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Commitments And Other Matters | 12 Months Ended
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Mar. 31, 2016
Commitments And Other Matters [Abstract] |
Commitments And Other Matters | COMMITMENTS, CONTINGENCIES, AND OTHER MATTERS Commitments The Company enters into contracts to purchase tobacco from farmers in a number of the countries in which it operates. Contracts in most countries cover one annual growing season. Primarily with the farmer contracts in Brazil, Malawi, Mozambique, the Philippines, Guatemala, and Mexico, the Company provides seasonal financing to support the farmers’ production of their crops or guarantees their financing from third-party banks. At March 31, 2016, the Company had contracts to purchase approximately $566 million of tobacco to be delivered during the coming fiscal year and $110 million of tobacco to be delivered in subsequent years. These amounts are estimates since actual quantities purchased will depend on crop yields, and prices will depend on the quality of the tobacco delivered and other market factors. Tobacco purchase obligations have been partially funded by advances to farmers and other suppliers, which totaled approximately $102 million, net of allowances, at March 31, 2016. The Company withholds payments due to farmers on delivery of the tobacco to satisfy repayment of the financing it provided to the farmers. As noted above and discussed in more detail below, the Company also has arrangements to guarantee bank loans to farmers in Brazil, and payments are also withheld on delivery of tobacco to satisfy repayment of those loans. In addition to its contractual obligations to purchase tobacco, the Company had commitments related to agricultural materials, approved capital expenditures, and various other requirements that approximated $53 million at March 31, 2016. Guarantees and Other Contingent Liabilities Guarantees of Bank Loans and Other Contingent Liabilities Guarantees of bank loans to growers for crop financing and construction of curing barns or other tobacco producing assets have long been industry practice in Brazil and support the farmers’ production of tobacco there. At March 31, 2016, the Company’s total exposure under guarantees issued by its operating subsidiary for banking facilities of farmers in Brazil was approximately $11 million ($13 million face amount including unpaid accrued interest, less $2 million recorded for the fair value of the guarantees). All of these guarantees expire within one year. As noted above, the subsidiary withholds payments due to the farmers on delivery of tobacco and forwards those payments to the third-party banks. Failure of farmers to deliver sufficient quantities of tobacco to the subsidiary to cover their obligations to the third-party banks could result in a liability for the subsidiary under the related guarantees; however, in that case, the subsidiary would have recourse against the farmers. The maximum potential amount of future payments that the Company’s subsidiary could be required to make at March 31, 2016, was the face amount, $13 million including unpaid accrued interest ($17 million as of March 31, 2015). The fair value of the guarantees was a liability of approximately $2 million at March 31, 2016 ($2 million at March 31, 2015). In addition to these guarantees, the Company has other contingent liabilities totaling approximately $2 million at March 31, 2016, primarily under outstanding letters of credit. Value-Added Tax Assessments in Brazil As discussed in Note 1, the Company's local operating subsidiaries pay significant amounts of value-added tax ("VAT") in connection with their normal operations. In Brazil, VAT is assessed at the state level when green tobacco is transferred between states. The Company's operating subsidiary there pays VAT when tobaccos grown in the states of Santa Catarina and Parana are transferred to its factory in the state of Rio Grande do Sul for processing. The subsidiary has received assessments for additional VAT plus interest and penalties from the tax authorities for the states of Santa Catarina and Parana based on audits of the subsidiary's VAT filings for specified periods. In June 2011, tax authorities for the state of Santa Catarina issued assessments for tax, interest, and penalties for periods from 2006 through 2009 totaling approximately $14 million. In September 2014, tax authorities for the state of Parana issued an assessment for tax, interest, and penalties for periods from 2009 through 2014 totaling approximately $15 million. These amounts are based on the exchange rate for the Brazilian currency at March 31, 2016. Management of the operating subsidiary and outside counsel believe that errors were made by the tax authorities for both states in determining all or significant portions of these assessments and that various defenses support the subsidiary's positions. With respect to the Santa Catarina assessments, the subsidiary took appropriate steps to contest the full amount of the claims. As of March 31, 2016, a portion of the subsidiary's arguments had been accepted, and the outstanding assessments had been reduced. The reduced