NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of financial position, results of operation and cash flows at the dates and for the periods presented have been included. The unaudited information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2016
.
In fiscal 2006, the Company deconsolidated its Zimbabwe subsidiary, Mashonaland Tobacco Company LTD ("MTC") in accordance with accounting requirements that apply to foreign subsidiaries that are subject to foreign exchange controls and other government restrictions that casted significant doubt on the parent's ability to control the subsidiary. As of March 31, 2016, the Company determined that significant doubt about its ability to control MTC was eliminated due to changes in the political landscape and the recent issuance of clarifications to the indigenization laws within Zimbabwe. As a result, the Company reconsolidated MTC on March 31, 2016. Beginning April 1, 2016, the financial results of MTC are included in the consolidated statements of operations, consolidated balance sheet and consolidated statement of cash flows.
Prior to March 31, 2016, the Company accounted for its investment in MTC on the cost method and had been reporting it in Investments in Unconsolidated Affiliates in the Consolidated Balance Sheets since March 31, 2006 and had written its investment in MTC down to
zero
in fiscal 2007.
Restatement of Previously Reported Financial Information
During the year ended March 31, 2016, the Company identified certain immaterial errors in previously issued financial statements related to inventory, cost of goods sold and income tax. In addition, the Company corrected the classification of amounts between line items on the Consolidated Balance Sheets included in the previously issued financial statements. The correction of these immaterial errors and reclassification between line items at March 31, 2015 also impact the previously reported balances at September 30, 2015. For the three months and six months ended September 30, 2015, cost of goods sold was adjusted by
$636
. For the six months ended September 30, 2015, inventory was adjusted by
$744
, recoverable income tax was adjusted by
$1,824
and retained earnings was adjusted by
$2,568
. In addition, reclassifications of
$11,808
between "Accounts receivable, related parties" and "Pension, postretirement and other long-term liabilities" were made. The Company has evaluated the effect of the above misstatements on its condensed consolidated financial statements for the three months and six months ended September 30, 2015 in accordance with the guidance provided by SEC Staff Accounting Bulletin No. 108, codified as SAB Topic 1.N, “Considering the Effects of Prior Year Misstatement When Quantifying Misstatements in the Current Year Financial Statements,” and concluded that the three months and six months ended September 30, 2015 were not materially misstated. See Note 21 "Restatement of Previously Reported Financial Information" to the "Notes to Condensed Consolidated Financial Statements" for the impact of this change on selected financial amounts.
Taxes Collected from Customers
Certain subsidiaries are subject to value added taxes on local sales. These amounts have been included in sales and cost of sales and were
$6,406
and
$2,847
for the three months ended
September 30, 2016
and
2015
, respectively and $
12,591
and
$8,611
for the six months ended September 30, 2016 and 2015, respectively.
Other Deferred Charges
Other deferred charges are primarily deferred financing costs that are amortized over the life of the debt.
New Accounting Standards
Recent Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued new accounting guidance that changed the presentation of debt issuance costs in financial statements. The primary objective of this accounting guidance was to present these costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is still reported as interest expense. The Company adopted this guidance on April 1, 2016 on a retrospective basis. On the condensed consolidated balance sheets,
$10,810
and
$9,875
were reclassified from Other Deferred Charges to Long-Term Debt at September 30, 2015 and March 31, 2016, respectively. See Note 21 "Restatement of Previously Reported Financial Information" to the "Notes to Condensed Consolidated Financial Statements."
Alliance One International, Inc. and Subsidiaries
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued new accounting guidance that outlines a single comprehensive model to use in accounting for revenue from contracts with customers. The primary objective of this accounting guidance is to recognize revenue that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. This accounting guidance, as amended, is effective for the Company on April 1, 2018. The Company is currently evaluating the impact of this new guidance.
In August 2014, the FASB issued new accounting guidance on determining when and how to disclose going concern uncertainties in the financial statements. The primary objective of this accounting guidance is for management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. This accounting guidance is effective for the Company on March 31, 2017. The Company is currently evaluating the impact of this new guidance.
In May 2015, the FASB issued new accounting guidance for disclosures of investments that calculate net asset value per share (or its equivalent). The primary objective is to reduce the diversity in practice on how these investments are categorized in the fair value hierarchy. This accounting guidance is effective for the Company on March 31, 2017. The Company is currently evaluating the impact of this new guidance.
In July 2015, the FASB issued new accounting guidance that simplifies the measurement of inventory. Under the previous accounting guidance, an entity measured inventory at the lower of cost or market with market defined as one of three different measures. The primary objective of this accounting guidance is to require a single measurement of inventory at the lower of cost and net realizable value. This accounting guidance is effective for the Company on April 1, 2017. The Company is currently evaluating the impact of this new guidance.
In January 2016, the FASB issued new accounting guidance regarding certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The primary objective of this accounting guidance is to provide users of financial statements with more decision-useful information. The accounting guidance will be effective for the Company on April 1, 2018. The Company is currently evaluating the impact of this guidance.
In February 2016, the FASB issued new accounting guidance regarding the treatment of leases. The primary objective of this accounting guidance is to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This accounting guidance will be effective for the Company April 1, 2020. The Company is currently evaluating the impact of this new guidance.
In March 2016, the FASB issued new accounting guidance for simplifying the treatment of employee share-based payments. The primary objective is improve areas of GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of information provided to users of financial statements. This accounting guidance will be effective for the Company on April 1, 2017. The Company is currently evaluating the impact of this new guidance.
In June 2016, the FASB issued new accounting guidance on the measurement of credit losses on financial instruments. The primary objective is to provide 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 accounting guidance will be effective for the Company on April 1, 2020. The Company is currently evaluating the impact of this new guidance.
In August of 2016, the FASB issued new accounting guidance that clarifies the classification of certain cash receipts and cash payments. The primary objective is to reduce the diversity in practice on how these activities are presented on the statement of cash flows. This accounting guidance will be effective for the Company on March 31, 2018. The company is currently evaluating the impact of this new guidance.
2. INCOME TAXES
Accounting for Uncertainty in Income Taxes
As of
September 30, 2016
, the Company’s unrecognized tax benefits totaled
$16,707
, all of which 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
September 30, 2016
, accrued interest and penalties totaled
$1,507
and
$965
respectively.
The Company expects to continue accruing interest expense related to the unrecognized tax benefits described above. Additionally, the Company may be subject to fluctuations in the unrecognized tax liability due to currency exchange rate movements.
The Company does not foresee any reasonably possible changes in the 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 recorded
Alliance One International, Inc. and Subsidiaries
2. INCOME TAXES
(continued)
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
September 30, 2016
, the Company’s earliest open tax year for U.S. federal income
tax purposes is its fiscal year ended March 31, 2013; 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.
Provision for the Six Months Ended September 30, 2016
The effective tax rate used for the six months ended
September 30, 2016
was
0.5%
compared to
(64.5)%
for the six months ended
September 30, 2015
. The effective tax rates for these periods are based on the current estimate of full year results including the effect of taxes related to discrete events which are recorded in the interim period in which they occur. The difference in the effective tax rate in one year compared to another is the result of many factors that include, but are not limited to, differences in forecasted income for the respective years, differences in year-to-date income for the periods, certain losses for which no tax benefit is recorded; and, differences between discrete items recognized for the periods that include changes in valuation allowances, net exchanges losses on income tax accounts and net exchange gains related to liabilities for unrecognized tax benefits.
For the six months ended
September 30, 2016
, the Company recorded a discrete event adjustment benefit of
$2,836
, bringing the effective tax rate estimated for the six months of
(5.8)%
to
0.5%
. This discrete event adjustment benefit relates primarily to net exchange losses on income tax accounts and net exchange gains related to liabilities for unrecognized tax benefits. For the six months ended
September 30, 2015
, the Company recorded a discrete event adjustment expense of
$9,264
, bringing the effective tax rate estimated for the six months of
(34.1)%
to
(64.5)%
. This discrete event adjustment expense relates primarily to net exchange losses on income tax accounts and net exchange gains related to liabilities for unrecognized tax benefits. The significant difference in the estimated effective tax rate for the six months ended
September 30, 2016
from the U.S. federal statutory rate is primarily due to net exchange losses on income tax accounts, foreign income tax rates lower than the U.S. rate and certain losses for which no benefit is currently recorded.
3. GUARANTEES
The Company and certain of its foreign subsidiaries guarantee bank loans to suppliers to finance their crops. Under longer-term arrangements, the Company may also guarantee financing on suppliers’ construction of curing barns or other tobacco production assets. Guaranteed loans are generally repaid concurrent with the delivery of tobacco to the Company. The Company is obligated to repay any guaranteed loan should the supplier default. If default occurs, the Company has recourse against the supplier. The Company also guarantees bank loans of certain unconsolidated subsidiaries in Asia and Brazil.
