Pyxus International 10Q 2023 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2022.

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.


000-25734
(Commission File Number)

Pyxus International, Inc.

(Exact name of registrant as specified in its charter)


Virginia		85-2386250
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

8001 Aerial Center Parkway
Morrisville,	North Carolina	27560
(Address of principal executive offices)		(Zip Code)

(919) 379-4300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Non-accelerated filer ☒

Accelerated filer ☐

Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark if the registrant has filed all documents and reports required to be filed under Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐

As of October 31, 2022, the registrant had 24,999,947 shares outstanding of Common Stock (no par value).


Pyxus International, Inc. and Subsidiaries
Table of Contents
			Page No.




Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Operations	3

		Condensed Consolidated Statements of Comprehensive Loss	4

		Condensed Consolidated Balance Sheets	5

		Condensed Consolidated Statements of Stockholders’ Equity	6

		Condensed Consolidated Statements of Cash Flows	7

		Notes to Condensed Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
	Item 4.	Controls and Procedures	33

Part II.	Other Information
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	34







	Item 6.	Exhibits	34

Signature			35

Part I. Financial Information

Item 1. Financial Statements


Pyxus International, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

	Three Months Ended				Six Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2022		2021		2022		2021
Sales and other operating revenues	$	508,278	$	394,201	$	852,183	$	727,491
Cost of goods and services sold	440,959		342,147		744,109		633,317
Gross profit	67,319		52,054		108,074		94,174
Selling, general, and administrative expenses	34,987		37,925		69,575		71,770
Other expense, net	1,151		1,816		66		1,654
Restructuring and asset impairment charges	4,045		6,859		4,345		7,092

Operating income	27,136		5,454		34,088		13,658


Loss on deconsolidation/disposition of subsidiaries	49		2,456		648		2,456
Loss on pension settlement	2,588		—		2,588		—
Interest expense, net	28,814		28,477		54,288		55,317









Loss before income taxes and other items	(4,315)		(25,479)		(23,436)		(44,115)
Income tax benefit	1,210		14,128		2,077		22,567
Income (loss) from unconsolidated affiliates	1,555		1,328		5,304		(103)
Net loss	(1,550)		(10,023)		(16,055)		(21,651)
Net (loss) income attributable to noncontrolling interests	(13)		(342)		145		(462)
Net loss attributable to Pyxus International, Inc.	$	(1,537)	$	(9,681)	$	(16,200)	$	(21,189)

Loss per share:
Basic and diluted	$	(0.06)	$	(0.39)	$	(0.65)	$	(0.85)


Weighted average number of shares outstanding:
Basic and diluted	25,000		25,000		25,000		25,000


See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)

	Three Months Ended				Six Months Ended
	September 30,				September 30,
(in thousands)	2022		2021		2022		2021
Net loss	$	(1,550)	$	(10,023)	$	(16,055)	$	(21,651)

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment	(4,801)		(1,591)		(3,854)		(902)
Pension and other postretirement benefit plans	(1,562)		(512)		(1,562)		(512)

Cash flow hedges	(1,768)		(2,896)		(3,271)		1,432

Total other comprehensive (loss) income, net of tax	(8,131)		(4,999)		(8,687)		18
Total comprehensive loss	(9,681)		(15,022)		(24,742)		(21,633)
Comprehensive (loss) income attributable to noncontrolling interests	(13)		(342)		145		(462)
Comprehensive loss attributable to Pyxus International, Inc.	$	(9,668)	$	(14,680)	$	(24,887)	$	(21,171)

See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited)


(in thousands)	September 30, 2022		September 30, 2021		March 31, 2022
Assets
Current assets
Cash and cash equivalents	$	114,082	$	127,636	$	198,777
Restricted cash	1,691		3,028		2,148
Trade receivables, net	205,024		204,927		247,677
Other receivables	15,550		18,757		12,511


Inventories, net	890,097		802,428		749,427
Advances to tobacco suppliers, net	48,712		36,140		48,932
Recoverable income taxes	11,970		34,090		7,906
Prepaid expenses	35,069		32,718		34,817
Other current assets	15,863		15,895		25,452
Total current assets	1,338,058		1,275,619		1,327,647
Restricted cash	—		389		389

Investments in unconsolidated affiliates	88,695		87,420		95,420
Goodwill	—		36,853		—
Other intangible assets, net	40,892		49,353		45,061
Deferred income taxes, net	16,691		7,063		6,498
Long-term recoverable income taxes	4,560		4,166		4,588

Other noncurrent assets	44,025		38,487		45,424
Right-of-use assets	33,042		38,967		35,979
Property, plant, and equipment, net	132,102		137,239		137,521
Total assets	$	1,698,065	$	1,675,556	$	1,698,527

Liabilities and Stockholders’ Equity
Current liabilities
Notes payable to banks	$	548,490	$	457,699	$	378,612

Accounts payable	103,494		72,138		179,012

Advances from customers	43,802		33,520		52,998

Accrued expenses and other current liabilities	75,993		72,574		82,239
Income taxes payable	5,262		—		5,592
Operating leases payable	8,644		8,418		8,065
Current portion of long-term debt	140		121,926		107,856
Total current liabilities	785,825		766,275		814,374
Long-term taxes payable	5,783		6,703		6,703
Long-term debt	646,125		543,233		580,477
Deferred income taxes	11,576		16,285		11,670
Liability for unrecognized tax benefits	14,660		15,850		14,401
Long-term leases	23,580		29,495		28,604
Pension, postretirement, and other long-term liabilities	56,939		65,496		60,927
Total liabilities	1,544,488		1,443,337		1,517,156
Commitments and contingencies
Stockholders’ equity
Common Stock—no par value:
Authorized shares (250,000 for all periods)
Issued shares (25,000 for all periods)	390,290		391,089		390,290
Retained deficit	(235,013)		(157,883)		(218,813)
Accumulated other comprehensive (loss) income	(4,883)		(6,715)		3,804
Total stockholders’ equity of Pyxus International, Inc.	150,394		226,491		175,281
Noncontrolling interests	3,183		5,728		6,090
Total stockholders’ equity	153,577		232,219		181,371
Total liabilities and stockholders’ equity	$	1,698,065	$	1,675,556	$	1,698,527

See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)


					Accumulated Other Comprehensive (Loss) Income
(in thousands)	Common Stock		Retained Deficit		Currency Translation Adjustment		Pensions, Net of Tax		Derivatives, Net of Tax		Noncontrolling Interests		Total Stockholders' Equity
Balance, March 31, 2022	$	390,290	$	(218,813)	$	(8,873)	$	6,328	$	6,349	$	6,090	$	181,371
Net loss attributable to Pyxus International, Inc.	—		(14,663)		—		—		—		158		(14,505)
Other	—		—		—		—		—		(3,052)		(3,052)


Other comprehensive income (loss), net of tax	—		—		947		—		(1,503)		—		(556)
Balance, June 30, 2022	390,290		(233,476)		(7,926)		6,328		4,846		3,196		163,258
Net loss attributable to Pyxus International, Inc.	—		(1,537)		—		—		—		(13)		(1,550)



Other comprehensive loss, net of tax	—		—		(4,801)		(1,562)		(1,768)		—		(8,131)
Balance, September 30, 2022	$	390,290	$	(235,013)	$	(12,727)	$	4,766	$	3,078	$	3,183	$	153,577









Balance, March 31, 2021	$	391,089	$	(136,686)	$	(4,649)	$	541	$	(2,625)	$	6,270	$	253,940
Net loss attributable to Pyxus International, Inc.	—		(11,508)		—		—		—		(120)		(11,628)
Other	—		(8)		—		—		—		8		—

Other comprehensive income, net of tax	—		—		689		—		4,328		—		5,017
Balance, June 30, 2021	391,089		(148,202)		(3,960)		541		1,703		6,158		247,329
Net loss attributable to Pyxus International, Inc.	—		(9,681)		—		—		—		(342)		(10,023)
Other	—		—		—		—		—		(88)		(88)


Other comprehensive loss, net of tax	—		—		(1,591)		(512)		(2,896)		—		(4,999)
Balance, September 30, 2021	$	391,089	$	(157,883)	$	(5,551)	$	29	$	(1,193)	$	5,728	$	232,219

See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended
(in thousands)	September 30, 2022		September 30, 2021
Operating Activities:
Net loss	$	(16,055)	$	(21,651)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	10,284		8,170
Debt amortization/interest	10,401		11,656

Loss on foreign currency transactions	970		2,605
Asset impairment charges	4,035		5,689


Loss on deconsolidation/disposition of subsidiaries	648		2,456
Loss on pension settlement	2,588		—
Income (loss) from unconsolidated affiliates, net of dividends	6,217		9,248



Changes in operating assets and liabilities, net
Trade and other receivables	(48,424)		(113,830)
Inventories and advances to tobacco suppliers	(146,470)		(67,108)
Deferred items	(19,089)		333
Recoverable income taxes	(3,481)		(28,991)
Payables and accrued expenses	(76,646)		(60,783)
Advances from customers	(9,238)		21,411
Prepaid expenses	2,069		2,875
Income taxes	(281)		(8,582)
Other operating assets and liabilities	6,421		11,171
Other, net	(10,617)		(5,813)
Net cash used by operating activities	(286,668)		(231,144)

