- 3 -

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Alliance One International, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended December 31, 2009 and 2008 (Unaudited)
(in thousands)		December 31,    2009		December 31,   2008
Operating activities
Net income		$  61,289		$  95,482
Adjustments to reconcile net income to net cash used by operating             activities of continuing operations
Net income from discontinued operations, net of tax		-		(423)
Depreciation and amortization		21,904		21,979
Debt amortization/interest		8,604		3,587
Debt retirement cost		40,351		954
Gain on foreign currency transactions		(3,782)		(488)
Other, net		48		(3,716)
Changes in operating assets and liabilities, net		(160,634)		(207,958)
Net cash used by operating activities of continuing operations		(32,220)		(90,583)
Net cash provided by operating activities of discontinued operations		-		604
Net cash used by operating activities		(32,220)		(89,979)
Investing activities
Purchases of property and equipment		(9,299)		(9,328)
Intangibles, including internally developed software costs		(581)		(7,133)
Proceeds on sale of property and equipment		7,673		4,286
Foreign currency derivatives		(5,026)		(14,397)
Refinancing of Brazilian Farmers		(10,374)		(8,448)
Return of capital on investments in unconsolidated affiliates		-		5,830
Proceeds from notes receivable		6,558		5,102
Other, net		(1,869)		(5,144)
Net cash used by investing activities of continuing operations		(12,918)		(29,232)
Net cash provided by investing activities of discontinued operations		-		-
Net cash used by investing activities		(12,918)		(29,232)
Financing activities
Repayment of short-term demand notes		-		(64,079)
Proceeds from short-term demand notes		-		9,014
Net change in short-term borrowings		17,415		185,955
Proceeds from long-term borrowings		1,040,509		-
Repayment of long-term borrowings		(908,654)		(38,596)
Debt issuance cost		(36,095)		(896)
Debt retirement cost		(23,456)		(73)
Excess tax benefits from share-based payment arrangements		-		348
Proceeds from issuance of warrants		16,821		-
Purchase of call options		(39,418)		-
Dividends paid to noncontrolling interests		(360)		-
Net cash provided by financing activities		66,762		91,673
Effect of exchange rate changes on cash		229		(10,069)
Increase (decrease) in cash and cash equivalents		21,853		(37,607)
Cash and cash equivalents at beginning of period		87,665		112,214
Cash and cash equivalents at end of period		$ 109,518		$  74,607
See notes to condensed consolidated financial statements

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

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Because of the seasonal nature of the Company’s business, the results of operations for any fiscal quarter will not necessarily be indicative of results to be expected for other quarters or a full fiscal year.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair statement of financial position, results of operation and cash flows at the dates and for the periods presented have been included.  As part of the preparation of the condensed consolidated financial statements, the Company performed an evaluation of subsequent events occurring after the condensed consolidated balance sheet date of December 31, 2009, through February 8, 2010, the date the condensed consolidated financial statements were issued.  The unaudited information included in this Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009.

          Certain prior year amounts have been reclassified to conform with the current year’s presentation, due to the adoption of a new accounting standard related to accounting for noncontrolling interests discussed below.

New Accounting Standards

Recently Adopted Accounting Pronouncements

On April 1, 2009, the Company adopted new accounting guidance on the accounting and reporting related to noncontrolling interests in a consolidated subsidiary. It requires 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.  This standard is to be applied prospectively, except for the presentation and disclosure requirements, which are applied retrospectively for all periods presented.  The Company adopted this new accounting guidance with no material impact to its financial condition or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

In December 2008, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on employers’ disclosures about postretirement benefit plan assets. This accounting guidance relates to employers’ disclosures about plan assets of a defined benefit pension or other postretirement plan.  The disclosures about plan assets required by this accounting guidance are required for the Company in its fiscal year ending March 31, 2010.  The Company does not expect these new disclosure requirements to have a material impact on its financial condition or results of operations.

         In June 2009, the FASB issued new accounting guidance on accounting for transfers of financial assets. The objective of this accounting guidance is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. This accounting guidance will be effective for the Company on April 1, 2010. The Company is evaluating the impact of this new accounting guidance on its financial condition and results of operations.

         In June 2009, the FASB issued new accounting guidance on accounting for variable interest entities. The objective of this accounting guidance is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements.  This accounting guidance will be effective for the Company on April 1, 2010. The Company is evaluating the impact of this new accounting guidance on its financial condition and results of operations.

         In October 2009, the FASB issued new accounting guidance on accounting for multiple-deliverable revenue arrangements. The objective of this accounting guidance is to address the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. This accounting guidance will be effective for the Company on April 1, 2011. The Company is evaluating the impact of this new accounting guidance on its financial condition and results of operations.

         In January 2010, the FASB issued new accounting guidance on fair value measurements and disclosures. This guidance will require reporting entities to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. It will also require reporting entities to present separately information about purchases, sales, issuances, and settlements in their Level 3 fair value reconciliations. The new disclosures and clarifications of existing disclosures (the Level 1 and Level 2 changes) will be effective for the Company on January 1, 2010. The disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements will be effective for the Company on April 1, 2011. The Company does not expect these new disclosure requirements to have a material impact on its financial condition or results of operations.

Alliance One International, Inc. and Subsidiaries

1.  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Supplemental Cash Flow Information

Non-cash investing and financing activities are excluded from the condensed consolidated statement of cash flows. During fiscal 2009, non-cash investing activities included $17,184 related to the net settlement of foreign currency derivatives.  There were no non-cash investing activities during fiscal 2010.

