UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
For the Quarterly Period Ended March 31, 2019
 
 
 
 
 
or
 
¨

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the transition period
 
 
from____________________
to_________________________
Commission File Number: 0-261
 
Alico, Inc.
(Exact name of registrant as specified in its charter)
Florida
 
59-0906081
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
10070 Daniels Interstate Court,
 
 
 Suite 100, Fort Myers, FL
 
33913
(Address of principal executive offices)
 
(Zip Code)
239-226-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þYes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). þYes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
¨
Smaller Reporting Company
¨
Emerging Growth Company
¨
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
ALCO
NASDAQ Global Market

There were 7,470,031 shares of common stock outstanding at May 3, 2019.
 




ALICO, INC.
FORM 10-Q
For the three and six months ended March 31, 2019 and 2018
Table of Contents

 
 




Part 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
Index to Condensed Consolidated Financial Statements
 
Page





 
ALICO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
 
 
March 31,
 
September 30,
 
 
2019
 
2018
 
 
(Unaudited)
 
 
 
ASSETS
 
 

 
Current assets:
 
 
 

 
Cash and cash equivalents
$
606

 
$
25,260

 
Accounts receivable, net
13,997

 
2,544

 
Inventories
36,111

 
41,033

 
Assets held for sale
1,403

 
1,391

 
Prepaid expenses and other current assets
946

 
833

 
Total current assets
53,063

 
71,061

 
 
 
 
 
 
Restricted cash
7,004

 
7,000

 
Property and equipment, net
342,930

 
340,403

 
Goodwill
2,246

 
2,246

 
Deferred financing costs, net of accumulated amortization
44

 
136

 
Other non-current assets
2,802

 
2,576

 
Total assets
$
408,089

 
$
423,422

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 

 
Accounts payable
$
7,372

 
$
3,764

 
Accrued liabilities
5,988

 
9,226

 
Long-term debt, current portion
5,313

 
5,275

 
Income taxes payable
1,468

 
2,320

 
Other current liabilities
437

 
913

 
Total current liabilities
20,578

 
21,498

 
 
 
 
 
 
Long-term debt:
 
 
 
 
Principal amount, net of current portion
163,599

 
169,074

 
Less: deferred financing costs, net
(1,465
)
 
(1,563
)
 
Long-term debt less current portion and deferred financing costs, net
162,134

 
167,511

 
Lines of credit
24,962

 
2,685

 
Deferred income tax liabilities
28,930

 
25,153

 
Deferred gain on sale

 
24,928

 
Deferred retirement obligations
3,938

 
4,052

 
Other liabilities
346

 

 
Total liabilities
240,888

 
245,827

 
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 and 8,416,145 shares issued and 7,462,803 and 8,199,957 shares outstanding at March 31, 2019 and September 30, 2018, respectively
8,416

 
8,416

 
Additional paid in capital
19,733

 
20,126

 
Treasury stock, at cost, 953,342 and 216,188 shares held at March 31, 2019 and September 30, 2018, respectively
(32,496
)
 
(7,536
)
 
Retained earnings
166,193

 
151,111

 
Total Alico stockholders' equity
161,846

 
172,117

 
Noncontrolling interest
5,355

 
5,478

 
Total stockholders' equity
167,201

 
177,595

 
Total liabilities and stockholders' equity
$
408,089

 
$
423,422

See accompanying notes to the condensed consolidated financial statements.

1



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Operating revenues:
 
 
 
 
 
 
 
Alico Citrus
$
47,823

 
$
34,709

 
$
61,720

 
$
51,788

Water Resources and Other Operations
698

 
891

 
1,580

 
1,345

Total operating revenues
48,521

 
35,600

 
63,300

 
53,133

Operating expenses:
 

 
 

 
 
 
 
Alico Citrus
31,582

 
26,110

 
42,456

 
42,405

Water Resources and Other Operations
625

 
1,657

 
1,348

 
2,313

Total operating expenses
32,207

 
27,767

 
43,804

 
44,718

Gross profit:
16,314

 
7,833

 
19,496

 
8,415

General and administrative expenses
4,654

 
3,073

 
8,104

 
6,959

Income from operations
11,660

 
4,760

 
11,392

 
1,456

Other (expense) income:
 

 
 

 
 
 
 
Interest expense
(1,963
)
 
(2,239
)
 
(3,880
)
 
(4,494
)
Gain on sale of real estate, property and equipment and assets held for sale
1

 
99

 
23

 
1,835

Change in fair value of derivatives
(33
)
 

 
(989
)
 

Other income, net
23

 

 
10

 
144

Total other expenses, net
(1,972
)
 
(2,140
)
 
(4,836
)
 