Investing Activities:
Purchases of property, plant, and equipment	(5,426)		(8,568)
Proceeds from sale of property, plant, and equipment	2,114		1,571
Collections on beneficial interests on securitized trade receivables	76,209		82,649

DIP loan to deconsolidated subsidiary	—		(5,229)
Collection of DIP loan from deconsolidated subsidiary	—		10,996
Proceeds from settlement of debt claims from deconsolidated subsidiaries	2,011		—

Other, net	477		(1,185)
Net cash provided by investing activities	75,385		80,234

Financing Activities:
Net proceeds from short-term borrowings	176,302		85,047
Proceeds from DDTL facility	—		117,600
Repayment of DDTL facility	(110,250)		—
Proceeds from term loan facility	100,000		—
Proceeds from revolving loan facilities	45,000		—
Repayment of revolving loan facilities	(80,000)		(11,000)

Debt issuance costs	(5,544)		(6,300)


Fees paid to refinance the DDTL facility	(4,000)		—
Other, net	340		126
Net cash provided by financing activities	121,848		185,473

Effect of exchange rate changes on cash	3,894		(1,223)


Pyxus International, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)
	Six Months Ended
(in thousands)	September 30, 2022		September 30, 2021
(Decrease) increase in cash, cash equivalents, and restricted cash	(85,541)		33,340
Cash and cash equivalents at beginning of period	198,777		92,705
Restricted cash at beginning of period	2,537		5,008
Cash, cash equivalents, and restricted cash at end of period	$	115,773	$	131,053

Other information:
Cash paid for income taxes, net	$	11,235	$	12,030
Cash paid for interest, net	37,906		41,838


Noncash investing activities:


Noncash amounts obtained as a beneficial interest in exchange for transferring trade receivables in a securitization transaction	70,662		91,742





See "Notes to Condensed Consolidated Financial Statements"




Pyxus International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except per share data)
Note 1	Basis of Presentation and Summary of Significant Accounting Policies	10
Note 2	New Accounting Standards	10
Note 3	Revenue Recognition	10
Note 4	Restructuring and Asset Impairment	11
Note 5	Income Taxes	11
Note 6	Loss Per Share	11
Note 7	Inventories, Net	12
Note 8	CCAA Proceeding and Deconsolidation of Subsidiaries	12
Note 9	Equity Method Investments	13
Note 10	Variable Interest Entities	13
Note 11	Other Intangible Assets, Net	14
Note 12	Debt Arrangements	15
Note 13	Securitized Receivables	17
Note 14	Guarantees	18
Note 15	Derivative Financial Instruments	18
Note 16	Fair Value Measurements	19
Note 17	Pension and Other Postretirement Benefits	19
Note 18	Contingencies and Other Information	20
Note 19	Related Party Transactions	20
Note 20	Segment Information	21
Note 21	Subsequent Events	23

1. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements represent the consolidation of Pyxus International, Inc. (the "Company", "Pyxus", "we", or "us") and all companies that Pyxus directly or indirectly controls, either through majority ownership or otherwise. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. Intercompany accounts and transactions have been eliminated.

These condensed consolidated interim financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended March 31, 2022 filed on June 14, 2022. Due to the seasonal nature of the Company’s business, the results of operations for a fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year.

Segment Information

During the year ended March 31, 2022, the Company reevaluated its operating and reportable segments under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 280 - Segment Reporting. As a result of this reevaluation, effective as of the fourth quarter of the fiscal year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category and are aggregated into one reportable segment for financial reporting purposes: Leaf. Based on our reevaluation, the Company concluded that the economic characteristics of our five Leaf region operations in North America, South America, Europe, Asia, and Africa were similar. Each geographic region derives its revenues mainly from shipping processed tobacco to manufacturers of cigarettes and other consumer tobacco products around the world, with a smaller percentage of revenue in each region being derived from performing third-party tobacco processing services. The three product category operating segments other than Leaf do not individually or in the aggregate meet the quantitative and qualitative thresholds to be individually reportable and have been combined and reported in the "All Other" category for purposes of reconciliation of respective balances for the Leaf segment to the condensed consolidated financial statements. Prior-period segment financial information has been revised to conform to the current-year presentation. See "Note 20. Segment Information" for additional information.

2. New Accounting Standards

Recently Adopted Accounting Pronouncements

In November 2021, the FASB issued Accounting Standards Update ("ASU") No. 2021-10, Disclosures by Business Entities about Government Assistance. This ASU created ASC Topic 832, Government Assistance, and requires certain information be disclosed regarding assistance received from a government entity when either a grant or contribution accounting model is applied. The new disclosures are required for annual periods for transactions with a government entity that are within the scope of the Topic. The new disclosure guidance was adopted prospectively and became effective for the Company on April 1, 2022. The adoption of this new accounting standard is not expected to have a material impact on the Company's annual disclosures for fiscal year 2023.

3. Revenue Recognition

Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process customer-owned green tobacco. During processing, ownership remains with the customers. All Other revenue is primarily composed of revenue from the sale of e-liquids and non-tobacco agriculture products. The following disaggregates sales and other operating revenues by major source, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment (the Company's sole reportable segment) to the condensed consolidated financial statements:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Leaf:
Product revenue	$	475,599	$	357,716	$	798,483	$	669,457
Processing and other revenues	30,342		33,239		48,084		51,356
Total sales and other operating revenues	505,941		390,955		846,567		720,813
All Other:
Total sales and other operating revenues	2,337		3,246		5,616		6,678
Total sales and other operating revenues	$	508,278	$	394,201	$	852,183	$	727,491

The following summarizes activity in the allowance for expected credit losses:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Balance, beginning of period	$	(23,330)	$	(21,133)	$	(24,541)	$	(20,900)
Additions	(860)		(2,508)		(1,025)		(2,888)
Write-offs	492		—		1,868		147
Balance, end of period	(23,698)		(23,641)		(23,698)		(23,641)
Trade receivables	228,722		228,568		228,722		228,568
Trade receivables, net	$	205,024	$	204,927	$	205,024	$	204,927

4. Restructuring and Asset Impairment Charges

The Company continued its focus on cost saving initiatives. The employee separation and asset impairment charges for the periods ended September 30, 2022 were primarily related to the restructuring of certain non-leaf agriculture operations. The employee separation and asset impairment charges for the periods ended September 30, 2021 were primarily related to the write-off of the Company's remaining industrial hemp cannabidiol ("CBD") extraction equipment and the continued restructuring of certain leaf operations. The following summarizes the Company's restructuring and asset impairment charges:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Employee separation charges	$	10	$	1,256	$	310	$	1,403
Asset impairment and other non-cash charges	4,035		5,603		4,035		5,689
Restructuring and asset impairment charges	$	4,045	$	6,859	$	4,345	$	7,092

5. Income Taxes

The Company's quarterly provision for income taxes has generally been calculated using the annual effective tax rate method ("AETR method"), which applies an estimated annual effective tax rate to pre-tax income or loss. The AETR method was used to calculate the provision for income taxes for the prior fiscal years, for which the Company reported income tax benefits in each prior reporting period. As of September 30, 2022, the AETR method produced an unreliable estimate of the Company’s annual effective tax rate; therefore, the Company recorded its interim income tax provision using the discrete method, as allowed under ASC 740-270, Income Taxes - Interim Reporting. Using the discrete method, the Company determined current and deferred income tax expense as if the six-month interim period of the current fiscal year were an annual period.

The effective tax rate for the six months ended September 30, 2022 and 2021 was 8.9% and 51.2%, respectively. For the six months ended September 30, 2022 and 2021, the difference between the Company’s effective rate and the U.S. statutory rate of 21.0% is primarily due to the impact of net foreign exchange effects, non-deductible interest, and variations in the expected jurisdictional mix of earnings.

6. Loss Per Share

The following summarizes the computation of loss per share:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Basic and diluted loss per share:
Net loss attributable to Pyxus International, Inc.	$	(1,537)	$	(9,681)	$	(16,200)	$	(21,189)
Shares:
Weighted average number of shares outstanding	25,000		25,000		25,000		25,000
Basic and diluted loss per share	$	(0.06)	$	(0.39)	$	(0.65)	$	(0.85)

7. Inventories, Net

The following summarizes the composition of inventories, net:


	September 30, 2022		September 30, 2021		March 31, 2022
Processed tobacco	$	712,078	$	605,424	$	517,613
Unprocessed tobacco	131,867		162,676		193,406
Other tobacco related	34,577		21,374		29,694
All Other	11,575		12,954		8,714
Total	$	890,097	$	802,428	$	749,427

8. CCAA Proceeding and Deconsolidation of Subsidiaries

On January 21, 2021, Figr Norfolk Inc. ("Figr Norfolk"), Figr Brands, Inc. ("Figr Brands"), and Canada’s Island Garden Inc. ("Figr East," and together with Figr Norfolk and Figr Brands, the "Canadian Cannabis Subsidiaries"), which, prior to their disposition, were indirect subsidiaries of the Company, applied for relief from their respective creditors pursuant to Canada’s Companies’ Creditors Arrangement Act (the "CCAA") in the Ontario Superior Court of Justice (Commercial List) (the "Canadian Court") in Ontario, Canada as Court File No. CV-21-00655373-00CL (the "CCAA Proceeding"). On January 21, 2021 (the "Order Date"), upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment of FTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the "Monitor"). The administration of the CCAA Proceeding, including the Canadian Court's appointment of the Monitor and the related authority of the Monitor, including approval rights with respect to significant actions of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding, resulted in the Company losing control (in accordance with U.S. GAAP) of the Canadian Cannabis Subsidiaries at that time, and the deconsolidation on January 20, 2021 of the Canadian cannabis Subsidiaries' assets and liabilities and elimination of their equity components from the Company's consolidated financial statements as of January 21, 2021. Prior to the deconsolidation of the Canadian Cannabis Subsidiaries, they comprised an operating segment within the Other Products and Services reportable segment, which upon the Company's reevaluation of operating and reportable segments effective during the fourth quarter of the fiscal year ended March 31, 2022 is presented in the All Other category. Upon deconsolidation, the Company accounts for its investments in the Canadian Cannabis Subsidiaries using the cost method of accounting.

