Edgar Filing: ALLIANCE ONE INTERNATIONAL, INC.

AOI-2014.09.30-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2014.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.

Alliance One International, Inc.

(Exact name of registrant as specified in its charter)



Virginia	001-13684	54-1746567
________________	_____________________________	____________________
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [X]

Non-accelerated filer [ ] Smaller reporting company [ ]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

As of October 31, 2014, the registrant had 88,407,399 shares outstanding of Common Stock (no par value) excluding 7,853,121 shares owned by a wholly owned subsidiary.

- 1 -




Alliance One International, Inc. and Subsidiaries


Table of Contents


			Page No.
Part I.	Financial Information

	Item 1.	Financial Statements (Unaudited)

		Condensed Consolidated Statements of Operations
		Three and Six Months Ended September 30, 2014 and 2013	3

		Condensed Consolidated Statements of Comprehensive Income (Loss)
		Three and Six Months Ended September 30, 2014 and 2013	4

		Condensed Consolidated Balance Sheets
		September 30, 2014 and 2013 and March 31, 2014	5

		Condensed Statements of Consolidated Stockholders’ Equity
		Six Months Ended September 30, 2014 and 2013	6

		Condensed Consolidated Statements of Cash Flows
		Six Months Ended September 30, 2014 and 2013	7

		Notes to Condensed Consolidated Financial Statements	8 – 23

	Item 2.	Management's Discussion and Analysis
		of Financial Condition and Results of Operations	24 – 35

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	35

	Item 4.	Controls and Procedures	35 – 36

Part II.	Other Information

	Item 1.	Legal Proceedings	36

	Item 1A.	Risk Factors	36

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

	Item 3.	Defaults Upon Senior Securities	36

	Item 4.	Mine Safety Disclosures	36

	Item 5.	Other Information	36

	Item 6.	Exhibits	36

Signature			37

Index of Exhibits			38

- 2 -

Part I. Financial Information

Item 1. Financial Statements



Alliance One International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Six Months Ended September 30, 2014 and 2013
(Unaudited)


	Three Months Ended September 30,						Six Months Ended September 30,
(in thousands, except per share data)	2014			2013			2014			2013

Sales and other operating revenues	$	589,815		$	700,680		$	838,832		$	1,084,567
Cost of goods and services sold	518,332			616,710			732,245			972,103
Gross profit	71,483			83,970			106,587			112,464
Selling, general and administrative expenses	36,000			34,641			67,325			70,132
Other income (expense)	327			(499		)	1,127			745
Restructuring and asset impairment charges	500			580			500			2,776
Operating income	35,310			48,250			39,889			40,301
Debt retirement expense	—			55,582			—			55,599
Interest expense (includes debt amortization of $2,010 and $2,691 for the three months and $3,562 and $5,201 for the six months in 2014 and 2013, respectively)	28,495			31,684			55,417			60,527
Interest income	1,574			1,859			2,925			3,845
Income (loss) before income taxes and other items	8,389			(37,157		)	(12,603		)	(71,980		)
Income tax expense	11,345			10,291			8,431			11,159
Equity in net income of investee companies	1,039			1,362			554			320
Net loss	(1,917		)	(46,086		)	(20,480		)	(82,819		)
Less: Net income (loss) attributable to noncontrolling interests	(7		)	(104		)	48			25
Net loss attributable to Alliance One International, Inc.	$	(1,910	)	$	(45,982	)	$	(20,528	)	$	(82,844	)


Loss per share:
Basic	$	(.02	)	$	(.53	)	$	(.23	)	$	(.95	)
Diluted	$	(.02	)	$	(.53	)	$	(.23	)	$	(.95	)

Weighted average number of shares outstanding:
Basic	88,233			87,570			88,113			87,522
Diluted	88,233			87,570			88,113			87,522



See notes to condensed consolidated financial statements

- 3 -



Alliance One International, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three and Six Months Ended September 30, 2014 and 2013
(Unaudited)


	Three Months Ended September 30,						Six Months Ended September 30,
(in thousands)	2014			2013			2014			2013

Net loss	$	(1,917	)	$	(46,086	)	$	(20,480	)	$	(82,819	)

