NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. 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
122,000
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 -
Orange Co.
and
Conservation and Environmental Resources
. Financial results are presented based upon its
three
business segments (
Orange Co.
,
Conservation and Environmental 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 and Combined Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2016
, as filed with the SEC on December 6, 2016.
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, 2017
. 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 will assess performance and allocate resources based on
three
operating segments:
Orange Co.
,
Conservation and Environmental Resources
and Other Operations.
Principles of Consolidation
The Financial Statements include the accounts of Alico, Inc. and the accounts of all the subsidiaries in which a controlling interest is held by the Company. The Financial Statements represent the Condensed Consolidated Balance Sheets, Statements of Operations and Statements of Cash Flows of Alico, Inc. and its subsidiaries. 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 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.
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 a net loss of
$15,848
and
$16,018
for the
three
months ended
December 31, 2016
and
2015
, respectively, of which
51%
is attributable to the Company.
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 the Company 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 similarly to the pooling of interest method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.
Recent Accounting Pronouncements
Adopted
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, “Interest - Imputation of Interest” (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs ("ASU 2015-.03") requiring debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. In August 2015, the FASB issued guidance clarifying that debt issuance costs related to line-of-credit and other revolving debt arrangements may be deferred and presented as an asset. The Company adopted this guidance retrospectively on October 1, 2015 in accordance with the effective date. The adoption of this new guidance did not impact the Company's financial position, results of operations or cash flows for any periods presented.
Balance Sheet Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which will require entities to present all deferred tax liabilities and assets as non-current on the balance sheet instead of separating deferred taxes into current and non-current amounts. The Company adopted this guidance retrospectively on October 1, 2015. As this standard impacted presentation only, the adoption of ASU 2015-17 did not have an impact on our Financial Statements upon adoption.
Not Adopted
In January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01 that provides guidance to assist entities with evaluating when a set of transferred assets and activities (set) is a business. Under the new guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. The ASU will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted.
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 working capital, net income, equity or cash flows 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. Inventories
Inventories consist of the following at
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2016
|
|
2016
|
Unharvested fruit crop on the trees
|
$
|
54,967
|
|
|
$
|
52,204
|
|
Beef cattle
|
2,633
|
|
|
783
|
|
Citrus tree nursery
|
3,565
|
|
|
3,090
|
|
Other
|
1,357
|
|
|
2,392
|
|
Total inventories
|
$
|
62,522
|
|
|
$
|
58,469
|
|
The Company records its inventory at the lower of cost or net realizable value. For the
three
months ended
December 31, 2016
, the Company did not record any adjustments to reduce inventory to net realizable value.
Note 3. Property and Equipment, Net
Property and equipment, net consists of the following at
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2016
|
|
2016
|
Citrus trees
|
$
|
254,689
|
|
|
$
|
253,665
|
|
Equipment and other facilities
|
59,456
|
|
|
59,355
|
|
Buildings and improvements
|
19,068
|
|
|
21,780
|
|
Breeding herd
|
10,918
|
|
|
10,921
|
|
Total depreciable properties
|
344,131
|
|
|
345,721
|
|
Less: accumulated depreciation and depletion
|
(83,278
|
)
|
|
(83,122
|
)
|
Net depreciable properties
|
260,853
|
|
|
262,599
|
|
Land and land improvements
|
115,953
|
|
|
116,648
|
|
Net property and equipment
|
$
|
376,806
|
|
|
$
|
379,247
|
|
Asset held for sale
In December 2016, the Company reached an agreement in principle to sell approximately
49
acres of land and facilities in Hendry County, Florida, for approximately
$2,200,000
. The property, known as Alico Plant World, is currently leased to a vegetable nursery operator. The buyer is an affiliate of the tenant. The anticipated sale price exceeds its net book value, and no impairment will be recognized. The property is included in "Prepaid expenses and other current assets" on the Company's Condensed Consolidated Balance Sheets as of December 31, 2016. See Note 11. "Subsequent Event".
Note 4. Long-Term Debt and Lines of Credit
Debt Refinancing
The Company refinanced its outstanding debt obligations on
December 3, 2014
in connection with the Orange-Co 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”), and a
$25,000,000
revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a
$70,000,000
working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).
