On June 5, 2007, the Audit Committee of the Board of Directors of Alliance One International, Inc. (the “Company”), in consultation with management, concluded that the previously issued Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets, and Condensed Consolidated Statements of Cash Flows (“Condensed Consolidated Financial Statements”) presented in quarterly reports on Form 10-Q for the periods ended June 30, 2006, September 30, 2006 and December 31, 2006 contained the following non-cash errors related to income taxes:
· Deferred income tax expense was not recognized when certain assets were written off for statutory tax purposes; · Deferred income tax benefits were not recognized as a result of the write-off of related assets for financial statement reporting purposes; · Deferred income tax expense was not recognized on an unrealized foreign exchange gain that is taxable in a future period for statutory tax purposes; · A valuation allowance was not reversed to reflect the utilization of the related net operating losses; and · Other income tax related adjustments that are not material, individually and in the aggregate, which will be included in the restated condensed consolidated financial statements.
The net impact of these errors resulted in an understatement of income tax expense for each of the quarters ended June 30, 2006, September 30, 2006 and December 31, 2006. As a result, the Audit Committee and management concluded that the Condensed Consolidated Financial Statements for the quarterly periods ended June 30, 2006, September 30, 2006, and December 31, 2006 should no longer be relied upon. The Company plans to amend and restate its Quarterly Reports on Form 10-Q for each of these periods as soon as practicable. The Audit Committee and authorized officers of the Company have discussed the matters disclosed pursuant to this Item 4.02 (a) filing with the Company's independent registered public accounting firm, Deloitte & Touche LLP.
The cumulative understatement of income tax expense for the three months ended June 30, 2006, the six months ended September 30, 2006 and the nine months ended December 31, 2006 was $1.5 million, $4.0 million and $8.7 million, respectively. The cumulative understatement of income tax expense for the nine months ended December 31, 2006 of $8.7 million has no impact on the actual cash payments of income taxes. Management, in consultation with the Audit Committee, is currently evaluating but anticipate that these errors constitute a material weakness or weaknesses in the Company’s internal controls over financial reporting as defined by the Public Company Accounting Oversight Board.
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