On January 29, 2021, the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be conducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries. On January 28, 2022, a sale of the assets of Figr Norfolk for a purchase price of Cdn.$5,000 was completed. On June 28, 2021, a sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an aggregate purchase price of Cdn.$24,750 was completed. On February 2, 2022, Figr Norfolk and Figr Brands obtained approval to make cash distributions to their creditors pursuant to a distribution protocol approved by the Canadian Court. In the three months ended June 30, 2022, the Company received $2,011 in settlement of its debt claims with respect to the Canadian Cannabis Subsidiaries and did not receive any recovery with respect to its equity interest in the Canadian Cannabis Subsidiaries. On April 21, 2022, Figr Norfolk and Figr Brands obtained approval from the Canadian Court to terminate the CCAA Proceedings and commence bankruptcy proceedings under Canada's Bankruptcy and Insolvency Act (the "BIA Proceedings") to complete certain corporate and tax-related wind-up activities. On May 13, 2022, Figr Norfolk and Figr Brands commenced the BIA Proceedings. On June 13, 2022, the CCAA Proceedings were formally terminated.

Related Party Relationship

The commencement of the CCAA Proceeding, the appointment of the Monitor, and the subsequent deconsolidation of the Canadian Cannabis Subsidiaries results in transactions with the Canadian Cannabis Subsidiaries no longer being eliminated in consolidation. As such, transactions between the Company and the Canadian Cannabis Subsidiaries, including loans under the debtor-in-possession financing facility (the "Canadian DIP Facility") from another non-U.S. subsidiary of Pyxus (the "DIP Lender") provided during the pendency of the CCAA Proceedings, which were fully repaid on July 8, 2021, are treated as related party transactions. See "Note 19. Related Party Transactions" for transactions between the Company and the Canadian Cannabis Subsidiaries.

9. Equity Method Investments

The following summarizes the Company's equity method investments as of September 30, 2022:

Investee Name

Location

Primary Purpose

Ownership Percentage

Basis Difference

Adams International Ltd.

Thailand

Purchase and process tobacco

49%

(4,526)

Alliance One Industries India Private Ltd.

India

Purchase and process tobacco

49%

(5,770)

China Brasil Tobacos Exportadora SA

Brazil

Purchase and process tobacco

49%

44,805

Oryantal Tütün Paketleme Sanayi ve Ticaret A.Ş.

Turkey

Process tobacco

50%

(416)

Purilum, LLC

U.S.

Produce flavor formulations and consumable e-liquids

50%

4,589

Siam Tobacco Export Company

Thailand

Purchase and process tobacco

49%

(6,098)

The following summarizes financial information for these equity method investments:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operations statement:
Sales	$	62,275	$	32,513	$	131,657	$	63,945
Gross profit	5,766		2,448		19,855		6,114
Net income	3,913		3,206		12,243		306
Company's dividends received	1		18		11,523		8,866


	September 30, 2022		September 30, 2021		March 31, 2022
Balance sheet:
Current assets	$	414,911	$	280,561	$	375,015
Property, plant, and equipment and other assets	38,113		43,675		42,841
Current liabilities	336,815		214,321		289,816
Long-term obligations and other liabilities	2,463		3,144		2,999

10. 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:



	September 30, 2022		September 30, 2021		March 31, 2022
Investments in variable interest entities	$	81,988	$	80,205	$	88,118
Receivables with variable interest entities	1,882		7,721		2,211
Guaranteed amounts to variable interest entities (not to exceed)	64,448		55,991		55,884

11. Other Intangible Assets, Net

The following summarizes the changes in the Company's goodwill and other intangible assets, net:



	Six Months Ended September 30, 2022
	Weighted Average Remaining Useful Life	Beginning Carrying Amount, Net		Amortization Expense		Ending Intangible Assets, Net
Intangibles subject to amortization:
Customer relationships	9.9 years	$	23,568	$	(1,998)	$	21,570
Technology	5.6 years	11,471		(1,767)		9,704
Trade names	11.9 years	10,022		(404)		9,618


Total		$	45,061	$	(4,169)	$	40,892



	Year Ended March 31, 2022
	Weighted Average Remaining Useful Life	Beginning Carrying Amount, Net		Additions		Amortization Expense		Disposition of Humble Juice		Impairment		Ending Intangible Assets, Net
Intangibles subject to amortization:
Customer relationships	10.3 years	$	27,730	$	—	$	(2,427)	$	(1,735)	$	—	$	23,568

Technology	5.8 years	12,858		840		(2,227)		—		—		11,471

Trade names	12.4 years	10,829		—		(807)		—		—		10,022
Intangibles not subject to amortization:
Goodwill		36,853		—		—		(4,667)		(32,186)		—
Total		$	88,270	$	840	$	(5,461)	$	(6,402)	$	(32,186)	$	45,061

12. Debt Arrangements

The following summarizes debt and notes payable:


				September 30,		September 30,		March 31,
(in thousands)	Interest Rate			2022		2021		2022
Senior secured credit facilities:
ABL Credit Facility	4.1	%	(1)	$	55,000	$	—	$	90,000
Exit ABL Credit Facility	5.8	%	(1)	—		56,500		—
Term Loan Facility (2)	10.3	%	(1)	96,464		—		—
DDTL Facility	10.7	%	(1)	—		119,263		107,832
Senior secured notes:
10.0% senior secured first lien notes (3)	10.0	%		272,621		269,007		270,762

Exit Term Loan Credit Facility (4)	9.8	%	(1)	221,606		217,510		219,500
Other long-term debt	3.0	%	(1)	574		2,879		239
Notes payable to banks (5)	6.0	%	(1)	548,490		457,699		378,612
Total debt				$	1,194,755	$	1,122,858	$	1,066,945
Short-term (5)				$	548,490	$	457,699	$	378,612
Long-term:
Current portion of long-term debt				$	140	$	121,926	$	107,856
Long-term debt				646,125		543,233		580,477
Total				$	646,265	$	665,159	$	688,333

Letters of credit				$	14,292	$	9,244	$	9,038

(1) Weighted average rate for the trailing twelve months ended September 30, 2022. As the ABL Credit Facility and the Term Loan Facility have not been outstanding for a trailing twelve-month period, the interest rate is the weighted average rate from inception through September 30, 2022.
(2) Balance of $96,464 is net of original issue discount of $3,536. Total repayment will be $100,000, subject to a 2.0% exit fee payable upon repayment occurring after July 28, 2023.
(3) Balance of $272,621 is net of original issue discount of $8,222. Total repayment will be $280,844.
(4) The aggregate balance of the Exit Term Loan Credit Facility of $221,606 includes $5,932 of accrued paid-in-kind interest.
(5) Primarily foreign seasonal lines of credit.

ABL Credit Facility

On February 8, 2022, Pyxus Holdings, certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the "Borrowers"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc., as parent guarantors, entered into an ABL Credit Agreement (the "ABL Credit Agreement"), dated as of February 8, 2022, by and among Pyxus Holdings, as Borrower Agent, the Borrowers and parent guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, to establish an asset-based revolving credit facility (the "ABL Credit Facility"), the proceeds of which may be used to refinance existing senior bank debt, pay fees and expenses related to the ABL Credit Facility, partially fund capital expenditures, and provide for the ongoing working capital needs of the Borrowers. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial maximum principal amount of $100,000, subject to the limitations described below in this paragraph. The ABL Credit Facility includes a $20,000 uncommitted accordion feature that permits Pyxus Holdings, under certain conditions, to solicit the lenders under the ABL Credit Facility to provide additional revolving loan commitments to increase the aggregate amount of the revolving loan commitments under the ABL Credit Facility not to exceed a maximum principal amount of $120,000. 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. A detailed description of the ABL Credit Agreement is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At September 30, 2022, Pyxus Holdings was in compliance with the covenants under the ABL Credit Agreement.

Exit ABL Credit Facility

On August 24, 2020, Pyxus Holdings entered into the Exit ABL Credit Agreement to establish the Exit ABL Credit Facility. The Exit ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to an initial

maximum principal amount of $75,000, subject to certain limitations. On February 8, 2022, Pyxus Holdings terminated the Exit ABL Credit Agreement and repaid $56,500 outstanding thereunder with proceeds from the initial borrowing under the ABL Credit Facility.

