ALICO, INC.

FORM 10-Q

For the threemonths ended December 31, ~~2018~~2019 and ~~2017~~2018

Table of Contents

~~Part 1 - FINANCIAL INFORMATION~~

PART I

Item 1. Condensed Consolidated Financial ~~Statements.~~Statements

Index to Condensed Consolidated Financial Statements



	Page
Condensed Consolidated Balance Sheets as of December 31, ~~2018~~2019 (Unaudited) and September 30, ~~2018~~2019	12
Condensed Consolidated Statements of Operations for the three months ended December 31, 2019 and 2018 ~~and 2017~~ (Unaudited)	3
Condensed Consolidated Statements of Changes in Equity for the three months ended December 31, 2019 and 2018 (Unaudited)	4
Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2019 and 2018 ~~and 2017~~ (Unaudited)	45
Notes to Condensed Consolidated Financial Statements (Unaudited)	56

ALICO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)

December 31, September 30,
2018 2018
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 272
$ 25,260
Accounts receivable, net 6,842
2,544
Inventories 42,458
41,033
Assets held for sale 1,215
1,391
Income tax receivable 484
15
Prepaid expenses and other current assets 1,134
818
Derivative asset 3,269
—
Total current assets 55,674
71,061

Restricted cash 7,002
7,000
Property and equipment, net 340,563
340,403
Goodwill 2,246
2,246
Deferred financing costs, net of accumulated amortization 87
136
Other non-current assets 3,182
2,576
Total assets $ 408,754
$ 423,422

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,002
$ 3,764
Accrued liabilities 4,382
9,226
Long-term debt, current portion 5,300
5,275
Income taxes payable —
2,320
Other current liabilities 984
913
Derivative liabilities 14,536
—
Total current liabilities 28,204
21,498

Long-term debt:
Principal amount, net of current portion 166,342
169,074
Less: deferred financing costs, net (1,514 ) (1,563 )
Long-term debt less current portion and deferred financing costs, net 164,828
167,511
Lines of credit 22,314
2,685
Deferred income tax liabilities 25,153
25,153
Deferred gain on sale —
24,928
Deferred retirement obligations 4,032
4,052
Total liabilities 244,531
245,827
Commitments and Contingencies (Note 13)

Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued —
—
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 and 8,416,145 shares issued and 7,454,795 and 8,199,957 shares outstanding at December 31, 2018 and September 30, 2018, respectively 8,416
8,416
Additional paid in capital 20,384
20,126
Treasury stock, at cost, 961,350 and 216,188 shares held at December 31, 2018 and September 30, 2018, respectively (32,817 ) (7,536 )
Retained earnings 162,798
151,111
Total Alico stockholders' equity 158,781
172,117

Noncontrolling interest 5,442
5,478
Total stockholders' equity 164,223
177,595
Total liabilities and stockholders' equity $ 408,754
$ 423,422



ALICO, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts)


	December 31,			September 30,
	2019			2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,546		$	18,630
Accounts receivable, net	1,852			713
Inventories	43,288			40,143
Assets held for sale	1,442			1,442
Prepaid expenses and other current assets	1,526			1,049
Total current assets	53,654			61,977

Restricted cash	719			5,208
Property and equipment, net	345,572			345,648
Goodwill	2,246			2,246
Other non-current assets	2,878			2,309
Total assets	$	405,069		$	417,388

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,493		$	4,163
Accrued liabilities	4,449			7,769
Long-term debt, current portion	5,130			5,338
Deferred retirement obligations	5,226			5,226
Income taxes payable	5,897			5,536
Other current liabilities	797			919
Total current liabilities	22,992			28,951

Long-term debt:
Principal amount, net of current portion	151,187			158,111
Less: deferred financing costs, net	(1,286		)	(1,369		)
Long-term debt less current portion and deferred financing costs, net	149,901			156,742
Deferred income tax liabilities, net	32,125			32,125
Other liabilities	363			172
Total liabilities	205,381			217,990
Commitments and Contingencies (Note 12)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued	—			—
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 shares issued and 7,475,200 and 7,476,513 shares outstanding at December 31, 2019 and September 30, 2019, respectively	8,416			8,416
Additional paid in capital	19,857			19,781
Treasury stock, at cost, 940,945 and 939,632 shares held at December 31, 2019 and September 30, 2019, respectively	(31,956		)	(31,943		)
Retained earnings	198,169			198,049
Total Alico stockholders' equity	194,486			194,303
Noncontrolling interest	5,202			5,095
Total stockholders' equity	199,688			199,398
Total liabilities and stockholders' equity	$	405,069		$	417,388

See accompanying notes to the condensed consolidated financial statements.


ALICO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)	ALICO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)						ALICO, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts)

	Three Months Ended December 31,						Three Months Ended December 31,
	2018			2017			2019			2018
Operating revenues:
Alico Citrus	$	13,897		$	17,079		$	10,175		$	13,897
Water Resources and Other Operations	882			454			830			882
Total operating revenues	14,779			17,533			11,005			14,779
Operating expenses:
Alico Citrus	10,874			16,295			4,840			10,874
Water Resources and Other Operations	723			656			551			723
Total operating expenses	11,597			16,951			5,391			11,597
Gross profit:	3,182			582
Gross profit							5,614			3,182
General and administrative expenses	3,450			3,886			2,760			3,450
Loss from operations	(268		)	(3,304		)
Income (loss) from operations							2,854			(268		)
Other (expense) income:
Interest expense	(1,917		)	(2,255		)	(1,544		)	(1,917		)
Gain on sale of real estate, property and equipment and assets held for sale	22			1,736			25			22
Change in fair value of derivatives	(956		)	—			—			(956		)
Other (expense) income, net	(13		)	144
Other expense							(76		)	(13		)
Total other expenses, net	(2,864		)	(375		)	(1,595		)	(2,864		)
Loss before income taxes	(3,132		)	(3,679		)
Income tax benefit	(629		)	(12,417		)
Net (loss) income	(2,503		)	8,738
Net loss attributable to noncontrolling interests	36			8
Net (loss) income attributable to Alico, Inc. common stockholders	$	(2,467	)	$	8,746
Income (loss) before income taxes							1,259			(3,132		)
Income tax provision (benefit)							361			(629		)
Net income (loss)							898			(2,503		)
Net (income) loss attributable to noncontrolling interests							(107		)	36
Net income (loss) attributable to Alico, Inc. common stockholders							$	791		$	(2,467	)
Per share information attributable to Alico, Inc. common stockholders:
(Loss) earnings per common share:
Earnings (loss) per common share:
Basic	$	(0.33	)	$	1.06		$	0.11		$	(0.33	)
Diluted	$	(0.33	)	$	1.05		$	0.11		$	(0.33	)
Weighted-average number of common shares outstanding:
Basic	7,479			8,245			7,477			7,479
Diluted	7,479			8,364			7,491			7,479

Cash dividends declared per common share	$	0.06		$	0.06		$	0.09		$	0.06

See accompanying notes to the condensed consolidated financial statements.

ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

Three Months Ended December 31,
2018 2017
Net cash used in operating activities:

Net (loss) income $ (2,503 ) $ 8,738
Adjustments to reconcile net (loss) income to net cash used in operating activities:

Deferred gain on sale of sugarcane land —
(141 )
Depreciation, depletion and amortization 3,458
3,490
Deferred income tax benefit (629 ) (12,417 )
Gain on sale of real estate, property and equipment and assets held for sale (22 ) (1,596 )
Change in fair value of derivatives 956
—
Non-cash interest expense on deferred gain on sugarcane land —
344
Stock-based compensation expense 553
423
Other (7 ) (44 )
Changes in operating assets and liabilities:

Accounts receivable (4,298 ) (7,589 )
Inventories (1,425 ) 3,024
Prepaid expenses and other assets (343 ) (240 )
Income tax receivable (469 ) —
Accounts payable and accrued expenses (5,636 ) (3,298 )
Income tax payable (1,691 ) —
Other liabilities 55
(383 )
Net cash used in operating activities (12,001 ) (9,689 )

Cash flows from investing activities:

Purchases of property and equipment (3,458 ) (3,561 )
Net proceeds from sale of property and equipment and assets held for sale 202
5,300
Deposits on purchase of citrus trees (632 ) —
Notes receivable 4
—
Net cash (used in) provided by investing activities (3,884 ) 1,739

Cash flows from financing activities:

Repayments on revolving lines of credit (6,948 ) (10,608 )
Borrowings on revolving lines of credit 26,577
17,731
Principal payments on term loans (2,707 ) (1,118 )
Treasury stock purchases (25,576 ) —
Dividends paid (447 ) (494 )
Capital lease obligation payments —
(8 )
Net cash (used in) provided by financing activities (9,101 ) 5,503

Net decrease in cash and cash equivalents and restricted cash (24,986 ) (2,447 )
Cash and cash equivalents and restricted cash at beginning of the period 32,260
3,395

Cash and cash equivalents and restricted cash at end of the period $ 7,274
$ 948
3



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(in thousands)

For the Three Months Ended December 31, 2019

	Common stock			Additional Paid-In			Treasury			Retained			Total Alico, Inc.			Non-controlling			Total
	Shares	Amount		Capital			Stock			Earnings			Equity			Interest			Equity
Balance at September 30, 2019	8,416	$	8,416	$	19,781		$	(31,943	)	$	198,049		$	194,303		$	5,095		$	199,398
Net income	—	—		—			—			791			791			107			898
Dividends	—	—		—			—			(671		)	(671		)	—			(671		)
Treasury stock purchases	—	—		—			(238		)	—			(238		)	—			(238		)
Stock-based compensation:
Directors	—	—		(32		)	225			—			193			—			193
Executives	—	—		108			—			—			108			—			108
Balance at December 31, 2019	8,416	$	8,416	$	19,857		$	(31,956	)	$	198,169		$	194,486		$	5,202		$	199,688


For the Three Months Ended December 31, 2018

	Common stock			Additional Paid-In			Treasury			Retained			Total Alico, Inc.			Non-controlling			Total
	Shares	Amount		Capital			Stock			Earnings			Equity			Interest			Equity
Balance at September 30, 2018	8,416	$	8,416	$	20,126		$	(7,536	)	$	151,111		$	172,117		$	5,478		$	177,595
Net loss	—	—		—			—			(2,467		)	(2,467		)	(36		)	(2,503		)
Dividends	—	—		—			—			(447		)	(447		)	—			(447		)
Treasury stock purchases	—	—		—			(25,576		)	—			(25,576		)	—			(25,576		)
ASC 610-20 adoption	—	—		—			—			14,601			14,601			—			14,601
Stock-based compensation:
Directors	—	—		(57		)	295			—			238			—			238
Executives	—	—		315			—			—			315			—			315
Balance at December 31, 2018	8,416	$	8,416	$	20,384		$	(32,817	)	$	162,798		$	158,781		$	5,442		$	164,223

See accompanying notes to the condensed consolidated financial statements.



