UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

R Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
For the quarterly period ended March 31, 2015
 
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 (I.R.S. Employer
incorporation or organization) Identification No.)
   
10070 Daniels Interstate Court, Fort Myers, FL 33913
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 239-226-2000

 

 

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 the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. R Yes £ No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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). R Yes £ No

 

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 the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated file £ Accelerated filer R Non-accelerated filer £ Smaller reporting company £
  (Do not check if a 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 R No

 

There were 8,277,513 shares of common stock, par value $1.00 per share, outstanding as of May 7, 2015.

 
 
 

 

ALICO, INC.

INDEX TO FORM 10-Q

 

 

 

PART I – FINANCIAL INFORMATION
       
  Item 1.   Condensed Combined Consolidated Financial Statements (Unaudited)
       
    Condensed Combined Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2015 and 2014 3
       
    Condensed Combined Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014 4
       
    Condensed Combined Consolidated Statements of Cash Flows for the six months ended March 31, 2015 and 2014 5
       
    Notes to Condensed Combined Consolidated Financial Statements 6
       
  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
       
  Item 3.   Quantitative and Qualitative Disclosures About Market Risk 33
       
  Item 4.   Control and Procedures 33
       
       

Part II – OTHER INFORMATION

       
  Item 1.   Legal Proceedings 34
       
  Item 1A.   Risk Factors 34
       
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 34
       
  Item 3.   Defaults Upon Senior Securities 34
       
  Item 4.   Mine Safety Disclosures 34
       
  Item 5.   Other Information 34
       
  Item 6.   Exhibits 35
       
       
       

 

2
 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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

 

   Three Months Ended March 31,  Six Months Ended March 31,
   2015  2014  2015  2014
Operating revenues:                    
Citrus Groves  $50,371   $22,590   $63,289   $28,223 
Agricultural Supply Chain Management   3,296    6,135    4,479    8,241 
Improved Farmland   982    10,750    2,074    17,282 
Ranch and Conservation   309    910    1,145    1,441 
Other Operations   164    257    313    444 
Total operating revenue   55,122    40,642    71,300    55,631 
                     
Operating expenses:                    
Citrus Groves   40,349    14,699    50,476    18,243 
Agricultural Supply Chain Management   2,740    5,844    4,111    8,169 
Improved Farmland   1,286    8,865    2,077    14,395 
Ranch and Conservation   623    1,171    1,368    1,547 
Other Operations   45    90    93    507 
Total operating expenses   45,043    30,669    58,125    42,861 
                     
Gross profit   10,079    9,973    13,175    12,770 
Corporate general and administrative   3,381    1,834    9,294    5,622 
                     
Income from operations   6,698    8,139    3,881    7,148 
                     
Other income (expense), net:                    
Interest and investment income, net   -       (9)   2    27 
Interest expense   (2,285)   (396)   (3,588)   (665)
Loss on extinguishment of debt   (17)   -       (964)   -    
Gain (loss) on sale of real estate   (116)   (1)   16,424    (1)
Asset impairment   (541)   -       (541)   -    
Other income (loss), net   5    (44)   24    (72)
Total other income (expense), net   (2,954)   (450)   11,357    (711)
                     
Income before income taxes   3,744    7,689    15,238    6,437 
Income taxes   950    2,992    4,713    2,445 
                     
Net income attributable to common shareholders   2,794    4,697    10,525    3,992 
                     
Comprehensive income, net of tax effect   -       -       -       -    
                     
Comprehensive income attributable to common shareholders  $2,794   $4,697   $10,525   $3,992 
                     
Weighted-average number of shares outstanding:                    
Basic   8,272    7,345    7,815    7,313 
Diluted   8,272    7,349    7,815    7,349 
Earnings per common share:                    
Basic  $0.34   $0.64   $1.35   $0.55 
Diluted  $0.34   $0.64   $1.35   $0.54 
                     
Cash dividends declared per common share  $0.06   $-      $0.12   $0.12 
                     
See accompanying notes to condensed combined consolidated financial statements (unaudited)

3
 

 

 

ALICO, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except share and per share amounts)
     

 

   March 31,
2015
  September 30, 2014
   (unaudited)  (unaudited)
       
ASSETS          
Current assets:          
Cash and cash equivalents  $2,775   $31,020 
Investments   264    263 
Accounts receivable, net   21,206    8,724 
Inventories   58,539    25,469 
Deferred tax asset   71    -    
Assets held for sale   1,509    59,513 
Other current assets   1,511    721 
Total current assets   85,875    125,710 
           
Investment in Magnolia Fund   998    1,435 
Investments, deposits and other non-current assets   6,269    2,905 
Goodwill   1,146    -    
Cash surrender value of life insurance   688    695 
Property, buildings and equipment, net   383,446    126,833 
Total assets  $478,422   $257,578 
           
LIABILITIES & STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $4,966   $2,052 
Long-term debt, current portion   4,511    3,196 
Accrued expenses   8,685    1,934 
Income taxes payable   4,085    4,572 
Dividend payable   442    442 
Accrued ad valorem taxes   930    1,850 
Capital lease obligation   258    259 
Other current liabilities   751    6,365 
Total current liabilities   24,628    20,670 
           
Long-term debt, net of current portion   205,500    58,444 
Line of credit   21,975    3,160 
Other liability, noncurrent   3,633    -    
Deferred gain on sale   29,140    -    
Capital lease obligation, noncurrent   839    839 
Deferred income taxes, net of current portion   11,966    5,738 
Deferred retirement benefits, net of current portion   3,883    6,877 
Total liabilities   301,564    95,728 
           
Commitments and contingencies          
           
Stockholders’ equity:          
Preferred stock, no par value. Authorized 1,000,000 shares; issued and outstanding, none   -       -    
Common stock, $1 par value; 15,000,000 shares authorized; 8,300,363 shares issued and 8,284,173 and 7,361,340 shares outstanding at March 31, 2015 and September 30, 2014, respectively   8,300    7,377 
Additional paid in capital   21,173    3,742 
Treasury stock at cost 16,190 and 15,766 shares held at March 31, 2015 and September 30, 2014, respectively   (771)   (650)
Member's equity   -       15,768 
Retained earnings   143,222    135,613 
Total Alico stockholders’ equity   171,924    161,850 
           
Noncontrolling interest   4,934    -    
           
Total liabilities and stockholders’ equity  $478,422   $257,578 
           
See accompanying notes to condensed combined consolidated financial statements (unaudited).


4
 

ALICO, INC. AND SUBSIDIARIES
CONDENSED COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
     

 

   Six Months Ended
   March 31,
   2015  2014
       
Net cash (used in) provided by operating activities  $(6,261)  $4,626 
           
Cash flows from investing activities:          
Purchases of property and equipment   (23,239)   (8,758)
Acquisition of citrus business, net of cash acquired   (264,586)   -    
Proceeds from disposals of property and equipment   103,445    700 
Return on investment in Magnolia   474    2,555 
Collections of mortgages and notes receivable   (2)   -    
Net cash used in investing activities   (183,908)   (5,503)
           
Cash flows from financing activities:          
Principal payments on term loan   (11,629)   (1,001)
Payoff of term loan   (34,000)   -    
Borrowings on revolving line of credit   63,671    300 
Repayments on revolving line of credit   (44,856)   -    
Proceeds from term loans   193,500    -    
Payment of loan origination fees   (3,364)   -    
Treasury stock purchases   (512)   (4,713)
Capital lease payments   (2)   -    
Dividends paid   (884)   (2,005)
Net cash provided by (used in) financing activities   161,924    (7,419)
           
Net decrease in cash and cash equivalents   (28,245)   (8,296)
Cash and cash equivalents at beginning of period   31,020    27,252 
           
Cash and cash equivalents at end of period  $2,775   $18,956 
           
Supplemental cash flow information:          
Cash paid for interest, net of amount capitalized  $1,213   $580 
Cash paid for income taxes  $5,200   $925 
           
See accompanying notes to condensed combined consolidated financial statements (unaudited).

 

5
 

ALICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Note 1. Description of Business and Basis of Presentation

 

 

Description of Business and Basis of Presentation

 

Alico Inc. (“Alico”), and its subsidiaries (collectively, the “Company”), are an agribusiness and land management company. The Company owns approximately 121,000 acres of land in twelve Florida counties (Alachua, Charlotte, Collier, Desoto, Glades, Hardee, Hendry, Highlands, Lee, Martin, Osceola and Polk) and includes approximately 90,000 acres of mineral rights. In addition to principal lines of business in citrus groves, improved farmland, leasing, cattle ranching and conservation, and related support operations, we also receive royalties from rock mining and oil production.

 

 

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

 

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%.

 

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s 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 Alico. 

 

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 surviving the Merger as a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares (the “Stock Issuance”) of the Company’s common stock, par value $1.00 per share (the “Common Stock”), 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 $6,952,000. The Company acquired assets at net book value of $65,739,000 and total net assets of $18,509,000. The shares issued were recorded at the carrying amount of the net assets transferred. The holders of membership interests in Silver Nip Citrus will also receive additional Company shares based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’ real property following the conclusion of the 2014-2015 citrus harvest season.

 

The Company expensed $811,000 in professional and legal fees in connection with the Merger in the six months ended March 31, 2015.

 

 

Basis of Presentation

 

Because the Company and Silver Nip Citrus were under common control, we are required under generally accepted accounting principles in the United States (“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, our balance sheet reflects Silver Nip Citrus’ historical carryover basis in the assets and liabilities instead of reflecting the fair market value of the assets and liabilities. We have also 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.

 

The accompanying (a) condensed combined consolidated balance sheet as of September 30, 2014, which has been derived from financial statements, and (b) unaudited condensed combined consolidated interim financial statements (the “Financial Statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Statements include all adjustments, consisting of normal and recurring adjustments, which in the opinion of management were necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of the interim period are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

 

6
 

Due to the fact Silver Nip Citrus’ fiscal year end is June 30, the Company’s condensed combined consolidated financial condition as of March 31, 2015 includes the financial condition of Silver Nip Citrus as of December 31, 2014, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2015 includes the Silver Nip Citrus results of operations for the six months ended December 31, 2014. The Company’s combined consolidated financial condition as of March 31, 2014 reflects the financial condition of Silver Nip Citrus as of December 31, 2013, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2014 includes Silver Nip Citrus’ results of operations from November 19, 2013 (the initial date of common control) through December 31, 2013.

 

The Financial Statements have been presented according to the rules and regulations of the Securities and Exchange Commission (“SEC”), instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. The Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.

 

 

Principles of Consolidation

 

The Financial Statements include the accounts of Alico, Inc. and its subsidiaries. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC (formerly Bowen Brothers Fruit Company, LLC”), Alico Citrus Nursery, LLC, 734 Citrus LLC and Citree Holdings 1, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Noncontrolling Interests in Consolidated Affiliate

 

The condensed combined consolidated 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 noncontrolling interests in the equity of such entity. Citree did not have any income or loss for the quarter ended March 31, 2015, and therefore there is no allocation of income or loss to the noncontrolling interest holders based upon the portion of the subsidiary they own.

 

 

Business Combinations

 

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in 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 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 interest 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.

 

 

 Reclassifications

 

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the fiscal year 2015 presentation. These reclassifications had no impact on working capital, net income, stockholders’ equity or cash flows as previously reported.

 

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates based upon future events. The Company periodically evaluates the estimates. The estimates are based on current and expected economic conditions, historical experience and various other specific assumptions that the Company believes to be reasonable.

 
 
7
 

 

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 our working capital requirements are typically greater in the first and fourth quarters of our fiscal year. The results of the reported period herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

 

 

Note 2. Inventories

 

A summary of the Company’s inventories consisted of the following at March 31, 2015 and September 30, 2014:

 

(in thousands)  March 31,  September 30,
   2015  2014
           
Unharvested fruit crop on the trees  $52,139   $23,502 
Beef cattle   2,538    1,022 
Nursery   1,876    516 
Other   1,986    429 
           
Total Inventories  $58,539   $25,469 

 

 

Note 3. Property, Buildings and Equipment, Net

 

Property, buildings and equipment consisted of the following at March 31, 2015 and September 30, 2014:

 

(in thousands)  March 31,  September 30,
   2015  2014
           
Breeding herd  $10,897   $11,558 
Buildings   21,010    16,052 
Citrus trees   242,278    66,886 
Equipment and other facilities   58,412    55,696 
           
Total depreciable properties   332,597    150,192 
Less accumulated depreciation and depletion   (72,158)   (63,031)
           
Net depreciable properties   260,439    87,161 
Land and land improvements   123,007    39,672 
           
Net property, buildings and equipment  $383,446   $126,833 

 

 

Land Purchase

 

Silver Nip Citrus purchased approximately 1,500 acres of citrus groves that included land, trees and fruit inventory as well as irrigation and other equipment on September 4, 2014. The purchase price was approximately $17,600,000 which was funded through cash plus additional financing of $11,000,000 in term debt (see “Note 7. Long -Term Debt” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

 

 

Land Sale

 

Certain Silver Nip Citrus land with a cost of $2,832,159 was classified as held for sale as of September 30, 2014. It was sold during the six month period ended March 31, 2015 resulting in a gain on sale of assets of $2,926,553.

8
 

 

 

Asset Impairment

 

The Company recorded an impairment loss of approximately $541,000 during the quarter ended March 31, 2015 on property classified as Assets Held for Sale. 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 closed on April 3, 2015 and the Company received approximately $1,509,000 in net sales proceeds.

 

 

Note 4. Orange-Co Acquisition

 

 

On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP (“Orange-Co”) pursuant to an Asset Purchase Agreement, which we refer to as the Orange-Co Purchase Agreement, dated as of December 1, 2014 and 51% of the ownership interests of Citree Holdings 1, LLC. The assets Alico 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. The total purchase price was approximately $276,673,300, net of $2,060,000 in cash acquired, including: (1) $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane disposition (see “Note 5. Assets held for sale” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)) and new term debt; (2) up to $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’s outstanding debt including approximately $91,371,000 in term debt and a working capital facility of approximately $27,775,000 and (4) the assumption of certain other liabilities totaling $4,587,000. On December 1, 2014, Alico deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc., or Rabo, in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.

 

The Company acquired Orange-Co to transform our citrus business and meaningfully enhance the Company’s position in the citrus industry. The Company has included the financial results of Orange-Co in the consolidated financial statements from the date of acquisition in the Citrus Groves operating segment. These results include approximately $37,625,000 in revenue and $7,786,000 in gross profit.

 

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. The initial accounting for the business combination is not complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition date.

 

The Company expensed $3,037,000 in professional and legal fees in connection with the Orange-Co acquisition, in the six months ended March 31, 2015.

 

The following table summarizes the consideration paid for the acquired assets and the preliminary acquisition accounting for the fair values of the assets recognized and liabilities assumed in the Condensed Combined Consolidated Balance Sheets at the acquisition date. These balances are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated.

 

9
 

Asset acquisition     
      
(in thousands)  Amount
    
Assets     
Accounts receivable  $888 
Other current assets   845 
Inventories   35,562 
Property, Buildings and Equipment:     
Equipment and other facilities   13,432 
Land   63,337 
Citrus trees   164,053 
Goodwill   1,146 
Other assets   2,344 
      
Total assets, net of cash acquired  $281,607 
      
Liabilities     
Accounts payable and accrued liabilities  $4,087 
Term loan   500 
Payable to seller   7,500 
      
Total liabilities assumed  $12,087 
      
Assets acquired less liabilities assumed  $269,520 
      
Less: fair value attributable to noncontrolling interest   (4,933)
      
Total purchase consideration  $264,587 

 

The fair value of the consideration paid for the acquisition of the net assets was as follows:

 

Cash proceeds from sugarcane disposition  $97,126 
Working capital line of credit   27,775 
Term loans   139,686 
      
Total purchase consideration  $264,587 

 

The unaudited pro-forma information below for the three and six months ended March 31, 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.

 

 

   Three Months Ended March 31,  Six Months Ended March 31,
(in thousands except per share amount)  2015  2014  2015  2014
             
Revenues  $55,122   $66,326   $71,828   $89,856 
Income from operations  $6,698   $17,073   $3,865   $17,641 
Net income attributable to common shareholder  $2,794   $9,902   $10,065   $9,435 
Basic earnings per common share  $0.34   $1.35   $1.29   $1.29 
Diluted earnings per common share  $0.34   $1.35   $1.29   $1.28 

 

 

10
 

 

Note 5. Assets Held for Sale

 

Sugarcane land

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 Ag Properties”) for $97,913,921 in cash. We had previously leased approximately 30,600 of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global Ag Properties in conjunction with the land sale.

Net proceeds from the sugarcane land sale of $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 (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

The sales price is subject to post-closing adjustments over a ten (10)-year period. The Company realized a gain of $42,753,000 on the sale. However, $29,140,000 of the gain has been 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. A net gain of $13,613,000 was recognized in the financial statements as of and for the six months ended March 31, 2015.

As a result of the disposition of our sugarcane land, we are 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.

Our sugarcane land was classified as assets held for sale as of September 30, 2014.

 

Asset held for sale   
    
(in thousands)  March 31,
   2015
    
Land and land improvements  $2,050 
Impairment   (541)
      
Assets held for sale  $1,509 

 

Note 6. Income Taxes

 

 

The Company’s effective tax rates were 31.0% and 38% for the six months ended March 31, 2015 and 2014, respectively.

 

The Company applies a “more likely than not” threshold to the recognition and nonrecognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. The Company had no reserve for uncertain tax positions at March 31, 2015 and September 30, 2014. The Company recognizes interest and/or penalties related to income tax matters in income tax expense and in income taxes payable.

 

The Internal Revenue Service (“IRS”) is currently auditing Alico’s tax return for the fiscal year ended September 30, 2013.

 

 

11
 

 

 

Note 7. Long-Term Debt

 

Outstanding debt under the Company’s various loan agreements is presented in the table below:

 

(in thousands)      
   March 31,  September 30,
   2015  2014
           
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 million:  the loans bear interest at the rate of 4.15%. The loans are collateralized by real estate and mature in November 2029.  $114,688   $-    
           
Metropolitan Life Insurance Company and New England Life Insurance Company variable rate term loans in the original principal amounts of $57.5 million:  the variable interest rate was 1.75% at March 31, 2015.  The loans are collateralized by real estate and mature in November 2029.   56,781    -    
           
Metropolitan Life Insurance Company term loan:  the loan bears interest at the initial rate of 5.49%.  A final advance of $4.5 million is scheduled for December 1, 2015 subject to certain performance conditions.  The interest rate is subject to adjustment on the date of the final advance.  The loan is secured by real estate and matures in February 2029.   500    -    
           
Rabo Agrifinance, Inc. variable rate term loan:  the variable interest rate on this loan was 2.40% at September 30, 2014. The loan was secured by real estate and had a maturity date of October 2020.  The loan was refinanced on December 3, 2014.   -       34,000 
           
Prudential Mortgage Capital Company, LLC fixed rate term loans:  the loans bear interest at the rate of 5.35%.  The loans are collateralized by real estate and mature in June 2033.   26,970    27,550 
           
Prudential Mortgage Capital Company, LLC fixed rate term loan:  the loan bears interest at the rate of 3.85%.  The loan is collateralized by real estate and matures in September 2021.   5,500    -    
           
Prudential Mortgage Capital Company, LLC fixed rate term loan:  the loan bears interest at the rate of 3.45%.  The loan is collateralized by real estate and matures in September 2039.   5,500    -    
           
Note payable to a financing company secured by equipment and maturing in December 2016   72    90 
           
    210,011    61,640 
Less current portion   4,511     3,196 
           
Long-term debt  $205,500   $58,444 

 

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(in thousands)      
   March 31,  September 30,
   2015  2014
           
Lines of Credit:          
Metropolitan Life Insurance Company and New England Life Insurance Company revolving line of credit:  this $25 million line bears interest at a variable rate which was 1.75% at March 31, 2015.  The line is secured by real estate and matures in November 2019.  $-      $-    
           
Rabo Agrifinance, Inc. working capital line of credit:  this $70 million line bears interest at a variable rate which was 1.92% at March 31, 2015.  The line is secured by personal property and matures in November 2016.  Availability under the line was $36.3 million at March 31, 2015.   16,239    -    
           
Rabo Agrifinance, Inc. revolving line of credit:  this $60 million line bore interest at a variable rate which was 2.10% at September 30, 2014.  The entire $60 million balance was available at September 30, 2014.  The line was secured by real estate and had a maturity date of October 2020.  The loan was refinanced on December 3, 2014.   -       -    
           
Prudential Mortgage Capital Company, LLC revolving line of credit:  this $6 million line bears interest at a variable rate which was 3.00% at December 31, 2014 and 2.98% at June 30, 2014, respectively.   The line is secured by real estate and matures in June 2018.  Availability under the line was $264,000 at December 31, 2014 and $2,840,000 at June 30, 2014.   5,736    3,160 
           
           
Lines of Credit  $21,975   $3,160 

 

Refinancing on December 3, 2014

The Company refinanced its outstanding debt on December 3, 2014 in connection with the Orange-Co acquisition (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)). The debt facilities include $114,688,000 in fixed rate term loans, $56,781,000 in variable rate term loans and a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”) and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

 

The term loans and RLOC are secured by approximately 38,700 gross acres of citrus groves and 14,000 gross acres of farmland. The WCLC is secured by 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%, 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. Interest on the term loans is payable quarterly.

 

The Company may prepay up to $8,750,000 of the fixed rate term loan principal annually without penalty, and any such prepayments shall be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment has been made for the current fiscal year. The variable rate term loans may be prepaid without penalty.

 

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 150 basis points payable quarterly. The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and every two years thereafter. Outstanding principal, if any, is due at maturity on November 1, 2019. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line. The RLOC is available for funding general corporate needs.

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The WCLC is a revolving credit facility and is available for funding working capital and general corporate needs. The interest rate on the WCLC is based on the one month LIBOR plus a spread. The spread is adjusted quarterly based on our 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 WCLC facility matures November 1, 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 our debt service coverage ratio for the preceding quarter and can vary from 20 to 30 basis points.

 

The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on our behalf. At March 31, 2015, there was $17,498,500 in outstanding letters of credit which correspondingly reduced our availability under the line of credit.

 

The Company capitalized approximately $2,834,000 of debt issuance costs and recognized a loss on extinguishment of debt of approximately $585,000.

 

The facilities above are subject to various covenants including the following financial covenants (1) minimum debt service coverage ratio of 1.10 to 1.00, (2) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding year, (3) minimum current ratio of 1.50 to 1.00 (4) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (5) a limit on capital expenditures of $30,000,000 per fiscal year. The Company is in compliance with all covenants at March 31, 2015.

 

 

Debt Prior to Refinancing

 

Prior to the December 3, 2014 refinancing, the Company had a $34,000,000 term loan and a $60,000,000 revolving line of credit (“Old RLOC”) with Rabo.

 

The 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 term loan was refinanced in connection with the Orange-Co acquisition.

 

The Old RLOC had an 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 rate was LIBOR plus 195 basis points at the date of the refinancing and September 30, 2014. Interest on the Old RLOC was payable quarterly. The Old RLOC was subject to an unused commitment fee of 20 basis points on the annual average unused availability. There was no balance outstanding at the time of the refinancing or September 30, 2014.

 

Loan origination fees incurred as a result of entry into the Rabo credit facility loan agreement, including appraisal fees, document stamps, legal fees and lender fees of approximately $1,202,000 were capitalized in fiscal year 2010 and were being amortized over the term of the loan agreement. The unamortized balance of the loan origination fees at the time of December 3, 2014 refinancing was approximately $697,000 of which approximately $396,000 was expensed as a loss on extinguishment of debt and approximately $301,000 will be amortized over the applicable terms of the new loans.

 

At 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 five loans payable to Prudential Mortgage Capital Company, LLC (“Prudential”) as described below.

 

There are two fixed rate term loans with total outstanding balances of $26,970,000 and $27,550,000 at December 31, 2014 and June 30, 2014, respectively. Principal of $290,000 is payable quarterly. Interest accrues at 5.35% and is also payable quarterly. The Company may prepay up to $5,000,000 of principal without penalty. The loan is secured by real estate in Collier, Hardee, Hendry, Highlands, Martin, Osceola and Polk Counties, Florida.

 

In connection with the purchase of 1,500 acres of citrus grove on September 4, 2014 (see “Note 3. Property, Buildings and Equipment, Net” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)), Silver Nip Citrus has a fixed rate term loan with Prudential with an outstanding balance of $5,500,000 at December 31, 2014 that bears interest at the rate of 3.85%. Principal in the amount of $55,000 is payable quarterly together with accrued interest. The loan is secured by real estate in Charlotte County, Florida.

 

Silver Nip Citrus also has a fixed rate term loan with Prudential with an outstanding balance of $5,500,000 at December 31, 2014 that bears interest at the rate of 3.45%. The rate is subject to adjustment on September 1, 2019 and every five years thereafter until maturity. Principal of $55,000 is payable quarterly together with accrued interest. The loan is secured by real estate in Charlotte County, Florida.

14
 

Silver Nip Citrus has a $6,000,000 revolving line of credit with Prudential. Outstanding balances were $5,736,000 and $3,160,000 at December 31, 2014 and June 30, 2014, respectively. The interest rate on the line is based the three month LIBOR rate plus 275 basis points. Interest is payable semi-annually with outstanding principal due at maturity.

 

The Silver Nip Citrus facilities are subject to a financial covenant requiring a current ratio of at least 2.00 to 1.00 measured at the end of each fiscal year. The Company was in compliance with all covenants related to the Silver Nip debt at June 30, 2014.

 

The Silver Nip Citrus facilities are personally guaranteed by George Brokaw, Remy Trafelet and Clayton Wilson.

 

 

Debt Maturities

 

Maturities of the Company’s debt were as follows at March 31, 2015:

 

(in thousands)     
      
Due within one year  $4,511 
Due between one and two years   24,504 
Due between two and three years   10,750 
Due between three and four years   16,586 
Due between four and five years   10,938 
Due beyond five years   164,697 
      
Total  $231,986 

 

Interest costs expensed and capitalized to property, buildings and equipment were as follows:

 

 

(in thousands)  Three Months Ended March 31,  Six Months Ended March 31,
   2015  2014  2015  2014
             
Interest expense  $2,285   $396   $3,588   $665 
Interest capitalized   159    40    212    69 
                     
Total  $2,444   $436   $3,800   $734 

 

 

Note 8. Disclosures about reportable segments

 

The Company manages its land based upon its primary usage and reviews its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, it operates an Agricultural Supply Chain Management business that is not tied directly to its land holdings and Other Operations that include a citrus nursery and leasing mines and oil extraction rights to third parties.  The Company presents its financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  A description of the Company’s business segments is as follows:

 

·Citrus Groves include activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets.

 

·Agricultural Supply Chain Management and Support includes activities related to the purchase and resale of fruit, as well as, to value-added services which include contracting for the harvesting, marketing and hauling of citrus.

 

15
 

·Improved Farmland includes 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 has various improvements including irrigation, drainage and roads.

 

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

 

·Other Operations include activities related to rock mining royalties, oil exploration, a citrus nursery and other insignificant lines of business.

 

Intersegment sales and transfers are accounted 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 from operations before general and administrative costs, interest expense and income taxes not including nonrecurring gains and losses.  

 

The accounting policies of the segments are the same as those described in Note 1, Description of Business and Basis of Presentation. Total revenues represent sales to unaffiliated customers, as reported in the Company’s Condensed Combined Consolidated Statement of Comprehensive Income. All intercompany transactions have been eliminated.

16
 

 

Information by business segment is as follows:

 

(in thousands)  Three Months Ended March 31,  Six Months Ended March 31,
   2015  2014  2015  2014
             
Revenues:                    
Citrus Groves  $50,371   $22,590   $63,289   $28,223 
Agricultural Supply Chain Management   3,296    6,135    4,479    8,241 
Improved Farmland   982    10,750    2,074    17,282 
Ranch and Conservation   309    910    1,145    1,441 
Other Operations   164    257    313    444 
Intersegment Revenues   4,115    4,000    5,386    6,245 
Eliminations   (4,115)   (4,000)   (5,386)   (6,245)
                     
Total revenue   55,122    40,642    71,300    55,631 
                     
Operating expenses:                    
Citrus Groves   40,349    14,699    50,476    18,243 
Agricultural Supply Chain Management   2,740    5,844    4,111    8,169 
Improved Farmland   1,286    8,865    2,077    14,395 
Ranch and Conservation   623    1,171    1,368    1,547 
Other Operations   45    90    93    507 
                     
Total operating expenses   45,043    30,669    58,125    42,861 
                     
Gross profit:                    
Citrus Groves   10,022    7,891    12,813    9,980 
Agricultural Supply Chain Management   556    291    368    72 
Improved Farmland   (304)   1,885    (3)   2,887 
Ranch and Conservation   (314)   (261)   (223)   (106)
Other Operations   119    167   220    (63)
                     
Total gross profit  $10,079   $9,973   $13,175   $12,770 
                     
                     
Capital expenditures:                    
Citrus Groves  $17,661   $2,083   $19,230   $4,026 
Agricultural Supply Chain Management   119    38    329    71 
Improved Farmland   -       212    -       3,685 
Ranch and Conservation   14    33    190    776 
Other Operations   3,396    196    3,411    200 
Other Capital Expenditures   -       (343)   79    -    
                     
Total capital expenditures  $21,190   $2,219   $23,239   $8,758 
                     
                     
Depreciation, depletion and amortization:                    
Citrus Groves  $3,584   $525   $4,840   $1,054 
Agricultural Supply Chain Management   93    53    145    82 
Improved Farmland   -       1,285    -       2,622 
Ranch and Conservation   242    329    485    662 
Other Operations   270    21    398    109 
Other Depreciation, Depletion and Amortization   36    214    200    400 
                     
Total depreciation, depletion and amortization  $4,225   $2,427   $6,068   $4,929 

17
 

(in thousands)  March 31,
2015
  September 30, 2014
       
Assets:          
Citrus Groves  $422,070   $121,399 
Agricultural Supply Chain Management   3,097    2,498 
Improved Farmland   119    57,726 
Ranch and Conservation   13,384    13,920 
Other Operations   31,292    26,356 
Other Corporate Assets   8,460    35,679 
           
Total assets  $478,422   $257,578 

 

 

Note 9. Stockholders’ Equity

 

Effective January 27, 2015, the Company’s Board of Directors adopted the Stock Incentive Plan of 2015 (the “2015 Plan”) which provides for up to an additional 1,250,000 shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to shareholders value. The 2015 Plan was approved by shareholders on February 25, 2015.

 

The adoption of the 2015 Plan superseded the 2013 Incentive Equity Plan (“2013 Plan”), which had been in place since April 2013.

 

There are no awards outstanding under the 2015 Plan or the 2013 Plan at March 31, 2015 or September 30, 2014.

 

In March 2015, the Board of Directors authorized the repurchase of up to 20,000 shares of the Company’s common stock beginning March 25, 2015 and continuing through March 25, 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. All repurchases were made on or subsequent to March 25, 2015. The following table illustrates the Company’s treasury stock purchases and issuances for the six months ended March 31, 2015:

 

(in thousands, except share amounts)  Shares  Cost
       
Balance at September 30, 2014   15,766   $650 
Purchased   9,907    512 
Issued to Directors and Named Executive Officers   (9,483)   (391)
           
Balance at March 31, 2015   16,190   $771 

 

Stock-based compensation expense recognized in the Condensed Combined Consolidated Statements of Comprehensive Income in general and administrative expenses was $254,000 and $509,000 for the three and six months ended March 31, 2015, respectively, and $204,000 and $705,000 for the three and six months ended March 31, 2014, respectively. Stock-based compensation is recorded for Board of Directors fees paid in treasury stock and the Long Term Incentive Compensation Plan restricted common stock awards.

 

 

Note 10. Commitments and Contingencies

 

On March 11, 2015, a putative shareholder class action lawsuit was filed by Shiva Y. Stein 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 (“Silver Nip”), 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 alleges 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 seeks, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses. We believe that this lawsuit is without merit and intend to contest it vigorously.

 

18
 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. There are no current legal proceedings to which we are a party to or which any of our property is subject to that we believe will have a material adverse effect on our business, financial condition or results of operations.

 

 

Note 11. Related Party Transactions

 

 

Change in Control Transaction

 

On November 19, 2013, 734 Agriculture, LLC (“734 Agriculture”) and its affiliates, including 734 Investors, LLC (“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, represented 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 shareholders. Messrs. Remy W. Trafelet and George R. Brokaw are the two controlling persons of 734 Agriculture.

 

 

Appointment of Mr. Wilson as the Company’s Chief Executive Officer

 

Upon the Closing of the Share Purchase, Mr. JD Alexander ceased to be the Company’s CEO pursuant to his previously disclosed resignation. On November 22, 2013, the Board appointed Mr. Wilson to serve as the CEO, effective immediately.

 

 

Silver Nip 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%.

 

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s 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 Alico. 

 

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 surviving the Merger as a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares (the “Stock Issuance”) of the Company’s common stock, par value $1.00 per share (the “Common Stock”), 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 $6,952,000. The Company acquired assets at net book value of $65,739,000 and total net assets of $18,509,000. The shares issued were recorded at the carrying amount of the net assets transferred. The holders of membership interest in Silver Nip Citrus will also receive additional Company shares based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’ real property following the conclusion of the 2014-2015 citrus harvest season.

 

The Company expensed $811,000 in professional and legal fees in connection with the Merger in the six months ended March 31, 2015.

19
 

 

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 includes 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 will pay Mr. Alexander for such services and covenants $2,000,000 in twenty-four monthly installments. Mr. Alexander also agreed, in a separate side letter with the Company, not to sell or transfer the shares that were awarded pursuant to his Restricted Stock Award Agreement (other than to a family trust) for a period of two years after the Closing. Mr. Alexander also executed a general release in favor of the Company.

 

 

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 includes 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.

 

 

Note 12. Subsequent Events

 

Modification of Credit Agreements

 

The Silver Nip Citrus line of credit with Prudential was paid in full and terminated on April 28, 2015. Rabo has agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus up to $7,000,000 on a revolving basis. These advances would be funded from either cash on hand or draws on the Company’s $70,000,000 Rabo working capital line of credit.

 

Silver Nip has provided a $7,000,000 limited guaranty and a 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.

 

20
 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

 

The following discussion and analysis should be read in conjunction with the unaudited condensed combined consolidated financial statements and related notes included elsewhere in this Form 10-Q. Additional context can also be found in our Form 10-K for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission (“SEC”) on December 12, 2014.

 

 

Cautionary Statement Regarding Forward-Looking Information

 

We provide forward-looking information in this Quarterly Report, particularly in this Management’s Discussion and Analysis, 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 Quarterly Report 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 disease, insects and other pests; 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; 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 described in our Annual Report on Form 10-K for the year ended September 30, 2014 and our Quarterly Reports on Form 10-Q.

 

 

Overview

 

We manage our land based upon its primary usage and review its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, we operate an Agricultural Supply Chain Management business that is not tied directly to our land holdings and Other Operations that include leases for mining and oil extraction rights to third parties.  We present our financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations). 

 

In connection with our pursuit of growth opportunities consistent with our mission, we intend to regularly evaluate potential acquisitions and divestitures and other business opportunities, some of which are material in nature.  If appropriate opportunities present themselves, we may engage in selected acquisitions, divestitures and other business growth initiatives or undertakings.  To the extent we engage in such opportunities it could, among other things, change our revenue mix, require us to obtain additional debt or equity financing and have a material impact on our business and financial condition.

 

 

Segments

 

We own approximately 121,000 acres of land in twelve Florida counties (Alachua, Charlotte, Collier, DeSoto, Glades, Hardee, Hendry, Highlands, Lee, Martin Osceola and Polk), and includes approximately 90,000 acres of mineral rights, and operate five segments.

 

·Citrus Groves include activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets.

 

·Agricultural Supply Chain Management and Support includes activities related to the purchase and resale of fruit, as well as, to value-added services which include contracting for the harvesting, marketing and hauling of citrus.

 

·Improved Farmland includes 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.

 

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

 

·Other Operations include activities related to a citrus nursery, rock mining royalties, oil exploration and other insignificant lines of business.

 

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed combined consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in 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 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 interest 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.

 

There have been no significant changes during this reporting period to the policies and disclosures set forth in Part II, Item 7 in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

 

 

Recent Events

 

 

Orange-Co Acquisition

 

On December 2, 2014, we completed the acquisition of certain citrus and related assets of Orange-Co, LP (“Orange-Co”) pursuant to an Asset Purchase Agreement, which we refer to as the Orange-Co Purchase Agreement, dated as of December 1, 2014. The assets we 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. The purchase price was approximately $276,673,000, net of cash acquired, including: (1) $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane disposition and new term debt; (2) up to $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’s outstanding debt including approximately $91,371,000 in term debt and a working capital facility of approximately $27,775,000 and (4) the assumption of certain other liabilities totaling $4,587,000. On December 1, 2014, we deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc., or Rabo, in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.

 

 

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 Ag Properties”) for $97,913,921 in cash. We had previously leased approximately 30,600 of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global Ag Properties in conjunction with the land sale.

Net proceeds from the sugarcane land sale of $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 (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

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The sales price is subject to post-closing adjustments over a ten (10)-year period. The Company realized a gain of $42,753,000 on the sale. However, $29,140,000 of the gain has been 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. A net gain of $13,613,000 was recognized in the financial statements as of and for the six months ended March 31, 2015.

As a result of the disposition of our sugarcane land, we are no longer involved in sugarcane, and, as of November 21, 2014, the Improved Farmland segment was no longer material to our business.

 

Our sugarcane land was classified as assets held for sale as of September 30, 2014. The sugarcane operation has not been classified as a discontinued operation due to the Company’s continuing involvement pursuant to the post-closing agreement described above.

 

 

Water Storage Contract Approval

In December 2012, the South Florida Water Management District (“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 SFWMD Governing Board (“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.

 

Silver Nip 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%.

 

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s 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 Alico. 

 

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 surviving the Merger as a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares (the “Stock Issuance”) of the Company’s common stock, par value $1.00 per share (the “Common Stock”), 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 $6,952,000. The Company acquired assets at net book value of $65,739,000 and total net assets of $18,509,000. The shares issued were recorded at the carrying amount of the net assets transferred. The holders of membership interest in Silver Nip Citrus will also receive additional Company shares based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’ real property following the conclusion of the 2014-2015 citrus harvest season.

 

The Company expensed $811,000 in professional and legal fees in connection with the Merger in the six months ended March 31, 2015.

 

Because the Company and Silver Nip Citrus were under common control, we are required under generally accepted accounting principles in the United States (“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, our balance sheet reflects Silver Nip Citrus’ historical carryover basis in the assets and liabilities instead of reflecting the fair market value of the assets and liabilities. We have also 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.

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Due to the fact Silver Nip Citrus’ fiscal year end is June 30, the Company’s condensed combined consolidated financial condition as of March 31, 2015 includes the financial condition of Silver Nip Citrus as of December 31, 2014, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2015 includes the Silver Nip Citrus results of operations for the six months ended December 31, 2014. The Company’s combined consolidated financial condition as of March 31, 2014 reflects the financial condition of Silver Nip Citrus as of December 31, 2013, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2014 includes Silver Nip Citrus’ results of operations from November 19, 2013 (the initial date of common control) through December 31, 2013.

 

Results of Operations

 

The following table sets forth a comparison of results of operations for the three and six months ended March 31, 2015 and 2014:

 

 

(in thousands) Three Months Ended        Six Months Ended      
  March 31,  Change  March 31,  Change
  2015  2014  $  %  2015  2014  $  %
                        
 Operating revenues:                                       
Citrus Groves $50,371   $22,590   $27,781    123.0%  $63,289   $28,223   $35,066    124.3%
Agricultural Supply Chain Management  3,296    6,135    (2,839)   (46.3)%   4,479    8,241    (3,762)   (45.6)%
Improved Farmland  982    10,750    (9,768)   (90.9)%   2,074    17,282    (15,208)   (88.0)%
Ranch and Conservation  309    910    (601)   (66.1)%   1,145    1,441    (296)   (20.5)%
Other Operations  164    257    (93)   (36.2)%   313    444    (131)   (29.5)%
 Total operating revenues  55,122    40,642    14,480    35.7%   71,300    55,631    15,669    28.2%
                                        
 Gross Profit:                                       
Citrus Groves  10,022    7,891    2,131    27.0%   12,813    9,980    2,833    28.4%
Agricultural Supply Chain Management  556    291    265    91.1%   368    72    296    NM 
Improved Farmland  (304)   1,885    (2,189)   (116.2)%   (3)   2,887    (2,890)   (100.1)%
Ranch and Conservation  (314)   (261)   (53)   20.3%   (223)   (106)   (117)   110.4%
Other Operations  119    167    (48)   (28.8)%   220    (63)   283    NM 
 Total gross profit  10,079    9,973    106    1.1%   13,175    12,770    405    3.2%
 Corporate, general and                                       
 administrative expenses  3,381    1,834    1,547    84.4%   9,294    5,622    3,672    65.4%
                                        
 Income from operations  6,698    8,139    (1,441)   (17.7)%   3,881    7,148    (3,267)   (45.7)%
 Other income (expense), net  (2,954)   (450)   (2,504)   NM    11,357    (711)   12,068    NM 
                                        
 Income before income taxes  3,744    7,689    (3,945)   (51.3)%   15,238    6,437    8,801    136.8%
 Income taxes  950    2,992    (2,042)   (68.3)%   4,713    2,445    2,268    92.8%
                                        
 Net income $2,794   $4,697   $(1,903)   (40.6)%  $10,525   $3,992   $6,533    163.7%

 

A discussion of our segment results of operations follows.

24
 

 

Citrus Groves

 

The table below presents key operating measures for the three and six months ended March 31, 2015 and 2014:

 

 

 (in thousands, except per box and per pound solid data) 

                  
  Three Months Ended        Six Months Ended      
  March 31,  Change  March 31,  Change
  2015  2014  $  %  2015  2014  $  %
                        
 Revenue From:                                       
 Early and Mid Season $36,052   $17,927   $18,125    101.1%  $47,927   $22,366   $25,561    114.3%
 Valencias  12,037    3,438    8,599    250.2%   12,037    3,438    8,599    250.1%
 Fresh Fruit  1,621    1,205    416    34.6%   2,541    1,859    692    36.7%
 Other  661    20    641    NM    784    560    224    40.0%
 Total $50,371   $22,590   $27,781    123.0%  $63,289   $28,223   $35,066    124.3%
                                        
 Boxes Harvested:                                       
 Early and Mid Season  3,117    1,381    1,736    125.7%   4,251    1,828    2,423    132.6%
 Valencias  887    245    642    262.1%   888    245    643    262.5%
 Total Processed  4,004    1,626    2,378    146.3%   5,139    2,073    3,066    147.9%
                                        
 Fresh Fruit  117    110    7    6.4%   179    160    19    11.9%
 Total  4,121    1,736    2,385    137.4%   5,318    2,233    3,085    138.2%
                                        
 Pound Solids Produced:                                       
 Early and Mid Season  18,694    8,644    10,050    116.3%   24,941    11,255    13,686    121.6%
 Valencias  5,610    1,528    4,082    NM    5,610    1,528    4,082    NM 
 Fresh Fruit  85    37    48    129.8%   84    37    47    127.1%
 Total  24,389    10,209    14,180    138.9%   30,635    12,820    17,815    139.0%
                                        
 Pound Solids per Box:                                       
 Early and Mid Season  6.00    6.26    (0.26)   (4.3)%   5.87    6.16    (0.29)   (4.7)%
 Valencias  6.32    6.24    0.08    1.3%   6.32    6.24    0.08    1.3%
                                        
 Price per Pound Solid:                                       
 Early and Mid Season $1.93   $2.07   $(0.15)   (7.2)%  $1.92   $1.99   $(0.07)   (3.6)%
 Valencias $2.15   $2.25   $(0.10)   (4.5)%  $2.15   $2.25   $(0.10)   (4.5)%
                                        
 Price per Box:                                       
 Fresh Fruit $13.85   $10.95   $2.90    26.5%  $14.20   $11.62   $2.58    22.2%
                                        
 Operating Expenses:                                       
 Cost of Sales $29,786   $10,401   $19,385    186.4%  $36,810   $12,601   $24,209    192.2%
 Harvesting and Hauling  9,501    4,207    5,294    125.9%   12,067    5,425    6,642    122.5%
 Other  1,062    91    971    NM    1,599    217    1,382    NM 
 Total $40,349   $14,699   $25,650    174.5%  $50,476   $18,243   $32,233    176.7%

 

 NM - Not Meaningful 

 

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. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our citrus groves for

25
 

the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing citrus product to processors and varies based upon the number of boxes produced.

 

The increases for the three and six months ended March 31, 2015 as compared to the three and six months ended March 31, 2014 in revenues, boxes harvested, pound solids produced and gross profit relate primarily to the acquisition of Orange-Co in December 2014. Orange-Co related revenues and gross profit increased by approximately $30,625,000 and $6,092,000 for the three months ended March 31, 2015, respectively, and by approximately by $37,625,000 and $7,786,000 for the six months ended March 31, 2015, respectively. Orange-Co related boxes harvested and pound solids produced increased by approximately 2,416,000 and 14,989,000 for the three months ended March 31, 2015 respectively, and by approximately 3,082,000 and 18,640,000 for the six months ended March 31, 2015, respectively, as a result of the acquisition. We included the financial results of Orange-Co in the consolidated financial statements from the date of acquisition.

 

The USDA, in its April 9, 2015 Citrus Forecast, indicated that it currently expects the Florida orange crop to decline by 2,700,000 boxes or approximately 2.6% versus the prior year. We currently expect our 2014/2015 crop to outpace the current statewide estimate on a boxes harvested basis, with a 3% - 5% increase over the prior year.

 

  

Agricultural Supply Chain Management

 

The table below presents key operating measures for the three and six months ended March 31, 2015 and 2014:

 

 

(in thousands, except per box and per pound solid data)
                  
  Three Months Ended        Six Months Ended      
  March 31,  Change  March 31,  Change
  2015  2014  $  %  2015  2014  $  %
                        
 Purchase and Resale of Fruit:                                       
 Revenue $2,725   $5,205   $(2,480)   (47.7)%  $3,644   $6,733   $(3,089)   (45.9)%
 Boxes Sold  243    444    (201)   (45.3)%   330    601    (271)   (45.1)%
 Pound Solids Sold  1,440    2,725    (1,285)   (47.2)%   1,921    3,624    (1,703)   (47.0)%
 Pound Solids per Box  5.93    6.14    (0.21)   (3.5)%   5.82    6.03    (0.21)   (3.5)%
 Price per Pound Solids $1.89   $1.91   $(0.02)   (1.1)%  $1.90   $1.86   $0.04    2.2%
                                        
 Value Added Services:                                       
 Revenue $482   $915   $(433)   (47.4)%  $657   $1,217   $(560)   (46.1)%
 Value Added Boxes  241    464    (223)   (48.1)%   328    579    (251)   (43.4)%
                                        
 Other Revenue $89   $15    74    NM   $178   $291    (113)   (38.9)%
                                        
 NM - Not Meaningful                                       

 

The overall decline for the three and six months ended March 31, 2015 as compared to the three and six months ended March 31, 2014 in Purchase and Resale of Fruit revenue, boxes sold and pound solids sold, as well as the declines in Value Added Services revenue and boxes, are all being driven by a management decision to reduce the number of external boxes handled by Alico Fruit Company to focus on our internal operations. This decision was made in in the second quarter of fiscal year 2014.

 

The decline in Alico Fruit Company gross profit relates primarily to the changes in revenue outlined above.

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Improved Farmland

 

 

The table below presents key operating measures for the three and six months ended March 31, 2015 and 2014:

 

(in thousands, except per net standard ton and per acre data)
                         
   Three Months Ended        Six Months Ended      
   March 31,  Change  March 31,  Change
   2015  2014  $  %  2015  2014  $  %
                         
Revenue From:                                        
 Sale of Sugarcane  $-      $9,996   $(9,996)   (100.0)%  $-      $16,018   $(16,018)   (100.0)%
 Molasses Bonus   -       457    (457)   (100.0)%   -       761    (761)   (100.0)%
 Land Leasing   982    298    684    NM    2,074    503    1,571    NM 
 Other   -       (1)   1    (100.0)%   -       -       -       NM 
 Total  $982   $10,750   $(9,768)   (90.9)%  $2,074   $17,282   $(15,208)   (88.0)%
                                         
Operating Expenses:                                        
 Cost of Sales  $-      $6,757   $(6,757)   (100.0)%  $-      $10,908   $(10,908)   (100.0)%
 Harvesting and Hauling   -       2,053    (2,053)   (100.0)%   -       3,331    (3,331)   (100.0)%
 Land Leasing Expenses   -       55    (55)   (100.0)%   -       156    (156)   (100.0)%
 Guaranteed Payment   1,080    -       1,080    NM    1,560    -       1,560    NM 
 Other   206    -       206    NM    517    -       517    NM 
 Total  $1,286   $8,865   $(7,579)   (85.5)%  $2,077   $14,395   $(12,318)   (85.6)%
                                         
 NM - Not Meaningful                                        

 

On May 19, 2014, the Company entered into a triple net agricultural lease with its sole sugarcane customer, United States Sugar Corporation, of approximately 30,600 gross acres of land in Hendry County, Florida used for sugarcane farming which includes 19,181 acres planted or plantable to sugar. As a result of the Lease, the Company is no longer directly engaged in sugarcane farming.

 

On August 8, 2014, we entered into a Purchase and Sale Agreement, (the “Purchase Agreement”) with Terra Land Company (“Terra”) to sell approximately 30,959 gross acres of land located in Hendry County, Florida used for sugarcane production for a base purchase price of $91,436,000. The base purchase price was subject to a valuation adjustment in the event that either the net farmable acres or net support acres of the land were more or less than the amounts in the Purchase Agreement by one percent (1%) or greater.

 

On November 21, 2014, via various amendments to the Purchase Agreement, we completed the sale to Global Ag Properties USA LLC of approximately 36,000 gross acres of land located in Henry County, Florida used for sugarcane production for a purchase price of $97,900,000 pursuant to the Purchase and Sale Agreement dated August 8, 2014. Global is a wholly-owned subsidiary of Terra. We have also assigned our interest in the USSC Lease to Global in conjunction with the sale. The parties have made customary representations, warranties, covenants and agreements in the Purchase Agreement.

 

As a result of the disposition of our sugarcane land, we are no longer involved in sugarcane and the Improved Farmland segment was no longer material to our business.

27
 

 

Ranch and Conservation

 

 

The table below presents key operating measures for the three and six months ended March 31, 2015 and 2014:

 

(in thousands, except per pound data)                        
                         
  Three Months Ended        Six Months Ended      
  March 31,  Change  March 31,  Change
  2015  2014  $  %  2015  2014  $  %
                        
 Revenue From:                                       
 Sale of Calves $25   $25   $-    0.0%  $109   $261   $(152)   (58.2)%
 Sale of Culls  21    691    (670)   (97.0)%   511    692    (181)   (26.2)%
 Land Leasing  223    242    (19)   (7.9)%   447    487    (40)   (8.3)%
 Other  40    (48)   88    (183.4)%   78    1    77    NM 
 Total $309   $910   $(601)   (66.1)%  $1,145   $1,441   $(296)   (20.5)%
                                        
 Pounds Sold:                                       
 Calves  12    17    (5)   (28.5)%   50    158    (108)   (68.4)%
 Culls  76    793    (717)   (90.5)%   446    794    (348)   (43.9)%
                                        
 Price Per Pound:                                       
 Calves $2.08   $1.47   $0.61    41.5%  $2.18   $1.65   $0.53    32.2%
 Culls $0.28   $0.87   $(0.59)   (67.9)%  $1.15   $0.87   $0.28    32.2%
                                        
 Operating Expenses:                                       
 Cost of Calves Sold $1   $(66)  $67    (101.6)%  $3   $220   $(217)   (98.7)%
 Cost of Culls Sold  21    354    (333)   (94.1)%   220    355    (135)   NM 
 Land Leasing Expenses  58    71    (13)   (18.3)%   113    128    (15)   (11.8)%
 Other  543    812    (269)   (33.2)%   1,032    844    188    22.3%
 Total $623   $1,171   $(548)   (46.8)%  $1,368   $1,547   $(179)   (11.6)%
                                         
 NM - Not Meaningful                                        

 

Ranch

 

Calves are generally sold to market in the fourth quarter of each fiscal year. Results in each of the first, second and third quarters of the fiscal years are immaterial and generally nonrecurring in nature, and comparison of results is not meaningful.

 

 

Conservation

 

Water Storage Contract Approval

In December 2012, the South Florida Water Management District (“SFWMD”) issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program. In March 2013, we submitted a response proposing a dispersed water management project on portions of our ranch land.

 

In December 2014, the SFWMD approved a contract, based on the submitted response, 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 SFWMD Governing Board (“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. Operating expenses were approximately $530,000 and $549,000 for the three months ended March 31, 2015 and 2014 respectively. The operating expenses were approximately $1,018,000 and $814,900 for the six months ended March 31, 2015 and 2014 respectively.

28
 

Other Operations

 

 

The results of the Other Operations segment for the six months ended March 31, 2015 are in-line with the same period of the prior year.

 

 

General and Administrative

 

 

The increase in general and administrative expenses for the three months and six months ended March 31, 2015 versus the same period of the prior year relates primarily to professional and legal fees associated with the acquisitions and dispositions described above in “Recent Events,” which totaled approximately $753,000 and $4,353,000 for the three and six months ended March 31, 2015, respectively. The charges included $2,500,000 in legal fees, $1,350,000 in other real estate closing costs and $500,000 related to a consulting and non-competition agreement with the former CEO for the six months ended March 31, 2015.

 

The general and administrative expenses for the three and six months ended March 31, 2014 included costs incurred related to the change in control from November 2013 which totaled $260,000 and $2,005,000 for the three and six months ended March 31, 2014, respectively. The charges included $195,000 for the acceleration of the vesting of the Long-Term Incentive Plan awards, $849,000 for the cost of Director and Officer insurance for the departing Directors and $333,000 related to a consulting and non-competition agreement with the former CEO for the six months ended March 31, 2014.

 

 

Other Income (Expense), net

 

 

Other income (expense), net for the six months ended March 31, 2015 is approximately $12,100,000 greater than the same period of the prior year due to an approximate $1,000,000 loss on extinguishment of debt (see “Note 7. Long-Term Debt” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)), an increase of approximately $2,923,000 in interest expense due primarily to the term debt from the Orange-Co acquisition and a partial recognition of the gain on sale for the sugarcane land sale in November of $13,600,000 (see “Note 5. Assets Held For Sale” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

 

 

Income Tax Expense

 

 

Income tax expense was approximately $950,000 and $2,992,000 for the three months ended March 31, 2015 and 2014, respectively. The Company’s effective tax rates were 25.4% and 39.0% for the three months ended March 31, 2015 and 2014, respectively. Income tax expense was approximately $4,713,000 and $2,445,000 for the six months ended March 31, 2015 and 2014, respectively. The Company’s effective tax rates for the six months ended March 31, 2015 and 2014 were 31.0% and 38.0%, respectively. During the quarter ended March 31, 2015, the Company revised effective 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 projected political contributions and limitations on certain deductions related to the vesting of the long-term incentive grants for fiscal year 2014.

 

The IRS is currently auditing the Company’s tax return for the year ended September 30, 2013.

 

Seasonality

 

 

Historically, the second and third quarters of our fiscal year produce the majority of our annual revenue, and our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our harvesting 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.

 

 

29
 

 

Liquidity and Capital Resources

 

A comparative balance sheet summary is presented in the following table:

 

 

   March 31  September 30,   
(in thousands)  2015  2014  Change
          
          
Cash and cash equivalents  $2,775   $31,020   $(28,245)
Investments  $264   $263   $1 
Total current assets  $85,875   $125,710   $(39,835)
Total current liabilities  $24,628   $20,670   $3,958 
Working capital  $61,247   $105,040   $(43,793)
Total assets  $478,422   $257,578   $220,844 
Term loans and line of credit  $231,986   $64,800   $167,186 
Current ratio    3.49 to 1      6.08 to 1       

 

We believe that our current cash position, revolving credit facilities and the cash we expect to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital requirements and capital expenditures for at least the next 12 months. We have $76,000,000 in working capital lines of credit of which $36,500,000 is available for our general use at March 31, 2015 and a $25,000,000 revolving line of credit all of which is available for our general use at March 31, 2015 (see “Note 7. Long-Term Debt” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)). If the Company pursues significant growth opportunities in the future, it could have a material adverse impact on our cash balances, and we may need to finance such activities by drawing down monies under our lines of credit and if necessary, obtaining additional debt or equity financing.

 

 

The decrease in cash and cash equivalents was primarily due to the following factors:

 

·Cash used in operations of $6,261,000,
·Capital expenditures of $23,239,000,
·Acquisition of Orange-Co of $264,586,000 offset by $149,000,000 in new term debt,
·Payment on revolving credit line of $44,856,000 and,
·Principal payments on long-term debt of $11,629,000

 

 

Net Cash (Used In) Provided By Operating Activities

 

 

The following table details the items contributing to Net Cash (Used In) Provided by Operating Activities for the six months ended March 31, 2015 and 2014:

 

 

(in thousands)  Six Months Ended March 31,   
   2015  2014  Change
          
Net Income  $10,525   $3,992   $6,533 
Depreciation and Amortization   6,068    4,929    1,139 
Net (gain) loss on Sale of Property and Equipment   (16,425)   (370)   (16,055)
Other Non-Cash Expenses   3,788    522    3,266 
Change in Working Capital   (10,217)   (4,447)   (5,770)
                
Cash (used in) provided by operations  $(6,261)  $4,626   $(10,887)

 

The factors contributing to the increase in net income for the six months ended March 31, 2015, versus the same period of the prior year are discussed in “Results of Operations.” The gain on sale of property and equipment is substantially due to the recognition of approximately $13,613,000 associated with the Sugarcane land sale as discussed in Recent Events.

 

Due to the seasonal nature of our business, working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our harvest cycles. Cash flows from operating activities typically improve in our second and third fiscal quarters as we harvest our crops.

 

30
 

 

Net Cash Used In Investing Activities

 

 

The following table details the items contributing to Net Cash Used in Investing Activities for the six months ended March 31, 2015 and 2014:

 

 

(in thousands)  Six Months Ended March 31,   
   2015  2014  Change
          
Purchases of property and equipment:               
Citrus grove acquisition  $(17,624)  $-      $(17,624)
Sugarcane planting        (2,748)   2,748 
Improvements to farmland   -       (33)   33 
Citrus nursery   (2,406)   (3,349)   943 
Citrus tree development   (300)   (478)   178 
Breeding herd purchases   (164)   (776)   612 
Rolling stock, equipment and other   (1,770)   (1,374)   (396)
Other   (975)   -       (975)
                
Total   (23,239)   (8,758)   (14,481)
                
Acquisition of Citrus business  $(264,586)  $-      $(264,586)
Disposal of property and equipment   103,445    700    102,745 
Return on investment in Magnolia   474    2,555    (2,081)
Other   (2)   -       (2)
                
Cash used in investing activities  $(183,908)  $(5,503)  $(178,405)

 

Purchases of property and equipment include Silver Nip Citrus’s purchase of a citrus grove of approximately 1,475 acres in Charlotte County, Florida. Otherwise, purchases of property and equipment decreased primarily to the disposition of our sugarcane land. We are no longer involved in sugarcane and therefore no sugarcane plantings or improvements to farmland took place in the six months ended March 31, 2015.

 

Additionally, we acquired Orange-Co for approximately $264,586,000 in December 2014 (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)) and utilized proceeds from the disposition of our sugarcane land of $97,126,000 via a tax deferred like kind exchange pursuant to Internal Revenue Code Section §1031 (see “Note 5. Assets Held For Sale” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

 

31
 

 

Net Cash Provided By (Used In) Financing Activities

 

The following table details the items contributing to Net Cash Provided By (Used In) Financing Activities for the six months ended March 31, 2015 and 2014:

 

 

(in thousands)  Six Months Ended March 31,   
   2015  2014  Change
          
Principal payments on term loan  $(11,629)  $(1,001)  $(10,628)
Payoff of term loan   (34,000)   -       (34,000)
Borrowings on revolving line of credit   63,671    300    63,371 
Repayments on revolving line of credit   (44,856)   -       (44,856)
Proceeds from term loans   193,500    -       193,500 
Payment of loan origination fees   (3,364)   -       (3,364)
Treasury stock purchases   (512)   (4,713)   4,201 
Dividends paid   (884)   (2,005)   1,121 
Proceeds from capital leases   (2)   -       (2)
                
Cash provided by (used in) financing activities  $161,924   $(7,419)  $169,343 

 

The Company restructured its outstanding debt on December 3, 2014 in connection with the Orange-Co acquisition (see “Note 5. Long-Term Debt” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)). The restructured debt facilities include $125,000,000 in fixed rate term loans, $57,500,000 in variable rate term loans and a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”) and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

 

The previous term loan required quarterly principal payments of $500,000. The balance of the term loan was $34,000,000 at the time it was refinanced in connection with the Orange-Co acquisition.

 

 

Purchase Commitments

 

 

Alico, through its wholly owned subsidiary Alico Fruit, enters into contracts for the purchase of citrus fruit during the normal course of its business. The remaining obligations under these purchase agreements totaled approximately $6,758,000 at March 31, 2015 for delivery in fiscal years 2015 through 2016. All of these obligations are covered by sales agreements. Alico’s management currently believes that all committed purchase volume will be sold at cost or higher.

 

 

Contractual Obligations and Off Balance Sheet Arrangements

 

 

There have been no material changes during this reporting period to the disclosures set forth in Part II, Item 7 in our Form 10-K for the fiscal year ended September 30, 2014.

 

 

32
 

 

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

There have been no material changes during this reporting period in the disclosures set forth in Part II, Item 7A in our Form 10-K for the fiscal year ended September 30, 2014.

 

 

 

ITEM 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

As of the end of the period covered by this report, an evaluation, as required by Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934 as amended (“Exchange Act”), was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures are effective to ensure that all information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Changes in internal control over financial reporting

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during our last fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

33
 

 

PART II. OTHER INFORMATION

 

 

ITEM 1. Legal Proceedings.

 

Since the March 2, 2015 announcement of the acquisition of Silver Nip, two putative shareholder class action lawsuits have been filed against Alico and its directors, among other parties, in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida. The specific cases are Shiva Y. Stein v. Alico Inc. et al No. 15-CA-000645 filed on March 11, 2015 (the "Stein Complaint") and Ruth S. Dimon Trust v. George R. Brokaw et al., No. 15-CA-001162 filed on May 6, 2015 (the "Dimon Complaint"). The Stein Complaint alleges 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. It seeks, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses. The Dimon Complaint alleges claims for 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, 734 investors and 734 Agriculture. It seeks, among other things, rescission of the acquisition, an injunction prohibiting certain payments to Silver Nip shareholders, unspecified damages, disgorgement of profits, costs, fees (including attorneys’ fees) and expenses. We believe that these lawsuits are without merit and intend to contest them vigorously.

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. There are no current legal proceedings to which we are a party to or which any of our property is subject to that we believe will have a material adverse effect on our business, financial condition or results of operations.

 

 

ITEM 1A. Risk Factors.

 

There have been no material changes in the risk factors set forth in Part 1, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2014.

 

 

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no sales of unregistered equity securities during the period.

 

In March 2015, the Board of Directors authorized the repurchase of up to 20,000 shares of the Company’s common stock beginning March 25, 2015 and continuing through March 25, 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. 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.

 

Through March 31, 2015, the Company had purchased 9,907 shares and had available to purchase an additional 10,093 in accordance with the authorization. The following table describes our purchases of our common through March 31, 2015.

 

   Total Number of
Shares Purchased
  Average Price Paid
Per Share
  Total Number of Shares
Purchased As Part of
Publicly Announced
Plans or Programs
  Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans or Programs
             
Month of January 2015    -      $-       -       -    
Month of February 2015    -      $-       -       -    
Month of March 2015    9,907   $51.64    9,907    10,093 

 

 

ITEM 3. Defaults Upon Senior Securities.

 

None.

 

 

ITEM 4. Mine Safety Disclosure.

 

None.

 

 

ITEM 5. Other Information.

 

None.

34
 


ITEM 6. Exhibits

 

Exhibit No.  

Description of Exhibit

   
         
2.1 * Asset Purchase Agreement, dates as of December 1, 2014, by and among Alico, Inc., Orange-Co, L.P. 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).   Previously filed
         
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).   Previously filed
         
10.1 * First Amended and Restated Credit Agreement, dated 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).   Previously filed
         
10.2 * Credit Agreement, 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).   Previously filed
         
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith
       
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith
       
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.   Furnished herewith
       
32.2  

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

 

  Furnished herewith
       
101.INS ** XBRL Instance Document   Filed herewith
         
101.SCH ** XBRL Taxonomy Extension Schema Document   Filed herewith
         
101.CAL ** XBRL Taxonomy Calculation Linkbase Document   Filed herewith
         
101.DEF ** XBRL Taxonomy Definition Linkbase Document   Filed herewith
         
101.LAB ** XBRL Taxonomy Label Linkbase Document   Filed herewith
         
101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document   Filed herewith

 

* 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 Securities and Exchange Commission upon request.
   
** 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.
35
 

 

SIGNATURES

Pursuant to the requirements 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)
     
         
     
Date: May 11, 2015     By:

/s/Clayton G. Wilson

         Clayton G. Wilson
        Chief Executive Officer
     
         
     
Date: May 11, 2015     By:

/s/W. Mark Humphrey

         W. Mark Humphrey
        Chief Financial Officer and Senior Vice President
     

 

36