DDTL Facility

On April 23, 2021, Intabex Netherlands B.V. ("Intabex"), an indirect wholly owned subsidiary of the Company, entered into a Term Loan Credit Agreement (the "DDTL Facility Credit Agreement"), dated as of April 23, 2021 (the "Closing Date"), by and among (i) Intabex, as borrower, (ii) the Company, Pyxus Parent, Inc., Pyxus Holdings, Inc., Alliance One International, LLC, Alliance One International Holdings, Ltd, as guarantors (collectively, the "Parent Guarantors"), (iii) certain funds managed by Glendon Capital Management, L.P. and Monarch Alternative Capital LP, as lenders (collectively and, together with any other lender that is or becomes a party thereto as a lender, the "DDTL Facility Lenders"), and (iv) Alter Domus (US) LLC, as administrative agent and collateral agent (the "DDTL Agent"). The DDTL Facility Credit Agreement established a $120,000 delayed-draw term loan credit facility (the "DDTL Facility") under which the full amount has been drawn (the "DDTL Loans"). After that date, a fund managed by Owl Creek Asset Management, L.P. became a lender under the DDTL Facility. The proceeds of the DDTL Loans were used to provide working capital and for other general corporate purposes of Intabex, the Guarantors (as defined below) and their subsidiaries.

The obligations of Intabex under the DDTL Facility Credit Agreement (and certain related obligations) are (a) guaranteed by the Parent Guarantors and Alliance One International Tabak B.V., an indirect subsidiary of the Company, and each of the Company’s domestic and foreign subsidiaries that is or becomes a guarantor of borrowings under the Term Loan Credit Agreement (which subsidiaries are referred to collectively, together with the Parent Guarantors, as the "Guarantors"), and (b) are secured by the pledge of all of the outstanding equity interests of (i) Alliance One Brasil Exportadora de Tabacos Ltda. ("AO Brazil"), which principally operates the Company’s leaf tobacco operations in Brazil, and (ii) Alliance One International Tabak B.V., which owns a 0.001% interest of AO Brazil. A detailed description of the DDTL Facility Credit Agreement is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Amendment and Restatement of DDTL Facility Credit Agreement

On June 2, 2022, Intabex, the Company and the Guarantors entered into an Amendment and Restatement Agreement dated as of June 2, 2022 (the "Amendment and Restatement Agreement") with the DDTL Facility Lenders and the DDTL Agent to, subject to the satisfaction of customary closing conditions, amend and restate the DDTL Facility Credit Agreement as set forth in the form of an Amended and Restated Term Loan Credit Agreement (the "Amended Credit Agreement"), appended to the Amendment and Restatement Agreement, among (i) Intabex, as borrower, (ii) the Company and the Guarantors, (iii) the DDTL Facility Lenders and any other lender that becomes a party thereto (collectively, the "Term Loan Lenders"), and (iv) the DDTL Agent, as administrative agent and collateral agent. On July 28, 2022 (the "Amendment and Restatement Effectiveness Date"), following the satisfaction of the conditions to effectiveness specified in the Amendment and Restatement Agreement, the amendment and restatement of the DDTL Facility Credit Agreement by the Amended Credit Agreement became effective.

The Amended Credit Agreement establishes a $100,000 term loan credit facility (the "Term Loan Facility") and requires that Intabex use the net proceeds of the loans made thereunder (the "Term Loans") and other funds to repay in full its obligations under the DDTL Facility Credit Agreement, including the outstanding principal of, and accrued and unpaid interest on, borrowings under the DDTL Facility on the Amendment and Restatement Effectiveness Date and the payment of fees and expenses incurred in connection with repaying such borrowings and entering into the Amended Credit Agreement.

The Amended Credit Agreement provides that the Term Loans may be prepaid at any time, with a 2.0% fee due with respect to any principal payment made after the one-year anniversary of the Amendment and Restatement Effectiveness Date, including a payment made at maturity. The Amended Credit Agreement further provides that amounts of principal that are prepaid may not be reborrowed under the Term Loan Facility. Under the Amended Credit Agreement, interest on the outstanding principal amount of the Term Loans accrues at an annual rate of SOFR plus 7.5%, subject to a SOFR floor of 1.0%, for "SOFR loans" or, for loans that are not SOFR loans, at an annual rate of an alternate base rate (as specified in the Amended Credit Agreement and subject to a specified floor) plus 6.5%. Interest is to be paid in arrears in cash upon prepayment, acceleration, maturity, and on the last day of each interest period (which may be one, three or six months) for SOFR loans and on the last day of each calendar quarter for loans that are not SOFR loans. Pursuant to the Amended Credit Agreement, the Term Loan Lenders received on the Amendment and Restatement Effectiveness Date a non-refundable commitment fee equal to 3.0% of the aggregate commitments under the Term Loan Facility and a closing fee equal to 1.0% of the aggregate commitments under the Term Loan Facility, as original issue discount. The Term Loans mature on December 2, 2023.

Under the Amended Credit Agreement, the obligations of Intabex under the Amended Credit Agreement (and certain related obligations) continue to be guaranteed and secured by the same guarantors of, and the same collateral securing, Intabex’s obligations under the DDTL Facility Credit Agreement. At September 30, 2022, Intabex and each of the Guarantors was in compliance with the covenants under the Amended Credit Facility.

Related Party Transactions

Based on a Schedule 13D/A filed with the SEC on October 19, 2022 by Glendon Capital Management, L.P. (the "Glendon Investor"), Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., the Glendon Investor reported beneficial ownership of 7,939 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on Form 4 filed with the SEC on July 15, 2021, as well as a Schedule 13D filed with the SEC on September 3, 2020 by Monarch Alternative Capital LP (the "Monarch Investor"), MDRA GP LP and Monarch GP LLC, the Monarch Investor reported beneficial ownership of 6,140 shares of the Company’s common stock, representing approximately 24.6% of the outstanding shares of the Company’s common stock. Based on a Schedule 13G/A filed with the SEC on February 10, 2022 by Owl Creek Asset Management, L.P. and Jeffrey A. Altman, Owl Creek Asset Management, L.P. is the investment manager of certain funds and reported beneficial ownership of 2,405 shares of the Company’s common stock on December 31, 2021, representing approximately 9.6% of the outstanding shares of the Company’s common stock. A representative of the Glendon Investor and a representative of the Monarch Investor servce as directors of Pyxus.

The DDTL Facility Credit Agreement, the Amendment and Restatement Agreement, the Amended Credit Agreement and any and all borrowings under the DDTL Facility Credit Agreement and the Amended Credit Agreement and the guaranty transactions described above were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm’s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.

Senior Secured First Lien Notes

On the August 24, 2020, Pyxus Holdings issued approximately $280,844 in aggregate principal amount of the Notes to holders of Allowed First Lien Notes Claims pursuant to the Indenture dated as of August 24, 2020 (the "Indenture") among Pyxus Holdings, the initial guarantors party thereto, and Wilmington Trust, National Association, as trustee and collateral agent. The Notes mature on August 24, 2024. A detailed description of the Notes and the Indenture is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At September 30, 2022, Pyxus Holdings was in compliance with the covenants under the Indenture.

Exit Term Loan Credit Facility

On August 24, 2020, Pyxus Holdings entered into the Exit Term Loan Credit Agreement by and among, amongst others, Pyxus Holdings, certain lenders party thereto and Alter Domus (US) LLC, as administrative agent and collateral agent to establish the Exit Term Loan Credit Facility in an aggregate principal amount of approximately $213,418. The aggregate principal amount of loans outstanding under Debtors’ debtor-in-possession financing facility, and related fees, was converted into, or otherwise satisfied with the proceeds of, the Exit Term Loan Credit Facility. The Exit Term Loans and the Exit Term Credit Facility mature on February 24, 2025. A detailed description of the Exit Term Loan Credit Agreement and Exit Term Loan Credit Facility is included in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022. At September 30, 2022, Pyxus Holdings was in compliance with the covenants under the Exit Term Loan Credit Agreement.

Short-Term Seasonal Lines of Credit

Excluding all long-term credit agreements, the Company typically finances its foreign operations with uncommitted short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 365 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the unilateral right to cease making loans and demand repayment of loans at any time or at specified dates. These loans are generally renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are secured by trade receivables and inventories as collateral and are guaranteed by the Company and certain of its subsidiaries. As of September 30, 2022, the total borrowing capacity under individual foreign seasonal lines of credit range up to $148,000, which includes the lines of credit of certain of the Company's African subsidiaries with Eastern and Southern African Trade and Development Bank ("TDB"). As of September 30, 2022, the aggregate amount available for borrowing under the seasonal lines of credit was $165,900. At September 30, 2022, the Company, and its subsidiaries, were in compliance with the covenants associated with its short-term seasonal lines of credit.

13. Securitized Receivables

The Company sells trade receivables to unaffiliated financial institutions under three accounts receivable securitization facilities, two of which are subject to annual renewal. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells 100% of the receivables to an unaffiliated financial institution. As of September 30, 2022, the investment limit of this facility was $100,000 of trade receivables. For the other facilities, the Company offers trade receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. As of September 30, 2022, the investment limit under the second facility was $80,000 of trade receivables. As of September 30, 2022, the investment limit under the third facility was variable based on qualifying sales. As the servicer of the first and second facilities, the Company may receive funds that are due to the unaffiliated financial institutions, which are net settled on the next settlement date. As of September 30, 2022 and 2021, and March 31, 2022, trade

receivables, net in the condensed consolidated balance sheets has been reduced by $5,108, $4,843, and $1,872 as a result of the net settlement, respectively. Refer to "Note 16. Fair Value Measurements" for additional information.