Other comprehensive income (loss), net of tax:
Currency translation adjustment	(4,287		)	1,861			(4,079		)	2,610
Defined benefit pension amounts reclassified to income	413			522			827			1,044
Total other comprehensive income (loss), net of tax	(3,874		)	2,383			(3,252		)	3,654
Total comprehensive loss	(5,791		)	(43,703		)	(23,732		)	(79,165		)
Comprehensive income (loss) attributable to noncontrolling interests	(7		)	(104		)	48			25
Comprehensive loss attributable to Alliance One International, Inc.	$	(5,784	)	$	(43,599	)	$	(23,780	)	$	(79,190	)

See notes to condensed consolidated financial statements

- 4 -



Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in thousands)				September 30, 2014			September 30, 2013			March 31, 2014
ASSETS
Current assets
Cash and cash equivalents				$	109,607		$	85,430		$	234,742
Trade and other receivables, net				233,785			319,539			176,459
Accounts receivable, related parties				66,191			99,053			44,869
Inventories				976,416			984,773			760,607
Advances to tobacco suppliers				67,371			117,577			49,598
Recoverable income taxes				5,554			7,857			4,789
Current deferred taxes				10,853			24,897			10,013
Prepaid expenses				28,597			33,048			27,667
Other current assets				11,169			12,656			12,053
Total current assets				1,509,543			1,684,830			1,320,797
Other assets
Investments in unconsolidated affiliates				52,199			24,482			50,876
Goodwill and other intangible assets				33,550			29,248			34,725
Long-term recoverable income taxes				5,834			—			5,423
Deferred income taxes				36,567			49,114			40,927
Other deferred charges				18,712			22,739			19,038
Other noncurrent assets				33,496			44,389			42,255
				180,358			169,972			193,244
Property, plant and equipment, net				255,759			265,840			261,246
				$	1,945,660		$	2,120,642		$	1,775,287

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable to banks				$	581,532		$	668,919		$	212,669
Accounts payable				55,429			49,282			115,177
Due to related parties				39,640			27,907			63,384
Advances from customers				58,596			113,484			22,133
Accrued expenses and other current liabilities				96,049			91,371			72,694
Income taxes				9,238			15,484			10,784
Long-term debt current				3,014			56,173			4,556
Total current liabilities				843,498			1,022,620			501,397

Long-term debt				755,737			721,652			900,363
Deferred income taxes				5,410			6,060			5,788
Liability for unrecognized tax benefits				9,617			8,662			9,436
Pension, postretirement and other long-term liabilities				76,785			97,685			81,415
				847,549			834,059			997,002
Commitments and contingencies
Stockholders’ equity	September 30, 2014	September 30, 2013	March 31, 2014
Common Stock—no par value:
Authorized shares	250,000	250,000	250,000
Issued shares	96,261	95,692	96,012	467,139			462,011			465,682
Retained deficit				(174,516		)	(150,173		)	(153,988		)
Accumulated other comprehensive loss				(41,353		)	(51,538		)	(38,101		)
Total stockholders’ equity of Alliance One International, Inc.				251,270			260,300			273,593
Noncontrolling interests				3,343			3,663			3,295
Total equity				254,613			263,963			276,888
				$	1,945,660		$	2,120,642		$	1,775,287
See notes to condensed consolidated financial statements

- 5 -



Alliance One International, Inc. and Subsidiaries CONDENSED STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (Unaudited)

	Attributable to Alliance One International, Inc.

						Accumulated Other Comprehensive Loss
(in thousands)	Common Stock		Retained Deficit			Currency Translation Adjustment			Pensions, Net of Tax			Noncontrolling Interests		Total Equity

Balance, March 31, 2013	$	460,914	$	(67,329	)	$	(5,724	)	$	(49,468	)	$	3,638	$	342,031
Net income (loss)	—		(82,844		)	—			—			25		(82,819		)
Stock-based compensation	1,097		—						—			—		1,097
Other comprehensive income, net of tax	—		—			2,610			1,044			—		3,654

Balance, September 30, 2013	$	462,011	$	(150,173	)	$	(3,114	)	$	(48,424	)	$	3,663	$	263,963

Balance, March 31, 2014	$	465,682	$	(153,988	)	$	(1,640	)	$	(36,461	)	$	3,295	$	276,888
Net income (loss)	—		(20,528		)	—			—			48		(20,480		)
Stock-based compensation	1,457		—			—			—			—		1,457
Other comprehensive loss, net of tax	—		—			(4,079		)	827			—		(3,252		)

Balance, September 30, 2014	$	467,139	$	(174,516	)	$	(5,719	)	$	(35,634	)	$	3,343	$	254,613

