Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended September 30, 2016
 
or
¨

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period
 
from____________________
to_________________________
Commission File Number: 0-261
 
Alico, Inc.
(Exact name of registrant as specified in its charter)
Florida
 
59-0906081
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
10070 Daniels Interstate Court,
 
 
 Suite 100, Fort Myers, FL
 
33913
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: 239-226-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of class:
 
Name of each exchange on which registered:
COMMON CAPITAL STOCK,  $1.00 Par value, Non-cumulative
 
NASDAQ

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer
¨
Accelerated filer
þ
Non-accelerated filer
¨
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No þ
The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the closing price, as quoted on the NASDAQ Global Market as of March 31, 2016 (the last business day of Alico’s most recently completed second fiscal quarter) was $86,944,912. Solely for the purposes of this calculation, the registrant has elected to treat all executives, officers and greater than 10% stockholders as affiliates of the registrant. There were 8,324,747 shares of common stock outstanding at December 1, 2016.
 
Documents Incorporated by Reference:

Portions of the Proxy Statement of Registrant for the 2017 Annual Meeting of Shareholders (to be filed with the Commission under Regulation 14A within 120 days after the end of the Registrant's fiscal year), are incorporated by reference in Part III of this report.
 






ALICO, INC.
FORM 10-K
For the fiscal year ended September 30, 2016

PART I
 
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
 
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountants Fees and Services
PART IV
 
Item 15. Exhibits, Financial Statement Schedules
Signatures





Cautionary Statement

This Annual Report on Form 10-K contains certain “forward-looking statements,” as such term is defined in Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). They are based on management’s current expectations and assumptions regarding our business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. These forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as “may,” “will,” “could,” “should,” “would,” “believes,” “expects,” “anticipates”, “estimates”, “projects,” “intends, “plans” and other words and terms of similar substance in connection with discussions of future operating or financial performance. Such forward-looking statements include, but are not limited to, statements regarding future actions, business plans and prospects, prospective products, trends, future performance or results of current and anticipated products, sales efforts, expenses, interest rates, the outcome of contingencies, such as legal proceedings, plans relating to dividends, government regulations, the adequacy of our liquidity to meet our needs for the foreseeable future and our expectations regarding market conditions.

As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. Our actual results may vary materially from those expressed or implied in our forward-looking statements. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange Commission ("SEC"). We provide in Item 1A, “Risk Factors,” a cautionary discussion of certain risks and uncertainties related to our businesses. These are factors that we believe, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. We note these factors for investors as permitted by Section 21E of the Exchange Act. In addition, the operation and results of our business are subject to risks and uncertainties identified elsewhere in this Annual Report on Form 10-K as well as general risks and uncertainties such as those relating to general economic conditions. You should understand that it is not possible to predict or identify all such risks. Consequently, you should not consider such discussion to be a complete discussion of all potential risks or uncertainties.






PART I
Item 1. Business

Alico, Inc. (“Alico”), was incorporated under the laws of the state of Florida in 1960.  Collectively with its subsidiaries (the "Company", "we", "us" or "our"), our business and operations are described below.  For detailed financial information with respect to our business and our operations, see Management’s Discussion and Analysis of Financial Condition and Results of Operations which is included in Item 7 in this Annual Report on Form 10-K, and the accompanying Consolidated and Combined Financial Statements and the related Notes therein, which are included in Item 8. In addition, general information concerning our Company can be found on our website, the internet address of which is http://www.alicoinc.com. All of our filings with the SEC including, but not limited to, the Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, are available free of charge on our website as soon as reasonably practicable after such material is electronically filed or furnished with the SEC. In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases and information regarding corporate governance, including the charters of our audit, compensation, executive and nominating governance committees, as well as our code of business conduct and ethics are also available to be viewed or downloaded electronically at http://www.alicoinc.com. The information on our website is not part of this report or any other report we file with or furnish to the SEC.

Overview

Alico is an agribusiness and natural resources management company, with a legacy of achievement and innovation in citrus, cattle and resource conservation. The Company owns approximately 122,000 acres of land in twelve Florida counties (Alachua, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Lee, Martin, Osceola and Polk) including approximately 90,000 acres of mineral rights. Our principal lines of business are citrus groves, cattle ranching and conservation.

During the fiscal year ended September 30, 2015, the Company acquired three Florida citrus properties for total consideration of approximately $363,000,000. These acquisitions make Alico one of the largest citrus producers in the United States of America.

Our mission is to create value for our customers and stockholders by managing existing lands to their optimal current income and total returns, opportunistically acquiring new agricultural assets and producing high quality agricultural products while exercising responsible environmental stewardship.

We manage our land based upon its primary usage and review its performance based upon two primary classifications - Orange Co. and Conservation and Environmental Resources. In addition, Other Operations include lease income from an aggregates mine and leases of oil extraction rights to third parties among other insignificant lines of business. We present our financial results and the related discussion based upon our three business segments (Orange Co., Conservation and Environmental Resources, and Other Operations).

Recent Developments

Water Storage Contract Approval

In December 2012, the South Florida Water Management District (“SFWMD” or "District") issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program. The Company submitted its response proposing a dispersed water management project on a portion of its ranch land, and on December 11, 2014 the SFWMD approved a contract with the Company, and on September 29, 2015, the SFWMD amended the contract to extend it for an additional year.

The contract term is eleven years, and allows up to one year for implementation (design, permitting, construction and construction completion certification) and ten years of operation whereby the Company will provide water retention services. Payment for these services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed payment of up to $12,000,000 for operations and maintenance costs as long as the project is in compliance with the contract.

Annual payments under the contract are subject to the SFWMD receiving funds for the project from the Florida Legislature and SFWMD Governing Board budget appropriation. Funding for the first year of the dispersed water management project was included in the budget approved in the 2016 legislative session.


1



Project permitting is in process and the Company intends to commence construction upon receipt of permits. Annual fixed payments will not commence until completion of construction.

Change in Fiscal Year of Subsidiary

As Alico, Inc. and 734 Citrus Holdings, LLC ("Silver Nip Citrus") were under common control at the time of the Merger (see Note 1. "Description of Business and Basis of Presentation" of Item 8. Financial Statements and Supplementary Data) it is required under accounting principles generally accepted in the United States of America ("U.S. GAAP") to account for this common control acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting, the Company's Consolidated and Combined Balance Sheets as of September 30, 2016 and September 30, 2015 reflect Silver Nip Citrus’ historical carryover basis in the assets and liabilities, instead of reflecting the fair market value of the assets and liabilities. Alico has also retrospectively recast its financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013.

Silver Nip Citrus’ fiscal year end was June 30. Their financial condition and results of operations as of and for the fiscal years ended June 30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the fiscal years ended September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was changed to September 30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and 2015 now includes the financial condition of Silver Nip Citrus as of September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal years ended September 30, 2016 and 2015 now includes the Silver Nip Citrus results of operations for fiscal years ended September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal year ended September 30, 2014 include the operating results of Silver Nip Citrus from the date common control began, November 19, 2013 through September 30, 2014. The impact of this change was not material to the Consolidated and Combined Financial Statements, with an approximate $492,000 decrease in total assets and an approximate net loss of $596,000 for the transition period related to this change included in Stockholders' Equity at September 30, 2015.

Operating Segments
    
Operating segments are defined in Financial Accounting Standards Board ("FASB") - Accounting Standards Codification ("ASC") 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 is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. For the fiscal year ended September 30, 2015, the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations.
 
Effective October 1, 2015, which was the first day of Alico's fiscal year 2016, the Company operates three business segments related to its various land holdings, as follows:
 
Orange Co. includes activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets, including activities related to the purchase and resale of fruit and value-added services, which include contracting for the harvesting, marketing and hauling of citrus.

Conservation and Environmental Resources includes activities related to cattle grazing, sod, native plant and animal sales, leasing, management and/or conservation of unimproved native pasture land.

Other Operations consists of activities related to rock mining royalties, oil exploration and other insignificant lines of business. Also included are activities related to owning and/or leasing improved farmland. Improved farmland is acreage that has been converted, or is permitted to be converted, from native pasture and which may have various improvements including irrigation, drainage and roads.

The former Citrus Groves and Agricultural Supply Chain Management segments have been combined in Orange Co. and, as a result of the disposition of its sugarcane land in fiscal year 2015, the Company is no longer involved in sugarcane and the Improved Farmland segment is no longer material to its business and has been combined in Other Operations. 

The Land We Manage

We regularly review our land holdings to determine the best use of each parcel based upon our management expertise. Our total return profile is a combination of operating income potential and long-term appreciation. Land holdings not meeting our total

2



return criteria are considered surplus to our operations and will be sold or exchanged for land considered to be more compatible with our business objectives and total return profile.

Our land holdings and the operating activities in which we engage are categorized in the following table:
 
Gross Acreage
 
Operating Activities
Orange Co.
 

 
 
Citrus Groves
47,127

 
Citrus Cultivation
Citrus Nursery
385

 
Citrus Tree Development
 
47,512

 
 
 
 
 
 
Conservation and Environmental Resources
70,962

 
Cattle Production; Sod and Native Plant Sales; Leasing; Conservation
 
 
 
 
Other Operations
 
 
 
Farmland
1,825

 
Leasing
Other Land
1,485

 
Mining lease; Office
 
 
 
 
Total
121,784

 
 


Orange Co.

We own and manage citrus land in Alachua, DeSoto, Polk, Collier, Hendry, Charlotte, Highlands, Osceola, Martin, and Hardee Counties and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Orange Co. citrus groves totals approximately 48,000 gross acres or 39.1% of our land holdings.
    
Our citrus acreage is detailed in the following table:

 
Net Plantable
 
 
 
 
Producing
Developing
Fallow
Total Plantable
Support & Other
Gross
 Alachua County




385

385

 DeSoto County
15,013

1,090

482

16,585

4,623

21,208

 Polk County
4,558

95


4,653

2,152

6,805

 Collier County
4,468



4,468

2,823

7,291

 Hendry County
3,517

97

175

3,789

1,696

5,485

 Charlotte County
1,730


138

1,868

635

2,503

 Highlands County
1,093



1,093

131

1,224

 Osceola County
937



937

426

1,363

 Martin County
551



551

123

674

 Hardee County
403



403

171

574

Total
32,270

1,282

795

34,347

13,165

47,512


Of the approximately 48,000 gross acres of citrus land we own and manage, approximately 13,200 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of citrus trees but which are not capable of directly producing fruit. In addition, we own a citrus tree nursery and utilize the trees produced in our own operations. None of our citrus acreage is classified as available for sale. The approximately 34,300 remaining acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently producing, acres that are developing (acres that are planted in trees too young to commercially produce fruit) and acres that are fallow.


3



Our Orange Co. business segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales to the processed market are approximately 86.9% of Orange Co. revenues annually. We produce Early and Mid-Season varieties, primarily Hamlin oranges, as well as a Valencia variety for the processed market. We deliver our fruit to the processors in boxes which contain approximately 90 pounds of oranges. Because the processors convert the majority of the citrus crop into orange juice, they generally do not buy their citrus on a per box basis but rather on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of citrus fruit. We produced approximately 51,400,000, 62,200,000 and 26,600,000 pound solids for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively, on boxes delivered to processing plants of approximately 8,829,000, 10,014,000 and 4,146,000, respectively.

The average pound solids per box was 5.82, 6.21 and 6.41 for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively.

We generally use multi-year contracts with citrus processors that include pricing structures based on a minimum (“floor”) price with a price increase (“rise”) based on market conditions. Therefore, if pricing in the market is favorable relative to our floor price, we benefit from the incremental difference between the floor and the final market price.

The majority of our citrus produced for the processed citrus market in fiscal year 2016-2017 will be under minimum price contracts with a floor prices ranging from $2.05 to $2.15 per pound solids. We believe that other markets are available for our citrus products; however, new arrangements may be less favorable than our current contracts.

Our sales to the fresh market constitute approximately 3.8% of our Orange Co. revenues annually. We produce numerous varieties for the fresh fruit market including grapefruit, navel and other fresh varieties. Generally, our fresh fruit is sold to packing houses by the box and the packing houses are responsible for the harvest and haul of these boxes. We produced approximately 402,000, 466,000 and 213,000 fresh fruit boxes for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively. The majority of our citrus to be produced for the fresh citrus market in fiscal year 2016-2017 is under fixed price contracts.

Revenues from our Orange Co. operations were approximately 95.2%, 95.5% and 71.9% of our total operating revenues for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively.

Conservation and Environmental Resources

We own and manage Conservation and Environmental Resources land in Collier and Hendry Counties and engage in cattle production, sod and native plant sales, land leasing for recreational and grazing purposes and conservation activities. Of our land holdings, Conservation and Environmental Resources totals approximately 71,000 gross acres or 58.3% of our total acreage.

Our Conservation and Environmental Resources acreage is detailed in the following table as of September 30, 2016:

 
Acreage
Hendry County
66,940

Collier County
4,022

Total
70,962


We frequently lease the same acreage for more than one purpose. The portion of our Conservation and Environmental Resources acreage that is leased for each purpose is detailed in the table below:
 
Grazing
 
Recreational
Hendry County
1,282

 
51,686

Collier County
4,000

 
3,493

Glades County
145

 


Our cattle operation is engaged in the production of beef cattle and is located in Hendry and Collier Counties. The breeding herd consists of approximately 8,700 cows and bulls and we plan to increase the size of our herd in the near future to the extent practicable. We primarily sell our calves to feed yards and yearling grazing operations in the United States. We also sell cattle through local livestock auction markets and to contract cattle buyers in the United States. These buyers provide ready markets for our cattle. We believe that the loss of any one or a few of these buyers would not have a material effect on our cattle operations.

4



Revenues from our Conservation and Environmental Resources operations were approximately 4.0%, 3.6% and 7.9% of total operating revenues for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively.

Our Strategy

Our core business strategy is to maximize stockholder value through continuously improving the return on our invested capital, either by holding and managing our existing land through skilled agricultural production, leasing, or other opportunistic means of monetization, disposing of under productive land or business units and/or acquiring new land or operations with appreciation potential.

Our objectives are to produce the highest quality agricultural products, create innovative land uses, opportunistically acquire and convert undervalued assets, sell-under productive land not meeting our total return profile, generate recurring and sustainable profit with the appropriate balance of risk and reward, and exceed the expectations of stockholders, customers, clients and partners.

Our strategy is based on best management practices of our agricultural operations, environmental and conservation stewardship of our land and natural resources. We manage our land in a sustainable manner and evaluate the effect of changing land uses while considering new opportunities. Our commitment to environmental stewardship is fundamental to the Company’s core beliefs.

Competition

The orange and specialty citrus markets are intensely competitive, but no single producer has any significant market power over any market segments, as is consistent with the production of most agricultural commodities. Citrus is grown domestically in several states including Florida, California, Arizona and Texas, as well as foreign countries, most notably Brazil. Competition is impacted by several factors including quality, production, demand, brand recognition, market prices, weather, disease, export/import restrictions and foreign currency exchange rates. Beef cattle are produced throughout the United States and domestic beef sales also compete with imported beef.

Environmental Regulations

Our operations are subject to various federal, state and local laws regulating the discharge of materials into the environment. Management believes we are in compliance with all such rules including permitting and reporting requirements. Historically, compliance with environmental regulations has not had a material impact on our financial position, results of operations or cash flows.

Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations. In addition, we require lessees of our property to comply with environmental regulations as a condition of leasing.

Employees

As of September 30, 2016, we had 333 full-time employees. Our employees work in the following divisions:

 Orange Co.
298
 Conservation and Environmental Resources
6
 Corporate, General, Administrative and Other
29
 Total employees
333


5



Seasonal Nature of Business

Revenues from our agricultural business operations are seasonal in nature. The following table illustrates the seasonality of our agri-business revenues:

 
Fiscal Year
 
Q1
Q2
Q3
Q4
 
Ending 12/31
Ending 3/31
Ending 6/30
Ending 9/30
 
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
 
 
 
 
 
 
 
 
 
 
 
 
 
Harvest Fresh and Early/Mid Varieties of Oranges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Harvest Valencia Oranges
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deliver Beef Cattle
 
 
 
 
 
 
 
 
 
 
 
 

Capital resources and raw materials

Management believes that the Company will be able to meet its working capital requirements for at least the next 12 months, and over the long term, through internally generated funds, cash flows from operations, our existing lines of credit and access to capital markets. The Company has commitments that provide for lines of revolving credit that are available for our general and corporate use. Raw materials needed to cultivate the various crops grown by the Company consist primarily of fertilizers, herbicides and fuel and are readily available from local suppliers.

Available Information

We provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not incorporated by reference in this Annual Report on Form 10-K. The SEC also maintains a website at http://www.sec.gov, which contains annual, quarterly and current reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.  


Item 1A. Risk Factors

Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our control.  The following is a description of the known factors that we believe may materially affect our business, financial condition, results of operations or cash flows.  They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on Form 10-K, including Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data, including the related Notes to the Consolidated and Combined Financial Statements in making any investment decisions with respect to our securities.  Additional risks or uncertainties that are not currently known to us that we currently deem to be immaterial or that could apply to any company could also materially adversely affect our business, financial condition, results of operations or cash flows.

Risks related to our Business

Our citrus groves are subject to damage and loss from disease including but not limited to citrus greening and citrus canker which could negatively impact our business, financial condition, results of operations and cash flows.

Our citrus groves are subject to damage and loss from diseases such as citrus greening and citrus canker. Each of these diseases is widespread in Florida and exists in our citrus groves and in the areas where our citrus groves are located. The success of our citrus business is directly related to the viability and health of our citrus groves.

Citrus greening is one of the most serious citrus plant diseases in the world. Once a tree is infected, its productivity generally decreases. While the disease poses no threat to humans or animals, it has devastated citrus crops throughout the United States and abroad. Named for its green, misshapen fruit, citrus greening disease has now killed millions of citrus plants in the southeastern United States and has spread across the entire country. Infected trees produce fruits that are green, misshapen and bitter, unsuitable for sale as fresh fruit or for juice. Infected trees can die within a few years. At the present time, there is no known cure for citrus greening once trees are infected. Primarily as a result of citrus greening, orange production in the State of Florida has continued

6



to drop and according to the U.S. Department of Agriculture Florida had its smallest orange harvest in 52 years in the 2015-2016 harvest season. The upcoming 2016-2017 Florida harvest season is expected to decline even further. The USDA's forecast of approximately 72,000,000 boxes of oranges for the 2016-2017 season is down more than 13 percent from the approximately 81,600,000 boxes harvested last season and represents a decline of more than 52 percent since the time citrus greening was discovered at approximately 150,000,000 boxes during the 2004-05 season.

Citrus canker is a disease affecting citrus species and is caused by a bacterium and is spread by contact with infected trees or by windblown transmission. There is no known cure for citrus canker at the present time although some management practices including the use of copper-based bactericides can mitigate its spread and lessen its effect on infected trees; however, there is no assurance that available technologies to control such disease will be effective.
    
Both of these diseases pose a significant threat to the Florida citrus industry and to our citrus groves. While we use best management practices to attempt to control diseases and their spread, there can be no assurance that our mitigation efforts will be successful. These diseases can significantly increase our costs which could materially adversely affect our business, financial condition, results of operations and cash flows. Our citrus groves produce a significant majority of our annual operating revenues and a significant reduction in available citrus from our citrus groves could decrease our operating revenues and materially adversely affect our business, financial condition, results of operations and cash flows.

Our agricultural products are subject to supply and demand pricing which is not predictable.

Agricultural operations traditionally provide almost all of our operating revenues with citrus being the largest portion and are subject to supply and demand pricing. While according to Nielsen data consumer demand for orange juice has decreased significantly to its lowest level in almost a decade, we have been able to offset the impact of such decline with higher prices based on a lower supply of available oranges. However, there can be no assurance that we will be able to continue to do so if demand continues to decline. Although our processed citrus is subject to minimum pricing we are unable to predict with certainty the final price we will receive for our products. In some instances the harvest and growth cycle will dictate when such products must be marketed which may or may not be advantageous in obtaining the best price. Excessive supplies tend to cause severe price competition and lower prices for the commodity affected. Limited supply of certain agricultural commodities due to world and domestic market conditions can cause commodity prices to rise in certain situations. We attempt to mitigate these risks by using contracts with citrus processors that include pricing structures based on a minimum (“floor”) price and with a price increase (“rise”) if market prices exceed the floor price. As a result, our profitability may be subject to significant variability.

Our citrus groves are geographically concentrated in Florida and the effects of adverse weather conditions including hurricanes and tropical storms could adversely affect our results of operations and financial position.

Our citrus operations are concentrated in central and south Florida with our groves located in parcels in Alachua, DeSoto, Polk, Collier, Hendry, Charlotte, Highlands, Osceola, Martin and Hardee Counties. Because our groves are located in close proximity to each other, the impact of adverse weather conditions may be material to our results of operations. Florida is particularly susceptible to the occurrence of hurricanes and tropical storms. Depending on where any particular hurricane or tropical storm makes landfall, our properties could experience significant, if not catastrophic damage. Hurricanes and tropical storms have the potential to destroy crops, affect cattle breeding and impact citrus production through the loss of fruit and destruction of trees and/or plants either as a result of high winds or through the spread of windblown disease. Such damage could materially affect our citrus and cattle operations and could result in a loss of operating revenues from those products for a multi-year period. We seek to minimize hurricane risk by the purchase of insurance contracts, but the majority of our crops remain uninsured. In addition to hurricanes and tropical storms, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, freezes, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our operations and our ability to realize income from our crops or cattle.

A significant and increasing portion of our revenues are derived from our citrus business and any adverse event affecting such business could disproportionately harm our business.

Our revenues from our citrus business were approximately 95.2%, 95.5% and 71.9% of our operating revenues in fiscal years 2016, 2015 and 2014, respectively. As a result of our recently announced acquisitions of three Florida citrus properties and the disposition of our sugarcane lands, the percentage of our operating revenues derived from our citrus business has increased significantly. These acquisitions resulted in our citrus division being one of the largest citrus producers in the United States and since we will not be as diversified as we have been previously, we will be more vulnerable to adverse events or market conditions affecting our citrus business which could have a significant impact on our overall business results.


7



We maintain a significant amount of indebtedness which could adversely affect our financial condition, results of operations or cash flows and may limit our operational and financing flexibility and negatively impact our business.

As of September 30, 2016 we had approximately $197,000,000 in principal amount of indebtedness outstanding under our secured credit facilities and an additional $80,000,000 is available under our revolving lines of credit. Our loan agreements, and other debt instruments we may enter into in the future, may have negative consequences to us and could limit our business because we will use a substantial portion of our cash flows from operations to pay debt service costs which will reduce the funds available to us for corporate and general expenses and it may make us more vulnerable to economic downturns and adverse developments in our business. Our loan agreements require us to comply with various restrictive covenants and some contain financial covenants that require us to comply with specified financial ratios and tests. Our failure to meet these covenants could result in default under these loan agreements and would result in a cross-default under other loan agreements. In the event of a default and our inability to obtain a waiver of the default, all amounts outstanding under loan agreements could be declared immediately due and payable. Our loan agreements also contain various covenants that limit our ability to engage in specified types of transactions. We expect that we will depend primarily upon our citrus operations to provide funds to pay our corporate and general expenses and to pay any amounts that may become due under any credit facilities and any other indebtedness we may incur and there are factors beyond our control that could negatively affect our citrus business revenue stream. Our ability to make these payments depends on our future performance, which will be affected by various financial, business, macroeconomic and other factors, many of which we cannot control.

If we are unable to successfully develop and execute our strategic growth initiatives, or if they do not adequately address the challenges or opportunities we face, our business, financial condition and prospects may be adversely affected.

Our success is dependent in part on our ability to identify, develop and execute appropriate strategic growth initiatives that will enable us to achieve sustainable growth in the long term. The implementation of our strategic initiatives is subject to both the risks affecting our business generally and the inherent risks associated with implementing new strategies. These strategic initiatives may not be successful in generating revenues or improving operating profit and, if they are, it may take longer than anticipated. As a result and depending on evolving conditions and opportunities, we may need to adjust our strategic initiatives and such changes could be substantial, including modifying or terminating one or more of such initiatives. Termination of such initiatives may require us to write down or write off the value of our investments in them. Transition and changes in our strategic initiatives may also create uncertainty in our employees, customers and partners that could adversely affect our business and revenues. In addition, we may incur higher than expected or unanticipated costs in implementing our strategic initiatives, attempting to attract revenue opportunities or changing our strategies. There is no assurance that the implementation of any strategic growth initiative will be successful, and we may not realize anticipated benefits at levels we project or at all, which would adversely affect our business, financial condition and prospects.

Our agricultural operations are subject to water use regulations restricting our access to water.
    
Our operations are dependent upon the availability of adequate surface and underground water. The availability of water is regulated by the state of Florida through water management districts which have jurisdiction over various geographic regions in which our lands are located. Currently, we have permits in place for the next 15 to 20 years for the use of underground and surface water which are adequate for our agricultural needs.

Surface water in Hendry County, where much of our agricultural land is located, comes from Lake Okeechobee via the Caloosahatchee River and a system of canals used to irrigate such land. The Army Corps of Engineers controls the level of Lake Okeechobee and ultimately determines the availability of surface water even though the use of water has been permitted by the state of Florida through the water management district. The Army Corps of Engineers decided in 2010 to lower the permissible level of Lake Okeechobee in response to concerns about the ability of the levee surrounding the lake to restrain rising waters which could result from hurricanes. Changes in availability of surface water use may result during times of drought, because of lower lake levels and could materially adversely affect our agricultural operations, financial condition, results of operations and cash flows.

Our recent acquisitions of three Florida citrus properties and the acquisition of additional agricultural assets and other businesses could pose risks.

We seek to opportunistically acquire new agricultural assets from time to time that we believe would complement our business. In fiscal year 2015, we acquired three Florida citrus properties, including Orange-Co and Silver Nip Citrus, which resulted in our citrus division being one of the largest citrus producers in the United States. While we expect that our acquisitions will successfully complement our business, we may fail to realize all of the anticipated benefits of these acquisitions, which could reduce our anticipated results. We cannot assure you that we will be able to successfully identify suitable acquisition opportunities, negotiate

8



appropriate acquisition terms, or obtain any financing that may be needed to consummate such acquisitions or complete proposed acquisitions. Acquisitions by us could result in accounting changes, potentially dilutive issuances of equity securities, increased debt and contingent liabilities, reduce the amount of cash available for dividends, debt service payments, integration issues and diversion of management’s attention, any of which could adversely affect our business, results of operations, financial condition, and cash flows. We may be unable to successfully realize the financial, operational, and other benefits we anticipate from our acquisitions and our failure to do so could adversely affect our business, results of operation and financial condition.

Dispositions of our assets may adversely affect our future results of operations.

We also routinely evaluate the benefits of disposing of certain of our assets which could include the exit from lines of business. For example, in November of 2014 we sold significant sugarcane assets and we are no longer involved in the sugarcane business. While such dispositions increase the amount of cash available to us, it could also result in a potential loss of significant operating revenues and income streams that we might not be able to replace, makes our business less diversified and could ultimately have a negative impact on our results of operations and cash flows.

If a transaction intended to qualify as a Section 1031 Exchange is later determined to be taxable, we may face adverse consequences, and if the laws applicable to such transactions are amended or repealed, we may not be able to dispose of properties on a tax deferred basis.

From time to time we dispose of properties in transactions that are intended to qualify as Section 1031 Exchanges. It is possible that the qualification of a transaction as a Section 1031 Exchange could be successfully challenged and determined to be currently taxable and we could also be required to pay interest and penalties. As a result, we may be required to borrow funds in order to pay additional property taxes, and the payment of such taxes could cause us to have less cash available. Moreover, it is possible that legislation could be enacted that could modify or repeal the laws with respect to Section 1031 Exchanges, which could make it more difficult or not possible for us to dispose of properties on a tax deferred basis.

We may undertake one or more significant corporate transactions that may not achieve their intended results, may adversely affect our financial condition and our results of operations or result in unforeseeable risks to our business.

We continuously evaluate the acquisition or disposition of operating businesses and assets and may in the future undertake one or more significant transactions. Any such acquisitive transaction could be material to our business and could take any number of forms, including mergers, joint ventures and the purchase of equity interests. The consideration for such acquisitive transactions may include, among other things, cash, common stock or equity interests in us or our subsidiaries, or a contribution of property or equipment to obtain equity interests, and in conjunction with a transaction we might incur additional indebtedness. We also routinely evaluate the benefits of disposing of certain assets. Such dispositions could take the form of asset sales, mergers or sales of equity interests.

These transactions may present significant risks such as insufficient assets to offset liabilities assumed, potential loss of significant operating revenues and income streams, increased or unexpected expenses, inadequate return of capital, regulatory or compliance issues, the triggering of certain financial covenants in our debt instruments (including accelerated repayment) and unidentified issues not discovered in due diligence. In addition, such transactions could distract management from current operations. As a result of the risks inherent in such transactions, we cannot guarantee that any such transaction will ultimately result in the realization of its anticipated benefits or that it will not have a material adverse impact on our business, financial condition, results of operations or cash flows. If we were to complete such an acquisition, disposition, investment or other strategic transaction, we may require additional debt or equity financing that could result in a significant increase in our amount of debt and our debt service obligations or the number of outstanding shares of our common stock, thereby diluting holders of our common stock outstanding prior to such acquisition.

We are subject to the risk of product contamination and product liability claims.

The sale of agricultural products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that our agricultural products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product

9



liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.

Changes in immigration laws could impact our ability to harvest our crops.

We engage third parties to provide personnel for our harvesting operations. The availability and number of such workers is subject to decrease if there are changes in the U.S. immigration laws. The scarcity of available personnel to harvest our agricultural products could cause harvesting costs to increase or could lead to the loss of product that is not timely harvested which could have a material adverse effect to our citrus grove business, financial condition, results of operations and cash flows.

Changes in demand for our agricultural products can affect demand and pricing of such products.

The general public's demand for particular food crops we grow and sell could reduce prices for some of our products. To the extent that consumer preferences evolve away from products we produce and we are unable to modify our products or develop products that satisfy new customer preferences, there could be a decrease in prices for our products. Even if market prices are unfavorable, produce items which are ready to be or have been harvested must be brought to market. Additionally, we have significant investments in our citrus groves and cannot easily shift to alternative crops for this land. A decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business.

Our citrus business is seasonal.

Our citrus groves produce the majority of our annual operating revenues and the citrus business is seasonal because it is tied to the growing and picking seasons. Historically, the second and third quarters of our fiscal year generally produce the majority of our annual revenues, and our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our planting cycles. Because of the seasonality of our business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year or in future quarters. If our operating revenues in the second and third quarters are lower than expected, it would have a disproportionately large adverse impact on our annual operating results.

We face significant competition in our agricultural operations.

We face significant competition in our agricultural operations both from domestic and foreign producers and do not have any branded products. Foreign growers generally have an equal or lower cost of production, less environmental regulation and in some instances, greater resources and market flexibility than us. Because foreign growers have greater flexibility as to when they enter the U.S. market, we cannot always predict the impact these competitors will have on our business and results of operations. The competition we face from foreign suppliers of orange juice is mitigated by a governmentally imposed tariff on orange imports. A change in the government’s reduction in the orange juice tariff could adversely impact our results of operations.

Climate change, or legal, regulatory, or market measures to address climate change, may negatively affect our business and operations.

There is growing concern that carbon dioxide and other greenhouse gases in the atmosphere may have an adverse impact on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters. In the event that such climate change has a negative effect on the productivity of our citrus groves, it could have an adverse impact on our business and results of operations. The increasing concern over climate change also may result in more regional, federal, and/or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted, we may experience significant increases in our costs of operations. In particular, increasing regulation of fuel emissions could substantially increase the distribution and supply chain costs associated with our products. As a result, climate change could negatively affect our business and operations.

We benefit from reduced real estate taxes due to the agricultural classification of a majority of our land.  Changes in the classification or valuation methods employed by county property appraisers could cause significant changes in our real estate tax liabilities.

In the fiscal years ended September 30, 2016, 2015 and 2014 we paid approximately $3,196,000, $4,054,000 and $2,291,000, respectively, in real estate taxes, respectively. These taxes were based upon the agricultural use (“Green Belt”) values determined by the county property appraisers in which counties we own land, of approximately $89,922,000, $123,617,000 and $74,105,000 for each of the fiscal years ended September 30, 2016, 2015 and 2014, respectively, which differs significantly from the fair values determined by the county property appraisers of approximately $533,617,000, $652,891,000 and $518,112,000, respectively. 

10



Changes in state law or county policy regarding the granting of agricultural classification or calculation of Green Belt values or average millage rates could significantly impact our results of operations, cash flows and financial position.

We manage our properties in an attempt to capture their highest and best use and customarily do not sell property until it no longer meets our total return profile.

The goal for our land management program is to manage and selectively improve our lands for their most profitable use. We continually evaluate our properties focusing on location, soil capabilities, subsurface composition, topography, transportation and availability of markets for our crops, the climatic characteristics of each of the tracts, long-term capital appreciation and operating income potential. While we are primarily engaged in agricultural activities, when land does not meet our total return profile, we may determine that the property is surplus to our activities and place the property for sale or exchange.

Liability for the use of pesticides, herbicides and other potentially hazardous substances could increase our costs.
    
Our agricultural business involves the use of herbicides, fertilizers and pesticides, some of which may be considered hazardous or toxic substances. We may be deemed liable and have to pay for the costs or damages associated with the improper application, accidental release or the use or misuse of such substances. Our insurance may not be adequate to cover such costs or damages, or may not continue to be available at a price or under terms that are satisfactory to us. In such cases, if we are required to pay significant costs or damages, it could materially adversely affect our business, results of operations, financial condition and cash flows.

Compliance with applicable environmental laws may substantially increase our costs of doing business which could reduce our profits.

We are subject to various laws and regulations relating to the operation of our properties, which are administered by numerous federal, state and local governmental agencies. We face a potential for environmental liability by virtue of our ownership of real property. If hazardous substances (including herbicides and pesticides used by us or by any persons leasing our lands) are discovered emanating from any of our lands and the release of such substances presents a threat of harm to the public health or the environment, we may be held strictly liable for the cost of remediation of these hazardous substances. In addition, environmental laws that apply to a given site can vary greatly according to the site’s location, its present and former uses, and other factors such as the presence of wetlands or endangered species on the site. Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations. Furthermore, we require lessees of our properties to comply with environmental regulations as a condition of leasing. We also purchase insurance for environmental liability when it is available; however, these insurance contracts may not be adequate to cover such costs or damages or may not continue to be available at prices and terms that would be satisfactory. It is possible that in some cases the cost of compliance with these environmental laws could exceed the value of a particular tract of land, make it unsuitable for use in what would otherwise be its highest and best use, and/or be significant enough that it would materially adversely affect us.

Our business may be adversely affected if we lose key employees.

We depend to a large extent on the services of certain key management personnel. These individuals have extensive experience and expertise in our business lines and segments in which they work. The loss of any of these individuals could have a material adverse effect on our businesses. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent on our ability to continue to employ and retain skilled personnel in our business lines and segments.

Risks Related to our Common Stock

Our largest stockholder has effective control over the election of our Board of Directors and other matters.

734 Investors, LLC ("734 Investors") and its two controlling persons, Remy Trafelet and George Brokaw, together beneficially own approximately 59% of our outstanding common stock as of December 1, 2016. Accordingly, by virtue of its ownership percentage, 734 Investors is able to elect all of our directors and officers, and has the ability to exert significant influence over our business and may make decisions with which other stockholders may disagree, including, among other things, changes in our business plan, delaying, discouraging or preventing a change of control of our Company or a potential merger, consolidation, tender offer, takeover or other business combination. Additionally, potential conflicts of interest could exist when we enter into related party transactions with 734 Investors such as the Silver Nip Citrus merger we entered into on February 28, 2015. The terms of the merger were negotiated and considered by a special committee comprised entirely of independent and disinterested members of our Board of Directors.


11



We are a Controlled Company under the NASDAQ Listing Rules and therefore are exempt from certain corporate governance requirements, which could reduce the influence of independent directors.

We are a “Controlled Company” under NASDAQ listing rules, because more than 50% of the voting power of our outstanding common stock is controlled by 734 Investors and its two controlling persons, Remy Trafelet and George Brokaw. As a consequence, we are exempt from certain NASDAQ requirements including the requirement that:

Our Board of Directors be composed of a majority of independent directors;
The compensation of our officers be determined by a majority of the independent directors or a compensation committee composed solely of independent directors; and
Nominations to the Board of Directors be made by a majority of the independent directors or a nominations committee composed solely of independent directors.

However, NASDAQ does require that our independent directors have regularly scheduled meetings at which only independent directors are present. In addition, Internal Revenue Code Section 162(m) requires that a compensation committee of outside directors (within the meaning of Section 162(m)) approve stock option grants to executive officers in order for us to be able to claim deductions for the compensation expense attributable to such stock options. Notwithstanding the foregoing exemptions, we do have a majority of independent directors on our Board of Directors and we do have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee composed primarily of independent directors.

Although we currently comply with certain of the NASDAQ listing rules that do not apply to controlled companies, our compliance is voluntary, and there can be no assurance that we will continue to comply with these standards in the future. If in the future our Board of Directors elects to rely on the exemptions permitted by the NASDAQ listing standards and reduce the number or proportion of independent directors on our Board and its committees, the influence of independent directors would be reduced.

Sales of substantial amounts of our outstanding common stock by our largest stockholder could adversely affect the market price of our common stock.

Our largest stockholder, 734 Investors, beneficially owns approximately 59% of our outstanding common stock as of December 1, 2016. Our common stock is thinly traded and our common stock prices can fluctuate significantly. As such, sales of substantial amounts of our common stock into the public market by 734 Investors or perceptions that significant sales could occur, could adversely affect the market price of our common stock.

Our common stock has low trading volume.

Although our common stock trades on the NASDAQ Global Market, it is thinly traded and our average daily trading volume is low compared to the number of shares of common stock we have outstanding. The low trading volume of our common stock can cause our stock price to fluctuate significantly as well as make it difficult for you to sell your common shares quickly. As a result of our stock being thinly traded and/or our low stock price, institutional investors might not be interested in owning our common stock.

We may not be able to continue to pay or maintain our cash dividends on our common stock and the failure to do so may negatively affect our share price.

We have historically paid regular quarterly dividends to the holders of our common stock. Dividends were reduced beginning in the third fiscal quarter of 2014 in order to retain cash which increases our flexibility to reinvest in our business and pursue growth opportunities consistent with our mission. Our ability to pay cash dividends depends on, among other things, our cash flows from operations, our cash requirements, our financial condition, the degree to which we are/or become leveraged, contractual restrictions binding on us, provisions of applicable law and other factors that our Board of Directors may deem relevant. There can be no assurance that we will generate sufficient cash from continuing operations in the future, or have sufficient cash surplus or net profits to pay dividends on our common stock. Our dividend policy is based upon our directors’ current assessment of our business and the environment in which we operate and that assessment could change based on business developments (which could, for example, increase our need for capital expenditures) or new growth opportunities. Our Board of Directors may, in its discretion, decrease the level of cash dividends or entirely discontinue the payment of cash dividends. The reduction or elimination of cash dividends may negatively affect the market price of our common stock.


12



There can be no assurance that we will continue to repurchase shares of our common stock.

In fiscal year 2016, our 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. Our share repurchase program does not obligate us to repurchase any specific number of shares and may be suspended from time to time or terminated at any time prior to its expiration. There can be no assurance that we will repurchase shares in the future in any particular amounts or at all. A reduction in, or elimination of, share repurchases could have a negative effect on our share price.


Item 1B. Unresolved Staff Comments

None.


Item 2. Properties

As of September 30, 2016, we owned approximately 122,000 acres of land located in twelve counties in Florida. Acreage in each county and the primary classification with respect to the present use of these properties is shown in the following table:
 
Total
Hendry
Polk
Collier
DeSoto
Glades
Lee
Alachua
Charlotte
Hardee
Highlands
Martin
Osceola
Orange Co.:
 

 
 
 
 
 
 
 
 
 
 
 
 
Citrus Groves
47,127

5,485

6,805

7,291

21,208




2,503

574

1,224

674

1,363

Citrus Nursery
385







385






Total Citrus Groves
47,512

5,485

6,805

7,291

21,208



385

2,503

574

1,224

674

1,363

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Improved Farmland:
 
 
 
 
 
 

 

 

 
 
 
 
 
Irrigated
1,825

1,825












 
 
 
 
 
 
 
 
 
 
 
 
 
 
Conservation and Environmental Resources
70,962

66,940


4,022










Commercial
2






2







Mining
526





526








Other
957

957












Total
121,784

75,207

6,805

11,313

21,208

526

2

385

2,503

574

1,224

674

1,363


Approximately 61,000 acres of the properties listed are encumbered by credit agreements totaling approximately $202,200,000 as of September 30, 2016. For a more detailed description of the credit agreements and collateral please see Note 5. “Long-Term Debt and Lines of Credit” and Note 19. "Subsequent Events" in the accompanying Notes to the Consolidated and Combined Financial Statements.

We currently collect mining royalties on approximately 526 acres of land located in Glades County, Florida. These royalties do not represent a significant portion of our operating revenues or gross profits. We have identified 850 acres on our Hendry County land that may have potential to be used as a sand mine. The Hendry County parcel is currently classified as other land.



13



Item 3. Legal Proceedings

On March 11, 2015, a putative stockholder class action lawsuit captioned Shiva Y. Stein v. Alico, Inc., et al., No. 15-CA-000645 (the “Stein lawsuit”), was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, Inc. (“Alico”), its current and certain former directors, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus, 734 Investors, LLC (“734 Investors”), 734 Agriculture, LLC (“734 Agriculture”) and 734 Sub, LLC (“734 Sub”) in connection with the acquisition of Silver Nip Citrus by Alico (the “Merger”). The complaint alleged that Alico’s directors at the time of the Merger, 734 Investors and 734 Agriculture breached fiduciary duties to Alico stockholders in connection with the Merger and that Silver Nip and 734 Sub aided and abetted such breaches. The lawsuit sought, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses.

On May 6, 2015, a putative stockholder class action and derivative lawsuit captioned Ruth S. Dimon Trust v. George R. Brokaw, et al., No. 15-CA-001162 (the “Dimon lawsuit”), was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, its current directors, Silver Nip Citrus, 734 Investors and 734 Agriculture in connection with the Merger of Silver Nip Citrus by Alico. The complaint alleged breach of fiduciary duty, gross mismanagement, waste of corporate assets and tortious interference with contract against Alico’s directors; unjust enrichment against three of the directors; and aiding and abetting breach of fiduciary duty against Silver Nip Citrus, 734 investors and 734 Agriculture. The lawsuit sought, among other things, rescission of the Merger, an injunction prohibiting certain payments to Silver Nip Citrus members, unspecified damages, disgorgement of profits, costs, fees (including attorneys’ fees) and expenses.

On July 17, 2015, the plaintiffs in the Stein and Dimon lawsuits filed a stipulation and proposed order consolidating their cases for all purposes under the caption, In re Alico, Inc. Shareholder Litigation, Master File No. 15-CA-000645 (the “Consolidated Action”) and seeking the appointment of a lead plaintiff and lead and liaison counsel. The court entered that proposed order on July 21, 2015.
    
On October 16, 2015, the lead plaintiff in the Consolidated Action reported to the Court that the parties reached an agreement in principle to settle the Consolidated Action and other claims related to the Merger and that they were in the process of formally documenting their agreements. The proposed settlement contemplated that Alico would adopt certain changes to its corporate governance practices, policies and procedures concerning related party transactions; the Consolidated Action would be dismissed; and all claims that were or could have been asserted challenging any aspect of the Merger would be released. On March 31, 2016, the parties entered into a Stipulation of Settlement.  The parties filed an Amended Stipulation of Settlement with the Court on April 22, 2016.

On April 28, 2016, the Court entered an order preliminarily approving the settlement and providing for notice to relevant Alico shareholders.  Notice of the settlement was mailed to relevant Alico shareholders and a settlement hearing was held on September 12, 2016, during which the Court considered the fairness, reasonableness and adequacy of the settlement and plaintiffs' counsel’s request for an award of attorneys' fees and expenses.

Following the settlement hearing on September 12, 2016, the Court entered a final order and judgment that approved the settlement as fair, reasonable and adequate; directed the parties to consummate the settlement according to its terms; awarded plaintiffs’ counsel attorneys’ fees and expenses; and dismissed the Consolidated Action with prejudice.

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 current legal proceedings to which the Company is a party to or of which any of its property is subject to that it believes will have a material adverse effect on its financial condition, results of operations or cash flows.


Item 4. Mine Safety Disclosures

Not Applicable.



14



PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Prices

Our common stock is traded on the NASDAQ Global Market under the symbol ALCO. The high and low sales prices of our common stock in each quarter in the fiscal years 2016 and 2015 are presented below:

 
2016 Price
 
2015 Price
 
High
 
Low
 
High
 
Low
Quarter Ended:
 

 
 

 
 

 
 

December 31
$
45.82

 
$
37.55

 
$
51.83

 
$
34.67

March 31
$
38.56

 
$
20.99

 
$
58.10

 
$
43.80

June 30
$
32.66

 
$
26.02

 
$
52.74

 
$
44.52

September 30
$
31.95

 
$
26.50

 
$
48.94

 
$
37.16


Holders

On December 1, 2016, our stock transfer records indicate there were 260 holders of record of our common stock. The number of registered holders includes banks and brokers who act as nominee, each of whom may represent more than one stockholder.

Dividend Policy

The declaration and amount of any actual cash dividend are in the sole discretion of our Board of Directors and are subject to numerous factors that ordinarily affect dividend policy, including the results of our operations and financial position, as well as general economic and business conditions.

The following table presents cash dividends per share of our common stock declared in fiscal years ended September 30, 2016, 2015, and 2014:

 Declaration Date
 Record Date
 Payment Date
Per Common Share
December 18, 2013
March 31, 2014
April 14, 2014
$0.12
July 10, 2014
September 30, 2014
October 15, 2014
$0.06
October 2, 2014
December 31, 2014
January 15, 2015
$0.06
February 27, 2015
March 31, 2015
April 15, 2015
$0.06
June 4, 2015
June 30, 2015
July 15, 2015
$0.06
September 14, 2015
September 30, 2015
October 15, 2015
$0.06
December 11, 2015
December 31, 2015
January 15, 2016
$0.06
March 8, 2016
March 31, 2016
April 15, 2016
$0.06
May 11, 2016
June 30, 2016
July 15, 2016
$0.06
September 6, 2016
September 30, 2016
October 14, 2016
$0.06


15



 Stock Performance Graph

The graph below represents our common stock performance, comparing the value of $100 invested on September 30, 2011 in our common stock, the S&P 500 Index, the S&P Agricultural Products Index and a Company-constructed peer group, which includes Forestar Group, Inc., Limoneira Company, The St. Joe Company, Tejon Ranch Co. and Texas Pacific Land Trust.
alco-93016x_chartx58876.jpg
 
 
 
 
        INDEXED RETURNS
 
 
Base
 
 
 
 
 
 
 
 
Period
 
 Years Ending
Company Name / Index
 
Sept 11
 
Sept 12

Sept 13

Sept 14

Sept 15

Sept 16
Alico, Inc.
 
100
 
160.87

213.75

199.68

213.84

142.63

S&P 500 Index
 
100
 
130.20

155.39

186.05

184.91

213.44

S&P Agricultural Products Index
 
100
 
118.89

159.25

211.02

181.47

209.24

Peer Group
 
100
 
135.23

155.40

182.88

150.08

179.36


(Includes reinvestment of dividends)



16



Equity Compensation Arrangements

Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for up to 1,250,000 shares of the Company’s common stock to be available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to stockholders' value. The 2015 Plan was approved by stockholders in February 2015. The adoption of the 2015 Plan supersedes the 2013 Incentive Equity Plan (the “2013 Plan”), which had been in place since April 2013. The 2013 Plan provided for the issuance of up to 350,000 shares of the Company’s common stock to Directors and Officers through March 2018. The following table illustrates the common shares remaining available for future issuance under the 2015 Plan:

 
Number of securities to
be issued upon exercise
of outstanding options,
 warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity plans
Plan Category:
 
 
 
Equity compensation plans approved by security holders
-
-
1,237,500
Total
-
-
1,237,500


Recent Sale of Unregistered Securities

None.


Issuer Repurchases of Equity Securities

In fiscal year 2015, our Board of Directors authorized the repurchase of up to 170,000 shares of the Company’s outstanding common stock beginning March 26, 2015 and continuing through December 31, 2016 (the “2015 Authorizations"). Through September 30, 2016, we had repurchased 170,000 common shares in accordance with the fiscal year 2015 Authorizations. The stock repurchases under the 2015 Authorizations were made through open market transactions at times and in such amounts as our broker determined subject to the provisions of SEC Rule 10b-18.
    
We adopted Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”) in connection with share repurchase authorizations. The Plan allows us to repurchase our shares of common stock at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. Because repurchases under the Plan are subject to certain pricing parameters, there is no guarantee as to the exact number of common shares that will be repurchased under the Plan or that there will be any repurchases pursuant to the Plan. Subject to applicable regulations, we may elect to amend or cancel the Plan at our discretion.

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"). 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 fiscal year ended September 30, 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.


17



The following table describes our purchases of our common stock during the fourth quarter of 2016 for the 2016 Authorizations:

 
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Shares
Purchased As Part of
Publicly Announced
Plan or Program
Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plan or Program
Date:
 
 
 
 
 July 2016
$—
50,000
 August 2016
$—
50,000
 September 2016
$—
50,000


We do not anticipate that any purchases under our Board of Directors’ authorizations will be made from any officer, director or control person.
    
We purchased 64,136 and 14,310 shares of common stock in the open market during the first and second quarters of fiscal year 2016, respectively, at a weighted average price of $40.04 per common share in accordance with 2015 Authorizations.

Item 6. Selected Financial Data

The following tables present selected historical consolidated and combined financial information as of and for each of the fiscal years in the five-year period ended September 30, 2016. The Consolidated and Combined Financial Statements as of and for the fiscal years ended September 30, 2016, 2015 and 2014 include combined financial statement balances with Silver Nip Citrus, as result of our common control acquisition in February 2015.

The selected historical financial data presented below should be reviewed in conjunction with our Consolidated and Combined Financial Statements and the accompanying Notes thereto, included elsewhere in this Annual Report on Form 10-K.

(in thousands, except per share amounts)
 
 
 
 
 
 
September 30,
 
2016
2015
2014
2013
2012
 Selected Statement of Operations Information:
 
 
 
 
 
 Operating revenues
$
144,196

$
153,126

$
104,003

$
101,661

$
127,187

 Income from operations
$
21,846

$
19,505

$
9,383

$
11,935

$
23,742

 Net income attributable to common stockholders
$
6,993

$
13,214

$
9,495

$
19,646

$
18,489

 Basic earnings per common share
$
0.84

$
1.64

$
1.29

$
2.69

$
2.51

 Diluted earnings per common share
$
0.84

$
1.64

$
1.29

$
2.67

$
2.51

 Cash dividends declared per common share
$
0.24

$
0.24

$
0.24

$
0.36

$
0.20

 
 
 
 
 
 
 Selected Balance Sheet Information:
 
 
 
 
 
 Cash and cash equivalents
$
6,625

$
5,474

$
31,130

$
24,583

$
13,328

 Property and equipment, net
$
379,247

$
381,099

$
142,610

$
131,071

$
122,834

 Total assets
$
458,662

$
460,088

$
273,613

$
198,840

$
185,083

 Current portion of long-term debt
$
4,493

$
4,511

$
3,581

$
2,000

$
3,267

 Long-term debt, net of current portion
$
192,726

$
200,970

$
68,769

$
34,000

$
36,633

 Total Alico, Inc. stockholders' equity
$
173,490

$
170,704

$
162,487

$
142,736

$
127,846

 Noncontrolling interest
$
4,773

$
4,807

$

$

$



18




During the fiscal year ended September 30, 2012, we utilized cash from operating and investing activities to reduce our outstanding debt by approximately $17,258,000, resulting in a reduction in long-term debt obligations. Net income includes a gain on sale of real estate of approximately $9,113,000 on the sale of land and impairment charges of approximately $1,918,000 on assets held for sale.

During the fiscal year ended September 30, 2013, net income includes the gain on sale of assets of approximately $20,300,000 related to the closing of the Conservation Easement in fiscal 2013.

During the fiscal year ended September 30, 2014, net income includes the gain on sale of assets of approximately $7,748,000 related primarily to the Polk and Martin County land sales and a gain on settlement of contingent consideration of $6,000,000.
 
During the fiscal year ended September 30, 2015, net income includes the gain on sale of assets of approximately $13,590,000 related to the sale of real estate, approximately $8,366,000 of interest expense, approximately $1,051,000 loss on extinguishment of debt related to the refinancing of our debt obligations, approximately $1,145,000 gain on bargain purchase related to acquisition of citrus business and an impairment charge of approximately $541,000 on an asset held for sale.

During the fiscal year ended September 30, 2016, net income includes the gain on sale of assets of approximately $618,000 related to the sale of real estate and approximately $9,893,000 of interest expense.

19



Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying Consolidated and Combined Financial Statements and related Notes thereto.

Cautionary Statement Regarding Forward-Looking Information

We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report on Form 10-K that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. Factors which may cause future outcomes to differ materially from those foreseen in forward-looking statements include, but are not limited to: changes in laws, regulation and rules; weather conditions that affect production, transportation, storage, demand, import and export of fresh product and their by-products, increased pressure from citrus greening and citrus canker; disruption of water supplies or changes in water allocations; pricing and supply of raw materials and products; market responses to industry volume pressures; pricing and supply of energy; changes in interest rates; availability of financing for land development activities and other growth opportunities; onetime events; acquisitions and divestitures including our ability to achieve the anticipated results of the Orange-Co acquisition and Silver Nip Citrus merger; seasonality; labor disruptions; inability to pay debt obligations; inability to engage in certain transactions due to restrictive covenants in debt instruments; government restrictions on land use; changes in agricultural land values; changes in dividends; and market and pricing risks due to concentrated ownership of stock. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K.

Introduction

Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a holding company with assets and related operations in agriculture, land management and natural resources. We are a Florida agribusiness and land management company, with by a legacy of achievement and innovation in citrus, cattle and resource conservation. We own approximately 122,000 acres of land in twelve Florida counties which includes approximately 90,000 acres of mineral rights. Our principal lines of business are citrus groves, cattle ranching and conservation, and related support operations. Our mission is to create value for our customers and stockholders by managing existing lands to their optimal current income and total returns, opportunistically acquiring new agricultural assets and producing high quality agricultural products while exercising responsible environmental stewardship.

Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of our results of operations, financial condition and changes in financial condition for the periods presented. This MD&A is organized as follows:

Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition.
Consolidated and Combined Results of Operations. This section provides an analysis of our results of operations for the three fiscal years ended September 30, 2016. Our discussion is presented on a consolidated and combined basis and includes discussion on future trends by segment.
Liquidity and Capital Resources. This section provides an analysis of our cash flows for the three fiscal years ended September 30, 2016 and our outstanding debt, commitments and cash resources as of September 30, 2016.
Critical Accounting Policies. This section identifies those accounting policies that we consider important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, "Summary of Significant Accounting Policies," to the accompanying Consolidated and Combined Financial Statements.


20



Business Overview

Business Description

The Company generates operating revenues primarily from the sale of its citrus products and cattle ranching operations. The Company operates as three segments and substantially all of its operating revenues are generated in the United States. During the fiscal year ended September 30, 2016, the Company generated operating revenues of approximately $144,196,000, income from operations of approximately $21,846,000, and net income attributable to common stockholders of approximately $6,993,000. Cash provided by operations was approximately $30,357,000 during the fiscal year ended September 30, 2016.

Fiscal Year Highlights and Other Developments

Water Storage Contract Approval

In December 2012, the South Florida Water Management District (“SFWMD” or "District") issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program. The Company submitted its response proposing a dispersed water management project on a portion of its ranch land and on December 11, 2014 the SFWMD approved a contract with the Company and on September 29, 2015, the SFWMD amended the contract to extend it for an additional year.

The contract term is eleven years, and allows up to one year for implementation (design, permitting, construction and construction completion certification) and ten years of operation whereby the Company will provide water retention services. Payment for these services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed payment of $12,000,000 for operations and maintenance costs as long as the project is in compliance with the contract.

Annual payments under the contract are subject to the SFWMD receiving funds for the project from the Florida Legislature and SFWMD Governing Board budget appropriation. Funding for the first year of the dispersed water management project was included in the budget approved in the 2016 legislative session.

Project permitting is in process, and the Company intends to commence construction upon receipt of permits. Annual fixed payments will not commence until completion of construction.

Change in Fiscal Year of Subsidiary

As Alico, Inc. and 734 Citrus Holdings, LLC ("Silver Nip Citrus") were under common control at the time of the Merger, it is required under accounting principles generally accepted in the United States of America ("U.S. GAAP") to account for this common control acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting, the Company's Consolidated and Combined Balance Sheets as of September 30, 2016 and 2015 reflect Silver Nip Citrus’ historical carryover basis in the assets and liabilities, instead of reflecting the fair market value of the assets and liabilities. Alico has also retrospectively recast its financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013.

Silver Nip Citrus’ fiscal year end was June 30. Their financial condition and results of operations as of and for the fiscal years ended June 30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the fiscal years ended September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was changed to September 30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and 2015 now includes the financial condition of Silver Nip Citrus as of September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal years ended September 30, 2016 and 2015 now includes the Silver Nip Citrus results of operations for fiscal years ended September 30, 2016 and 2015, respectively. The Company’s results of operations for the fiscal year ended September 30, 2014 include the operating results of Silver Nip Citrus from the date common control began, November 19, 2013 through September 30, 2014. The impact of this change was not material to the Consolidated and Combined Financial Statements, with an approximate $492,000 decrease in total assets and an approximate net loss of $596,000 for the transition period related to this change included in Stockholders' Equity at September 30, 2015.

Common Control Acquisition between the Company and 734 Citrus Holdings, LLC

Effective February 28, 2015, the Company completed the merger (the “Merger”) with 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

21



Silver Nip Citrus was held by 734 Agriculture, 74.89%, Mr. Clay Wilson, Chief Executive Officer of the Company, 5% and an entity controlled by Mr. Clay Wilson owned, 20.11%.

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s outstanding common stock. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734 Agriculture is able to elect all of the Directors and, consequently, control the Company. 

734 Agriculture has control over both Silver Nip Citrus and the Company. 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 $8,446,000. The Company acquired assets with a book value of approximately $65,739,000 and total net assets of $17,015,000. The common shares issued were recorded at the carrying amount of the net assets transferred.

As of 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 value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves for the 2014-2015 citrus harvest season. The Members are not expected to receive any additional Company common shares related to the 2014-2015 harvest season.

Orange-Co, LP Acquisition

On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP pursuant to an Asset Purchase Agreement, which we refer to as the Orange-Co, LP Purchase Agreement, dated as of December 1, 2014 and 51% of the ownership interests of Citree Holdings 1, LLC ("Citree"). The assets purchased include approximately 21,000 acres of citrus groves in DeSoto and Charlotte Counties, Florida, which comprise one of the largest contiguous citrus grove properties in the state of Florida. Total assets acquired were approximately $277,792,000, net of $2,060,000 in cash acquired and $4,838,000 in fair value attributable to the noncontrolling interest in Citree, including: (1) $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane disposition and new term debt; (2) $7,500,000 in additional cash consideration to be released from escrow in equal parts, subject to certain limitations, on December 1, 2015 and June 1, 2016; (3) the refinancing of Orange-Co, LP’s outstanding debt including approximately $92,290,000 in term loan debt and a working capital facility of approximately $27,857,000; and (4) the assumption of certain other liabilities totaling $4,705,000. On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration, as contemplated by the Orange-Co Purchase Agreement. The Company's $3,750,000 irrevocable letter of credit securing the final payment of the additional consideration was terminated following the final cash consideration payment (see Note 3, "Acquisitions and Dispositions" to the accompanying Consolidated and Combined Financial Statements).



22



Consolidated and Combined Results of Operations

The following discussion provides an analysis of Alico's results of operations and should be read in conjunction with the accompanying Consolidated and Combined Statements of Operations and Comprehensive Income for the years ended September 30, 2016, 2015 and 2014:    

(in thousands)
Fiscal Year Ended
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
2016
 
2015
 
$
 
%
 
2015
 
2014
 
$
 
%
Operating revenues:
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
Orange Co.
$
137,282

 
$
146,147

 
$
(8,865
)
 
(6.1
)%
 
$
146,147

 
$
74,768

 
$
71,379

 
95.5
 %
Conservation and Environmental Resources
5,669

 
5,394

 
275

 
5.1
 %
 
5,394

 
8,172

 
(2,778
)
 
(34.0
)%
Other Operations
1,245

 
1,585

 
(340
)
 
(21.5
)%
 
1,585

 
21,063

 
(19,478
)
 
(92.5
)%
 Total operating revenues
144,196

 
153,126

 
(8,930
)
 
(5.8
)%
 
153,126

 
104,003

 
49,123

 
47.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Orange Co.
34,935

 
35,911

 
(976
)
 
(2.7
)%
 
35,911

 
19,812

 
16,099

 
81.3
 %
Conservation and Environmental Resources
(724
)
 
586

 
(1,310
)
 
(223.5
)%
 
586

 
2,049

 
(1,463
)
 
(71.4
)%
Other Operations
848

 
(498
)
 
1,346

 
(270.3
)%
 
(498
)
 
(667
)
 
169

 
(25.3
)%
Total gross profit
35,059

 
35,999

 
(940
)
 
(2.6
)%
 
35,999

 
21,194

 
14,805

 
69.9
 %
 
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

General and administrative expenses
13,213

 
16,494

 
(3,281
)
 
(19.9
)%
 
16,494

 
11,811

 
4,683

 
39.6
 %
Income from operations
21,846

 
19,505

 
2,341

 
12.0
 %
 
19,505

 
9,383

 
10,122

 
107.9
 %
Total other (expense) income, net
(9,366
)
 
4,583

 
(13,949
)
 
(304.4
)%
 
4,583

 
11,495

 
(6,912
)
 
(60.1
)%
Income before income taxes
12,480

 
24,088

 
(11,608
)
 
(48.2
)%
 
24,088

 
20,878

 
3,210

 
15.4
 %
Provision for income taxes
5,521

 
10,905

 
(5,384
)
 
(49.4
)%
 
10,905

 
11,383

 
(478
)
 
(4.2
)%
Net income
6,959

 
13,183

 
(6,224
)
 
(47.2
)%
 
13,183

 
9,495

 
3,688

 
38.8
 %
Net loss attributable to noncontrolling interests
34

 
31

 
3

 
9.7
 %
 
31

 

 
31

 
 %
Net income attributable to Alico, Inc. common stockholders
$
6,993

 
$
13,214

 
$
(6,221
)
 
(47.1
)%
 
$
13,214

 
$
9,495

 
$
3,719

 
39.2
 %


The following table presents our operating revenues, by segment, as a percentage of total operating revenues for the fiscal years ended September 30, 2016, 2015 and 2014:

 
Fiscal Year Ended
 
September 30,
 
2016
 
2015
 
2014
Operating revenues:
 

 
 

 
 

Orange Co.
95.2
%
 
95.5
%
 
71.9
%
Conservation and Environmental Resources
4.0
%
 
3.6
%
 
7.9
%
Other Operations
0.8
%
 
0.9
%
 
20.2
%
 Total operating revenues
100.0
%
 
100.0
%
 
100.0
%


23



The following discussion provides an analysis of the Company's operating segments:

Orange Co.

The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except per box and per pound solids data)
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
2016
 
2015
 
Unit
 
%
 
2015
 
2014
 
Unit
 
%
Operating Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Early and Mid-Season
$
43,909

 
$
51,926

 
$
(8,017
)
 
(15.4
)%
 
$
51,926

 
$
25,273

 
$
26,653

 
105.5
 %
Valencias
75,311

 
76,624

 
(1,313
)
 
(1.7
)%
 
76,624

 
34,095

 
42,529

 
124.7
 %
Fresh Fruit
5,173

 
6,116

 
(943
)
 
(15.4
)%
 
6,116

 
2,343

 
3,773

 
161.0
 %
Purchase and Resale of Fruit
8,188

 
7,970

 
218

 
2.7
 %
 
7,970

 
10,096

 
(2,126
)
 
(21.1
)%
Other
4,701

 
3,511

 
1,190

 
33.9
 %
 
3,511

 
2,961

 
550

 
18.6
 %
Total
$
137,282

 
$
146,147

 
$
(8,865
)
 
(6.1
)%
 
$
146,147

 
$
74,768

 
$
71,379

 
95.5
 %
Boxes Harvested:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Early and Mid-Season
3,634

 
4,445

 
(811
)
 
(18.2
)%
 
4,445

 
2,003

 
2,442

 
121.9
 %
Valencias
5,195

 
5,569

 
(374
)
 
(6.7
)%
 
5,569

 
2,143

 
3,426

 
159.9
 %
       Total Processed
8,829

 
10,014

 
(1,185
)
 
(11.8
)%
 
10,014

 
4,146

 
5,868

 
141.5
 %
Fresh Fruit
402

 
466

 
(64
)
 
(13.7
)%
 
466

 
213

 
253

 
118.8
 %
Total
9,231

 
10,480

 
(1,249
)
 
(11.9
)%
 
10,480

 
4,359

 
6,121

 
140.4
 %
Pound Solids Produced:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Early and Mid-Season
20,167

 
26,139

 
(5,972
)
 
(22.8
)%
 
26,139

 
12,321

 
13,818

 
112.1
 %
Valencias
31,237

 
36,083

 
(4,846
)
 
(13.4
)%
 
36,083

 
14,237

 
21,846

 
153.4
 %
Total
51,404

 
62,222

 
(10,818
)
 
(17.4
)%
 
62,222

 
26,558

 
35,664

 
134.3
 %
Pound Solids per Box:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Early and Mid-Season
5.55

 
5.88

 
(0.33
)
 
(5.6
)%
 
5.88

 
6.15

 
(0.27
)
 
(4.4
)%
Valencias
6.01

 
6.47

 
(0.46
)
 
(7.1
)%
 
6.47

 
6.64

 
(0.17
)
 
(2.6
)%
Price per Pound Solids:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Early and Mid-Season
$
2.18

 
$
1.99

 
$
0.19

 
9.5
 %
 
$
1.99

 
$
2.05

 
$
(0.06
)
 
(2.9
)%
Valencias
$
2.41

 
$
2.12

 
$
0.29

 
13.7
 %
 
$
2.12

 
$
2.39

 
$
(0.27
)
 
(11.3
)%
Price per Box:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Fresh Fruit
$
12.85

 
$
13.12

 
$
(0.27
)
 
(2.1
)%
 
$
13.12

 
$
11.00

 
$
2.12

 
19.3
 %
Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Cost of Sales
$
64,824

 
$
73,696

 
$
(8,872
)
 
(12.0
)%
 
$
73,696

 
$
30,106

 
$
43,590

 
144.8
 %
Harvesting and Hauling
25,949

 
26,034

 
(85
)
 
(0.3
)%
 
26,034

 
12,463

 
13,571

 
108.9
 %
Purchase and Resale of Fruit
7,815

 
7,652

 
163

 
2.1
 %
 
7,652

 
9,972

 
(2,320
)
 
(23.3
)%
Other
3,759

 
2,854

 
905

 
31.7
 %
 
2,854

 
2,415

 
439

 
18.2
 %
Total
$
102,347

 
$
110,236

 
$
(7,889
)
 
(7.2
)%
 
$
110,236

 
$
54,956

 
$
55,280

 
100.6
 %

Our citrus groves produce the majority of our annual operating revenues and the citrus grove business is seasonal because it is tied to the growing and picking seasons. Historically, the second and third quarters of our fiscal year produce the majority of our annual revenues, and our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our growing cycles.

We sell our Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. They generally buy their citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. Fresh Fruit is generally sold to packing houses that purchase their citrus on a per box basis. Other revenues consist of third-party grove caretaking and the contracting for harvesting and hauling of citrus.
Our operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining our citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and hauling

24



costs represent the costs of bringing citrus product to processors and varies based upon the number of boxes produced. Other expenses include the period costs of third-party grove caretaking, and the contracting for harvesting and hauling activities.
The decrease in revenues for the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015, was primarily due to the harvesting of approximately 1,185,000 fewer boxes of fruit and lower pound solids per box on higher price per pound solids. The resale of third party fruit increased by approximately 6,000 boxes for the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015. The increase in other revenues primarily relates to an additional 169,000 boxes contracted for harvest and haul for a third party, as compared to the fiscal year ended September 30, 2015.

The increase in revenues for the fiscal year ended September 30, 2015, as compared to fiscal year ended September 30, 2014, was primarily due to the acquisition of the assets of Orange-Co, LP in December 2014. Acquisition-related revenues were approximately $72,600,000 for the fiscal year ended September 30, 2015. Acquisition revenues represented approximately 52.0% of total citrus grove revenues for the fiscal year ended September 30, 2015. In addition, acquisition-related boxes harvested and pound solids produced were approximately 5,300,000 and 33,300,000 for the fiscal year ended September 30, 2015, which represented approximately 50.6% and 53.6% of our total boxes harvested and pound solids produced for the fiscal years ended September 30, 2015. We included the financial results of the acquired assets of Orange-Co, LP in the accompanying Consolidated and Combined Financial Statements from the date of acquisition, December 2014.

Total boxes harvested in fiscal year 2016 declined by approximately 11.9%, as compared to fiscal year 2015. Pound solids per box also declined by approximately 5.6% and 7.1% for the Early and Mid-Season and Valencia oranges, respectively, which resulted in approximately 10,818,000 less pound solids sold in fiscal year 2016 as compared to fiscal year 2015. The increases in boxes harvested and pound solids produced in fiscal year 2015, as compared to fiscal year 2014, were a result of the Orange-Co acquisition as well as Silver Nip Citrus' acquisition of the TRB grove and the acquisition of Crossing Grove (see Note 3, "Acquisitions and Dispositions" to the accompanying Consolidated and Combined Financial Statements). Excluding these acquisitions, total boxes harvested declined by approximately 4.0%, as compared to fiscal year 2014. Pound solids per box also declined by approximately 4.4% and 2.4% for the Early and Mid-Season and Valencia oranges, respectively.

These declines in both boxes harvested and pound solids produced in fiscal years 2016 and 2015 are believed to be mainly driven by growing season fluctuations in production which may have been attributable to various factors, including extreme weather patterns such as higher than normal temperatures during the Early and Mid-season harvest impacting all varieties and El Nino impacting the pound solids per box. Other factors include changes in weather impacting bloom, horticultural practices, and the effects of diseases and pests, including Citrus Greening. The industry and the Company both continue to experience premature fruit drop, as well as smaller-sized fruit as a result of the factors described above. Additionally, on March 4, 2016, the Florida Commissioner of Agriculture exercised his authority under the Section 1B Emergency Exemptions provisions of the Federal Insecticide, Fungicide and Rodenticide Act to allow use of certain foliar bactericide applications. The Environmental Protection Agency approved the emergency exception effective August 15, 2016 through December 31, 2016. The Florida Department of Agriculture and Consumer Services, at that time, will make a determination as to whether or not to request emergency exceptions for the next calendar year. These bactericides are approved and successfully applied on other permanent crops throughout the United States. Orange Co. began application of these bactericides to all of its groves in April 2016. The Company is encouraged by the potential of foliar bactericide treatments to enhance the overall health of citrus trees and thereby mitigate the impact of citrus greening.

The USDA, in its November 9, 2016 Citrus Crop Forecast for the 2016-17 harvest season, indicated that the Florida orange crop will decrease from approximately 81,600,000 boxes for the 2015-16 crop year to approximately 72,000,000 boxes for the 2016-17 crop year, a decrease of approximately 11.8%.  The 2015-16 Florida orange crop declined by approximately 15,350,000 boxes or approximately 15.8% compared to the 2014-15 crop.

We estimate our 2017 processed boxes will decrease by approximately 4.5% compared to our fiscal year 2016 processed boxes, on a per acre basis. For fiscal year 2017, we expect that the forecasted 14.2% decrease in the size of the statewide crop could cause the price per pound solids for fiscal year 2017 to be above the price per pound solid for fiscal year 2016.  We expect that our operating expenses for fiscal year 2017 will remain consistent with fiscal year 2016 on a per acre basis.

The decrease in gross profit for fiscal year 2016, as compared to fiscal year 2015 related primarily to decreased revenues of approximately $8,865,000 discussed above partially offset by decreased operating expenses of approximately $7,889,000 primarily related to decreased cost of sales. The increase in gross profit for the fiscal year ended September 30, 2015, as compared to fiscal year ended September 30, 2014, was primarily due to the acquisition of the assets of Orange-Co, LP in December 2014. Acquisition-related gross profit was approximately $17,900,000 for the fiscal year ended September 30, 2015.

25




Conservation and Environmental Resources

The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:

(in thousands, except per pound data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
2016
 
2015
 
Unit
 
%
 
2015
 
2014
 
Unit
 
%
Revenue From:
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Sale of Calves
$
4,078

 
$
3,805

 
$
273

 
7.2
 %
 
$
3,805

 
$
5,735

 
$
(1,930
)
 
(33.7
)%
Sale of Culls
526

 
511

 
15

 
2.9
 %
 
511

 
1,118

 
(607
)
 
(54.3
)%
Land Leasing
852

 
851

 
1

 
0.1
 %
 
851

 
981

 
(130
)
 
(13.3
)%
Other
213

 
227

 
(14
)
 
(6.2
)%
 
227

 
338

 
(111
)
 
(32.8
)%
Total
$
5,669

 
$
5,394

 
$
275

 
5.1
 %
 
$
5,394

 
$
8,172

 
$
(2,778
)
 
(34.0
)%
Pounds Sold:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Calves
2,503

 
1,550

 
953

 
61.5
 %
 
1,550

 
2,964

 
(1,414
)
 
(47.7
)%
Culls
714

 
446

 
268

 
60.1
 %
 
446

 
1,181

 
(735
)
 
(62.2
)%
Price Per Pound:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Calves
$
1.63

 
$
2.45

 
$
(0.82
)
 
(33.5
)%
 
$
2.45

 
$
1.93

 
$
0.52

 
26.9
 %
Culls
$
0.74

 
$
1.15

 
$
(0.41
)
 
(35.7
)%
 
$
1.15

 
$
0.95

 
$
0.20

 
21.1
 %
Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Cost of Calves Sold
$
3,395

 
$
2,248

 
$
1,147

 
51.0
 %
 
$
2,248

 
$
3,569

 
$
(1,321
)
 
(37.0
)%
Cost of Culls Sold
299

 
220

 
79

 
35.9
 %
 
220

 
456

 
(236
)
 
(51.8
)%
Land Leasing Expenses
298

 
214

 
84

 
39.3
 %
 
214

 
274

 
(60
)
 
(21.9
)%
Water Conservation
2,322

 
2,126

 
196

 
9.2
 %
 
2,126

 
1,793

 
333

 
18.6
 %
Other
79

 

 
79

 
NM

 

 
31

 
(31
)
 
(100.0
)%
Total
$
6,393

 
$
4,808

 
$
1,585

 
33.0
 %
 
$
4,808

 
$
6,123

 
$
(1,315
)
 
(21.5
)%
NM - Not Meaningful

Ranch

The increase in revenues from the sale of calves in fiscal year 2016, as compared to fiscal year 2015, is primarily due to the increase in pounds sold, partially offset by a decrease in price per pound. The slight increase in revenues from the sale of culls in fiscal year 2016, as compared to fiscal year 2015, results from an increase in pounds sold, partially offset by a decrease in price per pound. The decrease in gross profit for fiscal year 2016, as compared to fiscal year 2015, relates primarily to the decrease in price per pound sold for calves and culls. The decrease in pounds sold during fiscal year 2015 relates primarily to the timing of calf sales and retaining calves to maintain the breeding herd. Approximately 892 calves from fiscal 2016 will be retained.
        
The decrease in revenues from the sale of calves in fiscal year 2015, as compared to fiscal year 2014, is primarily due to the decrease in pounds sold, partially offset by an increase in price per pound. The decrease in revenues from the sale of culls in fiscal year 2015, as compared to fiscal year 2014, results from a decrease in pounds sold, partially offset by an increase in price per pound. The decrease in gross profit for fiscal year 2015, as compared to fiscal year 2014, relates primarily to the decrease in pounds sold of beef, offset by the increase in the price per pound sold for calves and culls. The decrease in pounds sold during fiscal year 2015 relates primarily to the timing of calf sales and retaining calves to maintain the breeding herd. Approximately 950 calves were retained.

For fiscal year 2017, we expect to have a breeding herd of approximately 8,800 cows which includes retaining an additional 1,200 calves to further expand the breeding herd. We expect that the price per pound of beef sold will be approximately 10.0% less than fiscal year 2016 and will sell total pounds of beef in line with fiscal year 2016. We expect operating expenses for fiscal year 2017 to remain relatively consistent with fiscal year 2016.


26



Conservation
 
In December 2012, the SFWMD issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program. In March 2013, the Company submitted its response proposing a dispersed water management project on a portion of its ranch land.

On December 11, 2014, the SFWMD approved a contract with the Company. The contract term is eleven years and allows up to one year for implementation (design, permitting, construction and construction completion certification) and ten years of operation, whereby the Company will provide water retention services. Payment for these services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed payment of $12,000,000 for operations and maintenance costs, as long as the project is in compliance with the contract and subject to annual Board approval of funding. The contract specifies that the Board has to approve the payments annually and there can be no assurance that it will approve the annual fixed payments. The Florida budget for the state’s 2016/2017 fiscal year was recently approved and included funding for the Program. Permitting is currently underway with construction to follow immediately upon receipt of permits. It is anticipated that payments under the contract should commence in fiscal year 2017. Operating expenses were approximately $2,322,000, $2,126,000 and $1,793,000 for the three years ended September 30, 2016, 2015 and 2014, respectively.
 

Other Operations

The table below presents key operating measures for the fiscal years ended September 30, 2016, 2015 and 2014:

(in thousands, except per net standard ton and per acre data)
 
Fiscal Year Ended
 
 
 
 
 
Fiscal Year Ended
 
 
 
 
 
September 30,
 
Change
 
September 30,
 
Change
 
2016
 
2015
 
Unit
 
%
 
2015
 
2014
 
Unit
 
%
Revenue From:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Sale of Sugarcane
$

 
$

 
$

 
 
$

 
$
17,428

 
$
(17,428
)
 
(100
)%
Molasses Bonus

 

 

 
 

 
817

 
(817
)
 
(100
)%
USSC Lease

 
503

 
(503
)
 
(100
)%
 
503

 
1,389

 
(886
)
 
(63.8
)%
Other Leases
1,245

 
1,082

 
163

 
15.1
 %
 
1,082

 
1,429

 
(347
)
 
(24.3
)%
 Total
$
1,245

 
$
1,585

 
$
(340
)
 
(21.5
)%
 
$
1,585

 
$
21,063

 
$
(19,478
)
 
(92.5
)%
Net Standard Tons Sold

 

 

 
 

 
590

 
(590
)
 
NM

Price Per Net Standard Ton:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Sale of Sugarcane
$

 
$

 
$

 
 

 
$
29.54

 
$
(29.54
)
 
(100
)%
Molasses

 

 

 
 

 
1.38

 
(1.38
)
 
(100
)%
Net Standard Tons/Acre

 

 

 
 

 
35.20

 
(35.2
)
 
(100
)%
Operating Expenses:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Cost of Sales
$

 
$

 
$

 
 
$

 
$
14,368

 
$
(14,368
)
 
(100
)%
Harvesting and Hauling

 

 

 
 

 
3,759

 
(3,759
)
 
(100
)%
Land Leasing Expenses
397

 
1,608

 
(1,211
)
 
(75.3
)%
 
1,608

 
3,603

 
(1,995
)
 
(55.4
)%
Guarantee Payment to Global

 
475

 
(475
)
 
(100
)%
 
475

 

 
475

 
NM

Total
$
397

 
$
2,083

 
$
(1,686
)
 
(80.9
)%
 
$
2,083

 
$
21,730

 
$
(19,647
)
 
(90.4
)%
NM = Not material

On May 19, 2014, the Company entered into a triple net agricultural lease with its sole sugarcane customer, USSC, on approximately 19,181 acres of land planted or plantable to sugar in Hendry County, Florida. As a result of the lease, the Company was no longer directly engaged in sugarcane farming. The annual base rent under the USSC Lease was approximately $3,548,000 and the Company recognized approximately $503,000 and $1,389,000 for the fiscal years ended September 30, 2015 and 2014, respectively.
 
On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land leasing to Global for $97,913,921 in cash. The USSC Lease was assigned to Global in conjunction with the land sale. As a

27



result of the disposition of our sugarcane land, we are no longer involved in sugarcane and, as of November 1, 2014, the Improved Farmland segment is no longer material to our business and is now included in the Other Operations segment.

The sales price is subject to post-closing adjustments over a ten (10)-year period. The Company realized a gain of approximately $42,753,000 on the sale. Initially, approximately $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represents the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement. The USSC Lease is tied to the market price of sugar, and a guarantee payment is required annually, in advance, to supplement the rent paid by USSC in the event that the sugar prices are below certain thresholds. In fiscal year 2015, the sugar prices did not rise above the threshold and the Company paid approximately $475,000 to Global.

General and Administrative

General and administrative expenses for the fiscal year ended September 30, 2016 were approximately $13,213,000 compared to approximately $16,494,000 for the fiscal year ended September 30, 2015. The decrease in general and administrative expenses in fiscal year 2016 relates primarily to an approximate $4,700,000 decrease in professional and legal fees associated with the Orange-Co, LP and Silver Nip acquisitions in fiscal year 2015 and an approximate $138,000 decrease in separation and consulting agreement expenses, offset by certain fiscal year 2016 expenses including approximately $506,000 in legal fees and settlement charges related to the shareholder litigation.

The increase of approximately $4,683,000 in general and administrative expenses for the fiscal 2015, as compared to fiscal year 2014, relates primarily to professional and legal costs associated with the acquisitions, dispositions and mergers, as described in the accompanying Consolidated and Combined Financial Statements, which totaled approximately $6,485,000 and $2,639,000 for the fiscal years 2015 and 2014, respectively. The costs included approximately $5,592,000 in transaction and other real estate closing costs and approximately $893,000 related to other consulting costs for the fiscal year 2015. Excluding the transaction-related costs noted, the overall general and administrative increase relates to the significantly expanded size of the Company from fiscal year 2014 to fiscal year 2015.
 
Other (Expense) Income, net

Other (expense) income, net decreased by approximately $13,949,000 in fiscal year 2016, as compared to fiscal year 2015, due to approximately $12,972,000 decrease in gains on sale of real estate and approximately $1,527,000 in increased interest expense primarily due to the refinanced term loan debt from the Orange-Co, LP asset acquisition in December 2014.

Other (expense) income, net decreased by approximately $6,912,000 in fiscal year 2015, as compared to fiscal year 2014, due to approximately $5,998,000 increase in interest expense primarily due to the refinanced term loan debt from the Orange-Co, LP asset acquisition and a $6,000,000 gain on settlement of contingent consideration arrangement recognized in fiscal year 2014 offset by approximately $5,842,000 decrease in gains on sale of real estate.

Provision for Income Taxes

For the fiscal years ended September 30, 2016, 2015 and 2014, the provision for income taxes was approximately $5,521,000, $10,905,000, and $11,383,000, respectively, and the related effective income tax rates were approximately 44.2%, 45.3% and 54.5%, respectively.
 
During fiscal year 2015, the Company revised effective income tax rates to reflect the impact of claiming certain deductions on amended federal and state income tax returns filed for the fiscal years ended September 30, 2011 through September 30, 2013. Other changes to the effective tax rates relate primarily to the nondeductible nature of political contributions and lobbying expenses. In addition, there were limitations on certain deductions related to the vesting of the long-term incentive grants for fiscal year 2014, and non-deductible transaction costs related to the Silver Nip Citrus merger for fiscal year 2015. In addition, in fiscal 2016, the Company identified a $1,494,000 error related to an understatement of income tax expense for the fiscal year ended September 30, 2014. As previously noted, the Company and Silver Nip Citrus were under common control at the time of the Merger and, accordingly, we retrospectively recast our financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013. Silver Nip Citrus had a September 30 year end for tax reporting purposes at the time of the Merger. The tax returns for the year ended September 30, 2014 and the short period ended February 28, 2015, date of the Merger, were prepared and filed in the second quarter of fiscal 2016. The Company reviewed the as-filed tax returns in an effort to true-up the tax provision. During this review, the Company identified the error that impacts the Silver Nip Citrus financial condition and results of operations as of and for the period ended June 30, 2014.


28



The Internal Revenue Service ("IRS") has concluded their audits of the Company’s income tax returns for the fiscal years ended September 30, 2013, 2012 and 2011 with no income tax adjustments.

Seasonality

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.


Liquidity and Capital Resources

A comparative balance sheet summary is presented in the following table:
(in thousands)
September 30,
 
 
 
2016
 
2015
 
Change
Cash and cash equivalents
$
6,625

 
$
5,474

 
$
1,151

Total current assets
$
73,108

 
$
70,763

 
$
2,345

Total current liabilities
$
18,731

 
$
24,134

 
$
(5,403
)
Working capital
$
54,377

 
$
46,629

 
$
7,748

Total assets
$
458,662

 
$
460,088

 
$
(1,426
)
Term loans and line of credit
$
202,219

 
$
205,481

 
$
(3,262
)
Current ratio
3.90 to 1

 
2.93 to 1

 
 

Our business has historically generated positive net cash flows from operations. Sources of cash primarily include cash flows from operations, amounts available under our credit facilities and access to capital markets. Our access to additional borrowings under our revolving lines of credit is subject to the satisfaction of customary borrowing conditions. As a public company, we may have access to other sources of capital. However, our access to, and the availability of, financing on acceptable terms in the future will be affected by many factors, including (i) our financial condition, prospects and credit rating, (ii) the liquidity of the overall capital markets and (iii) the state of the economy. There can be no assurance that we will continue to have access to the capital markets on acceptable terms or at all.

The principal uses of cash that affect our liquidity position include the following: operating expenses including employee costs, the cost of maintaining our citrus groves, harvesting and hauling of our citrus products, capital expenditures, income tax payments, acquisitions, dividends, and debt service costs including interest and principal payments on our term loans and other credit facilities. In addition to the acquisitions and dispositions disclosed elsewhere, we have evaluated and expect to continue to evaluate possible acquisitions and dispositions of certain businesses. Such transactions may be material and may involve cash, the issuance of other securities or the assumption of indebtedness.

Management believes that a combination of cash-on-hand, cash generated from operations and availability under the Company's lines of credit will provide sufficient liquidity to service the principal and interest payments on its indebtedness and will satisfy working capital requirements and capital expenditures for at least the next twelve months and over the long term. Alico has a $70,000,000 working capital line of credit, of which approximately $59,800,000 is available for general use as of September 30, 2016, and a $25,000,000 revolving line of credit, of which $20,000,000 is available for general use as of September 30, 2016 (see Note 5. “Long-Term Debt and Lines of Credit" to the accompanying Consolidated and Combined Financial Statements). If the Company pursues significant growth opportunities in the future, it could have a material adverse impact on its cash balances and may need to finance such activities by drawing down monies under its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional financing could impact Alico's ability to pursue different growth opportunities.

Our level of debt could have important consequences on our business, including, but not limited to, increasing our vulnerability to general adverse economic and industry conditions, limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.


29



Cash Management Impacts 

Cash and cash equivalents increased approximately $1,151,000 for the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015; Cash and cash equivalents decreased by approximately $25,656,000 for the fiscal year ended September 30, 2015, as compared to the fiscal year ended September 30, 2014; and increased approximately $3,879,000 for the fiscal year ended September 30, 2014 as compared to the fiscal year ended September 30, 2013. The components of these changes are discussed below.


Consolidated and Combined Statements of Cash Flows

The following table details the items contributing to the Consolidated and Combined Statement of Cash Flows for fiscal years 2016, 2015 and 2014:

(in thousands)
 Fiscal Year Ended September 30,
 
 % Change
 
2016
 
2015
 
2014
 
 2016 vs 2015
 
 2015 vs 2014
Net cash flows provided by operating activities
$
30,357

 
$
33,726

 
$
25,063

 
(10.0
)%
 
34.6
%
Net cash flows used in investing activities
(13,034
)
 
(177,057
)
 
(21,988
)
 
(92.6
)%
 
NM

Net cash flows (used in) provided by financing activities
(16,172
)
 
117,675

 
804

 
(113.7
)%
 
NM

Net increase (decrease) in cash and cash equivalents
$
1,151

 
$
(25,656
)
 
$
3,879

 
(104.5
)%
 
NM

NM - Not Meaningful


Net Cash Provided By Operating Activities

The following table details the items contributing to Net Cash Provided by Operating Activities for the fiscal years 2016, 2015 and 2014:

(in thousands)
 Fiscal Year Ended September 30,
 
 
 
 Fiscal Year Ended September 30,
 
 
 
2016
 
2015
 
Change
 
2015
 
2014
 
Change
Net income
$
6,959

 
$
13,183

 
$
(6,224
)
 
$
13,183

 
$
9,495

 
$
3,688

Gain on sale of sugarcane land
(618
)
 
(13,734
)
 
13,116

 
(13,734
)
 

 
(13,734
)
Depreciation and amortization
15,382

 
14,732

 
650

 
14,732

 
9,638

 
5,094

Deferred income tax expense
5,277

 
12,350

 
(7,073
)
 
12,350

 
6,806

 
5,544

Loss (gain) on sale of property and equipment
443

 
(473
)
 
916

 
(473
)
 
(7,297
)
 
6,824

Impairment of asset held for sale

 
541

 
(541
)
 
541

 

 
541

Loss on extinguishment of debt

 
457

 
(457
)
 
457

 

 
457

Non-cash interest expense on deferred gain on sugarcane land
1,406

 
607

 
799

 
607

 

 
607

Stock-based compensation expense
925

 
952

 
(27
)
 
952

 
1,835

 
(883
)
Other, including working capital changes
583

 
5,111

 
(4,528
)
 
5,111

 
4,586

 
525

Net cash provided by operating activities
$
30,357

 
$
33,726

 
$
(3,369
)
 
$
33,726

 
$
25,063

 
$
8,663


The decrease in net income for the year September 30, 2016 compared to the year ended September 30, 2015 is related primarily to the gain on the sale of our sugarcane land recognized in fiscal 2015 as discussed in Note 3. "Acquisitions and Dispositions" to the Consolidated and Combined Financial Statements. Changes in income from operations are discussed in “Consolidated and Combined Statements of Results of Operations.”


30



The increase in net income for the year ended September 30, 2015 compared to the year ended September 30, 2014 is related primarily to the gain on the sale of our sugarcane land in fiscal year 2015 as discussed in Note 3. "Acquisitions and Dispositions" to the Consolidated and Combined Financial Statements and an increase in income from operations as discussed in “Consolidated and Combined Statements of Results of Operations.”


Net Cash Used In Investing Activities

The following table details the items contributing to Net Cash Used in Investing Activities for the fiscal years 2016, 2015 and 2014:

(in thousands)
 Fiscal Year Ended September 30,
 
 
 
 Fiscal Year Ended September 30,
 
 
 
2016
 
2015
 
Change
 
2015
 
2014
 
Change
Capital expenditures
$
(14,305
)
 
$
(11,523
)
 
$
(2,782
)
 
$
(11,523
)
 
$
(13,280
)
 
$
1,757

Acquisition of citrus business

 
(265,587
)
 
265,587

 
(265,587
)
 
(32,769
)
 
(232,818
)
Proceeds from sale of assets
799

 
99,114

 
(98,315
)
 
99,114

 
20,237

 
78,877

Other
472

 
939

 
(467
)
 
939

 
3,824

 
(2,885
)
Net cash used in investing activities
$
(13,034
)
 
$
(177,057
)
 
$
164,023

 
$
(177,057
)
 
$
(21,988
)
 
$
(155,069
)

The decrease in net cash used in investing activities for the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015, was primarily due to the acquisition of Orange-Co for approximately $265,600,000 in December 2014, partially offset by the utilization of proceeds from the disposition of Alico's sugarcane land of approximately $97,200,000 via a tax-deferred like-kind exchange pursuant to Internal Revenue Code Section 1031 (see Note 3. “Acquisitions and Dispositions" to the accompanying Consolidated and Combined Financial Statements).

The increase in net cash used in investing activities for the fiscal year ended September 30, 2015, as compared to the fiscal year ended September 30, 2014 was primarily due to the acquisition of Orange-Co for approximately $265,600,000 in December 2014, partially offset by the utilization of proceeds from the disposition of Alico's sugarcane land in fiscal 2015 of approximately $97,200,000 via a tax-deferred like-kind exchange pursuant to Internal Revenue Code Section 1031 (see Note 3. “Acquisitions and Dispositions" to the accompanying Consolidated and Combined Financial Statements) and a decrease of approximately $1,757,000 in capital expenditures.



31



Net Cash (Used In) Provided By Financing Activities

The following table details the items contributing to Net Cash (Used in) Provided by Financing Activities for the fiscal year ended September 30, 2016, 2015 and 2014:

(in thousands)
 Fiscal Year Ended September 30,
 
 
 
 Fiscal Year Ended September 30,
 
 
 
2016
 
2015
 
Change
 
2015
 
2014
 
Change
Borrowings notes payable
$

 
$

 
$

 
$

 
$
11,000

 
$
(11,000
)
Proceeds from term loans
2,500

 
184,500

 
(182,000
)
 
184,500

 

 
184,500

Repayments on revolving line of credit
(53,882
)
 
(87,031
)
 
33,149

 
(87,031
)
 
(2,400
)
 
(84,631
)
Borrowings on revolving line of credit
58,882

 
81,031

 
(22,149
)
 
81,031

 
3,641

 
77,390

Repayment of term loan

 
(34,000
)
 
34,000

 
(34,000
)
 

 
(34,000
)
Principal payments on term loans
(10,761
)
 
(17,870
)
 
7,109

 
(17,870
)
 
(3,208
)
 
(14,662
)
Contingent consideration paid
(7,500
)
 

 
(7,500
)
 

 

 

Financing costs

 
(2,834
)
 
2,834

 
(2,834
)
 

 
(2,834
)
Treasury stock purchases
(3,141
)
 
(4,013
)
 
872

 
(4,013
)
 
(4,844
)
 
831

Dividends paid
(1,993
)
 
(1,877
)
 
(116
)
 
(1,877
)
 
(2,780
)
 
903

Distributions to members

 

 

 

 
(605
)
 
605

Capital lease obligation payments
(277
)
 
(231
)
 
(46
)
 
(231
)
 

 
(231
)
Net cash (used in) provided by financing activities
$
(16,172
)
 
$
117,675

 
$
(133,847
)
 
$
117,675

 
$
804

 
$
116,871


The decrease in net cash provided by financing activities for the year ended September 30, 2016, as compared to the year ended September 30, 2015 was primarily due to net proceeds from the Company’s restructured long-term debt on December 3, 2014, in connection with the Orange-Co acquisition (see Note 5. “Long-term Debt and Lines of Credit” to the accompanying Consolidated and Combined Financial Statements). The restructured credit facilities included $125,000,000 in fixed interest rate term loans and $57,500,000 in variable interest rate term loans. The proceeds of the new credit facilities were partially offset by the repayment of an existing $34,000,000 variable interest rate term loan in fiscal year 2015.

Alico drew, on a net basis, $5,000,000 and repaid $6,000,000 on its revolving lines of credit, primarily to manage working capital requirements and investing activities for the years ended September 30, 2016 and 2015, respectively. The decrease in principal payments on term loans for the year ended September 30, 2016, compared to the year ended September 30, 2015, relates to an $8,750,000 optional principal prepayment on the fixed term loan made in fiscal year 2015. There have been no prepayments for the year ended September 30, 2016. Outstanding balances on the Company's $20,000,000 line of credit secured by real estate were $5,000,000 and zero at September 30, 2016 and 2015, respectively.
 
On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration on the Orange-Co acquisition, as contemplated by the Orange-Co Purchase Agreement. Alico's $3,750,000 irrevocable letter of credit securing the final payment of the additional consideration was terminated following the final cash consideration payment.

The increase in net cash provided by financing activities for the year ended September 30, 2015 compared to the year ended September 30, 2014 was primarily due to net proceeds from the Company’s restructured long-term debt on December 3, 2014, in connection with the Orange-Co acquisition (see Note 5. “Long-term Debt and Lines of Credit” to the accompanying Consolidated and Combined Financial Statements). The proceeds of the new credit facilities were partially offset by the repayment of an existing $34,000,000 variable interest rate term loan in fiscal year 2015. Alico repaid, on a net basis, $6,000,000 and drew $1,241,000 on its revolving lines of credit for the years ended September 30, 2015 and 2014, respectively, to manage working capital requirements and investing activities.

The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of September 30, 2016, there was approximately $10,200,000 in outstanding letters of credit which correspondingly reduced Alico's availability under the line of credit. There was no outstanding balance on the WCLC as of September 30, 2016.


32



Contractual Obligations and Off Balance Sheet Arrangements

We have various contractual obligations which are fixed and determinable. The following table presents our significant contractual obligations and commercial commitments on an undiscounted basis as of September 30, 2016 and the future periods in which such obligations are expected to be settled in cash.

(in thousands)
 
 
 
 
 
 
Payments Due by Period
 
Total
<1 Year
1-3 Years
3-5 Years
5+ Years
Long-term debt
$
202,219

$
4,493

$
19,200

$
30,940

$
147,586

Interest on long-term debt
68,829

7,539

14,241

12,390

34,659

Retirement benefits
12,616

348

535

420

11,313

Consulting/non-compete agreement
100

100




Operating leases
1,021

662

358

1


Capital leases
588

288

300



Tree purchase commitments
222

222




Total
$
285,595

$
13,652

$
34,634

$
43,751

$
193,558


Purchase Commitments
 
Alico, through its wholly owned subsidiary Alico Fruit Company, previously entered into contracts for the purchase of citrus fruit during the normal course of its business. These obligations were typically covered by sales agreements. Alico Fruit Company is no longer engaged in contracted purchase and resale of fruit, and there were no obligations outstanding at September 30, 2016.

Alico enters into fruit marketing agreements to purchase fruit from certain third party growers in connection with providing caretaking services to these growers. These obligations are typically covered by sales agreements.


33




Critical Accounting Policies
 
Our Consolidated and Combined Financial Statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in those financial statements and accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. We consider policies relating to the following matters to be critical accounting policies:

Revenue Recognition

Revenues from agricultural crops are recognized at the time the crop is harvested and delivered to the customer. The Company recognizes revenues from cattle sales at the time the cattle are delivered. Management reviews the reasonableness of the revenue accruals quarterly based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the fiscal year to these estimates as more current relevant information regarding the specific markets become available. Differences between the estimates and the final realization of revenues can be significant and can be either positive or negative. During the periods presented in this Annual Report on Form 10-K, no material adjustments were made to the reported revenues from our crops.

Alico Fruit Company ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to other citrus growers in the state of Florida. AFC also purchases and resells citrus fruit; in these transactions, AFC (i) acts as a principal; (ii) takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns. Therefore, AFC recognizes revenues based on the gross amounts due from customers for its marketing activities. Supply chain management service revenues are recognized when the services are performed.

Inventory

We capitalize the cost of growing crops into inventory until the time of harvest. Once a given crop is harvested, the related inventoried costs are recognized as cost of sales to provide an appropriate matching of costs incurred with the related revenues recognized. We record inventory at the lower of cost or net realizable value. Management regularly assesses estimated inventory valuations based on current and forecasted usage of the related commodity, observable prices, estimated completion costs and other relevant factors that may affect the net realizable value.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads and reservoirs among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.

The breeding herd consists of purchased animals and replacement breeding animals raised on our ranch. Purchased animals are stated at the cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use. Breeding animals are depreciated over 5-7 years. 

Income Taxes

In preparing our Consolidated and Combined Financial Statements, significant judgment is required to estimate our income taxes. Our estimates are based on our interpretations of federal and state laws. Deferred income taxes are recognized for the income tax effect of temporary differences between financial statement carrying amounts and the income tax basis of assets and liabilities. We regularly review our deferred tax assets to determine whether future taxable income will be sufficient to realize the benefits of these assets. A valuation allowance is provided for deferred income tax assets for which it is deemed, more likely than not, that future taxable income will not be sufficient to realize the related income tax benefits from these assets. The amount of the net deferred income tax asset that is considered realizable could be adjusted if estimates of future taxable income are adjusted. We apply a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. Adjustments to temporary differences, permanent differences or uncertain tax positions could materially impact our financial position, cash flows and results of operations.


34



Business Combinations
 
The Company accounts for its business acquisitions under the acquisition method of accounting in accordance with the Financial Accounting Standards Board - Accounting Standards CodificationTM ("FASB ASC") No. 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 No. 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 we acquire a business from an entity under common control, whereby the companies are ultimately controlled by the same party or parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting, whereby the assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.

Impairment of Long-Lived Assets

We evaluate property, cattle, equipment and other long-lived assets for impairment when events or changes in circumstances (triggering events) indicate that the carrying value of assets contained in our financial statements may not be recoverable. Depending on the asset under review, we use varying methods to determine fair value, such as discounting expected future cash flows, determining resale values by market or applying a capitalization rate to net operating income using prevailing rates for a given market. Unfavorable changes in economic conditions and net operating income for a specific property will change our estimates. If an impairment loss is recognized, the adjusted carrying amount of the asset becomes its cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated or amortized over the remaining useful life of that asset. As of September 30, 2016, long-lived assets included property and equipment and intangible assets.

Fair Value Measurements

The carrying amounts in the balance sheets for operating accounts receivable, mortgages and notes receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short term maturity of these items. When stated interest rates are below market, we discount mortgage notes receivable to reflect their estimated fair value. We carry our investments at fair value. The carrying amounts reported for our long-term debt approximates fair value as our borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

Impact of Accounting Pronouncements

See Item 8. "Financial Statements and Supplemental Data" - Note 1. "Description of Business and Basis of Presentation" for additional information about the impact of accounting pronouncements.


35



Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market Risk - Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices. The Company handles market risks in accordance with its established policies; however, Alico does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company does consider, on occasion, the need to enter into financial instruments to manage and reduce the impact of changes in interest rates; however, the Company entered into no such instruments during the three-year period ended September 30, 2016. The Company held various financial instruments as of September 30, 2016 and 2015, consisting of financial assets and liabilities reported in the Company’s Consolidated and Combined Balance Sheets and off-balance sheet exposures resulting from letters of credit issued for the benefit of Alico.

Interest Rate Risk - The Company is subject to interest rate risk from the utilization of financial instruments such as term loan debt and other borrowings. The Company’s primary long-term obligations are fixed rate debts subject to fair value risk due to interest rate fluctuations. The Company believes that the carrying value of our long-term debt approximates fair value given the stability of market interest rates.

The Company is also subject to interest rate risk on its variable rate debt. A one-percentage-point increase in prevailing interest rates would have increased interest expense on our variable rate debt obligations by approximately $626,000 before income taxes for the fiscal year ended September 30, 2016.

Foreign-Exchange Rate Risk - The Company currently has no exposure to foreign-exchange rate risk because all of its financial transactions are denominated in U.S. dollars.

Commodity Price Risk - The Company has no financial instruments subject to commodity price risk.

Equity Security Price Risk - None of the Company’s financial instruments have potential exposure to equity security price risk.



36



Item 8. Financial Statements and Supplementary Data


Index to Consolidated and Combined Financial Statements
 
Page
 
 
Consolidated and Combined Financial Statements:
 
 
 
 
 
All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.
 





37



Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
Alico, Inc.

We have audited the accompanying consolidated and combined balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2016 and 2015, and the related consolidated and combined statements of operations and comprehensive income, changes in equity, and cash flows for each of the three fiscal years in the period ended September 30, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Alico, Inc. and Subsidiaries as of September 30, 2016 and 2015, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 30, 2016, in conformity with U.S. generally accepted accounting principles.
    
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Alico, Inc. and Subsidiaries' internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated December 6, 2016 expressed an unqualified opinion on the effectiveness of Alico, Inc. and Subsidiaries’ internal control over financial reporting.



/s/ RSM US LLP
Orlando, Florida
December 6, 2016




38



Report of Independent Registered Public Accounting Firm


To the Board of Directors and Stockholders
Alico, Inc.

We have audited Alico, Inc. and Subsidiaries' internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Alico, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Alico, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated and combined balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2016 and 2015, and the related consolidated and combined statements of operations and comprehensive income, changes in equity, and cash flows for each of the three fiscal years in the period ended September 30, 2016, and our report dated December 6, 2016 expressed an unqualified opinion.



/s/ RSM US LLP
Orlando, Florida
December 6, 2016




39



ALICO, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(in thousands, except share amounts)
 
September 30,
 
2016
 
2015
ASSETS
 
 

Current assets:
 
 
 

Cash and cash equivalents
$
6,625

 
$
5,474

Accounts receivable, net
4,740

 
3,137

Inventories
58,469

 
58,273

Income tax receivable
1,013

 
2,088

Prepaid expenses and other current assets
2,261

 
1,791

Total current assets
73,108

 
70,763

 
 
 
 
Property and equipment, net
379,247

 
381,099

Goodwill
2,246

 
2,246

Deferred financing costs, net of accumulated amortization
2,369

 
2,978

Other non-current assets
1,692

 
3,002

Total assets
$
458,662

 
$
460,088

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 

Accounts payable
$
5,975

 
$
4,407

Accrued liabilities
6,920

 
13,813

Long-term debt, current portion
4,493

 
4,511

Deferred tax liability, current portion
53

 
151

Obligations under capital leases, current portion
288

 
277

Other current liabilities
1,002

 
975

Total current liabilities
18,731

 
24,134

 
 
 
 
Long-term debt
192,726

 
200,970

Lines of credit
5,000

 

Deferred tax liability
31,004

 
25,629

Deferred gain on sale
28,440

 
29,122

Deferred retirement obligations
4,198

 
4,134

Obligations under capital leases
300

 
588

Total liabilities
280,399

 
284,577

Commitments and Contingencies (Note 17)


 


Stockholders' equity:
 
 
 

Preferred stock, no par value, 1,000,000 shares authorized; none issued

 

Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 and 8,416,145 shares issued and 8,315,535 and 8,325,580 shares outstanding at September 30, 2016 and September 30, 2015, respectively
8,416

 
8,416

Additional paid in capital
18,155

 
19,795

Treasury stock, at cost, 100,610 and 90,565 shares held at September 30, 2016 and September 30, 2015, respectively
(4,585
)
 
(3,962
)
Retained earnings
151,504

 
146,455

Total Alico stockholders' equity
173,490

 
170,704

Noncontrolling interest
4,773

 
4,807

Total stockholders' equity
178,263

 
175,511

Total liabilities and stockholders' equity
$
458,662

 
$
460,088

See accompanying notes to the Consolidated and Combined Financial Statements.

40



ALICO, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)

 
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Operating revenues:
 
 
 
 
 
Orange Co.
$
137,282

 
$
146,147

 
$
74,768

Conservation and Environmental Resources
5,669

 
5,394

 
8,172

Other Operations
1,245

 
1,585

 
21,063

Total operating revenues
144,196

 
153,126

 
104,003

Operating expenses:
 

 
 

 
 
Orange Co.
102,347

 
110,236

 
54,956

Conservation and Environmental Resources
6,393

 
4,808

 
6,123

Other Operations
397

 
2,083

 
21,730

Total operating expenses
109,137

 
117,127

 
82,809

Gross profit
35,059

 
35,999

 
21,194

General and administrative expenses
13,213

 
16,494

 
11,811

Income from operations
21,846

 
19,505

 
9,383

Other (expense) income:
 

 
 

 
 
Investment and interest income, net

 
2

 
131

Interest expense
(9,893
)
 
(8,366
)
 
(2,368
)
Gain on bargain purchase

 
1,145

 

Gain on sale of real estate
618

 
13,590

 
7,748

Gain on settlement of contingent consideration arrangement

 

 
6,000

Loss on extinguishment of debt

 
(1,051
)
 

Impairment of asset held for sale

 
(541
)
 

Other expense, net
(91
)
 
(196
)
 
(16
)
Total other (expense) income, net
(9,366
)
 
4,583

 
11,495

Income before income taxes
12,480

 
24,088

 
20,878

Provision for income taxes
5,521

 
10,905

 
11,383

Net income
6,959

 
13,183

 
9,495

Net loss attributable to noncontrolling interests
34

 
31

 

Net income attributable to Alico, Inc. common stockholders
6,993

 
13,214

 
9,495

Comprehensive income attributable to noncontrolling interests

 

 

Comprehensive income attributable to Alico, Inc. common stockholders
$
6,993

 
$
13,214

 
$
9,495

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

 
 

 
 
Basic
$
0.84

 
$
1.64

 
$
1.29

Diluted
$
0.84

 
$
1.64

 
$
1.29

Weighted-average number of common shares outstanding:
 

 
 
 
 
Basic
8,303

 
8,056

 
7,336

Diluted
8,311

 
8,061

 
7,354

 
 
 
 
 
 
Cash dividends declared per common share
$
0.24

 
$
0.24

 
$
0.24


See accompanying notes to the Consolidated and Combined Financial Statements.

41



ALICO, INC. AND SUBSIDIARIES
CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
 
Common Stock
Additional Paid In Capital
Treasury Stock
Retained Earnings
Members' Equity
Total Alico, Inc. Equity
Noncontrolling Interest
Total Equity
 
Shares
Amount
Balance at September 30, 2013
7,377

$
7,377

$
9,496

$
(2,816
)
$
128,679

$

$
142,736

$

$
142,736

Net income




8,050

1,445

9,495


9,495

Dividends




(1,761
)
(605
)
(2,366
)

(2,366
)
Treasury stock purchases



(4,844
)


(4,844
)

(4,844
)
Members' equity as of common control November 19, 2013





15,631

15,631


15,631

Stock-based compensation:
 
 
 
 
 
 
 
 
 
Directors


(26
)
1,087



1,061


1,061

Executives


(5,728
)
5,923



195


195

Members' equity





579

579


579

Balance at September 30, 2014
7,377

7,377

3,742

(650
)
134,968

17,050

162,487


162,487

Net income (loss)




13,423

(209
)
13,214

(31
)
13,183

Dividends




(1,936
)

(1,936
)

(1,936
)
Treasury stock purchases



(4,013
)


(4,013
)

(4,013
)
Acquisition of citrus businesses
1,039

1,039

15,937



(16,976
)

4,838

4,838

Stock-based compensation:
 

 

 

 

 

 
 
 
 
Directors


61

701



762


762

Executives


55




55


55

Members' equity





135

135


135

Balance at September 30, 2015
8,416

8,416

19,795

(3,962
)
146,455


170,704

4,807

175,511

Net income (loss)




6,993


6,993

(34
)
6,959

Dividends




(1,990
)

(1,990
)

(1,990
)
Treasury stock purchases



(3,141
)


(3,141
)

(3,141
)
Contingent Consideration


(1,483
)
1,483






Stock-based compensation:
 

 

 

 

 

 
 
 
 
Directors


(307
)
1,035

46


774


774

Executives


150




150


150

Members' equity









Balance at September 30, 2016
8,416

$
8,416

$
18,155

$
(4,585
)
$
151,504

$

$
173,490

$
4,773

$
178,263


See accompanying notes to Consolidated and Combined Financial Statements.


42



ALICO, INC.
CONSOLIDATED AND COMBINED STATEMENT OF CASH FLOWS
(in thousands)
 
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Cash flows from operating activities:
 
 
 
 
 
Net income
$
6,959

 
$
13,183

 
$
9,495

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

 
 
Gain on sale of sugarcane land
(618
)
 
(13,734
)
 

Depreciation and amortization
15,382

 
14,732

 
9,638

Loss (gain) on breeding herd sales
296

 
(183
)
 
(555
)
Deferred income tax expense
5,277

 
12,350

 
6,806

Cash surrender value
(20
)
 
(27
)
 
202

Deferred retirement benefits
65

 
623

 
(173
)
Magnolia Fund undistributed loss (earnings)
103

 
(57
)
 
(163
)
Loss (gain) on sale of property and equipment
147

 
(290
)
 
(6,742
)
Impairment of asset held for sale

 
541

 

Loss on extinguishment of debt

 
457

 

Non-cash interest expense on deferred gain on sugarcane land
1,406

 
607

 

Stock-based compensation expense
925

 
952

 
1,835

Other

 
245

 

Changes in operating assets and liabilities:
 

 
 
 
 
Accounts receivable
(1,707
)
 
5,983

 
(2,676
)
Inventories
(196
)
 
8,659

 
9,985

Prepaid expenses
(1,759
)
 
(1,347
)
 

Income tax receivable
1,074

 

 
3,401

Other assets
821

 
465

 
523

Accounts payable and accrued expenses
3,720

 
(522
)
 
(8,599
)
Income tax payable

 
(6,660
)
 

Other liabilities
(1,518
)
 
(2,251
)
 
2,086

Net cash provided by operating activities
$
30,357

 
$
33,726

 
$
25,063

 
 
 
 
 
 
Cash flows from investing activities:
 

 
 

 
 
Acquisition of citrus businesses, net of cash acquired
$

 
$
(265,587
)
 
$
(32,769
)
Proceeds on sale of sugarcane land

 
97,151

 

Purchases of property and equipment
(14,305
)
 
(11,523
)
 
(13,280
)
Return on investment in Magnolia Fund
171

 
675

 
3,814

Proceeds from sale of assets
799

 
1,963

 
14,473

Proceeds from surrender of life insurance policies
297

 

 

Proceeds from sale of real estate

 

 
5,764

Other
4

 
264

 
10

Net cash used in investing activities
$
(13,034
)
 
$
(177,057
)
 
$
(21,988
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

43



 
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Cash flows from financing activities:
 

 
 

 
 
Borrowings notes payable
$

 
$

 
$
11,000

Proceeds from term loans
2,500

 
184,500

 

Repayments on revolving line of credit
(53,882
)
 
(87,031
)
 
(2,400
)
Borrowings on revolving line of credit
58,882

 
81,031

 
3,641

Repayment of term loan

 
(34,000
)
 

Principal payments on term loans
(10,761
)
 
(17,870
)
 
(3,208
)
Financing costs

 
(2,834
)
 

Contingent consideration paid
(7,500
)
 

 

Treasury stock purchases
(3,141
)
 
(4,013
)
 
(4,844
)
Dividends paid
(1,993
)
 
(1,877
)
 
(2,780
)
Distributions to members

 

 
(605
)
Capital lease obligation payments
(277
)
 
(231
)
 

Net cash (used in) provided by financing activities
$
(16,172
)
 
$
117,675

 
$
804

 
 
 
 
 
 
Net increase (decrease) in cash and cash equivalents
$
1,151

 
$
(25,656
)
 
$
3,879

Cash and cash equivalents at beginning of the period
5,474

 
31,130

 
27,251

 
 
 
 
 
 
Cash and cash equivalents at end of the period
$
6,625

 
$
5,474

 
$
31,130

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 

 
 

 
 
Cash paid for interest, net of amount capitalized
$
7,530

 
$
6,167

 
$
2,047

Cash income tax refunds, net of income taxes paid
$
(878
)
 
$

 
$

Cash paid for income taxes, net of income tax refunds
$

 
$
5,213

 
$
1,177

 
 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 

 
 
 
 
Escrow deposit in other assets applied to capital expenditures
$

 
$
250

 
$

Property and equipment purchased with capital leases
$

 
$
37

 
$
1,400

Equipment purchased with long-term debt
$

 
$

 
$
108

 

See accompanying notes to the Consolidated and Combined Financial Statements.

44



ALICO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
September 30, 2016, 2015 and 2014
Note 1. Description of Business and Basis of Presentation

Description of Business
 
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately 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 consolidated and combined basis. These accompanying Consolidated and Combined Financial Statements, which are referred to herein as the “Financial Statements”, have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the accompanying Financial Statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company’s results as of and for the fiscal years ended September 30, 2016, 2015 and 2014. All intercompany transactions and account balances between the consolidated and combined businesses have been eliminated.

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, Chief Executive Officer of the Company, 5% and an entity controlled by Mr. Clay Wilson owned, 20.11%.

As the Company and Silver Nip Citrus were under common control at the time of the Merger, it is required under U.S. GAAP to account for this common control acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting, Alico's Consolidated and Combined Balance Sheets as of September 30, 2016 and September 30, 2015 reflect Silver Nip Citrus’ historical carryover basis in the assets and liabilities instead of reflecting the fair market value of the assets and liabilities. The Company has also retrospectively recast its financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013.

Correction of an Immaterial Error in Prior Periods

In March 2016, the Company identified a $1,494,000 error related to an understatement of income tax expense for the fiscal year ended September 30, 2014. As previously noted, the Company and Silver Nip Citrus were under common control at the time of the Merger and, accordingly, we retrospectively recast our financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013. Silver Nip Citrus had a September 30 year end for tax reporting purposes at the time of the Merger. The tax returns for the year ended September 30, 2014 and the short period ended February 28, 2015, the date of the Merger, were prepared and filed in the second quarter of fiscal 2016. The Company reviewed the as-filed tax returns in an effort to true-up the tax provision. During this review, the Company identified the error that impacts the Silver Nip Citrus financial condition and results of operations as of and for the period ended June 30, 2014.

In accordance with Financial Accounting Standards Board Accounting Standards Codification 250, Accounting Changes and Error Corrections, we evaluated the materiality of the error from quantitative and qualitative perspectives. We concluded that the error was immaterial to the Company's prior period interim and annual Consolidated and Combined Financial Statements, and, accordingly no amendments to previously filed interim or annual periodic reports were required. Consequently, the Company adjusted for this error by revising its fiscal 2014 financial statements, when presented in future filings, by increasing income tax expense and its long term deferred tax liability by $1,494,000. The Company recognized the cumulative effect of the error by increasing long term deferred tax liability and reducing additional paid-in capital by $1,494,000 and reducing diluted earnings per share by $0.20 for the fiscal year ended September 30, 2014. The pre-merger net earnings of Silver Nip Citrus are classified as additional paid-in capital in the accompanying Consolidated and Combined Balance Sheets as of September 30, 2016 and September 30, 2015.


45



Change in Fiscal Year of Subsidiary

Silver Nip Citrus’ fiscal year end was previously June 30, and their financial condition and results of operations as of and for the fiscal years ended June 30, 2015 and 2014 were included in the financial condition and results of operations of the Company as of and for the fiscal years ended September 30, 2015 and 2014, respectively. Effective October 1, 2015, the fiscal year end for Silver Nip Citrus was changed to September 30 to reflect that of the Company. Accordingly, the Company’s financial condition as of September 30, 2016 and September 30, 2015 now includes the financial condition of Silver Nip Citrus as of September 30, 2016 and September 30, 2015, respectively, and the Company’s results of operations for the twelve months ended months ended September 30, 2016 and 2015 now includes the Silver Nip Citrus results of operations for the twelve months ended months ended September 30, 2016 and 2015, respectively. The impact of this change was not material to the Consolidated and Combined Financial Statements with an approximate $492,000 decrease in total assets and an approximate net loss of $596,000 for the transition period related to this change included in Stockholders' Equity at October 1, 2015.

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. For the fiscal year ended September 30, 2015, the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations. Effective October 1, 2015, the former Citrus Groves and Agricultural Supply Chain Management segments have been combined in Orange Co. and, as a result of the disposition of the Company's sugarcane land in fiscal year 2015, it is no longer involved in sugarcane, and the Improved Farmland segment is no longer material to its business and has been combined in Other Operations. The Company’s CODM will assess performance and allocate resources based on three operating segments: Orange Co., Conservation and Environmental Resources and Other Operations. Disclosures related to the fiscal year ended September 30, 2015 have been revised to be consistent with the current operating segment structure.

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 Consolidated and Combined Balance Sheets, Statements of Operations and Comprehensive Income 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 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 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 $69,230 for the fiscal year ended September 30, 2016, of which $35,307 is attributable to the Company. Citree had a net loss of $64,014 for the fiscal year ended September 30, 2015, of which $32,647 is attributable to the Company.



46



 Recent Accounting Pronouncements

 In May 2014, the FASB issued Accounting Standard Update ("ASU") No. 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.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (Subtopic 205-40): Disclosure of Uncertainty about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 provides guidance that establishes management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and setting rules for how this information should be disclosed in the financial statements. This guidance is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016, with early adoption permitted. We will adopt this guidance on October 1, 2017 and do not expect it to have a material impact on our Financial Statements upon adoption.

In February 2015, the FASB issued ASU No. 2015-02, "Consolidation" (Topic 810): Amendments to the Consolidation Process ("ASU 2015-02"). ASU 2015-02 amends the consolidation analysis for limited partnerships and other variable interest entities ("VIEs"). This guidance, which is effective for annual periods, and interim periods within those annual periods, beginning December 15, 2015, will be adopted on October 1, 2016, and is not expected to have a significant impact on our Financial Statements upon adoption.

In April 2015, the FASB issued ASU No. 2015-04, “Compensation - Retirement Benefits” (Topic 715). ASU 2015-04 will allow employers with fiscal year ends that do not coincide with a calendar month end to make an accounting policy election to measure defined benefit plan assets and obligations as of the end of the month closest to their fiscal year ends (i.e., on an alternative measurement date). An employer that makes this election must consistently apply the practical expedient from year to year and to all of its defined benefit plans. ASU 2015-04 will be effective for interim and fiscal periods beginning after December 15, 2015; prospective application is required and early adoption is permitted. The Company will adopt this guidance on October 1, 2016. This guidance is not expected to have a significant impact on our Financial Statements upon adoption.

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"). ASU 2015-03 changes the presentation of debt issuance costs from an asset to a direct deduction from the related liability. This guidance, which is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, may be early adopted for financial statements that have not been previously issued and its provisions are to be retrospectively applied as a change in accounting principle. Upon adoption, this guidance is expected to decrease Other Assets, which includes our deferred financing costs on our debt obligations, and comparably decrease Long-term debt on our Balance Sheets. This guidance is not expected to have any impact on our financial condition, results of operations or cash flows.

In July 2015, the FASB issued ASU No. 2015-11, “Inventory” (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). ASU 2015-11 simplifies the measurement of inventory by requiring certain inventory to be subsequently measured at the lower of cost and net realizable value. The amendments in this guidance are effective for fiscal years beginning after December 15, 2016 and for interim periods therein and are not expected to have a significant impact on our Financial Statements upon adoption.

In August 2015, the FASB issued ASU No. 2015-15, “Interest—Imputation of Interest” (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15). In ASU 2015 -15, the SEC adds guidance to Subtopic 835-30 pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. In April 2015, the FASB issued ASU 2015-03, “Interest—Imputation of Interest” (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, which requires entities to present debt issuance costs related to a recognized debt liability

47



as a direct deduction from the carrying amount of that debt liability. According to the SEC, the guidance in ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The guidance in ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The guidance in ASU 2015-15 is effective upon issuance. The guidance in ASU 2015-15 and ASU 2015-03 are not expected to have a significant impact on our Financial Statements upon adoption.

In September 2015, the FASB issued ASU No. 2015-16, “Business Combinations” (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2105-16 requires that (i) an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, (ii) the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, and (iii) an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in this Update apply to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this guidance are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The amendments in this guidance are not expected to have a significant impact on our Financial Statements upon adoption.

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 standard is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. Early application is permitted. The standard can be applied either prospectively to all deferred tax liabilities and assets, or retrospectively to all periods presented. As this standard impacts presentation only, the adoption of ASU 2015-17 is not expected to have an impact on our Financial Statements upon adoption.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)." This guidance will require entities that enter into leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous GAAP. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The Company is currently evaluating the impact this guidance will have on our Financial Statements, and it will become effective for Alico at the beginning of its first quarter of fiscal 2020.

In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)." The amendment clarifies the implementation guidance for principal versus agent considerations as contained in ASU No. 2014-09, Revenue from Contracts with Customers. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to a customer. ASU No. 2016-08 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption of ASU No. 2016-08 is permitted but not before December 15, 2016. The Company is currently evaluating the impact of ASU No. 2016-08 on our Financial Statements.

In March 2016, the FASB issued ASU 2016-09, “Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The objective of this update is to simplify several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new guidance to determine the impact it may have on our Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230).” This ASU will provide guidance on the presentation and classification of specific cash flow items to improve consistency within the statement of cash flows. The effective date for adoption of this guidance would be our fiscal year beginning October 1, 2018, with early adoption permitted. The Company is currently evaluating the effect that ASU 2016-15 will have on our Financial Statements.

In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory” (ASC Topic 740, Income Taxes), which will require an entity to recognize the income tax consequences of an intra-entity transfer of an asset, other than

48



inventory, when the transfer occurs. This ASU is effective for the Company on October 1, 2018 with early adoption permitted. The Company has not yet evaluated the effect, if any, that ASU 2016-16 will have on our Financial Statements.

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.

Seasonality
 
The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of our fiscal year generally produce the majority of our annual revenue, and working capital requirements are typically greater in the first and fourth quarters of the fiscal year. The results of the reported periods herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

Note 2. Summary of Significant Accounting Policies
 
Business Combinations
 
The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB ASC No. 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 No. 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 we acquire a business from an entity under common control, whereby the companies are ultimately controlled by the same party or parties both before and after the transaction, it is treated similar to the pooling of interests method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair value of assets and liabilities.

Revenue Recognition
 
Revenues from agricultural crops are recognized at the time the crop is harvested and delivered to the customer. Receivables from crops sold are recorded for the estimated proceeds to be received from the customer on a quarterly basis, management reviews the reasonableness of the revenues accrued based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the year to these estimates as more current relevant information regarding the specific markets becomes available. Differences between the estimates and the final realization of revenues can be significant and can be either an increase or decrease to reported revenues. During the periods presented in this report, no material adjustments were made to the reported revenues of the Company’s crops.

Alico recognizes revenues from cattle sales at the time the cattle are delivered.

Alico Fruit Company, LLC ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to other citrus growers and processors in the state of Florida. AFC also purchases and resells citrus fruit; in these transactions, AFC (i) acts as a principal; (ii) takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns. Therefore, AFC recognizes revenues based on the gross amounts due from customers for its marketing activities. Supply chain management services revenues are recognized when the services are performed.

Cash and Cash Equivalents
 
The Company considers cash in banks and highly liquid instruments with an original maturity of three months or less to be cash and cash equivalents. At various times throughout the fiscal year, and as of September 30, 2016, some accounts held at financial institutions were in excess of the federally insured limit of $250,000. The Company has not experienced any losses on these accounts and believes credit risk to be minimal.
 


49



Accounts receivable
 
Accounts receivable from customers are generated from revenues based on the sale of citrus, cattle, leasing and other transactions. The Company grants credit in the course of its operations to third party customers. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts based on the aging of accounts receivable. The estimate, evaluated monthly by the Company, is based on historical collection experience, current macroeconomic climate and market conditions and a review of the current status each customer’s account. Changes in the financial viability of significant customers and worsening of economic conditions may require changes to its estimate of the recoverability of the receivables. Such changes in estimates are recorded in the period in which these changes become known. The allowance for doubtful accounts is charged to general and administrative expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income. As of September 30, 2016 and 2015, allowances for doubtful accounts were approximately $12,900 and $8,300, respectively.

The following table presents accounts receivable, net for fiscal years ended September 30, 2016 and 2015:

(in thousands)
September 30,
 
2016
 
2015
Accounts receivable
$
4,753

 
$
3,145

Allowance for doubtful accounts
(13
)
 
(8
)
Accounts receivable, net
$
4,740

 
$
3,137



Fair Value of Financial Instruments
 
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term and immediate nature of these financial instruments. The carrying amounts of our debt approximate fair value due to the transactions are with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market rates for obligations with similar terms and maturities (see Note 11. “Fair Value Measurements”).

Concentrations
 
Revenues and accounts receivable from the Company’s major customers as of September 30, 2016 and 2015 and for the fiscal years ended September 30, 2016, 2015 and 2014, are as follows:

(in thousands)
Accounts Receivable
 
Revenue
 
% of Total Revenue
 
2016
2015
 
2016
2015
2014
 
2016
2015
2014
USSC
$

$

 
$

$

$
19,633

 
%
%
18.9
%
Florida Orange Marketers, Inc.
$

$

 
$

$

$
23,826

 
%
%
22.9
%
Citrosuco North America, Inc.
$

$

 
$
1,296

$
3,870

$
804

 
0.9
%
2.5
%
0.8
%
Louis Dreyfus
$

$

 
$

$
22,460

$
24,135

 
%
14.7
%
23.2
%
Cutrale Citrus Juice
$

$

 
$
22,735

$
23,556

$
3,984

 
15.8
%
15.4
%
3.8
%
Minute Maid
$

$

 
$
49,271

$
57,484

$

 
34.2
%
37.5
%
%
Tropicana
$
1,710

$
1,019

 
$
46,898

$
21,925

$
16,433

 
32.5
%
14.3
%
15.8
%

The citrus industry is subject to various factors over which growers have limited or no control, including weather conditions, disease, pestilence, water supply and market price fluctuations. Market prices are highly sensitive to aggregate domestic and foreign crop sizes, as well as factors including, but not limited to, weather and competition from foreign countries.

Real Estate
 
In recognizing revenues from land sales, the Company applies specific revenue recognition criteria, in accordance with U.S. GAAP, to determine when land sales revenues can be recorded. For example, in order to fully recognize a gain resulting from a real estate

50



transaction, the sale must be consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the type and timeframe for development of the property sold and any receivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain any material continuing involvement in the property sold. When these criteria are not met, the Company recognizes a gain proportionate to collections utilizing either the installment method or deposit method as appropriate.
 
Inventories
 
The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income. Inventories are stated at the lower of cost or net realizable value. The cost for unharvested citrus crops is based on accumulated production costs incurred during the period from January 1 through the balance sheet date. The cost of the beef cattle inventory is based on the accumulated cost of developing such animals for sale from July 1 through the balance sheet date (see Note 6. “Inventories”).

Property and Equipment
 
Property and equipment, which includes amounts under capitalized leases, are stated at cost, net of accumulated depreciation and amortization. Major improvements are capitalized while expenditures for maintenance and repairs are expensed when incurred. Costs related to the development of citrus groves through planting of trees are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs, among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.
 
The breeding herd consists of purchased animals and animals raised on the Company’s ranches. Purchased animals are stated at the cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use.

Real estate costs incurred for the acquisition, development and construction of real estate projects are capitalized.

Depreciation is provided on a straight-line basis over the estimated useful lives of the depreciable assets, with the exception of leasehold improvements and assets acquired through capital leases, which are depreciated over their estimated useful lives if the lease transfers ownership or contains a bargain purchase option, otherwise the term of the lease.

The estimated useful lives for property and equipment are primarily as follows:

Citrus trees
25 years
Equipment and other facilities
3-20 years
Buildings and improvements
25-39 years
Breeding herd
5-7 years


Changes in circumstances, such as technological advances or changes to our business model or capital strategy could result in the actual useful lives differing from the original estimates. In those cases where we determine that the useful life of property and equipment should be shortened, we would depreciate the asset over its revised estimated remaining useful life, thereby increasing depreciation expense (see Note 7. “Property and Equipment, Net”).

Impairment of Long-Lived Assets
 
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company records impairment losses on long-lived assets used in operations, other than goodwill, when events and circumstances indicate that the assets might be impaired and the estimated cash flows (undiscounted and without interest charges) to be generated by those assets over the remaining lives of the assets are less than the carrying amounts of those assets. The net carrying values of assets not recoverable are reduced to their fair values. Our cash flow estimates are based on historical results adjusted to reflect our best estimates of future market conditions and operating conditions. As of

51



September 30, 2016 and 2015, long-lived assets were comprised of property and equipment. The Company recorded an impairment loss of approximately $541,000 on property classified as assets held for sale for the fiscal year ended September 30, 2015.

Other Non-Current Assets
 
Other non-current assets primarily include investments owned in agricultural cooperatives, cash surrender value on life insurance and equity investment in affiliate (Magnolia). Investments in stock related to agricultural cooperatives are carried at cost.

Income Taxes
 
The Company complies with the asset and liability method of accounting for deferred income taxes. The provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse or beneficial impact on the Company’s income tax provision and net income or loss in the period the determination is made. As of September 30, 2016 and 2015, the Company did not record a valuation allowance on deferred tax assets. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax benefits in income tax expense.

Earnings per Share
 
Basic earnings per share for our common stock is calculated by dividing net income attributable to Alico common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares of common stock issuable under equity-based compensation plans in accordance with the treasury stock method, or any other type of securities convertible into common stock, except where the inclusion of such common shares would have an anti-dilutive effect.

The following table presents a reconciliation of basic to diluted weighted average common shares outstanding for fiscal years ended September 30, 2016, 2015 and 2014:

(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Weighted Average Common Shares Outstanding - Basic
8,303

 
8,056

 
7,336

Unvested Restricted Stock Awards
8

 
5

 
18

Weighted Average Common Shares Outstanding - Diluted
8,311

 
8,061

 
7,354


    
There were no employee stock options granted for the fiscal years ended September 30, 2016, 2015 and 2014, respectively. Non-vested restricted shares of common stock entitle the holder to receive non-forfeitable dividends upon issuance and are included in the calculation of diluted earnings per common share. For the fiscal years ended September 30, 2016, 2015 and 2014, there were no anti-dilutive equity awards or convertible securities that were excluded from the calculation of diluted earnings per common share.

Stock-Based Compensation
 
Stock-based compensation is measured based on the fair value of the equity award at the grant date and is typically expensed on a straight-line basis over the vesting period. Upon the vesting of restricted stock, the Company issues common stock from common shares held in treasury. The Company measures the cost of employee services on the grant date fair value of the equity award. The

52



cost is recognized over the period during which the employee is required to provide services in exchange for the equity award (usually the vesting period).

Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for up to an additional 1,250,000 common shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to stockholder value. The 2015 Plan was approved by the Company’s stockholders in February 2015.

The adoption of the 2015 Plan supersedes the 2013 Incentive Equity Plan (“2013 Plan”), which had been in place since April 2013. 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.
 
The 2013 Plan was approved by the Company’s stockholders in February 2013. Under the terms of the 2013 Plan, 350,000 shares of the Company’s common stock were to be awarded to recipients in the form of restricted stock units or stock options. Common shares issued pursuant to awards under the 2013 Plan, if any, were outstanding shares of common stock which have been repurchased by the Company.
 
The Company’s incentive equity plans provide for grants to executives in various forms including restricted shares of the Company’s common stock. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based upon service conditions. Non-vested restricted shares generally vest over requisite service periods of one to six years from the date of grant.
     
Total stock-based compensation expense for the three years ended September 30, 2016 in general and administrative expense was as follows:

(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Stock compensation expense:
 

 
 

 
 

Executives
$
150

 
$
55

 
$
195

Board of Directors
774

 
762

 
1,061

Members

 
135

 
579

Total stock compensation expense
$
924

 
$
952

 
$
1,835


All shares of restricted common stock awarded under the Long-Term Incentive Program, awarded by the Company in May 2011, vested automatically upon the acquisition of a controlling interest in the Company by 734 Investors, LLC in November 2013. As a result, the Company issued 152,403 shares of treasury stock in January 2014, before withholdings for income taxes. The Company recognized $195,000 of stock-based compensation expense related to the acceleration of vesting of the restricted stock during fiscal year 2014. In December 2013, the Company determined that it would repurchase half of the gross shares awarded to Named Executive Officers other than the CEO, totaling 58,610 common shares immediately upon their issuance for the purpose of retaining treasury shares for future issuance.

There were no employee stock options granted in fiscal years 2016, 2015 or 2014, respectively.

Equity Method Investments and Variable Interest Entities
 
The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least 50% based on the amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether the Company is the primary beneficiary of the investee. Investments not qualifying for consolidation are accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for distributions, gains and losses of the entity are classified as a single line in the balance sheet and as a non-operating item in the income statement.

In May 2010, the Company invested $12,150,000 to obtain a 39% limited partner equity interest in Magnolia TC 2, LLC (“Magnolia”), a Florida limited liability company whose primary business activity is acquiring tax certificates issued by various

53



counties in the state of Florida on properties which have property tax delinquencies. Revenues are recognized by Magnolia when the interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of 5% of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the certificate has been outstanding. Expenses include an acquisition fee of 1%, interest expense, a monthly management fee and other administrative costs. The investment in Magnolia is accounted for in accordance with the equity method of accounting, whereby the Company records its 39% interest in the reported income or loss of the fund each quarter and is included in other non-current assets in the Consolidated and Combined Balance Sheets. Based on the September 30, 2016 unaudited internal financial statements of Magnolia, the Company recognized net investment loss of approximately $103,000 for the fiscal year ended September 30, 2016. The Company recognized net investment income of approximately $57,000 and $163,000 for the fiscal years ended September 30, 2015, and 2014, respectively. Net investment income is included in Interest and investment, net in the Consolidated and Combined Statements of Operations and Comprehensive Income. Magnolia made certain distributions during the fiscal years ended September 30, 2016, 2015 and 2014; the Company’s share of those distributions was approximately $171,000, $675,000, and $3,814,000, respectively.


Note 3. Acquisitions and Dispositions

Acquisition of Orange-Co, LP Assets
 
On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP, including 51% of the ownership interests of Citree, pursuant to an Asset Purchase Agreement, which is referred to as the Orange-Co Purchase Agreement, dated as of December 1, 2014. The assets the Company purchased include approximately 20,263 acres of citrus groves in DeSoto and Charlotte Counties, Florida, which comprise one of the largest contiguous citrus grove properties in the state of Florida. Total assets acquired were approximately $277,792,000, net of approximately $2,060,000 in cash acquired and approximately $4,838,000 in fair value attributable to noncontrolling interest in Citree, including: (i) approximately $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane disposition and new term loan debt; (ii) $7,500,000 in additional cash consideration released from escrow in equal parts, subject to certain limitations, on December 1, 2015 and June 1, 2016; (iii) the refinancing of Orange-Co, LP’s outstanding debt including approximately $92,290,000 in term loan debt and a working capital facility of approximately $27,857,000 and (iv) the assumption of certain other liabilities totaling approximately $4,705,000. On December 1, 2014, Alico deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc. in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration. On December 1, 2015 and June 1, 2016, the Company paid $3,750,000 of additional consideration, as contemplated by the Orange-Co Purchase Agreement. The Company's $3,750,000 irrevocable letter of credit securing the final payment of the additional consideration was terminated following the final cash consideration payment.
 
This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and noncontrolling interests is recognized as goodwill. All goodwill recognized will be deductible for income tax purposes.

For the fiscal years ended September 30, 2016 and 2015 the Company incurred approximately $31,000 and $3,078,000, respectively, in professional and legal costs in connection with the Orange-Co acquisition. These costs are included in general and administrative expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income.
 

54



The following table summarizes the final allocation of the acquisition cost to the assets acquired and liabilities assumed at the date of acquisition, based on their estimated fair values:     
(in thousands)
 
 
 
Assets:
Amount
Accounts receivable
$
888

Other current assets
845

Inventories
35,562

Property and equipment:
 
Citrus Trees
164,123

Land
63,395

Equipment and other facilities
13,431

Goodwill
2,246

Other assets
2,140

Total assets, net of cash acquired
$
282,630

 
 
Liabilities:
 
Accounts payable and accrued liabilities
$
4,205

Debt
500

Contingent consideration
7,500

Total liabilities assumed
$
12,205

 
 
Assets acquired less liabilities assumed
$
270,425

 
 
Less: fair value attributable to noncontrolling interest
(4,838
)
 
 
Total purchase consideration
$
265,587

 
 
Cash proceeds from sugarcane disposition
$
97,126

Working capital line of credit
27,857

Term loans
140,604

 
 
Total purchase consideration
$
265,587


The unaudited pro-forma information below for the fiscal years ended September 30, 2015 and 2014 gives effect to this acquisition as if the acquisitions had occurred on October 1, 2013. The pro-forma financial information is not necessarily indicative of the results of operations if the acquisition had been effective as of this date.

(in thousands except per share amounts)
 Fiscal Year Ended September 30,
 
2015
 
2014
 
(unaudited)
 
 
 
 
Revenues
$
153,654

 
$
175,420

Income from operations
$
19,489

 
$
35,450

Net income attributable to Alico Inc. common stockholders
$
12,723

 
$
22,906

Basic earnings per common share
$
1.58

 
$
3.12

Diluted earnings per common share
$
1.58

 
$
3.12



55



Acquisition of Citrus Grove - Crossing Grove

On August 8, 2014, the Company and Premiere Agricultural Properties, LLC entered into a Purchase and Sale Agreement pursuant to which the Company purchased all of the assets on a 1,241 acre citrus grove (867 net tree acres) in DeSoto County, Florida for a purchase price of approximately $16,517,000 (the "Crossing Grove Transaction"). The transaction was closed on September 23, 2014. The purchase price was funded from the Company’s cash and $5,300,000 in funds from a 2014 like-kind exchange transaction in Polk County pursuant to Internal Revenue Code Section 1031. We acquired the citrus acres to increase the size of our citrus groves, which we believe strengthens our market position.
 
The assets acquired in the acquisition were recorded in the quarter ended September 30, 2014. The results of operations have been included in our Consolidated and Combined Statements of Operations and Comprehensive Income since September 23, 2014, the date of closing. Pro-forma operating results, as if the Company had completed the acquisition at the beginning of the periods presented, are not significant to the Company’s Consolidated and Combined Statements of Operations and Comprehensive Income and are not presented.

Assets acquired in the acquisition are as follows: 

(in thousands)
Amount
 
 
Inventories
$
1,148

Property and Equipment:
 

Citrus Trees
9,633

Land
3,902

Equipment and other facilities
1,834

Total cash paid
$
16,517



Acquisition of Citrus Grove - TRB
 
In September 2014, Silver Nip Citrus and TRB Groves, LLC (“TRB”) entered into a Purchase and Sale Agreement pursuant to which Silver Nip Citrus purchased all of TRB’s assets on a 1,500 acre citrus grove in Charlotte County, Florida for a purchase price of approximately $17,130,000. The assets purchased included land and fruit inventory as well as irrigation and other equipment. The purchase price was funded from Silver Nip Citrus’ cash and additional financing of $11,000,000 (see Note 5. “Long-Term Debt and Lines of Credit”) in fixed rate term loans. The citrus grove acres were purchased to increase the size of the Silver Nip Citrus’ citrus groves to strengthen their market position.

This acquisition was accounted for under the acquisition method of accounting. Accordingly, Silver Nip Citrus recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction costs associated with the acquisition were expensed as incurred. The excess of the fair value over the purchase price of assets acquired, net of liabilities assumed, is recognized as a gain on bargain purchase of $1,145,300 and is included in Other income (expense), net in the Consolidated and Combined Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.

For the fiscal year ended September 30, 2015, Silver Nip Citrus incurred approximately $525,000 in professional and legal costs in connection with the TRB acquisition. These costs are included in general and administrative expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.
 
The following table summarizes the consideration paid for the acquired net assets and the acquisition accounting for the fair values of the assets acquired and liabilities assumed in the accompanying Consolidated and Combined Balance Sheets as of the acquisition date.
 
The results of operations have been included in our Consolidated and Combined Financial Statements since September 4, 2014, the date of the closing. Pro-forma operating results, as if Silver Nip Citrus had completed the TRB acquisition at the beginning of the periods presented, are not significant to our Financial Statements and are not presented.
     

56



Assets acquired and liabilities assumed in the TRB acquisition are as follows:

(in thousands)
 
 
 
Assets:
Amount
Prepaid expenses
$
90

Inventories
2,155

Property and equipment:
 
Citrus trees
10,009

Land and land improvements
5,007

Equipment and other facilities
1,038

Total assets
$
18,299

 
 
Liabilities:
$
41

 
 
Assets acquired less liabilities assumed
$
18,258



Sugarcane Land Disposition
 
On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately $97,900,000 in cash. It had previously leased approximately 30,600 of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global in conjunction with the land sale.

Net cash proceeds from the sugarcane land sale of approximately $97,126,000 were deposited with a Qualified Intermediary in anticipation of the Orange-Co asset acquisition in a tax deferred like-kind exchange, pursuant to Internal Revenue Code Section 1031.

The sales price is subject to post-closing adjustments over a ten year period. The Company realized a gain of approximately $42,753,000 on the sale. Initially, $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represents the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement (see below). A net gain of approximately $13,613,000 was recognized at the time of the sale and is recognized in Other (expense) income in the Consolidated and Combined Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.

The Company estimated its maximum exposure to loss over the ten year period to total approximately $42,172,000 on an aggregate undiscounted basis. This estimated maximum exposure to loss was discounted at five percent to determine the initial deferred gain. In May 2016 and 2015, the Company made payments of $1,702,000 and $1,347,000, respectively, to Global pursuant to the sales contract. The amount of USSC’s lease is tied to the market price of sugar, and the Company's payment is required annually in advance, to supplement the lease paid by USSC in the event that the sugar prices are below certain thresholds. The 2015 sugar price remained below the threshold and therefore none of the amount advanced in 2015 will be returned to the Company. Approximately $1,236,000 of advance payments is included in prepaid expenses and other current assets in the Consolidated and Combined Balance Sheet as of September 30, 2016, and the Company has recognized approximately $1,406,000 in interest expense and approximately $618,000 of the deferred gain for the fiscal year ended September 30, 2016.


57



Estimated payments over the remaining term of the post-closing agreement are summarized in the following table.
(in thousands)
 
 
 
2017
$
1,602

2018
1,527

2019
1,885

2020
2,266

2021
2,668

Thereafter
20,723

Total
$
30,671

As a result of the disposition of its sugarcane land, the Company is no longer involved in sugarcane operations and, as of November 21, 2014, the Improved Farmland segment was no longer material to our business; however, the sugarcane operation has not been classified as a discontinued operation due to the post-closing adjustments, amongst other involvement, as described above. Effective October 1, 2015, the Improved Farmland reporting segment is now included in the Other Operations reporting segment.

Property Sales

Certain Silver Nip Citrus land located in Martin County with a cost of approximately $2,832,000 was sold during fiscal year 2014, resulting in a gain on sale of assets of approximately $2,927,000 with net cash proceeds of approximately $5,759,000.

On July 1, 2014, the Company sold a 2,800 acre parcel of land located in Polk County, Florida for $5,623,000. This parcel was surplus to our operations and was classified as held for sale. This sale was part of a like-kind exchange transaction that qualified for tax-deferral treatment in accordance with Internal Revenue Code Section 1031.


Note 4. Common Control Acquisition

The Company completed the Merger with Silver Nip Citrus on February 28, 2015 (see Note 1. “Description of Business and Basis of Presentation”). Silver Nip Citrus owns approximately 7,400 acres of land, consisting primarily of citrus groves, in seven Florida counties (Polk, Hardee, Osceola, Martin, Highlands, Charlotte and Collier). Substantially all of its revenues derive from citrus operations. As the Company and Silver Nip Citrus were under common control at the time of the Merger, the results of operations have been combined for the Company and Silver Nip Citrus from the date common control began, November 19, 2013.


58



Separate results for the Company and Silver Nip Citrus for the fiscal years ended September 30, 2015 and 2014 were as follows:

(in thousands except per share amounts)
 
 
 
 
 
 
 
 
 
 
 
Fiscal Year Ended
 
Fiscal Year Ended
 
September 30, 2015
 
September 30, 2014
 
 
 
Silver Nip
 
 
 
 
 
Silver Nip
 
 
 
Alico
 
Citrus
 
Total
 
Alico
 
Citrus
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Operating revenue
$
131,722

 
$
21,404

 
$
153,126

 
$
88,680

 
$
15,323

 
$
104,003

Gross profit
$
31,212

 
$
4,787

 
$
35,999

 
$
18,297

 
$
2,897

 
$
21,194

Income from operations
$
15,654

 
$
3,851

 
$
19,505

 
$
7,856

 
$
1,527

 
$
9,383

Net income
$
9,791

 
$
3,392

 
$
13,183

 
$
8,050

 
$
1,445

 
$
9,495

 
 
 
 
 
 
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
1.20

 
$
0.42

 
$
1.64

 
$
1.10

 
$
0.20

 
$
1.29

Diluted
$
1.22

 
$
0.42

 
$
1.64

 
$
1.10

 
$
0.20

 
$
1.29


Note 5. Long-Term Debt and Lines of Credit
 
 
September 30,
 
 
2016
 
2015
 
 
(in thousands)
Long-term debt, net of current portion:
 
 
 
 
Metropolitan Life Insurance Company and New England Life Insurance Company fixed rate term loans in the original principal amount of $125,000,000: the loans bear interest at the rate of 4.15% per annum. The loans are collateralized by real estate and mature in November 2029.
 
$
105,312

 
$
111,563

Metropolitan Life Insurance Company and New England Life Insurance Company variable rate term loans in the original principal amount of $57,500,000: the variable interest rate was 2.25% per annum at September 30, 2016. The loans are collateralized by real estate and mature in November 2029.
 
52,469

 
55,344

Metropolitan Life Insurance Company term loan: the loan bears interest at the rate of 5.28% per annum as of September 30, 2016. The loan is secured by real estate and matures in February 2029.
 
5,000

 
2,500

Prudential Mortgage Capital Company, LLC fixed rate term loans: the loans bear interest at the rate of 5.35% per annum as of September 30, 2016. The loans are collateralized by real estate and mature in June 2033.
 
24,190

 
25,350

Prudential Mortgage Capital Company, LLC fixed rate term loan: the loan bears interest at the rate of 3.85% per annum as of September 30, 2016. The loan is collateralized by real estate and matures in September 2021.
 
5,115

 
5,335

Prudential Mortgage Capital Company, LLC fixed rate term loan: the loan bears interest at the rate of 3.45% per annum as of September 30, 2016. The loan is collateralized by real estate and matures in September 2039.
 
5,115

 
5,335

Note payable to a financing company secured by equipment and maturing in December 2016.
 
18

 
54

 
 
197,219

 
205,481

Less current portion
 
4,493

 
4,511

Long-term debt
 
$
192,726

 
$
200,970


59



 
 
September 30,
 
 
2016
 
2015
 
 
(in thousands)
Lines of Credit:
 
 
 
 
Metropolitan Life Insurance Company and New England Life Insurance Company revolving line of credit: this $25,000,000 line bears interest at a variable rate which was 2.25% per annum as of September 30, 2016. The line is secured by real estate and matures in November 2019. Availability under the line was $20,000,000 as of September 30, 2016.
 
$
5,000

 
$

Rabo Agrifinance, Inc. working capital line of credit: this $70,000,000 line bears interest at a variable rate which was 2.27% per annum as of September 30, 2016. The line is secured by personal property and matures in November, 2018. Availability under the line was $59,800,000 at September 30, 2016.
 

 

Lines of Credit
 
$
5,000

 
$


Future maturities of debt and lines of credit as of September 30, 2016 are as follows:
(in thousands)
 
 
 
Due within one year
$
4,493

Due between one and two years
8,300

Due between two and three years
10,900

Due between three and four years
15,963

Due between four and five years
10,975

Due beyond five years
151,588

Total future maturities
$
202,219


Debt Refinancing 

The Company refinanced its outstanding debt obligations on December 3, 2014 in connection with the Orange-Co acquisition (see Note 3. “Acquisitions and Dispositions”). The credit facilities initially included $125,000,000 in fixed interest rate term loans, $57,500,000 in variable interest 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 collateralized by approximately 39,300 gross acres of citrus groves and 14,000 gross acres of farm and ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.

The term loans are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The fixed-rate term loans bear interest at 4.15% per annum, and the 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 variable rate term loans were 2.25% per annum and 1.80% per annum as of September 30, 2016 and September 30, 2015, respectively. 

The Company may prepay up to $8,750,000 of the 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 have been no optional prepayments in calendar year 2016. The variable- rate term loans may be prepaid without penalty.


60



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 requirements. The variable interest rate was 2.25% per annum and 1.80% per annum as of September 30, 2016 and September 30, 2015, respectively. Availability under the RLOC was $20,000,000 as of September 30, 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 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 2.27% per annum and 1.95% per annum as of September 30, 2016 and September 30, 2015, 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 $59,800,000 as of September 30, 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 WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of September 30, 2016, there was approximately $10,200,000 in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit. There was no outstanding balance on the WCLC as of September 30, 2016.

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, will be amortized to interest expense over the applicable terms of the loans. Additionally, approximately $123,000 and $78,000 of financing costs were incurred in connection with letters of credit and the amendment of the WCLC, respectively. 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 $1,965,000 at September 30, 2016.

The Company recognized a loss on extinguishment of debt of approximately $964,000 related to the refinancing described above for the fiscal year ended September 30, 2015. The loss on extinguishment of debt is included in other (expense) income in the Consolidated and Combined Statement of Operations and Comprehensive Income for the fiscal year ended September 30, 2015.

The new 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 $161,600,000 for the year ending September 30, 2016, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of September 30, 2016, the Company was in compliance with all of the financial covenants.

Credit facilities also include a Met Life term loan collateralized by real estate owned by Citree. 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 5.28%. The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately $53,000 at September 30, 2016.

Debt Prior to Refinancing
 
Prior to the December 3, 2014 refinancing, the Company had a $33,500,000 term loan and a $60,000,000 revolving line of credit (“Old RLOC”) with Rabo.

 The variable rate term loan required quarterly payments of interest at a floating rate of one month LIBOR plus 225 basis points and quarterly principal payments of $500,000. The variable interest rate on this loan was 2.40% per annum as of September 30,

61



2014. The loan was secured by real estate and had a maturity date of October 2020. The term loan was refinanced in connection with the Orange-Co acquisition on December 3, 2014.

The Old RLOC had a variable interest rate based on one month LIBOR plus a spread. The spread was determined based upon our debt service coverage ratio for the preceding fiscal year and could vary from 195 to 295 basis points. The interest rate was LIBOR plus 195 basis points at the date of refinancing and as of September 30, 2014. Interest on the Old RLOC was payable quarterly. The Old RLOC was subject to a commitment fee of 20 basis points on the annual average unused availability. The Old RLOC had no outstanding balance at the date of refinancing or as of September 30, 2014.

The Company incurred debt financing costs of approximately $1,202,000 related to the Rabo variable rate term loan and Old RLOC. The debt financing costs were capitalized as deferred financing costs in fiscal year 2010 and were being amortized to interest expense over the term of the loans. The unamortized balance of deferred financing costs at the time of refinancing was approximately $697,000, of which approximately $379,000 was expensed as a loss on extinguishment of debt and approximately $318,000 will be amortized over the applicable terms of the new loans.

As of September 30, 2014, the Company was in compliance with the financial debt covenants and terms of the Rabo loan agreement.

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. 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.
 
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, while the other bears interest at 3.45% per annum. The note with an interest rate of 3.85% per annum 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.
 
Silver Nip Citrus had a $6,000,000 revolving line of credit with Prudential. This line of credit was paid in full and terminated on April 28, 2015. The Company recognized a loss on extinguishment of debt of approximately $87,000 related to the termination.

The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately $351,000 at September 30, 2016.

The Silver Nip Citrus facilities are subject to a financial debt covenant requiring a current ratio of at least 1.50 to 1.00, measured at the end of each fiscal year. Silver Nip Citrus was in compliance with this covenant as of September 30, 2016.
 
The Silver Nip Citrus facilities are personally guaranteed by George Brokaw, Remy Trafelet and Clayton Wilson at September 30, 2016.
 
Modification of Credit Agreements
 
During the fiscal year ended September 30, 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.


62



Interest costs expensed and capitalized were as follows:    

(in thousands)
 
 
 
 
 
 
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Interest expense
$
9,893

 
$
8,366

 
$
2,368

Interest capitalized
172

 
345

 
182

Total
$
10,065

 
$
8,711

 
$
2,550


Note 6. Inventories

Inventories consist of the following at September 30, 2016 and September 30, 2015:
(in thousands)
September 30,
 
2016
 
2015
Unharvested fruit crop on the trees
$
52,204

 
$
52,497

Beef cattle
783

 
1,612

Citrus tree nursery
3,090

 
2,854

Other
2,392

 
1,310

Total inventories
$
58,469

 
$
58,273

The Company records its inventory at the lower of cost or net realizable value. For the fiscal year ended September 30, 2016 and 2015, the Company did not record any adjustments to reduce inventory to net realizable value. 

Note 7. Property and Equipment, Net

Property and equipment, net consists of the following at September 30, 2016 and September 30, 2015:
(in thousands)
September 30,
 
2016
 
2015
Citrus trees
$
253,665

 
$
247,488

Equipment and other facilities
59,355

 
56,200

Buildings and improvements
21,780

 
21,259

Breeding herd
10,921

 
11,924

Total depreciable properties
345,721

 
336,871

Less: accumulated depreciation, depletion and amortization
(83,122
)
 
(70,200
)
Net depreciable properties
262,599

 
266,671

Land and land improvements
116,648

 
114,428

Net property and equipment
$
379,247

 
$
381,099


Asset Impairment

The Company recorded an impairment loss of approximately $541,000 during fiscal year 2015 on property classified as assets held for sale as of September 30, 2014. The Company entered into a sales contract on February 17, 2015, which triggered the impairment of the property based on the negotiated sales price. The property was sold on April 3, 2015 and the Company received approximately $1,509,000 in net cash proceeds.


63



Sugarcane Lease

On May 19, 2014, the Company entered into a triple net agricultural lease (the "Lease") with its sole sugarcane customer, USSC, for 19,181 acres of land planted or plantable to sugar in Hendry County, Florida. As a result of the Lease, the Company is no longer directly engaged in sugarcane farming. The lease was assigned to Global in connection with the Sugarcane land sale (see Note 3. "Acquisitions and Dispositions").

The lease provided for a one-time reimbursement to the Company, at book value, for certain of our costs to develop and plant sugarcane (Property and Equipment), cultivate and care take sugarcane (Inventory) and for the purchase of certain rolling stock (Property and Equipment) used in our sugarcane operation. We had a combined book value of approximately $11,100,000 in planting and caretaking costs and approximately $2,200,000 net book value for the rolling stock. After negotiation with USSC, we agreed to a one time reimbursement of approximately $8,800,000 in plant cane and caretaking costs and a sales price of approximately $2,200,000 for the rolling stock. Therefore, the Company recorded a one-time charge of approximately $2,300,000 in the fiscal year ended September 30, 2014 as an operating expense in the Improved Farmland segment. In addition, we also received the annual base rent payment of approximately $3,548,000 for a total payment of approximately $14,600,000 from USSC on July 1, 2014.


Note 8. Prepaid Expenses and Other Assets

Prepaid Expenses and Other Assets consist of the following at September 30, 2016 and 2015
(in thousands)
 
 
 
 
September 30, 2016
 
September 30, 2015
 
Current
 
Non-Current
 
Current
 
Non-Current
Investments in agricultural cooperatives
$

 
$
146

 
$

 
$
846

Cash surrender value

 
445

 

 
722

Equity investment in affiliate

 
543

 

 
817

Tree deposits

 
164

 

 
166

Guaranteed payments on sugarcane sale
1,236

 

 
843

 

Prepaid insurance
955

 

 
811

 

Other
70

 
394

 
137

 
451

Total prepaid expenses and other assets
$
2,261

 
$
1,692

 
$
1,791

 
$
3,002




Note 9. Accrued Liabilities

Accrued Liabilities consist of the following at September 30, 2016 and September 30, 2015:

(in thousands)
September 30,
 
2016
 
2015
Ad valorem taxes
$
2,736

 
$
2,700

Accrued interest
1,135

 
1,154

Accrued employee wages and benefits
964

 
456

Inventory received but not invoiced
710

 
665

Accrued dividends
498

 
500

Current portion of deferred retirement obligations
342

 
342

Additional purchase price consideration

 
7,500

Other accrued liabilities
535

 
496

Total accrued liabilities
$
6,920

 
$
13,813





64



Note 10. Other Current Liabilities

Other current liabilities consist of the following at September 30, 2016 and 2015:

(in thousands)
 
 
 
 
September 30,
 
2016
 
2015
Deposits - Farm land leases
$
403

 
$
397

Deposits - Recreation land leases
562

 
541

Other
37

 
37

Total other current liabilities
$
1,002

 
$
975





Note 11. Fair Value Measurements
 
The Company complies with the provisions of FASB ASC 820 “Fair Value Measurements” for its financial and non-financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The majority of the carrying amounts of the Company’s assets and liabilities including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities as of September 30, 2016 and 2015, approximate their fair value because of the immediate or short term maturity of these financial instruments. In the event that stated interest rates are below market, the Company discounts mortgage and notes receivable to reflect their estimated fair value. The carrying amounts reported for long-term debt approximates fair value as the Company’s borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for similar obligations. The majority of our non-financial instruments, which include inventories and property and equipment, are not required to be carried at fair value on a recurring basis.

ASC 820 clarifies that fair value is an exit price representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
 
Level 1- Observable inputs such as quoted prices in active markets;
Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3- Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.

There were no gains or losses included in earnings attributable to changes in unrealized gains or losses relating to our assets as of September 30, 2016 and 2015.

We use third-party service providers to assist in the evaluation of investments. For investment valuations, current market interest rates, quality estimates by rating agencies and valuation estimates by active market participants were used to determine values. Deferred retirement benefits were valued based on actuarial data, contracted payment schedules and an estimated discount rate of 4.3% and 4.2% as of September 30, 2016 and 2015, respectively.


65



Note 12. Treasury Stock
 
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 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.

Effective November 1, 2008, the Company’s Board of Directors authorized the repurchase of up to 350,000 shares of the Company’s common stock through November 2013 for the purpose of funding awards under its 2008 Incentive Equity Plan. In September 2013, the Board of Directors authorized the repurchase of up to 105,000 shares of the Company’s common stock beginning in November 2013 and continuing through April 2018. The stock repurchases began in November 2008 and were made on a quarterly basis 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. The following table illustrates the Company’s treasury stock purchases for the fiscal years ended September 30, 2016, 2015 and 2014:
(in thousands, except share amounts)
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Shares Purchased as Part of Publicly Announced Plan or Program
 
Total Dollar Value of Shares Purchased
Fiscal Year Ended September 30,:
 

 
 

 
 

 
 
2016
78,446

 
$
40.04

 
545,995

 
$
3,141

2015
91,554

 
$
43.83

 
467,549

 
$
4,013

2014
118,792

 
$
40.78

 
375,995

 
$
4,844


The following table outlines the Company’s treasury stock transactions during the past three fiscal years:
(in thousands, except share amounts)
Shares
 
Cost
 
 
 
 
Balance at September 30, 2013
73,538

 
$
2,816

Purchased
118,792

 
4,844

Issued to Employees and Directors
(176,564
)
 
(7,010
)
 
 
 
 
Balance at September 30, 2014
15,766

 
650

Purchased
91,554

 
4,013

Issued to Employees and Directors
(16,755
)
 
(701
)
 
 
 
 
Balance at September 30, 2015
90,565

 
3,962

Purchased
78,446

 
3,141

Issued to Employees and Directors
(35,478
)
 
(1,035
)
Issued to former Silver Nip Citrus equity holders
(32,923
)
 
(1,483
)
 
 
 
 
Balance at September 30, 2016
100,610

 
$
4,585





66



Note 13. Income Taxes

The provision for income tax for the years ended September 30, 2016, 2015 and 2014 consists of the following:

(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Current:
 

 
 

 
 

Federal income tax
$
244

 
$
(1,348
)
 
$
4,035

State income tax

 
(98
)
 
543

Total current
244

 
(1,446
)
 
4,578

Deferred:
 

 
 

 
 

Federal income tax
4,538

 
10,432

 
6,160

State income tax
739

 
1,919

 
645

Total deferred
5,277

 
12,351

 
6,805

Total provision for income taxes
$
5,521

 
$
10,905

 
$
11,383


Income tax provision (benefit) attributable to income from continuing operations differed from the amount computed by applying the statutory federal income tax rate of 35% to pre-tax income as a result of the following:
(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Tax at the statutory federal rate
$
4,382

 
$
9,335

 
$
8,117

Increase (decrease) resulting from:
 

 
 

 
 

State income taxes, net of federal benefit
457

 
1,279

 
183

Permanent and other reconciling items, net
773

 
280

 
3,083

Other
(91
)
 
11

 

Total provision for income taxes
$
5,521

 
$
10,905

 
$
11,383



67



The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of September 30, 2016, and 2015 are presented below:

(in thousands)
September 30,
 
2016
 
2015
Deferred tax assets:
 

 
 

Deferred retirement benefits
$
1,620

 
$
1,595

Inventories
912

 
230

Alico-Agri, Ltd. outside basis differences
474

 
467

Goodwill
36,217

 
39,081

Deferred gain recognition
10,964

 
11,234

Capital loss carry forward
9,702

 
12,804

Alternative minimum tax credits
197

 

Net operating loss
5,844

 
7,141

Other
765

 
200

Total deferred tax assets
66,695

 
72,752

 
 
 
 
Deferred tax liabilities:
 
 
 
Revenue recognized from citrus and sugarcane
282

 
223

Property and equipment
95,149

 
93,849

Accrual-to-cash method
1,908

 
3,905

Prepaid insurance
331

 
256

Investment in Magnolia
82

 
299

Total deferred tax liabilities
97,752

 
98,532

Net deferred income tax liability
$
(31,057
)
 
$
(25,780
)

Deferred taxes are included in the accompanying Consolidated and Combined Balance Sheets are as follows:

(in thousands)
September 30,
 
2016
 
2015
 
 
 
 
Deferred tax liabilities, current
$
53

 
$
151

Deferred tax liabilities, non-current
31,004

 
25,629

Total deferred tax liabilities
$
31,057

 
$
25,780


As of September 30, 2016, the Company has approximately $14,800,000 federal and approximately $18,300,000 state income tax net operating loss (NOL) carryforwards. The Federal NOL's of approximately $4,200,000 will expire in 2024 and approximately $10,600,000 in 2025. The State NOL’s of approximately $4,200,000 will expire in 2024 and approximately $14,100,000 in 2025. As of September 30, 2016, the Company has approximately $25,200,000 federal and state capital loss carryforwards, with approximately $600,000 expiring in 2017 and approximately $24,600,000 in 2018. The Company believes that it is more likely than not that the benefit from federal and state NOL and capital loss carryforwards will be realized and therefore have not provided a valuation allowance on the deferred tax assets related to these NOL and capital loss carryforwards.


68



Note 14. Segment Information

Segments

Operating segments are defined in FASB 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. For the fiscal year ended September 30, 2015, the Company’s CODM assessed performance and allocated resources based on five operating segments: Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations. The former Citrus Groves and Agricultural Supply Chain Management segments have been combined into the Orange Co. segment and, as a result of the disposition of its sugarcane land in fiscal year 2015, the Company is no longer involved in sugarcane, and the Improved Farmland segment is no longer material to our business and has been combined into the Other Operations segment. Effective October 1, 2015, 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 Consolidated and Combined Statements of Operations and Comprehensive Income. Intersegment sales and transfers are accounted for by the Company as if the sales or transfers were to third parties at current market prices. 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.

69



Information by operating segment is as follows:
(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Revenues:
 
 
 
 
 
Orange Co.
$
137,282

 
$
146,147

 
$
74,768

Conservation and Environmental Resources
5,669

 
5,394

 
8,172

Other Operations
1,245

 
1,585

 
21,063

Total revenues
144,196

 
153,126

 
104,003

 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
Orange Co.
102,347

 
110,236

 
54,956

Conservation and Environmental Resources
6,393

 
4,808

 
6,123

Other Operations
397

 
2,083

 
21,730

Total operating expenses
109,137

 
117,127

 
82,809

 
 
 
 
 
 
Gross profit:
 
 
 
 
 
Orange Co.
34,935

 
35,911

 
19,812

Conservation and Environmental Resources
(724
)
 
586

 
2,049

Other Operations
848

 
(498
)
 
(667
)
Total gross profit
$
35,059

 
$
35,999

 
$
21,194

 
 
 
 
 
 
Capital expenditures:
 
 
 
 
 
Orange Co.
$
10,393

 
$
9,403

 
$
7,849

Conservation and Environmental Resources
1,664

 
1,461

 
5,109

Other Operations
629

 
162

 
37

Other Capital Expenditures
1,619

 
497

 
285

Total capital expenditures
14,305

 
11,523

 
13,280

 
 
 
 
 
 
Depreciation, depletion and amortization:
 
 
 
 
 
Orange Co.
$
13,982

 
$
12,297

 
$
4,201

Conservation and Environmental Resources
456

 
1,275

 
1,604

Other Operations
476

 
471

 
3,653

Other Depreciation, Depletion and Amortization
468

 
689

 
180

Total depreciation, depletion and amortization
$
15,382

 
$
14,732

 
$
9,638



(in thousands)
September 30,
 
2016
 
2015
Assets:
 
 
 
Orange Co.
$
412,643

 
$
412,700

Conservation and Environmental Resources
13,073

 
12,648

Other Operations
23,287

 
22,688

Other Corporate Assets
9,659

 
12,052

Total Assets
$
458,662

 
$
460,088




70



Note 15. Employee Benefits Plans

Management Security Plan

The management security plan (“MSP”) is a nonqualified, noncontributory defined supplemental deferred retirement benefit plan for a select group of management personnel. The MSP provides a fixed supplemental retirement benefit for 180 months certain. The MSP is frozen; no new participants are being added and no benefit increases are being granted. The MSP benefit expense and the projected management security plan benefit obligation are determined using assumptions as of the end of the year. The weighted-average discount rate used to compute the obligation was 4.3% and 4.2% in fiscal years 2016 and 2015, respectively.

Actuarial gains or losses are recognized when incurred, therefore; the end of year benefit obligation is the same as the accrued benefit costs recognized in the Consolidated and Combined Balance Sheets.

The amount of MSP benefit expense charged to costs and expenses was as follows:

(in thousands)
Fiscal Year Ended September 30,
 
2016
 
2015
 
2014
Service cost
$
213

 
$
195

 
$
195

Interest cost
210

 
197

 
(23
)
Recognized actuarial loss adjustment
(5
)
 
231

 

Total
$
418

 
$
623

 
$
172



The following provides a roll-forward of the MSP benefit obligation:

(in thousands)
September 30,
 
2016
 
2015
Change in projected benefit obligation:
 

 
 

Benefit obligation at beginning of year
$
4,476

 
$
4,198

Service cost
213

 
195

Interest cost
210

 
197

Benefits paid
(351
)
 
(345
)
Recognized actuarial loss adjustment
(5
)
 
231

Benefit obligation at end of year
$
4,543

 
$
4,476

 
 
 
 
Funded status at end of year
$
(4,543
)
 
$
(4,476
)


The MSP is unfunded and benefits are paid as they become due. The estimated future benefit payments under the plan for each of the five succeeding years are approximately $348,000, $365,000, $170,000, $210,000 and $210,000 and for the five-year period thereafter is an aggregate of $1,429,000.

The Company has established a “Rabbi Trust” to provide for the funding of accrued benefits under the MSP. According to the terms of the Rabbi Trust, funding is voluntary until a change of control of the Company as defined in the Management Security Plan Trust Agreement occurs. Upon a change of control, funding is triggered. As of September 30, 2016, the Rabbi Trust had no assets, and no change of control had occurred.

Profit Sharing and 401(k)

The Company maintains a 401(k) employee savings plan for eligible employees, which provides for a 4% matching contribution on employee payroll deferrals. The Company’s matching funds vest to the employee immediately, pursuant to a safe harbor

71



election effective in October 2012. The Company’s contribution to the plan was approximately $401,000, $360,000, and $192,000 for the fiscal years 2016, 2015 and 2014, respectively.

The Profit Sharing Plan (“Plan”) is fully funded by contributions from the Company. Contributions to the Plan are discretionary and determined annually by the Company’s Board of Directors. Contributions to employee accounts are based on the participant’s compensation. The Company’s contribution to the Profit Sharing Plan was $291,000, $165,000 and $165,000 for the fiscal years ended September 30, 2016, 2015 and 2014, respectively.


Note 16. Related Party Transactions

Change in Control Transaction
On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, completed the previously announced purchase from Alico Holding, LLC, a company wholly owned by Atlantic Blue Group, Inc. (“Atlanticblue”), of 3,725,457 shares of our common stock (the “Share Purchase”).
The common stock acquired by 734 Agriculture and its affiliates, including 734 Investors, represents approximately 51% of the Company’s outstanding voting securities. On November 15, 2013, 734 Investors amended and restated its LLC operating agreement (the “LLC Agreement”) to admit new members and to designate 734 Agriculture as the managing member, with authority to administer the affairs of 734 Investors, including the voting and disposition of shares of common stock, subject to certain restrictions set forth therein.
As a result, upon the consummation of the Share Purchase, 734 Agriculture and its affiliates, including 734 Investors, acquired the voting power to control the election of the Company’s Directors and any other matter requiring the affirmative vote or consent of the Company’s stockholders'.
Appointment of Directors
With the Closing of the Share Purchase, the previously announced election of the following individuals to the Board of Directors became effective: Mr. George R. Brokaw, Member of 734 Agriculture; Remy W. Trafelet, Manager of 734 Agriculture; W. Andrew Krusen, Jr., Chairman and CEO of Dominion Financial Group; Benjamin D. Fishman, Managing Principal of Arlon Group; Henry R. Slack, former Chairman of the Board of Terra Industries, Inc. and Senior Partner of Quarterwatch, LLC; Clayton G. Wilson, former CEO of 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus and Chairman of the Board of Latt Maxcy Corporation; and R. Greg Eisner, Head of Strategy of Dubin & Company, LLC.
734 Investors and 734 Agriculture

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired all of the approximately 51% of Alico’s common stock then owned by Atlanticblue. 734 Investors now beneficially owns, directly or indirectly, approximately 59% of the outstanding shares of the Company’s common stock and possesses the voting power to control the election of the Company’s Directors and any other matter requiring the affirmative vote or consent of the Company’s stockholders. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734 Investors and 734 Agriculture are able to elect all of the Directors and, consequently, control Alico. Messrs. Brokaw and Trafelet are the two controlling persons of 734 Agriculture.

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, 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

72



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 at 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.

In September 2015, the former holders of membership interests in Silver Nip Citrus (the "Members") received an additional 115,782 shares of the Company’s common stock pursuant to the Merger Agreement. The additional consideration was based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves following the conclusion of the 2014-2015 citrus harvest season. The Members will receive additional Company shares of common stock based on any additional proceeds received by the Company subsequent to September 2015 related to the 2014-2015 harvest season.

As of 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 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. The Members are not expected to receive any additional Company common shares related to the 2014-2015 harvest season.

For the fiscal year ended September 30, 2016 and 2015 the Company incurred approximately $85,000 and $309,000 in professional and legal costs in connection with the Merger. These costs are included in general and administrative expenses in the Consolidated and Combined Statements of Operations and Comprehensive Income for the fiscal year ended September 30, 2016 and 2015, respectively.

JD Alexander

On November 6, 2013, JD Alexander tendered his resignation as Chief Executive Officer, and as an employee of the Company, subject to and effective immediately after the Closing of the Share Purchase transaction on November 19, 2013. Mr. Alexander’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On November 6, 2013, the Company and Mr. Alexander also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Alexander will provide consulting services to the Company during the two-year period after the Closing, (ii) Mr. Alexander agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of two years after the Closing, and (iii) the Company paid Mr. Alexander for such services and covenants $2,000,000 in twenty-four monthly installments. The Company expensed approximately $167,000, $1,000,000 and $833,000 under the Consulting and Non-Competition Agreement for the fiscal years ended September 30, 2016, 2015 and 2014.

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’s business operations previously managed by Mr. Smith are now managed by Clay Wilson, Chief Executive Officer of Alico. The Company expensed approximately $200,000 and $625,000 under the Consulting and Non-Competition Agreement for fiscal years ended September 30, 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 will provide consulting services to the Company for a one-year period after his resignation, and (ii) Mr. Humphrey will be entitled to the following benefits: (a) $100,000 in cash in a lump sum and (b) a consulting fee of $350,000 payable monthly during the period commencing on his resignation date and ending on the first anniversary of his resignation date. The Company expensed approximately $238,000 and $268,000 under the Separation and Consulting Agreement for the fiscal year ended September 30, 2016 and 2015, respectively. On June 1, 2015 the Company appointed John E. Kiernan to serve as Senior Vice President and Chief Financial Officer. Effective September 1, 2015, Mr. Humphrey was appointed to serve as Senior Vice President and Chief Accounting Officer, and continued to receive monthly payments under The Consulting Agreement through the first anniversary of his resignation date.

73




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 $479,000 and $379,000 under the Shared Services Agreement for the fiscal year ended September 30, 2016 and 2015, respectively.

Note 17. Commitments and Contingencies

Operating Leases

The Company has obligations under various non-cancelable long-term operating leases for equipment. In addition, the Company has various obligations under other equipment leases of less than one year.

Total rent expense was approximately $667,000, $649,000 and $2,015,000 for the years ended September 30, 2016, 2015 and 2014, respectively.

The future minimum annual rental payments under non-cancelable operating leases are as follows:
(in thousands)
 
 
 
2017
$
662

2018
353

2019
5

2020
1

2021

Total
$
1,021


Capital Leases

The Company has obligations under two non-cancelable long-term capital equipment leases. The gross asset value of leased equipment is approximately $1,435,000 at September 30, 2016 and 2015. Accumulated amortization totaled approximately $425,000 and $191,000 at September 30, 2016 and 2015, respectively. The future minimum annual rental payments under non-cancelable capital leases are as follows:
(in thousands)
Principal
Interest
Total
 
 
 
 
2017
$
288

$
24

$
312

2018
300

12

312

Total
$
588

$
36

$
624



74



Change in Control Agreements

The Company entered into Change in Control Agreements (“CIC Agreements”) with its executive officers and 22 other key employees (“CIC Recipients”) in the fiscal year 2014. The CIC Agreements provided for cash payments to CIC Recipients in the event of a change in control as defined in the CIC Agreements followed by the termination of a CIC Recipient within 18 months of the change in control. As of September 30, 2016, all CIC Agreements have expired.

Letters of Credit

The Company has outstanding standby letters of credit in the total amount of approximately $10,234,000 and $17,498,500 at September 30, 2016 and September 30, 2015, respectively, to secure its various contractual obligations.

Legal Proceedings

On March 11, 2015 a putative stockholder class action lawsuit captioned Shiva Y. Stein v. Alico, Inc., et al., No. 15-CA-000645 (the “Stein lawsuit”) was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, Inc. (“Alico”), its current and certain former directors, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus, 734 Investors, LLC (“734 Investors”), 734 Agriculture, LLC (“734 Agriculture”) and 734 Sub, LLC (“734 Sub”) in connection with the acquisition of Silver Nip by Alico (the “Acquisition”). The complaint alleged that Alico’s directors at the time of the Acquisition, 734 Investors, and 734 Agriculture, breached fiduciary duties to Alico stockholders in connection with the Acquisition, and that Silver Nip and 734 Sub aided and abetted such breaches. The lawsuit sought, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses.
     
On May 6, 2015 a putative stockholder class action and derivative lawsuit captioned Ruth S. Dimon Trust v. George R. Brokaw, et al., No. 15-CA-001162 (the “Dimon lawsuit”) was filed in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, its current directors, Silver Nip Citrus, 734 Investors and 734 Agriculture, in connection with the Acquisition of Silver Nip Citrus by Alico. The complaint alleged breach of fiduciary duty, gross mismanagement, waste of corporate assets and tortious interference with contract against Alico’s directors; unjust enrichment against three of the directors; and aiding and abetting breach of fiduciary duty against Silver Nip Citrus, 734 investors and 734 Agriculture. The lawsuit sought, among other things, rescission of the Acquisition, an injunction prohibiting certain payments to Silver Nip Citrus members, unspecified damages, disgorgement of profits, costs, fees (including attorneys’ fees) and expenses.
 
On July 17, 2015, the plaintiffs in the Stein and Dimon lawsuits filed a stipulation and proposed order consolidating their cases for all purposes under the caption, In re Alico, Inc. Shareholder Litigation, Master File No. 15-CA-000645 (the “Consolidated Action”) and seeking the appointment of a lead plaintiff and lead and liaison counsel. The court entered that proposed order on July 21, 2015.
    
On October 16, 2015, the lead plaintiff in the Consolidated Action reported to the Court that the parties reached an agreement in principle to settle the Consolidated Action and other claims related to the Acquisition and that they were in the process of formally documenting their agreements. The proposed settlement contemplated that Alico would adopt certain changes to its corporate governance practices, policies and procedures concerning related party transactions; that the Consolidated Action would be dismissed; and all claims that were or could have been asserted challenging any aspect of the Acquisition would be released. On March 31, 2016, the parties entered into a Stipulation of Settlement. The parties filed an Amended Stipulation of Settlement with the Court on April 22, 2016.

On April 28, 2016, the Court entered an order preliminarily approving the settlement and providing for notice to relevant Alico shareholders.  Notice of the settlement was mailed to relevant Alico shareholders and a settlement hearing was held on September 12, 2016, during which the Court considered the fairness, reasonableness and adequacy of the settlement and plaintiffs' counsel’s request for an award of attorneys' fees and expenses.

Following the settlement hearing on September 12, 2016, the Court entered a final order and judgment that approved the settlement as fair, reasonable and adequate; directed the parties to consummate the settlement according to its terms; awarded plaintiffs’ counsel attorneys’ fees and expenses; and dismissed the Consolidated Action with prejudice.

From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There are no other current legal proceedings to which the Company is a party to or of which any of its property is subject to that it believes will have a material adverse effect on its business financial position or results of operations.

    

75



Note 18. Selected Quarterly Financial Data (unaudited)

Summarized quarterly financial data for the fiscal years ended September 30, 2016, and 2015 are computed independently each quarter, therefore, the sum of the quarter amounts may not equal the total amount for the respective year due to rounding as follows:

(in thousands, except per share amounts)
Fiscal Quarter Ended
 
December 31,
 
March 31,
 
June 30,
 
September 30,
 
2015
2014
 
2016
2015
 
2016
2015
 
2016
2015
 
 
 
 
 
 
 
 
 
 
 
 
Total operating revenue
$
20,604

$
19,070

 
$
71,889

$
60,012

 
$
46,853

$
71,670

 
$
4,850

$
2,374

Total operating expenses
19,238

15,798

 
52,374

48,336

 
33,170

50,643

 
4,355

2,350

 
 
 
 
 
 
 
 
 
 
 
 
Gross profit
1,366

3,272

 
19,515

11,676

 
13,683

21,027

 
495

24

 
 
 
 
 
 
 
 
 
 
 
 
General and administrative
3,925

5,484

 
2,849

3,499

 
2,747

2,949

 
3,692

4,562

Other (expense) income, net
(2,535
)
11,181

 
(1,840
)
(2,824
)
 
(2,874
)
(2,258
)
 
(2,117
)
(1,516
)
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
(5,094
)
8,969

 
14,826

5,353

 
8,062

15,820

 
(5,314
)
(6,054
)
Income tax expense (benefit)
(2,075
)
3,763

 
6,102

1,127

 
3,392

6,644

 
(1,898
)
(629
)
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(3,019
)
$
5,206

 
$
8,724

$
4,226

 
$
4,670

$
9,176

 
$
(3,416
)
$
(5,425
)
 
 
 
 
 
 
 
 
 
 
 
 
Net loss attributable to noncontrolling interests
8


 
10


 
11


 
5

31

 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Alico Inc. common stockholders
$
(3,011
)
$
5,206

 
$
8,734

$
4,226

 
$
4,681

$
9,176

 
$
(3,411
)
$
(5,394
)
 
 
 
 
 
 
 
 
 
 
 
 
Earnings per share:
 

 

 
 

 

 
 

 

 
 

 

Basic
$
(0.36
)
$
0.71

 
$
1.05

$
0.51

 
$
0.56

$
1.11

 
$
(0.41
)
$
0.65

Diluted
$
(0.36
)
$
0.71

 
$
1.05

$
0.51

 
$
0.56

$
1.11

 
$
(0.41
)
$
0.65

    
The operating results noted above include the operating results of Silver Nip Citrus, as a result of the common control acquisition in February 2015.


Note 19. Subsequent Events

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. There was no price charged for the release. The release was recorded on November 28, 2016.

On December 1, 2016, the Silver Nip Citrus debt agreements with Prudential were amended. 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 previously provided by George Brokaw, Remy Trafelet and Clayton Wilson also totaling $8,000,000 were released and (3) the required consolidated current ratio was reduced from 1.50 to 1.00 to 1.00 to 1.00 for covenant compliance purposes. The personal guarantees were provided prior to the Company’s Merger with Silver Nip Citrus.

In December 2016, the Company reached an agreement in principle to sell 49 acres of land and facilities in Hendry County, Florida for $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 sales price exceeds its net book value and no impairment will be recognized.

Alico Inc. has begun to realign its management structure to optimize the financial returns on the assets of its Orange Co. and Conservation and Environmental Resources operating segments. Remy W. Trafelet will become President and Chief Executive Officer of the Company on January 1, 2017. He has led the Company’s Executive Committee as Chairman since 2013. George Brokaw will become Executive Vice Chairman for the Company while Hank Slack will serve Executive Chairman. Clay Wilson will step down as Chief Executive Officer on December 31, 2016. Mr. Wilson will continue to serve as a member of the Board of Directors. The compensatory arrangements and other terms are still being negotiated and will be disclosed when available.

76



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.


Item 9A. Controls and Procedures

(a)
Evaluation of Disclosure Controls and Procedures.

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the our disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b)
Changes in Internal Control over Financial Reporting.

During the fourth quarter ended September 30, 2016, there were no changes in our internal controls over financial reporting that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

(c)
Management Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

(i)
pertain to the maintenance of records, that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2016. In making this assessment, management used the criteria described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on our assessment and those criteria, management concluded that our internal control over financial reporting was effective as of September 30, 2016. Management reviewed the results of their assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of September 30, 2016 has been audited by RSM US LLP, an independent registered public accounting firm, as stated in their attestation report which is included herein.


Item 9B. Other Information

None.



77



PART III

Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement for the 2017 Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934, (the “Proxy Statement”), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information included in the Proxy Statement is incorporated herein by reference.


Item 10. Directors, Executive Officers and Corporate Governance

Information concerning our directors and nominees and other information as required by this item are hereby incorporated by reference from our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that is intended to serve as a code of ethics for purposes of Item 406 of Regulation S-K. Our Code of Business Conduct and Ethics is posed on our website www.alicoinc.com (at the Investor homepage under "Corporate Governance") and we intend to disclose on our website any amendments to, or waiver from, such code.


Item 11. Executive Compensation

The information required by Item 11 regarding executive compensation is included under the headings “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” in our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.


Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information concerning the ownership of certain beneficial owners and management and related stockholder matters is hereby incorporated by reference to our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.


Item 13. Certain Relationships and Related Transactions, and Director Independence

The information concerning relationships and related transactions is hereby incorporated by reference to our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.


Item 14. Principal Accountants Fees and Services

Information concerning principal accounting fees and services is hereby incorporated by reference to our Proxy Statement to be filed with the SEC pursuant to Regulation 14A.



78



PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)
Documents filed as part of this report

(1)
Financial Statements:

Our Consolidated and Combined Financial Statements are included in Part II, Item 8 of this Annual Report on Form 10-K.

(2)
Financial Statement Schedules:

Financial statement schedules are omitted as the required information is either inapplicable or the information is presented in our Consolidated and Combined Financial Statements or notes thereto.

(3)
Exhibits

The exhibits listed in the Exhibit Index in (b) below are filed or incorporated by reference as part of this Annual Report on Form 10-K.

(b)
Exhibit Index



79



Exhibit
Number
 
 Exhibit Index
 
2.1
***   
Asset Purchase Agreement, dated as of December 1, 2014, by and among Alico, Inc., Orange-Co, LP, and, solely with respect to certain sections thereof, Orange-Co, LLC and Tamiami Citrus, LLC. (Incorporated by reference to Exhibit 2.1 of Alico’s filing on Form 8-K dated December 5, 2014)
2.2
***
Agreement and Plan of Merger, dated as of December 2, 2014, by and among Alico, Inc., 734 Sub, LLC, 734 Citrus Holdings, LLC, and, solely with respect to certain sections thereof, 734 Agriculture, LLC, Rio Verde Ventures, LLC and Clayton G. Wilson. (Incorporated by reference to Exhibit 2.2 of Alico’s filing on Form 8-K dated December 5, 2014) 
3.1
 
Restated Certificate of Incorporation, Dated February 17, 1972 (incorporated by reference to Alico’s Registration Statement on Form S-1 dated February 24, 1972, Registration No. 2-43156)
3.2
 
Certificate of Amendment to Certificate of Incorporation, Dated January 14, 1974 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.3
 
Amendment to Articles of Incorporation, Dated January 14, 1987 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.4
 
Amendment to Articles of Incorporation, Dated December 27, 1988 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.5
 
Bylaws of Alico, Inc., amended and restated (incorporated by reference to Alico’s filing on Form 10-K, dated December 14, 2010)
3.6
 
By-Laws of Alico, Inc., amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated October 4, 2007)
3.7
 
By-Laws of Alico, Inc. amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated November 21, 2008)
3.8
 
By-Laws of Alico, Inc. amended and restated (incorporated by reference to Alico’s filing on Form 8-K dated October 5, 2010)
3.9
 
By-Laws of Alico, Inc. , amended and restated (Incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K, filed with the Commission on January 25, 2013)
10.0
 
Material Contracts
10.1
 
Credit agreement with Rabobank Agri-Finance (incorporated by reference to Alico’s filing on Form 8-K dated September 8, 2010)
10.2
*
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and JD Alexander (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.3
*
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and Kenneth Smith, Ph.D. (Incorporated by reference to Exhibit 10.2 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.4
*
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and W. Mark Humphrey (Incorporated by reference to Exhibit 10.3 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.5
*
Change in Control Agreement dated March 27, 2013 between Alico, Inc. and Steven C. Lewis (Incorporated by reference to Exhibit 10.4 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.6
*
Form of Indemnification Agreement (Incorporated by reference to Exhibit 10.5 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.7
*
Management Security Plan(s) Trust Agreement (Incorporated by reference to Exhibit 10.6 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.8
 
Fourth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated April 1, 2013 (Incorporated by reference to Exhibit 10.7 of the Company’s quarterly report on Form 10-Q filed with the Commission on May 6, 2013)
10.9
 
Agricultural Lease Agreement dated May 19, 2014 between Alico, Inc. and United States Sugar Corporation. (Incorporated by reference to Exhibit 10.1 of the Company’s quarterly report on Form 10-Q filed with the Commission on August 11, 2014)
10.10
 
Purchase and Sale Agreement dated August 7, 2014 between Alico, Inc. and Terra Land Company
10.11
 
Fifth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated April 28, 2014
10.12
 
Sixth Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated July 1, 2014

80



10.13
***   
First Amended and Restated Credit Agreement, dated as of December 1, 2014, by and among Alico, Inc., Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Metropolitan Life Insurance Company, and New England Life Insurance Company. (Incorporated by reference to Exhibit 10.1 of Alico’s filing on Form 8-K dated December 5, 2014)
10.14
***
Credit Agreement dated as of December 1, 2014, by and between Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Alico Land Development, Inc., and Alico Citrus Nursery, LLC, as Borrowers and Rabo Agrifinance, Inc., as Lender. (Incorporated by reference to Exhibit 10.2 of Alico’s filing on Form 8-K dated December 5, 2014)
10.15
 
Shared Services Agreement by and between Alico, Inc. and Trafelet Brokaw Capital Management, L.P. dated June 1, 2015 (Incorporated by reference to Exhibit 10.15 of Alico’s filing on Form 10-K dated December 10, 2015)
10.16
 
Loan Agreement, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (the "Prudential Loan Agreement") (Incorporated by reference to Exhibit 10.16 of Alico’s filing on Form 10-K dated December 10, 2015)
10.17
 
Promissory Note A, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.17 of Alico’s filing on Form 10-K dated December 10, 2015)
10.18
 
Promissory Note B, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.18 of Alico’s filing on Form 10-K dated December 10, 2015)
10.19
 
Promissory Note C, dated December 31, 2012, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.19 of Alico’s filing on Form 10-K dated December 10, 2015)
10.20
 
First Amendment to Loan Agreement, dated March 26, 2013 (Prudential Loan Agreement) (Incorporated by reference to Exhibit 10.20 of Alico’s filing on Form 10-K dated December 10, 2015)
10.21
 
Promissory Note D, dated March 26, 2013, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.21 of Alico’s filing on Form 10-K dated December 10, 2015)
10.22
 
Loan Agreement, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC ("Loan E and F") (Incorporated by reference to Exhibit 10.22 of Alico’s filing on Form 10-K dated December 10, 2015)
10.23
 
Promissory Note E, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.23 of Alico’s filing on Form 10-K dated December 10, 2015)
10.24
 
Promissory Note F, dated September 4, 2014, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.24 of Alico’s filing on Form 10-K dated December 10, 2015)
10.25
 
First Amendment to Loan Agreement, dated April 23, 2015 (Loan E and F) (Incorporated by reference to Exhibit 10.25 of Alico’s filing on Form 10-K dated December 10, 2015)
10.26
 
Second Amendment to the Loan Agreement, dated September 4, 2014 (Prudential Loan Agreement) (Incorporated by reference to Exhibit 10.26 of Alico’s filing on Form 10-K dated December 10, 2015)
10.27
 
Third Amendment to the Loan Agreement, dated April 23, 2015 (Prudential Loan Agreement) (Incorporated by reference to Exhibit 10.27 of Alico’s filing on Form 10-K dated December 10, 2015)
10.28
 
Cancellation and Termination of Note D, dated April 23, 2015, by and among 734 Citrus Holdings, LLC, 734 LMC Groves, LLC, 734 Co-Op Groves, LLC, 734 BLP Groves, LLC, 734 Harvest LLC and Prudential Mortgage Capital Company, LLC (Incorporated by reference to Exhibit 10.28 of Alico’s filing on Form 10-K dated December 10, 2015)
10.29
 
First Amendment to Credit Agreement and Consent with Rabo Agrifinance, Inc. dated February 26, 2015 (Incorporated by reference to Exhibit 10.29 of Alico’s filing on Form 10-K dated December 10, 2015)
10.30
 
Second Amendment to Credit Agreement with Rabo Agrifinance, Inc. dated July 16, 2015 (Incorporated by reference to Exhibit 10.30 of Alico’s filing on Form 10-K dated December 10, 2015)

81



10.31
 
Amendment to First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company and New England Life Insurance Company, dated February 1, 2015 (Incorporated by reference to Exhibit 10.31 of Alico’s filing on Form 10-K dated December 10, 2015)
10.32
 
Second Amendment to First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company and New England Life Insurance Company dated August 12, 2015 (Incorporated by reference to Exhibit 10.32 of Alico’s filing on Form 10-K dated December 10, 2015)
10.33
 
Third Amendment to Credit Agreement by and among Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Alico Land Development Inc., Alico Citrus Nursery, LLC and Rabo Agrifinance, LLC (f/k/a Rabo Agrifinance, Inc.) dated September 30, 2016.
10.34
 
Renewal Promissory Note by Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Alico Land Development Inc., and Alico Citrus Nursery, LLC in favor of Rabo Agrifinance, LLC (f/k/a Rabo Agrifinance, Inc.) dated September 30, 2016.
10.35
 
Supplement No. 1 dated as of September 30, 2016, to the Security Agreement dated as of December 1, 2014 by and among Alico, Inc., Alico-Agri, Ltd., Alico Plant World, L.L.C., Alico Fruit Company, LLC, Alico Land Development Inc., Alico Citrus Nursery, LLC and Rabo Agrifinance, LLC (f/k/a Rabo Agrifinance, Inc.)
14.1
 
Code of Ethics (incorporated by reference to Alico’s filing on Form 8-K dated February 24, 2009)
14.2
 
Whistleblower Policy (incorporated by reference to Alico’s filing on Form 8-K dated February 24, 2009)
21.0
 
Subsidiaries of the Registrant — Alico Land Development Company, Inc. [(formerly Saddlebag Lake Resorts, Inc. (a Florida corporation incorporated in 1971)]; Alico-Agri, Ltd (a Florida limited partnership formed in 2003), Alico Plant World, LLC (a Florida limited liability company organized in 2004), Bowen Brothers Fruit, LLC (a Florida limited liability company organized in 2005) incorporated by reference to Alico’s filing on Form 10-K dated November 28, 2006
23.0
 
Consent of Independent Registered Public Accounting Firm
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
32.1
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101
 
 
101.INS
**
XBRL Instance Document
101.SCH
**
XBRL Taxonomy Extension Schema Document
101.CAL
**
XBRL Taxonomy Calculation Linkbase Document
101.DEF
**
XBRL Taxonomy Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Label Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
*
Denotes a management contract or compensatory plan, contract or arrangement.
**
In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.
***
Certain schedules and exhibits have been omitted from this filing pursuant to Item 601(b) (2) of Regulation S-K.  The Company will furnish supplemental copies of any such schedules or exhibits to the SEC upon request.

82



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
ALICO, INC. (Registrant)
 
 
 
 
December 6, 2016
 
By:
/s/ Clayton G. Wilson 
 
 
 
Clayton G. Wilson
 
 
 
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:
December 6, 2016
Director and Chief Executive Officer
:
/s/ Clayton G. Wilson 
 
 
 
Clayton G. Wilson
December 6, 2016
Chief Financial Officer and Senior Vice President
:
/s/ John. E. Kiernan
 
 
 
John. E. Kiernan
December 6, 2016
Chairman of the Board, Director
:
/s/ Henry R. Slack 
 
 
 
Henry R. Slack
December 6, 2016
Director
:
/s/ George R. Brokaw 
 
 
 
George R. Brokaw
December 6, 2016
Director
:
/s/ R. Greg Eisner 
 
 
 
R. Greg Eisner
December 6, 2016
Director
:
/s/ Benjamin D. Fishman 
 
 
 
Benjamin D. Fishman
December 6, 2016
Director
:
/s/ W. Andrew Krusen 
 
 
 
W. Andrew Krusen
December 6, 2016
Director
:
/s/ Remy W. Trafelet 
 
 
 
Remy W. Trafelet


83