The following table summarizes amounts guaranteed and the fair value of those guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
Amounts guaranteed (not to exceed)
|
$
|
206,923
|
|
|
$
|
236,045
|
|
|
$
|
210,703
|
|
Amounts outstanding under guarantee
|
89,822
|
|
|
133,897
|
|
|
107,615
|
|
Fair value of guarantees
|
4,467
|
|
|
4,865
|
|
|
7,350
|
|
Of the guarantees outstanding at
September 30, 2016
, all expire within
one
year. The fair value of guarantees is recorded in Accrued Expenses and Other Current Liabilities in the Condensed Consolidated Balance Sheets and included in crop costs except for the joint venture in Brazil which is included in Accounts Receivable, Related Parties.
In Brazil, certain suppliers obtain government subsidized rural credit financing from local banks that is guaranteed by the Company. The Company withholds amounts owed to suppliers related to the rural credit financing of the supplier upon delivery of tobacco to the Company. The Company remits payments to the local banks on behalf of the guaranteed suppliers. Terms of rural credit financing are such that repayment is due to local banks based on contractual due dates. As of
March 31, 2016
, the Company had a balance of
$16,699
that was due to local banks on behalf of suppliers. As of
September 30, 2016
and
2015
, there are
no
amounts due. These amounts are included in Accounts Payable in the Condensed Consolidated Balance Sheets.
Alliance One International, Inc. and Subsidiaries
4. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
During the quarter ended March 31, 2015, the Company announced the first phase of a global restructuring plan focusing on efficiency and cost improvements. The Company reviewed origin and corporate operations, and initiatives were implemented to increase operational efficiency and effectiveness. These initiatives continue to be implemented as the Company restructures certain operations not meeting strategic business objectives and performance metrics. During the three months ended
September 30, 2016
, the Company recorded
$57
for employee severance charges,
$25
for other cash charges and
$495
for impairment charges related to facilities formerly utilized by its U.S. cut rag facility. During the six months ended
September 30, 2016
, severance charges were
$64
, other cash charges were
$60
and asset impairment charges were
$495
. During the three months ended September 30, 2015, the Company recorded
$(386)
for recoveries of employee severance charges. During the six months ended September 30, 2015, the Company recorded
$(11)
for recoveries of employee severance charges and
$2,573
of asset impairment charges in connection with the restructuring of certain operations primarily in Africa. The
$2,573
asset impairment charges are for unrecoverable tobacco supplier advances and tobacco production property and equipment due to exiting and redefining the Company’s position in certain African markets.
The following table summarizes the restructuring charges recorded during the three months and six months ended
September 30, 2016
and
2015
, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
Restructuring and Asset Impairment Charges
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Employee separation and other cash charges:
|
|
|
|
|
|
|
|
Beginning balance
|
$
|
99
|
|
|
$
|
7,216
|
|
|
$
|
398
|
|
|
$
|
8,087
|
|
Period charges:
|
|
|
|
|
|
|
|
Severance charges (recoveries)
|
57
|
|
|
(386
|
)
|
|
64
|
|
|
(11
|
)
|
Other cash charges
|
25
|
|
|
—
|
|
|
60
|
|
|
—
|
|
Total period charges (recoveries)
|
82
|
|
|
(386
|
)
|
|
124
|
|
|
(11
|
)
|
Payments through September 30
|
(101
|
)
|
|
(5,267
|
)
|
|
(442
|
)
|
|
(6,513
|
)
|
Ending balance September 30
|
$
|
80
|
|
|
$
|
1,563
|
|
|
$
|
80
|
|
|
$
|
1,563
|
|
Asset impairment and other non-cash charges
|
$
|
495
|
|
|
$
|
—
|
|
|
$
|
495
|
|
|
$
|
2,573
|
|
Total restructuring charges (recoveries) for the period
|
$
|
577
|
|
|
$
|
(386
|
)
|
|
$
|
619
|
|
|
$
|
2,562
|
|
The following table summarizes the employee separations and other cash charges recorded in the Company's North America and Other Regions segment during the three months and six months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
Employee Separation and Other Cash Charges
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Beginning balance:
|
$
|
99
|
|
|
$
|
7,216
|
|
|
$
|
398
|
|
|
$
|
8,087
|
|
North America
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other regions
|
99
|
|
|
7,216
|
|
|
398
|
|
|
8,087
|
|
Period charges:
|
$
|
82
|
|
|
$
|
(386
|
)
|
|
$
|
124
|
|
|
$
|
(11
|
)
|
North America
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other regions
|
82
|
|
|
(386
|
)
|
|
124
|
|
|
(11
|
)
|
Payments through September 30
|
$
|
(101
|
)
|
|
$
|
(5,267
|
)
|
|
$
|
(442
|
)
|
|
$
|
(6,513
|
)
|
North America
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other regions
|
(101
|
)
|
|
(5,267
|
)
|
|
(442
|
)
|
|
(6,513
|
)
|
Ending balance September 30
|
$
|
80
|
|
|
$
|
1,563
|
|
|
$
|
80
|
|
|
$
|
1,563
|
|
North America
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other regions
|
80
|
|
|
1,563
|
|
|
80
|
|
|
1,563
|
|
Alliance One International, Inc. and Subsidiaries
5. GOODWILL AND INTANGIBLES
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill is not subject to amortization, but rather is tested for impairment annually or whenever events and circumstances indicate that an impairment may have occurred. The Company has chosen the first day of the last quarter of its fiscal year as the date to perform its annual goodwill impairment test.
The Company has no intangible assets with indefinite useful lives. It does have intangible assets which are amortized. The following table summarizes the changes in the Company’s goodwill and other intangibles for the periods provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Intangibles
|
|
|
|
Goodwill
(1)
|
|
Customer
Relationship
Intangible
|
|
Production
and Supply
Contract
Intangibles
|
|
Internally
Developed
Software
Intangible
|
|
Total
|
Weighted average remaining useful
life in years as of September 30, 2016
|
|
—
|
|
12.50
|
|
|
4.25
|
|
|
—
|
|
|
—
|
March 31, 2015 balance
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount
|
|
$
|
2,794
|
|
|
$
|
33,700
|
|
|
$
|
14,893
|
|
|
$
|
18,502
|
|
|
$
|
69,889
|
|
Accumulated amortization
|
|
—
|
|
|
(16,639
|
)
|
|
(5,786
|
)
|
|
(15,573
|
)
|
|
(37,998
|
)
|
Net March 31, 2015
|
|
2,794
|
|
|
17,061
|
|
|
9,107
|
|
|
2,929
|
|
|
31,891
|
|
Amortization expense
|
|
—
|
|
|
(421
|
)
|
|
(270
|
)
|
|
(206
|
)
|
|
(897
|
)
|
Net June 30, 2015
|
|
2,794
|
|
|
16,640
|
|
|
8,837
|
|
|
2,723
|
|
|
30,994
|
|
Amortization expense
|
|
—
|
|
|
(421
|
)
|
|
(272
|
)
|
|
(203
|
)
|
|
(896
|
)
|
Net September 30, 2015
|
|
2,794
|
|
|
16,219
|
|
|
8,565
|
|
|
2,520
|
|
|
30,098
|
|
Additions
|
|
13,669
|
|
|
24,830
|
|
|
—
|
|
|
—
|
|
|
38,499
|
|
Amortization expense
|
|
—
|
|
|
(843
|
)
|
|
(283
|
)
|
|
(437
|
)
|
|
(1,563
|
)
|
Net March 31, 2016
|
|
16,463
|
|
|
40,206
|
|
|
8,282
|
|
|
2,083
|
|
|
67,034
|
|
Amortization expense
|
|
—
|
|
|
(836
|
)
|
|
(110
|
)
|
|
(193
|
)
|
|
(1,139
|
)
|
Net June 30, 2016
|
|
16,463
|
|
|
39,370
|
|
|
8,172
|
|
|
1,890
|
|
|
65,895
|
|
Amortization expense
|
|
—
|
|
|
(834
|
)
|
|
(8
|
)
|
|
(188
|
)
|
|
(1,030
|
)
|
Net September 30, 2016
|
|
16,463
|
|
|
38,536
|
|
|
8,164
|
|
|
1,702
|
|
|
64,865
|
|
(1) Goodwill of
$2,794
relates to the North America segment and
$13,669
relates to the Other Regions segment.
