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Alliance One International Inc. Reports Operating Results (10-K)

June 13, 2012 | About:
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10qk

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Alliance One International Inc. (AOI) filed Annual Report for the period ended 2012-03-31.

Alliance One has a market cap of $254.2 million; its shares were traded at around $2.95 with and P/S ratio of 0.1. Alliance One had an annual average earning growth of 12.7% over the past 10 years.

Highlight of Business Operations:

Total sales and other operating revenues increased $56.7 million compared to the prior year. Our tobacco sales increased $21.2 million despite lower green costs for the fiscal 2012 crop which were passed on to the customer and lower volumes primarily from the prior year assignment of approximately 20% of our tobacco suppliers in Brazil to PMI. Processing and other revenues increased $35.5 million from long-term processing agreements in Brazil and other countries as customers increasingly source their leaf supply directly. Gross profit increased 3.9% primarily due to improved factory efficiencies, product mix and the non-recurrence of lower of cost or market inventory adjustments from the prior year. Gross profit as a percentage of sales increased marginally from 13.2% in 2011 to 13.4% in 2012. Selling, general and administrative expenses (“SG&A”) decreased 6.5% compared to the prior year primarily from reduced compensation costs as a result of our restructuring initiatives in the prior year and the non-recurrence of significant reserves on customer receivables in the prior year. Offsetting decreased SG&A was independent monitor costs of $6.1 million, an increase of $2.7 million over the prior year. Other operating income (expense) was $15.7 million in 2012 and $37.4 million in 2011 primarily from asset gains in Brazil. In the prior year, we began several strategic initiatives in response to shifting supply and demand balances and the changing business models of customers. While substantially complete, these initiatives resulted in restructuring and asset impairment charges of $1.0 million in 2012 and $23.5 million in the prior year. As a result of increased sales and margins and lower SG&A costs, operating income increased 16.5% or $21.9 million compared to the prior year.

Compared to the prior year, sales and other operating revenues decreased 9.3% and gross profit decreased 30.2% due to JTI s vertical integration initiative and lower demand by customers as a result of reduced cigarette consumption in some markets. Gross profit as a percentage of sales decreased from 17.2% in 2010 to 13.2% in 2011. Impacting gross profit was increased lower of cost or market inventory adjustments and margin pressures due to the industry entering into an oversupply situation. Gross profit was also impacted by higher local costs and product mix. Selling, general and administrative expenses were relatively constant compared to the prior year although this year includes independent monitor costs of $3.4 million and reserves on customer receivables of $3.1 million. Other operating income (expense) was $37.4 million in 2011 primarily related to gains of $37.8 million from the sale of contracts with tobacco suppliers and other assets in Brazil to Philip Morris International, Inc. In 2010, other operating income (expense) was $(17.3) million primarily related to recording an estimated loss of $19.5 million, including disgorgement and penalties, in connection with negotiations with the SEC and Department of Justice and their investigation of alleged FCPA violations. In response to shifting supply and demand balances and the changing business models of customers, several strategic initiatives were implemented this year. In addition to the appointment of new leadership to better position us for the future, we began realigning origin and corporate operations to increase operational efficiency and effectiveness. These initiatives resulted in restructuring charges of $23.5 million. This review is ongoing as we continue to define and execute the necessary changes to support core business functions. As a result of lower sales and margins, operating income decreased 40.6% or $90.9 million compared to the prior year.

Gross profits decreased $69.3 million in 2011 compared to 2010 primarily due to JTI s vertical integration initiative, increased lower of cost or market inventory adjustments of $5.9 million, product mix and shipping delays. Gross profit as a percentage of sales decreased 3.8% as a result of these factors.

Historically we have needed capital in excess of cash flow from operations to finance accounts receivable, inventory and advances to suppliers for tobacco crops in certain foreign countries. Purchasing, processing and selling activities of our business are seasonal and our need for capital fluctuates with corresponding peaks where outstanding indebtedness may be significantly greater or less as a result. Our long-term borrowings consist of unsecured senior and convertible senior subordinated notes as well as a senior secured revolving credit facility. We also have short-term lines of credit available with a number of banks throughout the world to provide needed seasonal working capital to correspond with regional peaks of our business. Over the last twelve months, as a result of the shift in our sales patterns from shipping larger volumes in the first half of our fiscal year to the second half, we increased debt, net of cash, by $10.2 million from $1,073.1 million as of March 31, 2011 to $1,083.3 million as of March 31, 2012. Our debt is longer term in nature with a significant portion of the maturities extending out to 2016. On June 13, 2012, we entered into the Fifth Amendment to our $290.0 million revolving credit facility, which incorporates provisions that eliminate Restricted Payments, including distributions, Company Common Stock repurchases, and purchases of our public Senior Notes and Convertible Senior Subordinated Debt prior to the revolving credit facility's new extended maturity of April 15, 2014.

Our working capital decreased from $846.9 million at March 31, 2011 to $828.6 million at March 31, 2012. Our current ratio was 2.3 to 1 at March 31, 2012 compared to 2.8 to 1 at March 31, 2011. The decrease in working capital is primarily related to the shift in our sales patterns and timing of shipments from larger volumes shipping in the first part of our fiscal year to the second half of the fiscal year. The volumes and timing of fourth quarter shipments resulted in increased notes payable to banks partially offset by increased accounts receivable and cash balances compared to the prior year.

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