Employee Benefits

Retirement 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. In addition, a Supplemental Retirement Account Plan (SRAP), a defined contribution program, is maintained.

The Company's policy is to contribute amounts to the plans sufficient to meet or exceed funding requirements of local governmental rules and regulations.

Additional non-U.S. plans sponsored by certain subsidiaries cover substantially all of the full-time employees located in Germany, Turkey and the United Kingdom.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Retirement Benefits (continued)

The Company experienced special termination costs in 2011 in connection with its restructuring activities, which have been recorded in restructuring charges for the year ended March 31, 2011.

In fiscal 2012 Malawi enacted legislation that terminated the statutorily required defined benefit plan and replaced it with a defined contribution plan. This terminated defined benefit plan resulted in a curtailment gain of $4,989. The new statutorily required defined contribution plan was integrated with the Company's existing defined contribution plan resulting in an additional liability of $4,172 at June 30, 2011.

A reconciliation of benefit obligations, plan assets and funded status of the plans at March 31, 2012 and 2011, the measurement dates, is as follows:



		U.S. Plans						Non-U.S. Plans
		March 31,						March 31,
		2012			2011			2012			2011
Change in Benefit Obligation
	Benefit obligation, beginning	$	96,233		$	92,258		$	67,872		$	64,237
	Service cost	1,807			2,113			362			1,108
	Interest cost	4,782			4,879			3,410			3,951
	Plan amendments	1,496			—			—			—
	Plan curtailments	—			—			(6,455		)	—
	Actuarial losses	7,638			2,786			1,654			2,431
	Settlements/special termination benefits	—			259			956			204
	Effects of currency translation	—			—			(1,045		)	1,895
	Net transfers in	—			324			—			—
	Benefits paid	(7,270		)	(6,386		)	(5,189		)	(5,954		)
	Benefit obligation, ending	$	104,686		$	96,233		$	61,565		$	67,872

Change in Plan Assets
	Fair value of plan assets, beginning	$	45,256		$	41,867		$	41,554		$	36,839
	Actual return on plan assets	910			4,120			1,111			3,737
	Employer contributions	6,191			5,655			5,388			6,038
	Plan settlements	—			—			—			(358		)
	Effects of currency translation	—			—			(33		)	1,252
	Benefits paid	(7,270		)	(6,386		)	(5,189		)	(5,954		)
	Fair value of plan assets, ending	$	45,087		$	45,256		$	42,831		$	41,554
	Net amount recognized	$	(59,599	)	$	(50,977	)	$	(18,734	)	$	(26,318	)



		U.S. Plans						Non-U.S. Plans
		March 31,						March 31,
		2012			2011			2012			2011
Amounts Recognized in the Consolidated Balance Sheets Consist of:
	Noncurrent benefit asset recorded in Other Noncurrent Assets	$	—		$	—		$	—		$	1,353
	Accrued current benefit liability recorded in Accrued Expenses and Other Current Liabilities	(2,784		)	(2,756		)	(2,091		)	(3,155		)
	Accrued noncurrent benefit liability recorded in Pension, Postretirement and Other Long-Term Liabilities	(56,815		)	(48,221		)	(16,643		)	(24,516		)
Net amount recognized		$	(59,599	)	$	(50,977	)	$	(18,734	)	$	(26,318	)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Retirement Benefits (continued)

The pension obligations for all defined benefit pension plans:



		U.S. Plans				Non-U.S. Plans
		March 31,				March 31,
		2012		2011		2012		2011
Information for Pension Plans with Accumulated Benefit
Obligation in Excess of Plan Assets:
	Projected benefit obligation	$	104,686	$	96,233	$	61,565	$	49,562
	Accumulated benefit obligation	102,455		93,798		59,759		45,841
	Fair value of plan assets	45,087		45,256		42,831		21,891

Net periodic pension costs included the following components:



