Edgar Filing: ALLIANCE ONE INTERNATIONAL, INC.

Alliance One's 10-K Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934 FOR THE FISCAL YEAR ENDED March 31, 2009

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934



Alliance One International, Inc.
Virginia	001-13684	54-1746567
(State or other jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)


	8001 Aerial Center Parkway
	Morrisville, North Carolina 27560-8417
	(Address of principal executive offices)

	Telephone Number (919) 379-4300
	(Registrant’s telephone number, including area code)

	Securities registered pursuant to Section 12(b) of the Act:

	Title of Each Class		Name of Exchange On Which Registered
	Common Stock (no par value)		New York Stock Exchange

	Securities registered pursuant to Section 12(g) of the Act: None

	Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

	Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]

	Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

	Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]

	Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

	Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated filer [ ] Smaller Reporting Company [ ] (Do not check if a smaller reporting company)

	Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

	As of September 30, 2008 the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $320 million based on the closing sale price of the common stock as reported on the New York Stock Exchange. As of June 1, 2009, there were 88,974,000 shares of Common Stock outstanding (no par value) excluding 7,853,000 shares owned by a wholly owned subsidiary.

	DOCUMENTS INCORPORATED BY REFERENCE
	Certain information contained in the Proxy Statement for the Annual Meeting of Shareholders (to be held August 6, 2009) of the registrant is incorporated by reference into Part III hereof.




TABLE OF CONTENTS
PART I
ITEM 1.		BUSINESS
ITEM 1A.		RISK FACTORS
ITEM 1B.		UNRESOLVED STAFF COMMENTS
ITEM 2.		PROPERTIES
ITEM 3.		LEGAL PRO CEEDINGS
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II
ITEM 5.		MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.		SELECTED FI NANCIAL DATA
ITEM 7.		MANAGEME NT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESU LTS OF OPERATIONS
ITEM 7A.		QUANTITAT IVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
		STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
		CONSOLIDATED BALAN CE SHEETS
		STATEMENTS OF CONSOLID ATED STOCKHOLDERS' EQUITY
		STATEMENTS OF CONSOLIDATED CASH FLOWS
		NOTES TO CONSO LIDATED FINANCIAL STATEMENTS
		REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ITEM 9.		CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A.		CONTROL S AND PROCEDURES
ITEM 9B.		OTHER INF ORMATION

PART III
ITEM 10.		DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11.		EXECUTIV E COMPENSATION
ITEM 12.		SECUR ITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
ITEM 13.		CERTAIN REL ATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14.		PRINCIPAL ACCOUNTING FEES AND SERVICES

PART IV
ITEM 15.		EXHIBITS, FINANCIAL STATEMENT SCHEDULES

PART I

ITEM 1. BUSINESS

AVAILABLE INFORMATION

We are required to file annual, quarterly and current reports, proxy statements and other information with the U.S. Securities and Exchange Commission (“SEC”). The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file with the SEC at http://www.sec.gov.

Our website address is http://www.aointl.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information contained on our website shall not be deemed part of this annual report on Form 10-K for any reason.

OVERVIEW

Alliance One is one of only two global independent publicly held leaf tobacco merchants, each with substantially similar global market shares. We have broad geographic processing capabilities, a diversified product offering and an established customer base, including all of the major consumer tobacco product manufacturers. We select, purchase, process, store, pack and ship tobacco grown in more than 45 countries, serving manufacturers of cigarettes and other consumer tobacco products in more than 90 countries around the world. We process tobacco through a complex mechanized threshing and separating operation and then dry it to meet precise moisture levels in accordance with the customer’s specifications. The processing of leaf tobacco facilitates shipping and prevents spoilage and is an essential service to our customers because the quality of processed leaf tobacco substantially affects the quality of the manufacturer’s end product. In an increasing number of important markets, we also provide agronomy expertise for growing leaf tobacco.

Alliance One holds a leading position in most tobacco growing regions in the world, including the principal export markets for flue-cured, burley and oriental tobacco: the United States, Brazil, Malawi, Turkey, Argentina, India and Thailand. In addition, we process tobacco in more than 50 owned and third party facilities around the world. We sell our processed tobacco primarily to large multinational cigarette manufacturers, including Philip Morris International, Inc., Japan Tobacco, Inc., Imperial Tobacco Group, PLC, China National Tobacco Co., British American Tobacco, Philip Morris USA, Inc., Eastern Company S.A.E., R. J. Reynolds Tobacco Company, Lorillard Tobacco Company and others.

Alliance One is a Virginia corporation, and our common stock has been traded on the New York Stock Exchange since 1995. Through our predecessor companies, we have a long operating history in the leaf tobacco industry and have maintained relationships with many of our major customers for more than 50 years, with some of these relationships beginning in the early 1900s. We have two geographic operating segments in which we evaluate performance. They are the South America operating segment and the Other Regions operating segment. The Other Regions operation segment is the aggregation of the Africa, Asia, Europe and North America regions.

Product

The world's large multinational cigarette manufacturers, with one exception, rely primarily on independent leaf tobacco merchants such as Alliance One to supply the majority of their leaf tobacco needs. Leaf tobacco merchants select, purchase, process, store, pack and ship tobacco and, in a growing number of markets, provide agronomy expertise. Our revenues are primarily comprised of sales of processed tobacco and fees charged for processing and related services to manufacturers of tobacco products around the world. Processing and other revenues are less than 5% of our total revenues. We do not manufacture cigarettes or other consumer tobacco products.

- 1 -

Product (Continued)

We deal primarily in flue-cured, burley, and oriental tobaccos that are used in international brand cigarettes. International brand cigarettes include Virginia cigarettes that contain only flue-cured tobaccos as well as American blend cigarettes. American blend cigarettes contain approximately 50% flue-cured, 35% burley and 15% oriental tobacco, contain less tar and nicotine and taste milder than locally produced cigarettes containing dark and semi-oriental tobacco historically consumed in certain parts of the world. Several of the large multinational cigarette manufacturers have expanded their operations throughout the world, particularly in Asia, Eastern Europe and the former Soviet Union, in order to increase their access to and penetration of international brand cigarette markets.

As cigarette manufacturers continue to expand their global operations, we believe that demand will increase for local sources of leaf tobacco and local tobacco processing and distribution, primarily due to beneficial tariff rates and lower freight costs. We believe that the international expansion of the large multinational cigarette manufacturers will cause these manufacturers to place greater reliance on the services of leaf tobacco merchants with the ability to source and process tobacco on a global basis and to help develop higher quality local sources of tobacco by improving local agronomic practices.

Geographic Regions of Operation

We have developed an extensive international network through which we purchase, process and sell tobacco. We own or have an interest in processing facilities in Argentina, Brazil, India, Tanzania, the United States, Malawi, Thailand, Germany, Indonesia, Macedonia, Bulgaria and Turkey. These facilities encompass all leading export locations of flue-cured, burley and oriental tobaccos. We have historically contracted with third parties for the processing of tobacco in certain countries including Argentina, Canada, China, Guatemala, India, Thailand and certain countries of the former Soviet Union. In addition, we have entered into contracts, joint ventures and other arrangements for the purchase of tobacco grown in substantially all other countries that produce export-quality flue-cured and burley tobacco, including Argentina, Canada, China, India, Indonesia and Thailand.

We purchase tobacco in more than 45 countries. During the three years ended March 31, 2009, 2008 and 2007, approximately 76%, 77%, and 77%, respectively, of our purchases of tobacco were from the seven countries noted in the table below. The remaining amounts were purchased in more than 38 different countries with no single country accounting for more than 5% of the amount purchased. The following table summarizes the tobacco purchase percentages for each country of the dollar value of tobacco Alliance One purchased during the periods indicated:


	Years Ended March 31,
	2009	2008	2007
South America:
Brazil	31%	35%	35%
Argentina	8%	6%	7%
Other Regions:
United States	10%	10%	12%
Turkey	6%	8%	6%
China	6%	6%	6%
Malawi	10%	6%	6%
Thailand	4%	5%	5%
	76%*	77%*	77%

*Amounts do not equal column totals due to rounding

The purchasing, processing, selling and storing of leaf tobacco is similar throughout our business. However, we maintain regional operating and financial management in North America, South America, Europe, Africa and Asia to monitor our various operations in these areas. In reviewing these operations, we have concluded that the economic characteristics of South America are dissimilar from the other operating regions. Based on this fact, we are disclosing South America separately and have aggregated the remaining four operating segments, Africa, Asia, Europe and North America into one reportable segment “Other Regions.” Our financial performance is reviewed at this level and these regions represent our operating segments. See Note N “Segment Information” to the “Notes to Consolidated Financial Statements” for further information.

- 2 -

Purchasing

Tobacco is primarily purchased directly from growers ("direct contract buying") with small quantities still sold at auction. Prior to the 2004 crop in the United States, flue-cured and burley tobacco crops were purchased at public auction, but these markets have undergone a fundamental change. In addition to the leaf merchants, a number of our U.S. customers purchase green tobacco directly from the growers. Although our U.S. facilities continue to process the tobacco purchased directly from growers by these customers, we no longer take ownership of that tobacco and no longer record sales revenues associated with its resale. The majority of our purchases of U.S. flue-cured and burley tobacco are made through the direct contract buying system where we buy the farmer’s entire crop. With respect to tobacco purchased by us through this system (and to which we still take title) and consistent with industry practices, we assume the risk of matching the quantities and grades required by our customers to the entire crop we must purchase under contract. As a result, we work closely with our customers in advance of the crop to estimate our customer requirements and use these estimates as the basis to contract tobaccos directly from farmers. However, this arrangement has increased the possibility that we may accumulate inventories of grades of tobacco that our customers do not need. When purchases are made from an auction system, tobaccos are purchased primarily to match specific customer orders.

Principal auction markets include Canada, India and Malawi. We usually purchase tobacco at those auction markets after receiving specific customer orders or indications of customers' upcoming needs. Our network of tobacco operations and buyers allows us to cover the major auctions of flue-cured and burley tobacco throughout the world. These buyers are experts in differentiating hundreds of grades of tobacco based on customer specifications and preferences that take into account, among other factors, the texture, visual appearance and aroma of the tobacco.

In non-auction markets such as Argentina, Brazil, Bulgaria, China, Greece, Guatemala, Indonesia, Tanzania, Turkey and Zambia, we purchase tobacco directly from growers or from local entities that have arranged for purchase from growers. We often make these direct purchases based upon our projection of the needs of our long-standing customers rather than against specific purchase orders. Our arrangements with growers vary from locale to locale depending on our predictions of future supply and demand, local historical practice and availability of capital. For example, in Brazil, we generally contract to purchase a grower's entire tobacco crop at the market price per grade at the time of harvest based on the quality of the tobacco delivered. Pursuant to these purchase contracts, we provide growers with fertilizer and other materials necessary to grow tobacco and may either directly loan or guarantee Brazilian rural credit loans to growers to finance the crop. Under longer-term arrangements with growers, we may also refinance borrowings as well as finance or guarantee financing on growers' capital assets. In addition, our agronomists maintain frequent contact with growers prior to and during the growing and curing seasons to provide technical assistance to improve the quality and yield of the crop. In other non-auction markets, such as Argentina and China, we buy tobacco from local entities that have purchased tobacco from growers and supervise the processing of that tobacco by those local entities. We believe that our long-standing relationships with our customers are vital to our purchasing operations outside of the auction markets.

Processing

We process tobacco to meet each customer's specifications as to quality, yield, chemistry, particle size, moisture content and other characteristics. We own and operate 15 tobacco production facilities in 10 countries. Unprocessed tobacco is a semi-perishable commodity that generally must be processed within a relatively short period of time to prevent fermentation or deterioration in quality. Accordingly, we have located our production facilities in proximity to our principal sources of tobacco.

Upon arrival at our processing plants, flue-cured and burley tobacco is first reclassified according to grade. Most of that tobacco is then blended to meet customer specifications regarding color, body and chemistry, threshed to remove the stem from the leaf and further processed to produce strips of tobacco and sieve out small scrap. We also sell a small amount of processed but unthreshed flue-cured and burley tobacco in loose-leaf and bundle form to certain customers. Oriental tobaccos are handled and processed in a similar manner other than that the tobaccos are not threshed to remove stems.

Processed flue-cured, burley and oriental tobacco is redried to remove excess moisture so that it can be held in storage by customers or us for long periods of time. After redrying, whole leaves, bundles, strips or stems and scrap where applicable are separately packed in cases, bales, cartons or hogsheads for storage and shipment. Packed flue-cured, burley and oriental tobacco generally is transported in the country of origin by truck or rail, and exports are moved by ship. Prior to and during processing, steps are taken to ensure consistent quality of the tobacco, including the regrading and removal of undesirable leaves, dirt and other non-tobacco related material. Customer representatives are frequently present at our facilities to monitor the processing of their particular orders. Throughout the processing, our technicians use quality control laboratory test equipment to ensure that the product meets all customer specifications.

Seasonality

The purchasing and processing activities of our tobacco business are seasonal. Flue-cured tobacco grown in the U.S. is purchased, processed and sold generally during the five-month period beginning in July and ending in November. U.S. grown burley tobacco is purchased, processed and sold usually from late November through January or February. Tobacco grown in Brazil is usually purchased, processed and sold from January through July and in Africa from April through September. Other markets around the world have similar purchasing periods, although at different times of the year.

During the purchasing, processing and sales seasons, inventories of unprocessed tobacco, inventories of redried tobacco and trade accounts receivable normally reach peak levels in succession. Current liabilities, particularly advances from customers and short-term notes payable to banks, normally reach their peak in this period as a means of financing the seasonal expansion of current assets. At March 31, the end of our fiscal year, the seasonal components of our working capital reflect primarily the operations related to foreign grown tobacco.

Customers and Selling Arrangements

Customers

We ship tobacco to manufacturers of cigarettes and other consumer tobacco products located in more than 90 countries around the world. We ship to international locations designated by these manufacturers. A majority of the shipments of tobacco are to factories or storage facilities of these manufacturers that are located outside the United States. In certain countries we also use commissioned agents to supplement our selling efforts.

The consumer tobacco business is dominated by a relatively small number of large multinational cigarette manufacturers and by government controlled entities. For the years ended March 31, 2009, 2008 and 2007, Philip Morris International, Inc (“PMI”), Altria Group, Inc. (“Altria”) and Japan Tobacco Inc., including their respective affiliates, accounted for more than 10% of our revenues from continuing operations. On March 28, 2008, Altria completed the spin-off of its international tobacco business, PMI. We conduct business with both PMI and Altria’s retained domestic tobacco business, Philip Morris USA, Inc., and the spin-off did not have a material effect on our results. The following table summarizes the percentage of Alliance One’s sales and other operating revenues from PMI and Japan Tobacco Inc for the year ended March 31, 2009 and Altria and Japan Tobacco Inc. for the years ended March 31, 2008 and 2007:


	Years Ended March 31,
	2009	2008	2007
Philip Morris International	25%	-	-
Altria Group, Inc.	-*	33%	34%
Japan Tobacco Inc.	24%	22%	19%
	49%	55%	53%
* Less than 10%

In 2009, Alliance One delivered approximately 57% of its tobacco sales to customers in Europe and approximately 14% to customers in the United States. One customer directs shipments to its Belgium storage and distribution center before shipment to its manufacturing facilities in Europe and Asia. In 2009, these Belgium sales accounted for 35% of sales to customers in Europe. The remaining sales are to customers located in Asia, Africa and other geographic regions of the world.

Selling Arrangements

We typically make our leaf tobacco purchases pursuant to customer orders or supply contracts or customer indications of anticipated need, with most purchases made based on indications. Customers are legally bound to purchase tobacco acquired by us pursuant to orders, but no contractual obligation exists with respect to tobacco purchased in response to indications. However, we have done business with most of our customers for many years and have never experienced a significant failure of customers to purchase tobacco for which they have given indications.

Generally, our agreements with customers establish a framework for pricing our services that is negotiated with respect to crop year, grade of tobacco leaf or type of service provided based on market prices. The majority of these agreements do not provide for minimum purchases and are terminable upon reasonable notice.

Customers and Selling Arrangements (Continued)

Selling Arrangements (Continued)

We recognize sales revenue when persuasive evidence of an arrangement exists, the price to the customer is fixed, collectibility is reasonably assured and title and risk of ownership is passed to the customer, which is upon shipment or delivery. Individual shipments may be large, and since the customer typically specifies shipping dates, our financial results may vary significantly between reporting periods due to timing of sales. In some markets, principally the United States, we process tobacco that is owned by our customers, and revenue is recognized when the processing is completed.

Our normal customer payment terms are either cash against documents, payment against invoice or customer letter of credit. Most of our sales throughout the world are denominated in U.S. dollars. While we can receive payment for tobacco sold after we have processed and shipped it, some of the larger customers advance payments to us throughout the buying and processing season as we purchase and process tobacco for the customers' accounts.

Competition

Alliance One is one of only two global publicly held leaf tobacco merchants, with substantially similar global market shares in markets in which we both operate. We expect to maintain a major position in most major tobacco growing regions in the world, including the principal export markets for flue-cured, burley and oriental tobacco and, as a result of our scale, global reach, and financial resources, we believe we are well-suited to serve the needs of all cigarette manufacturers.

The leaf tobacco industry is highly competitive and there are a number of independent global, regional or national competitors. Competition among leaf tobacco merchants is based primarily on the price charged for products and services as well as the merchant's ability to meet customer specifications in the buying, processing, residue compliance and financing of tobacco. In addition, there is competition in all countries to buy the available leaf tobacco and in many areas, total leaf tobacco processing capacity exceeds demand.

In addition to the primary global independent leaf tobacco merchants, the cigarette manufacturers increasingly buy tobacco directly from farmers, and other independent leaf merchants with low fixed costs and overhead who have entered the leaf purchasing and processing business on a local basis.

Research and Development

We routinely cooperate with both our customers and the manufacturers of the equipment used in our processing facilities to improve processing technologies. However, no material amounts are expended for research and development, and we hold no material patents, licenses, franchises, or concessions.

Alliance One Employees

Alliance One’s consolidated entities employed approximately 4,400 persons, excluding seasonal employees, in our worldwide operations at March 31, 2009. In the Other Regions operating segment, Alliance One’s consolidated entities employed approximately 3,500 employees at March 31, 2009 excluding approximately 7,000 seasonal employees. During processing periods, most seasonal employees as well as approximately 220 full-time factory personnel in the United States are covered by collective bargaining agreements. In the South America operating segment, Alliance One’s consolidated entities employed approximately 900 persons, excluding approximately 3,000 seasonal employees, at March 31, 2009. We consider Alliance One’s employee relations to be satisfactory.

Government Regulation and Environmental Compliance

See Item 1A. “Risk Factors” for a discussion of government regulation. Currently there are no material estimated capital expenditures related to environmental control facilities.

- 3 -

EXECUTIVE OFFICERS OF ALLIANCE ONE INTERNATIONAL, INC.

The following information is furnished with respect to the Company’s executive officers as of April 1, 2009 and the capacities in which they serve. These officers serve at the pleasure of the Board of Directors and are elected at each annual organizational meeting of the Board.


NAME	AGE	TITLE
Robert E. Harrison	55	Chairman, President and Chief Executive Officer

Robert A. Sheets	54	Executive Vice President - Chief Financial Officer

Hilton Kappaun	50	Executive Vice President - Global Operations

J. Pieter Sikkel	45	Executive Vice President - Business Strategy and Relationship Management

Henry C. Babb	64	Senior Vice President - Chief Legal Officer and Secretary

Michael K. McDaniel	59	Senior Vice President - Human Resources

William D. Pappas	56	Senior Vice President - Chief Information Officer

The business experience summaries provided below for the Company’s executive officers describe positions held by the named individuals during the last five years.

Robert E. Harrison has served as President and Chief Executive Officer since January 2007 and as Chairman since August 2007. Previously he served as President and Chief Operating Officer of Alliance One from May 2005 to January 2007, and as President and Chief Executive Officer of Standard from August 1996, and its Chairman from August 2003 to May 2005.

Robert A. Sheets has served as Executive Vice President – Chief Financial Officer since April 2008. Previously, he served as a member of the Board of Directors and as Executive Vice President and Chief Financial Officer of Standard until its merger with DIMON in May 2005.

Hilton Kappaun has served as Executive Vice President – Global Operations since April 2007. Previously, he served as Regional Director of South America for Alliance One from May 2005 to April 2007 and served as Regional Executive of South America for DIMON from January 2002 to May 2005.

J. Pieter Sikkel has served as Executive Vice President – Business Strategy and Relationship Management since April 2007. Previously, he served as Regional Director of Asia for Alliance One from May 2005 to April 2007, Senior Vice President of Asia for Standard from April 2004 to May 2005 and Regional Manager of Asia from 1999 to April 2004.

Henry C. Babb has served as Senior Vice President - Chief Legal Officer and Secretary of Alliance One since May 2005. Previously, he served as Senior Vice President - Public Affairs, General Counsel and Secretary of Standard from April 2004 to May 2005 and served as Secretary from June 1998 to April 2004.

Michael K. McDaniel has served as Senior Vice President - Human Resources of Alliance One since May 2005. Previously, he served as Senior Vice President - Human Resources of Standard from April 2004 to May 2005 and served as Vice President - Human Resources from June 1997 to April 2004.

William D. Pappas has served as Senior Vice President - Chief Information Officer of Alliance One since May 2005. Previously, he served as Chief Information Officer of DIMON from December 2004 to May 2005 and served as Vice President - Chief Technology Officer from October 2001 to December 2004.

- 4 -

ITEM 1A. RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report.

We may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in reports to stockholders and in press releases and investor calls and webcasts. You can identify these forward-looking statements by use of words such as “strategy,” “expects,” “continues,” “plans,” “anticipates,” “believes,” “will,” “estimates,” “intends,” “projects,” “goals,” “targets” and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in Alliance One International, Inc. securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important risk factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time.

Risks Relating to Our Operations

Global shifts in sourcing customer requirements may negatively impact our organizational structure and asset base.

The global leaf tobacco industry is experiencing shifts in the sourcing of customer requirements for tobacco. For example, significant tobacco production volume decreases have occurred and may continue to occur in the United States, Zimbabwe and Western Europe from historical levels. At the same time, production volumes in other sourcing origins, such as Brazil and other areas of Africa, are stabilizing. Additional shifts in sourcing may occur as a result of currency fluctuations, including devaluation of the U.S. dollar. A shift in sourcing origins in Europe has been influenced by modifications to the tobacco price support system in the European Union (EU). Customer requirements are changing due to these variations in production, therefore influencing our ability to plan effectively for the longer term in Europe.

