PYXUS INTERNATIONAL, INC. Forward-Looking Statements Readers are cautioned that the statements contained in this report regarding expectations of our performance or other matters that may affect our business, results of operations, or financial condition are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements, which are based on current expectations of future events, may be identified by the use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "estimates," "intends," "projects," "goals," "targets," and other words of similar meaning. These statements also may be identified by the fact that they do not relate strictly to historical or current facts. If underlying assumptions prove inaccurate, or if known or unknown risks or uncertainties materialize, actual results could vary materially from those anticipated, estimated, or projected. These risks and uncertainties include those discussed in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year endedMarch 31, 2021 and in our other filings with theSecurities and Exchange Commission . These risks and uncertainties include: •risks related to our indebtedness, including that the Company has substantial debt which may adversely affect it by limiting future sources of financing, interfering with its ability to pay interest, and principal on its indebtedness and subjecting it to additional risks, the Company requires a significant amount of cash to service indebtedness and its ability to generate cash depends on many factors beyond its control, the Company may not be able to refinance or renew its indebtedness, which may have a material adverse effect on its financial condition, the Company may not be able to satisfy the covenants included in its financing arrangements, which could result in the default of its outstanding debt obligations, and despite current indebtedness levels, the Company may still be able to incur substantially more debt, which could exacerbate further the risks associated with its significant leverage; •risks and uncertainties relating to the Chapter 11 Cases and the Company's liquidity and business strategy, including but not limited to: whether the Company's leaf tobacco customers, farmers and other suppliers might lose confidence inPyxus as a result of the Chapter 11 Cases or otherwise and may seek to establish alternative commercial relationships, whether, as a result of the Chapter 11 Cases or otherwise, foreign lenders that have provided short-term operating credit lines to fund leaf tobacco operations at the local level may lose confidence inPyxus and cease to provide such funding, uncertainty and continuing risks associated with the Company's ability to achieve its goals, which may adversely affect the Company's liquidity, unanticipated developments with respect to liquidity needs and sources of liquidity could result in a deficiency in liquidity, and the Company's Board of Directors, as reconstituted in connection with the Chapter 11 Cases, may implement further changes in the Company's business strategy that could affect the scope of its operations, including the countries in which it continues to operate and the business lines that it continues to pursue, and may result in the recognition of restructuring or asset impairment charges; •risk and uncertainties related to the Company's leaf tobacco operations, including changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, changes in relevant capital markets affecting the terms and availability of short-term seasonal financing, political instability, currency and interest rate fluctuations, shifts in the global supply and demand position for tobacco products, changes in tax laws and regulations or the interpretation of tax laws and regulations, resolution of tax matters, adverse weather conditions, the impact of disasters or other unusual events affecting international commerce, and changes in costs incurred in supplying products and related services; -36- -------------------------------------------------------------------------------- •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 byPyxus or shippers to temporarily suspend operations in affected areas, whether the Company's operations that have been classified as "essential" under various governmental orders restricting business activities will continue to be so classified or, even if so classified, whether site-specific health and safety concerns related to COVID-19 might otherwise require operations at any of our facilities to be halted for some period of time, negative consumer purchasing behavior with respect to the Company's products or the products of its leaf tobacco customers during periods of government mandates restricting activities imposed in response to the COVID-19 pandemic, and the extent to which the impact of the COVID-19 pandemic on the Company's operations and the demand for its products may not coincide with impacts experienced inthe United States due to the international scope of its operations, including in emerging and other markets in which the Company operates where the timing and severity of COVID-19 outbreaks and the pace of COVID-19 vaccinations and treatments may differ from those inthe United States ; and •risks and uncertainties related to the Company's Other Products and Services segment, including that the e-liquids business has a limited operating history, is in a developing market, may not generate the results that the Company anticipates and has needed, and may continue to need, significant investment to fund continued operations and expansion, that its technologies, processes and formulations may become obsolete, the impact of increasing competition, uncertainties with respect to the development of the industry and market, including the level of consumer demand for such products, the potential for product liability claims, uncertainties with respect to the extent of consumer acceptance of the products offered by the e-liquids business, the impact of regulation associated with the eliquids business, including the risk of obtaining anticipated regulatory approvals, and risks and uncertainties related to the CCAA Proceeding (as defined below), including whether the remaining sale transaction with respect to the Canadian Cannabis Subsidiaries (as defined below) will be successfully completed within the anticipated time frame or at all and the extent of any recovery, or additional impairment, thatPyxus may recognize with respect to its investment in these subsidiaries. We do not undertake to update any forward-looking statements that we make from time to time. Executive Summary In the first quarter we began to catch-up from prior-period shipping delays driven by the pandemic and customer shipping instructions. We are continuing to monitor the impact of COVID on our Company and our workforce, and we will adjust our operations as needed to protect the health and safety of our employees while maintaining business continuity. Proactive management of shipping logistics, including container availability and freight costs, remains a high priority as we adapt to the evolving global shipping conditions. In addition, our inventory levels are consistent with our expectations and our uncommitted inventory decreased compared to the prior year. We continue to customers look for ways to reduce complexity in their supply chains through partnerships with supplierswho support their environmental, social, and governance ("ESG") objectives. We believe we are well-positioned to capitalize on additional opportunities with our customers. Overview Historically,Pyxus' core business has been as a tobacco leaf merchant, purchasing, processing, packing, storing and shipping tobacco to manufacturers of cigarettes and other consumer tobacco products throughout the world. Through our predecessor companies, we have a long operating history in the leaf tobacco industry with some customer relationships beginning in the early 1900s. We are committed to responsible crop production that supports economic viability for the grower, provides a safe working atmosphere for those involved in crop production and minimizes negative environmental impact. Our agronomists maintain frequent contact with growers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. Throughout the entire production process, from seed through processing and final shipment, our SENTRISM traceability system provides clear visibility into how products are produced throughout the supply chain, supporting product integrity. In an increasing number of markets, we also provide agronomy expertise for growing leaf tobacco. Our contracted tobacco grower base often produces a significant volume of non-tobacco crop utilizing the agronomic assistance that our team provides.Pyxus is working to find markets for these crops as part of our ongoing efforts to improve farmer livelihoods and the communities in which they live. Our consolidated operations are managed and reported in nine operating segments that are organized by product category and geographic area and aggregated into three reportable segments for financial reporting purposes: Leaf -North America , Leaf - Other Regions, and Other Products and Services. See "Note 24. Segment Information" to the "Notes to Condensed Consolidated Financial Statements" for additional information. -37- --------------------------------------------------------------------------------U.S. Bankruptcy Proceedings OnJune 15, 2020 ,Old Holdco, Inc. (then namedPyxus International, Inc. ) ("OldPyxus ") and its then subsidiariesAlliance One International, LLC ,Alliance One North America, LLC ,Alliance One Specialty Products, LLC andGSP Properties, LLC (collectively, the "Debtors") filed voluntary petitions (the "Chapter 11 Cases") under Chapter 11 of the United States Bankruptcy Code with theBankruptcy Court for the District of Delaware (the "Bankruptcy Court ") to implement a prepackaged Chapter 11 plan of reorganization to effectuate a financial restructuring (the "Restructuring") of Old Pyxus' secured debt. OnAugust 21, 2020 , theBankruptcy Court issued an order (the "Confirmation Order") confirming the Amended Joint Prepackaged Chapter 11 Plan of Reorganization (the "Plan") filed by the Debtors in the Chapter 11 Cases. OnAugust 24, 2020 (the "Effective Date"), the Plan became effective in accordance with its terms, and the Debtors emerged from the Chapter 11 Cases. In connection with the satisfaction of the conditions to effectiveness as set forth in the Confirmation Order and the Plan, Old Pyxus completed a series of transactions pursuant to which the business assets and operations of Old Pyxus were vested in a newVirginia corporation,Pyxus Holdings, Inc. , which is an indirect subsidiary of the Company. Pursuant to the Confirmation Order and the Plan, at the effectiveness of the Plan, all outstanding shares of common stock, and rights to acquire the common stock, of Old Pyxus were cancelled and the shares of common stock of the Company were delivered to certain creditors of Old Pyxus. Accordingly, upon the effectiveness of the Plan the Company, through its subsidiaries, operated all of the businesses operated by Old Pyxus and its subsidiaries immediately prior to the effectiveness of the Plan and the Company is the successor issuer to Old Pyxus. Other than our Chief Executive Officer, our Board of Directors does not include any of the individualswho served as directors of Old Pyxus at the time the Chapter 11 Cases were commenced or at the effectiveness of the Plan. See "Note 3. Emergence from Voluntary Reorganization under Chapter 11" to the "Notes to Condensed Consolidated Financial Statements" for additional information. Development of Businesses Beginning in 2017, we undertook a strategic process designed to diversify the Company's products and services by leveraging our core strengths in agronomy and traceability. In general, our diversification strategy focused on products that were value-added, required some degree of processing and offered a higher margin potential than our core tobacco leaf business. In support of this strategy, the Company made investments in businesses that focused on e-liquids, industrial hemp/CBD, and legal cannabis inCanada . Following the effectiveness of the Plan and the election of additional members of our Board of Directors inOctober 2020 , our Board of Directors determined to exit the industrial hemp, CBD and Canadian cannabis businesses in light of the Company's limited capital resources and the continuing capital requirements to develop and expand these early-stage businesses. InDecember 2020 , the Company commenced actions to exit operations of the industrial hemp businesses, including the production and sale of products containing extracts of industrial hemp, including CBD products, by Criticality. Criticality's CBD extraction facility has ceased operations. CCAA Proceeding OnJanuary 21, 2021 ,Canada's Island Garden Inc. ("Figr East"),Figr Norfolk Inc. ("Figr Norfolk") andFigr Brands, Inc. ("Figr Brands", and together with Figr East and Figr Norfolk, the "Canadian Cannabis Subsidiaries"), which are indirect subsidiaries of the Company, applied for relief from their respective creditors pursuant toCanada's Companies' Creditors Arrangement Act (the "CCAA") in theOntario Superior Court of Justice (Commercial List) (the "Canadian Court") inOntario, Canada as Court File No. CV-21-00655373-00CL (the "CCAA Proceeding"). OnJanuary 21, 2021 , upon application by the Canadian Cannabis Subsidiaries, the Canadian Court issued an order for creditor protection of the Canadian Cannabis Subsidiaries pursuant to the provisions of the CCAA and the appointment ofFTI Consulting Canada Inc. to serve as the Canadian Court-appointed monitor of the Canadian Cannabis Subsidiaries during the pendency of the CCAA Proceeding (the "Monitor"). OnJanuary 29, 2021 , the Canadian Court issued an order permitting the Canadian Cannabis Subsidiaries to initiate a sale and investment solicitation process to be conducted by the Monitor and its affiliate to solicit interest in, and opportunities for, a sale of, or investment in, all or substantially all, or one or more components, of the assets and/or the business operations of the Canadian Cannabis Subsidiaries. OnMay 10, 2021 , a definitive agreement for the sale of the assets of Figr Norfolk was entered into for an estimated purchase price of Cdn.$5.0 million . OnJune 10, 2021 , the Canadian Court approved the sale agreement. The consummation of the sale under this agreement is subject to approval of the buyers byHealth Canada and the satisfaction of certain other conditions. OnMay 25, 2021 , a definitive agreement was entered into with a separate buyer for the sale of the outstanding equity of Figr East and certain intangible assets of Figr Brands for an estimated aggregate purchase price of Cdn.$24.8 million . OnJune 10, 2021 , the Canadian Court approved the sale agreement. OnJune 25, 2021 ,Health Canada approved the buyers of Figr East and certain intangible assets of Figr Brands. The sale of Figr East and certain intangible assets of Figr Brands was completed onJune 28, 2021 . The amount of recovery that the Company may receive from the sale of the assets of Figr Norfolk, the sale of the outstanding equity of Figr East, and the sale of certain intangible assets of Figr Brands will be impacted by the amount of claims against the Canadian Cannabis Subsidiaries submitted in the CCAA Proceeding, the extent to which such claims are approved by the -38- -------------------------------------------------------------------------------- Canadian Court, and the extent to which the Company's interest in the Canadian Cannabis Subsidiaries are determined by the Canadian Court to be debt claims entitled to recovery on the same basis as other unsecured creditor claims with respect to the Canadian Cannabis Subsidiaries.
COVID-19
We continue to monitor the impact of the COVID-19 pandemic on our Company and our workforce. The COVID-19 pandemic and government actions implemented to contain further spread of COVID-19 have severely restricted economic activity around the world, and the onset of new variants of COVID-19 threaten to prolong the effects of the pandemic. Our production facilities are still operating but, in some instances, at lower production levels than planned due to social distancing requirements and safety practices implemented in accordance with Company policy. We continue to monitor the measures we implemented to reduce the spread of COVID-19 and make updates and improvements, as necessary. While our supply chains and distribution channels continue to experience delays due to COVID-19 in certain markets, we currently have adequate supply of products to meet the near-term forecasted demand. We implemented various measures to reduce the spread of COVID-19 within our workforce including the implementation of health safety practices, providing personal protective equipment, the implementation of travel restrictions, work-from-home policies where possible, restricting visitors to production locations, splitting production workforce, reducing the on-site production workforce levels, screening workers before they enter facilities, implementing social distancing, and encouraging employees to adhere to prevention measures recommended by theCenter for Disease Control and the World Health Organization . In addition, we have developed a robust Return to the Workplace Program to ensure our employees are returning to a safe working environment as federal, state, and local governments begin lifting their COVID-19 related restrictions. Broad economic impacts from the COVID-19 pandemic, including increased unemployment rates and reduced consumer spending, may extend billing and collection cycles. Deterioration in the collectability of accounts receivable from extended billing and collection cycles would adversely affect our results of operations, financial condition, and cash flows, leading to working capital constraints. If general economic conditions in the markets in which we operate continue to deteriorate or remain uncertain for an extended period of time, our business, results of operations, financial condition, and cash flows will be adversely affected. Due to the geographic scope of our operations, including emerging markets, and our sale to customers around the world, our operations and the demand for our products are subject to the impact of the COVID-19 on a global scale. Improving economic conditions inthe United States , for example, may not coincide with improvements in our results of operations because of our exposure to the impact of COVID-19 elsewhere in the world, particularly in emerging markets that lack access to adequate vaccines and medical treatments. We cannot predict the extent or duration of the COVID pandemic, the effects of the COVID pandemic on the global, national or local economy, or the effect of the COVID pandemic on our business, financial position, results of operations, and cash flows. Fresh Start Reporting The Company appliedFinancial Accounting Standards Board ("FASB") ASC Topic 852 - Reorganizations ("ASC 852") in preparing the condensed consolidated financial statements. For periods subsequent to the commencement of the Chapter 11 Cases, ASC 852 requires distinguishing transactions associated with the reorganization separate from activities related to the ongoing operations of the business. Upon the effectiveness of the Plan and the emergence of the Debtors from the Chapter 11 Cases, the Company determined it qualified for fresh start reporting under ASC 852, which resulted in the Company becoming a new entity for financial reporting purposes on the Effective Date. Our financial results for the three months endedJune 30, 2020 are referred to as those of the "Predecessor." Our financial results for the three months endedJune 30, 2021 are referred to as those of the "Successor." Our results of operations as reported in our Consolidated Financial Statements for these periods are prepared in accordance with fresh start reporting, which requires that we report on our results for the periods prior to the Effective Date separately from the period following the Effective Date. The Company elected to apply fresh start reporting using a convenience date ofAugust 31, 2020 (the "Fresh Start Reporting Date"). The Company evaluated and concluded the events betweenAugust 24, 2020 andAugust 31, 2020 were not material to the Company's financial reporting on both a quantitative or qualitative basis. Refer to "Note 4. Fresh Start Reporting" to the "Notes to Condensed Consolidated Financial Statements" for additional information. -39- -------------------------------------------------------------------------------- Results of Operations Three Months EndedJune 30, 2021 and 2020 Successor Predecessor Change Three months ended Three months ended (in millions) June 30, 2021 June 30, 2020 $ % Sales and other operating revenues $ 333.3 $ 262.8$ 70.5 26.8 Cost of goods and services sold 291.2 243.2 48.0 19.7 Gross profit 42.1 19.6 22.5 114.8 Selling, general, and administrative expenses 33.8 60.8 (27.0) (44.4) Other income (expense), net 0.2 (2.4) 2.6 108.3 Restructuring and asset impairment charges 0.2 0.1 0.1 100.0 Operating income (loss)* 8.2 (43.6) 51.8 118.8 Debt retirement expense - 0.8 (0.8) (100.0) Interest expense, net 26.8 30.5 (3.7) (12.1) Reorganization items - (26.9) 26.9 100.0 Income tax benefit (8.4) (8.2) (0.2) (2.4) (Loss) income from unconsolidated affiliates (1.4) 0.8 (2.2) (275.0) Net loss attributable to noncontrolling interests (0.1) (0.6) 0.5 83.3 Net loss attributable to Pyxus International, Inc. $ (11.5) $ (92.2)$ 80.7 87.5
* Amounts may not equal column totals due to rounding
Sales and other operating revenues increased$70.5 million , or 26.8%, to$333.3 million for the three months endedJune 30, 2021 from$262.8 million for the three months endedJune 30, 2020 . This increase was due to an 8.6% increase in leaf volume and a 17.4% increase in leaf average sales price. The 8.6% increase in leaf volume was primarily due to$77.3 million of shipments delayed by the COVID-19 pandemic and customer shipping instructions from the fiscal year endedMarch 31, 2021 into the first quarter of the current fiscal year. This increase was partially offset by the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021 and lower leaf volume inAsia mainly due to shipments delayed by the COVID-19 pandemic and shipping container availability. The 17.4% increase in leaf average sales price was driven by product mix inAfrica ,Asia ,Europe , andNorth America having a higher concentration of lamina. This increase was partially offset by product mix having a lower concentration of lamina inSouth America . Cost of goods and services sold increased$48.0 million , or 19.7%, to$291.2 million for the three months endedJune 30, 2021 from$243.2 million for the three months endedJune 30, 2020 . This increase was mainly due to the increase in sales and other operating revenues and was partially offset by a$15.1 million write-down of industrial hemp inventory in fiscal 2021 that was driven by a shift in expected future products mix in response to market supply conditions and continued market price compression. Gross profit as a percent of sales increased to 12.6% for the three months endedJune 30, 2021 from 7.5% for three months endedJune 30, 2020 . This increase was attributable to the fiscal 2021 write-down of industrial hemp inventory, as described above, and lower conversion costs inAfrica andSouth America and product mix inAfrica ,Asia , andEurope having a higher concentration of lamina. This increase was partially offset by higher conversion costs inAsia , product mix having a lower concentration of lamina inSouth America , and foreign exchange rates inAsia andEurope . Selling, general, and administrative ("SG&A") expenses decreased$27.0 million , or 44.4%, to$33.8 million for the three months endedJune 30, 2021 from$60.8 million for the three months endedJune 30, 2020 primarily due to expenses included in SG&A in fiscal 2021 for the Chapter 11 Cases that were incurred prior to the commencement of the Chapter 11 Cases, the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, and savings from fiscal 2021 restructuring initiatives. SG&A expenses as a percent of sales decreased to 10.1% for the three months endedJune 30, 2021 from 23.1% for the three months endedJune 30, 2020 driven by increased sales and other operating revenues and the aforementioned decrease in SG&A expenses.
Reorganization items of
-40-
--------------------------------------------------------------------------------Leaf - North America Supplemental Information
Successor Predecessor Change
Three months ended Three
months ended
(in millions, except per kilo amounts)
%
Kilos sold 7.2 5.1 2.1 41.2
Tobacco sales and other operating
revenues:
Sales and other operating revenues $ 46.3 $ 25.9 $ 20.4 78.8
Average price per kilo 6.43 5.08 1.35 26.6
Processing and other revenues 3.5 4.0 (0.5) (12.5)
Total sales and other operating revenues 49.8 29.9 19.9 66.6
Tobacco cost of goods sold:
Tobacco costs 36.8 20.0 16.8 84.0
Transportation, storage, and other period
costs 3.9 2.7 1.2 44.4
Derivative financial instrument and
exchange losses - 0.2 (0.2) (100.0)
Total tobacco cost of goods sold 40.7 22.9 17.8 77.7
Average cost per kilo 5.65 4.49 1.16 25.8
Processing and other revenues cost of
services sold 2.3 2.6 (0.3) (11.5)
Total cost of goods and services sold 43.0 25.5 17.5 68.6
Gross profit 6.8 4.4 2.4 54.5
Selling, general, and administrative
expenses 3.9 4.9 (1.0) (20.4)
Other expense, net (0.3) (0.3) - -
Operating income (loss) $ 2.6 $ (0.8) 3.4 425.0
Total sales and other operating revenues increased $19.9 million , or 66.6%, to
$49.8 million for the three months ended June 30, 2021 from $29.9 million for
the three months ended June 30, 2020 . This increase was primarily due to 41.2%
higher volume due to $12.4 million of shipments delayed by the COVID-19 pandemic
and customer shipping instructions from fiscal 2021 into the first quarter of
the current fiscal year and a 26.6% increase in average sales price driven by
product mix having a higher concentration of lamina.
Cost of goods and services sold increased
Gross profit as a percent of sales decreased to 13.7% for the three months endedJune 30, 2021 from 14.7% for the three months endedJune 30, 2020 . This decrease was primarily due to customer mix. -41- --------------------------------------------------------------------------------
Leaf - Other Regions Supplemental Information
Successor Predecessor Change
Three months ended Three
months ended
(in millions, except per kilo amounts)
$ %
Kilos sold 61.9 58.5 3.4 5.8
Tobacco sales and other operating revenues:
Sales and other operating revenues $ 265.5 $ 218.3 $ 47.2 21.6
Average price per kilo 4.29 3.73 0.56 15.0
Processing and other revenues 14.6 9.4 5.2 55.3
Total sales and other operating revenues 280.1 227.7 52.4 23.0
Tobacco cost of goods sold:
Tobacco costs 215.0 182.8 32.2 17.6
Transportation, storage, and other period
costs 15.5 8.5 7.0 82.4
Derivative financial instrument and
exchange losses (gains) 2.1 (1.5) 3.6 240.0
Total tobacco cost of goods sold 232.6 189.8 42.8 22.6
Average cost per kilo 3.76 3.24 0.52 16.0
Processing and other revenues cost of
services sold 10.1 7.4 2.7 36.5
Total cost of goods and services sold 242.7 197.2 45.5 23.1
Gross profit 37.4 30.5 6.9 22.6
Selling, general, and administrative
expenses 25.4 37.1 (11.7) (31.5)
Other income, net 0.1 0.4 (0.3) (75.0)
Restructuring and asset impairment charges 0.2 0.1 0.1 100.0
Operating income (loss) $ 11.9 $ (6.2) $ 18.1 291.9
Total sales and other operating revenues increased $52.4 million , or 23.0%, to
$280.1 million for the three months ended June 30, 2021 from $227.7 million for
the three months ended June 30, 2020 . This increase was due to a 5.8% increase
in volume and a 15.0% increase in average sales price. The 5.8% increase in
volume was primarily due to the higher volume in Africa and South America driven
by $64.9 million shipments delayed by the COVID-19 pandemic and customer
shipping instructions from fiscal 2021 into the first quarter of the current
fiscal year. This increase was partially offset by lower volume in Asia mainly
due to shipments delayed by the COVID-19 pandemic and the shipping container
availability. The 15.0% increase in average sales price was driven by product
mix in Africa , Asia , and Europe having a higher concentration of lamina. This
increase was partially offset by product mix having a lower concentration of
lamina in South America .
Cost of goods and services sold increased $45.5 million , or 23.1%, to $242.7
million for the three months ended June 30, 2021 from $197.2 million for the
three months ended June 30, 2020 . This increase was mainly due to the increase
in sales and other operating revenues.
Gross profit as a percent of sales was 13.4% for the three months ended
SG&A expenses decreased$11.7 million , or 31.5%, to$25.4 million for the three months endedJune 30, 2021 from$37.1 million for the three months endedJune 30, 2020 primarily due to fiscal 2021 restructuring initiatives resulting in lower general corporate services. SG&A expenses as a percent of sales decreased to 9.1% for the three months endedJune 30, 2021 from 16.3% for the three months endedJune 30, 2020 primarily due to increased sales and other operating revenues and the aforementioned decrease in SG&A expenses. -42- --------------------------------------------------------------------------------
Other Products and Services Supplemental Information
Successor Predecessor Change
Three months ended Three months ended
(in millions) June 30, 2021 June 30, 2020 $ %
Sales and other operating revenues $ 3.4 $ 5.2 $ (1.8) (34.6)
Cost of goods and services sold 5.5 20.5 (15.0) (73.2)
Gross loss (2.1) (15.3) 13.2 86.3
Selling, general, and administrative
expenses 4.5 18.7 (14.2) (75.9)
Other income (expense), net 0.3 (2.5) 2.8 112.0
Operating loss $ (6.3) $ (36.5) $ 30.2 82.7
Sales and other operating revenues decreased $1.8 million , or 34.6%, to $3.4
million for the three months ended June 30, 2021 from $5.2 million for the three
months ended June 30, 2020 . This decrease was primarily due to the
deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of
fiscal 2021.
Cost of goods and services sold decreased $15.0 million , or 73.2%, to $5.5
million for the three months ended June 30, 2021 from $20.5 million for the
three months ended June 30, 2020 . This decrease was mainly due to a $15.1
million write-down of industrial hemp inventory driven by a shift in expected
future products mix in response to market supply conditions and continued market
price compression in fiscal 2021 and the deconsolidation of the Canadian
Cannabis Subsidiaries in the fourth quarter of fiscal 2021.
Gross loss as a percent of sales decreased to 61.8% for the three months ended
SG&A expenses decreased$14.2 million , or 75.9%, to$4.5 million for the three months endedJune 30, 2021 from$18.7 million for the three months endedJune 30, 2020 . SG&A expenses as a percent of sales decreased to 132.4% for the three months endedJune 30, 2021 from 359.6% for the three months endedJune 30, 2020 . These decreases were mainly due to the deconsolidation of the Canadian Cannabis Subsidiaries in the fourth quarter of fiscal 2021, lower allocations of general corporate services, and savings from fiscal 2021 restructuring initiatives. Liquidity and Capital Resources Overview 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 fiscal year end. Although we believe that our sources of liquidity will be sufficient to fund our anticipated needs for the next twelve months, we anticipate periods during which our liquidity needs will approach the levels of our anticipated available cash and permitted borrowings under our credit facilities. 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. As ofJune 30, 2021 , we are in our leaf working capital build.Asia is in the midst of buying, processing, and shipping.South America is in the final stages of purchasing, processing is in progress, and the peak shipping season for the region is in its beginning stages. Crops inAfrica are in the peak of buying, which will continue into the second quarter while processing and shipping will peak in the second and third quarters.Europe has completed purchasing of current crops and is finalizing processing and shipment schedules.North America is preparing to begin flue cured purchasing in the second quarter with processing and shipping occurring in the third and fourth quarters. -43- -------------------------------------------------------------------------------- Working Capital The following summarizes our working capital: Successor Predecessor Successor (in millions except for current ratio) June 30, 2021 June 30, 2020 March 31, 2021 Cash and cash equivalents $ 79.6 $ 172.8 $ 92.7 Trade and other receivables, net 210.5 170.2 188.4 Inventories and advances to tobacco suppliers 890.7 864.8 771.5 Total current assets 1,270.7 1,277.3 1,122.5 Notes payable to banks 403.8 524.3 372.2 Accounts payable 73.7 84.1 103.5 Advances from customers 15.1 22.1 12.1 Current portion of long-term debt 2.7 273.5 2.1 Total current liabilities 629.4 1,165.2 601.7 Current ratio 2.0 to 1 1.1 to 1 1.9 to 1 Working capital 641.3 112.1 520.8 Long-term debt 669.8 3.2 551.2 Stockholders' equity (deficit) attributable to Pyxus International, Inc. 241.2 (170.1) 247.7 Sources and Uses of Cash Our primary sources of liquidity are cash generated from operations, cash collections from our securitized receivables and short-term borrowings under our foreign seasonal lines of credit. We have typically financed our non-U.S. tobacco operations with uncommitted short-term foreign seasonal lines of credit. These foreign lines of credit are generally seasonal in nature, normally extending for a term of 180 to 270 days, corresponding to the tobacco crop cycle in that market. These short-term foreign seasonal lines of credit are typically uncommitted and provide lenders the right to cease making loans and demand repayment of loans. 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 16. "Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for additional information. We utilize capital in excess of cash flow from operations to finance accounts receivable, inventory, and advances to tobacco suppliers in foreign countries. In addition, we may periodically elect to purchase, redeem, repay, retire, or cancel indebtedness prior to stated maturity under our various foreign credit lines.
The following summarizes our sources and uses of our cash flows:
Successor Predecessor
Three months ended Three months ended June
(in millions) June 30, 2021 30, 2020
Operating activities $ (186.0) $ (100.3)
Investing activities 29.7 44.2
Financing activities 140.6 58.7
Effect of exchange rate changes on cash 0.5 0.2
(Decrease) increase in cash, cash equivalents, and restricted cash
(15.2) 2.8
Cash and cash equivalents at beginning of period 92.7 170.2
Restricted cash at beginning of period 5.0 2.9
Cash, cash equivalents, and restricted cash at end of period*
$ 82.5 $ 175.8
* Amounts may not equal column totals due to rounding
Net cash used by operating activities increased for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , primarily driven by (excluding non-cash activities) higher inventory and associated payables due to crop normalization inAfrica andSouth America compared to the prior year. Net cash provided by investing activities decreased for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 primarily due to lower collections on beneficial interests on securitized trade receivables driven by lower qualifying receivables available for sale into the securitization facilities. -44-
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Net cash provided by financing activities increased for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 primarily due to the borrowings under the DDTL Facility. Approximately$62.9 million of our outstanding cash balance atJune 30, 2021 was held in foreign jurisdictions. Fluctuation of theU.S. dollar versus many of the currencies in which we have costs may have an impact on our working capital requirements. We will continue to monitor and hedge foreign currency costs, as needed. Debt Financing We continue to finance our business with a combination of short-term and long-term seasonal credit lines, the long-term debt securities described above, advances from customers, and cash from operations when available. See "Note 16. Debt Arrangements" to the "Notes to Condensed Consolidated Financial Statements" for summary of our short-term and long-term debt. We will continue to monitor and, as available, adjust funding sources as needed to enhance and drive various business opportunities. Available credit as ofJune 30, 2021 was$234.8 million primarily comprised of$224.5 million of foreign seasonal lines of credit,$7.5 million from the ABL Credit Facility, and$2.5 million of availability for letters of credit. No cash dividends were paid to shareholders during the three months endedJune 30, 2021 . The payment of dividends is restricted under the terms the ABL Credit Agreement, the Term Loan Credit Agreement, and the Indenture. Additional information with respect to the Restated TDB Agreement, including descriptions of respective affirmative, negative and financial covenants, collateral arrangements, and other terms and conditions, is set forth in "Note 25. Subsequent Events" to the "Notes to Condensed Consolidated Financial Statements". Critical Accounting Policies and Estimates As of the date of this report, there are no material changes to the critical accounting policies and estimates previously disclosed in Part I, Item 7 "Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the fiscal year endedMarch 31, 2021 .
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