See notes to condensed consolidated financial statements

- 6 -



Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended September 30, 2014 and 2013 (Unaudited)


(in thousands)	September 30, 2014			September 30, 2013

Operating activities
Net loss	$	(20,480	)	$	(82,819	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization	14,812			17,212
Debt amortization/interest	4,220			6,810
Debt retirement costs	—			55,599
Loss on foreign currency transactions	3,840			11,075
Restructuring and asset impairment charges	500			2,776
Bad debt expense	4,266			64
Stock-based compensation	1,738			1,712
Changes in operating assets and liabilities, net	(343,610		)	(182,574		)
Other, net	355			323
Net cash used by operating activities	(334,359		)	(169,822		)

Investing activities
Purchases of property, plant and equipment	(14,405		)	(11,937		)
Proceeds from sale of property, plant and equipment	833			667
Payments to acquire equity method investments	(1,055		)	—
Other, net	(57		)	(182		)
Net cash used by investing activities	(14,684		)	(11,452		)

Financing activities
Net proceeds from short-term borrowings	378,146			307,805
Proceeds from long-term borrowings	30,000			885,300
Repayment of long-term borrowings	(176,804		)	(960,894		)
Debt issuance cost	(4,963		)	(21,938		)
Debt retirement costs	—			(34,347		)
Net cash provided by financing activities	226,379			175,926

Effect of exchange rate changes on cash	(2,471		)	(1,248		)

Decrease in cash and cash equivalents	(125,135		)	(6,596		)
Cash and cash equivalents at beginning of period	234,742			92,026
Cash and cash equivalents at end of period	$	109,607		$	85,430

Other information:
Cash paid for income taxes	$	6,940		$	5,697
Cash paid for interest	45,682			50,457
Cash received from interest	(3,055		)	(5,824		)



See notes to condensed consolidated financial statements

- 7 -

Alliance One International, Inc. and Subsidiaries

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. Included in Operating Income for the six months ended September 30, 2013 is a pretax charge of approximately $11,000 primarily resulting from reducing the estimate for recoveries of advances to tobacco suppliers in Zambia. 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, 2014.

On March 26, 2014, the Company sold 51% of a Brazilian subsidiary to China Tobacco and reported its remaining 49% interest in the subsidiary under the equity method of accounting at March 31, 2014. As a result the September 30, 2014 Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Operations and Condensed Consolidated Statement of Cash Flows do not include the assets, liabilities, results of operations and cash flows of this subsidiary which were included in the September 30, 2013 financial statements.

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 $8,247 and $3,431 for the three months ended September 30, 2014 and 2013, respectively and $14,488 and $10,962 for the six months ended September 30, 2014 and 2013, respectively.

Other Deferred Charges

Other deferred charges are primarily deferred financing costs that are amortized over the life of the debt.

New Accounting Standards

Recently Adopted Accounting Pronouncements

On April 1, 2014, the Company adopted new accounting guidance on the financial presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. Companies are required to report an unrecognized tax benefit as a reduction in a deferred tax asset for a NOL or tax credit carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. The adoption of this new accounting guidance had no material impact on the Company’s financial condition or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("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 is effective for the Company on April 1, 2017. The Company is currently evaluating the impact of this new guidance and it may have a material impact on its financial condition or results of operations.

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 and does not expect it to have a material impact on its financial condition or results of operations.

- 8 -

Alliance One International, Inc. and Subsidiaries

2. INCOME TAXES

Accounting for Uncertainty in Income Taxes

As of September 30, 2014, the Company’s unrecognized tax benefits totaled $10,180, of which $7,678 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, 2014, accrued interest and penalties totaled $829 and $1,111 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 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, 2014, the Company’s earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2009. Open tax years in state and foreign jurisdictions generally range from three to six years.

Provision for the Six Months Ended September 30, 2014

The effective tax rate used for the six months ended September 30, 2014 was (66.9)% compared to (15.5)% for the six months ended September 30, 2013. 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. The Company expects the tax rate for the year ended March 31, 2015 to be 97.7% after absorption of discrete items.

For the six months ended September 30, 2014, the Company recorded a discrete event adjustment expense of $3,899, bringing the effective tax rate estimated for the six months of (36.0)% to (66.9)%. 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. For the six months ended September 30, 2013 , the Company recorded a discrete event adjustment expense of $6,722, bringing the effective tax rate estimated for the six months of (6.2)% to (15.5)%. 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, 2014 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, Brazil and Zimbabwe.