Taxes Collected from Customers

Certain subsidiaries are subject to value added taxes on local sales.  These amounts have been included in sales and were $6,833 and $3,458 for the three months ended December 31, 2009 and 2008, respectively and $25,124 and $29,394 for the nine months ended December 31, 2009 and 2008, respectively.

2.  INCOME TAXES

FIN 48

As of December 31, 2009, the Company’s unrecognized tax benefits totaled $9,060, all of which would impact the Company’s effective tax rate if recognized.  

         The Company recognizes interest and penalties related to unrecognized tax benefits in income tax expense.  As of December 31, 2009, accrued interest and penalties totaled $9,252 and $4,976, respectively.

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

         During the three months ended December 31, 2009, the Company participated in various governmental tax programs in certain locations in an effort to resolve outstanding tax issues.  By participating in these programs, the Company’s liability for unrecognized tax benefits, including accrued interest and penalties, was reduced from $72,636 to $23,288 as compared to September 30, 2009.  The decrease in the liability for unrecognized tax benefits relates to cash payments of approximately $12,943, settlement of unrecognized tax benefits of approximately $37,292, and an increase related to current period activity of approximately $887.  As recognized in the income statement the settlement of unrecognized tax benefits is reduced by the write off of related deferred tax assets.

         The Company expects to recognize an unrecognized tax benefit, related to foreign taxes, for the amount of $5,746 due to the expiration of an applicable statute of limitations in the next twelve months.  Circumstances can change due to unexpected developments in the law and interpretation of the law which may ultimately affect the unrecognized tax benefit.

         The Company and its subsidiaries file a U.S. federal consolidated income tax return as well as returns in several U.S. states and a number of foreign jurisdictions.  As of December 31, 2009, the Company’s earliest open tax year for U.S. federal income tax purposes was its fiscal year ended March 31, 2007.  Open tax years in state and foreign jurisdictions generally range from three to six years.

Provision for the Nine Months Ended December 31, 2009

The effective tax rate used for the nine months ended December 31, 2009 was a benefit of 9.5% compared to 4.4% for the nine months ended December 31, 2008.  The effective tax rates for these periods are based on the current estimate of full year results including the effect of taxes related to specific events which are recorded in the interim period in which they occur.  The Company expects the tax rate for the year ending March 31, 2010 to be an expense of 4.2% after absorption of discrete items.

         For the nine months ended December 31, 2009, the Company recorded a specific event adjustment benefit of $22,089 bringing the effective tax rate estimated for the nine months from an expense of 30.8% to a benefit of 9.5%.  This specific event adjustment benefit relates to a reversal of income tax, interest, penalties and exchange losses related to liabilities for unrecognized tax benefits totaling a benefit of $4,918, net exchange gains on income tax accounts totaling a benefit of $18,006, and other miscellaneous tax adjustments totaling an expense of $835.  For the nine months ended December 31, 2008, the Company recorded a specific event adjustment expense of $1,921 bringing the effective tax rate estimated for the nine months from a benefit of 6.5% to 4.4%.  This specific event adjustment relates primarily to additional income tax and interest related to liabilities for unrecognized tax benefits and net exchange losses on income tax accounts.  The significant difference in the estimated effective tax rate for the nine months ended December 31, 2009 from the statutory rate is primarily due to expenses related to exchange effects.

Alliance One International, Inc. and Subsidiaries

3.  RESTRUCTURING AND ASSET IMPAIRMENT CHARGES

The Company records other restructuring and impairment charges as they occur in the normal course of business.  The following table summarizes the restructuring and asset impairment charges recorded in the Company’s reporting segments during the three months and nine months ended December 31, 2009 and 2008:

         The following table summarizes the employee separation and other cash charges recorded in the Company’s South America and Other Regions segments during the three months and nine months ended December 31, 2009 and 2008:

         All restructuring costs are recorded in earnings as restructuring and asset impairment costs only when they are incurred or meet the criteria for recording in accordance with generally accepted accounting principles.

Assets Held for Sale

As of December 31, 2009, the Company reported assets held for sale of $836, related primarily to production and administrative facilities in Kyrgyzstan, Malawi and Brazil, that are being actively marketed by the Company.

Alliance One International, Inc. and Subsidiaries

4.  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 its business reported as discontinued operations were as follows:

Summary of Results of Operations

Discontinued Operations, Other Regions Segment       

Three Months Ended December 31, 2008	Mozambique	Wool	Total
Loss from discontinued operations, net of tax:
Loss from discontinued operations, before tax	$        (8)	$     (33)	$      (41)
Income tax	-	-	-
Loss from discontinued operations, net of tax	$        (8)	$     (33)	$      (41)

Nine Months Ended December 31, 2008
Income from discontinued operations, net of tax:
Income from discontinued operations, before tax	$       87	$    336	$     423
Income tax	-	-	-
Income from discontinued operations, net of tax	$       87	$    336	$     423

Summary of Assets and Liabilities

Discontinued Operations, Other Regions Segment    

December 31, 2008	Mozambique	Wool	Total
Liabilities of discontinued operations:
Accrued expenses	$         26	$         -	$       26
Total liabilities of discontinued operations	$         26	$         -	$       26

*  As of March 31, 2009, the Company had completed the liquidation of its discontinued Mozambique and Wool Operations.

