NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
– Significant Accounting Policies
Description of Business
The Company is principally engaged in purchasing, processing, storing, and selling leaf tobacco. The Company purchases tobacco primarily in the United States, Africa, Europe, South America and Asia for sale to customers primarily in the United States, Europe and Asia. In fiscal 2018, the Company expanded operations into other product offerings.
Basis of Presentation
The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of intercompany accounts and transactions. The Company uses the cost or equity method of accounting for its investments in affiliates that are owned
50%
or less and are not variable interest entities where the Company is the primary beneficiary.
In fiscal 2006, the Company deconsolidated its Zimbabwe subsidiary, Mashonaland Tobacco Company LTD ("MTC") in accordance with accounting requirements that apply to foreign subsidiaries that are subject to foreign exchange controls and other government restrictions that casted significant doubt on the parent's ability to control the subsidiary. As of March 31, 2016, the Company determined that significant doubt about its ability to control MTC were eliminated due to changes in the political landscape and the recent issuance of clarifications to the indigenization laws within Zimbabwe. The recent issuance of clarifications to the indigenization law within Zimbabwe resulted in the Company's development and filing with the Zimbabwean government of a plan of compliance with the indigenization law on March 31, 2016, the date of reconsolidation of MTC. The reconsolidation was treated as a purchase business combination for accounting purposes, with the Company designated as the acquirer. As such, the Consolidated Balance Sheet includes 100% of the fair value of the assets and liabilities of MTC as of March 31, 2016. See
Note 21 “Reconsolidation of MTC”
to the “Notes to Consolidated Financial Statements” for further information.
Beginning April 1, 2016, the financial results of MTC are included in the Statements of Consolidated Operations, Consolidated Balance Sheets and Statements of Consolidated Cash Flows.
Prior to March 31, 2016, the Company accounted for its investment in MTC using the cost method and had been reporting it in Investments in Unconsolidated Affiliates in the Consolidated Balance Sheets since March 31, 2006 and had written its investment in MTC down to
zero
in fiscal 2007.
Investments in Unconsolidated Affiliates
The Company’s equity method investments and its cost method investments are non-marketable securities. The Company reviews such investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recovered. For example, the Company would test such an investment for impairment if the investee were to lose a significant customer, suffer a large reduction in sales margins, experience a major change in its business environment, or undergo other significant changes in its normal business. In assessing the recoverability of equity or cost method investments, the Company uses discounted cash flow models. If the fair value of an equity investee is determined to be lower than its carrying value, an impairment loss is recognized. The preparation of discounted future cash flow analysis requires significant management judgment with respect to future operating earnings growth rates and the selection of an appropriate discount rate. The use of different assumptions could increase or decrease estimated future operating cash flows, and the discounted value of those cash flows, and therefore could increase or decrease any impairment charge.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities. They also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Estimates are used in accounting for, among other things, pension and postretirement health care benefits, inventory market values, allowances for doubtful accounts and advances, bank loan guarantees to suppliers and unconsolidated subsidiaries, useful lives for depreciation and amortization, future cash flows associated with impairment testing for long-lived assets, deferred tax assets and uncertain income tax positions, intrastate tax credits in Brazil and fair value determinations of financial assets and liabilities including derivatives, securitized beneficial interests and counterparty risk. Changes
in market and economic conditions, local tax laws, and other related factors are considered each reporting period, and adjustments to the accounts are made based on the Company’s best judgment.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Revenue Recognition
The Company recognizes revenue from the sale of tobacco when persuasive evidence of an arrangement exists, the price to the customer is fixed or determinable, collectibility is reasonably assured, and title and risk of ownership is passed to the customer upon shipment or delivery. The Company requires that all customer-specific acceptance provisions be met at the time title and risk of ownership passes to the customer. Furthermore, the Company’s sales history indicates customer returns and rejections are not significant.
The Company also processes tobacco owned by its customers and revenue is recognized based on contractual terms as the service is provided. The revenue and cost associated with processing is recorded gross in the Statements of Consolidated Operations. The Company’s history indicates customer requirements for processed tobacco are met upon completion of processing. In addition, advances from customers are deferred and recognized as revenue upon shipment or delivery.
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 Goods and Services Sold and were
$26,033
,
$25,631
and
$23,451
for the years ended
March 31, 2018
,
2017
and
2016
, respectively.
Shipping and Handling
Shipping and handling costs are included in Cost of Goods and Services Sold in the Statements of Consolidated Operations.
Other Income
At March 31, 2016, the Company reconsolidated MTC. As a result, the Company recorded a gain of
$106,203
to record the fair value of MTC of which
$10,277
was cash and the remaining
$95,926
was non-cash.
Other Income also includes gains on sales of property, plant and equipment (of which
$1,839
was non-cash), and other assets, and the receipt of South American funds previously held in escrow that are now covered by bond. This caption also includes expenses related to the Company's sale of receivables and Brazilian intrastate trade tax credits. See
Note 16 "Contingencies and other Information"
and
Note 17 "Sale of Receivables"
to the "Notes to Consolidated Financial Statements" for further information.
The following table summarizes the significant components of Other Income.
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending March 31,
|
|
2018
|
2017
|
2016
|
Gain on reconsolidation of subsidiary
|
$
|
—
|
|
$
|
—
|
|
$
|
106,203
|
|
Other sales of assets and expenses
|
3,379
|
|
303
|
|
(306
|
)
|
Sales of Brazilian intrastate trade tax credits
|
11,835
|
|
9,356
|
|
4,309
|
|
Receipt of funds held in escrow
|
3,235
|
|
—
|
|
—
|
|
Gain on sales of fixed assets
|
3,612
|
|
1,691
|
|
901
|
|
Losses on sale of receivables
|
(7,679
|
)
|
(6,454
|
)
|
(5,680
|
)
|
Total
|
$
|
14,382
|
|
$
|
4,896
|
|
$
|
105,427
|
|
Cash and Cash Equivalents
Cash equivalents are defined as temporary investments of cash with original maturities of less than
90 days
. At
March 31, 2018
and
2017
, respectively, cash and cash equivalents included
$236
and
$153
of customer funding that was restricted for social responsibility programs maintained by the Company. At
March 31, 2018
and
2017
, respectively,
$1,261
and
$1,767
of cash was held on deposit as a compensating balance for short-term borrowings. At
March 31, 2018
,
$1,487
of cash was restricted for capital investment. At March 31, 2017,
no
cash was restricted for capital investment. Restricted cash is included in Other Current Assets.
As of
March 31, 2018
, the Company held
$6,043
in the Zimbabwe Real Time Gross Settlement (“RTGS”) System. RTGS is a local currency equivalent that is exchanged
1
:1 with the U.S. Dollar ("USD"). In order to convert these units to USD, the Company must obtain foreign currency resources from the Reserve Bank of Zimbabwe subject to the monetary and exchange control policy in Zimbabwe.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Trade Receivables, Net
Trade receivables are amounts owed to the Company from its customers. Trade receivables are recorded at invoiced amounts and primarily have net
30
-day terms. The Company extends credit to its customers based on an evaluation of a company’s financial condition and collateral is generally not required.
The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on the Company’s assessment of known delinquent accounts, other currently available evidence of collectability, and the aging of accounts receivable. The Company’s allowance for doubtful accounts was
$7,048
and
$6,990
at
March 31, 2018
and
2017
,
respectively. The provision for doubtful accounts is reported in Selling, General and Administrative Expenses in the Statements of Consolidated Operations.
Other Receivables
Other receivables consist primarily of value-added tax receivables of
$16,025
and
$12,449
at
March 31, 2018
and
2017
, respectively.
Other Deferred Charges
Other deferred charges are primarily deferred financing costs that are amortized over the life of long-term debt.
Sale of Accounts Receivable
The Company is currently engaged in
two
revolving trade accounts receivable securitization arrangements to sell receivables. The Company records the transaction as a sale of receivables, removes such receivables from its Consolidated Balance Sheet and records a receivable for the beneficial interest in such receivables. The losses on the sale of receivables are recognized in Other Income. As of
March 31, 2018
and
2017
, respectively, accounts receivable sold and outstanding were
$228,621
and
$200,084
. See
Note 17 “Sale of Receivables”
and
Note 18 “Fair Value Measurements”
to the “Notes to Consolidated Financial Statements” for further information.