	U.S. Plans									Non-U.S. Plans
	March 31,									March 31,
	2012			2011			2010			2012			2011			2010
Service cost	$	1,807		$	2,113		$	1,666		$	362		$	1,108		$	1,969
Interest cost	4,782			4,879			5,352			3,410			3,951			3,784
Expected return on plan assets	(3,663		)	(3,190		)	(2,730		)	(2,859		)	(2,567		)	(1,824		)
Amortization of actuarial (gains) losses	914			1,066			(634		)	247			276			639
Amortization of prior service (credit) cost	88			4			(194		)	16			19			19
Curtailment loss (gain)	—			—			—			(4,989		)	—			—
Special termination benefits	—			259			—			956			1,012			11
Effects of settlement	—			—			—			—			(56		)	(17		)
Net periodic pension cost	$	3,928		$	5,131		$	3,460		$	(2,857	)	$	3,743		$	4,581

The amounts showing in other comprehensive income at March 31, 2012, March 31, 2011 and movements for the year were as follows:



	U.S. and Non-U.S. Pension			U.S. and Non-U.S. Post-retirement			Total
Prior service credit (cost)	$	(1,041	)	$	6,498		$	5,457
Net actuarial losses	(30,632		)	(5,709		)	(36,341		)
Deferred taxes	11,127			(670		)	10,457
Balance at March 31, 2011	$	(20,546	)	$	119		$	(20,427	)
Prior service credit (cost)	$	(1,372	)	$	(1,685	)	$	(3,057	)
Net actuarial (losses) income	(11,042		)	(805		)	(11,847		)
Deferred taxes	(555		)	135			(420		)
Total change for 2012	$	(12,969	)	$	(2,355	)	$	(15,324	)
Prior service credit (cost)	$	(2,413	)	$	4,813		$	2,400
Net actuarial losses	(41,674		)	(6,514		)	(48,188		)
Deferred taxes	10,572			(535		)	10,037
Balance at March 31, 2012	$	(33,515	)	$	(2,236	)	$	(35,751	)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Retirement Benefits (continued)

The following weighted average assumptions were used to determine the expense for the pension, postretirement, other postemployment, and employee savings plans as follows:



	U.S. Plans			Non-U.S. Plans
	March 31,			March 31,
	2012	2011	2010	2012	2011	2010
Discount rate	5.20%	5.50%	7.50%	6.21%	6.35%	6.69%
Rate of increase in future compensation	4.00%	5.00%	5.00%	4.96%	5.02%	5.08%
Expected long-term rate of return on plan assets	8.00%	8.00%	8.00%	6.94%	6.85%	6.40%

In order to project the long-term investment return for the total portfolio, estimates are prepared for the total return of each major asset class over the subsequent 10-year period, or longer. Those estimates are based on a combination of factors including the current market interest rates and valuation levels, consensus earnings expectations and historical long-term risk premiums. To determine the aggregate return for the pension trust, the projected return of each individual asset class is then weighted according to the allocation to that investment area in the trust’s long-term asset allocation policy.

A March 31 measurement date is used for the pension, postretirement, other postemployment and employee savings plans. The expected long-term rate of return on assets was determined based upon historical investment performance, current asset allocation, and estimates of future investment performance by asset class.

The following assumptions were used to determine the benefit obligations disclosed for the pension plans at March 31, 2012 and 2011:



	U.S. Plans		Non-U.S. Plans
	March 31,		March 31,
	2012	2011	2012	2011
Discount rate	4.30%	5.19%	5.22%	6.10%
Rate of increase in future compensation	4.00%	4.00%	4.45%	4.96%

Net gain (loss) and prior service credits (costs) for the combined U.S. and non-U.S. pension plans expected to be amortized from accumulated comprehensive income into net periodic benefit cost during fiscal 2013 is $(1,995) and $(220), respectively.

Plan Assets

The Company’s asset allocations and the percentage of the fair value of plan assets at March 31, 2012 and 2011 by asset category are as follows:



	Target Allocations		U.S. Plans				Non-U.S. Plans
	March 31, 2012		March 31,				March 31,
(percentages)	March 31, 2012		2012		2011		2012		2011
Asset Category:
Cash and cash equivalents	2.0	%	2.1	%	2.9	%	1.4	%	1.0	%
Equity securities	54.0		54.9		57.3		60.4		62.0
Debt securities	25.0		23.7		23.1		26.6		25.0
Real estate and other investments	19.0		19.3		16.7		11.6		12.0
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Plan Assets (continued)

The Company's investment objectives are to generate consistent total investment return to pay anticipated plan benefits, while minimizing long-term costs. Financial objectives underlying this policy include maintaining plan contributions at a reasonable level relative to benefits provided and assuring that unfunded obligations do not grow to a level that would adversely affect the Company's financial health. Manager performance is measured against investment objectives and objective benchmarks, including: Salomon 90 Day Treasury Bill, Barclays Intermediate Govt. Credit, Barclays Aggregate Index, Russell 1000 Value, Russell 1000 Growth, Russell 2500 Value, Russell 2000 Growth, and MSCI EAFE. The Portfolio Objective is to exceed the actuarial return on assets assumption. Management regularly reviews portfolio allocations and periodically rebalances the portfolio to the targeted allocations when considered appropriate. Equity securities do not include the Company's common stock. Our diversification and risk control processes serve to minimize the concentration of risk. There are no significant concentrations of risk, in terms of sector, industry, geography or companies.

The fair values for the pension plans by asset category are as follows:



U.S. Pension Plans	March 31, 2012
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	942	$	19	$	923	$	—
U.S. equities / equity funds	12,716		12,716		—		—
International equities / equity funds	12,098		12,098		—		—
U.S. fixed income funds	8,641		8,641		—		—
International fixed income funds	2,082		2,082		—		—
Other investments:
Diversified funds	4,215		3,945		—		270
Real estate	4,470		—		—		4,470
Total	$	45,164	$	39,501	$	923	$	4,740



U.S. Pension Plans	March 31, 2011
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	1,327	$	48	$	1,279	$	—
U.S. equities / equity funds	12,933		12,933		—		—
International equities / equity funds	12,911		12,911		—		—
U.S. fixed income funds	7,966		7,966		—		—
International fixed income funds	2,523		2,523		—		—
Other investments:
Diversified funds	3,803		3,298		—		505
Real estate	3,793		—		—		3,793
Total	$	45,256	$	39,679	$	1,279	$	4,298

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Plan Assets (continued)



Non-U.S. Pension Plans	March 31, 2012
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	607	$	607	$	—	$	—
U.S. equities / equity funds	7,628		7,628		—		—
International equities / equity funds	11,114		4,077		7,037		—
Global equity funds	7,185		—		7,185		—
International fixed income funds	5,092		—		5,092		—
U.S. fixed income funds	2,724		2,724		—		—
Global fixed income funds	3,621		1,288		2,333		—
Other investments:
Diversified funds	4,074		1,830		—		2,244
Real estate equities	917		917		—		—
Total	$	42,962	$	19,071	$	21,647	$	2,244



Non-U.S. Pension Plans	March 31, 2011
	Total		Level 1		Level 2		Level 3
Cash and cash equivalents	$	419	$	419	$	—	$	—
U.S. equities / equity funds	7,876		7,876		—		—
International equities / equity funds	11,182		4,589		6,593		—
Global equity funds	6,621		—		6,621		—
International fixed income funds	4,355		—		4,355		—
U.S. fixed income funds	2,642		2,642		—		—
Global fixed income funds	3,420		1,257		2,163		—
Other investments:
Diversified funds	4,068		1,823		—		2,245
Real estate equities	971		971		—		—
Total	$	41,554	$	19,577	$	19,732	$	2,245

The fair value hierarchy is described in Note 18 “Fair Value Measurements” to the “Notes to Consolidated Financial Statements."

A reconciliation of the beginning and ending balance of pension plan assets that are measured at fair value using significant unobservable inputs (Level 3) as of March 31, 2012 is as follows:



	U.S. Pension Plans								Non-U.S. Pension Plans
	Diversified funds			Real estate		Total Level 3 Plan assets			Diversified funds			Total Level 3 Plan assets
Fair value, March 31, 2010	$	861		$	3,229	$	4,090		$	1,859		$	1,859
Total gains (unrealized/realized)	15			564		579			245			245
Purchases, sales and settlements net	(371		)	—		(371		)	—			—
Exchange rate changes	—			—		—			141			141
Fair value, March 31, 2011	505			3,793		4,298			2,245			2,245
Total gains (unrealized/realized)	(15		)	452		437			10			10
Purchases, sales and settlements net	(220		)	225		5			—			—
Exchange rate changes	—			—		—			(11		)	(11		)
Fair value, March 31, 2012	$	270		$	4,470	$	4,740		$	2,244		$	2,244

Plan assets are recognized and measured at fair value in accordance with the accounting standards regarding fair value measurements. The following are general descriptions of asset categories, as well as the valuation methodologies and inputs used to determine the fair value of each major category of plan assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Plan Assets (continued)

Cash and cash equivalents include short-term investment funds, primarily in diversified portfolios of investment grade money market instruments and are valued using quoted market prices or other valuation methods, and thus classified within Level 1 or Level 2 of the fair value hierarchy.

Equity securities are investments in common stock of domestic and international corporations in a variety of industry sectors, and are valued primarily using quoted market prices and generally classified within Level 1 in the fair value hierarchy.

Fixed income securities include U.S. Treasuries and agencies, debt obligations of foreign governments and debt obligations in corporations of domestic and foreign issuers. The fair value of fixed income securities are based on observable prices for identical or comparable assets, adjusted using benchmark curves, sector grouping, matrix pricing, broker/dealer quotes and issuer spreads, and are generally classified within Level 1 or Level 2 in the fair value hierarchy.

Investments in equity and fixed income mutual funds are publicly traded and valued primarily using quoted market prices and generally classified within Level 1 in the fair value hierarchy. Investments in commingled funds used in non-U.S. pension plans are not publicly traded, but the underlying assets held in these funds are traded in active markets and the prices for these assets are readily observable. Holdings in these commingled funds are generally classified as Level 2 investments.

Real estate investments include those in private limited partnerships that invest in various commercial and residential real estate projects both domestically and internationally as well as publicly traded REIT securities. The fair values of private real estate assets are typically determined by using income and/or cost approaches or comparable sales approach, taking into consideration discount and capitalization rates, financial conditions, local market conditions and the status of the capital markets, and thus are generally classified within Level 3 in the fair value hierarchy. Publicly traded REIT securities are valued primarily using quoted market prices and are generally classified within Level 1 in the fair value hierarchy.

Diversified investments include those in limited partnerships that invest in companies that are not publicly traded on a stock exchange and mutual funds with an absolute return strategy. Limited partnership investment strategies in non-publicly traded companies include leveraged buyouts, venture capital, distressed investments and investments in natural resources. These investments are valued using inputs such as trading multiples of comparable public securities, merger and acquisition activity and pricing data from the most recent equity financing taking into consideration illiquidity, and thus are classified within Level 3 in the fair value hierarchy. Mutual fund investments with absolute return strategies are publicly traded and valued using quoted market prices and are generally classified within Level 1 in the fair value hierarchy.

Cash Flows

Contributions

The Company expects to contribute $5,271 to its U.S. benefits plans and $4,309 to its non-U.S. benefit plans in fiscal 2013.

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



	Pension Benefits				Other Benefits
	U.S. Plans		Non-U.S. Plans		U.S. Plans		Non-U.S. Plans
	March 31, 2012		March 31, 2012		March 31, 2012		March 31, 2012
2013	$	9,877	$	4,355	$	797	$	140
2014	6,934		3,575		757		146
2015	9,099		3,756		743		150
2016	7,690		3,470		722		152
2017	6,727		3,457		709		150
Years 2018-2022	37,917		21,559		3,311		605

The Company sponsors 401-k savings plans for most of its salaried employees located in the United States. The Supplemental Executive Retirement Plan and the Pension Equity Plan were replaced by the SRAP during 2008. The Company also maintains defined contribution plans at various foreign locations. The Company’s contributions to the defined contribution plans were $4,705 in 2012, $4,531 in 2011 and $4,062 in 2010.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Postretirement Health and Life Insurance Benefits

The Company provides certain health and life insurance benefits to retired U.S. employees (and their eligible dependents) who meet specified age and service requirements. The plan excludes new employees after September 2005 and caps the Company’s annual cost commitment to postretirement benefits for retirees. The Company retains the right, subject to existing agreements, to modify or eliminate these postretirement health and life insurance benefits in the future.

The Company provides certain health and life insurance benefits to retired Brazilian directors and certain retirees located in Europe including their eligible dependents who meet specified requirements.

The following assumptions were used to determine non-U.S. Plan postretirement benefit obligations at March 31:



	2012		2011
Discount rate	9.42	%	10.10	%
Health care cost trend rate assumed for next year	6.90	%	8.31	%
Ultimate trend rate	6.90	%	8.31	%

A one-percentage-point change in assumed health care cost trend rates would not have a significant effect on the amounts reported for health care plans.

For 2012 and 2011, the annual rate of increase in the per capita cost of covered health care benefits is not applicable as the Company’s annual cost commitment to the benefits is capped and not adjusted for future medical inflation.

Additional retiree medical benefits are provided to certain U.S. individuals in accordance with their employment contracts. For 2012 the additional cost related to these contracts was $50.

Prior service credits of $1,642 and unrecognized net actuarial losses of $468 are expected to be amortized from accumulated comprehensive income into postretirement healthcare benefits net periodic benefit cost for the combined U.S. and non-U.S. postretirement benefits during fiscal 2013.

A reconciliation of benefit obligations, plan assets and funded status of the plans is as follows:



		U.S. Plans						Non-U.S. Plans
		March 31, 2012			March 31, 2011			March 31, 2012			March 31, 2011
		March 31, 2012			March 31, 2011			March 31, 2012			March 31, 2011
Change in Benefit Obligation
	Benefit obligation, beginning	$	9,484		$	9,695		$	1,895		$	1,647
	Service cost	68			75			4			6
	Interest cost	481			511			173			162
	Effect of currency translation	—			—			(182		)	140
	Actuarial losses (gains)	872			(177		)	342			94
	Benefits paid	(643		)	(620		)	(108		)	(154		)
	Benefit obligation, ending	$	10,262		$	9,484		$	2,124		$	1,895
Change in Plan Assets
	Fair value of plan assets, beginning	$	—		$	—		$	—		$	—
	Employer contributions	643			620			108			154
	Benefits paid	(643		)	(620		)	(108		)	(154		)
	Fair value of plan assets, ending	$	—		$	—		$	—		$	—
	Net amount recognized	$	(10,262	)	$	(9,484	)	$	(2,124	)	$	(1,895	)


		U.S. Plans						Non-U.S. Plans
		March 31,						March 31,
		2012			2011			2012			2011
Amounts Recognized in the Consolidated Balance Sheet Consist of:
	Accrued current benefit liability recorded in Accrued Expenses and Other Current Liabilities	$	(797	)	$	(802	)	$	(140	)	$	(132	)
	Accrued non-current benefit liability recorded in Pension, Postretirement and Other Long-Term Liabilities	(9,465		)	(8,682		)	(1,984		)	(1,763		)
	Net amount recognized	$	(10,262	)	$	(9,484	)	$	(2,124	)	$	(1,895	)

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 13 - Employee Benefits (continued)

Postretirement Health and Life Insurance Benefits (continued)

There are no plan assets for 2012 or 2011. Net periodic benefit costs included the following components:



	U.S. Plans									Non-U.S. Plans
	March 31,									March 31,
	2012			2011			2010			2012			2011			2010
Service cost	$	68		$	75		$	60		$	4		$	6		$	5
Interest cost	481			511			580			173			162			187
Curtailment	—			—			—			—			—			(1,020		)
Prior service credit	(1,622		)	(1,622		)	(1,622		)	(21		)	(21		)	(36		)
Actuarial losses (gains)	407			434			314			(1		)	(1		)	(11		)
Net periodic benefit costs (income)	$	(666	)	$	(602	)	$	(668	)	$	155		$	146		$	(875	)

The Company continues to evaluate ways to better manage these benefits and control their costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. The Company expects to contribute $937 to its combined U.S. and non-U.S. postretirement benefit plans in fiscal 2013.

Employees in operations located in certain other foreign operations are covered by various postretirement benefit arrangements. For these foreign plans, the cost of benefits charged to income was not material in 2012, 2011 and 2010.