The following table summarizes the estimated future intangible asset amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal
Years Ended
|
|
Customer
Relationship
Intangible
|
|
Production
and Supply
Contract
Intangible
|
|
Internally
Developed
Software
Intangible*
|
|
Total
|
October 1, 2016 through March 31, 2017
|
|
$
|
1,670
|
|
|
$
|
1,164
|
|
|
$
|
467
|
|
|
$
|
3,301
|
|
2018
|
|
3,340
|
|
|
1,405
|
|
|
620
|
|
|
5,365
|
|
2019
|
|
3,340
|
|
|
1,405
|
|
|
367
|
|
|
5,112
|
|
2020
|
|
3,340
|
|
|
1,397
|
|
|
248
|
|
|
4,985
|
|
2021
|
|
3,340
|
|
|
1,397
|
|
|
—
|
|
|
4,737
|
|
Later
|
|
23,506
|
|
|
1,396
|
|
|
—
|
|
|
24,902
|
|
|
|
$
|
38,536
|
|
|
$
|
8,164
|
|
|
$
|
1,702
|
|
|
$
|
48,402
|
|
* Estimated amortization expense for the internally developed software is based on costs accumulated as of
September 30, 2016
. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
Alliance One International, Inc. and Subsidiaries
6. VARIABLE INTEREST ENTITIES
The Company holds variable interests in
seven
joint ventures that are accounted for under the equity method of accounting. These joint ventures primarily procure or process inventory on behalf of the Company and the other joint venture partners. The variable interests relate to equity investments and advances made by the Company to the joint ventures. In addition, the Company also guarantees
two
of its joint ventures' borrowings which also represents a variable interest in those joint ventures. The Company is not the primary beneficiary, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities as a result of the entities’ management and board of directors' structure. Therefore, these entities are not consolidated. At
September 30, 2016
and
2015
, and
March 31, 2016
, the Company’s investment in these joint ventures was
$54,639
,
$53,798
, and
$57,243
, respectively and is classified as Investments in Unconsolidated Affiliates in the Condensed Consolidated Balance Sheets. The Company’s advances to these joint ventures at
September 30, 2016
and
2015
, and
March 31, 2016
, respectively were
$8,965
,
$5,623
and $
1,920
and are classified as Accounts Receivable, Related Parties in the Condensed Consolidated Balance Sheets. The Company guaranteed an amount to
two
joint ventures not to exceed
$94,054
,
$94,602
and
$100,238
at
September 30, 2016
and
2015
, and
March 31, 2016
, respectively. The investments, advances and guarantees in these joint ventures represent the Company’s maximum exposure to loss.
7. SEGMENT INFORMATION
The Company purchases, processes, sells and stores leaf tobacco. Tobacco is purchased in more than
35
countries and shipped to approximately
90
countries. The sales, logistics and billing functions of the Company are primarily concentrated in service centers outside of the producing areas to facilitate access to its major customers. Within certain quality and grade constraints, tobacco is fungible and, subject to these constraints, customers may choose to fulfill their needs from any of the areas where the Company purchases tobacco.
Selling, logistics, billing, and administrative overhead, including depreciation, which originates primarily from the Company’s corporate and sales offices, are allocated to the segments based upon segment operating income. The Company reviews performance data from the purchase of the product or the service provided through sale based on the source of the product or service and all intercompany transactions are allocated to the operating segment that either purchases or processes the tobacco.
The following table presents the summary segment information for the three months and six months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2014
|
Sales and other operating revenues:
|
|
|
|
|
|
|
|
North America
|
$
|
58,823
|
|
|
$
|
64,830
|
|
|
$
|
108,760
|
|
|
$
|
95,130
|
|
Other regions
|
330,600
|
|
|
350,023
|
|
|
541,764
|
|
|
586,005
|
|
Total revenue
|
$
|
389,423
|
|
|
$
|
414,853
|
|
|
$
|
650,524
|
|
|
$
|
681,135
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
North America
|
$
|
3,659
|
|
|
$
|
5,547
|
|
|
$
|
2,681
|
|
|
$
|
6,418
|
|
Other regions
|
14,787
|
|
|
20,736
|
|
|
10,489
|
|
|
16,960
|
|
Total operating income
|
18,446
|
|
|
26,283
|
|
|
13,170
|
|
|
23,378
|
|
Interest expense
|
31,904
|
|
|
28,782
|
|
|
62,507
|
|
|
56,555
|
|
Interest income
|
2,204
|
|
|
1,274
|
|
|
4,042
|
|
|
2,648
|
|
Loss before income taxes and other items
|
$
|
(11,254
|
)
|
|
$
|
(1,225
|
)
|
|
$
|
(45,295
|
)
|
|
$
|
(30,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysis of Segment Assets
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
Segment assets:
|
|
|
|
|
|
|
North America
|
$
|
396,413
|
|
|
$
|
400,884
|
|
|
$
|
338,833
|
|
|
Other regions
|
1,602,311
|
|
|
1,545,236
|
|
|
1,629,365
|
|
|
Total assets
|
$
|
1,998,724
|
|
|
$
|
1,946,120
|
|
|
$
|
1,968,198
|
|
Alliance One International, Inc. and Subsidiaries
8. EARNINGS PER SHARE
The weighted average number of common shares outstanding is reported as the weighted average of the total shares of common stock outstanding net of shares of common stock held by a wholly owned subsidiary. Shares of common stock owned by the subsidiary were
785
at
September 30, 2016
and
2015
. This subsidiary waives its right to receive dividends and it does not have the right to vote.
Certain potentially dilutive options were not included in the computation of earnings per diluted share because their exercise prices were greater than the average market price of the shares of common stock during the period and their effect would be antidilutive. These shares totaled
461
at a weighted average exercise price of
$61.09
per share at
September 30, 2016
and
646
at a weighted average exercise price of
$60.49
per share at
September 30, 2015
.
The following table summarizes the computation of earnings per share for the three months and six months ended
September 30, 2016
and
2015
, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
(in thousands, except per share data)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
BASIC LOSS
|
|
|
|
|
|
|
|
|
Net loss attributable to Alliance One International, Inc.
|
$
|
(15,657
|
)
|
|
$
|
(21,065
|
)
|
|
$
|
(47,163
|
)
|
|
$
|
(47,015
|
)
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding
|
8,923
|
|
|
8,883
|
|
|
8,914
|
|
|
8,873
|
|
|
|
|
|
|
|
|
|
|
|
BASIC LOSS PER SHARE
|
$
|
(1.75
|
)
|
|
$
|
(2.37
|
)
|
|
$
|
(5.29
|
)
|
|
$
|
(5.30
|
)
|
|
|
|
|
|
|
|
|
|
|
DILUTED LOSS
|
|
|
|
|
|
|
|
|
Net loss attributable to Alliance One International, Inc.
|
$
|
(15,657
|
)
|
|
$
|
(21,065
|
)
|
|
$
|
(47,163
|
)
|
|
$
|
(47,015
|
)
|
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding
|
8,923
|
|
|
8,883
|
|
|
8,914
|
|
|
8,873
|
|
|
Plus: Restricted shares issued and shares applicable to
stock options and restricted stock units, net of
shares assumed to be purchased from proceeds
at average market price
|
—
|
|
*
|
—
|
|
*
|
—
|
|
*
|
—
|
|
*
|
Adjusted weighted average number of common
shares outstanding
|
8,923
|
|
|
8,883
|
|
|
8,914
|
|
|
8,873
|
|
|
DILUTED LOSS PER SHARE
|
$
|
(1.75
|
)
|
|
$
|
(2.37
|
)
|
|
$
|
(5.29
|
)
|
|
$
|
(5.30
|
)
|
|
|
|
|
|
|
|
|
|
|
* All outstanding restricted shares and shares applicable to stock options and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share.
|
9. STOCK-BASED COMPENSATION
The Company recorded stock-based compensation expense related to stock-based awards granted under its various employee and non-employee stock incentive plans of
$528
and
$701
for the three months ended
September 30, 2016
and
2015
, respectively, of which
$75
and
$40
, respectively were with respect to stock-based awards payable in cash, and $
965
and
$1,805
for the six months ended September 30, 2016 and 2015, respectively, of which $
120
and
$331
, respectively, were with respect to stock-based awards payable in cash.
The Company’s shareholders approved amendments to the 2007 Incentive Plan (the “2007 Plan”) at its annual meetings of shareholders held on August 11, 2011 and August 6, 2009, and approved the 2016 Incentive Plan (the "2016 Plan") at its annual meeting of shareholders held on August 11, 2016. Each of the 2016 Plan and the 2007 Plan is an omnibus plan that provides the flexibility to grant a variety of equity awards including stock options, stock appreciation rights, stock awards, stock units, performance awards and incentive awards to officers, directors and employees of the Company.
