UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2014

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to  

Commission File Number: 0-261

 

Alico, Inc.

(Exact name of registrant as specified in its charter)

 

   
Florida 59-0906081

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

   
10070 Daniels Interstate Court Suite 100 Fort Myers, FL 33913
(Address of principal executive offices) (Zip Code)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

   

Title of class:

Name of each exchange on which registered:

COMMON CAPITAL STOCK, $1.00 Par value,

Non-cumulative

NASDAQ

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

       
Large accelerated filer ¨ Accelerated filer þ
       
Non-accelerated filer ¨  Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ¨ No  þ

The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the closing price, as quoted on the NASDAQ as of March 31, 2014 (the last business day of Alico’s most recently completed second fiscal quarter) was $112,809,559.20. Solely for the purposes of this calculation, the registrant has elected to treat all executives, officers and greater than 10% shareholders as affiliates of the registrant. There were 7,366,738 shares of stock outstanding at December 5, 2014.

 

Documents Incorporated by Reference:

Portions of the Proxy Statement of Registrant to be dated on or before January 25, 2015, are incorporated by reference in Part III of this report.

 
 
 

 

ALICO, INC.

FORM 10-K

For the fiscal year ended September 30, 2014

 

   
Part I  
   
Item 1. Business 1
   
Item 1A. Risk Factors 10
   
Item 1B. Unresolved Staff Comments 16
   
Item 2. Properties 17
   
Item 3. Legal Proceedings 17
   
Item 4. Mine Safety Disclosures 17
   
Part II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18
   
Item 6. Selected Financial Data 21
   
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 37
   
Item 8. Financial Statements and Supplementary Data 38
   
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 69
   
Item 9A. Controls and Procedures 69
   
Item 9B. Other Information 69
   
Part III  
   
Item 10. Directors, Executive Officers and Corporate Governance 70
   
Item 11. Executive Compensation 70
   
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 70
   
Item 13. Certain Relationships and Related Transactions, and Director Independence 70
   
Item 14. Principal Accountants Fees and Services 70
   
Part IV  
   
Item 15. Exhibits, Financial Statement Schedules 71

 

 
 

Cautionary Statement

 

This annual report on Form 10-K contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words “may,” “will,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or other words or expressions of similar meaning. We have based these forward-looking statements on our current expectations about future events. The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans.

 

In addition, this annual report on Form 10-K contains industry data related to our business and the markets in which we operate. This data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results could differ from the projections. We urge you to carefully review this annual report on Form 10-K, particularly the section “Risk Factors,” for a complete discussion of the risks of an investment in our common stock.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this annual report, some of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this annual report as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

As used throughout this Annual Report on Form 10-K, the terms “Alico,” the “Company,” “we,” “our,” or “us” include Alico, Inc. and its consolidated subsidiaries unless the context indicates otherwise.

 

 
 

Part 1

 

Item  1. Business.

 

Alico, Inc. (“Alico”) was incorporated under the laws of the State of Florida on February 2, 1960. We are a Florida agribusiness and land management company built for today and backed by a legacy of achievement and innovation in citrus, cattle and resource conservation.

 

We own approximately 129,200 acres of land in seven Florida counties (Alachua, Collier, DeSoto, Glades, Hendry, Lee and Polk) and our principal lines of business are citrus groves, improved farmland, cattle ranching and conservation, and related support operations.

 

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

 

We manage our land based upon its primary usage and review its performance based upon 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 a citrus nursery and leasing mines 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). 

 

Highlights

Sugarcane Disposition

On May 19, 2014, we entered into a triple net agricultural lease (the “USSC Lease”) with our sole sugarcane customer, United States Sugar Corporation (“USSC”) of approximately 30,600 gross acres of land in Hendry County, Florida historically used for sugarcane farming. As a result of this lease we were no longer directly engaged in sugarcane farming as of May 19, 2014.

On November 21, 2014, we sold approximately 36,000 acres of sugarcane land to Global Ag Properties USA LLC (“Global”), including the land leased to USSC above, for approximately $97,900,000 in cash and assigned the USSC Lease to the purchaser. As result of this disposition, we are no longer involved in sugarcane, and the Improved Farmland segment is no longer material to our business. The proceeds from the sale were reinvested on December 2, 2014 (see Orange-Co Acquisition) via a tax deferred like-kind exchange pursuant to Internal Revenue Code Section §1031.

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 (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 comprises one of the largest contiguous citrus grove properties in the state of Florida. The purchase prices was approximately $274,000,000 including: (1) $147,500,000 in initial cash consideration, subject to adjustment as set forth in the Orange-Co Purchase Agreement; (2) up to $7,500,000 in additional cash consideration to be released from escrow in equal parts, subject to certain limitations, on the 12- and 18-month anniversaries of the Closing Date; (3) the assumption and refinancing of Orange-Co’s outstanding debt including approximately $91,200,000 in term debt and a working capital facility of approximately $27,800,000; and (4) the assumption of certain other liabilities. On the Closing Date, the Company deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc. (“Rabo”) in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.

 

1
 

We concurrently entered into arrangements to finance the Orange-Co acquisition as follows:

Metlife Credit Agreement

We entered into a First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company and New England Life Insurance Company under which they provided term loans in the aggregate principal amount of $182,500,000 and $25,000,000 in revolving credit commitments.

The Metlife Agreement amends and restates existing credit facilities, dated as of September 8, 2010 (as amended from time to time, the “Prior Credit Agreement”) between the Company and Rabo. Under the Prior Credit Agreement, we had a term loan in the initial principal amount of $40,000,000, of which $33,500,000 was outstanding at the date of refinancing and $60,000,000 in undrawn revolving credit commitments.

Rabo Credit Agreement

We entered into a Credit Agreement with Rabo under which they have provided a $70,000,000 revolving working capital line of credit for the Company.

Silver Nip Merger Agreement

 

On December 2, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), 734 Citrus Holdings, LLC (“Silver Nip Citrus”) and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus (see “Note 14. Related Party Transactions” in the Notes to Consolidated Financial Statements). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Silver Nip Citrus (the “Merger”), with Silver Nip Citrus surviving the Merger as a wholly owned subsidiary of the Company. Subject to the terms and conditions set forth in the Merger Agreement, the Company will issue shares of the Company’s common stock to the equity holders of Silver Nip Citrus as follows:

Completion of the Merger is conditioned, among other things, on: (1) approval of the Stock Issuance by a majority of the holders of the Company’s common stock voting at a special meeting or acting by written consent to approve the Stock Issuance and, if such approval is obtained through action by written consent, the expiration of a twenty (20)-day waiting period after the date an information statement of the Company prepared in accordance with Regulation 14C of the Exchange Act and such information statement, is delivered to the Company’s shareholders; (2) receipt of a final appraisal of the Silver Nip Citrus groves; (3) receipt of certain third-party consents; (4) completion of an audit of Silver Nip Citrus’s 2014 consolidated financials and receipt of an unqualified audit opinion; (5) material compliance by the other party with all of its obligations under the Merger Agreement; and (6) subject to certain exceptions, the accuracy of the representations and warranties of the other party subject to a material adverse effect standard (as defined in the Merger Agreement).

734 Investors, LLC (“734 Investors”), the Company’s majority shareholder, will seek the consent of a majority of its disinterested members to direct 734 Investors to approve the Stock Issuance by a written consent of its shares of Common Stock.

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 its ranch land.

On December 11, 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.

Other Transactions

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

On September 23, 2014, we purchased a 1,241 acre citrus grove (867 net tree acres) in DeSoto County, FL for a purchase price of approximately $16,500,000. The purchase price was funded from our cash and cash equivalents and $5,300,000 in funds from a 2014 like-kind exchange transaction in Polk County pursuant to Internal Revenue Code §1031.

 

2
 

 

 

The Land We Manage

 

We regularly review our land holdings to determine the best use of each parcel based upon our management expertise. Our total return profile is a combination of operating income potential and long-term appreciation. Land holdings not meeting our total return criteria are considered surplus to our operations and will be sold or exchanged for land considered to be more compatible with our business objectives and total return profile.

Our holdings and the operating activities in which we engage are categorized in the following table:

 

     Gross Acreage    Operating Activities
         
 Citrus Groves        
 Citrus Groves       18,400    Citrus Cultivation
 Available for Sale           300    Citrus Cultivation and Undeveloped Land
       18,700    
 Improved Farmland        
 Leasable        1,800    Leasing
 Permitted but Undeveloped        6,300    None
 Available for Sale      36,000    Sugarcane Farming and Leasing
       44,100    
         
 Ranch and Conservation      64,500    Cattle Grazing; Sod and Native Plant Sales; Leasing; Conservation
 Other Land        1,900    Mining; Citrus Nursery
         
 Total   129,200    

 

 

Citrus Groves

 

We own and manage Citrus Groves in Collier, DeSoto, Hendry and Polk Counties and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Citrus Groves total approximately 18,700 gross acres or 14.5% of our land holdings.

 

Our Citrus acreage is detailed in the following table:

 

   Net Plantable  Total Plantable     Available for Sale   
   Producing  Developing  Fallow    Support    Gross  
                      
 Hendry County   3,500    100    -      3,600    1,600    -      5,200 
 Polk County   3,100    100    -      3,200    1,800    300    5,300 
 Collier County   4,100    -      -      4,100    2,800    -      6,900 
 DeSoto County   900    -      -      900    400    -      1,300 
                                    
 Total   11,600    200    -      11,800    6,600    300    18,700 

 

Of the approximately 18,700 gross acres of citrus groves we own and manage, approximately 6,600 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of citrus trees but which are not capable of directly producing fruit. We have classified approximately 300 acres in Polk County as Available for Sale, as this land does not meet our return criteria and is being actively marketed. The approximately 11,800 remaining acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently producing, acres that are developing (acres that are planted in trees too young to commercially produce fruit) and acres that are fallow.

 

Our Citrus Groves segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales to the processed market constitute approximately 95% of our citrus sales annually. We produce Early and Mid-Season varieties, primarily Hamlin oranges, as well as a Valencia variety for the processed market. We deliver our fruit to the processors in boxes which contain 90 pounds of oranges. Because the processors convert the majority of the citrus crop into orange juice, they generally do not buy their citrus on a per box basis but rather on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. We have produced 21,048,000, 24,746,000, and 29,069,000 pound solids for each of the years ended September 30, 2014, 2013, and 2012, on boxes delivered to processing plants of 3,259,000, 3,867,000, and 4,357,000, respectively.

3
 

 

The average pound solids per box was 6.46, 6.40, and 6.68 for each of the years ended September 30, 2014, 2013, and 2012, respectively.

 

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

 

All citrus to be produced for the processed citrus market in fiscal year 2014-2015 is under minimum price contracts with a floor price of approximately $1.60 per pound solids. We believe that other markets are available for our citrus products; however, new arrangements may be less favorable than our current contracts.

 

Our sales to the fresh market constitute approximately 5% of our citrus sales annually. We produce numerous varieties to the fresh fruit market including grapefruit, navel and other fresh varieties. Generally, our fresh fruit is sold to packing houses by the box, and the packing houses are responsible for the harvest and haul of these boxes. We have produced 185,000, 251,000, and 278,000 boxes for each of the years ended September 30, 2014, 2013, and 2012, respectively. The majority of our citrus to be produced for the fresh citrus market in fiscal year 2014-2015 is under fixed price contracts.

 

Revenue from Citrus Groves operations was approximately 53.1%, 43.0%, and 43.6% of our total operating revenues for the fiscal years ended September 30, 2014, 2013, and 2012, respectively.

 

Improved Farmland

 

We own Improved Farmland in Hendry County and have historically engaged in farming the land and leasing some of the acreage for farming. Of our land holdings, Improved Farmland totals approximately 44,100 gross acres or 34.1% of our total acreage. Our Improved Farmland acreage is detailed in the following table:

   Gross Acres
    
 Leaseable   1,800 
 Permitted but Undeveloped   6,300 
 Available for Sale   36,000 
      
 Total improved farmland   44,100 

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

 

The term of the Lease is ten (10) years which may be extended by either party for three (3) additional one (1) year periods, except with respect to a specific portion of the leased premises (4,561 planted or plantable acres) which has a five (5) year term which may be extended by either party for an additional year but can be terminated by the Company at any time after one (1) year. The Lease includes various covenants, indemnities, defaults, termination rights and other provisions customary for lease transactions of this nature. The leased land, together with other adjacent land, has subsequently been classified as Available for Sale (see Available for Sale and Subsequent Disposition below).

 

Our Improved Farmland also includes approximately, 1,800 gross acres of irrigated farmland currently used for farm leasing and other purposes and approximately 6,300 gross acres of permitted but undeveloped land (acres that are permitted for farming but that have not yet been cleared, leveled and irrigated for commercial farming).

