Company Quick10K Filing
Alliance One
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-K 2018-03-31 Annual: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-K 2017-03-31 Annual: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-K 2016-03-31 Annual: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
8-K 2019-02-12 Officers, Amend Bylaw, Exhibits
8-K 2019-02-11 Earnings, Exhibits
8-K 2018-11-15 Officers
8-K 2018-11-14 Officers, Amend Bylaw, Exhibits
8-K 2018-11-08 Earnings, Exhibits
8-K 2018-11-05 Exit Costs
8-K 2018-09-12 Amend Bylaw, Regulation FD, Other Events, Exhibits
8-K 2018-08-16 Shareholder Vote
8-K 2018-08-02 Earnings, Exhibits
8-K 2018-06-20 Officers, Amend Bylaw, Exhibits
8-K 2018-06-07 Earnings, Exhibits
WMG Warner Music Group
LEAI Legacy Education Alliance
DBO Invesco DB Oil Fund
SQNF SQN Asset Income Fund V
PEYE Precision Opticsoration
MSCG Managed Futures Premier Graham
GRSU Greenhouse Solutions
NCRE New Century Resources
EFSH 1847 Holdings
AOI 2018-12-31
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis Of
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
EX-31.01 pyx-20181231xex3101.htm
EX-31.02 pyx-20181231xex3102.htm
EX-32 pyx-20181231xex32.htm

Alliance One Earnings 2018-12-31

AOI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

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Washington, D.C. 20549


Pyxus International, Inc.
(Exact name of registrant as specified in its charter)
Virginia 001-1368454-1746567
________________ _____________________________ ____________________ 
(State or other jurisdiction of incorporation) (Commission File Number) 
(I.R.S. Employer
Identification No.)

8001 Aerial Center Parkway
Morrisville, NC 27560-8417
(Address of principal executive offices)

(919) 379-4300
(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company' in Rule 12b-2 of the Exchange Act. (Check one):           
Large Accelerated Filer   []    Accelerated Filer   [X]    Non-Accelerated filer   []  
Smaller Reporting Company   []    Emerging Growth Company   [] 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. []
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes [ ] No [X]

As of January 31, 2019, the registrant had 9,080,984 shares outstanding of Common Stock (no par value) excluding 785,313 shares owned by a wholly owned subsidiary.

Pyxus International, Inc. and Subsidiaries
Table of Contents 
Page No. 
Part I. 
Item 1. 
Financial Statements (Unaudited)
Three and Nine Months Ended December 31, 2018 and 2017 
Three and Nine Months Ended December 31, 2018 and 2017 
December 31, 2018 and 2017 and March 31, 2018
Nine Months Ended December 31, 2018 and 2017 
Nine Months Ended December 31, 2018 and 2017
Item 2. 
of Financial Condition and Results of Operations 
Item 3. 
Item 4. 
Part II. 
Item 1. 
Item 1A. 
Item 6. 