Inventories
Costs in inventory include processed tobacco inventory, unprocessed tobacco inventory, and other inventory. Costs of unprocessed tobacco inventories are determined by the average cost method, which include the cost of green tobacco. Costs of processed tobacco inventories are determined by the average cost method, which include both the cost of unprocessed tobacco, as well as direct and indirect costs that are related to the processing of the product. Costs of other non-tobacco inventory are determined by the first-in, first-out method, which include costs of packing materials, non-tobacco agricultural products and agricultural supplies including seed, fertilizer, herbicides and pesticides.
Inventories are carried at the lower of cost or net realizable value (“LCM”). The Company evaluates its inventories for LCM adjustments by country and type of inventory. Processed tobacco and unprocessed tobacco are evaluated separately for LCM purposes. The Company compares the cost of its processed tobacco to market values based on recent sales of similar grades when evaluating those balances for LCM adjustments. The Company also considers whether its processed tobacco is committed to a customer, whereby the expected sales price would be utilized in determining the market value for committed tobacco. The Company also reviews data on market conditions in performing its LCM evaluation for unprocessed tobacco.
See
Note 2 “Inventories”
to the “Notes to Consolidated Financial Statements” for further information.
Advances to Tobacco Suppliers
The Company purchases seeds, fertilizer, pesticides, and other products related to growing tobacco and advances them to suppliers to assist in crop production. These advances are short term, represent prepaid inventory, and are recorded as advances to tobacco suppliers. Upon delivery of tobacco, part of the purchase price to the supplier is paid in cash and part through a reduction of the advance balance. The advances applied to the delivery are reclassified out of advances and into unprocessed inventory.
The Company also has noncurrent advances, which generally represent the cost of advances to suppliers for infrastructure, such as curing barns, that are also recovered through the delivery of tobacco to the Company by the suppliers. Not all suppliers are able to settle the entire amount of advances that are due in any given year. In these situations, the Company may allow the suppliers to deliver tobacco over future crop years to recover its advances. Noncurrent advances to tobacco suppliers are recorded in Other Noncurrent Assets in the Consolidated Balance Sheets.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Advances to Tobacco Suppliers
(continued)
The Company accounts for its advances to tobacco suppliers using a cost accumulation model, which results in the reporting of its advances at the lower of cost or recoverable amounts exclusive of the mark-up and interest. The mark-up and interest on its advances are recognized upon delivery of tobacco as a decrease in the cost of the current crop. The mark-up and interest capitalized or to be capitalized into inventory for the current crop were
$15,483
and
$16,919
as of
March 31, 2018
and
2017
, respectively. Unrecoverable advances and other costs capitalized or to be capitalized into the current crop was
$8,239
and
$9,125
at
March 31, 2018
and
2017
, respectively.
The following table reflects the classification of advances to tobacco suppliers:
|
|
|
|
|
|
|
|
|
March 31, 2018
|
March 31, 2017
|
Current
|
$
|
30,482
|
|
$
|
54,713
|
|
Noncurrent
|
5,294
|
|
5,855
|
|
Total
|
$
|
35,776
|
|
$
|
60,568
|
|
There were
no
unrecovered amounts expensed directly to Cost of Goods and Services Sold in the Statements of Consolidated Operations for abnormal yield adjustments or unrecovered amounts from prior crops for the years ended
March 31, 2018
and
2017
. Normal yield adjustments are capitalized into the cost of the current crop and are expensed as Cost of Goods and Services Sold as that crop is sold.
Guarantees
The Company, and certain of its foreign subsidiaries, guarantee bank loans to suppliers for crop financing. Under longer-term arrangements, the Company may also guarantee financing on suppliers’ construction of curing barns or other tobacco production assets. Guaranteed loans are generally repaid concurrent with the delivery of tobacco to the Company. The Company is obligated to repay any guaranteed loan should the supplier default. If default occurs, the Company has recourse against the supplier. The Company also guarantees bank loans of certain unconsolidated subsidiaries in Asia and Brazil. The following table summarizes amounts guaranteed and the fair value of those guarantees:
|
|
|
|
|
|
|
|
|
March 31, 2018
|
March 31, 2017
|
Amounts guaranteed (not to exceed)
|
$
|
150,900
|
|
$
|
194,656
|
|
Amounts outstanding under guarantee
|
126,835
|
|
106,465
|
|
Fair value of guarantees
|
5,864
|
|
7,126
|
|
Of the guarantees outstanding at
March 31, 2018
, all expire within
one
year. The fair value of guarantees is recorded in Accrued Expenses and Other Current Liabilities in the Consolidated Balance Sheets and included in crop costs except for the joint venture in Brazil which are included in Accounts Receivable, Related Parties. See
Note 18 "Fair Value Measurements"
to the "Notes to Consolidated Financial Statements" for further information.
In Brazil, some suppliers obtain government subsidized rural credit financing from local banks that is guaranteed by the Company. The Company withholds amounts owed to suppliers related to the rural credit financing of the supplier upon delivery of tobacco to the Company. The Company remits payments to the local banks on behalf of the guaranteed suppliers. Terms of rural credit financing are such that repayment is due to local banks based on contractual due dates. As of
March 31, 2018
and
2017
, respectively, the Company had balances of
$14,807
and
$20,860
that were due to local banks on behalf of suppliers. These amounts are included in Accounts Payable in the Consolidated Balance Sheets.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(
continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Goodwill and Other Intangibles
Goodwill represents the excess of purchase price over fair value of net assets acquired and is allocated to the appropriate reporting unit when acquired. Reporting units may be operating segments as a whole or an operation one level below an operating segment, referred to as a component. The components within the Company’s operating segments were aggregated into three reporting units (North America, Africa and Other Regions) due to their similar economic characteristics. Goodwill is not subject to amortization. Goodwill is tested for impairment annually or whenever events and circumstances indicate that impairment may have occurred. Goodwill is evaluated for impairment by determining the fair value of the related reporting unit. Fair value is measured based on a discounted cash flow method or relative market-based approach. If the carrying amount of goodwill exceeds its fair value, an impairment charge is recorded.
The Company has intangible assets with indefinite useful lives and intangible assets with definite useful lives. These intangible assets are tested for impairment whenever factors indicate that the carrying amount may not be recoverable. Supply contracts are amortized based on the expected realization of the benefit over the term of the contracts ranging from
three
to
five
years. Production contracts and the customer relationship and license intangibles are all amortized on a straight-line basis ranging from
five
to
ten
years and
twenty
years, respectively. The amortization period is the term of the contract or, if no term is specified in the contract, management’s best estimate of the useful life based on past experience. Internally developed software is amortized on a straight-line basis over
five
years once the software testing is complete. Events and changes in circumstance may either result in a revision in the estimated useful life or impairment of an intangible. See
Note 5 “Goodwill and Other Intangibles”
to the “Notes to Consolidated Financial Statements” for further information.
Other Noncurrent Assets
For the year ended
March 31, 2018
, other noncurrent assets consist primarily of long-term value-added tax (VAT) and intrastate tax receivables of
$5,431
, long-term advances to suppliers of
$5,294
, long-term escrow deposits of
$22,182
,
long-term retirement benefit assets of
$10,417
, and cash surrender value of life insurance of
$5,456
. For the year ended
March 31, 2017
, other noncurrent assets consist primarily of long-term VAT and intrastate tax receivables of $
4,170
, long-term advances to suppliers of $
5,855
, long-term escrow deposits of
$12,745
, long-term retirement benefit assets of
$7,555
, and cash surrender value of life insurance of $
5,502
.
Property, Plant and Equipment
Property, plant and equipment at
March 31, 2018
and
2017
, are summarized as follows:
|
|
|
|
|
|
|
|
|
2018
|
2017
|
Land
|
$
|
26,474
|
|
$
|
27,705
|
|
Buildings
|
216,947
|
|
207,833
|
|
Machinery and equipment
|
185,679
|
|
178,182
|
|
Total
|
429,100
|
|
413,720
|
|
Less accumulated depreciation
|
(174,819
|
)
|
(157,209
|
)
|
Total property, plant and equipment, net
|
$
|
254,281
|
|
$
|
256,511
|
|
Property, plant and equipment is stated at cost less accumulated depreciation. Provisions for depreciation are computed on a straight-line basis at annual rates calculated to amortize the cost of depreciable properties over their estimated useful lives. Buildings and machinery and equipment are depreciated over ranges of
20
to
30
years and
three
to
ten
years, respectively. The consolidated financial statements do not include fully depreciated assets. Depreciation expense recorded in Cost of Goods and Services Sold for the years ended
March 31, 2018
,
2017
and
2016
was
$26,967
,
$27,730
and
$23,132
, respectively. Depreciation expense recorded in Selling, General, and Administrative Expenses for the years ended
March 31, 2018
,
2017
and
2016
was
$2,382
,
$2,662
and
$2,699
, respectively. Total property and equipment purchases, including internally developed software intangibles, were
$23,298
for the year ended
March 31, 2018
of which
$697
was unpaid at
March 31, 2018
and included in Accounts Payable;
$12,737
for the year ended
March 31, 2017
of which
$413
was unpaid at
March 31, 2017
and included in Accounts Payable; and
$17,786
for the year ended
March 31, 2016
of which
$1,359
was unpaid at
March 31, 2016
and included in Accounts Payable. Estimated useful lives are periodically reviewed and changes are made to the estimated useful lives when necessary. Long-lived assets are reviewed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Derivative Financial Instruments
The Company uses 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, processing costs, and selling, general and administrative costs. Derivative financial instruments are recognized on the balance sheet as assets and liabilities and are measured at fair value. Changes in the fair value of derivative instruments designated as hedging instruments are recorded each period according to the determination of the derivative's effectiveness. The effective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded in Accumulated Other Comprehensive Loss and subsequently reclassified into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the change in fair value of the derivatives is recognized in Cost of Goods and Services Sold immediately as incurred.
As of
March 31, 2018
, there were
no
designated cash flow hedges remaining in Other Comprehensive Loss. The Company recorded losses of
$1,818
,
$1,161
and
$2,001
in its Cost of Goods and Services Sold for the years ended
March 31, 2018
,
2017
, and
2016
, respectively. There was
no
current derivative asset as of
March 31, 2018
. The Company recorded a current derivative asset of
$943
as of
March 31, 2017
.
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 18 “Fair Value Measurements”
to the “Notes to Consolidated Financial Statements” for further information of fair value methodology.
Income Taxes
The Company uses the asset and liability method to account for income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.
The Company’s annual tax rate is based on its income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties. The Company reviews its tax positions quarterly and adjusts the balances as new information becomes available.
Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. The Company evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely on estimates. The Company uses historical experience and short and long-range business forecasts to provide insight. The Company believes it is more likely than not that a portion of the deferred income tax assets may expire as unused and has established a valuation allowance against them. During the year ended March 31, 2018, the valuation allowance against the Company's net deferred tax assets in the U.S. were released after management determined that it is more likely than not that the net deferred tax assets will be realized in this tax jurisdiction. Although realization is not assured for the remaining deferred income tax assets, the Company believes it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act is complex, materially revises the U.S. Federal corporate income tax law by, among other things, reducing the rate from 35% to 21% starting after January 1, 2018, implementing a modified territorial tax system that includes a one-time transition tax on deemed repatriated earnings of foreign subsidiaries, and includes various changes which will impact the Company. As of March 31, 2018, the Company has not completed the accounting related to the enactment of the Tax Act but has determined that a reasonable estimate of the provisions of the Tax Act can be made. These estimates include the impact to the deferred tax balances due to the tax rate change, effects of the transition tax, and the change in the U.S. valuation allowance. See
Note 12 “Income Taxes”
to the “Notes to Consolidated Financial Statements” for further information.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Stock-Based Compensation
The Company expenses the fair value of grants of various stock-based compensation programs at fair value over the vesting period of the awards. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model which was developed for use in estimating the fair value of exchange traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions, including the expected stock price volatility. See
Note 11 “Stock-Based Compensation”
to the “Notes to Consolidated Financial Statements” for further information.
New Accounting Standards
Recently Adopted Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2015-11,
Inventory.
ASU 2015-11 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. The Company adopted this guidance on April 1, 2017. There was no impact on the consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718)
. ASU 2016-09 provides simplification for the accounting for employee stock-based payment transactions, including the related income tax consequences, the classification of awards as either equity or liabilities, and the classification of transactions in the statement of cash flows. The Company adopted this guidance on April 1, 2017 using the modified retrospective transition method. The adoption of this guidance did not have a material impact on the consolidated financial statements and related disclosures.
Recent Accounting Pronouncements Not Yet Adopted
In May 2014, the FASB issued ASU No. 2014-09,
Revenue Recognition (Topic 606), Revenue from Contracts with Customers.
ASU 2014-09 outlines a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The guidance also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts. This guidance is effective for the Company on April 1, 2018. Companies are allowed to select between two transition methods: (1) a full retrospective transition method with the application of the new guidance to each prior reporting period presented, or (2) a modified retrospective transition method that recognizes the cumulative effect on prior periods at the date of adoption together with additional footnote disclosures. This guidance was adopted using the modified retrospective transition method as of April 1, 2018. The implementation group for this ASU has evaluated the impact of this guidance on the consolidated financial statements and related disclosures, business processes, systems, and controls and the adoption of this guidance does not have a material impact on the consolidated financial statements. However, the Company does expect the adoption of this guidance to result in additional disclosures.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments - Recognition and Measurement of Financial Assets and Liabilities.
ASU 2016-01 requires equity investments (excluding equity method investments) to be measured at fair value with changes in fair value recognized in net income. This guidance is effective for the Company on April 1, 2018. This guidance will be adopted using the modified retrospective transition method. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842).
ASU 2016-02 requires lessees to recognize right of use assets and liabilities arising from leases on the balance sheet. In addition, leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance also requires disclosures about the amount, timing, and uncertainty of cash flows arising from leases. This guidance is effective for the Company on April 1, 2019. This guidance will be adopted using the modified retrospective transition method. The Company has formed a project team to evaluate and implement this guidance. The Company has elected to adopt an accounting policy, for all asset classes, to include both the lease and non-lease components as a single component and account for it as a lease. The Company has elected to utilize the transition practical expedients, as prescribed in ASC 842-10-65-1(f). The adoption of this guidance is expected to materially increase assets and liabilities on the consolidated balance sheets. The Company does not expect the adoption of this guidance to have a material impact on its existing debt covenants.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
New Accounting Standards
(continued)
Recent Accounting Pronouncements Not Yet Adopted
(continued)
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 provides financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This guidance is effective for the Company on April 1, 2020. This guidance will be adopted using the modified retrospective transition method. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
ASU 2016-15 clarifies the classification of certain cash receipts and cash payments to reduce the diversity in practice on how these activities are presented on the statement of cash flows. This guidance is effective for the Company on April 1, 2018. This guidance will be adopted using the full retrospective transition method. The adoption of this guidance is expected to result in a material reclassification from cash flows from operating activities to cash flows from investing activities in the consolidated statement of cash flows and the disclosure of beneficial interests obtained as consideration for transferring trade receivables in securitization transactions.
In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash.
ASU 2016-18 clarifies the presentation of restricted cash on the statement of cash flows to reduce diversity in practice on how restricted cash is presented on the statement of cash flows. This guidance is effective for the Company on April 1, 2018. This guidance will be adopted using the full retrospective transition method. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
ASU 2017-04 eliminates the requirement to determine implied goodwill in measuring an impairment loss. Upon adoption, goodwill impairment will be measured as the excess of the reporting unit’s carrying value over fair value, limited to the amount of goodwill. This guidance is effective for the Company on April 1, 2020. Early adoption is permitted. This guidance will be adopted prospectively. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU No. 2017-07,
Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.
ASU 2017-07 was issued to increase the consistency, transparency, and usefulness of financial information of retirement benefits by disaggregating the service cost component from the other components of net benefit cost. This guidance is effective for the Company on April 1, 2019. Early adoption is permitted. This guidance will be adopted using the full retrospective transition method. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
In August 2017, the FASB issued ASU No. 2017-12,
Derivative and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
. ASU 2017-12 was issued to better align risk and management activities to financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments to cash flow and net investment hedge relationships that exist on the date of adoption are applied using a modified retrospective method. The presentation and disclosure requirements apply prospectively. This guidance is effective for the Company on April 1, 2019. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In February 2018, the FASB issued ASU No. 2018-02,
Income Statement - Reporting Comprehensive income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The guidance is effective for the Company on April 1, 2019. Early adoption is permitted. Amendments in the update should be applied either in the period of adoption or retrospectively to each period in which the effect of the change in U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company is evaluating the effect that adoption of this guidance will have on its consolidated financial statements and related disclosures.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Computation of Earnings (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
(in thousands, except per share data)
|
2018
|
|
2017
|
|
2016
|
BASIC EARNINGS (LOSS)
|
|
|
|
|
|
Net income (loss) attributable to Alliance One International, Inc.
|
$
|
52,436
|
|
|
$
|
(62,928
|
)
|
|
$
|
65,532
|
|
SHARES
|
|
|
|
|
|
Weighted Average Number of Shares Outstanding
|
8,989
|
|
|
8,930
|
|
|
8,882
|
|
BASIC EARNINGS (LOSS) PER SHARE
|
$
|
5.83
|
|
|
$
|
(7.05
|
)
|
|
$
|
7.38
|
|
|
|
|
|
|
|
DILUTED EARNINGS (LOSS)
|
|
|
|
|
|
Net income (loss) attributable to Alliance One International, Inc.
|
$
|
52,436
|
|
|
$
|
(62,928
|
)
|
|
$
|
65,532
|
|
SHARES
|
|
|
|
|
|
Weighted average number of shares outstanding
|
8,989
|
|
|
8,930
|
|
|
8,882
|
|
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
|
33
|
|
|
—
|
|
*
|
1
|
|
Adjusted weighted average number of shares outstanding
|
9,022
|
|
|
8,930
|
|
|
8,883
|
|
DILUTED EARNINGS (LOSS) PER SHARE
|
$
|
5.81
|
|
|
$
|
(7.05
|
)
|
|
$
|
7.38
|
|
|
|
*
|
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.
|
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
March 31, 2018
and
2017
. 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
458
at a weighted average exercise price of
$61.00
per share at
March 31, 2017
.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation in the Company's U.S. statutory federal income tax rate disclosure.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 1
- Significant Accounting Policies
(continued)
Other Comprehensive Income (Loss)
The following tables set forth the changes in each component of accumulated other comprehensive income (loss), net of tax, attributable to the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Translation Adjustment
|
Pensions, Net of Tax
|
Derivatives, Net of Tax
|
Accumulated Other Comprehensive Loss
|
Balances at March 31, 2015
|
$
|
(14,154
|
)
|
$
|
(52,232
|
)
|
$
|
—
|
|
$
|
(66,386
|
)
|
Other comprehensive income before reclassifications
|
108
|
|
7,811
|
|
—
|
|
7,919
|
|
Amounts reclassified to net income, net of tax
|
—
|
|
4,619
|
|
—
|
|
4,619
|
|
Other comprehensive income, net of tax
|
108
|
|
12,430
|
|
—
|
|
12,538
|
|
Balances at March 31, 2016
|
(14,046
|
)
|
(39,802
|
)
|
—
|
|
(53,848
|
)
|
Other comprehensive losses before reclassifications
|
(8,247
|
)
|
(573
|
)
|
(1,100
|
)
|
(9,920
|
)
|
Amounts reclassified to net loss, net of tax
|
—
|
|
3,721
|
|
—
|
|
3,721
|
|
Other comprehensive income (loss), net of tax
|
(8,247
|
)
|
3,148
|
|
(1,100
|
)
|
(6,199
|
)
|
Balances at March 31, 2017
|
(22,293
|
)
|
(36,654
|
)
|
(1,100
|
)
|
(60,047
|
)
|
Other comprehensive losses before reclassifications
|
9,611
|
|
(2,121
|
)
|
1,100
|
|
8,590
|
|
Amounts reclassified to net income, net of tax
|
—
|
|
6,195
|
|
—
|
|
6,195
|
|
Other comprehensive income, net of tax
|
9,611
|
|
4,074
|
|
1,100
|
|
14,785
|
|
Balances at March 31, 2018
|
$
|
(12,682
|
)
|
$
|
(32,580
|
)
|
$
|
—
|
|
$
|
(45,262
|
)
|
The following table sets forth amounts by component, reclassified from accumulated other comprehensive income (loss) to net income (loss) for the years ended
March 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending March 31,
|
|
2018
|
2017
|
2016
|
Pension and postretirement plans *:
|
|
|
|
Actuarial loss
|
$
|
2,513
|
|
$
|
3,911
|
|
$
|
3,629
|
|
Amortization of prior service cost (credit)
|
(667
|
)
|
(670
|
)
|
840
|
|
Deferred income tax benefit
|
4,349
|
|
480
|
|
150
|
|
Amounts reclassified from accumulated other comprehensive income (loss) to net income (loss)
|
$
|
6,195
|
|
$
|
3,721
|
|
$
|
4,619
|
|
|
|
|
|
* Amounts are included in net periodic benefit costs for pension and postretirement plans.
|
|
Concentration of Credit Risk
The Company may potentially be subject to a concentration of credit risks due to tobacco supplier advances and trade receivables relating to customers in the tobacco industry as well as cash which is deposited with high-credit-quality financial institutions. See
Note 14 “Segment Information”
to the “Notes to Consolidated Financial Statements” for further information of particular concentrations.
Preferred Stock
The Board of Directors is authorized to issue shares of Preferred Stock in series with variations as to the number of shares in any series. The Board of Directors is also authorized to establish the rights and privileges of such shares issued, including dividend and voting rights. At
March 31, 2018
,
10,000
shares of preferred stock were authorized and
no
shares had been issued.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 2
– Inventories
|
|
|
|
|
|
|
|
|
March 31, 2018
|
March 31, 2017
|
Processed tobacco
|
$
|
468,208
|
|
$
|
424,984
|
|
Unprocessed tobacco
|
204,149
|
|
220,625
|
|
Other
|
25,730
|
|
32,716
|
|
Total
|
$
|
698,087
|
|
$
|
678,325
|
|
The Company recorded LCM adjustments of
$2,189
,
$4,833
and
$5,996
for the years ended
March 31, 2018
,
2017
and
2016
, respectively.
Note 3
– Variable Interest Entities
The Company holds variable interests in multiple variable interest entities that primarily procure or process inventory on behalf of the Company and the other parties. These variable interests relate to equity investments, advances, and guarantees made by the Company. 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 they are not consolidated. At
March 31, 2018
and
2017
, the Company’s investment in variable interest entities was
$64,208
and
$51,443
, respectively, and is classified as Investments in Unconsolidated Affiliates in the Consolidated Balance Sheets. The Company’s advances to variable interest entities as of
March 31, 2018
and
2017
were
$5,895
and
$8,133
, respectively, and are classified as Accounts Receivable, Related Parties in the Consolidated Balance Sheets. The Company guaranteed an amount to two variable interest entities not to exceed
$65,487
and
$96,378
at
March 31, 2018
and
2017
, respectively. The investments, advances, and guarantees in these variable interest entities represent the Company’s maximum exposure to loss.
Note 4
– Restructuring and Asset Impairment Charges
During the quarter ended March 31, 2015, the Company announced 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 in future periods. As of
March 31, 2018
, the costs of any future initiatives are not estimable. During the fiscal year ended
March 31, 2018
, the asset impairment charges were incurred due to restructuring of certain operations in Africa. During the fiscal year ended March 31, 2017, the asset impairment charges were incurred due to certain operations in Africa and the Company's former U.S. cut rag facility. During the fiscal year ended March 31, 2016, the asset impairment charges were incurred due to restructuring of certain operations in Africa, Bulgaria, and Brazil as well as the curtailment of certain U.S. pension plans.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 4
– Restructuring and Asset Impairment Charges
(continued)
The following table summarizes the restructuring actions as of
March 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
2018
|
2017
|
2016
|
Employee separation and other cash charges:
|
|
|
|
Beginning balance
|
$
|
189
|
|
$
|
398
|
|
$
|
8,087
|
|
Period Charges:
|
|
|
|
Employee separation charges (recoveries)
|
(22
|
)
|
517
|
|
(498
|
)
|
Other cash charges
|
—
|
|
120
|
|
662
|
|
Total employee separation and other cash charges (recoveries)
|
(22
|
)
|
637
|
|
164
|
|
Payments
|
(60
|
)
|
(846
|
)
|
(7,853
|
)
|
Ending balance March 31
|
$
|
107
|
|
$
|
189
|
|
$
|
398
|
|
Asset impairment and other non-cash charges
|
404
|
|
738
|
|
5,724
|
|
Total restructuring and asset impairment charges
|
$
|
382
|
|
$
|
1,375
|
|
$
|
5,888
|
|
The following table summarizes the employee separation and other cash charges recorded in the Company’s North America and Other Regions segments as of
March 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
|
2018
|
2017
|
2016
|
|
North America
|
Other Regions
|
North America
|
Other Regions
|
North America
|
Other Regions
|
Beginning balance
|
$
|
60
|
|
$
|
129
|
|
$
|
—
|
|
$
|
398
|
|
$
|
—
|
|
$
|
8,087
|
|
Period charges (recoveries)
|
—
|
|
(22
|
)
|
180
|
|
457
|
|
—
|
|
164
|
|
Payments
|
(60
|
)
|
—
|
|
(120
|
)
|
(726
|
)
|
—
|
|
(7,853
|
)
|
Ending balance March 31
|
$
|
—
|
|
$
|
107
|
|
$
|
60
|
|
$
|
129
|
|
$
|
—
|
|
$
|
398
|
|
The following table summarizes non-cash charges for the Company's North America and Other Regions segments for fiscal years ended
March 31, 2018
,
2017
, and
2016
:
|
|
|
|
|
|
|
North America
|
Other Regions
|
Years ended March 31,
|
|
|
2018
|
—
|
|
404
|
|
2017
|
495
|
|
243
|
|
2016
|
712
|
|
5,012
|
|
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 5
– Goodwill and Other Intangibles
The Company tests the carrying amount of goodwill annually as of the first day of the last quarter of the fiscal year and whenever events or circumstances indicate that impairment may have occurred. The Company evaluated its goodwill for impairment during fiscal
2018
,
2017
, and
2016
and determined that the fair value of each reporting unit is substantially in excess of its carrying value including goodwill.
The carrying value of other intangible assets as of
March 31, 2018
represents customer relationship, production and supply contracts, licenses, and internally developed software. These intangible assets were determined by management to meet the criterion for recognition apart from goodwill. The Company uses judgment in assessing whether the carrying amount of its intangible assets is not expected to be recoverable. Amortization expense associated with finite-lived intangible assets was
$5,982
,
$4,514
, and
$3,356
for the years ended
March 31, 2018
,
2017
and
2016
, respectively, and is recorded in Selling, General and Administrative Expenses except for production and supply contracts which is recorded against the associated revenues.
The following table summarizes the changes in the Company's goodwill and other intangibles for the years ended
March 31, 2018
,
2017
and
2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable Intangibles
|
|
|
Goodwill
(1)
|
Customer Relationship Intangible
|
Production and Supply Contract Intangibles
|
Internally Developed Software Intangible
|
License Intangibles
|
Total
|
Weighted average remaining useful life in years as of March 31, 2018
|
|
10.85
|
|
3.82
|
|
2.82
|
|
19.84
|
|
|
March 31, 2016 balance:
|
|
|
|
|
|
|
Gross carrying amount
|
$
|
16,463
|
|
$
|
58,530
|
|
$
|
14,893
|
|
$
|
18,502
|
|
$
|
—
|
|
$
|
108,388
|
|
Accumulated amortization
|
—
|
|
(18,324
|
)
|
(6,611
|
)
|
(16,419
|
)
|
—
|
|
(41,354
|
)
|
Net March 31, 2016 balance
|
16,463
|
|
40,206
|
|
8,282
|
|
2,083
|
|
—
|
|
67,034
|
|
Additions
|
—
|
|
—
|
|
—
|
|
79
|
|
—
|
|
79
|
|
Amortization expense
|
—
|
|
(3,340
|
)
|
(432
|
)
|
(742
|
)
|
—
|
|
(4,514
|
)
|
Net March 31, 2017 balance
|
16,463
|
|
36,866
|
|
7,850
|
|
1,420
|
|
—
|
|
62,599
|
|
Additions
(2)
|
11,083
|
|
—
|
|
—
|
|
231
|
|
30,339
|
|
41,653
|
|
Amortization expense
|
—
|
|
(3,341
|
)
|
(1,731
|
)
|
(667
|
)
|
(243
|
)
|
(5,982
|
)
|
Net March 31, 2018 balance
|
$
|
27,546
|
|
$
|
33,525
|
|
$
|
6,119
|
|
$
|
984
|
|
$
|
30,096
|
|
$
|
98,270
|
|
(1) Goodwill of
$2,795
relates to the North America segment and
$24,751
relates to the Other Regions segment.
(2) Additions to Goodwill and Licenses relate to acquisition of Canada's Island Garden Inc. and Goldleaf Pharm Inc.
The following table summarizes the estimated intangible asset amortization expense for the next five years and beyond:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal Years Ended
|
Customer Relationship Intangible
|
Production and Supply Contract Intangibles
|
Internally Developed Software Intangible*
|
Licenses
|
Total
|
2019
|
$
|
3,340
|
|
$
|
1,738
|
|
$
|
473
|
|
$
|
1,517
|
|
$
|
7,068
|
|
2020
|
3,340
|
|
1,741
|
|
294
|
|
1,517
|
|
6,892
|
|
2021
|
3,340
|
|
1,397
|
|
132
|
|
1,517
|
|
6,386
|
|
2022
|
3,340
|
|
1,243
|
|
60
|
|
1,517
|
|
6,160
|
|
2023
|
3,340
|
|
—
|
|
25
|
|
1,517
|
|
4,882
|
|
Later
|
16,825
|
|
—
|
|
—
|
|
22,511
|
|
39,336
|
|
|
$
|
33,525
|
|
$
|
6,119
|
|
$
|
984
|
|
$
|
30,096
|
|
$
|
70,724
|
|
* Estimated amortization expense for the internally developed software is based on costs accumulated as of
March 31, 2018
. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 6
– Related Party Transactions
The Company’s operating subsidiaries engage in transactions with related parties in the normal course of business. The following is a summary of balances and transactions with related parties of the Company:
|
|
|
|
|
|
|
|
|
March 31, 2018
|
March 31, 2017
|
Balances:
|
|
|
Accounts receivable
|
$
|
8,188
|
|
$
|
8,133
|
|
Accounts payable
|
$
|
14,835
|
|
$
|
9,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
|
|
2018
|
2017
|
2016
|
Transactions:
|
|
|
|
Sales
|
$
|
25,257
|
|
$
|
47,726
|
|
$
|
18,827
|
|
Purchases
|
$
|
101,096
|
|
$
|
62,350
|
|
$
|
264,707
|
|
The Company’s operating subsidiaries have entered into transactions with affiliates of the Company for the purpose of procuring inventory.
The Company’s balances due to and from related parties and transactions relate to the Company’s equity basis investments in companies located in Asia, South America, North America and Europe which grow, purchase, process and sell tobacco or produce consumable e-liquids.
Note 7
– Short-Term Borrowing Arrangements
Excluding all long-term credit agreements, the Company has lines of credit arrangements with a number of banks under which the Company may borrow up to a total of
$739,994
and
$808,695
at
March 31, 2018
and
2017
, respectively. The weighted average variable interest rate for the years ending
March 31, 2018
and
2017
was
6.1%
and
5.9%
, respectively. At
March 31, 2018
and
2017
, amounts outstanding under the lines were
$427,277
and
$475,863
, respectively. Unused lines of credit at
March 31, 2018
amounted to
$300,445
, net of
$12,272
of letters of credit and
$319,844
at
March 31, 2017
, net of
$12,989
of letters of credit. Certain non-U.S. borrowings of approximately
$134,743
and
$144,881
have inventories of
$101,051
and
$56,040
as collateral at
March 31, 2018
and
2017
, respectively. At
March 31, 2018
and
2017
, respectively,
$1,261
and
$1,767
were held on deposit as a compensating balance.
Note 8
– Long-Term Debt
The terms of the First Lien Notes and the ABL Facility, and certain effects of these refinancing transactions, are summarized below:
First Lien Notes
On October 14, 2016, the Company issued
$275,000
in aggregate principal amount of
8.5%
senior secured first lien notes due 2021 (the “First Lien Notes”), at an issue price of
99.085%
of the face amount thereof. The First Lien Notes, which bear interest at a rate of
8.500%
per year, are payable semi-annually in arrears in cash on April 15 and October 15 of each year, beginning April 15, 2017, to holders of record at the close of business on the preceding April 1 and October 1, respectively. The First Lien Notes mature on April 15, 2021. The First Lien Notes are initially guaranteed on a senior secured basis by Alliance One’s subsidiary, Alliance One Specialty Products, LLC (the “Initial Guarantor”), and each of its future material domestic subsidiaries are required to guarantee the First Lien Notes on a senior secured basis. The Initial Guarantor is not a material domestic subsidiary, and Alliance One currently has no material domestic subsidiaries. The Initial Guarantor and any future guarantors of the First Lien Notes are referred to as the “guarantors.”
Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) and under the ABL Facility (as defined below) and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are secured by first-priority liens on substantially all of Alliance One’s and the guarantors’ tangible and intangible assets, subject to certain exceptions and permitted liens (the “Collateral”). Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have first-priority in the waterfall set forth in a senior lien intercreditor agreement entered into in connection with the issuance of the First Lien Notes and the establishment of the ABL Facility (the “Senior Lien Intercreditor
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 8
– Long-Term Debt
(continued)
First Lien Notes
(continued)
Agreement”) in respect of the liens on the Collateral that is not ABL Priority Collateral (as defined below), including owned material real property in the United States, capital stock of subsidiaries owned directly by Alliance One or a guarantor (except that, in the case of foreign subsidiaries, only capital stock of only direct foreign subsidiaries that are material are to be pledged and only
65%
of the voting capital stock and
100%
of the non-voting capital stock are to be pledged), existing and after acquired intellectual property rights, equipment, related general intangibles and instruments and certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “Notes Priority Collateral”). Alliance One’s and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Notes Priority Collateral. Alliance One’s and the guarantors’ obligations under the First Lien Notes and any guarantee of the First Lien Notes (and certain related obligations) have second-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the Collateral consisting of accounts receivable, inventories, cash (other than identifiable cash proceeds of the Notes Priority Collateral), deposit accounts, related general intangibles and instruments, certain other related assets of the foregoing and proceeds of the foregoing (collectively, the “ABL Priority Collateral”). Alliance One’s and the guarantors’ obligations under the ABL Facility and any guarantee of the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) have first-priority in the waterfall set forth in the Senior Lien Intercreditor Agreement in respect of the liens on the ABL Priority Collateral.
If a change of control (as defined in the indenture governing the First Lien Notes) occurs at any time, holders of the First Lien Notes will have the right, at their option, to require the Company to repurchase all or a portion of the First Lien Notes for cash at a price equal to
101%
of the principal amount of First Lien Notes being repurchased, plus accrued and unpaid interest, to, but excluding, the date of repurchase. The indenture governing the First Lien Notes restricts (subject to exceptions and qualifications) the Company's ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends and make other restricted payments (including restricted investments), sell assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with its affiliates, enter into certain sale and leaseback transactions, create certain dividend and payment restrictions on its restricted subsidiaries, and designate its subsidiaries as unrestricted subsidiaries.
ABL Facility
On October 14, 2016, the Company entered into an ABL credit agreement (the “ABL Credit Agreement”) with certain bank lenders establishing a senior secured revolving asset-based lending facility (the “ABL Facility”) of
$60,000
subject to a borrowing base composed of its eligible accounts receivable and inventory. The ABL Facility may be used for revolving credit loans, swingline loans and letters of credit from time to time up to an initial maximum principal amount of
$60,000
, subject to the limitations described below in this paragraph. Under certain conditions, Alliance One may solicit the ABL Facility lenders or other prospective lenders to provide additional revolving loan commitments under the ABL Facility in an aggregate amount not to exceed
$15,000
(less the aggregate principal amount of any notes exceeding
$275,000
issued under the First Lien Notes Indenture). The maximum amount available under the revolving credit facility is limited by a borrowing base consisting of eligible accounts receivable and inventory as follows:
|
|
•
|
85%
of eligible accounts receivable, plus
|
|
|
•
|
the lesser of (i)
85%
of the appraised net-orderly-liquidation value of eligible inventory or (ii)
65%
of eligible inventory valued at the lower of cost (based on a first-in first-out basis) and market value thereof (net of intercompany profits).
|
The borrowing base is subject to a
$25,000
deduction and customary reserves, which are to be established by the agent for the ABL Facility lenders in its permitted discretion from time to time. At
March 31, 2018
, no borrowings were outstanding under the ABL Facility and
$60,000
was available for borrowing. Borrowing is permitted under the ABL Credit Facility only to the extent that, after consideration of the application of the proceeds of the borrowing, the Company’s unrestricted cash and cash equivalents would not exceed
$180,000
. At
March 31, 2018
, the Company’s unrestricted cash and cash equivalents significantly exceeded
$180,000
.
In addition, loans under the ABL Facility shall not be made if after incurrence of such loans there will be more than
$180,000
of unrestricted cash and cash equivalents in the aggregate on the consolidated balance sheet of the Company and its subsidiaries. The ABL Facility permits both base rate borrowings and LIBOR borrowings. Borrowings under the ABL Facility bear interest at an annual rate equal to LIBOR plus
250
basis points or
150
basis points above base rate, as applicable, with a fee on unused borrowings initially at an annual rate of
50
basis points until March 31, 2017 and thereafter at annual rates of either
37.5
or
50
basis points based on average quarterly historical utilization under the ABL Facility. The ABL Facility matures on
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 8
– Long-Term Debt
(continued)
ABL Facility
(continued)
January 14, 2021.
In addition, customary mandatory prepayments of the loans under the ABL Facility are required upon the occurrence of certain events including, without limitation, certain dispositions of assets outside of the ordinary course of business in respect of certain collateral securing the ABL Facility, unrestricted cash and cash equivalents on the Company’s consolidated balance sheet exceeding
$180,000
for a period of
seven
consecutive business days, and certain casualty and condemnation events.
The Company’s obligations under the ABL Facility (and certain related obligations and obligations in respect of certain hedging arrangements) are (a) guaranteed by the Initial Guarantor and are required to be guaranteed by each material domestic subsidiary of Alliance One (currently there are no material domestic subsidiaries of Alliance One) (collectively with the Company, the “Credit Parties”) and (b) secured by the Collateral.
The liens and other security interests granted by the Credit Parties on the Collateral for the benefit of the ABL Lenders (and certain related secured parties) are, subject to certain permitted liens, secured by first-priority security interests on a
pari passu
basis with the security interests securing the First Lien Notes, with respective priorities in a waterfall with respect to portions of the Collateral as set forth in the Senior Lien Intercreditor Agreement described above.
Under the terms of the ABL Facility, if (i) an event of default has occurred and is continuing or (ii) excess borrowing availability under the ABL Facility (based on the lesser of the commitments thereunder and the borrowing base) (the “Excess Availability”) falls below the greater of (x)
$12,500
and (y)
25%
of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Cash Dominion Threshold”) for more than three consecutive business days, the Credit Parties will become subject to cash dominion, which will require daily prepayment of loans under the ABL Facility with the cash deposited in certain deposit accounts of the Credit Parties, including concentration accounts, and will restrict the Credit Parties’ ability to transfer cash from their concentration accounts to their disbursement accounts. Such cash dominion period shall end when (i) if arising as a result of a continuing event of default, such event of default ceases to exist, or (ii) if arising as a result of non-compliance with the Excess Availability threshold, Excess Availability shall be equal to or greater than the Cash Dominion Threshold for a period of
30
consecutive days.
The ABL Credit Agreement governing the ABL Facility contains a springing covenant requiring that the Company’s fixed charge coverage ratio be no less than
1.00
to
1.00
during any period commencing when Excess Availability is less than the greater of (x)
$10,000
and (y)
20%
of the lesser of (A) the commitments under the ABL Facility at such time and (B) the borrowing base at such time (such greater amount being the “Financial Covenant Threshold”) until such time as Excess Availability has been equal to or greater than the Financial Covenant Threshold for a period of
30
consecutive days.
The ABL Credit Agreement governing the ABL Facility contains customary representations and warranties, affirmative and negative covenants (subject, in each case, to exceptions and qualifications) and events of defaults, including covenants that limit the Company’s ability to, among other things incur certain guarantees, merge, consolidate or dispose of substantially all of its assets, grant liens on assets, pay dividends, redeem stock or make other distributions or restricted payments, create certain dividend and payment restrictions on subsidiaries, repurchase or redeem capital stock or prepay subordinated or certain other material debt (including the First Lien Notes and the Company’s senior secured second lien notes due 2021), make certain investments, agree to restrictions on the payment of dividends to Alliance One by its subsidiaries, sell or otherwise dispose of assets, including equity interests of subsidiaries, enter into transactions with affiliates, enter into certain sale and leaseback transactions.
The ABL credit agreement restricts the Company from paying any dividends during the term of this facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the Company's First Lien Notes and its senior secured second lien notes due 2021 contain similar restrictions and also prohibits the payment of dividends and other distributions if the Company fails to satisfy a ratio of consolidated EBITDA to fixed charges of at least
2.0
to 1.0. At
March 31, 2018
, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio.
Termination of Existing Senior Secured Revolving Credit Facility
On October 14, 2016, the Company terminated its then existing senior secured revolving credit facility and repaid in full all outstanding indebtedness plus accrued and unpaid interest and other costs, of which
$73
was charged to debt retirement expense. As a result, the Company accelerated
$2,266
of deferred financing costs during the three months ended December 31, 2016, which was charged to debt retirement expense.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 8
- Long-Term Debt
(continued)
Senior Secured Second Lien Notes
On August 1, 2013, the Company issued
$735,000
in aggregate principal amount of its
9.875%
senior secured second lien notes due 2021 (the "Second Lien Notes"). The Second Lien Notes were sold at
98%
of the face value, for gross proceeds of approximately
$720,300
. The Second Lien Notes bear interest at a rate of
9.875%
per year, payable semi-annually in arrears in cash on January 15 and July 15 of each year, beginning January 15, 2014, to holders of record at the close of business on the preceding January 1 and July 1, respectively. The Second Lien Notes will mature on July 15, 2021. The Second Lien Notes are secured by a second priority lien on specified property of Alliance One International, Inc. for which the amended and restated senior secured credit facility is secured by a first priority lien. The indenture governing the Second Lien Notes restricts (subject to exceptions and qualifications) the Company's ability and the ability of its restricted subsidiaries to, among other things, incur additional indebtedness or issue disqualified stock or preferred stock, pay dividends and make other restricted payments (including restricted investments), sell assets, create liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into transactions with its affiliates, enter into certain sale and leaseback transactions, create certain dividend and payment restrictions on its restricted subsidiaries, and designate its subsidiaries as unrestricted subsidiaries.
The indenture governing the Second Lien Notes requires the Company's existing and future material domestic subsidiaries to guarantee the Second Lien Notes. The Company has no material domestic subsidiaries, and the Second Lien Notes are not presently guaranteed by any subsidiary. If a change of control (as defined in the indenture governing the Second Lien Notes) occurs at any time, holders of the Second Lien Notes will have the right, at their option, to require the Company to repurchase all or a portion of the Second Lien Notes for cash at a price equal to
101%
of the principal amount of Second Lien Notes being repurchased, plus accrued and unpaid interest and special interest, if any, to, but excluding, the date of repurchase. In connection with the issuance of the Second Lien Notes, the Company entered into a registration rights agreement that requires the Company to pay additional special interest on the Second Lien Notes, at increasing annual rates up to a maximum of
1.0%
per year, if the Company fails to timely comply with its registration obligations thereunder. Pursuant to the registration rights agreement, on December 20, 2013, the Company completed a registered exchange offer in which it offered to exchange for the outstanding Second Lien Notes an equal amount of new Second Lien Notes having identical terms in all material respects. During the year ended
March 31, 2018
, the Company purchased
$28,645
of the Second Lien Notes on the open market. All purchased securities were canceled leaving
$662,946
of the Second Lien Notes outstanding at
March 31, 2018
. Associated costs paid were
$72
and related discounts were
$(3,730)
resulting in net cash repayment of
$25,644
and recorded in Repayment of Long-Term Borrowings in the Consolidated Statements of Cash Flows. Deferred financing costs and amortization of original issue discount of
$684
were accelerated. During the year ended
March 31, 2017
, the Company purchased
$28,409
of the Second Lien Notes on the open market. All purchased securities were canceled leaving
$691,591
of the Second Lien Notes outstanding at
March 31, 2017
. Associated costs paid were
$71
and related discounts were
$(3,409)
resulting in net cash repayment of
$25,606
and recorded in Repayment of Long-Term Borrowings in the Consolidated Statements of Cash Flows. Deferred financing costs and amortization of original issue discount of
$678
were accelerated. In April 2018, the Company purchased
$10,868
of its Second Lien Notes on the open market. See
Note 22 "Subsequent Events"
to the Notes to Consolidated Financial Statements.
Covenants Limiting Dividends
The ABL Credit Agreement restricts the Company from paying any dividends during the term of the ABL Facility subject to the satisfaction of specified financial ratios. In addition, the indentures governing the First Lien Notes and the Second Lien Notes contain similar restrictions and also prohibit 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 March 31, 2018, the Company did not satisfy this fixed charge coverage ratio. The Company may from time to time not satisfy this ratio and failure to meet this fixed charge coverage ratio does not constitute an event of default.
Foreign Seasonal Lines of Credit
The Company has typically financed its non-U.S. operations with uncommitted unsecured short-term seasonal lines of credit at the local level. These operating lines are seasonal in nature, normally extending for a term of
180
to
270
days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making
loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. As of
March 31, 2018
, the Company had approximately
$427,277
drawn and outstanding on foreign seasonal lines with maximum capacity totaling $
739,994
subject to limitations as provided for in the Credit Agreement. Additionally, against these lines there was
$12,272
available in unused letter of credit capacity with
$4,809
issued but unfunded.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 8
- Long-Term Debt
(continued)
Summary of Debt
Certain debt agreements contain cross-default or cross-acceleration provisions. The Company has considered its short-term liquidity needs, the adequacy of estimated cash flows from operating activities, and other financing sources to meet these needs. The Company expects that its cash and cash equivalents, available borrowings from foreign lines of credit and accounts receivable securitization programs, and cash flows from operating activities are sufficient to meet anticipated cash flow needs for operations, capital expenditures, debt service obligations, and other fees payable under other contractual obligations for the foreseeable future. The following table summarizes the Company’s debt financing as of
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
|
|
Outstanding
|
Lines and
|
|
|
|
|
March 31, 2017
|
March 31, 2018
|
Letters
|
Interest
|
|
Long Term Debt Repayment Schedule by Fiscal Year
|
|
Available
|
Rate
|
|
2019
|
2020
|
2021
|
2022
|
2023
|
Later
|
Senior secured credit facility:
|
|
|
|
|
|
|
|
|
|
|
|
ABL Facility
(1)
|
—
|
|
—
|
|
60,000
|
|
—
|
%
|
(2
|
)
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
8.5% senior secured first lien
notes due 2021
(3)
|
267,049
|
|
268,943
|
|
—
|
|
8.5
|
%
|
|
—
|
|
—
|
|
—
|
|
268,943
|
|
—
|
|
—
|
|
9.875% senior secured
second lien notes due 2021
(4)
|
675,076
|
|
650,495
|
|
—
|
|
9.9
|
%
|
|
—
|
|
—
|
|
—
|
|
650,495
|
|
—
|
|
—
|
|
Long-term foreign seasonal borrowings
|
10,000
|
|
—
|
|
—
|
|
4.4
|
%
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Other long-term debt
|
880
|
|
869
|
|
—
|
|
6.0
|
%
|
(2
|
)
|
164
|
|
334
|
|
70
|
|
70
|
|
70
|
|
160
|
|
Notes payable to banks
(5)
|
475,863
|
|
427,277
|
|
300,445
|
|
6.1
|
%
|
(2
|
)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Total debt
|
$
|
1,428,868
|
|
$
|
1,347,584
|
|
$
|
360,445
|
|
|
|
$
|
164
|
|
$
|
334
|
|
$
|
70
|
|
$
|
919,508
|
|
$
|
70
|
|
$
|
160
|
|
Short-term
(5)
|
$
|
475,863
|
|
$
|
427,277
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt current
|
$
|
10,046
|
|
$
|
164
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
942,959
|
|
920,143
|
|
|
|
|
|
|
|
|
|
|
|
$
|
953,005
|
|
$
|
920,307
|
|
|
|
|
|
|
|
|
|
|
Letters of credit
|
$
|
5,211
|
|
$
|
4,809
|
|
7,463
|
|
|
|
|
|
|
|
|
|
Total credit available
|
|
|
$
|
367,908
|
|
|
|
|
|
|
|
|
|
(1) As of March 31, 2018 the full amount of the ABL facility was available. Borrowing is permitted under the ABL Credit Facility only to the extent that, after consideration of the application of the proceeds of the borrowing, the Company’s unrestricted cash and cash equivalents would not exceed
$180,000
. At March 31, 2018, the Company’s unrestricted cash and cash equivalents significantly exceeded
$180,000
.
(2) Weighted average rate for the twelve months ended March 31, 2018.
(3) Repayment of
$268,943
is net of original issue discount of
$1,806
and unamortized debt issuance of
$4,251
. Total repayment will be
$275,000
.
(4) Repayment of
$650,495
is net of original issue discount of
$6,802
and unamortized debt issuance of
$5,649
. Total repayment will be
$662,946
.
(5) Primarily foreign seasonal lines of credit.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 9
- Long-Term Leases
The Company has operating leases for land, buildings, automobiles and other equipment. Rent expense for all operating leases was
$21,829
,
$21,689
and
$22,989
for the years ended
March 31, 2018
,
2017
and
2016
, respectively. Minimum future obligations are as follows:
|
|
|
|
|
|
Operating
Leases
|
2019
|
$
|
18,084
|
|
2020
|
11,728
|
|
2021
|
7,366
|
|
2022
|
3,039
|
|
2023
|
978
|
|
Remaining
|
2,421
|
|
Total
|
$
|
43,616
|
|
Note 10
– Equity in Net Assets of Investee Companies
The Company has equity method investments in companies located in Asia that purchase and process tobacco. The Asia investees and ownership percentages are as follows: Alliance One Industries India Private Ltd. (India)
49%
, Siam Tobacco Export Company (Thailand)
49%
, and Adams International Ltd. (Thailand)
49%
. The Company owns a
50%
equity-based interest in Oryantal Tutun Paketleme which processes tobacco in Turkey. The Company also has a
50%
interest in Purilum, LLC, a U.S. company that develops, produces, and sells consumable e-liquids to manufacturers and distributors of e-vapor products.
On August 21, 2017, the Company completed a purchase of a
40%
interest in Nicotine River, LLC, an e-liquid company. The difference between the book basis of the Company's
40%
interest and the fair value of the investment recorded was
$2,481
. For the year ended
March 31, 2018
, the Company’s earnings from the equity method investment were reduced by amortization expense of
$145
related to this basis difference. As of March 31, 2018, the basis difference was
$2,336
.
On December 18, 2017, the Company completed a purchase of a
40%
interest in Criticality LLC ("Criticality"), a North Carolina-based industrial hemp company that is engaged in cannabidiol ("CBD") extraction and other applications for industrial hemp in accordance with a pilot program authorized under the federal Agriculture Act of 2014 and applicable North Carolina law.
On March 26, 2014, the Company completed the formation of a new joint venture in Brazil with the disposition of
51%
interest in China Brasil Tobacos Exportadora SA (“CBT”). The Company retained a
49%
equity-based interest in CBT which purchases and processes tobacco. Upon the disposition of
51%
interest in CBT, the difference between the book basis of the Company’s
49%
interest and the fair value of the investment recorded created a basis difference of
$15,990
. The Company evaluated the contributed assets and identified basis differences in certain accounts, including inventory, intangible assets, and deferred taxes. The basis differences are being amortized over the respective estimated lives of these assets and liabilities, which range from
one
to
ten
years. For the year ended
March 31, 2018
, the Company’s earnings from the equity method investment were reduced by amortization expense of
$1,518
related to these basis differences. As of
March 31, 2018
, the basis difference was
$8,586
.
Summarized combined financial information for these investees for fiscal years ended
March 31, 2018
,
2017
, and
2016
follows:
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended March 31,
|
Operations Statement Information
|
2018
|
2017
|
2016
|
Sales
|
$
|
317,183
|
|
$
|
232,145
|
|
$
|
274,183
|
|
Gross profit
|
53,161
|
|
23,739
|
|
42,143
|
|
Net income
|
23,954
|
|
3,072
|
|
15,254
|
|
Company's dividends received
|
2,826
|
|
4,307
|
|
1,887
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
Balance Sheet Information
|
2018
|
2017
|
Current assets
|
$
|
162,893
|
|
$
|
139,146
|
|
Property, plant and equipment and other assets
|
53,941
|
|
54,674
|
|
Current liabilities
|
103,687
|
|
102,550
|
|
Long-term obligations and other liabilities
|
5,067
|
|
7,432
|
|
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)
Note 10
– Equity in Net Assets of Investee Companies
(continued)
Of the amounts presented above, the summarized financial information for CBT for the fiscal years ended
March 31, 2018
,
2017
, and
2016
was as follows: Sales were
$200,609
,
$146,070
, and
$172,140
for the years ended
March 31, 2018
,
2017
, and
2016
, respectively. Gross profit was
$32,989
,
$13,704
, and
$30,567
for the years ended
March 31, 2018
,
2017
, and
2016
, respectively. Net income was
$16,575
,
$3,464
, and
$14,369
for the years ended
March 31, 2018
,
2017
, and
2016
, respectively. The Company's dividends received were
$1,812
,
$4,307
, and
$1,887
for the years ended
March 31, 2018
,
2017
, and
2016
, respectively. Current assets were
$108,050
and
$82,953
as of
March 31, 2018
and
2017
, respectively. Property, plant and equipment and other assets were
$6,208
and
$4,903
as of
March 31, 2018
and
2017
, respectively. Current liabilities were
$78,587
and
$64,848
as of
March 31, 2018
and
2017
, respectively. Long-term obligations and other liabilities were
$176
and
$391
as of
March 31, 2018
and
2017
, respectively.