assessment, together with the related accumulated interest through the end of the current reporting period, totaled approximately $12 million at the March 31, 2016 exchange rate. The subsidiary is continuing to contest the full remaining amount of the assessment. While the range of reasonably possible loss is zero up to the full $12 million remaining assessment, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at March 31, 2016. With respect to the Parana assessment, management of the subsidiary and outside counsel have undertaken the steps required to contest the full amount of the claim. A significant portion of the Parana assessment is based on positions taken by the tax authorities that management and outside counsel believe deviate significantly from the underlying statutes and relevant case law. In addition, under the law, the subsidiary's tax filings for certain periods covered in the assessment were no longer open to any challenge by the tax authorities. In December 2015, the Parana tax authorities withdrew the initial claim and subsequently issued a new assessment covering the same tax periods. The new assessment totaled approximately $5 million at the March 31, 2016 exchange rate, reflecting a substantial reduction from the original $15 million assessment. Notwithstanding the reduction, management and outside counsel continue to believe that the new assessment is not supported by the underlying statutes and relevant case law and have taken the necessary steps to challenge the full amount of the claim. The range of reasonably possible loss is considered to be zero up to the full $5 million assessment. However, based on the strength of the subsidiary's defenses, no loss within that range is considered probable at this time and no liability has been recorded at March 31, 2016. In both states, the process for reaching a final resolution to the assessments is expected to be lengthy, and management is not currently able to predict when either case will be concluded. Should the subsidiary ultimately be required to pay any tax, interest, or penalties in either case, the portion paid for tax would generate value-added tax credits that the subsidiary may be able to recover. Other Contingent Liabilities Various subsidiaries of the Company are involved in other litigation and tax examinations incidental to their business activities. While the outcome of these matters cannot be predicted with certainty, management is vigorously defending the matters and does not currently expect that any of them will have a material adverse effect on the Company’s business or financial position. However, should one or more of these matters be resolved in a manner adverse to management’s current expectation, the effect on the Company’s results of operations for a particular fiscal reporting period could be material. Major Customers A material part of the Company’s business is dependent upon a few customers. The Company's five largest customers are Philip Morris International, Inc., British American Tobacco plc, Imperial Brands plc, Japan Tobacco, Inc., and China Tobacco International, Inc. In the aggregate, these customers have accounted for more than 60% of consolidated revenue for each of the past three fiscal years. For the fiscal years ended March 31, 2016, 2015, and 2014, revenue from Philip Morris International, Inc. was approximately $640 million, $580 million, and $590 million, respectively. For the same periods, British American Tobacco plc accounted for revenue of approximately $230 million, $220 million, and $240 million, respectively, and Imperial Brands plc accounted for revenue of approximately $210 million, $280 million, and $340 million, respectively. These customers primarily do business with various affiliates in the Company’s flue-cured and burley leaf tobacco operations. The loss of, or substantial reduction in business from, any of these customers could have a material adverse effect on the Company. Accounts Receivable The Company’s operating subsidiaries perform credit evaluations of customers’ financial condition prior to the extension of credit. Generally, accounts receivable are unsecured and are due within 30 days. When collection terms are extended for longer periods, interest and carrying costs are usually recovered. Credit losses are provided for in the financial statements, and historically such amounts have not been material. The allowance for doubtful accounts was approximately $9 million and $5 million at March 31, 2016 and 2015, respectively. At March 31, 2016 and 2015, net accounts receivable by reportable operating segment were as follows:
| March 31,
| 2016 |  | 2015
Flue-Cured and Burley Leaf Tobacco Operations: |  |  |
North America | $ | 85,985 |  |  | $ | 38,046 |
Other Regions | 303,932 |  |  | 350,122 |
Subtotal | 389,917 |  |  | 388,168 |
Other Tobacco Operations | 38,742 |  |  | 46,194 |
Consolidated accounts receivable, net | $ | 428,659 |  |  | $ | 434,362 |
