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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-02-09 · 158 added, 301 removed, 121 unchanged (79% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Pyxus provides responsibly produced, independently verified, and traceable agricultural products, ingredients, and services to businesses and customers.

Headquartered in the Research Triangle Park region of North Carolina, we contract with growers across five continents to help them produce sustainable, compliant crops.

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, 2021 and in our other filings with the Securities and Exchange Commission.

These risks and uncertainties include:

• risks related to our 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 Chapter 11 Cases and the Company's liquidity and business strategy, including but not limited to:

whether the Company’s leaf tobacco customers, farmers and other suppliers might lose confidence in Pyxus as a result of the Chapter 11 Cases or otherwise and may seek to establish alternative commercial relationships, whether, as a result of the Chapter 11 Cases or otherwise, foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level may lose confidence in Pyxus and cease to provide such funding, uncertainty and continuing risks associated with the Company’s ability to achieve its goals, which may adversely affect the Company's liquidity, unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity, and the Company’s Board of Directors, as reconstituted in connection with the Chapter 11 Cases, may implement further changes in the Company’s business strategy that could affect the scope of its operations, including the countries in which it continues to operate and the business lines that it continues to pursue, and may result in the recognition of restructuring or asset impairment charges;

• 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, 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 disasters or other unusual events affecting international commerce, and changes in costs incurred in supplying products and related services;

• 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 the Company’s operations that have been classified as “essential” under various governmental orders restricting business activities will continue to be so classified or, even if so classified, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of our facilities to be halted 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 and the pace of COVID-19 vaccinations and treatments may differ from those in the United States;

• risks and uncertainties related to the Company’s Other Products and Services segment, including that the e-liquids business has a limited operating history, is in a developing market, may not generate the results that the Company anticipates and has needed, and may continue to need, significant investment to fund continued operations and expansion, that its technologies, processes and formulations may become obsolete, the impact of increasing competition, uncertainties with respect to the development of the industry and market, including the level of consumer demand for such products, the potential for product liability claims, uncertainties with respect to the extent of consumer acceptance of the products offered by the e-liquids business, the impact of regulation associated with the e‑liquids business, including the risk of obtaining anticipated regulatory approvals, and risks and uncertainties related to the CCAA Proceeding (as defined below), including whether the remaining sale transaction with respect to the Canadian Cannabis Subsidiaries (as defined below) will be successfully completed within the anticipated time frame or at all and the extent of any recovery, or additional impairment, that Pyxus may recognize with respect to its investment in these subsidiaries.

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

Executive Summary

In the first quarter we began to catch-up from prior-period shipping delays driven by the pandemic and customer shipping instructions.

We are continuing to monitor the impact of COVID on our Company and our workforce, and we will adjust our operations as needed to protect the health and safety of our employees while maintaining business continuity.

Proactive management of shipping logistics, including container availability and freight costs, remains a high priority as we adapt to the evolving global shipping conditions.

In addition, our inventory levels are consistent with our expectations and our uncommitted inventory decreased compared to the prior year.

We continue to customers look for ways to reduce complexity in their supply chains through partnerships with suppliers who support their environmental, social, and governance ("ESG") objectives.

We believe we are well-positioned to capitalize on additional opportunities with our customers.

Historically, Pyxus’ core business has been as a tobacco leaf merchant, purchasing, processing, packing, storing and shipping tobacco to manufacturers of cigarettes and other consumer tobacco products throughout the world.

Through our predecessor companies, we have a long operating history in the leaf tobacco industry with some customer relationships beginning in the early 1900s.

We are committed to responsible crop production that supports economic viability for the grower, provides a safe working atmosphere for those involved in crop production and minimizes negative environmental impact.

Our agronomists maintain frequent contact with growers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop.

Throughout the entire production process, from seed through processing and final shipment, our SENTRI SM traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity.

In an increasing number of markets, we also provide agronomy expertise for growing leaf tobacco.

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Pyxus is working to find markets for these crops as part of our ongoing efforts to improve farmer livelihoods and the communities in which they live.

We are committed to responsible crop production which supports economic viability for the grower, provides a safe working atmosphere for those involved in crop production, and minimizes negative environmental impact.

Our agronomists maintain frequent contact with growers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop.

Throughout the entire production process, from seed-to-sale, our SENTRI SM traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity.

Our consolidated operations are managed and reported in ten operating segments that are organized by product category and geographic area and aggregated into three reportable segments for financial reporting purposes:

Our consolidated operations are managed and reported in nine operating segments that are organized by product category and geographic area and aggregated into three reportable segments for financial reporting purposes:

Leaf - North America, Leaf - Other Regions, and Other Products and Services.

Due to the seasonal nature of our 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.

We continue to monitor the impact of the COVID-19 outbreak on our Company and our workforce.

In March 2020, the World Health Organization recognized the COVID-19 outbreak as a global pandemic.

The COVID-19 pandemic and government actions implemented to contain further spread of COVID-19 have severely restricted economic activity around the world.

Our production facilities are still operating but, in some instances, at lower production levels than planned due to social distancing requirements and safety practices implemented in accordance with Company policy.

We continue to monitor the measures we implemented to reduce the spread of COVID-19 and make updates and improvements, as necessary.

While our supply chains and distribution channels continue to experience delays due to COVID-19, we currently have adequate supply of products to meet the near-term forecasted demand.

In addition, we have experienced procedural delays during fulfillment of customer orders for leaf tobacco due to COVID-19.

Broad economic factors from the COVID-19 pandemic, including increasing unemployment rates and reduced consumer spending, may extend billing and collection cycles.

Deterioration in the collectability of accounts receivable from extended billing and collection cycles would adversely affect our results of operations, financial condition, and cash flows, leading to working capital constraints.

If general economic conditions continue to deteriorate or remain uncertain for an extended period of time, our business, results of operations, financial condition, and cash flows will be adversely affected.

We cannot predict the extent or duration of the COVID pandemic, the effects of the COVID pandemic on the global, national or local economy, or the effect of the COVID pandemic on our business, financial position, results of operations, and cash flows.

See "Note 24.

Segment Information" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Bankruptcy Proceedings

On June 15, 2020 (the “Petition Date”), Old Holdco, Inc.

On June 15, 2020, Old Holdco, Inc.

(then named Pyxus International, Inc.) (“Old Pyxus”) and its then subsidiaries Alliance One International, LLC, Alliance One North America, LLC, Alliance One Specialty Products, LLC and GSP Properties, LLC (collectively, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) under Chapter 11 of the United States Bankruptcy Code with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) to implement a prepackaged Chapter 11 plan of reorganization to effectuate a financial restructuring (the “Restructuring”) of Old Pyxus’ secured debt.

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In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a new Virginia corporation, Pyxus Holdings, Inc., which is an indirect subsidiary of the Company.

