Income Taxes

Accounting for Uncertainty in Income Taxes

As of March 31, 2016, 2015 and 2014, the Company’s unrecognized tax benefits totaled $16,675, $17,752 and $12,635, respectively, of which $7,701 would impact the Company’s effective tax rate if recognized. The following table presents the changes to unrecognized tax benefits during the years ended March 31, 2016, 2015 and 2014:



	2016			2015			2014
Balance at April 1	$	17,752		$	12,635		$	8,678
Increase for current year tax positions	24			7,260			4,191
Reduction for prior year tax positions	(223		)	(1,055		)	(111		)
Impact of changes in exchange rates	(878		)	(1,088		)	(123		)
Reduction for settlements	—			—			—
Balance at March 31	$	16,675		$	17,752		$	12,635

The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense. During the years ended March 31, 2016 and 2015, the Company accrued (reduced) interest, penalties and related exchange losses related to unrecognized tax benefits by $(224) and $109, respectively. As of March 31, 2016, accrued interest and penalties totaled $1,315 and $793, respectively. During the year ending March 31, 2016, the Company reduced its accrued interest and penalties for $387 related to the expiration of statute of limitations. As of March 31, 2015, accrued interest and penalties totaled $1,276 and $1,056, respectively.

During the fiscal year ending March 31, 2016, the Company’s total liability for unrecognized tax benefits, including the related interest and penalties, decreased from $20,085 to $18,784. The change in the liability for unrecognized tax benefits relates to expiration of statute of limitations of approximately $688, decreases related to current period activity of approximately $613.

The Company expects to continue accruing interest expenses related to the remaining unrecognized tax benefits. Additionally, the Company may be subject to fluctuations in the unrecognized tax liability due to currency exchange rate movements.

It is reasonably possible that the Company's unrecognized tax benefits may decrease in the next twelve months by $333 due to the expiration of the statute of limitations but the Company must acknowledge 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 have 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 12 – Income Taxes (continued)

Accounting for Uncertainty in Income Taxes (continued)

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 March 31, 2016, the Company’s earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2013; 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.

Income Tax Provision

The components of income (loss) before income taxes, equity in net income of investee companies and minority interests consisted of the following:



	Years Ended March 31,
	2016			2015			2014
U.S.	$	(55,073	)	$	(24,749	)	$	(91,290	)
Non-U.S.	146,747			15,810			29,595
Total	$	91,674		$	(8,939	)	$	(61,695	)

The details of the amount shown for income taxes in the Consolidated Statements of Operations follow:



	Years Ended March 31,
	2016		2015		2014
Current
Federal	$	—	$	—	$	—
State	—		—		—
Non-U.S.	26,476		19,850		24,980
	$	26,476	$	19,850	$	24,980
Deferred
Federal	$	—	$	—	$	—
State	—		—		—
Non-U.S.	5,739		2,068		16,261
	$	5,739	$	2,068	$	16,261
Total	$	32,215	$	21,918	$	41,241

The reasons for the difference between income tax expense based on income before income taxes, equity in net income of investee companies and minority interests and the amount computed by applying the U.S. statutory federal income tax rate to such income are as follows:



	Years Ended March 31,
	2016			2015			2014
Tax expense at U.S. statutory rate	$	32,086		$	(3,129	)	$	(21,594	)
Effect of non-U.S. income taxes	(15,131		)	647			7,377
U.S. taxes on non-U.S. income	23,734			14,768			(274		)
Foreign tax credits expiration	47,552			—			—
Change in valuation allowance	(47,135		)	(14,908		)	25,080
Increase (decrease) in reserves for uncertain tax positions	(1,203		)	5,227			3,971
Change in tax rates	2,480			—			—
Exchange effects and currency translation	15,492			14,308			26,884
Permanent items	891			5,005			(203		)
Nontaxable gain - Zimbabwe subsidiary reconsolidation	(26,551		)	—			—
Actual tax expense	$	32,215		$	21,918		$	41,241

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 12 - Income Taxes (continued)

Income Tax Provision (continued)

The deferred tax liabilities (assets) are comprised of the following:



	March 31, 2016			March 31, 2015
Deferred tax liabilities:
Unremitted earnings of foreign subsidiaries	$	27,641		$	22,043
Intangible assets	9,334			6,415
Fixed assets	11,435			3,488
Total deferred tax liabilities	$	48,410		$	31,946
Deferred tax assets:
Reserves and accruals	$	(23,870	)	$	(29,610	)
Tax credits	(8,191		)	(55,744		)
Tax loss carryforwards	(104,337		)	(105,345		)
Derivative transactions	(892		)	(567		)
Postretirement and other benefits	(30,635		)	(34,388		)
Unrealized exchange loss	(12,645		)	(10,057		)
Other	(8,207		)	(4,926		)
Gross deferred tax assets	(188,777		)	(240,637		)
Valuation allowance	118,518			169,804
Total deferred tax assets	$	(70,259	)	$	(70,833	)
Net deferred tax asset	$	(21,849	)	$	(38,887	)

The following table presents the breakdown between current and non-current (assets) liabilities:



	March 31, 2016			March 31, 2015
Current asset	$	—		$	(15,586	)
Current liability	—			6,356
Non-current asset	(38,773		)	(32,111		)
Non-current liability	16,924			2,454
Net deferred tax asset	$	(21,849	)	$	(38,887	)

In November 2015, new accounting guidance was issued requiring all deferred tax assets and liabilities, and any related valuation allowance, to be classified as noncurrent on the balance sheet which eliminates the need to separately identify the net current and net noncurrent deferred tax assets or liabilities in each jurisdiction including valuation allowances. The Company adopted this guidance prospectively at March 31, 2016 and therefore March 31, 2015 balances were not adjusted.

During the year ended March 31, 2016, the net deferred tax asset balance decreased by $11,363 for certain adjustments not included in the deferred tax expense (benefit), primarily for deferred tax assets related to pension accruals recorded in equity as part of Other Comprehensive Income (Loss), currency translation adjustments and the reconsolidation the Zimbabwe subsidiary.

For the year ended March 31, 2016, the valuation allowance decreased by $51,286 which is inclusive of $3,370 related to adjustments in other comprehensive income and $813 related primarily to currency translation adjustments. The valuation allowance decreased primarily due to the accrual of a deferred liability on unremitted foreign earnings and the accrual of an additional liability for unrecognized tax benefits netted against tax loss carryovers. The valuation allowance is based on the Company's assessment that it is more likely than not that certain deferred tax assets, primarily foreign tax credits and net operating loss carryovers, will not be realized in the foreseeable future. Recent years' cumulative losses incurred in the United States as of March 31, 2016, combined with the effects of certain changes in the market, provide significant objective negative evidence in the evaluation of whether the U.S. entity will generate sufficient taxable income to realize the tax benefits of the deferred tax assets. This negative evidence carries greater weight than the more subjective positive evidence of favorable future projected income in the assessment of whether realization of the tax benefits of the deferred tax assets is more likely than not. Therefore, based on the

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Alliance One International, Inc. and Subsidiaries

(in thousands)

Note 12 - Income Taxes (continued)

Income Tax Provision (continued)

weight of presently objectively verifiable positive and negative evidence, it is management's judgment that realization of the tax benefits of the deferred tax assets is less than more likely than not.

At March 31, 2016, the Company has U.S federal tax loss carryovers of $260,312, non-U.S. tax loss carryovers of $67,347, and U.S. state tax loss carryovers of $373,798. The U.S. federal tax loss carryovers will expire in 2030 and thereafter. Of the non-U.S. tax loss carryovers, $39,863 will expire within the next 5 years, $22,873 will expire in later years, and $4,612 can be carried forward indefinitely. Of the U.S. state tax loss carryovers, $69,174 will expire within the next five years and $304,624 will expire thereafter. At March 31, 2016, the Company has foreign tax credit carryovers in the United States of $4,379, of which $1,634 will expire within the next five years.

Realization of deferred tax assets is dependent on generating sufficient taxable income prior to expiration of the loss carryovers. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets, net of applicable valuation allowances, will be realized. The amount of the deferred tax assets considered realizable could be reduced or increased if estimates of future taxable income change during the carryover period.

A provision of $27,641 has been made for U.S. on foreign taxes that may result from future remittances of foreign earnings of $75,568. No provision has been made for U.S. or foreign taxes that may result from future remittances of approximately $334,445 at March 31, 2016 and $409,505 at March 31, 2015 of undistributed earnings of foreign subsidiaries because management expects that such earnings will be reinvested overseas indefinitely. Determination of the amount of any unrecognized deferred income tax liability on these unremitted earnings is not practicable.