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



	September 30, 2014		September 30, 2013		March 31, 2014
Amounts guaranteed (not to exceed)	$	250,455	$	126,608	$	301,870
Amounts outstanding under guarantee	208,316		121,634		218,847
Fair value of guarantees	7,272		6,023		7,344

Of the guarantees outstanding at September 30, 2014, 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 Zimbabwe and Brazil which is included in Accounts Receivable, Related Parties.

- 9 -

Alliance One International, Inc. and Subsidiaries

3. GUARANTEES (continued)

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 September 30, 2014 and 2013 and March 31, 2014, respectively, the Company had balances of $1,368, $3,200 and $26,076 that were due to local banks on behalf of suppliers. These amounts are included in Accounts Payable in the Condensed Consolidated Balance Sheets.

4. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

The Company previously implemented several strategic initiatives in response to shifts in supply and demand balances and changing business models of its customers. These initiatives were substantially complete at March 31, 2014. The Company continues to focus on improving factory efficiencies and other core components of its business. As part of this focus, the Company agreed to a joint processing venture in Turkey during the three months ended June 30, 2013. As a result, the Company recorded pretax charges of $1,893 in connection with the reduction in workforce including the effect on the Company's defined benefit pension plans of $1,261. An asset impairment charge of $303 was recorded for certain processing equipment in connection with the new venture. During the three months ended September 30, 2013, employee separation charges of $580 were incurred as the Company continues to respond to changes in its business. As a result of the construction of a new U.S. cut rag facility with state of the art machinery and equipment, the Company recorded a $500 asset impairment charge for certain machinery and equipment at the previous facility during the three months ended September 30, 2014.

The following table summarizes the restructuring charges recorded in the Company’s reporting segments during the three months and six months ended September 30, 2014 and 2013, respectively:



	Three Months Ended September 30,						Six Months Ended September 30,
Restructuring and Asset Impairment Charges	2014			2013			2014			2013
Employee separation and other cash charges:
Beginning balance	$	101		$	1,144		$	397		$	668
Period charges:
Severance charges	—			580			—			1,212
Total period charges	—			580			—			1,212
Payments through September 30	(101		)	(676		)	(397		)	(832		)
Ending balance September 30	$	—		$	1,048		$	—		$	1,048
Asset impairment and other non-cash charges	$	500		$	—		$	500		$	1,564
Total restructuring charges for the period	$	500		$	580		$	500		$	2,776



	Three Months Ended September 30,						Six Months Ended September 30,
Employee Separation and Other Cash Charges	2014			2013			2014			2013
Beginning balance:	$	101		$	1,144		$	397		$	668
South America	—			—			—			—
Value added services	—			—			—			—
Other regions	101			1,144			397			668
Period charges:	$	—		$	580		$	—		$	1,212
South America	—			433			—			433
Value added services	—			—			—			—
Other regions	—			147			—			779
Payments through September 30	$	(101	)	$	(676	)	$	(397	)	$	(832	)
South America	—			(433		)	—			(433		)
Value added services	—			—			—			—
Other regions	(101		)	(243		)	(397		)	(399		)
Ending balance September 30	$	—		$	1,048		$	—		$	1,048
South America	—			—			—			—
Value added services	—			—			—			—
Other regions	—			1,048			—			1,048

- 10 -

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 three months and six months ended September 30, 2014 and 2013:



			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, 2014			10.50			6.25			—
March 31, 2013 balance
Gross carrying amount	$	2,794	$	33,700		$	7,893		$	16,918		$	61,305
Accumulated amortization	—		(13,269		)	(3,657		)	(12,908		)	(29,834		)
Net March 31, 2013	2,794		20,431			4,236			4,010			31,471
Additions	—		—			—			221			221
Amortization expense	—		(421		)	(196		)	(806		)	(1,423		)
Net June 30, 2013	2,794		20,010			4,040			3,425			30,269
Additions	—		—			—			342			342
Amortization expense	—		(422		)	(237		)	(704		)	(1,363		)
Net September 30, 2013	2,794		19,588			3,803			3,063			29,248
Additions	—		—			7,000			323			7,323
Amortization expense	—		(842		)	(662		)	(342		)	(1,846		)
Net March 31, 2014	2,794		18,746			10,141			3,044			34,725
Additions	—		—			—			269			269
Amortization expense	—		(421		)	(146		)	(192		)	(759		)
Net June 30, 2014	2,794		18,325			9,995			3,121			34,235
Additions	—		—			—			126			126
Amortization expense	—		(422		)	(187		)	(202		)	(811		)
Net September 30, 2014	$	2,794	$	17,903		$	9,808		$	3,045		$	33,550