(2,515
)
Income (loss) before income taxes
9,688

 
2,620

 
6,556

 
(1,059
)
Income tax provision (benefit)
2,228

 
8,150

 
1,599

 
(4,267
)
Net income (loss)
7,460

 
(5,530
)
 
4,957

 
3,208

Net loss attributable to noncontrolling interests
87

 
16

 
123

 
24

Net income (loss) attributable to Alico, Inc. common stockholders
$
7,547

 
$
(5,514
)
 
$
5,080

 
$
3,232

Per share information attributable to Alico, Inc. common stockholders:
 
 
 
 
 
 
 
Earnings (loss) per common share:
 

 
 

 
 

 
 

Basic
$
1.01

 
$
(0.67
)
 
$
0.68

 
$
0.39

Diluted
$
1.01

 
$
(0.67
)
 
$
0.68

 
$
0.39

Weighted-average number of common shares outstanding:
 

 
 

 
 
 
 
Basic
7,463

 
8,256

 
7,471

 
8,251

Diluted
7,469

 
8,256

 
7,506

 
8,310

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.06

 
$
0.06

 
$
0.12

 
$
0.12


See accompanying notes to the condensed consolidated financial statements.

2



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Non-
 
 
 
Common stock
 
  Paid In
 
Treasury
 
Retained
 
 
Total Alico,
 
controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
 
Inc. Equity
 
Interest
 
Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
8,416

$
8,416

 
$
20,384

 
$
(32,817
)
 
$
159,094

 
 
$
155,077

 
$
5,442

 
$
160,519

Net Income (loss)


 

 

 
7,547

 
 
7,547

 
(87
)
 
7,460

Dividends ($0.06/share)


 

 

 
(448
)
 
 
(448
)
 

 
(448
)
Treasury stock purchases


 

 

 

 
 

 

 

Stock-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Directors


 
(83
)
 
321

 

 
 
238

 

 
238

  Executives


 
255

 

 

 
 
255

 

 
255

  Executive forfeiture


 
(823
)
 

 

 
 
(823
)
 

 
(823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
8,416

$
8,416

 
$
19,733

 
$
(32,496
)
 
$
166,193

 
 
$
161,846

 
$
5,355

 
$
167,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Non-
 
 
 
Common stock
 
  Paid In
 
Treasury
 
Retained
 
 
Total Alico,
 
controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
 
Inc. 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 Income (loss)


 

 

 
5,080

 
 
5,080

 
(123
)
 
4,957

Dividends ($0.12/share)


 

 

 
(895
)
 
 
(895
)
 

 
(895
)
Treasury stock purchases


 

 
(25,576
)
 

 
 
(25,576
)
 

 
(25,576
)
ASC 610-20 adoption


 

 

 
10,897

 
 
10,897

 

 
10,897

Stock-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Directors


 
(140
)
 
616

 

 
 
476

 

 
476

  Executives


 
570

 

 

 
 
570

 

 
570

  Executive forfeiture


 
(823
)
 

 

 
 
(823
)
 

 
(823
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
8,416

$
8,416

 
$
19,733

 
$
(32,496
)
 
$
166,193

 
 
$
161,846

 
$
5,355

 
$
167,201

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

3



 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Non-
 
 
 
Common stock
 
Paid In
 
Treasury
 
Retained
 
 
Total Alico,
 
controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
 
Inc. Equity
 
Interest
 
 Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
8,416

8,416

 
18,890

 
(6,275
)
 
148,285

 
 
169,316

 
4,720

 
174,036

Net loss


 

 

 
(5,514
)
 
 
(5,514
)
 
(16
)
 
(5,530
)
Dividends ($0.06/share)


 

 

 
(494
)
 
 
(494
)
 

 
(494
)
Treasury stock purchases


 

 
(206
)
 

 
 
(206
)
 

 
(206
)
Stock-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Directors


 
(82
)
 
273

 

 
 
191

 

 
191

  Executives


 
242

 

 

 
 
242

 

 
242

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
8,416

8,416

 
19,050

 
(6,208
)
 
142,277

 
 
163,535

 
4,704

 
168,239

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the six months ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
 
 
 
 
Non-
 
 
 
Common stock
 
Paid In
 
Treasury
 
Retained
 
 
Total Alico,
 
controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
 
Inc. Equity
 
Interest
 
 Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at September 30, 2017
8,416

$
8,416

 
$
18,694

 
$
(6,502
)
 
$
140,033

 
 
$
160,641

 
$
4,728

 
$
165,369

Net Income (loss)


 

 

 
3,232

 
 
3,232

 
(24
)
 
3,208

Dividends ($0.12/share)


 

 

 
(988
)
 
 
(988
)
 

 
(988
)
Treasury stock purchases


 

 
(206
)
 

 
 
(206
)
 

 
(206
)
Stock-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Directors


 
(118
)
 
500

 

 
 
382

 

 
382

  Executives


 
474

 

 

 
 
474

 

 
474

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
8,416

$
8,416

 
$
19,050

 
$
(6,208
)
 
$
142,277

 
 
$
163,535

 
$
4,704

 
$
168,239




See accompanying notes to the condensed consolidated financial statements.


4



 
ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
 
 
 
 
 
 
 
Six Months Ended March 31,
 
 
2019
 
2018
 
Net cash provided by (used in) operating activities:


 


 
Net income
$
4,957

 
$
3,208

 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

 
Deferred gain on sale of sugarcane land

 
(282
)
 
Depreciation, depletion and amortization
6,951

 
6,922

 
Deferred income tax provision (benefit)
73

 
(4,306
)
 
Gain on sale of real estate, property and equipment and assets held for sale
(23
)
 
(1,835
)
 
Change in fair value of derivatives
989

 

 
Non-cash interest expense on deferred gain on sugarcane land

 
688

 
Stock-based compensation expense
223

 
856

 
Other
(51
)
 
(300
)
 
Changes in operating assets and liabilities:
 

 
 

 
Accounts receivable
(11,453
)
 
(12,229
)
 
Inventories
4,922

 
9,194

 
Prepaid expenses and other assets
92

 
(620
)
 
Accounts payable and accrued expenses
370

 
(533
)
 
Income tax payable
(852
)
 

 
Other liabilities
(130
)
 
(1,014
)
 
Net cash provided by (used in) operating activities
6,068

 
(251
)
 
 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
Purchases of property and equipment
(9,524
)
 
(7,438
)
 
Net proceeds from sale of property and equipment and assets held for sale
202

 
24,612

 
Deposits on purchase of citrus trees
(515
)
 

 
Notes receivable
50

 
(379
)
 
Net cash (used in) provided by investing activities
(9,787
)
 
16,795

 
 
 
 
 
 
Cash flows from financing activities:
 

 
 

 
Repayments on revolving lines of credit
(41,360
)
 
(21,424
)
 
Borrowings on revolving lines of credit
63,637

 
21,424

 
Principal payments on term loans
(5,437
)
 
(6,715
)
 
Treasury stock purchases
(25,576
)
 
(206
)
 
Payment on termination of Global Ag agreement
(11,300
)
 

 
Dividends paid
(895
)
 
(988
)
 
Capital lease obligation payments

 
(8
)
 
Net cash used in financing activities
(20,931
)
 
(7,917
)
 
 
 
 
 
 
Net (decrease) increase in cash and cash equivalents and restricted cash
(24,650
)
 
8,627

 
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
$
7,610

 
$
12,022

See accompanying notes to the condensed consolidated financial statements.

5



ALICO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
Description of Business
 
Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately 117,000 acres of land throughout Florida, including approximately 90,000 acres of mineral rights. The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications: (i) Alico Citrus and (ii) Water Resources and Other Operations. Financial results are presented based upon its two business segments (Alico Citrus and Water Resources and Other Operations). 

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, as filed with the SEC on December 6, 2018.
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. 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 operating segments: (i) Alico Citrus and (ii) Water Resources and Other Operations.

Principles of Consolidation

The Financial Statements include the accounts of Alico and the accounts of all the subsidiaries in which a controlling interest is held by the Company. Under U.S. GAAP, consolidation is generally required for investments of more than 50% of the outstanding voting stock of an investee, except when control is not held by the majority owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings LLC and subsidiaries, Alico Fresh Fruit LLC, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC. The Company considers the criteria established under FASB ASC Topic 810, “Consolidations” in its consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates based upon future events. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific

6



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 which the use of funds is restricted. For certain sale 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. If the restricted cash is not used for such purchases within a twelve-month period, 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. The Company recognizes revenue at the amount it expects to be entitled to 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. 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 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 thirty to sixty days after final market pricing is published. As of March 31, 2019 and September 30, 2018, the Company had total receivables relating to sales of citrus of $13,696,000 and $2,471,000, respectively, recorded in Accounts Receivable, net, in the Condensed Consolidated Balance Sheets.


7



Disaggregated Revenue

Revenues disaggregated by significant products and services for the three and six months ended March 31, 2019 and 2018 are as follows:
(in thousands)
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2018
 
Six Months Ended March 31, 2019
 
2019
 
2018
 
2019
 
2018
Alico Citrus
 

 
 

 
 
 
 
Early and Mid-Season
$
27,929

 
$
8,839

 
$
39,574

 
$
24,256

Valencias
18,746

 
24,598

 
18,746

 
24,598

Fresh Fruit
671

 
418

 
2,577

 
1,506

Other
477

 
854

 
823

 
1,428

Total
$
47,823

 
$
34,709

 
$
61,720

 
$
51,788

 
 
 
 
 
 
 
 
Water Resources and Other Operations
 
 
 
 
 
 
 
Land and other leasing
$
658

 
$
840

 
$
1,392

 
$
1,087

Other
40

 
51

 
188

 
258

Total
$
698

 
$
891

 
$
1,580

 
$
1,345

 
 
 
 
 
 
 
 
Total Revenues
$
48,521

 
$
35,600

 
$
63,300

 
$
53,133


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”). Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had a net loss of approximately $177,000 and $33,000 for the three months ended March 31, 2019 and 2018, respectively, and had a net loss of approximately $251,000 and $49,000 for the six months ended March 31, 2019 and 2018, respectively, of which 51% is attributable to the Company.

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“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 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 impact on our consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements" ("ASU 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

8



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 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 the unaudited Condensed Consolidated Financial Statements of the Company. Information regarding the adoption of Leases (Topic 842) is described above.

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, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, 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 exchange for those goods or services. 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 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 period is for one year or less, and policy elections regarding shipping and handling that provides the option to account for shipping and handling costs as contract fulfillment costs. The Company adopted ASC 606 effective October 1, 2018, the first day of our 2019 fiscal year, using the modified retrospective method. The implementation of ASC 606 did not require an adjustment to the opening balance of retained earnings as of October 1, 2018 (see Note 1. “Revenue Recognition”).

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 $14,601,000 as of October 1, 2018 (see Note 7. “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.

9



Note 2. Inventories

Inventories consist of the following at March 31, 2019 and September 30, 2018:
(in thousands)
March 31,
 
September 30,
 
2019
 
2018
Unharvested fruit crop on the trees
$
34,526

 
$
39,888

Other
1,585

 
1,145

Total inventories
$
36,111

 
$
41,033

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 Company has additional property and casualty claims outstanding and is awaiting determination of additional proceeds to be received, if any. Insurance proceeds are recorded in the period they are both probable and reasonably 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 block grants that will be administered through the State of Florida.  The specifics of these programs are still being finalized, and at this time the Company cannot determine the amount 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 the three and six months ended March 31, 2019 and March 31, 2018, the Company did not record any adjustments to reduce inventory to net realizable value. 


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 March 31, 2019 and September 30, 2018:

(in thousands)
Carrying Value
 
March 31,
 
September 30,
 
2019
 
2018
Trailers
$
421

 
$
456

Frostproof Parcels

 
176

Parcels on East Ranch
759

 
759

Twin Mills
223

 

     Total Assets Held For Sale
$
1,403

 
$
1,391


On March 1, 2019, the Company sold certain trailers for approximately $35,000.

On October 30, 2018, the Company sold certain parcels at Frostproof for approximately $188,000 and realized a gain of approximately $12,000.

On May 2, 2018, the Company sold its Gal Hog property for approximately $7,300,000 and recognized a gain of approximately $6,709,000.

On March 30, 2018, the Company sold property located on its Winterhaven location for approximately $251,000 and recognized a loss of approximately $20,000. This asset was classified as an asset held for sale during the first quarter of fiscal year 2018.

On February 12, 2018, the Company sold its property at Chancey Bay for approximately $4,200,000 and realized a loss of approximately $44,000. As part of the transaction, the Company agreed to pay the purchaser rent of $200,000 in exchange for Alico retaining the rights of harvesting and selling of the fruit in the 2017/2018 harvest season.

On February 9, 2018, the Company sold its nursery located in Gainesville for approximately $6,500,000 and realized a gain of approximately $150,000.

10



On January 25, 2018, the Company sold its breeding herd to a third party for approximately $7,800,000. As part of this transaction, the purchaser is also leasing grazing and other rights on the Alico Ranch from the Company at a rate of $100,000 per month.

On January 19, 2018, the Company sold certain trailers to a third party for $500,000. The Company received $125,000 and the remaining portion is to be paid in accordance with a promissory note, which bears interest at 5%, over three years.

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 March 31, 2019 and September 30, 2018:

(in thousands)
March 31,
 
September 30,
 
2019
 
2018
Citrus trees
$
272,100

 
$
264,714

Equipment and other facilities
54,985

 
53,544

Buildings and improvements
8,213

 
8,052

Total depreciable properties
335,298

 
326,310

Less: accumulated depreciation and depletion
(98,609
)
 
(91,858
)
Net depreciable properties
236,689

 
234,452

Land and land improvements
106,241

 
105,951

Net property and equipment
$
342,930

 
$
340,403


During the six months ended March 31, 2019, the Company purchased 188 net tree acreage of citrus blocks for approximately $1,848,000. These purchases were made from grove owners from within the Company’s existing grove locations. In April 2019, the Bank agreed to accept these purchases as substitute collateral and release approximately $1,800,000 from restricted cash.