Part I. Financial Information

Item 1. Financial Statements

Pyxus International, Inc. and Subsidiaries
Three and Nine Months Ended December 31, 2018 and 2017 
Three Months Ended December 31,Nine Months Ended December 31,
(in thousands, except per share data) 2018201720182017
Sales and other operating revenues$524,487 $477,783 $1,210,351 $1,202,115 
Cost of goods and services sold449,776 404,282 1,045,042 1,030,648 
Gross profit74,711 73,501 165,309 171,467 
Selling, general, and administrative expenses41,680 34,283 118,759 102,248 
Other income, net7,991 1,019 13,473 9,909 
Restructuring and asset impairment charges1,667  3,390  
Operating income39,355 40,237 56,633 79,128 
Debt retirement expense (benefit)(1,281) (1,754)(2,975)
Interest expense (includes debt amortization of $2,325 and $2,734 for the three months and $7,020 and $7,921 for the nine months ended December 31, 2018 and 2017, respectively)33,947 33,564 102,182 101,105 
Interest income962 601 2,587 2,295 
Income (loss) before income taxes and other items7,651 7,274 (41,208)(16,707)
Income tax expense (benefit)17,354 (73,282)26,900 (66,233)
Equity in net income of investee companies4,701 7,770 6,852 7,121 
Net (loss) income(5,002)88,326 (61,256)56,647 
Net income (loss) attributable to noncontrolling interests93 (130)(769)(289)
Net (loss) income attributable to Pyxus International, Inc.$(5,095)$88,456 $(60,487)$56,936 
(Loss) earnings per share:
Basic $(0.56)$9.83 $(6.69)$6.34 
Diluted $(0.56)$9.80 $(6.69)$6.32 
Weighted average number of shares outstanding:
Basic 9,068 9,001 9,048 8,982 
Diluted 9,068 9,029 9,048 9,009 
See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
Three and Nine Months Ended December 31, 2018 and 2017 
Three Months Ended December 31,Nine Months Ended December 31,
(in thousands) 2018201720182017
Net (loss) income$(5,002)$88,326 $(61,256)$56,647 
Other comprehensive (loss) income, net of tax:
Currency translation adjustment(2,310)725 (7,628)6,817 
Defined benefit pension amounts reclassified to income285 459 853 1,376 
Change in pension liability for settlements(1,162) (391) 
Change in the fair value of derivatives designated as cash flow hedges(3,752)(64)(3,752)(626)
Amounts reclassified to income for derivatives2,161 656 1,445 727 
Total other comprehensive (loss) income, net of tax(4,778)1,776 (9,473)8,294 
Total comprehensive (loss) income(9,780)90,102 (70,729)64,941 
Comprehensive loss attributable to noncontrolling interests(430)(130)(1,216)(289)
Comprehensive (loss) income attributable to Pyxus International, Inc.$(9,350)$90,232 $(69,513)$65,230 
See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
(in thousands) December 31, 2018December 31, 2017
March 31,
Current assets 
Cash and cash equivalents $209,160 $209,490 $264,660 
Restricted cash 6,335 2,210 2,984 
Trade receivables, net 268,747 222,451 285,554 
Other receivables 21,305 18,366 18,845 
Accounts receivable, related parties 5,077 9,832 8,188 
Inventories 827,782 905,680 698,087 
Advances to tobacco suppliers 51,135 69,872 30,482 
Recoverable income taxes 8,538 19,025 5,994 
Prepaid expenses 17,325 17,730 17,181 
Other current assets 16,212 16,774 17,628 
Total current assets 1,431,616 1,491,430 1,349,603 
Restricted cash 389 539 389 
Investments in unconsolidated affiliates 68,351 67,069 68,151 
Goodwill 34,109 16,463 27,546 
Other intangible assets 70,074 41,837 70,724 
Deferred income taxes, net 106,610 128,979 130,520 
Long-term recoverable income taxes 898  1,795 
Other deferred charges 2,634 3,848 3,388 
Other noncurrent assets 44,256 54,552 60,234 
Property, plant, and equipment, net 264,782 249,471 254,281 
Total assets $2,023,719 $2,054,188 $1,966,631 
Current liabilities 
Notes payable to banks $583,407 $536,170 $427,277 
Accounts payable 49,373 46,678 76,506 
Accounts payable, related parties 18,372 22,939 14,835 
Advances from customers 45,900 31,646 24,128 
Accrued expenses and other current liabilities 98,233 92,446 88,380 
Income taxes payable 6,513 14,902 6,767 
Current portion of long-term debt 165 142 164 
Total current liabilities 801,963 744,923 638,057 
Long-term taxes payable 10,718 15,110 10,027 
Long-term debt 897,195 918,820 920,143 
Deferred income taxes 12,437 15,649 28,937 
Liability for unrecognized tax benefits 11,026 10,522 11,191 
Pension, postretirement, and other long-term liabilities 72,013 76,442 75,448 
Total liabilities 1,805,352 1,781,466 1,683,803 
Commitments and contingencies 
Stockholders’ equity December 31, 2018December 31, 2017
March 31,
Common Stock—no par value: 
Authorized shares 250,000 250,000 250,000 
Issued shares 9,866 9,794 9,808 474,603 473,156 473,476 
Retained deficit (213,905)(151,848)(156,348)
Accumulated other comprehensive loss (57,218)(51,753)(45,262)
Total stockholders’ equity of Pyxus International, Inc. 203,480 269,555 271,866 
Noncontrolling interests 14,887 3,167 10,962 
Total stockholders’ equity 218,367 272,722 282,828 
Total liabilities and stockholders’ equity $2,023,719 $2,054,188 $1,966,631 
See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
Nine Months Ended December 31, 2018 
Attributable to Pyxus International, Inc.
Accumulated Other Comprehensive Loss 
(in thousands) Common
Currency Translation Adjustment Pensions,
Net of Tax  
Loss on Derivatives, Net of Tax  Noncontrolling
Total Stockholders' Equity  
Balance, March 31, 2018$473,476 $(156,348)$(12,682)$(32,580)$ $10,962 $282,828 
Net loss — (759)— — — (654)(1,413)
Stock-based compensation 295 — — — — — 295 
Purchase of investment in subsidiary — — — — — 5,531 5,531 
Other comprehensive (loss) income, net of tax — — (5,136)366 (1,496)(175)(6,441)
Balance, June 30, 2018 473,771 (157,107)(17,818)(32,214)(1,496)15,664 280,800 
Net loss — (54,634)— — — (208)(54,842)
Restricted stock surrender (8)— — — — — (8)
Stock-based compensation 458 — — — — — 458 
Other comprehensive (loss) income, net of tax — — (257)973 780 251 1,747 
Balance, September 30, 2018 474,221 (211,741)(18,075)(31,241)(716)15,707 228,155 
Net (loss) income — (5,095)— — — 93 (5,002)
Restricted stock surrender (20)— — — — — (20)
Stock-based compensation 402 — — — — — 402 
Dividends paid — — — — — (390)(390)
Impact of adoption of ASU 2018-02 — 2,931 — (2,931)— — — 
Other comprehensive loss, net of tax — — (1,787)(877)(1,591)(523)(4,778)
Balance, December 31, 2018$474,603 $(213,905)$(19,862)$(35,049)$(2,307)$14,887 $218,367 


Pyxus International, Inc. and Subsidiaries
Nine Months Ended December 31, 2017 
Attributable to Pyxus International, Inc.
Accumulated Other Comprehensive Loss 
(in thousands) Common
Currency Translation Adjustment Pensions,
Net of Tax  
Loss on Derivatives, Net of Tax  Noncontrolling
Total Stockholders' Equity  
Balance, March 31, 2017$472,349 $(208,784)$(22,293)$(36,654)$(1,100)$3,192 $206,710 
Net loss— (32,543)— — — (90)(32,633)
Stock-based compensation291 — — — — — 291 
Other comprehensive income (loss), net of tax— — 3,742 459 (562)— 3,639 
Balance, June 30, 2017472,640 (241,327)(18,551)(36,195)(1,662)3,102 178,007 
Net income (loss)— 1,024 — — — (68)956 
Restricted stock surrender(2)— — — — — (2)
Stock-based compensation253 — — — — — 253 
Other comprehensive income, net of tax— — 2,349 459 71 — 2,879 
Balance, September 30, 2017*472,892 (240,304)(16,202)(35,736)(1,591)3,033 182,092 
Net income (loss) — 88,456 — — — (130)88,326 
Restricted stock surrender (6)— — — — — (6)
Stock-based compensation 270 — — — — — 270 
Purchase of additional investment in subsidiary — — — — — 264 264 
Other comprehensive income, net of tax — — 726 458 592 — 1,776 
Balance, December 31, 2017$473,156 $(151,848)$(15,476)$(35,278)$(999)$3,167 $272,722 
*Amounts may not equal column totals due to rounding
See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
Nine Months Ended December 31, 2018 and 2017
(in thousands) December 31, 2018December 31, 2017
Net (loss) income$(61,256)$56,647 
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization26,887 24,845 
Debt amortization/interest8,739 9,514 
Debt retirement benefit(1,754)(2,975)
(Gain) loss on foreign currency transactions (1,220)4,951 
Restructuring and asset impairment charges3,390  
Gain on sale of property, plant, and equipment(2,155)(89)
Gain on insurance proceeds received for destroyed buildings(6,460) 
Equity in net income of unconsolidated affiliates, net of dividends(1,486)(5,025)
Bad debt expenses (recovery)2,136 (122)
Stock-based compensation1,155 869 
Changes in operating assets and liabilities, net(317,612)(519,946)
Other, net11,143 1,129 
Net cash used by operating activities(338,493)(430,202)
Purchases of property, plant, and equipment(35,327)(17,395)
Proceeds from sale of property, plant, and equipment5,179 1,832 
Collections on beneficial interests on securitized trade receivables 171,565 183,610 
Insurance proceeds received for destroyed buildings6,460  
Payments to acquire controlling interests, net of cash acquired(8,692) 
Payments to acquire equity method investment (10,000)
Other, net(886)(119)
Net cash provided by investing activities138,299 157,928 
Net proceeds from short-term borrowings173,548 48,159 
Repayment of long-term borrowings(25,132)(34,961)
Debt issuance cost(5,072)(5,010)
Other, net(459)(72)
Net cash provided by financing activities142,885 8,116 
Effect of exchange rate changes on cash5,160 978 
Decrease in cash, cash equivalents, and restricted cash(52,149)(263,180)
Cash and cash equivalents at beginning of period264,660 473,110 
Restricted cash at beginning of period3,373 2,309 
Cash, cash equivalents, and restricted cash at end of period$215,884 $212,239 
Other information:
Cash paid for income taxes$19,650 $12,719 
Cash paid for interest81,622 79,083 
Cash received from interest(2,340)(1,647)
Non-cash amounts obtained as a beneficial interest in exchange for transferring
trade receivables in a securitization transaction
161,943 177,259 
See "Notes to Condensed Consolidated Financial Statements"


