Pyxus International Inc.

06/04/2026 | Press release | Distributed by Public on 06/04/2026 05:01

Annual Report for Fiscal Year Ending March 31, 2026 (Form 10-K)

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 U.S. ("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, 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 from 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
Fiscal 2026 results were influenced by larger crops in several of our key operating origins, notably those in Africa and South America, a consistent factor throughout the fiscal year. Larger crops generally reduce the per-unit cost of procuring green tobacco and provide us with opportunities to source higher volumes from our global supplier base. Lower purchasing costs, together with increased processing volumes, contributed to current year cost efficiencies, including the dilution of conversion costs on a per-kilo basis.
During fiscal 2026, the global tobacco market transitioned from an undersupply position at the beginning of the fiscal year to an oversupply by its conclusion on March 31, 2026. Against this evolving market backdrop, which also included the introduction of new tariff regulations and the continuation of geopolitical conflicts, our consolidated results continued to include gross profit expansion and increased operating income when compared to the prior year. Our financial performance demonstrates our team's ability to adapt to changing, and sometimes challenging, market conditions, by leveraging our globally diversified footprint, supporting our suppliers, and working with our customers to ensure their requirements are met.
The Company enters fiscal year 2027 with a total of $786.7 million of tobacco inventories on hand, higher than the $732.2 million at the same time a year ago. The higher tobacco inventories are expected to result in more carry-over sales versus fiscal 2026. Crop purchases have commenced in our key sourcing origins within the Southern Hemisphere, and for the second consecutive year we are observing the production of large crops across most of these origins. We are taking a measured approach in our buying strategy to ensure we are procuring the volumes necessary to meet our customers' needs.
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 26. Segment Information" to the "Notes to the Consolidated Financial Statements" for additional information.
Results of Operations
Years Ended March 31, 2026 and 2025
Years Ended March 31,
Consolidated Change
(in millions, except per kilo amounts) 2026 2025 $ %
Sales and other operating revenues $ 2,413.0 $ 2,481.3 (68.3) (2.8)
Cost of goods and services sold 2,065.3 2,138.3 (73.0) (3.4)
Gross profit 347.7 343.0 4.7 1.4
Gross profit as a percent of sales 14.4 % 13.8 %
Selling, general, and administrative expenses $ 162.9 $ 171.0 (8.1) (4.7)
Other expense, net 19.2 16.4 2.8 17.1
Restructuring and asset impairment charges 2.9 2.3 0.6 26.1
Operating income 162.7 153.3 9.4 6.1
Gain on debt retirement - 8.2 (8.2) (100.0)
Gain on pension settlement 0.3 - 0.3 100.0
Interest expense, net 134.4 128.0 6.4 5.0
Income before income taxes and other items 28.6 33.5 (4.9) (14.6)
Income tax expense 30.3 25.1 5.2 20.7
Income from unconsolidated affiliates, net 17.4 8.1 9.3 114.8
Net income attributable to noncontrolling interests 1.1 1.4 (0.3) (21.4)
Net income attributable to Pyxus International, Inc.* $ 14.6 $ 15.2 (0.6) (3.9)
Leaf:
Product revenues $ 2,235.8 $ 2,335.1 (99.3) (4.3)
Tobacco costs 1,808.0 1,905.5 (97.5) (5.1)
Transportation, storage, and other period costs 115.8 108.5 7.3 6.7
Total product cost of goods sold 1,923.8 2,014.0 (90.2) (4.5)
Product gross profit 312.0 321.1 (9.1) (2.8)
Product gross profit as a percent of sales 14.0 % 13.8 %
Kilos sold 381.7 383.4 (1.7) (0.4)
Average price per kilo $ 5.86 $ 6.09 (0.23) (3.8)
Average cost per kilo 5.04 5.25 (0.21) (4.0)
Average gross profit per kilo 0.82 0.84 (0.02) (2.4)
Processing and other revenues $ 169.3 $ 135.9 33.4 24.6
Processing and other costs of services sold 135.3 111.8 23.5 21.0
Processing and other gross profit 34.0 24.1 9.9 41.1
Processing and other gross profit as a percent of sales 20.1 % 17.7 %
All Other:
Sales and other operating revenues $ 7.9 $ 10.3 (2.4) (23.3)
Cost of goods and services sold 6.2 12.5 (6.3) (50.4)
Gross profit (loss) 1.7 (2.2) 3.9 177.3
Gross profit (loss) as a percent of sales 21.5 % (21.4) %
*Amounts may not equal column totals due to rounding.