On September 29, 2018, the Company sold its property at Island Pond for $7,900,000. As Island Pond was collateralized under one of the Company’s loan documents, $7,000,000 of the proceeds is restricted in use.


11



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 March 31, 2019 and September 30, 2018:

(in thousands)
March 31, 2019
 
September 30, 2018
 
Principal
 
Deferred Financing Costs, Net
 
Principal
 
Deferred Financing Costs, Net
 
 
 
 
 
 
 
 
Long-term debt, net of current portion:
 
 
 
 
 
 
 
Met Fixed-Rate Term Loans
$
92,814

 
$
780

 
$
95,938

 
$
836

Met Variable-Rate Term Loans
45,281

 
359

 
46,719

 
385

Met Citree Term Loan
4,850

 
42

 
4,925

 
44

Pru Loans A & B
16,837

 
232

 
17,417

 
241

Pru Loan E
4,565

 
13

 
4,675

 
17

Pru Loan F
4,565

 
39

 
4,675

 
40

 
168,912

 
1,465

 
174,349

 
1,563

Less current portion
5,313

 

 
5,275

 

Long-term debt
$
163,599

 
$
1,465

 
$
169,074

 
$
1,563


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

 
March 31, 2019
 
September 30, 2018
 
Principal
 
Deferred Financing Costs, Net
 
Principal
 
Deferred Financing Costs, Net
 
(in thousands)
 
 
 
 
 
 
 
 
Lines of Credit:
 
 
 
 
 
 
 
RLOC
$

 
$
33

 
$

 
$
58

WCLC
24,962

 
11

 
2,685

 
78

Lines of Credit
$
24,962

 
$
44

 
$
2,685

 
$
136


Future maturities of long-term debt and lines of credit as of March 31, 2019 are as follows:
(in thousands)
 
 
 
Due within one year
$
5,313

Due between one and two years
10,975

Due between two and three years
35,937

Due between three and four years
14,660

Due between four and five years
10,755

Due beyond five years
116,234

 
 
Total future maturities
$
193,874


12



Interest costs expensed and capitalized were as follows:
(in thousands)
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Interest expense
$
1,963

 
$
2,239

 
$
3,880

 
$
4,494

Interest capitalized
229

 
147

 
445

 
281

Total
$
2,192

 
$
2,386

 
$
4,325

 
$
4,775

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 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 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender beginning May 1, 2017 and is subject to further adjustment every two years thereafter until maturity. Interest on the term loans is payable quarterly.
The interest rates on the Met Variable-Rate Term Loans were 4.39% per annum and 3.99% per annum as of March 31, 2019 and September 30, 2018, 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 March 31, 2019, the Company had $5,625,000 remaining available from its 2015 prepayment 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 on May 1, 2017 and is subject to further adjustment every two years thereafter. Outstanding principal, if any, is due at maturity on November 1, 2019. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit. The RLOC is available for funding general corporate needs. The variable interest rate was 4.39% and 3.99% per annum as of March 31, 2019 and September 30, 2018, respectively. Availability under the RLOC was $25,000,000 as of March 31, 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 4.24% per annum and 3.85% per annum as of March 31, 2019 and September 30, 2018, respectively. The WCLC agreement was amended on September 30, 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 $44,578,000 and $57,015,000 as of March 31, 2019 and September 30, 2018, 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.

13



The outstanding balance on the WCLC was $24,962,000 at March 31, 2019. The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of March 31, 2019, there was approximately $460,000 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 approximately $339,000 of costs related to the retired debt, are being amortized to interest expense over the applicable terms of the loans. Additionally, approximately $123,000 of financing costs were incurred for the fiscal year ended September 30, 2018 in connection with letters of credit. These costs are also being amortized to interest expense over the applicable terms of the obligations. The unamortized balance of deferred financing costs related to the financing above was approximately $1,183,000 and approximately $1,357,000 at March 31, 2019 and September 30, 2018, 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 for the year ended September 30, 2018, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of March 31, 2019, the Company was in compliance with all of the financial covenants.
The credit facilities also include a Met Life term loan collateralized by real estate owned by Citree (“Met Citree Loan”). This is a $5,000,000 credit facility that bears interest at a fixed rate of 5.28% per annum. An initial advance of $500,000 was made at closing on March 4, 2014. The loan agreement was amended to provide for an interim advance of $2,000,000 on September 17, 2015, and the interest rate was adjusted to 5.30% per annum at the time of the interim advance. The final $2,500,000 advance was funded on April 27, 2016 and the interest rate was adjusted to 5.28%. Principal payments on this term loan commenced February 1, 2018 and are payable quarterly thereafter. The loan matures in February 2029.

Silver Nip Citrus Debt

There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum (“Pru Loans A & B”). Principal of $290,000 is payable quarterly, together with accrued interest. 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 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 in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, 2033.
 
Silver Nip Citrus entered into two additional fixed-rate term loans with Prudential to finance the acquisition of a 1,500 acre citrus grove on September 4, 2014. Each loan was in the original amount of $5,500,000. Principal of $55,000 per loan is payable quarterly, together with accrued interest. One loan bears interest at 3.85% per annum (“Pru Loan E”), while the other bears interest at 3.45% per annum (“Pru Loan F”). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. Both loans are collateralized by real estate in Charlotte County, Florida. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.

The Silver Nip Citrus credit agreements were amended on December 1, 2016. The primary terms of the amendments were (1) the Company provided a limited $8,000,000 guaranty of the Silver Nip Citrus 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) the consolidated current ratio covenant requirement was reduced from 1.50 to 1.00 to 1.00 to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of March 31, 2019, the most recent measurement date.


14



Note 6. Accrued Liabilities
Accrued liabilities consist of the following at March 31, 2019 and September 30, 2018:
(in thousands)
March 31,
 
September 30,
 
2019
 
2018
 
 
 
 
Ad valorem taxes
$
709

 
$
2,196

Accrued interest
1,361

 
1,191

Accrued employee wages and benefits
1,214

 
3,115

Inventory received but not invoiced
171

 
726

Accrued legal fees
937

 

Accrued dividends
447

 
492

Consulting and separation charges
331

 

Accrued insurance
17

 
223

Current portion of deferred retirement obligations
357

 
345

Accrued tender offer consulting charges

 
274

Other accrued liabilities
444

 
664

Total accrued liabilities
$
5,988

 
$
9,226



Note 7. Deferred Gain on Sale

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 $14,601,000. 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 derivative liabilities 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 March 11, 2019, the computations have resulted in payments being made each year by Alico to Global Ag., which have aggregated approximately $6,518,000.

The 2018 Post Closing Agreement provided for (i) the termination of the 2014 Post Closing Agreement following the satisfaction of certain terms and conditions set forth in the 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 included (a) Global Ag’s assignment to the third party buyer, and such third party buyer’s assumption, of certain specified water management

15



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.

On March 11, 2019, the 2018 Post Closing Agreement was completed. As such, all the conditions of the termination of the 2014 Post Closing Agreement, mentioned above, were met with the sale of the sugarcane land to a third party. As a result, the Company does not have any future liabilities or commitment to Global Ag in connection with the 2014 Post Closing Agreement.


Note 8. 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. The amounts recorded in the six months ended March 31, 2018 for the remeasurement of deferred taxes principally relate to the reduction in the U.S. corporate income tax rate. During the second quarter ended March 31, 2018, the Company made certain updates to the estimates used during the first quarter, which resulted in a change to the remeasurement. For the six months ended March 31, 2018, the Company has recorded a tax benefit of approximately $10,100,000 to account for these deferred tax impacts.

The impact of adopting ASC 610 -20 has been modified in the quarter ended March 31, 2019 to reflect the deferred income tax impact of this adoption. The deferred tax asset related to the deferred gain on sale has been decreased by $3,704,000 with a corresponding decrease to retained earnings, offsetting the October 1, 2018 increase to retained earnings for the ASC 610-20 implementation (see Note 7. “Deferred Gain on Sale”).


Note 9. Earnings Per Common Share
Basic earnings per share for Alico's common stock is calculated by dividing net income attributable to Alico common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of 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.


16



For the three and six months ended March 31, 2019 and 2018, basic and diluted earnings per common share were as follows:

(in thousands except per share amounts)
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income (loss) attributable to Alico, Inc. common stockholders
$
7,547

 
$
(5,514
)
 
$
5,080

 
$
3,232

 
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
7,463

 
8,256

 
7,471

 
8,251

Dilutive effect of equity-based awards
6

 

 
35

 
59

Weighted average number of common shares outstanding - diluted
7,469

 
8,256

 
7,506

 
8,310

 
 
 
 
 
 
 
 
Net income (loss) per common shares attributable to Alico, Inc. common stockholders:
 
 
 
 
 
 
 
Basic
$
1.01

 
$
(0.67
)
 
$
0.68

 
$
0.39

Diluted
$
1.01

 
$
(0.67
)
 
$
0.68

 
$
0.39


For the six months ended March 31, 2019, equity awards are comprised of 227,500 stock options granted to Executive Officers, after taking into effect the forfeitures of 832,500 stock options (see Note 11. "Stockholders Equity"). For the three months ended March 31, 2018 there were anti-dilutive equity awards that were excluded from the calculation of diluted earnings per common share.


Note 10. Segment Information
Segments
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.


17



Information by operating segment is as follows:
(in thousands)
Three Months Ended March 31,
 
Six Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 

 
 

Alico Citrus
$
47,823

 
$
34,709

 
$
61,720

 
$
51,788

Water Resources and Other Operations
698

 
891

 
1,580

 
1,345

Total revenues
$
48,521

 
$
35,600

 
$
63,300

 
$
53,133

 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Alico Citrus
$
31,582

 
$
26,110

 
$
42,456

 
$
42,405

Water Resources and Other Operations
625

 
1,657

 
1,348

 
2,313

Total operating expenses
$
32,207

 
$
27,767

 
$
43,804

 
$
44,718

 
 
 
 
 
 
 
 
Gross profit (loss):
 
 
 
 
 
 
 
Alico Citrus
$
16,241

 
$
8,599

 
$
19,264

 
$
9,383

Water Resources and Other Operations
73

 
(766
)
 
232

 
(968
)
Total gross profit
$
16,314

 
$
7,833

 
$
19,496

 
$
8,415

 
 
 
 
 
 
 
 
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
Alico Citrus
$
3,456

 
$
3,366

 
$
6,864

 
$
6,764

Water Resources and Other Operations
27

 
47

 
55

 
117

Other Depreciation, Depletion and Amortization
10

 
19

 
32

 
41

Total depreciation, depletion and amortization
$
3,493

 
$
3,432

 
$
6,951

 
$
6,922


(in thousands)
March 31,
 
September 30,
 
2019
 
2018
Assets:
 
 
 
Alico Citrus
$
388,809

 
$
405,752

Water Resources and Other Operations
16,080

 
15,904

Other Corporate Assets
3,200

 
1,766

Total Assets
$
408,089

 
$
423,422



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Note 11. Stockholders' Equity

The Company recognizes stock-based compensation expense for (i) Board of Directors (the “Board of Directors” or the “Board”) fees (paid in treasury stock), and (ii) other awards under the Stock Incentive 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 and $476,000 for the three and six months ended March 31, 2019, and approximately $192,000 and $382,000 for the three and six months ended March 31, 2018, respectively.

Restricted Stock

In fiscal year 2015, the Company awarded 12,500 restricted shares of the Company’s common stock (“Restricted Stock”) to two senior executives under the 2015 Plan at a weighted average fair value of $49.49 per common share, vesting over three to five years.
 
In November 2017, a senior executive was awarded 5,000 restricted shares of the Company’s common stock (“Restricted Stock”) under the 2015 Plan at a weighted average fair value of $31.95 per common share, vesting over approximately three years.

Stock compensation expense related to the Restricted Stock totaled approximately $26,000 and $52,000 for the three and six months ended March 31, 2019, and $37,000 and $63,000 for the three and six months ended March 31, 2018, respectively. There was approximately $120,000 and $172,000 of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at March 31, 2019 and September 30, 2018, respectively.

Stock Option Grant

Stock option grants of 10,000 options to Mr. 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 March 31, 2019, the Company’s stock was trading at $27.21 per share, and during the six months ended March 31, 2019, the stock did not trade above $40.00 per share; accordingly, none of the stock options are vested at March 31, 2019.

Stock option grants of 210,000 options to Mr. Trafelet and 90,000 options to Mr. 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

19



price hurdles are satisfied in connection with a change in control of the Company. As of March 31, 2019, the Company’s stock was trading at $27.21 per share, and during the six months ended March 31, 2019, the stock did not trade above $35.00 per share; accordingly, none of the stock options are vested at March 31, 2019. As set forth below, more than a majority of the 2018 Option Grants issued to Mr. Trafelet were forfeited and the vesting conditions of the remainder were modified, all pursuant to the Settlement Agreement, as defined below.

A stock option grant of 300,000 options in the case of Mr. Trafelet and 225,000 options in the case of each of Messrs. Slack and 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 March 31, 2019, the Company’s stock was trading at $27.21 per share, and during the six months ended March 31, 2019, the stock did not trade above $60.00 per share; accordingly, none of the stock options are vested at March 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. As such, the remaining unrecognized expense associated with these options of approximately $783,000 was accelerated and recorded for the fiscal year ended September 30, 2018.

Pursuant to a Settlement Agreement (described in Note 13. “Related Party Transactions”), which was unanimously approved by the Alico 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 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 a result of the forfeited stock options, the Company reversed $823,000 of previously recorded stock compensation expense during the quarter ended March 31, 2019, which is recorded as a reduction of General and Administrative expense.

Stock compensation expense related to the options totaled approximately $229,000 and $518,000 for the three and six months ended March 31, 2019, prior to taking into effect the forfeited stock options during the quarter ended March 31, 2019, and $205,000 and $411,000 for the three and six months ended March 31, 2018, respectively. After taking into effect these forfeitures, the Company recorded a credit to stock compensation expense of $594,000 and $305,000 for the three and six months ended March 31, 2019, respectively. At March 31, 2019 and September 30, 2018 there was approximately $658,000 and $2,842,000 of total unrecognized stock compensation costs related to unvested share-based compensation for the option grants, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 1.72 years.

The fair value of the 2019, 2018 and 2016 Option Grants was estimated on the date of grant using a Monte Carlo valuation model that uses the assumptions noted in the following table. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from different time-frames for the various market conditions being met.

2019 Modified Option Grant
Expected Volatility
25.0
%
Expected Term (in years)
1.50

Risk Free Rate
2.52
%

20



The weighted-average grant-date fair value of the 2019 Modified Option Grant was $1.40.

2019 Option Grants
Expected Volatility
30.0
%
Expected Term (in years)
4.09

Risk Free Rate
2.95
%

The weighted-average grant-date fair value of the 2019 Option Grants was $7.10.

2018 Option Grants
Expected Volatility
30.0
%
Expected Term (in years)
3.32

Risk Free Rate
2.80
%

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

2016 Option Grants
Expected Volatility
32.2
%
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 March 31, 2019. As of March 31, 2019, there remained 1,005,000 common shares available for issuance under the 2015 Plan.

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, Alico's largest stockholder since 2013, participated in the tender offer and sold a small percentage of its holdings.

For the three and six months ended March 31, 2019, the Company did not purchase any shares under the 2017 Authorization, and has $1,676,443 remaining available to repurchase stock under the 2017 Authorization.

The following table illustrates the Company’s treasury stock activity for the six months ended March 31, 2019:

(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
(15,080
)
 
(616
)
 
 
 
 
Balance as of March 31, 2019
953,342

 
$
32,496



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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, which reduced the amount of crop available for sale in the 2017-2018 harvest season and the Company’s adoption of 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 12. Commitments and Contingencies
Letters of Credit
The Company had outstanding standby letters of credit in the total amount of approximately $460,000 and $10,300,000 at March 31, 2019 and September 30, 2018, respectively, to secure its various contractual obligations. Upon the completion of the 2018 Post Closing Agreement (and corresponding termination of the 2014 Post-Closing Agreement) during the quarter ended March 31, 2019, the Company terminated its $9,800,000 standby letter of credit associated with this transaction (see Note 7. “Deferred Gain on Sale”).

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 sought, 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”) was 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 were 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. 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 provided, pending the resolution of the Delaware Litigation (as defined below), that (1) the record date for the Purported Consent was stayed indefinitely, and (2) Mr. Trafelet and the Company’s Board of Directors should 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 in the Florida Litigation 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. 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 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. If the Company terminates the consulting period (other than in certain specified circumstances), the Company will

22



continue to pay the consulting fees described in the immediately preceding sentence through the balance of the 24-month term. As such, the Company recorded the $800,000 as expense in the quarter ended March 31, 2019.

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 Mr. 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. 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 sought, 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 was 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 provided, among other things, that 734 Agriculture was to serve as the managing member of 734 Investors during the pendency of the Delaware Litigation. The status quo order also provided that 734 Agriculture would not be permitted to 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, Mr. 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 March 31, 2019, the Company had approximately $3,170,000 relating to outstanding commitments for these purchases, which will be paid upon delivery.


Note 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

23



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 six months ended March 31, 2019 and 2018, 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. Slack and Brokaw agreed to waive payment of their salaries.

Remy Trafelet

As described above, on February 11, 2019 and as contemplated by the 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 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. 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 had a shared services agreement with Trafelet Brokaw Capital Management, L.P. (“TBCM”), whereby the Company reimbursed TBCM for use of office space and various administrative and support services. The agreement expired December 31, 2018 and has not been extended or renewed. The annual cost of the office and services was approximately $618,000. The Company expensed approximately $0 and $147,000 under the Shared Services Agreement for the three months ended March 31, 2019 and 2018, respectively, and $147,000 and $294,000 for the six months ended March 31, 2019 and 2018, respectively.



24