Pyxus International, Inc. and Subsidiaries
(in thousands)


Basis of Presentation

The Company changed its name from Alliance One International, Inc. to Pyxus International, Inc. on September 12, 2018. Due to the seasonal nature of the Company’s business, the results of operations for any fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year. In the opinion of management, all normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. All intercompany accounts and transactions have been eliminated.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018.

During the three months ended December 31, 2018, the Company realigned its reportable segments to reflect changes to how the business is managed and results are reviewed by the Company's chief operating decision maker. In connection with the "One Tomorrow Transformation" initiative, the Company changed its organizational structure to support its diversified business lines. Prior to the realignment, the Company assessed financial information based on geographic regions. The Company's diversification efforts have resulted in management placing emphasis on data by business line in addition to the historical focus by geography. As a result of this realignment, the reportable segments now include Leaf - North America, Leaf - Other Regions, and Other Products and Services. Prior period segment financial information has been revised to conform to the current year presentation.

Taxes Collected from Customers

Certain subsidiaries are subject to value-added taxes on local sales. The amounts included in sales and other operating revenues and cost of goods and services sold were $4,858 and $2,703 for the three months ended December 31, 2018 and 2017, respectively, and $14,692 and $13,801 for the nine months ended December 31, 2018 and 2017, respectively.

Restricted Cash

As of December 31, 2018 and 2017, and March 31, 2018, $1,220, $2,006 and $1,261 of cash was held on deposit as a compensating balance for short-term borrowings, respectively. As of December 31, 2018 and 2017, and March 31, 2018, zero, zero, and $1,487 of cash was restricted for capital investment, respectively. As of December 31, 2018 and 2017, and March 31, 2018, $2,314, zero, and zero of cash was held in escrow from receipt of customer payments.

As of December 31, 2018, the Company held $2,644 in the Zimbabwe Real Time Gross Settlement (“RTGS”) system. RTGS is a local currency equivalent that provides for exchange 1:1 with the U.S. Dollar ("USD"). In order to exchange RTGS units to USD, the Company must obtain foreign currency resources from the Reserve Bank of Zimbabwe subject to the monetary and exchange control policy in Zimbabwe.

Property, Plant, and Equipment

Total property and equipment purchases for the nine months ended December 31, 2018 and 2017 included $1,501 and $279 that were unpaid and included in accounts payable, respectively. Property and equipment sales for the nine months ended December 31, 2018 and 2017 included $1,473 and zero that were uncollected and included in receivables, respectively.



Capitalized Interest

Interest is capitalized on significant construction in progress using the weighted average interest rate during the capitalization period. Interest of $1,578 and zero was capitalized for the three months and nine months ended December 31, 2018 and 2017, respectively. Capitalized interest of $1,197 is included in property, plant, and equipment, net in the condensed consolidated balance sheets. Capitalized interest of $381 is included in investments in unconsolidated affiliates in the condensed consolidated balance sheets.

Recently Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2014-09, Revenue Recognition (Topic 606): Revenue from Contracts with Customers. ASU 2014-09 outlines a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. The Company adopted this guidance on April 1, 2018 for all contracts using the modified retrospective approach. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements. The adoption of this guidance resulted in additional disclosures. See "Note 2. Revenue Recognition" for more information.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies the classification of certain cash receipts and cash payments to reduce the diversity in practice on how these activities are presented on the statement of cash flows. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes as of December 31, 2017 to the condensed consolidated statement cash flows: cash collections from beneficial interests of $183,610 was reclassified from operating activities to investing activities and $177,259 obtained as a beneficial interest for transferring trade receivables in a securitization transaction has been added as a non-cash disclosure.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 clarifies the presentation of restricted cash on the statement of cash flows to reduce diversity in practice on how restricted cash is presented on the statement of cash flows. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes: a reclassification of $2,749 and $3,373 from other current and other long-term assets in total to separately stated line items for restricted cash in the condensed consolidated balance sheets as of December 31, 2017 and March 31, 2018, respectively; the change in restricted cash of $440 presented in investing activities in the consolidated statements of cash flows is eliminated as of December 31, 2017; and the inclusion of $2,749 of restricted cash in the calculation of cash, cash equivalents, and restricted cash at the end of the period in the condensed consolidated statements of cash flows as of December 31, 2017.

In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 was issued to increase the consistency, transparency, and usefulness of financial information of retirement benefits by disaggregating the service cost component from the other components of net benefit cost. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in a reclassification of $342 and $1,026 from selling, general, and administrative expenses to interest expense in the condensed consolidated statement of operations for the three months and nine months ended December 31, 2017, respectively. See "Note 13. Pension and Other Postretirement Benefits" for more information.

In August 2017, the FASB issued ASU No. 2017-12, Derivative and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 was issued to better align risk and management activities to financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company early adopted this guidance on April 1, 2018 using the modified retrospective approach. The adoption of this guidance did not have a material impact on the condensed consolidated financial statements and related disclosures.



In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Acts (the "Tax Act"). The tax effects unrelated to the Tax Act are released from accumulated other comprehensive income using either the specific identification approach or the portfolio approach based on the nature of the underlying item. The Company adopted this guidance on December 31, 2018 using modified retrospective approach. The adoption of this guidance resulted in a reclassification of $2,931 of stranded tax effects from accumulated other comprehensive loss to retained deficit due to reduction in federal corporate tax rate. The stranded tax effects are derived from the deferred tax balance on pension obligations as a result of the lower U.S. Federal Corporate tax rate.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The Company adopted this guidance prospectively on September 30, 2018. The adoption of this guidance resulted in the addition of the weighted average of the significant observable inputs used to develop Level 3 fair value measurements in its disclosures. See "Note 17. Fair Value Measurements" for more information.

