NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Due to the seasonal nature of the Company’s business, the results of operations for any fiscal quarter are not necessarily indicative of the operating results that may be attained for other quarters or a full fiscal year. In the opinion of management, all normal and recurring adjustments necessary for fair statement of financial position, results of operations, and cash flows at the dates and for the periods presented have been included. All intercompany accounts and transactions have been eliminated.
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
March 31, 2018
.
Taxes Collected from Customers
Certain subsidiaries are subject to value-added taxes on local sales. These amounts have been included in sales and other operating revenues and cost of goods and services sold and were
$3,876
and
$3,854
for the three months ended
June 30, 2018
and
2017
, respectively.
Cash and Cash Equivalents
As of
June 30, 2018
, the Company held
$2,638
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.
Property, Plant, and Equipment
Total property and equipment purchases for the three months ended June 30, 2018 and 2017 included
$1,854
and
$583
that were unpaid and included in Accounts Payable.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("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. The Company adopted this guidance on April 1, 2018 to all contracts using the modified retrospective approach. There was no impact on the consolidated financial statements. The adoption of this guidance resulted in additional disclosures. See
"Note 2. Revenue Recognition"
for more information.
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. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes as of June 30, 2017 to the condensed consolidated statement cash flows: cash collections from beneficial interests of
$75,543
was reclassified from operating activities to investing activities and
$58,557
obtained as a beneficial interest for transferring trade receivables in a securitization transaction has been added as a non-cash disclosure.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
Recently Adopted Accounting Pronouncements
(continued)
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. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in the following changes: a reclassification of
$2,326
and
$3,373
from other current and other long-term assets in total to separately stated line items for restricted cash in the condensed consolidated balance sheets as of June 30, 2017 and March 31, 2018, respectively; the change in restricted cash of
$17
presented in investing activities in the consolidated statements of cash flows is eliminated as of June 30, 2017; and the inclusion of
$2,326
of restricted cash in the calculation of cash, cash equivalents, and restricted cash at the end of the period in the condensed consolidated statements of cash flows as of June 30, 2017.
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. The Company adopted this guidance on April 1, 2018 using the retrospective approach. The adoption of this guidance resulted in a reclassification of
$341
from selling, general, and administrative expenses to interest expense in the condensed consolidated statement of operations for the three months ended June 30, 2017. See
"Note 13 Pension and Retirement Benefits"
for more information.
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 Company early adopted this guidance on April 1, 2018 using the modified retrospective approach. 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 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 may be adopted using a modified retrospective approach and is effective for the Company on April 1, 2019. 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.
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. The Company is evaluating the effect that adoption of this guidance will have 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.
2. REVENUE RECOGNITION
The Company derives revenue from contracts with customers primarily from the sale of processed tobacco and fees charged for processing and related services to the manufacturers of tobacco products. The Company does not disclose information related to its unsatisfied performance obligations with an expected duration of one year or less. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company’s performance obligations are satisfied when the transfer of control of the distinct product or service
2. REVENUE RECOGNITION
(continued)
to the customer occurs. For products, control is transferred and revenue is recognized at a point in time, in accordance with the terms of the contract. For services, control is transferred and revenue is recognized using the input method over time, in accordance with the terms of the contract. The Company applied a practical expedient to account for shipping and handling costs as costs to fulfill its performance obligations, irrespective of when control transfers. A kilogram of processed tobacco (or tobacco processing services resulting in a kilogram of processed tobacco) is the only material and distinct performance obligation for each of the Company’s revenue streams; therefore, consideration is attributed to the performance of this obligation. Revenue is measured as the amount of consideration to which the Company expects to be entitled to receive in exchange for transferring goods or providing services. Contract costs primarily include labor, material, shipping and handling, and overhead expenses. Certain subsidiaries are subject to value-added taxes on local sales. These amounts have been included in sales and other operating revenues and cost of goods and services sold.
The following disaggregates sales and other operating revenues by major source:
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
North America:
|
|
Product revenue
|
$
|
46,457
|
|
Processing and other revenues
|
3,595
|
|
Total sales and other operating revenues
|
50,052
|
|
|
|
Other Regions:
|
|
Product revenue
|
226,907
|
|
Processing and other revenues
|
14,030
|
|
Total sales and other operating revenues
|
240,937
|
|
|
|
Total sales and other operating revenues
|
$
|
290,989
|
|
Product revenue is primarily processed tobacco sold to the customer. Processing and other revenues are mainly contracts to process green tobacco owned and provided by the customer. During processing, ownership remains with the customer and the Company is engaged to perform processing services.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company records product and supply contract intangible assets for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year, and if such costs are material. Total capitalized costs to obtain a contract were immaterial during the periods presented. Capitalized costs to obtain a contract as of June 30, 2018 were
$5,715
and classified as other intangible assets. See
Note 5 “Goodwill and Intangible Assets”
for more information. The Company applied a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less.
Significant Judgments
The Company has identified two main forms of variable consideration in its contracts with customers: warehousing fees for storing customer controlled tobacco until the customer requests shipment and claims resulting from tobacco that do not meet the customer specifications. Warehousing fees are built into the price of tobacco based on the customers' best estimate of the date they will request shipment or separately charged using a per day storage rate. When the Company enters into a contract with a customer, the price communicated is the amount of consideration the Company expects to receive. Price adjustments for tobacco not meeting customer specifications for shrinkage, improper blend or chemical makeup, etc. are handled through a claims allowance that is assessed quarterly. As of
June 30, 2018
, the claims allowance was
$1,100
. The Company incurred claims payments of
$963
for the
three months ended June 30, 2018
.