 

4
 

 

During fiscal years ended September 30, 2014, 2013, and 2012, revenue from improved farmland operations was 23.0%, 21.6%, and 12.0%, of our total operating revenue, respectively.

 

Available for Sale and Subsequent Disposition

 

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 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. 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, as of November 21, 2014 the Improved Farmland segment was no longer material to our business.

 

Ranch and Conservation

 

We own and manage Ranch and Conservation land in Collier, Hendry and Polk Counties and engage in Cattle Production, Sod and Native Plant Sales, Land Leasing for recreational and grazing purposes and conservation activities. Of our land holdings, Ranch and Conservation totals approximately 64,500 gross acres or 49.9% of our total acreage. Our Ranch and Conservation acreage is detailed in the following table:

 

    Acreage
    
 Hendry County  60,500
 Collier County  4,000
    
 Total  64,500

 

We frequently lease the same acreage for more than one purpose. The portion of our Ranch and Conservation acreage that is leased for each purpose is detailed in the table below:

 

   Grazing  Recreational
       
 Hendry County   1,900  46,000
 Collier County   4,000  3,500

 

Our Cattle operation is engaged in the production of beef cattle and is located in Hendry and Collier Counties. The breeding herd consisted of approximately 8,600 cows and bulls and we plan to increase the size of our herd in the near future to the extent practicable. We primarily sell our calves to feed yards and yearling grazing operations in the United States. We also sell cattle through local livestock auction markets and to contract cattle buyers in the United States. These buyers provide ready markets for our cattle. We believe that the loss of any one or a few of these buyers would not have a material effect on our Cattle operations. Revenue from ranch and conservation operations was approximately 9.2%, 6.6%, and 5.8% of total operating revenue for each of the years ended September 30, 2014, 2013, and 2012, respectively.

 

5
 

 

In the fourth quarter of fiscal year 2013 we granted an easement to the United States Department of Agriculture (“USDA”), through its administering agency, The Natural Resources Conservation Service, on approximately 11,600 acres of our Ranch and Conservation land located in Hendry County resulting in a gain of $20,300,000, which was recorded in Other Income on the Statement of Comprehensive Income.

 

Our Other Segments

 

In addition to owning and managing approximately 129,200 gross acres of land in Central and Southwest Florida, Alico also engages in complimentary lines of business. Our Agricultural Supply Chain Management line of business includes activities related to value-added services provided to Alico and other Florida growers including agricultural contracting for harvesting, hauling and marketing and the purchase and resale of fruit. Our Other Operations line of business includes activities related to rock and sand mining, oil exploration, a citrus nursery and other insignificant lines of business. A summary of the Agricultural Supply Chain Management and Other Operations line of business follows:

·Alico Fruit Company is a wholly owned subsidiary providing additional citrus marketing expertise and the ability to manage the delivery of our own citrus crop. Its operations include supply chain management (contracting for harvest, hauling and marketing) for Alico’s citrus crop and for other growers. The operation also includes the purchase and resale of citrus fruit. During the fiscal years ended September 30, 2014, 2013, and 2012, Alico Fruit Company’s revenue was 14.0%, 27.9% and 38.0% of our total operating revenue, respectively.
·In fiscal year 2013, we acquired approximately 400 acres of land in Alachua County on which we constructed a citrus tree nursery and will utilize the trees produced in our own operations and sell excess trees to citrus growers in the state of Florida.

 

Segment Financial Results

 

We create value for our customers, clients and investors by managing our land holdings to their highest and best returns and by producing the highest quality agricultural products, implementing innovative land management and responsible environmental stewardship in the communities where we operate.

 

6
 

 

The following table presents the operating revenues and gross profit of the segments:

 

   Fiscal Year Ended September 30,
(in thousands)         
   2014  2013  2012
          
Revenues:               
Citrus Groves  $47,069   $43,689   $55,423 
Agricultural Supply Chain Management   12,376    28,412    48,334 
Improved Farmland   20,429    21,917    15,316 
Ranch and Conservation   8,172    6,755    7,348 
Other Operations   634    888    766 
Intersegment Revenues   9,621    10,981    11,820 
Eliminations   (9,621)   (10,981)   (11,820)
                
Total revenue   88,680    101,661    127,187 
                
Operating expenses:               
Citrus Groves   30,213    31,533    30,995 
Agricultural Supply Chain Management   12,317    27,949    47,693 
Improved Farmland   21,356    16,202    11,574 
Ranch and Conservation   4,330    3,798    3,497 
Other Operations   374    505    1,196 
                
Total operating expenses   68,590    79,987    94,955 
                
Gross profit:               
Citrus Groves   16,856    12,156    24,428 
Agricultural Supply Chain Management   59    463    641 
Improved Farmland   (927)   5,715    3,742 
Ranch and Conservation   3,842    2,957    3,851 
Other Operations   260    383    (430)
                
Total gross profit  $20,090   $21,674   $32,232 

 

Supplemental Information

 

Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Item 8. Financial Statements and Supplementary Data, Note 16. Segment Information in Notes to our Consolidated Financial Statements included in this Annual Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.

 

Strategy

 

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

 

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

 

7
 

 

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

 

We position our three categories of land based upon their suitability for a particular purpose and their potential to generate value:

 

·We position our Citrus Groves to efficiently utilize capital to consistently generate high-quality commercially viable citrus fruit for the processed or fresh markets while managing the weather and disease related risks inherent in the citrus business. 
·We position our Improved Farmlands to generate returns on permitted and farmable acreage.  Based upon our interpretation of industry information and the potential for returns, we lease our improved farmlands to third parties.
·We position our Ranch and Conservation lands to opportunistically generate returns based largely upon the size of the parcels and their location relative to the important wetlands of southern Florida.  We raise cattle for sale on our Ranch and Conservation lands and lease our lands for grazing and recreational purposes to maintain our agricultural property tax classifications as well as to generate minimal returns on the lands while we investigate and execute on opportunities to monetize these lands through conservation programs.
·We position our Agricultural Supply Chain Management business to manage the harvesting and hauling of the fruit produced by our Citrus Groves segment as well as to provide for returns on its minimal invested capital by purchasing, selling, harvesting and hauling citrus fruit for other producers in the state of Florida.  The services provided by, and the relationships and industry information generated through operating our Agricultural Supply Chain Management, segment are complimentary to the operation and strategic positioning of our Citrus Groves Segment.
·Where appropriate, we engage in other operations.  These operations include leasing mineral and oil rights to third parties where resource supplies are sufficient and other uses of our land holdings do not currently provide for returns greater than those provided by these leases.

Competition

 

Alico is engaged in a variety of agricultural and nonagricultural activities, all of which are in highly competitive markets. Citrus is grown domestically in several states including Florida, California, Arizona and Texas, as well as foreign countries, most notably Brazil. Competition is impacted by several factors including quality, production, demand, brand recognition, market prices, weather, disease, export/import restrictions and currency exchange rates. Beef cattle are produced throughout the United States and domestic beef sales also compete with imported beef. Forest and rock products are produced in many parts of the United States.

 

Environmental Regulations

 

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

 

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

 

 

8
 

 

Employees

 

As of September 30, 2014, we had 128 full-time employees. Our employees work in the following divisions:

 

 Agricultural Supply Chain Management    19
 Citrus Groves    69
 Improved Farmland    2
 Ranch and Conservation    3
 Heavy Equipment    9
 Other Operations    11
 General and Administrative    15
     
 Total    128

 

Seasonal Nature of Business

 

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

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

 

Capital resources and raw materials

 

Management believes that Alico will be able to meet its working capital requirements for at least the next 12 months through internally generated funds and our existing credit line. Alico has credit commitments that provide for revolving credit that is available for our general use. Raw materials needed to cultivate the various crops grown by Alico consist primarily of fertilizers, herbicides and fuel and are readily available from local suppliers.

 

Available Information

 

Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports may be viewed or downloaded electronically, free of charge, from our website http://www.alicoinc.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at http://www.alicoinc.com.

 

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

 

 

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Item 1A. Risk Factors.

 

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

Risks related to our Business

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

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

Citrus greening is one of the most serious citrus plant diseases in the world. Once a tree is infected, it decreases the productivity of infected trees. While the disease poses no threat to humans or animals, it has devastated citrus crops throughout the United States and abroad. Named for its green, misshapen fruit, citrus greening disease has now killed millions of citrus plants in the southeastern United States and has spread across the entire country. Infected trees produce fruits that are green, misshapen and bitter, unsuitable for sale as fresh fruit or for juice. Infected trees can die within a few years. At the present time, there is no known cure for citrus greening once trees are infected. Primarily as a result of citrus greening, Florida is expected to have its smallest orange harvest in nearly 30 years.

Citrus canker is a disease affecting citrus species and is caused by a bacterium and is spread by contact with infected trees or by windblown transmission. There is no known cure for citrus canker at the present time although some management practices including the use of copper-based bactericides can mitigate its spread and lessen its effect on infected trees; however, there is no assurance that available technologies to control such disease will be effective.

Both of these diseases pose a significant threat to the Florida Citrus industry and to our citrus groves. While we use best management practices to attempt to control diseases and their spread, there can be no assurance that our mitigation efforts will be successful. These diseases can significantly increase our costs which could materially adversely affect our business, financial condition, results of operations and cash flows. Our citrus groves produce the majority of our annual revenue and a significant reduction in available citrus from our groves could decrease our revenues and materially adversely affect our business, financial condition, results of operations and cash flows.

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

Agricultural operations traditionally provide almost all of our operating revenues with citrus being the largest portion and are subject to supply and demand pricing. While according to Nielsen data consumer demand for orange juice has decreased significantly to its lowest level in almost a decade, we have been able to offset the impact of such decline with higher prices based on a lower supply of available oranges. However, there can be no assurance that we will be able to continue to do so if demand continues to decline. Although our processed citrus is subject to minimum pricing we are unable to predict with certainty the final price we will receive for our products. In some instances the harvest and growth cycle will dictate when such products must be marketed which may or may not be advantageous in obtaining the best price. Excessive supplies tend to cause severe price competition and lower prices for the commodity affected.

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Limited supply of certain agricultural commodities due to world and domestic market conditions can cause commodity prices to rise in certain situations. We attempts to mitigate these risks by using contracts with citrus processors that include pricing structures based on a minimum (“floor”) price and with a price increase (“rise”) if market prices exceed the floor price. As a result, our profitability may be subject to significant variability.

Our citrus groves are geographically concentrated and the effects of adverse weather conditions could adversely affect our results of operations and financial position.

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

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

Our revenues from our citrus business were approximately 53%, 43% and 43%, of our revenues in fiscal years 2014, 2013 and 2012, respectively. As a result of our recently announced acquisitions of three Florida citrus producers and the disposition of our sugarcane lands, the percentage of our revenues derived from our citrus business will increase significantly. These acquisitions will result in our citrus division being the largest citrus producer in the United States and since we will not be as diversified as we have been previously, we will be more vulnerable to adverse events or market conditions affecting our citrus business which could have a significant impact on our overall business results.

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

We recently obtained $182,500,000 in aggregate principal amount of term loans and $25,000,000 in revolving credit commitments from Metropolitan Life Insurance Company and New England Life Insurance Company as well as $70,000,000 in aggregate principal amount of revolving credit commitments from Rabobank which we used in part to finance our recent Orange-Co acquisition. Our new loan agreements, and other debt instruments we may enter into in the future, may have negative consequences to us and could limit our business because we will use a substantial portion of our cash flows from operations to pay interest which will reduce the funds available to us for operations and it may make us more vulnerable to economic downturns and adverse developments in our business. Our loan agreements require us to comply with various restrictive covenants and some contain financial covenants that require us to comply with specified financial ratios and tests. Our failure to meet these covenants could result in default under these loan agreements and would result in a cross-default under other loan agreements. In the event of a default and our inability to obtain a waiver of the default, all amounts outstanding under loan agreements could be declared immediately due and payable. Our new loan agreements also contain various covenants that limit our ability to engage in specified types of transactions We expect that we will depend primarily upon our citrus operations to provide funds to pay our expenses and to pay any amounts that may become due under any credit facilities and any other indebtedness we may incur and there are factors beyond our control that could negatively affect our citrus business revenue stream. Our ability to make these payments depends on our future performance, which will be affected by various financial, business, economic and other factors, many of which we cannot control.

Our agricultural operations are subject to water use regulations restricting our access to water.

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

Surface water in Hendry County, where much of our agricultural land is located, comes from Lake Okeechobee via the Caloosahatchee River and a system of canals used to irrigate such land. The Army Corps of Engineers controls the level of Lake Okeechobee and ultimately determines the availability of surface water even though the use of water has been permitted by the State of Florida through the water management district.