ALICO, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)

	Three Months Ended December 31,
	2019			2018
Net cash used in operating activities:
Net income (loss)	$	898		$	(2,503	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation, depletion and amortization	3,609			3,458
Deferred income tax expense (benefit)	—			(629		)
Gain on sale of real estate, property and equipment and assets held for sale	(25		)	(22		)
Change in fair value of derivatives	—			956
Impairment of long-lived assets	88			—
Impairment of right-of-use asset	87			—
Stock-based compensation expense	301			553
Other	—			(7		)
Changes in operating assets and liabilities:
Accounts receivable	(1,139		)	(4,298		)
Inventories	(3,145		)	(1,425		)
Prepaid expenses	(477		)	(343		)
Income tax receivable	—			(469		)
Other assets	(457		)	—
Accounts payable and accrued liabilities	(6,213		)	(5,636		)
Income tax payable	361			(1,691		)
Other liabilities	69			55
Net cash used in operating activities	(6,043		)	(12,001		)

Cash flows from investing activities:
Purchases of property and equipment	(3,541		)	(3,458		)
Net proceeds from sale of property and equipment and assets held for sale	42			202
Change in deposits on purchase of citrus trees	(194		)	(632		)
Advances on notes receivables, net	4			4
Net cash used in investing activities	(3,689		)	(3,884		)

Cash flows from financing activities:
Repayments on revolving lines of credit	—			(6,948		)
Borrowings on revolving lines of credit	—			26,577
Principal payments on term loans	(7,132		)	(2,707		)
Treasury stock purchases	(238		)	(25,576		)
Dividends paid	(448		)	(447		)
Deferred financing costs	(23		)	—
Net cash used in financing activities	(7,841		)	(9,101		)

Net decrease in cash and cash equivalents and restricted cash	(17,573		)	(24,986		)
Cash and cash equivalents and restricted cash at beginning of the period	23,838			32,260

Cash and cash equivalents and restricted cash at end of the period	$	6,265		$	7,274

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 ~~117,000~~111,000 acres of land throughout Florida, including approximately 90,000 acres of mineral rights. The Company manages its land based upon its primary usage, and reviews its performance based upon ~~two~~2 primary ~~classifications -~~classifications: (i) Alico Citrus and (ii) Water Resources and Other Operations. Financial results are presented based upon ~~its two~~these 2 business ~~segments (Alico Citrus and Water 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, ~~2018,~~2019, as filed with the SEC on December ~~6, 2018.~~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, ~~2019.~~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 ~~two~~2 operating segments: (i) Alico Citrus and (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. ~~The Company evaluates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.~~

Restricted Cash

Restricted cash is comprised of cash received from the sale of certain assets ~~for~~in which the use of funds is restricted. For certain ~~sale~~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 ~~which are~~ acceptable to the debt ~~holder.~~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 ~~for such purchases within a twelve-month period,~~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 ~~purchases.~~sales. The Company recognizes revenue at the amount it expects to be entitled to be paid, determined when control of the products or services is transferred to its customers, which occurs upon delivery of and acceptance of the fruit by the customer and the Company has a right to payment.

The Company has identified one performance obligation as the delivery of fruit to the processing facility (or harvesting of the citrus in the 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 ~~these~~ 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 ~~which fall within the range of the floor and ceiling price identified in the specific contract,~~ 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, ~~2018~~2019, and September 30, ~~2018,~~2019, the Company had total receivables relating to sales of citrus of ~~$6,848,000~~approximately $1,500,000 and ~~$2,471,000,~~$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, ~~2018~~2019 and ~~December 31, 2017~~2018 are as follows:


(in thousands)	Three Months Ended December 31,
	Three Months Ended December 31,				Three Months Ended December 31,
	2018		2017		2019		2018
Alico Citrus
Early and Mid-Season	$	11,645	$	15,417	$	9,066	$	11,645
Fresh Fruit	1,906		1,088		735		1,906
Other	346		574		374		346
Total	$	13,897	$	17,079	$	10,175	$	13,897

Water Resources and Other Operations
Land and other leasing	$	734	$	247	$	663	$	734
Other	148		207		167		148
Total	$	882	$	454	$	830	$	882

Total Revenues	$	14,779	$	17,533	$	11,005	$	14,779

~~Reclassifications~~

Certain prior year amounts have been reclassified in the accompanying Financial Statements for consistent presentation to the current period. These reclassifications had no impact on net income, equity or cash flows as previously reported.

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 $73,502 ~~and $16,219~~ for the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively, of which 51% is attributable to the Company.

Recent Accounting Pronouncements

In ~~February 2016,~~January 2017, the FASB issued Accounting Standards Update (“~~ASU"~~ASU”) 2016-02, “Leases (Topic 842)." This guidance will require entities that enter into leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous GAAP. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company is currently evaluating the impact this guidance will have on our Financial Statements, and it will become effective for Alico October 1, 2019.

~~In January 2017, the FASB issued ASU~~ 2017-04, ~~“Intangibles-Goodwill~~“Intangibles-Goodwill and Other” (Topic 350), which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in 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. ~~We are currently evaluating~~The Company does not expect the adoption of ASU 2017-04 will have a material impact on ~~our~~its consolidated financial ~~statements.~~statements and will adopt the standard effective October 1, 2020.

In August 2018, the FASB issued ASU 2018-13, ~~"Fair~~“Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value ~~Measurements" ("~~Measurements” (“ASU ~~2018-13"~~2018-13”), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company does not expect the adoption of ASU 2018-13 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 receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Leases (Topic 842). The standard is effective for us on October 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-19 to have a material impact on its consolidated financial statements of the Company.

The Company has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~February 2016, the FASB issued ASU ~~2014-09, Revenue from Contracts with Customers,~~2016-02, “Leases (Topic 842).” This guidance requires entities that sign leases as a lessee to recognize right-of-use assets and has subsequently issued several supplemental and/or clarifying ASU’s (collectively, “ASC 606”), which prescribes a comprehensive new revenue recognition standard that supersedes previously existing revenue recognition guidance. The new model provides a five-step analysis in determining when and how revenue is recognized. The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangelease liabilities for those ~~goods or services.~~leases classified as operating leases under previous U.S. GAAP. The ~~standard also requires new, expanded disclosures regarding revenue recognition. The standard allows initial application to be performed retrospectively to each period presented or as~~accounting applied by a modified retrospective adjustment as of the date of adoption. ASC 606, also provides for certain practical expedients, including the option to expense as incurred the incremental costs of obtaining a contract, if the contract periodlessor is ~~for one year or less, and policy elections regarding shipping and handling~~largely unchanged from that ~~provides the option to account for shipping and handling costs as contract fulfillment costs.~~applied under previous U.S. GAAP. The Company adopted ~~ASC 606 effective~~ASU 2016-02 on October 1, ~~2018,~~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 ~~first day~~Company 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 12 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.

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 ~~using the modified retrospective method.~~ 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 ~~implementation of ASC 606 did not require an adjustment to the opening balance of retained earnings~~weighted-average remaining lease term and weighted-average discount rate for our operating leases are as ~~of October 1, 2018 (see Note 1. “Revenue Recognition”).~~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

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (ASC 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also provides guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The standard also clarifies the derecognition of businesses is under the scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606. The Company adopted ASC 610-20 (“ASC 610-20”) effective October 1, 2018, the first day of our 2019 fiscal year, using the modified retrospective method. The implementation of ASC 610-20 resulted in an adjustment to increase the opening balance of retained earnings by $14,617,000 as of October 1, 2018 (see Note 7. “Derivative Asset and Derivative Liabilities/Deferred Gain on Sale”).

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 Alico's fiscal year produce the majority of the Company's annual revenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.

Note 2. Inventories

Inventories consist of the following at December 31, ~~2018~~2019 and September 30, ~~2018:~~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,
2018 2018
Unharvested fruit crop on the trees $ 40,934
$ 39,888
Other 1,524
1,145
Total inventories $ 42,458
$ 41,033
The Company records its inventory at the lower of cost or net realizable value. For the three months ended December 31, 2019, the Company did not record any adjustments to reduce inventory to net realizable value.

During the fiscal year ended September 30, 2018, the Company received insurance proceeds relating to Hurricane Irma of approximately $477,000 for property and casualty damage claims and approximately $8,952,000 for crop claims. ~~The~~During the fiscal year ended September 30, 2019, the Company ~~has~~received 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 ~~outstanding and~~pending relating to Hurricane Irma.

The Company is ~~awaiting determination of additional proceeds to be received, if any. Insurance proceeds are recorded in the period they are both probable and reasonable estimable.~~

~~In addition to the commercial insurance claims which have been submitted, the Company may be~~ eligible for Hurricane Irma federal relief programs ~~distributed by the Farm Service Agency under the 2017 Wildfires and Hurricane Indemnity Program (2017 WHIP), as well as~~for block grants that ~~will be~~are being administered through the State of Florida. ~~The specifics of these programs are still being finalized, and at this time~~During the fiscal year ended September 30, 2019, the Company ~~cannot determine~~received approximately $15,597,000 under the ~~amount~~Florida Citrus Recovery Block Grant (“CRBG”) program. This represented the Part 1 and a portion of ~~federal relief funds, if any, which will be received, or when these funds will be disbursed.~~

~~The Company records its inventory at~~ the ~~lower of cost or net realizable value. For~~Part 2 reimbursement under the three-part program. During the three months ended December 31, ~~2018,~~2019, the Company ~~did~~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 received under the Part 3 of the program, if any, has not ~~record any adjustments~~been finalized. These federal relief proceeds are included as a reduction to ~~reduce inventory to net realizable value.~~ operating expenses in the Condensed Consolidated Statements of Operations.

Note 3. Assets Held for Sale

In accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been classified as assets held for sale ~~as of~~at December 31, ~~2018~~2019 and September 30, ~~2018:~~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,
2018 2018
Trailers $ 456
$ 456
Frostproof Parcels —
176
Parcels on East Ranch 759
759
Total Assets Held For Sale $ 1,215
$ 1,391

~~During the three months ended December 31,~~On October 30, 2018, the Company sold certain parcels at Frostproof for approximately ~~$188,000~~$206,000 and realized a gain of approximately ~~$13,000.~~$12,000.

On October 30, 2017, the Company sold its corporate office building in Fort Myers, Florida for $5,300,000 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.

Note 4. Property and Equipment, Net

Property and equipment, net consists of the following at December 31, ~~2018~~2019 and September 30, ~~2018:~~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

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.