Favorable Outcome of IPI Tax Credit Case in Brazil During the first quarter of fiscal year 2014, a longstanding lawsuit related to IPI tax credits filed by the Company's operating subsidiary in Brazil was concluded in the subsidiary's favor with a decision by the Brazilian Superior Court of Justice on the final appeal filed by the Brazilian federal government. Although additional appeals by the government were expected in the case, the time period to file those appeals expired and the decision and overall outcome of the case were confirmed. IPI tax credits were established under Brazilian tax laws to allow recovery of a portion of the excise taxes paid on manufactured products when those products are sold in export markets. In prior years, the subsidiary paid excise taxes on the component cost of unprocessed tobacco purchased from growers, as well as the cost of electricity, packing materials, and other inputs used in its manufacturing process. Under the law, the subsidiary believed it was entitled to use IPI tax credits to recover excise taxes on the processed tobacco it exported. However, specific regulations issued by the Brazilian tax authorities did not permit the subsidiary to claim those credits. The suit filed by the subsidiary challenged the denial of the tax credits based on the law. Several decisions in lower courts were decided in the subsidiary's favor for a portion of the tax credits claimed in the suit, but those decisions were appealed on various grounds by both the government and the subsidiary. The expiration of the appeal period ended the matter in the courts. The final court decision entitled the subsidiary to approximately $104 million of IPI tax credits (based on the exchange rate at the date of the decision), which are being used to offset payments of other Brazilian federal taxes. That amount includes the tax credits generated over the period granted by the courts, as well as interest calculated from the date those credits should have been available to the subsidiary. The ability to use the tax credits to offset other Brazilian federal tax payments expires five years after the subsidiary's right to claim the credits was confirmed. Utilization of the credits is also subject to audit by the tax authorities. Based on estimates of the tax credits that were probable of being realized at the time the case was decided, the subsidiary recorded an allowance, reducing the net book value of the credits to approximately $90 million. After deducting related legal fees and Brazilian social contribution taxes assessed on the interest portion of the total IPI tax credits received, the subsidiary recorded a net gain of $81.6 million ($53.1 million after tax, or $1.87 per diluted share) during the first quarter of fiscal year 2014, as a result of the favorable outcome of the case. In the fourth quarter of fiscal year 2015, based on actual realization of the tax credits to date, as well as updated tax payment projections for future periods, revised estimates indicated that all remaining IPI tax credits would be fully utilized prior to expiration. On that basis, the subsidiary reversed the full remaining valuation allowance on the credits of $12.7 million (based on the then current exchange rate) during the quarter. The original gain in fiscal year 2014 and the reversal of the valuation allowance in fiscal year 2015 are reported in Other Income in the consolidated statements of income. Acquisition of Partner's Interest in Tobacco Processing Joint Venture For a number of years, the Company held a 50% joint venture ownership interest in Procesadora Unitab, S.A., a tobacco processing entity in Guatemala. In December 2015, the Company acquired the 50% interest held by its joint venture partner for $6.0 million in cash. In accordance with Accounting Standards Codification Topic 805, "Business Combinations" (“ASC 805”), the transaction was accounted for using the acquisition method of accounting, which required the Company to record all underlying assets and liabilities of the entity at their fair values as of the transaction date and to consolidate the financial statements of the entity. Based on those fair values, the Company recorded a pretax gain of $3.4 million on the transaction during the third quarter of fiscal year 2016. The gain is reported in Other Income in the consolidated statements of income. The purchase price of the newly-acquired 50% interest approximated fair value, and the gain resulted from remeasuring the Company’s original 50% ownership interest in the entity to fair value. No goodwill or identifiable intangible assets were recorded as part of the transaction, and acquisition-related costs were not significant. The pro forma result of operations of the combined companies would not be materially different from the Company’s historical results, and the revenues and earnings of the acquired entity since the date of acquisition are not material. The allocation of the fair values to the net assets acquired was complete at the time the transaction was recorded. Based on the nature of its operations, the net assets of the acquired entity are comprised primarily of property, plant, and equipment, and the fair values recorded for those assets totaled approximately $12.0 million based primarily on a third-party appraisal. The acquired entity is included in the Company’s North America operating segment.

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