The following summarizes the Company's accounts receivable outstanding in the securitization facilities, which represents trade receivables sold into the program that have not been collected from the customer, and related beneficial interests, which represents the Company's residual interest in receivables sold that have not been collected from the customer:


	September 30, 2022		September 30, 2021		March 31, 2022

Receivables outstanding in facility	$	149,523	$	119,254	$	131,092
Beneficial interests	22,842		26,055		28,072

Cash proceeds from the sale of trade receivables is comprised of a combination of cash and a deferred purchase price receivable. Deferred purchase price receivable is realized after the collection of the underlying trade receivables sold by the purchasers. The following summarizes the Company's cash purchase price and deferred purchase price:


	Six Months Ended
	September 30,
	2022		2021
Cash proceeds for the period ended:
Cash purchase price	$	320,256	$	216,497
Deferred purchase price	76,209		82,649

Total	$	396,465	$	299,146

14. Guarantees

In certain markets, the Company guarantees bank loans for suppliers to finance their crops. The Company also guarantees bank loans of certain unconsolidated subsidiaries. The following summarizes amounts guaranteed and the fair value of those guarantees:



	September 30, 2022		September 30, 2021		March 31, 2022
Amounts guaranteed (not to exceed)	$	103,434	$	93,982	$	114,208
Amounts outstanding under guarantee (1)	26,460		14,777		49,413
Fair value of guarantees	1,206		343		2,956
Amounts due to local banks on behalf of suppliers for government subsidized rural credit financing	102		—		15,781
(1) Most of the guarantees outstanding at September 30, 2022 expire within one year.

15. 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 $1,848 and $2,710 from its derivative financial instruments in cost of goods and services sold for the three and six months ended September 30, 2022, respectively. The Company recorded a net gain of $647 and $1,062 from its derivative financial instruments in cost of goods and services sold for the three and six months ended September 30, 2021, respectively. As of September 30, 2022 and 2021, the Company recorded current derivative assets of $0 and $1,523 within other current assets and current derivative liabilities of $531 and $634 within accrued expenses and other current liabilities, respectively. The U.S. Dollar notional amount of derivative contracts outstanding as of September 30, 2022 and 2021 was $32,000 and $72,522, respectively.

16. Fair Value Measurements

The following summarizes the financial assets and liabilities measured at fair value on a recurring basis:



	September 30, 2022						September 30, 2021						March 31, 2022
	Level 2		Level 3		Total at Fair Value		Level 2		Level 3		Total at Fair Value		Level 2		Level 3		Total at Fair Value
Financial Assets:
Derivative financial instruments	$	—	$	—	$	—	$	1,523	$	—	$	1,523	$	9,867	$	—	$	9,867
Securitized beneficial interests	—		22,842		22,842		—		26,056		26,056		—		28,072		28,072
Total assets	$	—	$	22,842	$	22,842	$	1,523	$	26,056	$	27,579	$	9,867	$	28,072	$	37,939
Financial Liabilities:
Derivative financial instruments	$	531	$	—	$	531	$	634			$	634	$	—	$	—	$	—
Long-term debt	417,542		577		418,119		446,770		3,127		449,897		447,843		246		448,089
Guarantees	—		1,206		1,206		—		343		343		—		2,956		2,956
Total liabilities	$	418,073	$	1,783	$	419,856	$	447,404	$	3,470	$	450,874	$	447,843	$	3,202	$	451,045

The following summarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:


	Three Months Ended
	September 30, 2022						September 30, 2021
	Securitized Beneficial Interests		Long-Term Debt		Guarantees		Securitized Beneficial Interests		Long-Term Debt		Guarantees
Beginning balance	$	22,762	$	660	$	2,601	$	20,271	$	3,164	$	1,962
Issuances of sales of receivables/guarantees	—		—		481		53,243		—		274
Settlements	(39,395)		—		(808)		(45,979)		(37)		(1,678)
Additions	41,816		—		—		—		—		—
Losses recognized in earnings	(2,341)		(83)		(1,068)		(1,479)		—		(215)
Ending balance	$	22,842	$	577	$	1,206	$	26,056	$	3,127	$	343


	Six Months Ended
	September 30, 2022						September 30, 2021
	Securitized Beneficial Interests		Long-Term Debt		Guarantees		Securitized Beneficial Interests		Long-Term Debt		Guarantees
Beginning balance	$	28,072	$	246	$	2,956	$	19,370	$	3,162	$	1,740
Issuances of sales of receivables/guarantees	—		—		687		91,741		—		497
Settlements	(72,756)		—		(1,343)		(82,674)		(37)		(1,704)
Additions	71,082		370		—		—		2		—
Losses recognized in earnings	(3,556)		(39)		(1,094)		(2,381)		—		(190)
Ending balance	$	22,842	$	577	$	1,206	$	26,056	$	3,127	$	343

For the six months ended September 30, 2022 and 2021, the impact to earnings attributable to the change in unrealized losses on securitized beneficial interests was $597 and $826, respectively.

17. 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 expected to occur during the three-month period ending December 31, 2022. During the three months ended September 30, 2022, the Company settled benefits with vested participants that elected a lump sum payout and made a cash contribution of $5,300 to fully fund the U.S. Pension Plan's liabilities in preparation to purchase a group annuity contract to administer future payments to the remaining U.S. Pension Plan participants. In addition, the Company recorded a pension settlement charge of $2,588

during the three months ended September 30, 2022, which included the reclassification of unrecognized pension gains within accumulated other comprehensive loss within the Company's condensed consolidated statements of operations. The amount of unrecognized pension gains within accumulated other comprehensive loss related to the remaining U.S. pension plans is approximately $3,839 at September 30, 2022.

18. 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 September 30, 2022, the assessment for intrastate trade tax credits taken is $2,436 and the total assessment including penalties and interest is $9,218. 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 September 30, 2022, the assessment for intrastate trade tax credits taken is $2,107 and the total assessment including penalties and interest is $5,936. 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 $15,456. 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.

19. Related Party Transactions

The Company engages in transactions with its equity method investees primarily for the procuring and processing of inventory. The following summarizes sales and purchases transactions with related parties:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Sales	$	9,928	$	8,176	$	20,550	$	18,813
Purchases	50,555		25,331		76,396		47,673

The Company included the following related party balances in its condensed consolidated balance sheets:



	September 30, 2022		September 30, 2021		March 31, 2022		Location in the Condensed Consolidated Balance Sheets
Accounts receivable, related parties	$	2,657	$	5,611	$	1,896	Other receivables
Notes receivable, related parties	—		3,519		1,431		Other receivables

Accounts payable, related parties	13,537		13,451		41,747		Accounts payable
Advances from related parties	—		14,550		15,240		Advances from customers

Transactions with Significant Shareholders

On August 24, 2020, the Company entered into an Exit Term Loan Credit Agreement and issued Senior Secured First Lien Notes with certain lenders, including the Glendon Investor and the Monarch Investor.

On April 23, 2021, the Company and certain of its subsidiaries with certain funds managed by the Glendon Investor and the Monarch Investor, as lenders, and related matters entered into a $120,000 delayed-draw credit facility agreement (see "Note 12. Debt Arrangements" for additional information). After that date, a fund managed by Owl Creek Asset Management, L.P.

became a lender under the DDTL Facility. On December 30, 2021, the Company repaid $15,375 of the DDTL facility. On June 2, 2022, Intabex, the Company and the Guarantors entered into an Amendment and Restatement Agreement with the DDTL Facility Lenders and the DDTL Agent to amend and restate the DDTL Facility Credit Agreement as set forth in Amended Credit Agreement, which became effective on July 28, 2022 (see "Note 12. Debt Arrangements" for additional information). In connection with the effectiveness of the Amended Credit Agreement, the Glendon Investor, the Monarch Investor, and a fund managed by Owl Creek Asset Management, L.P. received $5,119 of the aggregate $5,250 in exit fee payments from the repayment of the principal amount under the DDTL Facility. The Glendon Investor, the Monarch Investor and a fund managed by Owl Creek Asset Management, L.P. received in the aggregate $3,900 of the total $4,000 in commitment and closing fees, which were reflected as original issue discount, paid to all Term Loan Lenders in connection with the aggregate $97,500 principal amount of the Term Loans made by them of the total $100,000 aggregate principal amount of the Term Loans made by all Term Loan Lenders.

Accrued expenses and other current liabilities as presented in the condensed consolidated balance sheets as of September 30, 2022 and 2021, and March 31, 2022, includes $4,085, $4,369, and $3,984, respectively, of interest payable to the Glendon Investor, the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P. Interest expense as presented in the condensed consolidated statements of operations includes $8,133 and $16,230 for the three and six months ended September 30, 2022, respectively, and $8,537 and $16,036 for the three and six months ended September 31, 2021, respectively, that relates to the Glendon Investor, the Monarch Investor, and funds managed by Owl Creek Asset Management, L.P.

Transactions with the Deconsolidated Canadian Cannabis Subsidiaries

In connection with the CCAA Proceeding, the DIP Lender, another non-U.S. subsidiary of the Company, provided Figr Brands with secured debtor-in-possession financing to fund the working capital needs of the Canadian Cannabis Subsidiaries in accordance with the cash flow projections approved by the Monitor and the DIP Lender. These payments also funded fees and expenses paid to the DIP Lender, professional fees and expenses incurred by the Canadian Cannabis Subsidiaries and the Monitor in respect of the CCAA Proceeding, and such other costs and expenses of the Canadian Cannabis Subsidiaries as agreed to by the DIP Lender. On July 8, 2021, the loans under the Canadian DIP Facility were fully repaid to the DIP Lender.

20. Segment Information

The following summarizes segment information, with the All Other category being included for purposes of reconciliation of the respective balances below of the Leaf segment (the Company's sole reportable segment) to the condensed consolidated financial statements:


	Three Months Ended				Six Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Sales and other operating revenues:
Leaf	$	505,941	$	390,955	$	846,567	$	720,813
All Other	2,337		3,246		5,616		6,678
Consolidated sales and other operating revenues	$	508,278	$	394,201	$	852,183	$	727,491

Segment operating income:
Leaf	$	35,800	$	19,616	$	47,429	$	34,394
All Other	(4,619)		(7,303)		(8,996)		(13,644)
Segment operating income	31,181		12,313		38,433		20,750

Restructuring and asset impairment charges	4,045		6,859		4,345		7,092

Consolidated operating income	$	27,136	$	5,454	$	34,088	$	13,658



	September 30, 2022		September 30, 2021		March 31, 2022
Segment assets:
Leaf	$	1,651,217	$	1,609,233	$	1,641,552
All Other	46,848		66,323		56,975
Total assets	$	1,698,065	$	1,675,556	$	1,698,527

21. Subsequent Events

Securitized Receivables

On November 3, 2022, the investment limit of the second securitization facility described in "Note 13. Securitized Receivables" was increased from $80,000 to $110,000 of trade receivables.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended March 31, 2022 and in our other filings with the Securities and Exchange Commission. These risks and uncertainties include:

•risks related to the Company's indebtedness, including that the Company has substantial debt which may adversely affect it by limiting future sources of financing, interfering with its ability to pay interest, and principal on its indebtedness and subjecting it to additional risks, the Company requires a significant amount of cash to service indebtedness and its ability to generate cash depends on many factors beyond its control, the Company may not be able to refinance or renew its indebtedness, which may have a material adverse effect on its financial condition, the Company may not be able to satisfy the covenants included in its financing arrangements, which could result in the default of its outstanding debt obligations, and despite current indebtedness levels, the Company may still be able to incur substantially more debt, which could exacerbate further the risks associated with its significant leverage;

•risks and uncertainties relating to the Company's liquidity, including but not limited to: whether foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level cease to provide such funding, uncertainty and continuing risks associated with the Company’s ability to achieve its goals and continue as a going concern, and unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity;

•risk and uncertainties related to the Company’s leaf tobacco operations, including changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of short-term seasonal financing, political instability, currency and interest rate fluctuations, the impact of high inflation, shifts in the global supply and demand position for tobacco products, changes in tax laws and regulations or the interpretation of tax laws and regulations, resolution of tax matters, adverse weather conditions, the impact of climate change on weather patterns in tobacco-growing regions, the impact of disasters or other unusual events affecting international commerce, the impacts of international sanctions on the Company's ability to sell or source tobacco in certain regions, changes in governmental regulations applicable to tobacco products, and changes in costs incurred in supplying products and related services; and

•risks and uncertainties related to the COVID-19 pandemic, including possible delays in shipments of leaf tobacco, including from the closure or restricted activities at ports or other channels, disruptions to the Company’s operations or the operations of suppliers and customers resulting from restrictions on the ability of employees and others in the supply chain to travel and work, border closures, determinations by Pyxus or shippers to temporarily suspend operations in affected areas, whether safety concerns related to COVID-19 might otherwise require operations at any of the Company's facilities to be halted or limited for some period of time, negative consumer purchasing behavior with respect to the Company’s products or the products of its leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and the extent to which the impact of the COVID-19 pandemic on the Company’s operations and the demand for its products may not coincide with impacts experienced in the United States due to the international scope of its operations, including in emerging and other markets in which the Company operates where the timing and severity of COVID-19 outbreaks, governmental reactions to the threat of outbreaks, and the pace and efficacy of COVID-19 vaccinations may differ from those in the United States.

We do not undertake to update any forward-looking statements that we may make from time to time.

Executive Summary

Through the first half of fiscal 2023, we reduced supply chain complexities and increased operational efficiencies. These efforts result in more normalized shipments in certain markets compared to the prior year. During the quarter ended September 30, 2022, we experienced increased sales and other operating revenue and operating margin improvement primarily due to increased demand and more normalized timing of shipments from Africa, Asia, and South America. This enabled the Company to utilize cash generated from increased sales in the quarter to refinance the Delayed Draw Term Loan Facility, repay a portion of the revolving loan facilities, and fully fund the U.S. defined benefit pension plan.

As of September 30, 2022, our inventory increased $87.7 million compared to the prior year primarily due to higher green tobacco prices and processing costs in South America and delayed shipments from North America. Our processed tobacco inventory continues to be more than 90% committed to specific customers. The overall increase in inventory and our committed inventory levels for processed tobacco position us to meet near-term demand.

The prevailing La Nina weather patterns continue to adversely affect the global supply of tobacco. Through our efforts to accelerate buying activities in certain key markets, investments we have made across the business, and engaging with customers in transparent dialogue regarding the impacts of La Nina and inflation on our business, we purchased sufficient volume to meet near-term customer demand and maintained our gross profit as a percentage of sales despite historic inflation. As we approach the second half of fiscal 2023, we are closely monitoring the market for crop inputs like fertilizer and taking steps to mitigate the near-term risk of supply shortages where possible.

Overview

The Company 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.

Historically, the Company had nine operating segments that were organized by product category and geographic area and were aggregated into three reportable segments for financial reporting purposes: Leaf - North America, Leaf - Other Regions, and Other Products and Services. During year ended March 31, 2022, the Company reevaluated its operating and reportable segments under ASC Topic 280 - Segment Reporting. As a result of this reevaluation, effective during the fourth quarter of the year ended March 31, 2022, the Company has eight operating segments organized by geographic area and product category and are aggregated into one reportable segment for financial reporting purposes: Leaf. An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results. See "Note 1. Basis of Presentation and Summary of Significant Accounting Policies" for additional information.

Results of Operations


Three Months Ended September 30, 2022 and 2021
	Three Months Ended September 30,
							Change
(in millions, except per kilo amounts)	2022			2021			$	%
Sales and other operating revenues	$	508.3		$	394.2		114.1	28.9
Cost of goods and services sold	441.0			342.1			98.9	28.9
Gross profit	67.3			52.1			15.2	29.2
Gross profit as a percent of sales	13.2		%	13.2		%
Selling, general, and administrative expenses	35.0			37.9			(2.9)	(7.7)
Other expense, net	1.2			1.8			(0.6)	(33.3)
Restructuring and asset impairment charges	4.0			6.9			(2.9)	(42.0)

Operating income	27.1			5.5			21.6	392.7
Loss on deconsolidation/disposition of subsidiaries	—			2.5			(2.5)	(100.0)
Loss on pension settlement	2.6			—			2.6	100.0


Interest expense, net	28.8			28.5			0.3	1.1


Income tax benefit	1.2			14.1			(12.9)	(91.5)
Income from unconsolidated affiliates	1.6			1.3			0.3	23.1
Net income (loss) attributable to noncontrolling interests	—			(0.3)			0.3	100.0
Net loss attributable to Pyxus International, Inc.*	$	(1.5)		$	(9.7)		8.2	84.5

Leaf:
Sales and other operating revenues	$	475.6		$	357.7		117.9	33.0
Tobacco costs	388.7			292.9			95.8	32.7
Transportation, storage, and other period costs	23.9			18.8			5.1	27.2
Total cost of goods sold*	412.5			311.7			100.9	32.4
Product revenue gross profit*	63.1			46.1			17.0	36.9
Product revenue gross profit as a percent of sales	13.3		%	12.9		%

Kilos sold	101.4			86.3			15.1	17.5
Average price per kilo	$	4.69		$	4.14		0.55	13.3
Average cost per kilo	4.07			3.61			0.46	12.7
Average gross profit per kilo	0.62			0.53			0.09	17.0

Processing and other revenues	$	30.3		$	33.2		(2.9)	(8.7)
Processing and other revenues costs of services sold	23.0			24.6			(1.6)	(6.4)
Processing and other gross profit*	7.3			8.7			(1.3)	(15.4)
Processing and other gross profit as a percent of sales	24.2		%	26.1		%

All Other:
Sales and other operating revenues	$	2.3		$	3.2		(0.9)	(28.0)
Cost of goods and services sold	5.4			5.8			(0.4)	(6.8)
Gross loss	(3.1)			(2.6)			(0.5)	(19.9)
Gross loss as a percent of sales	(132.5)		%	(79.6)		%





* Amounts may not equal column totals due to rounding

Sales and other operating revenues were $394.2 million for the three months ended September 30, 2021 and $508.3 million for the three months ended September 30, 2022, an increase of $114.1 million, or 28.9%. This increase was primarily due to a 17.5% increase in leaf volume and a 13.3% increase in average price per kilo. The increase in leaf volume was driven by increased demand and more normalized timing of shipments from Africa, Asia, and South America and was partially offset by the timing of shipments from North America. The increase in average price per kilo was mainly due to higher tobacco prices.

Cost of goods and services sold were $342.1 million for the three months ended September 30, 2021 and $441.0 million for the three months ended September 30, 2022, an increase of $98.9 million, or 28.9%. This increase was mainly due to the increase in sales and other operating revenues. Average cost per kilo increased primarily due to higher tobacco prices.

Gross profit was $52.1 million for the three months ended September 30, 2021 and $67.3 million for the three months ended September 30, 2022, an increase of $15.2 million, or 29.2%. This increase was mainly due to the increase in sales and other operating revenues. Gross profit as a percent of sales was 13.2% for the three months ended September 30, 2022 and 2021.

Operating income was $5.5 million for the three months ended September 30, 2021 and $27.1 million for the three months ended September 30, 2022, an increase of $21.6 million. This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo, lower restructuring and impairment charges, and a reduction in sales, general, and administrative expenses.

Income tax benefit was $14.1 million for the three months ended September 30, 2021 and $1.2 million for the three months ended September 30, 2022, a decrease of $12.9 million, or 91.5%. The decrease was driven by the Company utilizing a different method for estimating tax expense (benefit) for the period ended September 30, 2022. Using the discrete method for the period ended September 30, 2022, the Company determined current and deferred income tax expense (benefit) as if the six-month interim period of the current fiscal year were an annual period, which resulted in the recognition of the fiscal 2023 year-to-date benefit in the quarter. Refer to See "Note 5. Income Taxes" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Average gross profit per kilo for product revenue was $0.53 for the three months ended September 30, 2021 and $0.62 for the three months ended September 30, 2022, an increase of $0.09 per kilo or 17.0%. This increase was primarily due to a favorable shift in customer and product mix. The impact of this increase was partially offset by lower gross profit from processing and other revenues and increased gross loss in the All Other category.


Six Months Ended September 30, 2022 and 2021
	Six Months Ended September 30,
							Change
(in millions, except per kilo amounts)	2022			2021			$	%
Sales and other operating revenues	$	852.2		$	727.5		124.7	17.1
Cost of goods and services sold	744.1			633.3			110.8	17.5
Gross profit	108.1			94.2			13.9	14.8
Gross profit as a percent of sales	12.7		%	12.9		%
Selling, general, and administrative expenses	69.6			71.8			(2.2)	(3.1)
Other expense, net	0.1			1.7			(1.6)	(94.1)
Restructuring and asset impairment charges	4.3			7.1			(2.8)	(39.4)

Operating income*	34.1			13.7			20.4	148.9
Loss on deconsolidation/disposition of subsidiaries	0.6			2.5			(1.9)	(76.0)
Loss on pension settlement	2.6			—			2.6	100.0


Interest expense, net	54.3			55.3			(1.0)	(1.8)


Income tax benefit	2.1			22.6			(20.5)	(90.7)
Income (loss) from unconsolidated affiliates	5.3			(0.1)			5.4	5,400.0
Net income (loss) attributable to noncontrolling interests	0.1			(0.5)			0.6	120.0
Net loss attributable to Pyxus International, Inc.*	$	(16.2)		$	(21.2)		5.0	23.6

Leaf:
Sales and other operating revenues	$	798.5		$	669.5		129.0	19.3
Tobacco costs	654.6			544.7			110.0	20.2
Transportation, storage, and other period costs	44.5			40.3			4.2	10.5
Total cost of goods sold*	699.1			584.9			114.2	19.5
Product revenue gross profit*	99.3			84.5			14.8	17.5
Product revenue gross profit as a percent of sales	12.4		%	12.6		%

Kilos sold	173.5			155.4			18.1	11.6
Average price per kilo	$	4.60		$	4.31		0.29	6.7
Average cost per kilo	4.03			3.76			0.27	7.2
Average gross profit per kilo	0.57			0.55			0.02	3.6

Processing and other revenues	$	48.1		$	51.4		(3.3)	(6.4)
Processing and other revenues costs of services sold	35.5			37.0			(1.4)	(3.8)
Processing and other gross profit*	12.5			14.4			(1.9)	(12.9)
Processing and other gross profit as a percent of sales	26.1		%	28.0		%

All Other:
Sales and other operating revenues	$	5.6		$	6.7		(1.1)	(15.9)
Cost of goods and services sold	9.4			11.3			(1.9)	(16.8)
Gross loss	(3.8)			(4.6)			0.8	18.2
Gross loss as a percent of sales	(67.8)		%	(69.6)		%





* Amounts may not equal column totals due to rounding

Sales and other operating revenues were $727.5 million for the six months ended September 30, 2021 and $852.2 million for the six months ended September 30, 2022, an increase of $124.7 million, or 17.1%. This increase was primarily due to an 11.6% increase in leaf volume and a 6.7% increase in average price per kilo. The increase in kilo volume was driven by increased demand and more normalized timing of shipments from Asia and was partially offset by the timing of shipments from North America and South America. The increase in average sales price per kilo was mainly due to higher tobacco prices.

Cost of goods and services sold were $633.3 million for the six months ended September 30, 2021 and $744.1 million for the six months ended September 30, 2022, an increase of $110.8 million, or 17.5%. This increase was mainly due to the increase in sales and other operating revenues. Average cost per kilo increased primarily due to higher tobacco prices.

Gross profit was $94.2 million for the six months ended September 30, 2021 and $108.1 million for the six months ended September 30, 2022, an increase of $13.9 million, or 14.8%. This increase was mainly due to the increase in sales and other operating revenues. Gross profit as a percent of sales went from 12.9% for the six months ended September 30, 2021 to 12.7% for the six months ended September 30, 2022. This decrease was primarily due to customer mix in South America and higher inventory write-downs within the All Other category from the restructuring of certain non-leaf agriculture operations.

Operating income was $13.7 million for the six months ended September 30, 2021 and $34.1 million for the six months ended September 30, 2022, an increase of $20.4 million, or 148.9%. This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo, lower restructuring and impairment charges, and a reduction in sales, general, and administrative expenses.

Income tax benefit was $22.6 million for the six months ended September 30, 2021 and $2.1 million for the six months ended September 30, 2022, a decrease of $20.5 million, or 90.7%. This decrease was driven by the Company utilizing a different method for estimating tax expense (benefit) for the period ended September 30, 2022. Using the discrete method for the period ended September 30, 2022, the Company determined current and deferred income tax expense (benefit) as if the six-month interim period of the current fiscal year were an annual period, which resulted in the recognition of the fiscal 2023 year-to-date benefit in the quarter. Refer to See "Note 5. Income Taxes" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Average gross profit per kilo for product revenue was $0.57 for the six months ended September 30, 2021 and $0.55 for the six months ended September 30, 2022, an increase of $0.02 per kilo or 3.6%. This increase was primarily due to a favorable change in customer and product mix. The impact of the increase was partially offset by lower gross profit from processing and other revenues.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash generated from operations, cash collections from our securitized receivables, and short-term borrowings under our foreign seasonal lines of credit. Our liquidity requirements are affected by various factors from our core tobacco leaf business, including crop seasonality, foreign currency and interest rates, green tobacco prices, customer mix, crop size, and quality. Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly compared to year end. The first three quarters of our fiscal year generally represent the peak of our working capital requirements.

We believe our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months. During such time our liquidity needs for operations may approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in a deficiency in liquidity. To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.

Debt Financing

We continue to finance our business with a combination of short-term and long-term credit lines, the long-term debt securities, advances from customers, and cash from operations when available. See "Note 12. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for a summary of our short-term and long-term debt.

We continuously monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. From time to time we may take steps to reduce our debt or otherwise improve our financial position. Such actions

could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and refinancing of debt. The amount of prepayments or the amount of debt that may be repurchased, refinanced, or otherwise retired, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.

The following summarizes our total borrowing capacity under our short-term and long-term credit lines and letter of credit facilities and the remaining available amount after the reduction for outstanding borrowings and amounts reserved for outstanding letters of credit:


	September 30, 2022
(in millions)	Total Borrowing Capacity		Remaining Amount Available

ABL Credit Facility	$	100.0	$	45.0
Foreign seasonal lines of credit	714.4		165.9
Other long-term debt	0.6		0.1
Letters of credit	18.4		4.1
Total	$	833.4	$	215.1

Net Debt

We refer to "Net debt", a non-GAAP measure, as total debt liabilities less cash and cash equivalents. We believe this non-GAAP financial measure is useful to monitor leverage and to evaluate changes to the Company's capital structure. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt and that cash held in certain jurisdictions can be applied to repay obligations owing in other jurisdictions and without reduction for applicable taxes. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.


