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, 2015.
[ ] 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)
Morrisville, NC 27560-8417
(Address of principal executive offices)
(919) 379-4300
(Registrant’s telephone number, including area code)
(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 [ ] No [X]
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 [ ] No [X]
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]
Yes [ ] No [X]
As of October 31, 2015, the registrant had 8,889,038 shares outstanding of Common Stock (no par value) excluding 785,312 shares owned by a wholly owned subsidiary.
- 1 -
Preliminary Note
Immediately prior to the filing of this report, we filed a Form 10-K/A report for the year ended March 31, 2015 and a Form 10-Q/A report for the quarter ended June 30, 2015, restating our financial statements for the periods. These filings were made to correct errors we discovered in our accounting at our Kenya subsidiary. Certain details regarding those errors and adjustments covered by these reports are discussed in Note 1A “Restatement of Previously Issued Condensed Consolidated Financial Statements” of this Form 10-Q. The Company is also concurrently filing a Quarterly Report on Form 10-Q for the quarter ended December 31, 2015.
Restatement Background
On February 15, 2016, the Audit Committee of our Board of Directors (the “Audit Committee”), after discussion with management, determined that the following financial statements previously filed with the SEC should no longer be relied upon: (1) the audited consolidated financial statements included in our Annual Report on Form 10-K for the years ended March 31, 2015, 2014 and 2013; and (2) the unaudited condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q for the quarters ended June 30, 2015, 2014 and 2013, September 30, 2014 and 2013, and December 31, 2014 and 2013.
In the course of downsizing and terminating certain operations of Alliance One Tobacco (Kenya) Limited (“AOTK”), and preparing our financial statements for the quarter ended September 30, 2015, the Company identified errors in accounts receivable, inventory, sales and cost of goods sold in AOTK. Specifically, the value of inventory was overstated due to improper accounting for shrinkage, deferred crop costs, lower of cost or market valuations and accurate inventory counts. Further, sales and other operating revenues, and trade and other receivables, net were incorrectly stated due to improper revenue recognition for external sales. As a result of these errors, we have restated our consolidated financial statements for the years ended March 31, 2015, 2014 and 2013 and our unaudited condensed consolidated financial information for the three months and six months ended September 30, 2014 on this Form 10-Q.
As of September 30, 2015, the correction of these errors principally decreased the Company’s inventory by approximately $46 million, decreased accounts receivable by approximately $3 million, and decreased retained earnings by approximately $49 million. Approximately $39 million of the overall decrease in retained earnings is related to March 31, 2015 and prior periods, with a portion in each quarter dating back to fiscal 2011 and prior. Further, these corrections decreased operating income for the three months ended September 30, 2015 by approximately $4 million and decreased operating income for the six months ended September 30, 2015 by approximately $10 million. Please refer to Note 1A “Restatement of Previously Issued Consolidated Financial Statements” of Notes to Condensed Consolidated Financial Statements of this Form 10-Q for more information regarding the impact of these adjustments.
Along with restating our financial statements to correct the errors discussed above, we have recorded adjustments for certain previously identified immaterial accounting errors related to the periods covered by this Form 10-Q. When these financial statements were originally issued, we assessed the impact of these errors and concluded that they were not material to our financial statements for the three months and six months ended September 30, 2014. However, in conjunction with our need to restate our financial statements as a result of the errors above, we have determined that it would be appropriate within this Form 10-Q to record all such previously unrecorded adjustments. Please refer to Note 1A "Restatement of Previously Issued Consolidated Financial Statements" of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q for more information regarding the impact of these adjustments.
Because our prior period financial results have been corrected for errors, they are considered to be a “restated” under U.S. generally accepted accounting principles. Accordingly, the revised financial information included in this Quarterly Report on Form 10-Q has been identified as “restated”.
Internal Control Consideration
Our Chief Executive Officer and Chief Financial Officer have determined that there were deficiencies in our internal control over financial reporting that constitute material weaknesses, as defined by SEC regulations, at September 30, 2015. Accordingly, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting and our disclosure controls and procedures, as defined by SEC regulations, were not effective at September 30, 2015, as discussed in Part I, Item 4 of this Form 10-Q.