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5.  SEGMENT INFORMATION

The Company purchases, processes, sells and stores leaf tobacco.  Tobacco is purchased in more than 45 countries and shipped to more than 90 countries.  The sales, logistics and billing functions of the Company are primarily concentrated in service centers outside of the producing areas to facilitate access to its major customers.  Within certain quality and grade constraints, tobacco is fungible and, subject to these constraints, customers may choose to fulfill their needs from any of the areas where the Company purchases tobacco.

          Selling, logistics, billing, and administrative overhead, including depreciation, which originates primarily from the Company’s corporate and sales offices are allocated to the segments based upon segment operating income.  The Company reviews performance data from purchase through sale based on the source of the product and all intercompany transactions are allocated to the region that either purchases or processes the tobacco.   

Alliance One International, Inc. and Subsidiaries

5.  SEGMENT INFORMATION (Continued)

          The following table presents the summary segment information for the three months and nine months ended December 31, 2009 and 2008:

Analysis of Segment Assets		December 31, 2009	December 31, 2008	March 31, 2009
Segment assets:
	South America	$   651,252	$   887,046	$   939,234
	Other regions	1,234,191	907,485	819,285
	Total assets	$1,885,443	$1,794,531	$1,758,519

6.  EARNINGS PER SHARE

The weighted average number of common shares outstanding is reported as the weighted average of the total shares of common stock outstanding net of shares of common stock held by a wholly owned subsidiary.  Shares of common stock owned by the subsidiary were 7,853 at December 31, 2009 and 2008.  This subsidiary waives its right to receive dividends and it does not have the right to vote.

          Certain potentially dilutive options were not included in the computation of earnings per diluted share because their exercise prices were greater than the average market price of the shares of common stock during the period and their effect would be antidilutive.  These shares totaled 1,626 at a weighted average exercise price of $7.02 per share at December 31, 2009 and 1,818 at a weighted average exercise price of $6.97 per share at December 31, 2008.

          In connection with the offering of the Company’s 5 ½% Convertible Senior Subordinated Notes due 2014, issued on July 2, 2009 (the “Convertible Notes”), the Company entered into privately negotiated convertible note hedge transactions (the “convertible note hedge transactions”) equal to the number of shares that underlie the Company’s Convertible Notes.  These convertible note hedge transactions are expected to reduce the potential dilution of the Company’s common stock upon conversion of the Convertible Notes in the event that the value per share of common stock exceeds the initial conversion price of $5.0280 per share.  These shares were not included in the computation of earnings per diluted share because their inclusion would be antidilutive.  The Company also entered separately into privately negotiated warrant transactions relating to the same number of shares of the Company’s common stock as the convertible note hedge transactions.  The warrants have a strike price of $7.3325 per share.  The warrants expire in daily installments commencing on October 15, 2014 and ending on April 8, 2015.  See Note 10 “Debt Arrangements” to the “Notes to Condensed Consolidated Financial Statements” for further information.

          The following table summarizes the computation of earnings per share for the three months and nine months ended December 31, 2009 and 2008, respectively.

Alliance One International, Inc. and Subsidiaries

6.  EARNINGS PER SHARE (Continued)

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7.  COMPREHENSIVE INCOME

The components of comprehensive income were as follows:

Alliance One International, Inc. and Subsidiaries

8.  STOCK-BASED COMPENSATION

The Company recorded stock-based compensation expense related to stock-based awards granted under its various employee and non-employee stock incentive plans of $1,823 and $784 for the three months ended December 31, 2009 and 2008, respectively, and $5,233 and $2,656 for the nine months ended December 31, 2009 and 2008, respectively.  

          The Company’s shareholders amended the 2007 Incentive Plan (the “2007 Plan”) at its Annual Meeting of Shareholders on August 6, 2009.  The 2007 Plan is an omnibus plan that provides the flexibility to grant a variety of equity awards including stock options, stock appreciation rights, stock awards, stock units, performance awards and incentive awards to officers, directors and employees of the Company.  

          During the nine months ended December 31, 2009 and 2008, respectively, the Company made the following stock-based compensation awards:

	Nine Months Ended December 31,
	2009	2008
Restricted Stock
Number Granted	192	146
Grant Date Fair Value	$4.25	$4.47
Restricted Stock Units
Number Granted	106	99
Grant Date Fair Value	$4.26	$4.47
Performance Shares
Number Granted	1,758	1,197
Grant Date Fair Value	$4.19	$4.47
Performance Based Restricted Stock Units
Number Granted	-	150
Grant Date Fair Value	-	$4.47

          Under the terms of both the Performance Shares and Performance Based Restricted Stock Units, shares ultimately issued will be contingent upon specified business performance goals.  If minimum standards are not attained, compensation paid under these awards will be zero.  Alternatively, if the maximum performance levels described by the plan are attained, the awards may be 150% of the stated award.

Stock Options with Stock Appreciation Rights

Stock appreciation rights (SARs) have historically been granted in tandem with certain option grants under which the employee may choose to receive in cash the excess of the market price of the share on the exercise date over the market price on the grant date (the intrinsic value of the share) rather than purchase the shares.  The choice to receive cash is limited to five years after grant.  The fair value of SARs is determined at each balance sheet date using a Black-Scholes valuation model multiplied by the cumulative vesting of each SAR award.

