Fair Value Measurements

12 Months Ended

Mar. 31, 2012

Fair Value Measures and Disclosures

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. A three-level valuation hierarchy based upon observable and non-observable inputs is utilized. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:

• Level 1 - Quoted prices for identical assets or liabilities in active markets.

• Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

• Level 3 - Significant inputs to the valuation model are unobservable.

          The Company's financial assets and liabilities measured at fair value include derivative instruments, securitized beneficial interests and guarantees. The application of the fair value guidance to our non-financial assets and liabilities primarily includes assessments of investments in subsidiaries, goodwill and other intangible assets and long-lived assets for potential impairment.

          Following are descriptions of the valuation methodologies the Company uses to measure different assets or liabilities at fair value.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA(continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 18 – Fair Value Measurements (continued)

Debt

The fair value of debt is measured for purpose of disclosure. Debt is shown at historical value in the Consolidated Balance Sheets. When possible, to measure the fair value of its long-term debt the Company uses quoted market prices of its own debt with approximately the same remaining maturities. When this is not possible, the fair value of long-term debt is calculated using discounted cash flow models with interest rates based upon market based expectations, the Company's credit risk and the contractual terms of the debt instrument. The Company also has portions of its long-term debt with maturities of one year or less. Due to the short-term nature of this debt, the Company believes book value is a reasonable approximation of this debt. The fair value of long-term debt is considered to fall within Level 2 of the fair value hierarchy as significant value drivers such as interest rates are readily observable. The carrying value and estimated fair value of the Company's Long-Term Debt are shown in the table below.

	March 31,
	2012		2011
Carrying value	$	828,503	$	885,155
Estimated fair value	841,558		905,330

Derivative financial instruments

The Company's derivatives consist of foreign currency contracts. The fair value of the derivatives are determined using a discounted cash flow analysis on the expected future cash flows of each derivative. This analysis utilizes observable market data including forward yield curves and implied volatilities to determine the market's expectation of the future cash flows of the variable component. The fixed and variable components of the derivative are then discounted using calculated discount factors developed based on the LIBOR swap rate and are netted to arrive at a single valuation for the period.  The Company also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.  As of March 31, 2012 and March 31, 2011 the inputs used to value the Company's derivatives fall within Level 2 of the fair value hierarchy. However, credit valuation adjustments associated with its derivatives could utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. Should the use of such credit valuation adjustment estimates result in a significant impact on the overall valuation, this would require reclassification to Level 3.

Securitized beneficial interests

The fair value of securitized beneficial interests is based upon a valuation model that calculates the present value of future expected cash flows using key assumptions for payment speeds and discount rates. The assumptions for payment speed are based on the Company's historical experience. The discount rates are based upon market trends and anticipated performance relative to the particular assets securitized which have been assumed to be commercial paper rate plus a margin or LIBOR plus a margin. Due to the use of the Company's own assumptions and the uniqueness of these transactions, securitized beneficial interests fall within Level 3 of the fair value hierarchy. Since the discount rate and the payment speed are components of the same equation, a change in either by 10% or 20% would change the value of the recorded beneficial interest at March 31, 2012 by $139 and $268, respectively.

Guarantees

The Company guarantees funds issued to tobacco suppliers by third party lending institutions and also guarantees funds borrowed by a deconsolidated subsidiary. The fair value of guarantees is based upon either the premium the Company would require to issue the same inputs or historical loss rates and as such these guarantees fall into Level 3 of the fair value hierarchy.

Tobacco Supplier Guarantees - The Company provides guarantees to third parties for indebtedness of certain tobacco suppliers to finance their crops. The fair value of these guarantees is determined using historical loss rates on both guaranteed and non-guaranteed tobacco supplier loans. Should the loss rates change 10% or 20%, the fair value of the guarantee at March 31, 2012 would change by $450 or $899, respectively.

Deconsolidated subsidiary guarantees - The fair value of these guarantees is determined using a discounted cash flow model based on the differential between interest rates available with and without the guarantees. The fair value of these guarantees is most closely tied to the theoretical interest rate differential. Should interest rates used in the model change by 10% or 20%, the fair value of the guarantee, at March 31, 2012 would change by $77 or $154, respectively.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA(continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 18 – Fair Value Measurements (continued)

Input Hierarchy of Items Measured at Fair Value on a Recurring Basis

          The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis:

	March 31, 2012						March 31, 2011
	Level 2		Level 3		Total Assets / Liabilities, at Fair Value		Level 2		Level 3		Total Assets / Liabilities, at Fair Value
Assets
Derivative financial    instruments	$	312	$	—	$	312	$	2,543	$	—	$	2,543
Securitized beneficial interests	—		25,864		25,864		—		15,797		15,797
Total Assets	$	312	$	25,864	$	26,176	$	2,543	$	15,797	$	18,340
Liabilities
Guarantees	$	—	$	5,265	$	5,265	$	—	$	4,575	$	4,575
Derivative financial    instruments	16		—		16		—		—		—
Total liabilities	$	16	$	5,265	$	5,281	$	—	$	4,575	$	4,575

Reconciliation of Change in Recurring Level 3 Balances

          The following tables present the changes in Level 3 instruments measured on a recurring basis.

	Securitized Beneficial Interests			Guarantees
Beginning Balance March 31, 2010	$	25,125		$	13,478
Issuance of guarantees/sales of receivables	225,448			5,791
Settlements	(232,381		)	(14,694		)
Losses recognized in earnings	(2,395		)	—
Ending Balance March 31, 2011	15,797			4,575
Issuance of guarantees/sales of receivables	242,630			6,061
Settlements	(227,430		)	(5,307		)
Changes in anticipated loss rate	—			(64		)
Losses recognized in earnings	(5,133		)	—
Ending Balance at March 31, 2012	$	25,864		$	5,265

          The amount of total losses included in earnings for the years ended March 31, 2012 and 2011 attributable to the change in unrealized losses relating to assets still held at the respective dates was $1,373 and $288 on securitized beneficial interests.

          Gains and losses included in earnings are reported in Other Income (Expense).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA(continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 18 - Fair Value Measurements (continued)

Input Hierarchy of Items Measured at Fair Value on a Non-Recurring Basis

Certain assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments subsequent to initial recognition on a non-recurring basis. During the year ended March 31, 2011, the Company recorded its intrastate tax credits for three Brazilian states at fair value. The Company developed a cash flow model based upon its ability to either sell or utilize the intrastate tax credits. If the credits are sold, this generally occurs at a discounted price. The fair value of these cash flows, net of any sales discount, is then calculated utilizing risk-adjusted discount rates. The inputs for both the sales discount and the risk adjusted discount rate are unobservable Level 3 inputs. Additionally, during the year ended March 31, 2012, the Company received property in a nonmonetary exchange. The fair value of the property was determined by independent third party real estate appraisals using Level 2 inputs including comparable properties, reproduction cost of a similar asset and the replacement value of an asset similar in function, operational performance and structure.

          The following table summarizes the items measured at fair value on a non-recurring basis:

	March 31, 2012						March 31, 2011
	Level 2		Level 3		Total Assets / Liabilities, at Fair Value		Level 2		Level 3		Total Assets / Liabilities, at Fair Value
Assets
Brazil intrastate tax credits	$	—	$	37,711	$	37,711	$	—	$	53,594	$	53,594
Property received in non-   monetary exchange	26,845		—		26,845		—		—		—
Total Assets	$	26,845	$	37,711	$	64,556	$	—	$	53,594	$	53,594

Information About Fair Value Measurements Using Significant Unobservable Inputs

The following table summarizes significant unobservable inputs and the valuation techniques thereof for the period ended March 31, 2012:

	Fair Value at 3/31/2012		Valuation Technique	Unobservable Input	Range (Weighted Average)
Securitized Beneficial Interests	$	25,864	Discounted Cash Flow	Discount Rate	2.52% to 3.78%
				Payment Speed	91 to 133 days
Tobacco Supplier Guarantees	4,496		Historical Loss	Historical Loss	6% to 7.8%
Deconsolidated Subsidiary Guarantees	769		Discounted Cash Flow	Market Interest Rate	12	%