- 2 -
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, 2015 and 2014 (As Restated) | 4 | ||
Condensed Consolidated Statements of Comprehensive Income (Loss) | |||
Three and Six Months Ended September 30, 2015 and 2014 (As Restated) | 5 | ||
Condensed Consolidated Balance Sheets | |||
September 30, 2015 and 2014 (As Restated) and March 31, 2015 (As Restated) | 6 | ||
Condensed Statements of Consolidated Stockholders’ Equity | |||
Six Months Ended September 30, 2015 and 2014 (As Restated) | 7 | ||
Condensed Consolidated Statements of Cash Flows | |||
Six Months Ended September 30, 2015 and 2014 (As Restated) | 8 | ||
Notes to Condensed Consolidated Financial Statements | 9 – 30 | ||
Item 2. | Management's Discussion and Analysis | ||
of Financial Condition and Results of Operations | 31 – 41 | ||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 41 | |
Item 4. | Controls and Procedures | 41 – 42 | |
Part II. | Other Information | ||
Item 1. | Legal Proceedings | 42 | |
Item 1A. | Risk Factors | 42 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 42 | |
Item 3. | Defaults Upon Senior Securities | 42 | |
Item 4. | 42 | ||
Item 5. | Other Information | 42 | |
Item 6. | Exhibits | 43 | |
Signature | 44 | ||
Index of Exhibits | 45 | ||
- 3 -
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, 2015 and 2014 | |||||||||||||||||
(Unaudited) | |||||||||||||||||
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||||
(in thousands, except per share data) | 2015 | 2014 (As Restated) | 2015 | 2014 (As Restated) | |||||||||||||
Sales and other operating revenues | $ | 414,853 | $ | 596,970 | $ | 681,135 | $ | 846,114 | |||||||||
Cost of goods and services sold | 360,615 | 532,094 | 597,500 | 747,968 | |||||||||||||
Gross profit | 54,238 | 64,876 | 83,635 | 98,146 | |||||||||||||
Selling, general and administrative expenses | 27,948 | 36,000 | 57,862 | 67,325 | |||||||||||||
Other income (expense) | (1,029 | ) | 327 | (469 | ) | 1,127 | |||||||||||
Restructuring and asset impairment charges (recoveries) | (386 | ) | 500 | 2,562 | 500 | ||||||||||||
Operating income | 25,647 | 28,703 | 22,742 | 31,448 | |||||||||||||
Interest expense (includes debt amortization of $2,383 and $2,010 for the three months and $4,626 and $3,562 for the six months in 2015 and 2014, respectively) | 28,782 | 28,495 | 56,555 | 55,417 | |||||||||||||
Interest income | 1,274 | 1,574 | 2,648 | 2,925 | |||||||||||||
Income (loss) before income taxes and other items | (1,861 | ) | 1,782 | (31,165 | ) | (21,044 | ) | ||||||||||
Income tax expense | 22,902 | 10,979 | 19,687 | 11,298 | |||||||||||||
Equity in net income of investee companies | 3,004 | 1,039 | 3,136 | 554 | |||||||||||||
Net loss | (21,759 | ) | (8,158 | ) | (47,716 | ) | (31,788 | ) | |||||||||
Less: Net income (loss) attributable to noncontrolling interests | (58 | ) | (7 | ) | (65 | ) | 48 | ||||||||||
Net loss attributable to Alliance One International, Inc. | $ | (21,701 | ) | $ | (8,151 | ) | $ | (47,651 | ) | $ | (31,836 | ) | |||||
Loss per share: | |||||||||||||||||
Basic | $ | (2.44 | ) | $ | (.92 | ) | $ | (5.37 | ) | $ | (3.61 | ) | |||||
Diluted | $ | (2.44 | ) | $ | (.92 | ) | $ | (5.37 | ) | $ | (3.61 | ) | |||||
Weighted average number of shares outstanding: | |||||||||||||||||
Basic | 8,883 | 8,823 | 8,873 | 8,811 | |||||||||||||
Diluted | 8,883 | 8,823 | 8,873 | 8,811 | |||||||||||||
See notes to condensed consolidated financial statements | |||||||||||||||||
- 4 -
Alliance One International, Inc. and Subsidiaries | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
Three and Six Months Ended September 30, 2015 and 2014 | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(in thousands) | 2015 | 2014 (As Restated) | 2015 | 2014 (As Restated) | ||||||||||||
Net loss | $ | (21,759 | ) | $ | (8,158 | ) | $ | (47,716 | ) | $ | (31,788 | ) | ||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Currency translation adjustment | (1,664 | ) | (4,287 | ) | 643 | (4,079 | ) | |||||||||
Defined benefit pension plan: | ||||||||||||||||
Negative plan amendment/reclassified to liability | 4,461 | — | 4,686 | — | ||||||||||||
Amounts reclassified to income | 1,000 | 413 | 2,000 | 827 | ||||||||||||
Defined benefit plan adjustment | 5,461 | 413 | 6,686 | 827 | ||||||||||||
Total other comprehensive income (loss), net of tax | 3,797 | (3,874 | ) | 7,329 | (3,252 | ) | ||||||||||
Total comprehensive income (loss) | (17,962 | ) | (12,032 | ) | (40,387 | ) | (35,040 | ) | ||||||||
Comprehensive loss attributable to noncontrolling interests | (58 | ) | (7 | ) | (65 | ) | 48 | |||||||||
Comprehensive loss attributable to Alliance One International, Inc. | $ | (17,904 | ) | $ | (12,025 | ) | $ | (40,322 | ) | $ | (35,088 | ) | ||||
See notes to condensed consolidated financial statements | ||||||||||||||||
- 5 -
Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) | |||||||||||||||||||
(in thousands) | September 30, 2015 | September 30, 2014 (As Restated) | March 31, 2015 (As Restated) | ||||||||||||||||
