UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
¨
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2016
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period
from____________________
to_________________________
Commission File Number: 0-261
Alico, Inc.
(Exact name of registrant as specified in its charter)
Florida
(State or other jurisdiction of
incorporation or organization)
10070 Daniels Interstate Court,
Suite 100, Fort Myers, FL
(Address of principal executive offices)
59-0906081
(I.R.S. Employer Identification No.)
33913
(Zip Code)
Registrant’s telephone number, including area code: 239-226-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of class:
COMMON CAPITAL STOCK, $1.00 Par value,
Non-cumulative
Name of each exchange on which registered:
NASDAQ
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
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 (or for such shorter period that such registrant was required to file such reports), and (2) has
been subject to such filings requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) 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 definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act (Check one):
Large accelerated filer ¨
Non-accelerated filer ¨
Accelerated filer þ
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 þ
The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the closing price, as quoted on the
NASDAQ Global Market as of March 31, 2016 (the last business day of Alico’s most recently completed second fiscal quarter) was
$86,944,912. Solely for the purposes of this calculation, the registrant has elected to treat all executives, officers and greater than 10%
stockholders as affiliates of the registrant. There were 8,324,747 shares of common stock outstanding at December 1, 2016.
Portions of the Proxy Statement of Registrant for the 2017 Annual Meeting of Shareholders (to be filed with the Commission under
Documents Incorporated by Reference:
Regulation 14A within 120 days after the end of the Registrant's fiscal year), are incorporated by reference in Part III of this report.
ALICO, INC.
FORM 10-K
For the fiscal year ended September 30, 2016
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountants Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
1
6
13
13
14
14
15
18
20
36
37
77
77
77
78
78
78
78
78
79
83
Cautionary Statement
This Annual Report on Form 10-K contains certain “forward-looking statements,” as such term is defined in Section 21E of the Securities
Exchange Act of 1934 (the “Exchange Act”). They are based on management’s current expectations and assumptions regarding our
business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. These
forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking
statements often include words such as “may,” “will,” “could,” “should,” “would,” “believes,” “expects,” “anticipates”, “estimates”,
“projects,” “intends, “plans” and other words and terms of similar substance in connection with discussions of future operating or financial
performance. Such forward-looking statements include, but are not limited to, statements regarding future actions, business plans and
prospects, prospective products, trends, future performance or results of current and anticipated products, sales efforts, expenses, interest
rates, the outcome of contingencies, such as legal proceedings, plans relating to dividends, government regulations, the adequacy of our
liquidity to meet our needs for the foreseeable future and our expectations regarding market conditions.
As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our
actual results may vary materially from those expressed or implied in our forward-looking statements. Should known or unknown risks or
uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those
anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.
We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. You
are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K filed with the Securities and Exchange Commission ("SEC"). We provide in Item 1A, “Risk Factors,” a cautionary
discussion of certain risks and uncertainties related to our businesses. These are factors that we believe, individually or in the aggregate,
could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by
Section 21E of the Exchange Act. In addition, the operation and results of our business are subject to risks and uncertainties identified
elsewhere in this Annual Report on Form 10-K as well as general risks and uncertainties such as those relating to general economic
conditions. You should understand that it is not possible to predict or identify all such risks. Consequently, you should not consider such
discussion to be a complete discussion of all potential risks or uncertainties.
Item 1. Business
PART I
Alico, Inc. (“Alico”), was incorporated under the laws of the state of Florida in 1960. Collectively with its subsidiaries (the "Company",
"we", "us" or "our"), our business and operations are described below. For detailed financial information with respect to our business and
our operations, see Management’s Discussion and Analysis of Financial Condition and Results of Operations which is included in Item 7 in
this Annual Report on Form 10-K, and the accompanying Consolidated and Combined Financial Statements and the related Notes therein,
which are included in Item 8. In addition, general information concerning our Company can be found on our website, the internet address
of which is http://www.alicoinc.com. All of our filings with the SEC including, but not limited to, the Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, are available free of charge on our website
as soon as reasonably practicable after such material is electronically filed or furnished with the SEC. In addition, you may read and copy
any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain
information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases and
information regarding corporate governance, including the charters of our audit, compensation, executive and nominating governance
committees, as well as our code of business conduct and ethics are also available to be viewed or downloaded electronically at
http://www.alicoinc.com. The information on our website is not part of this report or any other report we file with or furnish to the SEC.
Overview
Alico is an agribusiness and natural resources management company, with a legacy of achievement and innovation in citrus, cattle and
resource conservation. The Company owns approximately 122,000 acres of land in twelve Florida counties (Alachua, Charlotte, Collier,
DeSoto, Glades, Hardee, Hendry, Highlands, Lee, Martin, Osceola and Polk) including approximately 90,000 acres of mineral rights. Our
principal lines of business are citrus groves, cattle ranching and conservation.
During the fiscal year ended September 30, 2015, the Company acquired three Florida citrus properties for total consideration of
approximately $363,000,000. These acquisitions make Alico one of the largest citrus producers in the United States of America.
Our mission is to create value for our customers and stockholders by managing existing lands to their optimal current income and total
returns, opportunistically acquiring new agricultural assets and producing high quality agricultural products while exercising responsible
environmental stewardship.
We manage our land based upon its primary usage and review its performance based upon two primary classifications - Orange Co. and
Conservation and Environmental Resources. In addition, Other Operations include lease income from an aggregates mine and leases of oil
extraction rights to third parties among other insignificant lines of business. We present our financial results and the related discussion
based upon our three business segments (Orange Co., Conservation and Environmental Resources, and Other Operations).
Recent Developments
Water Storage Contract Approval
In December 2012, the South Florida Water Management District (“SFWMD” or "District") issued a solicitation request for projects to be
considered for the Northern Everglades Payment for Environmental Services Program. The Company submitted its response proposing a
dispersed water management project on a portion of its ranch land, and on December 11, 2014 the SFWMD approved a contract with the
Company, and on September 29, 2015, the SFWMD amended the contract to extend it for an additional year.
The contract term is eleven years, and allows up to one year for implementation (design, permitting, construction and construction
completion certification) and ten years of operation whereby the Company will provide water retention services. Payment for these
services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed
payment of up to $12,000,000 for operations and maintenance costs as long as the project is in compliance with the contract.
Annual payments under the contract are subject to the SFWMD receiving funds for the project from the Florida Legislature and SFWMD
Governing Board budget appropriation. Funding for the first year of the dispersed water management project was included in the budget
approved in the 2016 legislative session.
1
Project permitting is in process and the Company intends to commence construction upon receipt of permits. Annual fixed payments will
not commence until completion of construction.
Change in Fiscal Year of Subsidiary
As Alico, Inc. and 734 Citrus Holdings, LLC ("Silver Nip Citrus") were under common control at the time of the Merger (see Note 1.
"Description of Business and Basis of Presentation" of Item 8. Financial Statements and Supplementary Data) it is required under
accounting principles generally accepted in the United States of America ("U.S. GAAP") to account for this common control acquisition in
a manner similar to the pooling of interest method of accounting. Under this method of accounting, the Company's Consolidated and
Combined Balance Sheets as of September 30, 2016 and September 30, 2015 reflect Silver Nip Citrus’ historical carryover basis in the
assets and liabilities, instead of reflecting the fair market value of the assets and liabilities. Alico has also retrospectively recast its financial
statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19,
2013.
Silver Nip Citrus’ fiscal year end was June 30. Their financial condition and results of operations as of and for the fiscal years ended June
30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the fiscal years ended
September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was changed to September
30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and 2015 now includes the
financial condition of Silver Nip Citrus as of September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal
years ended September 30, 2016 and 2015 now includes the Silver Nip Citrus results of operations for fiscal years ended September 30,
2016 and 2015, respectively. The Company’s results of operations for the fiscal year ended September 30, 2014 include the operating
results of Silver Nip Citrus from the date common control began, November 19, 2013 through September 30, 2014. The impact of this
change was not material to the Consolidated and Combined Financial Statements, with an approximate $492,000 decrease in total assets and
an approximate net loss of $596,000 for the transition period related to this change included in Stockholders' Equity at September 30, 2015.
Operating Segments
Operating segments are defined in Financial Accounting Standards Board ("FASB") - Accounting Standards Codification ("ASC") ASC
Topic 280, "Segment Reporting" as components of public entities that engage in business activities from which they may earn revenues and
incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating
decision maker (“CODM”) in deciding how to assess performance and allocate resources. For the fiscal year ended September 30, 2015,
the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus Groves, Improved
Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations.
Effective October 1, 2015, which was the first day of Alico's fiscal year 2016, the Company operates three business segments related to its
various land holdings, as follows:
•
•
•
Orange Co. includes activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for
sale to fresh and processed citrus markets, including activities related to the purchase and resale of fruit and value-added services,
which include contracting for the harvesting, marketing and hauling of citrus.
Conservation and Environmental Resources includes activities related to cattle grazing, sod, native plant and animal sales, leasing,
management and/or conservation of unimproved native pasture land.
Other Operations consists of activities related to rock mining royalties, oil exploration and other insignificant lines of business.
Also included are activities related to owning and/or leasing improved farmland. Improved farmland is acreage that has been
converted, or is permitted to be converted, from native pasture and which may have various improvements including irrigation,
drainage and roads.
The former Citrus Groves and Agricultural Supply Chain Management segments have been combined in Orange Co. and, as a result of the
disposition of its sugarcane land in fiscal year 2015, the Company is no longer involved in sugarcane and the Improved Farmland segment
is no longer material to its business and has been combined in Other Operations.
The Land We Manage
We regularly review our land holdings to determine the best use of each parcel based upon our management expertise. Our total return
profile is a combination of operating income potential and long-term appreciation. Land holdings not meeting our total
2
return criteria are considered surplus to our operations and will be sold or exchanged for land considered to be more compatible with our
business objectives and total return profile.
Our land holdings and the operating activities in which we engage are categorized in the following table:
Gross Acreage
Operating Activities
Orange Co.
Citrus Groves
Citrus Nursery
47,127 Citrus Cultivation
385 Citrus Tree Development
47,512
Conservation and Environmental
Resources
70,962 Cattle Production; Sod and Native Plant Sales; Leasing; Conservation
Other Operations
Farmland
Other Land
Total
Orange Co.
1,825 Leasing
1,485 Mining lease; Office
121,784
We own and manage citrus land in Alachua, DeSoto, Polk, Collier, Hendry, Charlotte, Highlands, Osceola, Martin, and Hardee Counties
and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Orange Co. citrus
groves totals approximately 48,000 gross acres or 39.1% of our land holdings.
Our citrus acreage is detailed in the following table:
Producing
Net Plantable
Developing
Fallow
Alachua County
DeSoto County
Polk County
Collier County
Hendry County
Charlotte County
Highlands County
Osceola County
Martin County
Hardee County
Total
—
15,013
4,558
4,468
3,517
1,730
1,093
937
551
403
32,270
—
1,090
95
—
97
—
—
—
—
—
1,282
Total Plantable
—
16,585
4,653
4,468
3,789
1,868
1,093
937
551
403
34,347
Support & Other
385
4,623
2,152
2,823
1,696
635
131
426
123
171
13,165
—
482
—
—
175
138
—
—
—
—
795
Gross
385
21,208
6,805
7,291
5,485
2,503
1,224
1,363
674
574
47,512
Of the approximately 48,000 gross acres of citrus land we own and manage, approximately 13,200 acres are classified as support acreage.
Support acreage includes acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of
citrus trees but which are not capable of directly producing fruit. In addition, we own a citrus tree nursery and utilize the trees produced in
our own operations. None of our citrus acreage is classified as available for sale. The approximately 34,300 remaining acres are classified
as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently
producing, acres that are developing (acres that are planted in trees too young to commercially produce fruit) and acres that are fallow.
3
Our Orange Co. business segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales
to the processed market are approximately 86.9% of Orange Co. revenues annually. We produce Early and Mid-Season varieties, primarily
Hamlin oranges, as well as a Valencia variety for the processed market. We deliver our fruit to the processors in boxes which contain
approximately 90 pounds of oranges. Because the processors convert the majority of the citrus crop into orange juice, they generally do not
buy their citrus on a per box basis but rather on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained
in one box of citrus fruit. We produced approximately 51,400,000, 62,200,000 and 26,600,000 pound solids for each of the fiscal years
ended September 30, 2016, 2015 and 2014, respectively, on boxes delivered to processing plants of approximately 8,829,000, 10,014,000
and 4,146,000, respectively.
The average pound solids per box was 5.82, 6.21 and 6.41 for each of the fiscal years ended September 30, 2016, 2015 and 2014,
respectively.
We generally use multi-year contracts with citrus processors that include pricing structures based on a minimum (“floor”) price with a price
increase (“rise”) based on market conditions. Therefore, if pricing in the market is favorable relative to our floor price, we benefit from the
incremental difference between the floor and the final market price.
The majority of our citrus produced for the processed citrus market in fiscal year 2016-2017 will be under minimum price contracts with a
floor prices ranging from $2.05 to $2.15 per pound solids. We believe that other markets are available for our citrus products; however,
new arrangements may be less favorable than our current contracts.
Our sales to the fresh market constitute approximately 3.8% of our Orange Co. revenues annually. We produce numerous varieties for the
fresh fruit market including grapefruit, navel and other fresh varieties. Generally, our fresh fruit is sold to packing houses by the box and
the packing houses are responsible for the harvest and haul of these boxes. We produced approximately 402,000, 466,000 and 213,000
fresh fruit boxes for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively. The majority of our citrus to be
produced for the fresh citrus market in fiscal year 2016-2017 is under fixed price contracts.
Revenues from our Orange Co. operations were approximately 95.2%, 95.5% and 71.9% of our total operating revenues for each of the
fiscal years ended September 30, 2016, 2015 and 2014, respectively.
Conservation and Environmental Resources
We own and manage Conservation and Environmental Resources land in Collier and Hendry Counties and engage in cattle production, sod
and native plant sales, land leasing for recreational and grazing purposes and conservation activities. Of our land holdings, Conservation
and Environmental Resources totals approximately 71,000 gross acres or 58.3% of our total acreage.
Our Conservation and Environmental Resources acreage is detailed in the following table as of September 30, 2016:
Hendry County
Collier County
Total
Acreage
66,940
4,022
70,962
We frequently lease the same acreage for more than one purpose. The portion of our Conservation and Environmental Resources acreage
that is leased for each purpose is detailed in the table below:
Hendry County
Collier County
Glades County
Grazing
Recreational
1,282
4,000
145
51,686
3,493
—
Our cattle operation is engaged in the production of beef cattle and is located in Hendry and Collier Counties. The breeding herd consists of
approximately 8,700 cows and bulls and we plan to increase the size of our herd in the near future to the extent practicable. We primarily
sell our calves to feed yards and yearling grazing operations in the United States. We also sell cattle through local livestock auction markets
and to contract cattle buyers in the United States. These buyers provide ready markets for our cattle. We believe that the loss of any one or
a few of these buyers would not have a material effect on our cattle operations.
4
Revenues from our Conservation and Environmental Resources operations were approximately 4.0%, 3.6% and 7.9% of total operating
revenues for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively.
Our Strategy
Our core business strategy is to maximize stockholder value through continuously improving the return on our invested capital, either by
holding and managing our existing land through skilled agricultural production, leasing, or other opportunistic means of monetization,
disposing of under productive land or business units and/or acquiring new land or operations with appreciation potential.
Our objectives are to produce the highest quality agricultural products, create innovative land uses, opportunistically acquire and convert
undervalued assets, sell-under productive land not meeting our total return profile, generate recurring and sustainable profit with the
appropriate balance of risk and reward, and exceed the expectations of stockholders, customers, clients and partners.
Our strategy is based on best management practices of our agricultural operations, environmental and conservation stewardship of our land
and natural resources. We manage our land in a sustainable manner and evaluate the effect of changing land uses while considering new
opportunities. Our commitment to environmental stewardship is fundamental to the Company’s core beliefs.
Competition
The orange and specialty citrus markets are intensely competitive, but no single producer has any significant market power over any market
segments, as is consistent with the production of most agricultural commodities. Citrus is grown domestically in several states including
Florida, California, Arizona and Texas, as well as foreign countries, most notably Brazil. Competition is impacted by several factors
including quality, production, demand, brand recognition, market prices, weather, disease, export/import restrictions and foreign currency
exchange rates. Beef cattle are produced throughout the United States and domestic beef sales also compete with imported beef.
Environmental Regulations
Our operations are subject to various federal, state and local laws regulating the discharge of materials into the environment. Management
believes we are in compliance with all such rules including permitting and reporting requirements. Historically, compliance with
environmental regulations has not had a material impact on our financial position, results of operations or cash flows.
Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations.
In addition, we require lessees of our property to comply with environmental regulations as a condition of leasing.
Employees
As of September 30, 2016, we had 333 full-time employees. Our employees work in the following divisions:
Orange Co.
Conservation and Environmental Resources
Corporate, General, Administrative and Other
Total employees
5
298
6
29
333
Seasonal Nature of Business
Revenues from our agricultural business operations are seasonal in nature. The following table illustrates the seasonality of our agri-
business revenues:
Fiscal Year
Q1
Ending 12/31
Oct Nov Dec
Q2
Ending 3/31
Q3
Ending 6/30
Jan
Feb Mar Apr May
Jun
Q4
Ending 9/30
Jul Aug Sept
Harvest Fresh and Early/Mid Varieties of Oranges
Harvest Valencia Oranges
Deliver Beef Cattle
Capital resources and raw materials
Management believes that the Company will be able to meet its working capital requirements for at least the next 12 months, and over the
long term, through internally generated funds, cash flows from operations, our existing lines of credit and access to capital markets. The
Company has commitments that provide for lines of revolving credit that are available for our general and corporate use. Raw materials
needed to cultivate the various crops grown by the Company consist primarily of fertilizers, herbicides and fuel and are readily available
from local suppliers.
Available Information
We provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not
incorporated by reference in this Annual Report on Form 10-K. The SEC also maintains a website at http://www.sec.gov, which contains
annual, quarterly and current reports, proxy and information statements and other information regarding issuers that file electronically with
the SEC.
Item 1A. Risk Factors
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control. The
following is a description of the known factors that we believe may materially affect our business, financial condition, results of operations
or cash flows. They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on Form 10-K,
including Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial
Statements and Supplementary Data, including the related Notes to the Consolidated and Combined Financial Statements in making any
investment decisions with respect to our securities. Additional risks or uncertainties that are not currently known to us that we currently
deem to be immaterial or that could apply to any company could also materially adversely affect our business, financial condition, results
of operations or cash flows.
Risks related to our Business
Our citrus groves are subject to damage and loss from disease including but not limited to citrus greening and citrus canker which
could negatively impact our business, financial condition, results of operations and cash flows.
Our citrus groves are subject to damage and loss from diseases such as citrus greening and citrus canker. Each of these diseases is
widespread in Florida and exists in our citrus groves and in the areas where our citrus groves are located. The success of our citrus business
is directly related to the viability and health of our citrus groves.
Citrus greening is one of the most serious citrus plant diseases in the world. Once a tree is infected, its productivity generally decreases.
While the disease poses no threat to humans or animals, it has devastated citrus crops throughout the United States and abroad. Named for
its green, misshapen fruit, citrus greening disease has now killed millions of citrus plants in the southeastern United States and has spread
across the entire country. Infected trees produce fruits that are green, misshapen and bitter, unsuitable for sale as fresh fruit or for juice.
Infected trees can die within a few years. At the present time, there is no known cure for citrus greening once trees are infected. Primarily
as a result of citrus greening, orange production in the State of Florida has continued
6
to drop and according to the U.S. Department of Agriculture Florida had its smallest orange harvest in 52 years in the 2015-2016 harvest
season. The upcoming 2016-2017 Florida harvest season is expected to decline even further. The USDA's forecast of approximately
72,000,000 boxes of oranges for the 2016-2017 season is down more than 13 percent from the approximately 81,600,000 boxes harvested
last season and represents a decline of more than 52 percent since the time citrus greening was discovered at approximately 150,000,000
boxes during the 2004-05 season.
Citrus canker is a disease affecting citrus species and is caused by a bacterium and is spread by contact with infected trees or by windblown
transmission. There is no known cure for citrus canker at the present time although some management practices including the use of
copper-based bactericides can mitigate its spread and lessen its effect on infected trees; however, there is no assurance that available
technologies to control such disease will be effective.
Both of these diseases pose a significant threat to the Florida citrus industry and to our citrus groves. While we use best management
practices to attempt to control diseases and their spread, there can be no assurance that our mitigation efforts will be successful. These
diseases can significantly increase our costs which could materially adversely affect our business, financial condition, results of operations
and cash flows. Our citrus groves produce a significant majority of our annual operating revenues and a significant reduction in available
citrus from our citrus groves could decrease our operating revenues and materially adversely affect our business, financial condition, results
of operations and cash flows.
Our agricultural products are subject to supply and demand pricing which is not predictable.
Agricultural operations traditionally provide almost all of our operating revenues with citrus being the largest portion and are subject to
supply and demand pricing. While according to Nielsen data consumer demand for orange juice has decreased significantly to its lowest
level in almost a decade, we have been able to offset the impact of such decline with higher prices based on a lower supply of available
oranges. However, there can be no assurance that we will be able to continue to do so if demand continues to decline. Although our
processed citrus is subject to minimum pricing we are unable to predict with certainty the final price we will receive for our products. In
some instances the harvest and growth cycle will dictate when such products must be marketed which may or may not be advantageous in
obtaining the best price. Excessive supplies tend to cause severe price competition and lower prices for the commodity affected. Limited
supply of certain agricultural commodities due to world and domestic market conditions can cause commodity prices to rise in certain
situations. We attempt to mitigate these risks by using contracts with citrus processors that include pricing structures based on a minimum
(“floor”) price and with a price increase (“rise”) if market prices exceed the floor price. As a result, our profitability may be subject to
significant variability.
Our citrus groves are geographically concentrated in Florida and the effects of adverse weather conditions including hurricanes and
tropical storms could adversely affect our results of operations and financial position.
Our citrus operations are concentrated in central and south Florida with our groves located in parcels in Alachua, DeSoto, Polk, Collier,
Hendry, Charlotte, Highlands, Osceola, Martin and Hardee Counties. Because our groves are located in close proximity to each other, the
impact of adverse weather conditions may be material to our results of operations. Florida is particularly susceptible to the occurrence of
hurricanes and tropical storms. Depending on where any particular hurricane or tropical storm makes landfall, our properties could
experience significant, if not catastrophic damage. Hurricanes and tropical storms have the potential to destroy crops, affect cattle breeding
and impact citrus production through the loss of fruit and destruction of trees and/or plants either as a result of high winds or through the
spread of windblown disease. Such damage could materially affect our citrus and cattle operations and could result in a loss of operating
revenues from those products for a multi-year period. We seek to minimize hurricane risk by the purchase of insurance contracts, but the
majority of our crops remain uninsured. In addition to hurricanes and tropical storms, the occurrence of other natural disasters and climate
conditions in Florida, such as tornadoes, floods, freezes, unusually heavy or prolonged rain, droughts and heat waves, could have a material
adverse effect on our operations and our ability to realize income from our crops or cattle.
A significant and increasing portion of our revenues are derived from our citrus business and any adverse event affecting such business
could disproportionately harm our business.
Our revenues from our citrus business were approximately 95.2%, 95.5% and 71.9% of our operating revenues in fiscal years 2016, 2015
and 2014, respectively. As a result of our recently announced acquisitions of three Florida citrus properties and the disposition of our
sugarcane lands, the percentage of our operating revenues derived from our citrus business has increased significantly. These acquisitions
resulted in our citrus division being one of the largest citrus producers in the United States and since we will not be as diversified as we
have been previously, we will be more vulnerable to adverse events or market conditions affecting our citrus business which could have a
significant impact on our overall business results.
7
We maintain a significant amount of indebtedness which could adversely affect our financial condition, results of operations or cash
flows and may limit our operational and financing flexibility and negatively impact our business.
As of September 30, 2016 we had approximately $197,000,000 in principal amount of indebtedness outstanding under our secured credit
facilities and an additional $80,000,000 is available under our revolving lines of credit. Our loan agreements, and other debt instruments we
may enter into in the future, may have negative consequences to us and could limit our business because we will use a substantial portion
of our cash flows from operations to pay debt service costs which will reduce the funds available to us for corporate and general expenses
and it may make us more vulnerable to economic downturns and adverse developments in our business. Our loan agreements require us to
comply with various restrictive covenants and some contain financial covenants that require us to comply with specified financial ratios and
tests. Our failure to meet these covenants could result in default under these loan agreements and would result in a cross-default under other
loan agreements. In the event of a default and our inability to obtain a waiver of the default, all amounts outstanding under loan agreements
could be declared immediately due and payable. Our loan agreements also contain various covenants that limit our ability to engage in
specified types of transactions. We expect that we will depend primarily upon our citrus operations to provide funds to pay our corporate
and general expenses and to pay any amounts that may become due under any credit facilities and any other indebtedness we may incur and
there are factors beyond our control that could negatively affect our citrus business revenue stream. Our ability to make these payments
depends on our future performance, which will be affected by various financial, business, macroeconomic and other factors, many of which
we cannot control.
If we are unable to successfully develop and execute our strategic growth initiatives, or if they do not adequately address the challenges
or opportunities we face, our business, financial condition and prospects may be adversely affected.
Our success is dependent in part on our ability to identify, develop and execute appropriate strategic growth initiatives that will enable us to
achieve sustainable growth in the long term. The implementation of our strategic initiatives is subject to both the risks affecting our
business generally and the inherent risks associated with implementing new strategies. These strategic initiatives may not be successful in
generating revenues or improving operating profit and, if they are, it may take longer than anticipated. As a result and depending on
evolving conditions and opportunities, we may need to adjust our strategic initiatives and such changes could be substantial, including
modifying or terminating one or more of such initiatives. Termination of such initiatives may require us to write down or write off the
value of our investments in them. Transition and changes in our strategic initiatives may also create uncertainty in our employees,
customers and partners that could adversely affect our business and revenues. In addition, we may incur higher than expected or
unanticipated costs in implementing our strategic initiatives, attempting to attract revenue opportunities or changing our strategies. There is
no assurance that the implementation of any strategic growth initiative will be successful, and we may not realize anticipated benefits at
levels we project or at all, which would adversely affect our business, financial condition and prospects.
Our agricultural operations are subject to water use regulations restricting our access to water.
Our operations are dependent upon the availability of adequate surface and underground water. The availability of water is regulated by the
state of Florida through water management districts which have jurisdiction over various geographic regions in which our lands are located.
Currently, we have permits in place for the next 15 to 20 years for the use of underground and surface water which are adequate for our
agricultural needs.
Surface water in Hendry County, where much of our agricultural land is located, comes from Lake Okeechobee via the Caloosahatchee
River and a system of canals used to irrigate such land. The Army Corps of Engineers controls the level of Lake Okeechobee and
ultimately determines the availability of surface water even though the use of water has been permitted by the state of Florida through the
water management district. The Army Corps of Engineers decided in 2010 to lower the permissible level of Lake Okeechobee in response
to concerns about the ability of the levee surrounding the lake to restrain rising waters which could result from hurricanes. Changes in
availability of surface water use may result during times of drought, because of lower lake levels and could materially adversely affect our
agricultural operations, financial condition, results of operations and cash flows.
Our recent acquisitions of three Florida citrus properties and the acquisition of additional agricultural assets and other businesses
could pose risks.
We seek to opportunistically acquire new agricultural assets from time to time that we believe would complement our business. In fiscal
year 2015, we acquired three Florida citrus properties, including Orange-Co and Silver Nip Citrus, which resulted in our citrus division
being one of the largest citrus producers in the United States. While we expect that our acquisitions will successfully complement our
business, we may fail to realize all of the anticipated benefits of these acquisitions, which could reduce our anticipated results. We cannot
assure you that we will be able to successfully identify suitable acquisition opportunities, negotiate
8
appropriate acquisition terms, or obtain any financing that may be needed to consummate such acquisitions or complete proposed
acquisitions. Acquisitions by us could result in accounting changes, potentially dilutive issuances of equity securities, increased debt and
contingent liabilities, reduce the amount of cash available for dividends, debt service payments, integration issues and diversion of
management’s attention, any of which could adversely affect our business, results of operations, financial condition, and cash flows. We
may be unable to successfully realize the financial, operational, and other benefits we anticipate from our acquisitions and our failure to do
so could adversely affect our business, results of operation and financial condition.
Dispositions of our assets may adversely affect our future results of operations.
We also routinely evaluate the benefits of disposing of certain of our assets which could include the exit from lines of business. For
example, in November of 2014 we sold significant sugarcane assets and we are no longer involved in the sugarcane business. While such
dispositions increase the amount of cash available to us, it could also result in a potential loss of significant operating revenues and income
streams that we might not be able to replace, makes our business less diversified and could ultimately have a negative impact on our results
of operations and cash flows.
If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences,
and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred
basis.
From time to time we dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges. It is possible that the
qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable and we
could also be required to pay interest and penalties. As a result, we may be required to borrow funds in order to pay additional property
taxes, and the payment of such taxes could cause us to have less cash available. Moreover, it is possible that legislation could be enacted
that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to
dispose of properties on a tax deferred basis.
We may undertake one or more significant corporate transactions that may not achieve their intended results, may adversely affect our
financial condition and our results of operations or result in unforeseeable risks to our business.
We continuously evaluate the acquisition or disposition of operating businesses and assets and may in the future undertake one or more
significant transactions. Any such acquisitive transaction could be material to our business and could take any number of forms, including
mergers, joint ventures and the purchase of equity interests. The consideration for such acquisitive transactions may include, among other
things, cash, common stock or equity interests in us or our subsidiaries, or a contribution of property or equipment to obtain equity
interests, and in conjunction with a transaction we might incur additional indebtedness. We also routinely evaluate the benefits of disposing
of certain assets. Such dispositions could take the form of asset sales, mergers or sales of equity interests.
These transactions may present significant risks such as insufficient assets to offset liabilities assumed, potential loss of significant
operating revenues and income streams, increased or unexpected expenses, inadequate return of capital, regulatory or compliance issues,
the triggering of certain financial covenants in our debt instruments (including accelerated repayment) and unidentified issues not
discovered in due diligence. In addition, such transactions could distract management from current operations. As a result of the risks
inherent in such transactions, we cannot guarantee that any such transaction will ultimately result in the realization of its anticipated
benefits or that it will not have a material adverse impact on our business, financial condition, results of operations or cash flows. If we
were to complete such an acquisition, disposition, investment or other strategic transaction, we may require additional debt or equity
financing that could result in a significant increase in our amount of debt and our debt service obligations or the number of outstanding
shares of our common stock, thereby diluting holders of our common stock outstanding prior to such acquisition.
We are subject to the risk of product contamination and product liability claims.
The sale of agricultural products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering
by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other
agents, or residues introduced during the growing, storage, handling or transportation phases. While we are subject to governmental
inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be
sure that our agricultural products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits
relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any
assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our
corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity
or contribution that we may have against others. We maintain product
9
liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the
amount of our insurance coverage.
Changes in immigration laws could impact our ability to harvest our crops.
We engage third parties to provide personnel for our harvesting operations. The availability and number of such workers is subject to
decrease if there are changes in the U.S. immigration laws. The scarcity of available personnel to harvest our agricultural products could
cause harvesting costs to increase or could lead to the loss of product that is not timely harvested which could have a material adverse
effect to our citrus grove business, financial condition, results of operations and cash flows.
Changes in demand for our agricultural products can affect demand and pricing of such products.
The general public's demand for particular food crops we grow and sell could reduce prices for some of our products. To the extent that
consumer preferences evolve away from products we produce and we are unable to modify our products or develop products that satisfy
new customer preferences, there could be a decrease in prices for our products. Even if market prices are unfavorable, produce items which
are ready to be or have been harvested must be brought to market. Additionally, we have significant investments in our citrus groves and
cannot easily shift to alternative crops for this land. A decrease in the selling price received for our products due to the factors described
above could have a material adverse effect on our business.
Our citrus business is seasonal.
Our citrus groves produce the majority of our annual operating revenues and the citrus business is seasonal because it is tied to the growing
and picking seasons. Historically, the second and third quarters of our fiscal year generally produce the majority of our annual revenues,
and our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our planting
cycles. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved
for the full fiscal year or in future quarters. If our operating revenues in the second and third quarters are lower than expected, it would
have a disproportionately large adverse impact on our annual operating results.
We face significant competition in our agricultural operations.
We face significant competition in our agricultural operations both from domestic and foreign producers and do not have any branded
products. Foreign growers generally have an equal or lower cost of production, less environmental regulation and in some instances, greater
resources and market flexibility than us. Because foreign growers have greater flexibility as to when they enter the U.S. market, we cannot
always predict the impact these competitors will have on our business and results of operations. The competition we face from foreign
suppliers of orange juice is mitigated by a governmentally imposed tariff on orange imports. A change in the government’s reduction in the
orange juice tariff could adversely impact our results of operations.
Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations.
There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global
temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that such climate
change has a negative effect on the productivity of our citrus groves, it could have an adverse impact on our business and results of
operations. The increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory
requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted, we may experience
significant increases in our costs of operations. In particular, increasing regulation of fuel emissions could substantially increase the
distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our business and
operations.
We benefit from reduced real estate taxes due to the agricultural classification of a majority of our land. Changes in the classification
or valuation methods employed by county property appraisers could cause significant changes in our real estate tax liabilities.
In the fiscal years ended September 30, 2016, 2015 and 2014 we paid approximately $3,196,000, $4,054,000 and $2,291,000, respectively,
in real estate taxes, respectively. These taxes were based upon the agricultural use (“Green Belt”) values determined by the county property
appraisers in which counties we own land, of approximately $89,922,000, $123,617,000 and $74,105,000 for each of the fiscal years ended
September 30, 2016, 2015 and 2014, respectively, which differs significantly from the fair values determined by the county property
appraisers of approximately $533,617,000, $652,891,000 and $518,112,000, respectively.
10
Changes in state law or county policy regarding the granting of agricultural classification or calculation of Green Belt values or average
millage rates could significantly impact our results of operations, cash flows and financial position.
We manage our properties in an attempt to capture their highest and best use and customarily do not sell property until it no longer
meets our total return profile.
The goal for our land management program is to manage and selectively improve our lands for their most profitable use. We continually
evaluate our properties focusing on location, soil capabilities, subsurface composition, topography, transportation and availability of
markets for our crops, the climatic characteristics of each of the tracts, long-term capital appreciation and operating income potential. While
we are primarily engaged in agricultural activities, when land does not meet our total return profile, we may determine that the property is
surplus to our activities and place the property for sale or exchange.
Liability for the use of pesticides, herbicides and other potentially hazardous substances could increase our costs.
Our agricultural business involves the use of herbicides, fertilizers and pesticides, some of which may be considered hazardous or toxic
substances. We may be deemed liable and have to pay for the costs or damages associated with the improper application, accidental release
or the use or misuse of such substances. Our insurance may not be adequate to cover such costs or damages, or may not continue to be
available at a price or under terms that are satisfactory to us. In such cases, if we are required to pay significant costs or damages, it could
materially adversely affect our business, results of operations, financial condition and cash flows.
Compliance with applicable environmental laws may substantially increase our costs of doing business which could reduce our profits.
We are subject to various laws and regulations relating to the operation of our properties, which are administered by numerous federal, state
and local governmental agencies. We face a potential for environmental liability by virtue of our ownership of real property. If hazardous
substances (including herbicides and pesticides used by us or by any persons leasing our lands) are discovered emanating from any of our
lands and the release of such substances presents a threat of harm to the public health or the environment, we may be held strictly liable for
the cost of remediation of these hazardous substances. In addition, environmental laws that apply to a given site can vary greatly according
to the site’s location, its present and former uses, and other factors such as the presence of wetlands or endangered species on the site.
Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations.
Furthermore, we require lessees of our properties to comply with environmental regulations as a condition of leasing. We also purchase
insurance for environmental liability when it is available; however, these insurance contracts may not be adequate to cover such costs or
damages or may not continue to be available at prices and terms that would be satisfactory. It is possible that in some cases the cost of
compliance with these environmental laws could exceed the value of a particular tract of land, make it unsuitable for use in what would
otherwise be its highest and best use, and/or be significant enough that it would materially adversely affect us.
Our business may be adversely affected if we lose key employees.
We depend to a large extent on the services of certain key management personnel. These individuals have extensive experience and
expertise in our business lines and segments in which they work. The loss of any of these individuals could have a material adverse effect
on our businesses. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent on our
ability to continue to employ and retain skilled personnel in our business lines and segments.
Risks Related to our Common Stock
Our largest stockholder has effective control over the election of our Board of Directors and other matters.
734 Investors, LLC ("734 Investors") and its two controlling persons, Remy Trafelet and George Brokaw, together beneficially own
approximately 59% of our outstanding common stock as of December 1, 2016. Accordingly, by virtue of its ownership percentage, 734
Investors is able to elect all of our directors and officers, and has the ability to exert significant influence over our business and may make
decisions with which other stockholders may disagree, including, among other things, changes in our business plan, delaying, discouraging
or preventing a change of control of our Company or a potential merger, consolidation, tender offer, takeover or other business
combination. Additionally, potential conflicts of interest could exist when we enter into related party transactions with 734 Investors such
as the Silver Nip Citrus merger we entered into on February 28, 2015. The terms of the merger were negotiated and considered by a special
committee comprised entirely of independent and disinterested members of our Board of Directors.
11
We are a “Controlled Company” under the NASDAQ Listing Rules and therefore are exempt from certain corporate governance
requirements, which could reduce the influence of independent directors.
We are a “Controlled Company” under NASDAQ listing rules, because more than 50% of the voting power of our outstanding common
stock is controlled by 734 Investors and its two controlling persons, Remy Trafelet and George Brokaw. As a consequence, we are exempt
from certain NASDAQ requirements including the requirement that:
•
•
•
Our Board of Directors be composed of a majority of independent
directors;
The compensation of our officers be determined by a majority of the independent directors or a compensation committee
composed solely of independent directors; and
Nominations to the Board of Directors be made by a majority of the independent directors or a nominations committee
composed solely of independent directors.
However, NASDAQ does require that our independent directors have regularly scheduled meetings at which only independent directors are
present. In addition, Internal Revenue Code Section 162(m) requires that a compensation committee of outside directors (within the
meaning of Section 162(m)) approve stock option grants to executive officers in order for us to be able to claim deductions for the
compensation expense attributable to such stock options. Notwithstanding the foregoing exemptions, we do have a majority of independent
directors on our Board of Directors and we do have an Audit Committee, a Compensation Committee and a Nominating and Governance
Committee composed primarily of independent directors.
Although we currently comply with certain of the NASDAQ listing rules that do not apply to controlled companies, our compliance is
voluntary, and there can be no assurance that we will continue to comply with these standards in the future. If in the future our Board of
Directors elects to rely on the exemptions permitted by the NASDAQ listing standards and reduce the number or proportion of independent
directors on our Board and its committees, the influence of independent directors would be reduced.
Sales of substantial amounts of our outstanding common stock by our largest stockholder could adversely affect the market price of our
common stock.
Our largest stockholder, 734 Investors, beneficially owns approximately 59% of our outstanding common stock as of December 1, 2016.
Our common stock is thinly traded and our common stock prices can fluctuate significantly. As such, sales of substantial amounts of our
common stock into the public market by 734 Investors or perceptions that significant sales could occur, could adversely affect the market
price of our common stock.
Our common stock has low trading volume.
Although our common stock trades on the NASDAQ Global Market, it is thinly traded and our average daily trading volume is low
compared to the number of shares of common stock we have outstanding. The low trading volume of our common stock can cause our
stock price to fluctuate significantly as well as make it difficult for you to sell your common shares quickly. As a result of our stock being
thinly traded and/or our low stock price, institutional investors might not be interested in owning our common stock.
We may not be able to continue to pay or maintain our cash dividends on our common stock and the failure to do so may negatively
affect our share price.
We have historically paid regular quarterly dividends to the holders of our common stock. Dividends were reduced beginning in the third
fiscal quarter of 2014 in order to retain cash which increases our flexibility to reinvest in our business and pursue growth opportunities
consistent with our mission. Our ability to pay cash dividends depends on, among other things, our cash flows from operations, our cash
requirements, our financial condition, the degree to which we are/or become leveraged, contractual restrictions binding on us, provisions of
applicable law and other factors that our Board of Directors may deem relevant. There can be no assurance that we will generate sufficient
cash from continuing operations in the future, or have sufficient cash surplus or net profits to pay dividends on our common stock. Our
dividend policy is based upon our directors’ current assessment of our business and the environment in which we operate and that
assessment could change based on business developments (which could, for example, increase our need for capital expenditures) or new
growth opportunities. Our Board of Directors may, in its discretion, decrease the level of cash dividends or entirely discontinue the payment
of cash dividends. The reduction or elimination of cash dividends may negatively affect the market price of our common stock.
12
There can be no assurance that we will continue to repurchase shares of our common stock.
In fiscal year 2016, our Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s common stock beginning
February 18, 2016 and continuing through February 17, 2017. Our share repurchase program does not obligate us to repurchase any specific
number of shares and may be suspended from time to time or terminated at any time prior to its expiration. There can be no assurance that
we will repurchase shares in the future in any particular amounts or at all. A reduction in, or elimination of, share repurchases could have a
negative effect on our share price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2016, we owned approximately 122,000 acres of land located in twelve counties in Florida. Acreage in each county
and the primary classification with respect to the present use of these properties is shown in the following table:
Total
Hendry
Polk
Collier
DeSoto Glades Lee Alachua Charlotte Hardee Highlands Martin Osceola
Orange Co.:
Citrus
Groves
Citrus
Nursery
Total
Citrus
Groves
Improved
Farmland:
47,127
5,485
6,805
7,291
21,208
— —
385
—
—
—
—
— —
—
385
2,503
—
574
—
1,224
674
1,363
—
—
—
47,512
5,485
6,805
7,291
21,208
— —
385
2,503
574
1,224
674
1,363
Irrigated
1,825
1,825
—
—
—
— —
—
—
—
—
—
—
Conservation and
Environmental
Resources
Commercial
Mining
Other
Total
70,962
2
526
957
121,784
66,940
—
—
957
75,207
—
—
—
—
4,022
—
—
—
—
—
—
—
6,805
11,313
21,208
— —
—
2
526 —
— —
526
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
385
2,503
574
1,224
674
1,363
Approximately 61,000 acres of the properties listed are encumbered by credit agreements totaling approximately $202,200,000 as of
September 30, 2016. For a more detailed description of the credit agreements and collateral please see Note 5. “Long-Term Debt and Lines
of Credit” and Note 19. "Subsequent Events" in the accompanying Notes to the Consolidated and Combined Financial Statements.
We currently collect mining royalties on approximately 526 acres of land located in Glades County, Florida. These royalties do not
represent a significant portion of our operating revenues or gross profits. We have identified 850 acres on our Hendry County land that may
have potential to be used as a sand mine. The Hendry County parcel is currently classified as other land.
13
Item 3. Legal Proceedings
On March 11, 2015, a putative stockholder class action lawsuit captioned Shiva Y. Stein v. Alico, Inc., et al., No. 15-CA-000645 (the
“Stein lawsuit”), was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, Inc.
(“Alico”), its current and certain former directors, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus, 734 Investors, LLC (“734 Investors”),
734 Agriculture, LLC (“734 Agriculture”) and 734 Sub, LLC (“734 Sub”) in connection with the acquisition of Silver Nip Citrus by Alico
(the “Merger”). The complaint alleged that Alico’s directors at the time of the Merger, 734 Investors and 734 Agriculture breached
fiduciary duties to Alico stockholders in connection with the Merger and that Silver Nip and 734 Sub aided and abetted such breaches. The
lawsuit sought, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses.
On May 6, 2015, a putative stockholder class action and derivative lawsuit captioned Ruth S. Dimon Trust v. George R. Brokaw, et al., No.
15-CA-001162 (the “Dimon lawsuit”), was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida,
against Alico, its current directors, Silver Nip Citrus, 734 Investors and 734 Agriculture in connection with the Merger of Silver Nip Citrus
by Alico. The complaint alleged breach of fiduciary duty, gross mismanagement, waste of corporate assets and tortious interference with
contract against Alico’s directors; unjust enrichment against three of the directors; and aiding and abetting breach of fiduciary duty against
Silver Nip Citrus, 734 investors and 734 Agriculture. The lawsuit sought, among other things, rescission of the Merger, an injunction
prohibiting certain payments to Silver Nip Citrus members, unspecified damages, disgorgement of profits, costs, fees (including attorneys’
fees) and expenses.
On July 17, 2015, the plaintiffs in the Stein and Dimon lawsuits filed a stipulation and proposed order consolidating their cases for all
purposes under the caption, In re Alico, Inc. Shareholder Litigation, Master File No. 15-CA-000645 (the “Consolidated Action”) and
seeking the appointment of a lead plaintiff and lead and liaison counsel. The court entered that proposed order on July 21, 2015.
On October 16, 2015, the lead plaintiff in the Consolidated Action reported to the Court that the parties reached an agreement in principle
to settle the Consolidated Action and other claims related to the Merger and that they were in the process of formally documenting their
agreements. The proposed settlement contemplated that Alico would adopt certain changes to its corporate governance practices, policies
and procedures concerning related party transactions; the Consolidated Action would be dismissed; and all claims that were or could have
been asserted challenging any aspect of the Merger would be released. On March 31, 2016, the parties entered into a Stipulation of
Settlement. The parties filed an Amended Stipulation of Settlement with the Court on April 22, 2016.
On April 28, 2016, the Court entered an order preliminarily approving the settlement and providing for notice to relevant Alico
shareholders. Notice of the settlement was mailed to relevant Alico shareholders and a settlement hearing was held on September 12,
2016, during which the Court considered the fairness, reasonableness and adequacy of the settlement and plaintiffs' counsel’s request for an
award of attorneys' fees and expenses.
Following the settlement hearing on September 12, 2016, the Court entered a final order and judgment that approved the settlement as fair,
reasonable and adequate; directed the parties to consummate the settlement according to its terms; awarded plaintiffs’ counsel attorneys’
fees and expenses; and dismissed the Consolidated Action with prejudice.
From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There
are no current legal proceedings to which the Company is a party to or of which any of its property is subject to that it believes will have a
material adverse effect on its financial condition, results of operations or cash flows.
Item 4. Mine Safety Disclosures
Not Applicable.
14
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Common Stock Prices
Our common stock is traded on the NASDAQ Global Market under the symbol ALCO. The high and low sales prices of our common stock
in each quarter in the fiscal years 2016 and 2015 are presented below:
Quarter Ended:
December 31
March 31
June 30
September 30
Holders
2016 Price
2015 Price
High
Low
High
Low
$
$
$
$
45.82 $
38.56 $
32.66 $
31.95 $
37.55
20.99
26.02
26.50
$
$
$
$
51.83 $
58.10 $
52.74 $
48.94 $
34.67
43.80
44.52
37.16
On December 1, 2016, our stock transfer records indicate there were 260 holders of record of our common stock. The number of registered
holders includes banks and brokers who act as nominee, each of whom may represent more than one stockholder.
Dividend Policy
The declaration and amount of any actual cash dividend are in the sole discretion of our Board of Directors and are subject to numerous
factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and
business conditions.
The following table presents cash dividends per share of our common stock declared in fiscal years ended September 30, 2016, 2015, and
2014:
Declaration Date
December 18, 2013
July 10, 2014
October 2, 2014
February 27, 2015
June 4, 2015
September 14, 2015
December 11, 2015
March 8, 2016
May 11, 2016
September 6, 2016
Record Date
March 31, 2014
September 30, 2014
December 31, 2014
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016
June 30, 2016
September 30, 2016
Payment Date
April 14, 2014
October 15, 2014
January 15, 2015
April 15, 2015
July 15, 2015
October 15, 2015
January 15, 2016
April 15, 2016
July 15, 2016
October 14, 2016
15
Per Common Share
$0.12
$0.06
$0.06
$0.06
$0.06
$0.06
$0.06
$0.06
$0.06
$0.06
Stock Performance Graph
The graph below represents our common stock performance, comparing the value of $100 invested on September 30, 2011 in our common
stock, the S&P 500 Index, the S&P Agricultural Products Index and a Company-constructed peer group, which includes Forestar Group,
Inc., Limoneira Company, The St. Joe Company, Tejon Ranch Co. and Texas Pacific Land Trust.
Company Name / Index
Alico, Inc.
S&P 500 Index
S&P Agricultural Products Index
Peer Group
Base
Period
Sept 11
100
100
100
100
INDEXED RETURNS
Sept 12
160.87
130.20
118.89
135.23
Years Ending
Sept 14
199.68
186.05
211.02
182.88
Sept 13
213.75
155.39
159.25
155.40
Sept 15
213.84
184.91
181.47
150.08
Sept 16
142.63
213.44
209.24
179.36
(Includes reinvestment of dividends)
16
Equity Compensation Arrangements
Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for
up to 1,250,000 shares of the Company’s common stock to be available for issuance to provide a long-term incentive plan for officers,
employees, directors and/or consultants to directly link incentives to stockholders' value. The 2015 Plan was approved by stockholders in
February 2015. The adoption of the 2015 Plan supersedes the 2013 Incentive Equity Plan (the “2013 Plan”), which had been in place since
April 2013. The 2013 Plan provided for the issuance of up to 350,000 shares of the Company’s common stock to Directors and Officers
through March 2018. The following table illustrates the common shares remaining available for future issuance under the 2015 Plan:
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity plans
Plan Category:
Equity compensation plans approved
by security holders
Total
-
-
-
-
1,237,500
1,237,500
Recent Sale of Unregistered Securities
None.
Issuer Repurchases of Equity Securities
In fiscal year 2015, our Board of Directors authorized the repurchase of up to 170,000 shares of the Company’s outstanding common stock
beginning March 26, 2015 and continuing through December 31, 2016 (the “2015 Authorizations"). Through September 30, 2016, we had
repurchased 170,000 common shares in accordance with the fiscal year 2015 Authorizations. The stock repurchases under the 2015
Authorizations were made through open market transactions at times and in such amounts as our broker determined subject to the
provisions of SEC Rule 10b-18.
We adopted Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”) in connection with share repurchase
authorizations. The Plan allows us to repurchase our shares of common stock at times when it otherwise might be prevented from doing so
under insider trading laws or because of self-imposed trading blackout periods. Because repurchases under the Plan are subject to certain
pricing parameters, there is no guarantee as to the exact number of common shares that will be repurchased under the Plan or that there will
be any repurchases pursuant to the Plan. Subject to applicable regulations, we may elect to amend or cancel the Plan at our discretion.
In fiscal year 2016, the Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s outstanding common stock
beginning February 18, 2016 and continuing through February 17, 2017 (the "2016 Authorization"). The stock repurchases will be made
through open market transactions at times and in such amounts as the Company’s broker determine subject to the provisions of SEC Rule
10b-18. The Company also adopted a Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”) in
connection with its share repurchase authorization. The Plan allows the Company to repurchase its shares at times when it otherwise might
be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. For the fiscal year ended
September 30, 2016, the Company did not purchase any shares in accordance with the 2016 Authorization and has available to
purchase 50,000 shares in accordance with the 2016 Authorization.
17
The following table describes our purchases of our common stock during the fourth quarter of 2016 for the 2016 Authorizations:
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Shares
Purchased As Part of
Publicly Announced
Plan or Program
Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plan or Program
—
—
—
$—
$—
$—
—
—
—
50,000
50,000
50,000
Date:
July 2016
August 2016
September 2016
We do not anticipate that any purchases under our Board of Directors’ authorizations will be made from any officer, director or control
person.
We purchased 64,136 and 14,310 shares of common stock in the open market during the first and second quarters of fiscal year 2016,
respectively, at a weighted average price of $40.04 per common share in accordance with 2015 Authorizations.
Item 6. Selected Financial Data
The following tables present selected historical consolidated and combined financial information as of and for each of the fiscal years in
the five-year period ended September 30, 2016. The Consolidated and Combined Financial Statements as of and for the fiscal years ended
September 30, 2016, 2015 and 2014 include combined financial statement balances with Silver Nip Citrus, as result of our common control
acquisition in February 2015.
The selected historical financial data presented below should be reviewed in conjunction with our Consolidated and Combined Financial
Statements and the accompanying Notes thereto, included elsewhere in this Annual Report on Form 10-K.
(in thousands, except per share amounts)
Selected Statement of Operations Information:
Operating revenues
Income from operations
Net income attributable to common stockholders
Basic earnings per common share
Diluted earnings per common share
Cash dividends declared per common share
Selected Balance Sheet Information:
Cash and cash equivalents
Property and equipment, net
Total assets
Current portion of long-term debt
Long-term debt, net of current portion
Total Alico, Inc. stockholders' equity
Noncontrolling interest
2016
2015
September 30,
2014
2013
2012
$
$
$
$
$
$
$
$
$
$
$
$
$
144,196 $
21,846 $
6,993 $
0.84 $
0.84 $
0.24 $
153,126 $
19,505 $
13,214 $
1.64 $
1.64 $
0.24 $
104,003 $
9,383 $
9,495 $
1.29 $
1.29 $
0.24 $
101,661 $
11,935 $
19,646 $
2.69 $
2.67 $
0.36 $
5,474 $
381,099 $
460,088 $
4,511 $
200,970 $
170,704 $
4,807 $
31,130 $
142,610 $
273,613 $
24,583 $
131,071 $
198,840 $
3,581 $
68,769 $
162,487 $
— $
2,000 $
34,000 $
142,736 $
— $
6,625 $
379,247 $
458,662 $
4,493 $
192,726 $
173,490 $
4,773 $
18
127,187
23,742
18,489
2.51
2.51
0.20
13,328
122,834
185,083
3,267
36,633
127,846
—
During the fiscal year ended September 30, 2012, we utilized cash from operating and investing activities to reduce our outstanding debt by
approximately $17,258,000, resulting in a reduction in long-term debt obligations. Net income includes a gain on sale of real estate of
approximately $9,113,000 on the sale of land and impairment charges of approximately $1,918,000 on assets held for sale.
During the fiscal year ended September 30, 2013, net income includes the gain on sale of assets of approximately $20,300,000 related to
the closing of the Conservation Easement in fiscal 2013.
During the fiscal year ended September 30, 2014, net income includes the gain on sale of assets of approximately $7,748,000 related
primarily to the Polk and Martin County land sales and a gain on settlement of contingent consideration of $6,000,000.
During the fiscal year ended September 30, 2015, net income includes the gain on sale of assets of approximately $13,590,000 related to
the sale of real estate, approximately $8,366,000 of interest expense, approximately $1,051,000 loss on extinguishment of debt related to
the refinancing of our debt obligations, approximately $1,145,000 gain on bargain purchase related to acquisition of citrus business and an
impairment charge of approximately $541,000 on an asset held for sale.
During the fiscal year ended September 30, 2016, net income includes the gain on sale of assets of approximately $618,000 related to the
sale of real estate and approximately $9,893,000 of interest expense.
19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying Consolidated and Combined Financial
Statements and related Notes thereto.
Cautionary Statement Regarding Forward-Looking Information
We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis
and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in
this Annual Report on Form 10-K that are not historical facts are forward-looking statements. Forward-looking statements include, but
are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to
our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections
about our business based, in part, on assumptions made by our management. Factors which may cause future outcomes to differ materially
from those foreseen in forward-looking statements include, but are not limited to: changes in laws, regulation and rules; weather
conditions that affect production, transportation, storage, demand, import and export of fresh product and their by-products, increased
pressure from citrus greening and citrus canker; disruption of water supplies or changes in water allocations; pricing and supply of raw
materials and products; market responses to industry volume pressures; pricing and supply of energy; changes in interest rates;
availability of financing for land development activities and other growth opportunities; onetime events; acquisitions and divestitures
including our ability to achieve the anticipated results of the Orange-Co acquisition and Silver Nip Citrus merger; seasonality; labor
disruptions; inability to pay debt obligations; inability to engage in certain transactions due to restrictive covenants in debt instruments;
government restrictions on land use; changes in agricultural land values; changes in dividends; and market and pricing risks due to
concentrated ownership of stock. These assumptions are not guarantees of future performance and involve risks, uncertainties and
assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted
in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this
Annual Report on Form 10-K.
Introduction
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a holding company with assets and
related operations in agriculture, land management and natural resources. We are a Florida agribusiness and land management company,
with by a legacy of achievement and innovation in citrus, cattle and resource conservation. We own approximately 122,000 acres of land in
twelve Florida counties which includes approximately 90,000 acres of mineral rights. Our principal lines of business are citrus groves,
cattle ranching and conservation, and related support operations. Our mission is to create value for our customers and stockholders by
managing existing lands to their optimal current income and total returns, opportunistically acquiring new agricultural assets and producing
high quality agricultural products while exercising responsible environmental stewardship.
Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an
understanding of our results of operations, financial condition and changes in financial condition for the periods presented. This MD&A is
organized as follows:
•
•
•
•
Business Overview. This section provides a general description of our business, as well as other matters that we believe are
important in understanding our results of operations and financial condition.
Consolidated and Combined Results of Operations. This section provides an analysis of our results of operations for the three
fiscal years ended September 30, 2016. Our discussion is presented on a consolidated and combined basis and includes discussion
on future trends by segment.
Liquidity and Capital Resources. This section provides an analysis of our cash flows for the three fiscal years ended
September 30, 2016 and our outstanding debt, commitments and cash resources as of September 30, 2016.
Critical Accounting Policies. This section identifies those accounting policies that we consider important to our results of
operations and financial condition, require significant judgment and involve significant management estimates. Our significant
accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, "Summary of
Significant Accounting Policies," to the accompanying Consolidated and Combined Financial Statements.
20
Business Overview
Business Description
The Company generates operating revenues primarily from the sale of its citrus products and cattle ranching operations. The Company
operates as three segments and substantially all of its operating revenues are generated in the United States. During the fiscal year ended
September 30, 2016, the Company generated operating revenues of approximately $144,196,000, income from operations of approximately
$21,846,000, and net income attributable to common stockholders of approximately $6,993,000. Cash provided by operations was
approximately $30,357,000 during the fiscal year ended September 30, 2016.
Fiscal Year Highlights and Other Developments
Water Storage Contract Approval
In December 2012, the South Florida Water Management District (“SFWMD” or "District") issued a solicitation request for projects to be
considered for the Northern Everglades Payment for Environmental Services Program. The Company submitted its response proposing a
dispersed water management project on a portion of its ranch land and on December 11, 2014 the SFWMD approved a contract with the
Company and on September 29, 2015, the SFWMD amended the contract to extend it for an additional year.
The contract term is eleven years, and allows up to one year for implementation (design, permitting, construction and construction
completion certification) and ten years of operation whereby the Company will provide water retention services. Payment for these
services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed
payment of $12,000,000 for operations and maintenance costs as long as the project is in compliance with the contract.
Annual payments under the contract are subject to the SFWMD receiving funds for the project from the Florida Legislature and SFWMD
Governing Board budget appropriation. Funding for the first year of the dispersed water management project was included in the budget
approved in the 2016 legislative session.
Project permitting is in process, and the Company intends to commence construction upon receipt of permits. Annual fixed payments will
not commence until completion of construction.
Change in Fiscal Year of Subsidiary
As Alico, Inc. and 734 Citrus Holdings, LLC ("Silver Nip Citrus") were under common control at the time of the Merger, it is required
under accounting principles generally accepted in the United States of America ("U.S. GAAP") to account for this common control
acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting, the Company's
Consolidated and Combined Balance Sheets as of September 30, 2016 and 2015 reflect Silver Nip Citrus’ historical carryover basis in the
assets and liabilities, instead of reflecting the fair market value of the assets and liabilities. Alico has also retrospectively recast its financial
statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19,
2013.
Silver Nip Citrus’ fiscal year end was June 30. Their financial condition and results of operations as of and for the fiscal years ended June
30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the fiscal years ended
September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was changed to September
30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and 2015 now includes the
financial condition of Silver Nip Citrus as of September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal
years ended September 30, 2016 and 2015 now includes the Silver Nip Citrus results of operations for fiscal years ended September 30,
2016 and 2015, respectively. The Company’s results of operations for the fiscal year ended September 30, 2014 include the operating
results of Silver Nip Citrus from the date common control began, November 19, 2013 through September 30, 2014. The impact of this
change was not material to the Consolidated and Combined Financial Statements, with an approximate $492,000 decrease in total assets and
an approximate net loss of $596,000 for the transition period related to this change included in Stockholders' Equity at September 30, 2015.
Common Control Acquisition between the Company and 734 Citrus Holdings, LLC
Effective February 28, 2015, the Company completed the merger (the “Merger”) with Silver Nip Citrus pursuant to an Agreement and Plan
of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), Silver Nip Citrus
and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus. The ownership of
21
Silver Nip Citrus was held by 734 Agriculture, 74.89%, Mr. Clay Wilson, Chief Executive Officer of the Company, 5% and an entity
controlled by Mr. Clay Wilson owned, 20.11%.
On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s
outstanding common stock. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734
Agriculture is able to elect all of the Directors and, consequently, control the Company.
734 Agriculture has control over both Silver Nip Citrus and the Company. Therefore, the Merger was treated as a common control
acquisition.
At closing of the Merger, Merger Sub merged with and into Silver Nip Citrus, with Silver Nip Citrus and its affiliates surviving the Merger
as wholly-owned subsidiaries of the Company. Pursuant to the Merger Agreement, at closing the Company issued 923,257 shares of the
Company’s common stock, par value $1.00 per share, to the holders of membership interests in Silver Nip Citrus. Silver Nip Citrus’
outstanding net indebtedness at the closing of the Merger was approximately $40,278,000 and other liabilities totaled $8,446,000. The
Company acquired assets with a book value of approximately $65,739,000 and total net assets of $17,015,000. The common shares issued
were recorded at the carrying amount of the net assets transferred.
As of September 30, 2016, the former holders of membership interests (the "Members") in Silver Nip Citrus earned and were issued an
additional 148,705 shares of the Company’s common stock pursuant to the Merger Agreement. The additional purchase consideration was
based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves for
the 2014-2015 citrus harvest season. The Members are not expected to receive any additional Company common shares related to the
2014-2015 harvest season.
Orange-Co, LP Acquisition
On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP pursuant to an Asset
Purchase Agreement, which we refer to as the Orange-Co, LP Purchase Agreement, dated as of December 1, 2014 and 51% of the
ownership interests of Citree Holdings 1, LLC ("Citree"). The assets purchased include approximately 21,000 acres of citrus groves in
DeSoto and Charlotte Counties, Florida, which comprise one of the largest contiguous citrus grove properties in the state of Florida. Total
assets acquired were approximately $277,792,000, net of $2,060,000 in cash acquired and $4,838,000 in fair value attributable to the
noncontrolling interest in Citree, including: (1) $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane
disposition and new term debt; (2) $7,500,000 in additional cash consideration to be released from escrow in equal parts, subject to certain
limitations, on December 1, 2015 and June 1, 2016; (3) the refinancing of Orange-Co, LP’s outstanding debt including approximately
$92,290,000 in term loan debt and a working capital facility of approximately $27,857,000; and (4) the assumption of certain other
liabilities totaling $4,705,000. On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration, as
contemplated by the Orange-Co Purchase Agreement. The Company's $3,750,000 irrevocable letter of credit securing the final payment of
the additional consideration was terminated following the final cash consideration payment (see Note 3, "Acquisitions and Dispositions" to
the accompanying Consolidated and Combined Financial Statements).
22
Consolidated and Combined Results of Operations
The following discussion provides an analysis of Alico's results of operations and should be read in conjunction with the accompanying
Consolidated and Combined Statements of Operations and Comprehensive Income for the years ended September 30, 2016, 2015 and
2014:
(in thousands)
Operating revenues:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total operating revenues
Gross profit:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total gross profit
General and administrative expenses
Income from operations
Total other (expense) income, net
Income before income taxes
Provision for income taxes
Net income
Net loss attributable to noncontrolling interests
Net income attributable to Alico, Inc. common
stockholders
Fiscal Year Ended
September 30,
Fiscal Year Ended
Change
September 30,
Change
2016
2015
$
%
2015
2014
$
%
$ 137,282 $ 146,147 $ (8,865 )
275
(340)
(8,930 )
5,669
1,245
144,196
5,394
1,585
153,126
(6.1 )%
5.1 %
(21.5 )%
(5.8 )%
$ 146,147 $
5,394
1,585
153,126
74,768 $ 71,379
(2,778 )
8,172
(19,478 )
21,063
49,123
104,003
95.5 %
(34.0 )%
(92.5 )%
47.2 %
34,935
(724)
848
35,059
13,213
21,846
(9,366 )
12,480
5,521
6,959
34
35,911
586
(498)
35,999
16,494
19,505
4,583
24,088
10,905
13,183
31
(976)
(1,310 )
1,346
(940)
(2.7 )%
(223.5 )%
(270.3 )%
(2.6 )%
(3,281 )
2,341
(13,949 )
(11,608 )
(5,384 )
(6,224 )
3
(19.9 )%
12.0 %
(304.4 )%
(48.2 )%
(49.4 )%
(47.2 )%
9.7 %
35,911
586
(498)
35,999
16,494
19,505
4,583
24,088
10,905
13,183
31
19,812
2,049
(667)
21,194
16,099
(1,463 )
169
14,805
11,811
9,383
11,495
20,878
11,383
9,495
—
4,683
10,122
(6,912 )
3,210
(478)
3,688
31
81.3 %
(71.4 )%
(25.3 )%
69.9 %
39.6 %
107.9 %
(60.1 )%
15.4 %
(4.2 )%
38.8 %
— %
$
6,993 $
13,214 $ (6,221 )
(47.1 )%
$
13,214 $
9,495 $ 3,719
39.2 %
The following table presents our operating revenues, by segment, as a percentage of total operating revenues for the fiscal years ended
September 30, 2016, 2015 and 2014:
Operating revenues:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total operating revenues
Fiscal Year Ended
September 30,
2015
2016
2014
95.2%
4.0%
0.8%
100.0%
95.5%
3.6%
0.9%
100.0%
71.9%
7.9%
20.2%
100.0%
23
The following discussion provides an analysis of the Company's operating segments:
Orange Co.
The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except per box and per pound solids data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2016
2015
Unit
%
2015
2014
Unit
%
Operating Revenues:
Early and Mid-Season
Valencias
Fresh Fruit
Purchase and Resale of
Fruit
Other
$
43,909 $
75,311
5,173
51,926 $
76,624
6,116
8,188
4,701
7,970
3,511
Total
$ 137,282 $ 146,147 $
(8,017)
(1,313)
(943)
218
1,190
(8,865)
(811)
(374)
(1,185)
(64 )
(1,249)
(5,972)
(4,846)
(10,818 )
(15.4 )% $
(1.7)%
(15.4 )%
51,926 $
76,624
6,116
25,273 $ 26,653
42,529
34,095
3,773
2,343
2.7 %
33.9 %
(6.1)% $ 146,147 $
7,970
3,511
(2,126)
10,096
2,961
550
74,768 $ 71,379
(18.2 )%
(6.7)%
(11.8 )%
(13.7 )%
(11.9 )%
(22.8 )%
(13.4 )%
(17.4 )%
4,445
5,569
10,014
466
10,480
26,139
36,083
62,222
2,003
2,143
4,146
213
4,359
2,442
3,426
5,868
253
6,121
12,321
14,237
26,558
13,818
21,846
35,664
105.5 %
124.7 %
161.0 %
(21.1 )%
18.6 %
95.5 %
121.9 %
159.9 %
141.5 %
118.8 %
140.4 %
112.1 %
153.4 %
134.3 %
3,634
5,195
8,829
402
9,231
20,167
31,237
51,404
4,445
5,569
10,014
466
10,480
26,139
36,083
62,222
5.55
6.01
5.88
6.47
(0.33 )
(0.46 )
(5.6)%
(7.1)%
5.88
6.47
6.15
6.64
(0.27 )
(0.17 )
(4.4)%
(2.6)%
2.18 $
2.41 $
1.99 $
2.12 $
0.19
0.29
9.5 % $
13.7 % $
1.99 $
2.12 $
2.05 $
2.39 $
(0.06 )
(0.27 )
(2.9)%
(11.3 )%
12.85 $
13.12 $
(0.27 )
(2.1)% $
13.12 $
11.00 $
2.12
19.3 %
64,824 $
25,949
73,696 $
26,034
(8,872)
(85 )
(12.0 )% $
(0.3)%
73,696 $
26,034
30,106 $ 43,590
13,571
12,463
144.8 %
108.9 %
Boxes Harvested:
Early and Mid-Season
Valencias
Total Processed
Fresh Fruit
Total
Pound Solids Produced:
Early and Mid-Season
Valencias
Total
Pound Solids per Box:
Early and Mid-Season
Valencias
Price per Pound Solids:
Early and Mid-Season
Valencias
Price per Box:
Fresh Fruit
Operating Expenses:
Cost of Sales
Harvesting and Hauling
Purchase and Resale of
Fruit
Other
$
$
$
$
Total
$ 102,347 $ 110,236 $
7,815
3,759
7,652
2,854
163
905
(7,889)
2.1 %
31.7 %
(7.2)% $ 110,236 $
7,652
2,854
(2,320)
9,972
2,415
439
54,956 $ 55,280
(23.3 )%
18.2 %
100.6 %
Our citrus groves produce the majority of our annual operating revenues and the citrus grove business is seasonal because it is tied to the
growing and picking seasons. Historically, the second and third quarters of our fiscal year produce the majority of our annual revenues, and
our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our growing cycles.
We sell our Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. They
generally buy their citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of
fruit. Fresh Fruit is generally sold to packing houses that purchase their citrus on a per box basis. Other revenues consist of third-party
grove caretaking and the contracting for harvesting and hauling of citrus.
Our operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining
our citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and hauling
24
costs represent the costs of bringing citrus product to processors and varies based upon the number of boxes produced. Other expenses
include the period costs of third-party grove caretaking, and the contracting for harvesting and hauling activities.
The decrease in revenues for the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015, was
primarily due to the harvesting of approximately 1,185,000 fewer boxes of fruit and lower pound solids per box on higher price per pound
solids. The resale of third party fruit increased by approximately 6,000 boxes for the fiscal year ended September 30, 2016, as compared to
the fiscal year ended September 30, 2015. The increase in other revenues primarily relates to an additional 169,000 boxes contracted for
harvest and haul for a third party, as compared to the fiscal year ended September 30, 2015.
The increase in revenues for the fiscal year ended September 30, 2015, as compared to fiscal year ended September 30, 2014, was
primarily due to the acquisition of the assets of Orange-Co, LP in December 2014. Acquisition-related revenues were approximately
$72,600,000 for the fiscal year ended September 30, 2015. Acquisition revenues represented approximately 52.0% of total citrus grove
revenues for the fiscal year ended September 30, 2015. In addition, acquisition-related boxes harvested and pound solids produced were
approximately 5,300,000 and 33,300,000 for the fiscal year ended September 30, 2015, which represented approximately 50.6% and 53.6%
of our total boxes harvested and pound solids produced for the fiscal years ended September 30, 2015. We included the financial results of
the acquired assets of Orange-Co, LP in the accompanying Consolidated and Combined Financial Statements from the date of acquisition,
December 2014.
Total boxes harvested in fiscal year 2016 declined by approximately 11.9%, as compared to fiscal year 2015. Pound solids per box also
declined by approximately 5.6% and 7.1% for the Early and Mid-Season and Valencia oranges, respectively, which resulted in
approximately 10,818,000 less pound solids sold in fiscal year 2016 as compared to fiscal year 2015. The increases in boxes harvested and
pound solids produced in fiscal year 2015, as compared to fiscal year 2014, were a result of the Orange-Co acquisition as well as Silver Nip
Citrus' acquisition of the TRB grove and the acquisition of Crossing Grove (see Note 3, "Acquisitions and Dispositions" to the
accompanying Consolidated and Combined Financial Statements). Excluding these acquisitions, total boxes harvested declined by
approximately 4.0%, as compared to fiscal year 2014. Pound solids per box also declined by approximately 4.4% and 2.4% for the Early
and Mid-Season and Valencia oranges, respectively.
These declines in both boxes harvested and pound solids produced in fiscal years 2016 and 2015 are believed to be mainly driven by
growing season fluctuations in production which may have been attributable to various factors, including extreme weather patterns such as
higher than normal temperatures during the Early and Mid-season harvest impacting all varieties and El Nino impacting the pound solids
per box. Other factors include changes in weather impacting bloom, horticultural practices, and the effects of diseases and pests, including
Citrus Greening. The industry and the Company both continue to experience premature fruit drop, as well as smaller-sized fruit as a result
of the factors described above. Additionally, on March 4, 2016, the Florida Commissioner of Agriculture exercised his authority under the
Section 1B Emergency Exemptions provisions of the Federal Insecticide, Fungicide and Rodenticide Act to allow use of certain foliar
bactericide applications. The Environmental Protection Agency approved the emergency exception effective August 15, 2016 through
December 31, 2016. The Florida Department of Agriculture and Consumer Services, at that time, will make a determination as to whether
or not to request emergency exceptions for the next calendar year. These bactericides are approved and successfully applied on other
permanent crops throughout the United States. Orange Co. began application of these bactericides to all of its groves in April 2016. The
Company is encouraged by the potential of foliar bactericide treatments to enhance the overall health of citrus trees and thereby mitigate
the impact of citrus greening.
The USDA, in its November 9, 2016 Citrus Crop Forecast for the 2016-17 harvest season, indicated that the Florida orange crop will
decrease from approximately 81,600,000 boxes for the 2015-16 crop year to approximately 72,000,000 boxes for the 2016-17 crop year, a
decrease of approximately 11.8%. The 2015-16 Florida orange crop declined by approximately 15,350,000 boxes or approximately 15.8%
compared to the 2014-15 crop.
We estimate our 2017 processed boxes will decrease by approximately 4.5% compared to our fiscal year 2016 processed boxes, on a per
acre basis. For fiscal year 2017, we expect that the forecasted 14.2% decrease in the size of the statewide crop could cause the price per
pound solids for fiscal year 2017 to be above the price per pound solid for fiscal year 2016. We expect that our operating expenses for
fiscal year 2017 will remain consistent with fiscal year 2016 on a per acre basis.
The decrease in gross profit for fiscal year 2016, as compared to fiscal year 2015 related primarily to decreased revenues of approximately
$8,865,000 discussed above partially offset by decreased operating expenses of approximately $7,889,000 primarily related to decreased
cost of sales. The increase in gross profit for the fiscal year ended September 30, 2015, as compared to fiscal year ended September 30,
2014, was primarily due to the acquisition of the assets of Orange-Co, LP in December 2014. Acquisition-related gross profit was
approximately $17,900,000 for the fiscal year ended September 30, 2015.
25
Conservation and Environmental Resources
The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except per pound data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2016
2015
Unit
%
2015
2014
Unit
%
4,078 $
526
852
213
5,669 $
3,805 $
511
851
227
5,394 $
2,503
714
1,550
446
273
15
1
(14 )
275
953
268
7.2 % $
2.9 %
0.1 %
(6.2)%
5.1 % $
3,805 $
511
851
227
5,394 $
5,735 $ (1,930)
(607)
1,118
(130)
981
(111)
338
8,172 $ (2,778)
(33.7 )%
(54.3 )%
(13.3 )%
(32.8 )%
(34.0 )%
61.5 %
60.1 %
1,550
446
2,964
1,181
(1,414)
(735)
(47.7 )%
(62.2 )%
1.63 $
0.74 $
2.45 $
1.15 $
(0.82 )
(0.41 )
(33.5 )% $
(35.7 )% $
2.45 $
1.15 $
1.93 $
0.95 $
0.52
0.20
26.9 %
21.1 %
3,395 $
299
298
2,322
79
6,393 $
2,248 $
220
1,147
79
51.0 % $
35.9 %
214
2,126
—
4,808 $
84
196
79
1,585
39.3 %
9.2 %
NM
33.0 % $
2,248 $
220
214
2,126
—
4,808 $
3,569 $ (1,321)
(236)
456
(37.0 )%
(51.8 )%
274
1,793
31
(60 )
333
(31 )
6,123 $ (1,315)
(21.9 )%
18.6 %
(100.0)%
(21.5 )%
Revenue From:
Sale of Calves
Sale of Culls
Land Leasing
Other
Total
Pounds Sold:
Calves
Culls
Price Per Pound:
Calves
Culls
Operating Expenses:
Cost of Calves Sold
Cost of Culls Sold
Land Leasing
Expenses
Water Conservation
Other
Total
NM - Not Meaningful
Ranch
$
$
$
$
$
$
The increase in revenues from the sale of calves in fiscal year 2016, as compared to fiscal year 2015, is primarily due to the increase in
pounds sold, partially offset by a decrease in price per pound. The slight increase in revenues from the sale of culls in fiscal year 2016, as
compared to fiscal year 2015, results from an increase in pounds sold, partially offset by a decrease in price per pound. The decrease in
gross profit for fiscal year 2016, as compared to fiscal year 2015, relates primarily to the decrease in price per pound sold for calves and
culls. The decrease in pounds sold during fiscal year 2015 relates primarily to the timing of calf sales and retaining calves to maintain the
breeding herd. Approximately 892 calves from fiscal 2016 will be retained.
The decrease in revenues from the sale of calves in fiscal year 2015, as compared to fiscal year 2014, is primarily due to the decrease in
pounds sold, partially offset by an increase in price per pound. The decrease in revenues from the sale of culls in fiscal year 2015, as
compared to fiscal year 2014, results from a decrease in pounds sold, partially offset by an increase in price per pound. The decrease in
gross profit for fiscal year 2015, as compared to fiscal year 2014, relates primarily to the decrease in pounds sold of beef, offset by the
increase in the price per pound sold for calves and culls. The decrease in pounds sold during fiscal year 2015 relates primarily to the timing
of calf sales and retaining calves to maintain the breeding herd. Approximately 950 calves were retained.
For fiscal year 2017, we expect to have a breeding herd of approximately 8,800 cows which includes retaining an additional 1,200 calves to
further expand the breeding herd. We expect that the price per pound of beef sold will be approximately 10.0% less than fiscal year 2016
and will sell total pounds of beef in line with fiscal year 2016. We expect operating expenses for fiscal year 2017 to remain relatively
consistent with fiscal year 2016.
26
Conservation
In December 2012, the SFWMD issued a solicitation request for projects to be considered for the Northern Everglades Payment for
Environmental Services Program. In March 2013, the Company submitted its response proposing a dispersed water management project on
a portion of its ranch land.
On December 11, 2014, the SFWMD approved a contract with the Company. The contract term is eleven years and allows up to one year
for implementation (design, permitting, construction and construction completion certification) and ten years of operation, whereby the
Company will provide water retention services. Payment for these services includes an amount not to exceed $4,000,000 of reimbursement
for implementation. In addition, it provides for an annual fixed payment of $12,000,000 for operations and maintenance costs, as long as
the project is in compliance with the contract and subject to annual Board approval of funding. The contract specifies that the Board has to
approve the payments annually and there can be no assurance that it will approve the annual fixed payments. The Florida budget for the
state’s 2016/2017 fiscal year was recently approved and included funding for the Program. Permitting is currently underway with
construction to follow immediately upon receipt of permits. It is anticipated that payments under the contract should commence in fiscal
year 2017. Operating expenses were approximately $2,322,000, $2,126,000 and $1,793,000 for the three years ended September 30, 2016,
2015 and 2014, respectively.
Other Operations
The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except per net standard ton and per acre data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2016
2015
Unit
%
2015
2014
Unit
%
Revenue From:
Sale of Sugarcane
Molasses Bonus
USSC Lease
Other Leases
Total
Net Standard Tons Sold
Price Per Net Standard
Ton:
Sale of Sugarcane
Molasses
Net Standard Tons/Acre
Operating Expenses:
Cost of Sales
Harvesting and Hauling
Land Leasing Expenses
Guarantee Payment to Global
Total
NM = Not material
$
$
$
$
$
— $ — $
—
—
1,245
1,245 $ 1,585 $
—
503
1,082
—
—
—
—
(503)
163
(340)
—
— $ — $
—
—
—
—
—
—
—
—
— $ — $
—
—
(1,211)
397
—
(475)
397 $ 2,083 $ (1,686)
—
1,608
475
—
—
(100)%
15.1 %
(21.5 )%
—
—
—
—
—
—
(75.3 )%
(100)%
(80.9 )%
$
$
$
$
— $
—
503
1,082
1,585 $
—
17,428 $
817
1,389
1,429
21,063 $
590
(17,428 )
(817)
(886)
(347)
(19,478 )
(590)
— $
—
—
29.54 $
1.38
35.20
(29.54)
(1.38 )
(35.2 )
— $
—
1,608
475
2,083 $
14,368 $
3,759
3,603
—
21,730 $
(14,368 )
(3,759)
(1,995)
475
(19,647 )
(100)%
(100)%
(63.8 )%
(24.3 )%
(92.5 )%
NM
(100)%
(100)%
(100)%
(100)%
(100)%
(55.4 )%
NM
(90.4 )%
On May 19, 2014, the Company entered into a triple net agricultural lease with its sole sugarcane customer, USSC, on approximately
19,181 acres of land planted or plantable to sugar in Hendry County, Florida. As a result of the lease, the Company was no longer directly
engaged in sugarcane farming. The annual base rent under the USSC Lease was approximately $3,548,000 and the Company recognized
approximately $503,000 and $1,389,000 for the fiscal years ended September 30, 2015 and 2014, respectively.
On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land
leasing to Global for $97,913,921 in cash. The USSC Lease was assigned to Global in conjunction with the land sale. As a
27
result of the disposition of our sugarcane land, we are no longer involved in sugarcane and, as of November 1, 2014, the Improved
Farmland segment is no longer material to our business and is now included in the Other Operations segment.
The sales price is subject to post-closing adjustments over a ten (10)-year period. The Company realized a gain of approximately
$42,753,000 on the sale. Initially, approximately $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the
property pursuant to a post-closing agreement and the potential price adjustments. The deferral represents the Company’s estimate of the
maximum exposure to loss as a result of the continuing involvement. The USSC Lease is tied to the market price of sugar, and a guarantee
payment is required annually, in advance, to supplement the rent paid by USSC in the event that the sugar prices are below certain
thresholds. In fiscal year 2015, the sugar prices did not rise above the threshold and the Company paid approximately $475,000 to Global.
General and Administrative
General and administrative expenses for the fiscal year ended September 30, 2016 were approximately $13,213,000 compared to
approximately $16,494,000 for the fiscal year ended September 30, 2015. The decrease in general and administrative expenses in fiscal
year 2016 relates primarily to an approximate $4,700,000 decrease in professional and legal fees associated with the Orange-Co, LP and
Silver Nip acquisitions in fiscal year 2015 and an approximate $138,000 decrease in separation and consulting agreement expenses, offset
by certain fiscal year 2016 expenses including approximately $506,000 in legal fees and settlement charges related to the shareholder
litigation.
The increase of approximately $4,683,000 in general and administrative expenses for the fiscal 2015, as compared to fiscal year 2014,
relates primarily to professional and legal costs associated with the acquisitions, dispositions and mergers, as described in the
accompanying Consolidated and Combined Financial Statements, which totaled approximately $6,485,000 and $2,639,000 for the fiscal
years 2015 and 2014, respectively. The costs included approximately $5,592,000 in transaction and other real estate closing costs and
approximately $893,000 related to other consulting costs for the fiscal year 2015. Excluding the transaction-related costs noted, the overall
general and administrative increase relates to the significantly expanded size of the Company from fiscal year 2014 to fiscal year 2015.
Other (Expense) Income, net
Other (expense) income, net decreased by approximately $13,949,000 in fiscal year 2016, as compared to fiscal year 2015, due to
approximately $12,972,000 decrease in gains on sale of real estate and approximately $1,527,000 in increased interest expense primarily
due to the refinanced term loan debt from the Orange-Co, LP asset acquisition in December 2014.
Other (expense) income, net decreased by approximately $6,912,000 in fiscal year 2015, as compared to fiscal year 2014, due to
approximately $5,998,000 increase in interest expense primarily due to the refinanced term loan debt from the Orange-Co, LP asset
acquisition and a $6,000,000 gain on settlement of contingent consideration arrangement recognized in fiscal year 2014 offset by
approximately $5,842,000 decrease in gains on sale of real estate.
Provision for Income Taxes
For the fiscal years ended September 30, 2016, 2015 and 2014, the provision for income taxes was approximately $5,521,000, $10,905,000,
and $11,383,000, respectively, and the related effective income tax rates were approximately 44.2%, 45.3% and 54.5%, respectively.
During fiscal year 2015, the Company revised effective income tax rates to reflect the impact of claiming certain deductions on amended
federal and state income tax returns filed for the fiscal years ended September 30, 2011 through September 30, 2013. Other changes to the
effective tax rates relate primarily to the nondeductible nature of political contributions and lobbying expenses. In addition, there were
limitations on certain deductions related to the vesting of the long-term incentive grants for fiscal year 2014, and non-deductible transaction
costs related to the Silver Nip Citrus merger for fiscal year 2015. In addition, in fiscal 2016, the Company identified a $1,494,000 error
related to an understatement of income tax expense for the fiscal year ended September 30, 2014. As previously noted, the Company and
Silver Nip Citrus were under common control at the time of the Merger and, accordingly, we retrospectively recast our financial statements
to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013. Silver
Nip Citrus had a September 30 year end for tax reporting purposes at the time of the Merger. The tax returns for the year ended September
30, 2014 and the short period ended February 28, 2015, date of the Merger, were prepared and filed in the second quarter of fiscal 2016.
The Company reviewed the as-filed tax returns in an effort to true-up the tax provision. During this review, the Company identified the
error that impacts the Silver Nip Citrus financial condition and results of operations as of and for the period ended June 30, 2014.
28
The Internal Revenue Service ("IRS") has concluded their audits of the Company’s income tax returns for the fiscal years ended September
30, 2013, 2012 and 2011 with no income tax adjustments.
Seasonality
Historically, the second and third quarters of Alico's fiscal year produce the majority of the Company's annual revenue. Working capital
requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Because of the
seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Liquidity and Capital Resources
A comparative balance sheet summary is presented in the following table:
(in thousands)
September 30,
Cash and cash equivalents
Total current assets
Total current liabilities
Working capital
Total assets
Term loans and line of credit
Current ratio
2016
2015
Change
$
$
$
$
$
$
6,625 $
73,108 $
18,731 $
54,377 $
458,662 $
202,219 $
3.90 to 1
5,474 $
70,763 $
24,134 $
46,629 $
460,088 $
205,481 $
2.93 to 1
1,151
2,345
(5,403 )
7,748
(1,426 )
(3,262 )
Our business has historically generated positive net cash flows from operations. Sources of cash primarily include cash flows from
operations, amounts available under our credit facilities and access to capital markets. Our access to additional borrowings under our
revolving lines of credit is subject to the satisfaction of customary borrowing conditions. As a public company, we may have access to
other sources of capital. However, our access to, and the availability of, financing on acceptable terms in the future will be affected by
many factors, including (i) our financial condition, prospects and credit rating, (ii) the liquidity of the overall capital markets and (iii) the
state of the economy. There can be no assurance that we will continue to have access to the capital markets on acceptable terms or at all.
The principal uses of cash that affect our liquidity position include the following: operating expenses including employee costs, the cost of
maintaining our citrus groves, harvesting and hauling of our citrus products, capital expenditures, income tax payments, acquisitions,
dividends, and debt service costs including interest and principal payments on our term loans and other credit facilities. In addition to the
acquisitions and dispositions disclosed elsewhere, we have evaluated and expect to continue to evaluate possible acquisitions and
dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of other securities or the
assumption of indebtedness.
Management believes that a combination of cash-on-hand, cash generated from operations and availability under the Company's lines of
credit will provide sufficient liquidity to service the principal and interest payments on its indebtedness and will satisfy working capital
requirements and capital expenditures for at least the next twelve months and over the long term. Alico has a $70,000,000 working capital
line of credit, of which approximately $59,800,000 is available for general use as of September 30, 2016, and a $25,000,000 revolving line
of credit, of which $20,000,000 is available for general use as of September 30, 2016 (see Note 5. “Long-Term Debt and Lines of Credit" to
the accompanying Consolidated and Combined Financial Statements). If the Company pursues significant growth opportunities in the
future, it could have a material adverse impact on its cash balances and may need to finance such activities by drawing down monies under
its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to
the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional
financing could impact Alico's ability to pursue different growth opportunities.
Our level of debt could have important consequences on our business, including, but not limited to, increasing our vulnerability to general
adverse economic and industry conditions, limiting the availability of our cash flow to fund future investments, capital expenditures,
working capital, business activities and other general corporate requirements and limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate.
29
Cash Management Impacts
Cash and cash equivalents increased approximately $1,151,000 for the fiscal year ended September 30, 2016, as compared to the fiscal year
ended September 30, 2015; Cash and cash equivalents decreased by approximately $25,656,000 for the fiscal year ended September 30,
2015, as compared to the fiscal year ended September 30, 2014; and increased approximately $3,879,000 for the fiscal year ended
September 30, 2014 as compared to the fiscal year ended September 30, 2013. The components of these changes are discussed below.
Consolidated and Combined Statements of Cash Flows
The following table details the items contributing to the Consolidated and Combined Statement of Cash Flows for fiscal years 2016, 2015
and 2014:
(in thousands)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
NM - Not Meaningful
$
$
Net Cash Provided By Operating Activities
Fiscal Year Ended September 30,
2014
2015
2016
25,063
30,357 $
33,726 $
(21,988)
(13,034)
804
(16,172)
3,879
(177,057)
117,675
(25,656) $
1,151 $
% Change
2016 vs 2015
(10.0)%
(92.6)%
(113.7)%
2015 vs 2014
34.6%
NM
NM
(104.5)%
NM
The following table details the items contributing to Net Cash Provided by Operating Activities for the fiscal years 2016, 2015 and 2014:
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
Net income
Gain on sale of sugarcane land
Depreciation and amortization
Deferred income tax expense
Loss (gain) on sale of property and
equipment
Impairment of asset held for sale
Loss on extinguishment of debt
Non-cash interest expense on deferred gain
on sugarcane land
Stock-based compensation expense
Other, including working capital changes
Net cash provided by operating activities
$
Change
$
2016
6,959 $
(618)
15,382
5,277
2015
13,183 $
(13,734)
14,732
12,350
(6,224) $
13,116
650
(7,073)
2015
13,183 $
(13,734)
14,732
12,350
2014
Change
3,688
(13,734)
5,094
5,544
9,495 $
—
9,638
6,806
443
—
—
(473)
541
457
916
(541)
(457)
(473)
541
457
(7,297)
—
—
1,406
925
583
30,357 $
607
952
5,111
33,726 $
799
(27)
(4,528)
(3,369) $
607
952
5,111
33,726 $
—
1,835
4,586
25,063 $
6,824
541
457
607
(883)
525
8,663
The decrease in net income for the year September 30, 2016 compared to the year ended September 30, 2015 is related primarily to the
gain on the sale of our sugarcane land recognized in fiscal 2015 as discussed in Note 3. "Acquisitions and Dispositions" to the Consolidated
and Combined Financial Statements. Changes in income from operations are discussed in “Consolidated and Combined Statements of
Results of Operations.”
30
The increase in net income for the year ended September 30, 2015 compared to the year ended September 30, 2014 is related primarily to
the gain on the sale of our sugarcane land in fiscal year 2015 as discussed in Note 3. "Acquisitions and Dispositions" to the Consolidated
and Combined Financial Statements and an increase in income from operations as discussed in “Consolidated and Combined Statements of
Results of Operations.”
Net Cash Used In Investing Activities
The following table details the items contributing to Net Cash Used in Investing Activities for the fiscal years 2016, 2015 and 2014:
(in thousands)
Fiscal Year Ended September
30,
Fiscal Year Ended
September 30,
Capital expenditures
Acquisition of citrus business
Proceeds from sale of assets
Other
Net cash used in investing activities
$
$
Change
2016
(14,305) $
—
799
472
2015
(11,523) $
(265,587)
99,114
939
(2,782) $
265,587
(98,315)
(467)
2015
(11,523) $
(265,587)
99,114
939
(13,034) $ (177,057) $ 164,023 $ (177,057) $
2014
(13,280) $
(32,769)
20,237
3,824
(21,988) $
Change
1,757
(232,818)
78,877
(2,885)
(155,069)
The decrease in net cash used in investing activities for the fiscal year ended September 30, 2016, as compared to the fiscal year ended
September 30, 2015, was primarily due to the acquisition of Orange-Co for approximately $265,600,000 in December 2014, partially offset
by the utilization of proceeds from the disposition of Alico's sugarcane land of approximately $97,200,000 via a tax-deferred like-kind
exchange pursuant to Internal Revenue Code Section 1031 (see Note 3. “Acquisitions and Dispositions" to the accompanying Consolidated
and Combined Financial Statements).
The increase in net cash used in investing activities for the fiscal year ended September 30, 2015, as compared to the fiscal year ended
September 30, 2014 was primarily due to the acquisition of Orange-Co for approximately $265,600,000 in December 2014, partially offset
by the utilization of proceeds from the disposition of Alico's sugarcane land in fiscal 2015 of approximately $97,200,000 via a tax-deferred
like-kind exchange pursuant to Internal Revenue Code Section 1031 (see Note 3. “Acquisitions and Dispositions" to the accompanying
Consolidated and Combined Financial Statements) and a decrease of approximately $1,757,000 in capital expenditures.
31
Net Cash (Used In) Provided By Financing Activities
The following table details the items contributing to Net Cash (Used in) Provided by Financing Activities for the fiscal year ended
September 30, 2016, 2015 and 2014:
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
Borrowings notes payable
Proceeds from term loans
Repayments on revolving line of credit
Borrowings on revolving line of credit
Repayment of term loan
Principal payments on term loans
Contingent consideration paid
Financing costs
Treasury stock purchases
Dividends paid
Distributions to members
Capital lease obligation payments
Net cash (used in) provided by financing
activities
2016
2015
Change
2015
$
— $
— $
— $
— $
2,500
(53,882)
58,882
—
(10,761)
(7,500)
—
(3,141)
(1,993)
—
(277)
184,500
(87,031)
81,031
(34,000)
(17,870)
—
(2,834)
(4,013)
(1,877)
—
(231)
(182,000)
33,149
(22,149)
34,000
7,109
(7,500)
2,834
872
(116)
—
(46)
184,500
(87,031)
81,031
(34,000)
(17,870)
—
(2,834)
(4,013)
(1,877)
—
(231)
Change
2014
11,000 $ (11,000)
184,500
(84,631)
77,390
(34,000)
(14,662)
—
(2,834)
831
903
605
(231)
—
(2,400)
3,641
—
(3,208)
—
—
(4,844)
(2,780)
(605)
—
$
(16,172) $
117,675 $ (133,847) $
117,675 $
804 $ 116,871
The decrease in net cash provided by financing activities for the year ended September 30, 2016, as compared to the year ended
September 30, 2015 was primarily due to net proceeds from the Company’s restructured long-term debt on December 3, 2014, in
connection with the Orange-Co acquisition (see Note 5. “Long-term Debt and Lines of Credit” to the accompanying Consolidated and
Combined Financial Statements). The restructured credit facilities included $125,000,000 in fixed interest rate term loans and $57,500,000
in variable interest rate term loans. The proceeds of the new credit facilities were partially offset by the repayment of an existing
$34,000,000 variable interest rate term loan in fiscal year 2015.
Alico drew, on a net basis, $5,000,000 and repaid $6,000,000 on its revolving lines of credit, primarily to manage working capital
requirements and investing activities for the years ended September 30, 2016 and 2015, respectively. The decrease in principal payments on
term loans for the year ended September 30, 2016, compared to the year ended September 30, 2015, relates to an $8,750,000 optional
principal prepayment on the fixed term loan made in fiscal year 2015. There have been no prepayments for the year ended September 30,
2016. Outstanding balances on the Company's $20,000,000 line of credit secured by real estate were $5,000,000 and zero at September 30,
2016 and 2015, respectively.
On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration on the Orange-Co acquisition, as
contemplated by the Orange-Co Purchase Agreement. Alico's $3,750,000 irrevocable letter of credit securing the final payment of the
additional consideration was terminated following the final cash consideration payment.
The increase in net cash provided by financing activities for the year ended September 30, 2015 compared to the year ended September 30,
2014 was primarily due to net proceeds from the Company’s restructured long-term debt on December 3, 2014, in connection with the
Orange-Co acquisition (see Note 5. “Long-term Debt and Lines of Credit” to the accompanying Consolidated and Combined Financial
Statements). The proceeds of the new credit facilities were partially offset by the repayment of an existing $34,000,000 variable interest
rate term loan in fiscal year 2015. Alico repaid, on a net basis, $6,000,000 and drew $1,241,000 on its revolving lines of credit for the years
ended September 30, 2015 and 2014, respectively, to manage working capital requirements and investing activities.
The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of September 30,
2016, there was approximately $10,200,000 in outstanding letters of credit which correspondingly reduced Alico's availability under the
line of credit. There was no outstanding balance on the WCLC as of September 30, 2016.
32
Contractual Obligations and Off Balance Sheet Arrangements
We have various contractual obligations which are fixed and determinable. The following table presents our significant contractual
obligations and commercial commitments on an undiscounted basis as of September 30, 2016 and the future periods in which such
obligations are expected to be settled in cash.
(in thousands)
Long-term debt
Interest on long-term debt
Retirement benefits
Consulting/non-compete agreement
Operating leases
Capital leases
Tree purchase commitments
Total
Purchase Commitments
Total
Payments Due by Period
1-3 Years
<1 Year
3-5 Years
5+ Years
$
$
202,219 $
68,829
12,616
100
1,021
588
222
285,595 $
4,493 $
7,539
348
100
662
288
222
13,652 $
19,200 $
14,241
535
—
358
300
—
34,634 $
30,940 $
12,390
420
—
1
—
—
43,751 $
147,586
34,659
11,313
—
—
—
—
193,558
Alico, through its wholly owned subsidiary Alico Fruit Company, previously entered into contracts for the purchase of citrus fruit during
the normal course of its business. These obligations were typically covered by sales agreements. Alico Fruit Company is no longer engaged
in contracted purchase and resale of fruit, and there were no obligations outstanding at September 30, 2016.
Alico enters into fruit marketing agreements to purchase fruit from certain third party growers in connection with providing caretaking
services to these growers. These obligations are typically covered by sales agreements.
33
Critical Accounting Policies
Our Consolidated and Combined Financial Statements are prepared in accordance with U.S. GAAP, which requires management to make
estimates, judgments and assumptions that affect the amounts reported in those financial statements and accompanying notes. Management
considers an accounting policy to be critical if it is important to our financial condition and results of operations and if it requires significant
judgment and estimates on the part of management in its application. We consider policies relating to the following matters to be critical
accounting policies:
Revenue Recognition
Revenues from agricultural crops are recognized at the time the crop is harvested and delivered to the customer. The Company recognizes
revenues from cattle sales at the time the cattle are delivered. Management reviews the reasonableness of the revenue accruals quarterly
based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made
throughout the fiscal year to these estimates as more current relevant information regarding the specific markets become available.
Differences between the estimates and the final realization of revenues can be significant and can be either positive or negative. During the
periods presented in this Annual Report on Form 10-K, no material adjustments were made to the reported revenues from our crops.
Alico Fruit Company ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to other
citrus growers in the state of Florida. AFC also purchases and resells citrus fruit; in these transactions, AFC (i) acts as a principal; (ii) takes
title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns. Therefore,
AFC recognizes revenues based on the gross amounts due from customers for its marketing activities. Supply chain management service
revenues are recognized when the services are performed.
Inventory
We capitalize the cost of growing crops into inventory until the time of harvest. Once a given crop is harvested, the related inventoried
costs are recognized as cost of sales to provide an appropriate matching of costs incurred with the related revenues recognized. We record
inventory at the lower of cost or net realizable value. Management regularly assesses estimated inventory valuations based on current and
forecasted usage of the related commodity, observable prices, estimated completion costs and other relevant factors that may affect the net
realizable value.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major improvements are capitalized while
maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting
of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads and reservoirs among other
costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove is
considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation,
which are considered costs of land and not depreciated.
The breeding herd consists of purchased animals and replacement breeding animals raised on our ranch. Purchased animals are stated at the
cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use.
Breeding animals are depreciated over 5-7 years.
Income Taxes
In preparing our Consolidated and Combined Financial Statements, significant judgment is required to estimate our income taxes. Our
estimates are based on our interpretations of federal and state laws. Deferred income taxes are recognized for the income tax effect of
temporary differences between financial statement carrying amounts and the income tax basis of assets and liabilities. We regularly review
our deferred tax assets to determine whether future taxable income will be sufficient to realize the benefits of these assets. A valuation
allowance is provided for deferred income tax assets for which it is deemed, more likely than not, that future taxable income will not be
sufficient to realize the related income tax benefits from these assets. The amount of the net deferred income tax asset that is considered
realizable could be adjusted if estimates of future taxable income are adjusted. We apply a “more likely than not” threshold to the
recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of
such change. Adjustments to temporary differences, permanent differences or uncertain tax positions could materially impact our financial
position, cash flows and results of operations.
34
Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial
Accounting Standards Board - Accounting Standards Codification TM ("FASB ASC") No. 805, “Business Combinations”, which requires
the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed and any noncontrolling
interest in the acquiree and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes
assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and noncontrolling interest in
the acquiree, based on fair value estimates as of the date of acquisition. In accordance with FASB ASC No. 805, the Company recognizes
and measures goodwill, if any, as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the
identified net assets acquired.
When we acquire a business from an entity under common control, whereby the companies are ultimately controlled by the same party or
parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting, whereby the assets and
liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.
Impairment of Long-Lived Assets
We evaluate property, cattle, equipment and other long-lived assets for impairment when events or changes in circumstances (triggering
events) indicate that the carrying value of assets contained in our financial statements may not be recoverable. Depending on the asset
under review, we use varying methods to determine fair value, such as discounting expected future cash flows, determining resale values
by market or applying a capitalization rate to net operating income using prevailing rates for a given market. Unfavorable changes in
economic conditions and net operating income for a specific property will change our estimates. If an impairment loss is recognized, the
adjusted carrying amount of the asset becomes its cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated or
amortized over the remaining useful life of that asset. As of September 30, 2016, long-lived assets included property and equipment and
intangible assets.
Fair Value Measurements
The carrying amounts in the balance sheets for operating accounts receivable, mortgages and notes receivable, accounts payable and
accrued liabilities approximate fair value because of the immediate or short term maturity of these items. When stated interest rates are
below market, we discount mortgage notes receivable to reflect their estimated fair value. We carry our investments at fair value. The
carrying amounts reported for our long-term debt approximates fair value as our borrowings with commercial lenders are at interest rates
that vary with market conditions and fixed rates that approximate market rates for comparable loans.
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e., exit price) in an orderly
transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of
three different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety
based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:
Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are
not active for which significant inputs are observable, either directly or indirectly.
Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the
overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the
asset or liability at the measurement date.
Impact of Accounting Pronouncements
See Item 8. "Financial Statements and Supplemental Data" - Note 1. "Description of Business and Basis of Presentation" for additional
information about the impact of accounting pronouncements.
35
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market Risk - Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either
derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices.
The Company handles market risks in accordance with its established policies; however, Alico does not enter into derivatives or other
financial instruments for trading or speculative purposes. The Company does consider, on occasion, the need to enter into financial
instruments to manage and reduce the impact of changes in interest rates; however, the Company entered into no such instruments during
the three-year period ended September 30, 2016. The Company held various financial instruments as of September 30, 2016 and 2015,
consisting of financial assets and liabilities reported in the Company’s Consolidated and Combined Balance Sheets and off-balance sheet
exposures resulting from letters of credit issued for the benefit of Alico.
Interest Rate Risk - The Company is subject to interest rate risk from the utilization of financial instruments such as term loan debt and
other borrowings. The Company’s primary long-term obligations are fixed rate debts subject to fair value risk due to interest rate
fluctuations. The Company believes that the carrying value of our long-term debt approximates fair value given the stability of market
interest rates.
The Company is also subject to interest rate risk on its variable rate debt. A one-percentage-point increase in prevailing interest rates would
have increased interest expense on our variable rate debt obligations by approximately $626,000 before income taxes for the fiscal year
ended September 30, 2016.
Foreign-Exchange Rate Risk - The Company currently has no exposure to foreign-exchange rate risk because all of its financial
transactions are denominated in U.S. dollars.
Commodity Price Risk - The Company has no financial instruments subject to commodity price risk.
Equity Security Price Risk - None of the Company’s financial instruments have potential exposure to equity security price risk.
36
Item 8. Financial Statements and Supplementary Data
Index to Consolidated and Combined Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated and Combined Financial Statements:
Consolidated and Combined Balance Sheets
Consolidated and Combined Statements of Operations and Comprehensive Income
Consolidated and Combined Statements of Changes in Equity
Consolidated and Combined Statements of Cash Flows
Notes to Consolidated and Combined Financial Statements
All schedules are omitted for the reason that they are not applicable or the required information is included in the financial
statements or notes.
Page
38
39
40
41
42
43
45
37
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Alico, Inc.
We have audited the accompanying consolidated and combined balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2016 and
2015, and the related consolidated and combined statements of operations and comprehensive income, changes in equity, and cash flows
for each of the three fiscal years in the period ended September 30, 2016. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial
position of Alico, Inc. and Subsidiaries as of September 30, 2016 and 2015, and the results of their operations and their cash flows for each
of the three fiscal years in the period ended September 30, 2016, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Alico, Inc.
and Subsidiaries' internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated
December 6, 2016 expressed an unqualified opinion on the effectiveness of Alico, Inc. and Subsidiaries’ internal control over financial
reporting.
/s/ RSM US LLP
Orlando, Florida
December 6, 2016
38
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Alico, Inc.
We have audited Alico, Inc. and Subsidiaries' internal control over financial reporting as of September 30, 2016, based on criteria
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
established
Commission in 2013. Alico, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying
Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Alico, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
September 30, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated and combined balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2016 and 2015, and the related consolidated
and combined statements of operations and comprehensive income, changes in equity, and cash flows for each of the three fiscal years in
the period ended September 30, 2016, and our report dated December 6, 2016 expressed an unqualified opinion.
/s/ RSM US LLP
Orlando, Florida
December 6, 2016
39
ALICO, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Goodwill
Deferred financing costs, net of accumulated amortization
Other non-current assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Long-term debt, current portion
Deferred tax liability, current portion
Obligations under capital leases, current portion
Other current liabilities
Total current liabilities
Long-term debt
Lines of credit
Deferred tax liability
Deferred gain on sale
Deferred retirement obligations
Obligations under capital leases
Total liabilities
Commitments and Contingencies (Note 17)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 and 8,416,145
shares issued and 8,315,535 and 8,325,580 shares outstanding at September 30, 2016 and
September 30, 2015, respectively
Additional paid in capital
Treasury stock, at cost, 100,610 and 90,565 shares held at September 30, 2016 and
September 30, 2015, respectively
Retained earnings
Total Alico stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
September 30,
2016
2015
6,625 $
4,740
58,469
1,013
2,261
73,108
379,247
2,246
2,369
1,692
458,662 $
5,975 $
6,920
4,493
53
288
1,002
18,731
192,726
5,000
31,004
28,440
4,198
300
280,399
5,474
3,137
58,273
2,088
1,791
70,763
381,099
2,246
2,978
3,002
460,088
4,407
13,813
4,511
151
277
975
24,134
200,970
—
25,629
29,122
4,134
588
284,577
—
—
8,416
18,155
(4,585)
151,504
173,490
4,773
178,263
458,662 $
8,416
19,795
(3,962)
146,455
170,704
4,807
175,511
460,088
$
$
$
$
See accompanying notes to the Consolidated and Combined Financial Statements.
40
ALICO, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
Operating revenues:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total operating revenues
Operating expenses:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total operating expenses
Gross profit
General and administrative expenses
Income from operations
Other (expense) income:
Investment and interest income, net
Interest expense
Gain on bargain purchase
Gain on sale of real estate
Gain on settlement of contingent consideration arrangement
Loss on extinguishment of debt
Impairment of asset held for sale
Other expense, net
Total other (expense) income, net
Income before income taxes
Provision for income taxes
Net income
Net loss attributable to noncontrolling interests
Net income attributable to Alico, Inc. common stockholders
Comprehensive income attributable to noncontrolling interests
Comprehensive income attributable to Alico, Inc. common stockholders
Per share information attributable to Alico, Inc. common stockholders:
Earnings per common share:
Basic
Diluted
Weighted-average number of common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
$
$
$
$
Fiscal Year Ended September 30,
2015
2016
2014
$
137,282 $
5,669
1,245
144,196
146,147 $
5,394
1,585
153,126
74,768
8,172
21,063
104,003
102,347
6,393
397
109,137
35,059
13,213
21,846
—
(9,893)
—
618
—
—
—
(91)
(9,366)
110,236
4,808
2,083
117,127
35,999
16,494
19,505
2
(8,366)
1,145
13,590
—
(1,051)
(541)
(196)
4,583
12,480
5,521
6,959
34
6,993
—
6,993 $
24,088
10,905
13,183
31
13,214
—
13,214 $
0.84 $
0.84 $
1.64 $
1.64 $
8,303
8,311
8,056
8,061
54,956
6,123
21,730
82,809
21,194
11,811
9,383
131
(2,368)
—
7,748
6,000
—
—
(16)
11,495
20,878
11,383
9,495
—
9,495
—
9,495
1.29
1.29
7,336
7,354
0.24 $
0.24 $
0.24
See accompanying notes to the Consolidated and Combined Financial Statements.
41
Balance at September 30,
2013
Net income
Dividends
Treasury stock
purchases
Members' equity as of
common control
November 19, 2013
Stock-based
compensation:
Directors
Executives
Members' equity
Balance at September 30,
2014
Net income (loss)
Dividends
Treasury stock
purchases
Acquisition of citrus
businesses
Stock-based
compensation:
Directors
Executives
Members' equity
Balance at September 30,
2015
Net income (loss)
Dividends
Treasury stock
purchases
Contingent
Consideration
Stock-based
compensation:
Directors
Executives
Members' equity
Balance at September 30,
2016
ALICO, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
Common Stock
Shares
Amount
Additional
Paid In
Capital
Treasury
Stock
Retained
Earnings
Members'
Equity
Total Alico,
Inc. Equity
Noncontrolling
Interest
Total Equity
9,496 $ (2,816) $ 128,679 $
—
—
8,050
(1,761)
—
—
— $
1,445
(605)
142,736 $
9,495
(2,366)
— $
—
—
142,736
9,495
(2,366)
7,377 $
—
—
7,377 $
—
—
—
—
—
—
—
—
—
—
—
—
7,377
—
—
7,377
—
—
—
(4,844)
—
—
(4,844)
—
—
—
15,631
15,631
(26 )
(5,728)
—
3,742
—
—
1,087
5,923
—
—
—
—
—
—
579
1,061
195
579
(650)
—
—
134,968
13,423
(1,936)
17,050
(209)
—
162,487
13,214
(1,936)
—
—
—
—
—
—
(31 )
—
—
(4,844)
15,631
1,061
195
579
162,487
13,183
(1,936)
(4,013)
—
—
—
—
—
—
—
—
(4,013)
1,039
1,039
15,937
—
—
(4,013)
—
—
—
8,416
—
—
—
—
—
—
—
—
—
—
8,416
—
—
—
—
—
—
—
61
55
—
701
—
—
19,795
—
—
(3,962)
—
—
146,455
6,993
(1,990)
—
(3,141)
(1,483)
1,483
(307)
150
—
1,035
—
—
—
—
46
—
—
(16,976 )
—
4,838
4,838
—
—
135
—
—
—
—
—
—
—
—
762
55
135
170,704
6,993
(1,990)
(3,141)
—
774
150
—
—
—
—
4,807
(34 )
—
—
—
—
—
—
762
55
135
175,511
6,959
(1,990)
(3,141)
—
774
150
—
8,416 $
8,416 $
18,155 $ (4,585) $ 151,504 $
— $
173,490 $
4,773
$
178,263
See accompanying notes to Consolidated and Combined Financial Statements.
42
ALICO, INC.
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Fiscal Year Ended September 30,
2016
2015
2014
$
6,959 $
13,183 $
9,495
Gain on sale of sugarcane land
Depreciation and amortization
Loss (gain) on breeding herd sales
Deferred income tax expense
Cash surrender value
Deferred retirement benefits
Magnolia Fund undistributed loss (earnings)
Loss (gain) on sale of property and equipment
Impairment of asset held for sale
Loss on extinguishment of debt
Non-cash interest expense on deferred gain on sugarcane land
Stock-based compensation expense
Other
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses
Income tax receivable
Other assets
Accounts payable and accrued expenses
Income tax payable
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Acquisition of citrus businesses, net of cash acquired
Proceeds on sale of sugarcane land
Purchases of property and equipment
Return on investment in Magnolia Fund
Proceeds from sale of assets
Proceeds from surrender of life insurance policies
Proceeds from sale of real estate
Other
Net cash used in investing activities
(618)
15,382
296
5,277
(20 )
65
103
147
—
—
1,406
925
—
(1,707)
(196)
(1,759)
1,074
821
3,720
—
(1,518)
30,357 $
— $
—
(14,305 )
171
799
297
—
4
(13,034 ) $
(13,734 )
14,732
(183)
12,350
(27 )
623
(57 )
(290)
541
457
607
952
245
5,983
8,659
(1,347)
—
465
(522)
(6,660)
(2,251)
33,726 $
(265,587) $
97,151
(11,523 )
675
1,963
—
—
264
(177,057) $
—
9,638
(555)
6,806
202
(173)
(163)
(6,742)
—
—
—
1,835
—
(2,676)
9,985
—
3,401
523
(8,599)
—
2,086
25,063
(32,769 )
—
(13,280 )
3,814
14,473
—
5,764
10
(21,988 )
$
$
$
43
Cash flows from financing activities:
Borrowings notes payable
Proceeds from term loans
Repayments on revolving line of credit
Borrowings on revolving line of credit
Repayment of term loan
Principal payments on term loans
Financing costs
Contingent consideration paid
Treasury stock purchases
Dividends paid
Distributions to members
Capital lease obligation payments
Net cash (used in) provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized
Cash income tax refunds, net of income taxes paid
Cash paid for income taxes, net of income tax refunds
Supplemental disclosure of non-cash investing and financing activities:
Escrow deposit in other assets applied to capital expenditures
Property and equipment purchased with capital leases
Equipment purchased with long-term debt
Fiscal Year Ended September 30,
2016
2015
2014
— $
2,500
(53,882 )
58,882
—
(10,761 )
—
(7,500)
(3,141)
(1,993)
—
(277)
(16,172 ) $
— $
184,500
(87,031 )
81,031
(34,000 )
(17,870 )
(2,834)
—
(4,013)
(1,877)
—
(231)
117,675 $
11,000
—
(2,400)
3,641
—
(3,208)
—
—
(4,844)
(2,780)
(605)
—
804
1,151 $
5,474
(25,656 ) $
31,130
3,879
27,251
6,625 $
5,474 $
31,130
7,530 $
(878) $
— $
6,167 $
— $
5,213 $
— $
— $
— $
250 $
37 $
— $
2,047
—
1,177
—
1,400
108
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the Consolidated and Combined Financial Statements.
44
ALICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
September 30, 2016, 2015 and 2014
Note 1. Description of Business and Basis of Presentation
Description of Business
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a Florida agribusiness and land
management company owning approximately 122,000 acres of land throughout Florida, including approximately 90,000 acres of mineral
rights. The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications -
Orange Co. and Conservation and Environmental Resources. Financial results are presented based upon its three business segments (Orange
Co., Conservation and Environmental Resources and Other Operations).
Basis of Presentation
The Company has prepared the accompanying financial statements on a consolidated and combined basis. These accompanying
Consolidated and Combined Financial Statements, which are referred to herein as the “Financial Statements”, have been prepared in
accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying Financial
Statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the
Company’s results as of and for the fiscal years ended September 30, 2016, 2015 and 2014. All intercompany transactions and account
balances between the consolidated and combined businesses have been eliminated.
Effective February 28, 2015, the Company completed the merger (“Merger”) with 734 Citrus Holdings, LLC (“Silver Nip Citrus”) pursuant
to an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger
Sub”), Silver Nip Citrus and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus. The ownership of Silver
Nip Citrus was held by 734 Agriculture, 74.89%, Mr. Clay Wilson, Chief Executive Officer of the Company, 5% and an entity controlled
by Mr. Clay Wilson owned, 20.11%.
As the Company and Silver Nip Citrus were under common control at the time of the Merger, it is required under U.S. GAAP to account
for this common control acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting,
Alico's Consolidated and Combined Balance Sheets as of September 30, 2016 and September 30, 2015 reflect Silver Nip Citrus’ historical
carryover basis in the assets and liabilities instead of reflecting the fair market value of the assets and liabilities. The Company has also
retrospectively recast its financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common
control began, November 19, 2013.
Correction of an Immaterial Error in Prior Periods
In March 2016, the Company identified a $1,494,000 error related to an understatement of income tax expense for the fiscal year ended
September 30, 2014. As previously noted, the Company and Silver Nip Citrus were under common control at the time of the Merger and,
accordingly, we retrospectively recast our financial statements to combine the operating results of the Company and Silver Nip Citrus from
the date common control began, November 19, 2013. Silver Nip Citrus had a September 30 year end for tax reporting purposes at the time
of the Merger. The tax returns for the year ended September 30, 2014 and the short period ended February 28, 2015, the date of the
Merger, were prepared and filed in the second quarter of fiscal 2016. The Company reviewed the as-filed tax returns in an effort to true-up
the tax provision. During this review, the Company identified the error that impacts the Silver Nip Citrus financial condition and results of
operations as of and for the period ended June 30, 2014.
In accordance with Financial Accounting Standards Board Accounting Standards Codification 250, Accounting Changes and Error
Corrections, we evaluated the materiality of the error from quantitative and qualitative perspectives. We concluded that the error was
immaterial to the Company's prior period interim and annual Consolidated and Combined Financial Statements, and, accordingly no
amendments to previously filed interim or annual periodic reports were required. Consequently, the Company adjusted for this error by
revising its fiscal 2014 financial statements, when presented in future filings, by increasing income tax expense and its long term deferred
tax liability by $1,494,000. The Company recognized the cumulative effect of the error by increasing long term deferred tax liability and
reducing additional paid-in capital by $1,494,000 and reducing diluted earnings per share by $0.20 for the fiscal year ended September 30,
2014. The pre-merger net earnings of Silver Nip Citrus are classified as additional paid-in capital in the accompanying Consolidated and
Combined Balance Sheets as of September 30, 2016 and September 30, 2015.
45
Change in Fiscal Year of Subsidiary
Silver Nip Citrus’ fiscal year end was previously June 30, and their financial condition and results of operations as of and for the fiscal
years ended June 30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the
fiscal years ended September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was
changed to September 30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and
September 30, 2015 now includes the financial condition of Silver Nip Citrus as of September 30, 2016 and September 30, 2015,
respectively, and the Company’s results of operations for the twelve months ended months ended September 30, 2016 and 2015 now
includes the Silver Nip Citrus results of operations for the twelve months ended months ended September 30, 2016 and 2015, respectively.
The impact of this change was not material to the Consolidated and Combined Financial Statements with an approximate $492,000
decrease in total assets and an approximate net loss of $596,000 for the transition period related to this change included in Stockholders'
Equity at October 1, 2015.
Segments
Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards
Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn
revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief
operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. For the fiscal year ended
September 30, 2015, the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus
Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations. Effective October 1,
2015, the former Citrus Groves and Agricultural Supply Chain Management segments have been combined in Orange Co. and, as a result
of the disposition of the Company's sugarcane land in fiscal year 2015, it is no longer involved in sugarcane, and the Improved Farmland
segment is no longer material to its business and has been combined in Other Operations. The Company’s CODM will assess performance
and allocate resources based on three operating segments: Orange Co., Conservation and Environmental Resources and Other Operations.
Disclosures related to the fiscal year ended September 30, 2015 have been revised to be consistent with the current operating segment
structure.
Principles of Consolidation
The Financial Statements include the accounts of Alico, Inc. and the accounts of all the subsidiaries in which a controlling interest is held
by the Company. The Financial Statements represent the Consolidated and Combined Balance Sheets, Statements of Operations and
Comprehensive Income and Statements of Cash Flows of Alico, Inc. and its subsidiaries. Under U.S. GAAP, consolidation is generally
required for investments of more than 50% of the outstanding voting stock of an investee, except when control is not held by the majority
owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit
Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings LLC and subsidiaries, Alico Fresh Fruit
LLC, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC. The Company considers the criteria established under FASB ASC Topic
810, “Consolidations” in its consolidation process. All significant intercompany balances and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the
disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of
revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates based upon future
events. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions,
historical experience, the experience and judgment of the Company’s management and various other specific assumptions that the
Company believes to be reasonable. The Company evaluates its assumptions and estimates on an ongoing basis and may employ outside
experts to assist in the Company’s evaluations.
Noncontrolling Interest in Consolidated Affiliate
The Financial Statements include all assets and liabilities of the less-than- 100%-owned affiliate the Company controls, Citree Holdings I,
LLC (“Citree”). Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had a net loss of
$69,230 for the fiscal year ended September 30, 2016, of which $35,307 is attributable to the Company. Citree had a net loss of $64,014 for
the fiscal year ended September 30, 2015, of which $32,647 is attributable to the Company.
46
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers,” as a new
ASC topic (Topic 606). The core principle of this ASU is that an entity should recognize revenue to depict the transfer of promised goods
or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. The ASU further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or
enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example,
lease contracts). The FASB subsequently issued ASU 2015-14 to defer the effective date of ASU 2014-09 until annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted. The FASB also
recently issued ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing," and 2016-
12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," that clarify or amend the original
Topic 606. ASU 2014-09 can be adopted using one of two retrospective transition methods: 1) retrospectively to each prior reporting period
presented or 2) as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is
currently evaluating the impact of ASU 2014-09 on the Company’s Financial Statements upon adoption.
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (Subtopic 205-40):
Disclosure of Uncertainty about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance
that establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going
concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years,
and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. We will adopt this
guidance on October 1, 2017 and do not expect it to have a material impact on our Financial Statements upon adoption.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation" (Topic 810): Amendments to the Consolidation Process ("ASU
2015-02"). ASU 2015-02 amends the consolidation analysis for limited partnerships and other variable interest entities ("VIEs"). This
guidance, which is effective for annual periods, and interim periods within those annual periods, beginning December 15, 2015, will be
adopted on October 1, 2016, and is not expected to have a significant impact on our Financial Statements upon adoption.
In April 2015, the FASB issued ASU No. 2015-04, “Compensation - Retirement Benefits” (Topic 715). ASU 2015-04 will allow
employers with fiscal year ends that do not coincide with a calendar month end to make an accounting policy election to measure defined
benefit plan assets and obligations as of the end of the month closest to their fiscal year ends (i.e., on an alternative measurement date). An
employer that makes this election must consistently apply the practical expedient from year to year and to all of its defined benefit plans.
ASU 2015-04 will be effective for interim and fiscal periods beginning after December 15, 2015; prospective application is required and
early adoption is permitted. The Company will adopt this guidance on October 1, 2016. This guidance is not expected to have a significant
impact on our Financial Statements upon adoption.
In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest” (Subtopic 835-30): Simplifying the Presentation of
Debt Issuance Costs ("ASU 2015-.03"). ASU 2015-03 changes the presentation of debt issuance costs from an asset to a direct deduction
from the related liability. This guidance, which is effective for fiscal years beginning after December 15, 2015, and interim periods within
those fiscal years, may be early adopted for financial statements that have not been previously issued and its provisions are to be
retrospectively applied as a change in accounting principle. Upon adoption, this guidance is expected to decrease Other Assets, which
includes our deferred financing costs on our debt obligations, and comparably decrease Long-term debt on our Balance Sheets. This
guidance is not expected to have any impact on our financial condition, results of operations or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, “Inventory” (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”).
ASU 2015-11 simplifies the measurement of inventory by requiring certain inventory to be subsequently measured at the lower of cost and
net realizable value. The amendments in this guidance are effective for fiscal years beginning after December 15, 2016 and for interim
periods therein and are not expected to have a significant impact on our Financial Statements upon adoption.
In August 2015, the FASB issued ASU No. 2015-15, “Interest—Imputation of Interest” (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15). In ASU 2015 -15, the SEC adds
guidance to Subtopic 835-30 pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the
presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. In April 2015, the FASB
issued ASU 2015-03, “Interest—Imputation of Interest” (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which
requires entities to present debt issuance costs related to a recognized debt liability
47
as a direct deduction from the carrying amount of that debt liability. According to the SEC, the guidance in ASU 2015-03 does not address
presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative
guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity
deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term
of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The
guidance in ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal
years. The guidance in ASU 2015-15 is effective upon issuance. The guidance in ASU 2015-15 and ASU 2015-03 are not expected to have
a significant impact on our Financial Statements upon adoption.
In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations” (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments (“ASU 2015-16”). ASU 2105-16 requires that (i) an acquirer recognize adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, (ii) the
acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income
effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition
date, and (iii) an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded
in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional
amounts had been recognized as of the acquisition date. The amendments in this Update apply to all entities that have reported provisional
amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the
combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this
guidance are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The
amendments in this guidance are not expected to have a significant impact on our Financial Statements upon adoption.
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, "Balance
Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which will require entities to present all deferred tax liabilities and assets as
non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The standard is effective for
annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is
permitted. The standard can be applied either prospectively to all deferred tax liabilities and assets, or retrospectively to all periods
presented. As this standard impacts presentation only, the adoption of ASU 2015-17 is not expected to have an impact on our Financial
Statements upon adoption.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)." This guidance will require entities that enter into leases as a
lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous GAAP. The
accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company is currently evaluating the
impact this guidance will have on our Financial Statements, and it will become effective for Alico at the beginning of its first quarter of
fiscal 2020.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent
Considerations (Reporting Revenue Gross versus Net)." The amendment clarifies the implementation guidance for principal versus agent
considerations as contained in ASU No. 2014-09, Revenue from Contracts with Customers. The guidance includes indicators to assist an
entity in determining whether it controls a specified good or service before it is transferred to a customer. ASU No. 2016-08 is effective for
fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption of ASU No. 2016-08 is permitted
but not before December 15, 2016. The Company is currently evaluating the impact of ASU No. 2016-08 on our Financial Statements.
In March 2016, the FASB issued ASU 2016-09, “Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting.” The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions,
including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash
flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early
adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on our Financial
Statements.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” This ASU will provide guidance on the
presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. The effective date for
adoption of this guidance would be our fiscal year beginning October 1, 2018, with early adoption permitted. The Company is currently
evaluating the effect that ASU 2016-15 will have on our Financial Statements.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASC Topic 740, Income
Taxes), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than
48
inventory, when the transfer occurs. This ASU is effective for the Company on October 1, 2018 with early adoption permitted. The
Company has not yet evaluated the effect, if any, that ASU 2016-16 will have on our Financial Statements.
The Company has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their
potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the
Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future
financial position, results of operations, cash flows or disclosures.
Seasonality
The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the
influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of our fiscal year generally produce
the majority of our annual revenue, and working capital requirements are typically greater in the first and fourth quarters of the fiscal year.
The results of the reported periods herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.
Note 2. Summary of Significant Accounting Policies
Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB ASC No. 805,
“Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired,
liabilities assumed and any noncontrolling interest in the acquiree, and establishes the acquisition date as the fair value measurement point.
Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and
liabilities and noncontrolling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with FASB
ASC No. 805, the Company recognizes and measures goodwill, if any, as of the acquisition date, as the excess of the fair value of the
consideration paid over the fair value of the identified net assets acquired.
When we acquire a business from an entity under common control, whereby the companies are ultimately controlled by the same party or
parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting. The assets and liabilities
are recorded at the transferring entity’s historical cost instead of reflecting the fair value of assets and liabilities.
Revenue Recognition
Revenues from agricultural crops are recognized at the time the crop is harvested and delivered to the customer. Receivables from crops
sold are recorded for the estimated proceeds to be received from the customer on a quarterly basis, management reviews the reasonableness
of the revenues accrued based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry.
Adjustments are made throughout the year to these estimates as more current relevant information regarding the specific markets becomes
available. Differences between the estimates and the final realization of revenues can be significant and can be either an increase or
decrease to reported revenues. During the periods presented in this report, no material adjustments were made to the reported revenues of
the Company’s crops.
Alico recognizes revenues from cattle sales at the time the cattle are delivered.
Alico Fruit Company, LLC ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to
other citrus growers and processors in the state of Florida. AFC also purchases and resells citrus fruit; in these transactions, AFC (i) acts as
a principal; (ii) takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery
or returns. Therefore, AFC recognizes revenues based on the gross amounts due from customers for its marketing activities. Supply chain
management services revenues are recognized when the services are performed.
Cash and Cash Equivalents
The Company considers cash in banks and highly liquid instruments with an original maturity of three months or less to be cash and cash
equivalents. At various times throughout the fiscal year, and as of September 30, 2016, some accounts held at financial institutions were in
excess of the federally insured limit of $250,000. The Company has not experienced any losses on these accounts and believes credit risk to
be minimal.
49
Accounts receivable
Accounts receivable from customers are generated from revenues based on the sale of citrus, cattle, leasing and other transactions. The
Company grants credit in the course of its operations to third party customers. The Company performs periodic credit evaluations of its
customers’ financial condition and generally does not require collateral. The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts based on the aging of accounts receivable. The estimate, evaluated monthly by the Company, is
based on historical collection experience, current macroeconomic climate and market conditions and a review of the current status each
customer’s account. Changes in the financial viability of significant customers and worsening of economic conditions may require changes
to its estimate of the recoverability of the receivables. Such changes in estimates are recorded in the period in which these changes become
known. The allowance for doubtful accounts is charged to general and administrative expenses in the Consolidated and Combined
Statements of Operations and Comprehensive Income. As of September 30, 2016 and 2015, allowances for doubtful accounts were
approximately $12,900 and $8,300, respectively.
The following table presents accounts receivable, net for fiscal years ended September 30, 2016 and 2015:
(in thousands)
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
Fair Value of Financial Instruments
September 30,
2016
2015
$
$
4,753 $
(13 )
4,740 $
3,145
(8 )
3,137
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable
and accrued liabilities approximate their fair values due to the short term and immediate nature of these financial instruments. The carrying
amounts of our debt approximate fair value due to the transactions are with commercial lenders at interest rates that vary with market
conditions and fixed rates that approximate market rates for obligations with similar terms and maturities (see Note 11. “Fair Value
Measurements”).
Concentrations
Revenues and accounts receivable from the Company’s major customers as of September 30, 2016 and 2015 and for the fiscal years ended
September 30, 2016, 2015 and 2014, are as follows:
(in thousands)
Accounts Receivable
2016
2015
2016
Revenue
2015
USSC
Florida Orange Marketers, Inc.
Citrosuco North America, Inc.
Louis Dreyfus
Cutrale Citrus Juice
Minute Maid
Tropicana
$
$
$
$
$
$
$
— $
— $
— $
— $
— $
— $
1,710 $
— $
— $
— $
— $
— $
— $
1,019 $
— $
— $
1,296 $
— $
22,735 $
49,271 $
46,898 $
— $
— $
3,870 $
22,460 $
23,556 $
57,484 $
21,925 $
2014
19,633
23,826
804
24,135
3,984
—
16,433
% of Total Revenue
2015
2014
2016
—% 18.9%
—%
—% 22.9%
—%
0.9%
0.8%
2.5%
—% 14.7% 23.2%
3.8%
15.8% 15.4%
34.2% 37.5%
—%
32.5% 14.3% 15.8%
The citrus industry is subject to various factors over which growers have limited or no control, including weather conditions, disease,
pestilence, water supply and market price fluctuations. Market prices are highly sensitive to aggregate domestic and foreign crop sizes, as
well as factors including, but not limited to, weather and competition from foreign countries.
Real Estate
In recognizing revenues from land sales, the Company applies specific revenue recognition criteria, in accordance with U.S. GAAP, to
determine when land sales revenues can be recorded. For example, in order to fully recognize a gain resulting from a real estate
50
transaction, the sale must be consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the
type and timeframe for development of the property sold and any receivable from the sale cannot be subject to future subordination. In
addition, the seller cannot retain any material continuing involvement in the property sold. When these criteria are not met, the Company
recognizes a gain proportionate to collections utilizing either the installment method or deposit method as appropriate.
Inventories
The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory
throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating
expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income. Inventories are stated at the lower of
cost or net realizable value. The cost for unharvested citrus crops is based on accumulated production costs incurred during the period from
January 1 through the balance sheet date. The cost of the beef cattle inventory is based on the accumulated cost of developing such animals
for sale from July 1 through the balance sheet date (see Note 6. “Inventories”).
Property and Equipment
Property and equipment, which includes amounts under capitalized leases, are stated at cost, net of accumulated depreciation and
amortization. Major improvements are capitalized while expenditures for maintenance and repairs are expensed when incurred. Costs
related to the development of citrus groves through planting of trees are capitalized. Such costs include land clearing, excavation and
construction of ditches, dikes, roads, and reservoirs, among other costs. After the planting, caretaking costs or pre-productive maintenance
costs are capitalized for four years. After four years, a grove is considered to have reached maturity and the accumulated costs are
depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.
The breeding herd consists of purchased animals and animals raised on the Company’s ranches. Purchased animals are stated at the cost of
acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use.
Real estate costs incurred for the acquisition, development and construction of real estate projects are capitalized.
Depreciation is provided on a straight-line basis over the estimated useful lives of the depreciable assets, with the exception of leasehold
improvements and assets acquired through capital leases, which are depreciated over their estimated useful lives if the lease transfers
ownership or contains a bargain purchase option, otherwise the term of the lease.
The estimated useful lives for property and equipment are primarily as follows:
Citrus trees
Equipment and other facilities
Buildings and improvements
Breeding herd
25 years
3-20 years
25-39 years
5-7 years
Changes in circumstances, such as technological advances or changes to our business model or capital strategy could result in the actual
useful lives differing from the original estimates. In those cases where we determine that the useful life of property and equipment should
be shortened, we would depreciate the asset over its revised estimated remaining useful life, thereby increasing depreciation expense (see
Note 7. “Property and Equipment, Net”).
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company records impairment losses on long-lived assets used in operations, other than goodwill,
when events and circumstances indicate that the assets might be impaired and the estimated cash flows (undiscounted and without interest
charges) to be generated by those assets over the remaining lives of the assets are less than the carrying amounts of those assets. The net
carrying values of assets not recoverable are reduced to their fair values. Our cash flow estimates are based on historical results adjusted to
reflect our best estimates of future market conditions and operating conditions. As of
51
September 30, 2016 and 2015, long-lived assets were comprised of property and equipment. The Company recorded an impairment loss of
approximately $541,000 on property classified as assets held for sale for the fiscal year ended September 30, 2015.
Other Non-Current Assets
Other non-current assets primarily include investments owned in agricultural cooperatives, cash surrender value on life insurance and equity
investment in affiliate (Magnolia). Investments in stock related to agricultural cooperatives are carried at cost.
Income Taxes
The Company complies with the asset and liability method of accounting for deferred income taxes. The provision for income taxes
includes income taxes currently payable and those deferred as a result of temporary differences between the financial statements and the
income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to
apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in
income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that includes the enactment date.
A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some
portion of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax planning strategies are considered
and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material
adverse or beneficial impact on the Company’s income tax provision and net income or loss in the period the determination is made. As of
September 30, 2016 and 2015, the Company did not record a valuation allowance on deferred tax assets. The Company recognizes interest
and/or penalties related to income tax matters in income tax expense.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized
income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or
measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax
benefits in income tax expense.
Earnings per Share
Basic earnings per share for our common stock is calculated by dividing net income attributable to Alico common stockholders by the
weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly
calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares of common stock issuable under equity-
based compensation plans in accordance with the treasury stock method, or any other type of securities convertible into common stock,
except where the inclusion of such common shares would have an anti-dilutive effect.
The following table presents a reconciliation of basic to diluted weighted average common shares outstanding for fiscal years ended
September 30, 2016, 2015 and 2014:
(in thousands)
Weighted Average Common Shares Outstanding - Basic
Unvested Restricted Stock Awards
Weighted Average Common Shares Outstanding - Diluted
Fiscal Year Ended September 30,
2015
2016
2014
8,303
8
8,311
8,056
5
8,061
7,336
18
7,354
There were no employee stock options granted for the fiscal years ended September 30, 2016, 2015 and 2014, respectively. Non-vested
restricted shares of common stock entitle the holder to receive non-forfeitable dividends upon issuance and are included in the calculation
of diluted earnings per common share. For the fiscal years ended September 30, 2016, 2015 and 2014, there were no anti-dilutive equity
awards or convertible securities that were excluded from the calculation of diluted earnings per common share.
Stock-Based Compensation
Stock-based compensation is measured based on the fair value of the equity award at the grant date and is typically expensed on a straight-
line basis over the vesting period. Upon the vesting of restricted stock, the Company issues common stock from common shares held in
treasury. The Company measures the cost of employee services on the grant date fair value of the equity award. The
52
cost is recognized over the period during which the employee is required to provide services in exchange for the equity award (usually the
vesting period).
Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for
up to an additional 1,250,000 common shares available for issuance to provide a long-term incentive plan for officers, employees, directors
and/or consultants to directly link incentives to stockholder value. The 2015 Plan was approved by the Company’s stockholders in
February 2015.
The adoption of the 2015 Plan supersedes the 2013 Incentive Equity Plan (“2013 Plan”), which had been in place since April 2013. In fiscal
year 2015, the Company awarded 12,500 restricted shares of the Company’s common stock (“Restricted Stock”) to two senior executives
under the 2015 Plan at a weighted average fair value of $49.49 per common share, vesting over three to five years.
The 2013 Plan was approved by the Company’s stockholders in February 2013. Under the terms of the 2013 Plan, 350,000 shares of the
Company’s common stock were to be awarded to recipients in the form of restricted stock units or stock options. Common shares issued
pursuant to awards under the 2013 Plan, if any, were outstanding shares of common stock which have been repurchased by the Company.
The Company’s incentive equity plans provide for grants to executives in various forms including restricted shares of the Company’s
common stock. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based
upon service conditions. Non-vested restricted shares generally vest over requisite service periods of one to six years from the date of grant.
Total stock-based compensation expense for the three years ended September 30, 2016 in general and administrative expense was as
follows:
(in thousands)
Stock compensation expense:
Executives
Board of Directors
Members
Total stock compensation expense
2016
Fiscal Year Ended September 30,
2015
2014
$
$
150 $
774
—
924 $
55 $
762
135
952 $
195
1,061
579
1,835
All shares of restricted common stock awarded under the Long-Term Incentive Program, awarded by the Company in May 2011, vested
automatically upon the acquisition of a controlling interest in the Company by 734 Investors, LLC in November 2013. As a result, the
Company issued 152,403 shares of treasury stock in January 2014, before withholdings for income taxes. The Company recognized
$195,000 of stock-based compensation expense related to the acceleration of vesting of the restricted stock during fiscal year 2014. In
December 2013, the Company determined that it would repurchase half of the gross shares awarded to Named Executive Officers other
than the CEO, totaling 58,610 common shares immediately upon their issuance for the purpose of retaining treasury shares for future
issuance.
There were no employee stock options granted in fiscal years 2016, 2015 or 2014, respectively.
Equity Method Investments and Variable Interest Entities
The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least 50% based on the
amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly
influence the investee and whether the Company is the primary beneficiary of the investee. Investments not qualifying for consolidation are
accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for
distributions, gains and losses of the entity are classified as a single line in the balance sheet and as a non-operating item in the income
statement.
In May 2010, the Company invested $12,150,000 to obtain a 39% limited partner equity interest in Magnolia TC 2, LLC (“Magnolia”), a
Florida limited liability company whose primary business activity is acquiring tax certificates issued by various
53
counties in the state of Florida on properties which have property tax delinquencies. Revenues are recognized by Magnolia when the
interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of
5% of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the
certificate has been outstanding. Expenses include an acquisition fee of 1%, interest expense, a monthly management fee and other
administrative costs. The investment in Magnolia is accounted for in accordance with the equity method of accounting, whereby the
Company records its 39% interest in the reported income or loss of the fund each quarter and is included in other non-current assets in the
Consolidated and Combined Balance Sheets. Based on the September 30, 2016 unaudited internal financial statements of Magnolia, the
Company recognized net investment loss of approximately $103,000 for the fiscal year ended September 30, 2016. The Company
recognized net investment income of approximately $57,000 and $163,000 for the fiscal years ended September 30, 2015, and 2014,
respectively. Net investment income is included in Interest and investment, net in the Consolidated and Combined Statements of Operations
and Comprehensive Income. Magnolia made certain distributions during the fiscal years ended September 30, 2016, 2015 and 2014; the
Company’s share of those distributions was approximately $171,000, $675,000, and $3,814,000, respectively.
Note 3. Acquisitions and Dispositions
Acquisition of Orange-Co, LP Assets
On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP, including 51% of the
ownership interests of Citree, pursuant to an Asset Purchase Agreement, which is referred to as the Orange-Co Purchase Agreement, dated
as of December 1, 2014. The assets the Company purchased include approximately 20,263 acres of citrus groves in DeSoto and Charlotte
Counties, Florida, which comprise one of the largest contiguous citrus grove properties in the state of Florida. Total assets acquired were
approximately $277,792,000, net of approximately $2,060,000 in cash acquired and approximately $4,838,000 in fair value attributable to
noncontrolling interest in Citree, including: (i) approximately $147,500,000 in initial cash consideration funded from the proceeds of the
sugarcane disposition and new term loan debt; (ii) $7,500,000 in additional cash consideration released from escrow in equal parts, subject
to certain limitations, on December 1, 2015 and June 1, 2016; (iii) the refinancing of Orange-Co, LP’s outstanding debt including
approximately $92,290,000 in term loan debt and a working capital facility of approximately $27,857,000 and (iv) the assumption of
certain other liabilities totaling approximately $4,705,000. On December 1, 2014, Alico deposited an irrevocable standby letter of credit
issued by Rabo Agrifinance, Inc. in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.
On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration, as contemplated by the Orange-Co
Purchase Agreement. The Company's $3,750,000 irrevocable letter of credit securing the final payment of the additional consideration was
terminated following the final cash consideration payment.
This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for
identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs
associated with the acquisition were expensed as incurred. The excess of the purchase price over the fair value of assets acquired, net of
liabilities assumed, and noncontrolling interests is recognized as goodwill. All goodwill recognized will be deductible for income tax
purposes.
For the fiscal years ended September 30, 2016 and 2015 the Company incurred approximately $31,000 and $3,078,000, respectively, in
professional and legal costs in connection with the Orange-Co acquisition. These costs are included in general and administrative expenses
in the Consolidated and Combined Statements of Operations and Comprehensive Income.
54
The following table summarizes the final allocation of the acquisition cost to the assets acquired and liabilities assumed at the date of
acquisition, based on their estimated fair values:
(in thousands)
Assets:
Accounts receivable
Other current assets
Inventories
Property and equipment:
Citrus Trees
Land
Equipment and other facilities
Goodwill
Other assets
Total assets, net of cash acquired
Liabilities:
Accounts payable and accrued liabilities
Debt
Contingent consideration
Total liabilities assumed
Assets acquired less liabilities assumed
Less: fair value attributable to noncontrolling interest
Total purchase consideration
Cash proceeds from sugarcane disposition
Working capital line of credit
Term loans
Total purchase consideration
Amount
888
845
35,562
164,123
63,395
13,431
2,246
2,140
282,630
4,205
500
7,500
12,205
270,425
(4,838 )
265,587
97,126
27,857
140,604
265,587
$
$
$
$
$
$
$
$
The unaudited pro-forma information below for the fiscal years ended September 30, 2015 and 2014 gives effect to this acquisition as if the
acquisitions had occurred on October 1, 2013. The pro-forma financial information is not necessarily indicative of the results of operations
if the acquisition had been effective as of this date.
(in thousands except per share amounts)
Revenues
Income from operations
Net income attributable to Alico Inc. common stockholders
Basic earnings per common share
Diluted earnings per common share
55
Fiscal Year Ended September 30,
2015
2014
(unaudited)
153,654 $
19,489 $
12,723 $
1.58 $
1.58 $
175,420
35,450
22,906
3.12
3.12
$
$
$
$
$
Acquisition of Citrus Grove - Crossing Grove
On August 8, 2014, the Company and Premiere Agricultural Properties, LLC entered into a Purchase and Sale Agreement pursuant to
which the Company purchased all of the assets on a 1,241 acre citrus grove (867 net tree acres) in DeSoto County, Florida for a purchase
price of approximately $16,517,000 (the "Crossing Grove Transaction"). The transaction was closed on September 23, 2014. The purchase
price was funded from the Company’s cash and $5,300,000 in funds from a 2014 like-kind exchange transaction in Polk County pursuant to
Internal Revenue Code Section 1031. We acquired the citrus acres to increase the size of our citrus groves, which we believe strengthens
our market position.
The assets acquired in the acquisition were recorded in the quarter ended September 30, 2014. The results of operations have been included
in our Consolidated and Combined Statements of Operations and Comprehensive Income since September 23, 2014, the date of closing.
Pro-forma operating results, as if the Company had completed the acquisition at the beginning of the periods presented, are not significant
to the Company’s Consolidated and Combined Statements of Operations and Comprehensive Income and are not presented.
Assets acquired in the acquisition are as follows:
(in thousands)
Inventories
Property and Equipment:
Citrus Trees
Land
Equipment and other facilities
Total cash paid
Acquisition of Citrus Grove - TRB
Amount
1,148
9,633
3,902
1,834
16,517
$
$
In September 2014, Silver Nip Citrus and TRB Groves, LLC (“TRB”) entered into a Purchase and Sale Agreement pursuant to which Silver
Nip Citrus purchased all of TRB’s assets on a 1,500 acre citrus grove in Charlotte County, Florida for a purchase price of approximately
$17,130,000. The assets purchased included land and fruit inventory as well as irrigation and other equipment. The purchase price was
funded from Silver Nip Citrus’ cash and additional financing of $11,000,000 (see Note 5. “Long-Term Debt and Lines of Credit”) in fixed
rate term loans. The citrus grove acres were purchased to increase the size of the Silver Nip Citrus’ citrus groves to strengthen their market
position.
This acquisition was accounted for under the acquisition method of accounting. Accordingly, Silver Nip Citrus recognized amounts for
identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction costs associated with the
acquisition were expensed as incurred. The excess of the fair value over the purchase price of assets acquired, net of liabilities assumed, is
recognized as a gain on bargain purchase of $1,145,300 and is included in Other income (expense), net in the Consolidated and Combined
Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.
For the fiscal year ended September 30, 2015, Silver Nip Citrus incurred approximately $525,000 in professional and legal costs in
connection with the TRB acquisition. These costs are included in general and administrative expenses in the Consolidated and Combined
Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.
The following table summarizes the consideration paid for the acquired net assets and the acquisition accounting for the fair values of the
assets acquired and liabilities assumed in the accompanying Consolidated and Combined Balance Sheets as of the acquisition date.
The results of operations have been included in our Consolidated and Combined Financial Statements since September 4, 2014, the date of
the closing. Pro-forma operating results, as if Silver Nip Citrus had completed the TRB acquisition at the beginning of the periods
presented, are not significant to our Financial Statements and are not presented.
56
Assets acquired and liabilities assumed in the TRB acquisition are as follows:
(in thousands)
Assets:
Prepaid expenses
Inventories
Property and equipment:
Citrus trees
Land and land improvements
Equipment and other facilities
Total assets
Liabilities:
Assets acquired less liabilities assumed
Sugarcane Land Disposition
Amount
90
2,155
10,009
5,007
1,038
18,299
41
18,258
$
$
$
$
On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land
leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately $97,900,000 in cash. It had previously leased
approximately 30,600 of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global in
conjunction with the land sale.
Net cash proceeds from the sugarcane land sale of approximately $97,126,000 were deposited with a Qualified Intermediary in anticipation
of the Orange-Co asset acquisition in a tax deferred like-kind exchange, pursuant to Internal Revenue Code Section 1031.
The sales price is subject to post-closing adjustments over a ten year period. The Company realized a gain of approximately $42,753,000
on the sale. Initially, $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-
closing agreement and the potential price adjustments. The deferral represents the Company’s estimate of the maximum exposure to loss as
a result of the continuing involvement (see below). A net gain of approximately $13,613,000 was recognized at the time of the sale and is
recognized in Other (expense) income in the Consolidated and Combined Statements of Operations and Comprehensive Income for the
fiscal year ended September 30, 2015.
The Company estimated its maximum exposure to loss over the ten year period to total approximately $42,172,000 on an aggregate
undiscounted basis. This estimated maximum exposure to loss was discounted at five percent to determine the initial deferred gain. In May
2016 and 2015, the Company made payments of $1,702,000 and $1,347,000, respectively, to Global pursuant to the sales contract. The
amount of USSC’s lease is tied to the market price of sugar, and the Company's payment is required annually in advance, to supplement the
lease paid by USSC in the event that the sugar prices are below certain thresholds. The 2015 sugar price remained below the threshold and
therefore none of the amount advanced in 2015 will be returned to the Company. Approximately $1,236,000 of advance payments is
included in prepaid expenses and other current assets in the Consolidated and Combined Balance Sheet as of September 30, 2016, and the
Company has recognized approximately $1,406,000 in interest expense and approximately $618,000 of the deferred gain for the fiscal year
ended September 30, 2016.
57
Estimated payments over the remaining term of the post-closing agreement are summarized in the following table.
(in thousands)
2017
2018
2019
2020
2021
Thereafter
Total
$
$
1,602
1,527
1,885
2,266
2,668
20,723
30,671
As a result of the disposition of its sugarcane land, the Company is no longer involved in sugarcane operations and, as of November 21,
2014, the Improved Farmland segment was no longer material to our business; however, the sugarcane operation has not been classified as
a discontinued operation due to the post-closing adjustments, amongst other involvement, as described above. Effective October 1, 2015,
the Improved Farmland reporting segment is now included in the Other Operations reporting segment.
Property Sales
Certain Silver Nip Citrus land located in Martin County with a cost of approximately $2,832,000 was sold during fiscal year 2014, resulting
in a gain on sale of assets of approximately $2,927,000 with net cash proceeds of approximately $5,759,000.
On July 1, 2014, the Company sold a 2,800 acre parcel of land located in Polk County, Florida for $5,623,000. This parcel was surplus to
our operations and was classified as held for sale. This sale was part of a like-kind exchange transaction that qualified for tax-deferral
treatment in accordance with Internal Revenue Code Section 1031.
Note 4. Common Control Acquisition
The Company completed the Merger with Silver Nip Citrus on February 28, 2015 (see Note 1. “Description of Business and Basis of
Presentation”). Silver Nip Citrus owns approximately 7,400 acres of land, consisting primarily of citrus groves, in seven Florida counties
(Polk, Hardee, Osceola, Martin, Highlands, Charlotte and Collier). Substantially all of its revenues derive from citrus operations. As the
Company and Silver Nip Citrus were under common control at the time of the Merger, the results of operations have been combined for the
Company and Silver Nip Citrus from the date common control began, November 19, 2013.
58
Separate results for the Company and Silver Nip Citrus for the fiscal years ended September 30, 2015 and 2014 were as follows:
(in thousands except per share amounts)
Operating revenue
Gross profit
Income from operations
Net income
Earnings per common share:
Basic
Diluted
$
$
$
$
$
$
Fiscal Year Ended
September 30, 2015
Silver Nip
Citrus
Alico
Fiscal Year Ended
September 30, 2014
Silver Nip
Citrus
Total
Total
Alico
131,722 $
31,212 $
15,654 $
9,791 $
21,404 $
4,787 $
3,851 $
3,392 $
153,126 $
35,999 $
19,505 $
13,183 $
88,680 $
18,297 $
7,856 $
8,050 $
15,323 $
2,897 $
1,527 $
1,445 $
104,003
21,194
9,383
9,495
1.20 $
1.22 $
0.42 $
0.42 $
1.64 $
1.64 $
1.10 $
1.10 $
0.20 $
0.20 $
1.29
1.29
Note 5. Long-Term Debt and Lines of Credit
Long-term debt, net of current portion:
Metropolitan Life Insurance Company and New England Life Insurance Company fixed rate
term loans in the original principal amount of $125,000,000: the loans bear interest at the rate
of 4.15% per annum. The loans are collateralized by real estate and mature in November
2029.
Metropolitan Life Insurance Company and New England Life Insurance Company variable
rate term loans in the original principal amount of $57,500,000: the variable interest rate was
2.25% per annum at September 30, 2016. The loans are collateralized by real estate and
mature in November 2029.
Metropolitan Life Insurance Company term loan: the loan bears interest at the rate of 5.28%
per annum as of September 30, 2016. The loan is secured by real estate and matures in
February 2029.
Prudential Mortgage Capital Company, LLC fixed rate term loans: the loans bear interest at
the rate of 5.35% per annum as of September 30, 2016. The loans are collateralized by real
estate and mature in June 2033.
Prudential Mortgage Capital Company, LLC fixed rate term loan: the loan bears interest at
the rate of 3.85% per annum as of September 30, 2016. The loan is collateralized by real
estate and matures in September 2021.
Prudential Mortgage Capital Company, LLC fixed rate term loan: the loan bears interest at
the rate of 3.45% per annum as of September 30, 2016. The loan is collateralized by real
estate and matures in September 2039.
Note payable to a financing company secured by equipment and maturing in December 2016.
Less current portion
Long-term debt
59
September 30,
2016
2015
(in thousands)
$
105,312 $
111,563
52,469
55,344
5,000
2,500
24,190
25,350
5,115
5,335
5,115
18
197,219
4,493
192,726 $
5,335
54
205,481
4,511
200,970
$
September 30,
2016
2015
(in thousands)
Lines of Credit:
Metropolitan Life Insurance Company and New England Life Insurance Company revolving
line of credit: this $25,000,000 line bears interest at a variable rate which was 2.25% per
annum as of September 30, 2016. The line is secured by real estate and matures in November
2019. Availability under the line was $20,000,000 as of September 30, 2016.
Rabo Agrifinance, Inc. working capital line of credit: this $70,000,000 line bears interest at a
variable rate which was 2.27% per annum as of September 30, 2016. The line is secured by
personal property and matures in November, 2018. Availability under the line was
$59,800,000 at September 30, 2016.
Lines of Credit
$
5,000 $
$
—
5,000 $
—
—
—
Future maturities of debt and lines of credit as of September 30, 2016 are as follows:
(in thousands)
Due within one year
Due between one and two years
Due between two and three years
Due between three and four years
Due between four and five years
Due beyond five years
Total future maturities
Debt Refinancing
$
$
4,493
8,300
10,900
15,963
10,975
151,588
202,219
The Company refinanced its outstanding debt obligations on December 3, 2014 in connection with the Orange-Co acquisition (see Note 3.
“Acquisitions and Dispositions”). The credit facilities initially included $125,000,000 in fixed interest rate term loans, $57,500,000 in
variable interest rate term loans, a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New
England Life Insurance Company (collectively “Met”), and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance,
Inc. (“Rabo”).
The term loans and RLOC are collateralized by approximately 39,300 gross acres of citrus groves and 14,000 gross acres of farm and ranch
land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.
The term loans are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The fixed-rate term loans bear
interest at 4.15% per annum, and the variable-rate term loans bear interest at a rate equal to 90 day LIBOR plus 150 basis points (the
“LIBOR spread”). The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and every two years thereafter until maturity.
Interest on the term loans is payable quarterly.
The interest rates on the variable rate term loans were 2.25% per annum and 1.80% per annum as of September 30, 2016 and September 30,
2015, respectively.
The Company may prepay up to $8,750,000 of the fixed-rate term loan principal annually without penalty, and any such prepayments may
be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment was made for calendar year 2015 and
remains available to reduce future mandatory principal payments when the Company elects to do so. There have been no optional
prepayments in calendar year 2016. The variable- rate term loans may be prepaid without penalty.
60
The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 150 basis points, payable quarterly. The LIBOR spread is subject to
adjustment by the lender on May 1, 2017 and every two years thereafter. Outstanding principal, if any, is due at maturity on November 1,
2019. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit. The RLOC is
available for funding general corporate requirements. The variable interest rate was 2.25% per annum and 1.80% per annum as of
September 30, 2016 and September 30, 2015, respectively. Availability under the RLOC was $20,000,000 as of September 30, 2016.
The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate
on the WCLC is based on one month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's debt service coverage
ratio for the preceding quarter and can vary from 175 to 250 basis points. The rate is currently at LIBOR plus 175 basis points. The variable
interest rate was 2.27% per annum and 1.95% per annum as of September 30, 2016 and September 30, 2015, respectively. The WCLC
agreement was amended on September 30, 2016, and the primary terms of the amendment were (1) an extension of the maturity to
November 1, 2018, (2) the amendment permits the Company to provide a limited $8,000,000 guaranty of the Silver Nip Citrus debt (see
below) and (3) the amendment makes debt service coverage a quarterly rather than annual covenant. There were no changes to the
commitment amount or interest rate. Availability under the WCLC was approximately $59,800,000 as of September 30, 2016.
The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount
less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on Alico's debt
service coverage ratio for the preceding quarter and can vary from a minimum of 20 basis points to a maximum of 30 basis points.
The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of September 30,
2016, there was approximately $10,200,000 in outstanding letters of credit, which correspondingly reduced the Company's availability
under the line of credit. There was no outstanding balance on the WCLC as of September 30, 2016.
The Company capitalized approximately $2,834,000 of debt financing costs related to the refinancing. These costs, together with
approximately $339,000 of costs related to the retired debt, will be amortized to interest expense over the applicable terms of the loans.
Additionally, approximately $123,000 and $78,000 of financing costs were incurred in connection with letters of credit and the amendment
of the WCLC, respectively. These costs are also being amortized to interest expense over the applicable terms of the obligations. The
unamortized balance of deferred financing costs related to the financing above was approximately $1,965,000 at September 30, 2016.
The Company recognized a loss on extinguishment of debt of approximately $964,000 related to the refinancing described above for the
fiscal year ended September 30, 2015. The loss on extinguishment of debt is included in other (expense) income in the Consolidated and
Combined Statement of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.
The new credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt
service coverage ratio of 1.10 to 1.00, (ii) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net
income for the preceding year, or approximately $161,600,000 for the year ending September 30, 2016, (iii) minimum current ratio of 1.50
to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of
$30,000,000 per fiscal year. As of September 30, 2016, the Company was in compliance with all of the financial covenants.
Credit facilities also include a Met Life term loan collateralized by real estate owned by Citree. This is a $5,000,000 credit facility that
initially bore interest at 5.49% per annum. An initial advance of $500,000 was made at closing on March 4, 2014. The loan agreement was
amended to provide for an interim advance of $2,000,000 on September 17, 2015, and the interest rate was adjusted to 5.30% per annum at
the time of the interim advance. The final $2,500,000 advance was funded on April 27, 2016 and the interest rate was adjusted to 5.28%.
The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately $53,000 at
September 30, 2016.
Debt Prior to Refinancing
Prior to the December 3, 2014 refinancing, the Company had a $33,500,000 term loan and a $60,000,000 revolving line of credit (“Old
RLOC”) with Rabo.
The variable rate term loan required quarterly payments of interest at a floating rate of one month LIBOR plus 225 basis points and
quarterly principal payments of $500,000. The variable interest rate on this loan was 2.40% per annum as of September 30,
61
2014. The loan was secured by real estate and had a maturity date of October 2020. The term loan was refinanced in connection with the
Orange-Co acquisition on December 3, 2014.
The Old RLOC had a variable interest rate based on one month LIBOR plus a spread. The spread was determined based upon our debt
service coverage ratio for the preceding fiscal year and could vary from 195 to 295 basis points. The interest rate was LIBOR plus 195 basis
points at the date of refinancing and as of September 30, 2014. Interest on the Old RLOC was payable quarterly. The Old RLOC was
subject to a commitment fee of 20 basis points on the annual average unused availability. The Old RLOC had no outstanding balance at the
date of refinancing or as of September 30, 2014.
The Company incurred debt financing costs of approximately $1,202,000 related to the Rabo variable rate term loan and Old RLOC. The
debt financing costs were capitalized as deferred financing costs in fiscal year 2010 and were being amortized to interest expense over the
term of the loans. The unamortized balance of deferred financing costs at the time of refinancing was approximately $697,000, of which
approximately $379,000 was expensed as a loss on extinguishment of debt and approximately $318,000 will be amortized over the
applicable terms of the new loans.
As of September 30, 2014, the Company was in compliance with the financial debt covenants and terms of the Rabo loan agreement.
Silver Nip Citrus Debt
Silver Nip Citrus has various loans payable to Prudential Mortgage Capital Company, LLC (“Prudential”) as described below.
There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum. Principal of
$290,000 is payable quarterly, together with accrued interest. The Company may prepay up to $5,000,000 of principal without penalty. On
February 15, 2015, Silver Nip Citrus made a prepayment of $750,000. The loans are collateralized by real estate in Collier, Hardee,
Highlands, Martin, Osceola and Polk Counties, Florida.
Silver Nip Citrus entered into two fixed rate term loans with Prudential to finance the acquisition of a 1,500 acre citrus grove on September
4, 2014. Each loan was in the original amount of $5,500,000. Principal of $55,000 per loan is payable quarterly, together with accrued
interest. One loan bears interest at 3.85% per annum, while the other bears interest at 3.45% per annum. The note with an interest rate of
3.85% per annum is subject to adjustment on September 1, 2019, and every year thereafter until maturity. Both loans are collateralized by
real estate in Charlotte County, Florida.
Silver Nip Citrus had a $6,000,000 revolving line of credit with Prudential. This line of credit was paid in full and terminated on April 28,
2015. The Company recognized a loss on extinguishment of debt of approximately $87,000 related to the termination.
The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately $351,000 at September 30,
2016.
The Silver Nip Citrus facilities are subject to a financial debt covenant requiring a current ratio of at least 1.50 to 1.00, measured at the end
of each fiscal year. Silver Nip Citrus was in compliance with this covenant as of September 30, 2016.
The Silver Nip Citrus facilities are personally guaranteed by George Brokaw, Remy Trafelet and Clayton Wilson at September 30, 2016 .
Modification of Credit Agreements
During the fiscal year ended September 30, 2015, Rabo agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus
up to $7,000,000 on a revolving basis for cash management purposes. These advances would be funded from either cash on hand or draws
on the Company’s WCLC.
Silver Nip Citrus has provided a $7,000,000 limited guaranty and security agreement granting Rabo a security interest in crops, accounts
receivable, inventory and certain other assets.
This modification required the amendment of various Prudential and Rabo loan documents and mortgages.
62
Interest costs expensed and capitalized were as follows:
(in thousands)
Interest expense
Interest capitalized
Total
Note 6. Inventories
Fiscal Year Ended September 30,
2015
2016
2014
$
$
9,893 $
172
10,065 $
8,366 $
345
8,711 $
2,368
182
2,550
Inventories consist of the following at September 30, 2016 and September 30, 2015:
(in thousands)
Unharvested fruit crop on the trees
Beef cattle
Citrus tree nursery
Other
Total inventories
September 30,
2016
2015
52,204 $
783
3,090
2,392
58,469 $
52,497
1,612
2,854
1,310
58,273
$
$
The Company records its inventory at the lower of cost or net realizable value. For the fiscal year ended September 30, 2016 and 2015, the
Company did not record any adjustments to reduce inventory to net realizable value.
Note 7. Property and Equipment, Net
Property and equipment, net consists of the following at September 30, 2016 and September 30, 2015:
(in thousands)
Citrus trees
Equipment and other facilities
Buildings and improvements
Breeding herd
Total depreciable properties
Less: accumulated depreciation, depletion and amortization
Net depreciable properties
Land and land improvements
Net property and equipment
Asset Impairment
September 30,
2016
2015
253,665 $
59,355
21,780
10,921
345,721
(83,122 )
262,599
116,648
379,247 $
247,488
56,200
21,259
11,924
336,871
(70,200 )
266,671
114,428
381,099
$
$
The Company recorded an impairment loss of approximately $541,000 during fiscal year 2015 on property classified as assets held for sale
as of September 30, 2014. The Company entered into a sales contract on February 17, 2015, which triggered the impairment of the property
based on the negotiated sales price. The property was sold on April 3, 2015 and the Company received approximately $1,509,000 in net
cash proceeds.
63
Sugarcane Lease
On May 19, 2014, the Company entered into a triple net agricultural lease (the "Lease") with its sole sugarcane customer, USSC, for 19,181
acres of land planted or plantable to sugar in Hendry County, Florida. As a result of the Lease, the Company is no longer directly engaged
in sugarcane farming. The lease was assigned to Global in connection with the Sugarcane land sale (see Note 3. "Acquisitions and
Dispositions").
The lease provided for a one-time reimbursement to the Company, at book value, for certain of our costs to develop and plant sugarcane
(Property and Equipment), cultivate and care take sugarcane (Inventory) and for the purchase of certain rolling stock (Property and
Equipment) used in our sugarcane operation. We had a combined book value of approximately $11,100,000 in planting and caretaking costs
and approximately $2,200,000 net book value for the rolling stock. After negotiation with USSC, we agreed to a one time reimbursement of
approximately $8,800,000 in plant cane and caretaking costs and a sales price of approximately $2,200,000 for the rolling stock. Therefore,
the Company recorded a one-time charge of approximately $2,300,000 in the fiscal year ended September 30, 2014 as an operating expense
in the Improved Farmland segment. In addition, we also received the annual base rent payment of approximately $3,548,000 for a total
payment of approximately $14,600,000 from USSC on July 1, 2014.
Note 8. Prepaid Expenses and Other Assets
Prepaid Expenses and Other Assets consist of the following at September 30, 2016 and 2015:
(in thousands)
September 30, 2016
September 30, 2015
Current
Non-Current
Current
Non-Current
Investments in agricultural cooperatives
Cash surrender value
Equity investment in affiliate
Tree deposits
Guaranteed payments on sugarcane sale
Prepaid insurance
Other
Total prepaid expenses and other assets
$
$
— $
—
—
—
1,236
955
70
2,261 $
146 $
445
543
164
—
—
394
1,692 $
— $
—
—
—
843
811
137
1,791 $
Note 9. Accrued Liabilities
Accrued Liabilities consist of the following at September 30, 2016 and September 30, 2015:
(in thousands)
Ad valorem taxes
Accrued interest
Accrued employee wages and benefits
Inventory received but not invoiced
Accrued dividends
Current portion of deferred retirement obligations
Additional purchase price consideration
Other accrued liabilities
Total accrued liabilities
September 30,
2016
2015
$
$
2,736 $
1,135
964
710
498
342
—
535
6,920 $
846
722
817
166
—
—
451
3,002
2,700
1,154
456
665
500
342
7,500
496
13,813
64
Note 10. Other Current Liabilities
Other current liabilities consist of the following at September 30, 2016 and 2015:
(in thousands)
Deposits - Farm land leases
Deposits - Recreation land leases
Other
Total other current liabilities
Note 11. Fair Value Measurements
September 30,
2016
2015
$
$
403 $
562
37
1,002 $
397
541
37
975
The Company complies with the provisions of FASB ASC 820 “Fair Value Measurements” for its financial and non-financial assets and
liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and
liability category measured at fair value on either a recurring or nonrecurring basis. The majority of the carrying amounts of the Company’s
assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities as of September 30,
2016 and 2015, approximate their fair value because of the immediate or short term maturity of these financial instruments. In the event
that stated interest rates are below market, the Company discounts mortgage and notes receivable to reflect their estimated fair value. The
carrying amounts reported for long-term debt approximates fair value as the Company’s borrowings with commercial lenders are at interest
rates that vary with market conditions and fixed rates that approximate market rates for similar obligations. The majority of our non-
financial instruments, which include inventories and property and equipment, are not required to be carried at fair value on a recurring
basis.
ASC 820 clarifies that fair value is an exit price representing the amount that would be received upon the sale of an asset or paid to transfer
a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such
assumptions, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
•
•
•
Level 1- Observable inputs such as quoted prices in active
markets;
Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
and
Level 3- Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which
require the reporting entity to develop its own assumptions.
There were no gains or losses included in earnings attributable to changes in unrealized gains or losses relating to our assets as of
September 30, 2016 and 2015.
We use third-party service providers to assist in the evaluation of investments. For investment valuations, current market interest rates,
quality estimates by rating agencies and valuation estimates by active market participants were used to determine values. Deferred
retirement benefits were valued based on actuarial data, contracted payment schedules and an estimated discount rate of 4.3% and 4.2% as
of September 30, 2016 and 2015, respectively.
65
Note 12. Treasury Stock
In fiscal year 2015, the Board of Directors authorized the repurchase of up to 170,000 shares of the Company’s common stock beginning
March 25, 2015 and continuing through December 31, 2016. The stock repurchases were made through open market transactions at times
and in such amounts as the Company’s broker determined subject to the provisions of SEC Rule 10b-18.
Effective November 1, 2008, the Company’s Board of Directors authorized the repurchase of up to 350,000 shares of the Company’s
common stock through November 2013 for the purpose of funding awards under its 2008 Incentive Equity Plan. In September 2013, the
Board of Directors authorized the repurchase of up to 105,000 shares of the Company’s common stock beginning in November 2013 and
continuing through April 2018. The stock repurchases began in November 2008 and were made on a quarterly basis through open market
transactions at times and in such amounts as the Company’s broker determined subject to the provisions of SEC Rule 10b-18. The
following table illustrates the Company’s treasury stock purchases for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except share amounts)
Fiscal Year Ended September 30,:
2016
2015
2014
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Shares
Purchased as Part
of Publicly
Announced Plan or
Program
Total Dollar Value
of Shares Purchased
78,446 $
91,554 $
118,792 $
40.04
43.83
40.78
545,995 $
467,549 $
375,995 $
3,141
4,013
4,844
The following table outlines the Company’s treasury stock transactions during the past three fiscal years:
(in thousands, except share amounts)
Shares
Cost
Balance at September 30, 2013
Purchased
Issued to Employees and Directors
Balance at September 30, 2014
Purchased
Issued to Employees and Directors
Balance at September 30, 2015
Purchased
Issued to Employees and Directors
Issued to former Silver Nip Citrus equity holders
Balance at September 30, 2016
66
73,538 $
118,792
(176,564)
15,766
91,554
(16,755)
90,565
78,446
(35,478)
(32,923)
100,610 $
2,816
4,844
(7,010)
650
4,013
(701)
3,962
3,141
(1,035)
(1,483)
4,585
Note 13. Income Taxes
The provision for income tax for the years ended September 30, 2016, 2015 and 2014 consists of the following:
(in thousands)
Current:
Federal income tax
State income tax
Total current
Deferred:
Federal income tax
State income tax
Total deferred
Total provision for income taxes
Fiscal Year Ended September 30,
2015
2016
2014
$
$
244 $
—
244
4,538
739
5,277
5,521 $
(1,348) $
(98)
(1,446)
10,432
1,919
12,351
10,905 $
4,035
543
4,578
6,160
645
6,805
11,383
Income tax provision (benefit) attributable to income from continuing operations differed from the amount computed by applying the
statutory federal income tax rate of 35% to pre-tax income as a result of the following:
(in thousands)
Tax at the statutory federal rate
Increase (decrease) resulting from:
State income taxes, net of federal benefit
Permanent and other reconciling items, net
Other
Total provision for income taxes
Fiscal Year Ended September 30,
2015
2016
2014
4,382 $
9,335 $
8,117
457
773
(91)
5,521 $
1,279
280
11
10,905 $
183
3,083
—
11,383
$
$
67
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of
September 30, 2016, and 2015 are presented below:
(in thousands)
Deferred tax assets:
Deferred retirement benefits
Inventories
Alico-Agri, Ltd. outside basis differences
Goodwill
Deferred gain recognition
Capital loss carry forward
Alternative minimum tax credits
Net operating loss
Other
Total deferred tax assets
Deferred tax liabilities:
Revenue recognized from citrus and sugarcane
Property and equipment
Accrual-to-cash method
Prepaid insurance
Investment in Magnolia
Total deferred tax liabilities
Net deferred income tax liability
September 30,
2016
2015
1,620 $
912
474
36,217
10,964
9,702
197
5,844
765
66,695
282
95,149
1,908
331
82
97,752
(31,057 ) $
1,595
230
467
39,081
11,234
12,804
—
7,141
200
72,752
223
93,849
3,905
256
299
98,532
(25,780 )
$
$
Deferred taxes are included in the accompanying Consolidated and Combined Balance Sheets are as follows:
(in thousands)
Deferred tax liabilities, current
Deferred tax liabilities, non-current
Total deferred tax liabilities
September 30,
2016
2015
$
$
53 $
31,004
31,057 $
151
25,629
25,780
As of September 30, 2016, the Company has approximately $14,800,000 federal and approximately $18,300,000 state income tax net
operating loss (NOL) carryforwards. The Federal NOL's of approximately $4,200,000 will expire in 2024 and approximately $10,600,000
in 2025. The State NOL’s of approximately $4,200,000 will expire in 2024 and approximately $14,100,000 in 2025. As of September 30,
2016, the Company has approximately $25,200,000 federal and state capital loss carryforwards, with approximately $600,000 expiring in
2017 and approximately $24,600,000 in 2018. The Company believes that it is more likely than not that the benefit from federal and state
NOL and capital loss carryforwards will be realized and therefore have not provided a valuation allowance on the deferred tax assets
related to these NOL and capital loss carryforwards.
68
Note 14. Segment Information
Segments
Operating segments are defined in FASB ASC Topic 280, "Segment Reporting" as components of public entities that engage in business
activities from which they may earn revenues and incur expenses for which separate financial information is available, and which are
evaluated regularly by the Company’s CODM in deciding how to assess performance and allocate resources. For the fiscal year ended
September 30, 2015, the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus
Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations. The former Citrus
Groves and Agricultural Supply Chain Management segments have been combined into the Orange Co. segment and, as a result of the
disposition of its sugarcane land in fiscal year 2015, the Company is no longer involved in sugarcane, and the Improved Farmland segment
is no longer material to our business and has been combined into the Other Operations segment. Effective October 1, 2015, the Company
manages its land based upon its primary usage, and reviews its performance based upon two primary classifications: Orange Co. and
Conservation and Environmental Resources. In addition, Other Operations include leasing mines and oil extraction rights to third parties,
as well as leasing improved farmland to third parties.
Total revenues represent sales to unaffiliated customers, as reported in the Consolidated and Combined Statements of Operations and
Comprehensive Income. Intersegment sales and transfers are accounted for by the Company as if the sales or transfers were to third parties
at current market prices. Goods and services produced by these segments are sold to wholesalers and processors in the United States who
prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from
operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including
nonrecurring gains and losses. All intercompany transactions between the segments have been eliminated.
69
Information by operating segment is as follows:
(in thousands)
Revenues:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total revenues
Operating expenses:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total operating expenses
Gross profit:
Orange Co.
Conservation and Environmental Resources
Other Operations
Total gross profit
Capital expenditures:
Orange Co.
Conservation and Environmental Resources
Other Operations
Other Capital Expenditures
Total capital expenditures
Depreciation, depletion and amortization:
Orange Co.
Conservation and Environmental Resources
Other Operations
Other Depreciation, Depletion and Amortization
Total depreciation, depletion and amortization
(in thousands)
Assets:
Orange Co.
Conservation and Environmental Resources
Other Operations
Other Corporate Assets
Total Assets
$
$
$
$
$
Fiscal Year Ended September 30,
2016
2015
2014
137,282 $
5,669
1,245
144,196
146,147 $
5,394
1,585
153,126
74,768
8,172
21,063
104,003
102,347
6,393
397
109,137
110,236
4,808
2,083
117,127
34,935
(724)
848
35,059 $
10,393 $
1,664
629
1,619
14,305
13,982 $
456
476
468
15,382 $
35,911
586
(498)
35,999 $
9,403 $
1,461
162
497
11,523
12,297 $
1,275
471
689
14,732 $
54,956
6,123
21,730
82,809
19,812
2,049
(667)
21,194
7,849
5,109
37
285
13,280
4,201
1,604
3,653
180
9,638
September 30,
2016
2015
$
$
412,643 $
13,073
23,287
9,659
458,662 $
412,700
12,648
22,688
12,052
460,088
70
Note 15. Employee Benefits Plans
Management Security Plan
The management security plan (“MSP”) is a nonqualified, noncontributory defined supplemental deferred retirement benefit plan for a
select group of management personnel. The MSP provides a fixed supplemental retirement benefit for 180 months certain. The MSP is
frozen; no new participants are being added and no benefit increases are being granted. The MSP benefit expense and the projected
management security plan benefit obligation are determined using assumptions as of the end of the year. The weighted-average discount
rate used to compute the obligation was 4.3% and 4.2% in fiscal years 2016 and 2015, respectively.
Actuarial gains or losses are recognized when incurred, therefore; the end of year benefit obligation is the same as the accrued benefit costs
recognized in the Consolidated and Combined Balance Sheets.
The amount of MSP benefit expense charged to costs and expenses was as follows:
(in thousands)
Service cost
Interest cost
Recognized actuarial loss adjustment
Total
Fiscal Year Ended September 30,
2015
2016
2014
$
$
213 $
210
(5)
418 $
195 $
197
231
623 $
The following provides a roll-forward of the MSP benefit obligation:
(in thousands)
Change in projected benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Recognized actuarial loss adjustment
Benefit obligation at end of year
Funded status at end of year
$
$
$
September 30,
2016
2015
4,476 $
213
210
(351 )
(5 )
4,543 $
(4,543 ) $
(4,476 )
195
(23)
—
172
4,198
195
197
(345 )
231
4,476
The MSP is unfunded and benefits are paid as they become due. The estimated future benefit payments under the plan for each of the five
succeeding years are approximately $348,000, $365,000, $170,000, $210,000 and $210,000 and for the five-year period thereafter is an
aggregate of $1,429,000.
The Company has established a “Rabbi Trust” to provide for the funding of accrued benefits under the MSP. According to the terms of the
Rabbi Trust, funding is voluntary until a change of control of the Company as defined in the Management Security Plan Trust Agreement
occurs. Upon a change of control, funding is triggered. As of September 30, 2016, the Rabbi Trust had no assets, and no change of control
had occurred.
Profit Sharing and 401(k)
The Company maintains a 401(k) employee savings plan for eligible employees, which provides for a 4% matching contribution on
employee payroll deferrals. The Company’s matching funds vest to the employee immediately, pursuant to a safe harbor
71
election effective in October 2012. The Company’s contribution to the plan was approximately $401,000, $360,000, and $192,000 for the
fiscal years 2016, 2015 and 2014, respectively.
The Profit Sharing Plan (“Plan”) is fully funded by contributions from the Company. Contributions to the Plan are discretionary and
determined annually by the Company’s Board of Directors. Contributions to employee accounts are based on the participant’s
compensation. The Company’s contribution to the Profit Sharing Plan was $291,000, $165,000 and $165,000 for the fiscal years ended
September 30, 2016, 2015 and 2014, respectively.
Note 16. Related Party Transactions
Change in Control Transaction
On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, completed the previously announced purchase from
Alico Holding, LLC, a company wholly owned by Atlantic Blue Group, Inc. (“Atlanticblue”), of 3,725,457 shares of our common stock
(the “Share Purchase”).
The common stock acquired by 734 Agriculture and its affiliates, including 734 Investors, represents approximately 51% of the Company’s
outstanding voting securities. On November 15, 2013, 734 Investors amended and restated its LLC operating agreement (the “LLC
Agreement”) to admit new members and to designate 734 Agriculture as the managing member, with authority to administer the affairs of
734 Investors, including the voting and disposition of shares of common stock, subject to certain restrictions set forth therein.
As a result, upon the consummation of the Share Purchase, 734 Agriculture and its affiliates, including 734 Investors, acquired the voting
power to control the election of the Company’s Directors and any other matter requiring the affirmative vote or consent of the Company’s
stockholders'.
Appointment of Directors
With the Closing of the Share Purchase, the previously announced election of the following individuals to the Board of Directors became
effective: Mr. George R. Brokaw, Member of 734 Agriculture; Remy W. Trafelet, Manager of 734 Agriculture; W. Andrew Krusen, Jr.,
Chairman and CEO of Dominion Financial Group; Benjamin D. Fishman, Managing Principal of Arlon Group; Henry R. Slack, former
Chairman of the Board of Terra Industries, Inc. and Senior Partner of Quarterwatch, LLC; Clayton G. Wilson, former CEO of 734 Citrus
Holdings, LLC d/b/a Silver Nip Citrus and Chairman of the Board of Latt Maxcy Corporation; and R. Greg Eisner, Head of Strategy of
Dubin & Company, LLC.
734 Investors and 734 Agriculture
On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired all of the approximately 51% of Alico’s
common stock then owned by Atlanticblue. 734 Investors now beneficially owns, directly or indirectly, approximately 59% of the
outstanding shares of the Company’s common stock and possesses the voting power to control the election of the Company’s Directors and
any other matter requiring the affirmative vote or consent of the Company’s stockholders. 734 Agriculture is the sole managing member of
734 Investors. By virtue of their ownership percentage, 734 Investors and 734 Agriculture are able to elect all of the Directors and,
consequently, control Alico. Messrs. Brokaw and Trafelet are the two controlling persons of 734 Agriculture.
Silver Nip Citrus Merger Agreement
Effective February 28, 2015, the Company completed the merger (“Merger”) with 734 Citrus Holdings, LLC (“Silver Nip Citrus”) pursuant
to an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger
Sub”), Silver Nip Citrus and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus. The ownership of Silver
Nip Citrus was held by 734 Agriculture, 74.89%, Mr. Clay Wilson, Chief Executive Officer of the Company, 5% and an entity controlled
by Mr. Clay Wilson owned, 20.11%.
734 Agriculture has control over both Silver Nip Citrus and the Company, and therefore the Merger was treated as a common control
acquisition.
At closing of the Merger, Merger Sub merged with and into Silver Nip Citrus, with Silver Nip Citrus and its affiliates surviving the Merger
as wholly owned subsidiaries of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares of the
Company’s common stock, par value $1.00 per share, to the holders of membership interests in Silver Nip
72
Citrus. Silver Nip Citrus’ outstanding net indebtedness at the closing of the Merger was approximately $40,278,000, and other liabilities
totaled approximately $8,446,000. The Company acquired assets at with a book value of approximately $65,739,000, and total net assets of
approximately $17,015,000. The shares issued were recorded at the carrying amount of the net assets transferred. The closing price of the
Company's common stock on February 27, 2015 was $45.67.
In September 2015, the former holders of membership interests in Silver Nip Citrus (the "Members") received an additional 115,782 shares
of the Company’s common stock pursuant to the Merger Agreement. The additional consideration was based on the value of the proceeds
received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves following the conclusion of the 2014-
2015 citrus harvest season. The Members will receive additional Company shares of common stock based on any additional proceeds
received by the Company subsequent to September 2015 related to the 2014-2015 harvest season.
As of September 30, 2016, the former holders of membership interests (the "Members") in Silver Nip Citrus earned and were issued an
additional 148,705 shares of the Company’s common stock pursuant to the Merger Agreement. The additional purchase consideration was
based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves for
2014-2015 citrus harvest season. The Members are not expected to receive any additional Company common shares related to the 2014-
2015 harvest season.
For the fiscal year ended September 30, 2016 and 2015 the Company incurred approximately $85,000 and $309,000 in professional and
legal costs in connection with the Merger. These costs are included in general and administrative expenses in the Consolidated and
Combined Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2016 and 2015, respectively.
JD Alexander
On November 6, 2013, JD Alexander tendered his resignation as Chief Executive Officer, and as an employee of the Company, subject to
and effective immediately after the Closing of the Share Purchase transaction on November 19, 2013. Mr. Alexander’s resignation included
a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On November 6, 2013, the Company
and Mr. Alexander also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Alexander will provide consulting
services to the Company during the two-year period after the Closing, (ii) Mr. Alexander agreed to be bound by certain non-competition
covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of two years after
the Closing, and (iii) the Company paid Mr. Alexander for such services and covenants $2,000,000 in twenty-four monthly installments.
The Company expensed approximately $167,000, $1,000,000 and $833,000 under the Consulting and Non-Competition Agreement for the
fiscal years ended September 30, 2016, 2015 and 2014.
Ken Smith
On March 20, 2015, Ken Smith tendered his resignation as Chief Operating Officer, and as an employee of the Company. Mr. Smith’s
resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On March 20,
2015, the Company and Mr. Smith also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Smith will provide
consulting services to the Company during the three-year period after the resignation date, (ii) Mr. Smith agreed to be bound by certain
non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of
two years after the resignation date, and (iii) the Company will pay Mr. Smith up to $1,225,000 for such services and covenants. The
Company’s business operations previously managed by Mr. Smith are now managed by Clay Wilson, Chief Executive Officer of Alico.
The Company expensed approximately $200,000 and $625,000 under the Consulting and Non-Competition Agreement for fiscal years
ended September 30, 2016 and 2015, respectively.
W. Mark Humphrey
On June 1, 2015, W. Mark Humphrey tendered his resignation as Senior Vice President and Chief Financial Officer, and as an employee of
the Company. On June 1, 2015, the Company and Mr. Humphrey entered into a Separation and Consulting Agreement under which (i) Mr.
Humphrey will provide consulting services to the Company for a one-year period after his resignation, and (ii) Mr. Humphrey will be
entitled to the following benefits: (a) $100,000 in cash in a lump sum and (b) a consulting fee of $350,000 payable monthly during the
period commencing on his resignation date and ending on the first anniversary of his resignation date. The Company expensed
approximately $238,000 and $268,000 under the Separation and Consulting Agreement for the fiscal year ended September 30, 2016 and
2015, respectively. On June 1, 2015 the Company appointed John E. Kiernan to serve as Senior Vice President and Chief Financial Officer.
Effective September 1, 2015, Mr. Humphrey was appointed to serve as Senior Vice President and Chief Accounting Officer, and continued
to receive monthly payments under The Consulting Agreement through the first anniversary of his resignation date.
73
Shared Services Agreement
The Company has a shared services agreement with Trafelet Brokaw & Co., LLC (“TBCO”), whereby the Company will reimburse TBCO
for use of office space and various administrative and support services. The annual cost of the office and services is approximately
$465,000. The agreement will expire in June 2017. The Company expensed approximately $479,000 and $379,000 under the Shared
Services Agreement for the fiscal year ended September 30, 2016 and 2015, respectively.
Note 17. Commitments and Contingencies
Operating Leases
The Company has obligations under various non-cancelable long-term operating leases for equipment. In addition, the Company has
various obligations under other equipment leases of less than one year.
Total rent expense was approximately $667,000, $649,000 and $2,015,000 for the years ended September 30, 2016, 2015 and 2014,
respectively.
The future minimum annual rental payments under non-cancelable operating leases are as follows:
(in thousands)
2017
2018
2019
2020
2021
Total
Capital Leases
$
$
662
353
5
1
—
1,021
The Company has obligations under two non-cancelable long-term capital equipment leases. The gross asset value of leased equipment is
approximately $1,435,000 at September 30, 2016 and 2015. Accumulated amortization totaled approximately $425,000 and $191,000 at
September 30, 2016 and 2015, respectively. The future minimum annual rental payments under non-cancelable capital leases are as
follows:
(in thousands)
2017
2018
Total
Principal
Interest
Total
288 $
300
588 $
24 $
12
36 $
312
312
624
$
$
74
Change in Control Agreements
The Company entered into Change in Control Agreements (“CIC Agreements”) with its executive officers and 22 other key employees
(“CIC Recipients”) in the fiscal year 2014. The CIC Agreements provided for cash payments to CIC Recipients in the event of a change in
control as defined in the CIC Agreements followed by the termination of a CIC Recipient within 18 months of the change in control. As of
September 30, 2016, all CIC Agreements have expired.
Letters of Credit
The Company has outstanding standby letters of credit in the total amount of approximately $10,234,000 and $17,498,500 at September 30,
2016 and September 30, 2015, respectively, to secure its various contractual obligations.
Legal Proceedings
On March 11, 2015 a putative stockholder class action lawsuit captioned Shiva Y. Stein v. Alico, Inc., et al., No. 15-CA-000645 (the
“Stein lawsuit”) was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, Inc.
(“Alico”), its current and certain former directors, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus, 734 Investors, LLC (“734 Investors”),
734 Agriculture, LLC (“734 Agriculture”) and 734 Sub, LLC (“734 Sub”) in connection with the acquisition of Silver Nip by Alico (the
“Acquisition”). The complaint alleged that Alico’s directors at the time of the Acquisition, 734 Investors, and 734 Agriculture, breached
fiduciary duties to Alico stockholders in connection with the Acquisition, and that Silver Nip and 734 Sub aided and abetted such breaches.
The lawsuit sought, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses.
On May 6, 2015 a putative stockholder class action and derivative lawsuit captioned Ruth S. Dimon Trust v. George R. Brokaw, et al., No.
15-CA-001162 (the “Dimon lawsuit”) was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida,
against Alico, its current directors, Silver Nip Citrus, 734 Investors and 734 Agriculture, in connection with the Acquisition of Silver Nip
Citrus by Alico. The complaint alleged breach of fiduciary duty, gross mismanagement, waste of corporate assets and tortious interference
with contract against Alico’s directors; unjust enrichment against three of the directors; and aiding and abetting breach of fiduciary duty
against Silver Nip Citrus, 734 investors and 734 Agriculture. The lawsuit sought, among other things, rescission of the Acquisition, an
injunction prohibiting certain payments to Silver Nip Citrus members, unspecified damages, disgorgement of profits, costs, fees (including
attorneys’ fees) and expenses.
On July 17, 2015, the plaintiffs in the Stein and Dimon lawsuits filed a stipulation and proposed order consolidating their cases for all
purposes under the caption, In re Alico, Inc. Shareholder Litigation, Master File No. 15-CA-000645 (the “Consolidated Action”) and
seeking the appointment of a lead plaintiff and lead and liaison counsel. The court entered that proposed order on July 21, 2015.
On October 16, 2015, the lead plaintiff in the Consolidated Action reported to the Court that the parties reached an agreement in principle
to settle the Consolidated Action and other claims related to the Acquisition and that they were in the process of formally documenting their
agreements. The proposed settlement contemplated that Alico would adopt certain changes to its corporate governance practices, policies
and procedures concerning related party transactions; that the Consolidated Action would be dismissed; and all claims that were or could
have been asserted challenging any aspect of the Acquisition would be released. On March 31, 2016, the parties entered into a Stipulation
of Settlement. The parties filed an Amended Stipulation of Settlement with the Court on April 22, 2016.
On April 28, 2016, the Court entered an order preliminarily approving the settlement and providing for notice to relevant Alico
shareholders. Notice of the settlement was mailed to relevant Alico shareholders and a settlement hearing was held on September 12,
2016, during which the Court considered the fairness, reasonableness and adequacy of the settlement and plaintiffs' counsel’s request for an
award of attorneys' fees and expenses.
Following the settlement hearing on September 12, 2016, the Court entered a final order and judgment that approved the settlement as fair,
reasonable and adequate; directed the parties to consummate the settlement according to its terms; awarded plaintiffs’ counsel attorneys’
fees and expenses; and dismissed the Consolidated Action with prejudice.
From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There
are no other current legal proceedings to which the Company is a party to or of which any of its property is subject to that it believes will
have a material adverse effect on its business financial position or results of operations.
75
Note 18. Selected Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the fiscal years ended September 30, 2016, and 2015 are computed independently each quarter,
therefore, the sum of the quarter amounts may not equal the total amount for the respective year due to rounding as follows:
(in thousands, except per share
amounts)
Total operating revenue
Total operating expenses
December 31,
2014
2015
March 31,
June 30,
2016
2015
2016
2015
September 30,
2015
2016
Fiscal Quarter Ended
$ 20,604 $ 19,070 $ 71,889 $ 60,012 $ 46,853 $ 71,670 $ 4,850 $ 2,374
2,350
15,798
50,643
48,336
52,374
33,170
19,238
4,355
Gross profit
1,366
3,272
19,515
11,676
13,683
21,027
495
24
General and administrative
Other (expense) income, net
3,925
(2,535)
5,484
11,181
2,849
(1,840)
3,499
(2,824)
2,747
(2,874)
2,949
(2,258)
3,692
(2,117)
4,562
(1,516)
Income (loss) before income taxes
Income tax expense (benefit)
(5,094)
(2,075)
8,969
3,763
14,826
6,102
5,353
1,127
8,062
3,392
15,820
6,644
(5,314)
(1,898)
(6,054)
(629)
Net income (loss)
$ (3,019) $
5,206 $
8,724 $ 4,226 $ 4,670 $ 9,176 $ (3,416) $ (5,425)
Net loss attributable to noncontrolling
interests
Net income attributable to Alico Inc.
common stockholders
Earnings per share:
Basic
Diluted
8
—
10
—
11
—
5
31
$ (3,011) $
5,206 $
8,734 $ 4,226 $ 4,681 $ 9,176 $ (3,411) $ (5,394)
$
$
(0.36) $
(0.36) $
0.71 $
0.71 $
1.05 $
1.05 $
0.51 $
0.51 $
0.56 $
0.56 $
1.11 $
1.11 $
(0.41) $
(0.41) $
0.65
0.65
The operating results noted above include the operating results of Silver Nip Citrus, as a result of the common control acquisition in
February 2015.
Note 19. Subsequent Events
On November 10, 2016, Met issued a Partial Release of Mortgage removing their lien on approximately 8,640 acres of ranch land in
Hendry County, Florida. There was no price charged for the release. The release was recorded on November 28, 2016.
On December 1, 2016, the Silver Nip Citrus debt agreements with Prudential were amended. The primary terms of the amendments were
(1) the Company provided a limited $8,000,000 guaranty of the Silver Nip debt, (2) the limited personal guarantees previously provided by
George Brokaw, Remy Trafelet and Clayton Wilson also totaling $8,000,000 were released and (3) the required consolidated current ratio
was reduced from 1.50 to 1.00 to 1.00 to 1.00 for covenant compliance purposes. The personal guarantees were provided prior to the
Company’s Merger with Silver Nip Citrus.
In December 2016, the Company reached an agreement in principle to sell 49 acres of land and facilities in Hendry County, Florida for
$2,200,000. The property, known as Alico Plant World, is currently leased to a vegetable nursery operator. The buyer is an affiliate of the
tenant. The anticipated sales price exceeds its net book value and no impairment will be recognized.
Alico Inc. has begun to realign its management structure to optimize the financial returns on the assets of its Orange Co. and Conservation
and Environmental Resources operating segments. Remy W. Trafelet will become President and Chief Executive Officer of the Company
on January 1, 2017. He has led the Company’s Executive Committee as Chairman since 2013. George Brokaw will become Executive Vice
Chairman for the Company while Hank Slack will serve Executive Chairman. Clay Wilson will step down as Chief Executive Officer on
December 31, 2016. Mr. Wilson will continue to serve as a member of the Board of Directors. The compensatory arrangements and other
terms are still being negotiated and will be disclosed when available.
76
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and
Procedures.
Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the our disclosure controls and procedures as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of
the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial
Reporting.
During the fourth quarter ended September 30, 2016, there were no changes in our internal controls over financial reporting that have
materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
(c) Management Report on Internal Control Over Financial
Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies
and procedures that:
(i)
(ii)
(iii)
pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being
made only in accordance with authorizations of management and directors of the Company; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2016. In making
this assessment, management used the criteria described in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).
Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of
September 30, 2016. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal
control over financial reporting as of September 30, 2016 has been audited by RSM US LLP, an independent registered public accounting
firm, as stated in their attestation report which is included herein.
Item 9B. Other Information
None.
77
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement
for the 2017 Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934, (the “Proxy Statement”),
not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information
included in the Proxy Statement is incorporated herein by reference.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information concerning our directors and nominees and other information as required by this item are hereby incorporated by reference
from our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.
Code of Ethics
We have adopted a Code of Business Conduct and Ethics that is intended to serve as a code of ethics for purposes of Item 406 of
Regulation S-K. Our Code of Business Conduct and Ethics is posed on our website www.alicoinc.com (at the Investor homepage under
"Corporate Governance") and we intend to disclose on our website any amendments to, or waiver from, such code.
Item 11. Executive Compensation
The information required by Item 11 regarding executive compensation is included under the headings “Compensation Discussion and
Analysis,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement
to be filed with the SEC pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information concerning the ownership of certain beneficial owners and management and related stockholder matters is hereby incorporated
by reference to our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information concerning relationships and related transactions is hereby incorporated by reference to our Proxy Statement to be filed
with the SEC pursuant to Regulation 14A.
Item 14. Principal Accountants Fees and Services
Information concerning principal accounting fees and services is hereby incorporated by reference to our Proxy Statement to be filed with
the SEC pursuant to Regulation 14A.
78
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this
report
(1)
Financial
Statements:
Our Consolidated and Combined Financial Statements are included in Part II, Item 8 of this Annual Report on Form 10-K.
(2)
Financial Statement
Schedules:
Financial statement schedules are omitted as the required information is either inapplicable or the information is presented in our
Consolidated and Combined Financial Statements or notes thereto.
(3)
Exhibits
The exhibits listed in the Exhibit Index in (b) below are filed or incorporated by reference as part of this Annual Report on Form 10-K.
(b)
Exhibit
Index
79
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
10.0
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
Exhibit Index
*** Asset Purchase Agreement, dated as of December 1, 2014, by and among Alico, Inc., Orange-Co, LP, and, solely with
respect to certain sections thereof, Orange-Co, LLC and Tamiami Citrus, LLC. (Incorporated by reference to Exhibit
2.1 of Alico’s filing on Form 8-K dated December 5, 2014)
*** Agreement and Plan of Merger, dated as of December 2, 2014, by and among Alico, Inc., 734 Sub, LLC, 734 Citrus
Holdings, LLC, and, solely with respect to certain sections thereof, 734 Agriculture, LLC, Rio Verde Ventures, LLC
and Clayton G. Wilson. (Incorporated by reference to Exhibit 2.2 of Alico’s filing on Form 8-K dated December 5,
2014)
Restated Certificate of Incorporation, Dated February 17, 1972 (incorporated by reference to Alico’s Registration
Statement on Form S-1 dated February 24, 1972, Registration No. 2-43156)
Certificate of Amendment to Certificate of Incorporation, Dated January 14, 1974 (incorporated by reference to
Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
Amendment to Articles of Incorporation, Dated January 14, 1987 (incorporated by reference to Alico’s Registration
Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
Amendment to Articles of Incorporation, Dated December 27, 1988 (incorporated by reference to Alico’s
Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
Bylaws of Alico, Inc., amended and restated (incorporated by reference to Alico’s filing on Form 10-K, dated
December 14, 2010)
By-Laws of Alico, Inc., amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated October
4, 2007)
*
*
*
*
*
*
By-Laws of Alico, Inc. amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated
November 21, 2008)
By-Laws of Alico, Inc. amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated October
5, 2010)
By-Laws of Alico, Inc. , amended and restated (Incorporated by reference to Exhibit 3.1 of the Company’s current
report on Form 8-K, filed with the Commission on January 25, 2013)
Material Contracts
Credit agreement with Rabobank Agri-Finance (incorporated by reference to Alico’s filing on Form 8-K dated
September 8, 2010)
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and JD Alexander (Incorporated by
reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6,
2013)
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and Kenneth Smith, Ph.D. (Incorporated by
reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6,
2013)
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and W. Mark Humphrey (Incorporated by
reference to Exhibit 10.3 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6,
2013)
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and Steven C. Lewis (Incorporated by
reference to Exhibit 10.4 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6,
2013)
Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.5 of the Company’s quarterly report on
Form 10-Q filed with the Commission on May 6, 2013)
Management Security Plan(s) Trust Agreement (Incorporated by reference to Exhibit 10.6 of the Company’s quarterly
report on Form 10-Q filed with the Commission on May 6, 2013)
Fourth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated April 1, 2013 (Incorporated by reference
to Exhibit 10.7 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
Agricultural Lease Agreement dated May 19, 2014 between Alico, Inc. and United States Sugar
Corporation. (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with
the Commission on August 11, 2014)
Purchase and Sale Agreement dated August 7, 2014 between Alico, Inc. and Terra Land Company
Fifth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated April 28, 2014
Sixth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated July 1, 2014
80
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
*** First Amended and Restated Credit Agreement, dated as of December 1, 2014, by and among Alico, Inc., Alico Land
Development, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Metropolitan Life
Insurance Company, and New England Life Insurance Company. (Incorporated by reference to Exhibit 10.1 of
Alico’s filing on Form 8-K dated December 5, 2014)
*** Credit Agreement dated as of December 1, 2014, by and between Alico, Inc., Alico-Agri, Ltd., Alico Plant World,
L.L.C., Alico Fruit Company, LLC, Alico Land Development, Inc., and Alico Citrus Nursery, LLC, as Borrowers
and Rabo Agrifinance, Inc., as Lender. (Incorporated by reference to Exhibit 10.2 of Alico’s filing on Form 8-K dated
December 5, 2014)
Shared Services Agreement by and between Alico, Inc. and Trafelet Brokaw Capital Management, L.P. dated June 1,
2015 (Incorporated by reference to Exhibit 10.15 of Alico’s filing on Form 10-K dated December 10, 2015)
Loan Agreement, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734
Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (the
"Prudential Loan Agreement") (Incorporated by reference to Exhibit 10.16 of Alico’s filing on Form 10-K dated
December 10, 2015)
Promissory Note A, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC,
734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.17 of Alico’s filing on Form 10-K dated December 10, 2015)
Promissory Note B, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC,
734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.18 of Alico’s filing on Form 10-K dated December 10, 2015)
Promissory Note C, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC,
734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.19 of Alico’s filing on Form 10-K dated December 10, 2015)
First Amendment to Loan Agreement, dated March 26, 2013 (Prudential Loan Agreement) (Incorporated by reference
to Exhibit 10.20 of Alico’s filing on Form 10-K dated December 10, 2015)
Promissory Note D, dated March 26, 2013, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734
Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.21 of Alico’s filing on Form 10-K dated December 10, 2015)
Loan Agreement, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734
Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
("Loan E and F") (Incorporated by reference to Exhibit 10.22 of Alico’s filing on Form 10-K dated December 10,
2015)
Promissory Note E, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734
Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.23 of Alico’s filing on Form 10-K dated December 10, 2015)
Promissory Note F, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734
Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC
(Incorporated by reference to Exhibit 10.24 of Alico’s filing on Form 10-K dated December 10, 2015)
First Amendment to Loan Agreement, dated April 23, 2015 (Loan E and F) (Incorporated by reference to Exhibit
10.25 of Alico’s filing on Form 10-K dated December 10, 2015)
Second Amendment to the Loan Agreement, dated September 4, 2014 (Prudential Loan Agreement) (Incorporated by
reference to Exhibit 10.26 of Alico’s filing on Form 10-K dated December 10, 2015)
Third Amendment to the Loan Agreement, dated April 23, 2015 (Prudential Loan Agreement) (Incorporated by
reference to Exhibit 10.27 of Alico’s filing on Form 10-K dated December 10, 2015)
Cancellation and Termination of Note D, dated April 23, 2015, by and among 734 Citrus Holdings, LLC, 734 LMC
Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital
Company, LLC (Incorporated by reference to Exhibit 10.28 of Alico’s filing on Form 10-K dated December 10,
2015)
First Amendment to Credit Agreement and Consent with Rabo Agrifinance, Inc. dated February 26, 2015
(Incorporated by reference to Exhibit 10.29 of Alico’s filing on Form 10-K dated December 10, 2015)
Second Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated July 16, 2015 (Incorporated by reference
to Exhibit 10.30 of Alico’s filing on Form 10-K dated December 10, 2015)
81
10.31
10.32
10.33
10.34
10.35
14.1
14.2
21.0
23.0
31.1
31.2
32.1
32.2
101
Amendment to First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company and New
England Life Insurance Company, dated February 1, 2015 (Incorporated by reference to Exhibit 10.31 of Alico’s
filing on Form 10-K dated December 10, 2015)
Second Amendment to First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company
and New England Life Insurance Company dated August 12, 2015 (Incorporated by reference to Exhibit 10.32 of
Alico’s filing on Form 10-K dated December 10, 2015)
Third Amendment to Credit Agreement by and among Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico
Fruit Company, LLC, Alico Land Development Inc., Alico Citrus Nursery, LLC and Rabo Agrifinance, LLC (f/k/a
Rabo Agrifinance, Inc.) dated September 30, 2016.
Renewal Promissory Note by Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company,
LLC, Alico Land Development Inc., and Alico Citrus Nursery, LLC in favor of Rabo Agrifinance, LLC (f/k/a Rabo
Agrifinance, Inc.) dated September 30, 2016.
Supplement No. 1 dated as of September 30, 2016, to the Security Agreement dated as of December 1, 2014 by and
among Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Alico Land
Development Inc., Alico Citrus Nursery, LLC and Rabo Agrifinance, LLC (f/k/a Rabo Agrifinance, Inc.)
Code of Ethics (incorporated by reference to Alico’s filing on Form 8-K dated February 24, 2009)
Whistleblower Policy (incorporated by reference to Alico’s filing on Form 8-K dated February 24, 2009)
Subsidiaries of the Registrant — Alico Land Development Company, Inc. [(formerly Saddlebag Lake Resorts, Inc. (a
Florida corporation incorporated in 1971)]; Alico-Agri, Ltd (a Florida limited partnership formed in 2003), Alico
Plant World, LLC (a Florida limited liability company organized in 2004), Bowen Brothers Fruit, LLC (a Florida
limited liability company organized in 2005) incorporated by reference to Alico’s filing on Form 10-K dated
November 28, 2006
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a)
certification
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a)
certification
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
** XBRL Instance Document
101.INS
101.SCH ** XBRL Taxonomy Extension Schema Document
101.CAL
101.DEF
101.LAB
101.PRE
*
**
** XBRL Taxonomy Calculation Linkbase Document
** XBRL Taxonomy Definition Linkbase Document
XBRL Taxonomy Label Linkbase Document
XBRL Taxonomy Extension Presentation Linkbase Document
Denotes a management contract or compensatory plan, contract or arrangement.
In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are
furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities
Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these
sections.
Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(b) (2) of Regulation S-K. The
Company will furnish supplemental copies of any such schedules or exhibits to the SEC upon request.
***
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
December 6, 2016
ALICO, INC. (Registrant)
By:
/s/ Clayton G. Wilson
Clayton G. Wilson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated:
December 6, 2016
Director and Chief Executive Officer
December 6, 2016
Chief Financial Officer and Senior Vice President
December 6, 2016
Chairman of the Board, Director
December 6, 2016
Director
December 6, 2016
Director
December 6, 2016
Director
December 6, 2016
Director
December 6, 2016
Director
83
:
:
:
:
:
:
:
:
/s/ Clayton G. Wilson
Clayton G. Wilson
/s/ John. E. Kiernan
John. E. Kiernan
/s/ Henry R. Slack
Henry R. Slack
/s/ George R. Brokaw
George R. Brokaw
/s/ R. Greg Eisner
R. Greg Eisner
/s/ Benjamin D. Fishman
Benjamin D. Fishman
/s/ W. Andrew Krusen
W. Andrew Krusen
/s/ Remy W. Trafelet
Remy W. Trafelet
THIRD AMENDMENT TO CREDIT AGREEMENT
Exhibit 10.33
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), is dated as of September
30, 2016, by and among ALICO, INC., a Florida corporation (''Alico"), ALICO-AGRI, LTD. , a Florida limited
partnership ("Alico-Agri"), ALICO PLANT WORLD, L.L.C., a Florida limited liability company ("Plant World "),
ALICO FRUIT COMPANY, LLC, a Florida limited liability company ("Fruit Company" ) , ALICO LAND
DEVELOPMENT INC., a Florida corporation ("Land Development" ) , ALICO CITRUS NURSERY, LLC , a
Florida limited liability company ("Citrus Nursery", and together with Alico, Alico-Agri, Plant World, Fruit Company
and Land Development, each a "Borrower" and collectively the "Borrowers"), the Guarantors party hereto and RABO
AGRIFINANCE LLC (formerly known as Rabo Agrifinance, Inc.), a Delaware limited liability company ("Lender").
W I T N E S S E T H :
WHEREAS, Borrowers and Lender are parties to that certain Credit Agreement dated as of December 1, 2014 ,
as amended by that certain First Amendment to Credit Agreement and Consent dated as of February 26, 2015, and that
certain Second Amendment to Credit Agreement dated as of July 16, 2015 (as may be amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement”); and
WHEREAS, Borrowers have requested that Lender amend certain provisions of the Credit Agreement to,
among other things, (a) extend the Revolving Credit Maturity Date to November 1, 2018, and (b) permit Alico to
guaranty the Prudential Facility (as defined in the Credit Agreement) in an amount not to exceed $8,000,000 in principal
and interest in order to permit Alico to obtain the release of certain existing guaranties of the Prudential Facility
executed and delivered by principals Mr. George Brokaw, Mr. Remy Trafelet and Mr. Clay Wilson (the "Personal
Prudential Guaranties"); and
WHEREAS, Lender is willing to agree to the requested amendments and consent to the guaranty by Alico of the
Prudential Facility in a maximum amount of $8,000,000 in principal and interest (the "Alico Prudential Limited
Guaranty" ) , as a condition to the release of the Personal Prudential Guaranties, in each case on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained
herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree that all capitalized terms used but not otherwise defined herein shall have the meanings ascribed
thereto in the Credit Agreement, and further agree as follows:
1.
Amendments to Credit Agreement .
(a) Section 1.1 of the Credit Agreement, Defined Terms, is hereby modified and amended by adding
the defined terms set forth below thereto in appropriate alphabetical order, and
deleting any existing definition for any of the following defined terms as may be currently set forth in such Section:
""Alico Prudential Limited Guaranty" means that certain guaranty agreement to be entered into
by Alico in favor of PRUDENTIAL MORTGAGE CAPITAL COMPANY, LLC, a Delaware limited
liability company, in the maximum amount of $8,000,000, in form and substance reasonably acceptable
to Lender.
"Revolving Credit Maturity Date" means November 1, 2018."
(b) Section 5.1 of the Credit Agreement, Financial Statements and Other Information , is hereby
modified and amended by deleting subsection (b) in its entirety and inserting in lieu thereof the following:
"(b) as soon as available and in any event within 45 days after the end of each Fiscal Quarter
commencing with the Fiscal Quarter ending December 31, 2014, but excluding the fourth Fiscal Quarter
of any Fiscal Year, (x) the consolidated balance sheet and related statements of operations, stockholders'
equity and cash flows of Alico and its Subsidiaries as of the end of and for such Fiscal Quarter and the
then elapsed portion of the Fiscal Year, setting forth in each case in comparative form the figures for (or,
in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous
Fiscal Year and (y) a certification of a Responsible Officer of Alico that such consolidated financial
statements present fairly in all material respects the financial condition and results of operations of Alico
and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to
normal year end audit adjustments and the absence of footnotes;"
(c) Section 6.1 of the Credit Agreement, Indebtedness, is hereby modified and amended by deleting
subsection (b) in its entirety and inserting in lieu thereof the following:
"(b) (i) Indebtedness of the Borrowers pursuant to the MetLife Facility, and any Refinancing
Indebtedness in respect of such Indebtedness, and (ii) Indebtedness of the Silver Nip Entities pursuant to
the Prudential Facility in an aggregate principal amount not to exceed
$42,820,000, any Refinancing Indebtedness in respect of such Indebtedness, and the Alico
Prudential Limited Guaranty;"
(d) Section 6.5 of the Credit Agreement, Investments, is hereby modified and amended by deleting
subsection (1) in its entirety and inserting in lieu thereof the following:
"(I) any Guarantee of, or assumption of Indebtedness of, any other Person in either case to the
extent the Person incurring such Guarantee or assuming such Indebtedness would have been permitted to
incur the underlying Indebtedness under Section 6.1; provided in no event shall any Company other than
a Silver Nip Entity provide any Guarantee for the benefit of, or assume any Indebtedness of, a Silver Nip
Entity,
other than the Alico Prudential Limited Guaranty;"
(e) Section 7.4 of the Credit Agreement, Debt Service Coverage Ratio, is hereby modified and
amended by deleting such section in its entirety and inserting in lieu thereof the following:
"7.4 Debt Service Coverage Ratio. The Borrower shall at all times maintain a Debt Service
Coverage Ratio of not less than 1.10 to 1.00, as determined to the satisfaction of Lender in accordance
with the definitions set forth herein and in accordance with GAAP, which ratio shall be tested and
reported to Lender each Fiscal Quarter in the Compliance Certificate delivered to Lender for such Fiscal
Quarter."
2.
No Other Amendments . Except as expressly set forth above, the execution, delivery and effectiveness
of this Amendment shall not operate as an amendment, modification or waiver of any right, power or remedy of
Lender under the Credit Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of
the Credit Agreement or any of the other Loan Documents. Except for the amendments set forth above, the text of the
Credit Agreement and all other Loan Documents shall remain unchanged and in full force and effect and each
Borrower and each Guarantor hereby ratifies and confirms its obligations thereunder. This Amendment shall not
constitute a modification of the Credit Agreement or any of the other Loan Documents or a course of dealing with
Lender at variance with the Credit Agreement or the other Loan Documents such as to require further notice by Lender
to require strict compliance with the terms of the Credit Agreement and the other Loan Documents in the future. Each
Borrower and each Guarantor acknowledges and expressly agrees that Lender reserves the right to, and does in fact,
require strict compliance with all terms and provisions of the Credit Agreement and the other Loan Documents, as
amended herein.
3.
Representations and Warranties. In consideration of the execution and delivery of this Amendment by
Lender, each Borrower and each Guarantor hereby represents and warrants in favor of Lender as follows:
(a) The execution, delivery and performance by each Borrower and each Guarantor of this
Amendment (i) are all within such Borrower's corporate or limited liability company powers, as applicable, (ii)
have been duly authorized, (iii) do not require any consent, authorization or approval of, registration or filing
with, notice to, or any other action by, any Governmental Authority or any other Person, except for such as have
been obtained or made and are in full force and effect, (iv) will not violate any applicable law or regulation or
the Organizational Documents of such Borrower or Guarantor, (v) will not violate or result in a default under
any material agreement binding upon such Borrower or Guarantor, (vi) will not conflict with or result in a
breach or contravention of, any material order, injunction, writ or decree of any Governmental Authority or any
arbitral award to which such Borrower or Guarantor is a party or affecting such Borrower or Guarantor or their
respective properties, and (vii) except for the Liens created pursuant to the Security Documents, will not result
in the creation or imposition of any Lien on any asset of such Borrower or Guarantor or any of their respective
properties;
(b) This Amendment has been duly executed and delivered by each Borrower and each Guarantor, and
constitutes legal, valid and binding obligations of such Borrower or Guarantor enforceable against each Borrower and
each Guarantor in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors' rights and (ii)
the application of general principles of equity (regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(c) As of the date hereof and after giving effect to this Amendment, the representations and warranties
made by or with respect to any Borrower or Guarantor under the Credit Agreement and the other Loan Documents, are
true and correct in all material respects (unless any such representation or warranty is qualified as to materiality or as to
Material Adverse Effect, in which case such representation and warranty shall be true and correct in all respects), except
to the extent previously fulfilled with respect to specific prior dates;
(d) Immediately after giving effect hereto, no event has occurred and is continuing which constitutes a
Default or an Event of Default or would constitute a Default or an Event of Default but for the requirement that notice be
given or time elapse or both; and
(e) No Borrower or Guarantor has knowledge of any challenge to Lender's claims arising under the
Loan Documents, or to the effectiveness of the Loan Documents.
4.
Effectiveness. This Amendment shall become effective as of the date set forth above (the "Amendment
Effective Date") upon Lender's receipt of each of the following, in each case in form and substance satisfactory to Lender:
(a) this Amendment duly executed by each Borrower, Guarantor and
Lender;
(b)
the Renewal Promissory Note in the form attached
hereto;
(c) a Subsidiary Guaranty duly executed and delivered by Alico Chemical Sales, LLC, a Florida limited
liability company ("Chemical”), Alico Skink Mitigation, LLC, a Florida limited liability company ("Mitigation") and
Alico Fresh Fruit LLC, a Delaware limited liability company ("Fresh Fruit" ; and together with Chemical and
Mitigation, hereinafter collectively referred to as the "Joinder Guarantors"), in favor of Lender;
(d) a Supplement to the Security Agreement duly executed and delivered by the Joinder Guarantors in
favor of Lender;
(e)
With respect to each of the Joinder
Guarantors:
(i) favorable written opinions addressed to Lender from counsel to each Joinder Guarantor;
(ii) copies of such documents and certificates as Lender may reasonably request relating to the
organization, existence and good standing of each Joinder Guarantor, the authorization of the execution, delivery
and performance of the Loan Documents to which it is a party, and the identity, authority and capacity of each
Responsible Officer authorized to act on behalf of each Joinder Guarantor in connection with the Loan
Documents;
(iii) the results, dated as of a recent date, of searches conducted in the UCC filing records in the
governmental office in the jurisdiction in which each Joinder Guarantor is organized, which shall have revealed
no Liens with respect to any of the Collateral of the Joinder Guarantors except Permitted Encumbrances or Liens
as to which Lender shall have received (and is authorized to file) termination statements or documents (Form
UCC-3 or such other termination statements or documents as shall be required by applicable law) fully executed
for filing; and
(iv) evidence that all filings, registrations and recordings have been made in the appropriate
governmental offices, and all other action has been taken, that Lender deems necessary or desirable in order to
create, in favor of Lender, a perfected first-priority Lien on the Collateral of each Joinder Guarantor, subject to
no other Liens except for Permitted Encumbrances;
(f)
payment to Lender of a renewal fee in the amount of $35,000;
and
(g) all other documents, certificates, reports, statements, instruments or other documents as Lender may
reasonably request.
5.
Costs and Expenses. Each Borrower agrees to pay on demand all costs and expenses of Lender in connection
with the preparation, execution and delivery of this Amendment and the other instruments and documents to be delivered
hereunder (including, without limitation, the fees and out-of-pocket expenses of counsel for Lender with respect thereto).
6.
Counterparts. This Amendment may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same
instrument. Delivery of a signature page hereto by facsimile transmission or by other electronic transmission shall be as
effective as delivery of a manually executed counterpart hereof.
7.
Reference to and Effect on the Loan Documents. Upon the effectiveness of this Amendment, on and after the
date hereof, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof” or words of like import
referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder",
“thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
8.
Governing Law. This Amendment shall be deemed to be made pursuant to the laws of the State of
Florida with respect to agreements made and to be performed wholly in the State of Florida and shall be construed,
interpreted, performed and enforced in accordance therewith.
9.
Final Agreement . This Amendment represents the final agreement between Borrowers, Guarantors
and Lender as to the subject matter hereof and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties.
10.
Loan Document. This Amendment shall be deemed to be a Loan Document for all purposes.
[Remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized officers or
representatives to execute and deliver this Amendment as of the day and year first above written.
BORROWERS:
_________________________
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO-AGRI, LTD., a Florida limited partnership
________________________
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO PLANT WORLD, L.L.C., a Florida
limited liability company
By: Alico-Agri, Ltd., a Florida limited partnership, its Sole Member
By: Alico, Inc., a Florida corporation
_____________
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO FRUIT COMPANY, LLC, a Florida
limited liability company
ALICO LAND DEVELOPMENT INC., a Florida corporation
_____________
Name: Clay G. Wilson
Title: President
ALICO CITRUS NURSERY, LLC, a Florida
limited liability company
By:AL
GUARANTORS: 734 CITRUS HOLDINGS, LLC
_____________
Name: Clay G. Wilson
Title: Chief Executive Officer
734 HARVEST, LLC
By:_________________________
Clay G. Wilson
734 LCM Groves,
By:
734 BLP GROVES, LLC
By:
LENDER:
RABO
AGRIFINANCE LLC,
a Delaware limited
Jiability company
By: _______
Name:
Title:
FORM OF
RENEWAL PROMISSORY NOTE
PURSUANT TO F.S. 201.08, THIS RENEWAL PROMISSORY NOTE IS A RENEWAL OF THAT CERTAIN
PROMISSORY NOTE DATED AS OF DECEMBER 1, 2014 PAYABLE TO THE BANK BY THE UNDERSIGNED
OBLIGORS IN THE ORIGINAL PRINCIPAL AMOUNT OF $70,000,000 (THE "ORIGINAL NOTE"). FLORIDA
DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $2,450 WERE REIMITTED TO THE FLORIDA
DEPARTMENT OF REVENUE BY BANK OR ON BEHALF OF BANK AS REQUIRED BY LAW IN CONNECTION
WITH THE EXECUTION AND DELIVERY OF THE ORIGINAL NOTE, WHICH IS NOT SECURED BY FLORIDA REAL
PROPERTY. NO ADDITIONAL SUMS ARE BEING ADVANCED HEREUNDER. ACCORDINGLY, NO ADDITIONAL
DOCUMENTARY STAMP TAXES ARE DUE AND PAYABLE IN CONNECTION WITH THIS RENEWAL
PROMISSORY NOTE. THE ORIGINAL NOTE IS ATTACHED HERETO.
RENEWAL PROMISSORY NOTE
$ _ ---- , 20_
FOR VALUE RECEIVED, the undersigned ALICO, INC., a Florida corporation ("Alico"); ALICO-AGRI,
LTD., a Florida limited partnership ("Alico-Agri"); ALICO PLANT WORLD, L.L.C., a Florida limited liability
company ("Plant Worltf '); ALICO FRUIT COMPANY, LLC, a Florida limited liability company ("Fruit Company");
ALICO LAND DEVELOPMENT INC., a Florida corporation ("Land Developmen f' ); ALICO CITRUS NURSERY,
LLC, a Florida limited liability company ("Citrus Nursery", and together with Alico, Alico-Agri, Plant World, Fruit
Company and Land Development, each a "Borrower" and collectively the "Borrowers") hereby, jointly and severally,
promise to pay to the order of
_, a Delaware limited liability company (together with its successors and assigns, hereinafter the "Bank"), on or
before the Revolving Credit Maturity Date, the aggregate principal amount of MILLION AND 00/100 DOLLARS
(US$ or, if less, the aggregate unpaid principal amount of all Loans made by the Bank to the undersigned, in
immediately available funds as provided in the Credit Agreement (defined below), together with interest thereon, until
such principal amount is paid in full, at such interest rates, and payable at such times, as provided in the Credit
Agreement. All payments shall be made to Bank in lawful money of the United States of America at 12443 Olive
Blvd., Suite 50, St. Louis, MO 63141.
This Note is one of the Notes referred to in, and is entitled to the benefits of, that certain Credit Agreement
dated as of December 1, 2014, as amended by that certain First Amendment to Credit Agreement and Consent dated as
of February 26, 2015, that certain Second Amendment to Credit Agreement dated as of July 16, 2015, and by that
certain Third Amendment to Credit Agreement dated of even date herewith (as further amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement' ) by and among the Borrowers and Bank. Capitalized
terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit
Agreement. This Note evidences the Loans made by the Bank under the Credit Agreement.
The Bank may endorse and attach a schedule to reflect borrowings evidenced by this Note and all payments and
prepayments thereon; provided that any failure to endorse such information (or an error contained in such information)
shall not affect the obligation of the Borrowers to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this Note may, or shall, become
immediately due and payable as provided in the Credit Agreement without presentment, demand, protest or notice of
any kind, all of which are waived by the Borrowers. In the event payment of amounts evidenced by this Note is not
made at any stated or accelerated maturity, the Borrowers agree, jointly and severally, to pay, in addition to principal
and interest, all costs of collection in connection therewith, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred only as provided in the Credit
Agreement.
This Note shall be governed by, construed and interpreted in accordance with, the laws of the State of Florida
applicable to contracts made and to be performed within the State of Florida, without reference to the conflicts oflaw
principles thereof.
Time is of the essence of this Note.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Borrowers have caused this Note to be duly executed under seal as of the date
first above written.
ALICO, INC.,
a Florida corporation
By:
Name:
Title:
ALICO-AGRI, LTD.,
a Florida limited partnership
By: Alica, Inc., a Florida corporation, its General Partner
By:
:
Name:
Title:
ALICO PLANT WORLD, L.L.C.,
a Florida limited liability company
By: Alico-Agri, Ltd., a Florida limited partnership, its Sole Member
By: Alica, Inc., a Florida corporation, its General Partner
By:
By:
Name:
Title:
ALICO FRUIT COMPANY, LLC,
a Florida limited liability company
By: Alica, Inc., a Florida corporation, its Managing Member
Name:
Title:
ALICO LAND DEVELOPMENT INC.,
a Florida corporation
Name:
Title:
ALICO CITRUS NURSERY, LLC,
a Florida limited liability company
By: Alico, Inc., a Florida corporation, its Managing Member
Name:
Title:
By:
By:
Exhibit 10.34
PURSUANT TO F.S. 201.08, THIS RENEWAL PROMISSORY NOTE IS A RENEWAL OF THAT CERTAIN
PROMISSORY NOTE DATED AS OF DECEMBER 1, 2014 PAYABLE TO THE BANK BY THE UNDERSIGNED
OBLIGORS IN THE ORIGINAL PRINCIPAL AMOUNT OF $70,000,000 (THE "ORIGINAL NOTE"). FLORIDA
DOCUMENTARY STAMP TAXES IN THE AMOUNT OF $2,450 WERE REIMITTED TO THE FLORIDA
DEPARTMENT OF REVENUE BY BANK OR ON BEHALF OF BANK AS REQUIRED BY LAW IN
CONNECTION WITH THE EXECUTION AND DELIVERY OF THE ORIGINAL NOTE, WHICH IS NOT
SECURED BY FLORIDA REAL PROPERTY. NO ADDITIONAL SUMS ARE BEING ADVANCED
HEREUNDER. ACCORDINGLY, NO ADDITIONAL DOCUMENTARY STAMP TAXES ARE DUE AND
PAYABLE IN CONNECTION WITH TIDS RENEWAL PROMISSORY NOTE. THE ORIGINAL NOTE IS
ATTACHED HERETO.
RENEWAL PROMISSORY NOTE
$70,000,000.00 September 30, 2016
FOR VALUE RECENED, the undersigned ALICO, INC., a Florida corporation ("Alico"); ALICO-AGRI,
LTD., a Florida limited partnership ("Alico-Agri"); ALICO PLANT WORLD, L.L.C., a Florida limited liability
company ("Plant World''); ALICO FRUIT COMPANY, LLC, a Florida limited liability company ("Fruit
Company"); ALICO LAND DEVELOPMENT INC., a Florida corporation ("Land Development'); ALICO
CITRUS NURSERY, LLC, a Florida limited liability company ("Citrus Nursery", and together with Alico, Alico-
Agri, Plant World, Fruit Company and Land Development, each a "Borrower" and collectively the "Borrowers")
hereby, jointly and severally, promise to pay to the order of RABO AGRIFINANCE LLC (formerly known as Rabo
Agrifinance, Inc.), a Delaware limited liability company (together with its successors and assigns, hereinafter the
"Bank"), on or before the Revolving Credit Maturity Date, the aggregate principal amount of SEVENTY MILLION
AND 00/100 DOLLARS (US$70,000,000.00) or, if less, the aggregate unpaid principal amount of all Loans made by
the Bank to the undersigned, in immediately available funds as provided in the Credit Agreement (defined below),
together with interest thereon, until such principal amount is paid in full, at such interest rates, and payable at such
times, as provided in the Credit Agreement. All payments shall be made to Bank in lawful money of the United States
of America at 12443 Olive Blvd., Suite 50, St. Louis, MO 63141.
This Note is one of the Notes referred to in, and is entitled to the benefits of, that certain Credit Agreement
dated as of December 1, 2014, as amended by that certain First Amendment to Credit Agreement and Consent dated as
of February 26, 2015, that certain Second Amendment to Credit Agreement dated as of July 16, 2015, and by that
certain Third Amendment to Credit Agreement dated of even date herewith (as further amended, restated, supplemented
or otherwise modified from time to time, the "Credit Agreement”) by and among the Borrowers and Bank.
Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the
Credit Agreement. This Note evidences the Loans made by the Bank under the Credit Agreement.
The Bank may endorse and attach a schedule to reflect borrowings evidenced by this Note and all payments and
prepayments thereon; provided that any failure to endorse such
Information (or an error contained in such information) shall not affect the obligation of the Borrowers to pay amounts
evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this Note may, or shall, become
immediately due and payable as provided in the Credit Agreement without presentment, demand, protest or notice of
any kind, all of which are waived by the Borrowers. In the event payment of amounts evidenced by this Note is not
made at any stated or accelerated maturity, the Borrowers agree, jointly and severally, to pay, in addition to principal
and interest, all costs of collection in connection therewith, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred only as provided in the Credit
Agreement.
This Note shall be governed by, construed and interpreted in accordance with, the laws of the State of Florida
applicable to contracts made and to be performed within the State of Florida, without reference to the conflicts of law
principles thereof.
Time is of the essence of this Note.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Borrowers have caused this Note to be duly executed
under seal as of the date first above written.
ALICO, INC.,
A Florida corporation
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO-AGRI, LTD.,
A Florida limited partnership
By: Alico, Inc., a Florida corporation, its General Partner
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO PLANT WORLD, L.L.C .,
a Florida limited liability company
By: Alico-Agri, Ltd., a Florida limited partnership, its Sole Member
By: Alico, Inc., a Florida corporation, its General Partner
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO FRUIT COMPANY, LLC ,
a Florida limited liability company
By: Alico, Inc., a Florida corporation, its Managing Member
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO LAND DEVELOPMENT INC .,
a Florida corporation
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO CITRUS NURSERY, LLC,
a Florida limited liability company
By: Alico, Inc., a Florida corporation, its Managing Member
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Chief Executive Officer
SUPPLEMENT
Exhibit 10.35
Supplement No. 1 (this "Supplement”) dated as of September 30, 2016, to the Security Agreement dated as of
December 1, 2014 (as amended, restated, supplemented, extended, or otherwise modified from time to time, the
"Security Agreement” ) by each of the parties listed on the signature pages thereto and those additional entities that
thereafter become parties thereto (collectively, jointly and severally, "Grantors" and each individually "Grantor") and
RABO AGRIFINANCE LLC (formerly known as Rabo Agrifinance, Inc.), as Lender ("Lender'').
WITNESSETH:
WHEREAS, ALICO, INC., a Florida corporation, ALICO-AGRI, LTD ., a Florida limited partnership,
ALICO PLANT WORLD, L.L.C., a Florida limited liability company, ALICO FRUIT COMPANY, LLC , a
Florida limited liability company, ALICO LAND DEVELOPMENT INC. , a Florida corporation, and ALICO
CITRUS NURSERY, LLC, a Florida limited liability company, as borrowers (each a "Borrower'' and collectively,
"Borrowers"), and Lender have entered into that certain Credit Agreement dated as of December 1, 2014 (as amended,
restated, supplemented, or otherwise modified from time to time, the "Credit Agreement”); and
WHEREAS, capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Security Agreement or, if not defined therein, in the Credit Agreement; and
WHEREAS, Grantors have entered into the Security Agreement in order to induce the Lender to make (or
continue to make) certain financial accommodations to Borrowers and the other Grantors pursuant to the Credit
Agreement and the other Loan Documents; and
WHEREAS, pursuant to Section 5.8 of the Credit Agreement, new direct or indirect Subsidiaries of Borrowers
must execute and deliver certain Loan Documents, including the Security Agreement, and the execution of the Security
Agreement by the undersigned new Grantor or Grantors (collectively, the "New Grantors") may be accomplished by
the execution of this Supplement in favor of Lender.
NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, each New
Grantor hereby agrees as follows:
1.
In accordance with Section 20 of the Security Agreement, each New Grantor, by its signature below,
becomes a "Grantor" under the Security Agreement with the same force and effect as if originally named therein as a
"Grantor" and each New Grantor hereby (a) agrees to all of the terms and provisions of the Security Agreement
applicable to it as a "Grantor" thereunder and (b) represents and warrants that the representations and warranties made
by it as a "Grantor" thereunder are true and correct on and as of the date hereof. In furtherance of the foregoing, each
New Grantor, as security for the payment and performance in full of the Secured Obligations, does hereby grant,
collaterally assign, and pledge to Lender a security interest in all right, title, and interest in and to all assets of such New
Grantor (except to the extent specifically excluded from the defined term Collateral set forth in the Security
Agreement) including, all property of the type described in Section 2 of the Security Agreement to secure the full and
prompt payment of the Secured Obligations, including, any interest thereon, plus reasonable
ATL 21428277v4
1
attorneys' fees and expenses if the Secured Obligations represented by the Security Agreement are collected by law,
through an attorney-at-law, or under advice therefrom. Schedule 1, "Organizational Identification Numbers; Chief
Executive Offices", Schedule 2, "Locations", Schedule 3, "List of UCC Filing Jurisdictions", Schedule 4, "Deposit
Accounts, Securities Accounts, and Commodity Accounts", and Schedule 5, "Change in Circumstances" attached
hereto supplement Schedule 1, Schedule 2, Schedule 3, Schedule 4, and Schedule 5, respectively, to the Security
Agreement and shall be deemed a part thereof for all purposes of the Security Agreement. Each reference to a "Grantor"
in the Security Agreement shall be deemed to include each New Grantor. The Security Agreement is incorporated
herein by reference.
2.
The parties hereto acknowledge that the references to "Schedule 9" in Section 5(i) of the Security
Agreement are hereby deemed to be "Schedule 5".
3.
Each New Grantor represents and warrants to Lender that this Supplement has been duly executed and
delivered by such New Grantor and constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
fraudulent transfer, moratorium, or other similar laws affecting creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding at law or in equity).
4.
This Supplement may be executed in multiple counterparts, each of which shall be deemed to be an
original, but all such separate counterparts shall together constitute but one and the same agreement. Delivery of a
counterpart hereof by facsimile transmission or by other electronic transmission shall be as effective as delivery of a
manually executed counterpart hereof.
5.
6.
Florida.
Except as expressly supplemented hereby, the Security Agreement shall remain in full force and effect.
This Supplement shall be construed in accordance with and governed by the laws of the State of
7.
Notwithstanding anything in the Security Agreement, for purposes of this Supplement only, "Secured
Obligations" means the obligations of the Grantors under that certain Subsidiary Guaranty dated of even date herewith.
[Remainder of Page Intentionally Left Blank]
ATL 21428277v4
2
IN WITNESS WHEREOF, each New Grantor and Lender has caused this Supplement to the Security Agreement to be
duly executed and delivered by its officer or officers thereunto duly authorized as of the date first above written.
NEW GRANTORS: ALICO CHEMICAL SALES, LLC
By: /s/ Clay G. Wilson
Name: Clay G. Wilson
Title: Manager & Chief Executive Officer
ALICO SKINK MITIGATION, LLC
By: Alico, Inc., Manager
Name: Clay G. Wilson
Title: Chief Executive Officer
ALICO FRESH FRUIT, LLC
Name: Clay G. Wilson
Title: Manager
By: /s/ Clay G. Wilson
By: /s/ Clay G. Wilson
LENDER: RABO AGRIFINANCE LLC,
as Lender
By:______________
Name:
Title:
SUPPLEMENT TO SECURITY AGREEMENT
IN WITNESS WHEREOF, each New Grantor and Lender has caused this Supplement to the Security
Agreement to be duly executed and delivered by its officer or officers thereunto duly authorized as of the date first
above written.
NEW GRANTORS: ALICO CHEMICAL SALES, LLC
By:
Name: Clay G.
Wilson
Title: Manager & Chief Executive Officer
ALICO SKINK MITIGATION, LLC
By: Alico, Inc., Manager
By: Name: Clay G.
Wilson
Title: Chief Executive Officer
ALICO FRESH FRUIT LLC
By: Name: Clay G.
Wilson
Title: Manager
LENDER: RABO AGRIFINANCE LLC,
as Lender
By:/s/ Melissa
Batteiger
Name: Melissa Batteiger
Title: VP
SUPPLEMENT TO SECURITY AGREEMENT
ORGANIZATIONAL IDENTIFICATION NUMBERS; CHIEF EXECUTIVE OFFICES
SCHEDULE 1
Grantor
Organization
Identification
Number
Alico Chemical Sales, LLC
47-3871009
Alico Fresh Fruit LLC
47-4892998
Alico Skink Mitigation, LLC
81-1846694
Chief Executive
Office
10070 Daniels
Interstate Ct,
Suite 100, Fort
Myers, FL 33913
10070 Daniels
Interstate Ct,
Suite 100, Fort
Myers, FL 33913
10070 Daniels
Interstate Ct,
Suite 100, Fort
Myers, FL 33913
Principal
Place of
Business
Same as
Chief
Executive
Office
Same as
Chief
Executive
Office
Same as
Chief
Executive
Office
Maintenance of
Records
Jurisdiction of
Organization
Same as Chief
Executive
Office
Same as Chief
Executive
Office
Same as Chief
Executive
Office
Florida
Delaware
Florida
SCHEDULE 2
LOCATIONS
Grantor/Description Address
New Entities
Alico Chemical Sales, LLC
Alico Fresh Fruit LLC
Alico Skink Mitigation, LLC
None
None
None
SCHEDULE 3
LIST OF UCC FILING JURISDICTIONS
Grantor
Alico Chemical Sales, LLC
Alico Fresh
Alico Skink Mitigation, LLC
Fruit LLC
UCC Filing Jurisdiction
Florida
Delaware
Florida
DEPOSIT ACCOUNTS, SECURITIES ACCOUNTS, AND COMMODITY ACCOUNTS
SCHEDULE 4
Alico Chemical Sales, LLC
Alico Fresh Fruit LLC
Alico Skink Mitigation, LLC
Holder
Name/Address of Bank
Rabobank, N.A., 12443 Olive
Blvd., Suite 50, St. Louis, MO
63141
None
None
Account Number
Purpose
0832014375
None
None
Operating Account
None
None
SCHEDULE 5
CHANGE IN CIRCUMSTANCES
None
Exhibit 23.0
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements (Nos. 333-208673 and 333-188736) on Form S-8 of
Alico, Inc. of our reports dated December 6, 2016, relating to our audit of the consolidated and combined financial statements
and internal control over financial reporting, which appear in this Annual Report on Form 10-K of Alico, Inc. for the year ended
September 30, 2016.
/s/ RSM US LLP
Orlando, Florida
December 6, 2016
Exhibit 31.1
I, Clayton G. Wilson, certify that:
1. I have reviewed this annual report on Form 10-K of Alico, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: December 6, 2016
By:
/s/ Clayton G. Wilson
Clayton G. Wilson
President and Chief Executive Officer
Exhibit 31.2
I, John E. Kiernan, certify that:
1. I have reviewed this annual report on Form 10-K of Alico, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: December 6, 2016
By:
/s/ John E. Kiernan
John E. Kiernan
Chief Financial Officer and Senior Vice President
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the Annual Report on Form 10-K for the year ended September 30, 2016 (the “Report”) of Alico, Inc. (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Clayton G. Wilson, President and Chief
Executive Officer of the Registrant, hereby certify, pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Registrant.
Date: December 6, 2016
By:
/s/ Clayton G. Wilson
Clayton G. Wilson
President and Chief Executive Officer
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
In connection with the Annual Report on Form 10-K for the year ended September 30, 2016 (the “Report”) of Alico, Inc. (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, John E. Kiernan, Chief Financial Officer and
Senior Vice President of the Registrant, hereby certify, pursuant to Section 906 of the Sarbanes Oxley Act of 2002 that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Registrant.
Date: December 6, 2016
By:
/s/ John E. Kiernan
John E. Kiernan
Chief Financial Officer and Senior Vice President