobacos Exportadora SA | Brazil | purchase and process tobacco | 49 | % | 45,483 | |
| Oryantal Tutun Paketleme | Turkey | process tobacco | 50 | % | (416) | |
| Purilum, LLC | U.S. | produce flavor formulations and consumable e-liquids | 50 | % | 4,589 | |
| Siam Tobacco Export Company | Thailand | purchase and process tobacco | 49 | % | (6,098) | |
(1) The basis difference for the Company's equity method investments is primarily due to $30,531 of fair value adjustments from fresh start reporting that were recorded in the year ended March 31, 2021.
The following summarizes aggregate financial information for these equity method investments:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Operations statement: | Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Sales | $ | 292,777 | | $ | 217,232 | | $ | 67,553 | | $ | 293,163 | |
| Gross profit | 56,752 | | 49,778 | | 14,151 | | 50,209 | |
| Net income | 22,729 | | 26,728 | | 5,869 | | 16,667 | |
| Company's dividends received | 9,671 | | 317 | | 5,104 | | 7,348 | |
| | | | | | | | |
| | |
| Balance sheet: | March 31, 2022 | March 31, 2021 |
| Current assets | $ | 375,015 | | $ | 224,106 | |
| Property, plant, and equipment and other assets | 42,841 | | 43,648 | |
| Current liabilities | 289,816 | | 138,833 | |
| Long-term obligations and other liabilities | 2,999 | | 3,937 | |
15. Variable Interest Entities
The Company holds variable interests in multiple entities that primarily procure or process inventory or are securitization entities. These variable interests relate to equity investments, receivables, guarantees, and securitized receivables. The following summarizes the Company's financial relationships with its unconsolidated variable interest entities:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Investments in variable interest entities | $ | 88,118 | | $ | 89,560 | |
| Receivables with variable interest entities | 2,211 | | 13,497 | |
| Guaranteed amounts to variable interest entities (not to exceed) | 55,884 | | 56,067 | |
16. 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 | Technology | Licenses | Trade Names | Total |
| Weighted average remaining useful life in years as of March 31, 2022 | | 10.30 | 0.00 | 5.80 | 0.00 | 12.42 | |
| March 31, 2020 (Predecessor) | | | | | | | |
| Gross carrying amount | $ | — | | $ | 30,931 | | $ | 3,676 | | $ | 3,303 | | $ | 27,664 | | $ | 374 | | $ | 65,948 | |
| Additions | 6,120 | | — | | — | | — | | — | | — | | 6,120 | |
| Amortization expense | — | | (1,675) | | (71) | | (497) | | (980) | | (25) | | (3,248) | |
| Impact of foreign currency translation | — | | — | | — | | 41 | | 2,183 | | — | | 2,224 | |
| Fresh Start Adjustment | (6,120) | | (29,256) | | (3,605) | | (2,847) | | (28,867) | | (349) | | (71,044) | |
| August 31, 2020 (Predecessor) | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | | | | |
| | | | | | | |
| September 1, 2020 (Successor) | $ | 37,935 | | $ | 29,200 | | $ | — | | $ | 11,000 | | $ | 19,000 | | $ | 11,800 | | $ | 108,935 | |
| Additions | — | | — | | — | | 4,080 | | — | | — | | 4,080 | |
| Amortization expense | — | | (1,470) | | — | | (2,222) | | (924) | | (497) | | (5,113) | |
| Deconsolidation of Canadian Cannabis Subsidiaries | — | | — | | — | | — | | (18,076) | | (474) | | (18,550) | |
| Impairment | (1,082) | | — | | — | | — | | — | | — | | (1,082) | |
| Net March 31, 2021 (Successor) | $ | 36,853 | | $ | 27,730 | | $ | — | | $ | 12,858 | | $ | — | | $ | 10,829 | | $ | 88,270 | |
| Additions | — | | — | | — | | 840 | | — | | — | | 840 | |
| Amortization expense | — | | (2,427) | | — | | (2,227) | | — | | (807) | | (5,461) | |
Disposition of Humble Juice (1) | (4,667) | | (1,735) | | — | | — | | — | | — | | (6,402) | |
Impairment (2) | (32,186) | | — | | — | | — | | — | | — | | (32,186) | |
| March 31, 2022 (Successor) | $ | — | | $ | 23,568 | | $ | — | | $ | 11,471 | | $ | — | | $ | 10,022 | | $ | 45,061 | |
(2) $372 of the impairment occurred during the three-month period ended December 31, 2021. The remaining $31,814 of impairment occurred during the three-month period ended March 31, 2022.
Goodwill
As of January 1, 2022, the Company performed its annual assessment of goodwill for its reporting units. The assessment of qualitative factors indicated that it was more likely than not that the fair value of each reporting unit was less than its carrying value primarily due to a sustained decline in the implied value of the Company's long-term debt and equity based on public trading since the emergence from the Chapter 11 Cases on August 24, 2020, as well as uncertainty in the Company's estimate of timing for future operating results due to the recent economic effects of the COVID-19 pandemic, including related variants. As a result, the Company performed a quantitative impairment test by comparing the fair value of each reporting unit to its carrying value. The fair value for each reporting unit was determined using the DCF method of the income approach. The quantitative impairment test conducted for each reporting unit concluded that the fair value of each reporting unit was less than its carrying value. The excess of carrying value over fair value for each reporting unit exceeded the amount of goodwill that was allocated to the reporting unit, leading the Company to record a full impairment of goodwill at each reporting unit as follows:
| | | | | |
| Three months ended |
| March 31, 2022 |
| Leaf - Africa | $ | 8,341 | |
| Leaf - Asia | 6,311 | |
| Leaf - Europe | 5,566 | |
| Leaf - North America | 3,901 | |
| Leaf - South America | 5,730 | |
| E-liquids | 1,965 | |
| Total | $ | 31,814 | |
Other Intangible Assets, Net
The following summarizes the estimated intangible asset amortization expense for the next five years and beyond:
| | | | | | | | | | | | | | | | |
| For Fiscal Years Ended | Customer Relationships | | Technology(1) | | Trade Names | Total |
| 2023 | $ | 2,298 | | | $ | 1,970 | | | $ | 807 | | $ | 5,075 | |
| 2024 | 2,298 | | | 2,138 | | | 807 | | 5,243 | |
| 2025 | 2,298 | | | 1,987 | | | 807 | | 5,092 | |
| 2026 | 2,298 | | | 1,713 | | | 807 | | 4,818 | |
| 2027 | 2,298 | | | 1,546 | | | 807 | | 4,651 | |
| Thereafter | 12,078 | | | 2,117 | | | 5,987 | | 20,182 | |
| $ | 23,568 | | | $ | 11,471 | | | $ | 10,022 | | $ | 45,061 | |
(1) Estimated amortization expense for technology is based on costs accumulated as of March 31, 2022. These estimates will change as new costs are incurred and until the software is placed into service.
17. Leases
The Company does not have material finance leases. The following summarizes weighted-average information associated with the measurement of remaining operating leases:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Weighted-average remaining lease term | 6.2 years | 6.4 years |
| Weighted-average discount rate | 12.8% | 12.2% |
The following summarizes lease costs for operating leases:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Operating lease costs | $ | 14,752 | | $ | 9,099 | | $ | 7,018 | | $ | 16,792 | |
| Variable and short-term lease costs | 7,991 | | 3,957 | | 2,631 | | 6,710 | |
| Total lease costs | $ | 22,743 | | $ | 13,056 | | $ | 9,649 | | $ | 23,502 | |
The following summarizes supplemental cash flow information related to cash paid for amounts included in the measurement of lease liabilities:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year Ended March 31, 2020 |
| Operating cash flows impact - operating leases | $ | 13,677 | | $ | 8,242 | | $ | 7,791 | | $ | 15,625 | |
| Right-of-use assets obtained in exchange for new operating leases | 7,054 | | 12,848 | | 4,782 | | 10,377 | |
The following reconciles maturities of operating lease liabilities to the lease liabilities reflected in the consolidated balance sheets as of March 31, 2022:
| | | | | |
| 2023 | $ | 12,211 | |
| 2024 | 10,404 | |
| 2025 | 6,502 | |
| 2026 | 5,666 | |
| 2027 | 4,831 | |
| Thereafter | 14,062 | |
| Total future minimum lease payments | 53,676 | |
| Less: amounts related to imputed interest | 17,007 | |
| Present value of future minimum lease payments | 36,669 | |
| Less: operating lease liabilities, current | 8,065 | |
| Operating lease liabilities, non-current | $ | 28,604 | |
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 continued to occupy the space rent free until March 31, 2021. The transaction resulted in a gain of $6,400 during the year ended March 31, 2020, which is included in other (expense) income, net in the consolidated statements of operations.
18. Property, Plant, and Equipment, Net
The following summarizes property, plant, and equipment, net:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Land | $ | 32,023 | | $ | 30,657 | |
| Buildings | 43,465 | | 41,971 | |
| Machinery and equipment | 77,243 | | 73,175 | |
| Total | 152,731 | | 145,803 | |
Less: accumulated depreciation (1) | (15,210) | | (5,666) | |
| Total property, plant, and equipment, net | $ | 137,521 | | $ | 140,137 | |
| (1) This balance was partially reduced by the disposition of certain fully depreciated assets during the year ended March 31, 2022. |
The following summarizes depreciation expense recorded in cost of goods and services sold and selling, general, and administrative expenses:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Depreciation expense recorded in cost of goods and services sold | $ | 8,908 | | $ | 5,987 | | $ | 12,123 | | $ | 26,035 | |
| Depreciation expense recorded in selling, general, and administrative expenses | 2,272 | | 1,444 | | 1,648 | | 3,351 | |
| Total depreciation | $ | 11,180 | | $ | 7,431 | | $ | 13,771 | | $ | 29,386 | |
19. Debt Arrangements
The following table summarizes the Company’s debt financing as of the dates set forth below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Outstanding | | | | | | |
| Interest | | March 31, 2022 | March 31, 2021 | Long Term Debt Repayment Schedule by Fiscal Year |
| Rate | | 2023 | 2024 | 2025 | 2026 | | Later |
| Senior secured credit facilities: | | | | | | | | | | |
| ABL Credit Facility | 3.2 | % | (1) | $ | 90,000 | | $ | — | | $ | — | | $ | — | | $ | 90,000 | | $ | — | | | $ | — | |
| Exit ABL Credit Facility | 5.8 | % | (1) | — | | 67,500 | | — | | — | | — | | — | | | — | |
DDTL Facility (2) | 10.6 | % | (1) | 107,832 | | — | | 107,832 | | — | | — | | — | | | — | |
| Senior secured notes: | | | | | | | | | | |
10.0% senior secured first lien notes (3) | 10.0 | % | | 270,762 | | 267,353 | | — | | — | | 270,762 | | — | | | — | |
| | | | | | | | | | |
Exit Term Loan Credit Facility (4) | 9.6 | % | (1) | 219,500 | | 215,594 | | — | | — | | 219,500 | | — | | | — | |
| Other long-term debt | 1.4 | % | (1) | 239 | | 2,910 | | 24 | | 100 | | 100 | | 15 | | | — | |
Notes payable to banks (5) | 6.1 | % | (1) | 378,612 | | 372,174 | | 378,612 | | — | | — | | — | | | — | |
| Total debt | | | $ | 1,066,945 | | $ | 925,531 | | $ | 486,468 | | $ | 100 | | $ | 580,362 | | $ | 15 | | | $ | — | |
Short-term (5) | | | $ | 378,612 | | $ | 372,174 | | | | | | | |
| Long-term: | | | | | | | | | | |
| Current portion of long-term debt | | | $ | 107,856 | | $ | 2,122 | | | | | | | |
| Long-term debt | | | 580,477 | | 551,235 | | | | | | | |
| | | $ | 688,333 | | $ | 553,357 | | | | | | | |
| | | | | | | | | | |
| Letters of credit | | | $ | 9,038 | | $ | 2,468 | | | | | | | |
(1) Weighted average rate for the twelve months ended March 31, 2022. As the ABL Credit Facility and the DDTL Facility have not been outstanding for a trailing twelve-month period, the interest rate is the weighted average rate from inception through March 31, 2022.
(2) Balance of $107,832 is net of original issue discount of $2,418. Total repayment will be $110,250, which includes an estimated $5,250 exit fee payable upon repayment.
(3) Balance of $270,762 is net of original issue discount of $10,082. Total repayment will be $280,844.
(4) Upon emergence from Chapter 11 bankruptcy on the Effective Date, the DIP Facility entered into at the Petition Date converted into the Exit Term Loan Credit Facility. The aggregate balance of the Exit Term Loan Credit Facility of $219,500 includes $4,967 of accrued paid-in-kind interest.
(5) Primarily foreign seasonal lines of credit.
ABL Credit Facility
On February 8, 2022, Pyxus Holdings, certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the "Borrowers"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc., as guarantors, entered into an ABL Credit Agreement (the "ABL Credit Agreement"), dated as of February 8, 2022, by and among Pyxus Holdings, as Borrower Agent, the Borrowers and parent guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, to establish an asset-based revolving credit facility (the "ABL Credit Facility"), the proceeds of which may be used to refinance existing senior bank debt, pay fees and expenses related to the ABL Credit Facility, partially fund capital expenditures, and provide for the ongoing working capital needs of the Borrowers. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $100,000, subject to the limitations described below in this paragraph. The ABL Credit Facility includes a $20,000 uncommitted accordion feature that permits Pyxus Holdings, under certain conditions, to solicit the lenders under the ABL Credit Facility to provide additional revolving loan commitments to increase the aggregate amount of the revolving loan commitments under the ABL Credit Facility not to exceed a maximum principal amount of $120,000. The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:
•85% of eligible accounts receivable, plus
•90% of eligible credit insured accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the net-orderly-liquidation value percentage of eligible inventory, minus
•applicable reserves.
At March 31, 2022, $10,000 was available for borrowing under the ABL Credit facility, after reducing availability by the aggregate borrowings under the ABL Credit facility of $90,000 outstanding on that date and the $20,000 of Domestic Availability (as defined in the ABL Credit Agreement) required to be maintained.
The ABL Credit Facility permits both base rate borrowings and borrowings based upon the Bloomberg-Short-Term Bank Yield Index rate ("BSBY"). Borrowings under the ABL Credit Facility bear interest at an annual rate equal to one, three, or six-month reserve-adjusted BSBY Rate plus 300 basis points or 200 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 37.5 basis points.
The ABL Credit Facility matures, subject to extension on terms and conditions set forth in the ABL Credit Agreement, on the earlier of February 8, 2027 or 90 days prior to the earliest maturity of obligations owing under the Exit Term Loan Credit Agreement and the Indenture.
The ABL Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee upon the permanent reduction of commitments under the ABL Credit Facility of 300 basis points for terminations in the first year after entry into the ABL Credit Agreement, 200 basis points for terminations in the second year and 100 basis points for termination in the third year. In addition, customary mandatory prepayments of the loans under the ABL Credit Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears and, with respect to BSBY loans, accrued interest is payable monthly and on the last day of any applicable interest period.
The Borrowers’ obligations under the ABL Credit Facility (and certain related obligations) are (a) guaranteed by Pyxus Parent, Inc. and the Company and all of Pyxus Holdings’ wholly owned domestic subsidiaries, and each of Pyxus Holdings’ future wholly owned domestic subsidiaries is required to guarantee the ABL Credit Facility on a senior secured basis (collectively, the "ABL Loan Parties") and (b) secured by the collateral, as described below, which is owned by the ABL Loan Parties.
The liens and other security interests granted by the ABL Loan Parties on the collateral for the benefit of the lenders under the ABL Credit Facility (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 ABL Loan Parties’ obligations under the Exit Term Loan Credit Agreement and the Notes. The obligations of Pyxus Holdings and each other ABL Loan Party under the ABL Credit Facility and any related guarantee are repaid pursuant to a waterfall with respect to portions of the Collateral as set forth in the existing intercreditor agreements with respect to Pyxus Holdings’ senior secured debt.
Cash Dominion
Under the terms of the ABL Credit Facility, if (i) an event of default has occurred and is continuing, (ii) excess borrowing availability under the ABL Credit Facility (based on the lesser of the commitments thereunder and the borrowing base) (the
"Excess Availability") falls below 10% of the total commitments under the ABL Credit Facility at such time, or (iii) Domestic Availability (as defined in the ABL Credit Agreement) being less than $20,000, the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Credit Facility with the cash deposited in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a "Dominion Period") shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than 10% of the total commitments under the ABL Credit Facility for a period of 30 consecutive days and no event of default is continuing, or (iii) if arising as a result of Domestic Availability being less than $20,000, Domestic Availability is greater than $20,000 for a period of 30 consecutive days and no event of default is continuing.
Covenants
The ABL Credit Agreement governing the ABL Credit Facility contains (i) a springing covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.10 to 1.00 during any Dominion Period and (ii) a covenant requiring Domestic Availability greater than $20,000 at all times until audited financial statements for fiscal year ending March 31, 2023 are delivered under the ABL Credit Agreement.
The ABL Credit Agreement governing the ABL Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make investments;
•pay dividends and make other restricted payments;
•sell certain assets;
•create liens;
•enter into sale and leaseback transactions;
•consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets;
•enter into transactions with affiliates; and
•designate subsidiaries as Unrestricted Subsidiaries (as defined in the ABL Credit Agreement).
On March 31, 2022, the Borrowers were in compliance with all covenants under the ABL Credit Agreement.
Exit ABL Credit Facility
On the Effective Date, Pyxus Holdings entered into the Exit ABL Credit Agreement, dated as of August 24, 2020 by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent and collateral agent to establish the Exit ABL Credit Facility. The Exit ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $75,000, subject to certain limitations. Under certain conditions, Pyxus Holdings may solicit the ABL Lenders to provide additional revolving loan commitments under the Exit ABL Credit Facility in an aggregate amount not to exceed $15,000. The Exit ABL Credit Facility 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 Exit ABL Credit Facility and (ii) $18,750. The amount available under the Exit ABL Credit Facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
•85% of eligible accounts receivable, plus
•the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the appraised net-orderly-liquidation value of eligible inventory.
On February 8, 2022, Pyxus Holdings terminated the Exit ABL Credit Agreement and repaid $56,500 outstanding thereunder with proceeds from the initial borrowing under the ABL Credit Facility.
DDTL Facility
On April 23, 2021, Intabex Netherlands B.V. ("Intabex"), an indirect wholly owned subsidiary of the Company, entered into a Term Loan Credit Agreement (as amended on May 21, 2021, the "DDTL Facility Credit Agreement"), dated as of April 23, 2021 (the "Closing Date"), by and among (i) Intabex, as borrower, (ii) the Company, Pyxus Parent, Inc., Pyxus Holdings, Inc., Alliance One International, LLC, Alliance One International Holdings, Ltd, as guarantors (collectively, the "Parent Guarantors"), (iii) the lenders thereto, which currently include certain funds managed by Glendon Capital Management, L.P., Monarch Alternative Capital LP, and Owl Creek Asset Management, L.P. (collectively and, together with any other lender that is or becomes a party thereto as a lender, the "DDTL Facility Lenders"), and (iv) Alter Domus (US) LLC, as administrative agent and collateral agent (the "DDTL Agent"). The DDTL Facility Credit Agreement established a $120,000 delayed-draw term loan credit facility (the "DDTL Facility") under which the full amount has been drawn (the "DDTL Loans"). The proceeds
of the DDTL Loans were used to provide working capital and for other general corporate purposes of Intabex, the Guarantors (as defined below) and their subsidiaries.
The DDTL Facility and all DDTL Loans made thereunder mature on July 31, 2022. The DDTL Loans may be prepaid by Intabex at any time without premium or penalty other than the Exit Fee described below and, in the case of any prepayment of LIBOR loans, subject to customary breakage. At March 31, 2022, the aggregate principal amount outstanding was $107,832, net of original issue discount of $2,418, which includes an estimated $5,250 exit fee payable upon repayment. Amounts prepaid or repaid in respect of DDTL Loans may not be reborrowed under the DDTL Facility.
Interest on the aggregate principal amount of outstanding DDTL Loans accrues at an annual rate of LIBOR plus 9.00%, subject to a LIBOR floor of 1.50%, for LIBOR loans or, for loans that are not LIBOR loans, at an annual rate of an alternative base rate (as specified in the DDTL Facility Credit Agreement) plus 8.00%. Interest is to be paid in arrears in cash upon prepayment, acceleration, maturity, and on the last day of each interest period (and every three months in the case of interest periods in excess of three months) for LIBOR loans and on the last day of each calendar month for loans that are not LIBOR loans. Pursuant to the DDTL Facility Credit Agreement, the DDTL Facility Lenders received a non-refundable commitment fee equal to 2.00% of the aggregate commitments under the DDTL Facility, paid in cash in full on the Closing Date and netted from the proceeds of the DDTL Loan borrowed on the Closing Date. The DDTL Facility Credit Agreement provides for the payment by Intabex to the DDTL Facility Lenders of a non-refundable exit fee (the "Exit Fee") in the amounts set forth in the table below in respect of any DDTL Loans repaid (whether prepaid voluntarily or paid following acceleration or at maturity). The Exit Fee is deemed to have been earned on the Closing Date, and is due and payable in cash on each date of repayment or termination, as applicable, in respect of the DDTL Loans or commitments repaid or terminated on such date, as applicable.
| | | | | |
| Loan Repayment Date | Exit Fee |
| On or before September 30, 2021 | 1.00% |
| After September 30, 2021 and on or before December 31, 2021 | 2.50% |
| After December 31, 2021 and on or before March 31, 2022 | 3.50% |
| After March 31, 2022 | 5.00% |
The obligations of Intabex under the DDTL Facility Credit Agreement (and certain related obligations) are (a) guaranteed by the Parent Guarantors and Alliance One International Tabak B.V., an indirect subsidiary of the Company, and each of the Company’s domestic and foreign subsidiaries that is or becomes a guarantor of borrowings under the Exit Term Loan Credit Agreement (which subsidiaries are referred to collectively, together with the Parent Guarantors, as the "Guarantors"), and (b) are secured by the pledge of all of the outstanding equity interests of (i) Alliance One Brasil Exportadora de Tabacos Ltda. ("AO Brazil"), which principally operates the Company’s leaf tobacco operations in Brazil, and (ii) Alliance One International Tabak B.V., which owns a 0.001% interest of AO Brazil.
Affirmative and Restrictive Covenants
The DDTL Facility Credit Agreement contains representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults applicable to the Company and its subsidiaries similar to those included in the Exit Term Loan Credit Agreement, including covenants that limit the Company’s ability to, among other things:
•incur additional indebtedness or issue disqualified stock or preferred stock;
•make certain investments and other restricted payments;
•enter into limitations on its ability to pay dividends, make loans or otherwise transfer assets to its immediate parent entity or to its subsidiaries;
•sell certain assets;
•create liens;
•consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;
•enter into transactions with affiliates; and
•engage directly or indirectly in any business other than the businesses engaged in by it and its subsidiaries are currently engaged.
In addition, the DDTL Facility Credit Agreement includes a customary "passive holding company" covenant that contains certain additional restrictions on Intabex and its subsidiaries’ activities and requirements for Intabex to provide to the DDTL Facility Lenders certain periodic financial and operating reports for the Guarantors and their subsidiaries on a consolidated basis.
At March 31, 2022, Intabex and each Guarantor was in compliance with the covenants under the DDTL Facility Credit Agreement.
Related Party Transaction
Based on a Schedule 13D filed with the SEC on September 3, 2020 by Glendon Capital Management, L.P., Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., Glendon Capital Management, L.P. reported beneficial ownership of 7,939 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on Form 4 filed with the SEC on July 15, 2021, as well as a Schedule 13D filed with the SEC on September 3, 2020 by Monarch Alternative Capital LP, MDRA GP LP and Monarch GP LLC, Monarch Alternative Capital LP reported beneficial ownership of 6,140 shares of the Company’s common stock, representing approximately 24.6% of the outstanding shares of the Company’s common stock. Based on a Schedule 13G/A filed with the SEC on February 10, 2022 by Owl Creek Asset Management, L.P. and Jeffrey A. Altman, Owl Creek Asset Management, L.P. is the investment manager of certain funds and reported beneficial ownership of 2,405,287 shares of the Company’s common stock on December 31, 2021, representing approximately 9.6% of the outstanding shares of the Company’s common stock. Pursuant to the Shareholders Agreement, Holly Kim and Patrick Fallon were designated to serve as directors of Pyxus and each continues to serve as a director of Pyxus. Ms. Kim is a Partner at Glendon Capital Management, L.P. and Mr. Fallon is a Managing Principal at Monarch Alternative Capital LP.
The DDTL Facility Credit Agreement, any and all borrowings thereunder and the guaranty transactions described above were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm’s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.
On June 2, 2022, Intabex, the Company and the Guarantors entered into an agreement with the DDTL Facility Lenders and the DDTL Agent to, subject to the satisfaction of customary closing conditions, amend and restate the DDTL Facility Credit Agreement to, among other things, replace the DDTL Facility with a $100,000 term loan facility maturing on December 2, 2023. See "Note 30. Subsequent Events" for additional information.
Exit Term Loan Credit Facility
On the Effective Date, Pyxus Holdings entered into the Exit 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 the Exit Term Loan Credit Facility in an aggregate principal amount of approximately $213,418. The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, were converted into, or otherwise satisfied with the proceeds of, the Exit Term Loan Credit Facility.
The Exit Term Loan Credit Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the Exit 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 Exit Term Loan Credit Agreement, the term loans under the Exit 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 Exit Term Loan Credit Agreement.
The Exit Term Loans and the Exit Term Loan Credit Facility mature on February 24, 2025. The Exit Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. In addition, customary mandatory prepayments of the Exit Term Loans 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 Exit 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. At March 31, 2022, the aggregate principal amount of the Exit Term Loans outstanding was $219,500.
Pyxus Holdings’ obligations under the Exit Term Loan Credit Facility (and certain related obligations) are (a) guaranteed by Pyxus Parent, Inc. and the Company, all of Pyxus Holdings’ material domestic subsidiaries and certain of Pyxus Holdings’ foreign subsidiaries (the "Foreign Guarantors"), and each of Pyxus Holdings’ future material domestic subsidiaries is required to guarantee the Exit Term Loan Credit Facility on a senior secured basis (including Pyxus Holdings, collectively, the "Exit Term Facility Loan Parties") and (b) secured by the Collateral, as described below, which is owned by the Exit Term Facility Loan Parties.
The liens and other security interests granted by the Exit Term Facility Loan Parties on the Collateral for the benefit of the lenders under the Exit Term Loan Credit Facility (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on the Exit 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/Exit Term Loan/Notes Intercreditor Agreement and the Exit Term Loan/Notes Intercreditor Agreement (together, the "Intercreditor Agreements"). The obligations of Pyxus Holdings and each other Exit Term Facility Loan Party under the Exit 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 Exit Term Loan Credit Agreement governing the Exit 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.
At March 31, 2022, Pyxus Holdings was in compliance with all such covenants under the Exit Term Loan Credit Agreement.
Senior Secured First Lien Notes
On the Effective Date, Pyxus Holdings issued approximately $280,844 in aggregate principal amount of the Notes to holders of Allowed First Lien Notes Claims (as defined in the Plan) pursuant to 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 10.0% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year, beginning February 15, 2021, 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 Exit 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, 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 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.
At March 31, 2022, each of Pyxus Holdings and each guarantor of the Notes was in compliance with all such covenants under the Indenture.
Collateral
The liens and other security interests granted by Pyxus Holdings and the guarantors on the Collateral for the benefit of the holders of the Notes 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 Credit Facility, and the Exit Term Loan Credit Facility are set forth in the two intercreditor agreements entered into in connection with consummation of the transactions contemplated by the Plan, including the issuance of the Notes and the establishment of the ABL Credit Facility and the Exit Term Loan Credit Facility.
ABL/Exit Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, (A) the holders of obligations under the Exit 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/Exit Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations have first priority 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 Exit Term Loan Facility having junior priority liens on the ABL Priority Collateral. Pursuant to the ABL/Exit Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ collective obligations under the Exit 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 Credit Facility having junior priority liens on the Notes Priority Collateral.
Exit Term Loan/Notes Intercreditor Agreement
The intercreditor relationship between and among the holders of obligations under the Exit 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 Exit Term Loan/Notes Intercreditor Agreement. Pursuant to the terms of the Exit Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the Exit 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 Exit 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 Exit Term Loan Facility on the ABL Priority Collateral in excess of the ABL Priority Collateral Cap are 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 Exit 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 Exit Term Loan Facility having junior priority liens on the Notes Priority Collateral.
Short-Term Seasonal Lines of Credit
Excluding all long-term credit agreements, the Company has typically financed its non-U.S. operations with uncommitted short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. At March 31, 2022 and 2021, the Company may borrow up to a total $673,288 and $716,742, subject to limitations as provided for in the ABL Credit Agreement (as defined above), respectively. The weighted average variable interest rate for the years ended March 31, 2022 and 2021 was 6.1% and 6.1%, respectively. Certain of the foreign seasonal lines of credit with aggregate outstanding borrowings at March 31, 2022 and 2021
of $109,412 and $172,462, respectively, are secured by trade receivables and inventories as collateral. At March 31, 2022 and 2021, respectively, $971 and $1,017 of cash was held on deposit as a compensating balance.
African Lines of Credit
On August 12, 2021, the Company and certain subsidiaries of the Company, including the Company’s subsidiaries in Malawi, Tanzania, and Zambia (the "African Subsidiary Borrowers"), entered into the Third Amendment and Restatement Agreement (the "Restated TDB Agreement") with Eastern and Southern African Trade and Development Bank ("TDB") to set forth the terms that govern the foreign seasonal lines of credit of each of the African Subsidiary Borrowers with TDB. The Restated TDB Agreement provides for a lending commitment with respect to the line of credit of the Company’s Malawi subsidiary of $80,000, a lending commitment with respect to the line of credit of the Company’s Tanzania subsidiary of $85,000, and a lending commitment with respect to the line of credit of the Company’s Zambia subsidiary of $40,000, in each case with current borrowing availability reduced by the amount of outstanding loans borrowed under the respective existing line of credit with TDB. Loans under the Restated TDB Agreement bear interest at LIBOR plus 6%. The Restated TDB Agreement terminates on June 30, 2024, unless terminated sooner at TDB’s discretion on June 30, 2022 or June 30, 2023. The terms of the Restated TDB Agreement may also be modified at TDB’s discretion on those dates. Borrowings under the Restated TDB Agreement are due upon the termination of the Restated TDB Agreement.
Pursuant to the Restated TDB Agreement, each of the Company and its subsidiaries, Pyxus Parent, Inc., and Pyxus Holdings, guarantee the obligations of the African Subsidiary Borrowers under the Restated TDB Agreement. In addition, the Restated TDB Agreement provides that obligations of each African Subsidiary Borrower under the Restated TDB Agreement are secured by a first priority pledge of:
• tobacco purchased by that African Subsidiary Borrower that is financed by TDB;
• intercompany receivables arising from the sale of the tobacco financed by TDB;
• customer receivables arising from the sale of the tobacco financed by TDB; and
• such African Subsidiary Borrower's local collection account receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement also requires Alliance One International, LLC, a subsidiary of the Company, to pledge customer receivables arising from the sale of the tobacco financed by TDB and pledge its collection accounts designated for receiving customer payments for purchases of tobacco financed by TDB.
The Restated TDB Agreement contains affirmative and negative covenants (subject, in each case, to customary and other exceptions and qualifications), including covenants that limit the ability of the African Subsidiary Borrowers to, among other things:
• grant liens on assets;
• incur additional indebtedness (including guarantees and other contingent obligations);
• sell or otherwise dispose of property or assets;
• maintain a specified amount of pledged accounts receivable and inventory;
• make changes in the nature of its business;
• enter into burdensome contracts; and
• effect certain modifications or terminations of customer contracts.
The Restated TDB Agreement contains events of default including, but not limited to, nonpayment of principal or interest, violation of covenants, breaches of representations and warranties, cross-default to other debt, bankruptcy and other insolvency events, invalidity of loan documentation, certain changes of control of the Company and the other loan parties, termination of material licenses, and material adverse changes.
At March 31, 2022, the Company and its subsidiaries party to the Restated TDB Agreement were in compliance with all such covenants under the Restated TDB Agreement and $133,388 was available for borrowing under the Restated TDB Agreement, after reducing availability by the aggregate borrowings under the Restated TDB Agreement of $71,612 outstanding on that date.
20. Securitized Receivables
During the year ended March 31, 2022, the Company sold trade receivables to unaffiliated financial institutions under three accounts receivable securitization facilities, which are subject to annual renewal. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells 100% of the receivables to an unaffiliated financial institution. 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, 2022, the investment limit of this facility was $125,000 of trade receivables.
The first facility requires a minimum level of deferred purchase price be retained by the Company in connection with the sales of the receivables to the unaffiliated financial institution. The Company continues to service, administer, and collect the receivables on behalf of the special purpose entity and receives a servicing fee of 0.5% of serviced receivables per annum. As the Company estimates the expected fee it receives in return for its obligation to service these receivables is at fair value, no servicing assets or liabilities are recognized. Servicing fees are recorded as a reduction of selling, general, and administrative expenses within the statements of consolidated operations.
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 second facility, the Company does not receive a 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, 2022, the investment limit under the second facility was $80,000 of trade receivables. As of March 31, 2022, 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, 2022 and 2021, trade receivables, net in the consolidated balance sheets has been reduced by $1,872 and $3,651 as a result of the net settlement, respectively. Refer to "Note 23. Fair Value Measurements" for additional information. The second and third facilities do not contain restrictive covenants.
The following summarizes the Company’s accounts receivable securitization information:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Receivables outstanding in facility | $ | 131,092 | | $ | 90,693 | |
| Beneficial interest | $ | 28,072 | | $ | 19,370 | |
| | |
| | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Cash proceeds for the period ended: | | | |
| Cash purchase price | $ | 441,054 | | $ | 257,982 | | $ | 151,817 | |
| Deferred purchase price | 189,440 | | 94,062 | | 74,328 | |
| | | |
| | | |
| | | |
| | | |
21. Guarantees
In certain markets, the Company guarantees bank loans to suppliers to finance their crops. The Company also guarantees bank loans of certain unconsolidated subsidiaries and a lease obligation for a former equity method investment. The following summarizes amounts guaranteed and the fair value of those guarantees:
| | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 |
| Amounts guaranteed (not to exceed) | $ | 114,208 | | $ | 93,489 | |
Amounts outstanding under guarantee(1) | $ | 49,413 | | $ | 30,111 | |
| Fair value of guarantees | $ | 2,956 | | $ | 1,740 | |
(1) The guarantees outstanding at March 31, 2022 expire within one year.
As of March 31, 2022 and 2021, the Company had balances of $15,781 and $10,930 due to local banks on behalf of suppliers for government subsidized rural credit financing.
22. Derivative Financial Instruments
The Company uses forward or option currency contracts to manage risks associated with foreign currency exchange rates on foreign operations. These contracts are for green tobacco purchases, processing costs, and selling, general, and administrative expenses.
The Company recorded a net gain of $(2,482) from its derivative financial instruments in cost of goods and services sold for the year ended March 31, 2022. The Company recorded losses of $122 and $164 from its derivative financial instruments in cost of goods and services sold for the seven months ended March 31, 2021, and the five months ended August 31, 2020, respectively. The Company recorded a loss of $3,331 from its derivative financial instruments in cost of goods and services sold for the year ended March 31, 2020.
As of March 31, 2022 and 2021, accumulated other comprehensive income (loss) includes $8,975 and $(2,625), respectively, net of $(3,025) and $0 of tax, respectively, for net unrealized gains and (losses) related to designated cash flow hedges.
As of March 31, 2022 and 2021, the Company recorded current derivative assets of $9,867 and $917, respectively.
The U.S. Dollar notional amount of derivative contracts outstanding as of March 31, 2022 and 2021 was $61,690 and $34,472, respectively.
23. 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, 2022 | | March 31, 2021 |
| 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 | $ | 9,867 | | $ | — | | $ | 9,867 | | | $ | 917 | | $ | — | | $ | 917 | |
| Securitized beneficial interests | — | | 28,072 | | 28,072 | | | — | | 19,370 | | 19,370 | |
| Total assets | $ | 9,867 | | $ | 28,072 | | $ | 37,939 | | | $ | 917 | | $ | 19,370 | | $ | 20,287 | |
| Financial liabilities | | | | | | | |
| Long-term debt | $ | 447,843 | | $ | 246 | | $ | 448,089 | | | $ | 467,795 | | $ | 3,162 | | $ | 470,957 | |
| Guarantees | — | | 2,956 | | 2,956 | | | — | | 1,740 | | 1,740 | |
| Total liabilities | $ | 447,843 | | $ | 3,202 | | $ | 451,045 | | | $ | 467,795 | | $ | 4,902 | | $ | 472,697 | |
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, 2022 would change by $296 and $591, 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, 2022 by $129 and $258, respectively. The discount rate was weighted by the outstanding interest. Payment speed was weighted by the average days outstanding.
•Debt: The fair value of debt is based on the present value of future payments. The primary inputs to this valuation include treasury notes interest and borrowing rates. Should the rates change 10% or 20%, the fair value of the long term debt at March 31, 2022 would change by $1 and $2, respectively. The borrowing rates were weighted by average loans outstanding.
Reconciliation of Change in Recurring Level 3 Balances
The following summarizes the changes in Level 3 instruments measured on a recurring basis.
| | | | | | | | | | | |
| Securitized Beneficial Interests | Long-Term Debt | Guarantees |
| Beginning balance March 31, 2020 (Predecessor) | $ | 27,021 | | $ | 848 | | $ | 2,791 | |
| Sales of receivables/issuance of guarantees | 66,821 | | — | | 667 | |
| Settlements | (81,038) | | (100) | | (2,192) | |
| Additions | — | | 3,144 | | — | |
| Losses recognized in earnings | (1,645) | | — | | (10) | |
| Ending balance at August 31, 2020 (Predecessor) | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | |
| | | |
| | | |
| Beginning balance September 1, 2020 (Successor) | $ | 11,159 | | $ | 3,892 | | $ | 1,256 | |
| Sales of receivables/issuance of guarantees | 105,117 | | — | | 1,757 | |
| Settlements | (94,808) | | (761) | | (1,276) | |
| Additions | — | | 31 | | — | |
| (Losses) / gains recognized in earnings | (2,098) | | — | | 3 | |
| Beginning balance March 31, 2021 (Successor) | $ | 19,370 | | $ | 3,162 | | $ | 1,740 | |
| Sales of receivables/issuance of guarantees | 205,517 | | — | | 3,151 | |
| Settlements | (192,141) | | (2,918) | | (1,749) | |
| Additions | — | | 2 | | — | |
| Losses recognized in earnings | (4,674) | | — | | (186) | |
| Ending balance at March 31, 2022 (Successor) | $ | 28,072 | | $ | 246 | | $ | 2,956 | |
The amount of total losses included in earnings for the year ended March 31, 2022, seven months ended March 31, 2021, and five months ended August 31, 2020, are attributable to the change in unrealized losses relating to assets still held at the respective dates was $1,148, $233, and $263 on securitized beneficial interests. Gains and losses included in earnings are reported in other (expense) 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, 2022 | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| Securitized Beneficial Interests | $ | 28,072 | | Discounted Cash Flow | Discount Rate | 2.8% to 3.9% |
| Payment Speed | 91 days to 103 days |
| Tobacco Supplier Guarantees | $ | 2,956 | | Historical Loss | Historical Loss | 0.6% to 44.6% |
| | | |
| Long-Term Debt | $ | 246 | | Discounted Future Payments | Treasury Notes Rate | 2.5% |
| Borrowing Rate | 7.0% to 10.5% |
| | | | | | | | | | | | | | |
| Fair value at March 31, 2021 | Valuation Technique | Unobservable Input | Range (Weighted Average) |
| Securitized Beneficial Interests | $ | 19,370 | | Discounted Cash Flow | Discount Rate | 1.3% to 3.6% |
| Payment Speed | 57 days to 77 days |
| Tobacco Supplier Guarantees | $ | 1,740 | | Historical Loss | Historical Loss | 0.1% to 45.2% |
| | | |
| Long-Term Debt | $ | 3,162 | | Discounted Future Payments | Treasury Notes Rate | 0.9% to 1.6% |
| Borrowing Rate | 7.0% to 10.7% |
24. Pension and Other Postretirement Benefits
On November 19, 2021, the Compensation Committee of the Company's Board of Directors approved a resolution to terminate the Company's U.S. defined benefit pension plan ("U.S. Pension Plan"). Termination of the U.S. Pension Plan is a twelve-to-eighteen month process. The Company will settle benefits directly with vested participants electing a lump sum payout and purchase a group annuity contract to administer future payments to the remaining U.S. Pension Plan participants. Based on the estimated value of assets held in the U.S. Pension Plan, the Company estimates that a cash contribution of between $3,000 and $5,000 will be required to fully fund the U.S. Pension Plan's liabilities upon termination. In addition, the Company expects to record a pension settlement charge at plan termination, which includes the reclassification of unrecognized pension gains and losses within accumulated other comprehensive income (loss) to other (expense) income, net within the Company's consolidated statements of operations. The Company does not have an estimate for this future settlement charge. The amount of unrecognized pension gains within accumulated other comprehensive income (loss) related to the U.S. Pension Plan is approximately $5,401 at March 31, 2022.
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 |
| Year Ended March 31, 2022 |
| Benefit obligation, beginning | $ | 76,223 | | $ | 66,433 | | $ | 142,656 | |
| Service cost | 215 | | 174 | | 389 | |
| Interest cost | 1,467 | | 1,187 | | 2,654 | |
| | | |
| Actuarial gains | (2,948) | | (3,669) | | (6,617) | |
| Plan settlements | (7,600) | | (114) | | (7,714) | |
| Effects of currency translation | — | | (1,971) | | (1,971) | |
| Benefits paid | (4,560) | | (3,109) | | (7,669) | |
| Benefit obligation, ending | $ | 62,797 | | $ | 58,931 | | $ | 121,728 | |
| | | |
| Fair value of plan assets, beginning | $ | 27,109 | | $ | 69,692 | | $ | 96,801 | |
| Actual return on plan assets | 806 | | 1,038 | | 1,844 | |
| Employer contributions | 4,057 | | 1,325 | | 5,382 | |
| Plan settlements | (7,600) | | (114) | | (7,714) | |
| Effects of currency translation | — | | (2,031) | | (2,031) | |
| | | |
| Benefits paid | (4,560) | | (3,109) | | (7,669) | |
| Fair value of plan assets, ending | $ | 19,812 | | $ | 66,801 | | $ | 86,613 | |
| Funded status of the plan | $ | (42,985) | | $ | 7,870 | | $ | (35,115) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor | | Successor | Predecessor | Successor | Predecessor |
| U.S. Plans | | Non-U.S. Plans | Total |
| Seven months ended March 31, 2021 | Five months ended August 31, 2020 | | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Benefit obligation, beginning | $ | 86,605 | | $ | 80,996 | | | $ | 63,730 | | $ | 59,191 | | $ | 150,335 | | $ | 140,187 | |
| Service cost | 131 | | 94 | | | 118 | | 82 | | 249 | | 176 | |
| Interest cost | 803 | | 968 | | | 758 | | 627 | | 1,561 | | 1,595 | |
| Plan amendments | — | | — | | | (62) | | — | | (62) | | — | |
| Actuarial (gains) losses | (2,428) | | 6,863 | | | 3,270 | | 3,250 | | 842 | | 10,113 | |
| Plan settlements | (6,080) | | (161) | | | (428) | | — | | (6,508) | | (161) | |
| Effects of currency translation | — | | — | | | 859 | | 2,787 | | 859 | | 2,787 | |
| Benefits paid | (2,808) | | (2,155) | | | (1,812) | | (2,207) | | (4,620) | | (4,362) | |
| Benefit obligation, ending | $ | 76,223 | | $ | 86,605 | | | $ | 66,433 | | $ | 63,730 | | $ | 142,656 | | $ | 150,335 | |
| | | | | | | |
| Fair value of plan assets, beginning | $ | 31,461 | | $ | 28,348 | | | $ | 69,590 | | $ | 62,073 | | $ | 101,051 | | $ | 90,421 | |
| Actual return on plan assets | 1,996 | | 4,068 | | | (184) | | 5,585 | | 1,812 | | 9,653 | |
| Employer contributions | 2,540 | | 1,360 | | | 1,191 | | 761 | | 3,731 | | 2,121 | |
| Plan settlements | (6,080) | | (161) | | | (428) | | — | | (6,508) | | (161) | |
| Effects of currency translation | — | | — | | | 1,335 | | 3,378 | | 1,335 | | 3,378 | |
| | | | | | | |
| Benefits paid | (2,808) | | (2,154) | | | (1,812) | | (2,207) | | (4,620) | | (4,361) | |
| Fair value of plan assets, ending | $ | 27,109 | | $ | 31,461 | | | $ | 69,692 | | $ | 69,590 | | $ | 96,801 | | $ | 101,051 | |
| Funded status of the plan | $ | (49,114) | | $ | (55,144) | | | $ | 3,259 | | $ | 5,860 | | $ | (45,855) | | $ | (49,284) | |
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, 2022 | March 31, 2021 | | March 31, 2022 | March 31, 2021 |
| Noncurrent benefit asset recorded in other noncurrent assets | $ | — | | $ | — | | | $ | 15,443 | | $ | 11,708 | |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | (3,305) | | (3,297) | | | (878) | | (812) | |
| Accrued noncurrent benefit liability recorded in pension, postretirement, and other long-term liabilities | (39,680) | | (45,817) | | | (6,695) | | (7,637) | |
| Funded status of the plan | $ | (42,985) | | $ | (49,114) | | | $ | 7,870 | | $ | 3,259 | |
The following summarizes pension obligations for the defined benefit pension plans:
| | | | | | | | | | | | | | | | | |
| | | | | |
| U.S. Plans | | Non-U.S. Plans(1) |
| March 31, 2022 | March 31, 2021 | | March 31, 2022 | March 31, 2021 |
| Information for pension plans with accumulated benefit obligation in excess of plan assets: | | | | | |
| Projected benefit obligation | $ | 62,797 | | $ | 76,222 | | | $ | 7,573 | | $ | 8,450 | |
| Accumulated benefit obligation | 62,797 | | 76,222 | | | 7,009 | | 7,981 | |
| Fair value of plan assets | 19,812 | | 27,109 | | | — | | — | |
(1) Certain of the Company's non-U.S. defined benefit pension plans in Europe were over funded as of March 31, 2022 and 2021.
The following summarizes activity in accumulated other comprehensive loss for the defined benefit plans:
| | | | | | | | | | | |
| U.S. and Non-U.S. Pension | U.S. and Non-U.S. Post-retirement | Total |
| Prior service credit | $ | 62 | | $ | — | | $ | 62 | |
| Net actuarial (losses) gains | (752) | | 635 | | (117) | |
| | | |
| Deferred taxes | 703 | | (107) | | 596 | |
| Balance at March 31, 2021 | $ | 13 | | $ | 528 | | $ | 541 | |
| | | |
| Prior service cost | (6) | | — | | (6) | |
| Net actuarial gains | 5,397 | | 748 | | 6,145 | |
| | | |
| Deferred taxes | (244) | | (108) | | (352) | |
| Total change for 2022 | $ | 5,147 | | $ | 640 | | $ | 5,787 | |
| | | |
| Prior service credit | 56 | | — | | 56 | |
| Net actuarial gains | 4,645 | | 1,383 | | 6,028 | |
| | | |
| Deferred taxes | 459 | | (215) | | 244 | |
| Balance at March 31, 2022 | $ | 5,160 | | $ | 1,168 | | $ | 6,328 | |
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, 2022 | March 31, 2021 | March 31, 2020 | | March 31, 2022 | March 31, 2021 | March 31, 2020 |
| Discount rate | 2.83% | 2.32% | 3.79% | | 2.17% | 2.23% | 2.50% |
| Rate of increase in future compensation | Not applicable | Not applicable | Not applicable | | 5.28% | 6.18% | 5.99% |
| Expected long-term rate of return on plan assets | 5.75% | 5.75% | 6.75% | | 2.12% | 2.00% | 3.90% |
| Interest crediting rate | 4.25% | 4.29% | 4.37% | | Not applicable | Not applicable | Not applicable |
The following weighted average assumptions were used to determine the benefit obligations for the pension plans:
| | | | | | | | | | | | | | | | | |
| | | | | |
| U.S. Plans | | Non-U.S. Plans |
| March 31, 2022 | March 31, 2021 | | March 31, 2022 | March 31, 2021 |
| Discount rate | 3.74% | 2.83% | | 2.98% | 2.17% |
| Rate of increase in future compensation | Not applicable | Not applicable | | 7.31% | 5.28% |
| Interest crediting rate | 4.28% | 4.25% | | Not applicable | Not applicable |
Plan Assets
The following summarizes asset allocations and the percentage of the fair value of plan assets by asset category:
| | | | | | | | | | | | | | | | |
| | | | | | |
| U.S. Target Allocations | | U.S. Plans | |
| March 31, 2022 | | March 31, 2022 | March 31, 2021 | | |
| Asset category: | | | | | | |
| Cash and cash equivalents | 1.0 | % | | 6.2 | % | 2.8 | % | | |
| Equity securities | — | % | | — | % | 37.4 | % | | |
| Debt securities | 99.0 | % | | 80.8 | % | 20.7 | % | | |
| Real estate and other investments | — | % | | 13.0 | % | 39.1 | % | | |
| Total | 100.0 | % | | 100.0 | % | 100.0 | % | | |
| | | | | | | | | | | | | | | | |
| | | | | | |
| Non-U.S. Target Allocations | | | Non-U.S. Plans |
| March 31, 2022 | | | | March 31, 2022 | March 31, 2021 |
| Asset category: | | | | | | |
| Cash and cash equivalents | 13.6 | % | | | | 10.6 | % | 7.0 | % |
| Equity securities | 15.6 | % | | | | 20.7 | % | 19.0 | % |
| Debt securities | 61.9 | % | | | | 66.5 | % | 67.3 | % |
| Real estate and other investments | 8.9 | % | | | | 2.2 | % | 6.7 | % |
| Total | 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, 2022 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 1,234 | | $ | 780 | | $ | 454 | | $ | — | |
| U.S. fixed income funds | 14,840 | | 14,840 | | — | | — | |
| International fixed income funds | 1,168 | | 1,168 | | — | | — | |
| Diversified funds | 119 | | 119 | | — | | — | |
Real estate and other (1) | 2,451 | | — | | — | | — | |
| Total | $ | 19,812 | | $ | 16,907 | | $ | 454 | | $ | — | |
| | | | | | | | | | | | | | |
| |
| U.S. Pension Plans | March 31, 2021 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 754 | | $ | 291 | | $ | 463 | | $ | — | |
| U.S. equities / equity funds | 6,994 | | 6,994 | | — | | — | |
| International equities / equity funds | 3,149 | | 3,149 | | — | | — | |
| U.S. fixed income funds | 4,901 | | 4,901 | | — | | — | |
| International fixed income funds | 713 | | 713 | | — | | — | |
| Diversified funds | 7,882 | | 7,882 | | — | | — | |
Real estate and other (1) | 2,716 | | — | | — | | — | |
| Total | $ | 27,109 | | $ | 23,930 | | $ | 463 | | $ | — | |
| | | | | | | | | | | | | | |
| |
| Non-U.S. Pension Plans | March 31, 2022 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 7,073 | | $ | 7,073 | | $ | — | | $ | — | |
| U.S. equities / equity funds | 9,268 | | 9,268 | | — | | — | |
| International equities / equity funds | 2,818 | | 2,818 | | — | | — | |
| Global equity funds | 1,748 | | 1,748 | | — | | — | |
| U.S. fixed income funds | 5,753 | | 5,753 | | — | | — | |
| International fixed income funds | 34,313 | | 10,448 | | 23,865 | | — | |
| Global fixed income funds | 4,371 | | 4,371 | | — | | — | |
Real estate and other (1) | 1,456 | | — | | — | | — | |
| Total | $ | 66,800 | | $ | 41,479 | | $ | 23,865 | | $ | — | |
| | | | | | | | | | | | | | |
| |
| Non-U.S. Pension Plans | March 31, 2021 |
| Total | Level 1 | Level 2 | Level 3 |
| Cash and cash equivalents | $ | 4,901 | | $ | 4,901 | | $ | — | | $ | — | |
| U.S. equities / equity funds | 8,698 | | 8,698 | | — | | — | |
| International equities / equity funds | 2,891 | | 2,891 | | — | | — | |
| Global equity funds | 1,686 | | 1,686 | | — | | — | |
| U.S. fixed income funds | 5,998 | | 5,998 | | — | | — | |
| International fixed income funds | 36,027 | | 11,785 | | 24,242 | | — | |
| Global fixed income funds | 4,838 | | 4,838 | | — | | — | |
| Diversified funds | 3,003 | | — | | 3,003 | | — | |
Real estate and other (1) | 1,650 | | — | | — | | — | |
| Total | $ | 69,692 | | $ | 40,797 | | $ | 27,245 | | $ | — | |
(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, 2022 | | March 31, 2021 |
| Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period | | Fair Value | Unfunded Commitments | Redemption Frequency | Redemption Notice Period |
| Diversified funds | $ | 119 | | None | Self-Liquidating | None | | $ | 10,885 | | None | Self-Liquidating | None |
| Real estate and other | 3,907 | | None | Quarterly | 60 Days | | 4,366 | | 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, 2022 |
| Benefit obligation, beginning | $ | 4,458 | | $ | 1,441 | | $ | 5,899 | |
| Service cost | 6 | | — | | 6 | |
| Interest cost | 97 | | 110 | | 207 | |
| Effect of currency translation | — | | 250 | | 250 | |
| Actuarial gains | (425) | | (251) | | (676) | |
| Benefits paid | (159) | | (96) | | (255) | |
| Benefit obligation, ending | $ | 3,977 | | $ | 1,454 | | $ | 5,431 | |
| | | |
| Fair value of plan assets, beginning | $ | — | | $ | — | | $ | — | |
| Employer contributions | 159 | | 96 | | 255 | |
| Benefits paid | (159) | | (96) | | (255) | |
| Fair value of plan assets, ending | $ | — | | $ | — | | $ | — | |
| Funded status of the plan | $ | (3,977) | | $ | (1,454) | | $ | (5,431) | |
| | | |
| |
| U.S. Plans | Non-U.S. Plans | Total |
| March 31, 2022 |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | $ | (310) | | $ | (118) | | $ | (428) | |
| Accrued non-current benefit liability recorded in pension, postretirement, and other long-term liabilities | (3,667) | | (1,336) | | (5,003) | |
| Funded status of the plan | $ | (3,977) | | $ | (1,454) | | $ | (5,431) | |
| | | | | | | | | | | | | | | | | | | | |
| Successor | Predecessor | Successor | Predecessor | Successor | Predecessor |
| U.S. Plans | Non-U.S. Plans | Total |
| Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Benefit obligation, beginning | $ | 4,796 | | $ | 4,450 | | $ | 1,772 | | $ | 1,856 | | $ | 6,568 | | $ | 6,306 | |
| Service cost | 4 | | 3 | | — | | — | | 4 | | 3 | |
| Interest cost | 50 | | 55 | | 79 | | 59 | | 129 | | 114 | |
| Effect of currency translation | — | | — | | (57) | | (89) | | (57) | | (89) | |
| Actuarial (gains) losses | (330) | | 435 | | (317) | | — | | (647) | | 435 | |
| Benefits paid | (62) | | (147) | | (36) | | (54) | | (98) | | (201) | |
| Benefit obligation, ending | $ | 4,458 | | $ | 4,796 | | $ | 1,441 | | $ | 1,772 | | $ | 5,899 | | $ | 6,568 | |
| | | | | | |
| Fair value of plan assets, beginning | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| Employer contributions | 62 | | 147 | | 36 | | 54 | | 98 | | 201 | |
| Benefits paid | (62) | | (147) | | (36) | | (54) | | (98) | | (201) | |
| Fair value of plan assets, ending | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | |
| Funded status of the plan | $ | (4,458) | | $ | (4,796) | | $ | (1,441) | | $ | (1,772) | | $ | (5,899) | | $ | (6,568) | |
| | | | | | |
| Successor | Predecessor | Successor | Predecessor | Successor | Predecessor |
| U.S. Plans | Non-U.S. Plans | Total |
| Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Accrued current benefit liability recorded in accrued expenses and other current liabilities | $ | (306) | | $ | (195) | | $ | (106) | | $ | (74) | | $ | (412) | | $ | (269) | |
| Accrued non-current benefit liability recorded in pension, postretirement, and other long-term liabilities | (4,152) | | (4,601) | | (1,335) | | (1,698) | | (5,487) | | (6,299) | |
| Funded status of the plan | $ | (4,458) | | $ | (4,796) | | $ | (1,441) | | $ | (1,772) | | $ | (5,899) | | $ | (6,568) | |
The following assumptions were used to determine postretirement benefit obligations:
| | | | | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans |
| Discount rate | 3.75 | % | 9.50 | % | | 2.99 | % | 7.17 | % |
| Health care cost trend rate assumed for next year | 5.62 | % | 7.90 | % | | 5.50 | % | 6.92 | % |
| | | | | |
Cash Flows
The Company expects to contribute the following to its benefit plans:
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Plans |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans |
| Fiscal Year 2023 | $ | 3,000 | | $ | 1,478 | | | $ | — | | $ | 117 | |
The Company's contributions to the defined contribution plans are as follows:
| | | | | | | | | | | |
| Successor | Predecessor |
| Year ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Fiscal Year 2022 | $ | 4,589 | | Not Applicable | Not Applicable |
| Fiscal Year 2021 | Not Applicable | $ | 2,803 | | $ | 2,002 | |
| Fiscal Year 2020 | Not Applicable | Not Applicable | Not Applicable |
The following summarizes the expected benefit payments to be paid in future years, as of March 31, 2022:
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| U.S. Plans | Non-U.S. Plans | | U.S. Plans | Non-U.S. Plans |
| 2023 | $ | 6,800 | | $ | 3,178 | | | $ | 310 | | $ | 117 | |
| 2024 | 5,053 | | 3,099 | | | 297 | | 122 | |
| 2025 | 5,182 | | 3,276 | | | 289 | | 126 | |
| 2026 | 5,057 | | 3,193 | | | 284 | | 130 | |
| 2027 | 4,782 | | 3,374 | | | 279 | | 135 | |
| Thereafter | 22,057 | | 18,744 | | | 1,298 | | 737 | |
25. Contingencies and Other Information
Brazilian Tax Credits
The government in the Brazilian State of Parana ("Parana") issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. At March 31, 2022, the assessment for intrastate trade tax credits taken is $2,780 and the total assessment including penalties and interest is $10,264. On March 18, 2014, the government in Brazilian State of Santa Catarina also issued a tax assessment with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. At March 31, 2022, the assessment for intrastate trade tax credits taken is $2,405 and the total assessment including penalties and interest is $6,629. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazil State of Rio Grande do Sul. This jurisdiction permits the sale or transfer of excess credits to third parties, however approval must be obtained from the tax authorities. The Company has an agreement with the state government regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $13,331. The intrastate trade tax credits are monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
Other Matters
In addition to the above-mentioned matters, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, they are being vigorously defended and the Company does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
Asset Retirement Obligations
The Company identified an asset retirement obligation ("ARO") associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO 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.
26. Other Comprehensive (Loss) Income
The following summarizes changes in each component of accumulated other comprehensive income (loss), net of tax, attributable to the Company:
| | | | | | | | | | | | | | |
| Currency Translation Adjustment | Pensions, Net of Tax | Derivatives, Net of Tax | Accumulated Other Comprehensive Income (Loss) |
| Balances at March 31, 2019 (Predecessor) | $ | (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 (Predecessor) | $ | (22,509) | | $ | (37,154) | | $ | 531 | | $ | (59,132) | |
| Other comprehensive income (loss) before reclassifications | 4,445 | | 734 | | (531) | | 4,648 | |
| Amounts reclassified to net loss, net of tax | — | | — | | (164) | | (164) | |
| Other comprehensive income (loss), net of tax | 4,445 | | 734 | | (695) | | 4,484 | |
| Cancellation of Predecessor equity | 18,064 | | 36,420 | | 164 | | 54,648 | |
| Balances at August 31, 2020 (Predecessor) | $ | — | | $ | — | | $ | — | | $ | — | |
| | | | |
| | | | |
| Balances at September 1, 2020 (Successor) | $ | — | | $ | — | | $ | — | | $ | — | |
| Other comprehensive (loss) income before reclassifications | (4,649) | | 523 | | (2,747) | | (6,873) | |
| Amounts reclassified to net loss, net of tax | — | | 18 | | 122 | | 140 | |
| Other comprehensive (loss) income, net of tax | (4,649) | | 541 | | (2,625) | | (6,733) | |
| Balances at March 31, 2021 (Successor) | $ | (4,649) | | $ | 541 | | $ | (2,625) | | $ | (6,733) | |
| Other comprehensive (loss) income before reclassifications | (4,224) | | 6,209 | | 10,419 | | 12,404 | |
| Amounts reclassified to net loss, net of tax | — | | (422) | | (1,445) | | (1,867) | |
| Other comprehensive (loss) income, net of tax | (4,224) | | 5,787 | | 8,974 | | 10,537 | |
| Balances at March 31, 2022 (Successor) | $ | (8,873) | | $ | 6,328 | | $ | 6,349 | | $ | 3,804 | |
The following summarizes amounts by component, reclassified from accumulated other comprehensive income (loss) to net (loss) income:
| | | | | | | | | | | | | | | | | |
| Successor | Predecessor | Affected Line Item in the Consolidated |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 | Statements of Operations |
Pension and postretirement plans(1): | | | | | |
| Actuarial (gain) loss | $ | (412) | | $ | 39 | | $ | 899 | | $ | 3,111 | | Interest expense |
| Amortization of prior service cost (credit) | (6) | | — | | (165) | | (666) | | Interest expense |
| | | | | |
| Amounts reclassified from equity to the income statement, gross | (418) | | 39 | | 734 | | 2,445 | | |
| Tax effects of amounts reclassified from accumulated other comprehensive income (loss) to net (loss) income | (4) | | (21) | | — | | (25) | | |
| Amounts reclassified from equity to the income statement, net | $ | (422) | | $ | 18 | | $ | 734 | | $ | 2,420 | | |
| | | | | |
| (1) Amounts are included in net periodic benefit costs for pension and postretirement plans. |
| | | | | | | | | | | | | | | | | |
| Successor | Predecessor | Affected Line Item in the Consolidated |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 | Statements of Operations |
| Derivatives: | | | | | |
| (Gain) loss reclassified to cost of goods sold | $ | (2,672) | | $ | 122 | | $ | 164 | | $ | 3,331 | | |
| Amounts reclassified from equity to the income statement, gross | (2,672) | | 122 | | 164 | | 3,331 | | Cost of goods and services sold |
| Tax effects of amounts reclassified from accumulated other comprehensive income (loss) to net (loss) income | 1,227 | | — | | (694) | | — | | |
| Amounts reclassified from equity to the income statement, net | $ | (1,445) | | $ | 122 | | $ | (530) | | $ | 3,331 | | |
27. Stock–Based Compensation
Pursuant to the Confirmation Order and the Plan, at the effectiveness of the Plan on the Effective Date, all outstanding rights to acquire the common stock of Old Pyxus, including awards under its stock compensation plans, were cancelled. On November 18, 2020, the Board of Directors of the Company adopted the Pyxus International, Inc. 2020 Incentive Plan (the "Incentive Plan"), which was approved at the 2021 annual meeting of shareholders on August 19, 2021. The Incentive Plan permits the grant of options, stock appreciation rights (or SARs), stock awards, stock unit awards, performance share awards, and incentive awards. The number of shares of the Company’s common stock eligible to be issued under the Incentive Plan is 2,200,000 shares. The awards outstanding at March 31, 2022 under the Incentive Plan, all of which were awarded in the year ended March 31, 2022 are restricted stock units for an aggregate of 717 shares that become eligible for vesting, subject to continued employment in equal annual increments generally on March 31, 2022, March 31, 2023, and March 31, 2024, performance-based restricted stock units for an aggregate of 1,076 shares at the target performance level and stock units awarded to non-employee directors for an aggregate of 69 shares. The performance-based restricted stock units provide for the issuance of shares based of satisfaction of performance criteria over a three-year measurement period ending March 31, 2024, subject to continued employment, with payouts at 50% of the target level upon satisfaction of threshold performance levels, 100% of the target level upon satisfaction of target performance levels and 150% of the target level upon performance equaling or exceeding the maximum performance levels, with payouts interpolated for performance between these levels. Each of such time-vesting and performance-based restricted stock units is subject to an additional condition to vesting that the Company’s common stock be listed for trading on a national securities exchange or an approved foreign securities exchange by a specified date. As of March 31, 2022, the vesting requirements for these awards were not probable to occur under U.S. GAAP and, accordingly, no stock-based compensation expense was recognized in the year ended March 31, 2022.
28. Related Party Transactions
The Company engages in transactions with its equity method investees primarily for the procuring and processing of inventory. The following summarizes sales and purchases transactions with related parties:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Sales | $25,575 | $ | 4,270 | | $ | 13,483 | | $ | 16,245 | |
| Purchases | 135,261 | 83,716 | | 38,655 | | 120,084 | |
The Company included the following related party balances in its consolidated balances sheets:
| | | | | | | | | | | | |
| | | |
| March 31, 2022 | March 31, 2021 | | Location in the Consolidated Balance Sheets |
| Accounts receivable, related parties | $ | 1,896 | | $ | 3,585 | | | Other receivables |
| Notes receivable, related parties | 1,431 | | 11,890 | | | Other receivables |
| Long-term notes receivable, related parties | — | | 21 | | | Other non-current assets |
| Accounts payable, related parties | 41,747 | | 22,376 | | | Accounts payable |
| Advances from related parties | 15,240 | | — | | | Advances from customers |
| | | | |
| | | | |
Transactions with the Glendon Investor, the Monarch Investor, and Other Beneficial Owners of 5% Stock
On April 23, 2021, the Company and certain of its subsidiaries with certain funds managed by the Glendon Investor and the Monarch Investor, as lenders, and related matters entered into a $120,000 delayed-draw credit facility agreement. After that date, a fund managed by Owl Creek Asset Management, L.P. became a lender under the DDTL Facility. See "Note 19. Debt Arrangements" for additional information. On December 30, 2021, the Company repaid $15,375 of the DDTL facility.
Accrued expenses and other current liabilities as presented in the consolidated balance sheets as of March 31, 2022 and 2021, includes $3,984 and $2,309, respectively, of interest payable to the Glendon Investor, the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P. Interest expense as presented in the consolidated statements of operations includes $32,579 for the year ended March 31, 2022, and $12,752 for the seven months ended March 31, 2021 that relates to the Glendon Investor and the Monarch Investor.
Transactions with the Deconsolidated Canadian Cannabis Subsidiaries
In connection with the CCAA Proceeding, the DIP Lender, another non-U.S. subsidiary of the Company, provided Figr Brands with secured debtor-in-possession financing to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as agreed to by the DIP Lender.
As of March 31, 2022 and 2021, the outstanding loan balance under the Canadian DIP Facility was $0 and $5,790, respectively, and is included in other receivables within the consolidated balance sheets. On July 8, 2021, the loans under the Canadian DIP Facility were fully repaid to the DIP Lender.
As of March 31, 2022, the Company's adjusted related party note receivable was $1,431, which resulted in a $4,537 loss in the year ended March 31, 2022 included in loss on deconsolidation/disposition of subsidiaries recorded within the consolidated statements of operations. Pursuant to the CCAA Proceeding, the Company received funds in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. See "Note 30. Subsequent Events" for additional information.