2. REVENUE RECOGNITION
(continued)
Contract Balances
The Company generally records a receivable when revenue is recognized. Timing of revenue recognition may differ from the timing of payment from customers. Payment terms and conditions vary by contract, although terms generally include a requirement of payment within
30
to
60 days
. The Company applied a practical expedient not to adjust the transaction price for the effects of financing components as the Company expects that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. As a result, where the timing of revenue recognition differs from the timing of payment, the Company determined its contracts do not include a significant financing component.
The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, and other currently available information. The following summarizes activity in the allowance for doubtful accounts:
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
Balance, beginning of period
|
$
|
(7,055
|
)
|
Additions
|
(293
|
)
|
Writes-offs
|
91
|
|
Balance, end of period
|
(7,257
|
)
|
Accounts receivable
|
204,091
|
|
Accounts receivable, net
|
$
|
196,834
|
|
3. INCOME TAXES
Accounting for Uncertainty in Income Taxes
As of
June 30, 2018
, the Company’s unrecognized tax benefits totaled
$7,544
,
$7,255
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
June 30, 2018
, accrued interest and penalties totaled
$746
and
$916
, 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 benefit due to currency exchange rate movements.
During the three months ended
June 30, 2018
, the Company reached income tax settlements with the Kenyan Revenue Authority for
$1,166
. An uncertain tax position had previously been recorded of
$2,692
, which resulted in a favorable adjustment to tax expense of
$1,526
. In addition, the Company entered into negotiations with the Zimbabwe Revenue Authority during its amnesty program to settle asserted issues. The Company paid
$2,988
during the quarter and accrued another
$844
in anticipation of the settlement. These amounts have not previously been accrued as an uncertain tax position.
The Company does not currently foresee any changes in the amount of its 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
June 30, 2018
, the Company’s earliest open tax year for U.S. federal income tax purposes is its fiscal year ended March 31, 2015; 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.
Enactment of Tax Cuts and Jobs Act (“Tax Act”)
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC Topic 740-Income Taxes (“ASC 740”).
3. INCOME TAXES
(continued)
During the year ended March 31, 2018, the Company recorded certain provisional impacts of the Tax Act. As noted in the Company's prior filings, provisional tax effects may differ during the measurement period, possibly materially, due to further refinement of the calculations, changes in interpretations and assumptions made, and additional guidance that may be issued by the Department of the U.S. Treasury, the Internal Revenue Service, and other regulatory and standard setting bodies. During the quarter, there has not been a change in the provisional amounts that have been recorded. These amounts remain provisional pending further regulatory guidance.
The Company will complete its analysis within its fiscal year 2019, consistent with the guidance provided in SAB 118, and any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. No such adjustments were included in income tax expense for the three months ended June 30, 2018.
Provision for the Three Months Ended
June 30, 2018
The effective tax rate used for the three months ended
June 30, 2018
and 2017 were
92.7%
and
(2.1)%
, respectively. 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 they occur. The primary difference in the effective tax rate this year compared to last year is due to the impact of the U.S. tax reform, which resulted in a change in the taxability of operations, principally due to the impact of the new section 163(j) interest addback. The impact was accentuated by the net foreign exchange effects.
For the three months ended
June 30, 2018
, the Company recorded the net tax effects of certain discrete events, including the changes in U.S. tax law resulting from the Tax Act, which resulted in an income tax expense of
$3,906
, bringing the effective tax rate for the three months of
107.1%
to
92.7%
. This discrete income tax expense primarily relates to the impact of changes in uncertain tax positions and changes in foreign exchange impacts. For the three months ended
June 30, 2017
, the Company recorded the tax effects of a discrete event resulting in additional income tax expense of
$1,554
, bringing the effective tax rate for the three months of
2.9%
to
(2.1)%
. This discrete income tax expense primarily relates to net exchange losses on income tax accounts, net exchange losses related to liabilities for unrecognized tax benefits, and the release of uncertain tax positions. The significant difference in the estimated effective tax rate for the three months ended
June 30, 2018
from the U.S. federal statutory rate is primarily due to the impact of U.S. Tax Reform and changes resulting from net foreign exchange effects.
4. GUARANTEES
In certain markets, the Company guarantees bank loans to suppliers to finance their crops. Under long-term arrangements, the Company may also guarantee financing to suppliers for the 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 South America. The following summarizes amounts guaranteed and the fair value of those guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
June 30, 2017
|
March 31, 2018
|
Amounts guaranteed (not to exceed)
|
$
|
153,347
|
|
$
|
195,840
|
|
$
|
150,900
|
|
Amounts outstanding under guarantee
|
84,116
|
|
116,257
|
|
126,835
|
|
Fair value of guarantees
|
3,544
|
|
6,388
|
|
5,864
|
|
Of the guarantees outstanding at
June 30, 2018
, all expire within
one
year. The fair value of guarantees is recorded in accrued expenses and other current liabilities in the condensed consolidated balance sheets and included in crop costs, except for the joint venture in Brazil, which is included in accounts receivable, related parties.
In Brazil, certain suppliers obtain government subsidized rural credit financing from local banks that is guaranteed by the Company. The Company withholds amounts owed to suppliers related to the rural credit financing of the supplier upon delivery of tobacco to the Company. The Company remits payments to the local banks on behalf of the guaranteed suppliers. Rural credit financing repayment is due to local banks based on contractual due dates. As of
June 30, 2018
and
2017
and
March 31, 2018
, respectively, the Company had balances of
$18,652
,
$24,142
, and
$14,807
due to local banks on behalf of suppliers included in accounts payable in the condensed consolidated balance sheets.
5. GOODWILL AND INTANGIBLES
The following summarizes goodwill and intangible assets as of
June 30, 2018
and
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
Weighted Average Remaining Useful Life
|
Beginning Gross Carrying Amount
|
Additions
|
Accumulated Amortization
|
Impact of Foreign Currency Translation
|
Ending Intangible Assets, Net
|
Intangibles subject to amortization:
|
|
|
|
|
|
|
Customer relationship intangible
|
10.22 years
|
$
|
58,530
|
|
$
|
5,450
|
|
$
|
(26,010
|
)
|
$
|
—
|
|
$
|
37,970
|
|
Production and supply contract intangibles
|
3.56 years
|
14,893
|
|
—
|
|
(9,178
|
)
|
—
|
|
5,715
|
|
Internally developed software intangible
|
2.90 years
|
18,812
|
|
199
|
|
(17,970
|
)
|
—
|
|
1,041
|
|
License intangibles
|
19.60 years
|
30,339
|
|
—
|
|
(594
|
)
|
(633
|
)
|
29,112
|
|
Trade names
|
7.75 years
|
—
|
|
500
|
|
(16
|
)
|
—
|
|
484
|
|
Intangibles not subject to amortization:
|
|
|
|
|
|
|
|
Goodwill
(1)
|
|
27,546
|
|
7,174
|
|
—
|
|
(233
|
)
|
34,487
|
|
Total
|
|
$
|
150,120
|
|
$
|
13,323
|
|
$
|
(53,768
|
)
|
$
|
(866
|
)
|
$
|
108,809
|
|
(1) Goodwill of
$2,795
relates to the North America segment and
$31,692
relates to the Other Regions segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2018
|
|
Beginning Gross Carrying Amount
|
Additions
|
Accumulated Amortization
|
Ending Intangible Assets, Net
|
Intangibles subject to amortization:
|
|
|
|
|
Customer relationship intangible
|
$
|
58,530
|
|
$
|
—
|
|
$
|
(25,005
|
)
|
$
|
33,525
|
|
Production and supply contract intangibles
|
14,893
|
|
—
|
|
(8,774
|
)
|
6,119
|
|
Internally developed software intangible
|
18,581
|
|
231
|
|
(17,828
|
)
|
984
|
|
License intangibles
|
—
|
|
30,339
|
|
(243
|
)
|
30,096
|
|
Intangibles not subject to amortization:
|
|
|
|
|
Goodwill
(1)
|
16,463
|
|
11,083
|
|
—
|
|
27,546
|
|
Total
|
$
|
108,467
|
|
$
|
41,653
|
|
$
|
(51,850
|
)
|
$
|
98,270
|
|
(1) Goodwill of
$2,795
relates to the North America segment and
$24,751
relates to the Other Regions segment.
The following summarizes the estimated future intangible asset amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For Fiscal
Years Ended
|
Customer
Relationship
Intangible
|
Production
and Supply
Contract
Intangible
|
Internally
Developed
Software
Intangible*
|
Licenses
|
Trade Names
|
Total
|
July 1, 2018 through March 31, 2019
|
$
|
3,016
|
|
$
|
1,335
|
|
$
|
370
|
|
$
|
1,114
|
|
$
|
47
|
|
$
|
5,882
|
|
2020
|
4,022
|
|
1,741
|
|
333
|
|
1,485
|
|
63
|
|
7,644
|
|
2021
|
4,022
|
|
1,397
|
|
172
|
|
1,485
|
|
63
|
|
7,139
|
|
2022
|
4,022
|
|
1,242
|
|
99
|
|
1,485
|
|
63
|
|
6,911
|
|
2023
|
4,022
|
|
—
|
|
67
|
|
1,485
|
|
63
|
|
5,637
|
|
Later
|
18,866
|
|
—
|
|
—
|
|
22,058
|
|
185
|
|
41,109
|
|
|
$
|
37,970
|
|
$
|
5,715
|
|
$
|
1,041
|
|
$
|
29,112
|
|
$
|
484
|
|
$
|
74,322
|
|
* Estimated amortization expense for the internally developed software is based on costs accumulated as of
June 30, 2018
. These estimates will change as new costs are incurred and until the software is placed into service in all locations.
6. 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 of its preexisting variable interests in these variable interest entities, as it does not have the power to direct the activities that most significantly impact the economic performance of the entities due to the entities’ management and board of directors' structure. As a result, these entities are not consolidated. The Company is the primary beneficiary of its newly acquired variable interest in Humble Juice Co., LLC. See
"Note 20. Acquisitions"
for more information.
As of
June 30, 2018
and
2017
, and
March 31, 2018
, the Company’s investment in variable interest entities was
$63,021
,
$50,450
, and
$64,208
, respectively, and is classified as investments in unconsolidated affiliates in the condensed consolidated balance sheets. The Company’s advances to these variable interest entities as of
June 30, 2018
and
2017
, and
March 31, 2018
were
$9,937
,
$14,828
, and $
5,895
, respectively, and classified as accounts receivable, related parties in the condensed consolidated balance sheets. The Company guaranteed an amount to
two
variable interest entities not to exceed
$71,919
,
$103,955
, and
$65,487
as of
June 30, 2018
and
2017
, and
March 31, 2018
, respectively. The investments, advances, and guarantees in these variable interest entities represent the Company’s maximum exposure to loss.
7. SEGMENT INFORMATION
The Company purchases, processes, sells, and stores leaf tobacco and other specialty products. 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 customers may choose to fulfill their needs from any of the areas where the Company purchases tobacco.
Selling, logistics, billing, and administrative overhead, including depreciation, which originates primarily from the Company’s corporate and sales offices, are allocated to the segments based on operating income. Intercompany transactions are allocated to the operating segment that either purchases or processes the tobacco. Investments in new business lines as part of the Company's transformation process are in development and reported in the Other Regions segment.
The following summarizes segment information:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Sales and other operating revenues:
|
|
|
North America
|
$
|
50,052
|
|
$
|
65,287
|
|
Other Regions
|
240,937
|
|
211,706
|
|
Total revenue
|
$
|
290,989
|
|
$
|
276,993
|
|
|
|
|
Operating income (loss):
|
|
|
North America
|
$
|
442
|
|
$
|
(1,649
|
)
|
Other Regions
|
4,249
|
|
1,086
|
|
Total operating income (loss)
|
4,691
|
|
(563
|
)
|
Debt retirement expense (benefit)
|
(84
|
)
|
(2,975
|
)
|
Interest expense
|
32,912
|
|
34,442
|
|
Interest income
|
888
|
|
968
|
|
Loss before income taxes and other items
|
$
|
(27,249
|
)
|
$
|
(31,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
June 30, 2017
|
March 31, 2018
|
Segment assets:
|
|
|
|
North America
|
$
|
300,238
|
|
$
|
293,057
|
|
$
|
379,354
|
|
Other Regions
|
1,829,128
|
|
1,681,945
|
|
1,587,277
|
|
Total assets
|
$
|
2,129,366
|
|
$
|
1,975,002
|
|
$
|
1,966,631
|
|
8. EARNINGS PER SHARE
The weighted average number of common shares outstanding is reported as the weighted average of the total shares of common stock outstanding, net of shares of common stock held by a wholly owned subsidiary. Shares of common stock owned by the subsidiary were
785
as of
June 30, 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
427
at a weighted average exercise price of
$60.00
per share as of
June 30, 2018
and
458
at a weighted average exercise price of
$61.00
per share as of
June 30, 2017
. Diluted net loss per share as of
June 30, 2018
and 2017 was the same as basic net loss per share as the effects of potentially dilutive items were antidilutive given the Company’s net loss.
The following summarizes the computation of earnings per share for the three months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
(in thousands, except per share data)
|
2018
|
|
2017
|
|
Basic loss
|
|
|
|
|
Net loss attributable to Alliance One International, Inc.
|
$
|
(759
|
)
|
|
$
|
(32,543
|
)
|
|
Shares
|
|
|
|
|
Weighted average number of shares outstanding
|
9,027
|
|
|
8,964
|
|
|
Basic loss per share
|
$
|
(0.08
|
)
|
|
$
|
(3.63
|
)
|
|
|
|
|
|
|
Diluted loss
|
|
|
|
|
Net loss attributable to Alliance One International, Inc.
|
$
|
(759
|
)
|
|
$
|
(32,543
|
)
|
|
Shares
|
|
|
|
|
Weighted average number of shares outstanding
|
9,027
|
|
|
8,964
|
|
|
Plus: Restricted shares issued and shares applicable to stock options and restricted stock units, net of shares assumed to be purchased from proceeds at average market price
|
—
|
|
*
|
—
|
|
*
|
Adjusted weighted average number of shares outstanding
|
9,027
|
|
|
8,964
|
|
|
Diluted loss per share
|
$
|
(0.08
|
)
|
|
$
|
(3.63
|
)
|
|
* All outstanding restricted shares and shares applicable to stock options and restricted stock units are excluded because their inclusion would have an antidilutive effect on the loss per share.
|
9. STOCK-BASED COMPENSATION
The Company recorded stock-based compensation expense related to stock-based awards granted under its various employee and non-employee stock incentive plans of
$295
and
$345
for the three months ended
June 30, 2018
and
2017
, respectively, of which
zero
and
$54
, respectively, were for stock-based awards payable in cash.
The Company’s shareholders approved the 2016 Incentive Plan (the "2016 Plan") at its annual meeting on August 12, 2016, which is the successor to the 2007 Incentive Plan (the “2007 Plan”) as amended on August 11, 2011 and August 6, 2009. The 2016 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.
9. STOCK-BASED COMPENSATION
(continued)
The following summarizes the Company's stock-based compensation awards:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
(in thousands, except grant date fair value)
|
2018
|
2017
|
Restricted stock
|
|
|
Number granted
|
7
|
|
7
|
|
Grant date fair value
|
$
|
15.85
|
|
$
|
14.40
|
|
Restricted stock units
|
|
|
Number granted
|
61
|
|
57
|
|
Grant date fair value
|
$
|
16.00
|
|
$
|
11.75
|
|
Performance-based stock units
|
|
|
Number granted
|
30
|
|
29
|
|
Grant date fair value
|
$
|
16.00
|
|
$
|
11.75
|
|
Restricted stock consists of shares issued to non-employee directors of the Company that are not subject to a minimum vesting period. Restricted stock units differ from restricted stock in that shares are not issued until the restrictions lapse. Restricted stock units granted during the three months ended
June 30, 2018
vest ratably over a
three
-year period. Under the terms of the performance-based stock units, shares issued will be contingent upon the achievement of specified business performance goals.
10. CONTINGENCIES AND OTHER INFORMATION
The government in the Brazilian State of Parana (“Parana”) issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil. The assessment for intrastate trade tax credits taken is
$3,416
and the total assessment including penalties and interest at
June 30, 2018
is
$11,629
. The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process. Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.
The Company also has local intrastate trade tax credits in the Brazilian State of Santa Catarina and the State of Rio Grande do Sul. These jurisdictions permit the sale or transfer of excess credits to third parties. However, approval must be obtained from the tax authorities. The Company has an agreement with the state governments regarding the amounts and timing of credits that can be sold. The tax credits have a carrying value of
$6,082
as of
June 30, 2018
, which is net of impairment charges based on management’s expectations about future realization. The intrastate trade tax credits will continue to be monitored for impairment in future periods based on market conditions and the Company’s ability to use or sell the tax credits.
In 1969, the Brazilian government created a tax credit program that allowed companies to earn IPI tax credits (“IPI credits”) based on the value of their exports. The government began to phase out this program in 1979, which resulted in numerous lawsuits between taxpayers and the Brazilian government. The Company has a long legal history with respect to credits it earned while the IPI credit program was in effect. In 2001, the Company won a claim related to certain IPI credits it earned between 1983 and 1990. The Brazilian government appealed this decision and numerous rulings and appeals were rendered on behalf of both the government and the Company from 2001 through 2013. Because of this favorable ruling, the Company began to use these earned IPI credits to offset federal taxes in 2004 and 2005, until it received a Judicial Order to suspend the IPI offsetting in 2005. The value of the federal taxes offset in 2004 and 2005 was
$24,142
and the Company established a reserve on these credits at the time of offsetting as they were not yet realizable due to the legal uncertainty that existed. Specifically, the Company extinguished other federal tax liabilities using IPI credits and recorded a liability in pension, postretirement and other long-term liabilities to reflect that the credits were not realizable at that time due to the prevalent legal uncertainty. On March 7, 2013, the Brazilian Supreme Court rendered a final decision in favor of the Company that recognized the validity of the IPI credits and secured the Company's right to benefit from the IPI credits earned from March 1983 to October 1990. This final decision expressly stated the Company has the right to the IPI credits. The Company estimated the total amount of the IPI credits to be approximately
$94,316
at March 31, 2013. Since the March 2013 ruling definitively (without the government's ability to appeal) granted the Company the ownership of the IPI credits generated between 1983 and 1990, the Company believed the amount of IPI credits that were used to offset other federal taxes in 2004 and 2005 were realizable beyond a reasonable doubt. Accordingly, and at March 31, 2013, the Company recorded the
$24,142
IPI credits it realized in the statements of consolidated operations in other income, net. No further benefit has been recognized pending the outcome of the judicial procedure to ascertain the final amount as those amounts have not yet been realized.
10. CONTINGENCIES AND OTHER INFORMATION
(continued)
In addition, certain of the Company’s subsidiaries are involved in other litigation or legal matters incidental to their business activities, including tax matters. While the outcome of these matters cannot be predicted with certainty, the Company is vigorously defending them and does not currently expect that any of them will have a material adverse effect on its business or financial position. However, should one or more of these matters be resolved in a manner adverse to its current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material.
In accordance with GAAP, the Company records known asset retirement obligations (“ARO”) for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with
one
of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under GAAP for this ARO because the fair value of restoring the land at this site cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because the land restoration is not required until title is returned to the government, and the Company has no current or future plans to return the title. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.
11. DEBT ARRANGEMENTS
ABL Facility
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 outstanding
8.5%
senior secured first lien notes due 2021 and its outstanding
9.875%
senior secured second lien notes due 2021 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. As of
June 30, 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.
Senior Secured Second Lien Notes
During the three months ended
June 30, 2018
, the Company purchased
$10,868
of its existing
9.875%
senior secured second lien notes (the "Second Lien Notes") on the open market. The purchased securities were canceled leaving
$652,078
of the Second Lien Notes outstanding at
June 30, 2018
. Related discounts were
$312
resulting in net cash repayment of
$10,556
and recorded in repayment of long-term borrowings in the condensed consolidated statements of cash flows. Associated costs paid were
$27
and deferred financing costs and amortization of original issue discount of
$201
were accelerated.
In July 2018, the Company purchased additional second lien notes on the open market. See
Note 21 "Subsequent Events"
for more information.
12. 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. The changes in the fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period during which the hedged transactions are recognized in earnings.
As of
June 30, 2018
and
2017
, accumulated other comprehensive loss includes
$1,496
and
$1,662
, net of tax of
$398
and
zero
, for unrealized gains related to designated cash flow hedges, respectively. The Company recorded losses of
zero
and
$1,206
in its cost of goods and services sold for the
three months ended June 30, 2018
and
2017
, respectively. The Company recorded a current derivative asset of
$6
and
$275
as of
June 30, 2018
and
2017
, respectively, included on the condensed consolidated balance sheets.
The Company has elected not to offset fair value amounts recognized for derivative instruments with the same counterparty under a master netting agreement. See
"Note 17. Fair Value Measurements”
for more information.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has multiple benefit plans at several locations. The Company has a defined benefit plan that provides retirement benefits for substantially all U.S. salaried personnel based on years of service rendered, age, and compensation. The Company also maintains various other excess benefit and supplemental plans that provide additional benefits to (1) certain individuals whose compensation, and the resulting benefits that would have actually been paid, are limited by regulations imposed by the Internal Revenue Code and (2) certain individuals in key positions. The Company funds these plans in amounts consistent with the funding requirements of federal law and regulations. The Company also provides certain health and life insurance benefits to retired employees, and their eligible dependents, who meet specified age and service requirements.
13. PENSION AND OTHER POSTRETIREMENT BENEFITS
(continued)
Additional non-U.S. defined benefit plans cover certain full-time employees located in Germany, Turkey, and the United Kingdom. The following summarizes the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Operating expenses:
|
|
|
Service cost
|
$
|
120
|
|
$
|
116
|
|
Interest expense:
|
|
|
Interest expense
|
1,155
|
|
1,063
|
|
Expected return on plan assets
|
(1,286
|
)
|
(1,264
|
)
|
Amortization of prior service cost
|
11
|
|
10
|
|
Actuarial loss
|
422
|
|
511
|
|
Net periodic pension cost
|
$
|
422
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Operating expenses:
|
|
|
Service cost
|
$
|
4
|
|
$
|
3
|
|
Interest expense:
|
|
|
Interest expense
|
83
|
|
84
|
|
Amortization of prior service cost
|
(177
|
)
|
(178
|
)
|
Actuarial loss
|
109
|
|
115
|
|
Net periodic pension cost
|
$
|
19
|
|
$
|
24
|
|
For the three months ended
June 30, 2018
, contributions were made to pension plans and postretirement health and life insurance benefits of approximately
$1,489
and
$100
, respectively. Additional contributions to pension plans and postretirement health and life insurance benefits of approximately
$5,240
and
$417
, respectively, are expected during the remainder of fiscal 2019.
14. INVENTORIES
The following summarizes the Company’s costs in inventory:
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
June 30, 2017
|
March 31, 2018
|
Processed tobacco
|
$
|
563,539
|
|
$
|
596,126
|
|
$
|
468,208
|
|
Unprocessed tobacco
|
330,227
|
|
272,303
|
|
204,149
|
|
Other
|
23,162
|
|
26,020
|
|
25,730
|
|
Total inventory
|
$
|
916,928
|
|
$
|
894,449
|
|
$
|
698,087
|
|
15. OTHER COMPREHENSIVE LOSS
The movements in accumulated other comprehensive loss and the related tax impact that are due to current period activity and reclassifications to the income statement are shown on the condensed consolidated statements of comprehensive loss. The following summarizes the components reclassified from accumulated other comprehensive loss to earnings for the three months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Pension and postretirement plans
*
:
|
|
|
Actuarial loss
|
$
|
533
|
|
$
|
626
|
|
Amortization of prior service cost
|
(167
|
)
|
(167
|
)
|
Amounts reclassified from accumulated other comprehensive loss to net income
|
$
|
366
|
|
$
|
459
|
|
16. SALE OF RECEIVABLES
The Company sells trade receivables to unaffiliated financial institutions under
two
accounts receivable securitization facilities. Under the first facility, the Company continuously sells a designated pool of trade receivables to a special purpose entity, which sells
100%
of the receivables to an unaffiliated financial institution. During the
three months ended
June 30, 2018
, the investment limit of this program was decreased from
$155,000
trade receivables to
$125,000
trade receivables. Under the second facility, the Company offers receivables for sale to an unaffiliated financial institution, which are then subject to acceptance by the unaffiliated financial institution. As of
June 30, 2018
, the investment limit under the second facility was $125,000 trade receivables.
Under the facilities, the Company receives a cash payment and a deferred purchase price receivable in exchange for receivables sold. Following the sale and transfer of the receivables to the unaffiliated financial institutions, the receivables are isolated from the Company and control of the receivables is passed to the unaffiliated financial institutions. The unaffiliated financial institutions have all rights to the receivables, including the right to pledge or sell the receivables.
Under the facilities, all of the receivables sold are removed from the condensed consolidated balance sheets and the net cash proceeds received by the Company are included in net cash used by investing activities in the condensed consolidated statements of cash flows. The deferred purchase price receivable is paid to the Company as payments on the receivables are collected from account debtors. The deferred purchase price receivables represent continuing involvement and a beneficial interest in the transferred financial assets. This beneficial interest is recognized at fair value and is included in trade and other receivables, net in the condensed consolidated balance sheets. See
"Note 17. Fair Value Measurements"
for more information.
The Company is the servicer of both facilities and may receive funds that are due to the unaffiliated financial institutions, which are net settled on the next settlement date. As a result of the net settlement, trade and other receivables, net in the condensed consolidated balance sheets has been reduced by
$8,559
,
$3,887
, and
$10,858
as of
June 30, 2018
and
2017
, and
March 31, 2018
, respectively.
The difference between the carrying amount of the receivables sold under these facilities, the sum of the cash, and the fair value of the other assets received at the time of transfer is recognized as a loss on the sale of the related receivables and recorded in other income, net in the condensed consolidated statements of operations.
The following summarizes the accounts receivable securitization information:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
March 31,
|
|
2018
|
2017
|
2018
|
Receivables outstanding in facility
|
$
|
79,179
|
|
$
|
44,490
|
|
$
|
228,621
|
|
Beneficial interest
|
17,736
|
|
13,199
|
|
48,715
|
|
Servicing liability
|
8
|
|
7
|
|
81
|
|
|
|
|
|
Cash proceeds for the three months ended:
|
|
|
|
Cash purchase price
|
$
|
101,080
|
|
$
|
65,233
|
|
$
|
694,517
|
|
Deferred purchase price
|
76,240
|
|
75,543
|
|
263,670
|
|
Service fees
|
180
|
|
136
|
|
473
|
|
Total
|
$
|
177,500
|
|
$
|
140,912
|
|
$
|
958,660
|
|
17. FAIR VALUE MEASUREMENTS
The following summarizes the items measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
June 30, 2017
|
|
March 31, 2018
|
|
|
Total Assets /
|
|
|
|
Total Assets /
|
|
|
|
Total Assets /
|
|
|
Liabilities
|
|
|
|
Liabilities
|
|
|
|
Liabilities
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
|
Level 2
|
Level 3
|
at Fair Value
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
6
|
|
$
|
—
|
|
$
|
6
|
|
|
$
|
275
|
|
$
|
—
|
|
$
|
275
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Securitized beneficial interests
|
—
|
|
17,736
|
|
17,736
|
|
|
—
|
|
13,199
|
|
13,199
|
|
|
—
|
|
48,715
|
|
48,715
|
|
Total assets
|
$
|
6
|
|
$
|
17,736
|
|
$
|
17,742
|
|
|
$
|
275
|
|
$
|
13,199
|
|
$
|
13,474
|
|
|
$
|
—
|
|
$
|
48,715
|
|
$
|
48,715
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
$
|
863,620
|
|
$
|
711
|
|
$
|
864,331
|
|
|
$
|
855,066
|
|
$
|
—
|
|
$
|
855,066
|
|
|
$
|
911,264
|
|
$
|
895
|
|
$
|
912,159
|
|
Guarantees
|
—
|
|
3,544
|
|
3,544
|
|
|
—
|
|
6,388
|
|
6,388
|
|
|
—
|
|
5,864
|
|
5,864
|
|
Total liabilities
|
$
|
863,620
|
|
$
|
4,255
|
|
$
|
867,875
|
|
|
$
|
855,066
|
|
$
|
6,388
|
|
$
|
861,454
|
|
|
$
|
911,264
|
|
$
|
6,759
|
|
$
|
918,023
|
|
Level 2 measurements
|
|
•
|
Debt: The fair value of debt is based on the market price for similar financial instruments or model-derived valuations whose inputs are observable. The primary inputs to the valuation include market expectations, the Company's credit risk, and the contractual terms of the debt instrument.
|
|
|
•
|
Derivatives: The fair value of derivatives is based on the discounted cash flow analysis of the expected future cash flows. The primary inputs to the valuation include forward yield curves, implied volatilities, LIBOR rates, and credit valuation adjustments.
|
Level 3 measurements
|
|
•
|
Guarantees: The fair value of guarantees is based on the discounted cash flow analysis of the expected future cash flows or historical loss rates. The primary inputs to the discounted cash flow analysis include market interest rates of
15.0%
to
35.0%
and the Company’s historical loss rates of
2.6%
to
10.0%
as of
June 30, 2018
.
|
|
|
•
|
Securitized beneficial interests: The fair value of securitized beneficial interests is based on the present value of future expected cash flows. The primary inputs to this valuation include payment speeds of
82
to
87 days
and discount rates of
3.5%
to
4.5%
as of
June 30, 2018
.
|
The following summarizes the reconciliation of changes in Level 3 instruments measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
Three Months Ended June 30, 2017
|
|
Securitized Beneficial Interests
|
Guarantees
|
Securitized Beneficial Interests
|
Guarantees
|
Beginning balance
|
$
|
48,715
|
|
$
|
5,864
|
|
$
|
38,206
|
|
$
|
7,126
|
|
Issuances of guarantees/sales of receivables
|
48,685
|
|
244
|
|
58,557
|
|
638
|
|
Settlements
|
(79,551
|
)
|
(2,701
|
)
|
(83,668
|
)
|
(1,376
|
)
|
(Losses) gains recognized in earnings
|
(113
|
)
|
137
|
|
104
|
|
—
|
|
Ending balance
|
$
|
17,736
|
|
$
|
3,544
|
|
$
|
13,199
|
|
$
|
6,388
|
|
Unrealized losses for securitized beneficial interests as of
June 30, 2018
and
2017
, and
March 31, 2018
were
$801
,
$340
, and
$2,531
, respectively. Gains and losses included in earnings are reported in other income, net in the condensed consolidated statement of operations.
18. RELATED PARTY TRANSACTIONS
The Company's operating subsidiaries have entered into transactions with affiliates of the Company for the purpose of procuring or processing inventory. The following summarizes sales and purchases with related parties:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Sales
|
$
|
6,890
|
|
$
|
15,242
|
|
Purchases
|
26,267
|
|
9,938
|
|
The Company’s accounts payable, related parties and accounts receivable, related parties balances are disclosed in the condensed consolidated balance sheets and are primarily with its equity method investments located in Asia, Europe, North America, and South America, which purchase and process tobacco or produce consumable e-liquids.
19. INVESTEE COMPANIES
The following summarizes the Company's equity method investments as of
June 30, 2018
:
|
|
|
|
|
|
|
|
Investee Name
|
Location
|
Primary Purpose
|
The Company's Ownership Percentage
|
Basis Difference
|
Adams International Ltd.
|
Thailand
|
purchase and process tobacco
|
49
|
%
|
—
|
|
Alliance One Industries India Private Ltd.
|
India
|
purchase and process tobacco
|
49
|
%
|
—
|
|
China Brasil Tobacos Exportadora SA
|
Brazil
|
purchase and process tobacco
|
49
|
%
|
8,259
|
|
Criticality LLC
|
U.S.
|
extraction of cannabidiol
|
40
|
%
|
—
|
|
Nicotine River, LLC
|
U.S.
|
produce consumable e-liquids
|
40
|
%
|
2,274
|
|
Oryantal Tutun Paketleme
|
Turkey
|
process tobacco
|
50
|
%
|
—
|
|
Purilum, LLC
|
U.S.
|
produce consumable e-liquids
|
50
|
%
|
—
|
|
Siam Tobacco Export Company
|
Thailand
|
purchase and process tobacco
|
49
|
%
|
—
|
|
Basis differences are amortized over the respective estimated lives of the related assets and liabilities, which range from
one
to
ten years
. The Company’s earnings from the equity method investment are reduced by the amortization expense of basis differences.
20. ACQUISITION OF HUMBLE JUICE CO., LLC
On April 2, 2018, the Company acquired
51%
of the equity in Humble Juice Co., LLC ("Humble"). Humble sells e-liquid products and related merchandise. The Company acquired its interest in Humble in exchange for consideration consisting of approximately
$9,000
cash and
$446
contingent consideration, subject to certain post-closing adjustments. The consolidation of Humble has been treated as a business combination. The assets and liabilities were recorded at their fair value. The fair value of the non-controlling interest was
$5,086
.
For the three months ended June 30, 2018, the Company incurred
$12
of acquisition-related expenses, primarily consisting of consulting fees, which were accounted for separately from the business combination and expensed as incurred within selling, general, and administrative expenses in the condensed consolidated statements of operations.
Following the acquisition, the Company recorded certain post-closing purchase price adjustments. The acquisition allowed the Company to expand its e-liquid product portfolio.
20. ACQUISITION OF HUMBLE JUICE CO., LLC
(continued)
The following summarizes the fair values of the assets acquired and liabilities assumed as of April 2, 2018:
|
|
|
|
|
Cash and cash equivalents
|
$
|
308
|
|
Other receivables
|
56
|
|
Inventories
|
1,048
|
|
Other current assets
|
6
|
|
Property, plant, and equipment
|
8
|
|
Goodwill
|
7,174
|
|
Other intangible assets
|
5,950
|
|
Total assets acquired
|
14,550
|
|
Accounts payable
|
18
|
|
Total liabilities
|
18
|
|
Fair value of equity interest
|
$
|
14,532
|
|
Revenue, operating loss, and net loss of Humble in the condensed consolidated statements of operations from and including April 2, 2018 to June 30, 2018 were
$2,487
,
$(501)
, and
$(256)
, respectively. As a result, the impact to basic and diluted earnings per share was
$(0.03)
and
$(0.03)
, respectively.
Unaudited pro forma information summarizes the results of Humble for the three months ended June 30, 2017 as if the companies were combined as of April 1, 2017. The pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved had the reconsolidation taken place at the beginning of each period or results of future periods. The following information has been adjusted for intercompany eliminations as required for consolidation accounting: unaudited pro forma revenue, operating loss, and net loss for the three months ended June 30, 2017 were
$1,764
,
$526
, and
$266
, respectively. Unaudited pro forma basic and diluted earnings per share were
$0.03
and
$0.03
, respectively.
21. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
The Company continues to focus on efficiency and cost improvements. During the three months ended
June 30, 2018
, the Company responded to changes in the business, including the decision to close one of its foreign processing facilities and process tobacco in the affected area under a third-party processing arrangement going forward. The following summarizes restructuring and impairment charges:
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
Employee separation charges
|
1,198
|
|
—
|
|
Asset impairment and other non-cash charges
|
343
|
|
—
|
|
Restructuring and asset impairment charges
|
$
|
1,541
|
|
$
|
—
|
|
The following summarizes the liability for employee separation charges recorded in the North America and Other Regions segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2018
|
2017
|
|
North America
|
Other Regions
|
North America
|
Other Regions
|
Beginning balance
|
$
|
—
|
|
$
|
107
|
|
$
|
60
|
|
$
|
129
|
|
Accruals
|
247
|
|
951
|
|
—
|
|
—
|
|
Payments
|
—
|
|
—
|
|
(60
|
)
|
—
|
|
Ending balance, June 30
|
$
|
247
|
|
$
|
1,058
|
|
$
|
—
|
|
$
|
129
|
|
For the three months ended
June 30, 2018
the non-cash charges of
$343
were for the Other Regions segment.
22. SUBSEQUENT EVENTS
Debt Repurchase
In July 2018, the Company purchased
$7,000
of its Second Lien Notes on the open market. All purchased securities were canceled leaving
$645,078
of the Second Lien Notes outstanding. Associated costs paid were
$18
and related discounts were
$526
resulting in net cash repayment of
$6,474
.