Item 7. Management’s Discussion and Analysis
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. Some of these risks and uncertainties include the risks, uncertainties, and other factors set forth in this Annual Report, including in " Item 1A. Risk Factors " and in our other filings with the Securities and Exchange Commission. Any forward-looking statement is qualified by reference to these cautionary statements. It is not possible to predict or identify all risks and uncertainties relevant to these forward-looking statements. Consequently, the risks and uncertainties identified in this Annual Report should not be considered a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time except as may be required by law.
Non-GAAP Financial Measure
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). However, we use net debt, a non-GAAP financial measure, to evaluate our financial condition. We believe that the presentation of this non-GAAP financial measure, when viewed as a supplement to our indebtedness reflected on our balance sheets prepared in accordance with U.S. GAAP, provides useful information to investors in evaluating our indebtedness. In addition, this non-GAAP measure addresses questions we routinely receive from analysts and investors and, in order to ensure that investors have access to similar data, we make this data available to the public. This non-GAAP measure should not be considered as an alternative to total debt or any other measure derived in accordance with U.S. GAAP. This non-GAAP measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for financial measures presented in accordance with U.S. GAAP. The presentation of our non-GAAP financial measures may change from time to time, including as a result of changed business conditions, new accounting rules, or otherwise. Further, our use of "net debt" may vary from the use of similarly-titled measures by other companies due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation.
Executive Summary
The Company grew sales and other operating revenues for the year ended March 31, 2024 by 6.1% to $2,032.5 million from $1,914.9 million for the year ended March 31, 2023. This growth was fueled by an increase in average pricing of 10.5%, despite a 4.4% reduction in kilo volumes sold when compared to fiscal 2023. Gross margin as a percent of sales in fiscal year 2024 improved to 15.4% compared to 13.6% in fiscal year 2023.
The results obtained in fiscal year 2024 enabled the Company to eliminate certain of its long-term debt, which included the purchase of $77.9 million aggregate principal amount of the 2027 Notes for $60.0 million in March 2024, and the purchase of $10.3 million aggregate principal amount of the Pyxus Term Loans for $9.1 million in May 2024.
Overview
Pyxus is a global agricultural company with businesses having more than 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. The Company has one reportable segment for financial reporting purposes: Leaf. An All Other category is included for purposes of reconciliation of the results of the Leaf reportable segment to the consolidated results. See " Note 1. Basis of Presentation and Summary of Significant Accounting Policies " to the "Notes to the Consolidated Financial Statements" for additional information.
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Results of Operations
Years Ended March 31, 2024 and 2023
Years Ended March 31,
Consolidated* Change
(in millions, except per kilo amounts) 2024 2023 $ %
Sales and other operating revenues $ 2,032.5 $ 1,914.9 117.6 6.1
Cost of goods and services sold 1,720.2 1,653.9 66.3 4.0
Gross profit 312.3 261.0 51.3 19.7
Gross profit as a percent of sales 15.4 % 13.6 %
Selling, general, and administrative expenses $ 160.9 $ 151.5 9.4 6.2
Other expense, net 9.4 11.0 (1.6) (14.5)
Restructuring and asset impairment charges 4.8 4.7 0.1 2.1
Operating income 137.2 93.8 43.4 46.3
Loss on deconsolidation/disposition of subsidiaries — 0.6 (0.6) **
Loss on pension settlement 12.0 2.6 9.4 **
(Gain) loss on debt retirement (15.9) — (15.9) **
Interest expense, net 125.6 113.2 12.4 11.0
Income tax expense 27.3 34.1 (6.8) (19.9)
Income from unconsolidated affiliates, net 15.0 18.5 (3.5) (18.9)
Net income attributable to noncontrolling interests 0.5 0.9 (0.4) (44.4)
Net income (loss) attributable to Pyxus International, Inc. $ 2.7 $ (39.1) 41.8 106.9
Leaf:
Product revenue $ 1,912.4 $ 1,812.2 100.2 5.5
Tobacco costs 1,535.3 1,474.0 61.3 4.2
Transportation, storage, and other period costs 89.1 98.9 (9.8) (9.9)
Total cost of goods sold 1,624.4 1,572.9 51.5 3.3
Product revenue gross profit 288.0 239.3 48.7 20.4
Product revenue gross profit as a percent of sales 15.1 % 13.2 %
Kilos sold 370.7 387.8 (17.1) (4.4)
Average price per kilo $ 5.16 $ 4.67 0.49 10.5
Average cost per kilo 4.38 4.06 0.32 7.9
Average gross profit per kilo 0.78 0.61 0.17 27.9
Processing and other revenues $ 117.2 $ 88.4 28.8 32.6
Processing and other revenues costs of services sold 89.6 64.0 25.6 40.0
Processing and other gross profit 27.6 24.4 3.2 13.1
Processing and other gross profit as a percent of sales 23.5 % 27.6 %
All Other:
Sales and other operating revenues $ 2.9 $ 14.3 (11.4) (79.7)
Cost of goods and services sold 6.2 16.9 (10.7) (63.3)
Gross loss (3.3) (2.6) (0.7) (26.9)
Gross loss as a percent of sales (113.8) % (18.2) %
*Dollar and percentage changes may not calculate exactly due to rounding.
**Not meaningful for comparison purposes.
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Sales and other operating revenues increased $117.6 million, or 6.1%, to $2,032.5 million for the year ended March 31, 2024 from $1,914.9 million for the year ended March 31, 2023. This increase was due to a 10.5% increase in average price per kilo driven by higher tobacco prices, partially offset by a 4.4% decrease in kilo volume primarily due to the timing of shipments from Africa.
Cost of goods and services sold increased $66.3 million, or 4.0%, to $1,720.2 million for the year ended March 31, 2024 from $1,653.9 million for the year ended March 31, 2023. This increase was driven by a 7.9% increase in average cost per kilo primarily due to undersupply conditions and inflation.
Gross profit as a percent of sales increased to 15.4% for the year ended March 31, 2024 from 13.6% for the year ended March 31, 2023. Average gross profit per kilo increased 27.9% primarily due to more favorable customer and regional mix and the dilution of fixed costs from increased processing and other revenues.
Selling, general, and administrative expenses increased $9.4 million, or 6.2%, to $160.9 million for the year ended March 31, 2024 from $151.5 million for the year ended March 31, 2023. This increase was primarily due to increased accrued bonus compensation and travel expenses. These increases were partially offset by lower professional service fees driven by strategic cost cutting initiatives.
Operating income of $137.2 million for the year ended March 31, 2024 increased $43.4 million, or 46.3%, from operating income of $93.8 million for the year ended March 31, 2023. This increase was mainly due to increased average leaf gross margin per kilo.
Loss on pension settlement of $12.0 million for the year ended March 31, 2024 was due to the termination of an over-funded defined benefit pension plan in the U.K. See " Note 22. Pension and Other Postretirement Benefits " to the "Notes to Consolidated Financial Statements" for additional information.
Gain (loss) on debt retirement of $15.9 million for the year ended March 31, 2024 was due to the repurchase of $77.9 million aggregate principal amount of the 2027 Notes for $60.0 million, a 23.0% discount to par. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Interest expense, net was $125.6 million for the year ended March 31, 2024 and $113.2 million for the year ended March 31, 2023, an increase of $12.4 million, or 11.0%. This increase was due to higher average balances outstanding and increased variable interest rate costs on seasonal lines of credit.
Income tax expense decreased $6.8 million, or 19.9%, to $27.3 million for the year ended March 31, 2024 from $34.1 million for the year ended March 31, 2023. This decrease was primarily d ue to $20.8 million of non-recurring expense associated with a valuation allowance for deferred assets recognized in conjunction with the debt exchange transactions completed in February 2023 and the favorable impact of foreign currency. This decrease was partially offset by increased tax expense from operations and non-recurring uncertain tax benefits reserves. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information regarding the debt exchange transactions completed in February 2023.
Comparison of the Fiscal Year Ended March 31, 2023 to the Fiscal Year Ended March 31, 2022
For a comparison of our results of operations for the years ended March 31, 2023 to March 31, 2022, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended March 31, 2023 , filed with the SEC on June 6, 2023.
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Liquidity and Capital Resources
Overview
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 (defined below), 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. Our leaf tobacco business is seasonal, and purchasing, processing, and selling activities have several associated peaks where cash on-hand and outstanding indebtedness may vary significantly compared to year end. The first three quarters of our fiscal year generally represent the peak of our working capital requirements.
We believe our sources of liquidity will be sufficient to fund our anticipated operating needs for the next twelve months. During such time our liquidity needs for operations may approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. Unanticipated developments affecting our liquidity needs, including with respect to the foregoing factors, and sources of liquidity, including impacts affecting our cash flows from operations and the availability of capital resources (including an inability to renew or refinance seasonal lines of credit), may result in a deficiency in liquidity. To address a potential liquidity deficiency, we may undertake plans to minimize cash outflows, which could include exiting operations that do not generate positive cash flow. It is possible that, depending on the occurrence of events affecting our liquidity needs and sources of liquidity, such plans may not be sufficient to adequately or timely address a liquidity deficiency.
Debt Financing
We continue to finance our business with a combination of short-term and long-term seasonal credit lines, the long-term debt instruments and securities, advances from customers, and cash from operations when available. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for a summary of our short-term and long-term debt.
We continuously monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. From time to time we may take steps to reduce our debt or otherwise improve our financial position. Such actions could include prepayments, open market debt repurchases, negotiated repurchases, other redemptions or retirements of outstanding debt, and refinancing of debt. The amount of prepayments or the amount of debt that may be repurchased, refinanced, or otherwise retired, if any, will depend on market condition, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.
Senior Secured Debt
ABL Credit Facility
Our wholly owned subsidiary, Pyxus Holdings, Inc. ("Pyxus Holdings"), certain subsidiaries of Pyxus Holdings (together with Pyxus Holdings, the "Borrowers"), and the Company and its wholly owned subsidiary, Pyxus Parent, Inc. ("Pyxus Parent"), as guarantors, entered into an ABL Credit Agreement (as amended, the "ABL Credit Agreement"), dated as of February 8, 2022, by and among Pyxus Holdings, as Borrower Agent, the Borrowers and parent guarantors party thereto, the lenders party thereto, and PNC Bank, National Association, as Administrative Agent and Collateral Agent, which was subsequently amended on May 23, 2023 and October 24, 2023. The ABL Credit Agreement establishes an asset-based revolving credit facility (the "ABL Credit Facility"), the proceeds of which may be used to provide for the ongoing working capital and general corporate purposes of the Borrowers, the Company, Pyxus Parent, and their subsidiaries. The ABL Credit Facility may be used for revolving credit loans and letters of credit from time to time up to a maximum principal amount of $120.0 million, subject to the limitations described below in this paragraph. The ABL Credit Facility includes a $20.0 million uncommitted accordion feature that permits Pyxus Holdings, under certain conditions, to solicit the lenders under the ABL Credit Facility to provide additional revolving loan commitments to increase the aggregate amount of the revolving loan commitments under the ABL Credit Facility not to exceed a maximum principal amount of $140.0 million. The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves, as follows:
• 85% of eligible accounts receivable, plus
• the lesser of (i) 85% of the book value of Eligible Extended Terms Receivables (as defined in the ABL Credit Agreement) and (ii) $5.0 million, plus
• 90% of eligible credit insured accounts receivable, plus
• the lesser of (i) 70% of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits) or (ii) 85% of the net-orderly-liquidation value percentage of eligible inventory, minus
• applicable reserves.
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At March 31, 2024, no borrowings under the ABL Credit Facility were outstanding and $120.0 million was available for borrowing under the ABL Credit Facility. Weighted average borrowings outstanding under the ABL Credit Facility during the fiscal year ended March 31, 2024 were $48.8 million.
The ABL Credit Facility permits both base rate borrowings and borrowings based upon the Bloomberg-Short-Term Bank Yield Index rate ("BSBY"). Borrowings under the ABL Credit Facility bear interest at an annual rate equal to one, three, or six-month reserve-adjusted BSBY Rate plus 300 basis points or 200 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 25.0 basis points if the outstanding borrowings equal or exceed $60.0 million and 37.5 basis points if the outstanding borrowings are less than $60.0 million.
The ABL Credit Facility matures on February 8, 2027. As of March 31, 2024, there are no amounts outstanding under the ABL Credit Facility.
The ABL Credit Facility may be prepaid from time to time, in whole or in part, without prepayment or premium, subject to a termination fee upon the permanent reduction of commitments under the ABL Credit Facility of 300 basis points for terminations in the first year after entry into the ABL Credit Agreement, 200 basis points for terminations in the second year and 100 basis points for termination in the third year. In addition, customary mandatory prepayments of the loans under the ABL Credit Facility are required upon the occurrence of certain events including, without limitation, outstanding borrowing exposures exceeding the borrowing base, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Credit Facility and certain casualty and condemnation events. With respect to base rate loans, accrued interest is payable monthly in arrears and, with respect to BSBY loans, accrued interest is payable monthly and on the last day of any applicable interest period.
The Borrowers’ obligations under the ABL Credit Facility (and certain related obligations) are (a) guaranteed by Pyxus Parent, and the Company and all of Pyxus Holdings’ wholly owned domestic subsidiaries, and each of Pyxus Holdings’ future wholly owned domestic subsidiaries is required to guarantee the ABL Credit Facility on a senior secured basis (collectively, the "ABL Loan Parties") and (b) secured by the collateral, as described below, which is owned by the ABL Loan Parties.
Cash Dominion. Under the terms of the ABL Credit Facility, if (i) an event of default has occurred and is continuing, (ii) excess borrowing availability under the ABL Credit Facility (based on the lesser of the commitments thereunder and the borrowing base) (the "Excess Availability") falls below the greater of $10.0 million or 10% of the lesser of total commitments under the ABL Credit Facility at such time and the borrowing base at such time, or (iii) Domestic Availability (as defined in the ABL Credit Agreement) being less than the greater of $20.0 million or 20% of the lesser of total commitments under the ABL Credit Facility at such time and the borrowing base at such time, the ABL Loan Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Credit Facility with the cash deposited in certain deposit accounts of the ABL Loan Parties, including concentration accounts, and will restrict the ABL Loan Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period (a "Dominion Period") shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, (ii) if arising as a result of non-compliance with the Excess Availability threshold, no event of default is continuing and, for a period of 30 consecutive days, Excess Availability is equal to or greater than the greater of $10.0 million or 10% of the lesser of total commitments under the ABL Credit Facility and the borrowing base, or (iii) if arising as a result of Domestic Availability being less than the threshold, no event of default is continuing and, for a period of 30 consecutive days, Domestic Availability is greater than $20.0 million or 20% of the lesser of total commitments under the ABL Credit Facility and the borrowing base.
Covenants. The ABL Credit Agreement governing the ABL Credit Facility contains (i) a springing covenant requiring that the Company’s fixed charge coverage ratio be no less than 1.10 to 1.00 during any Dominion Period and (ii) a covenant requiring Domestic Availability greater than $20.0 million at all times until audited financial statements for fiscal year ending March 31, 2023 are delivered under the ABL Credit Agreement.
The ABL Credit Agreement governing the ABL Credit Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s ability to, among other things:
• incur additional indebtedness or issue disqualified stock or preferred stock;
• make investments;
• pay dividends and make other restricted payments;
• sell certain assets;
• create liens;
• enter into sale and leaseback transactions;
• consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets;
• enter into transactions with affiliates; and
• designate subsidiaries as Unrestricted Subsidiaries (as defined in the ABL Credit Agreement).
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On March 31, 2024, the Borrowers were in compliance with all covenants under the ABL Credit Agreement. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Intabex Term Loans
Pursuant to (i) an exchange offer (the "DDTL Facility Exchange") made to, and accepted by, holders of 100.0% of the outstanding term loans (the "DDTL Term Loans") under the Amended and Restated Term Loan Credit Agreement, effectuated pursuant to that certain Amendment and Restatement Agreement, dated as of June 2, 2022 (the "DDTL Credit Agreement"), by and among Intabex Netherlands B.V., as borrower ("Intabex"), the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto and (ii) an exchange offer (the "Exit Facility Exchange") made to, and accepted by, holders of 100.0% of the outstanding term loans (the "Exit Term Loans") under the Exit Term Loan Credit Agreement, dated as of August 24, 2020 (the "Exit Term Loan Credit Agreement"), by and among Pyxus Holdings, as borrower, the guarantors party thereto, the administrative agent and collateral agent thereunder, and the several lenders from time to time party thereto, on February 6, 2023, Pyxus Holdings entered into the Intabex Term Loan Credit Agreement, dated as of February 6, 2023 (the "Intabex Term Loan Credit Agreement"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus (US) LLC ("Alter Domus"), as administrative agent and senior collateral agent. The Intabex Term Loan Credit Agreement established a term loan credit facility in an aggregate principal amount of approximately $189.0 million (the "Intabex Credit Facility"), under which term loans in the full aggregate principal amount of the Intabex Credit Facility (the "Intabex Term Loans") were deemed made in exchange for (i) $100.0 million principal amount of the DDTL Term Loans, plus an additional $2.0 million on account of the exit fee payable under the DDTL Credit Agreement and (ii) approximately $87.0 million principal amount of Exit Term Loans, representing 40.0% of the outstanding principal amount thereof (including the applicable accrued and unpaid PIK interest thereon).
The Intabex Term Loans bear interest, at Pyxus Holdings’ option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Intabex Term Loans are stated to mature on December 31, 2027.
The Intabex Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.
The Intabex Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; designate subsidiaries as unrestricted subsidiaries; and, in the case of Intabex, undertake business activities and sell certain subsidiaries.
On March 31, 2024, Pyxus Holdings and the guarantors under the Intabex Term Loan Credit Agreement were in compliance with all covenants under the Intabex Term Loan Credit Agreement. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Pyxus Term Loans
Pursuant to the Exit Facility Exchange, on February 6, 2023, Pyxus Holdings entered into the Pyxus Term Loan Credit Agreement, dated as of February 6, 2023 (the "Pyxus Term Loan Credit Agreement"), by and among, Pyxus Holdings, the guarantors party thereto, the lenders party thereto and Alter Domus, as administrative agent and senior collateral agent, to establish a term loan credit facility in an aggregate principal amount of approximately $130.6 million (the "Pyxus Credit Facility"), under which term loans in the full aggregate principal amount of the Pyxus Credit Facility (the "Pyxus Term Loans" and, together with the Intabex Term Loans, the "New Term Loans") were deemed made in exchange for 60.0% of the outstanding principal amount of Exit Term Loans (including the applicable accrued and unpaid PIK interest thereon).
The Pyxus Term Loans bear interest, at Pyxus Holdings’ option, at either (i) a term SOFR rate (subject to a floor of 1.5%) plus 8.0% per annum or (ii) an alternate base rate plus 7.0% per annum. The Pyxus Term Loans are stated to mature on December 31, 2027.
The Pyxus Term Loans may be prepaid from time to time, in whole or in part, without prepayment or penalty. With respect to alternate base rate loans, accrued interest is payable quarterly in arrears on the last business day of each calendar quarter and, with respect to SOFR loans, accrued interest is payable on the last day of each applicable interest period but no less frequently than every three months.
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The Pyxus Term Loan Credit Agreement contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.
On March 31, 2024, Pyxus Holdings and the guarantors under the Pyxus Term Loan Credit Agreement were in compliance with all covenants under the Pyxus Term Loan Credit Agreement.
On March 21, 2024, Pyxus Holdings entered into an agreement (the "Debt Repurchase Agreement") with certain holders of its senior debt which included the right of Pyxus Holdings, at its option, to purchase from such holders $10.3 million aggregate principal amount of the Pyxus Term Loans for $9.1 million, a 12.0% discount to par value, plus accrued and unpaid interest and specified customary fees. On April 12, 2024, Pyxus Holdings exercised its right to purchase such Pyxus Term Loans. See " Note 27. Related Party Transactions " and " Note 2 9 . Subsequent Events " to the "Notes to Consolidated Financial Statements" for additional information.
8.50% Senior Secured Notes due 2027
Pursuant to an exchange offer (the "Notes Exchange" and, together with the DDTL Facility Exchange and the Exit Facility Exchange, the "Debt Exchange Transactions") made by Pyxus Holdings and accepted by holders of approximately 92.7% of the aggregate principal amount of the outstanding 10.0% Senior Secured First Lien Notes due 2024 issued by Pyxus Holdings (the "2024 Notes") pursuant to that certain Indenture, dated as of August 24, 2020 (the "2024 Notes Indenture"), by and among Pyxus Holdings, the guarantors party thereto and the trustee, collateral agent, registrar and paying agent thereunder, on February 6, 2023, Pyxus Holdings issued approximately $260.5 million in aggregate principal amount of 8.5% Senior Secured Notes due December 31, 2027 (the "2027 Notes" and, together with the New Term Loans, the "New Secured Debt") to the exchanging holders of the 2024 Notes for an equal principal amount of 2024 Notes. The 2027 Notes were issued pursuant to the Indenture, dated as of February 6, 2023 (the "2027 Notes Indenture"), among Pyxus Holdings, the guarantors party thereto, and Wilmington Trust, National Association, as trustee, and Alter Domus, as collateral agent.
The 2027 Notes bear interest at a rate of 8.5% per annum, which interest is computed on the basis of a 360-day year comprised of twelve 30-day months. Interest accrues on the 2027 Notes from the date of issuance and is payable semi-annually in arrears on June 15 and December 15 of each year, commencing on June 15, 2023. The 2027 Notes are stated to mature on December 31, 2027.
At any time from time to time, Pyxus Holdings may redeem the 2027 Notes, in whole or in part, at a redemption price equal to 100.0% of the principal amount of 2027 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but not including, the redemption date.
The 2027 Notes Indenture contains customary affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s and its restricted subsidiaries’ ability to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock; make investments; pay dividends and make other restricted payments; sell certain assets; incur liens; consolidate, merge, sell or otherwise dispose of all or substantially all their assets; enter into transactions with affiliates; and designate subsidiaries as unrestricted subsidiaries.
On March 31, 2024, Pyxus Holdings and the guarantors of the 2027 Notes were in compliance with all covenants under the 2027 Notes Indenture.
Pursuant to the Debt Repurchase Agreement entered into on March 21, 2024, Pyxus Holdings agreed to purchase from the holders of its senior debt party to the Debt Repurchase Agreement $77.9 million aggregate principal amount of the 2027 Notes for $60.0 million, a 23.0% discount to par value, plus accrued and unpaid interest and specified customary fees. The Debt Repurchase Agreement also included the right of Pyxus Holdings, at its option, to purchase from such holders an additional $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par value, plus accrued and unpaid interest and customary fees. The purchase of $77.9 million aggregate principal amount of the 2027 Notes pursuant to the Debt Repurchase Agreement was completed on March 28, 2024. On April 12, 2024, Pyxus Holdings exercised its right under the Debt Repurchase Agreement to purchase such additional $34.2 million aggregate principal amount of the 2027 Notes. See " Note 27. Related Party Transactions " and " Note 29. Subsequent Events " to the "Notes to Consolidated Financial Statements" for additional information.
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Guarantees and Collateral
The obligations of Pyxus Holdings under the ABL Credit Agreement and the New Secured Debt are fully and unconditionally guaranteed by the Company, Pyxus Parent and all of the Company’s domestic subsidiaries and certain of the Company’s foreign subsidiaries, subject to certain limitations (the "Senior Secured Debt Obligors"). In addition, under the Intabex Term Loan Credit Facility, Intabex and Alliance One International Tabak B.V. (which were obligors under the DDTL Term Loans) also guarantee the Intabex Credit Facility (together, the "Specified Intabex Obligors") but do not guarantee the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement. In addition, certain assets of the Specified Intabex Obligors (which were pledged as collateral for the DDTL Term Loans) are pledged as collateral to secure the Intabex Term Loans (the "Intabex Collateral") but do not secure the 2027 Notes, the Pyxus Term Loans or obligations under the ABL Credit Agreement. On March 27, 2024, Alliance One International Tabak B.V. was merged with and into Intabex.
The Senior Secured Debt Obligors’ obligations under the ABL Credit Agreement are secured by (i) a first-priority senior lien the ABL Priority Collateral (as defined in the ABL/New Secured Debt Intercreditor Agreement (as defined below)), which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets and proceeds of the foregoing of the Senior Secured Debt Obligors, and (ii) a junior-priority lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral. The New Secured Debt is secured by (i) a first-priority senior lien on substantially all assets of the Senior Secured Debt Obligors other than certain exclusions and the ABL Priority Collateral and (ii) a junior-priority lien on the ABL Priority Collateral. The Intabex Term Loans are further secured by a first-priority lien on the Intabex Collateral.
The obligations under the New Secured Debt share a single lien, held by Alter Domus, as senior collateral agent (the "Senior Collateral Agent"), on the Collateral (as defined below) subject to the payment waterfall pursuant to the intercreditor arrangements described below. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Intercreditor Agreements
The priority of the obligations under the ABL Credit Agreement and the New Secured Debt are set forth in the two intercreditor agreements entered into in connection with consummation of the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange.
ABL/New Secured Debt Intercreditor Agreement . On February 6, 2023, Pyxus Holdings, Inc., the guarantors party thereto, PNC Bank, National Association, as ABL Agent, Alter Domus, as Pyxus Term Loan Administrative Agent, Intabex Term Loan Administrative Agent and Senior Collateral Agent, and Wilmington Trust, National Association, as Senior Notes Trustee entered into an Amended and Restated ABL Intercreditor Agreement, dated as of February 6, 2023 (the "ABL/New Secured Debt Intercreditor Agreement") to provide for the intercreditor relationship between, (i) on one hand, the holders of obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations and (ii) on the other hand, the holders of obligations under the New Secured Debt, the guarantees thereof and certain related obligations. Pursuant to the terms of the ABL/Term Loan/Notes Intercreditor Agreement, Pyxus Holdings’ obligations under the ABL Credit Facility, the guarantees thereof and certain related obligations have first-priority senior liens on the ABL Priority Collateral, which includes certain accounts receivable and inventory and certain related intercompany notes, cash, deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing entities and proceeds of the foregoing, with the obligations under the New Secured Debt having junior-priority liens on the ABL Priority Collateral. Pursuant to the ABL/New Secured Debt Intercreditor Agreement, Pyxus Holdings’ collective obligations under the New Secured Debt, the guarantees thereof and certain related obligations have first-priority senior liens on the collateral that is not ABL Priority Collateral, including owned material real property in the United States, capital stock of subsidiaries owned directly by Pyxus Holdings or a guarantor (other than the Intabex Collateral), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other assets related to the foregoing and proceeds of the foregoing, with the obligations under the ABL Credit Facility having junior-priority liens on such collateral, other than real property. The ABL Credit Facility is not secured by real property.
Secured Debt Intercreditor Agreement . On February 6, 2023, the New Secured Debt Obligors, together with the representative for the holders of the New Secured Debt and the Senior Collateral Agent, entered into the Intercreditor and Collateral Agency Agreement, dated as of February 6, 2023 (the "New Secured Debt Intercreditor Agreement"), pursuant to which the Senior Collateral Agent, serves as joint collateral agent for the benefit of the holders of the 2027 Notes, the Pyxus Term Loans and the Intabex Term Loans with respect to all common collateral securing such indebtedness (the "Collateral"; which excludes Intabex Collateral). The New Secured Debt Intercreditor Agreement provides that Collateral or proceeds thereof received in connection with or upon the exercise of secured creditor remedies will be distributed (subject to the provisions described in the next paragraph) first to holders of the New Secured Debt on a pro rata basis based on the aggregate principal amount of each class of
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New Secured Debt, and then to holders of future junior debt secured by such Collateral on a pro rata basis based on the aggregate principal amount of each class of future junior debt (and in each case permitted refinancing indebtedness thereof).
Exercise of rights and remedies against the Collateral and certain rights in a bankruptcy or insolvency proceeding (including the right to object to debtor-in-possession financing or to credit bid) by the Senior Collateral Agent will be controlled first by the holders of a majority in principal amount of the New Term Loans (including, in any event, each holder holding at least 20.0% of the New Term Loans as of February 6, 2023, provided such holder holds at least 15.0% of the New Term Loans as of the date of determination), second, after repayment in full of the New Term Loans, by the holders of a majority in principal amount of the 2027 Notes and last, after repayment in full of the New Term Loans and the 2027 Notes, by holders of a majority in principal amount of any future junior debt secured by the Collateral. Any such future junior debt will be subject to certain customary waivers of rights in a bankruptcy or insolvency proceeding in favor of the Senior Collateral Agent, including, but not limited to, with respect to debtor-in-possession financing, adequate protection and credit bidding. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Related Party Transactions
The Company, Pyxus Parent and Pyxus Holdings (collectively, the "Holding Companies") entered into a Support and Exchange Agreement, effective as of December 27, 2022 (as amended, including by joinders thereto, the "Support Agreement"), with a group of creditors, including Glendon Capital Management LP, Monarch Alternative Capital LP, Nut Tree Capital Management, L.P., Intermarket Corporation and Owl Creek Asset Management, L.P. on behalf of certain funds managed by them and/or certain of their advisory clients, as applicable (collectively, the "Supporting Holders"), holding in aggregate:
• approximately 99.7% of the DDTL Term Loans outstanding under the DDTL Credit Agreement;
• approximately 68.1% of the Exit Term Loans outstanding under the Exit Term Loan Credit Agreement; and
• approximately 64.1% of the 2024 Notes outstanding under the 2024 Notes Indenture.
Pursuant to the Support Agreement, the Supporting Holders agreed to participate in the DDTL Facility Exchange, the Exit Facility Exchange and the Notes Exchange. Based on a Schedule 13D/A filed with the SEC on January 4, 2023 by Glendon Capital Management, L.P. (the "Glendon Investor"), Glendon Opportunities Fund, L.P. and Glendon Opportunities Fund II, L.P., Glendon Capital Management, L.P. reported beneficial ownership of 7,938,792 shares of the Company’s common stock, representing approximately 31.8% of the outstanding shares of the Company’s common stock. Based on a Schedule 13D/A filed with the SEC on January 23, 2023, by Monarch Alternative Capital LP (the "Monarch Investor"), MDRA GP LP and Monarch GP LLC, Monarch Alternative Capital LP reported beneficial ownership of 6,140,270 shares of the Company’s common stock, representing approximately 24.6% of the outstanding shares of the Company’s common stock. Based on a Schedule 13G/A filed with the SEC on February 10, 2022 by Owl Creek Asset Management, L.P. and Jeffrey A. Altman, Owl Creek Asset Management, L.P. is the investment manager of certain funds and reported beneficial ownership of 2,405,287 shares of the Company’s common stock on December 31, 2021, representing approximately 9.6% of the outstanding shares of the Company’s common stock. A representative of the Glendon Investor and a representative of the Monarch Investor served as directors of Pyxus at the time the Company and its applicable subsidiaries entered into the DDTL Credit Agreement, its predecessor agreement and the amendments thereto, and the Support Agreement, effected borrowings under the DDTL Credit Agreement and its predecessor agreement and commenced the Debt Exchange Transactions. The DDTL Credit Agreement, its predecessor agreement and the amendments thereto, any and all borrowings thereunder, the related guaranty transactions, the Support Agreement, the Debt Exchange Transactions, including the Intabex Term Loan Credit Agreement, the Intabex Term Loans, the Pyxus Term Loan Credit Agreement, the Pyxus Term Loans, the 2027 Notes and the 2027 Notes Indenture were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm’s-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.
The holders of senior debt that are parties to the Debt Repurchase Agreement entered into on March 21, 2024 are funds affiliated with the Monarch Investor and of which the Monarch Investor is the investment advisor. The Debt Repurchase Agreement and the transactions contemplated thereby, including the exercise by Pyxus Holdings of its right to purchase the Pyxus Term Loans and additional 2027 Notes thereunder, were approved, and determined to be on terms and conditions at least as favorable to the Company and its subsidiaries as could reasonably have been obtained in a comparable arm's-length transaction with an unaffiliated party, by a majority of the disinterested members of the Board of Directors of Pyxus.
See " Note 17. Debt Arrangements " and " Note 27. Related Party Transactions " to the "Notes to Consolidated Financial Statements" for additional information.
2024 Notes
In conjunction with the Notes Exchange, Pyxus Holdings received consents from requisite holders of 2024 Notes to amend the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents to, among other things, (i) eliminate
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most of the restrictive covenants and certain of the affirmative covenants in the 2024 Notes Indenture, (ii) eliminate the change of control repurchase obligation in the 2024 Notes Indenture, (iii) subordinate the 2024 Notes in right of payment to existing and future senior indebtedness (including the New Secured Debt), (iv) eliminate certain events of default and (v) release all of the collateral securing the 2024 Notes. On February 6, 2023, the relevant parties to the 2024 Notes Indenture entered into the Second Supplemental Indenture, dated as of February 6, 2023 (the "2024 Notes Supplemental Indenture"), to the 2024 Notes Indenture, pursuant to which the 2024 Notes Indenture, the 2024 Notes and the related intercreditor and security documents were amended to effect these changes.
The 2024 Notes bear interest at a rate of 10.0% per year, payable semi-annually in arrears in cash on February 15 and August 15 of each year. The 2024 Notes are stated to mature on August 24, 2024. At March 31, 2024, the remaining 2024 Notes outstanding is $20.2 million, net of a debt discount of $0.1 million. The total repayment amount due at maturity is $20.4 million.
On March 31, 2024, Pyxus Holdings and the guarantors of the 2024 Notes were in compliance with all covenants under the 2024 Notes Indenture, as amended by the 2024 Notes Supplemental Indenture. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
Foreign Seasonal Lines of Credit
Excluding its long-term credit arrangements, the Company has typically financed its non-U.S. operations with uncommitted short-term seasonal lines of credit arrangements with a number of banks. These operating lines are generally seasonal in nature, typically extending for a term of 180 to 365 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time or at specified dates. These loans are generally renewed at the outset of each tobacco season. Certain of the foreign seasonal lines of credit are guaranteed by the Company and certain of its subsidiaries. At March 31, 2024, the total borrowing capacity under individual foreign seasonal lines of credit range up to $155.0 million. At March 31, 2024, the aggregate outstanding borrowings of the Company under these seasonal credit lines, including letters of credit, was approximately $469.5 million and approximately $307.2 million was available for borrowing under these seasonal credit lines, subject to limitations as provided under the ABL Credit Agreement and the agreements governing the New Secured Debt. The weighted average variable interest rate for these seasonal lines of credit for the year ended March 31, 2024 was 9.8%. Certain of the foreign seasonal lines of credit, with aggregate outstanding borrowings at March 31, 2024 of approximately $120.0 million, are secured by trade receivables and inventories as collateral. At March 31, 2024, the Company and its subsidiaries were in compliance with the covenants associated with the short-term seasonal lines of credit.
Seasonal liquidity beyond cash flow from operations is provided by our foreign seasonal lines of credit, advances from customers, and sales of accounts receivable. For the year ended March 31, 2024, our average short-term borrowings, quarter-end peak short-term borrowings outstanding, and weighted-average interest rate on short-term borrowings were as follows:
Fiscal Year
(in millions) 2024
Average short-term borrowings $ 494.8
Quarter-end peak short-term borrowings outstanding $ 553.1
Weighted-average interest rate on short-term borrowings 9.8 %
Quarter-end peak borrowings for the year ended March 31, 2024 occurred during the first quarter, which represented peak timing for green tobacco purchases and repayments being made in both Africa and South America. The increase in average and peak borrowings is due to the increase in the average cost per kilo of tobacco as a result of undersupply conditions and inflation. Borrowings during the prior year and in the current year were repaid with cash provided by operating activities. For further information on our debt financing as of March 31, 2024, see " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
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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:
March 31, 2024 March 31, 2023
(in millions) Total Borrowing Capacity Remaining Amounts Available Total Borrowing Capacity Remaining Amounts Available
Senior Secured Credit Facilities:
ABL Credit Facility $ 120.0 $ 120.0 $ 100.0 $ 75.0
Foreign seasonal lines of credit 767.5 307.2 697.5 332.3
Other long-term debt 0.4 0.2 0.6 0.1
Letters of credit 9.3 4.2 18.6 6.9
Total $ 897.2 $ 431.6 $ 816.7 $ 414.3
Net Debt
We refer to "Net debt", a non-GAAP measure, as total debt liabilities less cash and cash equivalents. We believe this non-GAAP financial measure is useful to monitor leverage and to evaluate changes to the Company's capital structure. A limitation associated with using net debt is that it subtracts cash and cash equivalents, and therefore, may imply that management intends to use cash and cash equivalents to reduce outstanding debt and that cash held in certain jurisdictions can be applied to repay obligations owing in other jurisdictions and without reduction for applicable taxes. In addition, net debt suggests that our debt obligations are less than the most comparable GAAP measure indicates.
March 31,
(in millions) 2024 2023
Notes payable $ 499.3 $ 382.5
Current portion of long-term debt (1)
20.3 0.1
Long-term debt (2)
497.7 618.4
Total debt liabilities $ 1,017.3 $ 1,001.0
Less: Cash and cash equivalents (3)
92.6 136.7
Net debt $ 924.7 $ 864.3
(1) The increase in the current portion of long-term debt is due to the 10% Notes due in August 2024.
(2) Includes amounts outstanding under the ABL Credit Facility. Weighted average borrowings outstanding under the ABL Credit Facility were $48.8 million for the fiscal year ended March 31, 2024.
(3) The decrease in cash and cash equivalents is driven by the partial repurchase of certain long-term debt in March 2024, and net repayments on the ABL Credit Facility.
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Working Capital
The following summarizes our working capital:
March 31, Change
(in millions except for current ratio) 2024 2023 $ %
Cash, cash equivalents, and restricted cash $ 99.8 $ 138.9 (39.1) (28.1)
Trade and other receivables, net 187.5 202.7 (15.2) (7.5)
Inventories and advances to tobacco suppliers, net 952.1 817.4 134.7 16.5
Recoverable income taxes 4.5 5.8 (1.3) (22.4)
Prepaid expenses and other current assets 66.4 55.7 10.7 19.2
Total current assets* $ 1,310.2 $ 1,220.6 89.6 7.3
Notes payable $ 499.3 $ 382.5 116.8 30.5
Accounts payable 181.2 170.3 10.9 6.4
Advances from customers 90.7 42.5 48.2 113.4
Accrued expenses and other current liabilities 97.0 92.7 4.3 4.6
Current portion of long-term debt 20.3 0.1 20.2 **
Other current liabilities 16.6 27.0 (10.4) (38.5)
Total current liabilities* $ 905.2 $ 715.1 190.1 26.6
Current ratio 1.4 to 1 1.7 to 1
Working capital $ 405.0 $ 505.5 (100.5) (19.9)
*Amounts may not equal column totals due to rounding.
**Not meaningful for comparison purposes.
Working capital declined $100.5 million, or 19.9%, to $405.0 million as of March 31, 2024 from $505.5 million as of March 31, 2023, due to higher utilization of cash for the partial repurchase of long-term debt and to fully pay down the ABL, and higher borrowings on our foreign seasonal credit lines that were used to accelerate the purchase of more expensive green tobacco when compared to the prior year.
Inventories
The following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:
March 31,
(in millions) 2024 2023
Committed $ 570.4 $ 479.4
Uncommitted 14.9 19.0
Total processed tobacco $ 585.3 $ 498.4
Processed tobacco increased $86.9 million, or 17.5%, to $585.3 million as of March 31, 2024 from $498.4 million as of March 31, 2023 primarily due to higher tobacco prices and the timing of shipments from Africa. Uncommitted inventories remain at low levels as undersupply conditions persist in the global tobacco market. See " Note 1. Basis of Presentation and Summary of Significant Accounting Policies " and " Note 9. Inventories, Net " to the "Notes to Consolidated Financial Statements" for additional information.
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Sources and Uses of Cash
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 generally seasonal in nature, normally extending for a term of 180 to 365 days, corresponding to the tobacco crop cycle in that market. These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans. These short-term foreign seasonal lines of credit are typically renewed at the outset of each tobacco season. We maintain various other financing arrangements to meet the cash requirements of our businesses. See " Note 17. Debt Arrangements " to the "Notes to Consolidated Financial Statements" for additional information.
We utilize capital in excess of cash flow from operations to finance accounts receivable, inventory, and advances to tobacco suppliers in foreign countries. In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.
As of March 31, 2024 our cash, cash equivalents, and restricted cash was $99.8 million, of which $68.6 million was held in foreign jurisdictions and subject to exchange controls and tax consequences that could limit our ability to fully repatriate these funds. Fluctuation of the U.S. dollar versus many of the currencies in which we incur costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed.
The following summarizes the sources and uses of our cash flows:
Years Ended March 31,
(in millions) 2024 2023 2022
Net income (loss) $ 3.2 $ (38.2) $ (82.1)
Trade and other receivables (167.6) (111.9) (261.9)
Inventories and advances to tobacco suppliers (136.0) (21.1) (31.5)
Payables and accrued expenses 17.5 5.1 59.3
Advances from customers 55.3 (10.7) 41.2
Other 12.6 39.0 76.2
Net cash used in operating activities $ (215.0) $ (137.8) $ (198.8)
Collections from beneficial interests in securitized trade receivables 175.9 165.3 189.4
Other (16.5) (10.4) (8.2)
Net cash provided by investing activities $ 159.4 $ 154.9 $ 181.2
Net proceeds from short-term borrowings 122.5 5.2 9.2
Net (repayment of) proceeds from long-term borrowings (60.3) 0.2 (1.4)
Net (repayment of) proceeds from revolving loan facilities (25.0) (65.0) 21.9
Other (11.6) (23.4) 93.6
Net cash provided by (used in) financing activities $ 25.6 $ (83.0) $ 123.3
Effect of exchange rate changes on cash (9.2) 3.5 (2.1)
(Decrease) increase in cash, cash equivalents, and restricted cash* $ (39.1) $ (62.4) $ 103.6
*Amounts may not equal totals due to rounding.
The change in cash, cash equivalents, and restricted cash increased $23.3 million for the fiscal year ended March 31, 2024 compared to the fiscal year ended March 31, 2023. The increase was primarily from higher borrowings on foreign seasonal lines of credit for purchases of more expensive green tobacco and an increase in collections from beneficial interests due to higher sales in the current year. These increases were partially offset by the repurchase of certain long-term debt and the pay down of the ABL Credit Facility at March 31, 2024.
Planned Capital Expenditures
We are estimating $30.3 million in capital investments for fiscal 2025, which includes expenditures expected to be funded through government assistance, for routine replacement of equipment, as well as investments in assets that will add value to the customer or increase efficiency.
Securitized Receivables
We sell trade receivables to unaffiliated financial institutions under multiple revolving trade accounts receivable securitization facilities. Under the first and second programs, we receive a discount from the face value of the receivable sold, less contractual
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dilutions which limit the amount that may be outstanding from any one particular customer and insurance reserves that also have the effect of limiting the risk attributable to any one customer. Our beneficial interests in the first and second facilities is subordinate to the purchaser of the receivables. Under the third and fourth programs, we receive an amount equal to the face value of the receivable sold, less a discount rate tied to a benchmark rate, which varies based on the invoice currency. See " Note 18. Securitized Receivables " to the "Notes to Consolidated Financial Statements" for additional information.
Aggregate Contractual Obligations and Commitments
The following summarizes our contractual obligations and other commercial commitments as of March 31, 2024 :
Payments / Expirations by Fiscal Year
(in millions) Total 2025 Years
2026-2027 Years
2028-2029 After
2029
Long-Term Debt Obligations (1)
$ 497.7 $ — $ 0.1 $ 497.6 $ —
Short-Term Debt Obligations (2)
519.6 519.6 — — —
Interest on Debt Obligations (3)
225.8 60.8 120.2 44.8 —
Pension and Postretirement Obligations 58.7 6.5 11.8 11.5 28.9
Operating Lease Obligations 50.4 12.7 17.5 10.0 10.2
Tobacco and Other Purchase Obligations 576.1 576.1 — — —
Amounts Guaranteed for Tobacco Suppliers 97.4 97.4 — — —
Total Contractual Obligations and Other
Commercial Commitments $ 2,025.7 $ 1,273.1 $ 149.6 $ 563.9 $ 39.1
(1) On May 31, 2024, the Company paid approximately $9.4 million to retire approximately $10.3 million of aggregate principal amount of the Pyxus Term Loans, and included payment for accrued and unpaid interest through the day prior to payment. The Pyxus Term Loans are included within long-term debt obligation as of March 31, 2024.
(2) Short-term debt obligations consist of the current portion of long-term debt and our seasonal foreign credit lines.
(3) Interest obligations includes interest for long-term debt, including indebtedness under the ABL Credit Facility. The projected interest includes both fixed and variable rate debt. The variable rate used in the projections is the rate that was being charged on our variable rate debt as of March 31, 2024. In conjunction with the May 31, 2024 Pyxus Term Loans debt retirement, approximately $0.3 million represented payment for accrued and unpaid interest.
Tobacco and Other Purchase Obligations
Tobacco purchase obligations result from contracts with suppliers, primarily in Africa, Europe, North America, and South America, to buy either specified quantities of tobacco or the supplier’s total tobacco production. Amounts shown as tobacco purchase obligations are estimates based on projected purchase prices of the future crop tobacco. Payment of these obligations is net of our advances to these suppliers. Our tobacco purchase obligations do not exceed our projected requirements over the related terms and are in the normal course of business. Other purchase obligations consist primarily of purchase commitments of agricultural material. Tobacco and other purchase obligations decreased $82.5 million, or 12.5%, from $658.6 million to $576.1 million primarily due to a shift in jurisdictional mix of inventory, driven by the impact of El Nino in South America.
Amounts Guaranteed for Tobacco Suppliers
In Africa and South America, we provide guarantees to ensure financing is available to our tobacco suppliers. In the event these suppliers should default, we would be responsible for repayment of the funds provided to these suppliers. We also provide guarantees for the financing of certain unconsolidated subsidiaries in Asia and South America. See " Note 19. Guarantees " to the "Notes to Consolidated Financial Statements" for additional information.
Tax and Repatriation Matters
We are subject to income tax laws in the countries in which we do business through wholly owned subsidiaries and through affiliates. We regularly evaluate the status of the accumulated unremitted earnings of each of our foreign subsidiaries. Our ability to repatriate unremitted foreign earnings may be limited by local legal restrictions and foreign exchange controls in certain jurisdictions in which we operate. If the undistributed earnings are needed in the U.S., we may be required to pay state income and/or foreign local withholding taxes upon repatriation. We provide deferred income taxes, net of creditable foreign taxes, if applicable, on earnings that are not indefinitely invested. See " Note 6. Income Taxes " to the "Notes to Consolidated Financial Statements" for additional information.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in accordance with U.S. GAAP requires the use of estimates and assumptions that have an impact on the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent assets and liabilities. Management considers an accounting estimate critical if it: (i) requires us to make judgments
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and estimates about matters that are inherently uncertain, (ii) it is important to an understanding of our financial condition or operating results, and (iii) has a material impact to the financial statements.
We base our estimates on currently available information, historical experience, and various other assumptions we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates. Management has discussed the development, selection, and disclosure of our critical accounting estimates with the Audit Committee of the Board of Directors.
Management believes the following accounting estimates are most critical to our business operations and to an understanding of our financial condition and results of operations and reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Income Taxes
Our annual effective income tax rate is based on our jurisdictional mix of pretax income, statutory tax rates, exchange rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex, subject to change, and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties under ASC 740. We record unrecognized tax benefits in multiple jurisdictions and evaluate the future potential outcomes of tax positions, based upon our interpretation of the country-specific tax law, and the likelihood of future settlement. We review our tax positions quarterly and adjust the balances as new information becomes available.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise from temporary differences between the financial reporting and tax bases of assets and liabilities and from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the impact from changes in or issuance of new tax law and the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates. To provide insight, we use our historical experience along with our short and long-range business forecasts. In addition, we make adjustments to historical data for objectively verifiable information where appropriate.
We believe it is more likely than not that a portion of the deferred income tax assets may expire as unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not such remaining deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable. See " Note 6. Income Taxes " to the "Notes to Consolidated Financial Statements" for additional information.
Pensions and Postretirement Health Care and Life Insurance Benefits
The valuation of our pension and other postretirement health care and life insurance plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, investment returns, projected salary increases, benefits, and mortality rates. The significant assumptions used in the calculation of pension and postretirement obligations are:
• Discount rate: The discount rate is based on investment yields available at the measurement date on high-quality fixed income obligations, such as those included in the Moody’s Aa bond index.
• Salary increase assumption: The salary increase assumption reflects our expectations with respect to long-term salary increases of our workforce. Historical pay increases, expectations for the future, and anticipated inflation and promotion rates are considered in developing this assumption.
• Cash balance crediting rate: Interest is credited on cash balance accounts based on the yield on one-year Treasury Constant Maturities plus 1%. The assumed crediting rate thus considers the discount rate, current treasury rates, current inflation rates, and expectations for the future.
• Mortality rates: Mortality rates are based on gender-distinct group annuity mortality tables.
• Expected return on plan assets: The expected return reflects asset allocations, investment strategy, and our historical actual returns.
• Termination and retirement rates: Termination and retirement rates are based on standard tables reflecting past experience and anticipated future experience under the plan. No early retirement rates are used since benefits provided are actuarially equivalent and there are not early retirement subsidies in the plan.
• Inflation: The inflation assumption is based on an evaluation of external market indicators, including real gross domestic product growth and central bank inflation targets.
• Expected contributions: The expected amount and timing of contributions are based on an assessment of minimum requirements, cash availability, and other considerations (e.g., funded status, avoidance of regulatory premiums, and levies, and tax efficiency).
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• Health care cost trends: The health care cost trend assumptions are developed based on historical cost data, the near-term outlook, and an assessment of likely long-term trends.
Assumptions are set at each year end and are generally not changed during the year unless there is a major plan event such as a curtailment or settlement that would trigger a plan remeasurement.
Management periodically reviews actual demographic experience as it compares to the actuarial assumptions. Changes in assumptions are made if there are significant deviations or if future expectations change significantly. The Company terminated one of its defined benefit pension plans in the United Kingdom ("U.K. Pension Plan") during the year ended March 31, 2024. Based upon anticipated changes in assumptions, excluding the termination of the U.K. Pension Plan, pension and postretirement expense for the year ending March 31, 2025 is expected to be consistent with the year ended March 31, 2024. The contribution to our employee benefit plans during the year ended March 31, 2024 was $4.4 million and is expected to be $4.9 mil lion in fiscal 2025.
The effect of actual results differing from our assumptions are accumulated and amortized over future periods. Changes in other assumptions and future investment returns could potentially have a material impact on our pension and postretirement expenses and related funding requirements. The effect of a change in certain assumptions is shown below:
(in thousands) Estimated Change
in Projected
Benefit Obligation
Increase (Decrease) Estimated Change in
Annual Expense
Increase (Decrease)
Change in Assumption (Pension and Postretirement Plans)
1% increase in discount rate $ (4,773) $ (131)
1% decrease in discount rate $ 5,417 $ 190
1% increase in salary increase assumption $ 179 $ 65
1% decrease in salary increase assumption $ (165) $ (61)
1% increase in rate of return on assets $ (216)
1% decrease in rate of return on assets $ 216
Changes in assumptions for other postretirement benefits are no longer applicable as the benefit is capped and no longer subject to inflation. See " Note 22. Pension and Other Postretirement Benefits " to the "Notes to Consolidated Financial Statements" for additional information.
Recent Accounting Pronouncements Not Yet Adopted
Information with respect to recent accounting pronouncements not yet adopted is included in " Note 2. New Accounting Standards " to the "Notes to Consolidated Financial Statements," which information is incorporated by reference herein.