Pursuant to the

Confirmation Order and the Plan, at the effectiveness of the Plan all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company were delivered to certain creditors of Old Pyxus.

Refer to “Note 3.

Emergence from Voluntary Reorganization under Chapter 11” for additional information.

The Company applied Financial Accounting Standards Board (“FASB”) ASC Topic 852 – Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements.

For periods subsequent to the Chapter 11 filing, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business.

Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date (as defined below).

Our financial results for the five months ended August 31, 2020 and for the three and nine months ended December 31, 2019 are referred to as those of the “Predecessor.” Our financial results for the three and four months ended December 31, 2020 are referred to as those of the “Successor.” Our results of operations as reported in our Condensed Consolidated Financial Statements for these periods are prepared in accordance with fresh start reporting, which requires that we report on our results for the periods prior to the Effective Date separately from the period following the Effective Date.

The Company elected to apply fresh start reporting using a convenience date of August 31, 2020 (the "Fresh Start Reporting Date").

The Company evaluated and concluded the events between August 24, 2020 and August 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis.

Refer to " Note 4.

Fresh Start Reporting " for additional information.

We do not believe that reviewing the results of periods that span the Fresh Start Reporting Date in isolation would be useful in identifying any trends in or reaching any conclusions regarding our overall operating performance.

Management believes that operating metrics for the Successor for the four months ended December 31, 2020 when combined with those of the Predecessor for the five months ended August 31, 2020 provides a more meaningful comparison to the nine-month period ended December 31, 2019 and are useful in identifying current business trends.

Accordingly, in addition to presenting our results of operations as reported in our Condensed Consolidated Financial Statements in accordance with U.S.

GAAP, the table and discussion below also present the combined results for these periods.

The combined results (referenced as “Combined (Non-GAAP)” or “combined”) for the nine months ended December 31, 2020 represent the sum of the reported amounts for the Predecessor period April 1, 2020 through August 31, 2020 combined with the Successor period from September 1, 2020 through December 31, 2020.

These combined results are not considered to be prepared in accordance with U.S.

The combined operating results are presented for supplemental purposes only, may not reflect the actual results we would have achieved absent our emergence from bankruptcy, may not be indicative of future results and should not be viewed as a substitute for the financial results of the Predecessor period and Successor period presented in accordance with U.S.

In the following discussion of results of operations, comparisons of combined results for the nine-month period ended December 31, 2020 are to the comparable U.S.

GAAP measures for the nine-month period ended December 31, 2019.

Pursuant to the Confirmation Order and the Plan, at the effectiveness of the Plan, all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company were delivered to certain creditors of Old Pyxus.

Accordingly, upon the effectiveness of the Plan the Company, through its subsidiaries, operated all of the businesses operated by Old Pyxus and its subsidiaries immediately prior to the effectiveness of the Plan and the Company is the successor issuer to Old Pyxus.

Other than our Chief Executive Officer, our Board of Directors does not include any of the individuals who served as directors of Old Pyxus at the time the Chapter 11 Cases were commenced or at the effectiveness of the Plan.

Emergence from Voluntary Reorganization under Chapter 11" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Development of Businesses

Beginning in 2017, we undertook a strategic process designed to diversify the Company's products and services by leveraging our core strengths in agronomy and traceability.

In general, our diversification strategy focused on products that were value-added, required some degree of processing and offered a higher margin potential than our core tobacco leaf business.

In support of this strategy, the Company made investments in businesses that focused on e-liquids, industrial hemp/CBD, and legal cannabis in Canada.

Following the effectiveness of the Plan and the election of additional members of our Board of Directors in October 2020, our Board of Directors determined to exit the industrial hemp, CBD and Canadian cannabis businesses in light of the Company’s limited capital resources and the continuing capital requirements to develop and expand these early-stage businesses.

In December 2020, the Company commenced actions to exit operations of the industrial hemp businesses, including the production and sale of products containing extracts of industrial hemp, including CBD products, by Criticality.

Criticality’s CBD extraction facility has ceased operations.

CCAA Proceeding

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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.

Th ese and other related matters are discussed in greater detail in "Note 25.

Subsequent Events" to the "Notes to the Condensed Consolidated Financial Statements" included herein.

On May 10, 2021, a definitive agreement for the sale of the assets of Figr Norfolk was entered into for an estimated purchase price of Cdn.$5.0 million.

On June 10, 2021, the Canadian Court approved the sale agreement.

The consummation of the sale under this agreement is subject to approval of the buyers by Health Canada and the satisfaction of certain other conditions.

On May 25, 2021, a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an estimated aggregate purchase price of Cdn.$24.8 million.

On June 10, 2021, the Canadian Court approved the sale agreement.

On June 25, 2021, Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands.

The sale of Figr East and certain intangible assets of Figr Brands was completed on June 28, 2021.

The amount of recovery that the Company may receive from the sale of the assets of Figr Norfolk, the sale of the outstanding equity of Figr East, and the sale of certain intangible assets of Figr Brands will be impacted by the amount of claims against the Canadian Cannabis Subsidiaries submitted in the CCAA Proceeding, the extent to which such claims are approved by the

Canadian Court, and the extent to which the Company's interest in the Canadian Cannabis Subsidiaries are determined by the Canadian Court to be debt claims entitled to recovery on the same basis as other unsecured creditor claims with respect to the Canadian Cannabis Subsidiaries.

We continue to monitor the impact of the COVID-19 pandemic on our Company and our workforce.

The COVID-19 pandemic and government actions implemented to contain further spread of COVID-19 have severely restricted economic activity around the world, and the onset of new variants of COVID-19 threaten to prolong the effects of the pandemic.

We continue to monitor the measures we implemented to reduce the spread of COVID-19 and make updates and improvements, as necessary.

While our supply chains and distribution channels continue to experience delays due to COVID-19 in certain markets, we currently have adequate supply of products to meet the near-term forecasted demand.

We implemented various measures to reduce the spread of COVID-19 within our workforce including the implementation of health safety practices, providing personal protective equipment, the implementation of travel restrictions, work-from-home policies where possible, restricting visitors to production locations, splitting production workforce, reducing the on-site production workforce levels, screening workers before they enter facilities, implementing social distancing, and encouraging employees to adhere to prevention measures recommended by the Center for Disease Control and the World Health Organization.

In addition, we have developed a robust Return to the Workplace Program to ensure our employees are returning to a safe working environment as federal, state, and local governments begin lifting their COVID-19 related restrictions.

Broad economic impacts from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, may extend billing and collection cycles.

If general economic conditions in the markets in which we operate continue to deteriorate or remain uncertain for an extended period of time, our business, results of operations, financial condition, and cash flows will be adversely affected.

Due to the geographic scope of our operations, including emerging markets, and our sale to customers around the world, our operations and the demand for our products are subject to the impact of the COVID-19 on a global scale.

Improving economic conditions in the United States, for example, may not coincide with improvements in our results of operations because of our exposure to the impact of COVID-19 elsewhere in the world, particularly in emerging markets that lack access to adequate vaccines and medical treatments.

Fresh Start Reporting

The Company applied Financial Accounting Standards Board (“FASB”) ASC Topic 852 – Reorganizations (“ASC 852”) in preparing the condensed consolidated financial statements.

For periods subsequent to the commencement of the Chapter 11 Cases, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business.

Our financial results for the three months ended June 30, 2020 are referred to as those of the “Predecessor.” Our financial results for the three months ended June 30, 2021 are referred to as those of the “Successor.” Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with fresh start reporting, which requires that we report on our results for the periods prior to the Effective Date separately from the period following the Effective Date.

The Company elected to apply fresh start reporting using a convenience date of August 31, 2020 (the "Fresh Start Reporting Date").

The Company evaluated and concluded the events between August 24, 2020 and August 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis.

Refer to "Note 4.

Fresh Start Reporting" to the "Notes to Condensed Consolidated Financial Statements" for additional information.

Results of Operations

Three Months Ended December 31, 2020 and 2019

Three Months Ended June 30, 2021 and 2020

Successor Predecessor Change

(in millions) Three months ended December 31, 2020 Three months ended December 31, 2019 $ %

(in millions) Three months ended June 30, 2021 Three months ended June 30, 2020 $ %

Sales and other operating revenues $ 333.3 $ 262.8 $ 70.5 26.8

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Restructuring and asset impairment charges 0.2 0.1 0.1 100.0

Operating income 13.5 8.1 5.4 66.7

Interest expense 24.9 32.2 (7.3) (22.7)

Interest income 0.1 0.4 (0.3) (75.0)

Income tax expense (benefit) 4.5 (0.9) 5.4 600.0

Income from unconsolidated affiliates 7.6 0.3 7.3 2,433.3

Operating income (loss)* 8.2 (43.6) 51.8 118.8

Debt retirement expense — 0.8 (0.8) (100.0)

Interest expense, net 26.8 30.5 (3.7) (12.1)

Reorganization items — (26.9) 26.9 100.0

Income tax benefit (8.4) (8.2) (0.2) (2.4)

(Loss) income from unconsolidated affiliates (1.4) 0.8 (2.2) (275.0)

Net loss attributable to noncontrolling interests (0.1) (0.6) 0.5 83.3

Net loss attributable to Pyxus International, Inc.

$ (11.5) $ (92.2) $ 80.7 87.5

* Amounts may not equal column totals due to rounding

Sales and other operating revenues increased $16.3 million or 4.5% to $379.6 million for the three months ended December 31, 2020 from $363.3 million for the three months ended December 31, 2019.

This increase was due to a 5.4% increase in leaf volume and an increase in cannabinoid revenue attributable to sales occurring in most of the Canadian provinces as well as the launch of the GO!

cannabinoid product line.

These increases were partially offset by a 1.8% decrease in leaf average sales prices.

The 5.4% increase in leaf volume was driven by the timing of shipments in North America and South America and was partially offset by a decrease in volume from smaller crop sizes in Africa and shipping delays in Africa caused by the COVID-19 pandemic.

The 1.8% decrease in leaf average sales prices was attributable to product mix in Africa, Asia, and Europe having a lower concentration of lamina and was partially offset by product mix having a higher concentration of lamina in North America and changes in foreign exchange rates in Europe.

Cost of goods and services sold increased $8.9 million or 2.9% to $317.0 million for the three months ended December 31, 2020 from $308.1 million for the three months ended December 31, 2019.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit as a percent of sales increased to 16.5% for the three months ended December 31, 2020 from 15.2% for three months ended December 31, 2019.

This increase was attributable to lower conversion costs in South America and changes in foreign exchange rates in Europe.

These increases were partially offset by product mix in Africa, Asia, and Europe having a lower concentration of lamina and higher conversion costs in Africa.

Selling, general, and administrative expenses were $45.9 million for the three months ended December 31, 2020 and 2019.

Selling, general, and administrative expenses for the three months ended December 31, 2020 included $3.3 million of expenses associated with our emergence from the Chapter 11 Cases.

Selling, general, and administrative expenses for the three months ended December 31, 2019 included $1.9 million of costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment.

Restructuring and asset impairment charges increased $7.1 million or 1,014.3% to $7.8 million for the three months ended December 31, 2020 from $0.7 million for the three months ended December 31, 2019.

This increase was attributable to employee separation and impairment charges related to restructuring of certain U.S.

operations, which included the industrial hemp and CBD businesses, and the continued restructuring of certain African operations.

Interest expense decreased $7.3 million or 22.7% to $24.9 million for the three months ended December 31, 2020 from $32.2 million for the three months ended December 31, 2019.

This decrease was driven by lower outstanding long-term debt balances as well as lower balances on the African seasonal lines of credit.

Sales and other operating revenues increased $70.5 million, or 26.8%, to $333.3 million for the three months ended June 30, 2021 from $262.8 million for the three months ended June 30, 2020.

This increase was due to an 8.6% increase in leaf volume and a 17.4% increase in leaf average sales price.

The 8.6% increase in leaf volume was primarily due to $77.3 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from the fiscal year ended March 31, 2021 into the first quarter of the current fiscal year.

This increase was partially offset by the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and lower leaf volume in Asia mainly due to shipments delayed by the COVID-19 pandemic and shipping container availability.

The 17.4% increase in leaf average sales price was driven by product mix in Africa, Asia, Europe, and North America having a higher concentration of lamina.

This increase was partially offset by product mix having a lower concentration of lamina in South America.

Cost of goods and services sold increased $48.0 million, or 19.7%, to $291.2 million for the three months ended June 30, 2021 from $243.2 million for the three months ended June 30, 2020.

This increase was mainly due to the increase in sales and other operating revenues and was partially offset by a $15.1 million write-down of industrial hemp inventory in fiscal 2021 that was driven by a shift in expected future products mix in response to market supply conditions and continued market price compression.

Gross profit as a percent of sales increased to 12.6% for the three months ended June 30, 2021 from 7.5% for three months ended June 30, 2020.

This increase was attributable to the fiscal 2021 write-down of industrial hemp inventory, as described above, and lower conversion costs in Africa and South America and product mix in Africa, Asia, and Europe having a higher concentration of lamina.

This increase was partially offset by higher conversion costs in Asia, product mix having a lower concentration of lamina in South America, and foreign exchange rates in Asia and Europe.

Selling, general, and administrative ("SG&A") expenses decreased $27.0 million, or 44.4%, to $33.8 million for the three months ended June 30, 2021 from $60.8 million for the three months ended June 30, 2020 primarily due to expenses included in SG&A in fiscal 2021 for the Chapter 11 Cases that were incurred prior to the commencement of the Chapter 11 Cases, the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives.