29. Segment Information
The following summarizes segment information, with the All Other category being included for purposes of reconciliation of the respective balances below the Leaf segment (the Company's sole reportable segment) to the consolidated financial statements:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Sales and other operating revenues: | | | | |
| Leaf | $ | 1,627,238 | | $ | 864,446 | | $ | 438,231 | | $ | 1,507,323 | |
| All Other | 12,624 | | 19,882 | | 9,369 | | 19,938 | |
| Consolidated sales and other operating revenues | $ | 1,639,862 | | $ | 884,328 | | $ | 447,600 | | $ | 1,527,261 | |
| | | | |
| Segment operating income (loss): | | | | |
| Leaf | $ | 106,159 | | $ | 43,667 | | $ | (111) | | $ | 98,986 | |
| All Other | (24,225) | | (46,816) | | (43,280) | | (71,190) | |
| Segment operating income (loss) | 81,934 | | (3,149) | | (43,391) | | 27,796 | |
| | | | |
| Restructuring and asset impairment charges | 8,031 | | 11,817 | | 566 | | 5,646 | |
| Goodwill impairment | 32,186 | | 1,082 | | — | | 33,759 | |
| Consolidated operating income (loss) | $ | 41,717 | | $ | (16,048) | | $ | (43,957) | | $ | (11,609) | |
| | | | | | | | | | | |
| |
| March 31, 2022 |
| Leaf | All Other | Total |
| Segment assets | $ | 1,641,552 | | $ | 56,975 | | $ | 1,698,527 | |
| Trade and other receivables, net | 255,756 | | 1,105 | | 256,861 | |
| | | |
| Equity in net assets of investee companies | 88,118 | | 6,785 | | 94,903 | |
| Depreciation and amortization | 14,763 | | 1,913 | | 16,676 | |
| Capital expenditures | 10,159 | | 4,438 | | 14,597 | |
| | | | | | | | | | | |
| |
| March 31, 2021 |
| Leaf | All Other | Total |
| Segment assets | $ | 1,452,258 | | $ | 87,204 | | $ | 1,539,462 | |
| Trade and other receivables, net | 187,577 | | 780 | | 188,357 | |
| Goodwill | 30,221 | | 6,632 | | 36,853 | |
| Equity in net assets of investee companies | 89,569 | | 6,795 | | 96,364 | |
| | | |
| | | |
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Seven months ended March 31, 2021 | Five months ended August 31, 2020 |
| Leaf | All Other | Leaf | All Other |
| Depreciation and amortization | $ | 8,405 | | $ | 3,434 | | $ | 13,197 | | $ | 3,383 | |
| Capital expenditures | 13,310 | | 2,890 | | 1,911 | | 5,247 | |
| | | | | | | | | | | |
| |
| March 31, 2020 |
| Leaf | All Other | Total |
| Segment assets | $ | 1,550,570 | | $ | 212,493 | | $ | 1,763,063 | |
| Trade and other receivables, net | 236,054 | | 3,685 | | 239,739 | |
| | | |
| Equity in net assets of investee companies | 56,456 | | 11,075 | | 67,531 | |
| Depreciation and amortization | 31,373 | | 4,455 | | 35,828 | |
| Capital expenditures | 18,481 | | 38,362 | | 56,843 | |
The following summarizes geographic sales and other operating revenues by destination of the product shipped:
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Sales and Other Operating Revenues: | | | | |
| China | $ | 280,945 | | $ | 79,739 | | $ | 18,675 | | $ | 180,907 | |
| United States | 209,953 | | 144,618 | | 56,073 | | 213,036 | |
| Indonesia | 110,009 | | 68,924 | | 29,819 | | 119,604 | |
Belgium(1) | 89,748 | | 45,137 | | 42,409 | | 118,819 | |
| United Arab Emirates | 82,070 | | 42,830 | | 22,954 | | 100,375 | |
| Russia | 57,808 | | 40,762 | | 18,312 | | 56,431 | |
| Northern Africa | 52,539 | | 30,209 | | 4,231 | | 39,311 | |
| Other | 756,790 | | 432,109 | | 255,127 | | 698,778 | |
| Total | $ | 1,639,862 | | $ | 884,328 | | $ | 447,600 | | $ | 1,527,261 | |
(1) The Belgium destination represents a customer-owned storage and distribution center from which the tobacco will be shipped on to manufacturing facilities. |
The following summarizes the customers, including their respective affiliates, that account for more than 10% of total sales and other operating revenues for the respective periods, as indicated by an "x":
| | | | | | | | | | | | | | |
| Successor | Predecessor |
| Year Ended March 31, 2022 | Seven months ended March 31, 2021 | Five months ended August 31, 2020 | Year ended
March 31, 2020 |
| Philip Morris International Inc. | x | x | x | x |
| Japan Tobacco International | | | x | |
| China Tobacco International Inc. | x | | | x |
| British American Tobacco | x | | | |
The following summarizes geographic property, plant, and equipment by location:
| | | | | | | | | | | |
| | |
| March 31, 2022 | March 31, 2021 | March 31, 2020 |
| Property, Plant, and Equipment, Net: | | | |
| Malawi | $ | 30,961 | | $ | 29,611 | | $ | 23,413 | |
| Brazil | 28,707 | | 28,117 | | 66,211 | |
| Other | 23,552 | | 22,879 | | 24,422 | |
| Zimbabwe | 22,217 | | 21,976 | | 49,814 | |
| United States | 21,960 | | 27,938 | | 47,023 | |
| Tanzania | 9,953 | | 9,483 | | 18,290 | |
| Canada | 171 | | 133 | | 66,823 | |
Total(1) | $ | 137,521 | | $ | 140,137 | | $ | 295,996 | |
(1) Total property, plant, and equipment, net was lower as of March 31, 2021 compared to March 31, 2020 due to a $125,820 reduction from the effects of fresh start reporting, and a reduction of $40,008 due to the deconsolidation of the Canadian Cannabis Subsidiaries. |
30. Subsequent Events
CCAA Emergence
Following monetization of their remaining assets, on February 2, 2022, Figr Norfolk and Figr Brands obtained approval to make cash distributions to their creditors pursuant to a distribution protocol approved by the Canadian Court (the "Creditor Distributions").
On April 21, 2022, the Figr Norfolk and Figr Brands obtained approval from the Canadian Court to terminate the CCAA Proceedings and commence bankruptcy proceedings under Canada's Bankruptcy and Insolvency Act (the "BIA Proceedings") to complete certain corporate and tax-related wind-up activities. FTI Consulting Canada Inc. was appointed as Trustee in Bankruptcy in the Bankruptcy Proceedings. On May 13, 2022, Figr Norfolk and Figr Brands commenced the BIA Proceedings.
On May 20, 2022, the Company received $1,380 in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. As of May 20, 2022, substantially all of the Creditor Distributions had been completed, pursuant to the Distribution Protocol.
On June 13, 2022, the CCAA Proceedings were formally terminated.
Securitized Receivables
On May 31, 2022, the first facility was extended and includes an investment limit $100,000 of trade receivables.
DDTL Refinancing
On June 2, 2022, Intabex, the Company, the Guarantors, the DDTL Facility Lenders and the DDTL Agent entered into an Amendment and Restatement Agreement dated as of June 2, 2022 (the "Amendment and Restatement Agreement") to amend and restate the DDTL Facility Credit Agreement as set forth in the form of an Amended and Restated Term Loan Credit Agreement (the "Amended Credit Agreement"), appended to the Amendment and Restatement Agreement, among (i) Intabex, as borrower, (ii) the Company and the Guarantors, (iii) the DDTL Facility Lenders and any other lender that becomes a party thereto (collectively, the "Term Loan Lenders"), and (iv) the DDTL Agent, as administrative agent and collateral agent. See "Note 19. Debt Arrangements" for additional information.
The Amendment and Restatement Agreement provides that, on the Amendment and Restatement Effectiveness Date (as defined below), the amendment and restatement of the DDTL Facility Credit Agreement by the Amended Credit Agreement shall be effective. The Amended Credit Agreement would establish a $100,000 term loan credit facility (the "Term Loan Facility") and requires that Intabex use the net proceeds of the loans to be made thereunder (the "Term Loans") and other funds to repay in full its obligations under the DDTL Facility Credit Agreement, including the outstanding principal of, and accrued and unpaid interest on, borrowings under the DDTL Facility on Amendment and Restatement Effectiveness Date and the payment of fees and expenses incurred in connection with repaying such borrowings and entering into the Amended Credit Agreement. The Term Loans would mature on December 2, 2023. The Amended Credit Agreement would provide that the Term Loans may be prepaid at any time, with a 2.0% fee due with respect to any principal payment made after the one-year anniversary of the Amendment and Restatement Effectiveness Date, including a payment made at maturity. The Amended Credit Agreement would provide that amounts of principal that are prepaid could not be reborrowed under the Term Loan Facility.
Under the Amendment and Restatement Agreement, the "Amendment and Restatement Effectiveness Date" is the date, which may be no later than July 29, 2022, on which the conditions to effectiveness specified in the Amendment and Restatement Agreement, which are customary for agreements of this type, are satisfied.
Under the Amended Credit Agreement, interest on the outstanding principal amount of the Term Loans is to accrue at an annual rate of SOFR plus 7.5%, subject to a SOFR floor of 1.0%, for "SOFR loans" or, for loans that are not SOFR loans, at an annual rate of an alternate base rate (as specified in the Amended Credit Agreement and subject to a specified floor) plus 6.5%. Interest is to be paid in arrears in cash upon prepayment, acceleration, maturity, and on the last day of each interest period (which may be one, three or six months) for SOFR loans and on the last day of each calendar quarter for loans that are not SOFR loans. Pursuant to the Amended Credit Agreement, the Term Loan Lenders would receive a non-refundable commitment fee equal to 3.0% of the aggregate commitments under the Term Loan Facility and a closing fee equal to 1.0% of the aggregate commitments under the Term Loan Facility, in each case paid either in cash in full on the Term Loan Closing Date or as original issue discount.
Under the Amended Credit Agreement, the obligations of Intabex under the Amended Credit Agreement (and certain related obligations) are to continue to be guaranteed and secured by the same guarantors of, and the same collateral securing, Intabex’s obligations under the DDTL Facility Credit Agreement.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Pyxus International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Pyxus International, Inc. and subsidiaries (the "Company") as of March 31, 2022 and 2021 (Successor Company balance sheets), the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity, and cash flows, for the year ended March 31, 2022 and the seven months ended March 31, 2021 (Successor Company operations), the five months ended August 31, 2020 and the year ended March 31, 2020 (Predecessor Company operations), and the related notes (collectively referred to as the "financial statements"). In our opinion, the Successor Company financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for the year ended March 31, 2022 and the seven months ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company financial statements present fairly, in all material respects, the results of operations and cash flows for the five months ended August 31, 2020, and the year ended March 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Fresh-Start Reporting
As discussed in Note 3 to the financial statements, on August 21, 2020, the Bankruptcy Court entered an order confirming the plan of reorganization for the Predecessor Company which became effective on August 24, 2020. Accordingly, the accompanying financial statements have been prepared in conformity with FASB Accounting Standard Codification 852, Reorganizations, for the Successor Company as a new entity with assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 4 to the financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Income Taxes — Accounting for Uncertainty in Income Taxes — Refer to Note 1 and Note 9 to the financial statements
Critical Audit Matter Description
The Company’s annual tax rate is based on its pre-tax income by jurisdiction, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties. The Company records unrecognized tax benefits in multiple jurisdictions and evaluates the future potential outcomes of tax positions, based upon interpretation of the country-specific tax law and the likelihood of future settlement. As of March 31, 2022, the Company’s recorded unrecognized tax benefits totaled $20.3 million. Conclusions on recognizing and measuring uncertain tax positions involved significant management estimates
and judgment and included complex considerations of local tax laws and related regulations in the various jurisdictions in which the Company operates.
We identified uncertain tax positions as a critical accounting matter because of the significant estimates and assumptions involved in recording uncertain tax positions. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions utilized in the Company’s determination of uncertain tax positions included the following, among others:
•With the assistance of our income tax specialists, we read and evaluated management’s documentation, including relevant accounting policies, relevant authoritative tax literature, and information obtained by management from outside tax specialists and attorneys, that detailed the basis of the uncertain tax positions.
•With the assistance of our income tax specialists, we evaluated management’s judgement of the appropriate unit of account for the unrecognized tax benefits and audited the measurement calculations and the interest and penalties balances, as applicable.
•We challenged the reasonableness of management’s judgments regarding the future resolution of the uncertain tax positions, through evaluating the technical merits of the uncertain tax positions by considering how tax law, including statutes, regulations, and case law, impacted management’s judgments and through consideration of the Company’s history of settlements.
•For those uncertain tax positions that had not been effectively settled, we evaluated whether management had appropriately considered new information that could significantly change the recognition, measurement, or disclosure of the uncertain tax positions through review of correspondence with taxing authorities and evaluation of changes to issued guidance.
/s/ Deloitte & Touche LLP
Raleigh, North Carolina
June 14, 2022
We have served as the Company’s auditor since its fiscal 2006.