During the three months and six months ended
September 30, 2016
and
2015
, respectively, the Company made the following stock-based compensation awards:
Alliance One International, Inc. and Subsidiaries
9. STOCK-BASED COMPENSATION
(continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
(in thousands, except grant date fair value)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Restricted Stock
|
|
|
|
|
|
|
|
Number Granted
|
7
|
|
|
6
|
|
|
13
|
|
|
12
|
|
Grant Date Fair Value
|
$
|
19.12
|
|
|
$
|
20.38
|
|
|
$
|
17.55
|
|
|
$
|
22.15
|
|
Restricted Stock Units
|
|
|
|
|
|
|
|
Number Granted
|
56
|
|
|
—
|
|
|
56
|
|
|
—
|
|
Grant Date Fair Value
|
$
|
17.76
|
|
|
$
|
—
|
|
|
$
|
17.76
|
|
|
$
|
—
|
|
Performance-Based Stock Units
|
|
|
|
|
|
|
|
Number Granted
|
28
|
|
|
—
|
|
|
28
|
|
|
—
|
|
Grant Date Fair Value
|
$
|
17.76
|
|
|
$
|
—
|
|
|
$
|
17.76
|
|
|
$
|
—
|
|
Restricted stock consists of shares issued to non-employee directors of the Company which are not subject to a minimum vesting period. Restricted stock units differ from restricted stock in that zero shares are issued until restrictions lapse. Restricted stock units granted during the three months ended
September 30, 2016
vest ratably over a
three
-year period. Under the terms of the Performance-Based Stock Units, shares ultimately issued will be contingent upon specified business performance goals.
On August 13, 2015, the Company’s shareholders approved an exchange offer that allowed certain employees to surrender options and receive restricted stock units in exchange for these options. The offer was made on September 14, 2015 and applied only to grants made during fiscal years 2012 and 2013 having a pre-reverse stock split exercise price of
$6.00
which became
$60.00
per share after the reverse stock split. The offer expired on October 13, 2015. This exchange was based on exchange of options that would vest as a fulfilment of service obligation to restricted stock units that will vest upon satisfaction of service obligations and the expense recognized in this exchange was based upon the original grant.
10. CONTINGENCIES AND OTHER INFORMATION
Non-Income Tax
The government in the Brazilian State of Parana (“Parana”) issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. The assessment for intrastate trade tax credits taken is
$4,058
and the total assessment including penalties and interest at
September 30, 2016
is
$12,808
. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company. The Company also has local intrastate trade tax credits in the Brazilian State of Santa Catarina and the State of Rio Grande do Sul. These jurisdictions permit the sale or transfer of excess credits to third parties, however approval must be obtained from the tax authorities. The Company has an agreement with the state governments regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of
$3,157
at
September 30, 2016
, which is net of impairment charges based on management’s expectations about future realization. The intrastate trade tax credits will continue to be monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
In 1969, the Brazilian government created a tax credit program that allowed companies to earn IPI tax credits (“IPI credits”) based on the value of their exports. The government began to phase out this program in 1979, which resulted in numerous lawsuits between taxpayers and the Brazilian government. The Company has a long legal history with respect to credits it earned while the IPI credit program was in effect. In 2001, the Company won a claim related to certain IPI credits it earned between 1983 and 1990. The Brazilian government appealed this decision and numerous rulings and appeals were rendered on behalf of both the government and the Company from 2001 through 2013. Because of this favorable ruling, the Company began to use these earned
IPI credits to offset federal taxes in 2004 and 2005, until it received a Judicial Order to suspend the IPI offsetting in 2005. The value of the federal taxes offset in 2004 and 2005 was
$24,142
and the Company established a reserve on these credits at the time of offsetting as they were not yet realizable due to the legal uncertainty that existed. Specifically, the Company extinguished other federal tax liabilities using IPI credits and recorded a liability in Pension, Postretirement and Other Long-Term Liabilities to reflect that the credits were not realizable at that time due to the prevalent legal uncertainty. On March 7, 2013, the Brazilian Supreme Court rendered a final decision in favor of the Company that recognized the validity of the IPI credits and secured the Company's right to benefit from the IPI credits earned from March 1983 to October 1990. This final decision expressly stated the Company
has the right to the IPI credits. The Company estimated the total amount of the IPI credits to be approximately
$94,316
at March
31, 2013. Since the March 2013 ruling definitively (without the government's ability to appeal) granted the Company the ownership of the IPI credits generated between 1983 and 1990 the Company believed the amount of IPI credits that were used to offset other
Alliance One International, Inc. and Subsidiaries
10. CONTINGENCIES AND OTHER INFORMATION
(continued)
federal taxes in 2004 and 2005 were realizable beyond a reasonable doubt. Accordingly, and at March 31, 2013, the Company recorded the
$24,142
IPI credits it realized in the Statements of Consolidated Operations in Other Income. No further benefit has been recognized pending the outcome of the judicial procedure to ascertain the final amount as those amounts have not yet been
realized.
Other
Mindo, S.r.l., the purchaser in 2004 of the Company's Italian subsidiary Dimon Italia, S.r.l., asserted claims against a subsidiary of the Company arising out of that sale transaction in an action filed before the Court of Rome on April 12, 2007. The claim involved a guaranty letter issued by a consolidated subsidiary of the Company in connection with the sale transaction
,
and sought the recovery of
€7,400
plus interest and costs.
On November 11, 2013, the court issued its judgment in favor of the Company’s subsidiary, rejecting the claims asserted by Mindo, S.r.l., and awarding the Company’s subsidiary legal costs of
€48
. On December 23, 2014, Mindo, S.r.l. appealed the judgment of the Court of Rome to the Court of Appeal of Rome. A hearing before the Court of Appeal of Rome was held on June 12, 2015, which was adjourned pending a further hearing set for February 2018. The outcome of, and timing of a decision on, the appeal are uncertain and therefore no amounts have been recorded.
In addition to the above-mentioned matter, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
In accordance with generally accepted accounting principles, the Company records all known asset retirement obligations (“ARO”) for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO because the fair value of restoring the land at this site cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because the land restoration is not required until title is returned to the government, and the Company has no current or future plans to return the title. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.
11. DEBT ARRANGEMENTS
At
September 30, 2016
,
$200,000
was outstanding under the senior secured revolving credit facility. On October 14, 2016, the Company issued
$275,000
in aggregate principal amount of
8.5%
senior secured first lien notes due 2021 (the “First Lien Notes”), at an issue price of
99.085%
of the face amount thereof, entered into an ABL credit agreement with certain bank lenders establishing a senior secured revolving asset-based lending facility of
$60,000
subject to a borrowing base composed of its eligible accounts receivable and inventory, and used a portion of the net proceeds from the offering of the First Lien Notes to repay in full all outstanding indebtedness and accrued and unpaid interest owed under the existing senior secured revolving credit facility. Upon such repayment, Alliance One terminated the senior secured revolving credit facility. See Note 20 "Subsequent Event" of Notes to Condensed Consolidated Financial Statements for further information.
The ABL credit agreement restricts the Company from paying any dividends during the term of this facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the Company's First Lien Notes and its senior secured second lien notes due 2021 contain similar restrictions and also prohibits the payment of dividends and other distributions if the Company fails to satisfy a ratio of consolidated EBITDA to fixed charges of at least
2.0
to 1.0. At September 30, 2016, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio.
Alliance One International, Inc. and Subsidiaries
12. DERIVATIVE FINANCIAL INSTRUMENTS
Fair Value of Derivative Financial Instruments
The Company recognizes all derivative financial instruments, such as foreign exchange contracts at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in shareholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or a cash flow hedge. The Company has elected not to offset fair value amounts recognized for derivative instruments with the same counterparty under a master netting agreement. See Note 17 “Fair Value Measurements” to the “Notes to Condensed Consolidated Financial Statements” for further information on fair value methodology.
At
September 30, 2016
and
2015
, and
March 31, 2016
, there were no derivatives outstanding.
Earnings Effects of Derivatives
The Company periodically enters into forward or option currency contracts to protect against volatility associated with certain non-U.S. dollar denominated forecasted transactions. These contracts are for green tobacco purchases and processing costs as well as selling, general and administrative costs as the Company deems necessary. These contracts do not meet the requirements for hedge accounting treatment under generally accepted accounting principles, and as such, all changes in fair value are reported in income each period.
The following table summarizes the earnings effects of derivatives in the Condensed Consolidated Statements of Operations for the three months and six months ended
September 30, 2016
and
2015
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized in Income
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not Designated
as Hedging Instruments
|
|
Location of Gain (Loss)
Recognized in Income
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Cost of goods and services sold
|
|
$
|
—
|
|
|
$
|
(609
|
)
|
|
$
|
—
|
|
|
$
|
(2,001
|
)
|
Credit Risk
Financial instruments, including derivatives, expose the Company to credit loss in the event of non-performance by counterparties. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. If a counterparty fails to meet the terms of an arrangement, the Company’s exposure is limited to the net amount that would have been received, if any, over the arrangement’s remaining life. The Company does not anticipate non-performance by the counterparties and no material loss would be expected from non-performance by any one of such counterparties.
13. PENSION AND POSTRETIREMENT BENEFITS
The Company has multiple benefit plans at several locations. The Company has a defined benefit plan that provides retirement benefits for substantially all U.S. salaried personnel based on years of service rendered, age and compensation. The Company also maintains various other Excess Benefit and Supplemental Plans that provide additional benefits to (1) certain individuals whose compensation and the resulting benefits that would have actually been paid are limited by regulations imposed by the Internal Revenue Code and (2) certain individuals in key positions. The Company funds these plans in amounts consistent with the funding requirements of federal law and regulations.
Additional non-U.S. defined benefit plans sponsored by certain subsidiaries cover certain full-time employees located in Germany, Turkey, and the United Kingdom.
Alliance One International, Inc. and Subsidiaries
13. PENSION AND POSTRETIREMENT BENEFITS
(continued)
Components of Net Periodic Benefit Cost
Net periodic pension cost for continuing operations consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
120
|
|
|
$
|
527
|
|
|
$
|
240
|
|
|
$
|
1,029
|
|
Interest expense
|
1,176
|
|
|
1,462
|
|
|
2,352
|
|
|
2,924
|
|
Expected return on plan assets
|
(1,403
|
)
|
|
(1,555
|
)
|
|
(2,806
|
)
|
|
(3,109
|
)
|
Amortization of prior service cost
|
10
|
|
|
41
|
|
|
20
|
|
|
83
|
|
Actuarial loss
|
524
|
|
|
850
|
|
|
1,048
|
|
|
1,699
|
|
Net periodic pension cost
|
$
|
427
|
|
|
$
|
1,325
|
|
|
$
|
854
|
|
|
$
|
2,626
|
|
Employer Contributions
The Company’s investment objectives are to generate consistent total investment return to pay anticipated plan benefits, while minimizing long-term costs. Financial objectives underlying this policy include maintaining plan contributions at a reasonable level relative to benefits provided and assuring that unfunded obligations do not grow to a level to adversely affect the Company’s financial health. For the six months ended
September 30, 2016
, contributions of
$2,916
were made to pension plans for fiscal 2017. Additional contributions to pension plans of approximately
$3,544
are expected during the remainder of fiscal 2017. However, this amount is subject to change, due primarily to asset performance significantly above or below the assumed long-term rate of return on pension assets and significant changes in interest rates.
Postretirement Health and Life Insurance Benefits
The Company also provides certain health and life insurance benefits to retired employees, and their eligible dependents, who meet specified age and service requirements. As of
September 30, 2016
, contributions of
$152
were made to the plans for fiscal 2017. Additional contributions of
$222
to the plans are expected during the rest of fiscal 2017. The Company retains the right, subject to existing agreements, to modify or eliminate the postretirement medical benefits.
Components of Net Periodic Benefit Cost
Net periodic benefit cost for postretirement health and life insurance benefit plans consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Service cost
|
$
|
3
|
|
|
$
|
10
|
|
|
$
|
6
|
|
|
$
|
20
|
|
Interest expense
|
67
|
|
|
110
|
|
|
134
|
|
|
221
|
|
Amortization of prior service cost
|
(177
|
)
|
|
(3
|
)
|
|
(354
|
)
|
|
(6
|
)
|
Actuarial loss
|
104
|
|
|
112
|
|
|
208
|
|
|
224
|
|
Net periodic pension cost (benefit)
|
$
|
(3
|
)
|
|
$
|
229
|
|
|
$
|
(6
|
)
|
|
$
|
459
|
|
14. INVENTORIES
The following table summarizes the Company’s costs in inventory:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
Processed tobacco
|
$
|
690,805
|
|
|
$
|
682,564
|
|
|
$
|
584,158
|
|
Unprocessed tobacco
|
223,166
|
|
|
247,465
|
|
|
175,933
|
|
Other
|
30,041
|
|
|
33,361
|
|
|
31,249
|
|
|
$
|
944,012
|
|
|
$
|
963,390
|
|
|
$
|
791,340
|
|
Alliance One International, Inc. and Subsidiaries
15. OTHER COMPREHENSIVE INCOME (LOSS)
The following tables set forth the changes in each component of accumulated other comprehensive loss, net of tax, attributable to the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
|
Pensions, Net of Tax
|
|
Accumulated Other Comprehensive Loss
|
Balances, March 31, 2016
|
$
|
(14,046
|
)
|
|
$
|
(39,802
|
)
|
|
$
|
(53,848
|
)
|
Other comprehensive loss before reclassifications
|
(2,274
|
)
|
|
—
|
|
|
(2,274
|
)
|
Amounts reclassified to net earnings, net of tax
|
—
|
|
|
461
|
|
|
461
|
|
Other comprehensive earnings (loss), net of tax
|
(2,274
|
)
|
|
461
|
|
|
(1,813
|
)
|
Balances, June 30, 2016
|
(16,320
|
)
|
|
(39,341
|
)
|
|
(55,661
|
)
|
Other comprehensive loss before reclassifications
|
(585
|
)
|
|
—
|
|
|
(585
|
)
|
Amounts reclassified to net earnings, net of tax
|
—
|
|
|
460
|
|
—
|
|
460
|
|
Other comprehensive earnings (loss), net of tax
|
(585
|
)
|
|
460
|
|
|
(125
|
)
|
Balances, September 30, 2016
|
(16,905
|
)
|
|
(38,881
|
)
|
|
(55,786
|
)
|
|
|
|
|
|
|
Balances, March 31, 2015
|
$
|
(14,154
|
)
|
|
$
|
(52,232
|
)
|
|
$
|
(66,386
|
)
|
Other comprehensive earnings before reclassifications
|
2,307
|
|
|
225
|
|
|
2,532
|
|
Amounts reclassified to net earnings, net of tax
|
—
|
|
|
1,000
|
|
|
1,000
|
|
Other comprehensive earnings, net of tax
|
2,307
|
|
|
1,225
|
|
|
3,532
|
|
Balances, June 30, 2015
|
(11,847
|
)
|
|
(51,007
|
)
|
|
(62,854
|
)
|
Other comprehensive earnings before reclassifications
|
(1,664
|
)
|
|
4,461
|
|
|
2,797
|
|
Amounts reclassified to net earnings, net of tax
|
—
|
|
|
1,000
|
|
|
1,000
|
|
Other comprehensive earnings, net of tax
|
(1,664
|
)
|
|
5,461
|
|
|
3,797
|
|
Balances, September 30, 2015
|
(13,511
|
)
|
|
(45,546
|
)
|
|
(59,057
|
)
|
The following table sets forth amounts by component, reclassified from accumulated other comprehensive loss to earnings for the three months and six months ended
September 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Pension and postretirement plans
(*)
:
|
|
|
|
|
|
|
|
Actuarial loss
|
$
|
627
|
|
|
$
|
961
|
|
|
$
|
1,255
|
|
|
$
|
1,923
|
|
Amortization of prior service cost
|
(167
|
)
|
|
39
|
|
|
(334
|
)
|
|
77
|
|
Amounts reclassified from accumulated other comprehensive losses to net earnings
|
$
|
460
|
|
|
$
|
1,000
|
|
|
$
|
921
|
|
|
$
|
2,000
|
|
(*) Amounts are included in net periodic benefit costs for pension and postretirement plans. See Note 13 "Pension and
Postretirement Benefits" to the "Notes to Condensed Consolidated Financial Statements" for further information.
16. SALE OF RECEIVABLES
The Company sells trade receivables to unaffiliated financial institutions under
two
accounts receivable securitization programs. Under the first program, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which
in turn sells
100%
of the receivables to an unaffiliated financial institution. During the six months ended
September 30, 2016
, the investment limit of this program was adjusted from up to
$150,000
trade receivables to up to
$100,000
trade receivables. This program allows the Company to receive a cash payment and a deferred purchase price receivable for sold receivables. Following the sale and transfer of the receivables to the special purpose entity, the receivables are isolated from the Company and its affiliates, and upon the sale and transfer of the receivables from the special purpose entity to the unaffiliated financial institution effective control of the receivables is passed to the unaffiliated financial institution, which has all rights, including the right to pledge or sell the receivables. This program requires a minimum level of deferred purchase price to be retained by the Company in connection with the sales.