SG&A expenses as a percent of sales decreased to 10.1% for the three months ended June 30, 2021 from 23.1% for the three months ended June 30, 2020 driven by increased sales and other operating revenues and the aforementioned decrease in SG&A expenses.

Reorganization items of $26.9 million were incurred in the prior fiscal year as a result of the Chapter 11 Cases.

Leaf - North America Supplemental Information

Successor Predecessor Change

(in millions, except per kilo amounts) Three months ended December 31, 2020 Three months ended December 31, 2019 $ %

(in millions, except per kilo amounts) Three months ended June 30, 2021 Three months ended June 30, 2020 $ %

Kilos sold 7.2 5.1 2.1 41.2

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Other expense, net (0.3) (0.3) — —

Restructuring and asset impairment charges 0.1 (0.1) 0.2 200.0

Operating income $ 4.5 $ 2.6 1.9 73.1

Total sales and other operating revenues increased $7.5 million or 14.2% to $60.5 million for the three months ended December 31, 2020 from $53.0 million for the three months ended December 31, 2019.

This increase was primarily due to 1.4% higher volume driven by the timing of shipments and product mix having a higher concentration of lamina.

Cost of goods and services sold increased $5.7 million or 12.1% to $52.7 million for the three months ended December 31, 2020 from $47.0 million for the three months ended December 31, 2019.

Operating income (loss) $ 2.6 $ (0.8) 3.4 425.0

Total sales and other operating revenues increased $19.9 million, or 66.6%, to $49.8 million for the three months ended June 30, 2021 from $29.9 million for the three months ended June 30, 2020.

This increase was primarily due to 41.2% higher volume due to $12.4 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the first quarter of the current fiscal year and a 26.6% increase in average sales price driven by product mix having a higher concentration of lamina.

Cost of goods and services sold increased $17.5 million, or 68.6%, to $43.0 million for the three months ended June 30, 2021 from $25.5 million for the three months ended June 30, 2020.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit as a percent of sales increased to 12.9% for the three months ended December 31, 2020 from 11.3% for the three months ended December 31, 2019.

This increase was primarily due to product mix having a higher concentration of lamina.

Gross profit as a percent of sales decreased to 13.7% for the three months ended June 30, 2021 from 14.7% for the three months ended June 30, 2020.

This decrease was primarily due to customer mix.

Leaf - Other Regions Supplemental Information

Successor Predecessor Change

(in millions, except per kilo amounts) Three months ended December 31, 2020 Three months ended December 31, 2019 $ %

Kilos sold 82.1 77.6 4.5 5.8

Tobacco sales and other operating revenues:

Sales and other operating revenues $ 298.4 $ 293.5 $ 4.9 1.7

Average price per kilo 3.63 3.78 (0.15) (4.0)

Processing and other revenues 12.0 13.0 (1.0) (7.7)

Total sales and other operating revenues 310.4 306.5 3.9 1.3

Tobacco cost of goods sold:

Tobacco costs 232.2 235.6 (3.4) (1.4)

Transportation, storage, and other period costs 12.0 12.2 (0.2) (1.6)

Derivative financial instrument and exchange losses (gains) 1.3 (0.8) 2.1 262.5

Total tobacco cost of goods sold 245.5 247.0 (1.5) (0.6)

Average cost per kilo 2.99 3.18 (0.19) (6.0)

Processing and other revenues cost of services sold 10.6 9.8 0.8 8.2

Total cost of goods and services sold 256.1 256.8 (0.7) (0.3)

Gross profit 54.3 49.7 4.6 9.3

Selling, general, and administrative expenses 29.9 25.3 4.6 18.2

Other (expense) income, net (0.7) 1.9 (2.6) (136.8)

Restructuring and asset impairment charges 2.6 0.8 1.8 225.0

Operating income $ 21.1 $ 25.5 $ (4.4) (17.3)

Total sales and other operating revenues increased $3.9 million or 1.3% to $310.4 million for the three months ended December 31, 2020 from $306.5 million for the three months ended December 31, 2019.

This increase was due to a 5.8% increase in volume, partially offset by a 4.0% decrease in average sales prices.

The increase in volume was driven by the timing of shipments in South America.

This volume increase was partially offset by a decrease in volume from smaller crop sizes in Africa and shipping delays in Africa caused by the COVID-19 pandemic.

The decrease in average sales prices was attributable to product mix in Africa, Asia, and Europe having a lower concentration of lamina and was partially offset by changes in foreign exchange rates in Europe.

Cost of goods and services sold decreased $0.7 million or 0.3% to $256.1 million for the three months ended December 31, 2020 from $256.8 million for the three months ended December 31, 2019.

This decrease was mainly due to changes in foreign currency exchange rates in Europe.

Gross profit as a percent of sales increased to 17.5% for the three months ended December 31, 2020 from 16.2% for the three months ended December 31, 2019.

This increase was attributable to lower conversion costs in South America and changes in foreign exchange rates in Europe.

These increases were partially offset by product mix in Africa, Asia, and Europe having a lower concentration of lamina and higher conversion costs in Africa.

Selling, general, and administrative expenses increased $4.6 million or 18.2% to $29.9 million for the three months ended December 31, 2020 from $25.3 million for the three months ended December 31, 2019.

Selling, general, and administrative expenses as a percent of sales increased to 9.6% for the three months ended December 31, 2020 from 8.3% for the three months ended December 31, 2019.

These increases were related to higher allocations of general corporate services.

These increases were partially offset by decreases in travel expenses caused by the COVID-19 pandemic and current year savings from restructuring initiatives.

Other Products and Services Supplemental Information

Successor Predecessor Change

(in millions) Three months ended December 31, 2020 Three months ended December 31, 2019 $ %

Sales and other operating revenues $ 8.6 $ 3.7 $ 4.9 132.4

Cost of goods and services sold 8.2 4.3 3.9 90.7

Gross profit (loss) 0.4 (0.6) 1.0 166.7

Selling, general, and administrative expenses 13.1 17.8 (4.7) (26.4)

Other income (expense), net 5.7 (1.6) 7.3 456.3

Restructuring and asset impairment charges 5.1 — 5.1 100.0

Operating loss $ (12.1) $ (20.0) $ 7.9 39.5

Sales and other operating revenues increased $4.9 million or 132.4% to $8.6 million for the three months ended December 31, 2020 from $3.7 million for the three months ended December 31, 2019.

This increase was primarily due to an increase in cannabinoid revenue attributable to sales occurring in most of the Canadian provinces, as well as the launch of the GO!

cannabinoid product line in Canada.

Cost of goods and services sold increased $3.9 million or 90.7% to $8.2 million for the three months ended December 31, 2020 from $4.3 million for the three months ended December 31, 2019.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit (loss) as a percent of sales was 4.7% for the three months ended December 31, 2020 compared to gross profit (loss) as a percent of sales of (16.2)% for the three months ended December 31, 2019.

This difference was due to lower conversion costs from higher sales volume.