The term loans and RLOC are secured by real property. On November 10, 2016, Met issued a Partial Release of Mortgage removing their lien on approximately
8,640
acres of ranch land in Hendry County, Florida. The remaining 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 on May 1, 2017 and 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
2.39%
per annum and
2.25%
per annum as of
December 31, 2016
and
September 30, 2016
, 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 and remains available to reduce future mandatory principal payments when the Company elects to do so. There were
no
optional prepayments in calendar year 2016. 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
150
basis points, payable quarterly. The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and 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
2.39%
per annum and
2.25%
per annum as of
December 31, 2016
and
September 30, 2016
, respectively. Availability under the RLOC was
$25,000,000
as of
December 31, 2016
.
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
2.37%
per annum and
2.27%
per annum as of
December 31, 2016
and
September 30, 2016
, respectively. The WCLC agreement was amended on
September 30, 2016
, and the primary terms of the amendment were (1) an extension of the maturity to November 1, 2018, (2) the amendment permits the Company to provide a limited
$8,000,000
guaranty of the Silver Nip Citrus debt (see below) and (3) the amendment makes debt service coverage a quarterly rather than annual covenant. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately
$37,800,000
as of
December 31, 2016
.
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.
The outstanding balance on the WCLC was approximately
$21,945,000
at
December 31, 2016
. The WCLC agreement provides for Rabo to issue up to
$20,000,000
in letters of credit on the Company’s behalf. As of
December 31, 2016
, there was approximately
$10,300,000
in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.
These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of
1.10
to 1.00, (ii) tangible net worth of at least
$160,000,000
increased annually by
10%
of consolidated net income for the preceding year, or approximately
$162,300,000
for the year ending September 30, 2017, (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
December 31, 2016
, 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 initially bore interest at
5.49%
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 a fixed rate of
5.28%
for the remainder of the term. The loan matures February 5, 2029.
Silver Nip Citrus Debt
Silver Nip Citrus has various loans payable to Prudential Mortgage Capital Company, LLC (“Prudential”) as described below.
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
. The loans are collateralized by real estate in Collier, Hardee, Highlands, Martin, Osceola and Polk Counties, Florida and mature June 1, 2033.
Silver Nip Citrus entered into
two
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 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
September 30, 2016
, the most recent measurement date.
Other Modifications of Rabo and Prudential Credit Agreements
During the
three
months ended
December 31, 2015
, Rabo agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus up to
$7,000,000
on a revolving basis for cash management purposes. These advances would be funded from either cash on hand or draws on the Company’s WCLC.
Silver Nip Citrus has provided a
$7,000,000
limited guaranty and security agreement granting Rabo a security interest in crops, accounts receivable, inventory and certain other assets.
This modification required the amendment of various Prudential and Rabo loan documents and mortgages.
The following table summarizes long-term debt and related deferred financing costs net of accumulated amortization at December 31, 2016 and September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
September 30, 2016
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion:
|
|
|
|
|
|
|
|
Met Fixed-Rate Term Loans
|
$
|
103,750
|
|
|
$
|
1,048
|
|
|
$
|
105,312
|
|
|
$
|
1,080
|
|
Met Variable-Rate Term Loans
|
51,750
|
|
|
482
|
|
|
52,469
|
|
|
497
|
|
Met Citree Term Loan
|
5,000
|
|
|
52
|
|
|
5,000
|
|
|
53
|
|
Pru Loans A & B
|
23,900
|
|
|
270
|
|
|
24,190
|
|
|
274
|
|
Pru Loan E
|
5,060
|
|
|
31
|
|
|
5,115
|
|
|
32
|
|
Pru Loan F
|
5,060
|
|
|
44
|
|
|
5,115
|
|
|
44
|
|
John Deere equipment loan
|
—
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