ASSETS | |||||||||||||||||||
Current assets | |||||||||||||||||||
Cash and cash equivalents | $ | 150,825 | $ | 109,607 | $ | 143,849 | |||||||||||||
Trade and other receivables, net | 257,488 | 232,023 | 193,370 | ||||||||||||||||
Accounts receivable, related parties | 83,707 | 66,191 | 41,816 | ||||||||||||||||
Inventories | 964,134 | 941,918 | 740,943 | ||||||||||||||||
Advances to tobacco suppliers | 46,897 | 67,371 | 37,767 | ||||||||||||||||
Recoverable income taxes | 7,633 | 5,554 | 5,257 | ||||||||||||||||
Current deferred taxes, net | 13,742 | 10,853 | 15,586 | ||||||||||||||||
Prepaid expenses | 21,721 | 28,597 | 23,901 | ||||||||||||||||
Other current assets | 13,827 | 11,169 | 14,606 | ||||||||||||||||
Total current assets | 1,559,974 | 1,473,283 | 1,217,095 | ||||||||||||||||
Other assets | |||||||||||||||||||
Investments in unconsolidated affiliates | 54,814 | 52,729 | 54,694 | ||||||||||||||||
Goodwill and other intangible assets | 30,098 | 33,550 | 31,891 | ||||||||||||||||
Long-term recoverable income taxes | 7,530 | 5,834 | 6,571 | ||||||||||||||||
Deferred income taxes, net | 25,247 | 36,567 | 33,155 | ||||||||||||||||
Other deferred charges | 16,925 | 18,712 | 17,695 | ||||||||||||||||
Other noncurrent assets | 20,688 | 33,496 | 27,631 | ||||||||||||||||
155,302 | 180,888 | 171,637 | |||||||||||||||||
Property, plant and equipment, net | 232,414 | 255,759 | 237,914 | ||||||||||||||||
$ | 1,947,690 | $ | 1,909,930 | $ | 1,626,646 | ||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||
Current liabilities | |||||||||||||||||||
Notes payable to banks | $ | 504,478 | $ | 581,532 | $ | 330,254 | |||||||||||||
Accounts payable | 49,179 | 55,429 | 73,349 | ||||||||||||||||
Due to related parties | 44,121 | 39,640 | 58,512 | ||||||||||||||||
Advances from customers | 51,681 | 58,596 | 18,906 | ||||||||||||||||
Accrued expenses and other current liabilities | 93,358 | 96,049 | 87,815 | ||||||||||||||||
Income taxes | 12,934 | 8,140 | 12,694 | ||||||||||||||||
Long-term debt current | 32,894 | 3,014 | 2,894 | ||||||||||||||||
Total current liabilities | 788,645 | 842,400 | 584,424 | ||||||||||||||||
Long-term debt | 904,422 | 755,737 | 738,943 | ||||||||||||||||
Deferred income taxes | 2,740 | 7,067 | 3,498 | ||||||||||||||||
Liability for unrecognized tax benefits | 9,825 | 12,677 | 11,011 | ||||||||||||||||
Pension, postretirement and other long-term liabilities | 83,559 | 77,035 | 91,502 | ||||||||||||||||
1,000,546 | 852,516 | 844,954 | |||||||||||||||||
Commitments and contingencies | |||||||||||||||||||
Stockholders’ equity | September 30, 2015 | September 30, 2014 | March 31, 2015 | ||||||||||||||||
Common Stock—no par value: | |||||||||||||||||||
Authorized shares | 250,000 | 250,000 | 250,000 | ||||||||||||||||
Issued shares | 9,674 | 9,626 | 9,644 | 469,982 | 467,139 | 468,564 | |||||||||||||
Retained deficit | (255,835 | ) | (213,890 | ) | (208,184 | ) | |||||||||||||
Accumulated other comprehensive loss | (59,057 | ) | (41,578 | ) | (66,386 | ) | |||||||||||||
Total stockholders’ equity of Alliance One International, Inc. | 155,090 | 211,671 | 193,994 | ||||||||||||||||
Noncontrolling interests | 3,409 | 3,343 | 3,274 | ||||||||||||||||
Total equity | 158,499 | 215,014 | 197,268 | ||||||||||||||||
$ | 1,947,690 | $ | 1,909,930 | $ | 1,626,646 | ||||||||||||||
See notes to condensed consolidated financial statements | |||||||||||||||||||
- 6 -
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 (As Restated) | Currency Translation Adjustment | Pensions, Net of Tax (As Restated) | Noncontrolling Interests | Total Equity (As Restated) | ||||||||||||
Balance, March 31, 2014 (as restated) | $ | 465,682 | $ | (182,054 | ) | $ | (1,640 | ) | $ | (36,686 | ) | $ | 3,295 | $ | 248,597 | |||
Net income (loss) | — | (31,836 | ) | — | — | 48 | (31,788 | ) | ||||||||||
Stock-based compensation | 1,457 | — | — | — | — | 1,457 | ||||||||||||
Other comprehensive loss, net of tax | — | — | (4,079 | ) | 827 | — | (3,252 | ) | ||||||||||
Balance, September 30, 2014 (as restated) | $ | 467,139 | $ | (213,890 | ) | $ | (5,719 | ) | $ | (35,859 | ) | $ | 3,343 | $ | 215,014 | |||
Balance, March 31, 2015 (as restated) | $ | 468,564 | $ | (208,184 | ) | $ | (14,154 | ) | $ | (52,232 | ) | $ | 3,274 | $ | 197,268 | |||
Net income (loss) | — | (47,651 | ) | — | — | (65 | ) | (47,716 | ) | |||||||||
Increase in capitalization of non-controlling interest | — | — | — | — | 200 | 200 | ||||||||||||
Restricted stock surrendered | (54 | ) | — | — | — | — | (54 | ) | ||||||||||
Stock-based compensation | 1,472 | — | — | — | — | 1,472 | ||||||||||||
Other comprehensive income, net of tax | — | — | 643 | 6,686 | — | 7,329 | ||||||||||||
Balance, September 30, 2015 | $ | 469,982 | $ | (255,835 | ) | $ | (13,511 | ) | $ | (45,546 | ) | $ | 3,409 | $ | 158,499 | |||
See notes to condensed consolidated financial statements | ||||||||||||||||||
- 7 -
Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended September 30, 2015 and 2014 (Unaudited) | ||||||||