          Assumptions used to determine the fair value of SARs as of December 31 included the following:

		2009		2008
Stock Price		-		$2.94
Exercise Price		-		$6.45
Expected Life in Years		-		.9
Annualized Volatility		-		65%
Annual Dividend Rate		-		-
Discount Rate		-		.32%

          Because the exercise price of these SARs is above the current stock price, the expected life has been determined to be the maximum time period the SARs may be exercised.  The discount rate used is the risk free treasury bill rate consistent with the expected life.  Volatility is based on historical volatility of the Company’s stock price.

          All SARs had expired as of December 31, 2009.

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Alliance One International, Inc. and Subsidiaries

9.  CONTINGENCIES

Non-Income Tax

In September 2006, the Company’s Serbian operations were assessed for VAT and government pension liability for payments to farmers.  The Company has appealed the assessment from the tax authorities based upon favorable discussions with the Ministry of Finance and is awaiting the final decision from the Supreme Court.  As of December 31, 2009, the balance of the reserve is $220.

           The government in the Brazilian State of Parana (“Parana”) issued a tax assessment on October 26, 2007 with respect to local intrastate trade tax credits that result primarily from tobacco transferred between states within Brazil.  The assessment for intrastate trade tax credits taken is $7,567 and the total assessment including penalties and interest through December 31, 2009 is $15,485.  The Company believes it has properly complied with Brazilian law and will contest any assessment through the judicial process.  Should the Company lose in the judicial process, the loss of the intrastate trade tax credits would have a material impact on the financial statements of the Company.

           The assessment of $7,567 represents intrastate trade tax credit amounts which were offset against intrastate trade tax payables. At December 31, 2009, the Company also has intrastate trade tax credits from Parana of $12,742.  During fiscal 2008, the Company recorded an impairment charge of $7,143.  After the assessment, the Company has treated new expenditures for intrastate trade taxes on tobacco acquisition as a cost of inventory procurement.

           The Company also has local intrastate trade tax credits in the Brazil State of Rio Grande do Sul (“Rio Grande”) of $59,077 and $44,807 at December 31, 2009 and 2008, respectively. Based on management’s expectations about future realization, the Company has recorded a valuation allowance on the Rio Grande intrastate trade tax credits of $7,419 and $7,232 at December 31, 2009 and 2008, respectively. The allowance on the Rio Grande intrastate trade tax credits may be adjusted in future periods based on market conditions and the Company’s ability to use the tax credits.

           In 2001, the Company’s subsidiary in Brazil won a claim related to certain excise taxes (“IPI credit bonus”) for the years 1983 through 1990.  The Company used this IPI credit bonus to offset federal income and other taxes until January 2005 when it received a Judicial Order to suspend the IPI compensation.  The Company appealed and the case is currently before the Supreme Court.  In addition, the Company received an assessment in 2006 for federal income taxes in 2005 that were offset by the IPI credit bonus.  The assessment is valued at $27,926 at December 31, 2009.  The Company appealed the assessment and believes it has properly utilized the IPI credit bonus.  No benefit for the utilization of the IPI credit bonus has been recognized as it has been recorded in pension, postretirement and other long term liabilities. As a result of various legislative and judicial actions, the Company does not expect a ruling by the Supreme Court in the near future, which would directly impact the outcome of the Company’s appeal of the tax assessment as well as its utilization of its remaining IPI credit bonus.  No benefit for any potential future utilization of IPI credit bonus has been recognized.

Other

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 €4,415 (US$5,641).  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 €24,000 (US$28,800).  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.

           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 €7,377 (US$10,573) plus interest and costs.  The Company believes the claim to be without merit and intends to vigorously defend it.  No amounts have been reserved with respect to such claim.

           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

Alliance One International, Inc. and Subsidiaries

9.  CONTINGENCIES (Continued)

Other (Continued)

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.

           The Company has been advised by Justice and the SEC that such agencies believe that violations of applicable federal laws have occurred.  The Company is engaging in discussions with Justice and the SEC to effect a resolution which may involve, among other things, injunctive relief, disgorgement, fines, penalties and modifications to business practices and the appointment of a monitor. Because of existing uncertainty with respect to the scope of any possible violations and with respect to the methodology for determining the amount of potential fines, penalties or disgorgement related to any such violations, an estimate of the amount of loss, or a reliable range of estimated loss, cannot be made.  Accordingly, the Company has not accrued any loss, though it believes that a loss is probable.  The resolution could materially adversely affect the Company’s results of operations. The Company intends to continue to cooperate with the authorities as resolution discussions proceed.

           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.  The Company believes these claims to be without merit and intends to vigorously defend them.  Ultimate exposure if an unfavorable outcome is received is not determinable.

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

           On July 23, 2009, the Company received notice that Sharpmind Enterprises, Ltd., a British Virgin Islands company, had filed in the United States District Court for the Eastern District of North Carolina, a claim against the Company seeking unspecified damages for an alleged breach of a sales representation agreement between the Company and Sharpmind.  Sharpmind has indicated that it would seek damages in excess of $2,000.  The Company views the claim as baseless and intends to vigorously defend it.

           The Company and certain of its foreign subsidiaries guarantee bank loans to growers to finance their crops.  Under longer-term arrangements, the Company may also guarantee financing on growers’ construction of curing barns or other tobacco production assets.  The Company also guarantees bank loans to certain tobacco cooperatives to assist with the financing of their growers’ crops.  Guaranteed loans are generally repaid concurrent with the delivery of tobacco to the Company.  The Company is obligated to repay any guaranteed loan should the grower or tobacco cooperative default.  If default occurs, the Company has recourse against the grower or cooperative.  At December 31, 2009, the Company was guarantor of an amount not to exceed $188,701 with $173,555 outstanding under these guarantees.

