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 -
Alico Citrus
and
Conservation and Environmental Resources
. Financial results are presented based upon its
three
business segments (
Alico Citrus
,
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 Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended
September 30, 2017
, as filed with the SEC on
December 11, 2017
.
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, 2018
. 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
three
operating segments:
Alico Citrus
(formerly 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. 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.
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
$16,219
and
$15,848
for the
three
months ended
December 31, 2017
and
2016
, respectively, of which
51%
is attributable to the Company.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standard Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” as a new ASC topic (Topic 606). The core principle of this ASU is that an entity 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 ASU further provides guidance for any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards (for example, lease contracts). The FASB subsequently issued ASU 2015-14 to defer the effective date of ASU 2014-09 until annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with earlier adoption permitted. The FASB also recently issued ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing," and 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," that clarify or amend the original Topic 606. ASU 2014-09 can be adopted using one of two retrospective transition methods: 1) retrospectively to each prior reporting period presented or 2) as a cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is currently evaluating the impact of ASU 2014-09 on the Company’s Financial Statements upon adoption.
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, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2017
|
|
2017
|
Unharvested fruit crop on the trees
|
$
|
29,551
|
|
|
$
|
32,145
|
|
Beef cattle
|
2,254
|
|
|
1,954
|
|
Other
|
1,375
|
|
|
2,105
|
|
Total inventories
|
$
|
33,180
|
|
|
$
|
36,204
|
|
The Company records its inventory at the lower of cost or net realizable value. For the
three
months ended
December 31, 2017
and
2016
the Company did not record any adjustments to reduce inventory to net realizable value.
In September 2017, the State of Florida's citrus business, including the Company's unharvested citrus crop, was significantly impacted by Hurricane Irma. For the year ended September 30, 2017, the Company recorded a casualty loss on its inventory. In calculating this casualty loss, the Company made certain estimates. As of December 31, 2017, there were no revisions to these estimates which required any further inventory losses to be recorded. The Company continues to work closely with its insurers and adjusters to determine the amount of insurance recoveries, if any, the Company may be entitled to.
Note 3. Assets Held for Sale
During fiscal 2017, 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
December 31, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Carrying Value
|
|
December 31,
|
|
September 30,
|
|
2017
|
|
2017
|
Office Building
|
$
|
—
|
|
|
$
|
3,214
|
|
Nursery - Gainsville
|
6,500
|
|
|
6,500
|
|
Chancey Bay
|
4,179
|
|
|
4,179
|
|
Gal Hog
|
70
|
|
|
70
|
|
Breeding Herd
|
6,133
|
|
|
5,858
|
|
Winterhaven
|
251
|
|
|
—
|
|
Trailers
|
1,162
|
|
|
1,162
|
|
Total Assets Held For Sale
|
$
|
18,295
|
|
|
$
|
20.983
|
|
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.
Negotiations with interested parties for certain assets held for sale have already taken place, and in January, 2018 the Company sold its breeding herd and a portion of their trailers (See Note 13). Assets held for sale consists solely of property and equipment.
The Company recorded an impairment loss of approximately
$4,131,000
during fiscal year 2017 on these assets classified as assets held for sale.
Note 4. Property and Equipment, Net
Property and equipment, net consists of the following at
December 31, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2017
|
|
2017
|
Citrus trees
|
$
|
261,286
|
|
|
$
|
258,949
|
|
Equipment and other facilities
|
54,840
|
|
|
54,592
|
|
Buildings and improvements
|
8,279
|
|
|
8,835
|
|
Total depreciable properties
|
324,405
|
|
|
322,376
|
|
Less: accumulated depreciation and depletion
|
(85,498
|
)
|
|
(82,443
|
)
|
Net depreciable properties
|
238,907
|
|
|
239,933
|
|
Land and land improvements
|
109,602
|
|
|
109,404
|
|
Net property and equipment
|
$
|
348,509
|
|
|
$
|
349,337
|
|
Note 5. 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. 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 on May 1, 2019 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
3.03%
per annum and
2.96%
per annum as of
December 31, 2017
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 and remains available to reduce future mandatory principal payments should the Company elect to do so. During the first quarter of fiscal 2018, the company elected not to make its principal payment and utilized its prepayment to satisfy its payment requirement. 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 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
3.03%
and
2.96%
per annum as of
December 31, 2017
and
September 30, 2017
, respectively. Availability under the RLOC was
$25,000,000
as of
December 31, 2017
.
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
3.11%
per annum and
2.99%
per annum as of
December 31, 2017
and
September 30, 2017
, respectively. The WCLC agreement was amended on
September 30, 2017
, and the primary terms of the amendment were an extension of the maturity to November 1, 2019. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately
$52,577,000
as of
December 31, 2017
and
September 30, 2017
, 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 approximately
$7,123,000
at
December 31, 2017
. 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, 2017
, 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, 2017
, 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 commence February 1, 2018 and are payable quarterly thereafter. The loan matures 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. 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
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 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
December 31, 2017
, the most recent measurement date.
Other Modifications of Rabo and Prudential Credit Agreements
In February 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, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
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
|
$
|
99,062
|
|
|
$
|
924
|
|
|
$
|
99,062
|
|
|
$
|
954
|
|
Met Variable-Rate Term Loans
|
48,876
|
|
|
425
|
|
|
49,594
|
|
|
439
|
|
Met Citree Term Loan
|
5,000
|
|
|
48
|
|
|
5,000
|
|
|
49
|
|
Pru Loans A & B
|
22,740
|
|
|
253
|
|
|
23,030
|
|
|
258
|
|
Pru Loan E
|
4,840
|
|
|
23
|
|
|
4,895
|
|
|
25
|
|
Pru Loan F
|
4,840
|
|
|
42
|
|
|
4,895
|
|
|
42
|
|
|
185,358
|
|
|
1,715
|
|
|
186,476
|
|
|
1,767
|
|
Less current portion
|
4,575
|
|
|
—
|
|
|
4,550
|
|
|
—
|
|
Long-term debt
|
$
|
180,783
|
|
|
$
|
1,715
|
|
|
$
|
181,926
|
|
|
$
|
1,767
|
|
The following table summarizes lines of credit and related deferred financing costs net of accumulated amortization at
December 31, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
September 30, 2017
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
Principal
|
|
Deferred Financing Costs, Net
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
Lines of Credit:
|
|
|
|
|
|
|
|
RLOC
|
$
|
—
|
|
|
$
|
96
|
|
|
$
|
—
|
|
|
$
|
109
|
|
WCLC
|
7,123
|
|
|
104
|
|
|
—
|
|
|
153
|
|
Lines of Credit
|
$
|
7,123
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
262
|
|
Future maturities of long-term debt and lines of credit as of
December 31, 2017
are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Due within one year
|
$
|
4,575
|
|
Due between one and two years
|
15,548
|
|
Due between two and three years
|
10,975
|
|
Due between three and four years
|
14,935
|
|
Due between four and five years
|
10,755
|
|
Due beyond five years
|
135,693
|
|
|
|
Total future maturities
|
$
|
192,481
|
|
Interest costs expensed and capitalized were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
Three Months Ended December 31,
|
|
2017
|
|
2016
|
Interest expense
|
$
|
2,255
|
|
|
$
|
2,327
|
|
Interest capitalized
|
134
|
|
|
63
|
|
Total
|
$
|
2,389
|
|
|
$
|
2,390
|
|
Note 6. Accrued Liabilities
Accrued Liabilities consist of the following at
December 31, 2017
and
September 30, 2017
:
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2017
|
|
2017
|
|
|
|
|
Ad valorem taxes
|
$
|
—
|
|
|
$
|
2,648
|
|
Accrued interest
|
1,203
|
|
|
1,165
|
|
Accrued employee wages and benefits
|
1,169
|
|
|
1,320
|
|
Accrued dividends
|
494
|
|
|
494
|
|
Current portion of deferred retirement obligations
|
315
|
|
|
315
|
|
Accrued insurance
|
266
|
|
|
166
|
|
Other accrued liabilities
|
1,104
|
|
|
673
|
|
Total accrued liabilities
|
$
|
4,551
|
|
|
$
|
6,781
|
|
Note 7.
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 fiscal year ended September 30, 2018 will be 24.5%, 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 quarter ended December 31, 2017, the Company made certain estimates related to the impact of the Act including the remeasurement of deferred taxes at the new expected tax rate and a revised effective tax rate for the year ended September 30, 2018, which was used to compute current tax expense for the first quarter ended December 31, 2017. The amounts recorded in the three months ended December 31, 2017 for the remeasurement of deferred tax liabilities principally relate to the reduction in the U.S. corporate income tax rate. The Company has recorded a tax benefit of approximately
$11,300,000
to account for these deferred tax impacts.
Note 8. 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, 2017
and
2016
, basic and diluted earnings per common share were as follows:
|
|
|
|
|
|
|
|
|
(in thousands except per share amounts)
|
|
|
|
|
Three Months Ended December 31,
|
|
2017
|
|
2016
|
|
|
|
|
Net income (loss) attributable to Alico, Inc. common stockholders
|
$
|
8,746
|
|
|
$
|
(1,735
|
)
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
8,245
|
|
|
8,324
|
|
Dilutive effect of equity-based awards
|
119
|
|
|
—
|
|
Weighted average number of common shares outstanding - diluted
|
8,364
|
|
|
8,324
|
|
|
|
|
|
Net income (loss) per common shares attributable to Alico, Inc. common stockholders:
|
|
|
|
Basic
|
$
|
1.06
|
|
|
$
|
(0.21
|
)
|
Diluted
|
$
|
1.05
|
|
|
$
|
(0.21
|
)
|
The computation of diluted earnings per common share for the
three
months ended
December 31, 2017
includes the impact of certain equity awards because they are dilutive. Such awards are comprised of
750,000
stock options granted to Executive Officers (see Note 12. "Related Party Transactions") during the
three
months ended
December 31, 2016
.
Note 9. 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
three
operating segments:
Alico Citrus
,
Conservation and Environmental Resources
and Other Operations.
Total revenues represent sales to unaffiliated customers, as reported in the Condensed Consolidated Statements of Operations. Goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including nonrecurring gains and losses.
Information by operating segment is as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
Three Months Ended December 31,
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
Alico Citrus
|
$
|
17,079
|
|
|
$
|
16,877
|
|
Conservation and Environmental Resources
|
363
|
|
|
301
|
|
Other Operations
|
91
|
|
|
267
|
|
Total revenues
|
17,533
|
|
|
17,445
|
|
|
|
|
|
Operating expenses:
|
|
|
|
Alico Citrus
|
16,295
|
|
|
14,085
|
|
Conservation and Environmental Resources
|
597
|
|
|
514
|
|
Other Operations
|
59
|
|
|
93
|
|
Total operating expenses
|
16,951
|
|
|
14,692
|
|
|
|
|
|
Gross profit (loss):
|
|
|
|
Alico Citrus
|
784
|
|
|
2,792
|
|
Conservation and Environmental Resources
|
(234
|
)
|
|
(213
|
)
|
Other Operations
|
32
|
|
|
174
|
|
Total gross profit
|
$
|
582
|
|
|
$
|
2,753
|
|
|
|
|
|
Depreciation, depletion and amortization:
|
|
|
|
Alico Citrus
|
$
|
3,398
|
|
|
$
|
3,516
|
|
Conservation and Environmental Resources
|
59
|
|
|
169
|
|
Other Operations
|
11
|
|
|
32
|
|
Other Depreciation, Depletion and Amortization
|
22
|
|
|
199
|
|
Total depreciation, depletion and amortization
|
$
|
3,490
|
|
|
$
|
3,916
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
December 31,
|
|
September 30,
|
|
2017
|
|
2017
|
Assets:
|
|
|
|
Alico Citrus
|
$
|
389,351
|
|
|
$
|
387,972
|
|
Conservation and Environmental Resources
|
15,314
|
|
|
13,845
|
|
Other Operations
|
10,889
|
|
|
10,974
|
|
Other Corporate Assets
|
2,408
|
|
|
6,391
|
|
Total Assets
|
$
|
417,962
|
|
|
$
|
419,182
|
|
Note 10. 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 and stock options). Stock-based compensation expense is recognized in general and administrative expenses in the Condensed Consolidated Statements of Operations.
Stock Compensation - Board of Directors
The Board of Directors can either elect to receive stock compensation or cash for their fees for services provided. Stock-based compensation expense relating to the Board of Director fees was approximately
$192,000
and
$255,000
for the
three
months ended
December 31, 2017
and
2016
, respectively.
Restricted Stock
In fiscal year 2015, the Company awarded
12,500
restricted shares of the Company’s common stock (“Restricted Stock”) to
two
senior executives under the 2015 Plan at a weighted average fair value of
$49.49
per common share, vesting over
three
to
five
years.
In November 2017, a senior executive was awarded
5,000
restricted shares of the Company’s common stock (“Restricted Stock”) under the 2015 Plan at a weighted average fair value of
$31.95
per common share, vesting over approximately
three
years.
Stock compensation expense related to the Restricted Stock totaled approximately
$26,000
and
$150,000
for the
three
months ended
December 31, 2017
and
2016
, respectively. There was approximately
$283,000
and
$413,000
of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at December 31, 2017 and 2016, respectively.
Stock Option Grant
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.
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”) were granted on December 31, 2016. The option price was set at
$27.15
, the closing price on December 31, 2016. 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.
Stock compensation expense related to the options totaled approximately
$205,000
and
$0
for the three months ended December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, there was approximately
$1,822,000
and
$2,646,000
of total unrecognized stock compensation costs related to unvested share-based compensation for the option grants, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately
2.3
years.
The fair value of the 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.
|
|
|
|
Expected Volatility
|
32.19
|
%
|
Expected Term (in years)
|
2.6 - 4.0
|
|
Risk Free Rate
|
24.5
|
%
|
The weighted-average grant-date fair value of the Option Grants was
$3.53
. There were no additional stock options granted, exercised or forfeited for the three months ended
December 31, 2017
.
Stock Repurchase Authorizations
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 (the "2017 Authorization"). In March 2017, our 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, our Board of Directors authorized the repurchase of up to an additional
$2,000,000
of the Company’s common stock beginning May 24, 2017 and continuing through May 24, 2019. The stock repurchases made under this repurchase were made through open market transactions at times and in such amounts as the Company’s broker determined subject to the provisions of SEC Rule 10b-18.
For the three months ended
December 31, 2017
, the Company did not purchase any shares under the 2017 Authorization and has
477,500
shares available to purchase in accordance with the 2017 Authorization.
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"). No shares were repurchased under the 2016 Authorization.
The following table illustrates the Company’s treasury stock issuances for the
three
months ended
December 31, 2017
:
|
|
|
|
|
|
|
|
(in thousands, except share amounts)
|
|
|
|
|
Shares
|
|
Cost
|
Balance as of September 30, 2017
|
177,315
|
|
|
$
|
6,502
|
|
Issued to Employees and Directors
|
(10,527
|
)
|
|
(227
|
)
|
|
|
|
|
Balance as of December 31, 2017
|
166,788
|
|
|
$
|
6,275
|
|
Note 11. Commitments and Contingencies
Letters of Credit
The Company has outstanding standby letters of credit in the total amount of approximately
$10,300,000
at
December 31, 2017
and
September 30, 2017
, 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 12. Related Party Transactions
Clayton G. Wilson
The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”), the Company’s Chief Executive Officer, pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the Company effective as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he would continue to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting Agreement provided that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Wilson would be entitled to vesting of any unvested portion of the restricted stock award granted to him under his Employment Agreement. In addition, the Separation and Consulting Agreement provided that Mr. Wilson serve as a consultant to the Company during 2017 and would receive an aggregate consulting fee of
$750,000
for such services (payable
$200,000
in an initial lump sum,
$275,000
in a lump sum on July 1, 2017, and
$275,000
in six equal monthly installments commencing July 31, 2017 and ending December 31, 2017). As of December 31, 2017 the Company satisfied its obligation to Mr. Wilson in full. The Company expensed
$187,500
for the three months ended December 31, 2017. 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.
As part of their employment agreements, each of the Executives were granted stock options. 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 provided. The Option Grants vest in accordance with the terms as described in Note 10.
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.
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
$0
and approximately
$50,000
under the Consulting and Non-Competition Agreement for each of the
three
months ended
December 31, 2017
and
2016
, respectively.
Shared Services Agreement
The Company has a shared services agreement with Trafelet Brokaw Capital Management, L.P. (“TBCM”), whereby the Company will reimburse TBCM for use of office space and various administrative and support services. The annual cost of the office and
services is approximately
$592,000
. The agreement will expire in May 2018. The Company expensed approximately
$148,000
and
$73,000
under the Shared Services Agreement for the three months ended
December 31, 2017
and
2016
, respectively.
Note 13. Subsequent Events
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 over three years. The trailers were classified as an Asset Held for Sale in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017.
On January 25, 2018, the Company sold its breeding herd to a third party for approximately
$7,800,000
. The breeding herd was classified as an Asset Held for Sale in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017. As part of this transaction, the purchaser will also lease grazing and other rights on the Alico Ranch from the Company.