(in thousands) | September 30, 2015 | September 30, 2014 (As Restated) | ||||||
Operating activities | ||||||||
Net loss | $ | (47,716 | ) | $ | (31,788 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation and amortization | 13,961 | 14,812 | ||||||
Debt amortization/interest | 5,339 | 4,220 | ||||||
Loss on foreign currency transactions | 12,676 | 3,840 | ||||||
Restructuring and asset impairment charges | 2,562 | 500 | ||||||
Bad debt expense (recovery) | (148 | ) | 4,266 | |||||
Equity in net income of unconsolidated affiliates, net of dividends | (1,098 | ) | (268 | ) | ||||
Stock-based compensation | 1,805 | 1,738 | ||||||
Changes in operating assets and liabilities, net | (346,242 | ) | (332,338 | ) | ||||
Other, net | (106 | ) | 623 | |||||
Net cash used by operating activities | (358,967 | ) | (334,395 | ) | ||||
Investing activities | ||||||||
Purchases of property, plant and equipment | (9,852 | ) | (14,405 | ) | ||||
Proceeds from sale of property, plant and equipment | 662 | 833 | ||||||
Payments to acquire equity method investments | — | (1,055 | ) | |||||
Surrender of life insurance policies | 1,407 | 534 | ||||||
Other, net | (308 | ) | (591 | ) | ||||
Net cash used by investing activities | (8,091 | ) | (14,684 | ) | ||||
Financing activities | ||||||||
Net proceeds from short-term borrowings | 183,762 | 378,146 | ||||||
Proceeds from long-term borrowings | 195,000 | 30,000 | ||||||
Repayment of long-term borrowings | (242 | ) | (176,804 | ) | ||||
Debt issuance cost | (5,113 | ) | (4,963 | ) | ||||
Other, net | 200 | — | ||||||
Net cash provided by financing activities | 373,607 | 226,379 | ||||||
Effect of exchange rate changes on cash | 427 | (2,471 | ) | |||||
Increase (decrease) in cash and cash equivalents | 6,976 | (125,171 | ) | |||||
Cash and cash equivalents at beginning of period | 143,849 | 234,778 | ||||||
Cash and cash equivalents at end of period | $ | 150,825 | $ | 109,607 | ||||
Other information: | ||||||||
Cash paid for income taxes | $ | 8,589 | $ | 6,940 | ||||
Cash paid for interest | 53,221 | 45,682 | ||||||
Cash received from interest | (2,861 | ) | (3,055 | ) | ||||
See notes to condensed consolidated financial statements | ||||||||
- 8 -
Alliance One International, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(in thousands)
Note 1A - Restatement of Previously Issued Condensed Consolidated Financial Statements
In the course of downsizing and terminating certain operations of Alliance One Tobacco (Kenya) Limited (“AOTK”), and preparing our financial statements for the quarter ended September 30, 2015, the Company identified errors in accounts receivable, inventory, sales and cost of goods sold in AOTK. Specifically, the value of inventory was overstated due to improper accounting for shrinkage, deferred crop costs, lower of cost or market valuations and accurate inventory counts. Further, sales and other operating revenues, and trade and other receivables, net were incorrectly stated due to improper revenue recognition for external sales. As a result of these errors, we have restated our audited consolidated financial statements for the years ended March 31, 2015, 2014 and 2013 and our unaudited condensed consolidated financial information for the three and six months ended September 30, 2014 on this Form 10-Q. See the Company’s Annual Report on Form 10-K/A for the fiscal year ended March 31, 2015 for further information.
As of September 30, 2015, the correction of these errors principally decreased the Company’s inventory by approximately $46 million, decreased accounts receivable by approximately $3 million, and decreased retained earnings by approximately $49 million. Approximately $39 million of the decrease in retained earnings is related to March 31, 2015 and prior periods, with a portion in each quarter dating back to fiscal 2011. Further, these corrections decreased operating income for the three months ended September 30, 2015 by approximately $4 million and decreased operating income for the six months ended September 30, 2015 by approximately $10 million.
Along with restating our financial statements to correct the errors discussed above, we are making adjustments for certain previously identified immaterial accounting errors related to the periods covered by this Form 10-Q. When these financial statements were originally issued, we assessed the impact of these errors and concluded that they were not material to our financial statements for the three months and six months ended September 30, 2014. However, in conjunction with our need to restate our financial statements as a result of the errors above, we have determined that it would be appropriate within this Form 10-Q to make adjustments for all such previously unrecorded adjustments.
The combined impacts of all the adjustments to the applicable line items in our unaudited consolidated financial statements for the periods covered by this Form 10-Q are provided in the tables below.