           In accordance with generally accepted accounting principles, the Company records all known asset retirement obligations (“ARO”) for which the liability can be reasonably estimated. Currently, it has identified an ARO associated with one of its facilities that requires it to restore the land to its initial condition upon vacating the facility. The Company has not recognized a liability under generally accepted accounting principles for this ARO because the fair value of restoring the land at this site cannot be reasonably estimated since the settlement date is unknown at this time. The settlement date is unknown because the land restoration is not required until title is returned to the government, and the Company has no current or future plans to return the title. The Company will recognize a liability in the period in which sufficient information is available to reasonably estimate its fair value.  The Company has no additional material AROs.

           On November 6, 2009, the Company’s subsidiary in Brazil announced the construction of a new tobacco processing facility in the State of Santa Catarina.  The new facility will require an investment of R$100,000 (approximately US$57,160) and will have a production capacity of 70 tons.  The Company estimates that the facility will be operational for processing the 2011 crop and approximately 1,500 permanent and temporary jobs will be created.  Additionally, the Company projects sufficient excess liquidity from both cash and available credit lines to meet construction and development cost while maintaining an appropriate liquidity cushion.

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Alliance One International, Inc. and Subsidiaries

10.  DEBT ARRANGMENTS

The Company completed a number of refinancing transactions, which are described below.

Senior Secured Credit Facility

On July 2, 2009, the Company entered into a Credit Agreement (the “Credit Agreement”), with a syndicate of banks that replaced the Company’s $305,000 Amended and Restated Credit Agreement dated March 30, 2007 and provides for a senior secured credit facility (the “Credit Facility”) that consists of:

·

a three and one-quarter year $270,000 revolver (the “Revolver”) which initially accrues interest at a rate of LIBOR plus 2.50%.

        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.  The Credit Agreement permits the Company to add $55,000 in commitments from existing or additional lenders which would increase the amount of the Revolver to $325,000.

First Amendment.  On August 24, 2009, the Company closed the First Amendment to the Credit Agreement which included the following modifications effective August 24, 2009:

·

Amended the definition for Senior Notes to allow for the issuance of up to an additional $100,000 of Senior Notes due 2016 within 90 days of the First Amendment Effective Date;

·

Amended the definition of Consolidated Total Senior Debt to exclude the Existing Senior Notes 2005;

·

Amended the definition of Applicable Percentage to clarify the effective date of the change in the Applicable Percentage;

·

Modifications to several schedules within the Credit Agreement.

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 of the borrowings under the Revolver is limited to $200,000 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 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 domestic subsidiary held directly by the Company or by any material domestic subsidiary;

·

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

·

100% of the capital stock of any material foreign subsidiary held directly by the Company or any domestic subsidiary; provided that not more than 65% of the voting stock of any material foreign subsidiary is required to be pledged to secure obligations of the Company or any domestic subsidiary;

·

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 certain other exceptions); and

·

Intercompany notes evidencing loans or advances the Company makes to subsidiaries.

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

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

·

a minimum consolidated interest coverage ratio of not less than 1.90 to 1.00;

·

a maximum consolidated leverage ratio in an amount not more than a ratio specified for each fiscal quarter, which ratio is 5.75 to 1.00 for the fiscal quarter ended December 31, 2009;

·

a maximum consolidated total senior debt to working capital amount ratio of not more than 0.80 to 1.00; and

·

a maximum amount of annual capital expenditures of $75,000 during fiscal year ending March 31, 2010 and $40,000 during any fiscal year thereafter, with a one-year carry-forward for capital expenditures in any fiscal year below the maximum amount.

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Alliance One International, Inc. and Subsidiaries

10.  DEBT ARRANGMENTS (Continued)

Senior Secured Credit Facility (Continued)

          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.  If the Company fails to comply with any of these covenants and is unable to obtain the necessary amendments or waivers under the Credit Agreement, the lenders under the Credit Agreement have the right to accelerate the outstanding loans thereunder and demand repayment in full and to terminate their commitment to make any further loans under the Credit Facility.  Certain defaults under the Credit Facility would result in a cross default under the indentures governing the Company’s senior notes and convertible senior subordinated notes and could impair access to its seasonal operating lines of credit in local jurisdictions.  A default under the Credit Agreement would have a material adverse effect on the Company’s liquidity and financial condition.  The Company records all fees and third-party costs associated with the Credit Agreement, including amendments thereto, in accordance with accounting guidance for changes in line of credit or revolving debt arrangements.

          As a result of terminating the $305,000 Amended and Restated Credit Agreement dated March 30, 2007, the Company accelerated approximately $5,741 of deferred financing costs.

Senior Notes

On July 2, 2009, the Company issued $570,000 of 10% Senior Notes due 2016 (the “Senior Notes”). The Senior Notes were priced at 95.177% of the face value, for gross proceeds of approximately $542,509 and representing a yield to maturity of 11.0%. On August 26, 2009, the Company issued an additional $100,000 tranche of 10% Senior Notes due 2016.  The notes were priced at 97.500% of the face value, for gross proceeds of approximately $97,500 and representing a yield to maturity of 10.512%.  These additional notes form part of the same series as the Senior Notes issued on July 2, 2009.  The aggregate principal amount of the outstanding Senior Notes is $670,000.  The Senior Notes are required to be guaranteed by any “material domestic subsidiaries” of the Company as defined in the indenture governing the Senior Notes.  Because no subsidiary is, or has been at any relevant time, a “material domestic subsidiary,” the Senior Notes are not guaranteed by any subsidiaries of the Company, though such a guarantee would be required if any subsidiary subsequently qualifies as a “material domestic subsidiary.”  The indenture governing the Senior Notes contains 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.  If a change of control (as defined in the indenture governing the Senior Notes) occurs at any time, holders of the Senior Notes will have the right, at their option, to require the Company to repurchase all or a portion of the Senior Notes for cash at a price equal to 101% of the principal amount of Senior Notes being repurchased, plus accrued and unpaid interest.

Convertible Senior Subordinated Notes

On July 2, 2009, the Company issued $100,000 of 5 ½% Convertible Senior Subordinated Notes due 2014 (the “Convertible Notes”).  The Company granted the initial purchasers of the Convertible Notes an option to purchase up to an additional $15,000 of Convertible Notes solely to cover over-allotments. The initial purchasers exercised the option and purchased an additional $15,000 of the Convertible Notes on July, 15, 2009.  Holders may surrender their Convertible Notes, in integral multiples of $1,000 principal amount, for conversion into shares of the Company’s common stock at the then-applicable conversion rate until the close of business on the second scheduled trading day immediately preceding the maturity date.  The initial conversion rate for the Convertible Notes is 198.8862 shares of common stock per $1,000 principal amount of Convertible Notes.  The conversion rate is subject to adjustments based on certain events as described in the indenture governing the Convertible Notes. In addition, upon the occurrence of certain fundamental changes (as defined in the indenture governing the Convertible Notes), a holder that converts its notes in connection with such a fundamental change may be entitled to receive a make-whole premium in the form of an increase in the conversion rate.  In addition, if such a fundamental change occurs at any time, holders of the Convertible Notes will have the right, at their option, to require the Company to repurchase all or a portion of the Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus accrued and unpaid interest.

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Alliance One International, Inc. and Subsidiaries

10.  DEBT ARRANGMENTS (Continued)

Convertible Note Hedge and Warrant Transactions

In connection with the offering of the Convertible Notes, the Company entered into privately negotiated convertible note hedge transactions (the “convertible note hedge transactions”) with three counterparties, one initial purchaser of the Convertible Notes and affiliates of two other initial purchasers (the “hedge counterparties”).  The convertible note hedge transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the Convertible Notes.  The Company also entered separately into privately negotiated warrant transactions (the “warrant transactions”) relating to the same number of shares of the Company’s common stock with the hedge counterparties.  The convertible note hedge transactions are expected to reduce the potential dilution with respect to the common stock of the Company upon conversion of the Convertible Notes in the event that the value per share of common stock, as measured under the convertible note hedge transactions, during the applicable valuation period, is greater than the strike price of the convertible note hedge transactions, which corresponds to the $5.0280 per share initial conversion price of the Convertible Notes and is similarly subject to customary anti-dilution adjustments.  If, however, the price per share of the Company’s common stock, as measured under the warrants, exceeds the strike price of the warrant transactions during the applicable valuation period, there would be dilution from the issuance of common stock pursuant to the warrants.  The warrants have a strike price of $7.3325 per share, which is subject to customary anti-dilution adjustments.  The warrants expire in daily installments commencing on October 15, 2014 and ending on April 8, 2015.

Tender of Existing Notes

On July 2, 2009, the Company applied a portion of the net proceeds from the issuance of the Senior Notes and Convertible Notes to fund the purchase $467,544 aggregate principal amount of its existing notes pursuant to an early settlement of a cash tender offer (the “Tender Offer”) for any and all of its 11% Senior Notes due 2012, 8 ½% Senior Notes due 2012, 12 ¾% Senior Subordinated Notes due 2012, 9 ⅝% Senior Notes due 2011, 7 ¾% Senior Notes due 2013 and 8% Senior Notes due 2012, Series B (collectively, the “Existing Notes”).  On July 9, 2009, the Company applied a portion of the remaining net proceeds to fund the purchase of an additional $1,127 aggregate principal amount of Existing Notes in connection with the final settlement of the Tender Offer.  The following table sets forth the principal amount of the Existing Notes outstanding at the commencement of the Tender Offer and the principal amount of the Existing Notes that the Company purchased:

Existing Notes	Issuer (1)	Principal Amount Outstanding	Principal Amount Purchased
11% Senior Notes due 2012 (2)	A	$264,381	$258,126
8 ½% Senior Notes due 2012	A	$150,000	$120,365
12 ¾% Senior Subordinated Notes due 2012 (2)	A	$  89,500	$  82,105
9 ⅝% Senior Notes due 2011 (3)	D	$    3,437	$    3,415
7 ¾% Senior Notes due 2013 (3)	D	$       435	$       375
8% Senior Notes due 2012, Series B (3)	S	$    6,285	$    4,285
(1)  The issuer of a series of Existing Notes designated with an “A” is Alliance One International, Inc.  In 2005, Standard Commercial        Corporation (“Standard Commercial”) merged with and into DIMON Incorporated (“DIMON”), which changed its name to        Alliance One International, Inc.  The issuer of a series of Existing Notes designated with a “D” was originally DIMON and the        issuer of a series of Existing Notes designated with an “S” was originally Standard Commercial.
(2)  On July 31, 2009 funds were paid to the Trustee to defease the remaining outstanding principal and interest.  The Notes were        redeemed in full on August 3, 2009.
(3)  On December 4, 2009 funds were paid to redeem in full the remaining outstanding principal and interest as well as the applicable        redemption premium.

As a result of the repurchase, defeasance and redemption of the Existing Notes as described in the foregoing table, the Company accelerated approximately $5,591 of deferred financing costs and $5,563 of amortization of original issue discount.

Amendment of Certain Existing Notes

On July 2, 2009, in connection with the early settlement of the Tender Offer with respect to the Company’s 11% Senior Notes due 2012, 8 ½% Senior Notes due 2012 and 12 ¾% Senior Subordinated Notes due 2012 (the “Alliance One Notes”), certain amendments to the indentures governing the Alliance One Notes became operative and effective.  These amendments eliminated substantially all of the restrictive covenants, eliminated requirements for subsidiary guarantees and requirements to conduct repurchase offers following certain events, including a change in control, modified redemption notice periods from 30 days to three business days, eliminated or modified certain events of default and certain conditions to defeasance of the Alliance One Notes, and eliminated or modified related provisions contained in the indentures governing the Alliance One Notes.  

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Alliance One International, Inc. and Subsidiaries

10.  DEBT ARRANGMENTS (Continued)

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 December 31, 2009, the Company had approximately $286,406 drawn and outstanding on foreign seasonal lines with maximum capacity totaling $649,984 subject to limitations as provided for in the Credit Agreement.  Additionally, against these lines there was $20,186 available in unused letter of credit capacity with $11,188 issued but unfunded.

Summary of Debt

The carrying value and estimated fair value of the Company’s long-term debt are $825,573 and $912,291, respectively, as of December 31, 2009 and $670,426 and $613,336, respectively, as of March 31, 2009.

          The following table summarizes the Company’s debt financing as of December 31, 2009:

			December 31, 2009
	Outstanding		Lines and Letters	Interest
	March 31, 2009	December 31, 2009	Available	Rate
Senior secured credit facility:
Revolver	$120,000	$               -	$270,000
Senior notes:
10% senior notes due 2016	-	641,466	-	10.0%
11% senior notes due 2012	264,381	-	-	11.0%
8 ½% senior notes due 2012	149,520	29,561	-	8.5%
Other (1)	10,157	-	-
	424,058	671,027	-
5 ½% convertible senior     subordinated notes due 2014	-	115,000	-	5.5%
12 ¾% senior subordinated     notes due 2012	83,999	-	-	12.8%
Other long-term debt	42,369	39,545	1,898	9.1%	(2)
Notes payable to banks (3)	261,468	286,406	343,391	6.2%	(2)
Total debt	$931,894	$1,111,978	615,289
Short term	$261,468	$   286,406
Long term:
Long term debt current	$  17,842	$     19,335
Long term debt	652,584	806,238
	$670,426	$   825,573
Letters of credit	$    3,814	$     11,188	8,998
Total credit available			$624,287
(1)  Notes redeemed in total as of December 4, 2009
(2)  Weighted average rate for the nine months ended December 31, 2009
(3)  Primarily foreign seasonal lines of credit

          Prior to the debt refinancing, the discount amortization and repayment of the senior notes and the senior subordinated notes by fiscal year was $(1,609) in 2011, $1,581 in 2012, $509,045 in 2013 and $435 in 2014.  After the debt refinancing, the discount amortization and repayment of the senior notes and convertible senior subordinated notes by fiscal year is $(3,308) in 2011, $(3,664) in 2012, $27,559 in 2013, $(4,480) in 2014 and $772,786 in later fiscal years.

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Alliance One International, Inc. and Subsidiaries

11.  DERIVATIVE FINANCIAL INSTRUMENTS

Fair Value of Derivative Financial Instruments

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 three months and nine months ended December 31, 2009 and 2008, there were no qualified cash flow or fair value hedges.  Estimates of fair value were determined in accordance with generally accepted accounting principles. See Note 15 “Fair Value Measurements” to the “Notes to Condensed 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 December 31, 2009.

Earnings Effects of Derivatives

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.  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 generally accepted accounting principles, and as such, all changes in fair value are reported in income.

          The following table summarizes the earnings effects of derivatives in the condensed consolidated statements of operations for the three months and nine months ended December 31, 2009 and 2008.

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.

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Alliance One International, Inc. and Subsidiaries

12.  PENSION AND POSTRETIREMENT BENEFITS

The Company has a defined benefit plan that provides retirement benefits for substantially all U.S. salaried personnel based on years of service rendered, age and compensation.  The Company also maintains various other Excess Benefit and Supplemental Plans that provide additional benefits to (1) certain individuals whose compensation and the resulting benefits that would have actually been paid are limited by regulations imposed by the Internal Revenue Code and (2) certain individuals in key positions.  The Company funds these plans in amounts consistent with the funding requirements of federal law and regulations.

          Additional non-U.S. defined benefit plans sponsored by certain subsidiaries cover certain full-time employees located in Germany, Greece, Turkey, Malawi and the United Kingdom.

Components of Net Periodic Benefit Cost

Net periodic pension cost for continuing operations consisted of the following:

		Three Months Ended December 31,				Nine Months Ended December 31,
		2009		2008		2009			2008
Service cost		$      895		$   1,125		$   2,685			$   3,375
Interest expense		2,236		2,284		6,707			6,852
Expected return on plan assets		(1,114)		(1,622)		(3,340)			(4,866)
Amortization of prior service cost		(44)		(71)		(133)			(214)
Actuarial gain		(2)		(84)		(6)			(251)
Net periodic pension cost	$   1,971			$   1,632		$   5,913			$   4,896

Employer Contributions

The Company’s investment objectives are to generate consistent total investment return to pay anticipated plan benefits, while minimizing long-term costs.  Financial objectives underlying this policy include maintaining plan contributions at a reasonable level relative to benefits provided and assuring that unfunded obligations do not grow to a level to adversely affect the Company’s financial health.  As of December 31, 2009, contributions of $5,925 were made to pension plans for fiscal 2010.  Additional contributions to pension plans of approximately $1,760 are expected during the remainder of fiscal 2010.  However, this amount is subject to change, due primarily to potential plan combinations, asset performance significantly above or below the assumed long-term rate of return on pension assets and significant changes in interest rates.

Postretirement Health and Life Insurance Benefits

The Company also provides certain health and life insurance benefits to retired employees, and their eligible dependents, who meet specified age and service requirements.  As of December 31, 2009, contributions of $911 were made to the plans for fiscal 2010.  Additional contributions of $330 to the plans are expected during the rest of fiscal 2010.  The Company retains the right, subject to existing agreements, to modify or eliminate the postretirement medical benefits.

Components of Net Periodic Benefit Cost

Net periodic benefit cost for postretirement health and life insurance benefit plans consisted of the following:

	Three Months Ended December 31,				Nine Months Ended December 31,
	2009		2008		2009		2008
Service cost	$       16		$    32		$       48		$      97
Interest expense	189		205		564		616
Amortization of prior service cost	(415)		(405)		(1,245)		(1,217)
Actuarial loss	76		94		229		282
Curtailment (gain)/loss recognized	(777)		-		(777)		-
Settlement (gain)/loss recognized	(290)		-		(290)		-
Net periodic pension cost (benefit)	$ (1,201)		$   (74)		$ (1,471)		$   (222)

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Alliance One International, Inc. and Subsidiaries

13.  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 with delivery of tobacco to the Company, and are reported in advances on purchases of tobacco in the condensed 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 $139,449 at December 31, 2009 and $160,934 at December 31, 2008 are presented as advances on purchases of tobacco, net in the condensed consolidated balance sheet.  The long-term portion of advances of $40,821 at December 31, 2009 and $49,905 at December 31, 2008 are included in other non-current assets in the condensed consolidated balance sheet.  Both the current and the long-term portion of advances on purchases of tobacco are reported net of allowances.  Allowances of $142,304 at December 31, 2009, and $105,732 at December 31, 2008 were recorded based on the Company’s historical loss information and crop projections. The Company records allowances when advances are issued to report them at their net realizable value. The Company continuously monitors events that may impact the farmers’ ability to deliver tobacco as noted above and updates its allowances as needed. The allowances were increased by provisions for unrecoverable advances of approximately $26,018 and $31,505 for the nine months ended December 31, 2009 and 2008 respectively.  Provisions for unrecoverable advances for inventory purchases related to the current crop are capitalized into inventory. Provisions for unrecoverable advances for inventory purchases that relate to prior crops are expensed as incurred. The allowance increased $24,110 at December 31, 2009 and decreased $26,339 at December 31, 2008 primarily due to exchange rate changes.

          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 December 31, 2009 and 2008, respectively, the Company had balances of $1,420 and $5,409 that were due to local banks on behalf of farmers.  These amounts are included in accounts payable in the condensed consolidated balance sheet.  As of December 31, 2009 and 2008, respectively, the Company was guarantor for Brazilian farmer loans of $138,550 and $118,003 with outstanding amounts of $138,404 and $111,578.  The fair value of guarantees for rural credit financing was $11,126 and $12,970 as of December 31, 2009 and 2008, respectively.

          In Malawi, as of December 31, 2009 and 2008, respectively, the Company was guarantor for crop input advances to farmers of $2,075 and $4,639.  The fair values of the Malawi guarantees were $132 and $278 as of December 31, 2009 and 2008, respectively.

          In Argentina, as of December 31, 2009 and 2008, respectively, the Company was guarantor for farmer cooperative loans of $18,600 and $27,400.  The fair values of the Argentine guarantees were $725 and $932 as of December 31, 2009 and 2008, respectively.

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

14.  SALE OF RECEIVABLES

Alliance One International, A.G., a wholly owned subsidiary of the Company, is engaged in a revolving trade accounts receivable securitization agreement to sell receivables to a third-party limited liability company (“LLC”).  The agreement, which matures March 26, 2013, is funded through third-party loans to the LLC which is committed up to a maximum of $100,000 in funding at any time.  To the extent that the balance of the loan is less than $100,000 the Company is subject to a 0.25% fee on the unused amount.  The Company retains servicing responsibilities and subordinated interests in the receivables sold. The Company receives annual service fees of 0.5% of the outstanding balance which approximates the fair value of services to be rendered at current funding levels. Historically, credit loss and prepayments of customer receivables have been negligible. Losses on the sale of receivables are recorded as a component of other income (expense) in the statement of operations of the Company.

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Alliance One International, Inc. and Subsidiaries

14.  SALE OF RECEIVABLES (Continued)

          The following table summarizes the Company’s accounts receivable securitization information as of December 31: