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, 2017
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 ¨
Emerging Growth 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, 2017 (the last business day of Alico’s most recently completed second fiscal quarter) was
$88,670,366. 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 8,244,357 shares of common stock outstanding at December 7, 2017.
Portions of the Proxy Statement of Registrant for the 2018 Annual Meeting of Shareholders (to be filed with the Commission under
Regulation 14A within 120 days after the end of the Registrant's fiscal year), are incorporated by reference in Part III of this report.
Documents Incorporated by Reference:
ALICO, INC.
FORM 10-K
For the fiscal year ended September 30, 2017
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
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8
16
16
16
17
18
21
23
38
39
75
75
75
76
76
76
76
76
77
81
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 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 Securities and Exchange Commission (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 with a legacy of achievement and innovation in citrus and 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 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 - Alico Citrus
(formerly known as 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 (Alico Citrus, 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 ("Program"). In March 2013, the Company
submitted its response proposing a dispersed water management project on a portion of its ranch land. The dispersed water management
project ("Water Project") encompasses a large-scale water storage/nutrient reduction project over approximately half of the Company's
71,000-acre ranch located in southern Hendry County. The Water Project has the ability to store/treat 94,000-acre feet of water, making it
one of the largest private storage projects proposed to date and the largest within the Caloosahatchee River watershed. The Water Project
was approved by the South Florida Water Management District in late 2014, and the Company's engineering and environmental consultants
immediately began working on a detailed design. As a result of the uniqueness of the project site, which consists of over 11,000 acres of
wetlands and contains several cultural resource sites, considerable effort has been undertaken over the past 2.5 years in securing necessary
regulatory approvals for the project from both the State of Florida and the federal government. In addition, the largeness of the project
requires close coordination with adjacent landowners, as well as the water control districts that serve those landowner/properties. On
September 29, 2015, the SFWMD amended the contract to extend it for an additional year.
1
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 District Board approval of funding. The contract specifies that the District 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 2017/2018 fiscal year as approved
included funding for the Program. Permitting is currently underway with construction to follow immediately upon receipt of permits.
Annual fixed payments will not commence until completion of construction. The Company anticipates receiving all necessary regulatory
approvals within the next four to six months. The Company has not recognized any revenue to date from the contract. Operating expenses
were approximately $1,794,000, $2,322,000 and $2,126,000 for the three years ended September 30, 2017, 2016 and 2015, respectively.
Hurricane Irma
Florida’s citrus industry was hit hard by the recent impacts of Hurricane Irma. We estimate that production will be down 40-45% from the
prior season that was completed in June 2017. While we lost a small percentage of trees, the force and duration of the storm impacted the
majority of the groves. Based upon prior experience with serious storms of this nature, we expect it will take at least two seasons for the
groves to recover to pre-hurricane production levels. We estimate production between approximately 4,000,000 - 4,400,000 boxes in fiscal
2018, an increase in production in fiscal 2019 and a return to pre-hurricane production levels by fiscal 2020. We maintain crop insurance
and are working closely with our insurers and adjusters to evaluate and determine the amount of insurance recoveries we will be entitled to,
if any. We are also working with Florida Citrus Mutual, the industry trade group, and government agencies on potential federal relief funds.
As of December 1, 2017, the Company donated $45,000 to 8 local charitable organizations to support local relief efforts for individuals
affected by Hurricane Irma.
Alico 2.0 Modernization Program
On November 16, 2017, we announced the Alico 2.0 Modernization Program (“Alico 2.0”). This program is transforming three legacy
businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, Alico Citrus, so we will remain one of the leaders in the
U.S. citrus industry. This initiative explored every aspect of Alico’s citrus and ranch operations, including corporate and operational cost
structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources
efficiency.
Under this program, we expect to reduce citrus total expenses per acre from $3,314/acre in fiscal 2016 to $2,164/acre when Alico 2.0 is
fully implemented. Overall, we expect the program to reduce the Company’s cost to produce a pound solid from $2.14 to $1.56. These
efficiencies will be achieved through better purchasing, more precise application of selected fertilizers and chemicals, outsourcing work
such as harvesting, hauling, and certain caretaking tasks, and by streamlining grove management. We also plan to deploy a more efficient
labor model that is consistent and uniform for field staffing and grove operating programs and aligns with the geographical footprint of the
citrus groves.
In addition to grove cost savings, Alico Citrus’ general and administrative expenses are projected to decline by more than 25% over the
next two years, and recent information technology investments have already automated and simplified many administrative tasks.
Alico 2.0 led us to decide to divest assets that generated low rates of return and shut down parts of our operations that were not profitable.
Alico Citrus has shut down its nursery in Gainesville, is in the process of selling its trucks and trailers, consolidating offices, and has either
sold or is in the process of selling real estate assets that are not strategic to our business plan.
We plan on ceasing our direct cattle operations at Alico Ranch. The ranch has been a landholding for us for generations, but, even when
profitable, ranch operations generated a minimal rate of return on capital. We will continue to own the property and still conduct our long
term water dispersement program and wildlife management programs, but we will lease the ranch to a third party operator instead of
conducting our own cattle operations. All of these decisions are intended to enable additional investment in the citrus business and
redeployment of capital elsewhere.
Alico 2.0 also includes an enhanced program to plant more than 400,000 trees in fiscal year 2018, which is expected to drive growth
beyond 2020. The Company believes that its current acreage can produce 10,000,000 boxes per year on a sustained basis, even in an
environment where citrus greening continues.
2
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 years ended September 30, 2017
and 2016, the Company’s CODM assessed performance and allocated resources based on three operating segments: Alico Citrus,
Conservation and Environmental Resources, 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:
•
•
•
Alico Citrus 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 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 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
Alico Citrus
Citrus Groves
Citrus Nursery
47,167 Citrus Cultivation
385 Citrus Tree Development
47,552
Conservation and Environmental
Resources
70,962 Cattle Grazing; Sod and Native Plant Sales; Leasing; Conservation
Other Operations
Farmland
Other Land
Total
Alico Citrus
1,825 Leasing
1,436 Mining lease; Commercial; Office
121,775
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. Alico citrus groves total
approximately 48,000 gross acres or 39.1% of our land holdings.
3
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
1,770
1,093
937
551
403
32,310
—
1,090
95
—
97
—
—
—
—
—
1,282
Total Plantable
—
16,585
4,653
4,468
3,789
1,908
1,093
937
551
403
34,387
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
2,543
1,224
1,363
674
574
47,552
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. The approximately 34,400 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.
Our Alico Citrus business segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales
to the processed market were approximately 91.7%, 86.9% and 88.0% of Alico Citrus revenues for the fiscal years ended September 30,
2017, 2016 and 2015, respectively. 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 42,611,000, 51,404,000 and 62,222,000 pound solids for each of the fiscal years ended September 30, 2017, 2016 and 2015,
respectively, on boxes delivered to processing plants of approximately 7,259,000, 8,829,000 and 10,014,000, respectively.
The average pound solids per box was 5.87, 5.82 and 6.21 for each of the fiscal years ended September 30, 2017, 2016 and 2015,
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 2017-2018 will be under minimum price contracts with
floor prices ranging from $2.05 to $2.15 and rise prices from $2.50 to $2.65 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 constituted approximately 4.6%, 3.8% and 4.2% of our Alico Citrus revenues for the fiscal years ended
September 30, 2017, 2016 and 2015, respectively. 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 328,000, 402,000 and 466,000 fresh fruit boxes for each of the fiscal years ended
September 30, 2017, 2016 and 2015, respectively. The majority of our citrus to be produced for the fresh citrus market in fiscal year 2017-
2018 is under fixed price contracts.
Revenues from our Alico Citrus operations were approximately 95.1%, 95.2% and 95.5% of our total operating revenues for each of the
fiscal years ended September 30, 2017, 2016 and 2015, respectively.
4
Conservation and Environmental Resources
We own and manage Conservation and Environmental Resources land in Collier and Hendry Counties and engage in cattle grazing and
sales, 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, 2017:
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
—
In fiscal year 2017, our cattle operation was engaged in the production of beef cattle in Hendry and Collier Counties. The breeding herd
consisted of approximately 8,700 cows and bulls. We primarily sold our calves to feed yards and yearling grazing operations in the United
States. We also sold cattle through local livestock auction markets and to contract cattle buyers in the United States. These buyers provide
ready markets for our cattle. Revenues from our Conservation and Environmental Resources operations were approximately 3.7%, 3.9%
and 3.5% of total operating revenues for each of the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
In November 2017, Alico changed its strategy about its cattle operations. A contract is pending with an experienced rancher who will lease
the entire Alico Ranch for 10 years and graze cattle. The entire herd will be sold to this rancher, along with other assets, as part of this
transaction. Once this contract is consummated, Alico will remain as the owner of Alico Ranch, will conduct its conservation and other
leasing activities, will fulfill its water storage contract but will no longer produce beef cattle.
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 and other assets 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.
5
Seasonal Nature of Business
As with any agribusiness enterprise, our agribusiness operations and revenues are predominantly seasonal in nature. The following table
illustrates the seasonality of our agribusiness 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
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.
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, 2017, we had 283 full-time employees. Our employees work in the following divisions:
Alico Citrus
Conservation and Environmental Resources
Corporate, General, Administrative and Other
Total employees
240
15
28
283
None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.
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, the sale of under-productive land and other assets, 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.
6
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.
7
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 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
Adverse weather conditions, natural disasters and other natural conditions, including the effects of climate change, could impose
significant costs and losses on our business.
Fresh produce is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are
quite common and may occur with higher frequency or be less predictable in the future due to the effects of climate change. Unfavorable
growing conditions can reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in some geographic areas.
Citrus groves are subject to damage from frost and freezes, and this has happened periodically in the recent past. In some cases, the fruit is
damaged or ruined; in the case of extended periods of cold, the trees can also be damaged or killed. These factors can increase costs,
decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of
operations, financial condition and cash flows.
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 have become infected.
Primarily, as a result of citrus greening, orange production in the State of Florida has continued to drop. According to the U.S. Department
of Agriculture, Florida had its smallest orange harvest in 53 years in the 2016-2017 harvest season. The upcoming 2017-2018 Florida
harvest season is expected to decline even further. The USDA's forecast of approximately 50,000,000 boxes of oranges for the 2017-2018
season is down more than 27.2% from the approximately 68,700,000 boxes harvested last season and 66.7% from the approximately
150,000,000 boxes during the 2004-05 season when citrus greening was discovered.
Citrus canker is a disease affecting citrus species and is caused by a bacterium which is spread by contact with infected trees or by
windblown transmission. There is no known cure for citrus canker at present 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 currently
available technologies will control such disease effectively.
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 the significant majority of our annual operating revenues. 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.
8
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, financial position and cash flows.
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, financial position and cash flows. 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.
During September 2017, we experienced significant fruit loss as a result of Hurricane Irma, which will negatively impact both the
Company's revenues and earnings for fiscal 2018 and potentially fiscal 2019.
A significant 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 95.1%, 95.2%, and 95.5% of our operating revenues in fiscal years 2017, 2016
and 2015, respectively. Our citrus division is one of the largest citrus producers in the United States and because of the significance of the
revenues derived from this business, we are more vulnerable to adverse events or market conditions affecting our citrus business which
could have a significant impact on our overall results of operations, financial condition and cash flows.
We depend on our relationship with Tropicana for a significant portion of our business. Any disruption in this relationship could harm
our sales. Additionally, if certain criteria are not met under one of our contracts with Tropicana, we could experience a significant
reduction in revenues.
The Company's contracts with Tropicana accounted for 85.6%, 32.5% and 14.3% of the Company's revenues in fiscal 2017, 2016 and 2015,
respectively. The revenue for Tropicana is generated among several contracts. Under one such contract, if certain criteria are not met, the
pricing terms of the contract may be modified whereby we could experience a reduction in revenues. Should there be any change in our
current relationship structure, whereby they do not buy our oranges, we would need to find replacement buyers to purchase our remaining
crop, which could take time and expense and may result in less favorable terms of sale. The loss of Tropicana as a customer or significant
reduction in business with Tropicana may cause a material adverse impact to our financial position, 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.
There is no assurance that Alico 2.0 will provide the cost savings that we expect, or that we will fully realize the benefits we expect from
the program.
On November 16, 2017, we announced Alico 2.0, which we expect will result in a significant citrus grove cost savings and a decline in
Alico Citrus’ general and administrative expenses. There is no assurance that our Alico 2.0 will provide the cost savings that we expect, or
that we will fully realize the benefits we expect from the program.
9
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.
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 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.
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.
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. Immigration reform and enforcement is currently attracting significant attention
in the current U.S. administration and U.S. Congress. If new immigration legislation is enacted in the U.S such legislation may contain
provisions that could significantly reduce the number and availability of workers. 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.
10
Our 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. For
example, 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 that we will be able to successfully identify suitable acquisition opportunities, negotiate 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, and cash flows.
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, financial condition 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, acquisitions, 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 the Company 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.
11
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.
Increases in labor, personnel and benefits costs could adversely affect our operating results.
We primarily utilize labor contractors to grow, harvest and deliver our fruit to our orange packing house or outside packing facilities. We
utilize a combination of employees and labor contractors to process our oranges in our orange packing facility. Our employees and
contractors are in demand by other agribusinesses and other industries. Shortages of labor could delay our harvesting or orange processing
activities or could result in increases in labor costs.
We and our labor contractors are subject to government mandated wage and benefit laws and regulations. In addition, current or future
federal or state healthcare legislation and regulation, including the Affordable Care Act, may increase our medical costs or the medical
costs of our labor contractors that could be passed on to us.
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, 2017, 2016 and 2015 we paid approximately $3,106,000, $3,196,000, and $4,054,000, 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 $105,496,000, $89,922,000, and $123,617,000 for each of the fiscal years
ended September 30, 2017, 2016 and 2015 respectively, which differs significantly from the fair values determined by the county property
appraisers of approximately $539,790,000, $533,617,000, and $652,891,000, respectively. 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/or financial position.
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
12
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 estate 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 the 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 attract, employ and retain skilled personnel in our business lines and segments.
Inflation can have a significant adverse effect on our operations.
Inflation can have a major impact on our citrus operations. The citrus operations are most affected by escalating costs and unpredictable
revenues and very high irrigation water costs. High fixed water costs related to our citrus lands will continue to adversely affect earnings.
Prices received for many of our products are dependent upon prevailing market conditions and commodity prices. Therefore, it is difficult
for us to accurately predict revenue, just as we cannot pass on cost increases caused by general inflation, except to the extent reflected in
market conditions and commodity prices.
We incur increased costs as a result of being a publicly traded company.
As a Company with publicly traded securities, we have incurred, and will continue to incur, significant legal, accounting and other
expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as rules promulgated by the SEC and NASDAQ, requires us to adopt
corporate governance practices applicable to U.S. public companies. These rules and regulations may increase our legal and financial
compliance costs, which could adversely affect the trading price of our common stock.
System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or
services provided to customers, and any such disruption could reduce our expected revenue, increase our expenses, damage our
reputation and adversely affect our stock price.
Computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential
information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to
develop and deploy viruses, worms, and other malicious software programs that attack our products or otherwise exploit any security
vulnerabilities of our products. In addition, sophisticated hardware and operating system software and applications that we produce or
procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly
interfere with the operation of the system. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms,
malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be
successful and could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our
sales, packing, distribution or other critical functions.
Portions of our IT infrastructure also may experience interruptions, delays or cessations of service or produce errors in connection with
systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and
transitioning data, which could cause business disruptions and be more expensive, time consuming, disruptive and
13
resource-intensive. Such disruptions could adversely impact our ability to track sales and could interrupt other operational or financial
processes, which in turn could adversely affect our financial results, stock price and reputation.
Risks Related to Our Indebtedness
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, 2017 we had approximately $186,000,000 in principal amount of indebtedness outstanding under our secured credit
facilities and an additional $85,000,000 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.
Some of our debt is based on variable rates of interest, which could result in higher interest expenses in the event of an increase in the
interest rates.
Our Credit Facility and certain of our term loans that we have currently bear interest at variable rates, which will generally change as
interest rates change. We bear the risk that the rates we are charged by our lenders will increase faster than the earnings and cash flow of
our business, which could reduce profitability, adversely affect our ability to service our debt, cause us to breach covenants contained in
our Credit Facility and Term Loans, any of which could materially adversely affect our business, financial condition, results of operations
and cash flows.
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 W. Trafelet and George Brokaw, together beneficially own
approximately 59.5% of our outstanding common stock as of December 7, 2017. 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.
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 W. 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
14
•
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 59.5% of our outstanding common stock as of December 7, 2017.
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. 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.
There can be no assurance that we will continue to repurchase shares of our common stock.
In fiscal year 2017, our Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock in two separate
authorizations. In March 2017, our Board of Directors authorized the repurchase of up to $5,000,000 of the Company’s common stock
beginning March 9, 2017 and continuing through March 9, 2019. In May 2017, our Board of Directors authorized the repurchase of up to an
additional $2,000,000 of the Company’s common stock beginning May 24, 2017 and continuing through May 24, 2019. 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.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of September 30, 2017 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
Alico Citrus:
Citrus
Groves
Citrus
Nursery
Total
Citrus
Groves
Improved
Farmland:
47,167
5,485
6,805
7,291
21,208
— —
385
—
—
—
—
— —
—
385
2,543
—
574
—
1,224
674
1,363
—
—
—
47,552
5,485
6,805
7,291
21,208
— —
385
2,543
574
1,224
674
1,363
Irrigated
1,825
1,825
—
—
—
— —
—
—
—
—
—
—
Conservation and
Environmental
Resources
Commercial
Mining
Other
Total
70,962
2
526
908
121,775
66,940
—
—
908
75,158
—
—
—
—
6,805
4,022
—
—
—
11,313
—
—
—
—
21,208
— —
—
2
526 —
— —
2
526
—
—
—
—
385
—
—
—
—
2,543
—
—
—
—
574
—
—
—
—
1,224
—
—
—
—
674
—
—
—
—
1,363
Approximately 61,000 acres of the properties listed are encumbered by credit agreements totaling approximately $186,000,000 as of
September 30, 2017. For a more detailed description of the credit agreements and collateral please see Note 4. “Long-Term Debt and Lines
of Credit.”
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.
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.
17
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 2017 and 2016 are presented below:
Quarter Ended:
December 31
March 31
June 30
September 30
Holders
FY 2017 Price
FY 2016 Price
High
Low
High
Low
$
$
$
$
29.85 $
27.95 $
32.65 $
34.45 $
25.25
25.55
27.40
29.75
$
$
$
$
45.82 $
38.56 $
32.66 $
31.95 $
37.55
20.99
26.02
26.50
On December 7, 2017 our stock transfer records indicate there were 248 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, 2017, 2016 and
2015:
Declaration Date
February 27, 2015
June 4, 2015
September 14, 2015
December 11, 2015
March 8, 2016
May 11, 2016
September 6, 2016
November 30, 2016
February 23, 2017
May 23, 2017
September 15, 2017
Record Date
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
March 31, 2016
June 30, 2016
September 30, 2016
December 30, 2016
March 31, 2017
June 30, 2017
September 29, 2017
Payment Date
April 15, 2015
July 15, 2015
October 15, 2015
January 15, 2016
April 15, 2016
July 15, 2016
October 14, 2016
January 16, 2017
April 14, 2017
July 15, 2017
October 16, 2017
18
Per Common Share
$0.06
$0.06
$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 12
100
100
100
100
INDEXED RETURNS
Years Ending
Sept 13
132.87
119.34
133.95
114.92
Sept 14
124.12
142.89
177.50
135.24
Sept 15
132.92
142.02
152.64
110.98
Sept 16
Sept 17
88.66
163.93
175.99
132.64
113.64
194.44
180.23
178.89
(Includes reinvestment of dividends)
19
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:
Plan Category:
Equity compensation plans
approved by security holders
Total
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
750,000 $
750,000 $
3.53
3.53
482,500
482,500
In fiscal 2015, the Company awarded 12,500 restricted stock shares to two senior executives and in December 2017, the Company awarded
5,000 restricted shares to one senior executive, both under the 2015 Plan.
Recent Sale of Unregistered Securities
None.
Issuer Repurchases of Equity Securities
In fiscal year 2017, our Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock in two separate
authorizations (the "2017 Authorization"). In March 2017, our Board of Directors authorized the repurchase of up to $5,000,000 of the
Company’s common stock beginning March 9, 2017 and continuing through March 9, 2019. In May 2017, our Board of Directors
authorized the repurchase of up to an additional $2,000,000 of the Company’s common stock beginning May 24, 2017 and continuing
through May 24, 2019. 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.
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 Plan allowed 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, 2017, the Company did not purchase any shares in accordance with the
2016 Authorization.
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 Authorization"). Through September 30, 2016, we had
repurchased 170,000 common shares in accordance with the fiscal year 2015 Authorization. The stock repurchases under the 2015
Authorization 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.
20
The following table summarizes our purchases of our common stock during the fourth quarter of 2017 for the 2017 Authorization:
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 (or approximate
dollar value)
that May Yet Be
Purchased Under the
Plan or Program
Date:
July 2017
August 2017
September 2017
12,755
10,172
5,595
$31.75
$31.48
$31.75
—
—
—
3,936,183
4,113,817
4,434,017
The Company purchased 75,623 shares of common stock in the open market prior to July 2017 under the 2017 Authorization at a weighted
average of $28.75 per common share.
Item 6. Selected Financial Data
The following tables present selected historical consolidated financial information as of and for each of the fiscal years in the five-year
period ended September 30, 2017. The Consolidated Financial Statements as of and for the fiscal years ended September 30, 2017, 2016
and 2015 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 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 (loss) from operations
Net income (loss) 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
2017
2016
September 30,
2015
2014
2013
$
$
$
$
$
$
$
$
$
$
$
$
$
129,829 $
(6,094) $
(9,451) $
(1.14) $
(1.14) $
0.24 $
144,196 $
21,846 $
6,993 $
0.84 $
0.84 $
0.24 $
153,126 $
18,964 $
13,214 $
1.64 $
1.64 $
0.24 $
104,003 $
9,383 $
9,495 $
1.29 $
1.29 $
0.24 $
3,395 $
349,337 $
419,182 $
4,550 $
181,926 $
160,641 $
4,728 $
6,625 $
379,247 $
455,445 $
4,493 $
192,726 $
173,490 $
4,773 $
5,474 $
381,099 $
460,088 $
4,511 $
200,970 $
170,704 $
4,807 $
31,130 $
142,610 $
273,613 $
3,581 $
58,444 $
162,487 $
— $
101,661
11,935
19,646
2.69
2.67
0.36
24,583
131,071
198,840
2,000
34,000
142,736
—
21
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.
During the fiscal year ended September 30, 2017, net loss includes inventory casualty loss and net realizable adjustment of approximately
$14,688,000 as a result of Hurricane Irma, additional asset impairments of long-lived assets of approximately $9,346,000, and interest
expense of approximately $9,141,000. The net loss was partially offset by a gain on sale of assets of approximately $2,181,000.
22
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 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; our ability
to achieve the anticipated cost savings under Alico 2.0, customer concentration, 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 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, 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. Alico opportunistically acquires new agricultural assets and
produces 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 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 Results of Operations. This section provides an analysis of our results of operations for the three fiscal years ended
September 30, 2017. Our discussion is presented on a consolidated 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, 2017 and our outstanding debt, commitments and cash resources as of September 30, 2017.
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 Financial Statements.
23
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, 2017, the Company generated operating revenues of approximately $129,829,000, loss from operations of approximately
$6,094,000, and net loss attributable to common stockholders of approximately $9,451,000. Cash provided by operations was
approximately $28,229,000 during the fiscal year ended September 30, 2017.
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 ("Program"). In March 2013, the Company
submitted its response proposing a dispersed water management project on a portion of its ranch land. The dispersed water management
project ("Water Project") encompasses a large-scale water storage/nutrient reduction project over approximately half of the Company's
71,000-acre ranch located in southern Hendry County. The Water Project has the ability to store/treat 94,000-acre feet of water, making it
one of the largest private storage projects proposed to date and the largest within the Caloosahatchee River watershed. The Water Project
was approved by the South Florida Water Management District in late 2014, and the Company's engineering and environmental consultants
immediately began working on a detailed design. As a result of the uniqueness of the project site, which consists of over 11,000 acres of
wetlands and contains several cultural resource sites, considerable effort has been undertaken over the past 2.5 years in securing necessary
regulatory approvals for the project from both the State of Florida and the federal government. In addition, the largeness of the project
requires close coordination with adjacent landowners, as well as the water control districts that serve those landowner/properties. 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, the contract provides 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 District Board approval of funding. The contract specifies that the District 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 2017/2018 fiscal year as approved
included funding for the Program. Permitting is currently underway with construction to follow immediately upon receipt of permits.
Annual fixed payments will not commence until completion of construction. The Company anticipates receiving all necessary regulatory
approvals within the next four to six months. The Company has not recognized any revenue to date from the contract. Operating expenses
were approximately $1,794,000, $2,322,000 and $2,126,000 for the three years ended September 30, 2017, 2016 and 2015, respectively.
Hurricane Irma
Florida’s citrus industry was hit hard by the recent impacts of Hurricane Irma. We estimate that production will be down 40-45% from the
prior season that was completed in June 2017. While we lost a small percentage of trees, the force and duration of the storm impacted the
majority of the groves. Based upon prior experience with serious storms of this nature, we expect it will take at least two seasons for the
groves to recover to pre-hurricane production levels. We estimate production between 4,000,000 - 4,400,000 boxes in fiscal 2018, an
increase in production in fiscal 2019 and a return to pre-hurricane production levels by fiscal 2020. We maintain crop insurance and are
working closely with our insurers and adjusters to evaluate and determine the amount of insurance recovery we may be entitled to, if any.
We are also working with Florida Citrus Mutual, the industry trade group, and government agencies on potential federal relief funds. As of
December 1, 2017, the Company donated $45,000 to 8 local charitable organizations to support local relief efforts for individuals affected
by Hurricane Irma.
Alico 2.0 Modernization Program
On November 16, 2017, we announced the Alico 2.0 Modernization Program (“Alico 2.0”). This program is transforming three legacy
businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, Alico Citrus, so we will remain one of the leaders in the
U.S. citrus industry. This initiative explored every aspect of Alico’s citrus and ranch operations, including corporate and operational cost
structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources
efficiency.
24
Under this program, we expect to reduce citrus total expenses per acre from $3,314/acre in fiscal 2016 to $2,164/acre when Alico 2.0 is
fully implemented. Overall, we expect the program to reduce the Company’s cost to produce a pound solid from $2.14 to $1.56. These
efficiencies will be achieved through better purchasing, more precise application of selected fertilizers and chemicals, outsourcing work
such as harvesting, hauling, and certain caretaking tasks, and by streamlining grove management. We also plan to deploy a more efficient
labor model that is consistent and uniform for field staffing and grove operating programs and aligns with the geographical footprint of the
citrus groves.
In addition to grove cost savings, Alico Citrus’ general and administrative expenses are projected to decline by more than 25% over the
next two years, and recent information technology investments have already automated and simplified many administrative tasks.
Alico 2.0 led us to decide to divest assets that generated low rates of return and shut down parts of our operations that were not profitable.
Alico Citrus has shut down its nursery in Gainesville, is in the process of selling its trucks and trailers, consolidating offices, and has either
sold or in the process of selling real estate assets that are not strategic to our business plan.
We plan on ceasing our direct cattle operations at Alico Ranch. The ranch has been a landholding for us for generations, but, even when
profitable, ranch operations generated a minimal rate of return on capital. We will continue to own the property and still conduct our long
term water dispersement program and wildlife management programs, but we will lease the ranch to a third party operator instead of
conducting our own cattle operations. All of these decisions are intended to enable additional investment in the citrus business and
redeployment of capital elsewhere.
Alico 2.0 also includes an enhanced program to plant more than 400,000 trees in fiscal year 2018, which is expected to drive growth
beyond 2020. The Company believes that its current acreage can produce 10,000,000 boxes per year on a sustained basis, even in an
environment where citrus greening continues.
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.
25
Consolidated 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 Statements of Operations for the years ended September 30, 2017, 2016 and 2015:
(in thousands)
Operating revenues:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total operating revenues
Gross profit:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total gross profit
General and administrative expenses
(Loss) income from operations
Total other (expense) income, net
Income before income taxes
Provision (benefit) for income taxes
Net income
Net loss attributable to noncontrolling interests
Net (loss) income attributable to Alico, Inc.
common stockholders
Fiscal Year Ended
September 30,
Fiscal Year Ended
Change
September 30,
Change
2017
2016
$
%
2016
2015
$
%
$ 123,441 $ 137,282 $ (13,841 )
(876)
350
(14,367 )
4,793
1,595
129,829
5,669
1,245
144,196
(10.1 )%
(15.5 )%
28.1 %
(10.0 )%
$ 137,282 $ 146,147 $ (8,865 )
275
(340)
(8,930 )
5,669
1,245
144,196
5,394
1,585
153,126
11,494
(4,021 )
1,457
8,930
15,024
(6,094 )
(7,248 )
(13,342 )
(3,846 )
(9,496 )
45
34,935
(724)
848
35,059
(23,441 )
(3,297 )
609
(26,129 )
(67.1 )%
455.4 %
71.8 %
(74.5 )%
13,213
21,846
(9,366 )
12,480
5,521
6,959
34
1,811
(27,940 )
2,118
(25,822 )
(9,367 )
(16,455 )
11
13.7 %
(127.9 )%
(22.6 )%
(206.9 )%
(169.7 )%
(236.5 )%
32.4 %
34,935
(724)
848
35,059
13,213
21,846
(9,366 )
12,480
5,521
6,959
34
35,370
586
(498)
35,458
16,494
18,964
5,124
24,088
10,905
13,183
31
(435)
(1,310 )
1,346
(399)
(3,281 )
2,882
(14,490 )
(11,608 )
(5,384 )
(6,224 )
3
(6.1 )%
5.1 %
(21.5 )%
(5.8 )%
(1.2 )%
(223.5 )%
(270.3 )%
(1.1 )%
(19.9 )%
15.2 %
(282.8 )%
(48.2 )%
(49.4 )%
(47.2 )%
9.7 %
$
(9,451 ) $
6,993 $ (16,444 )
(235.1 )%
$
6,993 $
13,214 $ (6,221 )
(47.1 )%
The following table presents our operating revenues, by segment, as a percentage of total operating revenues for the fiscal years ended
September 30, 2017, 2016 and 2015:
Operating revenues:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total operating revenues
Fiscal Year Ended
September 30,
2017
2016
2015
95.1%
3.7 %
1.2 %
100.0 %
95.2%
3.9 %
0.9 %
100.0 %
95.5%
3.5 %
1.0 %
100.0 %
26
The following discussion provides an analysis of the Company's operating segments:
Alico Citrus
The table below presents key operating measures for the fiscal years ended September 30, 2017, 2016 and 2015:
(in thousands, except per box and per pound solids data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2017
2016
Unit
%
2016
2015
Unit
%
Total
$ 123,441 $ 137,282 $
Operating Revenues:
Early and Mid-Season
Valencias
Fresh Fruit
Purchase and Resale of
Fruit
Other
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
$
$
$
$
$
45,999 $
67,146
5,735
43,909 $
75,311
5,173
2,090
(8,165)
562
4.8 % $
(10.8 )%
10.9 %
43,909 $
75,311
5,173
51,926 $ (8,017)
(1,313)
76,624
(943)
6,116
2,331
2,230
8,188
4,701
3,215
4,044
7,259
328
7,587
3,634
5,195
8,829
402
9,231
17,950
24,661
42,611
20,167
31,237
51,404
5.58
6.10
5.55
6.01
2.56 $
2.72 $
2.18 $
2.41 $
(5,857)
(2,471)
(13,841 )
(419)
(1,151)
(1,570)
(74 )
(1,644)
(2,217)
(6,576)
(8,793)
0.03
0.09
0.38
0.31
218
(71.5 )%
(52.6 )%
1,190
(10.1 )% $ 137,282 $ 146,147 $ (8,865)
8,188
4,701
7,970
3,511
(11.5 )%
(22.2 )%
(17.8 )%
(18.4 )%
(17.8 )%
(11.0 )%
(21.1 )%
(17.1 )%
0.5 %
1.5 %
3,634
5,195
8,829
402
9,231
4,445
5,569
10,014
466
10,480
(811)
(374)
(1,185)
(64 )
(1,249)
20,167
31,237
51,404
26,139
36,083
62,222
(5,972)
(4,846)
(10,818 )
5.55
6.01
5.88
6.47
(0.33 )
(0.46 )
17.4 % $
12.9 % $
2.18 $
2.41 $
1.99 $
2.12 $
0.19
0.29
(15.4 )%
(1.7)%
(15.4 )%
2.7 %
33.9 %
(6.1)%
(18.2 )%
(6.7)%
(11.8 )%
(13.7 )%
(11.9 )%
(22.8 )%
(13.4 )%
(17.4 )%
(5.6)%
(7.1)%
9.5 %
13.7 %
17.48 $
12.85 $
4.63
36.0 % $
12.85 $
13.12 $
(0.27 )
(2.1)%
84,909 $
21,520
64,824 $
25,949
20,085
(4,429)
31.0 % $
(17.1 )%
64,824 $
25,949
74,237 $ (9,413)
(85 )
26,034
(12.7 )%
(0.3)%
2,134
3,384
7,815
3,759
(5,681)
(375)
(72.7 )%
(10.0 )%
7,815
3,759
7,652
2,854
163
905
2.1 %
31.7 %
Total
$ 111,947 $ 102,347 $
9,600
9.4 % $ 102,347 $ 110,777 $ (8,430)
(7.6)%
Gross Profit
$
11,494 $
34,935 $
(23,441 )
$
34,935 $
35,370 $
(435)
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 harvesting 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.
27
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 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 contracted harvesting and hauling activities.
The decrease in revenues for the fiscal year ended September 30, 2017, as compared to the fiscal year ended September 30, 2016, was
primarily due to the harvesting of approximately 1,570,000 fewer boxes of fruit, partially offset by higher pound solids per box and higher
price per pound solids. The decrease in revenues from purchase and resale of fruit and other revenues reflects the Company’s decision to
reduce third party fruit purchases and discontinue third party harvesting and hauling activities.
The decrease in revenues for the fiscal year ended September 30, 2016, as compared to fiscal year ended September 30, 2015, was
primarily due to 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 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.
Total boxes harvested in fiscal year 2017 declined by approximately 17.8%, as compared to fiscal year 2016. Pound solids per box
increased by 0.5% and approximately 1.5% for the Early and Mid-Season and Valencia oranges, respectively. The combination of these
items resulted in approximately 8,793,000 less pound solids sold in fiscal year 2017, as compared to fiscal year 2016.
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 decline in boxes harvested and pound solids produced for fiscal 2017, and the decline in boxes harvested and pound solids produced in
fiscal year 2016, is 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 a drought and higher than normal temperatures during the Early and Mid-season harvest
impacting all varieties. 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 and subsequently approved for 2017. These bactericides are approved and successfully applied on other
permanent crops throughout the United States. Alico Citrus began application of these bactericides to all of its groves in April 2016. While
the Company is still evaluating the impact of the foliar bactericide treatments, it has reduced its usage.
The USDA, in its November 9, 2017 Citrus Crop Forecast for the 2017-18 harvest season, indicated that the Florida orange crop will
decrease from approximately 68,700,000 boxes for the 2016-17 crop year to approximately 50,000,000 boxes for the 2017-18 crop year, a
decrease of approximately 27.2%. The significant decline is believed to be primarily the result of Hurricane Irma and the related fruit loss
experienced as well as the stress on the citrus trees for short-term fruit growth. The 2016-17 Florida orange crop declined by
approximately 12,900,000 boxes, or approximately 15.8%, compared to the 2015-16 crop.
We estimate our 2018 processed boxes will decrease by approximately 40-45% compared to our fiscal year 2017 processed boxes, on a per
acre basis. For fiscal year 2018, we expect that the forecasted decrease in the size of the statewide crop could cause the price per pound
solids for fiscal year 2018 to be above the price per pound solid for fiscal year 2017. We expect that our operating expenses for fiscal year
2018 will remain consistent with fiscal year 2017 on a per acre basis.
The decrease in gross profit for fiscal year 2017, as compared to fiscal year 2016, related primarily to decreased revenues of approximately
$13,841,000 discussed above, and the recording of an inventory casualty loss of approximately $13,489,000 relating to fruit loss as a result
of Hurricane Irma.
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.
In November 2017, we announced a plan for the Alico 2.0 Modernization Program (“Alico 2.0"). This initiative explored every aspect of
Alico’s citrus and ranch operations, including corporate and operational cost structures, grove costs, purchasing and procurement, non-
performing and under-performing assets, professional fees, and human resources efficiency. Under this Program,
28
we expect to reduce total expenses per acre from $3,314/acre in fiscal 2016 to $2,164/acre when Alico 2.0 is fully implemented, which is
expected to be over the next two years. Overall, we anticipate the program should reduce the Company’s cost to produce a pound solid
from $2.14 to $1.56. This efficiency will be achieved through better purchasing, more precise application of selected fertilizers and
chemicals, outsourcing work such as harvesting, hauling, and certain caretaking tasks, and by streamlining grove management. We also
will be deploying a more efficient labor model that is consistent and uniform for field staffing and grove operating programs and aligns
with the geographical footprint of the citrus groves.
Conservation and Environmental Resources
The table below presents key operating measures for the fiscal years ended September 30, 2017, 2016 and 2015:
(in thousands, except per pound data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2017
2016
Unit
%
2016
2015
Unit
%
2,672 $
1,060
699
362
4,793 $
4,078 $ (1,406)
534
(153)
149
(876)
526
852
213
5,669 $
(34.5 )% $
101.5 %
(18.0 )%
70.0 %
(15.5 )% $
4,078 $
526
852
213
5,669 $
3,805 $
511
851
227
5,394 $
1,737
1,633
2,503
714
(766)
919
(30.6 )%
128.7 %
2,503
714
1,550
446
273
15
1
(14 )
275
953
268
7.2 %
2.9 %
0.1 %
(6.2)%
5.1 %
61.5 %
60.1 %
1.54 $
0.65 $
1.63 $
0.74 $
(0.09 )
(0.09 )
(5.5)% $
(12.2 )% $
1.63 $
0.74 $
2.45 $
1.15 $
(0.82 )
(0.41 )
(33.5 )%
(35.7 )%
2,552 $
975
328
1,794
3,165
8,814 $
3,395 $
299
(843)
676
(24.8 )% $
226.1 %
298
2,322
79
6,393 $
30
(528)
3,086
2,421
10.1 %
(22.7 )%
NM
37.9 % $
3,395 $
299
298
2,322
79
6,393 $
2,248 $
220
1,147
79
214
2,126
—
4,808 $
84
196
79
1,585
51.0 %
35.9 %
39.3 %
9.2 %
NM
33.0 %
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 decrease in revenues from the sale of calves in fiscal year 2017, as compared to fiscal year 2016, is primarily due to the decrease in
pounds sold, as well as a decrease in price per pound. The increase in revenues from the sale of culls in fiscal year 2017, as compared to
fiscal year 2016, results from an increase in pounds sold, partially offset by a decrease in price per pound. The decrease in gross profit for
fiscal year 2017, as compared to fiscal year 2016, relates primarily to certain impairments which were recorded on assets associated with
the Ranch. Approximately 1,144 calves from fiscal 2017 were retained.
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 were retained.
29
In relation to Alico 2.0, we will cease our direct cattle operations at Alico Ranch. The ranch has been a landholding for us for generations,
but, even when profitable, ranch operations generated a minimal rate of return on capital. We will continue to own the property and
conduct its long term water dispersement program and wildlife management programs, but we will lease the ranch to a third party operator
instead of conducting our own cattle operations.
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 District Board approval of funding. The contract specifies that the
District 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 2017/2018 fiscal year was recently approved and included funding for the Program. Operating expenses were
approximately $1,794,000, $2,322,000, and $2,126,000 for the three years ended September 30, 2017, 2016 and 2015, respectively.
During fiscal 2017, we recorded an impairment of two abandoned mines in the amount of approximately $3,165,000 based on independent
third party assessments, and our decision to not pursue a Natural Resource business initiative.
Other Operations
The table below presents key operating measures for the fiscal years ended September 30, 2017, 2016 and 2015:
(in thousands, except per net standard ton and per acre data)
Fiscal Year Ended
September 30,
Change
Fiscal Year Ended
September 30,
Change
2017
2016
Unit
%
2016
2015
Unit
%
1,595
—
1,245
—
$
1,595 $ 1,245 $
138
—
138 $
397
—
397 $
$
350
—
350
(259)
—
(259)
28.1 %
-
28.1 %
(65.2 )%
-
(65.2 )%
$
$
1,245
—
1,245 $
1,082
503
1,585 $
163
(503)
(340)
397
—
397 $
1,608
475
2,083 $
(1,211)
(475)
(1,686)
15.1 %
NM
(21.5 )%
(75.3 )%
NM
(80.9 )%
Revenue From:
Other Leases
USSC Lease
Total
Operating Expenses:
Land Leasing Expenses
Guarantee Payment to Global
Total
NM - Not Meaningful
Other Operations include lease income from an aggregates mine and leases of oil extraction rights to third parties, farm lease revenue, the
generation of revenues from sod and tree sales and rental income for office space. The Company does not anticipate any significant
changes to these revenue streams in the future, with the exception of the revenue stream from the lease of office space which will cease as
a result of the sale of the corporate office building in Ft. Myers, Florida.
General and Administrative
General and administrative expenses for the fiscal year ended September 30, 2017 were approximately $15,024,000 compared to
approximately $13,213,000 for the fiscal year ended September 30, 2016.
The increase in general and administrative expenses in fiscal year 2017 primarily relate to salary and stock compensation expenses incurred
with respect to employment agreements executed for new executives during fiscal 2017. In addition, as a result of one of the executives
stepping down, the Company entered into a separation and consulting agreement with the executive. These items
30
resulted in an increase of approximately $2,100,000 over the prior year. See Note 16. “Related Party Transactions” in the Notes to the
Consolidated Financial Statements for further discussion. In addition, the Company wrote off certain advances made related to excavating
work in the amount of approximately $312,000. No significant reserves or write-offs were required in fiscal 2016. These increases were
partially offset by a decrease in legal fees of approximately $1,000,000 relating primarily to a shareholder litigation which was settled in
fiscal 2016.
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.
As part of Alico 2.0, we anticipate that general and administrative expenses will decline by more than 25% over the next two years, as
recent information technology investments have already automated and simplified many administrative tasks.
Other (Expense) Income, net
Other expense, decreased by approximately $2,118,000 in fiscal year 2017, as compared to fiscal year 2016, primarily due to an increase in
gain on sale of real estate of $1,563,000 and a decrease in interest expense of $752,000. During fiscal 2017 the Company sold land and
facilities located in Hendry County, Florida which resulted in a gain on sale of approximately $1,400,000. The decrease in interest expense
is due to the Company continuing to pay down its term loan, which was partially offset by an increase in interest rates.
Other (expense) income, changed by approximately $14,490,000 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 fixed assets 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.
Provision (benefit) for Income Taxes
For the fiscal years ended September 30, 2017, 2016 and 2015, the provision (benefit) for income taxes was approximately $(3,846,000),
$5,521,000, and $10,905,000, respectively, and the related effective income tax rates were approximately 28.83%, 44.20% and 45.30%,
respectively.
The changes in the provision for income taxes for the fiscal year ended September 30, 2017, as compared to fiscal 2016 and from the fiscal
year ended September 30, 2016, as compared to fiscal 2015 was primarily related to changes in Net (Loss) Income.
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.
31
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
2017
2016
Change
$
$
$
$
$
$
3,395 $
66,489 $
15,983 $
50,506 $
419,182 $
186,476 $
4.19 to 1
6,625 $
71,871 $
18,678 $
53,193 $
455,445 $
202,219 $
3.85 to 1
(3,230 )
(5,382 )
(2,695 )
(2,687 )
(36,263 )
(15,743 )
Our business has historically generated positive net cash flows from operations. Sources of cash primarily include cash flows from
operations, sales of under-performing land and other assets, 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, dividends, and debt service costs
including interest and principal payments on our term loans and other credit facilities.
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 $59,700,000 is available for general use as of September 30, 2017, and a $25,000,000 revolving line
of credit, of which $25,000,000 is available for general use as of September 30, 2017 (see Note 4. “Long-Term Debt and Lines of Credit" to
the accompanying Consolidated 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 funds from 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.
Cash Management Impacts
Cash and cash equivalents decreased approximately $3,230,000 as of September 30, 2017, as compared to September 30, 2016; Cash and
cash equivalents increased by approximately $1,151,000 as of September 30, 2016, as compared to September 30, 2015. The components of
these changes are discussed below.