Sales and other operating revenues decreased $68.3 million, or 2.8%, to $2,413.0 million for the year ended March 31, 2026 from $2,481.3 million for the year ended March 31, 2025. This decrease was a result of a 3.8% decrease in average price per kilo, primarily in Africa, with pricing reflective of the lower costs to purchase the crop in the current fiscal year, and lower leaf product revenues driven by a decline in value-added tobacco products sales volumes. The decrease in leaf product revenues was partially offset by volume growth in processing and other revenues mainly from Africa and North America.
Cost of goods and services sold decreased $73.0 million, or 3.4%, to $2,065.3 million for the year ended March 31, 2026 from $2,138.3 million for the year ended March 31, 2025, corresponding to the reduction in sales and other operating revenues, principally driven by lower costs incurred to purchase and process the current crop.
Gross profit increased $4.7 million, or 1.4%, to $347.7 million for the year ended March 31, 2026 from $343.0 million for the year ended March 31, 2025, mainly attributable to increased leaf product sales volumes in South America and higher volumes from processing and other revenues in Africa and North America. The larger processing and other revenues contributed to the improvement in gross profit as a percent of sales to 14.4%, compared to 13.8% in the prior fiscal year.
Selling, general, and administrative expenses decreased $8.1 million, or 4.7%, to $162.9 million for the year ended March 31, 2026 from $171.0 million for the year ended March 31, 2025, primarily driven by a lower accrual for variable incentive compensation and less equity-based compensation expense due to the non-recurrence of modifications to restricted stock awards effected in the prior fiscal year, partially offset by increased personnel costs.
Gain on debt retirement of $8.2 million for the year ended March 31, 2025 was due to the repurchase of $10.3 million of aggregate principal amount of the Pyxus Term Loans for $9.1 million, a 12.0% discount to par, and the repurchase of $34.2 million aggregate principal amount of the 2027 Notes for $26.3 million, a 23.0% discount to par. There were no repurchases of senior secured notes or term loans during the year ended March 31, 2026. See "Note 25. Related Party Transactions" to the "Notes to Consolidated Financial Statements" for additional information.
Interest expense, net increased $6.4 million, or 5.0%, to $134.4 million for the year ended March 31, 2026 from $128.0 million for the year ended March 31, 2025 due to higher average balances outstanding on our foreign seasonal lines of credit primarily in Africa and South America, partially offset by a decrease in weighted average interest rates on our foreign seasonal lines of credit and senior secured term loans.
Income tax expense increased $5.2 million, or 20.7%, to $30.3 million for the year ended March 31, 2026 from $25.1 million for the year ended March 31, 2025 mainly due to the partial release of the valuation allowance applied against certain U.S. deferred tax assets in the prior fiscal year.
Income from unconsolidated affiliates, net increased $9.3 million, or 114.8%, to $17.4 million for the year ended March 31, 2026 from $8.1 million for the year ended March 31, 2025. This increase was primarily due to higher profitability generated at our equity method investment in South America as a result of lower purchasing costs for the current crop that was sold during the current fiscal year. Also contributing to the increase was higher net income from one of our Asian equity method investments due to larger crop volumes sold, as well as a gain on the sale of certain fixed assets and from the receipt of insurance recoveries following severe flooding that impacted operations in the prior year.
Comparison of the Fiscal Year Ended March 31, 2025 to the Fiscal Year Ended March 31, 2024
For a comparison of our results of operations for the years ended March 31, 2025 to March 31, 2024, 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, 2025, filed with the SEC on June 10, 2025.
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 our ABL Credit Facility, and cash collections from our securitized receivables. Our liquidity requirements are affected by various factors from our 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 two 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 16. 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
The Company's 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 parent 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 (the "ABL Agent"), which was subsequently amended on January 5, 2023, May 23, 2023, October 24, 2023, and May 12, 2025.
The ABL Credit Agreement establishes the ABL Credit Facility, an asset-based revolving 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, and for other permitted purposes described in the ABL Credit Agreement. 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 $150.0 million, subject to the borrowing base 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 $170.0 million. The amount available under the ABL Credit Facility is limited by a borrowing base consisting of certain eligible accounts receivable and the value of inventory, as reduced by specified reserves, as follows:
•85% of the book value 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 (to the extent the ABL Agent is named as a beneficiary or loss payee with respect to the applicable policy), 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, plus
•the least of (i) 70% of the eligible foreign in-transit inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits), (ii) 85% of the net-orderly-liquidation value percentage of eligible foreign in-transit inventory, and (iii) $10.0 million, minus
•applicable reserves established by the ABL Agent from time to time.
At March 31, 2026, no borrowings under the ABL Credit Facility were outstanding and $150.0 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, 2026 were $47.4 million.
The ABL Credit Facility permits both base rate borrowings and borrowings based upon the Secured Overnight Financing Rate ("SOFR"). Borrowings under the ABL Credit Facility bear interest at an annual rate equal to one, three, or six-month reserve-adjusted SOFR Rate plus 275 basis points or 175 basis points above base rate, as applicable, with a fee on unutilized commitments at an annual rate of 25.0 basis points.
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 some or all of the commitments under the ABL Credit Facility in the amount of (i) 2% of the amount of commitments permanently reduced on or prior to May 12, 2026 and (ii) 1% of the amount of commitments permanently reduced on or prior to May 12, 2027 but after May 12, 2026. No such termination fee is payable for reductions after May 12, 2027. 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 SOFR 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 $12.5 million and 10% of the lesser of total revolving loan 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 $25.0 million and 20% of the lesser of total revolving loan 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 $12.5 million and 10% of the lesser of total revolving loan 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 $25.0 million and 20% of the lesser of total revolving loan commitments under the ABL Credit Facility and the borrowing base.
Covenants. The ABL Credit Agreement governing the ABL Credit Facility contains a covenant requiring that the Company's fixed charge coverage ratio be no less than 1.10 to 1.00 during any Dominion Period.
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,
•engage directly or indirectly in any business other than the businesses engaged in by the Company,
•directly or indirectly open, maintain or otherwise have accounts other than permitted accounts under the ABL Credit Agreement, and
•designate subsidiaries as Unrestricted Subsidiaries (as defined in the ABL Credit Agreement).
Maturity. The ABL Credit Facility matures on May 12, 2030 or, if earlier, 90 days prior to the earliest maturity date of (i) the Company's existing senior secured notes and the senior secured term loans (each scheduled to mature on December 31, 2027) in the event any such notes or loans remain outstanding or (ii) any indebtedness that refinances any of the foregoing.
On March 31, 2026, the Borrowers were in compliance with the covenants under the ABL Credit Agreement. See "Note 16. 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, 2026, Pyxus Holdings and the guarantors under the Intabex Term Loan Credit Agreement were in compliance with the covenants under the Intabex Term Loan Credit Agreement. See "Note 16. 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 "Senior Secured 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.
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, 2026, Pyxus Holdings and the guarantors under the Pyxus Term Loan Credit Agreement were in compliance with the covenants under the Pyxus Term Loan Credit Agreement.
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 Senior Secured Term Loans, the "Senior Secured Term 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 based on 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, 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, 2026, Pyxus Holdings and the guarantors of the 2027 Notes were in compliance with the covenants under the 2027 Notes Indenture.
Guarantees and Collateral
The obligations of Pyxus Holdings under the ABL Credit Agreement and the Senior Secured Term 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/Senior Secured Term 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 Senior Secured Term 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 Senior Secured Term 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 16. 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 Senior Secured Term 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/Senior Secured Term 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/Senior Secured Term 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 Senior Secured Term 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 Senior Secured Term Debt having junior-priority liens on the ABL Priority Collateral. Pursuant to the ABL/Senior Secured Term Debt Intercreditor Agreement, Pyxus Holdings' collective obligations under the Senior Secured Term 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 U.S., 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 Senior Secured Debt Obligors, together with the representative for the holders of the Senior Secured Term Debt and the Senior Collateral Agent, entered into the Intercreditor and Collateral Agency Agreement, dated as of February 6, 2023 (the "Senior Secured Term 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 Senior Secured Term 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 Senior Secured Term Debt on a pro rata basis based on the aggregate principal amount of each class of Senior Secured Term 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 Senior Secured Term Loans (including, in any event, each holder holding at least 20.0% of the Senior Secured Term Loans as of February 6, 2023, provided such holder holds at least 15.0% of the Senior Secured Term Loans as of the date of determination), second, after repayment in full of the Senior Secured Term Loans, by the
holders of a majority in principal amount of the 2027 Notes and last, after repayment in full of the Senior Secured 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 16. Debt Arrangements" to the "Notes to Consolidated Financial Statements" for additional information.
Foreign Seasonal Lines of Credit
Excluding long-term credit arrangements, the Company typically finances its foreign operations with committed and uncommitted short-term foreign 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. For uncommitted facilities, 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, 2026, the total borrowing capacity under individual foreign seasonal lines of credit range up to $170.0 million. Certain of the foreign seasonal lines of credit, with aggregate outstanding borrowings at March 31, 2026 of approximately $106.9 million, are secured by trade receivables and inventories as collateral. At March 31, 2026, the Company and its subsidiaries were in compliance with the covenants associated with its short-term foreign 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. Our average short-term borrowings, peak quarter-end short-term borrowings outstanding, and weighted-average interest rate on short-term borrowings were as follows:
Years Ended March 31,
(in millions) 2026 2025
Average short-term borrowings $ 807.1 $ 624.7
Peak quarter-end short-term borrowings outstanding $ 908.0 $ 744.8
Weighted-average interest rate on short-term borrowings 8.8% 9.4%
Peak quarter-end borrowings for the year ended March 31, 2026 were at the end of the second quarter, which was driven by outstanding borrowings in Africa and South America. The increase in average and peak quarter-end borrowings when compared to the prior year is due to the larger crops the Company procured from our origins within those same regions. 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, 2026, see "Note 16. Debt Arrangements" to the "Notes to Consolidated Financial Statements" for additional information.
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, 2026 March 31, 2025
(in millions) Total Borrowing Capacity Remaining Amount Available Total Borrowing Capacity Remaining Amount Available
Senior Secured Credit Facilities:
ABL Credit Facility $ 150.0 $ 150.0 $ 120.0 $ 120.0
Foreign seasonal lines of credit 1,053.4 594.3 906.2 525.4
Other long-term debt - - 0.4 0.4
Letters of credit 11.0 3.0 12.2 4.4
Total $ 1,214.4 $ 747.3 $ 1,038.8 $ 650.2
The total borrowing capacity under the ABL Credit Facility increased $30.0 million when compared to the prior year as a result of the Fourth Amendment to the ABL Credit Agreement entered into on May 12, 2025, which among other things, increased the aggregate amount of revolving loan commitments from $120.0 million to $150.0 million. The amounts presented as available under the ABL Credit Facility are subject to further limitations from the borrowing base consisting of certain eligible accounts receivable and inventory, reduced by specified reserves.
The total borrowing capacity of our foreign seasonal lines of credit increased $147.2 million when compared to the prior year and were primarily utilized to purchase larger volumes of green tobacco. The amounts presented as the total borrowing capacity and the remaining amount available for borrowing under the foreign seasonal lines of credit are subject to limitations based on the level of receivables and inventories as collateral and by certain restrictive covenants, including covenants under the ABL Credit Agreement and the agreements governing the Senior Secured Term Debt.
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. The following summarizes the computation of net debt:
March 31,
(in millions) 2026 2025
Notes payable $ 477.1 $ 395.0
Long-term debt(1)
455.8 454.9
Total debt liabilities $ 932.9 $ 849.9
Less: Cash and cash equivalents 134.3 78.3
Net debt $ 798.6 $ 771.6
(1) Fluctuations in long-term debt include borrowings and repayments on the outstanding indebtedness under the ABL Credit Facility. Weighted average borrowings outstanding under the ABL Credit Facility were $47.4 million for the fiscal year ended March 31, 2026.
Working Capital
The following summarizes our working capital:
March 31, Change
(in millions except for current ratio) 2026 2025 $ %
Cash, cash equivalents, and restricted cash $ 137.7 $ 85.5 52.2 61.1
Trade and other receivables, net 264.9 204.3 60.6 29.7
Inventories and advances to tobacco suppliers, net 854.3 792.7 61.6 7.8
Recoverable income taxes 2.9 6.6 (3.7) (56.1)
Prepaid expenses and other current assets 70.8 69.0 1.8 2.6
Total current assets* $ 1,330.5 $ 1,158.2 172.3 14.9
Notes payable $ 477.1 $ 395.0 82.1 20.8
Accounts payable 146.8 132.9 13.9 10.5
Advances from customers 175.0 135.6 39.4 29.1
Accrued expenses and other current liabilities 114.8 90.9 23.9 26.3
Income taxes payable 9.1 11.0 (1.9) (17.3)
Operating leases payable 9.9 8.5 1.4 16.5
Total current liabilities* $ 932.8 $ 773.9 158.9 20.5
Current ratio 1.4 to 1 1.5 to 1
Working capital $ 397.7 $ 384.3 13.4 3.5
*Amounts may not equal column totals due to rounding.
Working capital increased $13.4 million, or 3.5%, to $397.7 million as of March 31, 2026 from $384.3 million as of March 31, 2025. The improvement in working capital reflects increased inventories and advances to tobacco suppliers, net from larger crops in Africa and South America, the timing and related impact of higher sales during the three months ended March 31, 2026 versus the same period a year ago, and an increase in cash and cash equivalents primarily from financing activities. The
increase in these current asset balances were partially offset by increased borrowings under foreign seasonal lines of credit to capture the higher crop volumes primarily in our Southern Hemisphere origins, an increase in advances from customers for future shipments of tobacco, and higher accrued expenses due to the timing of certain accruals, including an increase for accrued freight costs.
Inventories
The following summarizes inventory committed to a customer and uncommitted inventory balances for processed tobacco:
March 31,
(in millions) 2026 2025
Committed $ 462.2 $ 482.8
Uncommitted 45.2 7.6
Total processed tobacco $ 507.4 $ 490.4
Total processed tobacco increased $17.0 million, or 3.5%, to $507.4 million as of March 31, 2026 from $490.4 million as of March 31, 2025. The increase primarily reflects larger crop volumes purchased and processed in Africa. We expected an increase in our uncommitted inventories when compared to the prior fiscal year, a consistent trend since the second quarter of fiscal year 2026, and the increase at March 31, 2026 is indicative of the shift to an oversupply position in the global tobacco market as we enter fiscal 2027. 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.
Sources and Uses of Cash
We have typically financed our foreign tobacco operations with committed and uncommitted short-term seasonal lines of credit. These 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. For uncommitted facilities, the lenders have the right to cease making loans and demand repayment of loans. These short-term 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 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 seasonal credit lines.
As of March 31, 2026, our cash, cash equivalents, and restricted cash was $137.7 million, of which $99.4 million was held in foreign jurisdictions for working capital needs, a majority of which is subject to exchange controls and a portion of which is subject to tax consequences upon repatriation, which 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) 2026 2025 2024
Net income $ 15.7 $ 16.5 $ 3.2
Trade and other receivables (254.9) (208.4) (167.6)
Inventories and advances to suppliers (60.4) 156.3 (136.0)
Payables and accrued expenses 31.5 (49.2) 17.5
Advances from customers 34.8 45.9 55.3
Other 24.8 25.5 12.6
Net cash used in operating activities $ (208.5) $ (13.4) $ (215.0)
Collections from beneficial interests in securitized trade receivables 200.7 188.3 175.9
Other (9.3) (17.7) (16.5)
Net cash provided by investing activities $ 191.4 $ 170.6 $ 159.4
Net proceeds (repayments) from short-term borrowings 77.3 (102.6) 122.5
Repayments of long-term borrowings - (55.8) (60.3)
Net repayments of revolving loan facilities - - (25.0)
Other (4.8) (8.9) (11.6)
Net cash provided by (used in) financing activities $ 72.5 $ (167.3) $ 25.6
Effect of exchange rate changes on cash (3.4) (4.2) (9.2)
Increase (decrease) in cash, cash equivalents, and restricted cash* $ 52.1 $ (14.2) $ (39.1)
*Amounts may not equal totals due to rounding.
The change in cash, cash equivalents, and restricted cash for the fiscal year ended March 31, 2026 compared to the fiscal year ended March 31, 2025 increased by $66.3 million. The increase was due to higher net proceeds received from foreign seasonal lines of credit and the non-recurrence of partial repayments made on long-term debt in the prior-year period, partially offset by an increase in cash used to purchase larger crop volumes.
Planned Capital Expenditures
We are anticipating $38.4 million in capital investments for fiscal 2027, which includes the new construction of a warehouse in South America and significant refurbishments to an existing warehouse in Africa. Both of these projects are aligned with advancing the Company's strategic initiatives to drive long-term efficiencies and cost optimization. The remainder of our expected capital spend is for the routine replacement of machinery and equipment, and investments in other such assets to enhance our operational effectiveness and to support our ongoing sustainability efforts.
Securitized Receivables
We sell trade receivables to unaffiliated financial institutions under multiple revolving trade accounts receivable securitization facilities. Under two of the programs, we receive a discount from the face value of the receivable sold, less contractual 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 these two facilities are subordinate to the purchaser of the receivables. Under the other 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 17. Securitized Receivables" to the "Notes to Consolidated Financial Statements" for additional information.
Future Contractual Obligations and Commitments
The following summarizes our material contractual obligations and commercial commitments as of March 31, 2026:
Payments / Expirations by Fiscal Year
(in millions) Total 2027
Years
2028-2029
Years
2030-2031
After
2031
Long-Term Debt Obligations $ 455.8 $ - $ 455.8 $ - $ -
Short-Term Debt Obligations(1)
477.1 477.1 - - -
Interest on Debt Obligations(2)
89.1 50.4 38.3 0.4 -
Pension and Postretirement Obligations 51.0 5.4 10.4 9.9 25.3
Operating Lease Obligations 42.2 14.0 15.5 7.4 5.3
Tobacco and Other Purchase Obligations 806.1 806.1 - - -
Amounts Guaranteed for Tobacco Suppliers 119.7 119.7 - - -
Total $ 2,041.0 $ 1,472.7 $ 520.0 $ 17.7 $ 30.6
(1) Short-term debt obligations consist of our foreign seasonal credit lines.
(2) Interest obligations include 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, 2026.
Tobacco and Other Purchase Obligations
Tobacco purchase obligations result from contracts with suppliers 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 increased $35.4 million, or 4.6%, from $770.7 million to $806.1 million primarily due to higher estimated volumes expected to be sourced from our key origins in South America and Asia, and higher estimated volumes with increased pricing due to inflationary pressures in Europe.
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 18. 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 non-U.S earnings may be limited by local legal restrictions and 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 non-U.S 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 5. Income Taxes" to the "Notes to Consolidated Financial Statements" for additional information.
Critical Accounting Estimates
Overview
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 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 adjust 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 5. 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).
•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. Based upon anticipated
changes in assumptions, pension and postretirement expense for the year ending March 31, 2027 is expected to be consistent with the year ended March 31, 2026. The contribution to our employee benefit plans during the year ended March 31, 2026 was $4.3 million and is expected to be $4.5 million in fiscal 2027.
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 $ (4,015) $ 2
1% decrease in discount rate $ 4,529 $ 224
1% increase in salary rate $ 172 $ 52
1% decrease in salary rate $ (161) $ (46)
1% increase in rate of return on assets Not applicable $ (194)
1% decrease in rate of return on assets Not applicable $ 194
Changes in assumptions for other postretirement benefits are no longer applicable as the benefit is capped and no longer subject to inflation. See "Note 21. 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.
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