We may not be able to timely or efficiently adjust to these shifts in sourcing origins, and adjusting to these shifts may require changes in our production facilities in certain origins and changes in our fixed asset base. We have incurred, and may continue to incur, restructuring charges as we continue to adjust to these shifts in sourcing. Adjusting our capacity and adjusting to these shifts in sourcing may have an adverse impact on our ability to manage our costs, and could have an adverse effect on our financial performance.

Our financial results will vary according to growing conditions, customer indications and other factors, which reduces your ability to gauge our quarterly and annual financial performance.

Our financial results, particularly the quarterly financial results, may be significantly affected by fluctuations in tobacco growing seasons and crop sizes which affect the supply of tobacco. The cultivation period for tobacco is dependent upon a number of factors, including the weather and other natural events, such as hurricanes or tropical storms, and our processing schedule and results of operations can be significantly altered by these factors.

The cost of acquiring tobacco can fluctuate greatly due to smaller crop sizes and increased competition in certain markets in which we purchase tobacco. For example, in Malawi, a smaller 2007 crop and increased competition in the Malawi market increased green tobacco costs at auction by almost 100%, while processing and overhead costs also increased. Furthermore, short crops in periods of high demand translate into higher average green prices, higher throughput costs and less volume to sell.

Further, the timing and unpredictability of customer indications, orders and shipments cause us to keep tobacco in inventory, increase our risk and result in variations in quarterly and annual financial results. The timing of shipments can be materially impacted by shortages of containers and vessels for shipping as well as infrastructure and accessibility issues in ports we use for shipment. For example, shortages in shipping containers were a major factor in shipping delays in Brazil during our 2006 fiscal year. We may from time to time in the ordinary course of business keep a significant amount of processed tobacco in inventory for our customers to accommodate their inventory management and other needs. Sales recognition by us and our subsidiaries is based on the passage of ownership, usually with shipment of product. Because individual shipments may represent significant amounts of revenue, our quarterly and annual financial results may vary significantly depending on our customers’ needs and shipping instructions. These fluctuations result in varying volumes and sales in given periods, which also reduces your ability to compare our financial results in different periods or in the same periods in different years.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to Our Operations (Continued)

Farmers who have historically grown tobacco and from whom we have purchased tobacco may elect to grow other crops instead of tobacco, which affects the world supply of tobacco and may impact our quarterly and annual financial performance.

Increases in the prices for other crops have led and may in the future lead farmers who have historically grown tobacco, and from whom we have purchased tobacco, to elect to grow these other, more profitable items instead of tobacco. A decrease in the volume of tobacco available for purchase may increase the purchase price of such tobacco. As a result, we could experience an increase in tobacco crop acquisition costs which may impact our quarterly and annual financial performance.

Our extension of credit to tobacco growers could expose us to losses.

We make advances to tobacco growers in many countries to finance their growing of tobacco for sale to us. Crop advances to growers are generally secured by the grower’s agreement to deliver green tobacco. In the event of crop failure or other failure of farmers to deliver the year’s crops, recovery of advances could be delayed until deliveries of future crops or indefinitely. The temporary or permanent loss of these advances to growers could result in losses.

When we purchase tobacco directly from growers, we bear the risk that the tobacco will not meet our customers’ quality and quantity requirements.

In countries where we contract directly with tobacco growers, including Argentina, Brazil, the United States and certain African countries, we bear the risk that the tobacco delivered will not meet quality and quantity requirements of our customers. If the tobacco does not meet such market requirements, we may not be able to sell the tobacco we agreed to buy and may not be able to meet all of our customers’ orders, which would have an adverse effect on profitability and results of operations.

Weather and other conditions can affect the marketability of our inventory.

Like other agricultural products, the quality of tobacco is affected by weather and the environment, which can change the quality or size of the crop. If a weather event is particularly severe, such as a major drought or hurricane, the affected crop could be destroyed or damaged to an extent that it would be less desirable to our customers, which would result in a reduction in revenues. If such an event is also widespread, it could affect our ability to acquire the quantity of products required by customers. In addition, other items can affect the marketability of tobacco, including, among other things, the presence of:

non-tobacco related material;

genetically modified organisms; and

excess residues of pesticides, fungicides and herbicides.

A significant event impacting the condition or quality of a large amount of any of the tobacco crops we buy could make it difficult for us to sell such tobacco or to fill our customers’ orders.

Our reliance on a small number of significant customers may adversely affect our results of operations.

Our customers are manufacturers of cigarette and other tobacco products. Several of these customers individually account for a significant portion of our sales in a normal year.

Approximately 25% of our consolidated tobacco sales in 2009 were to various tobacco customers owned by or under common control of Philip Morris International (formerly owned by Altria Group, Inc.) and 33% and 34%, respectively, of our consolidated tobacco sales in 2008 and 2007, were to various tobacco customers which are owned by or under common control of Altria Group, Inc. Approximately 24%, 22% and 19%, respectively, were to various tobacco customers which are owned by or under common control of Japan Tobacco, Inc. No other customer accounts for more than 10% of our sales.

In addition, tobacco product manufacturers are experiencing consolidation and further consolidation among our customers could decrease such customers’ demand for our leaf tobacco or processing services. The loss of any one or more of such customers could have a material adverse effect on our financial condition or results of operations.

We face increased risks of doing business due to the extent of our international operations.

We do business in more than 45 countries, many of which do not have stable economies or governments. Our international operations are subject to international business risks, including unsettled political conditions, expropriation, import and export restrictions, exchange controls, inflationary economies, currency risks and risks related to the restrictions on repatriation of earnings or proceeds from liquidated assets of foreign subsidiaries. These risks are exacerbated in countries where we have advanced substantial sums or guaranteed local loans or lines of credit for the purchase of tobacco from growers. For example, in 2006 as a result of the political environment, economic instability, foreign currency controls and governmental regulations in Zimbabwe, we deconsolidated our Zimbabwe subsidiaries. Zimbabwe had imposed a requirement of governmental authorization of any dividends paid from our Zimbabwe operation, which had been unsuccessful in satisfying unattainable criteria set by the Reserve Bank of Zimbabwe and, therefore, in obtaining the necessary authorizations.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to Our Operations (Continued)

We face increased risks of doing business due to the extent of our international operations. (Continued)

We have expanded our international operations in areas where the export of tobacco has increased due to increased demand for lower priced tobacco. We have significant investments in our purchasing, processing and exporting operations in Argentina, Brazil, Malawi, Tanzania and Turkey.

In recent years, economic problems in Zimbabwe and Brazil have received wide publicity related to devaluation and appreciation of the local currency and inflation. Devaluation and appreciation can affect our purchase costs of tobacco and our processing costs.

We are subject to potentially inconsistent actions by the governments of certain foreign countries in which we operate which may have a significant impact on our financial results. For example, in 2006, our concession to promote tobacco production in the Chifunde district of Mozambique was terminated by the government. Thereafter, we assessed our remaining Mozambique operations without the Chifunde district and determined that it was not in our economic interest to remain in Mozambique without this strategic district. Consequently, we discontinued our operations within Mozambique after the 2006 crop.

Our exposure to changes in foreign tax regimes could adversely impact our business.

We do business in countries that have tax regimes in which the rules are not clear, are not consistently applied and are subject to sudden change. This is especially true with regard to international transfer pricing. Our earnings could be reduced by the uncertain and changing nature of these tax regimes.

Fluctuations in foreign currency exchange and interest rates could adversely affect our results of operations.

We conduct our business in many countries around the world. Our business is generally conducted in U.S. dollars, as is the business of the leaf tobacco industry as a whole. However, we generally must purchase tobacco in non-U.S. countries using local currency. As a result, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the U.S. dollar. When the U.S. dollar weakens against foreign currencies, our costs for purchasing and processing tobacco in such currencies increases. We attempt to minimize such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Fluctuations in the value of foreign currencies can significantly affect our operating results.

In addition, the devaluation of foreign currencies has resulted and may in the future result in reduced purchasing power from customers whose capital resources are denominated in those currencies. We may incur a loss of business as a result of the devaluation of these currencies now or in the future.

Low investment performance by our defined benefit pension plan assets may increase our pension expense, and may require us to fund a larger portion of our pension obligations, thus, diverting funds from other potential uses.

We sponsor a domestic defined benefit pension plan that covers certain eligible employees. Our pension expense and required contributions to our pension plan are directly affected by the value of plan assets, the projected rate of return on plan assets, the actual rate of return on plan assets, and the actuarial assumptions we use to measure the defined benefit pension plan obligations.

Due to the significant market downturn that began in 2008, plan asset values declined significantly. If plan assets continue to perform below the assumed rate of return used to determine pension expense, future pension expense will increase. Further, as a result of the global economic instability, our pension plan investment portfolio has recently incurred greater volatility.

The proportion of pension assets to liabilities, which is called the funded status, determines the level of contribution to the plan that is required by law. In recent years, we have funded the plan in amounts as required, but changes in the plan’s funded status related to the value of assets or liabilities could increase the amount required to be funded. We cannot predict whether changing market or economic conditions, regulatory changes or other factors will further increase our pension funding obligations, diverting funds we would otherwise apply to other uses.

Competition could erode our earnings.

The leaf tobacco industry is highly competitive. We are one of two global publicly held competitors in the leaf tobacco industry, each with approximately equal market share. Competition is based primarily on the prices charged for products and services as well as the merchant’s ability to meet customer specifications in the buying, processing and financing of tobacco. In addition, there is competition in all countries to buy the available tobacco. The loss or substantial reduction of any large or significant customer could reduce our earnings.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to Our Operations (Continued)

Competition could erode our earnings. (Continued)

In addition to the two primary global independent leaf tobacco merchants, the cigarette manufacturers increasingly buy tobacco directly from farmers, and new independent leaf merchants are entering the leaf purchasing and processing business. We face increasing competition from new local and regional independent leaf merchants with low fixed costs and overhead and good customer connections at the local level. These new independent merchants are buying an increasing portion of the crops in certain international markets, particularly Brazil and parts of Africa, where the new entrants have been able to capitalize in the global transition to those markets. Any of these sources of new competition may result in less tobacco available for us to purchase and process in the applicable markets.

We have identified several material weaknesses related to our internal control in the past, and there can be no assurance that material weaknesses will not be identified in the future.

As a result of our testing of our internal control over financial reporting for the year ended March 31, 2008, we identified certain matters involving our internal control over financial reporting that we and our registered public accounting firm determined to be material weaknesses under standards established by the Public Company Accounting Oversight Board. Although we have remediated those material weaknesses in internal control over financial reporting, believe that our internal control over financial reporting was effective at March 31, 2009 as reported elsewhere in this Annual Report and intend to continue to monitor and improve our internal controls, we cannot assure you that other material weaknesses will not occur in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations or result in misstatements in our financial statements in amounts that could be material. Inferior internal controls could cause investors to lose confidence in our reported financial information, which could have a negative effect on the value of our common stock and could also require additional restatements of our prior reported financial information.

Risks Relating to Our Capital Structure

We may not continue to have access to the capital markets to obtain long-term and short-term financing on acceptable terms and conditions.

We access the short-term capital markets and, from time to time, the long-term markets to obtain financing. Although we believe that we can continue to access the capital markets in fiscal 2010 on acceptable terms and conditions, our access and the availability of acceptable terms and conditions are impacted by many factors, including: (i) our credit ratings; (ii) the liquidity and volatility of the overall capital markets, which has been negatively impacted by the U.S. sub-prime debt turmoil; and (iii) the current state of the economy, including the tobacco industry. There can be no assurances that we will continue to have access to the capital markets on terms acceptable to us.

We may not have access to available capital to finance our local operations in non-U.S. jurisdictions.

We have typically financed our non-U.S. local operations with uncommitted short term operating credit lines at the local level. These operating lines are typically seasonal in nature, normally extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans or demand payment of outstanding loans at any time. In addition, each of these operating lines must be renewed with each tobacco crop season in that jurisdiction. Although our foreign subsidiaries are the borrowers under these lines, many of them are guaranteed by us.

As of March 31, 2009, we had approximately $261.5 million drawn and outstanding on foreign seasonal lines totaling $479.5 million. Additionally against these lines there was $40.1 million available in unused letter of credit capacity with $3.8 million issued but unfunded.

Because the lenders under these operating lines typically have the right to cancel the loan at any time and each line must be renewed with each crop season, there can be no assurance that this capital will be available to our subsidiaries. If a number of these lenders cease lending to our subsidiaries or dramatically decrease such lending, it could have a material adverse affect on our liquidity.

Failure of foreign banks in which our subsidiaries deposit funds or the failure to transfer funds or honor withdrawals may affect our results of operations.

Funds held by our foreign subsidiaries are often deposited in their local banks. Banks in certain foreign jurisdictions may be subject to a higher rate of failure or may not honor withdrawals of deposited funds. In addition, the countries in which these local banks operate may lack sufficient regulatory oversight or suffer from structural weaknesses in the local banking system. Due to uncertainties and risks relating to the political stability of certain foreign governments, these local banks also may be subject to exchange controls and therefore unable to perform transfers of certain currencies. If our ability to gain access to these funds was impaired, it could have a material adverse effect on our results of operations.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to Our Capital Structure (Continued)

We have substantial debt which may adversely affect us by limiting future sources of financing, interfering with our ability to pay interest and principal on the notes and subjecting us to additional risks.

We have a significant amount of indebtedness and debt service obligations. As of March 31, 2009, we had approximately $931.9 million of indebtedness. In addition, the indenture governing the notes allows us to incur additional indebtedness under certain circumstances. If we add new indebtedness to our current indebtedness levels, the related risks that we now face could increase.

Our substantial debt will have important consequences, including:

that our indebtedness may make it more difficult for us to satisfy our obligations with respect to the notes and our other obligations;

that our indebtedness may limit our ability to obtain additional financing on satisfactory terms and to otherwise fund working capital, capital expenditures, debt refinancing, acquisitions and other general corporate requirements;

that a significant portion of our cash flow from operations must be dedicated to paying interest on and the repayment of the principal of our indebtedness. This reduces the amount of cash we have available for making principal and interest payments under the notes and for other purposes and makes us more vulnerable to a decrease in demand for leaf tobacco, increases in our operating costs or general economic or industry conditions;

that our ability to adjust to changing market conditions and to compete with other global leaf tobacco merchants may be hampered by the amount of debt we owe;

increasing our vulnerability to general adverse economic and industry conditions;

placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged;

limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and

restricting us from making strategic acquisitions or exploiting business opportunities.

In addition, the indenture governing the notes and our senior secured credit facility each contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt. Also, a substantial portion of our debt, including borrowings under our senior secured credit facility, bears interest at variable rates. If market interest rates increase, variable-rate debt will create higher debt service requirements, which would adversely affect our cash flow. While we may enter into agreements limiting our exposure to higher debt service requirements, any such agreements may not offer complete protection from this risk.

Despite current indebtedness levels, we may still be able to incur substantially more debt. This could exacerbate further the risks associated with our significant leverage.

We may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing the notes will restrict, but will not completely prohibit, us from doing so. Our senior secured credit facility provides for a $305.0 million revolving credit line. There were borrowings of $120.0 million under this facility at March 31, 2009. If new debt is added to our current debt levels, the related risks we now face could intensify.

The indentures governing the notes and our senior secured credit facility contain, and in the future could contain additional, covenants and tests that limit our ability to take actions or cause us to take actions we may not normally take.

The indentures governing the notes and our senior secured credit facility contain a number of significant covenants. These covenants limit our ability to, among other things:

incur additional indebtedness;

issue preferred stock;

merge, consolidate or dispose of substantially all of our assets;

grant liens on our assets;

pay dividends, redeem stock or make other distributions or restricted payments;

repurchase or redeem capital stock or prepay subordinated debt;

make certain investments;

agree to restrictions on the payment of dividends to us by our subsidiaries;

sell or otherwise dispose of assets, including equity interests of our subsidiaries;

enter into transactions with our affiliates; and

enter into certain sale and leaseback transactions.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to Our Capital Structure (Continued)

Our senior secured credit facility and the indentures require us to meet certain financial tests. Complying with these covenants and tests may cause us to take actions that we otherwise would not take or not take actions that we otherwise would take. The failure to comply with these covenants and tests would cause a default under the credit facility and, under the indenture, would prevent us from taking certain actions, such as incurring additional debt, paying dividends or redeeming senior notes or subordinated debt. A default, if not waived, could result in the debt under our senior secured credit facility and the indenture becoming immediately due and payable and could result in a default or acceleration of our other indebtedness with cross-default provisions. If this occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be on terms that are acceptable to us.

We have had to obtain waivers and amendments under our existing financing arrangements to avoid future defaults or cure past defaults.

In the recent past, we have sought and obtained waivers and amendments under our existing financing arrangements to avoid future non-compliance with financial covenants and cure past defaults under restrictive covenants. We also paid significant fees to obtain these waivers and consents. You should consider this in evaluating our ability to comply with restrictive covenants in our debt instruments and the financial costs of our ability to do so. Any future defaults for which we do not obtain waivers or amendments could result in the acceleration of a substantial portion of our indebtedness, much of which is cross-defaulted to other indebtedness.

We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our control.

Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive and other factors that may be beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior secured credit facility or otherwise in an amount sufficient to enable us to pay our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our debt, including our senior secured credit facility or the notes, on commercially reasonable terms or at all. Additionally, to the extent permitted under our senior secured credit agreement and indentures, we may repurchase, repay or tender for our bank debt, senior notes or senior subordinated notes, which may place pressure on future cash requirements to the extent that the debt repurchased, repaid or tendered cannot be redrawn.

If we refinance our current credit facilities, we may not be able to obtain the same credit availability or at interest rates similar to our current credit facilities.

If the recent worsening of credit market conditions continues or increases, it could have a material adverse impact on our ability to refinance our current credit facilities on similar or better terms than our current credit facility.

- 5 -

ITEM 1A. RISK FACTORS (Continued)

Risks Related to the Current Global Financial Crisis

The volatility and disruption of global credit markets and adverse changes arising from the current global financial crisis may negatively impact our ability to access financing and expose us to unexpected risks.

The current global financial and credit crisis exposes us to a variety of risks. We fund our business with a combination of cash from operations, short-term seasonal credit lines, our revolving credit facility, long term debt securities and customer advances. We have financed our non-U.S. operations with uncommitted unsecured short term seasonal lines of credit at the local level. These local operating lines typically extend for a term of 180 to 270 days and are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. As of March 31, 2009, we had approximately $261.5 million drawn and outstanding on foreign seasonal lines with maximum capacity totaling $479.5 million. In light of the global credit crisis it is uncertain whether local seasonal lines will continue to be available to finance our non-U.S. operations to the extent or on terms similar to what has been available in the past and whether repayment of existing loans under these lines will be demanded prior to maturity. To the extent that local seasonal lines cease to be available at levels necessary to finance our non-U.S. operations or we are required to repay loans under the lines prior to maturity, we may be required to seek alternative financing sources beyond our existing committed sources of funding. In light of the current capital and credit market disruption and volatility, we cannot assure you that such alternative funding will be available to us on terms and conditions acceptable to us, or at all. In the event that we may be required to support our non-U.S. operations by borrowing U.S. dollars under our existing revolving credit line, we may be exposed to additional currency exchange risk that we may be unable to successfully hedge. Further, there is additional risk that certain banks in the U.S. revolving credit line syndicate could be unable to meet contractually obligated borrowing requests in the future as a result of the global financial crisis. In addition, we maintain deposit accounts with numerous financial institutions around the world in amounts that exceed applicable governmental deposit insurance levels. While we actively monitor our deposit relationships, we are subject to risk of loss in the event of the unanticipated failure of a financial institution in which we maintain deposits, which loss could be material to our results of operations and financial condition.

Derivative transactions may expose us to unexpected risk and potential losses.

We are party to certain derivative transactions, such as interest rate swap contracts and foreign exchange contracts, with financial institutions to hedge against certain financial risks. Changes in the fair value of these derivative financial instruments that are not cash flow hedges are reported in income, and accordingly could materially affect our reported income in any period. Moreover, in the light of current economic uncertainty and potential for financial institution failures, we may be exposed to the risk that our counterparty in a derivative transaction may be unable to perform its obligations as a result of being placed in receivership or otherwise. In the event that a counterparty to a material derivative transaction is unable to perform its obligations thereunder, we may experience material losses that could materially adversely affect our results of operations and financial condition.

Risks Relating to the Tobacco Industry

Reductions in demand for consumer tobacco products could adversely affect our results of operations.

The tobacco industry, both in the United States and abroad, continues to face a number of issues that may reduce the consumption of cigarettes and adversely affect our business, sales volume, results of operations, cash flows and financial condition.

These issues, some of which are more fully discussed below, include:

governmental actions seeking to ascribe to tobacco product manufacturers liability for adverse health effects associated with smoking and exposure to environmental tobacco smoke;

smoking and health litigation against tobacco product manufacturers;

tax increases on consumer tobacco products;

current and potential actions by state attorneys general to enforce the terms of the Master Settlement Agreement, or MSA, between state governments in the United States and tobacco product manufacturers;

governmental and private bans and restrictions on smoking;

actual and proposed price controls and restrictions on imports in certain jurisdictions outside the United States;

restrictions on tobacco product manufacturing, marketing, advertising and sales;

the diminishing social acceptance of smoking;

increased pressure from anti-smoking groups;

other tobacco product legislation that may be considered by Congress, the states, municipalities and other countries; and

the impact of consolidation among multinational cigarette manufacturers.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to the Tobacco Industry (Continued)

Tobacco product manufacturer litigation may reduce demand for our services.

Our primary customers, the leading cigarette manufacturers, face thousands of lawsuits brought throughout the United States and, to a lesser extent, the rest of the world. These lawsuits have been brought by plaintiffs, including (1) individuals and classes of individuals alleging personal injury and/or misleading advertising, (2) governments (including governmental and quasi-governmental entities in the United States and abroad) seeking recovery of health care costs allegedly caused by cigarette smoking, and (3) other groups seeking recovery of health care expenditures allegedly caused by cigarette smoking, including third-party health care payors, such as unions and health maintenance organizations. Damages claimed in some of the smoking and health cases range into the billions of dollars. There have been several jury verdicts in tobacco product litigation during the past several years. Additional plaintiffs continue to file lawsuits. The effects of the lawsuits on our customers could reduce their demand for tobacco from us.

Legislative and regulatory initiatives could reduce consumption of consumer tobacco products and demand for our services.

Congress is currently considering enactment of a bill, entitled the “Family Smoking Prevention and Tobacco Control Act,” to extend the authority of the Food and Drug Administration to encompass the regulation of tobacco products. This measure was approved by the House of Representatives on April 2, 2009 and a similar measure has been introduced in the Senate. The bill would authorize the FDA to adopt product standards for tobacco products, including the level of nicotine yield and the reduction or elimination of other constituents of the products, along with provisions for the testing of products against these standards. The bill contemplates further restrictions on advertising of tobacco products, would authorize the FDA to limit the sales of tobacco products to face-to-face transactions permitting the verification of the age of the purchaser, would authorize a study to determine whether the minimum age for the purchase of tobacco products should be increased and would require submission of reports from manufacturers of tobacco products to the FDA regarding product ingredients and other matters, including existing reports on health, toxicological, behavioral, or physiologic effects of tobacco products and their constituents. The bill also would require mandated warning labels and require packaging to indicate the percentage of domestically grown tobacco and foreign grown tobacco included in the product. In addition, the bill would direct the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice, although the bill would not apply to tobacco leaf that is not in the possession of a manufacturer of tobacco products, or to the producers of tobacco leaf, including tobacco growers, tobacco warehouses, and tobacco grower cooperatives unless those entities are controlled by a tobacco product manufacturer. If this bill were to be enacted, our business, volume, results of operations, cash flows and financial condition could be materially adversely affected.

Reports with respect to the harmful physical effects of cigarette smoking have been publicized for many years, and the sale, promotion and use of cigarettes continue to be subject to increasing governmental regulation. Since 1964, the Surgeon General of the United States and the Secretary of Health and Human Services have released a number of reports linking cigarette smoking with a broad range of health hazards, including various types of cancer, coronary heart disease and chronic lung disease, and recommending various governmental measures to reduce the incidence of smoking. More recent reports focus upon the addictive nature of cigarettes, the effects of smoking cessation, the decrease in smoking in the United States, the economic and regulatory aspects of smoking in the Western Hemisphere, and cigarette smoking by adolescents, particularly the addictive nature of cigarette smoking in adolescence. Numerous state and municipal governments have taken and others may take actions to diminish the social acceptance of smoking of tobacco products, including banning smoking in certain public and private locations.

A number of foreign nations also have taken steps to restrict or prohibit cigarette advertising and promotion, to increase taxes on cigarettes and to discourage cigarette smoking. In some cases, such restrictions are more onerous than those in the United States. For example, advertising and promotion of cigarettes has been banned or severely restricted for a number of years in Australia, Canada, Finland, France, Italy, Singapore and other countries. Further, in February 2005, the World Health Organization treaty, the Framework Convention for Tobacco Control, entered into force. This treaty, to which 164 nations were parties at March 31, 2009, requires signatory nations to enact legislation that would require, among other things, specific actions to prevent youth smoking; restrict or prohibit tobacco product marketing; inform the public about the health consequences of smoking and the benefits of quitting; regulate the content of tobacco products; impose new package warning requirements including the use of pictorial or graphic images; eliminate cigarette smuggling and counterfeit cigarettes; restrict smoking in public places; increase and harmonize cigarette excise taxes; abolish duty-free tobacco sales; and permit and encourage litigation against tobacco product manufacturers.

Due to the present regulatory and legislative environment, a substantial risk exists that past growth trends in tobacco product sales may not continue and that existing sales may decline.

ITEM 1A. RISK FACTORS (Continued)

Risks Relating to the Tobacco Industry (Continued)

Government actions can have a significant effect on the sourcing of tobacco. If some of the current efforts are successful, we could have difficulty obtaining sufficient tobacco to meet our customers’ requirements, which could have an adverse effect on our performance and results of operations.

The WHO, through the FCTC, has created a formal study group to identify and assess crop diversification initiatives and alternatives to leaf tobacco growing in countries whose economies depend upon tobacco production. The study group began its work in February 2007. If certain countries were to partner with the FCTC study group and seek to eliminate or significantly reduce leaf tobacco production, we could encounter difficulty in sourcing leaf tobacco to fill customer requirements, which could have an adverse effect on our results of operations.

We have been, and continue to be, subject to governmental investigations into, and litigation concerning, leaf tobacco industry buying and other payment practices.

The leaf tobacco industry, from time to time, has been the subject of government investigations regarding trade practices. For example, we were the subject of an investigation by the Antitrust Division of the United States Department of Justice into certain buying practices alleged to have occurred in the industry, we were named defendants in an antitrust class action litigation alleging a conspiracy to rig bids in the tobacco auction markets, and we were the subject of an administrative investigation into certain tobacco buying and selling practices alleged to have occurred within the leaf tobacco industry in some countries within the European Union, including Spain, Italy, Greece and potentially other countries.

Our subsidiaries in Spain, Italy and Greece have been subject to these investigations. In 2004, the EC fined us and our Spanish subsidiaries €4.4 million ($5.6 million) solely relating to the investigations in Spain. In respect of the Italian investigation, in October 2005, the EC announced that we and our Italian subsidiaries have been assessed a fine in the aggregate amount of €24.0 million ($28.8 million). Several tobacco processors, growers and agricultural associations that were the subject of the investigation in Italy were assessed fines in various amounts totaling €56.0 million ($67.0 million), inclusive of the fines imposed on us and our subsidiaries. We, along with the applicable subsidiaries, have appealed the decisions of the EC with respect to Spain and Italy to the Court of First Instance of the EC for the annulment or modification of the decision; but the outcome of the appeals process as to both timing and results is uncertain.

In March 2005, the EC informed us that it had closed its investigation in relation to the Greek leaf tobacco industry buying and selling practices. In relation to these investigations into certain tobacco buying and selling practices, the DGCOMP could decide to pursue investigations into other countries and additional fines may be assessed in those countries.

We have recently been made aware of a review by the Malawi Government of the operation of its tobacco auction markets. Although the Government’s preliminary report suggests that there may have been violations by the leaf dealer industry of certain Malawi competition laws, the review is at an early stage and it is not possible to predict its outcome or its possible impact on us. We will continue to cooperate with the relevant authorities and are conducting our own internal investigation.

In March 2004, we discovered potential irregularities with respect to certain bank accounts in southern Europe and central Asia. The Audit Committee of our Board of Directors engaged an outside law firm to conduct an investigation of activity relating to these accounts. That investigation revealed that, although the amounts involved were not material and had no material impact on our historical financial statements, there were payments from these accounts that may have violated the U.S. Foreign Corrupt Practices Act. In May 2004, we voluntarily reported the matter to the U.S. Department of Justice (“Justice”). Soon thereafter, we closed the accounts in question, implemented personnel changes and other measures designed to prevent similar situations in the future, including the addition of new finance and internal audit staff and enhancement of existing training programs, and disclosed these circumstances in our filings with the SEC. In August 2006, we learned that the SEC had issued a formal order of investigation of us and others to determine if these or other actions, including those in other countries in which we do business, may have violated certain provisions of the Securities Exchange Act of 1934 and rules thereunder. In May 2008, we learned that Justice is conducting an investigation into possible violations of federal law stemming from the same actions being investigated by the SEC. If the U.S. authorities determine that there have been violations of federal laws, they may seek to impose sanctions on us that may include, among other things, injunctive relief, disgorgement, fines, penalties and modifications to business practices. It is not possible to predict at this time whether the authorities will determine that violations have occurred, and if they do, what sanctions they might seek to impose. It is possible, however, that any sanctions which might be imposed could materially adversely affect results of operations. Both of these investigations are ongoing as of the date of this report and we are fully cooperating with the SEC and Justice.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Following is a description of Alliance One’s material properties as of March 31, 2009.

Corporate

Our corporate headquarters are located in Morrisville, North Carolina.

Facilities

We own a total of 15 production facilities in 10 countries. We operate each of our tobacco processing plants for seven to nine months during the year to correspond with the applicable harvesting season. While we believe our production facilities have been efficiently utilized, we continually compare our production capacity and organization with the transitions occurring in global sourcing of tobacco. We also believe our domestic production facilities and certain foreign production facilities have the capacity to process additional volumes of tobacco if required by customer demand.

The following is a listing of the various material properties used in operations all of which are owned by Alliance One:


LOCATION	USE

SOUTH AMERICA SEGMENT
SOUTH AMERICA
VENANCIO AIRES, BRAZIL	FACTORY/STORAGE
SANTA CRUZ, BRAZIL	FACTORY/STORAGE
VERA CRUZ, BRAZIL	STORAGE
EL CARRIL, ARGENTINA	FACTORY/STORAGE

OTHER REGIONS SEGMENT
UNITED STATES
WILSON, N.C.	FACTORY/STORAGE
FARMVILLE, N.C.	FACTORY/STORAGE
DANVILLE. VA	STORAGE

AFRICA
LILONGWE, MALAWI	FACTORY/STORAGE
MOROGORO, TANZANIA	FACTORY/STORAGE

EUROPE
IZMIR, TURKEY	FACTORY/STORAGE
KARLSRUHE, GERMANY	FACTORY/STORAGE

ASIA
NGORO, INDONESIA	FACTORY/STORAGE

ITEM 3. LEGAL PROCEEDINGS

In October 2001, the Directorate General for Competition (“DGCOMP”) of the European Commission (“EC”) began an administrative investigation into certain tobacco buying and selling practices alleged to have occurred within the leaf tobacco industry in some countries within the European Union, including Spain, Italy, Greece and potentially other countries. The Company and its subsidiaries in Spain, Italy and Greece have been subject to these investigations. In respect of the investigation into practices in Spain, in 2004, the EC fined the Company and its Spanish subsidiaries €4.4 million (US$5.6 million). In respect of the investigation into practices in Italy, in October 2005, the EC announced that the Company and its Italian subsidiaries have been assessed a fine in the aggregate amount of €24.0 million (US$28.8 million). With respect to both the Spanish and Italian investigations, the fines imposed on the Company and its predecessors and subsidiaries were part of fines assessed on several participants in the applicable industry. With respect to the investigation relating to Greece, the EC informed the Company in March 2005 it had closed its investigation in relation to the Greek leaf tobacco industry buying and selling practices. The Company, along with its applicable subsidiaries, has appealed the decisions of the EC with respect to Spain and Italy to the Court of First Instance of the European Commission for the annulment or modification of the decision, but the outcome of the appeals process as to both timing and results is uncertain. The Company has fully recognized the impact of each of the fines set forth above and has paid all of such fines as part of the appeal process.

ITEM 3. LEGAL PROCEEDINGS (Continued)

In March 2004, the Company discovered potential irregularities with respect to certain bank accounts in southern Europe and central Asia. The Audit Committee of the Company’s Board of Directors engaged an outside law firm to conduct an investigation of activity relating to these accounts. That investigation revealed that, although the amounts involved were not material and had no material impact on the Company’s historical financial statements, there were payments from these accounts that may have violated the U.S. Foreign Corrupt Practices Act. In May 2004, the Company voluntarily reported the matter to the U.S. Department of Justice (“Justice”). Soon thereafter, the Company closed the accounts in question, implemented personnel changes and other measures designed to prevent similar situations in the future, including the addition of new finance and internal audit staff and enhancement of existing training programs, and disclosed these circumstances in its filings with the SEC. In August 2006, the Company learned that the SEC had issued a formal order of investigation of the Company and others to determine if these or other actions, including those in other countries in which the Company does business, may have violated certain provisions of the Securities Exchange Act of 1934 and rules thereunder. In May 2008, the Company learned that Justice is conducting an investigation into possible violations of federal laws stemming from the same actions being investigated by the SEC.

If the U.S. authorities determine that there have been violations of federal laws, they may seek to impose sanctions on the Company that may include, among other things, injunctive relief, disgorgement, fines, penalties and modifications to business practices. It is not possible to predict at this time whether the authorities will determine that violations have occurred, and if they do, what sanctions they might seek to impose. It is possible, however, that any sanctions which might be imposed could materially adversely affect the Company’s results of operations. Both of these investigations are ongoing as of the date of this report and the Company is fully cooperating with the SEC and Justice.

The Company had previously disclosed that it had received notice from Mindo, S.r.l., the purchaser in June 2004 of the Company’s Italian subsidiary Dimon Italia, S.r.l., of its intent to assert against the Company, or its subsidiaries, a claim arising out of that sale transaction. That claim, which may be followed by additional claims, was filed before the Court of Rome on April 12, 2007. The claim, allegedly arising from a guaranty letter issued by a consolidated subsidiary of the Company in connection with the sale transaction, seeks the recovery of €7.4 million (US$9.7 million) plus interest and costs.

On December 13, 2007, the Public Prosecutors’ offices in the States of Santa Catarina and Parana filed claims against the Company’s Brazilian subsidiary, Alliance One Brazil Exportadora de Tobaccos Ltda. and a number of other tobacco processors, on behalf of all tobacco farmers in those states. The lawsuits primarily assert that there exists an employment relationship between tobacco processors and tobacco farmers.

At the initial hearing in Santa Catarina, on January 29, 2008, the Court granted the Company’s motion to have the case moved to the Labor Court in Brazilia. No hearing date has yet been set.

In the state of Parana, the relief sought by the Public Prosecutor was granted by the local Labor Court. The Company appealed that initial ruling and it was overturned in part and affirmed in part. The Company has appealed from that part of the initial ruling which was affirmed and no ruling has yet been rendered on the appeal. The Company has separately asserted, on April 11, 2008, a lack of jurisdiction motion similar to that which it asserted in the case in Santa Catarina which resulted in the transfer of that case to the Labor Court in Brazilia. No hearing date for that motion has been set.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

- 6 -

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Alliance One’s common stock is traded on the New York Stock Exchange, under the ticker symbol "AOI."

The following table sets forth for the periods indicated the high and low reported sales prices of our common stock as reported by the NYSE and the amount of dividends declared per share for the periods indicated.


	Alliance One Common Stock
	High	Low	Dividends Declared
Year Ended March 31, 2009
Fourth Quarter	$ 4.25	$ 2.22	$.000
Third Quarter	4.22	1.97	.000
Second Quarter	5.30	3.50	.000
First Quarter	6.60	5.07	.000

Year Ended March 31, 2008
Fourth Quarter	$ 6.31	$ 3.48	$.000
Third Quarter	7.10	3.50	.000
Second Quarter	10.23	5.77	.000
First Quarter	12.19	9.14	.000

As of March 31, 2009, there were approximately 6,754 shareholders, including approximately 6,493 beneficial holders of our common stock.

The payment of dividends by Alliance One is subject to the discretion of our board of directors and will depend on business conditions, compliance with debt agreements, achievement of anticipated cost savings, financial condition and earnings, regulatory considerations and other factors.

- 7 -

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (Continued)

Alliance One International, Inc. Comparison of Cumulative Total Return to Shareholders

The following line graph and table presents the cumulative total shareholder return of a $100 investment including reinvestment of dividends and price appreciation over the last five years in each of the following: Alliance One International, Inc. (AOI) common stock, the S&P 500 Index, the S&P 600 Small Cap Index and an index of peer companies. The sole company in the peer group is Universal Corporation (UVV).

[aoi10k2009002.gif]


Cumulative Total Return

	Fiscal Year Ending
	3/31/04	3/31/05	3/31/06	3/31/07	3/31/08	3/31/09

Alliance One International, Inc.	$100.00	$ 92.39	$ 73.24	$139.10	$ 91.03	$ 57.87

Custom Selected Stock List	$100.00	$ 93.08	$ 77.78	$135.61	$149.39	$ 71.18

S&P 500 Index	$100.00	$106.69	$119.20	$133.31	$126.54	$ 78.34

S&P Small Cap 600 Index	$100.00	$113.08	$140.30	$147.72	$132.05	$ 81.80

- 8 -

ITEM 6. SELECTED FINANCIAL DATA

FIVE-YEAR FINANCIAL STATISTICS

Alliance One International, Inc. and Subsidiaries

The information presented in the table below includes periods ending prior to the completion of our merger with Standard Commercial Corporation (“Standard”) on May 13, 2005. Accordingly, the information presented does not include any results of operations or other information related to Standard for the year ended March 31, 2005.



	Years Ended March 31,
(in thousands, except per share amounts and number of stockholders)	2009	2008	2007	2006	2005
Summary of Operations
Sales and other operating revenues	$2,258,219	$2,011,503	$1,979,078	$2,112,685	$1,300,118
Goodwill impairment	-	-	-	256,916	-
Restructuring and asset impairment
charges	591	19,580	29,773	85,411	2,836
Debt retirement expense	954	5,909	3,860	66,474	-
Income (loss) from continuing operations	132,151	9,006	(2,615)	(423,342)	24,441
Income (loss) from discontinued operations	407	7,855	(18,730)	(24,104)	(11,153)
Net income (loss)	132,558	16,861	(21,597)	(447,446)	13,288

Per Share Statistics
Basic Earnings (Loss) Per Share:
Income (loss) from continuing operations	$1.50	$.10	$(.03)	$(5.21)	$.55
Income (loss) from discontinued operations	-	.09	(.22)	(.30)	(.25)
Net income (loss)	1.50	.19	(.25)	(5.51)	.30

Diluted Earnings (Loss) Per Share:
Income (loss) from continuing operations	$1.49	$.10	$(.03)	$(5.21)	$.54
Income (loss) from discontinued operations	-	.09	(.22)	(.30)	(.25)
Net income (loss) (1)	1.49	.19	(.25)	(5.51)	.29

Cash dividends paid	-	-	-	.105	.30
Book value	3.67	2.38	2.55	2.46	9.13

Balance Sheet Data
Working capital	$ 620,838	$ 440,213	$ 531,983	$ 538,913	$ 473,063
Total assets	1,758,519	1,712,865	1,653,872	1,904,124	1,404,059
Long-Term Debt	652,584	563,973	726,625	744,494	486,412
Stockholders’ equity	326,661	211,467	225,546	214,187	414,312

Other Data
Ratio of Earnings to Fixed Charges (2)	2.07	1.02	1.12	-	1.65
Common shares outstanding at year end	88,974	88,897	88,614	87,110	45,368
Number of stockholders at year end (3)	6,754	7,670	7,612	7,658	7,641

1)   For the year ended March 31, 2005 the assumed conversion of Convertible Debentures at the beginning of the period has an antidilutive
      effect on earnings (loss) per share. In connection with the closing of the merger with Standard many of the Company’s financing
      arrangements were refinanced, including in July of 2005, the Company’s $73,328 of convertible subordinated debentures due 2007. For
      the years ended March 31, 2007 and March 31, 2006, all outstanding restricted stock and stockoptions are excluded because their
      inclusion would have an antidilutive effect on the loss per share.

2) In 2006, fixed charges exceeded earnings by approximately $442,087.

3) Includes the number of stockholders of record and non-objecting beneficial owners.

ITEM 7. MANAGEMENT’S DISCUSSIO N AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussions should be read in conjunction with the other sections of this report, including the consolidated financial statements and related notes contained in Item 8 of the Form 10-K:

Executive Overview

The following executive overview is intended to provide significant highlights of the discussion and analysis that follows.

Financial Results

Average selling prices increased over the prior year in response to increased green tobacco and processing costs partially offset by a decrease in quantities sold. Increased sales prices and profitability improvements by both our South America Region and Other Regions operating segments provided a stable balanced platform from which our financial results for the year were achieved. The costs of this year’s crops were higher as a result of crop competition, inflationary pressure and various appreciating currencies versus the U.S. dollar and in particular, the Brazilian real during the growing season. Recently these trends have reversed somewhat as an impact of the current financial crisis. Working closer with our dedicated customer base also played a major role in improved performance this year versus the prior year, as we worked in concert with them to anticipate their evolving requirements.

Liquidity

Our liquidity as of March 31, 2009, was $489.8 million comprised of $87.7 million of cash and $402.1 million of available credit, that includes $185.0 million undrawn on our $305.0 million senior credit facility, $2.9 million of other long term debt, $174.1 million of notes payable to banks, and $40.1 million exclusively for letters of credit. While the global capital markets remain challenged by the current financial crisis our access to capital has remained in line with management’s expectations and required levels to adequately fund ongoing business requirements. We continue to monitor unfolding financial market developments, with a view toward adjusting our strategy if warranted to protect capital and liquidity, while maintaining funding sources, controlling costs and maximizing enterprise flexibility. As a result, we have borrowed $120.0 million under our revolver and reduced borrowing under foreign seasonal lines of credit because of more attractive interest rates. Challenges in anticipating future financial market changes, coupled with the seasonal nature of our business, industry and country supply and demand levels, as well as other external economic and currency factors that may change quickly and in an unanticipated manner, could negatively impact our results. As part of addressing these risks, our liquidity is derived from a numbers of sources including cash from operations, our committed Senior Credit Facility, sale of accounts receivable, active working capital management, advances from our well-capitalized customers, and lastly, bilateral short-term credit lines throughout the world. Additionally, our primary overnight cash investments are with financial institutions that have government guaranties, though in amounts that may exceed applicable guarantee levels, and we do not invest cash in auction rate securities or mortgage backed money market funds. Our strategy to protect capital and ensure appropriate liquidity management is dynamic and will be modified to meet changing market conditions.