(in millions)	September 30, 2022		September 30, 2021		March 31, 2022
Notes payable to banks(1)	$	548.5	$	457.7	$	378.6
Current portion of long-term debt(2)	0.1		121.9		107.9
Long-term debt(2)	646.1		543.2		580.5
Total debt liabilities*	$	1,194.8	$	1,122.9	$	1,066.9
Less: Cash and cash equivalents	114.1		127.6		198.8
Net debt*	$	1,080.7	$	995.2	$	868.2
* Amounts may not equal column totals due to rounding

(1) The increase from September 30, 2021 to September 30, 2022 is due to higher borrowings under the Company's foreign seasonal lines of credit used to finance higher green tobacco prices and processing costs in Africa and South America as well as increased borrowing capacity in certain markets. The increase from March 31, 2022 to September 30, 2022 is due to seasonality of the business, with higher working capital requirements in the first half of the fiscal year.
(2) The decrease in current portion of long-term debt and the increase in long-term debt from September 30, 2021 and March 31, 2022 are due to the refinancing of the DDTL Facility on a long-term basis.

Working Capital

The following summarizes our working capital:



(in millions except for current ratio)	September 30, 2022		September 30, 2021		March 31, 2022
Cash, cash equivalents, and restricted cash	$	115.8	$	130.7	$	200.9
Trade and other receivables, net	220.6		223.7		260.2
Inventories and advances to tobacco suppliers	938.8		838.6		798.4
Recoverable income taxes	12.0		34.1		7.9
Prepaid expenses and other current assets	50.9		48.6		60.3
Total current assets*	$	1,338.1	$	1,275.6	$	1,327.6

Notes payable to banks	$	548.5	$	457.7	$	378.6
Accounts payable	103.5		72.1		179.0
Advances from customers	43.8		33.5		53.0
Accrued expenses and other current liabilities	76.0		72.6		82.2


Current portion of long-term debt	0.1		121.9		107.9
Other current liabilities	13.9		8.4		13.7
Total current liabilities*	$	785.8	$	766.3	$	814.4

Current ratio	1.7 to 1		1.7 to 1		1.6 to 1
Working capital	$	552.3	$	509.3	$	513.2
* Amounts may not equal column totals due to rounding

Working capital increased from September 30, 2021 to September 30, 2022 by $43.0 million, or 8.4%, primarily due to the refinancing of the DDTL Facility on a long-term basis as well as the increased capacity and higher utilization of securitization facilities, which resulted in decreased trade receivables despite higher sales. This increase in working capital was partially offset by increased inventory driven by higher green tobacco prices and processing costs in Africa and South America, which was financed by higher foreign seasonal lines of credit, and delayed shipments from North America.

Inventories

The following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:


(in millions)	September 30, 2022		September 30, 2021		March 31, 2022
Committed	$	677.9	$	536.9	$	471.9
Uncommitted	34.2		68.5		45.7
Total processed tobacco	$	712.1	$	605.4	$	517.6

Total processed tobacco increased from September 30, 2021 to September 30, 2022 by $106.7 million, or 17.6%, primarily due to increased foreign seasonal lines of credit used to finance higher green tobacco prices and processing costs in Africa and South America and delayed shipments from North America. See "Note 1. Basis of Presentation and Summary of Significant Accounting Policies" and "Note 7. Inventories" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Sources and Uses of Cash

We typically finance our non-U.S. tobacco operations with uncommitted short-term foreign seasonal lines of credit. These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 365 days, corresponding to the tobacco crop cycle in that market. These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans. These short-term foreign seasonal lines of credit are generally renewed at the outset of each tobacco season. We maintain various other financing arrangements to meet the cash requirements of our businesses. See "Note 12. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

We utilize capital in excess of cash flow from operations to finance accounts receivable, inventory, and advances to tobacco suppliers in foreign countries. In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.

As of September 30, 2022, our cash, cash equivalents, and restricted cash was $115.8 million of which approximately $46.1 million was held in foreign jurisdictions, certain of which are subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds. Fluctuation of the U.S. dollar versus many of the currencies in which we have costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.

The following summarizes the sources and uses of our cash flows:


	Six Months Ended
	September 30,
(in millions)	2022		2021
Trade and other receivables	$	(48.4)	$	(113.8)
Inventories and advances to tobacco suppliers	(146.5)		(67.1)
Recoverable income taxes	(3.5)		(29.0)
Payables and accrued expenses	(76.6)		(60.8)
Advances from customers	(9.2)		21.4
Other	(2.5)		18.2
Net cash used by operating activities	$	(286.7)	$	(231.1)
Collections on beneficial interests on securitized trade receivables	76.2		82.6
Other	(0.8)		(2.4)
Net cash provided by investing activities	$	75.4	$	80.2
Net proceeds from short-term borrowings	176.3		85.0
Proceeds from DDTL facility	—		117.6


Net repayment of revolving loan facilities	(35.0)		(11.0)
Other	(19.5)		(6.1)
Net cash provided by financing activities	121.8		185.5
Effect of exchange rate changes on cash	3.9		(1.2)
(Decrease) increase in cash, cash equivalents, and restricted cash*	$	(85.5)	$	33.3



* Amounts may not equal column totals due to rounding

Cash, cash equivalents, and restricted cash decreased by $118.8 million during the six months ended September 30, 2022 compared to the increase during the six months ended September 30, 2021. The decrease was primarily due to higher green tobacco prices and processing costs in Africa and South America and increased inventory from delayed shipments from North America, as well as decreased trade receivables from increased capacity and higher utilization of securitization facilities. The increase in inventory was financed by higher foreign seasonal lines of credit and increased capacity and higher utilization of trade receivable securitization facilities.

Planned Capital Expenditures

Capital investments in our leaf operations have been made primarily for routine replacement of machinery and equipment, as well as investments in assets that will add value for our customers and increase our efficiency. We have incurred approximately $5.4 million in capital expenditures for the six months ended September 30, 2022, and are expecting to incur an additional $15.9 million for the remainder of the fiscal year ending March 31, 2023.

Pension and Postretirement Health and Life Insurance Benefits

The following summarizes cash contributions to pension and postretirement health and life insurance benefits:


	Six Months Ended
(in millions)	September 30, 2022
Contributions made during the period (1)	$	8.4
Contributions expected for the remainder of the fiscal year	1.5
Total	$	9.9
(1) Includes $5.3 million paid during the current quarter to fully fund the U.S. Pension Plan's liabilities in preparation to purchase a group annuity contract to administer future payments to the remaining U.S. Pension Plan participants.

No cash dividends were paid to shareholders during the six months ended September 30, 2022. The payment of dividends is restricted under the terms of the ABL Credit Agreement, the Exit Term Loan Credit Agreement, and the Indenture.

Critical Accounting Policies and Estimates

As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part I, Item 7 "Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to our market risk exposures since March 31, 2022. For a discussion of our exposure to market risk, see Part II, Item 7A "Quantitative and Qualitative Disclosures About Market Risk" contained in our Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) designed to provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that this information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. Due to inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable assurance (not absolute) that the objectives of the disclosure controls and procedures are met.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as required by Rule 13a-15(b) of the Exchange Act), as of September 30, 2022. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective to provide reasonable assurance as of September 30, 2022.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated our internal control over financial reporting to determine whether any changes occurred during the quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

See "Note 18. Contingencies and Other Information" to the "Notes to Condensed Consolidated Financial Statements" for additional information with respect to legal proceedings, which are incorporated by reference herein.

Item 1A. Risk Factors

In addition to the other information set forth in this report and in our other filings with the Securities and Exchange Commission, investors should carefully consider our risk factors, which could materially affect our business, financial condition, or operating results. Except as set forth below, as of the date of this report, there are no material changes or updates to the risk factors previously disclosed in Part I, Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022.

The impact of potential regulations to prohibit the sale of cigarettes in the United States other than low-nicotine cigarettes, if they are adopted and become effective, is uncertain, but they could materially adversely affect our business, results of operations and financial condition.

In June 2022, the U.S. Food and Drug Administration (the "FDA") announced its plan to publish a proposed rule in 2023 that would prohibit the sale of cigarettes in the United States other than cigarettes having significantly reduced levels of nicotine. The definitive provisions of such a proposed rule have not yet been announced and any rule proposal is subject to public comment prior to being adopted by the FDA. Accordingly, the terms of any such final rule are uncertain and the date of effectiveness of such a rule is also uncertain. While the FDA announced that reducing the nicotine levels of cigarettes would reduce consumption of cigarettes by future generations and facilitate current smokers to stop consuming cigarettes, it is uncertain whether such potential regulations, if they are adopted and become effective, will have such effect. While the impact of such potential regulations on the Company is also uncertain, such regulations, if they are adopted and become effective, could materially adversely affect our business, results of operations and financial condition.

Item 6. Exhibits


31.01						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.02						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32						Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
101.INS						XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH						Inline XBRL Taxonomy Extension Schema (filed herewith)
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase (filed herewith)
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase (filed herewith)
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase (filed herewith)
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase (filed herewith)
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in the Interactive Data Files submitted as Exhibits 101.*)



SIGNATURE




Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						Pyxus International, Inc.



Date: November 10, 2022						/s/ Philip C. Garofolo
						Philip C. Garofolo
						Vice President - Chief Accounting Officer
						(Principal Accounting Officer)

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Pyxus International (PYYX) 10-Q2023 Q2 Quarterly report

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