Condensed Consolidated Statements of Operations | ||||||||||||||||
Three Months Ended September 30, 2014 | ||||||||||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Sales and other operating revenues | $ | 589,815 | $ | — | $ | 7,155 | $ | — | $ | 596,970 | ||||||
Cost of goods and services sold | 518,332 | 13,762 | — | — | 532,094 | |||||||||||
Gross profit | 71,483 | (13,762 | ) | 7,155 | — | 64,876 | ||||||||||
Operating income | 35,310 | (13,762 | ) | 7,155 | — | 28,703 | ||||||||||
Income (loss) before income taxes and other items | 8,389 | (13,762 | ) | 7,155 | — | 1,782 | ||||||||||
Income tax expense (benefit) | 11,345 | (3,021 | ) | 2,575 | 80 | 10,979 | ||||||||||
Net income (loss) | (1,917 | ) | (10,741 | ) | 4,580 | (80 | ) | (8,158 | ) | |||||||
Net income (loss) attributable to Alliance One International, Inc. | (1,910 | ) | (10,741 | ) | 4,580 | (80 | ) | (8,151 | ) | |||||||
Income (loss) per share: | ||||||||||||||||
Basic | (0.22 | ) | (1.20 | ) | 0.51 | (0.01 | ) | (0.92 | ) | |||||||
Diluted | (0.22 | ) | (1.20 | ) | 0.51 | (0.01 | ) | (0.92 | ) | |||||||
- 9 -
Alliance One International, Inc. and Subsidiaries
Note 1A - Restatement of Previously Issued Condensed Consolidated Financial Statements (continued)
Condensed Consolidated Statements of Operations | ||||||||||||||||
Six Months Ended September 30, 2014 | ||||||||||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Sales and other operating revenues | $ | 838,832 | $ | — | $ | 7,282 | $ | — | $ | 846,114 | ||||||
Cost of goods and services sold | 732,245 | 17,561 | — | (1,838 | ) | 747,968 | ||||||||||
Gross profit | 106,587 | (17,561 | ) | 7,282 | 1,838 | 98,146 | ||||||||||
Operating income | 39,889 | (17,561 | ) | 7,282 | 1,838 | 31,448 | ||||||||||
Income (loss) before income taxes and other items | (12,603 | ) | (17,561 | ) | 7,282 | 1,838 | (21,044 | ) | ||||||||
Income tax expense (benefit) | 8,431 | 3,302 | (590 | ) | 155 | 11,298 | ||||||||||
Net income (loss) | (20,480 | ) | (20,863 | ) | 7,872 | 1,683 | (31,788 | ) | ||||||||
Net income (loss) attributable to Alliance One International, Inc. | (20,528 | ) | (20,863 | ) | 7,872 | 1,683 | (31,836 | ) | ||||||||
Income (loss) per share: | ||||||||||||||||
Basic | (2.33 | ) | (2.35 | ) | 0.88 | 0.19 | (3.61 | ) | ||||||||
Diluted | (2.33 | ) | (2.35 | ) | 0.88 | 0.19 | (3.61 | ) | ||||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||||||
Three Months Ended September 30, 2014 | ||||||||||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Net income (loss) | $ | (1,917 | ) | $ | (10,741 | ) | $ | 4,580 | $ | (80 | ) | $ | (8,158 | ) | ||
Total comprehensive income (loss), net of tax | (5,791 | ) | (10,741 | ) | 4,580 | (80 | ) | (12,032 | ) | |||||||
Comprehensive income (loss) attributable to Alliance One International, Inc. | (5,784 | ) | (10,741 | ) | 4,580 | (80 | ) | (12,025 | ) | |||||||
Condensed Consolidated Statements of Comprehensive Income (Loss) | ||||||||||||||||
Six Months Ended September 30, 2014 | ||||||||||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Net income (loss) | $ | (20,480 | ) | $ | (20,863 | ) | $ | 7,872 | $ | 1,683 | $ | (31,788 | ) | |||
Total comprehensive income (loss), net of tax | (23,732 | ) | (20,863 | ) | 7,872 | 1,683 | (35,040 | ) | ||||||||
Comprehensive income (loss) attributable to Alliance One International, Inc. | (23,780 | ) | (20,863 | ) | 7,872 | 1,683 | (35,088 | ) | ||||||||
- 10 -
Alliance One International, Inc. and Subsidiaries
Note 1A - Restatement of Previously Issued Condensed Consolidated Financial Statements (continued)
September 30, 2014 | ||||||||||||||||
Condensed Consolidated Balance Sheets (in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Trade and other receivables, net | $ | 233,785 | $ | — | $ | (1,762 | ) | $ | — | $ | 232,023 | |||||
Inventories | 976,416 | (34,498 | ) | — | — | 941,918 | ||||||||||
Total current assets | 1,509,543 | (34,498 | ) | (1,762 | ) | — | 1,473,283 | |||||||||
Investments in unconsolidated affiliates | 52,199 | — | — | 530 | 52,729 | |||||||||||
Total assets | 1,945,660 | (34,498 | ) | (1,762 | ) | 530 | 1,909,930 | |||||||||
Income taxes | 9,238 | 4,109 | (862 | ) | (4,345 | ) | 8,140 | |||||||||
Total current liabilities | 843,498 | 4,109 | (862 | ) | (4,345 | ) | 842,400 | |||||||||
Deferred income taxes | 5,410 | — | — | 1,657 | 7,067 | |||||||||||
Liability for unrecognized tax benefits | 9,617 | — | — | 3,060 | 12,677 | |||||||||||
Pension, postretirement and other long-term liabilities | 76,785 | — | — | 250 | 77,035 | |||||||||||
Retained deficit | (174,516 | ) | (38,607 | ) | (900 | ) | 133 | (213,890 | ) | |||||||
Accumulated other comprehensive loss | (41,353 | ) | — | — | (225 | ) | (41,578 | ) | ||||||||
Total stockholders' equity of Alliance One International, Inc. | 251,270 | (38,607 | ) | (900 | ) | (92 | ) | 211,671 | ||||||||
Total equity | 254,613 | (38,607 | ) | (900 | ) | (92 | ) | 215,014 | ||||||||
Total liabilities and stockholders' equity | 1,945,660 | (34,498 | ) | (1,762 | ) | 530 | 1,909,930 | |||||||||
Condensed Statements of Consolidated Stockholders' Equity (in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Retained deficit at March 31, 2014 | $ | (153,988 | ) | $ | (17,744 | ) | $ | (8,772 | ) | $ | (1,550 | ) | $ | (182,054 | ) | |
Net income (loss) | (20,528 | ) | (20,863 | ) | 7,872 | 1,683 | (31,836 | ) | ||||||||
Retained deficit at September 30, 2014 | (174,516 | ) | (38,607 | ) | (900 | ) | 133 | (213,890 | ) | |||||||
Accumulated Other Comprehensive Income (in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Pensions, net of tax at March 31, 2014 | $ | (36,461 | ) | $ | — | $ | — | $ | (225 | ) | $ | (36,686 | ) | |||
Pensions, net of tax at September 30, 2014 | (35,634 | ) | — | — | (225 | ) | (35,859 | ) | ||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Total equity at March 31, 2014 | $ | 276,888 | $ | (17,744 | ) | $ | (8,772 | ) | $ | (1,775 | ) | $ | 248,597 | |||
Net Income (loss) | (20,480 | ) | (20,863 | ) | 7,872 | 1,683 | (31,788 | ) | ||||||||
Total equity at September 30, 2014 | 254,613 | (38,607 | ) | (900 | ) | (92 | ) | 215,014 | ||||||||
- 11 -
Alliance One International, Inc. and Subsidiaries
Note 1A - Restatement of Previously Issued Condensed Consolidated Financial Statements (continued)
Statement of Condensed Consolidated Cash Flows for the six months ended September 30, 2014 | ||||||||||||||||
(in thousands) | As Previously Reported | Inventory Adjustments (1) | Receivables Adjustments (2) | Other Adjustments (3) | As Restated | |||||||||||
Net income (loss) | $ | (20,480 | ) | $ | (20,863 | ) | $ | 7,872 | $ | 1,683 | $ | (31,788 | ) | |||
Changes in operating assets and liabilities, net | (343,610 | ) | 20,863 | (7,872 | ) | (1,719 | ) | (332,338 | ) | |||||||
Net cash used by operating activities | (334,359 | ) | — | — | (36 | ) | (334,395 | ) | ||||||||
Decrease in cash and cash equivalents | (125,135 | ) | — | — | (36 | ) | (125,171 | ) | ||||||||
Cash and cash equivalents at beginning of period | 234,742 | — | — | 36 | 234,778 | |||||||||||
(1) Adjustments per the errors described above related to 1) improper accounting for shrinkage, deferred crop costs, lower of cost or market valuations and accurate inventory, and 2) costs of goods and services sold associated with improper revenue recognition.
(2) Adjustments for the errors described above related to improper revenue recognition.
(3) Adjustments for the previously identified immaterial accounting errors described above, primarily impacting inventories, costs of goods and services sold, income tax expense, and interest expense.
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/A for the fiscal year ended March 31, 2015.
Beginning April 1, 2015, the Company's management ceased evaluating performance of value added services as a separate operating segment. The Company's cut rag and other specialty products and services are now combined within the geographic operating segments in which they operate. The Company reviewed certain long-term financial performance and economic characteristics such as nature of products and services, production processes, type or class of customer, distribution methods for products and services, and regulatory environment. Based on review of the aggregation criteria, the Company concluded that Africa, Asia, Europe, and South America share similar economic indicators and are aggregated into one reportable segment “Other Regions.” The Company concluded that the economic characteristics of North America are dissimilar from the other operating segments and is disclosing it separately.
- 12 -
Alliance One International, Inc. and Subsidiaries
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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 $2,847 and $8,247 for the three months ended September 30, 2015 and 2014, respectively and $8,611 and $14,488 for the six months ended September 30, 2015 and 2014, 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 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, 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 April 2015, the FASB issued new accounting guidance that changes the presentation of debt issuance costs in financial statements. The primary objective of this accounting guidance is 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. This accounting guidance is effective for the Company on April 1, 2016. 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 August 2015, the FASB issued new accounting guidance that clarifies the presentation of debt issuance costs associated with line-of-credit arrangements in financial statements. The primary objective of this accounting guidance is to present these costs as an asset in the balance sheet. The accounting guidance issued in April 2015 did not address the presentation of debt issuance costs for this type of arrangement. This accounting guidance is effective for the Company on April 1, 2016. The Company is currently evaluating the impact of this new guidance.
- 13 -
Alliance One International, Inc. and Subsidiaries
2. INCOME TAXES
Accounting for Uncertainty in Income Taxes
As of September 30, 2015, the Company’s unrecognized tax benefits totaled $16,788, 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, 2015, accrued interest and penalties totaled $1,153 and $814 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, 2015, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2012; 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, 2015
The effective tax rate used for the six months ended September 30, 2015 was (63.2)% compared to (53.7)% for the six months ended September 30, 2014. 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, 2015, the Company recorded a discrete event adjustment expense of $9,264, bringing the effective tax rate estimated for the six months of (33.4)% to (63.2)%. 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, 2014, as restated, the Company recorded a discrete event adjustment expense of $4,057, bringing the effective tax rate estimated for the six months of (34.4)% to (53.7)%. 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, 2015 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, 2015 | September 30, 2014 | March 31, 2015 | |||||||||
Amounts guaranteed (not to exceed) | $ | 236,045 | $ | 250,455 | $ | 300,557 | |||||
Amounts outstanding under guarantee | 133,897 | 208,316 | 185,486 | ||||||||
Fair value of guarantees | 4,865 | 7,272 | 8,650 | ||||||||
Of the guarantees outstanding at September 30, 2015, 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 the joint venture in Brazil which is included in Accounts Receivable, Related Parties.
- 14 -
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 March 31, 2015, respectively, the Company had balances of $1,368 and $16,412 that were due to local banks on behalf of suppliers. As of September 30, 2015 there were no amounts due. These amounts are included in Accounts Payable in the Condensed Consolidated Balance Sheets.
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 occur as the Company restructures certain operations not meeting strategic business objectives and performance metrics. 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 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. At September 30, 2015, the costs of any future initiatives are not estimable. During the three months ended September 30, 2014, the Company recorded a $500 asset impairment charge for certain machinery and equipment due to the construction of a new U.S. cut rag facility with state of the art machinery and equipment.
The following table summarizes the restructuring charges recorded in the Company’s reporting segments during the three months and six months ended September 30, 2015 and 2014, respectively:
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||
Restructuring and Asset Impairment Charges | 2015 | 2014 | 2015 | 2014 | |||||||||||
Employee separation and other cash charges: | |||||||||||||||
Beginning balance | $ | 7,216 | $ | 101 | $ | 8,087 | $ | 397 | |||||||
Period charges: | |||||||||||||||
Severance charges | (386 | ) | — | (11 | ) | — | |||||||||
Total period charges | (386 | ) | — | (11 | ) | — | |||||||||
Payments through September 30 | (5,267 | ) | (101 | ) | (6,513 | ) | (397 | ) | |||||||
Ending balance September 30 | $ | 1,563 | $ | — | $ | 1,563 | $ | — | |||||||
Asset impairment and other non-cash charges | $ | — | $ | 500 | $ | 2,573 | $ | 500 | |||||||
Total restructuring charges for the period | $ | (386 | ) | $ | 500 | $ | 2,562 | $ | 500 | ||||||
On April 1, 2015, the Company revised its reportable segments. See Note 1 "Basis of Presentation and Significant Accounting Policies" to the "Notes to Condensed Consolidated Financial Statements." 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, 2015 and 2014:
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||
Employee Separation and Other Cash Charges | 2015 | 2014 | 2015 | 2014 | |||||||||||
Beginning balance: | $ | 7,216 | $ | 101 | $ | 8,087 | $ | 397 | |||||||
North America | — | — | — | — | |||||||||||
Other regions | 7,216 | 101 | 8,087 | 397 | |||||||||||
Period charges: | $ | (386 | ) | $ | — | $ | (11 | ) | $ | — | |||||
North America | — | — | — | — | |||||||||||
Other regions | (386 | ) | — | (11 | ) | — | |||||||||
Payments through September 30 | $ | (5,267 | ) | $ | (101 | ) | $ | (6,513 | ) | $ | (397 | ) | |||
North America | — | — | — | — | |||||||||||
Other regions | (5,267 | ) | (101 | ) | (6,513 | ) | (397 | ) | |||||||
Ending balance September 30 | $ | 1,563 | $ | — | $ | 1,563 | $ | — | |||||||
North America | — | — | — | — | |||||||||||
Other regions | 1,563 | — | 1,563 | — | |||||||||||
- 15 -
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, 2015 | 9.50 | 5.25 | — | |||||||||||||||||
March 31, 2014 balance | ||||||||||||||||||||
Gross carrying amount | $ | 2,794 | $ | 33,700 | $ | 14,893 | $ | 17,804 | $ | 69,191 | ||||||||||
Accumulated amortization | — | (14,954 | ) | (4,752 | ) | (14,760 | ) | (34,466 | ) | |||||||||||
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 | |||||||||||||||
Additions | — | — | — | 303 | 303 | |||||||||||||||
Amortization expense | — | (842 | ) | (701 | ) | (419 | ) | (1,962 | ) | |||||||||||
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 | ||||||||||
(1) Goodwill of $2,794 relates to the North America 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, 2015 through March 31, 2016 | $ | 843 | $ | 1,917 | $ | 868 | $ | 3,628 | ||||||||
2017 | 1,685 | 1,405 | 740 | 3,830 | ||||||||||||
2018 | 1,685 | 1,403 | 512 | 3,600 | ||||||||||||
2019 | 1,685 | 1,397 | 259 | 3,341 | ||||||||||||
2020 | 1,685 | 1,396 | 141 | 3,222 | ||||||||||||
Later | 8,636 | 1,047 | — | 9,683 | ||||||||||||
$ | 16,219 | $ | 8,565 | $ | 2,520 | $ | 27,304 | |||||||||
* Estimated amortization expense for the internally developed software is based on costs accumulated as of September 30, 2015. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
- 16 -
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, 2015 and 2014, and March 31, 2015, the Company’s investment in these joint ventures was $53,798, $51,713, and $53,678, 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, 2015 and 2014, and March 31, 2015, respectively were $5,623, $4,697 and $3,293 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 $94,602, $114,977 and $105,983 at September 30, 2015 and 2014, and March 31, 2015, 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.
Beginning April 1, 2015, the Company has revised its reportable segments. Prior year segment data has been recast to conform with the current year segment presentation. See Note 1 "Basis of Presentation and Significant Accounting Policies" to the "Notes to Condensed Consolidated Financial Statements" for further information.
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, 2015 and 2014:
Three Months Ended September 30, | Six Months Ended September 30, | ||||||||||||||
2015 | 2014 | 2015 | 2014 | ||||||||||||
Sales and other operating revenues: | |||||||||||||||
North America | $ | 64,830 | $ | 85,988 | $ | 95,130 | $ | 121,377 | |||||||
Other regions | 350,023 | 510,982 | 586,005 | 724,737 | |||||||||||
Total revenue | $ | 414,853 | $ | 596,970 | $ | 681,135 | $ | 846,114 | |||||||
Operating income: | |||||||||||||||
North America | $ | 5,507 | $ | 7,193 | $ | 6,378 | $ | 9,227 | |||||||
Other regions | 20,140 | 21,510 | 16,364 | 22,221 | |||||||||||
Total operating income | 25,647 | 28,703 | 22,742 | 31,448 | |||||||||||
Interest expense | 28,782 | 28,495 | 56,555 | 55,417 | |||||||||||
Interest income | 1,274 | 1,574 | 2,648 | 2,925 | |||||||||||
Income (loss) before income taxes and other items | $ | (1,861 | ) | $ | 1,782 | $ | (31,165 | ) | $ | (21,044 | ) | ||||
Analysis of Segment Assets | September 30, 2015 | September 30, 2014 | March 31, 2015 | |||||||||
Segment assets: | ||||||||||||
North America | $ | 404,930 | $ | 337,510 | $ | 231,131 | ||||||
Other regions | 1,542,760 | 1,572,420 | 1,395,515 | |||||||||
Total assets | $ | 1,947,690 | $ | 1,909,930 | $ | 1,626,646 | ||||||
- 17 -
Alliance One International, Inc. and Subsidiaries
8. EARNINGS PER SHARE
After the close of all trading on June 26, 2015, the Company’s approved 1-for-10 reverse stock split of its common stock became effective. As a result, every 10 shares of Alliance One common stock outstanding were combined into one share of Alliance One common stock, reducing the number of outstanding shares of the Company’s common stock at June 26, 2015 from approximately 88.6 million shares to approximately 8.86 million shares. This change did not affect any shareholder’s rights. No fractional shares were issued in connection with the reverse stock split. Instead, the Company issued one full share of the post-reverse stock split common stock to any shareholder who would have been entitled to receive a fractional share as a result of the reverse stock split. Each common shareholder holds the same percentage of the outstanding common stock immediately following the reverse split as that shareholder did immediately prior to the reverse split, except for minor adjustments due to the additional net share fraction issued as a result of the treatment of fractional shares. For the three months and six months ended September 30, 2014, the weighted average number of common shares has been restated to a post-reverse stock split-adjusted basis.
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, 2015 and 2014. 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 646 at a weighted average exercise price of $60.49 per share at September 30, 2015 and 679 at a weighted average exercise price of $60.60 per share at September 30, 2014.
In connection with the offering of the Company’s 5.5% 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 $50.28 per share on a post-reverse stock split basis. 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, 2015 and 2014, respectively.
- 18 -
Alliance One International, Inc. and Subsidiaries
8. EARNINGS PER SHARE (continued)
Three Months Ended September 30, | Six Months Ended September 30, | |||||||||||||||
(in thousands, except per share data) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
BASIC LOSS | ||||||||||||||||
Net loss attributable to Alliance One International, Inc. | $ | (21,701 | ) | $ | (8,151 | ) | $ | (47,651 | ) | $ | (31,836 | ) | ||||
SHARES | ||||||||||||||||
Weighted average number of shares outstanding | 8,883 | 8,823 | 8,873 | 8,811 | ||||||||||||
BASIC LOSS PER SHARE | $ | (2.44 | ) | $ | (.92 | ) | $ | (5.37 | ) | $ | (3.61 | ) | ||||
DILUTED LOSS | ||||||||||||||||
Net loss attributable to Alliance One International, Inc. | $ | (21,701 | ) | $ | (8,151 | ) | $ | (47,651 | ) | $ | (31,836 | ) | ||||
Plus interest expense on 5 1/2% convertible notes, net of tax | — | — | * | — | — | * | ||||||||||
Net loss attributable to Alliance One International, Inc., as adjusted | $ | (21,701 | ) | $ | (8,151 | ) | $ | (47,651 | ) | $ | (31,836 | ) | ||||
SHARES | ||||||||||||||||
Weighted average number of common shares outstanding | 8,883 | 8,823 | 8,873 | 8,811 | ||||||||||||
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 | 8,883 | 8,823 | 8,873 | 8,811 | ||||||||||||
DILUTED LOSS PER SHARE | $ | (2.44 | ) | $ | (.92 | ) | $ | (5.37 | ) | $ | (3.61 | ) | ||||
* Assumed conversion of convertible notes at the beginning of the period has an antidilutive effect on earnings per share. The convertible notes matured during the three months ended September 30, 2014. 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, the warrants were not assumed exercised because the exercise price was more than the average price for the periods presented. The warrants began expiring October 15, 2014 and were fully expired on April 8, 2015. | ||||||||||||||||
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 $701 and $988 for the three months ended September 30, 2015 and 2014, respectively, of which $40 and $96, respectively were with respect to stock-based awards payable in cash, and $1,805 and $1,738 for the six months ended September 30, 2015 and 2014, respectively, of which $331 and $115, 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. 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, 2015 and 2014, respectively, the Company made the following stock-based compensation awards on a post-split basis:
- 19 -
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) | 2015 | 2014 | 2015 | 2014 | |||||||||||
Unrestricted Stock | |||||||||||||||
Number Granted | 6 | 9 | 12 | 9 | |||||||||||
Grant Date Fair Value | $ | 20.38 | $ | 19.70 | $ | 22.15 | $ | 19.70 | |||||||
Restricted Stock Units | |||||||||||||||
Number Granted | — | — | — | 22 | |||||||||||
Grant Date Fair Value | $ | — | $ | — | $ | — | $ | 27.20 | |||||||
Cash-Settled Restricted Stock Units | |||||||||||||||
Number Granted | — | 2 | — | 46 | |||||||||||
Grant Date Fair Value | $ | — | $ | 22.10 | $ | — | $ | 26.96 | |||||||
Performance Based Stock Units | |||||||||||||||
Number Granted | — | — | — | 22 | |||||||||||
Grant Date Fair Value | $ | — | $ | — | $ | — | $ | 27.20 | |||||||
Cash-Settled Performance Based Stock Units | |||||||||||||||