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The Army Corps of Engineers decided in 2010 to lower the permissible level of Lake Okeechobee in response to concerns about the ability of the levee surrounding the lake to restrain rising waters which could result from hurricanes. Changes in availability of surface water use may result during times of drought, because of lower lake levels and could materially adversely affect our agricultural operations, financial position, results of operations and cash flows.

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

We seek to opportunistically acquire new agricultural assets from time to time that we believe would complement our business. We recently announced our acquisitions of three Florida citrus producers that are expected to result in our citrus division being the largest citrus producer in the United States. We cannot assure you that we will be able to successfully identify suitable acquisition opportunities, negotiate appropriate acquisition terms, obtain any financing that may be needed to consummate such acquisitions, or complete proposed acquisitions. Acquisitions by us could result in accounting charges, potentially dilutive issuances of equity securities, increased debt and contingent liabilities, reduce the amount of cash available for dividends and diversion of management’s attention, any of which could adversely affect our business, results of operations and financial condition. We may be unable to successfully realize the financial, operational, and other benefits we anticipate from our acquisitions and our failure to do so could adversely affect our business, results of operation and financial condition.

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

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

 

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

 

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

 

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

 

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

 

These transactions may present significant risks such as insufficient revenues to offset liabilities assumed, potential loss of significant revenues and income streams, increased or unexpected expenses, inadequate return of capital, regulatory or compliance issues, the triggering of certain covenants in our debt instruments (including accelerated repayment) and unidentified issues not discovered in due diligence. In addition, such transactions could distract management from current operations. As a result of the risks inherent in such transactions, we cannot guarantee that any such transaction will ultimately result in the realization of its anticipated benefits or that it will not have a material adverse impact on our business, financial condition or results of operations.

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If we were to complete such an acquisition, disposition, investment or other strategic transaction, we may require additional debt or equity financing that could result in a significant increase in our amount of debt and our debt service obligations or the number of outstanding shares of our common stock, thereby diluting holders of our common stock outstanding prior to such acquisition.

 

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

 

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

 

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

 

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

 

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

 

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

 

Our citrus grove business is seasonal.

 

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

 

We face significant competition in our agricultural operations.

 

We face significant competition in our agricultural operations both from domestic and foreign producers and do not have any branded products. Foreign growers generally have an equal or lower cost of production, less environmental regulation and in some instances, greater resources and market flexibility than us. Because foreign growers have greater flexibility as to when they enter the U.S. market, we cannot always predict the impact these competitors will have on our business and results of operations.

13
 

 

The competition we face from foreign suppliers of orange juice is mitigated by a governmentally imposed tariff on orange imports. A change in the government’s reduction in the orange juice tariff could adversely impact our results of operations.

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

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

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

In each of the fiscal years ended September 30, 2014, 2013, and 2012, we paid $2,291,000, $2,196,000, and $2,275,000 in real estate taxes, respectively.  These taxes were based upon the agricultural use (“Green Belt”) values determined by the county property appraiser in which counties we own land, of $74,105,000, $69,687,000, and $82,975,000 for each of the years ended September 30, 2014, 2013, and 2012, respectively, which differs significantly from the fair values determined by the county property appraisers of $518,112,000, $516,919,000, and $529,542,000, respectively.  Changes in state law or county policy regarding the granting of agricultural classification or calculation of Green Belt values or average millage rates could significantly impact our results of operations, cash flow and financial position.

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

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

Liability for the use of pesticides, herbicides and other potentially hazardous substances could increase our costs.

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

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

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

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

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

Risks Related to our Common Stock

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

734 Investors, LLC (“734 Investors”), beneficially owns approximately 51% of our common stock. Accordingly, by virtue of its ownership percentage, 734 Investors is able to elect all of our directors and officers, and has the ability to exert significant influence over our business and may make decisions with which other shareholders may disagree, including, among other things, changes in our business plan, delaying, discouraging or preventing a change of control of our Company or a potential merger, consolidation, tender offer, takeover or other business combination. Additionally, potential conflicts of interest could exist when we enter into related party transactions with 734 Investors such as the recent Silver Nip merger agreement we entered into on December 1, 2014.

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

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

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

However, NASDAQ does require that our independent directors have regularly scheduled meetings at which only independent directors are present. In addition, Internal Revenue Code Section 162(m) requires that a compensation committee of outside directors (within the meaning of Section 162(m)) approve stock option grants to executive officers in order for us to be able to claim deductions for the compensation expense attributable to such stock options.

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Notwithstanding the foregoing exemptions, we do have a majority of independent directors on our Board of Directors and we do have an Audit Committee, a Compensation Committee and a Nominating and Governance Committee composed entirely of independent directors.

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

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

Our largest shareholder 734 Investors beneficially owns approximately 51% of our common stock. Our stock is not heavily traded and our stock prices can fluctuate significantly. As such, sales of substantial amounts of our common stock into the public market by 734 Investors or perceptions that significant sales could occur, could adversely affect the market price of our common stock.

Our stock has low trading volume.

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

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

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

 

 

Item  1B. Unresolved Staff Comments.

 

None.  

16
 

Item 2. Properties.

 

At September 30, 2014, Alico owned approximately 129,200 acres of land located in seven counties in Florida. Acreage in each county and the primary classification with respect to the present use of these properties is shown in the following table:

 

   Total  Hendry  Polk  Collier  DeSoto  Glades  Lee  Alachua
                         
 Citrus Groves                        
 Citrus Groves   18,400   5,200   5,000   6,900   1,300   -   -  -
 Available for Sale   300   -   300   -   -   -   -  -
 Total Citrus Groves   18,700   5,200   5,300   6,900   1,300   -   -  -
                         
 Improved Farmland:                        
 Irrigated   1,800   1,800   -   -   -   -   -  -
 Permitted but undeveloped   6,300   6,300   -   -   -   -   -  -
 Available for Sale   36,000   36,000   -   -   -   -   -  -
 Total Improved Farmland   44,100   44,100   -   -   -   -   -  -
                         
 Ranch Land and Conservation   64,500   60,500   -   4,000   -   -   -  -
 Commercial   400   -   -   -   -   -   -  400
 Mining   1,400   900   -   -   -   500   -  -
 Other   100   100   -   -   -   -   -  -
                         
 Total   129,200   110,800   5,300   10,900   1,300   500   -  400

 

 

Approximately 43,277 acres of the properties listed are encumbered by credit agreements totaling $94,000,000 at September 30, 2014. For a more detailed description of the agreements and collateral please see “Item 8. Financial Statements”, “Note 11. Long-Term Debt” in Notes to Consolidated Financial Statements.

 

We currently collect mining royalties on a 526 acre parcel of land located in Glades County, Florida. These royalties do not represent a significant portion of our revenue or operating profits. We are seeking permits to develop an additional mine on an 886 acre parcel in Hendry County to be used as sand mine. Approximately 1,382 acres in Collier County are suitable for a rock mine. We are not currently pursuing permits for the Collier County mine given the low level of demand in the current market. The Hendry County parcel is currently classified as ranch land, while the Collier County parcel is classified as citrus.

 

 

Item 3. Legal Proceedings.

 

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 of which any of our property is subject to that we believe will have a material adverse effect on our business financial position or results of operations.

 

 

Item  4. Mine Safety Disclosure.

 

None.

 

17
 

PART II

 

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

 

Common Stock Prices

 

Our common stock is traded on the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol ALCO. The high and low sales prices in each quarter in the fiscal years 2014 and 2013 are presented below:

 

   2014 Price  2013 Price
     High    Low    High    Low 
                      
 Quarter Ended:                     
 December 31   $39.15   $38.10   $38.78   $30.27 
 March 31   $38.48   $37.61   $47.00   $36.93 
 June 30   $37.68   $37.15   $46.48   $39.61 
 September 30   $38.30   $37.94   $47.60   $39.19 

 

 

Holders

 

On October 31, 2014, our stock transfer records indicate there were approximately 288 holders of record of our common stock. The number of registered holders includes banks and brokers who act as nominee, each of whom may represent more than one shareholder.

 

Dividends

 

The following table presents cash dividends per common share declared in fiscal years 2014, 2013, and 2012 and paid in fiscal years 2015, 2014, and 2013:

 

Declaration Date   Record Date   Payment Date   Amount
Paid Per
Share
 July 27, 2012   September 28, 2012   October 15, 2012  $0.04
 September 27, 2012   December 28, 2012   January 14, 2013  $0.08
 January 8, 2013   March 28, 2013   April 15, 2013  $0.08
 May 2, 2013   June 28, 2013   July 15, 2013  $0.08
 July 18, 2013   September 30, 2013   October 15, 2013  $0.08
 September 25, 2013   December 31, 2013   January 14, 2014  $0.12
 December 18, 2013   March 31, 2014   April 14, 2014  $0.12
 April 10, 2014   June 30, 2014   July 14, 2014  $0.06
 July 10, 2014   September 30, 2014   October 15, 2014  $0.06
 October 02, 2014   December 31, 2014   January 15, 2015  $0.06

 

 

The Board of Directors reinstated a quarterly dividend policy during fiscal year 2012.

 

18
 

 

 Stock Performance Graph

 

The graph below represents our common stock performance, comparing the value of $100 invested on September 30, 2009 in our common stock, the S&P 500 and a Company-constructed peer group, which included Forestar Group, Inc., Limoneira Company, The St. Joe Company, Tejon Ranch Co. and Texas Pacific Land Trust.

 

 

 

(Includes reinvestment of dividends)

 

 

    INDEXED RETURNS
  Base Years Ending
  Period          
Company Name / Index Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14
Alico, Inc. 100 79.45 67.40 108.43 144.07 134.59
S&P 500 Index 100 110.16 111.42 145.08 173.14 207.30
S&P Agricultural Products Index 100 113.77 96.58 114.82 153.79 203.80
Peer Group 100 92.84 64.88 87.73 100.82 118.65

 

Equity Compensation Arrangements

 

The 2008 Incentive Equity Plan was effective from November 2008 through March 2013. It provided for the issuance of up to 350,000 shares of the Company’s stock to Directors and Officers. The 2008 Incentive Equity Plan was superseded by the 2013 Incentive Equity Plan in April 2013. It provides for the issuance of up to 350,000 shares of the Company’s stock to Directors and Officers through March 2018. All shares issued or to be issued under either of the two equity incentive plans must be shares previously repurchased by the Company.

 

19
 

The following table illustrates the shares remaining available for future issuance under the 2013 Incentive Equity Plan:

 

   Number of securities to
be issued upon exercise
of outstanding options,
 warrants and rights
  Weighted-average
exercise price of
outstanding options,
warrants and rights
  Number of securities
remaining available for
future issuance under
equity plans
          
Plan Category:         
Equity compensation plans approved by security holders  -  -  311,053
          
 Total  -  -  311,053

 

 

Issuer Repurchases of Equity Securities

 

The Board of Directors previously authorized the repurchase of up to 350,000 shares of our common stock from shareholders beginning in November 2008 and ending in November 2013 (the “2008 Authorization”). In September 2013, the Board of Directors authorized the repurchase of 105,000 shares of stock from shareholders beginning in November 2013 and continuing through April 2018 (the “2013 Authorization”). Stock repurchases under these authorizations will be made on a quarterly basis until April 2018, through open market transactions, at times and in such amounts as the Company’s broker determines, or through other transactions subject to the provisions of SEC Rule 10b-18.

 

Through September 30, 2014, the Company had purchased 29,305 shares and had available to purchase an additional 75,695 in accordance with the 2013 Authorization. The following table describes our purchases of our common stock during the fourth quarter of 2014.

 

   Total Number of
Shares Purchased
  Average Price
Paid Per Share
  Total Shares
Purchased As Part of
Publicly Announced
Plan or Program
  Maximum
Number of Shares
that May Yet Be
Purchased Under the
Plan or Program
             
 Date:                     
 Month of July 2014    -   $-    -    75,695 
 Month of August 2014    -   $-    -    75,695 
 Month of September 2014    -   $-    -    75,695 

 

 

We do not anticipate that any purchases under the Board of Directors’ authorizations will be made from any officer, director or control person.

 

We had various arrangements with UBS Investment Bank (“UBS”) between September 27, 2012 and November 1, 2013 to purchase securities under an authorization in accordance with the timing, price and volume restrictions contained in sections (b)(2)-(4) of Rule 10b-18. During the period from September 27 through November 1, 2013, UBS agreed to purchase securities according to various authorizations. The limit prices ranged from less than or equal to $31.00 per share to less than or equal to $40.00 per share at various times. The Company purchased 35,333 shares under this arrangement.

 

We purchased 35,333, 29,305, zero, and zero shares in the open market during the first, second, third and fourth quarters of fiscal year 2014, respectively, at a weighted average price of $38.47 per share.

20
 

 

Item 6. Selected Financial Data.