32
Consolidated Statements of Cash Flows
The following table details the items contributing to the changes in cash and cash equivalents for fiscal years 2017, 2016 and 2015:
(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
Net Cash Provided By Operating Activities
Fiscal Year Ended September 30,
2015
2016
2017
33,726
30,357 $
28,229 $
(177,057)
(13,034)
(10,085)
117,675
(21,374)
(16,172)
(25,656)
(3,230) $
1,151 $
$
$
% Change
2017 vs 2016
(7.0)%
(22.6)%
32.2 %
2016 vs 2015
(10.0)%
(92.6)%
(113.7)%
The following table details the items contributing to Net Cash Provided by Operating Activities for the fiscal years 2017, 2016 and 2015:
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
$
Net (loss) income
Gain on sale of sugarcane land
Depreciation, depletion and amortization
Loss (gain) loss on breeding herd sales
Deferred income tax (benefit) expense
Cash surrender value
Deferred retirement benefits
Magnolia Fund undistributed loss (earnings)
(Gain) loss on sale of property and
equipment
Inventory casualty loss
Inventory net realizable value adjustment
Impairment of long-lived assets
Loss on extinguishment of debt
Non-cash interest expense on deferred gain
on sugarcane land
Bad debt expense
Stock-based compensation expense
Other, including working capital changes
Net cash provided by operating activities
$
Change
2017
(9,496) $
(538)
15,226
337
(3,948)
(15)
(102)
202
(1,373)
13,489
1,199
9,346
—
1,413
312
2016
Change
6,959 $ (16,455) $
(618)
15,382
296
5,277
(20)
65
103
80
(156)
41
(9,225)
5
(167)
99
147
—
—
—
—
(1,520)
13,489
1,199
9,346
—
2016
6,959 $
(618)
15,382
296
5,277
(20)
65
103
147
—
—
—
—
1,406
—
7
312
1,406
—
2015
13,183 $
(13,734)
14,732
(183)
12,350
(27)
623
(57)
(290)
—
—
541
457
607
—
(6,224)
13,116
650
479
(7,073)
7
(558)
160
437
—
—
(541)
(457)
799
—
1,653
524
28,229 $
925
435
30,357 $
728
89
(2,128) $
925
435
30,357 $
952
4,572
33,726 $
(27)
(4,137)
(3,369)
The decrease in net cash provided from operating activities for the year September 30, 2017 compared to the year ended September 30,
2016 was primarily due to a decrease in net income and deferred tax expense and was substantially offset by the company recording an
inventory casualty loss, which was the direct result of Hurricane Irma, and other impairments recorded on certain assets held for sale and
other fixed assets (see Note 5. “Inventories” in the Notes the Consolidated Financial Statements for further discussion on inventory
casualty loss).
33
The decrease in net cash provided from operating activities for the year ended September 30, 2016 compared to the year ended September
30, 2015 was primarily due to a decrease in net income and deferred tax expense and was partially offset by the gain on the sale of our
sugarcane land recognized in fiscal 2015 as discussed in Note 9. "Deferred Gain on Sale" to the Consolidated Financial Statements.
Net Cash Used In Investing Activities
The following table details the items contributing to Net Cash Used in Investing Activities for the fiscal years 2017, 2016 and 2015:
(in thousands)
Fiscal Year Ended September
30,
Capital expenditures
Acquisition of citrus business
Proceeds from sale of assets
Other
Net cash used in investing activities
2017
(13,353) $
—
2,944
324
(10,085) $
$
$
2016
(14,305) $
—
799
472
(13,034) $
Change
952 $
—
2,145
(148)
2,949 $
Fiscal Year Ended
September 30,
2016
(14,305) $
2015
(11,523) $
—
799
472
(265,587)
99,114
939
(13,034) $ (177,057) $
Change
(2,782)
265,587
(98,315)
(467)
164,023
The decrease in net cash used in investing activities for the fiscal year ended September 30, 2017, as compared to the fiscal year ended
September 30, 2016, was primarily due to proceeds from the sale of land and facilities located in Hendry County, Florida of approximately
$2,200,000. This was partially offset by the reduction of capital expenditures of approximately $1,000,000.
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 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 9. "Deferred Gain on Sale" to the accompanying Consolidated Financial Statements).
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 years ended
September 30, 2017, 2016 and 2015:
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
Proceeds from term loans
Principal payments 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
Capital lease obligation principal
payments
Net cash (used in) provided by financing
activities
2017
2016
Change
2016
$
— $
2,500 $
(2,500) $
2,500 $
2015
184,500 $
Change
(182,000)
(70,770)
65,770
—
(10,743)
—
—
(3,064)
(1,987)
(53,882)
58,882
—
(10,761)
(7,500)
—
(3,141)
(1,993)
(16,888)
6,888
—
18
7,500
—
77
6
(53,882)
58,882
—
(10,761)
(7,500)
—
(3,141)
(1,993)
(87,031)
81,031
(34,000)
(17,870)
—
(2,834)
(4,013)
(1,877)
33,149
(22,149)
34,000
7,109
(7,500)
2,834
872
(116)
(580)
(277)
(303)
(277)
(231)
(46)
$
(21,374) $
(16,172) $
(5,202) $
(16,172) $
117,675 $
(133,847)
34
The increase in net cash used in financing activities for the year ended September 30, 2017, as compared to the year ended September 30,
2016 was primarily a result of the company paying down, on a net basis, its revolving line of credit during fiscal year ended September
2017, while during the fiscal year ended September 30, 2016 the Company drew cash, on a net basis, on its revolving line of credit. This
decrease was partially offset as a result of the Company paying a $7,500,000 contingent consideration relating to the acquisition of Orange-
Co during the fiscal year ended September 30, 2016.
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 4. “Long-term Debt and Lines of Credit” to the accompanying Consolidated 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.
The Company had no outstanding amounts due under its revolving credit lines at September 30, 2017. With respect to the WCLC line of
credit agreement with Rabo, the Company executed an amendment to extend the due date to November 1, 2019.
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,
2017, there was approximately $10,300,000 in outstanding letters of credit which correspondingly reduced Alico's availability under the
line of credit. In October 2017, the Company executed two additional letters of credit aggregating approximately $153,000, which relate to
the lease back of office space in Ft. Myers building which was sold to a third party.
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.
During the next twelve months the company anticipates it will make capital expenditures of approximately $15,000,000 - $16,000,000. The
majority of these capital expenditures will primarily relate to the purchasing and planting of additional trees. As a result of the hurricane,
the Company plans to purchase and plant a greater amount of trees than in previous years.
During September 2017, the Company experienced fruit loss as a result of Hurricane Irma. Consequently, the Company anticipates that the
revenue and cash flow will be negatively impacted. The Company is also estimating that production will be reduced 40-45% from the prior
season that was completed in June 2017.
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, 2017 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
Operating leases
Capital leases
Tree purchase commitments
Total
Purchase Commitments
Total
Payments Due by Period
1-3 Years
<1 Year
4-5 Years
5+ Years
$
$
186,476 $
64,503
8,093
1,107
8
1,082
261,269 $
4,550 $
7,340
348
419
8
1,082
13,747 $
34,340 $
20,009
709
499
—
—
55,557 $
21,485 $
11,904
433
189
—
—
34,011 $
126,101
25,250
6,603
—
—
—
157,954
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, 2017.
35
Alico enters into fruit marketing agreements to purchase fruit from certain third party growers as well as contracting caretaking services to
these growers. These obligations are typically covered by sales and caretaking agreements.
During fiscal 2017, the Company entered into contracts to purchase citrus trees, which are anticipated to be delivered in fiscal 2018. As of
September 30, 2017, the Company had approximately $1,082,000 relating to outstanding commitments for these purchases that will be paid
upon delivery of the citrus trees.
Critical Accounting Policies
Our Consolidated 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 industry information becomes 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.
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 Statements of Operations. 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 5. “Inventories”).
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
The Company uses 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
36
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 or all 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, 2017 and 2016, 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.
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") 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 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
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset or asset group 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 asset or asset group might be impaired and the estimated cash flows
(undiscounted and without interest charges) to be generated by those assets or asset group over the remaining lives of the assets are less
than the carrying amounts of those assets. In calculating impairments and the estimated cash flows, the Company assigns its asset groups
by determining the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of the other
Company assets. The net carrying values of assets or asset groups 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
September 30, 2017 and 2016, long-lived assets were comprised of property and equipment.
Fair Value Measurements
The carrying amounts in the balance sheets for operating accounts receivable, accounts payable and accrued liabilities approximate fair
value because of the immediate or short term maturity of these items. 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.
37
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.
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, 2017. The Company held various financial instruments as of September 30, 2017 and 2016,
consisting of financial assets and liabilities reported in the Company’s Consolidated 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 $598,000 for the fiscal year ended September 30,
2017.
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.
38
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to Consolidated 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
40
41
42
43
44
45
47
39
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Alico, Inc.
We have audited the accompanying consolidated balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2017 and 2016, and the
related consolidated statements of operations, changes in equity, and cash flows for each of the three fiscal years in the period ended
September 30, 2017. 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 financial statements referred to above present fairly, in all material respects, the financial position of
Alico, Inc. and Subsidiaries as of September 30, 2017 and 2016, and the results of their operations and their cash flows for each of the three
fiscal years in the period ended September 30, 2017, 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, 2017, 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 11, 2017 expressed an unqualified opinion on the effectiveness of Alico, Inc. and Subsidiaries’ internal control over financial
reporting.
/s/ RSM US LLP
Orlando, Florida
December 11, 2017
40
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, 2017, 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, 2017, 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 balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of
operations, changes in equity, and cash flows for each of the three fiscal years in the period ended September 30, 2017, and our report dated
December 11, 2017 expressed an unqualified opinion.
/s/ RSM US LLP
Orlando, Florida
December 11, 2017
41
ALICO, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Inventories
Income tax receivable
Assets held for sale
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
Other current liabilities
Total current liabilities
Long-term debt:
Principal Amount
Less: deferred financing costs, net
Long-term debt less deferred financing costs, net
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 8,238,830 and 8,315,535 shares outstanding at September 30, 2017 and
2016, respectively
Additional paid in capital
Treasury stock, at cost, 177,315 and 100,610 shares held at September 30, 2017 and 2016,
respectively
Retained earnings
Total Alico stockholders' equity
Noncontrolling interest
Total stockholders' equity
Total liabilities and stockholders' equity
September 30,
2017
2016
3,395 $
4,286
36,204
—
20,983
1,621
66,489
349,337
2,246
262
848
419,182 $
3,192 $
6,781
4,550
1,460
15,983
181,926
(1,767)
180,159
—
27,108
26,440
4,123
—
253,813
6,625
4,740
58,469
1,013
—
1,024
71,871
379,247
2,246
389
1,692
455,445
5,975
6,920
4,493
1,290
18,678
192,726
(1,980)
190,746
5,000
31,056
27,204
4,198
300
277,182
—
—
8,416
18,694
(6,502)
140,033
160,641
4,728
165,369
419,182 $
8,416
18,155
(4,585)
151,504
173,490
4,773
178,263
455,445
$
$
$
$
See accompanying notes to the Consolidated Financial Statements.
42
Operating revenues:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total operating revenues
Operating expenses:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total operating expenses
Gross profit
General and administrative expenses
(Loss) income from operations
Other (expense) income:
Investment and interest income, net
Interest expense
Gain on bargain purchase
Gain on sale of real estate and fixed assets
Loss on extinguishment of debt
Other expense, net
Total other (expense) income, net
(Loss) income before income taxes
Provision (benefit) for income taxes
Net (loss) income
Net loss attributable to noncontrolling interests
ALICO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Fiscal Year Ended September 30,
2016
2017
2015
$
123,441 $
4,793
1,595
129,829
137,282 $
5,669
1,245
144,196
111,947
8,814
138
120,899
8,930
15,024
(6,094)
(148)
(9,141)
—
2,181
—
(140)
(7,248)
(13,342)
(3,846)
(9,496)
102,347
6,393
397
109,137
35,059
13,213
21,846
—
(9,893)
—
618
—
(91)
(9,366)
12,480
5,521
6,959
45
(9,451) $
34
6,993 $
(1.14) $
(1.14) $
0.84 $
0.84 $
8,300
8,300
8,303
8,311
146,147
5,394
1,585
153,126
110,777
4,808
2,083
117,668
35,458
16,494
18,964
2
(8,366)
1,145
13,590
(1,051)
(196)
5,124
24,088
10,905
13,183
31
13,214
1.64
1.64
8,056
8,061
Net (loss) income attributable to Alico, Inc. common stockholders
Per share information attributable to Alico, Inc. common stockholders:
Earnings (loss) per common share:
Basic
Diluted
Weighted-average number of common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
$
$
$
$
See accompanying notes to the Consolidated Financial Statements.
43
0.24 $
0.24 $
0.24
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
Balance at
September 30, 2016
Net loss
Dividends
Treasury stock
purchases
Stock-based
compensation:
Directors
Executives
Other
Balance at
September 30, 2017
ALICO, INC. AND SUBSIDIARIES
CONSOLIDATED 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
7,377 $
—
—
7,377 $
—
—
3,742 $
—
—
(650) $ 134,968 $ 17,050 $
—
—
13,423
(1,936)
(209)
—
162,487 $
13,214
(1,936)
— $
(31 )
—
162,487
13,183
(1,936)
—
—
—
(4,013)
—
—
(4,013)
—
(4,013)
1,039
1,039
15,937
—
— (16,976 )
—
4,838
4,838
—
—
—
—
—
—
61
55
—
701
—
—
—
—
—
—
—
135
8,416 $
—
—
8,416
—
—
19,795
—
—
(3,962)
—
—
146,455
6,993
(1,990)
—
—
—
—
—
—
—
—
—
(3,141)
(1,483)
1,483
(307)
150
1,035
—
—
—
46
—
8,416 $
—
—
8,416
—
—
18,155
—
—
(4,585)
—
—
151,504
(9,451)
(1,987)
—
—
—
—
—
—
—
—
—
(3,064)
—
(374)
880
33
1,147
—
—
—
—
(33 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
762
55
135
170,704
6,993
(1,990)
(3,141)
—
774
150
173,490
(9,451)
(1,987)
(3,064)
773
880
—
—
—
—
4,807
(34 )
—
—
—
—
—
4,773
(45 )
—
—
—
—
—
762
55
135
175,511
6,959
(1,990)
(3,141)
—
774
150
178,263
(9,496)
(1,987)
(3,064)
773
880
—
8,416 $
8,416 $
18,694 $ (6,502) $ 140,033 $
— $
160,641 $
4,728
$
165,369
See accompanying notes to Consolidated Financial Statements.
44
ALICO, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Gain on sale of sugarcane land
Depreciation, depletion and amortization
Loss (gain) loss on breeding herd sales
Deferred income tax (benefit) expense
Cash surrender value
Deferred retirement benefits
Magnolia Fund undistributed loss (earnings)
(Gain) loss on sale of property and equipment
Inventory casualty loss
Inventory net realizable value adjustment
Impairment of long-lived assets
Loss on extinguishment of debt
Non-cash interest expense on deferred gain on sugarcane land
Bad debt expense
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 sales of assets
Proceeds from surrender of life insurance policies
Proceeds from sales of real estate
Other
Net cash used in investing activities
Fiscal Year Ended September 30,
2017
2016
2015
$
(9,496) $
6,959 $
13,183
(538)
15,226
337
(3,948)
(15 )
(102)
202
(1,373)
13,489
1,199
9,346
—
1,413
312
1,653
—
142
3,724
(604)
1,013
333
(2,895)
—
(1,189)
28,229 $
— $
—
(13,353 )
324
760
—
2,184
—
(10,085 ) $
(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)
$
$
$
45
Cash flows from financing activities:
Proceeds from term loans
Principal payments 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
Capital lease obligation principal payments
Net cash (used in) provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
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
Dividend declared
Fiscal Year Ended September 30,
2017
2016
2015
— $
(70,770 )
65,770
—
(10,743 )
—
—
(3,064)
(1,987)
(580)
(21,374 ) $
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
(3,230) $
6,625
1,151 $
5,474
(25,656 )
31,130
3,395 $
6,625 $
5,474
7,534 $
(911) $
— $
7,530 $
(878) $
— $
— $
— $
494 $
— $
— $
498 $
6,167
—
5,213
250
37
500
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the Consolidated Financial Statements.
46
ALICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017, 2016 and 2015
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 -
Alico Citrus and Conservation and Environmental Resources. Financial results are presented based upon its three business segments (Alico
Citrus, Conservation and Environmental Resources and Other Operations).
Basis of Presentation
The Company has prepared the accompanying financial statements on a consolidated basis. These accompanying Consolidated 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, 2017 and 2016. All significant intercompany transactions and account balances between the consolidated
businesses have been eliminated.
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. The Company’s CODM assesses
performance and allocates resources based on three operating segments: Alico Citrus (formerly Orange Co.), Conservation and
Environmental Resources and Other Operations.
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. 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
47
had net losses of $91,432, $69,230 and $64,014 for the fiscal years ended September 30, 2017, 2016, and 2015, respectively, of which
$46,630, $35,307 and $32,647 was attributable to the Company for fiscal years ended September 30, 2017, 2016, and 2015, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update ("ASU") 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 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. This guidance, which will be adopted October 1, 2017, is not expected to have a significant impact 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 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.
In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" that
provides guidance to assist entities with evaluating when a set of transferred assets and activities (set) is a business. Under the new
guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single
identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. The ASU is effective for fiscal
years beginning after December 15, 2017, and interim periods within those years. The ASU will be applied prospectively to any
transactions occurring within the period of adoption. Early adoption is permitted.
48
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other” (Topic 350) which simplifies the accounting for
goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair
value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a
reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in fiscal years
beginning after December 15, 2019, including interim periods within that reporting period. We will adopt this guidance using a prospective
approach. Earlier adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
We are currently evaluating the impact on our consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets"
(Subtopic 610-20): The ASU clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial
assets unless other specific guidance applies. As a result, it will not apply to the derecognition of businesses, nonprofit activities, or
financial assets (including equity method investments), or to contracts with customers. The ASU also clarifies that an in substance
nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or
subsidiary is not a business.
In addition, transfers of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity will be
accounted for under ASC 610-20, removing specific guidance on such partial exchanges from ASC 845, Nonmonetary Transactions.
As a result, guidance specific to real estate sales in ASC 360-20 will be eliminated. As such, sales and partial sales of real estate assets will
now be subject to the same derecognition model as all other nonfinancial assets.
The ASU will also impact the accounting for partial sales of nonfinancial assets (including in substance real estate). When an entity
transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the entity will measure the retained
interest at fair value. This will result in full gain/loss recognition upon the sale of a controlling interest in a nonfinancial asset. Current
guidance generally prohibits gain recognition on the retained interest.
The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and early adoption is
permitted. The ASU will be applied prospectively to any transaction occurring from the date of adoption.
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation” (Topic 718) which clarifies when changes to the
terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in practice
and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply
modification accounting to a share-based payment award if the award's fair value, vesting conditions and classification as an equity or
liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified
on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted. We do not expect this new guidance to have a material impact on our consolidated
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.
Reclassifications
Certain prior year amounts have been reclassified in the accompanying Financial Statements for consistent presentation to the current
period. These reclassifications had no impact on net income, equity or cash flows as previously reported; however, working capital
decreased by approximately $1,184,000 at September 30, 2016.
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.
49
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 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 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 industry information 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.
Fair Value of Financial Instruments
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 approximates fair value as the debt is with commercial lenders at interest rates that vary with market conditions or
have fixed rates that approximate market rates for obligations with similar terms and maturities (see Note 10. “Fair Value Measurements”).
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, 2017, 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.
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 for
amounts which are not probable of collection. The estimate, evaluated quarterly 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
50
which these changes become known. The allowance for doubtful accounts is included in general and administrative expenses in the
Consolidated Statements of Operations.
The following table presents accounts receivable, net for fiscal years ended September 30, 2017 and 2016:
(in thousands)
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
Concentrations
September 30,
2017
2016
$
$
4,314 $
(28 )
4,286 $
4,753
(13 )
4,740
Accounts receivable from the Company’s major customers as of September 30, 2017 and 2016 and revenue for the fiscal years ended
September 30, 2017, 2016 and 2015, are as follows:
(in thousands)
Accounts Receivable
Tropicana
Cutrale Citrus Juice
Minute Maid
Louis Dreyfus
2017
2016
2017
$
$
$
$
2,506 $
— $
— $
— $
1,710 $ 111,197 $
1,364 $
— $
— $
— $
— $
— $
Revenue
2016
46,898 $
22,735 $
49,271 $
— $
2015
21,925
23,556
57,484
22,460
2015
% of Total Revenue
2016
2017
85.6% 32.5% 14.3%
1.1% 15.8% 15.4%
—% 34.2% 37.5%
—% 14.7%
—%
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 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 Statements of Operations. 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 5. “Inventories”).
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation, depletion 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
51
for four years. After four years, a planting 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 or asset group may not be recoverable. The Company records impairment losses on long-lived assets used in operations, or asset
group, 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 or asset group over the remaining lives of the assets or asset group are less than the
carrying amounts of those assets. In calculating impairments and the estimated cash flows, the Company assigns its asset groups by
determining the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of the other
Company assets. The net carrying values of assets or asset group 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
September 30, 2017 and 2016, long-lived assets were comprised of property and equipment.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities
assumed in connection with such acquisition. In accordance with the provisions of ASC 350, Intangibles-Goodwill and Other, goodwill and
intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least
annually, on the same date, or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired.
Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative
operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof.
In the evaluation of goodwill for impairment, we have the option to perform a qualitative assessment to determine whether further
impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying
amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless
the entity determines that it is more likely than not that its fair value is less than its carrying amount. If, under the quantitative assessment,
the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under
step two of the impairment analysis. In step two of the analysis, we would record an impairment loss equal to the excess of the carrying
value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise. As of September 30, 2017 and 2016, no
impairment was required.
52
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 uses 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 or
all 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, 2017 and 2016, 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, 2017, 2016 and 2015:
(in thousands)
Weighted Average Common Shares Outstanding - Basic
Effect of dilutive securities - stock options and unrestricted stock
Weighted Average Common Shares Outstanding - Diluted
Fiscal Year Ended September 30,
2016
2017
2015
8,300
—
8,300
8,303
8
8,311
8,056
5
8,061
For the fiscal year ended September 30, 2017, the Company issued 750,000 stock options to certain executives of the Company. There
were no employee stock options granted for the fiscal years ended September 30, 2016 and 2015, 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 year ended September 30, 2017, the Company had stock options that were excluded from the
diluted earnings per share because they were anti-dilutive. For the fiscal years ended September 30, 2016 and 2015, 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.
53
Total stock-based compensation expense for the three years ended September 30, 2017 in general and administrative expense was as
follows:
(in thousands)
Stock compensation expense:
Executives
Board of Directors
Members
Total stock compensation expense
2017
Fiscal Year Ended September 30,
2016
2015
$
$
880 $
773
—
1,653 $
150 $
774
—
924 $
55
762
135
952
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 statements
of operation.
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 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 Balance Sheets. Based on
t h e September 30, 2017 unaudited internal financial statements of Magnolia, the Company recognized net investment loss of
approximately $202,000 for the fiscal year ended September 30, 2017. The Company recognized net investment loss of approximately
$103,000 for the fiscal year ended September 30, 2016 and net investment income of approximately $57,000 for the fiscal year ended
September 30, 2015. Net investment income is included in Investment and interest income, net in the Consolidated Statements of
Operations. Magnolia made certain distributions during the fiscal years ended September 30, 2017, 2016 and 2015; the Company’s share of
those distributions was approximately $324,000, $171,000, and $675,000, 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
54
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, 2017 and 2016 the Company incurred approximately $0 and $31,000, 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.
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
55
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
Note 4. Long-Term Debt and Lines of Credit
Debt Refinancing
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
$
$
$
$
$
The Company refinanced its outstanding debt obligations on December 3, 2014 in connection with the Orange-Co acquisition. These credit
facilities initially included $125,000,000 in fixed interest rate term loans (“Met Fixed-Rate Term Loans”), $57,500,000 in variable interest
rate term loans (“Met Variable-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 secured by real property. The security for the term loans and RLOC consists of approximately 38,200 gross
acres of citrus groves and 5,762 gross acres of ranch land. The WCLC is collateralized by the Company’s current assets and certain other
personal property owned by the Company.
The term loans, collectively, are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The Met Fixed-Rate
Term Loans bear interest at 4.15% per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to 90 day LIBOR plus
165 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and is subject to further
adjustment every two years thereafter until maturity. Interest on the term loans is payable quarterly.
The interest rates on the Met Variable-Rate Term Loans were 2.96% per annum and 2.25% per annum as of September 30, 2017 and
September 30, 2016, respectively.
The Company may prepay up to $8,750,000 of the Met 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 if the Company elects to do so. There have been
no additional optional prepayments after calendar year 2015. The Met Variable-Rate Term Loans may be prepaid without penalty.
The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 165 basis points, payable quarterly. The LIBOR spread was adjusted
by the lender on May 1, 2017 and is subject to further adjustment 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 needs. The variable interest rate was 2.96% per annum and 2.25% per annum
as of September 30, 2017 and September 30, 2016, respectively. Availability under the RLOC was $25,000,000 as of September 30, 2017.
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 2.99% per annum and 2.27% per annum as of September 30, 2017 and September 30, 2016, respectively. The WCLC
agreement was amended on September 6, 2017, and the primary terms of the amendment were an extension of the maturity to November 1,
2019. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately $59,700,000 as
of September 30, 2017.
56
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.
Commitment fees to date have been charged at 20 basis points.
There was no outstanding balance on the WCLC as of September 30, 2017. 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, 2017, there was approximately $10,300,000 in outstanding
letters of credit, which correspondingly reduced the Company's availability under the line of credit. In October 2017, Rabo issued two
additional letter of credits aggregating approximately $153,000.
In 2014, 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, are being 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 $1,656,000 and $1,965,000 at
September 30, 2017 and 2016, respectively.
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
Statement of Operations for the fiscal year ended September 30, 2015.
The credit facilities 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 $162,300,000 for the year ending September 30, 2017, (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, 2017, the Company was in compliance with these financial covenants.
Credit facilities also include a Met Life term loan collateralized by real estate owned by Citree ("Met Citree Loan"). This is a $5,000,000
credit facility that bears interest at a fixed rate of 5.28% 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 $49,000 at September 30, 2017.
Silver Nip Citrus Debt
There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum ("Pru Loans A
& B"). 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 and mature June 1, 2033.
Silver Nip Citrus entered into two additional 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 (Pru Loan E"), while the other bears interest at 3.45% per annum ("Pru Loan
F"). The interest rate on Pru Loan E 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. Pru Note E matures September 1, 2021, and Pru Note F matures September 1,
2039.
The Silver Nip Citrus credit agreements were amended on December 1, 2016. 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 provided by George Brokaw, Remy W.
Trafelet and Clayton Wilson prior to the Company’s merger with Silver Nip Citrus, and also totaling $8,000,000, were released and (3) the
consolidated current ratio covenant requirement, measured on an annual basis, was reduced from 1.50 to 1.00 to 1.00 to 1.00. Silver Nip
Citrus was in compliance with the current ratio covenant as of September 30, 2017, the most recent measurement date.
57
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, which is included in
other (expense) income on the Consolidated Statements of Operations.
The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately $325,000 at September 30,
2017.
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, 2017.
Other Modifications of Rabo and Prudential Credit Agreements
In February 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.
The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization, at September 30,
2017 and September 30, 2016:
September 30, 2017
September 30, 2016
Principal
Deferred Financing
Costs, Net
Principal
Deferred Financing
Costs, Net
(in thousands)
Long-term debt, net of current portion:
Met Fixed-Rate Term Loans
Met Variable-Rate Term Loans
Met Citree Term Loan
Pru Loans A & B
Pru Loan E
Pru Loan F
John Deere equipment loan
Less current portion
Long-term debt
$
$
99,062 $
49,594
5,000
23,030
4,895
4,895
—
186,476
4,550
181,926 $
58
954 $
439
49
258
25
42
—
1,767
—
1,767 $
105,312 $
52,469
5,000
24,190
5,115
5,115
18
197,219
4,493
192,726 $
1,080
497
53
274
32
44
—
1,980
—
1,980
The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization, at September 30,
2017 and September 30, 2016:
Lines of Credit:
RLOC
WCLC
Lines of Credit
September 30, 2017
September 30, 2016
Principal
Deferred Financing
Costs, Net
Principal
Deferred Financing
Costs, Net
(in thousands)
$
$
— $
—
— $
109 $
153
262 $
5,000 $
—
5,000 $
159
230
389
Future maturities of long-term debt as of September 30, 2017 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
Interest costs expensed and capitalized were as follows:
(in thousands)
Interest expense
Interest capitalized
Total
Note 5. Inventories
$
$
4,550
8,400
10,962
14,990
10,755
136,819
186,476
Fiscal Year Ended September 30,
2016
2017
2015
$
$
9,141 $
294
9,435 $
9,893 $
172
10,065 $
8,366
345
8,711
Inventories consist of the following at September 30, 2017 and September 30, 2016:
(in thousands)
Unharvested fruit crop on the trees
Beef cattle
Citrus tree nursery
Other
Total inventories
September 30,
2017
2016
32,145 $
1,954
—
2,105
36,204 $
52,204
783
3,090
2,392
58,469
$
$
In September 2017, the State of Florida’ citrus business, including the Company’s unharvested citrus crop, were significantly impacted by
Hurricane Irma. The impact of Hurricane Irma resulted in the premature drop of unharvested fruit and damage to
59
citrus trees, which we expect to impact future fruit production until such time as the citrus trees recover. We anticipate future fruit
production to be impacted in the 2017/2018 and, potentially, the 2018/2019 harvest seasons. The Company undertook a process to estimate
the amount of inventory casualty loss as of the date of Hurricane Irma. Such process included a number of factors including: (1) touring all
of the citrus groves by operational personnel to assess the estimated fruit drop by grove and the impact of damage to the citrus trees; (2)
consideration of independent estimates of the reduced citrus production for the State of Florida; and (3) an estimate of fruit the Company
expects to produce for the 2017/2018 harvest season after Hurricane Irma. As a result, the Company recorded a casualty loss to reduce the
carrying value of unharvested fruit crop on trees inventory by approximately $13,489,000. While the Company believes the recorded loss
to be its best estimate at this time, additional impairment could result based on the results of the 2017/2018 harvest season. The Company
maintains crop insurance and is working closely with its insurers and adjusters to evaluate and determine the amount of insurance
recoveries, if any, the Company may be entitled to. The amount of insurance recoveries, if any, will be recorded in the period in which such
recoveries are both probable and reasonably estimable.
After determining and applying the amount of loss due to shrinkage to the inventory value, the Company evaluated the remaining inventory
and determined an additional reduction was necessary in the amount of $1,199,000 to properly reflect the net realizable value of such
inventory at September 30, 2017.
The Company reclassified the citrus tree nursery inventory to property and equipment during fiscal 2017.
Note 6. Assets Held For Sale
During fiscal 2017, in accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been
classified as assets held for sale as of September 30, 2017:
(in thousands)
Description
Office Building
Nursery - Gainsville
Chancey Bay
Gal Hog
Breeding Herd
Trailers
Total Assets Held For Sale
Carrying Value
3,214
6,500
4,179
70
5,858
1,162
20,983
$
$
Negotiations with interested parties for some of these assets have already taken place and during October 2017 the Company has sold its
corporate office building in Ft. Myers (see Note 19. “Subsequent Event”). The only classes of assets and liabilities comprising the balance
of the assets held for sale relate to Property & Equipment.
No assets were held for sale as of September 30, 2016.
The Company recorded an impairment loss of approximately $4,131,000 during fiscal year 2017 on these assets classified as assets held for
sale as of September 30, 2017. For the year ended September 30, 2015, the Company recorded an impairment of approximately $541,000
on property classified as assets held for sale. These impairments are included in operating expenses on the Consolidated Statements of
Operations.
60
Note 7. Property and Equipment, Net
Property and equipment, net consists of the following at September 30, 2017 and September 30, 2016:
(in thousands)
Citrus trees
Equipment and other facilities
Buildings and improvements
Breeding herd
Total depreciable properties
Less: accumulated depreciation and depletion
Net depreciable properties
Land and land improvements
Net property and equipment
September 30,
2017
2016
258,949 $
54,592
8,835
—
322,376
(82,443 )
239,933
109,404
349,337 $
253,665
59,355
21,780
10,921
345,721
(83,122 )
262,599
116,648
379,247
$
$
On February 2, 2017, the Company sold 49 acres of land and facilities in Hendry County, Florida, to its former tenant for $2,200,000,
resulting in a gain of approximately $1,400,000 which is included in gain on sale of real estate on the Consolidated Statement of Operations
for the year ended September 30, 2017.
During the fiscal year ended September 30, 2017, the Company recorded impairments aggregating to approximately $5,215,000 on certain
mines located within their properties and other property and equipment related to the Company's decision to phase out its operation at one
of its nurseries. These impairments are included in operating expenses on the Consolidated Statement of Operations for the year ended
September 30, 2017.
Note 8. Accrued Liabilities
Accrued Liabilities consist of the following at September 30, 2017 and September 30, 2016:
(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
Accrued insurance
Other accrued liabilities
Total accrued liabilities
Note 9. Deferred Gain on Sale
September 30,
2017
2016
2,648 $
1,165
1,320
—
494
315
166
673
6,781 $
2,736
1,135
964
710
498
342
—
535
6,920
$
$
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.
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 Statements of Operations for the fiscal year ended September 30, 2015.
61
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
2017 and 2016, the Company made payments of $1,580,000 and $1,702,000, 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 2016 sugar price remained below the threshold and
therefore none of the amount advanced in 2016 will be returned to the Company. The Company has recognized approximately $1,413,000
and $1,406,000 in interest expense and approximately $538,000 and $618,000 of the deferred gain for the fiscal years ended September 30,
2017 and 2016, respectively.
Deferred gain on sale consists of the following at September 30, 2017 and September 30, 2016:
(in thousands)
Deferred gain on sale
Annual guarantee payment, net
Total deferred gain on sale
September 30,
2017
2016
$
$
27,482 $
(1,042 )
26,440 $
28,440
(1,236 )
27,204
Estimated payments over the remaining term of the post-closing agreement are summarized in the following table.
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Total
$
$
1,924
2,561
2,992
3,346
3,725
18,696
33,244
These estimated payments represent undiscounted cash flows.
Note 10. Fair Value Measurements
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,
2017 and 2016, approximate their fair value because of the immediate or short term maturity of these financial instruments. 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. The
Company does have certain assets classified as Assets Held for Sale which have been recorded at the lower of carrying value or the
estimated fair value less costs to sell.
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:
62
•
•
•
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.
The following table represents certain assets held for sale as of September 30, 2017, which have been measured at fair value on a non-
recurring basis (see Note 6. for complete listing of assets held for sale):
Nursery - Gainsville
Chancey Bay
Trailers
Fair Value Hierarchy Carrying Value
Level 3
Level 3
Level 3
$
$
$
10,107 $
4,587 $
1,278 $
Adjustment to Fair
Value
3,607 $
408 $
116 $
Fair Value
6,500
4,179
1,162
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, 2017 and 2016.
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 4.08% and 4.30%
as of September 30, 2017 and 2016, respectively.
Note 11. Common Stock and Options
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 Company’s 2015 Plan provides for grants to executives in various forms including restricted shares of the Company’s
common stock and stock options. 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.
Restricted Stock
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.
63
A summary of the status of the Company’s nonvested shares is as follows:
Nonvested Shares
Nonvested Shares at September 30, 2014
Granted during fiscal 2015
Vested during 2015 fiscal
Forfeited during fiscal 2015
Nonvested Shares at September 30, 2015
Granted during fiscal 2016
Vested during 2016 fiscal
Forfeited during fiscal 2016
Nonvested Shares at September 30, 2016
Granted during fiscal 2017
Vested during fiscal 2017
Forfeited during fiscal 2017
Nonvested Shares at September 30, 2017
Shares
—
12,500 $
—
—
12,500 $
—
(2,333 ) $
—
10,267 $
—
(4,933 ) $
—
5,334 $
Weighted-Average Grant
Date Fair Value
—
49.49
—
—
49.49
—
49.50
—
49.49
—
49.58
—
49.39
Stock compensation expense related to the Restricted Stock totaled approximately $264,000 and $150,000 for the fiscal year ended
September 30, 2017 and 2016, respectively.
There was approximately $149,000 and $413,000 of total unrecognized stock compensation costs related to nonvested stock compensation
for the Restricted Stock grants at September 30, 2017 and 2016, respectively. The unrecognized stock compensation will be fully expensed
in fiscal year ended September 2018.
Stock Options
A stock option grant of 300,000 options in the case of Mr. Trafelet and 225,000 options in the case of each of Messrs. Slack and Brokaw
(collectively, the “Option Grants”) were granted on December 31, 2016. The option price was set at $27.15, the closing price on December
31, 2016. The Option Grants will vest as follows: (i) 25% of the options will vest if the price of the Company’s common stock during a
consecutive 20-trading day period exceeds $60.00; (ii) 25% of the options will vest if such price exceeds $75.00; (iii) 25% of the options
will vest if such price exceeds $90.00; and (iv) 25% of the options will vest if such price exceeds $105.00. If the applicable stock price
hurdles have not been achieved by (A) the second anniversary of the Executive’s termination of employment, if the Executive’s
employment is terminated due to death or disability, (B) the date that is 18 months following the Executive’s termination of employment, if
the Executive’s employment is terminated by the Company without cause, by the Executive with good reason, or due to the Executive’s
retirement, or (C) the date of the termination of the Executive’s employment for any other reason, then any unvested options will be
forfeited. In addition, if the applicable stock price hurdles have not been achieved by the fifth anniversary of the grant date (or the fourth
anniversary of the grant date, in the case of the tranche described in clause (i) above), then any unvested options will be forfeited. The
Option Grants will also become vested to the extent that the applicable stock price hurdles are satisfied in connection with a change in
control of the Company. As of September 30, 2017, the Company’s stock was trading at $34.15 per share and during fiscal 2017 the stock
did not trade above $34.45 per share; accordingly, none of the stock options are vested at September 30, 2017.
Balance - September 30, 2016
Granted during fiscal 2017
Forfeitures/expired in fiscal 2017
Exercised during fiscal 2017
Balance - September 30, 2017
Number of
Options
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
—
750,000 $
—
—
750,000 $
64
—
3.53
—
—
3.53
—
3.33
—
—
2.58
—
—
—
—
—
Stock compensation expense related to the options totaled approximately $616,000 for the fiscal year ended September 30, 2017. No stock
compensation expense related to options was recorded for the fiscal year ended September 30, 2016.
At September 30, 2017 there was approximately $2,030,000 to total unrecognized stock compensation costs related to nonvested share-
based compensation for the option grants.
The fair value of the Option Grants was estimated on the date of grant using a Monte Carlo valuation model that uses the assumptions
noted in the following table. The expected term of options granted is derived from the output of the option valuation model and represents
the period of time that options granted are expected to be outstanding; the range given below results from different time-frames for the
various market conditions being met.
Expected Volatility
Expected Term (in years)
Risk Free Rate
32.19 %
2.6 - 4.0
2.45 %
The weighted-average grant-date fair value of the Option Grants was $3.53. There were no additional stock options granted, exercised or
forfeited for the fiscal year ended September 30, 2017.
As of September 30, 2017, there were 487,500 common shares available for issuance under the 2015 Plan.
Note 12. Treasury Stock
In fiscal year 2017, the Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock in two separate
authorizations (the "2017 Authorization"). In March 2017, our Board of Directors authorized the repurchase of up to $5,000,000 of the
Company’s common stock beginning March 9, 2017 and continuing through March 9, 2019. In May 2017, our Board of Directors
authorized the repurchase of up to an additional $2,000,000 of the Company’s common stock beginning May 24, 2017 and continuing
through May 24, 2019. The stock repurchases made under this repurchase 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.
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. 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"). 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 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, 2017, 2016 and 2015:
(in thousands, except share amounts)
Fiscal Year Ended September 30,:
2017
2016
2015
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
104,145 $
78,446 $
91,554 $
65
29.42
40.04
43.83
650,140 $
545,995 $
467,549 $
3,064
3,141
4,013
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, 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
Purchased
Issued to Employees and Directors
Balance at September 30, 2017
Note 13. Income Taxes
15,766 $
91,554
(16,755)
90,565
78,446
(35,478)
(32,923)
100,610
104,145
(27,440)
177,315 $
650
4,013
(701)
3,962
3,141
(1,035)
(1,483)
4,585
3,064
(1,147)
6,502
The provision (benefit) for income tax for the years ended September 30, 2017, 2016 and 2015 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 (benefit) for income taxes
Fiscal Year Ended September 30,
2016
2017
2015
102 $
—
102
(3,286)
(662)
(3,948)
(3,846) $
244 $
—
244
4,538
739
5,277
5,521 $
(1,348)
(98)
(1,446)
10,432
1,919
12,351
10,905
$
$
66
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
Expiration of capital loss carryover
Other
Total provision (benefit) for income taxes
Fiscal Year Ended September 30,
2016
2017
2015
(4,670) $
4,382 $
9,335
(402)
548
581
97
(3,846) $
457
773
—
(91)
5,521 $
1,279
280
—
11
10,905
$
$
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, 2017, and 2016 are presented below:
(in thousands)
Deferred tax assets:
Deferred retirement benefits
Inventories
Alico-Agri, Ltd. outside basis differences
Goodwill
Deferred gain recognition
Capital loss carryforwards
Alternative minimum tax credits
Net operating losses
Intangibles
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,
2017
2016
1,712 $
6,435
—
33,233
10,601
9,462
293
3,160
1,027
158
66,081
—
91,995
950
220
24
93,189
1,620
912
474
36,217
10,964
9,702
197
5,844
763
3
66,696
282
95,149
1,908
331
82
97,752
$
(27,108 ) $
(31,056 )
As of September 30, 2017, the Company has approximately $8,000,000 federal and approximately $10,100,000 state income tax net
operating loss (NOL) carryforwards. The Federal NOL's of approximately $3,600,000 will expire in 2024 and approximately $4,400,000 in
2025. The State NOL’s of approximately $3,600,000 will expire in 2024 and approximately $6,500,000 in 2025. As of September 30, 2017,
the Company has approximately $24,600,000 of capital losses, which will expire 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, has not provided a valuation
allowance on the deferred tax assets related to these NOL and capital loss carryforwards.
67
Note 14. Segment Information
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. The Company’s CODM assesses
performance and allocates resources based on three operating segments: Alico Citrus (formerly Orange Co.), Conservation and
Environmental Resources and Other Operations.
Total revenues represent sales to unaffiliated customers, as reported in the Consolidated Statements of Operations. 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.
Information by operating segment is as follows:
(in thousands)
Revenues:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total revenues
Operating expenses:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total operating expenses
Gross profit (loss):
Alico Citrus
Conservation and Environmental Resources
Other Operations
Total gross profit (loss)
Capital expenditures:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Other Capital Expenditures
Total capital expenditures
Depreciation, depletion and amortization:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Other Depreciation, Depletion and Amortization
Total depreciation, depletion and amortization
Fiscal Year Ended September 30,
2017
2016
2015
123,441 $
4,793
1,595
129,829
137,282 $
5,669
1,245
144,196
111,947
8,814
138
120,899
102,347
6,393
397
109,137
11,494
(4,021)
1,457
8,930 $
11,738 $
646
—
969
13,353 $
14,054 $
585
67
520
15,226 $
34,935
(724)
848
35,059 $
10,393 $
1,664
629
1,619
14,305 $
13,982 $
456
476
468
15,382 $
146,147
5,394
1,585
153,126
110,777
4,808
2,083
117,668
35,370
586
(498)
35,458
9,403
1,461
162
497
11,523
12,297
1,275
471
689
14,732
$
$
$
$
$
$
68
(in thousands)
Assets:
Alico Citrus
Conservation and Environmental Resources
Other Operations
Other Corporate Assets
Total Assets
Note 15. Employee Benefits Plans
Management Security Plan
September 30,
2017
2016
$
$
387,972 $
13,845
10,974
6,391
419,182 $
410,663
13,073
22,050
9,659
455,445
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. 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 4.08% and 4.30% in fiscal years 2017 and 2016, 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 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,
2016
2017
2015
$
$
200 $
140
(78)
262 $
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,
2017
2016
$
$
$
4,543 $
200
140
(367 )
(78 )
4,438 $
4,476
213
210
(351 )
(5 )
4,543
(4,438 ) $
(4,543 )
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, $357,000, $160,000, $192,000, and $192,000 for the five-year period thereafter is an
aggregate of $1,249,000.
69
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, 2017, the Rabbi Trust had no assets, and no change of control
had occurred.
Profit Sharing and 401(k) Plans
The Company maintains a 401(k) employee savings plan for eligible employees, which provides up to a 4% matching contribution payable
on employee payroll deferrals. The Company’s matching funds vest to the employee immediately, pursuant to a safe harbor election
effective in October 2012. The Company’s contribution to the plan was approximately $445,000, $401,000 and $360,000 for the fiscal
years 2017, 2016 and 2015, 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 paid contribution to the Profit Sharing Plan was $378,000, $291,000, and $165,000 for the fiscal years
ended September 30, 2017, 2016 and 2015, respectively.
Note 16. Related Party Transactions
Clayton G. Wilson
The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”),
the Company’s Chief Executive Officer, pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the Company effective
as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he will continue
to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting
Agreement provides that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr.
Wilson will be entitled to vesting of any unvested portion of the restricted stock award granted to him under his Employment Agreement.
In addition, the Separation and Consulting Agreement provides that Mr. Wilson will serve as a consultant to the Company during 2017 and
will receive an aggregate consulting fee of $750,000 for such services (payable $200,000 in an initial lump sum, $275,000 in a lump sum
on July 1, 2017, and $275,000 in six equal monthly installments commencing July 31, 2017 and ending December 31, 2017). If the
Company terminates the consulting period for any reason, it will continue to pay the consulting fees described in the immediately preceding
sentence, subject to Mr. Wilson’s continued compliance with the restrictive covenants set forth in his employment agreement. As of
September 30, 2017 the Company satisfied its obligation to Mr. Wilson in full. The Company expensed $562,500 for the fiscal year ended
September 30, 2017. Mr. Wilson resigned as a member of the Company’s Board of Directors effective February 27, 2017.
Remy W. Trafelet, Henry R. Slack, and George R. Brokaw
On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with each
of Remy W. Trafelet, Henry R. Slack, and George R. Brokaw (collectively, the “Executives”). Mr. Trafelet serves as the President and
Chief Executive Officer of the Company, Mr. Slack serves as the Executive Chairman of the Company, and Mr. Brokaw serves as the
Executive Vice Chairman of the Company, and each of them continues to serve on the Company’s Board of Directors. The Employment
Agreements provide for an annual base salary of $400,000 in the case of Mr. Trafelet and $250,000 in the case of each of Messrs. Slack
and Brokaw and, additionally, provided for payment to the Executives an amount in cash equal to $400,000 to Mr. Trafelet and $250,000 to
each of Messrs. Slack and Brokaw within five business days of December 31, 2016.
The Employment Agreements also provide that, if the applicable Executive’s employment is terminated by the Company without “cause”
or the applicable Executive resigns with “good reason” (as each such term is defined in the Employment Agreements), then, subject to his
execution, delivery, and non-revocation of a general release of claims in favor of the Company, the Executive will be entitled to cash
severance in an amount equal to 24 months (in the case of Mr. Trafelet) or 18 months (in the case of Messrs. Slack and Brokaw) of the
Executive’s annual base salary.
The Employment Agreement includes various restrictive covenants in favor of the Company, including a confidentiality covenant, a
nondisparagement covenant, and 12-month post-termination noncompetition and customer and employee nonsolicitation covenants.
As of June 26, 2017, both Messrs. Slack and Brokaw have agreed to waive payment of their salary.
70
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 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, 2017 and 2016 the Company incurred approximately $0 and $85,000 in professional and legal
costs in connection with the Merger. These costs are included in general and administrative expenses in the Consolidated Statements of
Operations for the fiscal year ended September 30, 2017 and 2016, 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 $0, $167,000 and $1,000,000 under the Consulting and Non-Competition Agreement for the fiscal
years ended September 30, 2017, 2016 and 2015.
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 paid Mr. Smith $925,000 for such services and covenants. The Company
expensed approximately $100,000, $200,000 and $625,000 under the Consulting and Non-Competition Agreement for fiscal years ended
September 30, 2017, 2016 and 2015, respectively.
71
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 $0, $238,000 and $268,000 under the Separation and Consulting Agreement for the fiscal years ended September 30, 2017,
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.
Mr. Humphrey resigned as Senior Vice President and Chief Accounting Officer and as an employee of the Company effective April 3,
2017.
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
$592,000. The agreement will expire in May 2018. The Company expensed approximately $564,000, $479,000 and $379,000 under the
Shared Services Agreement for the fiscal years ended September 30, 2017, 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 $725,000, $667,000, and $649,000 for the years ended September 30, 2017, 2016 and 2015,
respectively.
The future minimum annual rental payments under non-cancelable operating leases are as follows:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Total
Purchase Commitments
$
$
419
165
165
169
175
14
1,107
During fiscal 2017, the Company entered into contracts to purchase citrus trees, which are anticipated to be delivered in fiscal 2018. As of
September 30, 2017, the Company had approximately $1,082,000 relating to outstanding commitments for these purchases that will be paid
upon delivery of the citrus trees.
Letters of Credit
The Company has outstanding standby letters of credit in the total amount of approximately $10,300,000 and $10,234,000 at September 30,
2017 and September 30, 2016, respectively, to secure its various contractual obligations. In October 2017, the
72
Company executed two additional standby letter of credits associated with leasing of space at the Ft. Myers office aggregating
approximately $153,000.
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.
73
Note 18. Selected Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the fiscal years ended September 30, 2017, and 2016 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)
December 31,
2015
2016
March 31,
June 30,
2017
2016
2017
2016
September 30,
2017
2016
Fiscal Quarter Ended
Total operating revenue
Total operating expenses
$ 17,445 $ 20,604 $ 56,200 $ 71,889 $ 51,518 $ 46,853 $
14,692
19,238
41,684
52,374
36,510
33,170
4,666 $ 4,850
4,355
28,013
Gross profit
2,753
1,366
14,516
19,515
15,008
13,683
(23,347)
495
General and administrative
Other (expense) income, net
3,788
(1,981)
3,925
(2,535)
3,399
(912)
2,849
(1,840)
3,709
(2,162)
2,747
(2,874)
4,128
(2,193)
3,692
(2,117)
Income (loss) before income taxes
Income tax expense (benefit)
(3,016)
(1,273)
(5,094)
(2,075)
10,205
4,321
14,826
6,102
9,137
3,665
8,062
3,392
(29,668)
(10,559)
(5,314)
(1,898)
Net income (loss)
$ (1,743) $ (3,019) $
5,884 $ 8,724 $ 5,472 $ 4,670 $
(19,109) $ (3,416)
Net loss attributable to noncontrolling
interests
Net income (loss) attributable to
Alico Inc. common stockholders
Earnings per share:
Basic
Diluted
8
8
(51)
10
7
11
81
5
$ (1,735) $ (3,011) $
5,833 $ 8,734 $ 5,479 $ 4,681 $
(19,028) $ (3,411)
$
$
(0.21) $
(0.21) $
(0.36) $
(0.36) $
0.70 $
0.70 $
1.05 $
1.05 $
0.66 $
0.66 $
0.56 $
0.56 $
(2.29) $
(2.29) $
(0.41)
(0.41)
Note - Total operating expenses for the fiscal quarter ended September 30, 2017 include an inventory casualty loss and net realizable value
adjustment of approximately $14,688,000 and impairments of long-lived assets of approximately $9,346,000. (See Notes 5. “Inventories”,
Note 6. “Assets Held For Sale” and Note 7. “Property and Equipment, Net” for further information).
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 October 30, 2017, the Company sold its corporate office building in Fort Myers, Florida for $5,300,000. The building is classified as an
Asset Held for Sale in the accompanying Consolidated Balance Sheet at September 30, 2017. The sales agreement provides that the
Company will lease back a portion of the office space for five years.
74
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, 2017, 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, 2017. 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, 2017. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal
control over financial reporting as of September 30, 2017 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.
75
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.
76
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)
Documents filed as part of this
report
(1)
Financial
Statements:
Our Consolidated 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 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
77
Exhibit
Number
2.1
2.2
3.1
3.2
3.3
3.4
3.5
10.0
10.1
10.2
10.3
10.4
10.5
10.7
10.8
10.8
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
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)
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 (incorporated by reference to Exhibit 10.10 of Alico’s filing on Form 10-K dated
December 12, 2014)
Credit agreement with Rabobank Agri-Finance (incorporated by reference to Alico’s filing on Form 8-K dated
September 8, 2010)
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)
Fifth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated April 28, 2014 (incorporated by
reference to Exhibit 10.11 of Alico’s filing on Form 10-K dated December 12, 2014)
Sixth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated July 1, 2014 (incorporated by
reference to Exhibit 10.12 of Alico’s filing on Form 10-K dated December 12, 2014)
*** 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)
10.1
*** Credit Agreement dated as of December 1, 2014, by and between Alico, Inc., Alico-Agri, Ltd., Alico Plant
10.11
10.12
10.13
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)
78
10.14
10.15
10.60
10.17
10.18
10.19
10.2
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
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)
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 (incorporated by reference to
Exhibit 10.33 of Alico's filing on Form 10-K dated December 6, 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 (incorporated by reference to Exhibit 10.34 of Alico's filing
on Form 10-K dated December 6, 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.)
(incorporated by reference to Exhibit 10.35 of Alico's filing on Form 10-K dated December 6, 2016)
79
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38
10.39
21.0
23.0
31.1
31.2
32.1
32.2
101
Employment Agreement dated June 1, 2015 between Alico, Inc. and John Kiernan (incorporated by reference
to Exhibit 10.1 of the Company’s Form 8-K filed with the Commission on June 1, 2015)
Separation and Consulting Agreement dated December 31, 2016 between Alico, Inc. and Clayton G. Wilson
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Commission on January
4, 2017)
Employment Agreement dated December 31, 2016 between Alico, Inc. and Remy W. Trafelet (incorporated
by reference to Exhibit 10.2 of the Company’s Form 8-K filed with the Commission on January 4, 2017)
Employment Agreement dated December 31, 2016 between Alico, Inc. and Henry R. Slack (incorporated by
reference to Exhibit 10.3 of the Company’s Form 8-K filed with the Commission on January 4, 2017)
Employment Agreement dated March 27, 2013 between Alico, Inc. and George R. Brokaw (incorporated by
reference to Exhibit 10.4 of the Company’s Form 8-K filed with the Commission on January 4, 2017)
Offer of Employment Letter dated June 16, 2017 between Richard Rallo and Alico, Inc. (incorporated by
reference to Exhibit 10.1 of the Company’s Form 8-K filed with the Commission on August 7, 2017)
Fourth 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 6, 2017
Second 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 6, 2017
Subsidiaries of the Registrant
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
101.INS
**
101.SCH **
101.CAL **
**
101.DEF
101.LAB
101.PRE
*
**
***
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
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.
80
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 11, 2017
ALICO, INC. (Registrant)
By:
/s/ Remy W. Trafelet
Remy W. Trafelet
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 11, 2017
President and Chief Executive Officer
December 11, 2017
Chief Financial Officer and Executive Vice President
December 11, 2017
Chairman of the Board, Director
December 11, 2017
Director
December 11, 2017
Director
December 11, 2017
Director
December 11, 2017
Director
December 11, 2017
Director
81
:
:
:
:
:
:
:
:
/s/ Remy W. Trafelet
Remy W. Trafelet
/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/ Joseph S. Sambuco
Joseph S. Sambuco
RESTATED CERTIFICATE OF INCORPORATION
(As of February 17, 1972)
OF
ALICO LAND DEVELOPMENT COMPANY
Exhibit 3.1
Pursuant to Section 608.061, Florida Statutes, the provisions of the Certificate of Incorporation of, Alice Land Development
Company in effect as of this date are hereby restated and integrated into this single instrument. The original certificate was filed
with the Florida Department of State on February 1, 1960, and the Corporation's name has not been changed since that time.
The restated certificate was duly adopted by the Board of Directors of the Corporation and only restates and integrates without
further amending the provisions of the Corporation's Certificate of Incorporation as heretofore amended, and there is no
discrepancy between those provisions and the provisions of this restated certificate except as permitted by Section 608.061(2).
Article 1. The name of the corporation shall be ALICO LAND
DEVELOPMENT COMPANY, and its principal place of business is at 500 West Water Street, Jacksonville, Florida .
Article 2. The purposes for which the corporation is formed are to acquire by purchase, gift, or otherwise, and to hold, real estate; to build improvements
thereon; to sell, lease, or otherwise convey the same; to operate or manage farms, ranches, timber lands, saw mills; and
generally to do
.
all things which pertain to the real estate business, farming or timber business; to engage in, at retail or at wholesale, any lawful business
which may be beneficial to or convenient in the operation and function of the corporation; to purchase and acquire any other business or
businesses, or any interest therein, and to
pay for the same in cash or in shares or debentures of this corporation, or partly in one of such modes and partly in the other or others;
to borrow or raise money by the issuance of bonds, debentures, bills of exchange, promissory notes, or other obligations or securities of
the Company, or by mortgage or in such other manner as the Directors may deem proper; to invest the monies of the corporation not
immediately required by it in such manner as the Board of Directors may deem proper; to do any and everything else which in the
opinion of the Board of Directors is necessary, convenient or beneficial to the corporation, the above and foregoing statements are of the
general nature of the business of this corporation and shall not be construed as a limitation of the rights granted by the general
incorporation laws of the State of Florida, but merely in addition thereto.
Article 3. The aggregate number of shares of all classes of capital stock which the Company shall have authority to issue is 6,000,000 shares, which shall
be divided, into two classes as follows,
1,000,000 shares of Preferred Stock without par value, and
5,000,000 shares of Common Stock of a par value of $1 per share.
The preferences, limitations and voting rights and relative rights in respect of the shares of each of the above classes are as follows,
A. Preferred Stock.
1. Shares of Preferred Stock may be issued in one or more series at such time or times, and for such consideration or considerations, as the Board
of Directors may determine. All shares of any one series of Preferred Stock shall be identical with each other in all respects except that shares of any
one series issued at different times may differ as to dates from which dividends thereon may be cumulative. All series shall rank equally and be
identical in all respects, except as permitted by the following provisions of paragraph 2.
2. The Board of Directors is expressly
authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series with such designations,
preferences and relative participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be stated and
expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, and as are not stated and expressed in these
Articles of Incorporation or any amendment thereto including, but not limited to, determination of any of the followings
(a)
(b)
the distinctive serial designation and the number of shares constituting a series;
the dividend rate or rates, whether dividends shall be cumulative and, if so, from which date, the payment date or dates
for dividends, and the participating or other special rights, if any, with respect to dividends;
the voting powers, full or limited, if any, of the shares of such seriei3;
whether the shares shall be redeemable and, if so, the price or prices at which, and the terms and conditions on which, the shares may
(c)
(d)
be redeemed.
(e)
the amount or amounts payable upon the shares in the event of voluntary or involuntary liquidation, dissolution or winding up of the
Company prior to any payment or distribution of the assets of the Company to any class or classes of stock of the Company ranking junior to
the
.
Preferred Stock;
(f)
whether the shares shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of shares of
a series and, if so entitled, the amount of such fund and the manner of its application, including the price or prices at which the shares may be redeemed
or purchased through the application of such fund;
(g)
whether the shares shall be convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same
or any other class or classes of stock of the Company and, if so convertible or exchangeable, the conversion
price or prices, or the rates of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange; and
and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board
(h) any other preferences, privileges
of Directors may deem
advisable and as shall not be inconsistent with the provisions of these Articles of Incorporation.
3. Before any dividends on any class or classes of stock of the Company ranking junior to the Preferred Stock (other than dividends payable in
shares of any class or classes of stock of the Company ranking junior to the Preferred Stock) shall be declared or paid or set apart for payment, the
holders of shares of Preferred Stock of each series shall be entitled to such cash dividends, but only when and as declared by the Board of Directors out
of fund legally available therefor, as they may be entitled to in accordance with the resolution or resolutions adopted by the Board of Directors
providing for the issue of such series, payable on such dates as may be fixed in such resolution or resolutions in each year. The term 'class or classes of
stock of the Company ranking junior to the Preferred Stock' shall mean the Common Stock and any other class or classes of stock of the Company
hereafter authorized
which shall rank junior to the Preferred Stock as to dividends or upon liquidation.
4.
Shares of Preferred Stock which have been issued and reacquired in any manner by the Company (excluding, until the Company elects to
retire them, shares which are held as treasury shares but including shares redeemed, shares purchased and retired and shares which have been converted
into shares of Common Stock) shall have the status of authorized and unissued shares of Preferred Stock and may be reissued.
B. Common Stock.
1.
Subject to the preferential rights of the Preferred Stock, the holders of the Common Stock shall be entitled to receive, to the extent
permitted by law, such dividends as may be declared from time to time by the Board of Directors.
2.
In the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding up of the Company, after distribution
in full of the preferential amount to be distributed to the holders of shares of the Preferred Stock, holders of the Common Stock shall be entitled to
receive all the remaining' assets of the Company, of whatever kind available for distribution to stockholders, ratably in proportion to the number of
shares of Common Stock held by them respectively.
3.
Except as may be otherwise required by law or these Articles of Incorporation, each holder of Common Stock shall have one vote in respect
of each share of stock held by him of record on the books of
the Company on all matters voted upon by the stockholders.
C. Preemptive Rights.
1. No holder of stock of the corporation of any class shall have any preemptive or preferential right to subscribe to purchase or
receive any shares of any class of stock of the corporation, whether now or hereafter authorized, or any notes, debentures, bonds or other
securities convertible into or carrying options or warrant, to purchase shares of any class of stock of the corporation issued or sold or
proposed to be issued or sold or with respect to which options or warrants shall be granted/ but all such shares of stock of any class or
notes, debentures, bonds or other securities convertible into or carrying options or warrants to purchase shares of any class may be issued
and disposed of or sold by the Board of Directors on such terms and for such consideration, so far as
may be permitted by law, and to such person or
persons ae the Board of Directors may determine.
Article 4. The amount of capital with which the corporation shall begin business shall be not less than $500.00.
Article 5. The corporation shall have perpetual existence, unless earlier terminated by proper legal procedure.
Article 6. The post office address of the principal office of the corporation shall be the City of Jacksonville, State of Florida.
Article 7. The number of Directors of this Company shall be fixed by, the by-laws of this Company but such number shall not at any time be less than
three nor more than fifteen.
The officers of the Corporation shall be such officers as shall be appointed in accordance with the By-Laws.
Article 8. In furtherance of and not in limitation of the powers conferred by statute, the Board of Directors of the corporation may, by the vote of a
majority of the whole Board, adopt, revoke, amend, or rescind the by-laws of the corporation.
The Board may, by the vote of a majority of those present at .any meeting fix the amount to be reserved from the capital of the
corporation as working capital/ authorize and cause to be executed mortgages and liens upon the real and personal property of the
corporation for the purpose of furnishing security for its indebtedness or for any other purpose.
The Directors shall have power, if the by-laws so provide, to hold their meetings either within or without. the State of Florida, and to provide one or
more offices in addition to the principal office in Florida, and to keep books of the corporation, subject to the provisions of the Statute, outside the State
of Florida, at such places as may from time to time be designated by them.
The corporation may, in its by-laws, confer powers additional to the foregoing upon the Directors, in addition to the powers and authorities expressly
conferred upon than by Statute.
The corporation reserves the right to amend, alter, change or repeal any provisions contained in these articles of incorporation, in the manner now or
hereafter prescribed by the Statute and all rights conferred on stockholders are granted subject to its reservations.
By a vote of a majority in interest of the shareholders present at any regular or called meeting,
the shareholders may adopt, revoke or amend by-laws, including any by-law adopted by the Directors.
IN WITNESS WHEREOF, I, the undersigned, have executed these Articles
for the uses and purposes therein stated thin 17th day of
February , 1972.
STATE OF FLORIDA COUNTY OF HENDRY
700 Riverview Drive
La Belle, Florida 33935
BEFORE ME, the undersigned authority, on this 17th
J. R. Spratt President
day of February , 1972 , personally appeared
J. R. SPRATT, to me well known to be the person described in and who signed the foregoing Articles of Incorporation, and acknowledged to me
that he executed the same freely and voluntarily, for the uses and purposes therein expressed.
WITNESS my hand and official anal, the date aforesaid.
NOTARY PUBLIC
/s/ Beatrice Boyle
My Commission Expires:
1,4017tRY /17I3C.
MY commiss10:1 k:),pirtlf oci. 22; 1976
OLHOIAL INSURAIIVE. ittb, MU.
Exhibit 10.38
FOURTH AMENDMENT TO CREDIT AGREEMENT
This FOURTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), is dated as of September
6, 2017, 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, that
certain Second Amendment to Credit Agreement dated as of July 16, 2015, that certain Third Amendment to Credit
Agreement dated as of September 30, 2016 and that certain Consent and Waiver Agreement dated as of December 20,
2016 (as may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement ”);
and
WHEREAS, Borrowers have requested that Lender amend the Credit Agreement to extend the Revolving
Credit Maturity Date to November 1, 2019; and
WHEREAS, Lender is willing to agree to the requested amendment 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.
Amendment to Credit Agreement . Section 1.1 of the Credit Agreement, Defined Terms , is hereby
modified and amended by deleting the definition of “Revolving Credit Maturity Date” set forth therein in its entirety
and inserting in lieu thereof the following:
““Revolving Credit Maturity Date” means November 1, 2019.”
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
1
ATL 22199056v4
Loan Documents. Except for the amendment 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, limited liability company or other similar 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 the legal, valid and binding obligations of each 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;
2
ATL 22199056v4
(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) the written consent of each of MetLife and New England Life Insurance Company to the
extension of the Revolving Credit Maturity Date;
(d) payment to Lender of a renewal fee in the amount of $25,000; and
(e) 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.
3
ATL 22199056v4
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.]
4
ATL 22199056v4
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:
ALICO, INC., a Florida corporation
By:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO-AGRI, LTD., a Florida limited partnership
By: Alico, Inc., a Florida corporation,
its General Partner
By:
Name: John E. Kiernan
Title: Chief Financial 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:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO FRUIT COMPANY, LLC , a Florida limited
liability company
By: Alico, Inc., a Florida corporation,
its Managing Member
By:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO LAND DEVELOPMENT INC. , a Florida
corporation
By:
Name: John E. Kiernan
Title: Chief Financial Officer
FOURTH AMENDMENT TO CREDIT AGREEMENT
S-5
ALICO CITRUS NURSERY, LLC , a Florida limited
liability company
By: Alico, Inc., a Florida corporation,
its Managing Member
By:
Name: John E. Kiernan
Title: Chief Financial Officer
GUARANTORS:
734 CITRUS HOLDINGS, LLC
By: ALICO, INC., as its sole member
By:
Name: John E. Kiernan
Title: Chief Financial Officer
734 HARVEST, LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
734 CO-OP GROVES, LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
734 LMC GROVES, LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
734 BLP GROVES, LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
FOURTH AMENDMENT TO CREDIT AGREEMENT
S-6
ALICO CHEMICAL SALES, LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO SKINK MITIGATION, LLC
By: Alico, Inc., its Manager
By:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO FRESH FRUIT LLC
By:
Name: John E. Kiernan
Title: Chief Financial Officer
LENDER:
RABO AGRIFINANCE LLC,
a Delaware limited liability company
By:
Name:
Title:
S-7
FOURTH AMENDMENT TO CREDIT AGREEMENT
FORM OF
SECOND RENEWAL PROMISSORY NOTE
PURSUANT TO F.S. 201.08, THIS SECOND RENEWAL PROMISSORY NOTE IS A RENEWAL OF THAT
CERTAIN RENEWAL PROMISSORY NOTE DATED AS OF SEPTEMBER 30, 2016 (THE “FIRST RENEWAL
NOTE”), AS SUCH FIRST RENEWAL NOTE RENEWED THAT CERTAIN PROMISSORY NOTE DATED AS OF
DECEMBER 1, 2014 PAYABLE TO 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, NOR WERE ANY ADDITONAL SUMS ADVANCED UNDER THE FIRST
RENEWAL NOTE AND NO PERSONS HAVE BEEN ADDED AS ADDITIONAL OBLIGORS PURSUANT TO THE
TERMS HEREOF. ACCORDINGLY, NO ADDITIONAL DOCUMENTARY STAMP TAXES ARE DUE AND
PAYABLE IN CONNECTION WITH THIS SECOND RENEWAL PROMISSORY NOTE. THE ORIGINAL NOTE
AND THE FIRST RENEWAL NOTE ARE ATTACHED HERETO.
$70,000,000.00 __________ __, 2017
SECOND RENEWAL PROMISSORY NOTE
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 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 , a Delaware limited
liability company (together with its successors and assigns, hereinafter “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 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, that certain Third
Amendment to Credit Agreement dated as of September 30, 2016, that certain Consent and Waiver Agreement dated as
of December
20, 2016 and by that certain Fourth 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 Bank under the Credit Agreement.
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 ]
ATL 22199056v4
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: John E. Kiernan
Title: Chief Financial Officer
ALICO-AGRI, LTD.,
a Florida limited partnership
By: Alico, Inc., a Florida corporation, its General Partner
By:
Name: John E. Kiernan
Title: Chief Financial 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:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO FRUIT COMPANY, LLC ,
a Florida limited liability company
By: Alico, Inc., a Florida corporation, its Managing Member
By:
Name: John E. Kiernan
Title: Chief Executive Officer
ALICO LAND DEVELOPMENT INC. ,
a Florida corporation
By:
Name: John E. Kiernan
Title: Chief Executive Officer
SECOND RENEWAL PROMISSORY NOTE
S-1
ALICO CITRUS NURSERY, LLC ,
a Florida limited liability company
By: Alico, Inc., a Florida corporation,
its Managing Member
By:
Name: John E. Kiernan
Title: Chief Executive Officer
SECOND RENEWAL PROMISSORY NOTE
S-2
SECOND RENEWAL PROMISSORY NOTE
Exhibit 10.39
PURSUANT TO F.S. 201.08, THIS SECOND RENEWAL PROMISSORY NOTE IS A RENEWAL OF THAT
CERTAIN RENEWAL PROMISSORY NOTE DATED AS OF SEPTEMBER 30, 2016 (THE “FIRST RENEWAL
NOTE”), AS SUCH FIRST RENEWAL NOTE RENEWED THAT CERTAIN PROMISSORY NOTE DATED AS OF
DECEMBER 1, 2014 PAYABLE TO 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, NOR WERE ANY ADDITONAL SUMS ADVANCED UNDER THE FIRST
RENEWAL NOTE AND NO PERSONS HAVE BEEN ADDED AS ADDITIONAL OBLIGORS PURSUANT TO THE
TERMS HEREOF. ACCORDINGLY, NO ADDITIONAL DOCUMENTARY STAMP TAXES ARE DUE AND
PAYABLE IN CONNECTION WITH THIS SECOND RENEWAL PROMISSORY NOTE. THE ORIGINAL NOTE
AND THE FIRST RENEWAL NOTE ARE ATTACHED HERETO.
$70,000,000.00 September 6, 2017
SECOND RENEWAL PROMISSORY NOTE
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 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 , a Delaware limited
liability company (together with its successors and assigns, hereinafter “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 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, that certain Third
Amendment to Credit Agreement
ATL 22303417v1
dated as of September 30, 2016, that certain Consent and Waiver Agreement dated as of December 20, 2016 and by
that certain Fourth 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 Bank under the Credit Agreement.
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 ]
ATL 22303417v1
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: John E. Kiernan
Title: Chief Financial Officer
ALICO-AGRI, LTD.,
a Florida limited partnership
By: Alico, Inc., a Florida corporation, its General Partner
By:
Name: John E. Kiernan
Title: Chief Financial 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:
Name: John E. Kiernan
Title: Chief Financial Officer
ALICO FRUIT COMPANY, LLC ,
a Florida limited liability company
By: Alico, Inc., a Florida corporation, its Managing Member
By:
Name: John E. Kiernan
Title: Chief Executive Officer
SECOND RENEWAL PROMISSORY NOTE
ALICO LAND DEVELOPMENT INC. ,
a Florida corporation
By:
Name: John E. Kiernan
Title: Chief Executive Officer
ALICO CITRUS NURSERY, LLC ,
a Florida limited liability company
By: Alico, Inc., a Florida corporation,
its Managing Member
By:
Name: John E. Kiernan
Title: Chief Executive Officer
SECOND RENEWAL PROMISSORY NOTE
SUBSIDIARIES OF ALICO, INC.
Exhibit 21.0
Name of Subsidiary State of Organization
Alico Land Development, Inc. Florida
Alico Fruit Company, LLC Florida
Alico-Agri, LTD. Florida
Alico Plant World LLC Florida
Alico Citrus Nursery, LLC Florida
734 Citrus Holdings, LLC Florida
734 LMC Groves, LLC Florida
734 BLP Groves, LLC Florida
734 CO-OP Groves LLC Florida
734 Harvest LLC Florida
Alico Chemical Sales LLC Florida
Alico Skink Mitigation LLC Florida
Alico Ranch LLC Florida
Alico Natural Resources LLC Florida
Alico Industries, Inc. Florida
Alico Merger Sub, Inc. Florida
Citree Holdings LLC Delaware
Exhibit 23.0
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Nos. 333-208673 and 333-188736) on
Form S-8 of Alico, Inc. of our reports dated December 11, 2017, relating to the consolidated financial statements, and
the effectiveness of internal control over financial reporting of Alico, Inc., appearing in this Annual Report on Form 10-
K of Alico, Inc. for the year ended September 30, 2017.
/s/ RSM US LLP
Orlando, Florida
December 11, 2017
Exhibit 31.1
I, Remy W. Trafelet, 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 11, 2017
By:
/s/ Remy W. Trafelet
Remy W. Trafelet
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 11, 2017
By:
/s/ John E. Kiernan
John E. Kiernan
Chief Financial Officer and Executive 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, 2017 (the “Report”) of Alico, Inc. (the
“Registrant”), as filed with the Securities and Exchange Commission on the date hereof, I, Remy W. Trafelet, 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 11, 2017
By:
/s/ Remy W. Trafelet
Remy W. Trafelet
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, 2017 (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 11, 2017
By:
/s/ John E. Kiernan
John E. Kiernan
Chief Financial Officer and Executive Vice President