NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2018
,
2017
and
2016
Note 1. Description of Business and Basis of Presentation
Description of Business
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately
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 -
Alico Citrus
and
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 consolidated basis. These accompanying Consolidated Financial Statements, which are referred to herein as the “Financial Statements”, have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and account balances between the consolidated businesses have been eliminated.
Segments
Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on
two
operating segments:
Alico Citrus
and
Water Resources and Other Operations
. As a result of the sale of the Company’s breeding herd in January 2018, the Company is no longer in the cattle ranching business and has revised its reportable segments to most accurately reflect the current operations and the information regularly reviewed by the CODM. The segment data for all prior periods disclosed have been presented on the same basis as the current fiscal year.
Principles of Consolidation
The Financial Statements include the accounts of Alico, Inc. and the accounts of all the subsidiaries in which a controlling interest is held by the Company. Under U.S. GAAP, consolidation is generally required for investments of more than
50%
of the outstanding voting stock of an investee, except when control is not held by the majority owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings LLC and subsidiaries, Alico Fresh Fruit LLC, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC. The Company considers the criteria established under FASB ASC Topic 810, “Consolidations”
in its consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates based upon future events. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific assumptions that the Company believes to be reasonable. The Company may employ outside experts to assist in the Company’s evaluations.
Noncontrolling Interest in Consolidated Affiliate
The Financial Statements include all assets and liabilities of the less-than-
100%
-owned affiliate the Company controls, Citree Holdings I, LLC (“Citree”). Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree
had net losses of
$511,854
,
$91,432
, and
$69,230
for the fiscal years ended
September 30, 2018
,
2017
, and
2016
, respectively, of which
$261,046
,
$46,630
, and
$35,307
was attributable to the Company for the fiscal years ended
September 30, 2018
,
2017
, and
2016
, respectively.
Recent 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.
The adoption of this ASU will result in increased disclosure, including qualitative and quantitative disclosures about the nature, amount timing and uncertainty of revenue and cash flows arising from contracts with customers.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)." This guidance will require entities that enter into leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous GAAP. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company is currently evaluating the impact this guidance will have on our Financial Statements, and it will become effective for Alico October 1, 2019.
In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” This ASU will provide guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. This ASU is effective for the Company for our fiscal year beginning October 1, 2018. Although permitted, the Company did not choose to elect early adoption. This ASU would impact the Company by requiring certain proceeds from insurance claims relating to property and crop damage to be reported in the statement of cash flows from investing activities in the Consolidated Statement of Cash Flows.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASC Topic 740, Income Taxes), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU is effective for the Company on October 1, 2018. This guidance is not expected to have a significant impact on our Financial Statements.
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other” (Topic 350) which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in fiscal years beginning after December 15, 2019, including interim periods within 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 February 2017, the FASB issued ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets" (Subtopic 610-20): The ASU clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies. As a result, it will not apply to the derecognition of businesses, nonprofit activities, or financial assets (including equity method investments), or to contracts with customers. The ASU also clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business.
In addition, transfers of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity will be accounted for under ASC 610-20, removing specific guidance on such partial exchanges from ASC 845,
Nonmonetary
Transactions
.
As a result of the ASU, guidance specific to real estate sales in ASC 360-20 will be eliminated. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets.
The ASU will also impact the accounting for partial sales of nonfinancial assets (including in substance real estate). When an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the entity will measure the retained interest at fair value. This will result in full gain/loss recognition upon the sale of a controlling interest in a nonfinancial asset. Current guidance generally prohibits gain recognition on the retained interest.
The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and thus is effective for the Company for our fiscal year beginning October 1, 2018. The ASU will be applied prospectively to any transaction occurring from the date of adoption. The Company continues to evaluate the impact that the adoption of this ASU might have on our consolidated financial statements as it relates to the deferred gain on the sale of the Company’s sugarcane lands (see Note 8. “Deferred Gain on Sale”).
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation” (Topic 718) which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award's fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 and thus is effective for the Company for our fiscal year beginning October 1, 2018. We do not expect this new guidance to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” which clarifies the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230, Statement of Cash Flows. Under ASU 2016-18, an entity will be required within the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017 and thus is effective for the Company for our fiscal year beginning October 1, 2018. Early adoption is permitted and the Company, as such, has adopted this guidance as of September 30, 2018.
The Company has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.
Reclassifications
Certain prior year amounts have been reclassified in the accompanying Financial Statements for consistent presentation to the current period. These reclassifications had no impact on net income, equity, cash flows or working capital as previously reported.
Seasonality
The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of our fiscal year generally produce the majority of our annual revenue, and working capital requirements are typically greater in the first and fourth quarters of the fiscal year. The results of the reported periods herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.
Note 2. Summary of Significant Accounting Policies
Business Combinations
The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB ASC 805, “Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed and any noncontrolling interest in the acquiree, and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and noncontrolling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with FASB ASC 805, the Company recognizes and measures goodwill, if any, as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.
When Alico acquires a business from an entity under common control, whereby the companies are ultimately controlled by the same party or parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair value of assets and liabilities.
Revenue Recognition
Revenues from agricultural crops are recognized at the time the crop is harvested and delivered to the customer. Receivables from crops sold are recorded for the estimated proceeds to be received from the customer. On a quarterly basis, management reviews the reasonableness of the revenues accrued based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues can be significant and can be either an increase or decrease to reported revenues. During the periods presented in this report, no material adjustments were made to the reported revenues of the Company’s crops.
During the time that Alico was engaged in the business of raising and selling cattle, Alico recognized revenues from cattle sales at the time the cattle were delivered.
Alico Fruit Company, LLC ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to other citrus growers and processors in the state of Florida. AFC also purchases and resells citrus fruit; in these transactions, AFC (i) acts as a principal; (ii) takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns. Therefore, AFC recognizes revenues based on the gross amounts due from customers for its marketing activities. Supply chain management services revenues are recognized when the services are performed.
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term and immediate nature of these financial instruments. The carrying amounts of our debt approximates fair value as the debt is with commercial lenders at interest rates that vary with market conditions or have fixed rates that approximate market rates for obligations with similar terms and maturities (see Note 9. “Fair Value Measurements”).
Cash and Cash Equivalents
The Company considers cash in banks and highly liquid instruments with an original maturity of three months or less to be cash and cash equivalents. At various times throughout the fiscal year, and as of
September 30, 2018
, some accounts held at financial institutions were in excess of the federally insured limit of $250,000. The Company has not experienced any losses on these accounts and believes credit risk to be minimal.
Restricted Cash
Restricted cash is comprised of cash received from the sale of certain assets in which the use of funds is restricted. For certain 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 is 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.
Accounts receivable
Accounts receivable from customers are generated from revenues based on the sale of citrus, cattle, leasing and other transactions. The Company grants credit in the course of its operations to third party customers. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides an allowance for doubtful accounts for amounts which are not probable of collection. The estimate, evaluated quarterly by the Company, is based on historical collection experience, current macroeconomic climate and market conditions and a review of the current status of each customer’s account. Changes in the financial viability of significant customers and worsening of economic conditions may require changes to its estimate of the recoverability of the receivables. Such changes in estimates are recorded in the period in which these changes become known. The allowance for doubtful accounts is included in general and administrative expenses in the Consolidated Statements of Operations.
The following table presents accounts receivable, net as of
September 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Accounts receivable
|
$
|
2,577
|
|
|
$
|
4,314
|
|
Allowance for doubtful accounts
|
(33
|
)
|
|
(28
|
)
|
Accounts receivable, net
|
$
|
2,544
|
|
|
$
|
4,286
|
|
Concentrations
Accounts receivable from the Company’s major customers as of
September 30, 2018
and
2017
and revenue from such customers for the fiscal years ended
September 30, 2018
,
2017
and
2016
, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Accounts Receivable
|
|
Revenue
|
|
% of Total Revenue
|
|
2018
|
2017
|
|
2018
|
2017
|
2016
|
|
2018
|
2017
|
2016
|
Tropicana
|
$
|
1,797
|
|
$
|
2,506
|
|
|
$
|
70,396
|
|
$
|
111,197
|
|
$
|
46,898
|
|
|
86.6
|
%
|
85.6
|
%
|
32.5
|
%
|
Cutrale Citrus Juice
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
1,364
|
|
$
|
22,735
|
|
|
—
|
%
|
1.1
|
%
|
15.8
|
%
|
Minute Maid
|
$
|
—
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
49,271
|
|
|
—
|
%
|
—
|
%
|
34.2
|
%
|
The citrus industry is subject to various factors over which growers have limited or no control, including weather conditions, disease, pestilence, water supply and market price fluctuations. Market prices are highly sensitive to aggregate domestic and foreign crop sizes, as well as factors including, but not limited to, weather and competition from foreign countries.
Real Estate
In recognizing revenues from land sales, the Company applies specific revenue recognition criteria, in accordance with U.S. GAAP, to determine when land sales revenues can be recorded. For example, in order to fully recognize a gain resulting from a real estate transaction, the sale must be consummated with a sufficient down payment of at least
20%
to
25%
of the sales price depending upon the type and timeframe for development of the property sold and any receivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain any material continuing involvement in the property sold. When these criteria are not met, the Company recognizes a gain proportionate to collections utilizing either the installment method or deposit method as appropriate.
Inventories
The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating expenses in the Consolidated Statements of Operations. Inventories are stated at the lower of cost or net realizable value. The cost for unharvested citrus crops is based on accumulated production costs incurred during the period from January 1 through the balance sheet date. The cost of the beef cattle inventory was based on the accumulated cost of developing such animals for sale from July 1 through the balance sheet date (see Note 3. “Inventories”). The breeding herd was sold in January 2018 (see Note 4. “Assets Held For Sale”).
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation, depletion and amortization. Major improvements are capitalized while expenditures for maintenance and repairs are expensed when incurred. Costs related to the development of citrus groves through planting of trees are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs, among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for
four
years. After
four
years, a planting is considered to have reached maturity and the accumulated costs are depreciated over
25
years, except for land clearing and excavation, which are considered costs of land and not depreciated.
The breeding herd consisted of purchased animals and animals raised on the Company’s ranches. Purchased animals were stated at the cost of acquisition. The cost of animals raised on the ranch was based on the accumulated cost of developing such animals for productive use. The breeding herd was sold in January 2018 (see Note 4. “Assets Held For Sale”).
Real estate costs incurred for the acquisition, development and construction of real estate projects are capitalized.
Depreciation is provided on a straight-line basis over the estimated useful lives of the depreciable assets, with the exception of leasehold improvements and assets acquired through capital leases, which are depreciated over their estimated useful lives if the lease transfers ownership or contains a bargain purchase option, otherwise the term of the lease.
The estimated useful lives for property and equipment are primarily as follows:
|
|
|
Citrus trees
|
25 years
|
Equipment and other facilities
|
3-20 years
|
Buildings and improvements
|
25-39 years
|
Changes in circumstances, such as technological advances or changes to our business model or capital strategy could result in the actual useful lives differing from the original estimates. In those cases where the Company determines that the useful life of property and equipment should be shortened, Alico depreciates the asset over its revised estimated remaining useful life, thereby increasing depreciation expense (see Note 5. “Property and Equipment, Net”).
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company records impairment losses on long-lived assets used in operations, or asset group, when events and circumstances indicate that the assets might be impaired and the estimated cash flows (undiscounted and without interest charges) to be generated by those assets or asset group over the remaining lives of the assets or asset group are less than the carrying amounts of those assets. In calculating impairments and the estimated cash flows, the Company assigns its asset groups by determining the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of the other Company assets. The net carrying values of assets or asset group not recoverable are reduced to their fair values. Alico's cash flow estimates are based on historical results adjusted to reflect best estimates of future market conditions and operating conditions. As of September 30, 2018 and 2017, the Company recorded impairments to its long-lived assets (see Note 5. “Property and Equipment, Net”). As of
September 30, 2018
and
2017
, long-lived assets were comprised of property and equipment.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities assumed in connection with such acquisition. In accordance with the provisions of ASC 350, Intangibles-Goodwill and Other, goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually, on the same date, or more frequently should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof.
In the evaluation of goodwill for impairment, Alico has the option to perform a qualitative assessment to determine whether further impairment testing is necessary or to perform a quantitative assessment by comparing the fair value of a reporting unit to its carrying amount, including goodwill. Under the qualitative assessment, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. If, under
the quantitative assessment, the fair value of a reporting unit is less than its carrying amount, then the amount of the impairment loss, if any, must be measured under step two of the impairment analysis. In step two of the analysis, Alico would record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value, should such a circumstance arise. As of
September 30, 2018
and
2017
, no impairment was required.
Other Non-Current Assets
Other non-current assets primarily include investments owned in agricultural cooperatives, cash surrender value on life insurance and equity investment in affiliate (Magnolia). Investments in stock related to agricultural cooperatives are carried at cost.
Income Taxes
The Company uses the asset and liability method of accounting for deferred income taxes. The provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse or beneficial impact on the Company’s income tax provision and net income or loss in the period the determination is made. For the fiscal year ended September 30, 2018 and 2017, the Company recorded a valuation allowances of
$5,634,000
and
$581,000
, respectively, relating to the unutilized capital loss carryforwards which expired. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax benefits in income tax expense.
Earnings per Share
Basic earnings per share for our common stock is calculated by dividing net income attributable to Alico common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares of common stock issuable under equity-based compensation plans in accordance with the treasury stock method, or any other type of securities convertible into common stock, except where the inclusion of such common shares would have an anti-dilutive effect.
The following table presents a reconciliation of basic to diluted weighted average common shares outstanding for fiscal years ended
September 30, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Weighted Average Common Shares Outstanding - Basic
|
8,232
|
|
|
8,300
|
|
|
8,303
|
|
Effect of dilutive securities - stock options and unrestricted stock
|
69
|
|
|
—
|
|
|
8
|
|
Weighted Average Common Shares Outstanding - Diluted
|
8,301
|
|
|
8,300
|
|
|
8,311
|
|
For the fiscal years ended
September 30, 2018
and
2017
, the Company issued
300,000
and
750,000
, respectively, stock options to certain executives of the Company. There were
no
employee stock options granted for the fiscal year ended September 30,
2016
. Non-vested restricted shares of common stock entitle the holder to receive non-forfeitable dividends upon issuance and are included in the calculation of diluted earnings per common share. For the fiscal year ended
September 30, 2018
, the Company had certain stock options that were excluded from the diluted earnings per share because they were anti-dilutive. For the fiscal year ended September 30, 2016, there were
no
anti-dilutive equity awards or convertible securities that were excluded from the calculation of diluted earnings per common share.
Stock-Based Compensation
Stock-based compensation is measured based on the fair value of the equity award at the grant date and is typically expensed on a straight-line basis over the vesting period. Upon the vesting of restricted stock, the Company issues common stock from common shares held in treasury.
Total stock-based compensation expense for the three years ended
September 30, 2018
in general and administrative expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Stock compensation expense:
|
|
|
|
|
|
|
|
|
Executives
|
$
|
1,754
|
|
|
$
|
880
|
|
|
$
|
150
|
|
Board of Directors
|
859
|
|
|
773
|
|
|
774
|
|
Total stock compensation expense
|
$
|
2,613
|
|
|
$
|
1,653
|
|
|
$
|
924
|
|
Equity Method Investments and Variable Interest Entities
The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least
50%
based on the amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether the Company is the primary beneficiary of the investee. Investments not qualifying for consolidation are accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for distributions, gains and losses of the entity are classified as a single line in the balance sheet and as a non-operating item in the statements of operation.
In May 2010, the Company invested
$12,150,000
to obtain a
39%
limited partner equity interest in Magnolia TC 2, LLC (“Magnolia”), a Florida limited liability company whose primary business activity is acquiring tax certificates issued by various counties in the state of Florida on properties which have property tax delinquencies. Revenues are recognized by Magnolia when the interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of
5%
of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the certificate has been outstanding. Expenses include an acquisition fee of
1%
, interest expense, a monthly management fee and other administrative costs. The investment in Magnolia is accounted for in accordance with the equity method of accounting, whereby the Company records its
39%
interest in the reported income or loss of the fund each quarter and is included in other non-current assets in the Consolidated Balance Sheets. Based on the
September 30, 2018
unaudited internal financial statements of Magnolia, the Company recognized net investment gain of approximately
$8,000
for the fiscal year ended September 30, 2018. The Company recognized net investment loss of approximately
$202,000
and approximately
$103,000
for the fiscal years ended September 30, 2017 and 2016, respectively. Net investment income is included in Investment and interest income (loss), net in the Consolidated Statements of Operations. Magnolia made certain distributions during the fiscal years ended
September 30, 2018
,
2017
and
2016
; the Company’s share of those distributions was approximately
$25,000
,
$324,000
, and
$171,000
, respectively. At
September 30, 2018
, the Company did not have an investment in Magnolia.
Note 3. Inventories
Inventories consist of the following at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Unharvested fruit crop on the trees
|
$
|
39,888
|
|
|
$
|
32,145
|
|
Beef cattle
|
—
|
|
|
1,954
|
|
Other
|
1,145
|
|
|
2,105
|
|
Total inventories
|
$
|
41,033
|
|
|
$
|
36,204
|
|
In September 2017, the State of Florida’s citrus business, including the Company’s unharvested citrus crop, was significantly impacted by Hurricane Irma. The impact of Hurricane Irma resulted in the premature drop of unharvested fruit and damage to citrus trees, which will impact fruit production until such time as the citrus trees recover, potentially through the 2018/2019 harvest season. The Company undertook a process to estimate the amount of inventory casualty loss as of the date of Hurricane Irma. Such process included a number of factors including: (1) touring all of the citrus groves by operational personnel to assess the estimated fruit drop by grove and the impact of damage to the citrus trees; (2) consideration of independent estimates of the reduced citrus production for the State of Florida; and (3) an estimate of fruit the Company expects to produce for the 2017/2018 harvest season after Hurricane Irma. As a result, the Company recorded a casualty loss to reduce the carrying value of unharvested fruit crop on trees inventory by approximately
$13,489,000
.
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, which have been recorded as contra-expenses in operating expenses. The Company has additional property and casualty insurance claims outstanding, and is awaiting determination of what additional proceeds are to be received, if any. Insurance proceeds are recorded in the period they are both probable and reasonably estimable.
In addition to the remaining commercial insurance claims which have been submitted, the Company may be eligible for 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.
After determining and applying the amount of loss due to shrinkage to the inventory value, the Company evaluated the remaining inventory and determined an additional reduction was necessary in the amounts of
$1,115,000
and
$1,199,000
to properly reflect the net realizable value of such inventory at
September 30, 2018
and
September 30, 2017
, respectively.
Note 4. Assets Held For Sale
The following assets have been classified as assets held for sale as of
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Carrying Value
|
|
Twelve Months Ended September 30,
|
|
2018
|
|
2017
|
Office Building
|
$
|
—
|
|
|
$
|
3,214
|
|
Nursery - Gainesville
|
—
|
|
|
6,500
|
|
Chancey Bay
|
—
|
|
|
4,179
|
|
Gal Hog
|
—
|
|
|
70
|
|
Breeding Herd
|
—
|
|
|
5,858
|
|
Trailers
|
456
|
|
|
1,162
|
|
Frostproof Parcels
|
176
|
|
|
—
|
|
East Ranch Parcels
|
759
|
|
|
—
|
|
Total Assets Held For Sale
|
$
|
1,391
|
|
|
$
|
20,983
|
|
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 February 12, 2018, the Company sold its property at Chancey Bay for approximately
$4,200,000
and realized a loss of approximately
$51,000
. As part of the transaction, the Company paid 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
$111,000
.
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 leasing grazing and other rights on the Alico Ranch from the Company at a rate of
$100,000
per month. Upon the sale of a parcel within the East Ranch, the lease rate was adjusted to
$98,750
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 the terms of a promissory note, which bears interest at
5%
and is payable in equal monthly amortization payments over a period of
three
years. During the fourth quarter 2018, the Company sold additional trailers for
$31,000
.
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
$1,751,000
. The sales agreement provides that the Company lease back a portion of the office space for
five
years. Such lease is classified as an operating lease.
The Company recorded an impairment loss of approximately
$150,000
and
$4,131,000
for the fiscal years ended September 30,
2018 and 2017, respectively, on those assets classified as assets held for sale as of September 30, 2018 and 2017, respectively. These impairments are included in operating expenses on the Consolidated Statements of Operations.
The Company has used a portion of the proceeds to pay down debt (see Note 6. "Long-Term Debt and Lines of Credit") and repurchase common shares, and plans to use the remaining cash proceeds from the sale of these assets towards future working capital requirements and other corporate purposes.
Note 5. Property and Equipment, Net
Property and equipment, net consists of the following at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Citrus trees
|
$
|
264,714
|
|
|
$
|
258,949
|
|
Equipment and other facilities
|
53,544
|
|
|
54,592
|
|
Buildings and improvements
|
8,052
|
|
|
8,835
|
|
Total depreciable properties
|
326,310
|
|
|
322,376
|
|
Less: accumulated depreciation and depletion
|
(91,858
|
)
|
|
(82,443
|
)
|
Net depreciable properties
|
234,452
|
|
|
239,933
|
|
Land and land improvements
|
105,951
|
|
|
109,404
|
|
Net property and equipment
|
$
|
340,403
|
|
|
$
|
349,337
|
|
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 (see Note 2. “Summary of Significant Accounting Policies”).
On September 28, 2018, the Company sold a parcel within the East Ranch for
$1,920,000
and realized a gain of
$1,759,000
.
On March 30, 2018, the Company sold property located on its Winter Haven location for approximately
$225,000
and recognized a loss of approximately
$50,000
. This asset was classified as an asset held for sale during the first quarter of fiscal year 2018.
On March 15, 2018, the Company sold certain parcels comprised of citrus trees and land located on its Ranch One grove for approximately
$586,000
, and recognized a loss of approximately
$87,000
.
On February 2, 2017, the Company sold
49
acres of land and facilities in Hendry County, Florida, to its former tenant for
$2,200,000
, resulting in a gain of approximately
$1,371,000
, which is included in gain on sale of real estate on the Consolidated Statement of Operations for the fiscal year ended September 30, 2017.
During the fiscal year ended September 30, 2018, the Company recorded impairments aggregating to approximately
$2,084,000
;
$1,032,000
relating to Island Pond and
$1,052,000
relating to certain citrus trees damaged by Hurricane Irma and from other natural attrition.
During the fiscal year ended September 30, 2017, the Company recorded impairments aggregating to approximately
$5,215,000
on certain mines located within its properties and other property and equipment related to the Company's decision to phase out its operation at one of its nurseries.
These impairments incurred for the fiscal years ended September 30, 2018 and 2017 are included in operating expenses on the Consolidated Statements of Operations.
Note 6. Long-Term Debt and Lines of Credit
The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization, at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion:
|
|
|
|
|
|
|
|
Met Fixed-Rate Term Loans
|
$
|
95,938
|
|
|
$
|
836
|
|
|
$
|
99,062
|
|
|
$
|
954
|
|
Met Variable-Rate Term Loans
|
46,719
|
|
|
385
|
|
|
49,594
|
|
|
439
|
|
Met Citree Term Loan
|
4,925
|
|
|
44
|
|
|
5,000
|
|
|
49
|
|
Pru Loans A & B
|
17,417
|
|
|
241
|
|
|
23,030
|
|
|
258
|
|
Pru Loan E
|
4,675
|
|
|
17
|
|
|
4,895
|
|
|
25
|
|
Pru Loan F
|
4,675
|
|
|
40
|
|
|
4,895
|
|
|
42
|
|
|
174,349
|
|
|
1,563
|
|
|
186,476
|
|
|
1,767
|
|
Less current portion
|
5,275
|
|
|
—
|
|
|
4,550
|
|
|
—
|
|
Long-term debt
|
$
|
169,074
|
|
|
$
|
1,563
|
|
|
$
|
181,926
|
|
|
$
|
1,767
|
|
The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization, at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
Lines of Credit:
|
|
|
|
|
|
|
|
RLOC
|
$
|
—
|
|
|
$
|
58
|
|
|
$
|
—
|
|
|
$
|
109
|
|
WCLC
|
2,685
|
|
|
78
|
|
|
—
|
|
|
153
|
|
Lines of Credit
|
$
|
2,685
|
|
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
262
|
|
Future maturities of long-term debt and line of credit as of
September 30, 2018
are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Due within one year
|
$
|
5,275
|
|
Due between one and two years
|
10,963
|
|
Due between two and three years
|
14,990
|
|
Due between three and four years
|
13,440
|
|
Due between four and five years
|
10,755
|
|
Due beyond five years
|
121,611
|
|
Total future maturities
|
$
|
177,034
|
|
Interest costs expensed and capitalized were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Interest expense
|
$
|
8,561
|
|
|
$
|
9,141
|
|
|
$
|
9,893
|
|
Interest capitalized
|
933
|
|
|
294
|
|
|
172
|
|
Total
|
$
|
9,494
|
|
|
$
|
9,435
|
|
|
$
|
10,065
|
|
Debt
The Company refinanced its outstanding debt obligations on
December 3, 2014
in connection with an acquisition. These credit facilities initially included
$125,000,000
in fixed interest rate term loans (“Met Fixed-Rate Term Loans”),
$57,500,000
in variable interest rate term loans (“Met Variable-Rate Term Loans”), a
$25,000,000
revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a
$70,000,000
working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).
The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of approximately
38,200
gross acres of citrus groves and
5,762
gross acres of ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.
The term loans, collectively, are subject to quarterly principal payments of
$2,281,250
, and mature
November 1, 2029
. The Met Fixed-Rate Term Loans bear interest at
4.15%
per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to
90
day LIBOR plus
165
basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender 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
3.99%
per annum and
2.96%
per annum as of
September 30, 2018
and
September 30,
2017
, 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 quarters of fiscal year 2018, the Company elected not to make its principal payment and utilized its prepayment to satisfy its principal payment requirements for such quarters. At
September 30, 2018
, 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 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
3.99%
per annum and
2.96%
per annum as of
September 30, 2018
and
September 30,
2017
, respectively. Availability under the RLOC was
$25,000,000
as of
September 30, 2018
.
The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate on the WCLC is based on
one
month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's debt service coverage ratio for the preceding quarter and can vary from
175
to
250
basis points. The rate is currently at LIBOR plus
175
basis points. The variable interest rate was
3.85%
per annum and
2.99%
per annum as of
September 30, 2018
and
September 30,
2017
, respectively. The WCLC agreement was amended on September 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
$57,015,000
as of
September 30, 2018
.
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.
As of
September 30, 2018
, there was an outstanding balance on the WCLC of
$2,685,000
. The WCLC agreement provides for Rabo to issue up to
$20,000,000
in letters of credit on the Company’s behalf. As of
September 30, 2018
, there was approximately
$10,300,000
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 and September 30, 2017, respectively, 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
$1,357,000
and
$1,655,000
at
September 30, 2018
and
2017
, respectively.
The credit facilities above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of
1.10
to 1.00, (ii) tangible net worth of at least
$160,000,000
increased annually by
10%
of consolidated net income for the preceding year, or approximately
$162,300,000
for the year ending
September 30, 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
September 30, 2018
, the Company was in compliance with these financial covenants.
Credit facilities also include a Met Life term loan collateralized by real estate owned by Citree ("Met Citree Loan"). This is a
$5,000,000
credit facility that bears interest at a fixed rate of
5.28%
per annum. At September 30, 2018 and 2017, there was an outstanding balance of
$4,925,000
and
$5,000,000
, respectively. The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately
$44,000
and
$49,000
at
September 30, 2018
and
2017
, respectively.
Silver Nip Citrus Debt
There are
two
fixed-rate term loans, with an original combined balance of
$27,550,000
, bearing interest at
5.35%
per annum ("Pru Loans A & B"). Principal of
$290,000
is payable quarterly, together with accrued interest. The Company may prepay up to
$5,000,000
of principal without penalty. On February 15, 2015, Silver Nip Citrus made a prepayment of
$750,000
. 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. 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, respectively.
Silver Nip Citrus entered into
two
additional fixed-rate term loans with Prudential to finance the acquisition of a
1,500
acre citrus grove on September 4, 2014. Each loan was in the original amount of
$5,500,000
. Principal of
$55,000
per loan is payable quarterly, together with accrued interest. One loan bears interest at
3.85%
per annum (Pru Loan E"), while the other bears interest at
3.45%
per annum ("Pru Loan F"). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. Both loans are collateralized by real estate in Charlotte County, Florida. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.
The Silver Nip Citrus credit agreements were amended on December 1, 2016. The primary terms of the amendments were (1) the Company provided a limited
$8,000,000
guaranty of the Silver Nip debt, (2) the limited personal guarantees provided by George Brokaw, Remy W. Trafelet and Clayton Wilson prior to the Company’s merger with Silver Nip Citrus, and also totaling
$8,000,000
, were released and (3) the consolidated current ratio covenant requirement, measured on an annual basis, was reduced from
1.50
to 1.00 to
1.00
to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of
September 30, 2018
, the most recent measurement date.
The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately
$298,000
and
$325,000
at
September 30, 2018
and
2017
, respectively.
Note 7. Accrued Liabilities
Accrued Liabilities consist of the following at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Ad valorem taxes
|
$
|
2,196
|
|
|
$
|
2,648
|
|
Accrued interest
|
1,191
|
|
|
1,165
|
|
Accrued employee wages and benefits
|
3,115
|
|
|
1,320
|
|
Inventory received but not invoiced
|
726
|
|
|
—
|
|
Accrued dividends
|
492
|
|
|
494
|
|
Current portion of deferred retirement obligations
|
345
|
|
|
315
|
|
Accrued insurance
|
223
|
|
|
166
|
|
Accrued tender offer consulting charges
|
274
|
|
|
—
|
|
Other accrued liabilities
|
664
|
|
|
673
|
|
Total accrued liabilities
|
$
|
9,226
|
|
|
$
|
6,781
|
|
Note 8. Deferred Gain on Sale
Deferred gain on sale consists of the following at
September 30, 2018
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Deferred gain on sale
|
$
|
26,167
|
|
|
$
|
27,482
|
|
Annual guarantee payment, net
|
(1,239
|
)
|
|
(1,042
|
)
|
Total deferred gain on sale
|
$
|
24,928
|
|
|
$
|
26,440
|
|
Estimated payments over the remaining term of the post-closing agreement arising out of the 2014 sale of property to Global Ag Properties, LLC are summarized in the following table.
|
|
|
|
|
(in thousands)
|
|
|
|
2019
|
$
|
2,871
|
|
2020
|
3,264
|
|
2021
|
3,681
|
|
2022
|
4,123
|
|
2023
|
4,572
|
|
Thereafter
|
13,804
|
|
Total
|
$
|
32,315
|
|
These estimated payments represent undiscounted cash flows.
On November 21, 2014, the Company completed the sale of approximately
36,000
acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately
$97,900,000
in cash. It had previously leased approximately
30,600
of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global in conjunction with the land sale.
The sales price is subject to post-closing adjustments over a
ten
year period. The Company realized a gain of approximately
$42,753,000
on the sale. Initially,
$29,140,000
of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represents the Company’s estimate
of the maximum exposure to loss as a result of the continuing involvement (see below). A net gain of approximately
$13,613,000
was recognized at the time of the sale.
The Company estimated its maximum exposure to loss over the
ten
year period to total approximately
$42,172,000
on an aggregate undiscounted basis. This estimated maximum exposure to loss was discounted at
five
percent to determine the initial deferred gain. In May
2018
,
2017
and 2016 the Company made payments of
$1,889,000
and
$1,580,000
and
$1,702,000
, respectively, to Global pursuant to the sales contract. The amount of USSC’s lease is tied to the market price of sugar, and the Company's payment is required annually in advance, to supplement the lease paid by USSC in the event that the sugar prices are below certain thresholds. The Company has recognized approximately
$1,361,000
,
$1,413,000
and
$1,406,000
in interest expense and approximately
$967,000
,
$538,000
and
$618,000
of the deferred gain for the fiscal years ended
September 30, 2018
,
2017
and 2016, respectively.
Note 9. Fair Value Measurements
The Company complies with the provisions of FASB ASC 820 “Fair Value Measurements” for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The majority of the carrying amounts of the Company’s assets and liabilities including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities as of
September 30, 2018
and
2017
, approximate their fair value because of the immediate or short term maturity of these financial instruments. The carrying amounts reported for long-term debt approximates fair value as the Company’s borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for similar obligations. The majority of our non-financial instruments, which include inventories and property and equipment, are not required to be carried at fair value on a recurring basis. The Company 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.
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:
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 (see Note 4. for complete listing of assets held for sale):
|
|
•
|
Level 1- Observable inputs such as quoted prices in active markets;
|
|
|
•
|
Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
|
•
|
Level 3- Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.
|
The following table represents certain assets held for sale as of
September 30, 2018
, which have been measured at fair value on a non-recurring basis (see Note 4. Assets Held for Sale):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
Carrying Value
|
Adjustment to Fair Value
|
Fair Value
|
Trailers
|
Level 3
|
$
|
606
|
|
$
|
150
|
|
$
|
456
|
|
The following table represents certain assets held for sale as of September 30, 2017, which have been measured at fair value on a non-recurring basis (see Note 4. "Assets Held For Sale"):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Hierarchy
|
Carrying Value
|
Adjustment to Fair Value
|
Fair Value
|
Nursery - Gainesville
|
Level 3
|
$
|
10,107
|
|
$
|
3,607
|
|
$
|
6,500
|
|
Chancey Bay
|
Level 3
|
$
|
4,587
|
|
$
|
408
|
|
$
|
4,179
|
|
Trailers
|
Level 3
|
$
|
1,278
|
|
$
|
116
|
|
$
|
1,162
|
|
There were no gains or losses included in earnings attributable to changes in unrealized gains or losses relating to the Company’s assets for the fiscal years ended as of
September 30, 2018
and
2017
.
The Company uses third-party service providers to assist in the evaluation of investments. For investment valuations, current market interest rates, quality estimates by rating agencies and valuation estimates by active market participants were used to determine values. Deferred retirement benefits were valued based on actuarial data, contracted payment schedules and an estimated discount rate of
4.08%
and
4.08%
as of
September 30, 2018
and
2017
, respectively.
Note 10. Common Stock and Options
Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for up to
1,250,000
common shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to stockholder value. The 2015 Plan was approved by the Company’s stockholders in February 2015. The Company’s 2015 Plan provides for grants to executives in various forms including restricted shares of the Company’s common stock and stock options. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based upon service conditions. Non-vested restricted shares generally vest over requisite service periods of
one
to
six
years from the date of grant.
Restricted Stock
In November 2017, the Company awarded
5,000
restricted shares of the Company’s common stock (“Restricted Stock”) to one senior executive under the 2015 Plan at a weighted average fair value of
$31.95
per common share, vesting over two and a half years.
The following table represents a summary of the status of the Company’s nonvested shares is as follows:
|
|
|
|
|
|
|
|
|
|
Nonvested Shares
|
|
Shares
|
|
|
Weighted-Average Grant Date Fair Value
|
|
Nonvested Shares at September 30, 2015
|
|
12,500
|
|
|
$
|
49.49
|
|
Granted during fiscal year 2016
|
|
—
|
|
|
—
|
|
Vested during fiscal year 2016
|
|
(2,233
|
)
|
|
$
|
49.50
|
|
Forfeited during fiscal year 2016
|
|
—
|
|
|
—
|
|
Nonvested Shares at September 30, 2016
|
|
10,267
|
|
|
$
|
49.49
|
|
Granted during fiscal year 2017
|
|
—
|
|
|
—
|
|
Vested during fiscal year 2017
|
|
(4,933
|
)
|
|
$
|
49.58
|
|
Forfeited during fiscal year 2017
|
|
—
|
|
|
—
|
|
Nonvested Shares at September 30, 2017
|
|
5,334
|
|
|
$
|
49.39
|
|
Granted during fiscal year 2018
|
|
5,000
|
|
|
$
|
31.95
|
|
Vested during fiscal year 2018
|
|
(3,001
|
)
|
|
$
|
39.70
|
|
Forfeited during fiscal year 2018
|
|
—
|
|
|
—
|
|
Nonvested Shares at September 30, 2018
|
|
7,333
|
|
|
$
|
41.46
|
|
Stock compensation expense related to the Restricted Stock totaled approximately
$137,000
,
$264,000
and
$150,000
for the fiscal years ended
September 30, 2018
,
2017
and 2016, respectively.
There was approximately
$172,000
and
$149,000
of unrecognized stock compensation costs related to the Restricted Stock grants at
September 30, 2018
and
2017
, respectively.
Stock Options
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 price hurdles are satisfied in connection with a change in control of the Company. As of September 30, 2018, the Company’s stock was trading at
$33.80
per share, and during fiscal year 2018 the stock did not trade above
$35.00
per share; accordingly, none of the stock options are vested at September 30, 2018.
Stock option grants of
300,000
options to Mr. Trafelet and
225,000
options to each of Messrs. Slack and Brokaw (collectively, the “2016 Option Grants”) were granted on December 31, 2016. The option exercise price for these options 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
September 30, 2018
, the Company’s stock was trading at
$33.80
per share, and during fiscal year 2018 the stock did not trade above
$60.00
per share; accordingly, none of the stock options are vested at
September 30, 2018
.
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
.
The following table represents a summary of the Company’s stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (years)
|
|
Aggregate Intrinsic Value
|
Balance - September 30, 2016
|
|
—
|
|
|
$
|
—
|
|
|
0.00
|
|
—
|
|
Granted during fiscal year 2017
|
|
750,000
|
|
|
$
|
27.15
|
|
|
3.33
|
|
—
|
|
Forfeitures/expired in fiscal year 2017
|
|
—
|
|
|
$
|
—
|
|
|
0.00
|
|
—
|
|
Exercised during fiscal year 2017
|
|
—
|
|
|
$
|
—
|
|
|
0.00
|
|
—
|
|
Balance - September 30, 2017
|
|
750,000
|
|
|
$
|
27.15
|
|
|
2.58
|
|
—
|
|
Granted during fiscal year 2018
|
|
300,000
|
|
|
$
|
33.60
|
|
|
3.25
|
|
—
|
|
Forfeitures/expired in fiscal year 2018
|
|
(375,000
|
)
|
|
$
|
27.15
|
|
|
1.86
|
|
—
|
|
Exercised during fiscal year 2018
|
|
—
|
|
|
$
|
—
|
|
|
0.00
|
|
—
|
|
Balance - September 30, 2018
|
|
675,000
|
|
|
$
|
30.02
|
|
|
2.22
|
|
—
|
|
Stock compensation expense related to the options totaled approximately
$1,617,000
and
$616,000
for the fiscal years ended
September 30, 2018
and
2017
, respectively.
No
stock compensation expense related to options was recorded for the fiscal year ended September 30, 2016.
At
September 30, 2018
and
2017
, there was approximately
$2,174,000
and
$2,030,000
, respectively, of total unrecognized stock compensation costs related to nonvested share-based compensation for the option grants.
The fair value of the 2016 Option Grants and 2018 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.
2018 Option Grant
|
|
|
|
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
. There were no additional stock options granted or exercised for the fiscal year ended September 30, 2018.
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, exercised or forfeited for the fiscal year ended September 30, 2017.
As of
September 30, 2018
, there remained
557,500
common shares available for issuance under the 2015 Plan.
Note 11. Treasury Stock
In fiscal year 2017, the Board of Directors authorized the repurchase of up to
$7,000,000
of the Company’s common stock in two separate authorizations (collectively, 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.
In September 2013, the Board of Directors authorized the repurchase of up to
105,000
shares of the Company’s common stock beginning in November 2013 and continuing through April 2018. In fiscal year 2016, the Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s outstanding common stock beginning February 18, 2016 and continuing through February 17, 2017 (the "2016 Authorization"). In fiscal year 2015, the Board of Directors authorized the repurchase of up to
170,000
shares of the Company’s common stock beginning March 25, 2015, and continuing through December 31, 2016.
During fiscal year 2018, the Company purchased
72,266
shares at a cost of
$2,214,756
under the 2017 Authorization. As of June 29, 2018, the Company suspended its stock repurchase activity; however, if the Company chooses to resume repurchasing stock it has
$1,676,443
available to repurchase stock under the 2017 Authorization.
The following table illustrates the Company’s treasury stock purchases for the fiscal years ended
September 30, 2018
,
2017
and
2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share amounts)
|
Total Number of
Shares Purchased
|
|
Average Price
Paid Per Share
|
|
Total Shares Purchased as Part of Publicly Announced Plan or Program
|
|
Total Dollar Value of Shares Purchased
|
Fiscal Year Ended September 30,:
|
|
|
|
|
|
|
|
|
|
|
2018
|
72,266
|
|
|
$
|
30.65
|
|
|
722,406
|
|
|
$
|
2,215
|
|
2017
|
104,145
|
|
|
$
|
29.42
|
|
|
650,140
|
|
|
$
|
3,064
|
|
2016
|
78,446
|
|
|
$
|
40.04
|
|
|
545,995
|
|
|
$
|
3,141
|
|
The following table outlines the Company’s treasury stock transactions during the past three fiscal years:
|
|
|
|
|
|
|
|
(in thousands, except share amounts)
|
Shares
|
|
Cost
|
|
|
|
|
Balance at September 30, 2015
|
90,565
|
|
|
$
|
3,962
|
|
Purchased
|
78,446
|
|
|
3,141
|
|
Issued to Employees and Directors
|
(35,478
|
)
|
|
(1,035
|
)
|
Issued to former Silver Nip Citrus equity holders
|
(32,923
|
)
|
|
(1,483
|
)
|
|
|
|
|
Balance at September 30, 2016
|
100,610
|
|
|
4,585
|
|
Purchased
|
104,145
|
|
|
3,064
|
|
Issued to Employees and Directors
|
(27,440
|
)
|
|
(1,147
|
)
|
|
|
|
|
Balance at September 30, 2017
|
177,315
|
|
|
6,502
|
|
Purchased
|
72,266
|
|
|
2,215
|
|
Issued to Employees and Directors
|
(33,393
|
)
|
|
(1,181
|
)
|
|
|
|
|
Balance at September 30, 2018
|
216,188
|
|
|
$
|
7,536
|
|
Note 12. Income Taxes
The provision (benefit) for income tax for the years ended
September 30, 2018
,
2017
and
2016
consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
|
|
|
Federal income tax
|
$
|
1,961
|
|
|
$
|
102
|
|
|
$
|
244
|
|
State income tax
|
384
|
|
|
—
|
|
|
—
|
|
Total current
|
2,345
|
|
|
102
|
|
|
244
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal income tax
|
(3,917
|
)
|
|
(3,286
|
)
|
|
4,538
|
|
State income tax
|
1,962
|
|
|
(662
|
)
|
|
739
|
|
Total deferred
|
(1,955
|
)
|
|
(3,948
|
)
|
|
5,277
|
|
Provision (benefit) for income taxes
|
$
|
390
|
|
|
$
|
(3,846
|
)
|
|
$
|
5,521
|
|
Income tax provision (benefit) attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate of
24.53%
, based on a blended rate calculation, to income (loss) before income taxes for the fiscal year ended September 30, 2018 and 35% for the fiscal years ended September 30, 2017 and 2016 as a result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Tax at the statutory federal rate
|
$
|
3,198
|
|
|
$
|
(4,670
|
)
|
|
$
|
4,382
|
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
857
|
|
|
(402
|
)
|
|
457
|
|
Permanent and other reconciling items, net
|
221
|
|
|
548
|
|
|
773
|
|
Expiration of capital loss carryforward
|
5,634
|
|
|
581
|
|
|
—
|
|
Reduction in deferred tax liability resulting from the Act
|
(9,847
|
)
|
|
—
|
|
|
—
|
|
Stock option cancellation
|
347
|
|
|
—
|
|
|
—
|
|
Other
|
(20
|
)
|
|
97
|
|
|
(91
|
)
|
Provision (benefit) for income taxes
|
$
|
390
|
|
|
$
|
(3,846
|
)
|
|
$
|
5,521
|
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of
September 30, 2018
, and
2017
are presented below:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
Deferred retirement benefits
|
$
|
1,114
|
|
|
$
|
1,712
|
|
Investment in Citree
|
89
|
|
|
45
|
|
Deferred gain recognition
|
6,318
|
|
|
10,199
|
|
Goodwill
|
20,095
|
|
|
33,233
|
|
Inventories
|
711
|
|
|
6,435
|
|
Stock compensation
|
261
|
|
|
292
|
|
Accrued bonus
|
612
|
|
|
248
|
|
Capital loss carryforwards
|
—
|
|
|
9,462
|
|
Tax credits
|
28
|
|
|
293
|
|
Net operating losses
|
—
|
|
|
3,160
|
|
Intangibles
|
620
|
|
|
1,027
|
|
Other
|
190
|
|
|
332
|
|
Total deferred tax assets
|
30,038
|
|
|
66,438
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
Revenue recognized from citrus and sugarcane
|
162
|
|
|
357
|
|
Property and equipment
|
54,925
|
|
|
91,995
|
|
Accrual-to-cash method
|
—
|
|
|
950
|
|
Prepaid insurance
|
104
|
|
|
220
|
|
Investment in Magnolia
|
—
|
|
|
24
|
|
Total deferred tax liabilities
|
55,191
|
|
|
93,546
|
|
Net deferred income tax liabilities
|
$
|
(25,153
|
)
|
|
$
|
(27,108
|
)
|
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 fiscal year ended September 30, 2018 was
24.53%
, based on a fiscal year blended rate calculation. The 21% U.S. corporate tax rate will apply to fiscal years ending September 30, 2019 and each year thereafter.
Additionally, the Act requires a one-time remeasurement of certain tax related assets and liabilities. During the first fiscal 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 fiscal year ended September 30, 2018. The amounts recorded for the fiscal year ended September 30, 2018 for the remeasurement of deferred taxes principally relate to the reduction in the U.S. corporate income tax rate. For the fiscal year ended September 30, 2018, the Company has recorded a tax benefit of approximately
$9,847,000
to account for these deferred tax impacts.
Note 13. Segment Information
Segments
Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on
two
operating segments:
Alico Citrus
and
Water Resources and Other Operations
.
Total revenues represent sales to unaffiliated customers, as reported in the Consolidated Statements of Operations. Goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including nonrecurring gains and losses.
Information by operating segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
Alico Citrus
|
$
|
78,121
|
|
|
$
|
123,441
|
|
|
$
|
137,282
|
|
Water Resources and Other Operations
|
3,160
|
|
|
6,388
|
|
|
6,914
|
|
Total revenues
|
81,281
|
|
|
129,829
|
|
|
144,196
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
Alico Citrus
|
51,709
|
|
|
111,947
|
|
|
102,347
|
|
Water Resources and Other Operations
|
3,979
|
|
|
8,952
|
|
|
6,790
|
|
Total operating expenses
|
55,688
|
|
|
120,899
|
|
|
109,137
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
Alico Citrus
|
26,412
|
|
|
11,494
|
|
|
34,935
|
|
Water Resources and Other Operations
|
(819
|
)
|
|
(2,564
|
)
|
|
124
|
|
Total gross profit (loss)
|
$
|
25,593
|
|
|
$
|
8,930
|
|
|
$
|
35,059
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
Alico Citrus
|
$
|
15,968
|
|
|
$
|
11,738
|
|
|
$
|
10,393
|
|
Water Resources and Other Operations
|
304
|
|
|
646
|
|
|
2,293
|
|
Other Capital Expenditures
|
80
|
|
|
969
|
|
|
1,619
|
|
Total capital expenditures
|
$
|
16,352
|
|
|
$
|
13,353
|
|
|
$
|
14,305
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization:
|
|
|
|
|
|
Alico Citrus
|
$
|
13,467
|
|
|
$
|
14,054
|
|
|
$
|
13,982
|
|
Water Resources and Other Operations
|
219
|
|
|
652
|
|
|
932
|
|
Other Depreciation, Depletion and Amortization
|
70
|
|
|
520
|
|
|
468
|
|
Total depreciation, depletion and amortization
|
$
|
13,756
|
|
|
$
|
15,226
|
|
|
$
|
15,382
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Assets:
|
|
|
|
Alico Citrus
|
$
|
405,752
|
|
|
$
|
387,972
|
|
Water Resources and Other Operations
|
15,904
|
|
|
24,819
|
|
Other Corporate Assets
|
1,766
|
|
|
6,391
|
|
Total Assets
|
$
|
423,422
|
|
|
$
|
419,182
|
|
Note 14. Employee Benefits Plans
Management Security Plan
The management security plan (“MSP”) is a nonqualified, noncontributory defined supplemental deferred retirement benefit plan for a select group of management personnel. The MSP provides a fixed supplemental retirement benefit for
180 months
. The MSP was frozen as of September 30, 2017. As a result, no new participants are being added to the MSP and no further benefits are accumulating. The MSP benefit expense and the projected management security plan benefit obligation are determined using assumptions as of the end of the year. The weighted-average discount rate used to compute the obligation was
4.08%
and
4.08%
in fiscal years
2018
and
2017
, respectively.
Actuarial gains or losses are recognized when incurred; therefore, the end of year benefit obligation is the same as the accrued benefit costs recognized in the Consolidated Balance Sheets.
The amount of MSP benefit expense charged to costs and expenses was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Fiscal Year Ended September 30,
|
|
2018
|
|
2017
|
|
2016
|
Service cost
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
213
|
|
Interest cost
|
293
|
|
|
140
|
|
|
210
|
|
Recognized actuarial gain (loss) adjustment
|
16
|
|
|
(78
|
)
|
|
(5
|
)
|
Total
|
$
|
309
|
|
|
$
|
262
|
|
|
$
|
418
|
|
The following provides a roll-forward of the MSP benefit obligation:
|
|
|
|
|
|
|
|
|
(in thousands)
|
September 30,
|
|
2018
|
|
2017
|
Change in projected benefit obligation:
|
|
|
|
|
|
Benefit obligation at beginning of year
|
$
|
4,438
|
|
|
$
|
4,543
|
|
Service cost
|
—
|
|
|
200
|
|
Interest cost
|
293
|
|
|
140
|
|
Benefits paid
|
(350
|
)
|
|
(367
|
)
|
Recognized actuarial gain (loss) adjustment
|
16
|
|
|
(78
|
)
|
Benefit obligation at end of year
|
$
|
4,397
|
|
|
$
|
4,438
|
|
|
|
|
|
Funded status at end of year
|
$
|
(4,397
|
)
|
|
$
|
(4,438
|
)
|
Effective September 30, 2018, the Company terminated the MSP. Under the MSP termination, payout for benefits covered under the applicable Internal Revenue Code regulations cannot commence until at least
twelve
months following plan termination decision, but must be fully paid out within twenty-four (
24
) months following plan termination. The MSP is unfunded and benefits are paid as they become due. The estimated future benefit payments under the plan for the next twelve months is approximately
$357,000
.
The Company has established a “Rabbi Trust” to provide for the funding of accrued benefits under the MSP. According to the terms of the Rabbi Trust, funding is voluntary until a change of control of the Company as defined in the Management Security Plan Trust Agreement occurs. Upon a change of control, funding is triggered. As of
September 30, 2018
, the Rabbi Trust had no assets, and no change of control had occurred.
Profit Sharing and 401(k) Plans
The Company maintains a 401(k) employee savings plan for eligible employees, which provides up to a
4%
matching contribution payable on employee payroll deferrals. The Company’s matching funds vest to the employee immediately, pursuant to a safe
harbor election effective in October 2012. The Company’s contribution to the plan was approximately
$342,000
,
$445,000
and
$401,000
for the fiscal years ended September 30,
2018
,
2017
and
2016
, respectively.
The Profit Sharing Plan (“Plan”) is fully funded by contributions from the Company. Contributions to the Plan are discretionary and determined annually by the Company’s Board of Directors. Contributions to employee accounts are based on the participant’s compensation. The Company’s paid contribution to the Profit Sharing Plan was
$0
,
$378,000
, and
$291,000
for the fiscal years ended
September 30, 2018
,
2017
and
2016
, respectively.
Note 15. Related Party Transactions
Clayton G. Wilson
The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”), pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the Company effective as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he will continue to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting Agreement provides that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Wilson will be entitled to vesting of any unvested portion of the restricted stock award granted to him under his Employment Agreement. In addition, the Separation and Consulting Agreement provides that Mr. Wilson serve as a consultant to the Company during 2017 and received an aggregate consulting fee of
$750,000
for such services (
$200,000
paid in an initial lump sum,
$275,000
paid in a lump sum on July 1, 2017, and
$275,000
paid in six equal monthly installments commencing July 31, 2017 and ended December 31, 2017). As of September 30, 2017, the Company satisfied its obligation to Mr. Wilson in full, including a prepayment of
$187,500
. The Company expensed
$187,500
and
$562,500
for the fiscal years ended
September 30, 2018
and September 30, 2017, respectively. Mr. Wilson resigned as a member of the Company’s Board of Directors effective February 27, 2017.
Remy W. Trafelet, Henry R. Slack, and George R. Brokaw
On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with each of Remy W. Trafelet, Henry R. Slack, and George R. Brokaw (collectively, the “Executives”). Mr. Trafelet serves as the President and Chief Executive Officer of the Company, Mr. Slack serves as the Executive Chairman of the Company, and Mr. Brokaw serves as the Executive Vice Chairman of the Company, and each of them continues to serve on the Company’s Board of Directors. The Employment Agreements provide for an annual base salary of
$400,000
in the case of Mr. Trafelet and
$250,000
in the case of each of Messrs. Slack and Brokaw and, additionally, provided for payment to the Executives an amount in cash equal to
$400,000
to Mr. Trafelet and
$250,000
to each of Messrs. Slack and Brokaw within five business days of December 31, 2016.
The Employment Agreements also provide that, if the applicable Executive’s employment is terminated by the Company without “cause” or the applicable Executive resigns with “good reason” (as each such term is defined in the Employment Agreements), then, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, the Executive will be entitled to cash severance in an amount equal to
24
months (in the case of Mr. Trafelet) or
18
months (in the case of Messrs. Slack and Brokaw) of the Executive’s annual base salary.
The Employment Agreement includes various restrictive covenants in favor of the Company, including a confidentiality covenant, a nondisparagement covenant, and
12
-month post-termination noncompetition and customer and employee nonsolicitation covenants.
As of June 26, 2017, both Messrs. Slack and Brokaw have agreed to waive payment of their salary.
JD Alexander
On November 6, 2013, JD Alexander tendered his resignation as Chief Executive Officer, and as an employee of the Company, subject to and effective immediately after the Closing of the Share Purchase transaction on November 19, 2013. Mr. Alexander’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On November 6, 2013, the Company and Mr. Alexander also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Alexander will provide consulting services to the Company during the
two
-year period after the Closing, (ii) Mr. Alexander agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of
two
years after the Closing, and (iii) the Company paid Mr. Alexander for such services
and covenants
$2,000,000
in
twenty-four
monthly installments. The Company expensed approximately
$0
,
$0
and
$167,000
under the Consulting and Non-Competition Agreement for the fiscal years ended
September 30, 2018
,
2017
and
2016
.
Ken Smith
On March 20, 2015, Ken Smith tendered his resignation as Chief Operating Officer, and as an employee of the Company. Mr. Smith’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On March 20, 2015, the Company and Mr. Smith also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Smith will provide consulting services to the Company during the
three
-year period after the resignation date, (ii) Mr. Smith agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of
two years
after the resignation date, and (iii) the Company paid Mr. Smith
$925,000
for such services and covenants. The Company expensed approximately
$0
,
$100,000
and
$200,000
under the Consulting and Non-Competition Agreement for fiscal years ended
September 30, 2018
,
2017
and
2016
, respectively.
W. Mark Humphrey
On June 1, 2015, W. Mark Humphrey tendered his resignation as Senior Vice President and Chief Financial Officer, and as an employee of the Company. On June 1, 2015, the Company and Mr. Humphrey entered into a Separation and Consulting Agreement under which (i) Mr. Humphrey will provide consulting services to the Company for a
one
-year period after his resignation, and (ii) Mr. Humphrey will be entitled to the following benefits: (a)
$100,000
in cash in a lump sum and (b) a consulting fee of
$350,000
payable monthly during the period commencing on his resignation date and ending on the first anniversary of his resignation date. The Company expensed approximately
$0
,
$0
and
$238,000
under the Separation and Consulting Agreement for the fiscal years ended
September 30, 2018
,
2017
and
2016
, respectively. On June 1, 2015 the Company appointed John E. Kiernan to serve as Senior Vice President and Chief Financial Officer. Effective September 1, 2015, Mr. Humphrey was appointed to serve as Senior Vice President and Chief Accounting Officer, and continued to receive monthly payments under The Consulting Agreement through the first anniversary of his resignation date. Mr. Humphrey resigned as Senior Vice President and Chief Accounting Officer and as an employee of the Company effective April 3, 2017.
Shared Services Agreement
The Company has a shared services agreement with Trafelet Brokaw & Co., LLC (“TBCO”), whereby the Company will reimburse TBCO for use of office space and various administrative and support services. The annual cost of the office and services is approximately
$618,000
. The agreement will expire in December 2018. The Company expensed approximately
$592,000
,
$564,000
and
$479,000
under the Shared Services Agreement for the fiscal years ended
September 30, 2018
,
2017
and
2016
, respectively. As of
September 30, 2018
and
2017
, the Company had outstanding amounts due of approximately
$163,000
and
$148,000
, respectively.
Note 16. Commitments and Contingencies
Operating Leases
The Company has obligations under various non-cancelable long-term operating leases for equipment. In addition, the Company has various obligations under other equipment leases of less than one year.
Total rent expense was approximately
$1,062,000
,
$725,000
, and
$667,000
for the years ended
September 30, 2018
,
2017
and
2016
, respectively.
The future minimum annual rental payments under non-cancelable operating leases are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
2019
|
$
|
319
|
|
2020
|
166
|
|
2021
|
169
|
|
2022
|
175
|
|
2023
|
14
|
|
Total
|
$
|
843
|
|
Purchase Commitments
During fiscal year
2018
, the Company entered into contracts to purchase citrus trees. As of
September 30, 2018
, the Company had approximately
$2,161,000
relating to outstanding commitments for these purchases that will be paid upon delivery of the remaining citrus trees.
Letters of Credit
The Company has outstanding standby letters of credit in the total amount of approximately
$10,300,000
at
September 30, 2018
and
September 30, 2017
, 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 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 plaintiffs in the Florida Litigation 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.
Due to the inherent uncertainties of litigation, we cannot predict the outcome of the Florida Litigation at this time, and we can give no assurance that the Florida Litigation will not have a material adverse effect on our financial position or results of operations.
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.
Due to the inherent uncertainties of litigation, we cannot predict the outcome of the Delaware Litigation at this time, and we can give no assurance that Delaware Litigation will not have a material adverse effect on our financial position or results of operations.
From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There are
no
other current legal proceedings to which the Company is a party to or of which any of its property is subject to that it believes will have a material adverse effect on its business financial position or results of operations.
Note 17. Selected Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the fiscal years ended
September 30, 2018
, and
2017
are computed independently each quarter, therefore, the sum of the quarter amounts may not equal the total amount for the respective year due to rounding as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
Fiscal Quarter Ended
|
|
December 31,
|
|
March 31,
|
|
June 30,
|
|
September 30,
|
|
2017
|
2016
|
|
2018
|
2017
|
|
2018
|
2017
|
|
2018
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue
|
$
|
17,533
|
|
$
|
17,445
|
|
|
$
|
35,600
|
|
$
|
56,200
|
|
|
$
|
26,517
|
|
$
|
51,518
|
|
|
$
|
1,631
|
|
$
|
4,666
|
|
Total operating expenses
|
16,951
|
|
14,692
|
|
|
27,767
|
|
41,684
|
|
|
14,603
|
|
36,510
|
|
|
(3,633
|
)
|
28,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
582
|
|
2,753
|
|
|
7,833
|
|
14,516
|
|
|
11,914
|
|
15,008
|
|
|
5,264
|
|
(23,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
3,886
|
|
3,788
|
|
|
3,073
|
|
3,399
|
|
|
2,955
|
|
3,709
|
|
|
5,144
|
|
4,128
|
|
Other (expense) income, net
|
(375
|
)
|
(1,981
|
)
|
|
(2,140
|
)
|
(912
|
)
|
|
5,074
|
|
(2,162
|
)
|
|
96
|
|
(2,193
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
(3,679
|
)
|
(3,016
|
)
|
|
2,620
|
|
10,205
|
|
|
14,033
|
|
9,137
|
|
|
216
|
|
(29,668
|
)
|
Income tax expense (benefit)
|
(12,417
|
)
|
(1,273
|
)
|
|
8,150
|
|
4,321
|
|
|
4,941
|
|
3,665
|
|
|
(284
|
)
|
(10,559
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
8,738
|
|
(1,743
|
)
|
|
(5,530
|
)
|
5,884
|
|
|
9,092
|
|
5,472
|
|
|
500
|
|
(19,109
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interests
|
8
|
|
8
|
|
|
16
|
|
(51
|
)
|
|
8
|
|
7
|
|
|
218
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Alico Inc. common stockholders
|
$
|
8,746
|
|
$
|
(1,735
|
)
|
|
$
|
(5,514
|
)
|
$
|
5,833
|
|
|
$
|
9,100
|
|
$
|
5,479
|
|
|
$
|
718
|
|
$
|
(19,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
1.06
|
|
$
|
(0.21
|
)
|
|
$
|
(0.67
|
)
|
$
|
0.70
|
|
|
$
|
1.11
|
|
$
|
0.66
|
|
|
$
|
0.09
|
|
$
|
(2.29
|
)
|
Diluted
|
$
|
1.05
|
|
$
|
(0.21
|
)
|
|
$
|
(0.67
|
)
|
$
|
0.70
|
|
|
$
|
1.09
|
|
$
|
0.66
|
|
|
$
|
0.09
|
|
$
|
(2.29
|
)
|
Note - Total operating expenses for the fiscal quarter ended September 30, 2017 include an inventory casualty loss and net realizable value adjustment of approximately
$14,688,000
and impairments of long-lived assets of approximately
$9,346,000
. Total operating expenses for the fiscal quarter ended June 30, 2018 include insurance proceeds relating to Hurricane Irma of
$477,000
for property and casualty damage claims and
$3,726,000
for crop claims. Total operating expenses for the fiscal quarter ended September 30, 2018 included insurance proceeds relating to the Hurricane Irma of
$5,226,000
for crop damage claims (see Note 3. “Inventories”, Note 4. “Assets Held For Sale” and Note 5. “Property and Equipment, Net” for further information).
Note 18. Subsequent Events
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.
A stock option grant of
10,000
options was made to Mr. Kiernan on October 25, 2018. The option price was set at
$33.34
, the closing price on October 25, 2018. This grant will vest as follows: (i)
3,333
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
options will vest if the price of the Company’s common stock during a consecutive
20
-trading day period exceeds
$45.00
; and (iii)
3,334
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. This grant 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.