Outlook

Industry stocks have remained tight but it is anticipated that the Malawi burley crop that is beginning harvest will increase global supplies of burley tobacco significantly, although other factors may result in higher costs to procure this tobacco. Global flue cured and oriental production should be relatively unchanged with some cost increases probable over the next twelve months. We continue to work closely with our global farmer base to ensure their sustainability while using our significant agronomy resources to also ensure that best practices and total product integrity is being maintained in the face of increasing product regulation. One of the primary challenges we face is potential further adjustments that may be necessary due to the continuing dynamic global financial uncertainty. We continue to attract working capital financing with appropriate levels of liquidity but at a higher cost. Further decline in the global financial systems could negatively impact our ability to secure cost effective funding, so we are monitoring the fluid situation, planning with our well-capitalized customers while working closely with our global financing sources. When combined with further expense control and focus on specific global markets that are growing, our balanced approach and delivery of goods and services should provide value.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations


Consolidated Statement of Operations
	Twelve Months Ended March 31,
		Change			Change
(in millions)	2009	$	%	2008	$	%	2007
Sales and other operating revenues	$2,258.2	$ 246.7	12.3	$2,011.5	$ 32.4	1.6	$1,979.1
Gross profit	360.8	110.4	44.1	250.4	(45.3)	(15.3)	295.7
Selling, administrative and general expenses	156.0	(1.4)	(0.9)	157.4	(0.9)	(0.6)	158.3
Other income	0.2	(20.0)		20.2	14.1		6.1
Goodwill impairment	-	-		-	-		-
Restructuring and asset impairment charges	0.6	(19.0)		19.6	(10.2)		29.8
Debt retirement expense	1.0	(4.9)		5.9	2.0		3.9
Interest expense	98.0	(3.9)		101.9	(3.7)		105.6
Interest income	3.8	(12.4)		16.2	7.6		8.6
Derivative financial instruments income	-	-		-	(0.3)		0.3
Income tax expense (benefit)	(22.0)	(16.5)		(5.5)	(21.6)		16.1
Equity in net income of investee companies	1.5	(0.3)		1.8	0.8		1.0
Minority interests (income)	0.7	0.3		0.4	(0.3)		0.7
Income (loss) from discontinued operations	0.4	(7.5)		7.9	26.6		(18.7)
Cumulative effect of accounting changes, net of income tax	-	-		-	0.3		(0.3)
Net income (loss)	$ 132.6*	$ 115.7*		$ 16.9*	$ 38.5		$ (21.6)*

* Amounts do not equal column totals due to rounding.


Sales and Other Operating Revenue Supplemental Information
	Twelve Months Ended March 31,
		Change			Change
(in millions, except per kilo amounts)	2009	$	%	2008	$	%	2007
Tobacco sales and other operating revenues:
Sales and other operating revenues	$ 2,172.7	$ 239.7	12.4	$ 1,933.0	$ 23.7	1.2	$ 1,909.3
Kilos	498.0	(58.1)	(10.4)	556.1	(28.8)	(4.9)	584.9
Average price per kilo	$ 4.36	$ 0.88	25.3	$ 3.48	$ 0.22	6.7	$ 3.26
Processing and other revenues	$ 85.5	7.0	8.9	$ 78.5	$ 8.7	12.5	$ 69.8
Total sales and other operating revenues	$ 2,258.2	$ 246.7	12.3	$ 2,011.5	$ 32.4	1.6	$ 1,979.1

- 9 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Comparison of the Year Ended March 31, 2009 to the Year Ended March 31, 2008

Sales and other operating revenues. The increase of 12.3% from $2,011.5 million in 2008 to $2,258.2 million in 2009 is the result of a 25.3% or $0.88 per kilo increase in average sales prices and an 8.9% or $7.0 million increase in processing and other revenues partially offset by a 10.4% or 58.1 million kilo decrease in quantities sold.

South America region. Tobacco revenues increased $19.8 million, reflecting an increase of $1.16 per kilo in average sales prices substantially offset by a decrease of 58.8 million kilos in quantities sold. The increase in average sales price is primarily due to improved customer pricing and the decrease in volume is mainly attributable to reduced inventories carried over from the prior fiscal year and smaller crop sizes.

Other regions. Tobacco revenues increased $220.0 million or 20.2% primarily as a result of a $0.70 per kilo increase in average sales prices and a slight increase of 0.7 million kilos in quantities sold. Average sales price increases due to improved customer pricing, as well as increased byproduct volumes in the Africa region, were the primary contributors to the increase in revenues in the Other Regions operating segment. Average sales prices and changing product mix as well as increased volumes in the Asia and North America regions also contributed significantly to the increase in revenues. In Europe, improved customer pricing more than offset decreased volumes that resulted from the exit from the Greek and Spanish tobacco markets as well as reduced demand in Russia. Processing and other revenues increased 8.9% or $7.0 million from $78.5 million in 2008 to $85.5 million in 2009 primarily as a result of increased processing volumes and prices in Africa.

Gross profit as a percentage of sales. Gross profit increased 44.1% from $250.4 million in 2008 to $360.8 million in 2009 and the gross profit percentage increased as well from 12.4% in 2008 to 16.0% in 2009.

South America region. Gross profit in the South America Region operating segment increased $26.1 million primarily as a result of the nonrecurrence of significant grower bad debt and interstate trade tax provisions in the prior year. In 2008, as a result of the poor quality of the 2006 crop and the resulting surplus quantities on hand combined with substantial increases in both green tobacco and tobacco processing costs for the 2006 and 2007 crops due to the strengthening Brazilian real, 2007 crop production and purchases declined as expected. The continued decline in market conditions again resulted in an increased grower bad debt provision for the 2007 crop. As a result, a $37.5 million bad debt provision associated with farmer accounts related to the cumulative impact of the lower quality of the 2006 crop and smaller 2007 crop was recorded. The positive impact on gross profit from the nonrecurrence of these provisions in 2009 was partially offset by the impact of decreased volumes and net losses on derivative financial instruments. During 2009, the gross profit from sales of the 2008 crop remain negatively impacted by higher grower bad debt and other costs that result from the decreased supply of tobacco volumes available. However, increased sales prices mitigate the impact of these higher costs. The net impact to gross profit from derivative financial instruments was a reduction of $9.3 million compared to the prior year as a result primarily of the volatility in the Brazilian real.

Other Region. The increase in gross profit of $84.3 million is primarily attributable to the Africa and Asia regions. Gross profit in Africa increased as a result of better sales prices and increased volumes combined with lower freight costs and lower period costs as a result of more throughput due to increased third party processing. Gross profit in Asia increased as a result of delayed shipments from the prior fiscal year into the current fiscal year, increased sales prices in all Asian regions, changing product mix and lower freight costs. Gross profit in the Europe region improved as a result of improved customer pricing, lower period costs and the favorable impact of exchange rates. The North America region results remained relatively consistent with the prior year.

Selling, administrative and general expenses decreased $1.4 million or 0.9% from $157.4 million in 2008 to $156.0 million in 2009. The decrease is primarily due to reduced travel, insurance and the movement of foreign currency exchange rates which were partially offset by increased incentive compensation costs. The stronger U.S. dollar positively impacted expenses denominated in foreign currencies, primarily Brazilian Reals, Euros and Pounds Sterling. Foreign currency denominated expenses accounted for approximately 29.4% and 33.1% of the total selling, administrative and general expenses in 2009 and 2008, respectively.

- 10 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Comparison of the Year Ended March 31, 2009 to the Year Ended March 31, 2008 (Continued)

Other income decreased $20.0 million from $20.2 million in 2008 to $0.2 million in 2009. The decrease is primarily attributable to the gains of approximately $9.5 million and $7.0 million on the non-recurring sales of the Malawi factory and Greek properties, respectively, in 2008. These sales occurred primarily during the fourth quarter of fiscal 2008. The remaining decrease in other income between 2008 and 2009 is primarily the change in gains on other sales of fixed assets. See Note A “Significant Accounting Policies” to the “Notes to Consolidated Financial Statements” for further information.

Restructuring and asset impairment charges were $0.6 million in 2009 compared to $19.6 million in 2008. The charges in 2009 are primarily employee severance charges related to the closure of an operation in Germany. In 2008, asset impairment charges of $10.6 million were incurred primarily as a result of a $6.1 million charge from the sale of our interest in Compania General de Tabacos de Filipinas (“CdF”). In addition, we reported an impairment charge of $2.7 million related to long-lived assets in Turkey as a result of significant reductions in future Turkish flue cured and burley tobacco volumes. The remaining restructuring charges of $9.0 million were substantially employee severance charges primarily in Malawi due to the sale of one of the Malawi factories, in Turkey due to the significant reductions in future volumes, in Brazil due to the sale of one of the operating facilities as previously disclosed and other employee severance charges as the execution of our merger integration plan continued. See Note D “Restructuring and Assets Impairment Charges” to the “Notes to Consolidated Financial Statements” for further information.

Debt retirement expense of $1.0 million in 2009 and $5.9 million in 2008 relate to accelerated amortization of debt issuance costs as a result of debt prepayment and retirement in both years as well as other one time costs associated with the retirement of senior notes including premiums paid for the repurchase of the senior notes and other debt related fees.

Interest expense decreased $3.9 million from $101.9 million in 2008 to $98.0 million in 2009. Interest expense decreased primarily due to the reduced impact of Brazilian farmer financing in 2009 compared to 2008 and lower average rates. The decrease in expense was substantially offset by higher average borrowings.

Interest income was $3.8 million in 2009 and $16.2 million in 2008. The decrease of $12.4 million was primarily due to lower cash balances and decreased interest income from Brazilian farmer refinancing in 2009 compared to 2008.

Effective tax rates were a benefit of (20.1)% and (268.8)% during the years ended March 31, 2009 and 2008, respectively. Effective tax rates are largely determined by the distribution of taxable income among various taxing jurisdictions as well as management’s judgment on the ability to realize the tax benefits of deferred tax assets. The significant variance from the statutory tax rate in 2009 is due primarily to the decrease in the valuation allowance, foreign income tax rates lower than the U.S. rate, permanent differences related to local goodwill amortization, and to exchange gains and losses and currency translation adjustments. Our valuation allowances are reviewed when the outlook for utilizing those credits changes. The significant variance from the statutory rate in 2008 is due primarily to permanent differences related to local goodwill amortization and to exchange gains and losses and currency translation adjustments, partially offset by an increase to the valuation allowance. See Note L “Income Taxes” to the “Notes to Consolidated Financial Statements” for further information.

Income from discontinued operations was $0.4 million in 2009 compared to $7.9 million in 2008. The decrease of $7.5 million is primarily due to gains on the sale of the remaining wool assets of $7.2 million in 2008. See Note C “Discontinued Operations” to the “Notes to Consolidated Financial Statements” for further information.

- 11 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Comparison of the Year Ended March 31, 2008 to the Year Ended March 31, 2007

Sales and other operating revenues. The increase of 1.6% from $1,979.1 million in 2007 to $2,011.5 million in 2008 is the result of a 6.7% or $0.22 per kilo increase in average sales prices and a 12.5% or $8.7 million increase in processing and other revenues partially offset by a 4.9% or 28.8 million kilo decrease in quantities sold.

South America region. Tobacco revenues increased $121.5 million, reflecting increases of 32.6 million kilo in quantities sold and $0.05 per kilo in average sales prices versus the prior year. The return of certain customer sales in 2008 as well as increased demand for Brazilian tobacco are the primary reasons for the increase in the South America operating segment revenues.

Other regions. Tobacco revenues decreased $97.8 million due to a 61.3 million kilo decrease in quantities sold, partially offset by a $0.32 per kilo increase in average sales prices. The decrease in volumes was primarily as a result of opportunistic sales of U.S. inventories that occurred in the prior year. The decrease in sales also reflected the exit from the European markets in Greece and Spain, decreased volumes available in Zimbabwe and reduced sales from Malawi and Zambia due to smaller 2007 crops. These decreases were partially offset by Asian sales due to increased demand for these tobaccos. Processing and other revenues increased 12.5% from $69.8 million in 2007 to $78.5 million in 2008 primarily as a result of increased processing volumes and prices in the United States.

Gross profit as a percentage of sales. Gross profit decreased 15.3% from $295.7 million in 2007 to $250.4 million in 2008 and the gross profit percentage decreased from 14.9% in 2007 to 12.4% in 2008.

South America region. Gross profit declined $38.8 million in 2008 compared to 2007. Although 2008 volumes increased, 2007 results included the reversal of a reserve for interstate trade tax assets from the State of Rio Grande do Sul as the assets were determined to be realizable due to an amended agreement with the government. In addition, gross margin was negatively impacted by a $37.5 million bad debt provision associated with farmer accounts related to the cumulative impact of the lower quality of the 2006 crop and smaller 2007 crop. The continued impact of the strengthening Brazilian real also had a negative impact on gross margin as we experienced substantial increases in both green tobacco and tobacco processing costs for the 2006 and 2007 crops. Management considered the 2007 crop to be of improved quality. However, as a result of the poor quality of the 2006 crop and the resulting surplus quantities on hand, 2007 crop production and purchases declined as planned. The decline in market conditions again resulted in an increased grower bad debt provision for the 2007 crop. During 2008, a provision of $6.2 million related to interstate trade taxes receivable from the State of Parana was recorded which also negatively impacted Brazilian gross profits. See Note P “Contingencies - Non-Income Tax” to the “Notes to Consolidated Financial Statements” for further information. These cost increases in 2008 were partially offset by an $8.6 million inventory valuation adjustment in 2007 as a result of poor quality crops.

Other Region. Gross profit in 2008 decreased $6.5 million primarily as a result of the increased cost of the 2007 burley crop in Malawi that was being sold. A smaller crop size due to weather, coupled with an increase of competition within the Malawi market, almost doubled the average auction prices for the 2007 crop in Malawi. In addition, the reduction in crop purchases also increased the per kilo processing and overhead costs allocated to the 2007 crop. Negotiated sales price increases were insufficient to compensate for lost volumes thereby resulting in decreased 2008 margins. These factors had a material negative impact on Other Region gross profit as the remainder of the 2007 Malawi burley crop was sold in fiscal 2009. Also negatively impacting gross profit in the Africa region was the short crop in Zambia and the decrease in volumes available from Zimbabwe. Partially offsetting these decreases in gross profit were increases in gross profit from the Asia, Europe and North America operating segments. The increases in gross profit were primarily related to decreased inventory valuation adjustments of approximately $6.3 million as well as the timing of shipments in the current year in the oriental markets in Bulgaria and Serbia and increased volumes in certain Asian markets.

Selling, administrative and general expenses decreased $0.9 million or 0.6% from $158.3 million in 2007 to $157.4 million in 2008. The decrease is primarily due to decreased legal and professional fees and compensation costs. The weak U.S. dollar negatively impacted expenses denominated in foreign currencies, primarily Brazilian Reals, Euros and Pounds Sterling. Foreign currency denominated expenses accounted for approximately 33.1% and 32.9% of the total selling, administrative and general expenses in 2008 and 2007, respectively.

- 12 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Results of Operations (Continued)

Comparison of the Year Ended March 31, 2008 to the Year Ended March 31, 2007 (Continued)

Other income increased $14.1 million from $6.1 million in 2007 to $20.2 million in 2008. The increase was primarily attributable to the gains of approximately $9.5 million and $7.0 million on the sales of the Malawi factory and Greek properties, respectively. These sales occurred primarily during the fourth quarter of fiscal 2008. The remaining 2008 income was primarily other gains on sales of fixed assets. The 2007 income was primarily related to the final collection of pre-1991 Gulf War Iraqi receivables written off in prior years and gains on fixed asset sales. See Note A “Significant Accounting Policies” to the “Notes to Consolidated Financial Statements” for further information.

Restructuring and asset impairment charges were $19.6 million in 2008 compared to $29.8 million in 2007. During 2008, we incurred asset impairment charges of $10.6 million which were primarily the result of a $6.1 million charge from the sale of CdF. In addition, we reported an impairment charge of $2.7 million related to long-lived assets in Turkey as a result of significant reductions in future Turkish flue cured and burley tobacco volumes. The remaining restructuring charges of $9.0 million were substantially employee severance charges primarily in Malawi due to the sale of one of the Malawi factories, in Turkey due to the significant reductions in future volumes, in Brazil due to the sale of one of the operating facilities and other employee severance charges as we continued the execution of our merger integration plan. The 2007 costs relate to additional impairment charges of $13.2 million to write down our Zimbabwe operations to zero as a result of the continuing political and economic strife as well as the further decline in crop size. Other asset impairment charges of $6.7 million related to assets in the United States, Thailand and Greece, primarily machinery and equipment. The remaining $9.9 million in 2007 related primarily to employee severance and other integration related charges as a result of the merger. See Note D “Restructuring and Assets Impairment Charges” to the “Notes to Consolidated Financial Statements” for further information.

Debt retirement expense of $5.9 million in 2008 related to accelerated amortization of debt issuance costs as a result of debt prepayment and retirement as well as other one time costs associated with the retirement of senior notes including premiums paid for the repurchase of the senior notes and other debt related fees. Debt retirement expense of $3.9 million in 2007 related to one time costs of refinancing our senior secured credit facility.

Interest expense decreased $3.7 million from $105.6 million in 2007 to $101.9 million in 2008 primarily due to lower average borrowings.

Interest income was $16.2 million in 2008 and $8.6 million in 2007. The increase of $7.6 million was primarily due to higher cash balances in 2008 and increased interest income from Brazilian farmer refinancing.

Effective tax rates were a benefit of (268.8)% in 2008 and an expense of 122.7% in 2007. Effective tax rates were largely determined by the distribution of taxable income among various taxing jurisdictions as well as management’s judgment on the ability to realize the tax benefits of deferred tax assets. The significant variance from the statutory tax rate in 2008 was due primarily to permanent differences related to local goodwill amortization and to exchange gains and losses and currency translation adjustments, partially offset by increases to valuation allowance. The significant unfavorable variance from the statutory rate in 2007 was primarily due to the inability to recognize the benefit of losses in certain jurisdictions and the additional income tax accrual for the tax audit in Germany. See Note L “Income Taxes” to the “Notes to Consolidated Financial Statements” for further information. The effective rate was favorably impacted as a result of the reduction in tax rates in Turkey and a reduction in valuation allowance related to U.S. foreign tax credit carryovers.

Income (loss) from discontinued operations was $7.9 million in 2008 compared to $(18.7) million in 2007. The increase of $26.6 million was primarily due to gains on the sale of the remaining wool assets of $7.2 million in 2008, 2007 charges of $9.3 million related to finalizing our exit from the Italian market and a 2007 fair value adjustment to inventory in Mozambique for $1.1 million. The remaining increase of $9.0 million is due to our exit from the discontinued operations in Italy, Mozambique and wool operations. See Note C “Discontinued Operations” to the “Notes to Consolidated Financial Statements” for further information.

- 13 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources

Overview

Historically we have needed capital in excess of cash flow from operations to finance accounts receivable, inventory and advances to farmers for pre-financing tobacco crops in certain foreign countries. Purchasing, processing and selling activities of our business are seasonal and our need for capital fluctuates with corresponding peaks where outstanding indebtedness may be significantly greater or less as a result. Our long term borrowings consist of unsecured senior and subordinated notes as well as a senior secured revolving credit facility. We also have short term lines of credit available with a number of banks throughout the world to provide needed seasonal working capital to correspond with regional peaks of our business. Over the fiscal year a combination of further devaluation of the U.S. dollar versus most of the currencies that we experience costs in, coupled with lower customer advances, as well as increased inflationary pressure on commodity and green tobacco costs have required higher working capital, shorter term credit line availability and utilization, while overall working capital has increased since March 31, 2008. In conjunction with our farmer debt guarantee and pre-financing activities, we reported $95.2 million of farmer credit lines on our balance sheet as our debt as of March 31, 2008 and relieved associated guarantees to various banks. Following repayments on these lines over the year, a balance of $37.3 million remains on our balance sheet as our debt as of March 31, 2009. Over the last twelve months and in line with one of management’s stated areas of focus we continued to reduce debt, net of cash, by $13.8 million from $858.0 million as of March 31, 2008 to $844.2 million as of March 31, 2009. From time to time in the future, we may elect to redeem, repay, retire or cancel indebtedness prior to stated maturity under our senior secured credit agreement or indentures, as permitted therein.

At March 31, 2009, we had $87.7 million in cash on our balance sheet, $120.0 million in borrowings under our $305.0 million revolving credit facility with $185.0 million available, $261.5 million outstanding under foreign lines with $174.1 million available under those lines and $42.3 million outstanding of other debt with $2.9 million available for a total of $449.7 million of debt availability and cash on hand around the world, excluding $3.8 million in issued but unfunded letters of credit with $40.1 million available. Another source of liquidity as of March 31, 2009 was $72.7 million funded under our $100.0 million receivable sale program, which was increased from $55.0 million as of March 31, 2008, with improved pricing and its maturity extended for five years from origination. Additionally, customers advances were $44.4 million in 2009 compared to $91.9 million in 2008. To the extent that these customers do not provide this advance funding, we must provide financing for their inventories. Should customers pre-finance less in the future for committed inventories, this action could negatively affect our short term liquidity. At March 31, 2009, we had no material capital expenditure commitments. We believe that the sources of capital we possess, or have access to, will be sufficient to fund our anticipated needs for fiscal year 2010. No cash dividends were paid to stockholders during the twelve months ended March 31, 2009. See Note G “Short-term Borrowing Arrangements” and Note Q “Sale of Receivables” to the “Notes to Consolidated Financial Statements” for further information.

Seasonal liquidity beyond cash flow from operations is provided by our revolving credit facility, seasonal working capital lines throughout the world, advances from customers and sale of accounts receivable. As of March 31, 2009, we are in our working capital build and nearing our high point in seasonally adjusted working capital borrowing. Borrowings related to South America are approaching full utilization as tobacco from the most recent crop is being purchased and processed, while the peak tobacco sales season for South America is at its beginning stages. Africa is also in the middle of its buying, processing and selling season and is utilizing working capital funding as well. North America and Europe are still selling and planning for the next crop that is now being grown.

- 14 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Working Capital

Our working capital increased from $440.2 million at March 31, 2008 to $620.9 million at March 31, 2009. Our current ratio was 2.0 to 1 at March 31, 2009 compared to 1.6 to 1 at March 31, 2008. The increase in working capital is primarily related to a decrease in notes payable to banks and advances from customers. The decrease in notes payable to banks is primarily due to an increase of $120.0 million in revolver borrowings at March 31, 2009 which is classified as long-term debt. Decreases in cash were offset by increases in advances on purchases of tobacco while total inventory costs remained consistent.

The following table is a summary of items from the Consolidated Balance Sheet and Consolidated Statements of Cash Flows.