(in thousands) December 31, September 30,
2018 2018
Citrus trees $ 265,616
$ 264,714
Equipment and other facilities 55,967
53,544
Buildings and improvements 8,213
8,052
Total depreciable properties 329,796
326,310
Less: accumulated depreciation and depletion (95,220 ) (91,858 )
Net depreciable properties 234,576
234,452
Land and land improvements 105,987
105,951
Net property and equipment $ 340,563
$ 340,403

Note 5. Long-Term Debt and Lines of Credit

The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization at December 31, ~~2018~~2019 and September 30, ~~2018:~~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

December 31, 2018 September 30, 2018
Principal Deferred Financing Costs, Net Principal Deferred Financing Costs, Net
(in thousands)

Long-term debt, net of current portion:
Met Fixed-Rate Term Loans $ 94,375
$ 808
$ 95,938
$ 836
Met Variable-Rate Term Loans 46,000
372
46,719
385
Met Citree Term Loan 4,900
43
4,925
44
Pru Loans A & B 17,127
237
17,417
241
Pru Loan E 4,620
15
4,675
17
Pru Loan F 4,620
39
4,675
40
171,642
1,514
174,349
1,563
Less current portion 5,300
—
5,275
—
Long-term debt $ 166,342
$ 1,514
$ 169,074
$ 1,563

The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization at December 31, ~~2018~~2019 and September 30, ~~2018:~~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

December 31, 2018 September 30, 2018
Principal Deferred Financing Costs, Net Principal Deferred Financing Costs, Net
(in thousands)

Lines of Credit:
RLOC $ —
$ 46
$ —
$ 58
WCLC 22,314
41
2,685
78
Lines of Credit $ 22,314
$ 87
$ 2,685
$ 136

Future maturities of long-term debt ~~and lines of credit~~ as of December 31, ~~2018~~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

(in thousands)

Due within one year $ 5,300
Due between one and two years 33,289
Due between two and three years 10,975
Due between three and four years 14,715
Due between four and five years 10,755
Due beyond five years 118,922

Total future maturities $ 193,956

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

(in thousands)
Three Months Ended December 31,
2018 2017
Interest expense $ 1,917
$ 2,255
Interest capitalized 216
134
Total $ 2,133
$ 2,389

Debt

The Company's credit facilities consist 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”), a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of approximately 38,200 gross acres of citrus groves and ~~5,762~~5,800 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 ~~150~~165 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by ~~the lender~~Met beginning May 1, 2017 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 ~~4.18%~~3.58% per annum and ~~3.99%~~3.91% per annum as of December 31, ~~2018~~2019 and September 30, ~~2018,~~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 ~~the~~ fiscal year 2018, the Company elected not to make its principal payment and utilized a portion of its 2015 prepayment to satisfy its principal payment requirements for such quarters. At December 31, ~~2018,~~2019, the Company had $5,625,000 remaining available to reduce future mandatory principal payments should the Company elect to do so. The Met Variable-Rate Term Loans may be prepaid without penalty.

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 165 basis points, payable quarterly. The LIBOR spread was adjusted by ~~the lender~~Met on May 1, 2017 and is subject to further adjustment every two years thereafter. ~~Outstanding principal, if any, is due~~No 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 ~~4.18%~~3.91% and ~~3.99%~~3.91% per annum as of December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, respectively. Availability under the RLOC was $25,000,000 as of December 31, ~~2018.~~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 ~~4.10% per annum~~3.46% and 3.85% per annum as of December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, respectively. The WCLC agreement was amended on September ~~30,~~20, 2018, and the primary terms of the amendment were an extension of the maturity to November 1, 2021. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately ~~$37,426,000~~$69,600,000 and ~~$57,015,000~~$69,540,000 as of December 31, ~~2018~~2019 and September 30, ~~2018,~~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.

~~The~~There were 0 amounts outstanding ~~balance~~ on the WCLC ~~was $22,313,944~~ at December 31, ~~2018.~~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, ~~2018,~~

2019, there was approximately ~~$10,260,000~~$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. These costs, together with~~refinancing and approximately $339,000 of costs related to the retired ~~debt, are being amortized to interest expense over the applicable terms of the loans.~~debt. Additionally, ~~approximately $123,000 of~~ 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, ~~2018~~2019, respectively, in connection with ~~letters~~the extension of ~~credit. These~~the RLOC. All costs are ~~also~~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 ~~$1,266,000~~$1,173,000 and approximately ~~$1,357,000~~$1,066,000 at December 31, ~~2018~~2019 and September 30, ~~2018,~~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 years, or approximately ~~$163,581,000~~$167,364,000 for the year ended September 30, ~~2018,~~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, ~~2018,~~2019, the Company was in compliance with all of the financial covenants.

~~The credit~~Credit facilities also include a Met Life term loan collateralized by ~~real estate~~1,200 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 advance~~Principal 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 commenced 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 ~~two~~2 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. As such, the Company exceeded the allowed $5,000,000 prepayment by approximately $203,000 and was required to make a premium payment of approximately $22,000. The loans are collateralized by ~~real estate~~approximately 5,700 of citrus groves in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, ~~2033.~~2033, respectively.

Silver Nip Citrus entered into ~~two~~2 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 estate~~approximately 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 provided~~are 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 to 1.00 to~~is 1.00 to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of December 31, ~~2018,~~2019.

The unamortized balance of deferred financing costs related to the ~~most recent measurement date.~~Silver Nip Citrus debt was approximately $227,000 and $271,000 at December 31, 2019 and September 30, 2019, respectively.

Note 6. Accrued Liabilities

Accrued liabilities consist of the following at December 31, ~~2018~~2019 and September 30, ~~2018:~~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,
2018 2018

Ad valorem taxes $ —
$ 2,196
Accrued interest 1,320
1,191
Accrued employee wages and benefits 1,003
3,115
Inventory received but not invoiced 54
726
Accrued legal charges 539
—
Accrued dividends 447
492
Accrued insurance 339
223
Current portion of deferred retirement obligations 314
345
Accrued tender offer consulting charges 32
274
Other accrued liabilities 334
664
Total accrued liabilities $ 4,382
$ 9,226

Note 7. Derivative Asset and Derivative Liabilities/Deferred Gain on Sale

~~Derivative asset and derivative liabilities/deferred gain on sale assets and liabilities consists of the following at December 31, 2018 and September 30, 2018:~~

(in thousands) December 31, September 30,
2018 2018
Assets:
Derivative asset $ 3,269
$ —

Liabilities:
Derivative liabilities $ 14,536
$ —
Deferred gain on sale —
24,928
Total derivative liabilities and deferred gain on sale $ 14,536
$ 24,928

On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately $97,900,000 in cash.

The sales price was subject to post-closing adjustments over a ten year period. The Company realized a gain of approximately $42,753,000 on the sale. Initially, $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral 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 ~~$14,617,000.~~$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 Global Ag Properties USA, LLC (“Global Ag”) and a derivative ~~liabilities~~liability of $13,864,000 relating to potential payments due Global Ag from Alico. In the first quarter ended December 31, 2018, the Company recorded a loss of $956,000, which reflects the change in fair value of the derivative asset and derivative liabilities. In the three months ended March 31, 2019, the Company recorded an additional loss of $33,000.

On December 7, 2018, the Company and Global Ag entered into a Termination of Post 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 expiration 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 ~~December 7, 2018,~~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 ~~Termination of the~~ 2018 Post Closing Agreement ~~provides~~provided for (i) the termination of the 2014 Post Closing Agreement following the satisfaction of certain terms and conditions set forth in the 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 conditions to the termination of the 2014 Post Closing Agreement and the payment of funds to Global Ag ~~include~~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 certain option to purchase certain railroad property owned by Alico, (b) delivery to the escrow agent of 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.

~~Note 8. Fair Value Measurements~~

~~The Company complies with~~On March 11, 2019, the provisions of FASB ASC 820 “Fair Value Measurements” for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The majority2018 Post Closing Agreement was completed. As such, all the conditions of the ~~carrying amounts~~termination of the Company’s assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities as of December 31, 2018 and September 30, 2018, approximate their fair value because of the immediate or short term maturity of these financial instruments. The carrying amounts reported for long-term debt approximates fair value as the Company’s borrowings2014 Post Closing Agreement, mentioned above, were met with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for similar obligations. The majority of our non-financial instruments, which include inventories and property and equipment, are not required to be measured at fair value on a recurring basis. The Company has certain assets classified as Assets Held for Sale, which have been recorded at the lower of carrying value or the estimated fair value less costs to sell. Additionally, the Company has two derivatives identified during the adoption of ASC 610-20, which relate to the gain on 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 ~~November 21, 2014~~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”).

ASC 820 clarifies that fair value is an exit price representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

~~Level 1- Observable inputs such as quoted prices in active markets;~~

~~Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and~~

~~Level 3- Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.~~

The following table represents certain assets held for sale as of December 31, 2018, which have been measured at fair value on a non-recurring basis for trailers and a recurring basis for derivative asset and derivative liabilities:

(in thousands) Fair Value Hierarchy Carrying Value Adjustment to Fair Value Fair Value
Assets:
Trailers Level 3 $ 606
$ 150
$ 456
Derivative asset Level 3 3,553
284
3,269
Total assets $ 4,159
$ 434
$ 3,725

Liabilities:
Derivative liabilities Level 3 $ 13,864
$ 672
$ 14,536
Total liabilities $ 13,864
$ 672
$ 14,536

~~The following table represents certain assets held for sale as of September 30, 2018, which have been measured at fair value on a non-recurring basis:~~

(in thousands) Fair Value Hierarchy Carrying Value Adjustment to Fair Value Fair Value
Trailers Level 3 $ 606
$ 150
$ 456

The Company recognized an unrealized loss relating to the change in fair value of the Company’s derivative asset and derivative liabilities of $956,000 during the three months ended December 31, 2018. No changes were recorded in earnings attributable to unrealized gains or losses relating to the Company’s assets or liabilities for the three months ended September 30, 2018.

~~Note 9. Income Taxes~~

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act contains significant changes to corporate taxes, including a permanent reduction of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s statutory rate for the fiscal year ended September 30, 2018 was 24.5%, based on a fiscal year blended rate calculation. The 21% U.S. corporate tax rate will apply to the fiscal years ending September 30, 2019 and each year thereafter.

The Act required a one-time remeasurement of certain tax related assets and liabilities. During the first quarter ended December 31, 2017, the Company made certain estimates related to the impact of the Act including the remeasurement of deferred taxes at the new expected tax rate 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 in the three months ended December 31, 2017 for the remeasurement of deferred tax liabilities principally relate to the reduction in the U.S. corporate income tax rate. The Company recorded a tax benefit of approximately $11,300,000 to account for these deferred tax impacts.