(1) Goodwill of $1,592 relates to the Other Regions segment and $1,202 relates to the Value Added Services 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, 2014 through March 31, 2015	842		840		861		$	2,543
2016	1,685		2,319		855		4,859
2017	1,685		1,405		680		3,770
2018	1,685		1,403		451		3,539
2019	1,685		1,397		198		3,280
Subsequent years	10,321		2,444		—		12,765
	$	17,903	$	9,808	$	3,045	$	30,756

* Estimated amortization expense for the internally developed software is based on costs accumulated as of September 30, 2014. These estimates will change as new costs are incurred and until the software is placed into service in all locations.

- 11 -

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 venture’s 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, 2014 and 2013, and March 31, 2014, the Company’s investment in these joint ventures was $51,183, $23,462, and $49,860, 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, 2014 and March 31, 2014 were $4,697 and $10, respectively and are classified as Accounts Receivable, Related Parties in the Condensed Consolidated Balance Sheets. There were no advances at September 30, 2013. The Company guaranteed an amount to two joint ventures not to exceed $114,977, $18,418 and $142,904 at September 30, 2014 and 2013, and March 31, 2014, respectively. The investments, advances and guarantee 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.

On March 26, 2014, the Company sold 51% of a Brazilian subsidiary to China Tobacco and reported its remaining 49% interest under the equity method accounting at March 31, 2014. As a result, the information for the three months and six months ended September 30, 2014 does not include the assets or results of operations for this subsidiary which were included in the information for the three months and six months ended September 30, 2013.

The following table presents the summary segment information for the three months and six months ended September 30, 2014 and 2013:



	Three Months Ended September 30,					Six Months Ended September 30,
	2014		2013			2014			2013
Sales and other operating revenues:
South America	$	238,040	$	346,604		$	300,163		$	533,882
Value added services	35,781		29,857			67,224			60,937
Other regions	315,994		324,219			471,445			489,748
Total revenue	$	589,815	$	700,680		$	838,832		$	1,084,567

Operating income:
South America	$	12,645	$	22,690		$	19,292		$	29,542
Value added services	917		2,957			3,793			5,529
Other regions	21,748		22,603			16,804			5,230
Total operating income	35,310		48,250			39,889			40,301

Debt retirement expense	—		55,582			—			55,599
Interest expense	28,495		31,684			55,417			60,527
Interest income	1,574		1,859			2,925			3,845
Income (loss) before income taxes and other items	$	8,389	$	(37,157	)	$	(12,603	)	$	(71,980	)



Analysis of Segment Assets		September 30, 2014		September 30, 2013		March 31, 2014
Segment assets:
	South America	$	489,557	$	661,696	$	457,585
	Value added services	195,010		209,574		194,562
	Other regions	1,261,093		1,249,372		1,123,140
	Total assets	$	1,945,660	$	2,120,642	$	1,775,287

- 12 -

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 7,853 at September 30, 2014 and 2013. 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 6,789 at a weighted average exercise price of $6.06 per share at September 30, 2014 and 6,888 at a weighted average exercise price of $6.04 per share at September 30, 2013.

In connection with the offering of the Company’s 5 ½% Convertible Senior Subordinated Notes due 2014, issued on July 2, 2009 (the “Convertible Notes”), the Company entered into privately negotiated convertible note hedge transactions (the “convertible note hedge transactions”) equal to the number of shares that underlie the Company’s Convertible Notes. These convertible note hedge transactions were designed to reduce the potential dilution of the Company’s common stock upon conversion of the Convertible Notes in the event that the value per share of common stock exceeded the initial conversion price of $5.0280 per share. These shares were not included in the computation of earnings per diluted share because their inclusion would be antidilutive. The Convertible Notes matured during the three months ended September 30, 2014.

The following table summarizes the computation of earnings per share for the three months and six months ended September 30, 2014 and 2013, respectively.



	Three Months Ended September 30,								Six Months Ended September 30,
(in thousands, except per share data)	2014				2013				2014				2013
BASIC LOSS
Net loss attributable to Alliance One International, Inc.	$	(1,910	)		$	(45,982	)		$	(20,528	)		$	(82,844	)

SHARES
Weighted average number of shares outstanding	88,233				87,570				88,113				87,522

BASIC LOSS PER SHARE	$	(.02	)		$	(.53	)		$	(.23	)		$	(.95	)

DILUTED LOSS
Net loss attributable to Alliance One International, Inc.	$	(1,910	)		$	(45,982	)		$	(20,528	)		$	(82,844	)
Plus interest expense on 5 1/2% convertible notes, net of tax	—			*	—			*	—			*	—			*
Net loss attributable to Alliance One International, Inc. as adjusted	$	(1,910	)		$	(45,982	)		$	(20,528	)		$	(82,844	)

SHARES
Weighted average number of common shares outstanding	88,233				87,570				88,113				87,522
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	—			*	—			*	—			*	—			*
Assuming conversion of 5 1/2% convertible notes at the time of issuance	—			*	—			*	—			*	—			*
Shares applicable to stock warrants	—			**	—			**	—			**	—			**
Adjusted weighted average number of common shares outstanding	88,233				87,570				88,113				87,522
DILUTED LOSS PER SHARE	$	(.02	)		$	(.53	)		$	(.23	)		$	(.95	)

* Assumed conversion of convertible notes at the beginning of the period has an antidilutive effect on earnings per share. 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.
** For the three months and six months ended September 30, 2014 and 2013, the warrants were not assumed exercised because the exercise price was more than the average price for the periods presented.

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 $988 and $1,007 for the three months ended September 30, 2014 and 2013, respectively and $1,738 and $1,712 for the six months ended September 30, 2014 and 2013, respectively.

- 13 -

Alliance One International, Inc. and Subsidiaries

9. STOCK-BASED COMPENSATION (continued)

The Company’s shareholders approved amendments to the 2007 Incentive Plan (the “2007 Plan”) at its Annual Meeting of Shareholders on August 11, 2011 and August 6, 2009. 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, 2014 and 2013, respectively, the Company made the following stock-based compensation awards:



	Three Months Ended September 30,				Six Months Ended September 30,
(in thousands, except grant date fair value)	2014		2013		2014		2013
Restricted Stock
Number Granted	—		198		—		198
Grant Date Fair Value	$	—	$	3.80	$	—	$	3.80
Unrestricted Stock
Number Granted	94		—		94		—
Grant Date Fair Value	$	1.97	$	—	$	1.97	$	—
Restricted Stock Units
Number Granted	—		—		220		643
Grant Date Fair Value	$	—	$	—	$	2.72	$	3.85
Cash-Settled Restricted Stock Units
Number Granted	22		—		458		—
Grant Date Fair Value	$	2.21	$	—	$	2.70	$	—
Performance Based Stock Units
Number Granted	—		—		220		643
Grant Date Fair Value	$	—	$	—	$	2.72	$	3.85
Cash-Settled Performance Based Stock Units
Number Granted	22		—		458		—
Grant Date Fair Value	$	2.21	$	—	$	2.70	$	—

Under the terms of the Performance Based Stock Units, shares ultimately issued will be contingent upon specified business performance goals. Unrestricted stock consists of shares issued to non-employee directors of the Company which are not subject to a minimum vesting period.

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 $5,375 and the total assessment including penalties and interest at September 30, 2014 is $14,720. 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. This jurisdiction permits 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 government regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of $9,572 at September 30, 2014, 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.

- 14 -

Alliance One International, Inc. and Subsidiaries

10. CONTINGENCIES AND OTHER INFORMATION (continued)

Non-Income Tax (continued)

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 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. 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. The period for appeal of the court’s judgment is pending, and it is uncertain whether Mindo S.r.l. will pursue an appeal.

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

Notes Payable to Banks increased $368,863 from March 31, 2014 due to the seasonal financing for the purchasing and processing of the South America and Africa crops.

On April 15, 2014, the Company’s senior secured credit facility with a syndicate of banks automatically reduced to approximately $210,300 from approximately $303,900 per the amended and restated agreement dated August 1, 2013. At September 30, 2014, there were no borrowings under the senior secured credit facility. The Company continuously monitors its compliance with the covenants of its senior secured credit facility and its senior notes. Significant changes in market conditions or other factors could adversely affect the Company's business and future debt covenant compliance thereunder. As a result, the Company may not be able to maintain compliance with the covenants over the next twelve months. If the Company were unable to maintain compliance with the covenants in the Senior Secured Credit Facility agreement, as amended from time-to-time, the Company would seek modification to the existing agreement to further amend covenants and extend maturities. If the Company were unable to obtain modification, in a scenario where it is required, the Company could decide to pay off outstanding amounts and terminate the agreement. In such case, the liquidity provided by the agreement would not be available and the Company believes that it has sufficient liquidity from operations and other available funding sources to meet future requirements.

- 15 -

Alliance One International, Inc. and Subsidiaries

11. DEBT ARRANGEMENTS (continued)

As amended, the senior secured credit facility restricts the Company from paying any dividends during the remaining term of the facility. In addition, the indenture governing the Company's senior notes contains 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, 2014, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio.

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.

The following table summarizes the fair value of the Company’s derivatives by type at September 30, 2014 and 2013, and March 31, 2014.



	Fair Values of Derivative Instruments
	Assets			Liabilities
Derivatives Not Designated as Hedging Instruments:	Balance Sheet Account	Fair Value		Balance Sheet Account	Fair Value
Foreign currency contracts at September 30, 2014	Other Current Assets	$	—	Accrued Expenses and Other Current Liabilities	$	—
Foreign currency contracts at September 30, 2013	Other Current Assets	$	810	Accrued Expenses and Other Current Liabilities	$	77
Foreign currency contracts at March 31, 2014	Other Current Assets	$	—	Accrued Expenses and Other Current Liabilities	$	169

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, 2014 and 2013.



		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,
		2014			2013		2014		2013

Foreign currency contracts	Cost of goods and services sold	$	(545	)	$	607	$	1,527	$	(2,673	)

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.

- 16 -

Alliance One International, Inc. and Subsidiaries

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.

The Company experienced a special termination benefit and curtailment loss of $1,261 during the quarter ended June 30, 2013 in connection with restructuring in one of its foreign locations, which has been recorded in Restructuring and Asset Impairment Charges.

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,
	2014			2013			2014			2013
Service cost	$	510		$	530		1,020			$	1,078
Interest expense	1,694			1,662			3,387			3,383
Expected return on plan assets	(1,677		)	(1,519		)	(3,354		)	(3,037		)
Amortization of prior service cost	49			49			97			102
Actuarial loss	557			760			1,114			1,517
Curtailment loss	—			—			—			77
Special termination benefit	—			—			—			1,184
Net periodic pension cost	$	1,133		$	1,482		$	2,264		$	4,304

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, 2014, contributions of $5,283 were made to pension plans for fiscal 2015. Additional contributions to pension plans of approximately $6,380 are expected during the remainder of fiscal 2015. 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, 2014, contributions of $335 were made to the plans for fiscal 2015. Additional contributions of $566 to the plans are expected during the rest of fiscal 2015. The Company retains the right, subject to existing agreements, to modify or eliminate the postretirement medical benefits.

- 17 -

Alliance One International, Inc. and Subsidiaries

13. PENSION AND POSTRETIREMENT BENEFITS (continued)

Postretirement Health and Life Insurance Benefits (continued)

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,
	2014			2013			2014			2013
Service cost	$	10		$	17		21			$	33
Interest expense	134			142			268			284
Amortization of prior service cost	(303		)	(410		)	(606		)	(820		)
Actuarial loss	111			123			222			246
Net periodic pension (benefit)	$	(48	)	$	(128	)	$	(95	)	$	(257	)

14. INVENTORIES

The following table summarizes the Company’s costs in inventory:



	September 30, 2014		September 30, 2013		March 31, 2014
Processed tobacco	$	659,799	$	701,329	$	404,683
Unprocessed tobacco	277,510		251,472		309,570
Other	39,107		31,972		46,354
	$	976,416	$	984,773	$	760,607

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, 2014	$	(1,640	)	$	(36,461	)	$	(38,101	)
Other comprehensive earnings before reclassifications	208			—			208
Amounts reclassified to net earnings, net of tax	—			414			414
Other comprehensive earnings, net of tax	208			414			622
Balances, June 30, 2014	(1,432		)	(36,047		)	(37,479		)
Other comprehensive earnings before reclassifications	(4,287		)	—			(4,287		)
Amounts reclassified to net earnings, net of tax	—			413			413
Other comprehensive earnings, net of tax	(4,287		)	413			(3,874		)
Balances, September 30, 2014	$	(5,719	)	$	(35,634	)	$	(41,353	)

Balances, March 31, 2013	$	(5,724	)	$	(49,468	)	$	(55,192	)
Other comprehensive losses before reclassifications	749			—			749
Amounts reclassified to net earnings, net of tax	—			522			522
Other comprehensive losses, net of tax	749			522			1,271
Balances, June 30, 2013	(4,975		)	(48,946		)	(53,921		)
Other comprehensive earnings before reclassifications	1,861			—			1,861
Amounts reclassified to net earnings, net of tax	—			522			522
Other comprehensive earnings, net of tax	1,861			522			2,383
Balances, September 30, 2013	$	(3,114	)	$	(48,424	)	$	(51,538	)

- 18 -

Alliance One International, Inc. and Subsidiaries

15. OTHER COMPREHENSIVE INCOME (LOSS) (continued)

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, 2014 and 2013:



	Three Months Ended September 30,						Six Months Ended September 30,
	2014			2013			2014			2013
Pension and postretirement plans (*):
Actuarial loss	$	667		$	884		$	1,336		$	1,763
Amortization of prior service cost	(254		)	(362		)	(509		)	(719		)
	$	413		$	522		$	827		1,044

Amounts reclassified from accumulated other comprehensive losses to net earnings	$	413		$	522		$	827		$	1,044

(*) 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 three accounts receivable securitization programs. Under the first program, the Company continuously sells a designated pool up to $250,000 trade receivables to a special purpose entity, which in turn sells 100% of the receivables to an unaffiliated financial institution. 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. The Company services, administers and collects the receivables on behalf of the special purpose entity and receives a servicing fee of .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 agreements for the second and third securitization programs also allow the Company to receive a cash payment and a deferred purchase price receivable for sold receivables. These are uncommitted programs, 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 limits under these agreements are $35,000 and $100,000, respectively.

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 $$4,300, $2,435 and $16,575 as a result of the net settlement as of September 30, 2014 and 2013 and March 31, 2014, respectively. See Note 17 "Fair Value Measurements" to the "Notes to Condensed Consolidated Financial Statements" for further information.

- 19 -

Alliance One International, Inc. and Subsidiaries

16. SALE OF RECEIVABLES (continued)

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,
	2014		2013		2014
Receivables outstanding in facility	$	169,037	$	176,481	$	204,364
Beneficial interest	$	35,252	$	35,304	$	35,559
Servicing liability	$	21	$	—	$	69
Cash proceeds for the six months ended September 30:
Cash purchase price	$	207,940	$	322,631
Deferred purchase price	86,569		98,481
Service fees	275		175
Total	$	294,784	$	421,287

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.

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, 2014		September 30, 2013		March 31, 2014
Carrying value	$	758,751	$	777,825	$	904,919
Estimated fair value	742,009		739,344		919,435

- 20 -

Alliance One International, Inc. and Subsidiaries

17. FAIR VALUE MEASUREMENTS (continued)

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, 2014 and 2013 and March 31, 2014 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, 2014 by $108 and $216, respectively.

Guarantees

The Company guarantees funds issued to tobacco suppliers by third party lending institutions and also guarantees funds borrowed by a deconsolidated subsidiary. 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 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, 2014 would change by $557 or $1,102, respectively.

Deconsolidated subsidiary guarantees - The fair value of these guarantees is determined using a discounted cash flow model based on the differential between interest rates available with and without the guarantees. The fair value of these guarantees is most closely tied to the theoretical interest rate differential. Should interest rates used in the model change by 10% or 20%, the fair value of the guarantee, at September 30, 2014 would change by $736 or $1,457, respectively.

- 21 -

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, 2014						September 30, 2013						March 31, 2014
					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
Derivative financial instruments	$	—	$	—	$	—	$	810	$	—	$	810	$	—	$	—	$	—
Securitized beneficial interests	—		35,252		35,252		—		35,304		35,304		—		35,559		35,559
Total Assets	$	—	$	35,252	$	35,252	$	810	$	35,304	$	36,114	$	—	$	35,559	$	35,559
Liabilities
Guarantees	$	—	$	7,272	$	7,272	$	—	$	6,023	$	6,023	$	—	$	7,344	$	7,344
Derivative financial instruments	—		—		—		77		—		77		169		—		169
Total liabilities	$	—	$	7,272