	As of March 31,
		Change			Change
*(in millions except for current ratio)*	2009	$	%	2008	$	%	2007
Cash and cash equivalents	$ 87.7	$ (24.5)	(21.8)	$ 112.2	$ 31.9	39.7	$ 80.3
Net trade receivables	175.7	(5.3)	(2.9)	181.0	(36.8)	(16.9)	217.8
Inventories and advances on purchases of tobacco	825.0	23.2	2.9	801.8	71.5	9.8	730.3
Total current assets	1,232.3	40.4	3.4	1,191.9	60.3	5.3	1,131.6
Notes payable to banks	261.5	(125.7)	(32.5)	387.2	208.1	16.2	179.1
Accounts payable	120.2	(38.3)	(24.2)	158.5	(29.5)	(15.7)	188.0
Advances from customers	44.4	(47.5)	(51.7)	91.9	(33.5)	(26.7)	125.4
Total current liabilities	611.4	(140.3)	(18.7)	751.7	152.0	25.3	599.7
Current ratio	2.0 to 1			1.6 to 1			1.9 to 1
Working capital	620.9	180.7	41.0	440.2	(91.7)	(17.2)	531.9
Total long term debt	652.6	88.6	15.7	564.0	(162.6)	(22.4)	726.6
Stockholders’ equity	326.7	115.2	54.5	211.5	(14.0)	(6.2)	225.5

Net cash provided (used) by:
Operating activities	33.6	(4.2)		37.8	(149.7)		187.5
Investing activities	(32.2)	(89.6)		57.4	13.1		44.3
Financing activities	(15.5)	52.9		(68.4)	110.7		(179.1)

Operating Cash Flows

Net cash provided by operating activities decreased $4.2 million in 2009 compared to 2008 which decreased $149.7 million compared to 2007. Significant increased earnings in 2009 combined with the decrease in inventory and advances to suppliers was substantially offset by the increase in trade and other receivables and in deferred items. The decrease in cash provided by operations in 2008 is primarily due to the increase in inventories and advances on purchases of tobacco and the change in cash used by discontinued operations which are partially offset by increases in accounts payable and accrued expenses.

Investing Cash Flows

Net cash provided by investing activities decreased $89.6 million in 2009 compared to 2008 which increased $13.1 million compared to 2007. The decrease in cash provided in 2009 compared to 2008 is primarily due to a decrease in proceeds from the sale of property and equipment, cash received from the sale of CdF in 2008 and the purchase of foreign currency derivatives in 2009. The increase in cash provided in 2008 compared to 2007 is primarily the increase in cash provided by discontinued operations as a result of the sale of the remaining wool assets.

Financing Cash Flows

Net cash used by financing activities decreased $52.9 million in 2009 compared to 2008 which decreased $110.7 million compared to 2007. The decrease in cash used in 2009 compared to 2008 is primarily due to increased proceeds from long-term borrowings due to $120.0 million outstanding under our revolver at March 31, 2009 and a decrease in repayment of long-term borrowings due to significant prepayment of senior notes and retirement of Term Loan B in 2008. Partially offsetting the decrease in cash used is less proceeds from short-term demand notes and the significant repayment of short-term borrowings as a result of financing our needs under our revolver agreement instead. The decrease in cash used in 2008 compared to 2007 is primarily due to the change in short-tem borrowings as a result of a significant portion of the 2007 Brazil crop being financed with excess cash on hand in the prior year instead of short-term financing. Substantially offsetting this increase in 2008 is the net decrease in proceeds and repayments from long-term borrowings as a result of the debt refinancing arrangements in the prior year.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

The following table summarizes our debt financing as of March 31, 2009:


			March 31, 2009
	Outstanding		Lines and		Discount Amortization and
	March 31,		Letters	Interest		Repayment Schedule by Fiscal Year
(in millions except for interest rates)	2008	2009	Available	Rate		2010	2011	2012	2013	2014	Later
Senior secured credit facility:
Revolver	$ -	$ 120.0	$185.0	3.2%	(2)	$ -	$120.0	$ -	$ -	$ -	$ -

Senior notes:
11% senior notes due 2012	272.7	264.4	-	11.0%		-	-	-	264.4	-	-
8 ½% senior notes due 2012	149.4	149.5	-	8.5%		(.1)	(.2)	(.2)	150.0	-	-
Other (1)	10.2	10.2	-			-	-	3.5	6.3	.4	-
	432.3	424.1	-			(.1)	(.2)	3.3	420.7	.4	-

12 ¾% senior subordinated notes due 2012	92.6	84.0	-	12.8%		(1.2)	(1.5)	(1.7)	88.4	-	-

Other long-term debt	58.1	42.3	2.9	8.6%	(2)	19.1	11.3	10.5	.3	.4	.7

Notes payable to banks (3)	387.2	261.5	174.1	5.5%	(2)	-	-	-	-	-	-

Total debt	$ 970.2	$ 931.9	362.0			$17.8	$129.6	$12.1	$509.4	$ .8	$ .7

Short term	$ 387.2	$ 261.5
Long term:
Long term debt current	$ 19.0	$ 17.8
Long term debt	564.0	652.6
	$ 583.0	$ 670.4

Letters of credit	$ 22.2	$ 3.8	40.1

Total credit available			$402.1

(1) Balance consists of legacy DIMON and Standard Senior Notes with balances and maturities as follows: $ 3.5 9 5/8% Senior Notes due 2011 0.4 7 3/4% Senior Notes due 2013 6.3 8% Senior Notes due 2012 $10.2

(2) Weighted average rate for the year ended March 31, 2009

(3) Primarily foreign seasonal lines of credit

- 15 -

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

The following summarizes the material terms of each significant component of our debt financing.

Senior Secured Credit Facility

On March 30, 2007, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”), with a syndicate of banks that amends and restates the Company’s prior credit agreement and provides for a senior secured credit facility (the “Credit Facility”) that consists of:

a three and one-half year $240.0 million revolver (the “Revolver”) which initially accrues interest at a rate of LIBOR plus 2.75%; and

a four-year $145.0 million term loan B (the “Term Loan B”) which accrues interest at a rate of LIBOR plus 2.25%.

The interest rate for the Revolver may increase or decrease according to a consolidated interest coverage ratio pricing matrix as defined in the Credit Agreement. Effective May 25, 2007, the Company increased the Revolver by $10.0 million to $250.0 million by adding additional Lenders thereto. The $145.0 million term loan B was repaid in full as of September 30, 2007.

Fourth Amendment. On August 4, 2008, the Company closed the Fourth Amendment to the Credit Agreement which included the following modifications effective March 31, 2008:

Increased the permitted lien basket for foreign subsidiary debt from $150.0 million to $275.0 million;

Increased the maximum uncommitted inventories basket from $150.0 million to $225.0 million through March 30, 2009;

Increased permitted foreign subsidiary indebtedness from $600.0 million to $685.0 million from April 1, 2008 through June 30, 2008, $840.0 million from July 1, 2008 through December 31, 2008, $675.0 million from January 1, 2009 through March 30, 2009 and as of March 31, 2009 and at all times thereafter $600.0 million;

Amended and restated the consolidated EBIT, committed inventories, confirmed order and uncommitted inventories definitions; and

Added a new definition for “permitted allowance.”

Fifth Amendment. On February 20, 2009, the Company closed the Fifth Amendment to the Credit Agreement which included the following modifications effective February 20, 2009:

Increased the revolving committed amount by $55.0 million from $250.0 million to $305.0 million;

Provided a waiver related to our Congo entity for potential events of default;

Amended and restated the consolidated EBIT, revolving commitment percentage and revolving lender definitions;

Increased the portion of the borrowings under the Revolver by the Company, as defined in the Credit Agreement, from $150.0 million to $200.0 million;

Amended the maximum consolidated leverage ratio to 5.0 to 1.0 for the period October 1, 2008 through and including June 30, 2009; 4.75 to 1.0 for the period July 1, 2009 through and including September 30, 2009; 4.50 to 1.0 for the period October 1, 2009 through and including December 31, 2009; 4.25 to 1.0 for the period January 1, 2010 through and including March 31, 2010 and 4.0 to 1.0 for the period April 1, 2010 and thereafter;

Decreased permitted foreign subsidiary indebtedness from $600.0 million to $545.0 million;

Decreased the permitted lien basket for foreign subsidiary debt from $275.0 million to $200.0 million;

Amendment to the acquisitions, advances, investments and loans section to allow for a potential acquisition not to exceed $90.0 million, subject to certain terms and conditions, and investment in Delta Technology and Management Services Private Limited not to exceed $.45 million;

Amendment to remove the Company’s ability to use the restricted basket to purchase all or any portion of the outstanding senior notes and/or senior subordinated notes; and

Amended the maximum uncommitted inventories basket to $225.0 million for the fiscal quarter ended December 31, 2008; $150.0 million for the fiscal quarter ended March 31, 2009; $225.0 million for the fiscal quarters ended June 30, 2009, September 30, 2009 and December 31, 2009; $150.0 million for the quarter ended March 31, 2010 and $225.0 million at the end of each fiscal quarter thereafter.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Senior Secured Credit Facility (Continued)

Borrowers and Guarantors. One of the Company’s primary foreign holding companies, Intabex Netherlands B.V. (“Intabex”), is co-borrower under the Revolver, and the Company’s portion, as defined in the Credit Agreement, of the borrowings under the Revolver is limited to $200.0 million (per Amendment 5) outstanding at any one time. One of the Company’s primary foreign trading companies, Alliance One International AG (“AOIAG”), is a guarantor of Intabex’s obligations under the Credit Agreement. Such obligations are also currently guaranteed by the Company and must be guaranteed by any of its material direct or indirect domestic subsidiaries.

Collateral. The Company’s borrowings under the Credit Facility are secured by a first priority pledge of:

100% of the capital stock of any material domestic subsidiaries;

65% of the capital stock of any material first tier foreign subsidiaries;

U.S. accounts receivable and U.S. inventory owned by the Company or its material domestic subsidiaries (other than inventory the title of which has passed to a customer and inventory financed through customer advances); and

Intercompany notes evidencing loans or advances the Company makes to subsidiaries that are not guarantors.

In addition, Intabex’s borrowings under the Credit Facility are secured by a pledge of 100% of the capital stock of Intabex, AOIAG, and certain of the Company’s and Intabex’s material foreign subsidiaries.

Financial Covenants. The Credit Facility includes certain financial covenants and required financial ratios, including:

a minimum consolidated interest coverage ratio of not less than 1.70 to 1.00;

a maximum consolidated leverage ratio of not more than 5.00 to 1.00;

a maximum consolidated total senior debt to borrowing base ratio of not more than 0.80 to 1.00; and

a maximum amount of annual capital expenditures of $40.0 million during any fiscal year of the Company.

Certain of these financial covenants and required financial ratios adjust over time in accordance with schedules in the Credit Agreement.

The Credit Agreement also contains certain customary affirmative and negative covenants, including, without limitation, restrictions on additional indebtedness, guarantees, liens and asset sales.

The Company continuously monitors its compliance with these covenants and is not in default as of, or for the three months or twelve months ended March 31, 2009. If the Company was in default and was unable to obtain the necessary amendments or waivers under its Credit Facility, the lenders under that facility have the right to accelerate the loans thereby demanding repayment in full and extinguishment of their commitment to lend. Certain defaults under the Credit Facility would result in a cross default under the indentures governing the Company’s senior notes and senior subordinated notes and could impair access to its seasonal operating lines of credit in local jurisdictions. A default under the Company’s Credit Facility would have a material adverse effect on the Company’s liquidity and financial condition.

Senior Notes

On May 13, 2005, the Company issued $315.0 million of 11% senior notes due 2012 and on March 7, 2007, the Company issued $150.0 million of 8 ½% senior notes due 2012 at a 0.5% original issue discount to reflect an 8.6% yield to maturity. During the year ended March 31, 2008, the Company purchased $42.3 million of its $315.0 million 11% Senior Note due May 2012 on the open market. All purchased securities were canceled leaving $272.7 million of the 11% Senior Notes outstanding at March 31, 2008. Associated cash premiums paid were $2.0 million and non-cash deferred financing costs of $0.7 million were accelerated. During the year ended March 31, 2009, the Company purchased $8.3 million of its $315.0 million 11% senior notes due 2012 on the open market. All purchased securities were canceled leaving $264.4 million of the 11% senior notes outstanding at March 31, 2009. Associated cash premiums paid were $.1 million and non-cash deferred financing costs of $.1 million were accelerated. From time to time in the future the Company may purchase more of its debt securities through a tender process as permitted. The indentures governing each of the 11% senior notes and the 8 ½% senior notes contain certain covenants that, among other things, limit the Company’s ability to incur additional indebtedness; issue preferred stock; merge, consolidate or dispose of substantially all of its assets; grant liens on its assets; pay dividends, redeem stock or make other distributions or restricted payments; repurchase or redeem capital stock or prepay subordinated debt; make certain investments; agree to restrictions on the payment of dividends to the Company by its subsidiaries; sell or otherwise dispose of assets, including equity interests of its subsidiaries; enter into transactions with its affiliates; and enter into certain sale and leaseback transactions. The Company continuously monitors its compliance with these covenants and is not in default as of, or for the three months or twelve months ended March 31, 2009.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Senior Subordinated Notes

On May 13, 2005, the Company issued $100.0 million of 12 3/4% senior subordinated notes due 2012 at a 10% original issue discount to reflect a 15% yield to maturity. During the year ended March 31, 2009, the Company purchased $10.5 million of its $100.0 million 12 3/4% senior subordinated notes due 2012 on the open market. All purchased securities were canceled leaving $89.5 million of the 12 3/4% senior subordinated notes outstanding at March 31, 2009. Associated non-cash deferred financing costs, net of discount, of $0.8 million were accelerated. The indenture governing the senior subordinated notes contains covenants substantially identical to those contained in the indentures governing the 11% senior notes and the 8 ½% senior notes.

Foreign Seasonal Lines of Credit

The Company has typically financed its non-U.S. operations with uncommitted unsecured short term seasonal lines of credit at the local level. These operating lines are seasonal in nature, normally extending for a term of 180 to 270 days corresponding to the tobacco crop cycle in that location. These facilities are typically uncommitted in that the lenders have the right to cease making loans and demand repayment of loans at any time. These loans are typically renewed at the outset of each tobacco season. As of March 31, 2009, the Company had approximately $261.5 million drawn and outstanding on foreign seasonal lines with maximum capacity totaling $479.5 million subject to limitations as provided for in the Credit Agreement. Additionally against these lines there was $40.1 million available in unused letter of credit capacity with $3.8 million issued but unfunded.

Aggregate Contractual Obligations and Off-Balance Sheet Arrangements

We have summarized in the table below our contractual cash obligations and other commercial commitments as of March 31, 2009.


			Payments / Expirations by Period
(in millions)		Total	2010	Years 2011-2012	Years 2013-2014	After 2014
Long-Term Debt Obligations*		$ 864.6	$ 80.6	$ 259.1	$ 524.1	$ 0.8
Capital Lease Obligations*		0.1	0.1	-	-	-
Operating Lease Obligations		19.5	5.0	6.3	3.7	4.5
Tobacco Purchase Obligations		664.0	661.6	2.4	-	-
Retained Interest in Receivables Sold		26.8	26.8	-	-	-
Amounts Guaranteed for Tobacco Suppliers		157.7	143.6	11.6	2.5	-
Total Contractual Obligations and Other Commercial Commitments		$1,732.7	$917.7	$ 279.4	$ 530.3	$ 5.3

*	Long-Term Debt Obligations and Capital Lease Obligations include projected interest for both fixed and variable rate debt. We assume that there will be no drawings on the senior secured revolving credit facility in these calculations. The variable rate used in the projections is the rate that was being charged on our variable rate debt as of March 31, 2009. These calculations also assume that there is no refinancing of debt during any period. These calculations are on Long-Term Debt Obligations and Capital Lease Obligations only.

We do not have any other off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, as defined under the rules of SEC Release No. FRR-67, Disclosure in Management’s Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate Contractual Obligations.

Lease Obligations

We have both capital and operating leases. In accordance with accounting principles generally accepted in the United States, operating leases are not reflected in the accompanying Consolidated Balance Sheet. The operating leases are for land, buildings, automobiles and other equipment; the capital leases are primarily for production machinery and equipment. The capitalized lease obligations are payable through 2013. Operating assets that are of long-term and continuing benefit are generally purchased.

Tobacco Purchase Obligations

Tobacco purchase obligations result from contracts with growers, primarily in the United States, Brazil and Turkey, to buy either specified quantities of tobacco or the grower’s total tobacco production. Amounts shown as tobacco purchase obligations are estimates based on projected purchase prices of the future crop tobacco. Payment of these obligations is net of our advances to these growers. Our tobacco purchase obligations do not exceed our projected requirements over the related terms and are in the normal course of business.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Liquidity and Capital Resources (Continued)

Aggregate Contractual Obligations and Off-Balance Sheet Arrangements (Continued)

Retained Interest in Receivables Sold

We sell accounts receivable in a revolving trade accounts receivable securitization. Under the agreement, we receive 90% of the face value of the receivable sold, less contractual dilutions which limit the amount that may be outstanding from any one particular customer and insurance reserves that also have the effect of limiting the risk attributable to any one customer. Our 10% retained interest is subordinate to the purchaser of the receivables. See Note Q “Sale of Receivables” to the “Notes to Consolidated Financial Statements” for further information.

Amounts Guaranteed for Tobacco Suppliers

In Brazil, Argentina, Malawi, and Guatemala we provide guarantees to ensure financing is available to our tobacco suppliers. In the event these suppliers should default, we would be responsible for repayment of the funds provided to these suppliers. See Note B “Advances on Purchases of Tobacco” and Note P “Contingencies and Other Information” to the “Notes to Consolidated Financial Statements” for further information.

Planned Capital Expenditures

We have projected a total of $20.0 million in capital investments for our 2010 fiscal year. We forecast our capital expenditure needs for routine replacement of equipment as well as investment in assets that will add value to the customer or increase efficiency.

Tax and Repatriation Matters

We are subject to income tax laws in each of the countries in which we do business through wholly owned subsidiaries and through affiliates. We make a comprehensive review of the income tax requirements of each of our operations, file appropriate returns and make appropriate income tax planning analyses directed toward the minimization of our income tax obligations in these countries. Appropriate income tax provisions are determined on an individual subsidiary level and at the corporate level on both an interim and annual basis. These processes are followed using an appropriate combination of internal staff at both the subsidiary and corporate levels as well as independent outside advisors in review of the various tax laws and in compliance reporting for the various operations.

We consider unremitted earnings of certain subsidiaries operating outside the United States to be invested indefinitely. No U.S. income taxes or foreign withholding taxes are provided on such permanently reinvested earnings, in accordance with APB No. 23,”Accounting for Income Taxes, Special Area.” We regularly review the status of the accumulated earnings of each of our foreign subsidiaries and reassess this determination as part of our overall financing plans. Following this assessment, we provide deferred income taxes, net of any foreign tax credits, on any earnings that are determined to no longer be indefinitely invested. See Note L “Income Taxes” to the “Notes to Consolidated Financial Statements” for further information.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the United States (GAAP) requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental disclosures including information about contingencies, risk and financial condition.

Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and potentially yield materially different results under different assumptions or conditions. Given current facts and circumstances, we believe that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Our selection and disclosure of our critical accounting policies and estimates has been reviewed with our Audit Committee. Following is a review of the more significant assumptions and estimates and the accounting policies and methods used in the preparation of our consolidated financial statements. For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. Also see Note A “Significant Accounting Policies” to the “Notes to Consolidated Financial Statements” which discusses the significant accounting policies that we have selected from acceptable alternatives.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates (Continued)

Inventories

Inventories are valued at the lower of cost or market. Inventories are reviewed and written down for changes in market value based on assumptions related to future demand and worldwide and local market conditions. If actual demand is lower or market conditions vary unfavorably from those projected by management, additional write-downs to lower of cost or market value may be required. Inventory write-downs for the years ended March 31, 2009 and 2008 were $0.3 million and $1.9 million, respectively. See Note A “Significant Accounting Policies - Inventories” to the “Notes to Consolidated Financial Statements” for further information.

Income Taxes

Our annual tax rate is based on our income, statutory tax rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions including evaluating uncertainties under Financial Accounting Standards Board Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). We review our tax positions quarterly and adjust the balances as new information becomes available.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable. See Note L “Income Taxes” and Note P “Contingencies and Other Information” to the “Notes to Consolidated Financial Statements” for further information.

Advances on Purchases of Tobacco and Guarantees of Brazilian Rural Credit Financing to Farmers

We provide agronomy services and seasonal crop advances of, or for, seed, fertilizer, and other supplies. These advances are short term in nature, are repaid upon delivery of tobacco to us, and are reported in advances on purchases of tobacco in the consolidated balance sheet. Primarily in Brazil and certain African countries, we have made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In addition, due to low crop yields and other factors, in some years individual farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and we may extend repayment of those advances into future crop years. In Brazil, we also assist the farmer in obtaining government subsidized rural credit financing which is guaranteed by the Company. The guarantees on the rural credit financing are within the scope of Financial Accounting Standards Board Interpretation 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees (“FIN 45”), which requires the Company to make estimates in determining the fair value of the guarantees. Each reporting period, we must make assumptions as to the balances of farmer advances that may prove uncollectible. Based on these assumptions, we make estimates resulting in a valuation allowance for farmers’ advances and accruals for obligations under rural credit financing guarantees. See Note B “Advances on Purchases of Tobacco” and Note P “Contingencies and Other Information” to the “Notes to Consolidated Financial Statements” for further information.

- 16 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates (Continued)

Asset Impairment

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal business plans. To determine fair value, we use our internal cash flow estimates discounted at an appropriate interest rate, quoted market prices when available and independent appraisals, as appropriate. Accordingly, the fair value of an asset could be different using different estimates and assumptions in these valuation techniques which would increase or decrease the impairment charge.

We recognized impairment losses on long-lived assets of $10.6 million and $19.9 million during the fiscal years ending 2008 and 2007, respectively. See Note D “Restructuring and Asset Impairment Charges” to the “Notes to Consolidated Financial Statements” for further information.

Goodwill and Other Intangible Assets

We test goodwill for impairment annually on the first day of the last quarter of our fiscal year and whenever events or circumstances make it more likely than not that an impairment may have occurred. Determining whether an impairment has occurred requires valuation of the respective reporting unit, which we estimate using a discounted cash flow method. In applying this methodology, we rely on a number of factors, including actual operating results, future business plans, economic projections, market data and selection of an appropriate discount rate.

If this analysis indicates goodwill is impaired, then measuring the impairment requires a fair value estimate of each identified tangible and intangible asset. In this case, we supplement the cash flow approach discussed above with independent appraisals, as appropriate.

We have no intangible assets with indefinite useful lives. We test other identified intangible assets with defined useful lives and subject to amortization by comparing the carrying amount to the sum of undiscounted cash flows expected to be generated by the asset. If the carrying amount of an intangible asset exceeds its fair value based on estimated future undiscounted cash flows, an impairment loss would be indicated. The amount of the impairment loss to be recorded would be based on the excess of the carrying amount of the intangible asset over its discounted future cash flows. We use judgment in assessing whether the carrying amount of our intangible assets is not expected to be recoverable over their estimated remaining useful lives. The factors considered are similar to those outlined in the goodwill impairment discussion above. See Note E “Goodwill and Other Intangible Assets” to the “Notes to Consolidated Financial Statements” for further information.

Stock Based Compensation

We account for our stock based compensation under the fair value recognition provisions of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment. We have granted awards under various share based payment plans and utilize the Black-Scholes model for option valuation and the fair value on grant date to estimate the fair value of restricted stock and restricted stock units. Certain restricted stock and restricted stock unit awards contain performance conditions based on future earnings, which are periodically re-evaluated. The fair value of those awards is calculated by multiplying the stock price on the date of grant by the expected payout percentage and the number of awards granted. We account for these awards over the two year term of the award based on the grant date fair value. We also have stock appreciation rights that permit settlement in cash at the optionee’s discretion. The fair value of these awards is re-measured each reporting period.

Pensions and Postretirement Health Care and Life Insurance Benefits

The valuation of our pension and other postretirement health care and life insurance plans requires the use of assumptions and estimates that are used to develop actuarial valuations of expenses, assets and liabilities. These assumptions include discount rates, investment returns, projected salary increases and benefits and mortality rates. The significant assumptions used in the calculation of pension and postretirement obligations are:

- 17 -

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates (Continued)

Pensions and Postretirement Health Care and Life Insurance Benefits (Continued)


	Discount rate: The discount rate is based on investment yields available at the measurement date on high-quality fixed income obligations, such as those included in the Moody’s Aa bond index.

	Salary increase assumption: The salary increase assumption reflects our expectations with respect to long-term salary increases of our workforce. Historical pay increases, expectations for the future, and anticipated inflation and promotion rates are considered in developing this assumption.

	Cash Balance Crediting Rate: Interest is credited on cash balance accounts based on the yield on one-year Treasury Constant Maturities plus 1%. The assumed crediting rate thus considers the discount rate, current treasury rates, current inflation rates, and expectations for the future.

	Mortality Rates: Mortality rates are based on gender-distinct group annuity mortality (GAM) tables.

	Expected return on plan assets: The expected return reflects asset allocations, investment strategy and our historical actual returns.

	Termination and Retirement Rates: Termination and retirement rates are based on standard tables reflecting past experience and anticipated future experience under the plan. No early retirement rates are used since benefits provided are actuarially equivalent and there are not early retirement subsidies in the plan.

	Health Care Cost Trends: Trends for future increases in medical costs are based on past experience as well as forecasts of long-term medical cost trends.

Management periodically reviews actual demographic experience as it compares to the actuarial assumptions. Changes in assumptions are made if there are significant deviations or if future expectations change significantly. Based upon anticipated changes in assumptions, pension and postretirement expense is expected to increase by $1.2 million in the fiscal year ended March 31, 2010 as compared to March 31, 2009. We continually evaluate ways to better manage benefits and control costs. The cash contribution to our employee benefit plans in 2009 was $14.5 million and is expected to be $9.7 million in 2010.

The effect of actual results differing from our assumptions are accumulated and amortized over future periods and, therefore, generally affect our recognized expense in such future periods. Changes in other assumptions and future investment returns could potentially have a material impact on our pension and postretirement expenses and related funding requirements.

The effect of a change in certain assumptions is shown below:


	Estimated Change in Projected Benefit Obligation Increase (Decrease) (in 000’s)	Estimated Change in Annual Expense Increase (Decrease) (in 000’s)
Change in Assumption (Pension and Postretirement Plans)
1% increase in discount rate	$(12,818)	$ (748)
1% decrease in discount rate	$ 14,767	$ 901

1% increase in salary increase assumption	$ 1,173	$ 458
1% decrease in salary increase assumption	$ (1,105)	$ (472)

1% increase in cash balance crediting rate	$ 1,377	$ 252
1% decrease in cash balance crediting rate	$ (1,207)	$ (153)

1% increase in rate of return on assets		$ (806)
1% decrease in rate of return on assets		$ 806

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS (Continued)

Critical Accounting Estimates (Continued)

Pensions and Postretirement Health Care and Life Insurance Benefits (Continued)

Changes in assumptions for other post retirement benefits are no longer applicable as the benefit is capped and no longer subject to inflation. See Note M “Employee Benefits” to the “Notes to Consolidated Financial Statements” for further information.

Other Estimates and Assumptions

Other management estimates and assumptions are routinely required in preparing our financial statements, including the determination of valuation allowances on accounts receivable, value-added tax credits in Brazil and the 2007 write-down of our Zimbabwe investment to zero. Changes in market and economic conditions, local tax laws, and other related factors are considered each reporting period, and adjustments to the accounts are made based on our best judgment.

Recent Accounting Pronouncements Not Yet Adopted

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS No. 141R”). This standard will significantly change the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following: (a) transaction costs will generally be expensed, (b) in-process research and development will be accounted for as an asset, with the cost recognized as the research and development is realized or abandoned, (c) contingencies, including contingent consideration, will generally be recorded at fair value with subsequent adjustments recognized in operations, and (d) decreases in valuation allowances on acquired deferred tax assets will be recognized in operations. SFAS No. 141R is effective for the Company as of April 1, 2009. The Company is evaluating the impact of SFAS No. 141R on its financial condition and results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). This standard will significantly change the accounting and reporting related to noncontrolling interests in a consolidated subsidiary. It will require noncontrolling interests (or minority interests) to be reported as a component of shareholders’ equity, which is a change from its current classification between liabilities and shareholders’ equity. It also requires earnings attributable to minority interests to be included in net earnings, although such earnings will continue to be deducted to measure earnings per share. SFAS No. 160 is effective for the Company as of April 1, 2009. The Company is evaluating the impact of SFAS No. 160 on its financial condition and results of operations.

In April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP”). This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under Statement 142 and the period of expected cash flows used to measure the fair value of the asset under FASB Statement No. 141 (revised 2007), Business Combinations, and other U.S. GAAP. This FSP is effective for the Company as of April 1, 2009. The Company is evaluating the impact of this FSP on its financial condition and results of operations.

In June 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-3, Accounting by Lessees for Maintenance Deposits (“EITF 08-3”). The objective of EITF 08-3 is to clarify how a lessee shall account for a maintenance deposit under an arrangement accounted for as a lease. EITF 08-3 is effective for the Company as of April 1, 2009. The Company is evaluating the impact of EITF 08-3 on its financial condition and results of operations.

In November 2008, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”). The objective of EITF 08-6 is to clarify the accounting for certain transactions and impairment considerations involving equity method investments. EITF 08-6 is effective for the Company as of April 1, 2009. The Company is evaluating the impact of EITF 08-6 on its financial condition and results of operations.

In December 2008, the FASB issued FSP FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets (“FSP”). This FSP amends FASB Statement No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, to provide guidance on employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP also includes a technical amendment to Statement 132(R) that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is prepared. The disclosures about plan assets required by this FSP are required for the Company in its fiscal year ending March 31, 2010. The Company is evaluating the impact of this FSP on its financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT

MARKET RISK

Derivatives policies: Hedging interest rate exposure using swaps and hedging foreign exchange exposure using forward contracts are specifically contemplated to manage risk in keeping with management’s policies. We may use derivative instruments, such as swaps or forwards, which are based directly or indirectly upon interest rates and currencies to manage and reduce the risks inherent in interest rate and currency fluctuations.

We do not utilize derivatives for speculative purposes, and we do not enter into market risk sensitive instruments for trading purposes. Derivatives are transaction specific so that a specific debt instrument, contract, or invoice determines the amount, maturity, and other specifics of the hedge.

Foreign exchange rates: Our business is generally conducted in U.S. dollars, as is the business of the tobacco industry as a whole. However, local country operating costs, including the purchasing and processing costs for tobaccos, are subject to the effects of exchange fluctuations of the local currency against the U.S. dollar. We attempt to minimize such currency risks by matching the timing of our working capital borrowing needs against the tobacco purchasing and processing funds requirements in the currency of the country where the tobacco is grown. Also, in some cases, our sales pricing arrangements with our customers allow adjustments for the effect of currency exchange fluctuations on local purchasing and processing costs. Fluctuations in the value of foreign currencies can significantly affect our operating results. In our statement of income, we have recognized no exchange gain or loss in 2009, an exchange gain of $4.1 million in 2008 and an exchange loss of $0.2 million in 2007. We have recognized an exchange loss of $9.9 million and an exchange gain of $1.9 million related to tax balances in our tax expense for the fiscal years ended March 31, 2009 and 2008, respectively. In addition, foreign currency fluctuations in the Euro and (U.K.) Sterling can significantly impact the currency translation adjustment component of accumulated other comprehensive income. We recognized a loss of $7.0 million and a gain of $6.5 million in 2009 and 2008, respectively, as a result of fluctuations in these currencies.

Our consolidated selling, administrative and general (SG&A) expenses denominated in foreign currencies are subject to translation risks from currency exchange fluctuations. These foreign denominated expenses accounted for approximately 29% or $45.9 million of our total SG&A expenses for the twelve months ended March 31, 2009. A 10% change in the value of the U.S. dollar relative to those currencies would have caused the reported value of those expenses to increase or decrease by approximately $4.6 million.

Interest rates: We manage our exposure to interest rate risk through the proportion of fixed rate and variable rate debt in our total debt portfolio. A 1% change in interest rates would increase or decrease our reported interest cost by approximately $11.3 million. A substantial portion of our borrowings are denominated in U.S. dollars and bear interest at commonly quoted rates.

- 18 -


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME (LOSS) Alliance One International, Inc. and Subsidiaries


		Years Ended March 31,
(in thousands, except per share data)		2009	2008	2007
Sales and other operating revenues		$ 2,258,219	$ 2,011,503	$ 1,979,078
Cost of goods and services sold		1,897,380	1,761,111	1,683,339
Gross profit		360,839	250,392	295,739
Selling, administrative and general expenses		156,000	157,405	158,342
Other income, net		214	20,188	6,076
Restructuring and asset impairment charges		591	19,580	29,773
	Operating income	204,462	93,595	113,700
Debt retirement expense		954	5,909	3,860
Interest expense		97,984	101,885	105,635
Interest income		3,808	16,245	8,591
Derivative financial instruments income		-	-	290
Income before income taxes and other items		109,332	2,046	13,086
Income tax expense (benefit)		(22,020)	(5,499)	16,062
Equity in net income of investee companies		1,478	1,829	1,014
Minority interests expense		679	368	653

Income (loss) from continuing operations		132,151	9,006	(2,615)
Income (loss) from discontinued operations, net of tax		407	7,855	(18,730)
Cumulative effect of accounting changes, net of income taxes		-	-	(252)

NET INCOME (LOSS)		$ 132,558	$ 16,861	$ (21,597)
Other comprehensive income (loss):
	Net income (loss)	$ 132,558	$ 16,861	$ (21,597)
	Currency translation adjustment	(7,024)	6,496	9,521
	Pension adjustment, net of tax $(3,378) in 2009,
	$(3,450) in 2008 and $241 in 2007	(13,165)	(6,949)	639
Total comprehensive income (loss)		$ 112,369	$ 16,408	$ (11,437)

Basic Earnings (Loss) Per Share
Income (loss) from continuing operations		$1.50	$0.10	$(0.03)
Income (loss) from discontinued operations		-	0.09	(0.22)
Cumulative effect of accounting changes, net of income taxes		-	-	-
Net income (loss)		$1.50	$0.19	$(0.25)

Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations		$1.49	$0.10	$(0.03)
Income (loss) from discontinued operations		-	0.09	(0.22)
Cumulative effect of accounting changes, net of income taxes		-	-	-
Net income (loss)		$1.49	$0.19	$(0.25)


See notes to consolidated financial statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)


CONSOLIDATED BALANCE SHEETS Alliance One International, Inc. and Subsidiaries

	March 31,	March 31,
(in thousands)	2009	2008
ASSETS
Current assets
Cash and cash equivalents	$ 87,665	$ 112,214
Trade and other receivables, net	175,705	180,997
Accounts receivable, related parties	29,765	-
Inventories:
Tobacco	627,496	649,555
Other	59,693	39,267
Advances on purchases of tobacco, net	137,824	112,989
Recoverable income taxes	3,995	12,841
Current deferred taxes	24,837	20,836
Prepaid expenses	47,800	50,668
Assets held for sale	4,411	4,885
Current derivative asset	23,469	-
Other current assets	9,603	7,382
Assets of discontinued operations	-	236
Total current assets	1,232,263	1,191,870
Other assets
Investments in unconsolidated affiliates	21,675	21,582
Goodwill and other intangible assets	49,877	37,999
Deferred income taxes	142,832	96,110
Other deferred charges	13,278	11,417
Other noncurrent assets	95,640	135,610
	323,302	302,718

Property, plant and equipment, net	202,954	218,277
	$1,758,519	$1,712,865

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable to banks	$ 261,468	$ 387,157
Accounts payable	120,214	157,478
Due to related parties	27,488	993
Advances from customers	44,440	91,919
Accrued expenses and other current liabilities	97,644	88,503
Current derivative liability	25,670	-
Income taxes	16,659	6,522
Long-term debt current	17,842	19,004
Liabilities of discontinued operations	-	81
Total current liabilities	611,425	751,657

Long-term debt	652,584	563,973
Deferred income taxes	8,230	10,527
Liability for unrecognized tax benefits	58,135	53,370
Pension, postretirement and other long-term liabilities	97,365	118,248
	816,314	746,118

Minority interest in subsidiaries	4,119	3,623

Commitments and contingencies	-	-

Stockholders’ equity
Common stock—no par value:
250,000 authorized shares, 96,827 issued and 88,974 outstanding (88,897 at March 31, 2008)	468,195	462,798
Retained deficit	(128,409)	(258,395)
Accumulated other comprehensive income (loss)	(13,125)	7,064
	326,661	211,467
	$1,758,519	$1,712,865

See notes to consolidated financial statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)


STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY Alliance One International, Inc. and Subsidiaries


					Accumulated Other Comprehensive Income
(in thousands, except per share amounts)		Common Stock	Unearned Compensation	Retained Deficit	Currency Translation Adjustment	Pensions, Net of Tax	Total Stockholders’ Equity

Balance, March 31, 2006		$451,388	$ (3,134)	$(219,937)	$(10,863)	$ (3,267)	$ 214,187
Net loss for the year		-	-	(21,597)	-	-	(21,597)
Adoption of FAS 123R		(3,134)	3,134	-	-	-	-
Restricted stock surrendered		(452)	-	-	-	-	(452)
Earned compensation		2,965	-	-	-	-	2,965
Exercise of employee stock
	options	7,266	-	-	-	-	7,266
Stock-based compensation		1,530	-	-	-	-	1,530
Conversion of foreign currency
	financial statements	-	-	-	9,521	-	9,521
Adjustment in the minimum
	pension liability	-	-	-	-	639	639
Adoption of FAS 158		-	-	-	-	11,487	11,487

Balance, March 31, 2007		$459,563	$ -	$(241,534)	$ (1,342)	$ 8,859	$ 225,546
Net income for the year		-	-	16,861	-	-	16,861
Restricted stock surrendered		(1,479)	-	-	-	-	(1,479)
Exercise of employee stock
	options	1,625	-	-	-	-	1,625
Stock-based compensation		3,089	-	-	-	-	3,089
Conversion of foreign currency
	financial statements	-	-	-	6,496	-	6,496
Adjustment in pensions		-	-	-	-	(6,949)	(6,949)
Adoption of FIN 48		-	-	(33,722)	-	-	(33,722)

Balance, March 31, 2008		$462,798	$ -	$(258,395)	$ 5,154	$ 1,910	$ 211,467
Net income for the year		-	-	132,558	-	-	132,558
Restricted stock surrendered		(284)	-	-	-	-	(284)
Employee stock option related		40	-	-	-	-	40
Stock-based compensation		5,641	-	-	-	-	5,641
Conversion of foreign currency
	financial statements	-	-	-	(7,024)	-	(7,024)
Adjustment in pensions		-	-	-	-	(13,165)	(13,165)
Adoption of EITF 06-10		-	-	(2,572)	-	-	(2,572)

Balance, March 31, 2009		$468,195	$ -	$(128,409)	$ (1,870)	$ (11,255)	$ 326,661


See notes to consolidated financial statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)


STATEMENTS OF CONSOLIDATED CASH FLOWS
Alliance One International, Inc. and Subsidiaries


		Years Ended March 31,
	(in thousands)	2009	2008	2007
	Operating activities
	Net Income (Loss)	$ 132,558	$ 16,861	$ (21,597)
	Adjustments to reconcile net income (loss) to net cash provided
	by operating activities of continuing operations:
	Net (income) loss from discontinued operations	(407)	(7,855)	18,730
	Depreciation and amortization	29,277	34,558	36,293
	Debt amortization/interest	4,979	9,499	10,248
	Restructuring and asset impairment charges (recovery)	(87)	12,673	22,098
	(Gain) loss on foreign currency transactions	21	(4,073)	168
	Gain on disposition of fixed assets	(3,706)	(21,987)	(4,885)
	Stock based compensation	5,632	2,092	4,436
	Changes in operating assets and liabilities, net:
	Trade and other receivables	(38,575)	40,784	105,584
	Inventories and advances to suppliers	10,383	(45,093)	205,611
	Deferred items	(76,019)	4,528	(16,529)
	Current recoverable income taxes	(3,069)	(10,795)	(5,709)
	Payables and accrued expenses	(250)	38,078	(85,420)
	Advances from customers	(47,511)	(34,156)	(103,504)
	Current derivative asset	(10,839)	-	-
	Current derivative liability	25,670	-	-
	Income taxes	7,012	(1,811)	7,330
	Excess tax benefits	(350)	(668)	-
	Other operating assets and liabilities	(918)	(1,295)	(2,818)
	Other, net	(733)	8,077	2,088
	Net cash provided by operating activities
	of continuing operations	33,068	39,417	172,124
	Net cash provided (used) by operating activities
	of discontinued operations	562	(1,588)	15,349
	Net cash provided by operating activities	33,630	37,829	187,473

	Investing activities
	Purchases of property and equipment	(15,942)	(17,899)	(15,224)
	Intangibles, including internally developed software costs	(11,051)	(2,360)	-
	Proceeds from sale of property and equipment	8,224	50,592	25,537
	Cash received (distributed) in disposition of business	-	15,033	(5,204)
	Purchases of foreign currency derivatives	(14,397)	-	-
	Return of capital on investments in unconsolidated affiliates	5,756	9,520	10,049
	Payments received on notes receivable	5,977	7,487	6,022
	Additional investment in notes receivable	(4,161)	(7,992)	(4,525)
	Surrender of life insurance policies	1,674	-	22,421
	Redemption of Brazilian escrow deposits	-	-	8,760
	Refinancing of Brazilian farmers	(8,448)	(7,132)	-
	Other, net	154	(1,520)	(4,520)
	Net cash provided (used) by investing activities
	of continuing operations	(32,214)	45,729	43,316
	Net cash provided by investing activities
	of discontinued operations	-	11,632	995
	Net cash provided (used) by investing activities	(32,214)	57,361	44,311


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)


STATEMENTS OF CONSOLIDATED CASH FLOWS (Continued)
Alliance One International, Inc. and Subsidiaries


		Years Ended March 31,
	(in thousands)	2009	2008	2007
	Financing activities
	Net proceeds/repayments of short-term borrowings	$ (36,833)	$ 124,696	$(138,124)
	Proceeds from short-term demand notes	9,014	65,263	-
	Repayment of short-term demand notes	(64,079)	(71,611)	-
	Proceeds from long-term borrowings	171,719	13,546	563,368
	Repayment of long-term borrowings	(89,379)	(199,825)	(603,779)
	Debt issuance/retirement costs	(6,257)	(2,784)	(7,786)
	Proceeds from sale of stock	-	1,632	7,259
	Excess tax benefits from share-based payment arrangements	350	668	-
	Net cash used by financing activities	(15,465)	(68,415)	(179,062)

	Effect of exchange rate changes on cash	(10,500)	5,181	1,551

	Increase (decrease) in cash and cash equivalents	(24,549)	31,956	54,273
	Cash and cash equivalents at beginning of year	112,214	80,258	25,985
	Cash and cash equivalents at end of year	$ 87,665	$ 112,214	$ 80,258

	Other information:
	Cash paid during the year:
	Interest	$ 90,913	$ 94,888	$ 121,068
	Income taxes	7,470	9,969	13,483



	See notes to consolidated financial statements.

- 19 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies

Description of Business

The Company is principally engaged in purchasing, processing, storing, and selling leaf tobacco. The Company purchases tobacco primarily in the United States, Africa, Europe, South America and Asia for sale to customers primarily in the United States, Europe and Asia.

Basis of Presentation

The accounts of the Company and its consolidated subsidiaries are included in the consolidated financial statements after elimination of intercompany accounts and transactions. The Company uses the cost or equity method of accounting for its investments in affiliates that are owned 50% or less.

The Company is accounting for its investment in the Zimbabwe operations on the cost method and has been reporting it in Investments in Unconsolidated Affiliates in the consolidated balance sheet since March 31, 2006. During fiscal year 2007, the Company wrote its investment in the Zimbabwe operations down to zero.

Reclassifications

Related party receivables and payables, presented on a net basis in trade and other receivables or accounts payable in the Company’s previous filings, are now presented as related party receivables and payables to more appropriately reflect the nature of these amounts. Certain prior period amounts included in the consolidated balance sheet have been reclassified to conform to the current period’s presentation. At March 31, 2008, the Company reported $158,471 of accounts payable of which $993 was reclassified to Due to Related Parties.

Current deferred and recoverable income taxes, presented on a net basis in the Company’s previous filings, are now presented separately as Current Deferred Taxes and Recoverable Income Taxes to more appropriately reflect the nature of these amounts. Certain prior period amounts included in the consolidated balance sheet have been reclassified to conform to the current period’s presentation. At March 31, 2008, the Company reported $33,677 of Current Deferred Taxes and Recoverable Income Taxes, which was reclassified as $20,836 of Current Deferred Taxes and $12,841 of Recoverable Income Taxes.

These reclassifications had no impact on operating income, net income, total current assets or total current liabilities.

Investments in Unconsolidated Affiliates

The Company’s equity method investments and its cost method investments, including its Zimbabwe operations, are non-marketable securities. The Company reviews such investments for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recovered. For example, the Company would test such an investment for impairment if the investee were to lose a significant customer, suffer a large reduction in sales margins, experience a major change in its business environment, or undergo any other significant change in its normal business. In assessing the recoverability of equity or cost method investments, the Company uses discounted cash flow models. If the fair value of an equity investee is determined to be lower than its carrying value, an impairment loss is recognized. The preparation of discounted future operating cash flow analysis requires significant management judgment with respect to future operating earnings growth rates and the selection of an appropriate discount rate. The use of different assumptions could increase or decrease estimated future operating cash flows, and the discounted value of those cash flows, and therefore could increase or decrease any impairment charge.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities. They also affect the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and changes in these estimates are recorded when known. Estimates are used in accounting for, among other things, pension and postretirement health care benefits, inventory market values, allowances for doubtful accounts and advances, bank loan guarantees to growers, useful lives for depreciation and amortization, stock options, future cash flows associated with impairment testing for goodwill and long-lived assets and for determining the primary beneficiary of variable interest entities, deferred tax assets and uncertain income tax positions, value-added tax credits in Brazil and fair value determinations of financial assets and liabilities including derivatives, securitized retained interests and counterparty risk. Changes in market and economic conditions, local tax laws, and other related factors are considered each reporting period, and adjustments to the accounts are made based on the Company’s best judgment.

Revenue Recognition

The Company recognizes revenue from the sale of tobacco when persuasive evidence of an arrangement exists, the price to the customer is fixed or determinable, collectibility is reasonably assured and title and risk of ownership is passed to the customer, which is upon shipment or delivery. The Company requires that all customer-specific acceptance provisions be met at the time title and risk of ownership passes to the customer. Furthermore, the Company’s sales history indicates customer returns and rejections are not significant.

The Company also processes tobacco owned by its customers and revenue is recognized when the processing is completed. The Company’s history indicates customer requirements for processes tobacco are met upon completion of processing. In addition, advances from customers are recognized as revenue upon shipment or delivery.

Taxes Collected from Customers

Certain subsidiaries are subject to value added taxes on local sales. These amounts have been included in sales and were $28,969, $32,975 and $20,044 for the years ended March 31, 2009, 2008 and 2007, respectively.

Shipping and Handling

Shipping and handling costs are included in cost of goods and services sold in the statement of operations.

Other Income, Net

Other Income consists primarily of gains on sales of property, plant and equipment and assets held for sale. This caption also includes expenses related to the Company’s sale of receivables. See Note Q “Sale of Receivables” to the “Notes to Consolidated Financial Statements” for further information. The following table summarizes the significant components of Other Income.


	Years Ending March 31,
	2009	2008	2007

Malawi factory sale	$ -	$ 9,500	$ -
Greece factory and other property sales	-	6,990	-
Brazil factory sale	-	2,815	-
Other sales of assets	3,762	4,182	5,035
Recovery of pre-1991 Gulf War Iraqi receivables	-	-	2,748
Losses on sale of receivables	(3,548)	(3,299)	(1,707)
	$ 214	$20,188	$ 6,076

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Cash and Cash Equivalents

Cash equivalents are defined as temporary investments of cash with original maturities of less than 90 days. At March 31, 2009 and 2008, respectively, $300 and $450 of cash held on deposit as a compensating balance for short-term borrowings was included in other current assets.

Trade and Other Receivables

Trade and other receivables consist of $169,165 of trade receivables and $6,540 of other receivables at March 31, 2009. The balances at March 31, 2008 were $171,063 and $9,934 for trade receivables and other receivables, respectively.

Trade receivables are amounts owed to the Company from its customers. Trade receivables are recorded at invoiced amounts and primarily have net 30 day terms. The Company extends credit to its customers based on an evaluation of a company’s financial condition and collateral is generally not required.

The Company maintains an allowance for doubtful accounts for estimated uncollectible accounts receivable. The allowance is based on the Company’s assessment of known delinquent accounts, other currently available evidence of collectibility and the aging of accounts receivable. The Company’s allowance for doubtful accounts was $8,484 and $10,033 at March 31, 2009 and 2008, respectively. The provision for doubtful accounts was $882, $2,124 and $1,325 for the years ending March 31, 2009, 2008 and 2007, respectively and is reported in selling, administrative and general expenses in the consolidated statement of operations.

Other receivables consist primarily of value added tax (VAT) receivables of $5,287 and $8,137 at March 31, 2009 and 2008, respectively.

Sale of Accounts Receivable

The Company is engaged in a revolving trade accounts receivable securitization agreement to sell receivables to a third party limited liability company. In accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” the Company records the transaction as a sale of receivables, removes such receivables from its financial statements and records a receivable for the retained interest in such receivables. The losses on the sale of receivables are recognized in Other Income, Net. As of March 31, 2009 and 2008, respectively, accounts receivable sold and outstanding were $100,611 and $70,862. See Note Q “Sale of Receivables” and Note R “Fair Value Measurements” to the “Notes to Consolidated Financial Statements” for further information.

Inventories

Inventories are valued at the lower of cost or market. Inventories are reviewed and adjusted for changes in market value based on assumptions related to future demand and worldwide and local market conditions. If actual demand is lower or market conditions vary unfavorably from those projected by management, adjustments to lower of cost or market value may be required. Inventory write-downs for the years ended March 31, 2009 and March 31, 2008 were $313 and $1,900, respectively.

Costs of tobacco inventories are generally determined by the average cost method while costs of other inventories are generally determined by the first in, first out method. Costs included in tobacco inventory include both the cost of raw material as well as direct and indirect costs that are related to the processing of the product. Tobacco inventory is substantially finished goods. Costs included in other inventories are costs of spare parts, packing materials, non-tobacco agricultural products and agricultural supplies including seed, fertilizer, herbicides and pesticides. Interest and other carrying charges on the inventories are expensed in the period in which they are incurred.

Goodwill and Other Intangibles

Goodwill represents the excess of purchase price over fair value of net assets acquired, and is allocated to the appropriate reporting unit when acquired. Goodwill is not amortized; rather it is evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of the asset may be impaired. Goodwill is evaluated for impairment by determining the fair value of the related reporting unit. Fair value is measured based on a discounted cash flow method or relative market-based approach. When the carrying amount of goodwill exceeds its fair value, an impairment charge is recorded.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Goodwill and Other Intangibles (Continued)

The Company has no intangible assets with indefinite useful lives. It does have other intangible assets, production and supply contracts and a customer relationship intangible asset, recorded in connection with the merger, as well as internally developed software that is capitalized into intangibles. These intangible assets are stated at amortized cost and tested for impairment whenever factors indicate the carrying amount may not be recoverable. Supply contracts are amortized based on the expected realization of the benefit over the term of the contracts ranging from three to five years. Production contracts and the customer relationship intangible are both amortized on a straight-line basis ranging from five to ten years and twenty years, respectively. The amortization period is the term of the contract or, if no term is specified in the contract, management’s best estimate of the useful life based on past experience. Internally developed software is amortized on a straight-line basis over five years once the software testing is complete. Events and changes in circumstance may either result in a revision in the estimated useful life or impairment of an intangible resulting in revaluation of the asset value to its fair value. See Note E “Goodwill and Other Intangible Assets” to the “Notes to Consolidated Financial Statements” for further information.

Other Noncurrent Assets

Other noncurrent assets consist primarily of long-term VAT receivables and long-term advances to suppliers. The balance of VAT receivables was $34,227 and $48,641 at March 31, 2009 and 2008, respectively. The balance of long term advances to suppliers was $42,493 and $59,640 at March 31, 2009 and 2008, respectively.

Property, Plant and Equipment

Property, plant and equipment at March 31, 2009 and 2008, are summarized as follows:


	2009	2008
Land	$ 20,811	$ 21,678
Buildings	154,111	161,855
Machinery and equipment	165,284	177,223
Total	340,206	360,756
Less accumulated depreciation	137,252	142,479
Total property, plant and equipment, net	$202,954	$218,277

Property, plant and equipment is stated at cost less accumulated depreciation. Provisions for depreciation are computed on a straight-line basis at annual rates calculated to amortize the cost of depreciable properties over their estimated useful lives. Buildings, machinery and equipment and technological equipment are depreciated over ranges of 20 to 30 years, 5 to 10 years and 3 to 5 years, respectively. The consolidated financial statements do not include fully depreciated assets. Depreciation expense recorded in cost of goods and services sold for the years ended March 31, 2009, 2008 and 2007 was $22,944, $28,009, and $27,503, respectively. Depreciation expense recorded in selling, administrative and general expense for the years ended March 31, 2009, 2008 and 2007 was $3,094, $4,232 and $5,896, respectively. For fiscal 2009, total property and equipment purchases, including internally developed software intangibles, were $21,555 of which $134 was unpaid at March 31, 2009 and included in accounts payable.

Estimated useful lives are periodically reviewed and changes are made to the estimated useful lives when necessary. Long-lived assets are reviewed for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows. An impairment loss would be recognized when estimated undiscounted future cash flows from the use of the asset and its eventual disposition are less than its carrying amount. Measurement of an impairment loss would be based on the excess of the carrying amount of the asset over its fair value. Fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties and may be estimated using a number of techniques, including quoted market prices or valuations, present value techniques based on estimates of cash flows, or multiples of earnings or revenue performance measures. See Note D “Restructuring and Asset Impairment Charges” to the “Notes to Consolidated Financial Statements” for further information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Property, Plant and Equipment (Continued)

Under SFAS No. 144, a component of a business that is either disposed of or held for sale is reported as discontinued operations if the operations and cash flows have been reclassified from ongoing operations and there will be no significant involvement in such operations in the future. The Company has made such decisions in prior years concerning tobacco operations in Italy and Mozambique, a U.S. non-tobacco processing facility and its wool operations. These operations are reported as discontinued operations in the financial statements and have resulted in income of $407 and $7,855 in 2009 and 2008, respectively and a loss of $18,730 in 2007. See Note C “Discontinued Operations” to the "Notes to Consolidated Financial Statements" for further information.

Assets Held For Sale

The Company classifies assets as “Assets Held For Sale” when the company has committed to a plan to sell the assets, including the initiation of a plan to locate a buyer, the assets are available for immediate sale, and it is probable that the assets will be sold within one year based on its current condition and sales price. Upon classifying the assets as held for sale, the assets are recorded at the lower of historical cost or fair value less selling costs and depreciation is discontinued. Assets classified as held for sale were $4,411 and $4,885 at March 31, 2009 and 2008, respectively.

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. The Company does not currently deem underlying criteria to be perfectly matched and therefore does not believe the currency contracts qualify for hedge accounting as defined by SFAS No. 133. As a result, the Company has recorded a loss of $3,702 and income of $834 and $12,914 in its cost of goods and services sold for the years ended March 31, 2009, 2008 and 2007, respectively. The Company has also recorded expense of $879 and $94 in its selling, administrative and general expenses for the years ended March 31, 2009 and 2008, respectively. In fiscal year 2007 the Company also utilized interest rate swaps to convert a portion of its debt from floating rate to fixed rate to reduce interest rate volatility. These instruments did not qualify for hedge accounting under SFAS No. 133 and resulted in non-cash income of $290 for March 31, 2007. See Note F “Derivative and Other Financial Instruments” to the "Notes to Consolidated Financial Statements" for further information.

Income Taxes

The Company uses the asset and liability method to account for income taxes. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the income tax basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled.

The Company’s annual tax rate is based on its income, statutory tax rates and tax planning opportunities available to it in the various jurisdictions in which it operates. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under Financial Accounting Standards Board Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The Company reviews its tax positions quarterly and adjusts the balances as new information becomes available.

Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. The Company evaluates the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. The Company uses historical experience and short and long-range business forecasts to provide insight. The Company believes it is more likely than not that a portion of the deferred income tax assets may expire unused and has established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, the Company believes it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if estimates of taxable income are significantly reduced or available tax planning strategies are no longer viable. See Note L “Income Taxes” and Note P “Contingencies and Other Information” to the “Notes to Consolidated Financial Statements” for further information.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Stock-Based Compensation

On April 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment. This statement requires the Company to expense the fair value of grants of various stock-based compensation programs at fair value over the vesting period of the awards. The Company elected to adopt this statement using the “Modified Prospective Application” (MPA) transition method which does not result in the restatement of previously issued financial statements. Application of the MPA transition method requires compensation costs to be recognized beginning on the effective date for the estimated fair value at date of grant in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation, for all stock-based compensation awards granted prior to, but not yet vested as of April 1, 2006. Awards granted after April 1, 2006 have been recognized as compensation expense based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R). The MPA transition method also required that any unearned or deferred compensation recorded in “contra-equity” accounts be eliminated against the equity accounts that will be affected by the on-going recognition of stock based compensation. Accordingly, on April 1, 2006, the Company reclassified $3,134 from Unearned Compensation – Restricted Stock to Common Stock. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model which was developed for use in estimating the fair value of exchange traded options that have no vesting restrictions and are fully transferable. Option valuation methods require the input of highly subjective assumptions, including the expected stock price volatility. See Note K “Stock-Based Compensation” to the “Notes to Consolidated Financial Statements” for further information.

Supplemental Disclosures of Cash Flow Information and Noncash Investing and Financing Activities

The Company acquired a supply contract valued at $7,844 during the fourth quarter of fiscal 2009, of which $5,914 was unpaid and included in accrued expenses. The cash portion of the investment, $1,930, is disclosed in Intangibles, Including Internally Developed Software Costs as an investing activity in the Statements of Consolidated Cash Flows. See Note E “Goodwill and Other Intangibles” to the “Notes to Consolidated Financial Statements” for further disclosure on intangible assets.

New Accounting Standards

Recently Adopted Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to elect to report individual financial instruments and certain other items at fair value with changes in value reported in operations. Once made, this election is irrevocable for those items. The Company did not elect the fair value option for any financial assets or liabilities that were not already being measured and reported at fair value. Therefore, the adoption of SFAS No. 159 did not have an impact on its financial condition or results of operations.

In April 2007, the FASB ratified Emerging Issues Task Force (“EITF”) Issue No. 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (“EITF 06-10”). This statement establishes that companies will be required to recognize a liability for the postretirement benefit obligation related to a collateral assignment arrangement — in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than Pensions, (if deemed part of a postretirement plan) or Accounting Principles Board Opinion 12, Omnibus Opinion — 1967, (if not part of a plan) — if, based on the substantive agreement with the employee, the employer has agreed to maintain a life insurance policy during the postretirement period or provide a death benefit. The EITF also reached a consensus that an employer should recognize and measure the associated asset on the basis of the terms of the collateral assignment arrangement. The Company adopted EITF 06-10 on April 1, 2008 as a change in accounting principle through a cumulative effect adjustment to retained earnings totaling $2,572.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, An Amendment of FASB Statement No. 133 (“SFAS No. 161”). SFAS No. 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The Company adopted this new accounting standard on January 1, 2009 and it did not have an impact on its financial condition or result of operations. See Note F “Derivative and Other Financial Instruments” to the “Notes to Consolidated Financial Statements” for further details.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

New Accounting Standards (Continued)

Recently Adopted Accounting Pronouncements (Continued)

On April 1, 2008, the Company adopted FASB Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”), and FASB Staff Position (“FSP”) on Statement No. 157, Effective Date of FASB Statement No. 157 (“FSP 157-2”). See Note R “Fair Value Measurements” to the “Notes to Consolidated Financial Statements” for further details.

In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161 (“FSP”). The FSP amends FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. The FSP also amends FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, to require an additional disclosure about the current status of the payment/performance risk of a guarantee. Further, the FSP clarifies the FASB’s intent about the effective date of FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The Company adopted the FSP during the quarter ended December 31, 2008 with no material impact to the Company’s financial condition or results of operations.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities about Transfers of Financial Assets and Interests in Variable Interest Entities (“FSP”). The FSP amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, to require public enterprises, including sponsors that have a variable interest in a variable interest entity, to provide disclosures about their involvement with variable interest entities. Additionally, this FSP requires certain disclosures to be provided by a public enterprise that is (a) a sponsor of a qualifying special purpose entity (SPE) that holds a variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE and (b) a servicer of a qualifying SPE that holds a significant variable interest in the qualifying SPE but was not the transferor (nontransferor) of financial assets to the qualifying SPE. The Company adopted this new accounting guidance during the quarter ended December 31, 2008 with no material impact to the Company’s financial condition or results of operations.

In January 2009, the FASB issued FSP EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (“FSP”). The FSP amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. The FSP was effective for interim periods ending after December 15, 2008. The Company adopted the FSP during the quarter ended December 31, 2008 with no material impact to the Company’s financial condition or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

New Accounting Standards (Continued)

Recent Accounting Pronouncements Not Yet Adopted (Continued)

- 20 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)


Computation of Earnings Per Common Share
		Years Ended March 31,
(in thousands, except per share data)		2009	2008	2007
BASIC EARNINGS
Income (loss) from continuing operations		$ 132,151	$ 9,006	$ (2,615)
Income (loss) from discontinued operations		407	7,855	(18,730)
Cumulative effect of accounting changes		-	-	(252)
Net income (loss)		$ 132,558	$16,861	$(21,597)

SHARES
Weighted Average Number of Shares Outstanding		88,359	88,100	86,470

BASIC EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations		$ 1.50	$ .10	$ (.03)
Income (loss) from discontinued operations		-	.09	(.22)
Cumulative effect of accounting changes		-	-	-
Net income (loss)		$ 1.50	$ .19	$ (.25)

DILUTED EARNINGS
Income (loss) from continuing operations		$ 132,151	$ 9,006	$ (2,615)
Income (loss) from discontinued operations		407	7,855	(18,730)
Cumulative effect of accounting changes		-	-	(252)
Net income (loss) as adjusted		$ 132,558	$16,861	$(21,597)

SHARES
Weighted average number of common shares outstanding		88,359	88,100	86,470
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		702	1,362	-*
Average Number of Shares Outstanding		89,061	89,462	86,470*

DILUTED EARNINGS (LOSS) PER SHARE
Income (loss) from continuing operations		$1.49	$.10	$(.03)
Income (loss) from discontinued operations		-	.09	(.22)
Cumulative effect of accounting changes		-	-	-
Net income (loss) as adjusted		$1.49	$.19	$(.25)*

*	For the year ended March 31, 2007, all outstanding restricted stock and stock options of 854 and 1,068, respectively, are excluded because their inclusion would have an antidilutive effect on the loss per share.

- 21 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note A – Significant Accounting Policies (Continued)

Concentration of Credit Risk

The Company may potentially be subject to a concentration of credit risks due to cash, farmer advances and trade receivables relating to customers in the tobacco industry. Cash is deposited with high-credit-quality financial institutions.

Preferred Stock

The Board of Directors is authorized to issue shares of Preferred Stock in series with variations as to the number of shares in any series. The Board of Directors also is authorized to establish the rights and privileges of such shares issued, including dividend and voting rights. At March 31, 2009, 10,000 shares of preferred stock were authorized and no shares had been issued.

Note B – Advances on Purchases of Tobacco

The Company provides seasonal crop advances of, or for, seed, fertilizer, and other supplies. These advances are short term in nature, are repaid upon delivery of tobacco to the Company, and are reported in advances on purchases of tobacco in the consolidated balance sheet. Primarily in Brazil and certain African countries, the Company also has made long-term advances to tobacco farmers to finance curing barns and other farm infrastructure. In addition, due to low crop yields and other factors, in some years individual farmers may not deliver sufficient volumes of tobacco to fully repay their seasonal advances, and the Company may extend repayment of those advances into future crop years. Current advances of $137,824 in 2009 and $112,989 in 2008 are presented as advances on purchases of tobacco, net in the consolidated balance sheet. The long-term portion of advances of $42,493 in 2009 and $59,640 in 2008 are included in other non-current assets in the consolidated balance sheet. Both the current and the long-term portion of advances on purchases of tobacco are reported net of allowances. Allowances are recorded when the Company determines that amounts outstanding are not likely to be collected. Total allowances were $89,575 at March 31, 2009, and $94,536 at March 31, 2008, and were estimated based on the Company’s historical loss information and crop projections. The allowances were increased by provisions for estimated uncollectible amounts of approximately $27,788 in fiscal year 2009, $79,090 in fiscal year 2008 and $40,854 in fiscal year 2007. Estimated bad debt expense on current year advances are capitalized into inventory. Write-downs charged against the allowance were $32,749, $15,522 and $36,010 for fiscal years 2009, 2008 and 2007, respectively.

In Brazil, some farmers obtain government subsidized rural credit financing which is guaranteed by the Company. The farmers borrow these funds from local banks. Repayment of both Company advances and rural credit financing by the farmer is concurrent with delivery of tobacco to the Company. The Company remits payments to the local banks on behalf of guaranteed farmers. Terms of rural credit financing are such that repayment is due to local banks based on contractual due dates. As of March 31, 2009 and 2008, respectively, the Company had balances of $36,983 and $76,672 that were due to local banks on behalf of farmers. These amounts are included in accounts payable in the consolidated balance sheet. As of March 31, 2009 and 2008, respectively, the Company was guarantor for Brazilian farmer loans of $120,820 and $164,542 with outstanding amounts of $114,514 and $159,602. The fair value of guarantees for rural credit financing was $12,824 and $19,000 as of March 31, 2009 and 2008, respectively.

In Malawi and Guatemala, guarantees were offered on crop input advances to farmers. As of March 31, 2009, the Company in Malawi was guarantor for loans of $7,326 and the fair value of these guarantees is $403. As of March 31, 2009, the Company in Guatemala was guarantor for loans of $2,884 and the fair value of these guarantees is $236.

In Argentina, as of March 31, 2009 and 2008, respectively, the Company was guarantor for farmer cooperative loans of $33,000 and $27,400. The fair value of the Argentine guarantees was $1,122 and $1,069 as of March 31, 2009 and 2008, respectively.

The fair value of all guarantees is recorded in accrued expenses and other current liabilities.

- 22 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note C – Discontinued Operations

The Company continually evaluates its component operations to assure they are consistent with its business plan. Results of operations and the assets and liabilities of our business reported as discontinued operations were as follows:

Summary of Results of Operations

Other Regions Segment


Year Ended March 31, 2009	Italy	Mozambique	Wool	Non-Tobacco	Total

Income from discontinued operations, net of tax:
Income from discontinued operations, before tax	$ -	$ 87	$ 320	$ -	$ 407
Income tax expense	-	-	-	-	-
Income from discontinued operations, net of tax	$ -	$ 87	$ 320	$ -	$ 407

Year Ended March 31, 2008
Sales and other revenues	$ 5,710	$ 1,324	$ -	$ -	$ 7,034

Income from discontinued operations, net of tax:
Income from discontinued operations, before tax	$ 270	$ 277	$ 7,233	$ -	$ 7,780
Income tax (benefit)	(58)	(17)	-	-	(75)
Income from discontinued operations, net of tax	$ 328	$ 294	$ 7,233	$ -	$ 7,855

Year Ended March 31, 2007
Sales and other revenues	$ 14,552	$ 10,483	$ -	$ 5	$ 25,040

Income (loss) from discontinued operations, net of tax:
Income (loss) from discontinued operations, before tax	$(17,649)	$ 2,337	$ (711)	$ 42	$ (15,981)
Income tax expense (benefit)	(401)	(470)	987	2,633	2,749
Income (loss) from discontinued operations, net of tax	$(17,248)	$ 2,807	$(1,698)	$ (2,591)	$ (18,730)

Summary of Assets and Liabilities

Other Regions Segment *


	Mozambique
	Years Ended March 31,
	2009	2008

Assets of discontinued operations:
Trade receivables , net of allowances	$ -	$ 61
Inventory	-	175
Total assets of discontinued operations	$ -	$ 236

Liabilities of discontinued operations:
Accounts payable	$ -	$ 31
Accrued expenses	-	50
Total liabilities of discontinued operations	$ -	$ 81

* The Italy, Wool and Non-Tobacco operations had no assets or liabilities of discontinued operations as of March 31, 2008.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note C – Discontinued Operations (Continued)

Discontinued Italy Operations, Other Regions Segment

On September 30, 2004, concurrent with the sale of the Italian processing facility, the Company made a decision to discontinue all of its Italian operations as part of its ongoing plans to realign its operations to more closely reflect worldwide changes in the sourcing of tobacco. The Company has completed the sale of the Italian operations.

Discontinued Mozambique Operations, Other Regions Segment

On March 16, 2006, the Board of Directors of the Company made a decision to discontinue operations in Mozambique after the procurement of the 2006 crop due to its determination that it was not in the Company’s economic interest to remain in Mozambique after losing a concession for the 2007 crop year. As of March 31, 2009, the Company has completed the liquidation of the Mozambique operations.

Discontinued Wool Operations, Other Regions Segment

During fiscal 2008, the Company received the necessary governmental approvals and completed the sale of the remaining properties associated with its discontinued wool operations. Gains on the sale of these properties reported in fiscal 2008 were $7,233. As of March 31, 2009, the Company has completed the liquidation of the wool operations.

Note D – Restructuring and Asset Impairment Charges

The Company continued to execute the merger integration plan which began in fiscal 2006. In addition, the Company has recorded other restructuring and impairment charges as they occurred in the normal course of business in accordance with SFAS No. 144 and SFAS No. 146.

The following table summarizes the restructuring and integration actions as of March 31, 2009, 2008 and 2007:


	Years Ended March 31,
Restructuring and Asset Impairment Charges	2009	2008	2007
Employee separation and other cash charges:
Beginning balance	$ 2,360	$ 2,747	$ 13,644
Period Charges:
Employee separation charges	605	8,523	8,658
Other cash charges (recoveries)	(24)	440	1,177
Total employee separation and other cash charges	581	8,963	9,835
Payments through March 31	(2,838)	(9,350)	(20,732)
Ending balance March 31	$ 103	$ 2,360	$ 2,747

Asset impairments and other non-cash charges:
SFAS No. 144 asset impairment – tobacco operations:
CdF operations assets impairment	$ -	$ 6,127	$ -
Greece machinery and equipment impairment	-	915	3,689
Thailand assets impairment	-	-	1,143
Turkey impairment	-	2,733	-
Other non-cash charges	10	842	1,860
Deconsolidated Zimbabwe cost investments	-	-	13,246
Total asset impairments and other non-cash charges	$ 10	$ 10,617	$ 19,938
Total restructuring and asset impairment charges	$ 591	$ 19,580	$ 29,773

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note D – Restructuring and Asset Impairment Charges (Continued)

The following table summarizes cash payments for employee separation and other cash charges for the years ended March 31, 2009, 2008 and 2007.


	Year Ending March 31,			Total
Cash Payments by Year	2009	2008	2007	Payments
Employee separation and other cash charges	$ 581	$ 8,963	$ 9,835
Adjustments to employee separation and other cash changes	-	-	13,644*
Cash paid 2007	-	-	(20,732)	$(20,732)
Cash paid 2008	-	(6,729)	(2,621)	$ (9,350)
Cash paid 2009	(548)	(2,164)	(126)	$ (2,838)
Balances at March 31, 2009 to be paid 2010	$ 33	$ 70	$ -

* Beginning balance for the year ended March 31, 2007

The following table summarizes the employee separation and other cash charges recorded in the Company’s South America and Other Regions segments as of March 31, 2009, 2008 and 2007:


	Years Ended March 31,
Employee Separation and Other Cash Charges	2009	2008	2007

Beginning balance:	$ 2,360	$ 2,747	$ 13,644
South America	134	30	83
Other regions	2,226	2,717	13,561
Period charges:	$ 581	$ 8,963	$ 9,835
South America	47	1,995	1,097
Other regions	534	6,968	8,738
Payments through March 31:	$(2,838)	$(9,350)	$(20,732)
South America	(181)	(1,890)	(1,150)
Other regions	(2,657)	(7,460)	(19,582)
Ending balance March 31:	$ 103	$ 2,360	$ 2,747
South America	-	134	30
Other regions	103	2,226	2,717

All asset impairment charges were related to the Other Regions segment during the years ended March 31, 2009, 2008 and 2007, respectively, with the exception of $492 for South America during the year ended March 31, 2008.

Zimbabwe – Investment Impairment

As of March 31, 2006, the Company deconsolidated its operations in Zimbabwe in accordance with Accounting Research Bulletin 51, Consolidated Financial Statements (“ARB 51”). ARB 51 provides that when a parent does not have control over a subsidiary due to severe foreign exchange restrictions or governmentally imposed uncertainties, the subsidiary should not be consolidated. A non-cash impairment charge of $47,899 was recorded to reduce the net investment in Zimbabwe operations to estimated fair value in fiscal 2006.

Governmental authorization is required before any dividends can be paid from a Zimbabwe operation. The Company’s Zimbabwe operations had attempted to pay dividends prior to fiscal 2007 but were unsuccessful because it did not satisfy certain criteria set by the Reserve Bank of Zimbabwe and the government refused to grant the necessary authorizations. During the three months ended September 30, 2006, the Company received a $10,000 dividend payment from one of its Zimbabwe subsidiaries that had been negotiated with the Zimbabwe authorities. The $10,000 was permitted as a result of a negotiated prepayment of $20,000 of export funds due into Zimbabwe at a later date. The dividend was recorded as a reduction in the investment in the Zimbabwe subsidiary.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note D – Restructuring and Asset Impairment Charges (Continued)

Zimbabwe – Investment Impairment (Continued)

Economic and political conditions in Zimbabwe continued to decline in fiscal 2007 as inflation, lending rates and investment rates deteriorated. General farming operations were negatively impacted by the lack of foreign exchange to buy crop inputs and fuel. The crop size in Zimbabwe also continued to decline. Due to the continually declining conditions, the Company reevaluated the Zimbabwe operational structure during fiscal 2007 and made several significant operational changes including closing the Zimbabwe processing factory, outsourcing the 2006 crop tobacco processing and significantly reducing permanent personnel.

Based on events discussed above, the Company evaluated the fair value of the Zimbabwe operations and determined that the net investment in the Zimbabwe operations exceeded the estimated fair value. The Company recorded an additional non-cash impairment charge of $13,246 in fiscal 2007 to write down the net investment in the Zimbabwe operations to zero.

The economic and political conditions in Zimbabwe continued to decline during fiscal 2008, which was evidenced by continued devaluation of Zimbabwe currency and certain large, multi-national companies withdrawing and terminating operations in Zimbabwe.

During fiscal 2008, the Company received a $7,000 dividend payment from one of its Zimbabwe subsidiaries after negotiations with the Zimbabwe authorities similar to those of the prior year. The $7,000 was permitted as a result of a negotiated prepayment of $14,000 of export funds that were originally due into Zimbabwe at a later date. The Company also received an additional $363 dividend payment from one of its Zimbabwe subsidiaries in fiscal 2008.

Due to the economic and political risk associated with the operations in Zimbabwe, the dividends were recorded as a return against current Zimbabwe advances. The Company continues to provide advances to Zimbabwe for the purchase of tobacco. As of March 31, 2009 and 2008, the Company had $9,900 and $518, respectively, of net tobacco purchase advances outstanding to its Zimbabwe subsidiary.

Sale of Compañía General de Tabacos de Filipinas, S.A. – Dark Air-Cured Operations

As a consequence of the ongoing transition in overcapacity within certain markets of the industry, the Company decided to dispose of its dark air-cured operations. On January 23, 2006, the Company entered into a non-binding letter of intent to sell its ownership interest in Compañía General de Tabacos de Filipinas, S.A. ("CdF") the owner of the Company’s dark air-cured tobacco business. During fiscal 2007, the Company recorded employee severance costs of $1,033 associated with the sale of CdF.

During October 2007, the Company completed the sale of CdF which resulted in an asset impairment charge of $6,918. This impairment charge included additional employee severance charges, recognized currency translation adjustments and valuation adjustments against consideration received.

Thailand – Asset Impairment

In fiscal 2006, concurrent with the closure of the former DIMON Thailand processing facilities, assets of $5,736 were reclassified in the Company’s balance sheet to assets held for sale. These assets were primarily land and production facilities that had become redundant as a result of the merger. As a result, the Company conducted a review of the fair value of the Thailand assets held for sale and recorded an asset impairment charge of $1,143 during fiscal 2007 related to land and buildings based on contractual sales prices.

Greece – Asset Impairment

As a result of the closure of the Greece facilities, the Company evaluated the long-lived assets for impairment. During fiscal 2007, the Company recorded an asset impairment charge of $3,689 related to machinery and equipment based on a discounted cash flow model. In fiscal 2008, additional asset impairment charges of $1,035 were incurred related to machinery and equipment.

Turkey – Asset Impairment

As a result of significant reductions in future Turkish flue cured and burley tobacco volumes from customer information received, the Company tested certain related long-lived assets for impairment and recorded impairment charges of $2,733 in fiscal 2008 which is net of an agreed upon exit fee of $1,700 paid by the customer.

Assets Held for Sale

As of March 31, 2009, the Company reported assets held for sale of $4,411, related primarily to redundant production and administrative facilities in Brazil, Malawi and Greece, that are being actively marketed by the Company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note E – Goodwill and Other Intangibles

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company tests the carrying amount of goodwill annually as of the first day of the last quarter of the fiscal year and whenever events or circumstances indicate that impairment may have occurred. The Company evaluated its goodwill for impairment during fiscal 2009, 2008 and 2007 and determined that no impairment was required.

The carrying value of other intangible assets as of March 31, 2009 represents customer relationship, production and supply contracts and internally developed software. These intangible assets were determined by management to meet the criterion for recognition apart from goodwill and have finite lives. The Company uses judgment in assessing whether the carrying amount of its intangible assets is not expected to be recoverable over their estimated remaining useful lives. Amortization expense associated with these intangible assets was $3,412, $2,048 and $2,833 for the years ended March 31, 2009, 2008 and 2007, respectively.

The Company began implementing a new ERP system in fiscal 2008 and capitalized certain costs into intangible assets within the consolidated balance sheet in accordance with generally accepted accounting principles. As of March 31, 2009, the Company had incurred $12,025 of capitalizable costs associated with the ERP implementation and $313 of capitalizable costs related to other internally developed software projects. The ERP system was placed in service in the United States, Brazil and the United Kingdom during fiscal 2009. Amortization of the final accumulated costs of these locations began in fiscal 2009 over a five year useful life.

Goodwill and Intangible Asset Rollforward:


	Unamortizable Goodwill	Amortizable Intangibles
	Other Regions Segment	Customer Relationship Intangible	Production and Supply Contract Intangibles	Internally Developed Software Intangible	Total
Weighted average remaining
useful life in years as of March 31, 2009	-	16	7	5
March 31, 2007 balance:
Gross carrying amount	$ 4,186	$33,700	$10,815	$ -	$ 48,701
Accumulated amortization	-	(3,159)	(10,433)	-	(13,592)
Net balance	4,186	30,541	382	-	35,109
Additions	-	-	-	6,330	6,330
Amortization expense and purchase accounting tax adjustments	(1,392)	(1,685)	(363)	-	(3,440)
March 31, 2008 balance	$ 2,794	$28,856	$ 19	$ 6,330	$ 37,999
Additions	-	-	7,844	7,446	15,290
Amortization expense	-	(1,685)	(289)	(1,438)	(3,412)
March 31, 2009 balance	$ 2,794	$27,171	$ 7,574	$12,338	$ 49,877

- 23 -

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note E – Goodwill and Other Intangibles (Continued)

Estimated Intangible Asset Amortization Expense:


For Fiscal Years Ended	Customer Relationship Intangible	Production and Supply Contract Intangible	Internally Developed Software Intangible *	Total
2010	$ 1,685	$ 1,010	$ 2,699	$ 5,394
2011	1,685	1,087	2,699	5,471
2012	1,685	1,165	2,699	5,549
2013	1,685	1,243	2,699	5,627
2014	1,685	1,243	1,353	4,281
Later	18,746	1,826	189	20,761
	$ 27,171	$ 7,574	$ 12,338	$ 47,083

* Estimated amortization expense for the internally developed software is based on costs accumulated as of March 31, 2009. These estimates will change as new costs are incurred and until the software is placed into service in all locations.

Note F – Derivative and Other Financial Instruments

On January 1, 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – An Amendment of FASB Statement No. 133 (SFAS No. 133). The standard supplements the required disclosures provided under SFAS No. 133, as amended, with additional qualitative and quantitative information.

Fair Value of Derivative Financial Instruments

In accordance with SFAS No. 133, the Company recognizes all derivative financial instruments, such as interest rate swap contracts and foreign exchange contracts at fair value. Changes in the fair value of derivative financial instruments are either recognized periodically in income or in shareholders’ equity as a component of other comprehensive income depending on whether the derivative financial instrument qualifies for hedge accounting, and if so, whether it qualifies as a fair value hedge or a cash flow hedge. Changes in fair values of derivatives accounted for as fair value hedges are recorded in income along with the portions of the changes in the fair values of the hedged items that relate to the hedged risk(s). Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive income net of deferred taxes. Changes in fair values of derivatives not qualifying as hedges are reported in income. During the years ended March 31, 2009 and 2008, there were no qualified cash flow or fair value hedges. Estimates of fair value were determined in accordance with SFAS No. 107, as amended by SFAS No. 157. See Note R “Fair Value Measurements” to the “Notes to Consolidated Financial Statements” for further information of fair value methodology. The following table summarizes the fair value of the Company’s derivatives by type at March 31, 2009.


	Fair Values of Derivative Instruments
	Assets		Liabilities
Derivatives Not Designated as Hedging Instruments Under FAS 133:	Balance Sheet Account	Fair Value	Balance Sheet Account	Fair Value
Foreign currency contracts (a)	Current Derivative Asset	$23,469	Current Derivative Liability	$25,670

(a) at March 31, 2009, the cumulative adjustment for non-performance risk was a gain of $524.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note F – Derivative and Other Financial Instruments (Continued)

Earnings Effects of Derivatives

Floating to Fixed Rate Interest Swaps

Prior to the implementation of SFAS No. 133, the Company entered into multiple interest rate swaps to convert a portion of its worldwide debt portfolio from floating to fixed interest rates to reduce its exposure to interest rate volatility. As of June 30, 2006, all instruments of this type had been terminated. These instruments did not meet certain criteria for hedge accounting treatment and accordingly, the Company reflected the full amount of all changes in their fair value, without offset, in its current earnings as derivative financial instruments income.

Foreign Currency Contracts

The Company periodically enters into forward or option currency contracts to protect against volatility associated with certain non-U.S. dollar denominated forecasted transactions. In accordance with SFAS No. 133, when these derivatives qualify for hedge accounting treatment, they are accounted for as cash flow hedges and are recorded in other comprehensive income, net of deferred taxes.

The Company has entered into forward currency contracts to hedge cash outflows in foreign currencies around the world for green tobacco purchases and processing costs as well as selling, administrative and general costs as the Company deems necessary. These contracts do not meet the requirements for hedge accounting treatment under SFAS No. 133, and as such, are reported in income.

The following table summarizes the earnings effects of derivatives in the statements of consolidated operations for the years ending March 31, 2009, 2008, and 2007.


Derivatives Not Designated as Hedging Instruments Under SFAS No. 133	Location of Gain (Loss) Recognized in Income	Gain (Loss) Recognized in Income
		2009	2008	2007
Floating to Fixed Rate Interest Swaps	Derivative financial instruments income	$ -	$ -	$ 290
Foreign currency contracts	Cost of goods and services sold	(3,702)	834	12,914
Foreign currency contracts	Selling, administrative and general expenses	879	94	-
Total		$ (2,823)	$ 928	$13,204

Credit Risk

Financial instruments, including derivatives, expose the Company to credit loss in the event of non-performance by counterparties. The Company manages its exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties, and procedures to monitor concentrations of credit risk. If a counterparty fails to meet the terms of an arrangement, the Company’s exposure is limited to the net amount that would have been received, if any, over the arrangement’s remaining life. The Company does not anticipate non-performance by the counterparties and no material loss would be expected from non-performance by any one of such counterparties.

Note G – Short-Term Borrowing Arrangements

Excluding all long-term credit agreements, the Company has lines of credit arrangements with a number of banks under which the Company may borrow up to a total of $479,472 at March 31, 2009 ($722,406 at March 31, 2008). The weighted average variable interest rate for the twelve months ending March 31, 2009 was 5.5%. At March 31, 2009 and 2008, amounts outstanding under the lines were $261,450 and $387,157, respectively. Unused lines of credit at March 31, 2009 amounted to $174,143 ($284,484 at March 31, 2008), net of $43,879 of letters of credit lines. Certain non-U.S. borrowings of approximately $27,884 have inventories of approximately $14,604 as collateral. As noted below, there is limited recourse against certain receivables of the Company if the Company fails to fulfill its contractual obligations. At March 31, 2009, $300 was held on deposit as a compensating balance.

The Company has entered into a $20,000 limited recourse receivable purchase program with one of its lenders. Under the program, the lender takes the receivable payment risk of the customer subject to usual and customary covenants, while the Company fulfills contractual obligations. Funding of the purchased receivable is 80% of the face value, and the Company retains an interest in the remaining 20%, which is paid at collection. As of March 31, 2009, no amount ($3,745 at March 31, 2008) was funded under the program and recorded in short-term borrowings.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note H – Long-Term Debt

Senior Secured Credit Facility

a three and one-half year $240,000 revolver (the “Revolver”) which initially accrues interest at a rate of LIBOR plus 2.75%; and

a four-year $145,000 term loan B (the “Term Loan B”) which accrues interest at a rate of LIBOR plus 2.25%.

The interest rate for the Revolver may increase or decrease according to a consolidated interest coverage ratio pricing matrix as defined in the Credit Agreement. Effective May 25, 2007, the Company increased the Revolver by $10,000 to $250,000 by adding additional Lenders thereto. The $145,000 term loan B was repaid in full as of September 30, 2007.

Fourth Amendment. On August 4, 2008, the Company closed the Fourth Amendment to the Credit Agreement which included the following modifications effective March 31, 2008:

Increased the permitted lien basket for foreign subsidiary debt from $150,000 to $275,000;

Increased the maximum uncommitted inventories basket from $150,000 to $225,000 through March 30, 2009;

Increased permitted foreign subsidiary indebtedness from $600,000 to $685,000 from April 1, 2008 through June 30, 2008, $840,000 from July 1, 2008 through December 31, 2008, $675,000 from January 1, 2009 through March 30, 2009 and as of March 31, 2009 and at all times thereafter $600,000;

Amended and restated the consolidated EBIT, committed inventories, confirmed order and uncommitted inventories definitions; and

Added a new definition for “permitted allowance.”

Fifth Amendment. On February 20, 2009, the Company closed the Fifth Amendment to the Credit Agreement which included the following modifications effective February 20, 2009:

Increased the revolving committed amount by $55,000 from $250,000 to $305,000;

Provided a waiver related to our Congo entity for potential Events of Default;

Amended and restated the consolidated EBIT, revolving commitment percentage and revolving lender definitions;

Increased the portion of the borrowings under the Revolver by the Company, as defined in the Credit Agreement, from $150,000 to $200,000;

Decreased permitted foreign subsidiary indebtedness from $600,000 to $545,000;

Decreased the permitted lien basket for foreign subsidiary debt from $275,000 to $200,000;

Amendment to the acquisitions, advances, investments and loans section to allow for a potential acquisition not to exceed $90,000, subject to certain terms and conditions, and investment in Delta Technology and Management Services Private Limited not to exceed $450;

Amendment to remove the Company’s ability to use the restricted basket to purchase all or any portion of the outstanding senior notes and/or senior subordinated notes; and

Amended the maximum uncommitted inventories basket to $225,000 for the fiscal quarter ended December 31, 2008; $150,000 for the fiscal quarter ended March 31, 2009; $225,000 for the fiscal quarters ended June 30, 2009, September 30, 2009 and December 31, 2009; $150,000 for the quarter ended March 31, 2010 and $225,000 at the end of each fiscal quarter thereafter.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Alliance One International, Inc. and Subsidiaries
(in thousands)

Note H – Long-Term Debt (Continued)

Senior Secured Credit Facility (Continued)

Borrowers and Guarantors. One of the Company’s primary foreign holding companies, Intabex Netherlands B.V. (“Intabex”), is co-borrower under the Revolver, and the Company’s portion, as defined in the Credit Agreement, of the borrowings under the Revolver is limited to $200,000 (per Amendment 5) outstanding at any one time. One of the Company’s primary foreign trading companies, Alliance One International AG (“AOIAG”), is a guarantor of Intabex’s obligations under the Credit Agreement. Such obligations are also currently guaranteed by the Company and must be guaranteed by any of its material direct or indirect domestic subsidiaries.