Selling, general, and administrative expenses decreased $4.7 million or 26.4% to $13.1 million for the three months ended December 31, 2020 from $17.8 million for the three months ended December 31, 2019.

Selling, general, and administrative expenses as a percent of sales decreased to 152.3% for the three months ended December 31, 2020 from 481.1% for the three months ended December 31, 2019.

These decreases were mainly due to higher expenses in the prior year for the evaluation of a partial monetization of the Company's investments in certain businesses in this segment.

Restructuring and asset impairment charges of $5.1 million for the three months ended December 31, 2020 were incurred in connection with employee separation and impairment charges related to restructuring of certain U.S.

operations, which included the industrial hemp and CBD businesses.

Nine Months Ended December 31, 2020 and 2019

Successor Predecessor Combined

(Non-GAAP) Predecessor

(in millions) Four months ended December 31, 2020 Five months ended August 31, 2020 Nine months ended December 31, 2020 Nine months ended December 31, 2019

Sales and other operating revenues $ 497.4 $ 447.6 $ 945.0 $ 1,022.9

Cost of goods and services sold 424.5 402.6 827.1 867.9

Gross profit 72.9 45.0 117.9 155.1

Selling, general, and administrative expenses 61.6 87.9 149.5 142.6

Other income (expense), net 2.7 (0.5) 2.2 4.1

Restructuring and asset impairment charges 9.0 0.6 9.6 0.9

Operating income (loss) 5.0 (44.0) (39.0) 15.7

Debt retirement expense — 0.8 0.8 —

Interest expense 33.1 46.6 79.7 101.3

Interest income 0.2 1.4 1.6 3.0

Reorganization items — 106.0 106.0 —

Income tax (benefit) expense (6.1) 0.3 (5.8) 25.2

Income from unconsolidated affiliates 7.8 2.4 10.2 6.7

Net loss attributable to noncontrolling interests (0.5) (1.0) (1.5) (0.9)

Net (loss) income attributable to Pyxus International, Inc.* $ (13.5) $ 19.0 $ 5.5 $ (100.3)

* Amounts may not equal column totals due to rounding

Combined sales and other operating revenues decreased $77.9 million or 7.6% to $945.0 million for the nine months ended December 31, 2020 from $1,022.9 million for the nine months ended December 31, 2019.

This decrease was due to a 2.1% decrease in leaf volume, a 6.8% decrease in leaf average selling prices, and the global impact of the COVID-19 pandemic.

These decreases were partially offset by an increase in cannabinoid revenue attributable to sales occurring in most of the Canadian provinces, as well as the launch of the GO!

cannabinoid product line in Canada.

The 2.1% decrease in leaf volume was due to smaller crop sizes in Africa and the timing of shipments in Asia, Europe, and North America, partially due to the COVID-19 pandemic.

This decrease was partially offset by higher volume in Asia and South America driven by the timing of shipments.

The 6.8% decrease in leaf average sales prices was due to product mix in Europe and South America having a lower concentration of lamina and changes in foreign exchange rates in Europe and South America.

This decrease was partially offset by product mix having a higher concentration of lamina in Africa and North America.

Combined cost of goods and services sold decreased $40.8 million or 4.7% to $827.1 million for the nine months ended December 31, 2020 from $867.9 million for the nine months ended December 31, 2019.

This decrease was mainly due to the decrease in sales and other operating revenues and changes in foreign currency exchange rates in Europe and South America.

This decrease was partially offset by inventory write-offs of cannabis and industrial hemp inventory driven by a shift in expected future products mix in response to market supply conditions and continued market price compression.

Combined gross profit as a percent of sales decreased to 12.5% for the nine months ended December 31, 2020 from 15.2% for the nine months ended December 31, 2019.

This decrease was mainly due to the inventory write-downs described above.

This decrease was partially offset by product mix having a higher concentration of lamina in North America.

Combined selling, general, and administrative expenses increased $6.9 million or 4.8% to $149.5 million for the nine months ended December 31, 2020 from $142.6 million for the nine months ended December 31, 2019.

Combined selling, general, and administrative expenses as a percent of sales increased to 15.8% for the nine months ended December 31, 2020 from 13.9% for the nine months ended December 31, 2019.

These increases were driven by $21.8 million of expenses associated with our emergence from the Chapter 11 Cases.

These increases were partially offset by lower travel expenses caused by the COVID-19 pandemic, current year savings from restructuring initiatives, and $13.8 million of costs incurred to evaluate and develop plans for a potential partial monetization of interests in subsidiaries in the Other Products and Services segment in the prior year.

Combined restructuring and asset impairment charges increased $8.7 million or 966.7% to $9.6 million for the nine months ended December 31, 2020 from $0.9 million for the nine months ended December 31, 2019.

This increase was attributable to employee separation and impairment charges related to restructuring of certain U.S.

operations, which included the industrial hemp and CBD businesses, and the continued restructuring of certain African operations.

Combined interest expense decreased $21.6 million or 21.3% to $79.7 million for the nine months ended December 31, 2020 from $101.3 million for the nine months ended December 31, 2019.

This decrease was driven by lower outstanding long-term debt balances, as well as lower balances on the African seasonal lines of credit.

Combined reorganization items increased $106.0 million or 100% for the nine months ended December 31, 2020 and were incurred in connection with the Chapter 11 Cases.

Combined income tax expense decreased $31.0 million or 123.0% to a benefit of $5.8 million for the nine months ended December 31, 2020 from expense of $25.2 million for the nine months ended December 31, 2019.

This decrease was primarily due to the change in the effective tax rate to 21.8% for the nine months ended December 31, 2020 from (30.5%) for the nine months ended December 31, 2019 and the occurrence of certain discrete items during the nine months ended December 31, 2020.

Leaf - North America Supplemental Information

(in millions, except per kilo amounts) Successor Predecessor Combined

(Non-GAAP) Predecessor

Four months ended December 31, 2020 Five months ended August 31, 2020 Nine months ended December 31, 2020 Nine months ended December 31, 2019

Kilos sold 10.2 9.5 19.7 21.6

Tobacco sales and other operating revenues:

Sales and other operating revenues $ 63.7 $ 51.2 $ 114.9 $ 114.5

Average price per kilo 6.25 5.39 5.83 5.30

Processing and other revenues 16.8 6.5 23.3 24.9

Total sales and other operating revenues 80.5 57.7 138.2 139.4

Tobacco cost of goods sold:

Tobacco costs 50.2 39.3 89.5 88.5

Transportation, storage, and other period costs 5.1 5.6 10.7 13.8

Derivative financial instrument and exchange (gains) losses (0.1) 0.3 0.2 0.1

Total tobacco cost of goods sold 55.2 45.2 100.4 102.4

Average cost per kilo 5.41 4.76 5.10 4.74

Processing and other revenues cost of services sold 14.6 4.4 19.0 18.7

Total cost of goods and services sold 69.8 49.6 119.4 121.1

Gross profit 10.7 8.1 18.8 18.3

Selling, general, and administrative expenses 4.7 7.2 11.9 11.3

Other expense, net (0.3) (0.5) (0.8) (1.2)

Restructuring and asset impairment charges 0.3 — 0.3 (0.1)

Operating income $ 5.4 $ 0.4 $ 5.8 $ 5.9

Combined total sales and other operating revenues decreased $1.2 million or 0.9% to $138.2 million for the nine months ended December 31, 2020 from $139.4 million for the nine months ended December 31, 2019.

This decrease was due to a 8.8% decrease in volume attributable to timing of shipments.

This decrease was partially offset by a 10.0% increase in average sales price due to product mix having a higher concentration of lamina.

Combined cost of goods and services sold decreased $1.7 million or 1.4% to $119.4 million for the nine months ended December 31, 2020 from $121.1 million for the nine months ended December 31, 2019.

This decrease was mainly due to the decrease in sales and other operating revenues.

Combined gross profit as a percent of sales increased slightly to 13.6% for the nine months ended December 31, 2020 from 13.1% for the nine months ended December 31, 2019 due to a 10.0% increase in average sales price due to product mix having a higher concentration of lamina.

Leaf - Other Regions Supplemental Information

(in millions, except per kilo amounts) Successor Predecessor Combined

(Non-GAAP) Predecessor

Four months ended December 31, 2020 Five months ended August 31, 2020 Nine months ended December 31, 2020 Nine months ended December 31, 2019

(in millions, except per kilo amounts) Three months ended June 30, 2021 Three months ended June 30, 2020 $ %

Kilos sold 61.9 58.5 3.4 5.8

14 unchanged sentences

Selling, general, and administrative expenses 25.4 37.1 (11.7) (31.5)

Other (expense) income, net (0.1) 0.8 0.7 6.2

Other income, net 0.1 0.4 (0.3) (75.0)

Restructuring and asset impairment charges 0.2 0.1 0.1 100.0

Operating income (loss) $ 11.9 $ (6.2) $ 18.1 291.9

Combined total sales and other operating revenues decreased $79.9 million or 9.2% to $787.9 million for the nine months ended December 31, 2020 from $867.8 million for the nine months ended December 31, 2019.

This decrease was due to an 8.5% decrease in average sales prices and a 1.4% decrease in volume.

The decrease in average sales price was due to product mix in Europe and South America having a lower concentration of lamina and changes in foreign exchange rates in Europe and South America.

This decrease was partially offset by product mix in Africa having a higher concentration of lamina.

The decrease in volume was driven by smaller crop sizes in Africa and the timing of shipments in Africa and Europe, partially due to the COVID-19 pandemic.

This decrease was partially offset by higher volume in Asia and South America driven by the timing of shipments.

Combined cost of goods and services sold decreased $67.3 million or 9.2% to $667.6 million for the nine months ended December 31, 2020 from $734.9 million for the nine months ended December 31, 2019.

This decrease was mainly due to the decrease in sales and other operating revenues and changes in foreign currency exchange rates in Europe and South America.

Combined gross profit as a percent of sales was 15.3% for the nine months ended December 31, 2020 and 2019.

Combined selling, general, and administrative expenses increased $13.7 million or 17.3% to $92.8 million for the nine months ended December 31, 2020 from $79.1 million for the nine months ended December 31, 2019.

Combined selling, general, and administrative expenses as a percent of sales increased to 11.8% for the nine months ended December 31, 2020 from 9.1% for the nine months ended December 31, 2019.

These increases were related to the decrease in sales and other operating revenues and higher allocations of general corporate services.

These increases were partially offset by lower travel expenses caused by the COVID-19 pandemic and current year savings from restructuring initiatives.

Total sales and other operating revenues increased $52.4 million, or 23.0%, to $280.1 million for the three months ended June 30, 2021 from $227.7 million for the three months ended June 30, 2020.

This increase was due to a 5.8% increase in volume and a 15.0% increase in average sales price.

The 5.8% increase in volume was primarily due to the higher volume in Africa and South America driven by $64.9 million shipments delayed by the COVID-19 pandemic and customer shipping instructions from fiscal 2021 into the first quarter of the current fiscal year.

This increase was partially offset by lower volume in Asia mainly due to shipments delayed by the COVID-19 pandemic and the shipping container availability.

The 15.0% increase in average sales price was driven by product mix in Africa, Asia, and Europe having a higher concentration of lamina.

This increase was partially offset by product mix having a lower concentration of lamina in South America.

Cost of goods and services sold increased $45.5 million, or 23.1%, to $242.7 million for the three months ended June 30, 2021 from $197.2 million for the three months ended June 30, 2020.

This increase was mainly due to the increase in sales and other operating revenues.

Gross profit as a percent of sales was 13.4% for the three months ended June 30, 2021 and 2020.

SG&A expenses decreased $11.7 million, or 31.5%, to $25.4 million for the three months ended June 30, 2021 from $37.1 million for the three months ended June 30, 2020 primarily due to fiscal 2021 restructuring initiatives resulting in lower general corporate services.

SG&A expenses as a percent of sales decreased to 9.1% for the three months ended June 30, 2021 from 16.3% for the three months ended June 30, 2020 primarily due to increased sales and other operating revenues and the aforementioned decrease in SG&A expenses.

Other Products and Services Supplemental Information

(in millions, except per kilo amounts) Successor Predecessor Combined

(Non-GAAP) Predecessor

Four months ended December 31, 2020 Five months ended August 31, 2020 Nine months ended December 31, 2020 Nine months ended December 31, 2019

Successor Predecessor Change

(in millions) Three months ended June 30, 2021 Three months ended June 30, 2020 $ %

Sales and other operating revenues $ 3.4 $ 5.2 $ (1.8) (34.6)

Cost of goods and services sold 5.5 20.5 (15.0) (73.2)

Gross (loss) profit (5.0) (16.3) (21.3) 3.9

Gross loss (2.1) (15.3) 13.2 86.3

Selling, general, and administrative expenses 4.5 18.7 (14.2) (75.9)

Other income (expense), net 0.3 (2.5) 2.8 112.0

Restructuring and asset impairment charges 5.1 — 5.1 —

Operating loss $ (6.3) $ (36.5) $ 30.2 82.7

Combined sales and other operating revenues increased $3.2 million or 20.4% to $18.9 million for the nine months ended December 31, 2020 from $15.7 million for the nine months ended December 31, 2019.

This increase was primarily due to an increase in cannabinoid revenue attributable to sales occurring in most of the Canadian provinces as well as the launch of the GO!

cannabinoid product line in Canada.

This increase was partially offset by a decrease in e-liquids revenue related to a general industry slow-down amid health and regulatory concerns, and the global impact of the COVID-19 pandemic.

Combined cost of goods and services sold increased $28.4 million or 240.7% to $40.2 million for the nine months ended December 31, 2020 from $11.8 million for the nine months ended December 31, 2019.

This increase was mainly due to inventory write-offs of cannabis and industrial hemp inventory driven by a shift in expected future products mix in response to market supply conditions and continued market price compression.

Combined gross (loss) profit as a percent of sales decreased to (112.7)% for the nine months ended December 31, 2020 from 24.8% for the nine months ended December 31, 2019.

This decrease was mainly due to the inventory write-downs described above.

Combined selling, general, and administrative expenses decreased $7.4 million or 14.2% to $44.8 million for the nine months ended December 31, 2020 from $52.2 million for the nine months ended December 31, 2019.

Combined selling, general, and administrative expenses as a percent of sales decreased to 237.0% for the nine months ended December 31, 2020 from 332.5% for the nine months ended December 31, 2019.

These decreases were mainly due to higher expenses in the prior year for the evaluation of a partial monetization of the Company's investments in certain businesses.

Restructuring and asset impairment charges of $5.1 million for the nine months ended December 31, 2020 were incurred in connection with employee separation and impairment charges related to restructuring of certain U.S.

operations, which included the industrial hemp and CBD businesses.

Sales and other operating revenues decreased $1.8 million, or 34.6%, to $3.4 million for the three months ended June 30, 2021 from $5.2 million for the three months ended June 30, 2020.

This decrease was primarily due to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021.

Cost of goods and services sold decreased $15.0 million, or 73.2%, to $5.5 million for the three months ended June 30, 2021 from $20.5 million for the three months ended June 30, 2020.

This decrease was mainly due to a $15.1 million write-down of industrial hemp inventory driven by a shift in expected future products mix in response to market supply conditions and continued market price compression in fiscal 2021 and the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021.

Gross loss as a percent of sales decreased to 61.8% for the three months ended June 30, 2021 from 294.2% for the three months ended June 30, 2020.

This decrease was primarily attributable to the $15.1 million write-down of industrial hemp inventory described above.

SG&A expenses decreased $14.2 million, or 75.9%, to $4.5 million for the three months ended June 30, 2021 from $18.7 million for the three months ended June 30, 2020.

SG&A expenses as a percent of sales decreased to 132.4% for the three months ended June 30, 2021 from 359.6% for the three months ended June 30, 2020.

These decreases were mainly due to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, lower allocations of general corporate services, and savings from fiscal 2021 restructuring initiatives.

Liquidity and Capital Resources

The following transactions occurred at or prior to the Effective Date, as contemplated by the Plan:

• Claims with respect to the Company’s $275.0 million of 8.5% First Lien Notes due 2021 were satisfied by the issuance of 10.0% First Lien Notes due in 2024 in the aggregate principal amount of $280.8 million.

• Claims with respect to the Company’s $635.7 million of 9.875% Second Lien Notes due 2021 were satisfied by the issuance of approximately 12.5 million shares of common stock and a $2.2 million cash payment.

• Claims with respect to the DIP Facility were satisfied by the issuance of $213.4 million aggregate principal amount of the Term Loans due February 24, 2025.

• Claims with respect to the $60.0 million ABL in existence at the Petition Date were repaid in full during the pendency of the Chapter 11 Cases with proceeds from borrowings under the DIP Facility, and at the Effective Date the Company entered into the ABL Credit Agreement providing a new $75.0 million ABL Credit Facility that is due on February 24, 2023, with $67.5 million of borrowings thereunder outstanding as of December 31, 2020.

• The Company’s $255.0 million African seasonal line of credit with TDB was amended and restated, which resulted in an increase in the line of credit with TDB to $285.0 million.

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 and shipping requirements, 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 during the fiscal year.

Additionally, our liquidity requirements are affected by branding, marketing, and advertising expenses to support growth of the Other Products and Services segment, legal and professional costs, and funding obligations under the Canadian DIP Facility during the pendency of the CCAA Proceeding.

Although we believe that our sources of liquidity will be sufficient to fund our anticipated needs for the next twelve months, we anticipate periods during which our liquidity needs will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities.

2 unchanged sentences

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.

As of December 31, 2020, shipping of the Africa and South America crops continues with South America beginning to buy the next crop in January.

The North America flue-cured crop and Asia are completing processing with Europe beginning to buy and process the next crop.

As of June 30, 2021, we are in our leaf working capital build.

Asia is in the midst of buying, processing, and shipping.

South America is in the final stages of purchasing, processing is in progress, and the peak shipping season for the region is in its beginning stages.

Crops in Africa are in the peak of buying, which will continue into the second quarter while processing and shipping will peak in the second and third quarters.

Europe has completed purchasing of current crops and is finalizing processing and shipment schedules.

North America is preparing to begin flue cured purchasing in the second quarter with processing and shipping occurring in the third and fourth quarters.

Working Capital

The following is a summary of items from the condensed consolidated balance sheets:

Successor Predecessor

(in millions except for current ratio) December 31, 2020 December 31, 2019 March 31, 2020

The following summarizes our working capital:

Successor Predecessor Successor

(in millions except for current ratio) June 30, 2021 June 30, 2020 March 31, 2021

Cash and cash equivalents $ 79.6 $ 172.8 $ 92.7

5 unchanged sentences

Advances from customers 15.1 22.1 12.1

Current portion of long-term debt 2.7 273.5 2.1

Total current liabilities 629.4 1,165.2 601.7

2 unchanged sentences

Long-term debt 669.8 3.2 551.2

Stockholders’ equity attributable to Pyxus International, Inc.

Stockholders’ equity (deficit) attributable to Pyxus International, Inc.

241.2 (170.1) 247.7

Working capital increased to $591.7 million at December 31, 2020 from $449.1 million at December 31, 2019 primarily due to lower balances on the African seasonal lines of credit resulting from cash payments and shorter crops resulting in decreased inventory purchases.

Sources and Uses of Cash

Our primary sources of liquidity are cash generated from operations, cash collections from our securitized receivables, borrowings under the ABL Credit Facility, and short-term borrowings under our foreign seasonal lines of credit.

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.

We have typically financed our non-U.S.

tobacco operations with uncommitted short-term foreign seasonal lines of credit.

These foreign lines of credit are seasonal in nature corresponding to the tobacco crop cycle in that market.

These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 270 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.

1 unchanged sentence

We maintain various other financing arrangements to meet the cash requirements of our businesses.

"Debt Arrangements" for additional information.

"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.

2 unchanged sentences

Successor Predecessor

(in millions) Four months ended December 31, 2020 Five months ended August 31, 2020 Nine months ended December 31, 2019

(in millions) Three months ended June 30, 2021 Three months ended June 30, 2020

Operating activities $ (186.0) $ (100.3)

2 unchanged sentences

Effect of exchange rate changes on cash 0.5 0.2

Increase (decrease) in cash, cash equivalents, and restricted cash 9.4 (55.1) (122.8)

(Decrease) increase in cash, cash equivalents, and restricted cash (15.2) 2.8

Cash and cash equivalents at beginning of period 92.7 170.2

2 unchanged sentences

* Amounts may not equal column totals due to rounding

Net cash used by operating activities decreased on a combined basis for the four months ended December 31, 2020 and the five months ended August 31, 2020 compared to the nine months ended December 31, 2019, primarily due to (excluding non-cash activities) decreased inventory driven by smaller crop sizes in Africa and currency devaluation in Europe and South America.

Net cash provided by investing activities decreased on a combined basis for the four months ended December 31, 2020 and the five months ended August 31, 2020 compared to the nine months ended December 31, 2019 primarily due to lower collections on beneficial interests on securitized trade receivables driven by lower tobacco sales and lower qualifying receivables available for sale into the securitization facilities.

Net cash provided by financing activities decreased on a combined basis for the four months ended December 31, 2020 and the five months ended August 31, 2020 compared to the nine months ended December 31, 2019 primarily due to lower net proceeds resulting from higher repayments of short-term borrowings and the repayment of the ABL facility in place at the Petition Date, partially offset by proceeds from the DIP Facility and borrowings under the ABL Credit Facility.

Net cash used by operating activities increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020, primarily driven by (excluding non-cash activities) higher inventory and associated payables due to crop normalization in Africa and South America compared to the prior year.

Net cash provided by investing activities decreased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to lower collections on beneficial interests on securitized trade receivables driven by lower qualifying receivables available for sale into the securitization facilities.

Net cash provided by financing activities increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 primarily due to the borrowings under the DDTL Facility.

Approximately $62.9 million of our outstanding cash balance at June 30, 2021 was held in foreign jurisdictions.

Fluctuation of the U.S.

1 unchanged sentence

We will continue to monitor and hedge foreign currency costs, as needed.

Approximately $75.4 million of our outstanding cash balance at December 31, 2020 was held in foreign jurisdictions, which includes approximately $2.9 million held by our legal Canadian cannabis businesses.

As a result of our cash needs abroad and legal restrictions with respect to repatriation of the proceeds from operations of our Canadian cannabis subsidiaries, it is our intention to permanently reinvest these funds in foreign jurisdictions regardless of the fact that the cost of repatriation would not have a material financial impact.

Debt Financing

We continue to finance our business with a combination of short-term and long-term seasonal credit lines, the long-term debt securities described above, advances from customers, and cash from operations when available.

Refer to "Note 15.

Debt Arrangements" for summary of our short-term and long-term debt.

The Company’s subsidiary in Tanzania failed to satisfy a loan-to-value ratio requirement in November and December of 2020 under the TDB Facility Agreement.

The failure to satisfy this requirement would have permitted TDB to declare an event of default with respect to the Tanzania subsidiary’s borrowings under its credit facility under the TDB Facility Agreement and demand immediate repayment of that subsidiary’s borrowings, which were approximately $50.4 million at December 31, 2020.

TDB entered into a First Amendment and Waiver Letter to the TDB Facility Agreement dated December 30, 2020 (the “TDB Waiver”) in which TDB waived the defaults arising from the Tanzania subsidiary’s failure to comply with this ratio in November and December 2020 and adjusted the required loan-to-value ratio for the Tanzania subsidiary for each month thereafter through June 2021.

The existence of these defaults by the Tanzania subsidiary under the TDB Facility Agreement (the “Tanzania Default”) resulted in defaults and events of default arising under the ABL Credit Facility and the Term Loan Credit Facility, which would have permitted the respective lenders thereunder to demand immediate repayment of all amounts outstanding under the respective facility.

In December 2020, the required lenders under each of the ABL Credit Facility and the

Term Loan Credit Facility entered into agreements with the Company waiving the defaults and events of default arising under the respective facility as a result of the Tanzania Default.

See "Note 16.

Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for summary of our short-term and long-term debt.

We will continue to monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities.

Available credit as of December 31, 2020 was $305.5 million primarily comprised of $293.9 million of foreign seasonal lines of credit (of which $130.0 million of availability under the TDB Facility Agreement includes limits for borrowings for jurisdictions to fund the purchase of tobacco in that jurisdiction), $7.5 million from the ABL Credit Facility, and $3.7 million of availability for letters of credit.

We believe that our sources of liquidity will be sufficient to fund our anticipated needs for the next twelve months.

No cash dividends were paid to shareholders during the three months ended December 31, 2020.

Available credit as of June 30, 2021 was $234.8 million primarily comprised of $224.5 million of foreign seasonal lines of credit, $7.5 million from the ABL Credit Facility, and $2.5 million of availability for letters of credit.

No cash dividends were paid to shareholders during the three months ended June 30, 2021.

The payment of dividends is restricted under the terms the ABL Credit Agreement, the Term Loan Credit Agreement, and the Indenture.

Zimbabwe Currency Considerations

The Company often holds Zimbabwe RTGS Dollars necessary for operations within Zimbabwe.

RTGS is a local currency equivalent that, as of December 31, 2020, was exchanged at a government specified rate of 82:1 with the U.S.

Dollar ("USD").

In order to convert Zimbabwe RTGS Dollars to U.S.

Dollars, we must obtain foreign currency resources from the Reserve Bank of Zimbabwe, subject to the monetary and exchange control policy in Zimbabwe.

If the foreign exchange restrictions and government-imposed controls become severe, we may have to reassess our ability to control our Zimbabwe subsidiary, Mashonaland Tobacco Company ("MTC").

As of December 31, 2020, MTC has $43.1 million of net assets.

Critical Accounting Estimates

As of the date of this report, there are no material changes to the critical accounting estimates previously disclosed in Part I, Item 7 "Critical Accounting Estimates" in the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 2020, except for the following:

Application of Fresh Start Reporting

We applied FASB ASC 852 in preparing the condensed consolidated financial statements.

We elected to apply fresh start reporting using a convenience date of August 31, 2020.

We evaluated and concluded that the events between August 24, 2020 and August 31, 2020 were not material to our financial reporting on both a quantitative or qualitative basis.

In accordance with ASC 852 and the application of fresh start accounting, we allocated our reorganization value to our individual assets based on our estimated fair values in conformity with ASC 805, Business Combinations .

The reorganization value represents the fair value of the Successor Company's assets before considering liabilities.

The excess reorganization value over the fair value of identified tangible and intangible assets is reported as goodwill.

Refer to “ Note 4.

Fresh Start Reporting ” for additional information.

Additional information with respect to the Restated TDB Agreement, including descriptions of respective affirmative, negative and financial covenants, collateral arrangements, and other terms and conditions, is set forth in "Note 25.

Subsequent Events" to the "Notes to Condensed Consolidated Financial Statements”.

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, 2021.

Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes to our market risk exposures since March 31, 2021.

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, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis