NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
Description of Business
Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately
117,000
acres of land throughout Florida, including approximately
90,000
acres of mineral rights. The Company manages its land based upon its primary usage, and reviews its performance based upon
two
primary classifications: (i)
Alico Citrus
and (ii)
Water Resources and Other Operations
. Financial results are presented based upon its
two
business segments (
Alico Citrus
and
Water Resources and Other Operations
).
Basis of Presentation
The Company has prepared the accompanying financial statements on a condensed consolidated basis. These accompanying unaudited condensed consolidated interim financial statements, which are referred to herein as the “Financial Statements", have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to Article 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. These Financial Statements do not include all of the disclosures required for complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations. Accordingly, the Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2018
, as filed with the SEC on
December 6, 2018
.
The Financial Statements presented in this Form 10-Q are unaudited. However, in the opinion of management, such Financial Statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods.
Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the current fiscal year ending
September 30, 2019
. All intercompany transactions and account balances between the consolidated businesses have been eliminated.
Segments
Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on
two
operating segments: (i)
Alico Citrus
and (ii)
Water Resources and Other Operations
.
Principles of Consolidation
The Financial Statements include the accounts of Alico and the accounts of all the subsidiaries in which a controlling interest is held by the Company. Under U.S. GAAP, consolidation is generally required for investments of more than
50%
of the outstanding voting stock of an investee, except when control is not held by the majority owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings LLC and subsidiaries, Alico Fresh Fruit LLC, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC. The Company considers the criteria established under FASB ASC Topic 810, “Consolidations”
in its consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates based upon future events. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific
assumptions that the Company believes to be reasonable. The Company evaluates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.
Restricted Cash
Restricted cash is comprised of cash received from the sale of certain assets for which the use of funds is restricted. For certain sale transactions, the Company sells property, which serves as collateral for specific debt obligations. As a result, the sale proceeds can only be used to purchase like-kind citrus groves, which are acceptable to the debt holder. If the restricted cash is not used for such purchases within a twelve-month period, it will be used to pay down principal on Company debt. Based on the contractual uses of restricted cash, these amounts have been classified as non-current.
Revenue Recognition
Revenues are derived from the sale of processed fruit, fresh fruit, other citrus revenue, leasing revenue and other water and resource revenues. The majority of the revenue is generated from the sale of citrus fruit to processing facilities and fresh fruit purchases. The Company recognizes revenue at the amount it expects to be entitled to when control of the products or services is transferred to its customers, which occurs upon delivery of and acceptance of the fruit by the customer and the Company has a right to payment.
The Company has identified one performance obligation as the delivery of fruit to the processing facility (or harvesting of the citrus in the case of fresh fruit) of the customer for each separate variety of fruit identified in the contract. The Company initially recognizes revenue in an amount which is estimated based on contractual and market prices, if such market price falls within the range (known as “floor” and “ceiling” prices) identified in the specific contracts. Additionally, the Company also has a contractual agreement whereby revenue is determined based on applying a cost-plus structure methodology. As such, since these contracts contain elements of variable consideration, the Company recognizes this variable consideration by using the expected value method. Adjustments are made throughout the year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues at the close of the harvesting season can result in either an increase or decrease to reported revenues. During the periods presented, no material adjustments were made to the reported citrus
revenues.
Receivables under these contracts are primarily paid at the floor amount and are collected within seven days after the harvest week. Any adjustments to pricing as a result of changes in market prices, which fall within the range of the floor and ceiling price identified in the specific contract, are collected thirty to sixty days after final market pricing is published. As of March 31, 2019 and September 30, 2018, the Company had total receivables relating to sales of citrus of
$13,696,000
and
$2,471,000
, respectively, recorded in Accounts Receivable, net, in the Condensed Consolidated Balance Sheets.
Disaggregated Revenue
Revenues disaggregated by significant products and services for the
three and six
months ended
March 31, 2019
and
2018
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Six Months Ended March 31, 2019
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Alico Citrus
|
|
|
|
|
|
|
|
|
|
Early and Mid-Season
|
$
|
27,929
|
|
|
$
|
8,839
|
|
|
$
|
39,574
|
|
|
$
|
24,256
|
|
Valencias
|
18,746
|
|
|
24,598
|
|
|
18,746
|
|
|
24,598
|
|
Fresh Fruit
|
671
|
|
|
418
|
|
|
2,577
|
|
|
1,506
|
|
Other
|
477
|
|
|
854
|
|
|
823
|
|
|
1,428
|
|
Total
|
$
|
47,823
|
|
|
$
|
34,709
|
|
|
$
|
61,720
|
|
|
$
|
51,788
|
|
|
|
|
|
|
|
|
|
Water Resources and Other Operations
|
|
|
|
|
|
|
|
Land and other leasing
|
$
|
658
|
|
|
$
|
840
|
|
|
$
|
1,392
|
|
|
$
|
1,087
|
|
Other
|
40
|
|
|
51
|
|
|
188
|
|
|
258
|
|
Total
|
$
|
698
|
|
|
$
|
891
|
|
|
$
|
1,580
|
|
|
$
|
1,345
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
$
|
48,521
|
|
|
$
|
35,600
|
|
|
$
|
63,300
|
|
|
$
|
53,133
|
|
Reclassifications
Certain prior year amounts have been reclassified in the accompanying Financial Statements for consistent presentation to the current period. These reclassifications had no impact on net income, equity or cash flows as previously reported.
Noncontrolling Interest in Consolidated Subsidiary
The Financial Statements include all assets and liabilities of the less-than-
100%
-owned subsidiary the Company controls, Citree Holdings I, LLC (“Citree”). Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had a net loss of approximately
$177,000
and
$33,000
for the three months ended
March 31, 2019
and
2018
, respectively, and had a net loss of approximately
$251,000
and
$49,000
for the
six
months ended
March 31, 2019
and
2018
, respectively, of which
51%
is attributable to the Company.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842).” This guidance will require entities that enter into leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous GAAP. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company is currently evaluating the impact this guidance will have on our Financial Statements, and it will become effective for Alico October 1, 2019.
In January 2017, the FASB issued ASU 2017-04, “Intangibles-Goodwill and Other” (Topic 350), which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in the fiscal years beginning after December 15, 2019, including interim periods within those reporting periods. We will adopt this guidance using a prospective approach. Earlier adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently evaluating the impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements" ("ASU 2018-13"), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement
disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company does not expect the adoption of ASU 2018-13 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2020.
In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Leases (Topic 842). The standard is effective on October 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-19 to have a material impact on the unaudited Condensed Consolidated Financial Statements of the Company. Information regarding the adoption of Leases (Topic 842) is described above.
The Company has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.
Recently Adopted Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, and has subsequently issued several supplemental and/or clarifying ASU’s (collectively, “ASC 606”), which prescribes a comprehensive new revenue recognition standard that supersedes previously existing revenue recognition guidance. The new model provides a five-step analysis in determining when and how revenue is recognized. The core principle of the new guidance is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires new, expanded disclosures regarding revenue recognition. The standard allows initial application to be performed retrospectively to each period presented or as a modified retrospective adjustment as of the date of adoption. ASC 606, also provides for certain practical expedients, including the option to expense as incurred the incremental costs of obtaining a contract, if the contract period is for one year or less, and policy elections regarding shipping and handling that provides the option to account for shipping and handling costs as contract fulfillment costs. The Company adopted ASC 606 effective October 1, 2018, the first day of our 2019 fiscal year, using the modified retrospective method. The implementation of ASC 606 did not require an adjustment to the opening balance of retained earnings as of October 1, 2018 (see Note 1. “Revenue Recognition”).
In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (ASC 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. This standard clarifies the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. It also provides guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The standard also clarifies the derecognition of businesses is under the scope of ASC 810. The standard must be adopted concurrently with ASC 606, however an entity will not have to apply the same transition method as ASC 606. The Company adopted ASC 610-20 (“ASC 610-20”) effective October 1, 2018, the first day of our 2019 fiscal year, using the modified retrospective method. The implementation of ASC 610-20 resulted in an adjustment to increase the opening balance of retained earnings by
$14,601,000
as of October 1, 2018 (see Note 7. “Deferred Gain on Sale”).
Seasonality
The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of Alico's fiscal year produce the majority of the Company's annual revenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
Note 2. Inventories
Inventories consist of the following at
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
|
|
September 30,
|
|
2019
|
|
2018
|
Unharvested fruit crop on the trees
|
$
|
34,526
|
|
|
$
|
39,888
|
|
Other
|
1,585
|
|
|
1,145
|
|
Total inventories
|
$
|
36,111
|
|
|
$
|
41,033
|
|
During the fiscal year ended
September 30, 2018
, the Company received insurance proceeds relating to Hurricane Irma of approximately
$477,000
for property and casualty damage claims and approximately
$8,952,000
for crop claims. The Company has additional property and casualty claims outstanding and is awaiting determination of additional proceeds to be received, if any. Insurance proceeds are recorded in the period they are both probable and reasonably estimable.
In addition to the commercial insurance claims which have been submitted, the Company may be eligible for Hurricane Irma federal relief programs distributed by the Farm Service Agency under the 2017 Wildfires and Hurricane Indemnity Program (2017 WHIP), as well as block grants that will be administered through the State of Florida. The specifics of these programs are still being finalized, and at this time the Company cannot determine the amount of federal relief funds, if any, which will be received, or when these funds will be disbursed.
The Company records its inventory at the lower of cost or net realizable value. For the
three and six
months ended
March 31, 2019
and March 31, 2018, the Company did not record any adjustments to reduce inventory to net realizable value.
Note 3. Assets Held for Sale
In accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been classified as assets held for sale as of
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Carrying Value
|
|
March 31,
|
|
September 30,
|
|
2019
|
|
2018
|
Trailers
|
$
|
421
|
|
|
$
|
456
|
|
Frostproof Parcels
|
—
|
|
|
176
|
|
Parcels on East Ranch
|
759
|
|
|
759
|
|
Twin Mills
|
223
|
|
|
—
|
|
Total Assets Held For Sale
|
$
|
1,403
|
|
|
$
|
1,391
|
|
On March 1, 2019, the Company sold certain trailers for approximately
$35,000
.
On October 30, 2018, the Company sold certain parcels at Frostproof for approximately
$188,000
and realized a gain of approximately
$12,000
.
On May 2, 2018, the Company sold its Gal Hog property for approximately
$7,300,000
and recognized a gain of approximately
$6,709,000
.
On March 30, 2018, the Company sold property located on its Winterhaven location for approximately
$251,000
and recognized a loss of approximately
$20,000
. This asset was classified as an asset held for sale during the first quarter of fiscal year 2018.
On February 12, 2018, the Company sold its property at Chancey Bay for approximately
$4,200,000
and realized a loss of approximately
$44,000
. As part of the transaction, the Company agreed to pay the purchaser rent of
$200,000
in exchange for Alico retaining the rights of harvesting and selling of the fruit in the 2017/2018 harvest season.
On February 9, 2018, the Company sold its nursery located in Gainesville for approximately
$6,500,000
and realized a gain of approximately
$150,000
.
On January 25, 2018, the Company sold its breeding herd to a third party for approximately
$7,800,000
. As part of this transaction, the purchaser is also leasing grazing and other rights on the Alico Ranch from the Company at a rate of
$100,000
per month.
On January 19, 2018, the Company sold certain trailers to a third party for
$500,000
. The Company received
$125,000
and the remaining portion is to be paid in accordance with a promissory note, which bears interest at
5%
, over
three
years.
On October 30, 2017, the Company sold its corporate office building in Fort Myers, Florida for
$5,300,000
and realized a gain of approximately
$1,800,000
. The sales agreement provides that the Company will lease back a portion of the office space for
five
years.
Note 4. Property and Equipment, Net
Property and equipment, net consists of the following at
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
|
|
September 30,
|
|
2019
|
|
2018
|
Citrus trees
|
$
|
272,100
|
|
|
$
|
264,714
|
|
Equipment and other facilities
|
54,985
|
|
|
53,544
|
|
Buildings and improvements
|
8,213
|
|
|
8,052
|
|
Total depreciable properties
|
335,298
|
|
|
326,310
|
|
Less: accumulated depreciation and depletion
|
(98,609
|
)
|
|
(91,858
|
)
|
Net depreciable properties
|
236,689
|
|
|
234,452
|
|
Land and land improvements
|
106,241
|
|
|
105,951
|
|
Net property and equipment
|
$
|
342,930
|
|
|
$
|
340,403
|
|
During the six months ended March 31, 2019, the Company purchased
188
net tree acreage of citrus blocks for approximately
$1,848,000
. These purchases were made from grove owners from within the Company’s existing grove locations. In April 2019, the Bank agreed to accept these purchases as substitute collateral and release approximately
$1,800,000
from restricted cash.
On September 29, 2018, the Company sold its property at Island Pond for
$7,900,000
. As Island Pond was collateralized under one of the Company’s loan documents,
$7,000,000
of the proceeds is restricted in use.
Note 5. Long-Term Debt and Lines of Credit
The following table summarizes long-term debt and related deferred financing costs net of accumulated amortization at
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31, 2019
|
|
September 30, 2018
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion:
|
|
|
|
|
|
|
|
Met Fixed-Rate Term Loans
|
$
|
92,814
|
|
|
$
|
780
|
|
|
$
|
95,938
|
|
|
$
|
836
|
|
Met Variable-Rate Term Loans
|
45,281
|
|
|
359
|
|
|
46,719
|
|
|
385
|
|
Met Citree Term Loan
|
4,850
|
|
|
42
|
|
|
4,925
|
|
|
44
|
|
Pru Loans A & B
|
16,837
|
|
|
232
|
|
|
17,417
|
|
|
241
|
|
Pru Loan E
|
4,565
|
|
|
13
|
|
|
4,675
|
|
|
17
|
|
Pru Loan F
|
4,565
|
|
|
39
|
|
|
4,675
|
|
|
40
|
|
|
168,912
|
|
|
1,465
|
|
|
174,349
|
|
|
1,563
|
|
Less current portion
|
5,313
|
|
|
—
|
|
|
5,275
|
|
|
—
|
|
Long-term debt
|
$
|
163,599
|
|
|
$
|
1,465
|
|
|
$
|
169,074
|
|
|
$
|
1,563
|
|
The following table summarizes lines of credit and related deferred financing costs net of accumulated amortization at
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
September 30, 2018
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Lines of Credit:
|
|
|
|
|
|
|
|
RLOC
|
$
|
—
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
58
|
|
WCLC
|
24,962
|
|
|
11
|
|
|
2,685
|
|
|
78
|
|
Lines of Credit
|
$
|
24,962
|
|
|
$
|
44
|
|
|
$
|
2,685
|
|
|
$
|
136
|
|
Future maturities of long-term debt and lines of credit as of
March 31, 2019
are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Due within one year
|
$
|
5,313
|
|
Due between one and two years
|
10,975
|
|
Due between two and three years
|
35,937
|
|
Due between three and four years
|
14,660
|
|
Due between four and five years
|
10,755
|
|
Due beyond five years
|
116,234
|
|
|
|
Total future maturities
|
$
|
193,874
|
|
Interest costs expensed and capitalized were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Six Months Ended March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Interest expense
|
$
|
1,963
|
|
|
$
|
2,239
|
|
|
$
|
3,880
|
|
|
$
|
4,494
|
|
Interest capitalized
|
229
|
|
|
147
|
|
|
445
|
|
|
281
|
|
Total
|
$
|
2,192
|
|
|
$
|
2,386
|
|
|
$
|
4,325
|
|
|
$
|
4,775
|
|
Debt
The Company's credit facilities consist of
$125,000,000
in fixed interest rate term loans (“Met Fixed-Rate Term Loans”),
$57,500,000
in variable interest rate term loans (“Met Variable-Rate Term Loans”), a
$25,000,000
revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a
$70,000,000
working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).
The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of approximately
38,200
gross acres of citrus groves and
5,762
gross acres of ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.
The term loans, collectively, are subject to quarterly principal payments of
$2,281,250
, and mature
November 1, 2029
. The Met Fixed-Rate Term Loans bear interest at
4.15%
per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to
90
day LIBOR plus
150
basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender beginning May 1, 2017 and is subject to further adjustment every
two
years thereafter until maturity. Interest on the term loans is payable quarterly.
The interest rates on the Met Variable-Rate Term Loans were
4.39%
per annum and
3.99%
per annum as of
March 31, 2019
and
September 30, 2018
, respectively.
The Company may prepay up to
$8,750,000
of the Met Fixed-Rate Term Loan principal annually without penalty, and any such prepayments may be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment was made for calendar year 2015. During the first and second quarter of the fiscal year 2018, the Company elected not to make its principal payment and utilized a portion of its 2015 prepayment to satisfy its principal payment requirements for such quarters. At
March 31, 2019
, the Company had
$5,625,000
remaining available from its 2015 prepayment to reduce future mandatory principal payments should the Company elect to do so. The Met Variable-Rate Term Loans may be prepaid without penalty.
The RLOC bears interest at a floating rate equal to
90
day LIBOR plus
165
basis points, payable quarterly. The LIBOR spread was adjusted by the lender on May 1, 2017 and is subject to further adjustment every
two years
thereafter. Outstanding principal, if any, is due at maturity on November 1, 2019. The RLOC is subject to an annual commitment fee of
25
basis points on the unused portion of the line of credit. The RLOC is available for funding general corporate needs. The variable interest rate was
4.39%
and
3.99%
per annum as of
March 31, 2019
and
September 30, 2018
, respectively. Availability under the RLOC was
$25,000,000
as of
March 31, 2019
.
The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate on the WCLC is based on the
one
month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's debt service coverage ratio for the preceding quarter and can vary from
175
to
250
basis points. The rate is currently at LIBOR plus
175
basis points. The variable interest rate was
4.24%
per annum and
3.85%
per annum as of
March 31, 2019
and
September 30, 2018
, respectively. The WCLC agreement was amended on
September 30, 2018
, and the primary terms of the amendment were an extension of the maturity to November 1, 2021. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately
$44,578,000
and
$57,015,000
as of
March 31, 2019
and
September 30, 2018
, respectively.
The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on Alico's debt service coverage ratio for the preceding quarter and can vary from a minimum of
20
basis points to a maximum of
30
basis points. Commitment fees to date have been charged at 20 basis points.
The outstanding balance on the WCLC was
$24,962,000
at
March 31, 2019
. The WCLC agreement provides for Rabo to issue up to
$20,000,000
in letters of credit on the Company’s behalf. As of
March 31, 2019
, there was approximately
$460,000
in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.
In 2014, the Company capitalized approximately
$2,834,000
of debt financing costs related to the refinancing. These costs, together with approximately
$339,000
of costs related to the retired debt, are being amortized to interest expense over the applicable terms of the loans. Additionally, approximately
$123,000
of financing costs were incurred for the fiscal year ended September 30, 2018 in connection with letters of credit. These costs are also being amortized to interest expense over the applicable terms of the obligations. The unamortized balance of deferred financing costs related to the financing above was approximately
$1,183,000
and approximately
$1,357,000
at
March 31, 2019
and
September 30, 2018
, respectively.
These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of
1.10
to 1.00, (ii) tangible net worth of at least
$160,000,000
increased annually by
10%
of consolidated net income for the preceding years, or approximately
$163,581,000
for the year ended September 30, 2018, (iii) minimum current ratio of
1.50
to 1.00, (iv) debt to total assets ratio not greater than
.625
to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of
$30,000,000
per fiscal year. As of
March 31, 2019
, the Company was in compliance with all of the financial covenants.
The credit facilities also include a Met Life term loan collateralized by real estate owned by Citree (“Met Citree Loan”). This is a
$5,000,000
credit facility that bears interest at a fixed rate of
5.28%
per annum. An initial advance of
$500,000
was made at closing on March 4, 2014. The loan agreement was amended to provide for an interim advance of
$2,000,000
on September 17, 2015, and the interest rate was adjusted to
5.30%
per annum at the time of the interim advance. The final
$2,500,000
advance was funded on April 27, 2016 and the interest rate was adjusted to
5.28%
. Principal payments on this term loan commenced February 1, 2018 and are payable quarterly thereafter. The loan matures in February 2029.
Silver Nip Citrus Debt
There are
two
fixed-rate term loans, with an original combined balance of
$27,550,000
, bearing interest at
5.35%
per annum (“Pru Loans A & B”). Principal of
$290,000
is payable quarterly, together with accrued interest. On February 15, 2015, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip Citrus”) made a prepayment of
$750,000
. In addition, the Company made prepayments of approximately
$4,453,000
in the second fiscal quarter of 2018 with the sale of certain properties, which were collateralized under these loans. The Company may prepay up to
$5,000,000
of principal without penalty. As such, the Company exceeded the allowed
$5,000,000
prepayment by approximately
$203,000
and was required to make a premium payment of approximately
$22,000
. The loans are collateralized by real estate in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, 2033.
Silver Nip Citrus entered into
two
additional fixed-rate term loans with Prudential to finance the acquisition of a
1,500
acre citrus grove on September 4, 2014. Each loan was in the original amount of
$5,500,000
. Principal of
$55,000
per loan is payable quarterly, together with accrued interest. One loan bears interest at
3.85%
per annum (“Pru Loan E”), while the other bears interest at
3.45%
per annum (“Pru Loan F”). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. Both loans are collateralized by real estate in Charlotte County, Florida. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.
The Silver Nip Citrus credit agreements were amended on December 1, 2016. The primary terms of the amendments were (1) the Company provided a limited
$8,000,000
guaranty of the Silver Nip Citrus debt, (2) the limited personal guarantees provided by George Brokaw, Remy Trafelet and Clayton Wilson prior to the Company’s merger with Silver Nip Citrus, and also totaling
$8,000,000
, were released and (3) the consolidated current ratio covenant requirement was reduced from
1.50
to 1.00 to
1.00
to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of
March 31, 2019
, the most recent measurement date.
Note 6. Accrued Liabilities
Accrued liabilities consist of the following at
March 31, 2019
and
September 30, 2018
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
|
|
September 30,
|
|
2019
|
|
2018
|
|
|
|
|
Ad valorem taxes
|
$
|
709
|
|
|
$
|
2,196
|
|
Accrued interest
|
1,361
|
|
|
1,191
|
|
Accrued employee wages and benefits
|
1,214
|
|
|
3,115
|
|
Inventory received but not invoiced
|
171
|
|
|
726
|
|
Accrued legal fees
|
937
|
|
|
—
|
|
Accrued dividends
|
447
|
|
|
492
|
|
Consulting and separation charges
|
331
|
|
|
—
|
|
Accrued insurance
|
17
|
|
|
223
|
|
Current portion of deferred retirement obligations
|
357
|
|
|
345
|
|
Accrued tender offer consulting charges
|
—
|
|
|
274
|
|
Other accrued liabilities
|
444
|
|
|
664
|
|
Total accrued liabilities
|
$
|
5,988
|
|
|
$
|
9,226
|
|
Note 7. Deferred Gain on Sale
On November 21, 2014, the Company completed the sale of approximately
36,000
acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately
$97,900,000
in cash.
The sales price was subject to post-closing adjustments over a
ten
year period. The Company realized a gain of approximately
$42,753,000
on the sale. Initially,
$29,140,000
of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represented the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement. A net gain of approximately
$13,613,000
was recognized at the time of the sale.
On October 1, 2018, the Company adopted ASC 610-20 and reevaluated the original post closing agreement under the guidance of ASC 610-20. As such, the Company recorded a derivative asset and derivative liabilities, which resulted in an increase to retained earnings of
$14,601,000
. This adjustment consisted of recording a derivative asset in the amount of
$3,553,000
relating to potential payments due Alico from Global Ag Properties USA, LLC (“Global Ag”) and derivative liabilities of
$13,864,000
relating to potential payments due Global Ag from Alico. In the first quarter ended December 31, 2018, the Company recorded a loss of
$956,000
, which reflects the change in fair value of the derivative asset and derivative liabilities. In the three months ended March 31, 2019, the Company recorded an additional loss of
$33,000
.
On December 7, 2018, the Company and Global Ag entered into a Termination of Post Closing Agreement (the “2018 Post Closing Agreement”), pursuant to which the parties thereto agreed to certain terms and conditions under which a Post Closing Agreement, dated as of November 21, 2014 (the “2014 Post Closing Agreement”), may be terminated prior to the expiration of its stated term and with the payment of certain termination payments. The 2014 Post Closing Agreement was entered into in connection with the November 21, 2014 closing (the “Land Disposition”) of the sale by Alico to Global Ag of certain land used for sugarcane production and land leasing in Hendry County, Florida, (the “Land”).
The 2014 Post Closing Agreement contained obligations, including possible payments by Alico and by Global Ag to each other over a
ten
year period following the closing of the Land Disposition, with the payments each year being based on the difference, if any, between certain computed amounts. Since the time of the closing of the Land Disposition and up through March 11, 2019, the computations have resulted in payments being made each year by Alico to Global Ag., which have aggregated approximately
$6,518,000
.
The 2018 Post Closing Agreement provided for (i) the termination of the 2014 Post Closing Agreement following the satisfaction of certain terms and conditions set forth in the termination agreement and (ii) the deposit by wire transfer into escrow of an aggregate of
$11,300,000
following notification by Global Ag to Alico of the closing date of a sale of the Land by Global Ag to a third party. The conditions to the termination of the 2014 Post Closing Agreement and the payment of funds to Global Ag included (a) Global Ag’s assignment to the third party buyer, and such third party buyer’s assumption, of certain specified water management
obligations, irrigation and drainage easement obligations, access easements obligations and obligations under a certain option to purchase certain railroad property owned by Alico, (b) delivery to the escrow agent of all instruments and consideration required to consummate the closing by Global Ag of the sale of the Land to the third party buyer, and (c) delivery to the escrow agent of copies of a water management project cooperation agreement running in favor of Alico and signed by Global Ag and the third party buyer.
On March 11, 2019, the 2018 Post Closing Agreement was completed. As such, all the conditions of the termination of the 2014 Post Closing Agreement, mentioned above, were met with the sale of the sugarcane land to a third party. As a result, the Company does not have any future liabilities or commitment to Global Ag in connection with the 2014 Post Closing Agreement.
Note 8. Income Taxes
On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act contains significant changes to corporate taxes, including a permanent reduction of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s statutory rate for the fiscal year ended
September 30, 2018
was
24.5%
, based on a fiscal year blended rate calculation. The
21%
U.S. corporate tax rate will apply to the fiscal years ending September 30, 2019 and each year thereafter.
The Act required a one-time remeasurement of certain tax related assets and liabilities. During the first quarter ended December 31, 2017, the Company made certain estimates related to the impact of the Act including the remeasurement of deferred taxes at the new expected tax rate and a revised effective tax rate for the year ended September 30, 2018. The amounts recorded in the six months ended March 31, 2018 for the remeasurement of deferred taxes principally relate to the reduction in the U.S. corporate income tax rate. During the second quarter ended March 31, 2018, the Company made certain updates to the estimates used during the first quarter, which resulted in a change to the remeasurement. For the six months ended March 31, 2018, the Company has recorded a tax benefit of approximately
$10,100,000
to account for these deferred tax impacts.
The impact of adopting ASC 610 -20 has been modified in the quarter ended March 31, 2019 to reflect the deferred income tax impact of this adoption. The deferred tax asset related to the deferred gain on sale has been decreased by
$3,704,000
with a corresponding decrease to retained earnings, offsetting the October 1, 2018 increase to retained earnings for the ASC 610-20 implementation (see Note 7. “Deferred Gain on Sale”).
Note 9. Earnings Per Common Share
Basic earnings per share for Alico's common stock is calculated by dividing net income attributable to Alico common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares issuable under equity-based compensation plans in accordance with the treasury stock method, except where the inclusion of such common shares would have an anti-dilutive impact.
For the
three and six
months ended
March 31, 2019
and
2018
, basic and diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Six Months Ended March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Alico, Inc. common stockholders
|
$
|
7,547
|
|
|
$
|
(5,514
|
)
|
|
$
|
5,080
|
|
|
$
|
3,232
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
7,463
|
|
|
8,256
|
|
|
7,471
|
|
|
8,251
|
|
Dilutive effect of equity-based awards
|
6
|
|
|
—
|
|
|
35
|
|
|
59
|
|
Weighted average number of common shares outstanding - diluted
|
7,469
|
|
|
8,256
|
|
|
7,506
|
|
|
8,310
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common shares attributable to Alico, Inc. common stockholders:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.68
|
|
|
$
|
0.39
|
|
Diluted
|
$
|
1.01
|
|
|
$
|
(0.67
|
)
|
|
$
|
0.68
|
|
|
$
|
0.39
|
|
For the
six
months ended
March 31, 2019
, equity awards are comprised of
227,500
stock options granted to Executive Officers, after taking into effect the forfeitures of
832,500
stock options (see Note 11. "Stockholders Equity"). For the three months ended
March 31, 2018
there were anti-dilutive equity awards that were excluded from the calculation of diluted earnings per common share.
Note 10. Segment Information
Segments
Total revenues represent sales to unaffiliated customers, as reported in the Condensed Consolidated Statements of Operations. Goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including nonrecurring gains and losses.
Information by operating segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended March 31,
|
|
Six Months Ended March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Alico Citrus
|
$
|
47,823
|
|
|
$
|
34,709
|
|
|
$
|
61,720
|
|
|
$
|
51,788
|
|
Water Resources and Other Operations
|
698
|
|
|
891
|
|
|
1,580
|
|
|
1,345
|
|
Total revenues
|
$
|
48,521
|
|
|
$
|
35,600
|
|
|
$
|
63,300
|
|
|
$
|
53,133
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Alico Citrus
|
$
|
31,582
|
|
|
$
|
26,110
|
|
|
$
|
42,456
|
|
|
$
|
42,405
|
|
Water Resources and Other Operations
|
625
|
|
|
1,657
|
|
|
1,348
|
|
|
2,313
|
|
Total operating expenses
|
$
|
32,207
|
|
|
$
|
27,767
|
|
|
$
|
43,804
|
|
|
$
|
44,718
|
|
|
|
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
|
|
|
|
Alico Citrus
|
$
|
16,241
|
|
|
$
|
8,599
|
|
|
$
|
19,264
|
|
|
$
|
9,383
|
|
Water Resources and Other Operations
|
73
|
|
|
(766
|
)
|
|
232
|
|
|
(968
|
)
|
Total gross profit
|
$
|
16,314
|
|
|
$
|
7,833
|
|
|
$
|
19,496
|
|
|
$
|
8,415
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization:
|
|
|
|
|
|
|
|
Alico Citrus
|
$
|
3,456
|
|
|
$
|
3,366
|
|
|
$
|
6,864
|
|
|
$
|
6,764
|
|
Water Resources and Other Operations
|
27
|
|
|
47
|
|
|
55
|
|
|
117
|
|
Other Depreciation, Depletion and Amortization
|
10
|
|
|
19
|
|
|
32
|
|
|
41
|
|
Total depreciation, depletion and amortization
|
$
|
3,493
|
|
|
$
|
3,432
|
|
|
$
|
6,951
|
|
|
$
|
6,922
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
March 31,
|
|
September 30,
|
|
2019
|
|
2018
|
Assets:
|
|
|
|
Alico Citrus
|
$
|
388,809
|
|
|
$
|
405,752
|
|
Water Resources and Other Operations
|
16,080
|
|
|
15,904
|
|
Other Corporate Assets
|
3,200
|
|
|
1,766
|
|
Total Assets
|
$
|
408,089
|
|
|
$
|
423,422
|
|