What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-14 compared with 2022-11-10 · 131 added, 90 removed, 194 unchanged (53% of the section changed)

7 unchanged sentences

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;

• 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.

our reliance on a small number of significant customers;

continued vertical integration by our customers;

global shifts in sourcing customer requirements;

shifts in the global supply and demand position for tobacco products;

variation in our financial results due to growing conditions, customer indications and other factors;

loss of confidence in us by our customers, farmers and other suppliers;

migration of suppliers who have historically grown tobacco and from whom we have purchased tobacco toward growing other crops;

risks related to our advancement of inputs to tobacco suppliers to be settled upon the suppliers delivering us unprocessed tobacco at the end of the growing season;

risks that the tobacco we purchase directly from suppliers will not meet our customers’ quality and quantity requirements;

weather and other environmental conditions that can affect the marketability of our inventory;

international business risks, including unsettled political conditions, uncertainty in the enforcement of legal obligations, including the collection of accounts receivable, fraud risks, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries;

many of our operations are located in jurisdictions that pose a high risk of potential violations of the Foreign Corrupt Practices Act;

impacts of international sanctions on our ability to sell or source tobacco in certain regions;

exposure to foreign tax regimes in which the rules are not clear, are not consistently applied and are subject to sudden change;

fluctuations in foreign currency exchange and interest rates;

competition with the other primary global independent leaf tobacco merchant and independent leaf merchants;

disruption, failure or security breaches of our information technology systems;

continued high inflation;

we have identified material weaknesses related to our internal controls in certain prior years, and there can be no assurance that material weaknesses will not be identified in the future;

regulations regarding environmental matters;

risks related to our capital structure, including risks related to our significant debt and our ability to continue to finance our non-U.S.

local operations with uncommitted short-term operating credit lines at the local level;

our ability to continue to access capital markets to obtain long-term and short-term financing;

potential failure of foreign banks in which our subsidiaries maintain deposits or the failure by such banks to transfer funds or honor withdrawals;

the risk that, because our ability to generate cash depends on many factors beyond our control, we may be unable to generate the significant amount of cash required to service our indebtedness;

our ability to refinance our current credit facilities at the same availability or at similar interest rates;

failure to achieve our stated goals, which may adversely affect our liquidity;

developments with respect to our liquidity needs and sources of liquidity;

the volatility and disruption of global credit markets;

failure by counterparties to derivative transactions to perform their obligations;

increasing scrutiny and changing expectations from governments, as well as other stakeholders such as investors and customers, with respect to our environmental, social and governance policies, including sustainability policies;

inherent risk of exposure to product liability claims, regulatory action and litigation facing our e-liquids business if its products are alleged to have caused significant loss, injury, or death;

certain shareholders have the ability to exercise controlling influence on various corporate matters;

reductions in demand for consumer tobacco products;

risks and uncertainties related to the COVID-19 pandemic and its related shipping constraints, labor shortages and supply-chain impacts;

legislative and regulatory initiatives that may reduce consumption of consumer tobacco products and demand for our services and increase regulatory burdens on us or our customers;

government actions that significantly affect the sourcing of tobacco, including governmental actions to identify and assess crop diversification initiatives and alternatives to leaf tobacco growing in countries whose economies depend upon tobacco production;

governmental investigations into, and litigation concerning, leaf tobacco industry buying and other payment practices;

and impact of potential regulations to prohibit the sale of cigarettes in the United States other than low-nicotine cigarettes.

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.

The Company is a global agricultural company with nearly 150 years of experience delivering value-added products and services to businesses and customers.

During the nine months ended December 31, 2023, we successfully utilized our global footprint to navigate the current tobacco supply shortage to meet our buying targets for fiscal 2023 in most markets.

Combined with continuing normalization of shipping schedules in North and South America and increasing demand from Asia, the Company delivered an increase of more than 50% in sales and other operating revenues year-over-year in spite of a complicated crop year that was exacerbated by La Nina and inflationary pressures.

This increase in sales and other operating revenues and higher utilization of the Company’s

securitization programs resulted in increased cash flow from operations year-over-year.

Some of these funds were strategically utilized to fully repay the Company’s outstanding indebtedness under the ABL Credit Facility and provides the Company with increased financial flexibility as we approach the next buying cycle.

In February 2023, the Company successfully completed an exchange of its existing long-term debt with varying maturity dates for new long-term debt with maturity dates in 2027.

Our new capital structure addresses approaching maturity dates, provides the Company with increased financial flexibility, and relief from certain restrictive covenants.

The Company is a global agricultural company with 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.

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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:

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 that are aggregated into one reportable segment for financial reporting purposes:

An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results.

2 unchanged sentences

Results of Operations

Three Months Ended September 30, 2022 and 2021

Three Months Ended September 30,

Three Months Ended December 31, 2022 and 2021

Three Months Ended December 31,

(in millions, except per kilo amounts) 2022 2021 $ %

4 unchanged sentences

Selling, general, and administrative expenses $ 37.1 $ 34.2 2.9 8.5

Other expense, net 1.2 1.8 (0.6) (33.3)

Other expense (income), net 9.0 (0.2) 9.2 4,600.0

Restructuring and asset impairment charges — 0.6 (0.6) (100.0)

Goodwill impairment — 0.4 (0.4) (100.0)

Operating income 41.6 30.2 11.4 37.7

Loss on deconsolidation/disposition of subsidiaries — 7.1 (7.1) (100.0)

Loss on pension settlement 2.6 — 2.6 100.0

Interest expense, net 31.4 27.5 3.9 14.2

Income tax benefit 1.2 14.1 (12.9) (91.5)

Income tax expense 17.9 31.8 (13.9) (43.7)

Income from unconsolidated affiliates 5.4 6.1 (0.7) (11.5)

Net income (loss) attributable to noncontrolling interests — (0.3) 0.3 100.0

Net income attributable to noncontrolling interests 0.1 — 0.1 100.0

Net loss attributable to Pyxus International, Inc.

$ (2.3) $ (30.1) 27.8 92.4

Sales and other operating revenues $ 625.1 $ 394.8 230.3 58.3

16 unchanged sentences

Gross loss as a percent of sales (27.4) % (64.4) %

* 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%.

dollar and percentage changes may not calculate exactly due to rounding

Sales and other operating revenues were $428.9 million for the three months ended December 31, 2021 and $655.6 million for the three months ended December 31, 2022, an increase of $226.7 million , or 52.9%.

This increase was primarily due t o a 21.9% increase in leaf volume and a 29.8% 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 leaf volume was driven by increased volume from Asia, more normalized timing of shipments from South America from the current crop, and the timing of shipments from North America that were delayed from the three months ended September 30, 2022 into the three months ended December 31, 2022.

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%.

Cost of goods and services sold were $363.7 million for the three months ended December 31, 2021 and $567.8 million for the three months ended December 31, 2022, an increase of $204.1 million, or 56.1%.

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%.

Gross profit was $65.2 million for the three months ended December 31, 2021 and $87.8 million for the three months ended December 31, 2022, an increase of $22.6 million, or 34.7%.

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.

Gross profit as a percent of sales went from 15.2% for the three months ended December 31, 2021 to 13.4% for the three months ended December 31, 2022.

This decrease was primarily due to the impact of short-crops in certain markets in Africa and product mix in North America.

Average gross profit per kilo for product revenue was $0.55 for the three months ended December 31, 2021 and $0.64 for the three months ended December 31, 2022, an increase of $0.09 per kilo or 16.4%.

This increase was primarily due to customer mix in North and South America and product mix in Africa and Asia.

Other expense, net was $0.2 million of income f or the three months ended December 31, 2021 and $9.0 million of expense for the three months ended December 31, 2022, an increase of $9.2 million.

This increase was primarily due to higher utilization of securitization facilities.

Operating income was $30.2 million for the three months ended December 31, 2021 and $41.6 million for the three months ended December 31, 2022, an increase of $11.4 million, or 37.7%.

This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo and was partially offset by higher other expense, net, which was primarily due to higher utilization of securitization facilities .

Income tax expense was $31.8 million for the three months ended December 31, 2021 and $17.9 million for the three months ended December 31, 2022, a decrease of $13.9 million, or 43.7%.

The decrease was driven by the Company utilizing a different method for estimating tax expense for the period ended December 31, 2022.

Using the discrete method for the period ended December 31, 2022, the Company determined current and deferred income tax expense as if the nine-month interim period of the current fiscal year were an annual period, which resulted in the recognition of the fiscal 2023 year-to-date expense 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,

Nine Months Ended December 31, 2022 and 2021

Nine Months Ended December 31,

(in millions, except per kilo amounts) 2022 2021 $ %

6 unchanged sentences

Restructuring and asset impairment charges 4.4 7.7 (3.3) (42.9)

Goodwill impairment — 0.4 (0.4) (100.0)

Operating income 75.7 43.9 31.8 72.4

2 unchanged sentences

Interest expense, net 85.6 82.8 2.8 3.4

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

Income tax expense 15.8 9.2 6.6 71.7

Income from unconsolidated affiliates 10.7 6.0 4.7 78.3

Net income (loss) attributable to noncontrolling interests 0.2 (0.4) 0.6 150.0

Net loss attributable to Pyxus International, Inc.

$ (18.5) $ (51.3) 32.8 63.9

Sales and other operating revenues $ 1,423.6 $ 1,064.3 359.3 33.8

16 unchanged sentences

Gross loss as a percent of sales (47.3) % (69.0) %

* 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 t o 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%.

dollar and percentage changes may not calculate exactly due to rounding

Sales and other operating revenues were $1,156.4 million for the nine months ended December 31, 2021 and $1,507.7 million for the nine months ended December 31, 2022, an increase of $351.3 million, or 30.4%.

This increase was primarily due t o a 15.8% increase in leaf volume and a 15.5% increase in average price per kilo.

The increase in leaf volume was driven by increased volume from Asia and North America, more normalized timing of shipments from South America, and the timing of shipments from Asia.

The increase in average price per kilo was mainly due to higher tobacco prices.

Cost of goods and services sold were $997.0 million for the nine months ended December 31, 2021 and $1,311.9 million for the nine months ended December 31, 2022, an increase of $314.9 million, or 31.6%.

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%.

Gross profit was $159.4 million for the nine months ended December 31, 2021 and $195.9 million for the nine months ended December 31, 2022, an increase of $36.5 million, or 22.9%.

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% .

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 de crease 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.

Gross profit as a percent of sales went from 13.8% for the nine months ended December 31, 2021 to 13.0% for the nine months ended December 31, 2022.

This decrease was primarily due to customer mix in South America and the impact of short-crops in certain markets in Africa.

Average gross profit per kilo for product revenue was $0.55 for the nine months ended December 31, 2021 and $0.60 for the nine months ended December 31, 2022, an increase of $0.05 per kilo or 9.1%.

This increase was primarily due to customer mix in North America and South America, product mix in Africa, and geographic mix in Asia.

Other expense, net was $1.5 million f or the nine months ended December 31, 2021 and $9.1 million for the nine months ended December 31, 2022, an increase of $7.6 million, or 506.7%.

This increase was primarily due to higher utilization of securitization facilities.

Operating income was $43.9 million for the nine months ended December 31, 2021 and $75.7 million for the nine months ended December 31, 2022, an increase of $31.8 million, or 72.4% .

This increase was mainly due to higher leaf sales and other operating revenues from increased volume and average price per kilo.

Income tax expense was $9.2 million for the nine months ended December 31, 2021 and $15.8 million for the nine months ended December 31, 2022, an in crease of $6.6 million , or 71.7% .

This increase was driven by the Company utilizing a different method for estimating tax expense for the period ended December 31, 2022.

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

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

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.

9 unchanged sentences

See " Note 12.

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

Debt Arrangements " and " Note 21.

Subsequent Events " 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.

could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and refinancing of debt.

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

The following summarizes our total borrowing capacity at December 31, 2022 and 2021 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:

December 31, 2022

(in millions) Total Borrowing Capacity Remaining Amount Available

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Total $ 830.2 $ 323.1

December 31, 2021

(in millions) Total Borrowing Capacity Remaining Amount Available

ABL Credit Facility $ 75.0 $ 22.5

Foreign seasonal lines of credit 619.5 235.2

Other long-term debt 2.5 0.6

Letters of credit 12.9 3.4

Total $ 709.9 $ 261.7

We refer to "Net debt," a non-GAAP measure, as total debt liabilities less cash and cash equivalents.

2 unchanged sentences

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

(in millions) December 31, 2022 December 31, 2021 March 31, 2022

Notes payable to banks (1)

1 unchanged sentence

Current portion of long-term debt 97.3 107.7 107.9

0.1 121.9 107.9

Long-term debt (2)

4 unchanged sentences

* 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.

(1) The increase from December 31, 2021 to December 31, 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 December 31, 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 long-term debt from December 31, 2021 and March 31, 2022 is due to the full repayment of outstanding indebtedness under the ABL Credit Facility in December 2022.

Weighted average borrowings outstanding under the ABL Credit Facility during the three months ended December 31, 2022 was $71.6 million.

Working Capital

The following summarizes our working capital:

(in millions except for current ratio) September 30, 2022 September 30, 2021 March 31, 2022

(in millions except for current ratio) December 31, 2022 December 31, 2021 March 31, 2022

Cash, cash equivalents, and restricted cash $ 218.4 $ 149.9 $ 200.9

14 unchanged sentences

* 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.

Working capital decreased from December 31, 2021 to December 31, 2022 by $67.4 million, or 14.3%, 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 increased borrowing capacity in certain markets as well as the utilization of cash from higher sales of tobacco inventories to repay the outstanding indebtedness under the ABL Credit Facility in December 2022, which was classified as long-term debt.

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

(in millions) December 31, 2022 December 31, 2021 March 31, 2022

Committed $ 543.2 $ 590.4 $ 471.9

1 unchanged sentence

Total processed tobacco $ 571.9 $ 650.4 $ 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.

Total processed tobacco decreased from December 31, 2021 to December 31, 2022 by $78.5 million, or 12.1%, primarily due to higher sales of inventories.

See " Note 1.

3 unchanged sentences

We typically finance our non-U.S.

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

tobacco operations with 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.

6 unchanged sentences

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.

As of December 31, 2022, our cash, cash equivalents, and restricted cash was $218.4 million of which approximately $95.8 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.

2 unchanged sentences

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

Six Months Ended

September 30,

Nine Months Ended

(in millions) 2022 2021

1 unchanged sentence

Inventories and advances to tobacco suppliers 18.5 (34.1)

Recoverable income taxes (3.5) (29.0)

Payables and accrued expenses (29.8) (28.1)

2 unchanged sentences

Net cash used by operating activities $ (110.6) $ (184.8)

Collections on beneficial interests on securitized trade receivables 76.2 82.6

Collections from beneficial interests in securitized trade receivables 122.6 155.2

Other (5.2) (7.4)

6 unchanged sentences

Effect of exchange rate changes on cash 3.8 (2.6)

(Decrease) increase in cash, cash equivalents, and restricted cash* $ (85.5) $ 33.3

Increase in cash, cash equivalents, and restricted cash* $ 17.1 $ 52.5

* 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.

The change in cash, cash equivalents, and restricted cash decreased by $35.4 million for the nine months ended December 31, 2022 compared to the nine months ended December 31, 2021.

The decrease was primarily due to the full repayment of the outstanding indebtedness under the ABL Credit Facility during the period ended December 31, 2022 and the issuance of the DDTL Facility during the period ended December 31, 2021.

These decreases were partially offset by higher sales and higher utilization of securitization facilities, which resulted in less cash used by operating activities.

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.

We have incurred approximately $9.9 million in capital expenditures for the nine months ended December 31, 2022 , and are expecting to incur an additional $11.1 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

Nine Months Ended

(in millions) December 31, 2022

Contributions made during the period (1)

Contributions expected for the remainder of the fiscal year 0.3

(1) Includes $5.3 million paid during the current quarter to fully fund the U.S.

(1) Includes $5.3 million paid in the three months ended September 30, 2022 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.

No cash dividends were paid to shareholders during the nine months ended December 31, 2022.

As of December 31, 2022, the payment of dividends is restricted under the terms of the ABL Credit Agreement, the Exit Term Loan Credit Agreement, and the Existing Notes Indenture.

Critical Accounting Policies and Estimates

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What changed 10-Q

Item 2. Management’s Discussion and Analysis