Recent Accounting Pronouncements Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Subsequently, the FASB has issued ASUs which further clarify this guidance. ASU 2016-02 requires lessees to recognize right-of-use assets and liabilities arising from leases on the balance sheet. In addition, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. This guidance will be adopted using a modified retrospective approach and is effective for the Company on April 1, 2019. The Company has formed a project team to evaluate and implement this guidance. The Company has completed a scoping assessment of leasing arrangements and service agreements. The Company has elected to adopt an accounting policy for all asset classes to include both the lease and non-lease components as a single component and account for it as a lease. The Company has elected to utilize the transition practical expedients, as prescribed in ASC 842-10-65-1(f). The adoption of this guidance is expected to materially increase assets and liabilities on the consolidated balance sheets. The impact on our results of operations and cash flows is not expected to be material. The Company does not expect the adoption of this guidance to have a material impact on its existing debt covenants.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This guidance will be adopted using a modified retrospective approach and is effective for the Company on April 1, 2020. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 removes disclosures, clarifies specific disclosure requirements, and adds disclosure requirements. This guidance will be adopted using a retrospective approach and is effective for the Company on March 31, 2020. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.

In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to the Related Party Guidance for Variable Interest Entities. ASU 2018-17 changes how entities evaluate decision-making fees under the variable interest entity guidance. To determine whether decision-making fees represent a variable interest, an entity considers indirect interests held through related parties under common control on a proportional basis, rather than in their entirety. This guidance will be adopted using a retrospective approach and is effective for the Company on April 1, 2020. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.


The Company derives revenue from contracts with customers, primarily from the sale of processed tobacco and fees charged for processing and related services to the manufacturers of tobacco products. The Company does not disclose information related to its unsatisfied performance obligations with an expected duration of one year or less. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company’s performance obligations are satisfied when the transfer of control of the distinct product or service to the customer occurs. For products, control is transferred and revenue is recognized at a point in time, in accordance with the shipping terms of the contract. For services, control is transferred and


revenue is recognized over time using the input method based on a kilogram of packed tobacco. The Company applied a practical expedient to account for shipping and handling costs as costs to fulfill its performance obligations, irrespective of when control transfers. A kilogram of processed tobacco (or tobacco processing services resulting in a kilogram of processed tobacco) is the material and distinct performance obligation for the Company’s tobacco revenue streams; therefore, consideration is attributed to the performance of this obligation. Revenue is measured as the amount of consideration to which the Company expects to be entitled to receive in exchange for transferring goods or providing services. Contract costs primarily include labor, material, shipping and handling, and overhead expenses. Certain subsidiaries are subject to value-added taxes on local sales. These amounts have been included in sales and other operating revenues and cost of goods and services sold.

The following disaggregates sales and other operating revenues by major source:

Three Months Ended December 31, 2018Nine Months Ended December 31, 2018
Leaf - North America:
Product revenue$60,280 $152,725 
Processing and other revenues17,570 29,039 
Total sales and other operating revenues77,850 181,764 
Leaf - Other Regions:
Product revenue432,423 977,503 
Processing and other revenues9,296 40,752 
Total sales and other operating revenues441,719 1,018,255 
Other Products and Services:
Total sales and other operating revenues1
4,918 10,332 
Total sales and other operating revenues$524,487 $1,210,351 
(1) Other products and services is primarily composed of revenue from the sale of legal cannabis in Canada and e-liquids product revenue.

Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process green tobacco owned and provided by the customers. During processing, ownership remains with the customers and the Company is engaged to perform processing services.

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company records product and supply contract intangible assets for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year, and if such costs are material. The Company applied a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. Capitalized costs to obtain a contract as of December 31, 2018 were $4,896 and classified as other intangible assets. See "Note 5. Goodwill and Intangibles” for more information.

Significant Judgments

The Company has identified two main forms of variable consideration in its contracts with customers: warehousing fees for storing customer-controlled tobacco until the customer requests shipment and claims resulting from tobacco that do not meet customer specifications. Warehousing fees are built into the price of tobacco based on the customers' best estimate of the date they will request shipment or separately charged using a per-day storage rate. When the Company enters into a contract with a customer, the price communicated is the amount of consideration the Company expects to receive. Price adjustments for tobacco not meeting customer specifications for shrinkage, improper blend or chemical makeup, etc. are handled through a claims allowance that is assessed quarterly.



The following summarizes activity in the claims allowance:

Three Months Ended December 31, 2018Nine Months Ended December 31, 2018
Balance, beginning of period$1,360 $1,100 
Additions526 2,258 
Balance, end of period$1,410 $1,410 

Contract Balances

The Company generally records a receivable when revenue is recognized. Timing of revenue recognition may differ from the timing of payment from customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within 30 to 60 days. The Company applied a practical expedient not to adjust the transaction price for the effects of financing components as the Company expects that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. As a result, where the timing of revenue recognition differs from the timing of payment, the Company determined its contracts do not include a significant financing component.

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the trade receivables, net balance. The Company determines the allowance based on historical experience, and other currently available information. The following summarizes activity in the allowance for doubtful accounts:

Three Months Ended December 31, 2018Nine Months Ended December 31, 2018
Balance, beginning of period$(7,324)$(7,055)
Balance, end of period(9,113)(9,113)
Trade receivables277,860 277,860 
Trade receivables, net$268,747 $268,747 


Accounting for Uncertainty in Income Taxes

As of December 31, 2018, the Company’s unrecognized tax benefits totaled $9,153, of which $8,912 would impact the Company’s effective tax rate, if recognized. The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. As of December 31, 2018, accrued interest and penalties totaled $1,176 and $939, respectively. The Company expects to continue accruing interest expense related to the unrecognized tax benefits described above. The Company may be subject to fluctuations in the unrecognized tax benefit due to currency exchange rate movements.

During the nine months ended December 31, 2018, the Company reached an income tax settlement with the Kenyan Revenue Authority for $1,166. An uncertain tax position had previously been recorded of $2,692, which resulted in a favorable adjustment to tax expense (as the amount was settled for less than it was accrued) which totaled $1,526. Furthermore, the Company recorded additional unrecognized tax benefits of $1,987 for a return position taken in Kenya related to currency exchange losses on its amended Kenyan tax return for years 2013 - 2015. In addition, the Company entered into negotiations with the Zimbabwe Revenue Authority during its amnesty program to settle asserted issues. The Company has thus far paid $2,988 and has accrued another $964 in anticipation of the settlement. These amounts have not previously been accrued as an uncertain tax position.

The Company does not currently foresee any changes in the amount of its unrecognized tax benefits in the next twelve months but acknowledges circumstances can change due to unexpected developments in the law. In certain jurisdictions, tax authorities have challenged positions that the Company has taken that resulted in recognizing benefits that are material to its financial statements. The Company believes it is more likely than not that it will prevail in these situations and accordingly has not

3. INCOME TAXES (continued)

recorded liabilities for these positions. The Company expects the challenged positions to be settled at a time greater than twelve months from its balance sheet date.

The Company and its subsidiaries file a U.S. federal consolidated income tax return as well as returns in several U.S. states and a number of foreign jurisdictions. As of December 31, 2018, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2015; however, the Company's net operating loss carryovers from prior periods remain subject to adjustment. Open tax years in state and foreign jurisdictions generally range from three to six years.

Enactment of Tax Cuts and Jobs Act (“Tax Act”)

In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740—Income Taxes. As a result of the Tax Act, and in accordance with SAB 118, the Company recorded provisional tax expense in the three months ended December 31, 2017 related to the deemed repatriation tax, the revaluation of deferred tax assets, and adjustments to liabilities related to the repatriation of foreign earnings.

During the nine months ended December 31, 2018, the Company recorded adjustments to the provisional tax expense initially recorded in the December 31, 2017 financial statements upon adoption of the Tax Act. An adjustment of $1,827 was made, increasing the deemed repatriation tax liability. As a result of this adjustment, deferred taxes related to future remittances of foreign earnings were impacted by an immaterial amount. The changes were a result of additional regulatory guidance that was issued, as well as further analysis of the Tax Act and the Company’s facts and circumstances. Additionally, the Company will continue to be impacted by the expanded interest limitation and the tax on Global Intangible Low-Taxed Income (“GILTI”), which the Company has elected to treat as a period cost if and when incurred. As of December 31, 2018, the Company has completed the accounting for the income tax effects of the Tax Act.

Provision for the Nine Months Ended December 31, 2018 

The effective tax rate used for the nine months ended December 31, 2018 and 2017 was (65.3)% and 396.4%, respectively. The primary difference in the effective tax rate this year compared to last year is the impact of U.S. tax reform, which resulted in a change in the taxability of operations, principally due to the impact of the new section 163(j) interest addback and GILTI. The impact was accentuated by the net foreign exchange effects. The significant difference in the effective tax rate for the nine months ended December 31, 2018 from the U.S. federal statutory rate is primarily due to the impact of U.S. tax reform and changes resulting from net foreign exchange effects.

The Company's quarterly provision for income taxes has historically been calculated using the annual effective tax rate method (“AETR method”), which applies an estimated annual effective tax rate to pre-tax income or loss. Consistent with the period ended September 30, 2018, the Company recorded its interim income tax provision using the discrete method as of December 31, 2018, as allowed under ASC 740-270, Accounting for Income Taxes - Interim Reporting. The Company utilized the discrete method, rather than the AETR method, due to significant variations in income tax expense, primarily driven by U.S. tax reform, relative to projected annual pre-tax income (loss) that would have resulted in a disproportionate and unreliable effective tax rate under the AETR method. Using the discrete method, the Company determined current and deferred income tax expense as if the interim period were an annual period.


The following summarizes amounts guaranteed and the fair value of those guarantees:

December 31, 2018December 31, 2017March 31, 2018
Amounts guaranteed (not to exceed)$176,762 $165,333 $150,900 
Amounts outstanding under guarantee79,336 96,154 126,835 
Fair value of guarantees2,890 2,913 5,864 

Of the guarantees outstanding at December 31, 2018, most expire within one year. As of December 31, 2018 and 2017, and March 31, 2018, respectively, the Company had balances of zero, zero, and $14,807 due to local banks on behalf of suppliers included in accounts payable in the condensed consolidated balance sheets.



The following summarizes goodwill and other intangible assets:  
December 31, 2018
 Weighted Average Remaining Useful Life Beginning Gross Carrying Amount Additions Accumulated Amortization Impact of Foreign Currency Translation Ending Intangible Assets, Net 
Intangibles subject to amortization: 
Customer relationships 9.77 years$58,530 $5,450 $(28,021)$ $35,959 
Production and supply contracts 3.10 years14,893  (9,997) 4,896 
Internally developed software 3.66 years18,812 759 (18,229) 1,342 
Licenses 19.11 years30,339 17 (1,277)(1,655)27,424 
Trade names 7.25 years 500 (47) 453 
Intangibles not subject to amortization: 
Goodwill 27,546 7,174 — (611)34,109 
Total $150,120 $13,900 $(57,571)$(2,266)$104,183 

March 31, 2018
 Weighted Average Remaining Useful Life Beginning Gross Carrying Amount Additions Accumulated Amortization Ending Intangible Assets, Net 
Intangibles subject to amortization: 
Customer relationships 10.85 years$58,530 $ $(25,005)$33,525 
Production and supply contracts 3.82 years14,893  (8,774)6,119 
Internally developed software 2.82 years18,581 231 (17,828)984 
Licenses 19.84 years 30,339 (243)30,096 
Intangibles not subject to amortization: 
Goodwill 16,463 11,083 — 27,546 
Total $108,467 $41,653 $(51,850)$98,270 

The following summarizes the estimated future intangible asset amortization expense:

For Fiscal
Years Ended
and Supply
LicensesTrade NamesTotal
January 1, 2019 through March 31, 2019 $1,005 $516 $139 $360 $16 $2,036 
2020 4,022 1,741 445 1,439 63 7,710