Alliance One International, Inc. and Subsidiaries
16. SALE OF RECEIVABLES
(continued)
The Company services, administers and collects the receivables on behalf of the special purpose entity and receives a servicing fee of
0.5%
of serviced receivables per annum. As the Company estimates the fee it receives in return for its obligation to service these receivables at fair value, no servicing assets or liabilities are recognized. Servicing fees recognized were not material and are recorded as a reduction of Selling, General and Administrative Expenses within the Condensed Consolidated Statements of Operations.
The agreement for the second program also allows the Company to receive a cash payment and a deferred purchase price receivable for sold receivables. This is an uncommitted program, whereby the Company offers receivables for sale to the respective unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. Following the sale and transfer of the receivables to the unaffiliated financial institution, the receivables are isolated from the Company and its affiliates, and effective control of the receivables is passed to the unaffiliated financial institution, which has all rights, including the right to pledge or sell the receivables. The Company receives no servicing fee from the unaffiliated financial institution and as a result, has established a servicing liability based upon unobservable inputs, primarily discounted cash flow. This liability is recorded in Accrued Expenses and Other Current Liabilities in the Condensed Consolidated Balance Sheets. The investment limit under this agreement is
$35,000
. During fiscal 2016, the company had a third securitization program that operated similar to the second program, with an investment limit of
$100,000
.
Under the programs, all of the receivables sold for cash are removed from the Condensed Consolidated Balance Sheets and the net cash proceeds received by the Company are included as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows. A portion of the purchase price for the receivables is paid by the unaffiliated financial institutions in cash and the balance is a deferred purchase price receivable, which is paid as payments on the receivables are collected from account debtors. The deferred purchase price receivable represents a continuing involvement and a beneficial interest in the transferred financial assets and is recognized at fair value as part of the sale transaction. The deferred purchase price receivables are included in Trade and Other Receivables, Net in the Condensed Consolidated Balance Sheets and are valued using unobservable inputs (i.e., level three inputs), primarily discounted cash flow. As servicer of these facilities, the Company may receive funds that are due to the unaffiliated financial institutions which are net settled on the next settlement date. Trade and Other Receivables, Net in the Condensed Consolidated Balance Sheets has been reduced by
$1,531
,
$4,170
, and
$9,113
as a result of the net settlement as of
September 30, 2016
and 2015 and
March 31, 2016
, respectively. See Note 17 "Fair Value Measurements" to the "Notes to Condensed Consolidated Financial Statements" for further information.
The difference between the carrying amount of the receivables sold under these programs and the sum of the cash and fair value of the other assets received at the time of transfer is recognized as a loss on sale of the related receivables and recorded in Other Income (Expense) in the Condensed Consolidated Statements of Operations.
The following table summarizes the Company’s accounts receivable securitization information as of the dates shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
March 31,
|
|
2016
|
|
2015
|
|
2016
|
Receivables outstanding in facility
|
$
|
95,030
|
|
|
$
|
101,723
|
|
|
$
|
188,764
|
|
Beneficial interest
|
$
|
29,371
|
|
|
$
|
21,792
|
|
|
$
|
40,368
|
|
Servicing liability
|
$
|
—
|
|
|
$
|
29
|
|
|
$
|
58
|
|
Cash proceeds for the three months ended June 30:
|
|
|
|
|
|
Cash purchase price
|
$
|
246,235
|
|
|
$
|
201,161
|
|
|
$
|
585,648
|
|
Deferred purchase price
|
113,509
|
|
|
81,181
|
|
|
233,753
|
|
Service fees
|
286
|
|
|
298
|
|
|
553
|
|
Total
|
$
|
360,030
|
|
|
$
|
282,640
|
|
|
$
|
819,954
|
|
17. FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. A three level valuation hierarchy based upon observable and non-observable inputs is utilized. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. Preference is given to observable inputs.
These two types of inputs create the following fair value hierarchy:
|
|
•
|
Level 1 - Quoted prices for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
|
|
|
•
|
Level 3 - Significant inputs to the valuation model are unobservable.
|
Alliance One International, Inc. and Subsidiaries
17. FAIR VALUE MEASUREMENTS
(continued)
The Company's financial assets and liabilities measured at fair value include derivative instruments, securitized beneficial interests and guarantees. The application of the fair value guidance to the non-financial assets and liabilities primarily includes assessments of investments in subsidiaries, goodwill and other intangible assets and long-lived assets for potential impairment. Following are descriptions of the valuation methodologies the Company uses to measure different assets or liabilities at fair value.
Debt
The fair value of debt is measured for purpose of disclosure. Debt is shown at historical value in the Condensed Consolidated Balance Sheets. When possible, to measure the fair value of its debt the Company uses quoted market prices of its own debt with approximately the same remaining maturities. When this is not possible, the fair value of debt is calculated using discounted cash flow models with interest rates based upon market based expectations, the Company's credit risk and the contractual terms of the debt instrument. The Company also has portions of its debt with maturities of one year or less for which book value is a reasonable approximation of the fair value of this debt. The fair value of debt is considered to fall within Level 2 of the fair value hierarchy as significant value drivers such as interest rates are readily observable. The carrying value and estimated fair value of the Company's Long-Term Debt are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
Carrying value
|
$
|
911,930
|
|
|
$
|
937,316
|
|
|
$
|
920,444
|
|
Estimated fair value
|
803,924
|
|
|
820,783
|
|
|
753,038
|
|
Derivative financial instruments
The Company's derivatives consist of foreign currency contracts. The fair value of the derivatives are determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market's expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the
LIBOR swap rate and are netted to arrive at a single valuation for the period. The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. As of
September 30, 2016
and
2015
and
March 31, 2016
the inputs used to value the Company's derivatives fall within Level 2 of the fair value hierarchy. However, credit valuation adjustments associated with its derivatives could utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. Should the use of such credit valuation adjustment estimates result in a significant impact on the overall valuation, this would require reclassification to Level 3.
Securitized beneficial interests
The fair value of securitized beneficial interests is based upon a valuation model that calculates the present value of future expected cash flows using key assumptions for payment speeds and discount rates. The assumptions for payment speed are based on the Company's historical experience. The discount rates are based upon market trends and anticipated performance relative to the
particular assets securitized which have been assumed to be commercial paper rate plus a margin or LIBOR plus a margin. Due to the use of the Company's own assumptions and the uniqueness of these transactions, securitized beneficial interests fall within Level 3 of the fair value hierarchy. Since the discount rate and the payment speed are components of the same equation, a change
in either by
10%
or
20%
would change the value of the recorded beneficial interest at
September 30, 2016
by
$61
and
$123
, respectively.
Guarantees
The Company guarantees certain funds issued to tobacco suppliers by third-party lending institutions and also guarantees funds borrowed by certain unconsolidated subsidiaries. The fair value of guarantees is based upon either the premium the Company would require to issue the same inputs or historical loss rates and as such these guarantees fall into Level 3 of the fair value hierarchy.
Tobacco supplier guarantees
- The Company provides guarantees to certain third parties for indebtedness of certain tobacco suppliers to finance their crops. The fair value of these guarantees is determined using historical loss rates on both guaranteed and non-guaranteed tobacco supplier loans. Should the loss rates change
10%
or
20%
, the fair value of the guarantee at
September 30, 2016
would change by
$661
or
$1,302
, respectively.
Alliance One International, Inc. and Subsidiaries
17. FAIR VALUE MEASUREMENTS
(continued)
Input Hierarchy of Items Measured at Fair Value on a Recurring Basis
The following table summarizes the items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
|
|
Total Assets /
|
|
|
|
Total Assets /
|
|
|
|
Total Assets /
|
|
|
Liabilities
|
|
|
|
Liabilities
|
|
|
|
Liabilities
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Securitized beneficial interests
|
$
|
—
|
|
$
|
29,371
|
|
$
|
29,371
|
|
|
$
|
—
|
|
$
|
21,792
|
|
$
|
21,792
|
|
|
$
|
—
|
|
$
|
40,368
|
|
$
|
40,368
|
|
Total Assets
|
$
|
—
|
|
$
|
29,371
|
|
$
|
29,371
|
|
|
$
|
—
|
|
$
|
21,792
|
|
$
|
21,792
|
|
|
$
|
—
|
|
$
|
40,368
|
|
$
|
40,368
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
$
|
—
|
|
$
|
4,467
|
|
$
|
4,467
|
|
|
$
|
—
|
|
$
|
4,865
|
|
$
|
4,865
|
|
|
$
|
—
|
|
$
|
7,350
|
|
$
|
7,350
|
|
Total liabilities
|
$
|
—
|
|
$
|
4,467
|
|
$
|
4,467
|
|
|
$
|
—
|
|
$
|
4,865
|
|
$
|
4,865
|
|
|
$
|
—
|
|
$
|
7,350
|
|
$
|
7,350
|
|
Reconciliation of Change in Recurring Level 3 Balances
The following tables present the changes in Level 3 instruments measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
Six Months Ended September 30, 2016
|
|
Securitized Beneficial Interests
|
|
Guarantees
|
|
Securitized Beneficial Interests
|
|
Guarantees
|
Beginning Balance
|
$
|
14,681
|
|
|
$
|
5,891
|
|
|
$
|
40,368
|
|
|
$
|
7,350
|
|
Issuances of guarantees/sales of receivables
|
41,651
|
|
|
3,122
|
|
|
102,856
|
|
|
4,125
|
|
Settlements
|
(26,093
|
)
|
|
(4,518
|
)
|
|
(112,727
|
)
|
|
(6,980
|
)
|
Losses recognized in earnings
|
(868
|
)
|
|
(28
|
)
|
|
(1,126
|
)
|
|
(28
|
)
|
Ending Balance September 30, 2016
|
$
|
29,371
|
|
|
$
|
4,467
|
|
|
$
|
29,371
|
|
|
$
|
4,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2015
|
|
Six Months Ended September 30, 2015
|
|
Securitized Beneficial Interest
|
|
Guarantees
|
|
Securitized Beneficial Interest
|
|
Guarantees
|
Beginning Balance
|
$
|
23,256
|
|
|
$
|
7,723
|
|
|
$
|
40,712
|
|
|
$
|
8,650
|
|
Issuances of guarantees/sales of receivables
|
35,986
|
|
|
1,812
|
|
|
69,767
|
|
|
6,369
|
|
Settlements
|
(36,794
|
)
|
|
(3,762
|
)
|
|
(87,960
|
)
|
|
(9,246
|
)
|
Losses recognized in earnings
|
(656
|
)
|
|
(908
|
)
|
|
(727
|
)
|
|
(908
|
)
|
Ending Balance September 30, 2015
|
$
|
21,792
|
|
|
$
|
4,865
|
|
|
$
|
21,792
|
|
|
$
|
4,865
|
|
The amount of unrealized losses relating to assets still held at the respective dates of
September 30, 2016
and
2015
and
March 31, 2016
were
$639
,
$568
and
$1,521
on securitized beneficial interests.
Gains and losses included in earnings are reported in Other Income (Expense).
Alliance One International, Inc. and Subsidiaries
17. FAIR VALUE MEASUREMENTS
(continued)
Information About Fair Value Measurements Using Significant Unobservable Inputs
The following table summarizes significant unobservable inputs and the valuation techniques thereof at
September 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2016
|
Unobservable Input
|
Range (Weighted Average)
|
Securitized Beneficial Interests
|
$
|
29,371
|
|
|
Discounted Cash Flow
|
Discount Rate
|
3.83
|
%
|
|
|
|
|
Payment Speed
|
61 days
|
|
Tobacco Supplier Guarantees
|
$
|
918
|
|
|
Historical Loss
|
Historical Loss
|
9.90% to 15.92%
|
|
Tobacco Supplier Guarantees
|
$
|
3,549
|
|
|
Discounted Cash Flow
|
Market Interest Rate
|
16.50% to 24.75%
|
|
18. RELATED PARTY TRANSACTIONS
The Company’s operating subsidiaries engage in transactions with related parties in the normal course of business. The following is a summary of balances and transactions with related parties of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
March 31, 2016
|
Balances:
|
|
|
|
|
|
Accounts receivable, related parties
|
$
|
8,965
|
|
|
$
|
8,489
|
|
|
$
|
1,920
|
|
Due to related parties
|
17,357
|
|
|
44,121
|
|
|
20,490
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Six Months Ended September 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Transactions:
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
21,674
|
|
|
$
|
7,947
|
|
|
$
|
38,920
|
|
|
$
|
15,510
|
|
Purchases
|
|
17,496
|
|
|
56,480
|
|
|
27,544
|
|
|
79,131
|
|
The Company’s operating subsidiaries have entered into transactions with affiliates of the Company for the purpose of procuring or processing inventory.
The Company’s balances due to and from related parties are primarily with its equity basis investments located in Asia, South America, North America and Europe which purchase and process tobacco or produce consumable e-liquids.
19. INVESTEE COMPANIES
The Company has equity method investments in companies in India, Thailand, Turkey and Brazil that purchase and process tobacco. The investees and ownership percentages are as follows: Alliance One Industries India Private Ltd. (India)
49%
, Siam Tobacco Export Company (Thailand)
49%
, Adams International Ltd. (Thailand)
49%
, Oryantal Tutun Paketleme
50%
, and China Brasil Tobacos Exportadora SA (“CBT”)
49%
. The Company also has a
50%
interest in Purilum, LLC, a U.S. company that develops, produces, and sells consumable e-liquids to manufacturers and distributors of e-vapor products.
On March 26, 2014, upon the disposition of
51%
interest in CBT, the difference between the book basis of the Company’s
49%
interest and the fair value of the investment recorded created a basis difference of
$15,990
. The Company evaluated the contributed assets and identified basis differences in certain accounts, including inventory, intangible assets and deferred taxes. The basis differences are being amortized over the respective estimated lives of these assets and liabilities, which range from
one
to
ten
years. The Company’s earnings from the equity method investment are reduced by amortization expense related to these basis differences. At
September 30, 2016
, the basis difference was $
10,997
.
Alliance One International, Inc. and Subsidiaries
20. SUBSEQUENT EVENT
On October 14, 2016, the Company issued
$275,000
in aggregate principal amount of its
8.500%
senior secured first lien notes due 2021 (the “First Lien Notes”), at an issue price of
99.085%
of the face amount thereof, entered into an ABL credit agreement with certain bank lenders establishing a senior secured revolving asset-based lending facility (the “ABL Facility”) of
$60,000
subject to a borrowing base composed of its eligible accounts receivable and inventory, and used a portion of the net proceeds from the offering of the First Lien Notes to repay in full all outstanding indebtedness and accrued and unpaid interest owed under its existing senior secured revolving credit facility (the “Existing Credit Facility”). Upon such repayment, Alliance One terminated the Existing Credit Facility.
First Lien Notes
The First Lien Notes, which bear interest at a rate of
8.500%
per year, are payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning April 15, 2017, to holders of record at the close of business on the preceding April 1 and October 1, respectively. The First Lien Notes mature on April 15, 2021. The First Lien Notes are initially guaranteed on a senior secured basis by Alliance One’s subsidiary, Alliance One Specialty Products, LLC (the “Initial Guarantor”), and each of its future material domestic subsidiaries are required to guarantee the First Lien Notes on a senior secured basis. The Initial Guarantor is not a material domestic subsidiary, and Alliance One currently has no material domestic subsidiaries. The Initial Guarantor and any future guarantors of the First Lien Notes are referred to as the “guarantors.”
Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) and under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are secured by first-priority liens on substantially all of Alliance One’s and the guarantors’ tangible and intangible assets, subject to certain exceptions and permitted liens (the “Collateral”). Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have first-priority in the waterfall set forth in a senior lien intercreditor agreement entered into in connection with the issuance of the First Lien Notes and the establishment of the ABL Facility (the “Senior Lien Intercreditor Agreement”) in respect of the liens on the Collateral that is not ABL Priority Collateral (as defined below), including owned material real property in the United States, capital stock of subsidiaries owned directly by Alliance One or a guarantor (except that, in the case of foreign subsidiaries, only capital stock of only direct foreign subsidiaries that are material are to be pledged and only
65%
of the voting capital stock and
100%
of the non-voting capital stock are to be pledged), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “Notes Priority Collateral”). Alliance One’s and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Notes Priority Collateral. Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Collateral consisting of accounts receivable, inventories, cash (other than identifiable cash proceeds of the Notes Priority Collateral), deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “ABL Priority Collateral”). Alliance One’s and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) have first-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the ABL Priority Collateral.
If a change of control (as defined in the indenture governing the First Lien Notes) occurs at any time, holders of the First Lien Notes will have the right, at their option, to require the Company to repurchase all or a portion of the First Lien Notes for cash at a price equal to
101%
of the principal amount of First Lien Notes being repurchased, plus accrued and unpaid interest, to, but excluding, the date of repurchase. The indenture governing the First Lien Notes restricts (subject to exceptions and qualifications) the Company's ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends and make other restricted payments (including restricted investments), sell assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with its affiliates, enter into certain sale and leaseback transactions, create certain dividend and payment restrictions on its restricted subsidiaries, and designate its subsidiaries as unrestricted subsidiaries.