 

(in thousands, except per share amounts)  September 30,
   2014  2013  2012  2011  2010
                
 Operating revenue  $88,680   $101,661   $127,187   $98,592   $79,792 
 Net income (loss) from continuing operations  $8,050   $19,646   $18,489   $7,097   $(623)
 Income (loss) from continuing operations per weighted average common share  $1.09   $2.67   $2.51   $0.96   $(0.08)
 Weighted average number of shares outstanding   7,354    7,357    7,355    7,363    7,374 
 Cash dividends declared per share  $0.24   $0.36   $0.20   $0.12   $0.10 
 Total assets  $203,567   $198,840   $185,083   $180,035   $188,817 
 Long-term obligations  $34,000   $36,000   $39,900   $57,158   $75,668 

 

Notes regarding selected financial data:

 

During the year ended September 30, 2011, we utilized cash to reduce our outstanding debt by $18,510,000 resulting in a reduction in total assets and long-term obligations.

 

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

 

During the year ended September 30, 2013, net income from continuing operations includes the gain on the sale of real estate totaling $20,300,000 on easements sold.

 

During the year ended September 30, 2014, net income from continuing operations includes the gain on the sale of real estate totaling $4,820,000 on land sold.

 

21
 

 

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

 

Cautionary Statement Regarding Forward-Looking Information

 

We make forward-looking statements in this Annual 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 Annual 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. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expression are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report.

 

 

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 a citrus nursery, leasing mines 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 the fourth quarter of fiscal year 2013, we changed our internal operations to align with the way we manage our business operations. As a result, we have realigned our financial reporting segments to match our internal operations.  We have reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect our previously reported consolidated results.  The primary change in previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

 

We own approximately 129,200 acres of land in seven Florida counties (Alachua, Collier, DeSoto, Glades, Hendry, Lee and Polk), and operate five segments.

 

Segments

 

We operate five segments related to our various land holdings.

 

·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.

 

·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.

 

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·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 preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management 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. Management evaluates the estimates and assumptions on an on-going basis, based upon historical experience and various other factors and circumstances. Management believes that the estimates and assumptions are reasonable in the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. The following critical accounting policies have been identified that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.  

 

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

 

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

 

Variable Interest and Equity Method Investments - We evaluate investments for which we do not hold an equity interest of at least 50% based on the amount of control we exercise over the operations of the investee, our exposure to losses in excess of our investment, our ability to significantly influence the investee and whether we are the primary beneficiary of the investee. In May 2010, we invested $12,150,000 to obtain a 39% equity interest in Magnolia TC 2, LLC (“Magnolia”), a Florida limited liability company whose primary business activity is acquiring tax certificates issued by various counties in the State of Florida on properties which have been declared delinquent. Based on the criteria above, we are accounting for our investment in Magnolia in accordance with the equity method, whereby the investment in Magnolia is recorded as the line item, Investment in Magnolia, on our consolidated balance sheets, and changes in the account resulting from Magnolia’s prorated earnings or losses up to our initial investment are recognized as income or loss to us.

 

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

 

Property, Buildings and Equipment - Property, buildings and equipment are stated at cost, net of accumulated depreciation or amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years.

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After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.

 

The breeding herd consists of purchased animals and replacement breeding animals raised on our ranch. Purchased animals are stated at the cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use. Breeding animals are depreciated over 6-7 years. 

 

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

 

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

 

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

 

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

 

·Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
·Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
·Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

 

 

 

 

 

24
 

 

Recent Accounting Pronouncements

 

Title   Prescribed
Effective Date
  Commentary
Update No. 2014-08—Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity    12/15/2015
(Q1 2015)
  The Company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position.
         
Update No. 2014-09—Revenue from Contracts with Customers (Topic 606)   12/15/2016
(Q1 2017)
  The Company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position. 

 

Recent Events

 

Sugarcane Disposition

On May 19, 2014, we entered into a triple net agricultural lease (the “USSC Lease”) with our sole sugarcane customer, United States Sugar Corporation (“USSC”) of approximately 30,600 gross acres of land in Hendry County, Florida historically used for sugarcane farming. As a result of this lease we were no longer directly engaged in sugarcane farming as of May 19, 2014.

On November 21, 2014, we sold approximately 36,000 acres of sugarcane land to Global Ag Properties USA LLC (“Global”), including the land leased to USSC above, for approximately $97,900,000 in cash and assigned the USSC Lease to the purchaser. As result of this disposition, we are no longer involved in sugarcane, and the Improved Farmland segment is no longer material to our business. The proceeds from the sale were reinvested on December 2, 2014 (see Orange-Co Acquisition) via a tax deferred like-kind exchange pursuant to Internal Revenue Code Section §1031.

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 (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 comprises one of the largest contiguous citrus grove properties in the state of Florida. The purchase price was approximately $274,000,000 including: (1) $147,500,000 in initial cash consideration, subject to adjustment as set forth in the Orange-Co Purchase Agreement; (2) up to $7,500,000 in additional cash consideration to be released from escrow in equal parts, subject to certain limitations, on the 12- and 18-month anniversaries of the Closing Date; (3) the assumption and refinancing of Orange-Co’s outstanding debt including approximately $91,200,000 in term debt and a working capital facility of approximately $27,800,000; and (4) the assumption of certain other liabilities. On the Closing Date, the Company deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc. (“Rabo”) in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.

 

We concurrently entered into arrangements to finance the Orange-Co acquisition as follows:

Metlife Credit Agreement

We entered into a First Amended and Restated Credit Agreement with Metropolitan Life Insurance Company and New England Life Insurance Company under which they provided term loans in the aggregate principal amount of $182,500,000 and $25,000,000 in revolving credit commitments.

25
 

The Metlife Agreement amends and restates existing credit facilities, dated as of September 8, 2010 (as amended from time to time, the “Prior Credit Agreement”) between the Company and Rabo. Under the Prior Credit Agreement, we had a term loan in the initial principal amount of $40,000,000, of which $33,500,000 was outstanding at the date of refinancing and $60,000,000 in undrawn revolving credit commitments.

Rabo Credit Agreement

We entered into a Credit Agreement with Rabo under which they have provided a $70,000,000 revolving working capital line of credit for the Company.

Silver Nip Merger Agreement

 

On December 2, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), 734 Citrus Holdings, LLC (“Silver Nip Citrus”) and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus (see “Note 14. Related Party Transactions” in the Notes to Consolidated Financial Statements). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Silver Nip Citrus (the “Merger”), with Silver Nip Citrus surviving the Merger as a wholly owned subsidiary of the Company. Subject to the terms and conditions set forth in the Merger Agreement, the Company will issue shares of the Company’s common stock to the equity holders of Silver Nip Citrus as follows:

Completion of the Merger is conditioned, among other things, on: (1) approval of the Stock Issuance by a majority of the holders of the Company’s common stock voting at a special meeting or acting by written consent to approve the Stock Issuance and, if such approval is obtained through action by written consent, the expiration of a twenty (20)-day waiting period after the date an information statement of the Company prepared in accordance with Regulation 14C of the Exchange Act and such information statement, is delivered to the Company’s shareholders; (2) receipt of a final appraisal of the Silver Nip Citrus groves; (3) receipt of certain third-party consents; (4) completion of an audit of Silver Nip Citrus’s 2014 consolidated financials and receipt of an unqualified audit opinion; (5) material compliance by the other party with all of its obligations under the Merger Agreement; and (6) subject to certain exceptions, the accuracy of the representations and warranties of the other party subject to a material adverse effect standard (as defined in the Merger Agreement).

734 Investors, LLC (“734 Investors”), the Company’s majority shareholder, will seek the consent of a majority of its disinterested members to direct 734 Investors to approve the Stock Issuance by a written consent of its shares of Common Stock.

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 its ranch land.

On December 11, 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.

Other Transactions

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

On September 23, 2014, we purchased a 1,241 acre citrus grove (867 net tree acres) in DeSoto County, FL for a purchase price of approximately $16,500,000. The purchase price was funded from our cash and cash equivalents and $5,300,000 in funds from a 2014 like-kind exchange transaction in Polk County pursuant to Internal Revenue Code §1031.

26
 

 

Results of Operations

 

The following table sets forth a comparison of results of operations for the fiscal years ended September 30, 2014, 2013, and 2012:

 

(in thousands)  Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2014  2013  $  %  2013  2012  $  %
                         
 Operating revenues:                                        
Citrus Groves  $47,069   $43,689   $3,380    7.7%  $43,689   $55,423   $(11,734)   (21.2)%
Agricultural Supply Chain Management   12,376    28,412    (16,036)   (56.4)%   28,412    48,334    (19,922)   (41.2)%
Improved Farmland   20,429    21,917    (1,488)   (6.8)%   21,917    15,316    6,601    43.1%
Ranch and Conservation   8,172    6,755    1,417    21.0%   6,755    7,348    (593)   (8.1)%
Other Operations   634    888    (254)   (28.6)%   888    766    122    15.9%
 Total operating
          revenues
   88,680    101,661    (12,981)   (12.8)%   101,661    127,187    (25,526)   (20.1)%
                                         
 Gross profit:                                        
Citrus Groves   16,856    12,156    4,700    38.7%   12,156    24,428    (12,272)   (50.2)%
Agricultural Supply Chain Management   59    463    (404)   (87.3)%   463    641    (178)   (27.8)%
Improved Farmland   (927)   5,715    (6,642)   (116.2)%   5,715    3,742    1,973    52.7%
Ranch and Conservation   3,842    2,957    885    29.9%   2,957    3,851    (894)   (23.2)%
Other Operations   260    383    (123)   (32.1)%   383    (430)   813    (189.1)%
 Total gross profit   20,090    21,674    (1,584)   (7.3)%   21,674    32,232    (10,558)   (32.8)%
 Corporate, general and                                        
 administrative expenses   12,234    9,739    2,495    25.6%   9,739    8,490    1,249    14.7%
                                         
 Income from operations   7,856    11,935    (4,079)   (34.2)%   11,935    23,742    (11,807)   (49.7)%
 Other income (expense), net   3,927    19,740    (15,813)   (80.1)%   19,740    5,720    14,020    245.1%
                                         
 Income before income taxes   11,783    31,675    (19,892)   (62.8)%   31,675    29,462    2,213    7.5%
 Income taxes   (3,733)   (12,029)   8,296    (69.0)%   (12,029)   (10,973)   (1,056)   9.6%
                                         
 Net income  $8,050   $19,646   $(11,596)   (59.0)%  $19,646   $18,489   $1,157    6.3%

 

 

A discussion of our segment results of operations follows.

27
 

 

Citrus Groves

 

The table below presents key operating measures for the fiscal years ended September 30, 2014, 2013 and 2012:

 

   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2014  2013  $  %  2013  2012  $  %
                         
 Revenue From:                                        
 Early and Mid Season  $19,281   $17,923   $1,358    7.6%  $17,923   $24,376   $(6,453)   (26.5)%
 Valencias   25,093    23,216    1,877    8.1%   23,216    28,331    (5,115)   (18.1)%
 Fresh Fruit   2,054    2,451    (397)   (16.2)%   2,451    2,582    (131)   (5.1)%
 Other   641    99    542    NM   99    134    (35)   (26.1)%
 Total  $47,069   $43,689   $3,380    7.7%  $43,689   $55,423   $(11,734)   (21.2)%
                                         
 Boxes Harvested:                                        
 Early and Mid Season   1,645    1,900    (255)   (13.4)%   1,900    2,186    (286)   (13.1)%
 Valencias   1,614    1,967    (353)   (18.0)%   1,967    2,171    (204)   (9.4)%
 Total Processed   3,259    3,867    (608)   (15.7)%   3,867    4,357    (490)   (11.2)%
                                         
 Fresh Fruit   185    251    (66)   (26.3)%   251    278    (27)   (9.7)%
 Total   3,444    4,118    (674)   (16.4)%   4,118    4,635    (517)   (11.2)%
                                         
 Pound Solids Produced:                                        
 Early and Mid Season   10,222    11,612    (1,390)   (12.0)%   11,612    14,030    (2,418)   (17.2)%
 Valencias   10,826    13,134    (2,308)   (17.6)%   13,134    15,039    (1,905)   (12.7)%
 Total   21,048    24,746    (3,698)   (14.9)%   24,746    29,069    (4,323)   (14.9)%
                                         
 Pound Solids per Box:                                        
 Early and Mid Season   6.21    6.11    0.10    1.6%   6.11    6.42    (0.31)   (4.8)%
 Valencias   6.71    6.68    0.03    0.4%   6.68    6.93    (0.25)   (3.6)%
                                         
 Price per Pound Solid:                                        
 Early and Mid Season  $1.89   $1.54   $0.35    22.7%  $1.54   $1.74   $(0.20)   (11.5)%
 Valencias  $2.32   $1.77   $0.55    31.1%  $1.77   $1.88   $(0.11)   (5.9)%
                                         
 Price per Box:                                        
 Fresh Fruit  $11.10   $9.76   $1.34    13.7%  $9.76   $9.29   $0.47    5.0%
                                         
 Operating Expenses:                                        
 Cost of Sales  $20,233   $19,803   $430    2.2%  $19,803   $17,822   $1,981    11.1%
 Harvesting and Hauling   9,978    11,473    (1,495)   (13.0)%   11,473    13,173    (1,700)   (12.9)%
 Other   2    257    (255)   (99.2)%   257    -    257    NM 
 Total  $30,213   $31,533   $(1,320)   (4.2)%  $31,533   $30,995   $538    1.7%

 

   -   - 

 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 the preceding calendar year and does not vary in relation to production.

28
 

 

Harvesting and Hauling represents the cost of bringing citrus product to processors and varies based upon the number of boxes produced.

 

The declines for fiscal year 2014 versus fiscal year 2013 in boxes harvested and pound solids produced are being driven by growing season fluctuations in production which may be attributable to various factors, including changes in weather, horticultural practices and the effects of diseases and pests, including Citrus Greening. The industry and the Company both experienced higher than normal premature fruit drop in certain areas of our groves and smaller sized fruit that contributed to the 16.4% smaller box harvest than prior year. Although our total pounds solid produced for fiscal year 2014 declined 14.9% versus the same period of the prior year, our total revenue increased 7.7% due to the significant increase in the price per pound solid for both the Early and Mid-Season and Valencia oranges.

 

The statewide environmental and horticultural factors described above have negatively impacted our citrus crops and certain key operating measures presented above. The Florida orange crop declined by 29,000,000 boxes or approximately 22% versus the prior year, and therefore our per acre production continues to significantly outpace the average production in the state of Florida.

 

The USDA, in its October 10, 2014 Citrus Crop Forecast indicated that it believes the Florida orange crop will increase from 104,600,000 boxes for the 2013/2014 crop year to 108,000,000 boxes for the 2014/2015 crop year, an increase of 3.3%.  However, we expect our 2015 processed boxes to be not materially less than our 2014 processed boxes on a per acre basis.  For fiscal year 2015, we expect that the forecasted slight increase in the size of the statewide crop could cause the price per pound solids for fiscal year 2015 to remain at or above the price for fiscal year 2014.  We expect that operating expenses for fiscal year 2015 will remain in-line with fiscal year 2014 on a per acre basis.

 

The increase in Citrus Groves gross profit for fiscal year 2014 versus fiscal year 2013 relates primarily to the increased prices and revenue discussed above offset by an increase of 2.2% in growing costs for the 2013/2014 harvesting season crop to $20,233,000 from $19,803,000. Per box harvest and hauling costs remained in line.

 

The decline in Citrus Groves gross profit for fiscal year 2013 versus fiscal year 2012 relates primarily to the change in revenue shown above plus an increase of 11.1% in growing costs for the fiscal year 2013 crop, primarily driven by increases in the market price of fertilizer.

 

29
 

 

Agricultural Supply Chain Management

 

The table below presents key operating measures for the fiscal years ended September 30, 2014, 2013 and 2012:

 

(in thousands, except per box and per pound solid data)                  
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2014  2013  $  %  2013  2012  $  %
                         
 Purchase and Resale of Fruit:                                        
 Revenue  $10,096   $22,858   $(12,762)   (55.8)%  $22,858   $41,319   $(18,461)   (44.7)%
 Boxes Sold   836    2,377    (1,541)   (64.8)%   2,377    3,235    (858)   (26.5)%
 Pound Solids Sold   5,195    14,839    (9,644)   (65.0)%   14,839    21,097    (6,258)   (29.7)%
 Pound Solids per Box   6.21    6.24    (0.03)   (0.5)%   6.24    6.52    (0.28)   (4.3)%
 Price per Pound Solids  $1.94   $1.54   $0.40    26.0%  $1.54   $1.96   $(0.42)   (21.4)%
                                         
 Value Added Services:                                        
 Revenue  $1,891   $3,592   $(1,701)   (47.4)%  $3,592   $4,443   $(851)   (19.2)%
 Value Added Boxes   652    2,761    (2,109)   (76.4)%   2,761    3,031    (270)   (8.9)%
                                         
 Other Revenue  $389   $1,962    (1,573)   (80.2)%  $1,962   $2,572    (610)   (23.7)%

 

 

For fiscal year 2014 versus fiscal year 2013, the declines 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 primarily driven by a management decision to reduce the number of external boxes handled by Alico Fruit Company in fiscal year 2014 and to a lesser extent declines in Florida citrus production. The decline in Alico Fruit Company gross profit relates primarily to the changes in revenue outlined above.

 

For fiscal year 2015, we would expect gross profit for both segments to remain relatively in-line with fiscal year 2014.

 

For fiscal year 2013 versus fiscal year 2012, the declines in Purchase and Resale of Fruit revenue, boxes sold, pound solids sold, pound solids per box and price per pound solids as well as the declines in Value Added Services revenue and boxes, are all being driven primarily by statewide harvest and market conditions as discussed under Citrus Groves above.

 

30
 

 

Improved Farmland

 

The table below presents key operating measures for the fiscal years ended September 30, 2014, 2013 and 2012:

 

(in thousands, except per net standard ton and per acre data)
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2014  2013  $  %  2013  2012  $  %
                         
 Revenue From:                                        
 Sale of Sugarcane  $17,428   $20,125   $(2,697)   (13.4)%  $20,125   $13,931   $6,194    44.5%
 Molasses Bonus   817    800    17    2.1%   800    512    288    56.3%
 Land Leasing   1,389    779    610    78.3%   779    873    (94)   (10.8)%
 Other   795    213    582    NM   213    -    213   NM
 Total  $20,429   $21,917   $(1,488)   (6.8)%  $21,917   $15,316   $6,601    43.1%
                                         
 Net Standard Tons Sold   590    546    44    8.1%   546    339    207    61.1%
                                         
 Price Per Net Standard Ton:                                        
 Sale of Sugarcane  $29.54   $36.86   $(7.32)   (19.9)%  $36.86   $41.09   $(4.23)   (10.3)%
 Molasses  $1.38   $1.47   $(0.09)   (6.1)%  $1.47   $1.51   $(0.04)   (2.6)%
                                         
 Net Standard Tons/Acre   35.20    41.14    (5.94)   (14.4)%   41.14    35.19    5.95    16.9%
                                         
 Operating Expenses:                                        
 Cost of Sales  $14,368   $11,580   $2,788    24.1%  $11,580   $8,626   $2,954    34.2%
 Harvesting and Hauling   3,759    4,298    (539)   (12.5)%   4,298    2,501    1,797    71.9%
 Land Leasing Expenses   3,229    324    2,905    NM   324    447    (123)   (27.5)%
 Total  $21,356   $16,202   $5,154    31.8%  $16,202   $11,574   $4,628    40.0%

 

 NM - Not Meaningful                                                                

 

For fiscal year 2014, the amount of acres used to produce sugarcane increased to 16,728 from 13,272 in fiscal year 2013. The increase in net standard tons sold is related to the increased acreage in production for fiscal year 2014 versus fiscal year 2013. The increase in production for fiscal year 2014 versus fiscal year 2013 is more than offset by the 19.9% decrease in price per net standard ton that has resulted from changes in market conditions. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our sugarcane land for the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing sugarcane product to our processor and varies based upon the number of net standard tons produced.

The decrease in gross profit for fiscal year 2014 versus fiscal year 2013 is related primarily to the 19.9% decrease in price per standard ton discussed above, partially offset by a 1.6% decrease in growing costs per acre and a 19.1% decrease in harvest and hauling costs per net standard ton versus fiscal year 2013 which relates primarily to the elimination of long-haul charges related to the transportation of sugarcane via truck.

Additionally, the gross profit of the Improved Farmland segment was negatively impacted by a charge of approximately $2,300,000 in May 2014 recorded as an operating expense related to the reimbursement to the Company, at less than book value, for certain of our costs to develop and plant sugarcane, cultivate and care take sugarcane and purchase certain rolling stock used in our sugarcane operation. The charge relates to the triple net agricultural lease entered into with our sole sugarcane customer, USSC.

31
 

 

For fiscal year 2013 versus fiscal year 2012, the increases in revenues and net standard tons sold relate primarily to the increase in producing acres to 13,272 in fiscal year 2013 from 9,634 in fiscal year 2012 as well as a 16.9% increase in net standard tons per acre. The increase in production is partially offset by the decrease in price per net standard ton that resulted from changes in market conditions in fiscal year 2013 versus fiscal year 2012. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our sugarcane land for the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing sugarcane product to our processor and varies based upon the number of net standard tons produced.

 

The increase in gross profit for fiscal year 2013 versus fiscal year 2012 is related primarily to the increase in revenues discussed above and a 2.3% decrease in growing costs per acre versus fiscal year 2012. This increase is partially offset by a 5% increase in per net standard ton harvest and hauling costs versus of the prior year.

 

On November 21, 2014, we sold approximately 36,000 acres of sugarcane land to Global, including the land leased to USSC above, for approximately $97,900,000 in cash and assigned the USSC Lease to the purchaser. As result of this disposition, we are no longer involved in sugarcane, and the Improved Farmland segment is no longer material to our business.

 

Ranch and Conservation

 

The table below presents key operating measures for the fiscal years ended September 30, 2014, 2013 and 2012:

 

(in thousands, except per pound data)                        
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2014  2013  $  %  2013  2012  $  %
                         
 Revenue From:                                        
 Sale of Calves  $5,735   $4,797   $938    19.6%  $4,797   $5,181   $(384)   (7.4)%
 Sale of Culls   1,118    560    558    99.6%   560    713    (153)   (21.5)%
 Land Leasing   981    983    (2)   (0.2)%   983    1,067    (84)   (7.9)%
 Other   338    415    (77)   (18.6)%   415    387    28    7.2%
 Total  $8,172   $6,755   $1,417    21.0%  $6,755   $7,348   $(593)   (8.1)%
                                         
 Pounds Sold:                                        
 Calves   2,964    3,229    (265)   (8.2)%   3,229    3,182    47    1.5%
 Culls   1,181    680    501    73.7%   680    933    (253)   (27.1)%
                                         
 Price Per Pound:                                        
 Calves  $1.93   $1.49   $0.44    29.5%  $1.49   $1.63   $(0.14)   (8.6)%
 Culls  $0.95   $0.82   $0.13    15.9%  $0.82   $0.76   $0.06    7.9%
                                         
 Operating Expenses:                                        
 Cost of Calves Sold  $3,569   $3,274   $295    9.0%  $3,274   $2,818   $456    16.2%
 Cost of Culls Sold   456    280    176    62.9%   280    370    (90)   (24.3)%
 Land Leasing Expenses   274    239    35    14.6%   239    309    (70)   (22.7)%
 Other   31    5    26    NM   5    -    5    NM
 Total  $4,330   $3,798   $532    14.0%  $3,798   $3,497   $301    8.6%

 

 NM - Not Meaningful                                                                

 

The increase in revenue from the sale of calves in fiscal year 2014 versus fiscal year 2013 results primarily from the increase in price per pound, partially offset by a slight decrease in pounds sold. The increase in cull revenue for fiscal year 2014 versus 2013 results from an increase in pounds sold and an increase in price per pound. The increase in gross profit for fiscal year 2014 versus 2013 relates primarily to the increased price per pound of beef.

 

For fiscal year 2015, we expect to have a breeding herd of approximately 9,300 cows and expect that the price per pound of beef sold will remain in line with the price per pound for fiscal year 2014. We expect operating expenses for fiscal year 2015 to remain relatively in-line with fiscal year 2014.

32
 

 

The decrease in revenues from the sale of calves in fiscal year 2013 versus fiscal year 2012 results primarily from the decrease in price per pound, partially offset by a small increase in pounds sold. We have approximately 600 additional calves (approximately 290,000 pounds) that are expected to be sold in the first quarter of fiscal year 2014 that were raised during the 2012/2013 crop year and which were expected to be sold in the fourth quarter of fiscal year 2013. The decrease in revenues from the sale of culls for fiscal year 2013 versus fiscal year 2012 results primarily from the decrease in the number of pounds of culls sold, partially offset by the increase in the price per pound for culls. The number of head culled from our herd decreased versus fiscal year 2012 as the quality of our breeding herd was improved by culls sold in fiscal year 2012.

 

Other Operations

 

Other Operations includes leasing revenue of $321,00, $445,000, and $480,000 for fiscal years 2014, 2013 and 2012, respectively and gross profit of $131,000, $155,000, and 179,000 for fiscal years 2014, 2013 and 2012, respectively.

 

General and Administrative

 

The increase in general and administrative expenses for fiscal year 2014 versus the fiscal year 2013 relates primarily to costs incurred related to the change in control described in “Recent Events,” which totaled $2,600,000 and a $1,800,000 increase in professional fees related to business development.

 

The increase in general and administrative expenses for fiscal year 2013 versus fiscal year 2012 relates primarily to costs incurred related to the pursuit of a transaction as described in “Recent Events,” which totaled $1,816,000 in fiscal year 2013. Excluding those costs, general and administrative expenses decreased due primarily to a decrease in professional fees related to the settlement of the shareholder derivative lawsuit and the IRS appeal.

 

Income Tax Expense

 

Our effective tax rates were 31.9%, 38.0% and 37.2% for the fiscal years ended September 30, 2014, 2013 and 2012, respectively. The change in rate in fiscal year 2014 versus fiscal year 2013 relates primarily to changes in the relative magnitude of various permanent book-tax differences.

 

At September 30, 2014, we had $58,001,000 of gross deferred tax assets comprised primarily of $27,200,000 of capital loss carry-forwards expiring in fiscal year 2018, $16,159,000 of state bonus depreciation disallowance, $8,284,000 of outside basis difference related to our investment in Alico-Agri, Ltd., and $4,198,000 of accrued pension costs. No valuation allowance was recorded on any of our deferred tax assets. We expect to realize all of our deferred tax assets prior to their expiration, if any.

 

Liquidity and Capital Resources

 

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

 

(in thousands)  September 30,   
   2014  2013  Change
          
Cash and cash equivalents  $30,779   $24,583   $6,196 
Investments  $263   $260   $3 
Total current assets  $112,072   $59,795   $52,277 
Total current liabilities  $15,696   $11,491   $4,205 
Working capital  $96,376   $48,304   $48,072 
Total assets  $203,567   $198,840   $4,727 
Notes payable  $34,000   $36,000   $(2,000)
Current ratio   7.14 to 1    5.20 to 1      

 

33
 

 

We believe that our current cash position, revolving credit facility 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 a $60,000,000 revolving line of credit (“RLOC”) which was available for our general use at September 30, 2014 (see “Note 11. Long-Term Debt” in the Notes to Consolidated Financial Statements).

 

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

 

·Cash provided by operations of $27,452,000,
·Capital expenditures of $13,108,000,
·Acquisition of Citrus Grove of $16,517,000,
·Disposal of property and equipment of $14,473,000,
·Principal payments on debt of $2,000,000,
·Treasury stock purchases of $4,844,000, and
·Dividends paid of $2,781,000

 

 

Net Cash Provided By Operating Activities

 

The following table details the items contributing to Net Cash Provided by Operating Activities for fiscal years 2014, 2013 and 2012:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2014  2013  Change  2013  2012  Change
                   
Net Income  $8,050   $19,646   $(11,596)  $19,646   $18,489   $1,157 
Depreciation and Amortization   7,880    9,675    (1,795)   9,675    8,429    1,246 
Net Gain on Sale of Property                              
and Equipment   (4,369)   (20,894)   16,525    (20,894)   (8,800)   (12,094)
Other Non-Cash Income Expenses   278    9,907    (9,629)   9,907    6,205    3,702 
Change in Working Capital   15,613    (4,908)   20,521    (4,908)   (688)   (4,220)
                               
Cash provided by operations  $27,452   $13,426   $14,026   $13,426   $23,635   $(10,209)

 

 

The factors contributing to the decrease in net income for the fiscal year 2014 versus fiscal year 2013 are discussed in “Results of Operations.” The net gain on the sale of property and equipment decreased from fiscal year 2013 due to the closing of the Conservation Easement offset by the closing of the Polk County sale in in fiscal year 2014. Depreciation and Amortization decreased versus year ended 2013 due to the sale of the property and equipment to USSC and the elimination of capitalized sugarcane planting costs. Change in Working Capital decreased due to the elimination of sugarcane inventory and the increased income tax payable both due to the sale to USSC as well an increase in advance lease payments and an increase in capital lease obligation in fiscal year 2014.

 

The factors contributing to the decrease in net income for fiscal year 2013 versus fiscal year 2012 are discussed in “Results of Operations.” Depreciation and Amortization increased versus fiscal year 2012 due to purchases of depreciable property and equipment during the last twelve months as well as additional capitalized sugarcane planting costs. The net gain on the sale of property and equipment increased from fiscal year 2012 due to the closing of the Conservation Easement in fiscal year 2013.

 

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 planting and harvest cycles. Cash flows from operating activities typically improve in our second and third fiscal quarters as we harvest our crops.

 

34
 

 

Net Cash Provided By (Used In) Investing Activities

 

The following table details the items contributing to Net Cash Used in Investing Activities for fiscal years 2014, 2013 and 2012:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2014  2013  Change  2013  2012  Change
                   
Purchases of property and equipment:                              
Sugarcane planting  $(2,690)  $(3,430)  $740   $(3,430)  $(4,444)  $1,014 
Improvements to farmland   (904)   (4,365)   3,461    (4,365)   (5,153)   788 
Citrus nursery   (6,358)   (1,973)   (4,385)   (1,973)   -    (1,973)
Citrus tree development   (1,488)   (977)   (511)   (977)   (895)   (82)
Breeding herd purchases   (1,286)   (3,804)   2,518    (3,804)   (807)   (2,997)
Rolling stock, equipment and other   (382)   (4,375)   3,993    (4,375)   (4,622)   247 
                               
Total   (13,108)   (18,924)   5,816    (18,924)   (15,921)   (3,003)
                               
Acquisition of Citrus business  $(16,517)  $-    (16,517)  $-   $-    - 
Disposal of property and equipment   14,473    24,381    (9,908)   24,381    18,095    6,286 
Return on investment in Magnolia   3,814    1,179    2,635    1,179    4,735    (3,556)
Other   10    35    (25)   35    769    (734)
                               
Cash provided by (used in) investing activities  $(11,328)  $6,671   $(17,999)  $6,671   $7,678   $(1,007)

 

 

For fiscal year 2014 versus fiscal year 2013, Net Cash Used in Investing Activities increased by $17,999,000. The factors contributing to the increase are related primarily to the acquisition of the Citrus business for $16,517,000 as well as the decrease in disposal of property and equipment related to the Conservation Easement land sale in 2013 offset by the Polk County land sale and property and equipment sold to USSC in fiscal year 2014. Purchases of property and equipment have decreased overall due to a decrease in the number of cows and bulls purchased to augment our breeding herd, a decrease in purchases of rolling stock, equipment and other assets as well as improvement to farmland related to the completion of the sugarcane expansion in fiscal year 2013, partially offset by capital expenditures related to the building of our citrus tree nursery in fiscal year 2014. The increase in the return on investment in Magnolia versus fiscal year 2013 relates primarily to the reinstatement of cash distributions by Magnolia after its conversion of a large portion of its tax certificate portfolio to tax deeds.

 

For fiscal year 2013 versus fiscal year 2012, Net Cash Provided by Investing Activities decreased slightly. The factors contributing to the decrease include an increase in purchases of property and equipment related primarily to completing the conversion of undeveloped and permitted land to approximately 4,000 producing acres of improved farmland in the current year period. Also included in purchases of property and equipment are the costs associated with planting the additional 4,000 acres of sugarcane as well as approximately 1,200 acres of previously fallow sugarcane land, the purchase of 396 acres of land in Alachua County for use as a citrus nursery and the purchase of approximately 2,200 additional heifers. The increase in disposal of property and equipment relates to the timing of the closings of the various sales recorded in the Statement of Comprehensive Income for fiscal year 2013 and 2012. The decrease in the return on investment in Magnolia versus fiscal year 2012 relates primarily to the suspension of cash distributions by Magnolia during the first three quarters of fiscal year 2013 while it converted a large portion of its tax certificate portfolio to tax deeds. Cash distributions re-commenced in the fourth quarter of fiscal year 2013 and are expected to continue until the investment is repaid in full.

 

 

 

35
 

 

Net Cash Used In Financing Activities

 

The following table details the items contributing to Net Cash Used in Financing Activities for fiscal year 2014 and 2013:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2014  2013  Change  2013  2012  Change
                   
Principal payments on notes payable  $(2,000)  $(3,900)  $1,900   $(3,900)  $(3,279)  $(621)
Net repayments on revolving line of credit   -    -    -    -    (13,979)   13,979 
Treasury stock purchases   (4,844)   (2,894)   (1,950)   (2,894)   (298)   (2,596)
Capital lease payment   (303)   -    (303)   -    -    - 
Dividends paid   (2,781)   (2,048)   (733)   (2,048)   (1,765)   (283)
                               
Cash used in financing activities  $(9,928)  $(8,842)  $(1,086)  $(8,842)  $(19,321)  $10,479 

 

The decrease in principal payments on notes payable for fiscal year 2014 relates to the payoff of the Farm Credit Mortgage in fiscal year 2013 (see “Note 11. Long-Term Debt” in the Notes to Consolidated Financial Statements). Additionally, we increased our repurchases of stock for fiscal year 2014 subject to the provisions of SEC rule 10b-18 in order to fund grants under the 2013 incentive equity plans (see “Note 12. Treasury Stock” in the Notes to Consolidated Financial Statements).

 

The increase in principal payments on notes payable for fiscal year 2013 relates to the payoff of the Farm Credit Mortgage (see “Note 11. Long-Term Debt” in the Notes to Consolidated Financial Statements). During fiscal year 2012, we paid down the revolving line of credit as shown above. No net repayments were made in fiscal year 2013. We increased our repurchases of stock for fiscal year 2013 subject to the provisions of SEC rule 10b-18 in order to fund grants under the 2008 and 2013 incentive equity plans (see “Note 12. Treasury Stock” in the Notes to Consolidated Financial Statements).

 

Contractual Obligations and Off Balance Sheet Arrangements

 

We have various contractual obligations which are recorded as liabilities in our consolidated financial statements. The following table presents our significant contractual obligations and commercial commitments on an undiscounted basis at September 30, 2014 and the future periods in which such obligations are expected to be settled in cash.

 

(in thousands)  Payments Due by Period
   Total  <1 Year  1-3 Years  3-5 Years  5+ Years
                
 Long-Term Debt  $34,000   $2,000   $4,000   $4,000   $24,000 
 Interest on Long-Term Debt   4,003    787    1,431    1,238    547 
 Citrus Purchase Contracts   12,152    6,994    5,158    -    - 
 Retirement Benefits   13,680    352    714    535    12,079 
 Consulting/Non-Compete Agreement   1,167    1,000    167    -    - 
 Operating Leases   1,231    578    653    -    - 
 Capital Leases   1,142    303    606    233    - 
                          
 Total  $67,375   $12,014   $12,729   $6,006   $36,626 

 

 

Interest is estimated on our long-term debt at 2.40% for the Rabo term loan and revolving line of credit. See Item 8. Financial Statements and Schedules, Note 11. Long Term Debt in the Notes to Consolidated Financial Statements.

 

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 $12,152,000 at September 30, 2014 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.

36
 

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Market Risk - Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices. The Company handles market risks in accordance with its established policies; however, Alico does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company does consider, on occasion, the need to enter into financial instruments to manage and reduce the impact of changes in interest rates; however, the Company entered into no such instruments during the three-year period ended September 30, 2014. Alico held various financial instruments at September 30, 2014 and 2013, consisting of financial assets and liabilities reported in the Company’s Consolidated Balance Sheets and off-balance sheet exposures resulting from letters of credit issued for the benefit of Alico.

 

Interest Rate Risk - The Company is subject to interest rate risk from the utilization of financial instruments, such as term debt and other borrowings. The fair market value of long-term, fixed-interest rate debt is subject to interest rate risk. The Company’s primary long-term obligations are floating rate debt and are not subject to fair value risk. A one percentage-point increase in prevailing interest rates would have resulted in an increase in interest expense of $347,500 before income taxes for the year ended September 30, 2014.

 

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

 

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

 

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

 

37
 

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

 

   
  Page
Report of Independent Registered Public Accounting Firm 39
Report of Independent Registered Public Accounting Firm 40
Consolidated Financial Statements of Alico, Inc.  
Consolidated Balance Sheets at September 30, 2014 and 2013 41
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2014, 2013 and 2012 42
Consolidated Statements of Stockholders’ Equity for the fiscal years ended September 30, 2014, 2013 and 2012 43
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2014, 2013 and 2012 44
Notes to Consolidated Financial Statements 45
   
All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.  

 

38
 

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alico, Inc.

 

We have audited the accompanying consolidated balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2014. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

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

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alico, Inc. and Subsidiaries as of September 30, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2014, in conformity with U.S. generally accepted accounting principles.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Alico, Inc. and Subsidiaries' internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated December 12, 2014 expressed an unqualified opinion on the effectiveness of Alico, Inc. and Subsidiaries’ internal control over financial reporting.

 

 

/s/ McGladrey LLP

 
Orlando, Florida
December 12, 2014

 

39
 

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alico, Inc.

 

We have audited Alico, Inc. and Subsidiaries' internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Alico, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

 

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

 

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

 

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

 

In our opinion, Alico, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2014, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

 

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2014 and 2013, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2014, and our report dated December 12, 2014 expressed an unqualified opinion.

/s/ McGladrey LLP

 
Orlando, Florida
December 12, 2014

 

40
 

 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and per share amounts)

 

  September 30,
  2014  2013
      
ASSETS         
Current assets:         
Cash and cash equivalents $30,779   $24,583 
Investments  263    260 
Accounts receivable, net  3,847    4,266 
Inventories  19,929    29,403 
Assets held for sale  56,681    - 
Other current assets  573    1,283 
Total current assets  112,072    59,795 
          
Investment in Magnolia Fund  1,435    5,086 
Investments, deposits and other non-current assets  1,933    1,991 
Cash surrender value of life insurance  695    897 
Property, buildings and equipment, net  87,432    131,071 
Total assets $203,567   $198,840 
          
LIABILITIES & STOCKHOLDERS’ EQUITY         
Current liabilities:         
Accounts payable $1,729   $1,729 
Long-term debt, current portion  2,000    2,000 
Accrued expenses  1,618    2,354 
Income taxes payable  4,572    1,171 
Dividend payable  442    1,461 
Accrued ad valorem taxes  1,850    1,634 
Other current liabilities  3,485    1,142 
Total current liabilities  15,696    11,491 
          
Long-term debt, net of current portion  32,000    34,000 
Capital lease obligation, noncurrent  839    - 
Deferred income taxes  5,739    6,584 
Deferred retirement benefits, net of current portion  3,856    4,029 
Total liabilities  58,130    56,104 
          
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; 7,377,106 shares issued and 7,361,340 and 7,303,568 shares outstanding at September 30, 2014 and September 30, 2013, respectively  7,377    7,377 
Additional paid in capital  3,742    9,496 
Treasury stock at cost, 15,766 and 73,538 shares held at September 30, 2014 and September 30, 2013, respectively  (650)   (2,816)
Retained earnings  134,968    128,679 
Total stockholders’ equity  145,437    142,736 
Total liabilities and stockholders’ equity $203,567   $198,840 
          

 

See accompanying notes to consolidated financial statements.

41
 

 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

 

 

  Fiscal Year Ended September 30,
  2014  2013  2012
Operating revenues:              
Citrus Groves $47,069   $43,689   $55,423 
Agricultural Supply Chain Management  12,376    28,412    48,334 
Improved Farmland  20,429    21,917    15,316 
Ranch and Conservation  8,172    6,755    7,348 
Other Operations  634    888    766 
Total operating revenue  88,680    101,661    127,187 
               
Operating expenses:              
Citrus Groves  30,213    31,533    30,995 
Agricultural Supply Chain Management  12,317    27,949    47,693 
Improved Farmland  21,356    16,202    11,574 
Ranch and Conservation  4,330    3,798    3,497 
Other Operations  374    505    1,196 
Total operating expenses  68,590    79,987    94,955 
               
Gross profit  20,090    21,674    32,232 
Corporate general and administrative  12,234    9,739    8,490 
               
Income from operations  7,856    11,935    23,742 
               
Other (expense) income:              
Interest and investment income, net  131    704    97 
Interest expense  (969)   (1,257)   (1,616)
Gain on sale of real estate  4,820    20,299    9,113 
Impairment of assets held for sale  -    -    (1,918)
Other income (loss), net  (55)   (6)   44 
Total other income, net  3,927    19,740    5,720 
               
Income before income taxes  11,783    31,675    29,462 
Income taxes  3,733    12,029    10,973 
               
Net income attributable to common shareholders  8,050    19,646    18,489 
               
Comprehensive income, net of tax effect  -    -    - 
               
Comprehensive income attributable to common shareholders $8,050   $19,646   $18,489 
               
Weighted-average number of shares outstanding:              
Basic  7,336    7,313    7,355 
Diluted  7,354    7,357    7,355 
Earnings per common share:              
Basic $1.10   $2.69   $2.51 
Diluted $1.09   $2.67   $2.51 
               
Cash dividends declared per common share $0.24   $0.36   $0.20 
               

See accompanying notes to consolidated financial statements.

 

42
 

 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

 

   Common Stock  Additional Paid In Capital  Treasury Stock at Cost  Retained Earnings   
   Shares Issued  Amount        Total  
                   
 Balance at September 30, 2011   7,377    7,377    9,212    (862)   94,935    110,662 
                               
 Net income   -    -    -    -    18,489    18,489 
 Dividends   -    -    -    -    (1,765)   (1,765)
 Treasury stock purchases   -    -    -    (298)   -    (298)
 Stock-based compensation:                              
 Directors   -    -    (104)   589    -    485 
 Employees   -    -    (55)   28    -    (27)
                               
 Balance at September 30, 2012   7,377    7,377    9,053    (543)   111,659    127,546 
                               
 Net income   -    -    -    -    19,646    19,646 
 Dividends   -    -    -    -    (2,626)   (2,626)
 Treasury stock purchases   -    -    -    (2,894)   -    (2,894)
 Stock-based compensation:                              
 Directors   -    -    392    591    -    983 
 Employees   -    -    51    30    -    81 
                               
 Balance at September 30, 2013   7,377    7,377    9,496    (2,816)   128,679    142,736 
                               
 Net income   -    -    -    -    8,050    8,050 
 Dividends   -    -    -    -    (1,761)   (1,761)
 Treasury stock purchases   -    -    -    (4,844)   -    (4,844)
 Stock-based compensation:                              
 Directors   -    -    (26)   1,087    -    1,061 
 Employees   -    -    (5,728)   5,923    -    195 
                               
 Balance at September 30, 2014   7,377   $7,377   $3,742   $(650)  $134,968   $145,437 

 

See accompanying notes to consolidated financial statements.

43
 

 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

   Fiscal Year Ended September 30,
   2014  2013  2012
          
Cash flows from operating activities:               
Net income  $8,050   $19,646   $18,489 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   7,880    9,675    8,429 
Non-cash gains and losses   202    (35)   (288)
Magnolia fund undistributed earnings   (163)   (658)   (59)
Deferred income tax (benefit) expense, net   (845)   9,062    6,005 
Deferred retirement benefits   (173)   615    89 
Gain on sale of property and equipment, net   (4,369)   (20,894)   (8,800)
Asset impairments   -    -    1,918 
Stock based compensation   1,256    923    458 
Changes in operating assets and liabilities:               
Accounts receivable   419    (1,195)   (143)
Inventories   9,474    (2,113)   (4,917)
Accounts payable and accrued expenses   1,253    (3,727)   2,499 
Income tax payable/receivable   3,401    2,014    (144)
Other   1,067    113    99 
Net cash provided by operating activities   27,452    13,426    23,635 
                
Cash flows from investing activities:               
Purchases of property and equipment   (13,108)   (18,924)   (15,921)
Acquisition of Citrus business   (16,517)   -    - 
Decrease (increase) in restricted cash   -    2,500    (2,500)
(Decrease) increase in real estate deposits   -    (2,500)   2,500 
Proceeds from disposals of property and equipment   14,473    24,381    18,095 
Return on investment in Magnolia   3,814    1,179    4,735 
Proceeds from sales of investments   -    -    732 
Collections of mortgages and notes receivable   10    35    37 
Net cash provided by (used in) investing activities   (11,328)   6,671    7,678 
                
Cash flows from financing activities:               
Principal payments on notes payable   (2,000)   (3,900)   (3,279)
Borrowings on revolving line of credit   -    5,661    127,319 
Repayments on revolving line of credit   -    (5,661)   (141,298)
Treasury stock purchases   (4,844)   (2,894)   (298)
Capital lease payments   (303)   -    - 
Dividends paid   (2,781)   (2,048)   (1,765)
Net cash used in financing activities   (9,928)   (8,842)   (19,321)
                
Net increase in cash and cash equivalents   6,196    11,255    11,992 
Cash and cash equivalents at beginning of period   24,583    13,328    1,336 
                
Cash and cash equivalents at end of period  $30,779   $24,583   $13,328 
                
Supplemental disclosure of cash flow information:               
Cash paid for interest, net of amount capitalized  $954   $1,048   $1,685 
Cash paid for income taxes  $1,177   $952   $5,142 
Supplemental disclosure of non-cash activities:               
Capital leases for purchase of equipment  $1,400   $-   $- 

 

See accompanying notes to consolidated financial statements.

 

 

 

44
 

 

 

ALICO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014, 2013 and 2012

Note 1. Nature of Operations

 

Alico Inc. (“Alico”) and its wholly owned subsidiaries (collectively, the “Company”) are an agribusiness and land management company. The Company owns approximately 129,200 acres of land in seven Florida Counties (Alachua, Collier, DeSoto, Glades, Hendry, Lee and Polk); and in addition to principal lines of business in citrus groves, improved farmland land leasing, cattle ranching and conservation, and related support operations, we also receive royalties from rock mining and oil production.

 

 

Note 2. Basis of Presentation and Significant Accounting Policies

 

Principles of Consolidations

 

The audited consolidated financial statements include the accounts of Alico, Inc., and its wholly owned subsidiaries. The audited consolidated financial statements represent the consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ equity and comprehensive income (loss) and consolidated statements of cash flows of Alico, Inc. and its wholly-owned subsidiaries. The Company’s subsidiaries include: Alico Land Development, Inc. (“ALDI”), Agri-Insurance Company, Ltd. (“Agri-Insurance”), Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC (“Alico Fruit”) (formerly Bowen Brothers Fruit Company, LLC”) and Alico Citrus Nursery, LLC. Agri-Insurance was liquidated in September 2010. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company considers the criteria established under FASB ASC 810, Consolidations in its consolidation process. These audited consolidated financial statements should be read in conjunction with the notes thereto included in this Annual Report.

 

Reclassifications

 

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

 

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 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).  In the fourth quarter of fiscal year 2013, the Company changed its internal operations to align with the way it manages its business operations. As a result, the Company has realigned its financial reporting segments to match its internal operations.  The Company has reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect the Company’s previously report consolidated results.  The primary change in previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

 

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.

 

45
 

 

Revenue Recognition

 

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

 

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

 

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

 

Cash and Cash Equivalents

 

Cash includes cash on hand, bank demand accounts and money market accounts having original maturities at acquisition date of 90 days or less. At various times throughout the year and at September 30, 2014, some deposits held at financial institutions were in excess of federally insured limits. The Company has not experienced any losses related to these balances and believes credit risk to be minimal.

 

Accounts receivable

 

Accounts receivable are generated from the sale of citrus, cattle, leasing and other transactions. The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer’s account.

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, certificates of deposit, accounts receivable, mortgages and notes receivable, accounts payable and accrued expenses approximate their fair value because of the immediate or short term nature of these assets and liabilities. The carrying amounts of long-term debt approximates fair value because the transactions are with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market rates for similar obligations (see “Note 3. Fair Value Measurements” in the Notes to Consolidated Financial Statements).

 

Major Customers

 

Revenues and receivables from the Company’s major customers are as follows for the years ended September 30, 2014, 2013 and 2012:

(in thousands)  Accounts Receivable  Revenue  % of Total Revenue
   2014  2013  2014  2013  2012  2014  2013  2012
                         
 USSC  $2,962   $3,004   $19,633   $21,056   $14,442    22.1%   20.7%   11.4%
 Florida Orange Marketers, Inc.  $-   $-   $23,826   $15,689   $22,219    26.9%   15.4%   17.5%
 Citrosuco North America, Inc.  $-   $-   $804   $11,092   $18,895    0.9%   10.9%   14.9%
 Louis Dreyfus  $-   $-   $24,135   $26,246   $29,344    27.2%   25.8%   23.1%
 Cutrale Citrus Juice  $-   $-   $3,984   $6,300   $13,156    4.5%   6.2%   10.3%
                                         
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Real Estate

 

In recognizing revenue from land sales, Alico applies specific sales recognition criteria to determine when land sales revenue can be recorded. For example, in order to fully recognize a gain resulting from a real estate transaction, the sale must be consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the type and timeframe for development of the property sold, and any receivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain any material continuing involvement in the property sold. When these criteria are not met the Company recognizes gain proportionate to collections utilizing either the installment method or deposit method as appropriate.

 

Investments

 

Investments are carried at their fair value. Net unrealized investment gains and losses that are considered to be temporary are recorded net of related deferred taxes in accumulated other comprehensive income in stockholders’ equity until realized. Unrealized losses determined to be other than temporary are recognized in the Statement of Comprehensive Income in the period the determination is made. The cost of all investments is determined on the specific identification method.

 

Inventories

 

The costs of growing crops are capitalized into inventory throughout the Company’s crop year. Such costs are expensed when the crops are harvested and are recorded in citrus groves management and improved farmland management operating expenses in the Statement of Comprehensive Income. Inventories are stated at the lower of cost or net realizable value. The cost for unharvested citrus crops is based on accumulated production costs incurred during the period from January 1 through the balance sheet date. The cost of the beef cattle inventory is based on the accumulated cost of developing such animals for sale from July 1 through the Balance Sheet date (see “Note 5. Inventories” in the Notes to Consolidated Financial Statements).

 

Property, Buildings and Equipment

 

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

 

The breeding herd consists of purchased animals and animals raised on the Company’s ranch. Purchased animals are stated at the cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use.

 

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

 

Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of depreciable assets.

 

The estimated useful life for property, buildings and equipment is as follows:

Breeding herd  6-7 years
Buildings  10-40 years
Citrus trees  25 years
Sugarcane plantings  3 years
Equipment and other facilities  3-20 years
47
 

 

Impairment of Long-Lived Assets

 

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company records impairment losses on long-lived assets used in operations, other than goodwill, when events and circumstances indicate that the assets might be impaired and the estimated cash flows (undiscounted and without interest charges) to be generated by those assets over the remaining lives of the assets are less than the carrying amounts of those items. Our cash flow estimates are based on historical results adjusted to reflect our best estimates of future market conditions and operating conditions. The net carrying value of assets not recoverable is reduced to fair value (see “Note 7. Property, Building and Equipment, Net” in the Notes to Consolidated Financial Statements for further discussion).

 

Investments, Deposits and Other Non-Current Assets

 

Investments, deposits and other non-current assets primarily include stock owned in agricultural cooperatives and loan origination fees. Investments in stock related to agricultural co-ops and deposits are carried at cost, as are deferred loan fees related to the issuance of bank facilities, net of amortization. The Company utilized a cooperative to harvest its sugarcane. The cooperatives require members to acquire stock ownership as a condition for the use of its services. Due to the Company’s cessation of sugarcane farming in May, the company expects the return of the stock value in November following the conclusion of the harvesting season.

 

Income Taxes

 

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

 

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

 

Earnings per Share

 

Basic earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding for the period, including all potentially dilutive shares issuable under outstanding stock options and restricted stock unless the effect is anti-dilutive. There were no stock options outstanding at September 30, 2014, 2013 and 2012. Non-vested restricted shares entitle the holder to receive non-forfeitable dividends upon issuance and are included in the calculation of basic earnings per share.

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The following table presents a reconciliation of basic to diluted weighted average shares outstanding for fiscal years ended September 30, 2014, 2013 and 2012:

 

(in thousands)  Fiscal Year Ended September 30,
   2014  2013  2012
          
Weighted Average Shares Outstanding - Basic   7,336    7,313    7,355 
Unvested Restricted Stock Awards   18    44    -     
                
Weighted Average Shares Outstanding - Diluted   7,354    7,357    7,355 

 

 

Stock-Based Compensation

 

Stock-based compensation cost is measured based on the fair value of the award at the grant date and is typically recognized as expense on a straight-line basis over the vesting period. Upon the vesting of restricted stock, the Company issues common stock from shares held in treasury.

 

The 2008 Incentive Equity Plan was approved by shareholders on February 20, 2009. It provided for the issuance of up to 350,000 shares to Directors and Officers through November 2013. Effective April 1, 2013, the Board of Directors adopted the 2013 Incentive Equity Plan (the “2013 Plan”) which supersedes the 2008 Plan. The 2013 Plan was approved by shareholders at the February 22, 2013 shareholders meeting. Under the terms of the 2013 Plan, 350,000 shares of the Company’s common stock may be awarded to recipients. Shares issued pursuant to awards under both the 2008 Plan and the 2013 Plan, if any, must be outstanding shares which have been repurchased by the Company.

 

Alico measures the cost of employee services on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). The grant date fair value of employee share options and similar instruments is estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available).

 

The Company’s incentive equity plans provide for grants to executives in various forms including restricted shares of the Company’s common stock. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based upon service conditions. Non-vested restricted shares generally vest over requisite service periods of one to six years from the date of grant.

 

Total stock-based compensation expense recognized on the Consolidated Statements of Comprehensive Income for the three years ended September 30, 2014 in other operations and general and administrative expense was as follows:

(in thousands)  Fiscal Year Ended September 30,
   2014  2013  2012
          
Stock compensation expense:               
Executives  $195   $81   $(27)
Board of Directors   1,061    842    485 
                
Total stock compensation expense  $1,256   $923   $458 

The Company is recognizing compensation cost equal to the fair value of the stock at the grant dates prorated over the vesting period of each award.

 

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For the year ended September 30, 2014, the Company issued 24,161 shares to Directors under the 2008 and 2013 Plans at a weighted average fair value of $37.61 per share that vested immediately. Stock-based compensation expense recognized in the Consolidated Statement of Comprehensive Income in general and administrative expense was $1,256,000, $923,000 and $458,000 for the years ended September 30, 2014, 2013 and 2012. There are 311,053 shares eligible for grant under the 2013 Plan.

 

On May 26, 2011, the Company’s Board of Directors approved the Long-Term Incentive Program as part of the 2008 Equity Incentive Plan. The Company approved the contingent award of 152,403 shares of common stock to Named Executive Officers (the “NEOs”) of the Company. On May 26, 2011, 58,610 shares were granted to the NEOs other than the Chief Executive Officer (“CEO”) and on April 19, 2012, 93,793 shares were awarded to the CEO under restricted stock award agreements.

 

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

 

No stock options were granted in fiscal 2014, 2013 or 2012.

 

Variable Interest and Equity Method Investments

 

The Company evaluates the method of accounting for investments in which it does not hold an equity interest of at least 50% based on the amount of control it exercises over the operations of the investee, exposure to losses in excess of its investment, the ability to significantly influence the investee and whether Alico is the primary beneficiary of the investee. Investments not qualifying for consolidation are accounted for under the equity method whereby the ongoing investment in the entity, consisting of its initial investment adjusted for distributions, gains and losses of the entity are classified as a single line in the balance sheet and as a non-operating item in the income statement. The Company accounts for its investment in Magnolia in accordance with the equity method (see “Note 6. Investment in Magnolia Fund” in the Notes to Consolidated Financial Statements).

 

Recent Accounting Pronouncement

Title   Prescribed
Effective
Date
  Commentary
Update No. 2014-08—Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity    12/15/2015
(Q1 2015)
  The Company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position.
         
Update No. 2014-09—Revenue from Contracts with Customers (Topic 606)   12/15/2016
(Q1 2017)
  The Company is still evaluating the impact of the adoption of the standard will have on its results of operations and financial position. 
50
 

 

Note 3. Fair Value Measurements

 

The Company follows the provisions of ASC 820 Fair Value Measurements and Disclosure Topic for its financial and non-financial assets and liabilities. ASC 820, among other things, defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The majority of the carrying amounts of the Company’s assets and liabilities including cash, certificates of deposits, accounts receivable, accounts payable and accrued expenses at September 30, 2014 and 2013, approximate fair value because of the immediate or short term maturity of these items. In the event that stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. The carrying amounts reported for long-term debt approximates fair value as the Company’s borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.

 

ASC 820 clarifies that fair value is an exit price representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

 

·Level 1- Observable inputs such as quoted prices in active markets;
·Level 2- Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
·Level 3- Unobservable inputs in which there is little or no market data, such as internally-developed valuation models which require the reporting entity to develop its own assumptions.

 

There were no gains or losses included in earnings attributable to changes in unrealized gains or losses relating to assets held at 2014, 2013 and 2012.

 

Alico uses third party service providers to assist in the evaluation of its investments. For investment valuations, current market interest rates, quality estimates by rating agencies and valuation estimates by active market participants were used to determine values. Deferred retirement benefits were valued based on actuarial data, contracted payment schedules and an estimated discount rate of 4.7% and 4.2% at September 30, 2014 and 2013, respectively.

 

Note 4. Investments, deposits and other assets

 

Investments, deposits and other assets consist of the following:

(in thousands)  September 30, 2014  September 30, 2013
   Current  Non-Current  Total  Current  Non-Current  Total
                   
 Certificates of deposit  $263   $-   $263   $260   $-   $260 
 Loan origination fees   -    762    762    -    836    836 
 Stock in agricultural cooperatives   -    772    772    -    516    516 
 Deposits   -    34    34    -    326    326 
 Water permits   -    240    240    -    259    259 
 Other   -    125    125    -    54    54 
                               
 Total  $263   $1,933   $2,196   $260   $1,991   $2,251 
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Note 5. Inventories

 

Inventories consist of the following at September 30, 2014 and 2013:

 

(in thousands)  September 30,
   2014  2013
       
Unharvested fruit crop on the trees  $18,305   $16,329 
Unharvested sugarcane   -    11,728 
Beef cattle   1,022    1,200 
Other   602    146 
           
Total Inventories  $19,929   $29,403 

 

 

The Company records its inventory at the lower of cost or net realizable value. For the years ended September 30, 2014, 2013 and 2012, the Company did not record any adjustments to reduce inventory to net realizable value.

 

 

Note 6. Investment in Magnolia Fund

 

In May 2010, Alico invested $12,150,000 to obtain a 39% limited partner equity interest in Magnolia TC 2, LLC (“Magnolia”), a Florida limited liability company whose primary business activity is acquiring tax certificates issued by various counties in the State of Florida on properties which have property tax delinquencies. In Florida, such certificates are sold at general auction based on a bid interest rate. If the property owner does not redeem such certificate within two years, which requires the payment of delinquent taxes plus the bid interest, a tax deed can be obtained by the winning bidder who can then force an auctioned sale of the property. Tax certificates hold a first priority lien position. Magnolia began the tax deed application process in July 2012 as the two year time frame on certain certificates had been reached. The tax deed application requires all other outstanding liens to be redeemed as well.

 

Revenue is recognized by Magnolia when the interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of 5% of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the certificate has been outstanding.

Magnolia recognized the minimum 5% earnings on its tax certificate portfolio in fiscal 2010. Expenses of Magnolia include an acquisition fee of 1%, interest expense, a monthly management fee and other administrative costs.

The investment in Magnolia is accounted for in accordance with the equity method of accounting, whereby the Company records its 39% interest in the reported income or loss of the fund each quarter. Based on the August 31, 2014, unaudited internal financial statements of Magnolia, Alico recorded net investment income of $163,000 for the year ended September 30, 2014. The Company recorded net investment income of $658,000 for the year ended September 30, 2013, and $59,000 for the year ended September 30, 2012. Magnolia made certain distributions during the year ended September 30, 2014, 2013 and 2012; the Company’s share of those distributions was approximately $3,814,000, $1,179,000 and $4,735,000, respectively.

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Note 7. Property, Buildings and Equipment, Net

 

Property, buildings and equipment, net consist of the following at September 30, 2014 and 2013:

 

(in thousands)  September 30,
   2014  2013
       
Breeding herd  $11,558   $12,234 
Buildings   15,220    11,587 
Citrus trees   45,257    34,188 
Sugarcane   -    16,199 
Equipment and other facilities   50,499    47,278 
           
Total depreciable properties   122,534    121,486 
Less accumulated depreciation and depletion   (63,031)   (71,857)
           
Net depreciable properties   59,503    49,629 
Land and land improvements   27,929    81,442 
           
Net property, buildings and equipment  $87,432   $131,071 

 

Due to the continued pressure on market prices of real estate in Florida, the Company evaluated several of its properties for impairment at September 30, 2014, 2013 and 2012. In conducting its evaluation, the Company reviewed the estimated non-discounted cash flows from each of the properties or obtained independent third party appraisals from a qualified real estate appraiser and determined there were no impairments except for $1,918,000 in 2012 related to certain Lee County land.

Sugarcane Lease

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.

The term of the Lease is ten (10) years which may be extended by either party for three (3) additional one (1) year periods, except with respect to a specific portion of the leased premises (4,561 planted or plantable acres) which has a five (5) year term which may be extended by either party for an additional year but can be terminated by the Company at any time after one (1) year.

The Lease includes various covenants, indemnities, defaults, termination rights and other provisions customary for lease transactions of this nature.

The annual base rent under the Lease is approximately $3,548,000 is payable to the Company on or before the first day of each lease year (May 1). The Tenant is obligated to pay additional rent per net cane acre annually if the year-end average net selling price per hundred weig