Note ~~10.~~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, ~~2018~~2019 and ~~2017,~~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,
2018 2017

Net (loss) income attributable to Alico, Inc. common stockholders $ (2,467 ) $ 8,746

Weighted average number of common shares outstanding - basic 7,479
8,245
Dilutive effect of equity-based awards —
119
Weighted average number of common shares outstanding - diluted 7,479
8,364

Net (loss) income per common shares attributable to Alico, Inc. common stockholders:
Basic $ (0.33 ) $ 1.06
Diluted $ (0.33 ) $ 1.05

For the ~~quarter~~three months ended December 31, 2019 there were 0 anti-dilutive equity awards excluded from the calculation of diluted earnings per common share. For the three months ended December 31, 2018, equity awards are comprised of 685,000 stock options granted to Executive Officers, after taking into effect the forfeiture of 375,000 stock options (see Note 12. "Stockholders Equity"). For the quarter ended December 31, 2018, certain ~~of these of these~~ stock options were excluded from the diluted earnings per share because they were anti-dilutive. ~~For the quarter ended December 31, 2017 there were no anti-dilutive equity awards that were excluded from the calculation of diluted earnings per common share.~~

Note ~~11.~~10. Segment Information

Segments

Operating segments are defined in the criteria established under the 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 2 operating segments: Alico Citrus and Water 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,
	2018		2017			2019		2018
Revenues:
Alico Citrus	$	13,897	$	17,079		$	10,175	$	13,897
Water Resources and Other Operations	882		454			830		882
Total revenues	14,779		17,533			11,005		14,779

Operating expenses:
Alico Citrus	10,874		16,295			4,840		10,874
Water Resources and Other Operations	723		656			551		723
Total operating expenses	11,597		16,951			5,391		11,597

Gross profit (loss):
Gross profit:
Alico Citrus	3,023		784			5,335		3,023
Water Resources and Other Operations	159		(202		)	279		159
Total gross profit	$	3,182	$	582		5,614		3,182

Depreciation, depletion and amortization:
Alico Citrus	$	3,408	$	3,398		3,437		3,287
Water Resources and Other Operations	28		70			46		50
Other Depreciation, Depletion and Amortization	22		22			126		121
Total depreciation, depletion and amortization	$	3,458	$	3,490		$	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,
2018 2018
Assets:
Alico Citrus $ 387,918
$ 405,752
Water Resources and Other Operations 15,868
15,904
Other Corporate Assets 4,968
1,766
Total Assets $ 408,754
$ 423,422

Note ~~12.~~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 Incentive~~2015 Plan ~~of 2015~~ (paid in restricted stock and stock options) ~~(the “2015 Plan”)~~. 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 ~~$238,000~~$193,000 and ~~$192,000~~$238,000 for the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

Restricted Stock

In the 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 $26,000 for ~~each of~~ the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. There was approximately ~~$146,000~~$43,000 and ~~$172,000~~$69,000 of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.50 years.

Stock Option Grant

Stock option grants of 118,000 options to certain Officers and Managers 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. John 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 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 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, ~~2018,~~2019, the Company’s stock was trading at ~~$29.50~~$35.83 per share, and ~~during three months ended December 31, 2018,~~since the date of grant the stock did not trade above $40.00 per share; accordingly, ~~none~~NaN of the ~~stock options~~2019 Option Grants are vested at December 31, ~~2018.~~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 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 December 31, 2021 then any unvested options will be forfeited. The 2018 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, ~~2018,~~2019, the Company’s stock

was trading at ~~$29.50~~$35.83 per share, and ~~during~~since the ~~fiscal year 2018~~date of grant the stock did not trade above $35.00 per ~~share;~~share for a consecutive twenty days; accordingly, ~~none~~NaN of the ~~stock options~~2018 Option Grants are vested at December 31, ~~2018.~~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 “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 ~~such,~~of December 31, 2019, the ~~remaining unrecognized~~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 ~~associated with these options of approximately $783,000 was accelerated and recorded for~~during the ~~fiscal~~ year ended September 30, ~~2018.~~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 ~~$289,000~~$82,000 and ~~$205,000~~$289,000 for the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively. At December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, there was approximately ~~$2,553,000~~$797,000 and ~~$2,842,000~~$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 1.98~~1.89 years.

The fair value of the ~~2019, 2018~~2020 and ~~2016~~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-frames~~timeframes for the various market conditions being met.

2020 Option Grant



Expected Volatility	26.0	%
Expected Term (in years)	3.61
Risk Free Rate	1.60	%

The weighted-average grant-date fair value of the 2020 Option Grants was $3.20. There were no additional stock options granted or exercised for the three months ended December 31, 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 ~~Grant~~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.

~~2018 Option Grant~~



~~Expected Volatility~~	~~30.0~~	%
~~Expected Term (in years)~~	~~3.32~~
~~Risk Free Rate~~	~~2.8~~	%

~~The weighted-average grant-date fair value of the 2018 Option Grants was $7.40.~~

~~2016 Option Grant~~



~~Expected Volatility~~	~~32.19~~	%
~~Expected Term (in years)~~	~~2.6 - 4.0~~
~~Risk Free Rate~~	~~2.45~~	%

~~The weighted-average grant-date fair value of the 2016 Option Grants was $3.53.~~

There were no additional stock options granted or exercised for the fiscal quarter ended December 31, 2018. As of December 31, 2018, there remained 557,500 common shares available for issuance under the 2015 Plan.

As part of the settlement agreement described in “Note 13. Commitments and Contingencies,” all of the options underlying Mr. Trafelet’s 2016 Option Grant and all of the options underlying Mr. Trafelet’s 2018 Option Grant (other than 26,250 options that will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $35.00 and 26,250 options that will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00, in each case, prior to February 11, 2020) were forfeited without consideration on February 11, 2019. Any options retained by Mr. Trafelet that vest in accordance with their terms will expire on the date that is six months following the date on which such option vests, and any such options that do not vest by February 11, 2020 will be forfeited.

Stock Repurchase Authorizations

In the fiscal year 2017, the Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock in two separate authorizations (the "2017 Authorization"). In March 2017, the Board of Directors authorized the repurchase of up to $5,000,000 of the Company’s common stock beginning March 9, 2017 and continuing through March 9, 2019. In May 2017, the 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.

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 ~~since~~from 2013 until November 12, 2019, participated in the tender offer and sold a small percentage of its holdings.

~~For~~On October 10, 2019, the ~~three months ended December 31, 2018,~~Board of Directors authorized the repurchase of up to 7,000 shares of the Company’s common stock from 734 Investors in a privately negotiated repurchase of shares. On October 15, 2019, the Company ~~did not purchase any shares under the 2017 Authorization, and has~~

~~$1,676,443 available~~entered into a repurchase agreement to repurchase a total of 7,000 shares of the Company’s common stock ~~under the 2017 Authorization.~~from 734 Investors, effective October 15, 2019.

The following table illustrates the Company’s treasury stock activity for the three months ended December 31, ~~2018:~~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, 2018 216,188
$ 7,536
Purchased 752,234
25,576
Issued to employees and directors (7,072 ) (295 )

Balance as of December 31, 2018 961,350
$ 32,817

~~Capital Contribution~~

On April 16, 2018, all operating partners of Citree received a funding notice relating to an additional Cash Capital Contribution (“Contribution”) requirement of approximately $2,041,000 as a result of Hurricane Irma, reducing the amount of crop available for sale in the 2017-2018 harvest season and the Company adopting a more extensive caretaking plan focused on limiting the impact of citrus greening. The Company’s portion of the Contribution was approximately $1,041,000 and was funded on April 27, 2018. The remaining portion of the Contribution of $1,000,000 was funded by the noncontrolling parties.

Note ~~13.~~12. Commitments and Contingencies

Letters of Credit

The Company had outstanding standby letters of credit in the total amount of approximately ~~$10,260,000~~$399,000 and ~~$10,300,000~~$460,000 at December 31, ~~2018~~2019 and September 30, ~~2018,~~2019, respectively, to secure its various contractual obligations.

Legal Proceedings

~~Florida Litigation~~

~~On November 16, 2018, 734 Agriculture, RCF 2014 Legacy LLC, Delta Offshore Master II, LTD. and Mr. Remy W. Trafelet (the~~

“Trafelet Parties”), the Company's President and Chief Executive Officer and a member of the Board of Directors, filed a lawsuit against Messrs. George R. Brokaw, Henry R. Slack, W. Andrew Krusen and Greg Eisner, members of the Board of Directors, in the Circuit Court (the “Circuit Court”) for Hillsborough County, Florida (the “Florida Litigation”). The Trafelet Parties seek, among other things, a declaration that (1) a purported stockholder action by written consent, delivered to the Company in the name of 734 Investors and the plaintiffs in the Florida Litigation on November 11, 2018 (the “Purported Consent”) is valid and binding, (2) the resolutions passed at a meeting of the Board of Directors on November 12, 2018, to, among other things, constitute an ad hoc committee of the Board of Directors to consider, evaluate and make any and all determinations, and to take any and all actions, on behalf of the Board of Directors, in connection with the Purported Consent are null and void and (3) the four defendants in the Florida Litigation were properly removed from the Board of Directors by the Purported Consent. On November 27, 2018, the Circuit Court denied without prejudice plaintiffs’ motion for a temporary restraining order and an affirmative injunction restoring Mr. Remy W. Trafelet from administrative leave to active status in his capacity as President and CEO of the Company.

On November 28, 2018, the parties in the Florida Litigation stipulated to an order which provides, pending the resolution of the Delaware Litigation (as defined below), that (1) the record date for the Purported Consent is stayed indefinitely, and (2) Mr. Trafelet and the Company’s Board of Directors shall not take any action out of routine day-to-day operations conducted in the ordinary course of business, including any action to change the corporate governance of Alico or removing any corporate officers or directors from positions held as of November 27, 2018.

On December 6, 2018, the Trafelet Parties filed an amended complaint which added the Company and Benjamin D. Fishman, a member of the Board of Directors, as defendants. On December 21, 2018, the Trafelet Parties filed a renewed motion for a preliminary injunction restoring Mr. Remy W. Trafelet from administrative leave to active status in his capacity as President and CEO of the Company. On January 14, 2019, the defendants in the Florida Litigation filed an opposition to plaintiffs’ renewed motion for a preliminary injunction. On January 18, 2019, the defendants in the Florida Litigation filed a motion to dismiss the plaintiffs’ amended complaint.

On February 11, 2019, the parties to the Florida Litigation entered into a settlement agreement (the “Alico Settlement Agreement”) wherein the parties agreed to promptly dismiss all claims in the Florida Litigation. Pursuant to the Alico Settlement Agreement, Mr. Trafelet agreed to voluntarily resign as president and chief executive officer and a member of the Board of Directors, effective upon the execution of the Alico Settlement Agreement.

As contemplated by the Alico Settlement Agreement, on February 11, 2019, the Company entered into a consulting agreement (the “Consulting Agreement”) with Trafelet and 3584 Inc., an entity controlled by Trafelet (the “Consultant”). Pursuant to the Consulting Agreement, Trafelet will make himself available to provide consulting services to the Company through the Consultant for up to 24 months. In exchange for the consulting services, the Consultant will receive an annual consulting fee of $400,000. If the Company terminates the consulting 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 24-month term.

Also on February 11, 2019, as contemplated by the Alico Settlement Agreement, the Company entered into a Registration Rights Agreement (the “Registration Rights Agreement”) with Trafelet, relating to the shares of the Company’s common stock directly held by the Trafelet Parties as of February 11, 2019 (the “Registrable Securities”). The Registration Rights Agreement requires the Company to, among other things and subject to the terms and conditions thereof, use reasonable best efforts to file with the U.S. Securities and Exchange Commission a registration statement on Form S-3 within 90 days of the date thereof, covering the resale of the Registrable Securities.

~~Delaware Litigation~~

On November 20, 2018, members of 734 Investors filed a lawsuit against 734 Agriculture and Mr. Remy W. Trafelet, the Company's President and Chief Executive Officer and a member of the Board of Directors in the Delaware Court of Chancery (the "Delaware Court"), captioned Arlon Valencia Holdings v. Trafelet, C.A. No. 2018-0842-JTL (the “Members’ Delaware Litigation”). The plaintiffs seek, among other things, a declaration that (1) 734 Agriculture was validly replaced as the managing member of 734 Investors pursuant to the Amended and Restated Limited Liability Company Operating Agreement of 734 Investors (the “LLC Agreement”) and the 734 Consent (described above), and (2) the Purported Consent is invalid under the LLC Agreement.

Also on November 20, 2018, 734 Agriculture filed a lawsuit contesting the 734 Consent in the Delaware Court, captioned 734 Agriculture v. Arlon Valencia Holdings, LLC, C.A. No. 2018-0844-JTL (the “734 Delaware Litigation”). On November 27, 2018, the Delaware Court entered a stipulated order consolidating the Members’ Delaware Litigation and the 734 Delaware Litigation into a single lawsuit, captioned In re 734 Investors, LLC Litigation, Consol. C.A. No. 2018-0844-JTL (the consolidated suit, the “Delaware Litigation”).

On December 5, 2018, the Delaware Court entered a stipulated status quo order which provides, among other things, that 734 Agriculture shall serve as the managing member of 734 Investors during the pendency of the Delaware Litigation. The status quo order also provides that 734 Agriculture shall not take any actions outside of the ordinary course of business of 734 Investors without the consent of two-thirds of the membership interests of 734 Investors, including exercising any voting rights with respect to any shares of the Company’s common stock beneficially owned by 734 Investors.

On February 11, 2019, Trafelet, 734 Agriculture, 734 Investors, and certain members of 734 Investors entered into a settlement agreement (the “734 Investors Settlement Agreement”) wherein the parties agreed to promptly dismiss all claims in the Delaware Litigation. Pursuant to the 734 Investors Settlement Agreement, 734 Agriculture resigned as Managing Member of 734 Investors and Arlon Valencia Holdings, LLC was confirmed as Managing Member of 734 Investors.

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, ~~2018,~~2019, the Company had approximately ~~$3,516,000~~$1,922,000 relating to outstanding commitments for these purchases ~~which~~that will be paid upon ~~delivery.~~delivery of the remaining citrus trees.

Note ~~14.~~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 approximately $0 and $187,500 under the Consulting and Non-Competition Agreement for the three months ended December 31, 2018 and 2017, respectively. Mr. Wilson resigned as a member of the Company’s Board of Directors effective February 27, 2017.

Henry R. Slack and George R. Brokaw

~~Beginning June 26, 2017, both Messrs.~~On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with Henry R. Slack, and George R. Brokaw. Mr. Slack previously served as the Executive Chairman of the Company, and Mr. Brokaw ~~agreed~~currently serves as the Executive Vice Chairman of the Company. The Employment Agreements provided for an annual base salary of $250,000 in the case of Mr. Slack and an annual base salary of $250,000 in the case of 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 ~~waive payment~~serve on the Board of ~~their salaries.~~the Company.

Remy W. Trafelet

As described above, on February 11, 2019 and as contemplated by the Alico Settlement Agreement, Mr. Trafelet submitted to the Board 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 3584 Inc., an entity controlled by Mr. Trafelet (the "Consultant"). Pursuant to the Consulting Agreement, Mr. Trafelet will make himself available to provide consulting services to the Company through the Consultant for up to 24 months. In exchange for the consulting services, the Consultant will receive an annual consulting fee of $400,000. As of December 31, 2019, the Company has paid approximately $354,000 towards these consulting fees. If the Company terminates the consulting 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 24-month term.

Shared Services Agreement

The Company ~~has~~had a shared services agreement with Trafelet Brokaw Capital Management, L.P. (“TBCM”), whereby the Company ~~will reimburse~~reimbursed TBCM for use of office space and various administrative and support services. The agreement expired December 31, 2018 and ~~has~~was not ~~been~~ extended or renewed. The annual cost of the office and services was approximately $618,000. The Company expensed approximately ~~$154,000~~$0 and ~~$148,000 under the Shared Services Agreement~~$154,000 for the three months ended December 31, 2019 and 2018, ~~and 2017,~~ 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.

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, 2018 as filed with the Securities and Exchange Commission (“SEC”) on December 6, 2018 as amended by Form 10-K/A, as filed with the SEC on January 25, 2019.

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; 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; ~~market and pricing risks due to concentrated ownership of stock market and pricing risks due to concentrated ownership of stock;~~ 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 ~~the 2018 tender offer or any subsequent~~ 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 ~~into the 2018 tender offer~~ or by way of future transactions; ~~decreased cash availability as a result of closing the 2018 tender offer and effectuating share repurchases;~~ political changes and economic crises; competitive actions by other companies; changes in dividends; increased competition from international companies; changes in environmental regulations and their 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 calculations with our customers; fluctuations in the value of 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..~~expenses. These ~~assumptions~~forward 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, ~~2018~~2019, 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 grazing and hunting leasing. The Company operates as two business segments and ~~substantially~~ all of its operating revenues are generated in the United States. For the three months ended December 31, ~~2018, Alico~~2019, the Company generated operating revenues of approximately ~~$14,779,000, loss~~$11,005,000, income from operations of approximately ~~$268,000,~~$2,854,000, and net ~~loss~~income attributable to common stockholders of approximately ~~$2,467,000.~~$791,000. Cash used in operating activities was approximately ~~$12,001,000 during~~$6,043,000 for the three months ended December 31, ~~2018.~~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 ~~two~~its operating ~~segments: Alico Citrus and Water Resources and Other Operations.~~segments.

The Company ~~operates~~has 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 and value-added services, which include contracting for the harvesting, marketing and hauling of citrus; and

Water Resources and Other Operations ~~which~~ includes activities related to sod, native plant sales, grazing and hunting leasing, management and/or conservation of unimproved native ~~pasture land~~pastureland and activities related to rock mining royalties 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 ~~610-20 “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets”~~2016-02 “Leases” as noted in Note 1 ~~"Basis~~“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, ~~2018.~~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

~~Alico 2.0 Modernization~~Federal Relief Program

On November 16, 2017, we announced the Alico 2.0 Modernization Program (“Alico 2.0”). This program has transformed three legacy businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, Alico Citrus, one of the leaders in the U.S. citrus industry. This initiative explored every aspect of Alico’s citrus and ranch operations, including corporate and operational cost structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources efficiency.

Under this program, we expected to reduce citrus total expenses per acre to $2,164/acre and the cost to produce a pound solid to $1.56 when Alico 2.0 is fully implemented in 2020. These efficiencies are being 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 have also deployed 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.

The Company is ~~working to maintain operational efficiencies and deploy its resources to solidify~~eligible for Hurricane Irma federal relief programs for block grants that are being administered through the ~~Company's position as a leader in the recovering citrus industry.~~

~~The Company planted over 400,000 trees in~~State of Florida. During the fiscal year ~~2018, and intends to plant over 400,000 trees in the fiscal year~~ended September 30, 2019, ~~to help position~~ the Company ~~for future production growth beyond 2020.~~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 14, 2019, 734 Investors filed a Form 4 and an amendment to Schedule 13D with the SEC disclosing that on November 12, 2019, it distributed all of its shares of Company ~~believes that its current acreage can produce 10,000,000 boxes per year~~common stock previously held by it, consisting of 3,173,405 shares, on a ~~sustained~~pro rata basis, ~~even in an environment where citrus greening is pervasive.~~to its members. Prior to such distribution, 734 Investors was the Company’s largest shareholder.

~~Tender Offer~~Employee and Board of Directors Matters

~~On September 5, 2018,~~In December 2019, Mr. George R. Brokaw, the then Executive Vice Chairman, informed the Board of Directors ~~approved~~that he would voluntarily step down as Executive Vice Chairman effective December 31, 2019 and ~~Alico announced~~that change has taken effect. Mr. Brokaw’s decision to step down as Executive Vice Chairman was not the ~~commencement~~result of ~~an issuer offer (the “Tender Offer”) to purchase up to $19,999,990 in value of shares of its common stock at a purchase price of $34.00 per share. On October 3, 2018, upon~~any disagreement with the ~~terms and subject~~Company on any matter relating to the ~~conditions described in~~Company’s operations, policies or practices. After the ~~Offer to Purchase dated September 5, 2018, Alico repurchased an aggregate~~effectiveness of 752,234 shares at a price of $34.00 per share aggregating $25,575,956. These shares represented approximately 9.2% of the total number of shares of the Company’s common stock issued and outstanding as of October 2, 2018. Included in the 752,234 shares were 163,999 shares that the Company elected to purchase pursuant to its right to purchase up to an additional 2% of its outstanding shares of common stock. 734 Investors, LLC, Alico’s largest stockholder since 2013, participated in the Tender Offer and sold a small percentage of its holdings of the Company’s common stock. Members of neither the management team nor the Board of Directors sold any shares directly in the Tender Offer.

~~Termination Proceedings against~~this change, Mr. ~~Remy W. Trafelet~~

On November 19, 2018, Alico, with unanimous approval of the members of the Board of Directors, other than Remy W. Trafelet, notified Mr. Trafelet, the Company's President and Chief Executive Officer andBrokaw has remained a member of the Board of ~~Directors,~~Directors.

By way of action that ~~it intends to consider terminating his employment for “cause” pursuant to~~has been taken by and at the ~~terms~~direction of his employment agreement with the Company and option agreements entered into under the Company's Stock Incentive Plan of 2015 (collectively, the “Compensation Documents”). On November 28, 2018, the parties in the Florida Litigation (as defined below) stipulated to an order which provides, among other things, that pending the resolution of the Delaware Litigation (as defined below), the Board of Directors, ~~shall not take any action out~~Benjamin D. Fishman, the non-employee Executive Chairman, will become the Chairman of the ~~routine day-to-day operations conducted in the ordinary course of business, including removing any corporate officers or directors from positions held~~Board, effective as of ~~November~~February 27, ~~2018.~~2020, immediately after the Annual Meeting of Shareholders.

As described above under “Note 13. Commitments and Contingencies” on February 11, 2019, the parties to the Florida Litigation entered into the Alico Settlement Agreement wherein the parties agreed to promptly dismiss all claims in the litigation, including those related to the termination proceedings against Mr. Trafelet, and Mr. Trafelet agreed to voluntarily resign as president and chief executive officer and a member of the Company’s Board of Directors, effective upon the execution of the Alico Settlement Agreement.

As described above under “Note 13. Commitments and Contingencies”, as contemplated by the Alico Settlement Agreement, on February 11, 2019, the Company entered into the Consulting Agreement with Trafelet and the Consultant. Pursuant to the Consulting Agreement, Trafelet will make himself available to provide consulting services to the Company through the Consultant for up to 24 months. In exchange for the consulting services, the Consultant will receive an annual consulting fee of $400,000. If the Company terminates the consulting 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 24-month term.

As described above under “Note 13. Commitments and Contingencies”, as contemplated by the Alico Settlement Agreement, the Company entered into the Registration Rights Agreement with Trafelet, relating to the Registrable Securities. The Registration Rights Agreement requires the Company to, among other things and subject to the terms and conditions thereof, use reasonable best efforts to file with the U.S. Securities and Exchange Commission a registration statement on Form S-3 within 90 days of the date thereof, covering the resale of the Registrable Securities.

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, ~~2018~~2019 and ~~2017:~~2018:


(in thousands)	Three Months Ended											Three Months Ended
	December 31,						Change					December 31,						Change
	2018			2017			$			%		2019			2018			$			%
Operating revenues:
Alico Citrus	$	13,897		$	17,079		$	(3,182	)	(18.6	)%	$	10,175		$	13,897		$	(3,722	)	(26.8	)%
Water Resources and Other Operations	882			454			428			94.3	%	830			882			(52		)	(5.9	)%
Total operating revenues	14,779			17,533			(2,754		)	(15.7	)%	11,005			14,779			(3,774		)	(25.5	)%

Gross profit (loss):
Gross profit:
Alico Citrus	3,023			784			2,239			285.6	%	5,335			3,023			2,312			76.5	%
Water Resources and Other Operations	159			(202		)	361			(178.7	)%	279			159			120			75.5	%
Total gross profit	3,182			582			2,600			446.7	%	5,614			3,182			2,432			76.4	%

General and administrative expenses	3,450			3,886			(436		)	(11.2	)%	2,760			3,450			(690		)	(20.0	)%
Loss from operations	(268		)	(3,304		)	3,036			(91.9	)%
Income (loss) from operations												2,854			(268		)	3,122			NM
Total other expenses, net	(2,864		)	(375		)	(2,489		)	NM		(1,595		)	(2,864		)	1,269			(44.3	)%
Loss before income taxes	(3,132		)	(3,679		)	547			(14.9	)%
Income tax benefit	(629		)	(12,417		)	11,788			(94.9	)%
Net (loss) income	(2,503		)	8,738			(11,241		)	(128.6	)%
Net loss attributable to noncontrolling interests	36			8			28			350.0	%
Net (loss) income attributable to Alico, Inc. common stockholders	$	(2,467	)	$	8,746		$	(11,213	)	(128.2	)%
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 meaningful

The following discussion provides an analysis of the Company's ~~business~~operating segments:

Alico Citrus

The table below presents key operating measures for the three months ended December 31, ~~2018~~2019 and ~~2017:~~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
	Three Months Ended December 31,				Change					December 31,					Change
	2018		2017		Unit			%		2019			2018		Unit			%
Operating Revenues:
Early and Mid-Season	$	11,645	$	15,417	$	(3,772	)	(24.5	)%	$	9,066		$	11,645	$	(2,579	)	(22.1	)%
Fresh Fruit	1,906		1,088		818			75.2	%	735			1,906		(1,171		)	(61.4	)%
Purchase and Resale of Fruit	25		35		(10		)	(28.6	)%	47			25		22			88.0	%
Other	321		539		(218		)	(40.4	)%	327			321		6			1.9	%
Total	$	13,897	$	17,079	$	(3,182	)	(18.6	)%	$	10,175		$	13,897	$	(3,722	)	(26.8	)%
Boxes Harvested:
Early and Mid-Season	994		1,214		(220		)	(18.1	)%	880			994		(114		)	(11.5	)%
Total Processed	994		1,214		(220		)	(18.1	)%	880			994		(114		)	(11.5	)%
Fresh Fruit	103		73		30			41.1	%	95			103		(8		)	(7.8	)%
Total	1,097		1,287		(190		)	(14.8	)%	975			1,097		(122		)	(11.1	)%
Pound Solids Produced:
Early and Mid-Season	5,138		6,069		(931		)	(15.3	)%	4,856			5,138		(282		)	(5.5	)%
Total	5,138		6,069		(931		)	(15.3	)%	4,856			5,138		(282		)	(5.5	)%
Pound Solids per Box:
Early and Mid-Season	5.17		5.00		0.17			3.4	%	5.52			5.17		0.35			6.8	%
Price per Pound Solids:
Early and Mid-Season	$	2.27	$	2.54	$	(0.27	)	(10.6	)%	$	1.87		$	2.27	$	(0.40	)	(17.6	)%
Price per Box:
Fresh Fruit	$	18.48	$	14.90	$	3.58		24.0	%	$	7.74		$	18.48	$	(10.74	)	(58.1	)%
Operating Expenses:
Cost of Sales	$	7,908	$	12,245	$	(4,337	)	(35.4	)%	$	6,627		$	7,908	$	(1,281	)	(16.2	)%
Harvesting and Hauling	2,744		3,497		(753		)	(21.5	)%	2,465			2,744		(279		)	(10.2	)%
Purchase and Resale of Fruit	21		41		(20		)	(48.8	)%	32			21		11			52.4	%
Other	201		512		(311		)	(60.7	)%	(4,284		)	201		(4,485		)	NM
Total	$	10,874	$	16,295	$	(5,421	)	(33.3	)%	$	4,840		$	10,874	$	(6,034	)	(55.5	)%

NM - Not meaningful

~~Alico primarily~~The Company sells its Early and Mid-Season and Valencia oranges to processors ~~who~~that convert the majority of the citrus crop into orange juice. ~~The processors~~They 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 fruit is generally sold to packing houses ~~which~~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, ~~contracting for harvesting~~ and ~~hauling~~the purchase and reselling of ~~citrus.~~fruit.

~~The Company's~~Alico's operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining ~~Alico's~~the 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 harvesting~~purchase and ~~hauling activities.~~

reselling of fruit.

The decrease in revenues for the three months ended December 31, ~~2018,~~2019, compared to the three months ended December 31, ~~2017,~~2018, was primarily ~~due~~driven by a decrease in the price per pound solids in the market place as a result of 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. ~~As a result of Hurricane Irma, the~~The Company commenced its current fiscal year ~~2018~~ harvesting of its Early and Mid-Season fruit in ~~late October,~~early December, as compared to the harvesting commencing in late November in the ~~current~~prior harvest season. As such, the Company has harvested a smaller number of boxes in the three month period ended December 31, ~~2018,~~2019, than in the same period of the previous year. The

~~Company also experienced a~~ decrease from the reduction in ~~the~~ price per pound solid ~~of $0.27 in the three months ended December 31, 2018, compared to the same period in the prior year, largely as a result of the Early~~ and ~~Mid-season crop being greater than initially anticipated. The decrease from~~ the smaller number of boxes being harvested ~~and the reduction in price per pound solid was~~is partially offset by an increase in pound solids per box of ~~0.17~~0.35 lbs. The Company anticipates that its production will ~~complete~~meet the ~~harvesting of Early and Mid-Season fruit later in the current~~pounds solids delivered last fiscal year and anticipates an overall increase in the number of boxes harvested and revenues generated from Early and Mid-Season fruit for the fiscal year 2019 harvest, as compared to the prior year. Also, offsetting this decrease was a greater number of boxes of fresh fruit sold at a higher price per box in fiscal year 2019, as compared to the same period in the prior year.

The USDA, in its ~~December 11, 2018~~January 10, 2020 Citrus Crop Forecast for the ~~2018-19~~2019-20 harvest season, indicated its expectation that the Florida orange crop will increase from approximately ~~45,000,000 boxes for the 2017-18 crop year to approximately 77,000,000~~71,800,000 boxes for the 2018-19 crop year to approximately 74,000,000 boxes for the 2019-20 crop year, an increase of approximately ~~71.1%~~3.1%. ~~The significant increase~~While the Florida production is estimated 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 ~~2017-18 harvest season being impacted by Hurricane Irma~~the excess supply from domestic and ~~the related fruit loss experienced.~~international growers.

The Company originally estimated its fiscal year 2019 processed boxes would increase by approximately 31-37% compared to processed boxes for fiscal year 2018. Based on the harvesting of fruit through the first quarter of fiscal 2019, the Company now estimates the increased production for fiscal year 2019 to increase by approximately 52-58% compared to processed boxes for fiscal year 2018.

The decrease in operating expenses for the three months ended December 31, 2019, as compared to the three months ended December 31, 2018, is primarily due to the receipt 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 and harvesting and haul costs.~~sales. The decrease in cost of sales is ~~primarily related~~attributable to harvesting of a smaller percentage of boxes, in relation to the ~~Company harvesting less fruit,~~estimated total boxes to be harvested for the full season, in the three months ended December 31, 2019, as compared to the same period ~~ended December 31, 2017.~~in the prior year, leading to a smaller percentage of costs being allocated to cost of sales in the period.

In November 2017, the Company announced Alico 2.0. This initiative explored every aspect of Alico’s citrus and ranch operations, including corporate and operational cost structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources efficiency. As part of Alico 2.0, Alico has divested itself from several under-performing assets and Alico Citrus is reducing expenses through better purchasing, more precise application of selected fertilizers and chemicals, by outsourcing work such as harvesting, hauling, and certain caretaking tasks, and by streamlining grove management. Alico Citrus has also deployed 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.

As part of the announcement of Alico 2.0, the Company provided guidance which described expected improvements once citrus production returned to the pre-hurricane levels of approximately 7.9 million boxes, annually, along with certain cost reductions. Today, the Company believes this production level and cost savings opportunity are potentially achievable in fiscal year 2020; however, there can be no assurance that the anticipated cost savings will be realized under Alico 2.0.

Water Resources and Other Operations

The table below presents key operating measures for the three months ended December 31, ~~2018~~2019 and ~~2017:~~2018:


(in thousands)	(in thousands)
	Three Months Ended December 31,									Three Months Ended December 31,				Change
	Three Months Ended December 31,				Change					2019		2018		$			%
	2018		2017		Unit			%
Revenue From:
Land and other leasing	$	734	$	247	$	487		197.2	%	$	663	$	734	$	(71	)	(9.7	)%
Sale of calves and culls	—		57		(57		)	(100.0	)%
Other	148		150		(2		)	(1.3	)%	167		148		19			12.8	%
Total	$	882	$	454	$	428		94.3	%	$	830	$	882	$	(52	)	(5.9	)%
Operating Expenses:
Land and other leasing	$	314	$	133	$	181		136.1	%	$	201	$	314	$	(113	)	(36.0	)%
Cost of calves sold	—		69		(69		)	(100.0	)%
Water conservation	404		395		9			2.3	%	347		404		(57		)	(14.1	)%
Other	5		59		(54		)	(91.5	)%	3		5		(2		)	(40.0	)%
Total	$	723	$	656	$	67		10.2	%	$	551	$	723	$	(172	)	(23.8	)%

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, the generation of revenues from sod and tree sales and rental income for office space.~~revenue.

The ~~increase~~decrease in revenues from Water Resources and Other Operations for the three months ended December 31, 2019 is primarily due to a reduction in the ~~Company entering into~~leased 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 in September 2019, and a ~~long-term leasing arrangement, upon selling Alico’s~~subsequent revision in December 2019 to the lease, whereby less acres are now being leased under this cattle ~~herd in January 2018, with the purchaser of~~ grazing ~~rights on the ranch providing an annual revenue stream of approximately $1,200,000.~~ lease.

The Company continues to own the property and conduct its dispersed long-term water ~~dispersement~~ program and wildlife management programs.

Water storage and conservation

In December 2012, the South 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 includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed payment of $12,000,000 for operations and maintenance costs, as long as the project is in compliance with the contract and subject to annual District Board approval of funding. The contract specifies that the District Board has to approve the payments annually and there can be no assurance that it will approve the annual fixed payments. ~~The approved Florida budget for the state’s 2018/2019 fiscal year included funding for the Program, and on~~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 2019/2020 fiscal year included funding for the Program. Operating expenses were approximately ~~$404,000~~$347,000 and ~~$395,000~~$404,000 for the three months ended December 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

General and Administrative Expense

General and administrative expenses for the three months ended December 31, ~~2018~~2019 totaled approximately ~~$3,450,000,~~$2,760,000, compared to approximately ~~$3,886,000~~$3,450,000 for the three months ended December 31, ~~2017.~~2018. The decrease was attributable in large part to (i) a reduction in ~~payroll costs~~professional fees of approximately ~~$596,000, resulting primarily from~~$500,000 relating to corporate matters incurred in the three months ended December 31, 2018, (ii) a reduction in ~~(i) separation expenses~~rent expense of approximately ~~$388,000; (ii) accrual~~$150,000 as a result of the Company not renewing its lease for ~~paid time off~~office space in New York City, and (iii) a reduction in stock compensation expense of approximately ~~$120,000; and (iii) personnel and overtime costs~~$207,000 as a result of ~~approximately $88,000. Additionally,~~a former senior executive forfeiting his stock options during fiscal year 2019 as part of the ~~Company recorded less audit and tax fees and consulting fees of approximately $154,000 and $187,000, respectively.~~settled litigation. These decreases were partially offset by an increase in ~~professional fees of $500,000 relating to corporate matters during the three months ended 31, 2018.~~separation agreement expense and pension expense.

Other ~~(Expense) Income,~~Expenses, net

Other ~~(expense) income,~~expense, net, for the three months ended December 31, ~~2018~~2019 and ~~2017~~December 31, 2018 was approximately ~~$(2,864,000)~~$1,595,000 and approximately ~~$(375,000),~~$2,864,000, respectively. The ~~increase~~decrease in the net expense is primarily due to the fact that, during the three months ended December 31, 2018, the Company recorded an ~~adjustment~~expense of $956,000 relating to the change in fair value of the derivative asset and derivative liabilities. Additionally, ~~during~~the Company recorded less interest expense of approximately $373,000 as a result of borrowing less funds under its line of credit in the three months ended December 31, ~~2017,~~2019, as compared to the ~~Company recorded a gain on~~three months ended December 31, 2018, along with the ~~sale~~reduction of its ~~office building in Fort Myers, Florida, of~~long-term debt attributable to making its mandatory principal payments.

Income Taxes

The income tax provision (benefit) was approximately $1,800,000, which offset a large portion of the expenses in that quarter. As part of the sale, the Company has entered into a lease arrangement with the buyer for a portion of the office space. No significant gain on the sale of assets was recorded$361,000 and $(629,000) for the three months ended December 31, ~~2018.~~

~~Income Taxes~~

~~The income tax benefit was approximately $629,000~~2019 and ~~$12,417,000 for the three months ended December 31,~~ 2018, ~~and 2017,~~ respectively. The tax provision for the three months ended December 31, ~~2018~~2019 primarily resulted from the Company generating a net ~~loss. For~~income, while for the three months ended December 31, ~~2017,~~2018, the Company ~~recorded~~had generated a ~~non-cash tax benefit of approximately $11,300,000 resulting from the remeasurement of the Company's~~ net ~~deferred tax liabilities using the 21% corporate tax rate that was enacted December 22, 2017.~~loss.

Seasonality

Liquidity and Capital Resources

A comparative balance sheet summary is presented in the following table:


(in thousands)	December 31,		September 30,					December 31,
	2018		2018		Change			2019		2018		Change
Cash and cash equivalents and restricted cash	$	7,274	$	32,260	$	(24,986	)	$	6,265	$	7,274	$	(1,009	)
Total current assets	$	55,674	$	71,061	$	(15,387	)	$	53,654	$	55,674	$	(2,020	)
Total current liabilities	$	28,204	$	21,498	$	6,706		$	22,992	$	28,204	$	(5,212	)
Working capital	$	27,470	$	49,563	$	(22,093	)	$	30,662	$	27,470	$	3,192
Total assets	$	408,754	$	423,422	$	(14,668	)	$	405,069	$	408,754	$	(3,685	)
Principal amount of term loans and lines of credit	$	193,956	$	177,034	$	16,922		$	156,317	$	193,956	$	(37,639	)
Current ratio	1.97 to 1		3.31 to 1					2.33 to 1		1.97 to 1

Management believes that a combination of cash-on-hand, cash generated from operations, ~~assets~~asset 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 ~~$37,426,000~~$69,600,000 is available for general use as of December 31, ~~2018,~~2019, and a $25,000,000 revolving line of credit, all of which is available for general use as of December 31, ~~2018~~2019 (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, 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.

The level of debt could have important consequences on Alico's business, including, but not limited to, increasing its vulnerability to general adverse economic and industry conditions, limiting the availability of cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements, and limiting flexibility in planning for, or reacting to, changes in its business and 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, ~~2018~~2019 and ~~2017:~~2018:


(in thousands)	Three Months Ended December 31,									Three Months Ended December 31,
	2018			2017			Change			2019			2018			Change
Net (loss) income	$	(2,503	)	$	8,738		$	(11,241	)
Deferred gain on sale of sugarcane land	—			(141		)	141
Net income (loss)										$	898		$	(2,503	)	$	3,401
Depreciation, depletion and amortization	3,458			3,490			(32		)	3,609			3,458			151
Deferred income tax benefit	(629		)	(12,417		)	11,788
Deferred income tax expense (benefit)										—			(629		)	629
Gain on sale of real estate, property and equipment and assets held for sale	(22		)	(1,596		)	1,574			(25		)	(22		)	(3		)
Change in fair value of derivatives	956			—			956			—			956			(956		)
Non-cash interest expense on deferred gain on sugarcane land	—			344			(344		)
Impairment of long-lived assets										88			—			88
Impairment of right-of-use asset										87			—			87
Stock-based compensation expense	553			423			130			301			553			(252		)
Other	(7		)	(44		)	37			—			(7		)	7
Change in working capital	(13,807		)	(8,486		)	(5,321		)	(11,001		)	(13,807		)	2,806
Net cash used in operating activities	$	(12,001	)	$	(9,689	)	$	(2,312	)	$	(6,043	)	$	(12,001	)	$	5,958

The ~~increase~~decrease in net cash used in operating activities for the three months ended December 31, ~~2018,~~2019, as compared to the same period in ~~2017,~~2018, was primarily due to ~~the Company recording a~~(i) an increase in net ~~loss as well as realizing a decrease in working capital. The decrease in working capital~~income, which was primarily driven by ~~smaller receivables as well as a reduction~~the receipt of $4,466,000 in ~~accounts payable~~federal disaster relief funds relating to Hurricane Irma, and ~~accrued~~

~~expenses. The decrease~~(ii) an increase in accounts receivable is directly related to the harvesting season commencing later in the current year than in the previous year, whereby less revenues and receivables were generated. The decrease in accounts payableworking capital, which is due to ~~the Company paying certain obligations which are~~a decrease in accounts

receivable as a result of market prices for citrus being lower, and an increase in income taxes payable, due ~~and/or paid during~~to the ~~three months ended December 31, 2018. This~~ increase in net ~~cash used in operating activities was partially offset by a non-cash change in deferred tax liabilities, primarily as result of new tax legislation which went into effect on December 22, 2017.~~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 ~~(Used In) Provided By~~Used In Investing Activities

The following table details the items contributing to Net Cash ~~(Used In) Provided By~~Used In Investing Activities for the three months ended December 31, ~~2018~~2019 and ~~2017:~~2018:


(in thousands)	Three Months Ended December 31,									Three Months Ended December 31,
	2018			2017			Change			2019			2018			Change
Capital expenditures:
Citrus tree development	$	(2,971	)	$	(2,628	)	$	(343	)
Breeding herd purchases	—			(317		)	317
Citrus trees										$	(3,349	)	$	(2,971	)	$	(378	)
Equipment and other	(487		)	(616		)	129			(158		)	(487		)	329
Other										(34		)	—			(34		)
Total	(3,458		)	(3,561		)	103			(3,541		)	(3,458		)	(83		)

Net proceeds from sale of property and equipment and assets held for sale	202			5,300			(5,098		)	42			202			(160		)
Deposits on purchase of citrus trees	(632		)	—			(632		)
Notes receivable	4			—			4
Net cash (used in) provided by investing activities	$	(3,884	)	$	1,739		$	(5,623	)
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

The ~~shift from net cash provided by investing activities~~slight decrease in ~~the three months ended December 31, 2017 to~~ net cash used in investing activities for the three months ended December 31, ~~2018, was primarily due~~2019, as compared to proceeds that were received from the sale of certain assets during the first three months ended December 31, 2017. In comparison, only minimal proceeds from the sale of assets were received for the three months ended December 31, 2018. Additionally, for the three months ended December 31, 2018, ~~the Company increased its citrus tree orders which resulted in increased deposits and thus an increased use of cash. The increase in such deposits is~~was primarily due to the ~~Company’s decision to plant more trees~~net effect of a reduction in the change in deposits made on the purchase of citrus trees as a result of the Company previously making deposits on citrus trees which substantially support the plantings anticipated for fiscal ~~year 2019 as well as~~2020. This was partially offset by less proceeds being on sales of sale of property and equipment and assets held for sale and an increase in ~~the fiscal year 2020.~~capital expenditures.

Net Cash ~~(Used In) Provided By~~Used In Financing Activities

The following table details the items contributing to Net Cash ~~(Used In) Provided By~~Used In Financing Activities for the three months ended December 31, ~~2018~~2019 and ~~2017:~~

2018:


(in thousands)	Three Months Ended December 31,									Three Months Ended December 31,
	2018			2017			Change			2019			2018			Change
Repayments on revolving lines of credit	$	(6,948	)	$	(10,608	)	$	3,660		$	—		$	(6,948	)	$	6,948
Borrowings on revolving lines of credit	26,577			17,731			8,846			—			26,577			(26,577		)
Principal payments on term loans	(2,707		)	(1,118		)	(1,589		)	(7,132		)	(2,707		)	(4,425		)
Treasury stock purchases	(25,576		)	—			(25,576		)	(238		)	(25,576		)	25,338
Dividends paid	(447		)	(494		)	47			(448		)	(447		)	(1		)
Capital lease obligation payments	—			(8		)	8
Net cash (used in) provided by financing activities	$	(9,101	)	$	5,503		$	(14,604	)
Deferred financing costs										(23		)	—			(23		)
Net cash used in financing activities										$	(7,841	)	$	(9,101	)	$	1,260

The ~~shift from~~decrease in net cash ~~provided by~~used in financing activities infor the three months ended December 31, ~~2017~~2019, as compared to ~~net cash used in financing activities for~~ the three months ended December 31, 2018, was primarily due to the Company purchasing its common shares through a tender offer in October 2018 for an aggregate approximate amount of $25,576,000, which was partially offset by increased net borrowings of $19,629,000 under its line of ~~credit.~~credit for the quarter ended December 31, 2018, and prepayment of one of its long-term debt obligations in November 2019 in the amount of $4,455,000.

Alico had ~~$22,313,944~~no amount outstanding on its revolving lines of credit as of December 31, ~~2018.~~2019.

The WCLC line of credit agreement provides for Rabo Agrifinance, Inc. to issue up to ~~$20,000,000~~$2,000,000 in letters of credit on the Company’s behalf. As of December 31, ~~2018,~~2019, there was approximately ~~$10,260,000~~$399,000 in outstanding letters of credit, which correspondingly slightly reduced Alico's availability under the line of credit.

Purchase Commitments

Contractual Obligations and Off Balance Sheet Arrangements

There have been no material changes during this reporting period to the disclosures set forth in Part II, Item 7 in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018.~~2019.

Item 3.Quantitative and Qualitative Disclosures about Market ~~Risk.~~Risk

There have been no material changes during this reporting period in the disclosures set forth in Part II, Item 7A in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018,~~2019, as filed with the SEC on December ~~6, 2018.~~5, 2019.

Item 4. Controls and ~~Procedures.~~Procedures


(a)	Evaluation of Disclosure Controls and Procedures.

Our Principal Executive Officer and Chief Financial Officer have evaluated the effectiveness of the our disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our Principal Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.


(b)	Changes in Internal Control over Financial Reporting.

During the ~~first~~ fiscal quarter ended December 31, ~~2018,~~2019, there were no changes in ~~Alico's~~our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect, ~~the Company's~~our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

~~Florida Litigation~~

~~On November 16, 2018, 734 Agriculture, RCF 2014 Legacy LLC, Delta Offshore Master II, LTD. and Mr. Remy W. Trafelet (the~~

~~Delaware Litigation~~

Investors pursuant to the Amended and Restated Limited Liability Company Operating Agreement of 734 Investors (the “LLC Agreement”) and the 734 Consent (described above), and (2) the Purported Consent is invalid under the LLC Agreement.

Item 1A.Risk ~~Factors.~~Factors

There have been no material changes in the risk factors set forth in Part 1, Item 1A, “Risk Factors” in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2018,~~2019, as filed with the SEC on December ~~6, 2018.~~5, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of unregistered equity securities during the ~~period.~~period covered by this Quarterly Report on form 10-Q.

~~In the fiscal year 2017,~~Issuer Purchases of Equity Securities



Period	(a) Total number of shares (or units) purchased ⁽¹⁾	(b) Average price paid per share (or unit)		(c) Total number of shares (or units) purchased as part of publicly announced plans or programs	(d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs
10/01/2019 - 10/31/2019	7,000	$	33.95	—	—
11/01/2019 - 11/30/2019	—	—		—	—
12/01/2019 - 12/31/2019	—	—		—	—
Total	7,000	$	33.95	—	—

(1) On October 10, 2019, the Board of Directors authorized the repurchase of up to ~~$7,000,000~~7,000 shares of the ~~Company’s~~Company's common stock from 734 Investors in ~~two separate authorizations (the "2017 Authorization"). In March 2017, the Board of Directors authorized the~~a privately negotiated repurchase of upshares. The Company entered into a repurchase agreement with 734 Investors to ~~$5,000,000~~repurchase 7,000 shares of the ~~Company’s~~Company's common stock ~~beginning March 9, 2017 and continuing through March 9,~~on October 15, 2019. In May 2017, the 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, 2018, the Company did not purchase any shares under the 2017 Authorization, and has~~

~~$1,676,443 available to repurchase stock under the 2017 Authorization.~~

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosure.

Not Applicable.

Item 5. Other ~~Information.~~Information

None.

Item 6. ~~Exhibits.~~ Exhibits



Exhibit Number		Exhibit Index
3.1		Restated Certificate of Incorporation, dated February 17, 1972 (incorporated by reference to Exhibit 3.1 of Alico's filing on Form 10-K dated December 11, 2017)
3.2		Certificate of Amendment to Certificate of Incorporation, dated January 14, 1974 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.3		Amendment to Articles of Incorporation, dated January 14, 1987 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.4		Amendment to Articles of Incorporation, dated December 27, 1988 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.5		By-Laws of Alico, Inc., amended and restated (incorporated by reference to Exhibit 3.5 of the Company's quarterly report on Form 10-Q, filed with the SEC on August 6, 2019)
10.1*		Employment Agreement dated December 2, 2019 between Alico, Inc. and Richard Rallo (incorporated by reference to Exhibit 10.37 to Alico's Annual Report on Form 10-K filed with the SEC on December 5, 2019)
31.1		Certification of ~~Chief~~Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
32.1		Certification of ~~Chief~~Principal Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101
101.INS	**	XBRL Instance Document
101.SCH	**	XBRL Taxonomy Extension Schema Document
101.CAL	**	XBRL Taxonomy Calculation Linkbase Document
101.DEF	**	XBRL Taxonomy Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
*

		Denotes a management contract or compensatory plan, contract or arrangement.
**	In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	ALICO, INC. (Registrant)

February ~~11, 2019~~	~~By:~~	~~/s/ Henry R. Slack~~
		~~Henry R. Slack~~
		~~Executive Chairman and Director~~
		~~(Principal Executive Officer)~~

~~February 11, 2019~~6, 2020	By:	/s/ John E. Kiernan
		John E. Kiernan
		President and Chief Executive Officer
		(Principal Executive Officer)

February 6, 2020	By:	/s/ Richard Rallo
		Richard Rallo
		Senior Vice President and Chief Financial Officer
		(Principal Financial and Accounting ~~officer)~~Officer)

4036



þ☑	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the Quarterly Period Ended	December 31, ~~2018~~2019

	or



¨ ☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period
	from____________________	to_________________________



Florida			59-0906081
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

10070 Daniels Interstate Court
10070 Daniels Interstate Court
Suite 100	Fort Myers	FL	33913
(Address of principal executive offices)			(Zip Code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ALCO	Nasdaq Global Select Market



Large ~~accelerated filer~~Accelerated Filer	¨☐	Accelerated ~~filer~~Filer	þ☑
Non-accelerated filer	¨☐	Smaller Reporting Company	¨☐
Emerging Growth Company	¨☐



~~239-226-2000~~(239)	226-2000
(Registrant’s telephone number, including area code)



Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements	1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	3533
Item 4. Controls and Procedures	3533
Part II - OTHER INFORMATION
Item 1. Legal Proceedings	3634
Item 1A. Risk Factors	3834
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3834
Item 3. Defaults Upon Senior Securities	3834
Item 4. Mine Safety Disclosures	3834
Item 5. Other Information	3835
Item 6. Exhibits	3935
Signatures	4036



	December 31, 2018				September 30, 2018
	Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net
	(in thousands)

Long-term debt, net of current portion:
Met Fixed-Rate Term Loans	$	94,375	$	808	$	95,938	$	836
Met Variable-Rate Term Loans	46,000		372		46,719		385
Met Citree Term Loan	4,900		43		4,925		44
Pru Loans A & B	17,127		237		17,417		241
Pru Loan E	4,620		15		4,675		17
Pru Loan F	4,620		39		4,675		40
	171,642		1,514		174,349		1,563
Less current portion	5,300		—		5,275		—
Long-term debt	$	166,342	$	1,514	$	169,074	$	1,563



(in thousands)	Fair Value Hierarchy	Carrying Value		Adjustment to Fair Value		Fair Value
Assets:
Trailers	Level 3	$	606	$	150	$	456
Derivative asset	Level 3	3,553		284		3,269
Total assets		$	4,159	$	434	$	3,725

Liabilities:
Derivative liabilities	Level 3	$	13,864	$	672	$	14,536
Total liabilities		$	13,864	$	672	$	14,536