194,520
|
|
|
1,927
|
|
|
197,219
|
|
|
1,980
|
|
Less current portion
|
4,475
|
|
|
—
|
|
|
4,493
|
|
|
—
|
|
Long-term debt
|
$
|
190,045
|
|
|
$
|
1,927
|
|
|
$
|
192,726
|
|
|
$
|
1,980
|
|
The following table summarizes lines of credit and related deferred financing costs net of accumulated amortization at December 31, 2016 and September 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
September 30, 2016
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Lines of Credit:
|
|
|
|
|
|
|
|
RLOC
|
$
|
—
|
|
|
$
|
146
|
|
|
$
|
5,000
|
|
|
$
|
159
|
|
WCLC
|
21,945
|
|
|
180
|
|
|
—
|
|
|
230
|
|
Lines of Credit
|
$
|
21,945
|
|
|
$
|
326
|
|
|
$
|
5,000
|
|
|
$
|
389
|
|
Future maturities of debt and lines of credit as of December 31, 2016 are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Due within one year
|
$
|
4,475
|
|
Due between one and two years
|
30,270
|
|
Due between two and three years
|
10,925
|
|
Due between three and four years
|
10,975
|
|
Due between four and five years
|
10,975
|
|
Due beyond five years
|
148,845
|
|
|
|
Total future maturities
|
$
|
216,465
|
|
Interest costs expensed and capitalized were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Three Months Ended December 31,
|
|
2016
|
|
2015
|
Interest expense
|
$
|
2,327
|
|
|
$
|
2,503
|
|
Interest capitalized
|
63
|
|
|
43
|
|
Total
|
$
|
2,390
|
|
|
$
|
2,546
|
|
Note 5. Earnings Per Common Share
Basic earnings per share for Alico's common stock is calculated by dividing net income attributable to Alico, Inc. common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares issuable under equity-based compensation plans in accordance with the treasury stock method, except where the inclusion of such common shares would have an anti-dilutive impact.
For the
three
months ended
December 31, 2016
and
2015
, basic and diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
(in thousands except per share amounts)
|
|
|
|
|
Three Months Ended December 31,
|
|
2016
|
|
2015
|
|
|
|
|
Net loss attributable to Alico, Inc. common stockholders
|
$
|
(1,735
|
)
|
|
$
|
(3,011
|
)
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
8,324
|
|
|
8,303
|
|
Dilutive effect of equity-based awards
|
—
|
|
|
—
|
|
Weighted average number of common shares outstanding - diluted
|
8,324
|
|
|
8,303
|
|
|
|
|
|
Net loss per common shares attributable to Alico, Inc. common stockholders:
|
|
|
|
Basic
|
$
|
(0.21
|
)
|
|
$
|
(0.36
|
)
|
Diluted
|
$
|
(0.21
|
)
|
|
$
|
(0.36
|
)
|
The computation of diluted earnings per common share for the
three
months ended
December 31, 2016
and
2015
excludes the impact of certain equity awards because they are anti-dilutive. Such awards are comprised of
750,000
stock options granted to Executive Officers (see Note 9. "Related Party Transactions") during the
three
months ended
December 31, 2016
and
12,500
shares awarded to the Chief Executive Officer and Chief Financial Officer during the fiscal year ended September 30, 2015.
Note 6. Segment Information
Segments
Operating segments are defined in ASC Topic 280, "Segment Reporting" 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 are evaluated regularly by the Company’s CODM in deciding how to assess performance and allocate resources. The Company’s CODM will assess performance and allocate resources based on
three
operating segments:
Orange Co.
,
Conservation and Environmental Resources
and Other Operations.
The Company manages its land based upon its primary usage, and reviews its performance based upon
two
primary classifications:
Orange Co.
and
Conservation and Environmental Resources
. In addition, Other Operations include leasing mines and oil extraction rights to third parties, as well as leasing improved farmland to third parties.
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. All intercompany transactions between the segments have been eliminated.
Information by operating segment is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended December 31,
|
|
2016
|
|
2015
|
Revenues:
|
|
|
|
Orange Co.
|
$
|
16,877
|
|
|
$
|
19,295
|
|
Conservation and Environmental Resources
|
301
|
|
|
1,007
|
|
Other Operations
|
267
|
|
|
302
|
|
Total revenues
|
17,445
|
|
|
20,604
|
|
|
|
|
|
Operating expenses:
|
|
|
|
Orange Co.
|
14,085
|
|
|
17,608
|
|
Conservation and Environmental Resources
|
514
|
|
|
1,560
|
|
Other Operations
|
93
|
|
|
70
|
|
Total operating expenses
|
14,692
|
|
|
19,238
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
Orange Co.
|
2,792
|
|
|
1,687
|
|
Conservation and Environmental Resources
|
(213
|
)
|
|
(553
|
)
|
Other Operations
|
174
|
|
|
232
|
|
Total gross profit
|
$
|
2,753
|
|
|
$
|
1,366
|
|
|
|
|
|
Depreciation, depletion and amortization:
|
|
|
|
Orange Co.
|
$
|
3,516
|
|
|
$
|
3,357
|
|
Conservation and Environmental Resources
|
169
|
|
|
232
|
|
Other Operations
|
32
|
|
|
106
|
|
Other Depreciation, Depletion and Amortization
|
199
|
|
|
313
|
|
Total depreciation, depletion and amortization
|
$
|
3,916
|
|
|
$
|
4,008
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2016
|
|
2016
|
Assets:
|
|
|
|
Orange Co.
|
$
|
413,597
|
|
|
$
|
410,663
|
|
Conservation and Environmental Resources
|
14,621
|
|
|
13,073
|
|
Other Operations
|
22,243
|
|
|
22,050
|
|
Other Corporate Assets
|
10,292
|
|
|
9,659
|
|
Total Assets
|
$
|
460,753
|
|
|
$
|
455,445
|
|
Note 7. Stockholders' Equity
The Company recognizes stock-based compensation expense for (i) Board of Directors fees (paid in treasury stock) and (ii) the Stock Incentive Plan of 2015 (paid in restricted stock). Stock-based compensation expense for the Board of Director fees and Named Executive Officers was approximately
$440,000
and
$210,000
for the
three
months ended
December 31, 2016
and
2015
, respectively. Stock-based compensation expense is recognized in general and administrative expenses in the Condensed Consolidated Statements of Operations.
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
(the "2015 Authorization"). The stock repurchases were made through open market transactions at times and in such amounts as the Company’s broker determined, subject to the provisions of SEC Rule 10b-18. For the
three
months ended
December 31, 2016
, the Company did not purchase any shares it had remaining under the 2015 Authorization.
The following table illustrates the Company’s treasury stock issuances for the
three
months ended
December 31, 2016
:
|
|
|
|
|
|
|
|
(in thousands, except share amounts)
|
|
|
|
|
Shares
|
|
Cost
|
Balance as of September 30, 2016
|
100,610
|
|
|
$
|
4,585
|
|
Issued to Directors
|
(9,212
|
)
|
|
(386
|
)
|
|
|
|
|
Balance as of December 31, 2016
|
91,398
|
|
|
$
|
4,199
|
|
In fiscal year 2016, the Board of Directors authorized the repurchase of up to
50,000
shares of the Company’s common stock beginning February 18, 2016 and continuing through February 17, 2017 (the "2016 Authorization"). The stock repurchases will be made through open market transactions at times and in such amounts as the Company’s broker determine subject to the provisions of SEC Rule 10b-18. The Company also adopted a Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”) in connection with its share repurchase authorization. The Plan allows the Company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. For the
three
months ended
December 31, 2016
, the Company did not purchase any shares in accordance with the 2016 Authorization and has available to purchase
50,000
shares in accordance with the 2016 Authorization.
Note 8. Commitments and Contingencies
Letters of Credit
The Company has outstanding standby letters of credit in the total amount of approximately
$10,300,000
and approximately
$10,234,000
at
December 31, 2016
and
September 30, 2016
, respectively, to secure its various contractual obligations.
Legal Proceedings
From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There are
no
other current legal proceedings to which the Company is a party or of which any of its property is subject that it believes will have a material adverse effect on its financial position, results of operations or cash flows.
Note 9. Related Party Transactions
Clayton G. Wilson
The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”), the Company’s Chief Executive Officer, pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the Company effective as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he 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 will serve as a consultant to the Company during 2017 and will receive an aggregate consulting fee of
$750,000
for such services (payable
$200,000
in an initial lump sum,
$275,000
in a lump sum on July 1, 2017, and
$275,000
in six equal monthly installments commencing July 31, 2017 and ending December 31, 2017). If the Company terminates the consulting period for any reason, it will continue to pay the consulting fees described in the immediately preceding sentence, subject to Mr. Wilson’s continued compliance with the restrictive covenants set forth in his employment agreement. Mr. Wilson continues to serve as a member of the Board of Directors of the Company.
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 will serve as the President and Chief Executive Officer of the Company, Mr. Slack will serve as the Executive Chairman of the Company, and Mr. Brokaw will serve as the Executive Vice Chairman of the Company, and each of them will continue 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, provide 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. A stock option grant of
300,000
options in the case of Mr. Trafelet and
225,000
options in the case of each of Messrs. Slack and Brokaw (collectively, the “Option Grants”) was also provided. The 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 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.
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.
Silver Nip Citrus Merger Agreement
Effective February 28, 2015, the Company completed the merger (“Merger”) with 734 Citrus Holdings, LLC (“Silver Nip Citrus”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), Silver Nip Citrus and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus. The ownership of Silver Nip Citrus was held by 734 Agriculture,
74.89%
, Mr. Clay Wilson, former Chief Executive Officer of the Company,
5%
and an entity controlled by Mr. Clay Wilson owned,
20.11%
.
734 Agriculture has control over both Silver Nip Citrus and the Company, and therefore the Merger was treated as a common control acquisition.
At closing of the Merger, Merger Sub merged with and into Silver Nip Citrus, with Silver Nip Citrus and its affiliates surviving the Merger as wholly owned subsidiaries of the Company. Pursuant to the Merger Agreement, at closing, the Company issued
923,257
shares of the Company’s common stock, par value
$1.00
per share, to the holders of membership interests in Silver Nip Citrus. Silver Nip Citrus’ outstanding net indebtedness at the closing of the Merger was approximately
$40,278,000
, and other liabilities totaled approximately
$8,446,000
. The Company acquired assets with a book value of approximately
$65,739,000
, and total net assets of approximately
$17,015,000
. The shares issued were recorded at the carrying amount of the net assets transferred. The closing price of the Company's common stock on
February 27, 2015
was
$45.67
.
Through September 30, 2016, the former holders of membership interests (the "Members") in Silver Nip Citrus earned and were issued an additional
148,705
shares of the Company’s common stock pursuant to the Merger Agreement. The additional purchase consideration was based on the final value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves for 2014-2015 citrus harvest season. No additional consideration of Company common shares is due in connection with the Merger.
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
$2,000,000
for such services and covenants in
twenty-four
monthly installments. The Company expensed approximately
$167,000
under the Consulting and Non-Competition Agreement for the
three
months ended
December 31, 2015
.
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 will pay Mr. Smith up to
$1,225,000
for such services and covenants. The Company expensed approximately
$50,000
under the Consulting and Non-Competition Agreement for each of the
three
months ended
December 31, 2016
and
2015
, 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 was to provide consulting services to the Company for a
one
-year period after his resignation, and (ii) Mr. Humphrey was 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
$88,000
under the Separation and Consulting Agreement for the three months ended
December 31, 2015
. 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 Separation and Consulting Agreement through the first anniversary of his resignation date.
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
$465,000
. The agreement will expire in June 2017. The Company expensed approximately
$73,421
and
$98,560
under the Shared Services Agreement for the three months ended
December 31, 2016
and
2015
, respectively.
Note 10. Accrued Liabilities
Accrued Liabilities consist of the following at
December 31, 2016
and
September 30, 2016
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2016
|
|
2016
|
|
|
|
|
Ad valorem taxes
|
$
|
157
|
|
|
$
|
2,736
|
|
Accrued interest
|
1,233
|
|
|
1,135
|
|
Accrued employee wages and benefits
|
330
|
|
|
964
|
|
Inventory received but not invoiced
|
846
|
|
|
710
|
|
Current portion of deferred retirement obligations
|
342
|
|
|
342
|
|
Other accrued liabilities
|
112
|
|
|
535
|
|
Total accrued liabilities
|
$
|
3,020
|
|
|
$
|
6,422
|
|
Note 11. Subsequent Event
On February 2, 2017, the Company sold to its former tenant
49
acres of land and facilities in Hendry County, Florida, for
$2,200,000
. See Note 3. "Property and Equipment, Net".