ABL Facility
The ABL Facility may be used for revolving credit loans, swingline loans and letters of credit from time to time up to an initial maximum principal amount of
$60,000
, subject to the limitations described below in this paragraph. Under certain conditions, Alliance One may solicit the ABL Facility lenders or other prospective lenders to provide additional revolving loan commitments under the ABL Facility in an aggregate amount not to exceed
$15,000
(less the aggregate principal amount of any notes exceeding
$275,000
issued under the First Lien Notes Indenture). The maximum amount available under the revolving credit facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
Alliance One International, Inc. and Subsidiaries
20. SUBSEQUENT EVENT
(continued)
|
|
•
|
85%
of eligible accounts receivable, plus
|
|
|
•
|
the lesser of (i)
85%
of the appraised net-orderly-liquidation value of eligible inventory or (ii)
65%
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).
|
The borrowing base is subject to a
$25,000
deduction and customary reserves, which are to be established by the agent for the ABL Facility lenders in its permitted discretion from time to time.
In addition, loans under the ABL Facility shall not be made if after incurrence of such loans there will be more than
$180,000
of unrestricted cash and cash equivalents in the aggregate on the consolidated balance sheet of the Company and its subsidiaries.
The ABL Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the ABL Facility bear interest at an annual rate equal to LIBOR plus
250
basis points or
150
basis points above base rate, as applicable, with a fee on unused borrowings initially at an annual rate of
50
basis points until March 31, 2017 and thereafter at annual rates of either
37.5
or
50
basis points based on average quarterly historical utilization under the ABL Facility. The ABL Facility matures on January 14, 2021.
In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Facility, unrestricted cash and cash equivalents on the Company’s consolidated balance sheet exceeding
$180.0 million
for a period of
seven
consecutive business days, and certain casualty and condemnation events.
The Company’s obligations under the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are (a) guaranteed by the Initial Guarantor and are required to be guaranteed by each material domestic subsidiary of Alliance One (currently there are no material domestic subsidiaries of Alliance One) (collectively with the Company, the “Credit Parties”) and (b) secured by the Collateral.
The liens and other security interests granted by the Credit Parties on the Collateral for the benefit of the ABL Lenders (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on a
pari passu
basis with the security interests securing the First Lien Notes, with respective priorities in a waterfall with respect to portions of the Collateral as set forth in the Senior Lien Intercreditor Agreement described above.
Under the terms of the ABL Facility, if (i) an event of default has occurred and is continuing or (ii) excess borrowing availability under the ABL Facility (based on the lesser of the commitments thereunder and the borrowing base) (the “Excess Availability”) falls below the greater of (x)
$12,500
and (y)
25%
of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Cash Dominion Threshold”) for more than three consecutive business days, the Credit Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Credit Parties, including concentration accounts, and will restrict the Credit Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, or (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than the Cash Dominion Threshold for a period of
30
consecutive days.
The ABL Credit Agreement governing the ABL Facility contains a springing covenant requiring that the Company’s fixed charge coverage ratio be no less than
1.00
to
1.00
during any period commencing when our Excess Availability is less than the greater of (x)
$10,000
and (y)
20%
of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Financial Covenant Threshold”) until such time as our Excess Availability has been equal to or greater than the Financial Covenant Threshold for a period of
30
consecutive days.
The ABL Credit Agreement governing the ABL 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 certain guarantees, merge, consolidate or dispose of substantially all of its assets, grant liens on assets, pay dividends, redeem stock or make other distributions or restricted payments, create certain dividend and payment restrictions on subsidiaries, repurchase or redeem capital stock or prepay subordinated or certain other material debt (including the First Lien Notes and the Company’s senior secured second lien notes due 2021), make certain investments, agree to restrictions on the payment of dividends to Alliance One by its subsidiaries, sell or otherwise dispose of assets, including equity interests of subsidiaries, enter into transactions with affiliates, enter into certain sale and leaseback transactions.
Alliance One International, Inc. and Subsidiaries
21. RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION
As described in Note 1, “Basis of Presentation and Significant Accounting Policies” to the “Notes to Condensed Consolidated Financial Statements,” the Company identified and corrected certain misstatements relating to prior years’ consolidated financial statements that impact the September 30, 2015 condensed consolidated financial statements. In addition, the Company adopted new accounting guidance related to the classification of debt issuance costs on a retrospective basis that also impacts the September 30, 2015 condensed consolidated financial statements. The impact of these changes on selected financial amounts within the accompanying condensed consolidated financial statements are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
|
Three Months Ended September 30, 2015
|
(in thousands)
|
As Previously Reported
|
Inventory and Tax Adjustments
|
Reclassifications
|
Adoption of New Accounting Guidance
|
As Restated
|
Cost of goods and services sold
|
$
|
360,615
|
|
$
|
(636
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
359,979
|
|
Gross profit
|
54,238
|
|
636
|
|
—
|
|
—
|
|
54,874
|
|
Operating income
|
25,647
|
|
636
|
|
—
|
|
—
|
|
26,283
|
|
Income (loss) before income taxes and other items
|
(1,861
|
)
|
636
|
|
—
|
|
—
|
|
(1,225
|
)
|
Net loss
|
(21,759
|
)
|
636
|
|
—
|
|
—
|
|
(21,123
|
)
|
Net loss attributable to Alliance One International, Inc.
|
(21,701
|
)
|
636
|
|
—
|
|
—
|
|
(21,065
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
|
Six Months Ended September 30, 2015
|
(in thousands)
|
As Previously Reported
|
Inventory and Tax Adjustments
|
Reclassifications
|
Adoption of New Accounting Guidance
|
As Restated
|
Cost of goods and services sold
|
$
|
597,500
|
|
$
|
(636
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
596,864
|
|
Gross profit
|
83,635
|
|
636
|
|
—
|
|
—
|
|
84,271
|
|
Operating income
|
22,742
|
|
636
|
|
—
|
|
—
|
|
23,378
|
|
Income (loss) before income taxes and other items
|
(31,165
|
)
|
636
|
|
—
|
|
—
|
|
(30,529
|
)
|
Net loss
|
(47,716
|
)
|
636
|
|
—
|
|
—
|
|
(47,080
|
)
|
Net loss attributable to Alliance One International, Inc.
|
(47,651
|
)
|
636
|
|
—
|
|
—
|
|
(47,015
|
)
|
Alliance One International, Inc. and Subsidiaries
21. RESTATEMENT OF PREVIOUSLY REPORTED FINANCIAL INFORMATION
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheet as of
|
|
September 30, 2015
|
(in thousands)
|
As Previously Reported
|
Inventory and Tax Adjustments
|
Reclassifications
|
Adoption of New Accounting Guidance
|
As Restated
|
Total current assets
|
$
|
1,559,974
|
|
$
|
(2,568
|
)
|
$
|
11,808
|
|
$
|
—
|
|
$
|
1,569,214
|
|
Total non-current assets
|
155,302
|
|
—
|
|
—
|
|
(10,810
|
)
|
144,492
|
|
Total assets
|
1,947,690
|
|
(2,568
|
)
|
11,808
|
|
(10,810
|
)
|
1,946,120
|
|
Non-current liabilities
|
1,000,546
|
|
—
|
|
11,808
|
|
(10,810
|
)
|
1,001,544
|
|
Total equity
|
158,499
|
|
(2,568
|
)
|
—
|
|
—
|
|
155,931
|
|
Total liabilities and equity
|
1,947,690
|
|
(2,568
|
)
|
11,808
|
|
(10,810
|
)
|
1,946,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Consolidated Stockholders' Equity
|
(in thousands)
|
As Previously Reported
|
Inventory and Tax Adjustments
|
Reclassifications
|
Adoption of New Accounting Guidance
|
As Restated
|
Retained Deficit at March 31, 2015
|
$
|
(208,184
|
)
|
$
|
(3,204
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
(211,388
|
)
|
Net loss
|
(47,651
|
)
|
636
|
|
—
|
|
—
|
|
(47,015
|
)
|
Retained Deficit at September 30, 2015
|
(255,835
|
)
|
(2,568
|
)
|
—
|
|
—
|
|
(258,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet as of
|
|
March 31, 2016
|
(in thousands)
|
As Previously Reported
|
Inventory and Tax Adjustments
|
Reclassifications
|
Adoption of New Accounting Guidance
|
As Restated
|
Total non-current assets
|
$
|
210,190
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(9,875
|
)
|
$
|
200,315
|
|
Total assets
|
1,978,073
|
|
—
|
|
—
|
|
(9,875
|
)
|
1,968,198
|
|
Non-current liabilities
|
1,028,575
|
|
—
|
|
—
|
|
(9,875
|
)
|
1,018,700
|
|
Total liabilities and equity
|
1,978,073
|
|
—
|
|
—
|
|
(9,875
|
)
|
1,968,198
|
|
Alliance One International, Inc. and Subsidiaries