See accompanying notes to the condensed consolidated financial statements.
See accompanying notes to the condensed consolidated financial statements.
ALICO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Business and Basis of Presentation
Description of Business
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, “Alico”, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately 122,000111,000 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 two2 primary classifications -classifications: (i) Alico Citrus and Conservation(ii) Water Resources and Environmental Resources.Other Operations. Financial results are presented based upon its threethese 2 business segments (Alico Citrus, Conservation and Environmental Resources and Other Operations).segments.
Basis of Presentation
The Company has prepared the accompanying financial statements on a condensed consolidated basis. These accompanying unaudited condensed consolidated interim financial statements, which are referred to herein as the “Financial Statements", have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to Article 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. These Financial Statements do not include all of the disclosures required for complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations. Accordingly, the Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017,2019, as filed with the SEC on December 11, 2017.5, 2019.
The Financial Statements presented in this Form 10-Q are unaudited. However, in the opinion of management, such Financial Statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods.
Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the current fiscal year ending September 30, 2018.2020. All 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 three2 operating segments: (i) Alico Citrus (formerly Orange Co.), Conservation and Environmental(ii) Water 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.LLC (“Citree”). 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.estimates. 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.
Restricted Cash
Restricted cash is comprised of cash received from the sale of certain assets in which the use of funds is restricted. For certain sales transactions, the Company sells property which serves as collateral for specific debt obligations. As a result, the sale proceeds can only be used to purchase like-kind citrus groves acceptable to the debt holder or to pay down existing debt obligations. During fiscal year ended September 30, 2019, the Company utilized restricted cash of $1,800,000 towards the purchase of citrus groves. Such purchases are included as part of the collateral under certain debt obligations. Additionally, in November 2019, the Company utilized restricted cash to pay down existing debt, including interest, of $4,489,000. If the remaining restricted cash is not otherwise used as of September 30, 2020, it will be used to pay down principal on Company debt. Based on the contractual uses of restricted cash, these amounts have been classified as non-current.
Revenue Recognition
Revenues are derived from the sale of processed fruit, fresh fruit, other citrus revenue, leasing revenue and other water and resource revenues. The majority of the revenue is generated from the sale of citrus fruit to processing facilities and fresh fruit sales. The Company evaluatesrecognizes revenue at the amount it expects to be entitled to be paid, determined when control of the products or services is transferred to its assumptionscustomers, which occurs upon delivery of and estimates on an ongoing basisacceptance of the fruit by the customer and may employ outside expertsthe Company has a right to assistpayment.
The Company has identified one performance obligation as the delivery of fruit to the processing facility (or harvesting of the citrus in the Company’s evaluations.case of fresh fruit) of the customer for each separate variety of fruit identified in the contract. The Company initially recognizes revenue in an amount which is estimated based on contractual and market prices, if such market price falls within the range (known as “floor” and “ceiling” prices) identified in the specific contracts. Additionally, the Company also has a contractual agreement whereby revenue is determined based on applying a cost-plus structure methodology. As such, since these contracts contain elements of variable consideration, the Company recognizes this variable consideration by using the expected value method. 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 at the close of the harvesting season can result in either an increase or decrease to reported revenues. During the periods presented, no material adjustments were made to the reported citrus revenues.
Receivables under contracts, whereby pricing is based on contractual and market prices, are primarily paid at the floor amount and are collected within seven days after the harvest week. Any adjustments to pricing as a result of changes in market prices are collected or paid thirty to sixty days after final market pricing is published. Receivables under contracts, whereby pricing is based off a cost-plus structure methodology, are paid at the final prior year rate. Any adjustments to pricing as a result of the cost-plus calculation are collected or paid upon finalization of the calculation and agreement by both parties. As of December 31, 2019, and September 30, 2019, the Company had total receivables relating to sales of citrus of approximately $1,500,000 and $160,000, respectively, recorded in Accounts Receivable, net, in the Condensed Consolidated Balance Sheets.
Disaggregated Revenue
Revenues disaggregated by significant products and services for the three months ended December 31, 2019 and 2018 are as follows:
|
| | | | | | | |
| (in thousands) | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| Alico Citrus | | | |
| Early and Mid-Season | $ | 9,066 |
| | $ | 11,645 |
|
| Fresh Fruit | 735 |
| | 1,906 |
|
| Other | 374 |
| | 346 |
|
| Total | $ | 10,175 |
| | $ | 13,897 |
|
| | | | |
| Water Resources and Other Operations | | | |
| Land and other leasing | $ | 663 |
| | $ | 734 |
|
| Other | 167 |
| | 148 |
|
| Total | $ | 830 |
| | $ | 882 |
|
| | | | |
| Total Revenues | $ | 11,005 |
| | $ | 14,779 |
|
Noncontrolling Interest in Consolidated Subsidiary
The Financial Statements include all assets and liabilities of the less-than-100%-owned subsidiary the Company controls, Citree Holdings I, LLC (“Citree”).Citree. Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had net income of $218,414 and a net loss of $16,219 and $15,848$73,502 for the three months ended December 31, 20172019 and 2016,2018, respectively, of which 51% is attributable to the Company.
Recent Accounting Pronouncements
In May 2014,January 2017, the FASB issued Accounting StandardStandards Update ("ASU"(“ASU”) 2014-09, “Revenue from Contracts with Customers,” as2017-04, “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 new ASC topicgoodwill 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 the fiscal years beginning after December 15, 2019, including interim periods within those reporting periods. 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. The Company does not expect the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2020.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 606). The core principle820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements” (“ASU 2018-13”), which aims to improve the overall usefulness of thisdisclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is that an entity should recognize revenue to depicteffective for annual and interim periods in the transfer of promised goods or services to customers in an amount that reflects the consideration tofiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which the entity expectswill be required to be entitledapplied prospectively for only the most recent interim or annual period presented in exchange for those goods or services.the initial fiscal year of adoption. The Company does not expect the adoption of ASU further provides guidance for any entity2018-13 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2020.
In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contractsreceivables arising from operating leases are not within the scope of other standards (for example, lease contracts)Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Leases (Topic 842). The FASB subsequently issued ASU 2015-14 to defer thestandard is effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period,for us on October 1, 2020, with earlierearly adoption permitted. The FASB also recently issuedCompany does not expect the adoption of 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) retrospectively2018-19 to each prior reporting period presented or 2) ashave a cumulative-effect adjustment asmaterial impact on its consolidated financial statements of the date of adoption. Company.
The Company has reviewed other recently issued accounting standards which have not yet selectedbeen 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 transition methodsignificant effect on its current or future financial position, results of operations, cash flows or disclosures.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This guidance requires entities that sign leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous U.S. GAAP. The accounting applied by a lessor is currently evaluatinglargely unchanged from that applied under previous U.S. GAAP. The Company adopted ASU 2016-02 on October 1, 2019.
The Company determines whether an arrangement is a lease at inception. The Company’s leases consist of operating lease arrangements for certain office space and IT facilitates. When these lease arrangements include lease and non-lease components, the impactCompany accounts for lease components and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices.
Any lease arrangements with an initial term of ASU 2014-0912 months or less are not recorded on the Company’s Condensed Consolidated Balance Sheet, and it recognizes lease cost for these lease arrangements on a straight-line basis over the lease term. Many lease arrangements provide the options to exercise one or more renewal terms or to terminate the lease arrangement. The Company includes these options when it will be reasonably certain to exercise them in the lease term used to establish the right of use assets and lease liabilities. Generally, lease agreements do not include an option to purchase the leased asset, residual value guarantees or material restrictive covenants.
As most of our lease arrangements do not provide an implicit interest rate, the Company applies an incremental borrowing rate based on the information available at the commencement date of the lease arrangement to determine the present value of lease payments.
No lease costs associated with finance leases and sale-leaseback transactions occurred and our lease income associated with lessor and sublease arrangements are not material to our Condensed Consolidated Financial Statements upon adoption.Statements.
Our operating leases are reported in our Condensed Consolidated Balance Sheet as follows:
|
| | | | | | |
| (in thousands) | | | | |
| | | | | |
| Operating lease components | | Classification | | December 31, 2019 |
| Right-of-use assets | | Other non-current assets | | $ | 376 |
|
| Current lease liabilities | | Other current liabilities | | $ | 175 |
|
| Non-current lease liabilities | | Other liabilities | | $ | 290 |
|
Our operating leases cost components are reported in our Condensed Consolidated Statement of Operations as follows:
|
| | | | | | |
| (in thousands) | | | | |
| | | | | Three Months Ended |
| Operating lease components | | Classification | | December 31, 2019 |
| Operating lease costs | | General and administration expenses | | $ | 52 |
|
| Operating lease right-of-use asset impairment | | Other expenses | | $ | 87 |
|
Future maturities of our operating lease obligations as of December 31, 2019 by fiscal year are as follows:
|
| | | | | |
| (in thousands) | | | |
| | | | |
| 2020 | | | $ | 189 |
|
| 2021 | | | 186 |
|
| 2022 | | | 117 |
|
| 2023 | | | — |
|
| 2024 | | | — |
|
| 2025 and thereafter | | | — |
|
| Total noncancelable future lease obligations | | | $ | 492 |
|
| Less: Interest | | | (27 | ) |
| Present value of lease obligations | | | $ | 465 |
|
The weighted-average remaining lease term and weighted-average discount rate for our operating leases are as follows:
|
| | | | |
| December 31, 2019 |
| Weighted-average remaining lease term | 2.83 |
| | years |
| Weighted-average discount rate | 3.89 | % | | |
|
| | | | | |
| Cash flow information related to leases consists of the following: | | |
| (in thousands) | | | Three Months Ended |
| | | | December 31, 2019 |
| Cash paid for amounts included in the measurement of lease liabilities: | | | |
| Operating cash flows from operating leases | | | $ | 50 |
|
| | | | |
| Right-of-use assets obtained in exchange for lease obligations: | | | |
| Operating leases | | | $ | 511 |
|
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 ourAlico's fiscal year generally produce the majority of ourthe Company's annual revenue, and workingrevenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year. The resultsyear, coinciding with harvesting cycles. Because of the reported periods hereinseasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for any other interim periods or the entirefull fiscal year.
Note 2. Inventories
Inventories consist of the following at December 31, 20172019 and September 30, 2017:2019:
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2019 | | 2019 |
| Unharvested fruit crop on the trees | $ | 42,572 |
| | $ | 39,276 |
|
| Other | 716 |
| | 867 |
|
| Total inventories | $ | 43,288 |
| | $ | 40,143 |
|
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2017 | | 2017 |
| Unharvested fruit crop on the trees | $ | 29,551 |
| | $ | 32,145 |
|
| Beef cattle | 2,254 |
| | 1,954 |
|
| Other | 1,375 |
| | 2,105 |
|
| Total inventories | $ | 33,180 |
| | $ | 36,204 |
|
The Company records its inventory at the lower of cost or net realizable value. For the three months ended December 31, 2017 and 20162019, the Company did not record any adjustments to reduce inventory to net realizable value.
In September 2017,
During the State of Florida's citrus business, including the Company's unharvested citrus crop, was significantly impacted by Hurricane Irma. For thefiscal year ended September 30, 2017,2018, the Company recorded areceived insurance proceeds relating to Hurricane Irma of approximately $477,000 for property and casualty loss on its inventory. In calculating this casualty loss,damage claims and approximately $8,952,000 for crop claims. During the fiscal year ended September 30, 2019, the Company made certain estimates. Asreceived additional insurance proceeds relating to Hurricane Irma of approximately $486,000 in property and casualty claims reimbursement. There are no further property and casualty or crop insurance claims pending relating to Hurricane Irma.
The Company is eligible for Hurricane Irma federal relief programs for block grants that are being administered through the State of Florida. During the fiscal year ended September 30, 2019, the Company received approximately $15,597,000 under the Florida Citrus Recovery Block Grant (“CRBG”) program. This represented the Part 1 and a portion of the Part 2 reimbursement under the three-part program. During the three months ended December 31, 2017, there were no revisions to these estimates which required any further inventory losses2019, the Company received additional proceeds of approximately $4,466,000 under the Florida CRBG program. This represented the remaining portion of the Part 2 reimbursement under the three-part program. The timing and amount to be recorded. The Company continues to work closely with its insurers and adjusters to determinereceived under the amountPart 3 of insurance recoveries,the program, if any, has not been finalized. These federal relief proceeds are included as a reduction to operating expenses in the Company may be entitled to.Condensed Consolidated Statements of Operations.
Note 3. Assets Held for Sale
During fiscal 2017, inIn 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 ofat December 31, 20172019 and September 30, 2017:2019:
|
| | | | | | | |
| (in thousands) | Carrying Value |
| | December 31, | | September 30, |
| | 2019 | | 2019 |
| East Ranch | $ | 1,442 |
| | $ | 1,442 |
|
| Total Assets Held For Sale | $ | 1,442 |
| | $ | 1,442 |
|
|
| | | | | | | |
| (in thousands) | Carrying Value |
| | December 31, | | September 30, |
| | 2017 | | 2017 |
| Office Building | $ | — |
| | $ | 3,214 |
|
| Nursery - Gainsville | 6,500 |
| | 6,500 |
|
| Chancey Bay | 4,179 |
| | 4,179 |
|
| Gal Hog | 70 |
| | 70 |
|
| Breeding Herd | 6,133 |
| | 5,858 |
|
| Winterhaven | 251 |
| | — |
|
| Trailers | 1,162 |
| | 1,162 |
|
| Total Assets Held For Sale | $ | 18,295 |
| | $ | 20.983 |
|
On October 30, 2017,2018, the Company sold its corporate office building in Fort Myers, Floridacertain parcels at Frostproof for $5,300,000approximately $206,000 and realized a gain of approximately $1,800,000. The sales agreement provides that the Company will lease back a portion of the office space for five years.$12,000.
Negotiations with interested parties for certain assets held for sale have already taken place, and in January, 2018 the Company sold its breeding herd and a portion of their trailers (See Note 13). Assets held for sale consists solely of property and equipment.
The Company recorded an impairment loss of approximately $4,131,000 during fiscal year 2017 on these assets classified as assets held for sale.
Note 4. Property and Equipment, Net
Property and equipment, net consists of the following at December 31, 20172019 and September 30, 2017:2019:
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2019 | | 2019 |
| Citrus trees | $ | 284,578 |
| | $ | 281,149 |
|
| Equipment and other facilities | 54,429 |
| | 54,622 |
|
| Buildings and improvements | 8,201 |
| | 8,224 |
|
| Total depreciable properties | 347,208 |
| | 343,995 |
|
| Less: accumulated depreciation and depletion | (107,471 | ) | | (104,169 | ) |
| Net depreciable properties | 239,737 |
| | 239,826 |
|
| Land and land improvements | 105,835 |
| | 105,822 |
|
| Property and equipment, net | $ | 345,572 |
| | $ | 345,648 |
|
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2017 | | 2017 |
| Citrus trees | $ | 261,286 |
| | $ | 258,949 |
|
| Equipment and other facilities | 54,840 |
| | 54,592 |
|
| Buildings and improvements | 8,279 |
| | 8,835 |
|
| Total depreciable properties | 324,405 |
| | 322,376 |
|
| Less: accumulated depreciation and depletion | (85,498 | ) | | (82,443 | ) |
| Net depreciable properties | 238,907 |
| | 239,933 |
|
| Land and land improvements | 109,602 |
| | 109,404 |
|
| Net property and equipment | $ | 348,509 |
| | $ | 349,337 |
|
During the three months ended December 31, 2019, the Company recorded impairments of approximately $88,000 relating to the loss of citrus trees.
During the fiscal year ended September 30, 2019, the Company purchased 203 acres of citrus blocks for approximately $1,950,000. These purchases were made from grove owners from within the Company’s existing grove locations. In April 2019, the lender, PGIM Real Estate Finance, LLC (“Prudential”), agreed to accept those purchases completed through April 2019 as substitute collateral and release $1,800,000 from restricted cash, which was completed in the fourth quarter of fiscal year 2019. In the fiscal year 2019, subsequent to April 2019, there were 2 additional purchases of Citrus blocks for approximately $100,000 that are not included as part of the substitution collateral. In the three months ended December 31, 2019, two additional purchases of Citrus blocks for approximately $70,000 were completed.
On September 27, 2019, the Company sold approximately 5,500 acres from its West Ranch for approximately $14,775,000 and realized a gain on sale of approximately $13,033,000. Upon the sale of these acres, the lease rate pertaining to the grazing and other rights was adjusted from $98,750 to $80,000 per month, as these acres were previously being leased to a third party.
Note 5. Long-Term Debt and Lines of Credit
Debt Refinancing The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization at December 31, 2019 and September 30, 2019:
|
| | | | | | | | | | | | | | | |
| | December 31, 2019 | | September 30, 2019 |
| (in thousands) | Principal | | Deferred Financing Costs, Net | | Principal | | Deferred Financing Costs, Net |
| | | | | | | | |
| Long-term debt, net of current portion: | | | | | | | |
| Met Fixed-Rate Term Loans | $ | 88,125 |
| | $ | 699 |
| | $ | 89,688 |
| | $ | 724 |
|
| Met Variable-Rate Term Loans | 43,125 |
| | 321 |
| | 43,844 |
| | 334 |
|
| Met Citree Term Loan | 4,700 |
| | 39 |
| | 4,750 |
| | 40 |
|
| Pru Loans A & B | 15,967 |
| | 220 |
| | 16,257 |
| | 224 |
|
| Pru Loan E | 4,400 |
| | 7 |
| | 4,455 |
| | 9 |
|
| Pru Loan F | — |
| | — |
| | 4,455 |
| | 38 |
|
| | 156,317 |
| | 1,286 |
| | 163,449 |
| | 1,369 |
|
| Less current portion | 5,130 |
| | — |
| | 5,338 |
| | — |
|
| Long-term debt | $ | 151,187 |
| | $ | 1,286 |
| | $ | 158,111 |
| | $ | 1,369 |
|
The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization at December 31, 2019 and September 30, 2019:
|
| | | | | | | | | | | | | | | |
| | December 31, 2019 | | September 30, 2019 |
| (in thousands) | Principal | | Deferred Financing Costs, Net | | Principal | | Deferred Financing Costs, Net |
| | | | | | | | |
| Lines of Credit: | | | | | | | |
| RLOC | $ | — |
| | $ | 153 |
| | $ | — |
| | $ | 8 |
|
| WCLC | — |
| | — |
| | — |
| | — |
|
| Lines of Credit | $ | — |
| | $ | 153 |
| | $ | — |
| | $ | 8 |
|
Future maturities of long-term debt as of December 31, 2019 are as follows:
|
| | | |
| (in thousands) | |
| | |
| Due within one year | $ | 5,130 |
|
| Due between one and two years | 14,715 |
|
| Due between two and three years | 10,535 |
|
| Due between three and four years | 10,535 |
|
| Due between four and five years | 10,535 |
|
| Due beyond five years | 104,867 |
|
| | |
| Total future maturities | $ | 156,317 |
|
Interest costs expensed and capitalized were as follows:
|
| | | | | | | |
| (in thousands) | Three Months Ended December 31, |
| | 2019 | | 2018 |
| Interest expense | $ | 1,544 |
| | $ | 1,917 |
|
| Interest capitalized | 269 |
| | 216 |
|
| Total | $ | 1,813 |
| | $ | 2,133 |
|
Debt
The Company refinanced its outstanding debt obligations on December 3, 2014 in connection with the Orange-Co acquisition. TheseCompany's credit facilities initially includedconsist of $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”), and 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 5,7625,800 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 150165 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender onMet beginning May 1, 20192017 and is subject to further adjustment every two years thereafter until maturity. No adjustment was made at May 1, 2019. Interest on the term loans is payable quarterly.
The interest rates on the Met Variable-Rate Term Loans were 3.03%3.58% per annum and 2.96%3.91% per annum as of December 31, 20172019 and September 30, 2017,2019, 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. During the first and second quarter of fiscal year 2018, the Company elected not to make its principal payment and utilized a portion of its 2015 and remainsprepayment to satisfy its principal payment requirements for such quarters. At December 31, 2019, the Company had $5,625,000 remaining available to reduce future mandatory principal payments should the Company elect to do so. During the first quarter of fiscal 2018, the company elected not to make its principal payment and utilized its prepayment to satisfy its payment requirement. 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 150165 basis points, payable quarterly. The LIBOR spread was adjusted by the lenderMet on May 1, 2017 and is subject to further adjustment every two years thereafter. Outstanding principal, if any, is dueNo adjustment was made at May 1, 2019. In October 2019, the RLOC agreement was modified to extend the current maturity onof November 1, 2019.2019 to November 1, 2029. As part of the agreement to extend the current maturity, the interest rate will be held at the rate in effect at the time the agreement was entered into until February 2020. 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 3.03%3.91% and 2.96%3.91% per annum as of December 31, 20172019 and September 30, 2017,2019, respectively. Availability under the RLOC was $25,000,000 as of December 31, 2017.2019.
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 the 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 3.11% per annum3.46% and 2.99%3.85% per annum as of December 31, 20172019 and September 30, 2017,2019, respectively. The WCLC agreement was amended on September 30, 2017,20, 2018, and the primary terms of the amendment were an extension of the maturity to November 1, 2019.2021. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately $52,577,000$69,600,000 and $69,540,000 as of December 31, 20172019 and September 30, 2017,2019, respectively.
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.
TheThere were 0 amounts outstanding balance on the WCLC was approximately $7,123,000 at December 31, 2017.2019. The WCLC agreement provides for Rabo to issue up to $2,000,000, reduced from $20,000,000 during fiscal year 2019, in letters of credit on the Company’s behalf. As of December 31, 2017,
2019, there was approximately $10,300,000$399,000 in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.
In 2014, the Company capitalized approximately $2,834,000 of debt financing costs related to the refinancing and approximately $339,000 of costs related to the retired debt. Additionally, financing costs of approximately $23,000 and $133,000 were incurred in the three months ended December 31, 2019 and for the fiscal year ended September 30, 2019, respectively, in connection with the extension of the RLOC. All costs are included in deferred financing and 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 $1,173,000 and approximately $1,066,000 at December 31, 2019 and September 30, 2019, respectively.
These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of 1.10 to 1.00, (ii) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding year,years, or approximately $162,300,000$167,364,000 for the year endingended September 30, 2017,2019, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, (v) solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of December 31, 2017,2019, the Company was in compliance with all of the financial covenants.
The creditCredit facilities also include a Met Life term loan collateralized by real estate1,200 gross acres of citrus grove owned by Citree (“("Met Citree Loan”Loan"). This is a $5,000,000 credit facility that bears interest at a fixed rate of 5.28% per annum. An initial advancePrincipal and interest payments are made on a quarterly basis. At December 31, 2019 and September 30, 2019 there was an outstanding balance 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,$4,700,000 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%. Principal payments on this term loan commence February 1, 2018 and are payable quarterly thereafter.$4,750,000, respectively. The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately $39,000 and $40,000 at December 31, 2019 and September 30, 2019, respectively.
Transition from LIBOR
The Company is currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates. Currently, the Company has debt instruments in place that reference LIBOR-based rates. The transition from LIBOR is estimated to take place in 2021 and management will continue to actively assess the related opportunities and risks involved in this transition.
Silver Nip Citrus Debt
There are two2 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. On February 15, 2015, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip Citrus”) made a prepayment of $750,000. In addition, the Company made prepayments of approximately $4,453,000 in the second fiscal quarter of 2018 with proceeds from the sale of certain properties, which were collateralized under these loans. The Company may prepay up to $5,000,000 of principal without penalty. On February 15, 2015, Silver Nip Citrus madeAs such, the Company exceeded the allowed $5,000,000 prepayment by approximately $203,000 and was required to make a prepaymentpremium payment of $750,000.approximately $22,000. The loans are collateralized by real estateapproximately 5,700 of citrus groves in Collier, Hardee, Highlands Martin, Osceola and Polk Counties, Florida and mature on June 1, 2033.2029 and June 1, 2033, respectively.
Silver Nip Citrus entered into two2 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. No adjustment was made at September 1, 2019. Both loans are collateralized by real estateapproximately 1,500 gross acres of citrus groves in Charlotte County, Florida.
In November 2019, the Company prepaid Pru Note F in full in the amount of $4,455,000. As a result of this prepayment, the Company’s required annual principal payments will be reduced by $220,000 per annum. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.2021.
The Silver Nip Citrus credit agreements were amended on December 1, 2016. The primary terms of the amendments were (1) the Company providedare subject to a limited $8,000,000 guaranty of the Silver Nip debt, (2) the limited personal guarantees provided by George Brokaw, Remy Trafelet and Clayton Wilson prior to the Company’s merger with Silver Nip Citrus, and also totaling $8,000,000, were released and (3)financial covenant whereby the consolidated current ratio covenant requirement was reduced from 1.50 tois 1.00 to 1.00 to 1:00.1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of December 31, 2017,2019.
The unamortized balance of deferred financing costs related to the most recent measurement date.
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 guarantydebt was approximately $227,000 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$271,000 at December 31, 20172019 and September 30, 2017:2019, respectively.
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | Principal | | Deferred Financing Costs, Net | | Principal | | Deferred Financing Costs, Net |
| | (in thousands) |
| | | | | | | | |
| Long-term debt, net of current portion: | | | | | | | |
| Met Fixed-Rate Term Loans | $ | 99,062 |
| | $ | 924 |
| | $ | 99,062 |
| | $ | 954 |
|
| Met Variable-Rate Term Loans | 48,876 |
| | 425 |
| | 49,594 |
| | 439 |
|
| Met Citree Term Loan | 5,000 |
| | 48 |
| | 5,000 |
| | 49 |
|
| Pru Loans A & B | 22,740 |
| | 253 |
| | 23,030 |
| | 258 |
|
| Pru Loan E | 4,840 |
| | 23 |
| | 4,895 |
| | 25 |
|
| Pru Loan F | 4,840 |
| | 42 |
| | 4,895 |
| | 42 |
|
| | 185,358 |
| | 1,715 |
| | 186,476 |
| | 1,767 |
|
| Less current portion | 4,575 |
| | — |
| | 4,550 |
| | — |
|
| Long-term debt | $ | 180,783 |
| | $ | 1,715 |
| | $ | 181,926 |
| | $ | 1,767 |
|
The following table summarizes lines of credit and related deferred financing costs net of accumulated amortization at December 31, 2017 and September 30, 2017:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | September 30, 2017 |
| | Principal | | Deferred Financing Costs, Net | | Principal | | Deferred Financing Costs, Net |
| | (in thousands) |
| | | | | | | | |
| Lines of Credit: | | | | | | | |
| RLOC | $ | — |
| | $ | 96 |
| | $ | — |
| | $ | 109 |
|
| WCLC | 7,123 |
| | 104 |
| | — |
| | 153 |
|
| Lines of Credit | $ | 7,123 |
| | $ | 200 |
| | $ | — |
| | $ | 262 |
|
Future maturities of long-term debt and lines of credit as of December 31, 2017 are as follows: |
| | | |
| (in thousands) | |
| | |
| Due within one year | $ | 4,575 |
|
| Due between one and two years | 15,548 |
|
| Due between two and three years | 10,975 |
|
| Due between three and four years | 14,935 |
|
| Due between four and five years | 10,755 |
|
| Due beyond five years | 135,693 |
|
| | |
| Total future maturities | $ | 192,481 |
|
Interest costs expensed and capitalized were as follows:
|
| | | | | | | |
| (in thousands) | | | |
| | Three Months Ended December 31, |
| | 2017 | | 2016 |
| Interest expense | $ | 2,255 |
| | $ | 2,327 |
|
| Interest capitalized | 134 |
| | 63 |
|
| Total | $ | 2,389 |
| | $ | 2,390 |
|
Note 6. Accrued Liabilities
Accrued Liabilitiesliabilities consist of the following at December 31, 20172019 and September 30, 2017:2019:
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2019 | | 2019 |
| | | | |
| Ad valorem taxes | $ | — |
| | $ | 2,117 |
|
| Accrued interest | 1,033 |
| | 1,110 |
|
| Accrued employee wages and benefits | 927 |
| | 2,525 |
|
| Accrued dividends | 672 |
| | 448 |
|
| Accrued contractual obligation associated with sale of real estate | — |
| | 402 |
|
| Accrued harvest and haul | 277 |
| | — |
|
| Consulting and separation charges | 400 |
| | 400 |
|
| Accrued insurance | 871 |
| | 544 |
|
| Other accrued liabilities | 269 |
| | 223 |
|
| Total accrued liabilities | $ | 4,449 |
| | $ | 7,769 |
|
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2017 | | 2017 |
| | | | |
| Ad valorem taxes | $ | — |
| | $ | 2,648 |
|
| Accrued interest | 1,203 |
| | 1,165 |
|
| Accrued employee wages and benefits | 1,169 |
| | 1,320 |
|
| Accrued dividends | 494 |
| | 494 |
|
| Current portion of deferred retirement obligations | 315 |
| | 315 |
|
| Accrued insurance | 266 |
| | 166 |
|
| Other accrued liabilities | 1,104 |
| | 673 |
|
| Total accrued liabilities | $ | 4,551 |
| | $ | 6,781 |
|
Note 7.Income Taxes Derivative Asset and Derivative Liabilities/Deferred Gain on Sale
On December 22, 2017,November 21, 2014, the U.S. Tax CutsCompany completed the sale of approximately 36,000 acres of land used for sugarcane production and Jobs Act (the “Act”land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately $97,900,000 in cash.
The sales price was signed into law.subject to post-closing adjustments over a ten year period. The Act contains significant changes to corporate taxes, includingCompany realized a permanent reductiongain of approximately $42,753,000 on the sale. Initially, $29,140,000 of the U.S. corporate tax rategain 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 represented the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement. A net gain of approximately $13,613,000 was recognized at the time of the sale.
On October 1, 2018, the Company adopted ASC 610-20 and reevaluated the original post closing agreement under the guidance of ASC 610-20. As such, the Company recorded a derivative asset and derivative liabilities, which resulted in an increase to retained earnings of $10,897,000, net of taxes. This adjustment consisted of recording a derivative asset in the amount of $3,553,000 relating to potential payments due Alico from 35%Global Ag Properties USA, LLC (“Global Ag”) and a derivative liability of $13,864,000 relating to 21% effective January 1, 2018. The Company’s statutory rate for fiscal year ended September 30, 2018 will be 24.5%, based on a fiscal year blended rate calculation. The 21% U.S. corporate tax rate will apply to fiscal years ending September 30, 2019 and each year thereafter.
Additionally, the Act requires a one-time remeasurement of certain tax related assets and liabilities. Duringpotential payments due Global Ag from Alico. In the first quarter ended December 31, 2017,2018, the Company made certain estimates related torecorded a loss of $956,000, which reflects the impactchange in fair value of the Act including the remeasurement of deferred taxes at the new expected tax ratederivative asset and a revised effective tax rate for the year ended September 30, 2018, which was used to compute current tax expense for the first quarter ended December 31, 2017. The amounts recorded inderivative liabilities. In the three months ended March 31, 2019, the Company recorded an additional loss of $33,000.
On December 31, 2017 for7, 2018, the remeasurementCompany and Global Ag entered into a Termination of deferred tax liabilities principally relatePost Closing Agreement (the “2018 Post Closing Agreement”), pursuant to which the parties thereto agreed to certain terms and conditions under which a Post Closing Agreement, dated as of November 21, 2014 (the “2014 Post Closing Agreement”), may be terminated prior to the reductionexpiration of its stated term and with the payment of certain termination payments. The 2014 Post Closing Agreement was entered into in connection with the November 21, 2014 closing (the “Land Disposition”) of the sale by Alico to Global Ag of certain land used for sugarcane production and land leasing in Hendry County, Florida (the “Land”).
The 2014 Post Closing Agreement contained obligations, including possible payments by Alico and by Global Ag to each other over a ten year period following the closing of the Land Disposition, with the payments each year being based on the difference, if any, between certain computed amounts. Since the time of the closing of the Land Disposition and up through March 11, 2019, the computations have resulted in payments being made each year by Alico to Global Ag., which have aggregated approximately $6,518,000.
The 2018 Post Closing Agreement provided for (i) the termination of the 2014 Post Closing Agreement following the satisfaction of certain terms and conditions set forth in the U.S. corporate income tax rate.termination agreement and (ii) the deposit by wire transfer into escrow of an aggregate of $11,300,000 following notification by Global Ag to Alico of the closing date of a sale of the Land by Global Ag to a third party. The Company has recordedconditions to the termination of the 2014 Post Closing Agreement and the payment of funds to Global Ag included (a) Global Ag’s assignment to the third party buyer, and such third party buyer’s assumption, of certain specified water management obligations, irrigation and drainage easement obligations, access easements obligations and obligations under a tax benefitcertain option to purchase certain railroad property owned by Alico, (b) delivery to the escrow agent of approximately $11,300,000 to account for these deferred tax impacts.all instruments and consideration required
to consummate the closing by Global Ag of the sale of the Land to the third party buyer, and (c) delivery to the escrow agent of copies of a water management project cooperation agreement running in favor of Alico and signed by Global Ag and the third party buyer.
On March 11, 2019, the 2018 Post Closing Agreement was completed. As such, all the conditions of the termination of the 2014 Post Closing Agreement, mentioned above, were met with the sale of the sugarcane land to a third party. As a result, the Company does not have any future liabilities or commitments to Global Ag in connection with the 2014 Post Closing Agreement.
Note 8. Income Taxes
In October 2019, the Internal Revenue Service concluded their audit of the September 30, 2015 tax year with no changes. The Federal and state filings remain subject to examination by tax authorities for tax periods ending after September 30, 2015.
The impact of adopting ASC 610 -20 was modified in the quarter ended March 31, 2019 to reflect the deferred tax impact of this adoption. The deferred tax asset related to the deferred gain on sale has been decreased by $3,704,000 with a corresponding decrease to retained earnings in the quarter ended March 31, 2019, offsetting the October 1, 2018 increase of $14,601,000 to retained earnings for the ASC 610-20 implementation (see Note 7. “Derivative Asset and Derivative Liabilities/Deferred Gain on Sale”).
Note 8.9. Earnings Per Common Share
Basic earnings per share for Alico's common stock is calculated by dividing net income attributable to Alico, Inc. 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 common shares issuable under equity-based compensation plans in accordance with the treasury stock method, except where the inclusion of such common shares would have an anti-dilutive impact.
For the three months ended December 31, 20172019 and 2016,2018, basic and diluted earnings per common share were as follows:
|
| | | | | | | |
| (in thousands except per share amounts) | | | |
| | Three Months Ended December 31, |
| | 2019 | | 2018 |
| | | | |
| Net income (loss) attributable to Alico, Inc. common stockholders | $ | 791 |
| | $ | (2,467 | ) |
| | | | |
| Weighted average number of common shares outstanding - basic | 7,477 |
| | 7,479 |
|
| Dilutive effect of equity-based awards | 14 |
| | — |
|
| Weighted average number of common shares outstanding - diluted | 7,491 |
| | 7,479 |
|
| | | | |
| Net income (loss) per common shares attributable to Alico, Inc. common stockholders: | | | |
| Basic | $ | 0.11 |
| | $ | (0.33 | ) |
| Diluted | $ | 0.11 |
| | $ | (0.33 | ) |
|
| | | | | | | |
| (in thousands except per share amounts) | | | |
| | Three Months Ended December 31, |
| | 2017 | | 2016 |
| | | | |
| Net income (loss) attributable to Alico, Inc. common stockholders | $ | 8,746 |
| | $ | (1,735 | ) |
| | | | |
| Weighted average number of common shares outstanding - basic | 8,245 |
| | 8,324 |
|
| Dilutive effect of equity-based awards | 119 |
| | — |
|
| Weighted average number of common shares outstanding - diluted | 8,364 |
| | 8,324 |
|
| | | | |
| Net income (loss) per common shares attributable to Alico, Inc. common stockholders: | | | |
| Basic | $ | 1.06 |
| | $ | (0.21 | ) |
| Diluted | $ | 1.05 |
| | $ | (0.21 | ) |
The computation of diluted earnings per common share forFor the three months ended December 31, 2017 includes the impact of certain2019 there were 0 anti-dilutive equity awards because they are dilutive. Such awards are comprisedexcluded from the calculation of 750,000 stock options granted to Executive Officers (see Note 12. "Related Party Transactions") duringdiluted earnings per common share. For the three months ended December 31, 2016.2018, certain stock options were excluded from the diluted earnings per share because they were anti-dilutive.
Note 9.10. Segment Information
Segments
Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”)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 three2 operating segments: Alico Citrus Conservation and EnvironmentalWater Resources and Other Operations.
Total revenues represent sales to unaffiliated customers, as reported in the Condensed 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) | Three Months Ended December 31, | Three Months Ended December 31, |
| | 2017 | | 2016 | 2019 | | 2018 |
| Revenues: | | | | |
| | |
|
| Alico Citrus | $ | 17,079 |
| | $ | 16,877 |
| $ | 10,175 |
| | $ | 13,897 |
|
| Conservation and Environmental Resources | 363 |
| | 301 |
| |
| Other Operations | 91 |
| | 267 |
| |
| Water Resources and Other Operations | | 830 |
| | 882 |
|
| Total revenues | 17,533 |
| | 17,445 |
| 11,005 |
| | 14,779 |
|
| | | | | | | |
| Operating expenses: | | | | | | |
| Alico Citrus | 16,295 |
| | 14,085 |
| 4,840 |
| | 10,874 |
|
| Conservation and Environmental Resources | 597 |
| | 514 |
| |
| Other Operations | 59 |
| | 93 |
| |
| Water Resources and Other Operations | | 551 |
| | 723 |
|
| Total operating expenses | 16,951 |
| | 14,692 |
| 5,391 |
| | 11,597 |
|
| | | | | | | |
| Gross profit (loss): | | | | |
| Gross profit: | | | | |
| Alico Citrus | 784 |
| | 2,792 |
| 5,335 |
| | 3,023 |
|
| Conservation and Environmental Resources | (234 | ) | | (213 | ) | |
| Other Operations | 32 |
| | 174 |
| |
| Water Resources and Other Operations | | 279 |
| | 159 |
|
| Total gross profit | $ | 582 |
| | $ | 2,753 |
| 5,614 |
| | 3,182 |
|
| | | | | | | |
| Depreciation, depletion and amortization: | | | | | | |
| Alico Citrus | $ | 3,398 |
| | $ | 3,516 |
| 3,437 |
| | 3,287 |
|
| Conservation and Environmental Resources | 59 |
| | 169 |
| |
| Other Operations | 11 |
| | 32 |
| |
| Water Resources and Other Operations | | 46 |
| | 50 |
|
| Other Depreciation, Depletion and Amortization | 22 |
| | 199 |
| 126 |
| | 121 |
|
| Total depreciation, depletion and amortization | $ | 3,490 |
| | $ | 3,916 |
| $ | 3,609 |
| | $ | 3,458 |
|
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2019 | | 2019 |
| Assets: | | | |
|
| Alico Citrus | $ | 388,396 |
| | $ | 401,212 |
|
| Water Resources and Other Operations | 15,267 |
| | 15,332 |
|
| Other Corporate Assets | 1,406 |
| | 844 |
|
| Total Assets | $ | 405,069 |
| | $ | 417,388 |
|
|
| | | | | | | |
| (in thousands) | December 31, | | September 30, |
| | 2017 | | 2017 |
| Assets: | | | |
| Alico Citrus | $ | 389,351 |
| | $ | 387,972 |
|
| Conservation and Environmental Resources | 15,314 |
| | 13,845 |
|
| Other Operations | 10,889 |
| | 10,974 |
|
| Other Corporate Assets | 2,408 |
| | 6,391 |
|
| Total Assets | $ | 417,962 |
| | $ | 419,182 |
|
Note 10.11. Stockholders' Equity
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 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.
The Company recognizes stock-based compensation expense for (i) Board of Directors fees (paid in treasury stock), and (ii) other awards under the Stock Incentive2015 Plan of 2015 (paid in restricted stock and stock options). Stock-based compensation expense is recognized in general and administrative expenses in the Condensed Consolidated Statements of Operations.
Stock Compensation - Board of Directors
The Board of Directors can either elect to receive stock compensation or cash for their fees for services provided. Stock-based compensation expense relating to the Board of Director fees was approximately $192,000$193,000 and $255,000$238,000 for the three months ended December 31, 20172019 and 2016,2018, respectively.
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.
In November 2017, a senior executive was awarded 5,000 restricted shares of the Company’s common stock (“Restricted Stock”) under the 2015 Plan at a weighted average fair value of $31.95 per common share, vesting over approximately three years.
Stock compensation expense related to the Restricted Stock totaled approximately $26,000 and $150,000$26,000 for the three months ended December 31, 20172019 and 2016,2018, respectively. There was approximately $283,000$43,000 and $413,000$69,000 of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at December 31, 20172019 and 2016,September 30, 2019, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.50 years.
Stock Option Grant
On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with eachStock option grants of Remy W. Trafelet, Henry R. Slack,118,000 options to certain Officers and George R. Brokaw (collectively, the “Executives”). Mr. Trafelet serves as the President and Chief Executive OfficerManagers of the Company (collectively the “2020 Option Grants,”) were granted on October 11, 2019. The option exercise price was set at $33.96, the closing price on October 11, 2019. The 2020 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 $35.00; (ii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00; (iii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $45.00; and (iv) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $50.00. If the applicable stock price hurdles have not been achieved by (A) the date that is 18 months following the termination of employment, if the employment is terminated due to death or disability, (B) the date that is 12 months following the termination of employment, if the employment is terminated by the Company without cause, by the employee with good reason, or due to the employee’s retirement, or (C) the date of the termination of 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 December 31, 2022 then any unvested options will be forfeited. The 2020 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 December 31, 2019, the Company’s stock closed at $35.83 per share. During the three months ended December 31, 2019, the stock did not trade above $35.00 per share for twenty consecutive days. Accordingly, none of the 2020 Option Grants
are vested at December 31, 2019.
Stock option grants of 10,000 options to Mr. Slack servesJohn Kiernan (the “2019 Option Grants”) were granted on October 25, 2018. The option exercise price for these options was set at $33.34, the closing price on October 25, 2018. The 2019 Option Grants will vest as follows: (i) 3,333 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00; (ii) 3,333 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $45.00; (iii) 3,334 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $50.00. If the applicable stock price hurdles have not been achieved by (A) the date that is 18 months following the Executive’s termination of employment, if the Executive’s employment is terminated due to death or disability, (B) the date that is 12 months following the Executive’s termination of employment, if the Executive’s employment is terminated by the Company without cause, by the Executive Chairmanwith 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 December 31, 2021 then any unvested options will be forfeited. The 2019 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 December 31, 2019, the Company’s stock was trading at $35.83 per share, and since the date of grant the stock did not trade above $40.00 per share; accordingly, NaN of the 2019 Option Grants are vested at December 31, 2019.
Stock option grants of 210,000 options to Mr. Remy Trafelet and 90,000 options to Mr. John Kiernan (collectively, the “2018 Option Grants”) were granted on September 7, 2018. The option exercise price for these options was set at $33.60, the closing price on September 7, 2018. The 2018 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 $35.00; (ii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00; (iii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $45.00; and (iv) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $50.00. If the applicable stock price hurdles have not been achieved by (A) the date that is 18 months following the Executive’s termination of employment, if the Executive’s employment is terminated due to death or disability, (B) the date that is 12 months following the Executive’s termination of employment, if the Executive’s employment is terminated by the Company and Mr. Brokaw serves aswithout cause, by the Executive Vice Chairmanwith good reason, or due to the Executive’s retirement, or (C) the date of the Company, and eachtermination of them continuesthe 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 December 31, 2021 then any unvested options will be forfeited. The 2018 Option Grants will also become vested to serve onthe extent that the applicable stock price hurdles are satisfied in connection with a change in control of the Company. As of December 31, 2019, the Company’s Boardstock was trading at $35.83 per share, and since the date of Directors.grant the stock did not trade above $35.00 per share for a consecutive twenty days; accordingly, NaN of the 2018 Option Grants are vested at December 31, 2019. As set forth below, more than a majority of the 2018 Option Grants issued to Mr. Trafelet were forfeited and the vesting conditions of the remainder were modified, all pursuant to the Settlement Agreement, as defined below.
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.Mr. Henry Slack and Mr. George Brokaw (collectively, the “Option“2016 Option Grants”) were granted on December 31, 2016. The option price was set at $27.15, the closing price on December 31, 2016. The 2016 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 2016 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 December 31, 2019, the Company’s stock was trading at $35.83 per share, and since the date of grant the stock did not trade above $60.00 per share; accordingly, NaN of the 2016 Option Grants are vested at December 31, 2019. As set forth below, all of the 2016 Option Grants issued to Mr. Trafelet were forfeited pursuant to the Settlement Agreement, as defined below.
Additionally, 187,500 shares of the 2016 Option Grants made to each of Messrs. Slack and Brokaw were forfeited on September 5, 2018 and no replacement options were granted.
Pursuant to a Settlement Agreement (described in Note 13. “Related Party Transactions”), which was unanimously approved by the Board of Directors, Mr. Trafelet agreed to voluntarily resign from his roles as President and Chief Executive Officer and a director of the Company. Under the Settlement Agreement, Mr. Trafelet forfeited (i) all of the 2016 Option Grants granted to him and (ii) all of the 2018 Option Grants granted to him in September 2018, other than 26,250 stock options that will vest if the minimum price of Alico's common stock over 20 consecutive trading days exceeds $35.00 per share and 26,250 stock options that will vest if the minimum price of Alico's common stock over 20 consecutive trading days exceeds $40.00 per share (“2019 Modified Option Grant”), in each case, by the first anniversary of the date of the Settlement Agreement (collectively, the "Retained Options"). Any Retained Options that vest in accordance with their terms will expire on the date that is six months following the date on which the Retained Option vests, and any Retained Options that do not vest by the first anniversary of the Settlement Agreement will be forfeited as of such first anniversary. As of December 31, 2019, the Company’s stock was trading at $35.83 per share, and since the date of grant the stock did not trade above $35.00 per share for a consecutive twenty days; accordingly, none of the 2019 Modified Option Grants are vested at December 31, 2019. As a result of the forfeited stock options, the Company reversed $823,000 of previously recorded stock compensation expense during the year ended September 30, 2019, which is recorded as a reduction of General and Administrative expense.
Forfeitures of all stock options were recognized as incurred.
Stock compensation expense related to the options totaled approximately $205,000$82,000 and $0$289,000 for the three months ended December 31, 20172019 and 2016,2018, respectively. At December 31, 20172019 and 2016,September 30, 2019, there was approximately $1,822,000$797,000 and $2,646,000$502,000, respectively, of total unrecognized stock compensation costs related to unvested share-based compensation for the option grants, respectively.grants. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.31.89 years.
The fair value of the 2020 and 2019 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-framestimeframes for the various market conditions being met.
2020 Option Grant
|
| | |
| Expected Volatility | 32.1926.0 | % |
| Expected Term (in years) | 2.6 - 4.03.61 |
|
| Risk Free Rate | 24.51.60 | % |
The weighted-average grant-date fair value of the 2020 Option Grants was $3.53.$3.20. There were no additional stock options granted exercised or forfeitedexercised for the three months ended December 31, 2017.2019.
2019 Modified Option Grant
|
| | |
| Expected Volatility | 25.0 | % |
| Expected Term (in years) | 1.50 |
|
| Risk Free Rate | 2.52 | % |
The weighted-average grant-date fair value of the 2019 Modified Option Grant was $1.40.
2019 Option Grants
|
| | |
| Expected Volatility | 30.0 | % |
| Expected Term (in years) | 4.09 |
|
| Risk Free Rate | 2.95 | % |
The weighted-average grant-date fair value of the 2019 Option Grants was $7.10.
Stock Repurchase Authorizations
In fiscal year 2017,On October 3, 2018, the Company completed a tender offer of 752,234 shares at a price of $34.00 per share aggregating $25,575,956. 734 Investors, who was Alico's largest stockholder from 2013 until November 12, 2019, participated in the tender offer and sold a small percentage of its holdings.
On October 10, 2019, the Board of Directors authorized the repurchase of up to $7,000,0007,000 shares of the Company’s common stock from 734 Investors in two separate authorizations (the "2017 Authorization"). In March 2017, our Board of Directors authorized thea privately negotiated repurchase of upshares. On October 15, 2019, the Company entered into a repurchase agreement to $5,000,000repurchase a total of 7,000 shares of the Company’s common stock beginning March 9, 2017 and continuing through March 9,from 734 Investors, effective October 15, 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.
For the three months ended December 31, 2017, the Company did not purchase any shares under the 2017 Authorization and has 477,500 shares available to purchase in accordance with the 2017 Authorization.
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"). No shares were repurchased under the 2016 Authorization.
The following table illustrates the Company’s treasury stock issuancesactivity for the three months ended December 31, 2017:
2019:
|
| | | | | | |
| (in thousands, except share amounts) | | | |
| | Shares | | Cost |
| Balance as of September 30, 2019 | 939,632 |
| | $ | 31,943 |
|
| Purchased | 7,000 |
| | 238 |
|
| Issued to employees and directors | (5,687 | ) | | (225 | ) |
| Balance as of December 31, 2019 | 940,945 |
| | $ | 31,956 |
|
|
| | | | | | |
| (in thousands, except share amounts) | | | |
| | Shares | | Cost |
| Balance as of September 30, 2017 | 177,315 |
| | $ | 6,502 |
|
| Issued to Employees and Directors | (10,527 | ) | | (227 | ) |
| | | | |
| Balance as of December 31, 2017 | 166,788 |
| | $ | 6,275 |
|
Note 11.12. Commitments and Contingencies
Letters of Credit
The Company hashad outstanding standby letters of credit in the total amount of approximately $10,300,000$399,000 and $460,000 at December 31, 20172019 and September 30, 2017,2019, respectively, to secure its various contractual obligations.
Legal Proceedings
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 or of which any of its property is subject that it believes will have a material adverse effect on its financial position, results of operations or cash flows.
Purchase Commitments
The Company enters into contracts for the purchase of citrus trees during the normal course of its business. As of December 31, 2019, the Company had approximately $1,922,000 relating to outstanding commitments for these purchases that will be paid upon delivery of the remaining citrus trees.
Note 12.13. 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 would continue to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting Agreement provided that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Wilson would 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 provided that Mr. Wilson serve as a consultant to the Company during 2017 and would 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). As of December 31, 2017 the Company satisfied its obligation to Mr. Wilson in full. The Company expensed $187,500 for the three months ended December 31, 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,Brokaw. Mr. Slack servespreviously served as the Executive Chairman of the Company, and Mr. Brokaw currently serves as the Executive Vice Chairman of the Company, and each of them continues to serve on the Company’s Board of Directors.Company. The Employment Agreements provideprovided for an annual base salary of $400,000$250,000 in the case of Mr. TrafeletSlack and an annual base salary of $250,000 in the case of each of Messrs.Mr. Brokaw.
Effective July 1, 2019, Mr. Slack resigned his employment with the Company as Executive Chairman. Effective December 31, 2019, Mr. Brokaw resigned his employment with the Company as Executive Vice Chairman. Mr. Slack and Mr. Brokaw continue to serve on the Board of the Company.
Remy W. Trafelet
As described above, on February 11, 2019 and additionally, provided for paymentas contemplated by the Alico Settlement Agreement, Mr. Trafelet submitted to the Executives an amount in cash equal to $400,000 toBoard his resignation as President and Chief Executive Officer of the Company and a member of the Board, effective upon the execution of the Alico Settlement Agreement. Also, on February 11, 2019, as contemplated by the Settlement Agreement, the Company entered into a consulting agreement (the "Consulting Agreement") with Mr. Trafelet and $250,000 to each of Messrs. Slack and Brokaw within five business days of December 31, 2016.
As part of their employment agreements, each of the Executives were granted stock options. A stock option grant of 300,000 options in the case of3584 Inc., an entity controlled by Mr. Trafelet and 225,000 options in(the "Consultant"). Pursuant to the case of each of Messrs. Slack and Brokaw (collectively, the “Option Grants”) was provided. The Option Grants vest in accordance with the terms as described in Note 10.
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, subjectConsulting Agreement, Mr. Trafelet will make himself available 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.
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 duringthrough the three-year period afterConsultant for up to 24 months. In exchange for the resignation date, (ii) Mr. Smith agreed to be bound by certain non-competition covenants relating toconsulting services, the Company’s citrus operations and non-solicitation and non-interference covenants for a periodConsultant will receive an annual consulting fee of two years after the resignation date, and (iii)$400,000. As of December 31, 2019, the Company has paid Mr. Smith $925,000 for such services and covenants. Theapproximately $354,000 towards these consulting fees. If the Company expensed $0 and approximately $50,000 underterminates the Consulting and Non-Competition Agreement for eachconsulting period (other than in certain specified circumstances), the Company will continue to pay the consulting fees described in the immediately preceding sentence through the balance of the three months ended December 31, 2017 and 2016, respectively.24-month term.
Shared Services Agreement
The Company hashad a shared services agreement with Trafelet Brokaw Capital Management, L.P. (“TBCM”), whereby the Company will reimbursereimbursed TBCM for use of office space and various administrative and support services. The agreement expired December 31, 2018 and was not extended or renewed. The annual cost of the office and
services iswas approximately $592,000. The agreement will expire in May 2018.$618,000. The Company expensed approximately $148,000$0 and $73,000 under the Shared Services Agreement$154,000 for the three months ended December 31, 20172019 and 2016,2018, respectively.
Distribution of Shares by Alico’s Largest Shareholder
On November 12, 2019, 734 Investors, the Company’s largest shareholder from 2013 until November 12, 2019, distributed the 3,173,405 shares of Company common stock held by it, on a pro rata basis, to its members. We understand this share distribution was made in anticipation of the dissolution of 734 Investors. Transfers of these shares were not made pursuant to any current Alico registration statement.
Note 13. Subsequent Events
On January 19, 2018, the Company sold certain trailers to a third party for $500,000. The Company received $125,000 and the remaining portion is to be paid in accordance with a promissory note over three years. The trailers were classified as an Asset Held for Sale in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017.
On January 25, 2018, the Company sold its breeding herd to a third party for approximately $7,800,000. The breeding herd was classified as an Asset Held for Sale in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017. As part of this transaction, the purchaser will also lease grazing and other rights on the Alico Ranch from the Company.
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations
The following discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and related Notes thereto. Additional context can also be found in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, 2017 as filed with the Securities and Exchange Commission (“SEC”) on December 11, 2017.
Cautionary Statement Regarding Forward-Looking Information
We provide forward-looking information in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q 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.management and can be identified by terms such as “plans,” “expect,” “may,” "anticipate,” “intend,” “should be,” “will be” “is likely to,” “believes,” and similar expressions referring to future periods. Alico believes the expectations reflected in the forward-looking statements are reasonable but cannot guarantee future results, level of activity, performance or achievements. Actual results may differ materially from those expressed or implied in the forward-looking statements. Therefore, Alico cautions you against relying on any of these forward-looking statements. 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,by-products; increased pressure from diseases including citrus greening and citrus canker, as well as insects and other pests; disruption of water supplies or changes in water allocations; market pricing of citrus; 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 and corporate opportunities; onetime events; acquisitions and divestitures including our ability to achieve the anticipated results of the Orange-Co acquisition and Silver Nip Citrus merger;divestitures; seasonality; our ability to achieve the anticipated cost savings under the Alico 2.0 Modernization program; 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; the Company's receipt of future funding from the state of Florida in connection with water retention projects; any Federal relief received in the future by the Company in connection with Hurricane Irma; any reduction in the public float resulting from repurchases of common stock by the Company; recent changes in the Equity Plan awards to Employees; continuation of the Company's dividend policy; expressed desire of certain of our stockholders to liquidate their shareholdings by virtue of past market sales of common stock by sales of common stock or by way of future transactions; political changes and economic crises; competitive actions by other companies; changes in dividends; increased competition from international companies; changes in environmental regulations and markettheir impact on farming practices; the ability to secure permits for the Water Storage Contract and Project from the South Florida Water Management District; the land ownership policies of governments; changes in government farm programs and policies and international reaction to such programs; changes in pricing risks due to concentrated ownershipcalculations with our customers; fluctuations in the value of stock.the U. S. dollar, interest rates, inflation and deflation rates; changes in and effects of crop insurance programs, global trade agreements, trade restrictions and tariffs; and soil conditions, harvest yields, prices for commodities, and crop production expenses. These assumptionsforward looking statements 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 described in our Annual Report on Form 10-K for the fiscal year ended September 30, 20172019, and our Quarterly Reports on Form 10-Q.
Business Overview
Business Description
Alico, Inc. (the "Company", together with its subsidiaries (collectively, “Alico”, the “Company”, “we”, “us” or “our”) generates operating revenues primarily from the sale of its citrus products and conservationgrazing and resources operations.hunting leasing. The Company operates as threetwo business segments and substantially all of its operating revenues are generated in the United States. DuringFor the three months ended December 31, 2017, Alico2019, the Company generated operating revenues of approximately $17,533,000, loss$11,005,000, income from operations of approximately $3,304,000,$2,854,000, and net income attributable to common stockholders of approximately $8,746,000.$791,000. Cash used in operationsoperating activities was approximately $9,689,000 during$6,043,000 for the three months ended December 31, 2017.2019.
Business 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 threeits operating segments: Alico Citrus (formerly Orange Co.), Conservation and Environmental Resources and Other Operations.segments.
The Company operates threehas two 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 as well as, toand value-added services, which include contracting for the harvesting, marketing and hauling of citrus.citrus; and
ConservationWater Resources and Environmental ResourcesOther Operations includes activities related to cattle grazing, sod, native plant sales, grazing and animal sales,hunting leasing, management and/or conservation of unimproved native pasture land.
Other Operations consists ofpastureland and 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.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company's financial condition and results of operations is based upon its unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires it to make certain estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Alico bases these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, the Company evaluates the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes during this reporting period to the policies and disclosures, except for the adoption of ASC 2016-02 “Leases” as noted in Note 1 “Basis of Presentation" to the condensed consolidated financial statements in Item 1 of Part I of this Form 10-Q, and set forth in Part II, Item 7 in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2019.
See Note 1. "Basis of Presentation" to the condensed consolidated financial statements in Item 1 of Part I of this Form 10-Q for a detailed description of recent accounting pronouncements.
Recent Developments
Federal Relief Program
The Company is eligible for Hurricane Irma federal relief programs for block grants that are being administered through the State of Florida. During the fiscal year ended September 30, 2019, the Company received approximately $15,597,000 under the Florida Citrus Recovery Block Grant (“CRBG”) program. This represented the Part 1 and a portion of the Part 2 reimbursement under a three-part program. In the three months ended December 31, 2019, the Company received additional proceeds of approximately $4,466,000 under the Florida CRBG program. This represented the remaining portion of the Part 2 reimbursement under a three-part program. The timing and amount to be received under the remaining portion of Part 3 of the program, if any, has not been finalized.
Distribution of Shares by 734 Investors
On November 16, 2017, Alico announced14, 2019, 734 Investors filed a Form 4 and an amendment to Schedule 13D with the Alico 2.0 Modernization Program (“Alico 2.0”). The program is focusedSEC disclosing that on aggressively improvingNovember 12, 2019, it distributed all of its shares of Company common stock previously held by it, consisting of 3,173,405 shares, on a pro rata basis, to its members. Prior to such distribution, 734 Investors was the Company’s largest shareholder.
Employee and Board of Directors Matters
In December 2019, Mr. George R. Brokaw, the then Executive Vice Chairman, informed the Board of Directors that he would voluntarily step down as Executive Vice Chairman effective December 31, 2019 and that change has taken effect. Mr. Brokaw’s decision to step down as Executive Vice Chairman was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices. After the effectiveness of this change, Mr. Brokaw has remained a member of the CompanyBoard of Directors.
By way of action that has been taken by and optimizing its return on capital employed through cost reductions, increased efficiencies and disposition of non-performing assets. The Program began in early 2017 to transform Alico’s three legacy businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, now called Alico Citrus. Every aspect of Alico’s citrus and ranch operations, all back office support activities, andat the productivity of all assets were analyzed to determine how to eliminate costs that will not negatively affect citrus production and also improve performance throughout the Company. The changes required to realize those improvements have now been implemented. As partdirection of the program, Alico realigned its management structure and appointed Danny SuttonBoard of Directors, Benjamin D. Fishman, the non-employee Executive Chairman, will become the Chairman of the Board, effective as of February 27, 2020, immediately after the President and General ManagerAnnual Meeting of Alico Citrus.Shareholders.
As indicated in Alico’s 2.0, the Company intended to divest itself from and cease operations at the Ranch. On January 25, 2018, the Company sold its breeding herd and leased grazing and other rights on its Ranch to a third party for approximately $7,800,000. The Company will continue to own the property and conduct its long term water dispersement program and wildlife management programs.
Condensed 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 Condensed Consolidated Statements of Operations for the three months ended December 31, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended | | | | |
| | December 31, | | Change |
| | 2017 | | 2016 | | $ | | % |
| Operating revenues: | |
| | |
| | |
| | |
|
| Alico Citrus | $ | 17,079 |
| | $ | 16,877 |
| | $ | 202 |
| | 1.2 | % |
| Conservation and Environmental Resources | 363 |
| | 301 |
| | 62 |
| | 20.6 | % |
| Other Operations | 91 |
| | 267 |
| | (176 | ) | | (65.9 | )% |
| Total operating revenues | 17,533 |
| | 17,445 |
| | 88 |
| | 0.5 | % |
| | | | | | | | |
| Gross profit (loss): | |
| | |
| | |
| | |
|
| Alico Citrus | 784 |
| | 2,792 |
| | (2,008 | ) | | (71.9 | )% |
| Conservation and Environmental Resources | (234 | ) | | (213 | ) | | (21 | ) | | 9.9 | % |
| Other Operations | 32 |
| | 174 |
| | (142 | ) | | (81.6 | )% |
| Total gross profit | 582 |
| | 2,753 |
| | (2,171 | ) | | (78.9 | )% |
| | |
| | |
| | |
| | |
|
| General and administrative expenses | 3,886 |
| | 3,788 |
| | 98 |
| | 2.6 | % |
| Loss from operations | (3,304 | ) | | (1,035 | ) | | (2,269 | ) | | 219.2 | % |
| Total other expense, net | (375 | ) | | (1,981 | ) | | 1,606 |
| | (81.1 | )% |
| Loss before income taxes | (3,679 | ) | | (3,016 | ) | | (663 | ) | | 22.0 | % |
| Income tax benefit | (12,417 | ) | | (1,273 | ) | | (11,144 | ) | | NM |
|
| Net income (loss) | 8,738 |
| | (1,743 | ) | | 10,481 |
| | NM |
|
| Net loss attributable to noncontrolling interests | 8 |
| | 8 |
| | — |
| | NM |
|
| Net income (loss) attributable to Alico, Inc. common stockholders | $ | 8,746 |
| | $ | (1,735 | ) | | $ | 10,481 |
| | NM |
|
|
| | | | | | | | | | | | | | |
| (in thousands) | Three Months Ended | | | | |
| | December 31, | | Change |
| | 2019 | | 2018 | | $ | | % |
| Operating revenues: | |
| | |
| | |
| | |
|
| Alico Citrus | $ | 10,175 |
| | $ | 13,897 |
| | $ | (3,722 | ) | | (26.8 | )% |
| Water Resources and Other Operations | 830 |
| | 882 |
| | (52 | ) | | (5.9 | )% |
| Total operating revenues | 11,005 |
| | 14,779 |
| | (3,774 | ) | | (25.5 | )% |
| | | | | | | | |
| Gross profit: | |
| | |
| | |
| | |
|
| Alico Citrus | 5,335 |
| | 3,023 |
| | 2,312 |
| | 76.5 | % |
| Water Resources and Other Operations | 279 |
| | 159 |
| | 120 |
| | 75.5 | % |
| Total gross profit | 5,614 |
| | 3,182 |
| | 2,432 |
| | 76.4 | % |
| | |
| | |
| | |
| | |
|
| General and administrative expenses | 2,760 |
| | 3,450 |
| | (690 | ) | | (20.0 | )% |
| Income (loss) from operations | 2,854 |
| | (268 | ) | | 3,122 |
| | NM |
|
| Total other expenses, net | (1,595 | ) | | (2,864 | ) | | 1,269 |
| | (44.3 | )% |
| Income (loss) before income taxes | 1,259 |
| | (3,132 | ) | | 4,391 |
| | (140.2 | )% |
| Income tax provision (benefit) | 361 |
| | (629 | ) | | 990 |
| | (157.4 | )% |
| Net income (loss) | 898 |
| | (2,503 | ) | | 3,401 |
| | (135.9 | )% |
| Net (income) loss attributable to noncontrolling interests | (107 | ) | | 36 |
| | (143 | ) | | NM |
|
| Net income (loss) attributable to Alico, Inc. common stockholders | $ | 791 |
| | $ | (2,467 | ) | | $ | 3,258 |
| | (132.1 | )% |
NM - Not Meaningfulmeaningful
The following discussion provides an analysis of the Company's businessoperating segments:
Alico Citrus
The table below presents key operating measures for the three months ended December 31, 20172019 and 2016:2018:
| | | (in thousands, except per box and per pound solids data) | (in thousands, except per box and per pound solids data) | | | (in thousands, except per box and per pound solids data) | | |
| | | | | | | | | | | |
| | Three Months Ended
December 31, | | | | | Three Months Ended | | | | |
| | | Change | December 31, | | Change |
| | 2017 | | 2016 | | Unit | | % | 2019 | | 2018 | | Unit | | % |
| Operating Revenues: | | | | | | | | | | | | | | |
| Early and Mid-Season | $ | 15,417 |
| | $ | 13,669 |
| | $ | 1,748 |
| | 12.8 | % | $ | 9,066 |
| | $ | 11,645 |
| | $ | (2,579 | ) | | (22.1 | )% |
| Fresh Fruit | 1,088 |
| | 2,621 |
| | (1,533 | ) | | (58.5 | )% | 735 |
| | 1,906 |
| | (1,171 | ) | | (61.4 | )% |
| Purchase and Resale of Fruit | 35 |
| | 99 |
| | (64 | ) | | (64.6 | )% | 47 |
| | 25 |
| | 22 |
| | 88.0 | % |
| Other | 539 |
| | 488 |
| | 51 |
| | 10.5 | % | 327 |
| | 321 |
| | 6 |
| | 1.9 | % |
| Total | $ | 17,079 |
| | $ | 16,877 |
| | $ | 202 |
| | 1.2 | % | $ | 10,175 |
| | $ | 13,897 |
| | $ | (3,722 | ) | | (26.8 | )% |
| Boxes Harvested: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Early and Mid-Season | 1,214 |
| | 1,029 |
| | 185 |
| | 18.0 | % | 880 |
| | 994 |
| | (114 | ) | | (11.5 | )% |
| Total Processed | 1,214 |
| | 1,029 |
| | 185 |
| | 18.0 | % | 880 |
| | 994 |
| | (114 | ) | | (11.5 | )% |
| Fresh Fruit | 73 |
| | 129 |
| | (56 | ) | | (43.4 | )% | 95 |
| | 103 |
| | (8 | ) | | (7.8 | )% |
| Total | 1,287 |
| | 1,158 |
| | 129 |
| | 11.1 | % | 975 |
| | 1,097 |
| | (122 | ) | | (11.1 | )% |
| Pound Solids Produced: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Early and Mid-Season | 6,069 |
| | 5,440 |
| | 629 |
| | 11.6 | % | 4,856 |
| | 5,138 |
| | (282 | ) | | (5.5 | )% |
| Total | 6,069 |
| | 5,440 |
| | 629 |
| | 11.6 | % | 4,856 |
| | 5,138 |
| | (282 | ) | | (5.5 | )% |
| Pound Solids per Box: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Early and Mid-Season | 5.00 |
| | 5.29 |
| | (0.29 | ) | | (5.5 | )% | 5.52 |
| | 5.17 |
| | 0.35 |
| | 6.8 | % |
| Price per Pound Solids: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Early and Mid-Season | $ | 2.54 |
| | $ | 2.51 |
| | $ | 0.03 |
| | 1.2 | % | $ | 1.87 |
| | $ | 2.27 |
| | $ | (0.40 | ) | | (17.6 | )% |
| Price per Box: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Fresh Fruit | $ | 14.75 |
| | $ | 20.32 |
| | $ | (5.57 | ) | | (27.4 | )% | $ | 7.74 |
| | $ | 18.48 |
| | $ | (10.74 | ) | | (58.1 | )% |
| Operating Expenses: | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
|
| Cost of Sales | $ | 12,245 |
| | $ | 8,630 |
| | $ | 3,615 |
| | 41.9 | % | $ | 6,627 |
| | $ | 7,908 |
| | $ | (1,281 | ) | | (16.2 | )% |
| Fresh Fruit Packaging | — |
| | 1,182 |
| | (1,182 | ) | | NM |
| |
| Harvesting and Hauling | 3,497 |
| | 3,747 |
| | (250 | ) | | (6.7 | )% | 2,465 |
| | 2,744 |
| | (279 | ) | | (10.2 | )% |
| Purchase and Resale of Fruit | 41 |
| | 97 |
| | (56 | ) | | (57.7 | )% | 32 |
| | 21 |
| | 11 |
| | 52.4 | % |
| Other | 512 |
| | 429 |
| | 83 |
| | 19.3 | % | (4,284 | ) | | 201 |
| | (4,485 | ) | | NM |
|
| Total | $ | 16,295 |
| | $ | 14,085 |
| | $ | 2,210 |
| | 15.7 | % | $ | 4,840 |
| | $ | 10,874 |
| | $ | (6,034 | ) | | (55.5 | )% |
NM - Not Meaningfulmeaningful
Alico primarilyThe Company sells its Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. The processorsThey generally buy the citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. Fresh Fruitfruit is generally sold to packing houses that purchase the citrus on a per box basis. Purchase and resale of fruit relates to the buying of fruit from third parties and generally reselling this fruit to processors. These revenues and costs vary based on the number of boxes bought and sold. Other revenues consist of third-party grove caretaking, and the contracting for harvestingpurchase and haulingreselling of citrus.fruit.
The Company'sAlico's operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining Alico'sthe 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 the contracting for harvestingpurchase and hauling activities.
reselling of fruit.
The increasedecrease in operating revenues for the three months ended December 31, 2017, as2019, compared to the three months ended December 31, 2016, is2018, was primarily due todriven by a decrease in the timing of whenprice per pound solids in the Early and Mid-Season fruit was harvested. Asmarket place as a result of Hurricane Irma,excess supply from domestic and international growers. As such, continued scrutiny and aggressive management of all costs and expenses in this pricing environment
remains one of the Company’s highest priorities. Also contributing to the decrease in revenues was the Company commencing the harvest season later in the current year than in the previous year. The Company commenced theits current fiscal year harvesting of its Early and Mid-Season fruit in late October,early December, as compared to the harvesting commencing
in mid to late November in the previousprior harvest season. As such, the Company has harvested a greatersmaller number of boxes in the three month period ended December 31, 2017 as compared to2019, than in the same period in 2016.of the previous year. The increasedecrease from the greaterreduction in price per pound solid and the smaller number of boxes being harvested wasis partially offset by a reductionan increase in pound solids per box of 0.29.0.35 lbs. The Company anticipates that its production will completemeet the harvesting earlier in the currentpounds solids delivered last fiscal year, as compared to the prior year, for its Early and Mid-Season fruit and anticipates an overall decrease in the number of boxes harvested and revenues generated from Early and Mid-Season fruit for the 2018 harvest as compared to the prior year. Offsetting this increase was fewer boxes of fresh fruit sold at a lower price per box, as compared to the same period in the prior year.
The USDA, in its January 12, 201810, 2020 Citrus Crop Forecast for the 2017-182019-20 harvest season, indicated its expectation that the Florida orange crop will decreaseincrease from approximately 68,700,00071,800,000 boxes for the 2016-172018-19 crop year to approximately 46,000,00074,000,000 boxes for the 2017-182019-20 crop year, a decreasean increase of approximately 33.0%3.1%. The significant declineWhile the Florida production is primarilyestimated to be only slightly higher than in the prior year, the Company anticipates that the reduction in the market prices will continue throughout the 2019-20 harvest season as a result of Hurricane Irmathe excess supply from domestic and the related fruit loss experienced as well as the stress on the citrus trees for short-term fruit growth.international growers.
We originally estimated our 2018 processed boxes will decrease by approximately 40-45% compared to our fiscal year 2017 processed boxes, on a per acre basis. Based on the harvesting of fruit through the first quarter of fiscal 2018, the Company estimate of reduced production for fiscal year 2018 will remain unchanged. We expect that our operating expenses for fiscal year 2018 will remain consistent with fiscal year 2017 on a per acre basis.
The increasedecrease in cost of salesoperating expenses for the three months ended December 31, 20172019, as compared to the three months ended December 31, 20162018, is primarily relatesdue to the timingreceipt of proceeds in the three months ended December 31, 2019 of approximately $4,466,000 through the CRBG relating to Hurricane Irma and, to a smaller extent, a decrease in cost of sales. The decrease in cost of sales is attributable to harvesting of the Early and Mid-Season fruit as well as costs incurred for clean-up and repairs as a result of Hurricane Irma. As a result of commencing the harvesting of Early and Mid-Season fruit earlier in the season and harvesting a greatersmaller percentage of boxes, in relation to the estimated total boxes to be harvested for the full season, in the three months ended December 31, 20172019, as compared to the same period in the prior year, leading to a greatersmaller percentage of costs werebeing allocated to Costcost of Salessales in the period.
Alico 2.0 explored every aspect of Alico’s citrusWater Resources 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 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. However, there can be no assurance that we will be able to achieve the anticipated cost savings under Alico 2.0.Other Operations
Conservation and Environmental Resources
The table below presents key operating measures for the three months ended December 31, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | |
| (in thousands, except per pound data) | | | | | | |
| | Three Months Ended December 31, | | Change |
| | 2017 | | 2016 | | $ | | % |
| Revenue From: | |
| | |
| | |
| | |
|
| Sale of Calves | $ | 57 |
| | $ | 20 |
| | $ | 37 |
| | NM |
|
| Land Leasing | 247 |
| | 230 |
| | 17 |
| | 7.4 | % |
| Other | 59 |
| | 51 |
| | 8 |
| | 15.7 | % |
| Total | $ | 363 |
| | $ | 301 |
| | $ | 62 |
| | 20.6 | % |
| Pounds Sold: | |
| | |
| | |
| | |
|
| Calves | 49 |
| | 16 |
| | 33 |
| | NM |
|
| Price Per Pound: | |
| | |
| | |
| | |
|
| Calves | $ | 1.17 |
| | $ | 1.22 |
| | $ | (0.05 | ) | | (4.1 | )% |
| Operating Expenses: | |
| | |
| | |
| | |
|
| Cost of Calves Sold | $ | 69 |
| | $ | 24 |
| | $ | 45 |
| | NM |
|
| Land Leasing Expenses | 133 |
| | 32 |
| | 101 |
| | NM |
|
| Water Conservation | 395 |
| | 458 |
| | (63 | ) | | (13.7 | )% |
| Total | $ | 597 |
| | $ | 514 |
| | $ | 83 |
| | 16.1 | % |
|
| | | | | | | | | | | | | | |
| (in thousands) | | | | | | | |
| | Three Months Ended December 31, | | Change |
| | 2019 | | 2018 | | $ | | % |
| Revenue From: | |
| | |
| | |
| | |
|
| Land and other leasing | $ | 663 |
| | $ | 734 |
| | $ | (71 | ) | | (9.7 | )% |
| Other | 167 |
| | 148 |
| | 19 |
| | 12.8 | % |
| Total | $ | 830 |
| | $ | 882 |
| | $ | (52 | ) | | (5.9 | )% |
| Operating Expenses: | |
| | |
| | |
| | |
|
| Land and other leasing | $ | 201 |
| | $ | 314 |
| | $ | (113 | ) | | (36.0 | )% |
| Water conservation | 347 |
| | 404 |
| | (57 | ) | | (14.1 | )% |
| Other | 3 |
| | 5 |
| | (2 | ) | | (40.0 | )% |
| Total | $ | 551 |
| | $ | 723 |
| | $ | (172 | ) | | (23.8 | )% |
NM - Not Meaningful
Land and other leasing includes lease income from a lease for grazing rights, hunting leases, a lease to a third party of an aggregate mine and leases of oil extraction rights to third parties, and farm lease revenue.
Ranch
The increasedecrease in revenues from the sale of calvesWater Resources and Other Operations for the three month ended December 31, 2017, as compared to the three months ended December 31, 2016,2019 is primarily due to an increasea reduction in the number of calvesleased acreage relating to the cattle grazing lease. The reduction in the leased acreage was due to certain acres, which were included under this lease arrangement, being sold partially offset byin September 2019, and a decreasesubsequent revision in price per pound sold.December 2019 to the lease, whereby less acres are now being leased under this cattle grazing lease.
In January 2018, the Company sold the breeding herd and leased the ranch to a third party operator. The Company will continuecontinues to own the property and conduct its long termdispersed long-term water dispersement program and wildlife management programs.
ConservationWater storage and conservation
In December 2012, the SFWMDSouth Florida Water Management District ("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.land to reduce harmful discharges to the Caloosahatchee Estuary.
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. On September 19, 2018, the SFWMD issued a press release announcing the issuance of an Environmental Resource Permit for Alico. The SFWMD release also stated that (i) the issuance of the permit cleared the path for Alico to deliver a regional dispersed water storage project in the Caloosahatchee Watershed that has the opportunity to significantly reduce excessive Lake Okeechobee releases and storm water runoff to the Caloosahatchee Estuary, (ii) Alico has all necessary state approvals to proceed, and (iii) the project is expected to be operational within one year from the start of construction, which is contingent on Alico securing additional local and federal approvals. These approvals include a compatible use agreement from the Natural Resources Conservation Service, as well as approvals from the local water control districts. The project has made substantial progress toward receiving federal authorization from the US Army Corps of Engineers which includes consultation with US Fish & Wildlife Service and the Tribes of Florida. The approved Florida budget for the state’s 2017/20182019/2020 fiscal year was approved and included funding for the Program. Operating expenses were approximately $395,000$347,000 and $458,000$404,000 for the three months ended December 31, 20172019 and 2016,2018, respectively.
General and Administrative Expense
General and administrative expenses for the three months ended December 31, 20172019 totaled approximately $3,886,000$2,760,000, compared to approximately $3,788,000$3,450,000 for the three months ended December 31, 2016.2018. The increasedecrease was attributable in general and administrative expenses forlarge part to (i) a reduction in professional fees of approximately $500,000 relating to corporate matters incurred in the three months ended December 31, 2017,2018, (ii) a reduction in rent expense of approximately $150,000 as compared to the same period in 2016, was thea result of the Company not renewing its lease for office space in New York City, and (iii) a reduction in stock compensation expense of approximately $207,000 as a result of a former senior executive forfeiting his stock options during fiscal year 2019 as part of the settled litigation. These decreases were partially offset by an increase of the following:in separation agreement expense and pension expense.
separation and consulting agreement expenses of approximately $388,000
an accrual for paid time off of approximately $120,000, and
audit and tax fees of approximately $100,000.
These increases were primarily offset by expenses incurred in in the first quarter of December 2016 relating to one-time consulting expenses incurred.
Other (Expense) Income,Expenses, net
Other expense, net, for the three months ended December 31, 20172019 and 2016December 31, 2018 was approximately $375,000$1,595,000 and approximately$1,981,000,approximately $2,864,000, respectively. The decrease in the net expense is primarily due to the fact that, during the three months ended December 31, 2018, the Company recordingrecorded an expense of $956,000 relating to the change in fair value of the derivative asset and derivative liabilities. Additionally, the Company recorded less interest expense of approximately $373,000 as a gain onresult of borrowing less funds under its line of credit in the salethree months ended December 31, 2019, as compared to the three months ended December 31, 2018, along with the reduction of its office building in Fort Myers, Florida, of approximately $1,800,000. As part of the sale, the Company has entered into a lease arrangement with the buyer for a portion of the office space.long-term debt attributable to making its mandatory principal payments.
Benefit for Income Taxes
The benefit for income tax provision (benefit) was approximately $12,417,000$361,000 and $1,273,000$(629,000) for the three months ended December 31, 20172019 and 2016,2018, respectively. The increasetax provision for the three months ended December 31, 2019 primarily resulted from approximately $11,300,000the Company generating net income, while for the three months ended December 31, 2018, the Company had generated a net loss.
Seasonality
The Company is primarily engaged in non-cash tax benefit recordedthe production of fruit for sale to remeasure the Company's net deferred tax liabilitiescitrus markets, which is of a seasonal nature, and subject to the 21% corporate tax rate that was enacted December 22, 2017.
Seasonality
influence of natural phenomena and wide price fluctuations. 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. Due to Hurricane Irma, in the first quarter of fiscal 2018 Alico produced a greater percentage of boxes harvested, as compared to the estimated totals for the full harvest season, then in past years. As a result, the working capital requirements may vary from the typical trends we have historically experienced in the current year. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Liquidity and Capital Resources
A comparative balance sheet summary is presented in the following table:
| | | (in thousands) | December 31, | | September 30, | | | December 31, | | |
| | 2017 | | 2017 | | Change | 2019 | | 2018 | | Change |
| Cash and cash equivalents | $ | 948 |
| | $ | 3,395 |
| | $ | (2,447 | ) | |
| Cash and cash equivalents and restricted cash | | $ | 6,265 |
| | $ | 7,274 |
| | $ | (1,009 | ) |
| Total current assets | $ | 66,283 |
| | $ | 66,489 |
| | $ | (206 | ) | $ | 53,654 |
| | $ | 55,674 |
| | $ | (2,020 | ) |
| Total current liabilities | $ | 12,292 |
| | $ | 15,983 |
| | $ | (3,691 | ) | $ | 22,992 |
| | $ | 28,204 |
| | $ | (5,212 | ) |
| Working capital | $ | 53,991 |
| | $ | 50,506 |
| | $ | 3,485 |
| $ | 30,662 |
| | $ | 27,470 |
| | $ | 3,192 |
|
| Total assets | $ | 417,962 |
| | $ | 419,182 |
| | $ | (1,220 | ) | $ | 405,069 |
| | $ | 408,754 |
| | $ | (3,685 | ) |
| Principal amount of term loans and lines of credit | $ | 192,481 |
| | $ | 186,476 |
| | $ | 6,005 |
| $ | 156,317 |
| | $ | 193,956 |
| | $ | (37,639 | ) |
| Current ratio | 5.39 to 1 |
| | 4.16 to 1 |
| | | 2.33 to 1 |
| | 1.97 to 1 |
| | |
Management believes that a combination of cash-on-hand, cash generated from operations, assetsasset sales 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 $52,600,000$69,600,000 is available for general use as of December 31, 2017,2019, and a $25,000,000 revolving line of credit, all of which is available for general use as of December 31, 20172019 (see Note 5. “Long-Term Debt and Lines of Credit"Credit” to the accompanying Condensed Consolidated Financial Statements). If the Company pursues significant growth and other corporate opportunities, in the future, it could have a material adverse impact on its cash balances, and may need to finance such activities by drawing down monies under its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional financing could impact Alico's ability to pursue different growth and other corporate opportunities.
OurThe level of debt could have important consequences on ourAlico's business, including, but not limited to, increasing ourits 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 ourits business and the industry in which we operate.industry.
Net Cash Used In Operating Activities
The following table details the items contributing to Net Cash Used In Operating Activities for the three months ended December 31, 20172019 and 2016:2018:
| | | (in thousands) | Three Months Ended December 31, | | | Three Months Ended December 31, | | |
| | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change |
| Net income (loss) | $ | 8,738 |
| | $ | (1,743 | ) | | $ | 10,481 |
| $ | 898 |
| | $ | (2,503 | ) | | $ | 3,401 |
|
| Deferred gain on sale of sugarcane land | (141 | ) | | (300 | ) | | 159 |
| |
| Depreciation, depletion and amortization | 3,490 |
| | 3,916 |
| | (426 | ) | 3,609 |
| | 3,458 |
| | 151 |
|
| Deferred income tax benefit | (12,417 | ) | | (1,273 | ) | | (11,144 | ) | |
| Gain on sale of property and equipment | (1,596 | ) | | (205 | ) | | (1,391 | ) | |
| Non-cash interest expense on deferred gain on sugarcane land | 344 |
| | 356 |
| | (12 | ) | |
| Deferred income tax expense (benefit) | | — |
| | (629 | ) | | 629 |
|
| Gain on sale of real estate, property and equipment and assets held for sale | | (25 | ) | | (22 | ) | | (3 | ) |
| Change in fair value of derivatives | | — |
| | 956 |
| | (956 | ) |
| Impairment of long-lived assets | | 88 |
| | — |
| | 88 |
|
| Impairment of right-of-use asset | | 87 |
| | — |
| | 87 |
|
| Stock-based compensation expense | 423 |
| | 440 |
| | (17 | ) | 301 |
| | 553 |
| | (252 | ) |
| Other | (44 | ) | | 125 |
| | (169 | ) | — |
| | (7 | ) | | 7 |
|
| Change in working capital | (8,486 | ) | | (18,753 | ) | | 10,267 |
| (11,001 | ) | | (13,807 | ) | | 2,806 |
|
| Net cash used in operating activities | $ | (9,689 | ) | | $ | (17,437 | ) | | $ | 7,748 |
| $ | (6,043 | ) | | $ | (12,001 | ) | | $ | 5,958 |
|
The increasedecrease in net cash used in operating activities for the three months ended December 31, 2017,2019, as compared to the same period in 2016,2018, was primarily due to (i) an increase in net income, which was primarily driven by the receipt of $4,466,000 in federal disaster relief funds relating to Hurricane Irma, and (ii) an increase in working capital, which is due to a non-cash decrease in deferred tax liabilities, primarily as result of new tax legislation which went into effect on December 22, 2017.accounts
receivable as a result of market prices for citrus being lower, and an increase in income taxes payable, due to the increase in net income.
Due to the seasonal nature of Alico's business, working capital requirements are typically greater in the first and fourth quarters of its fiscal year. Cash flows from operating activities typically improve in the second and third fiscal quarters, as sales of its harvested citrus crops are harvested.made.
Net Cash Provided By (Used In)Used In Investing Activities
The following table details the items contributing to Net Cash Provided By (Used In)Used In Investing Activities for the three months ended December 31, 20172019 and 2016:2018:
| | | (in thousands) | Three Months Ended December 31, | | | Three Months Ended December 31, | | |
| | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change |
| Capital expenditures: | | | | | | | | | | |
| Citrus tree development | $ | (2,628 | ) | | $ | (1,113 | ) | | $ | (1,515 | ) | |
| Breeding herd purchases | (317 | ) | | (91 | ) | | (226 | ) | |
| Citrus trees | | $ | (3,349 | ) | | $ | (2,971 | ) | | $ | (378 | ) |
| Equipment and other | (616 | ) | | (1,070 | ) | | 454 |
| (158 | ) | | (487 | ) | | 329 |
|
| Other | — |
| | (83 | ) | | 83 |
| (34 | ) | | — |
| | (34 | ) |
| Total | (3,561 | ) | | (2,357 | ) | | (1,204 | ) | (3,541 | ) | | (3,458 | ) | | (83 | ) |
| | | | | | | | | | | |
| Proceeds from sale of property and equipment | 5,300 |
| | — |
| | 5,300 |
| |
| Proceeds from sale of assets | — |
| | 432 |
| | (432 | ) | |
| Other | — |
| | 115 |
| | (115 | ) | |
| Net cash provided by (used in) investing activities | $ | 1,739 |
| | $ | (1,810 | ) | | $ | 3,549 |
| |
| Net proceeds from sale of property and equipment and assets held for sale | | 42 |
| | 202 |
| | (160 | ) |
| Change in deposits on purchase of citrus trees | | (194 | ) | | (632 | ) | | 438 |
|
| Advances on notes receivables, net | | 4 |
| | 4 |
| | — |
|
| Net cash used in investing activities | | $ | (3,689 | ) | | $ | (3,884 | ) | | $ | 195 |
|