ALICO, INC. 10-K

Item 8. Financial Statements and Supplementary Data 32 Table of Contents Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 49 ) 34 Consolidated Financial Statements: Consolidated Balance Sheets 37 Consolidated Statements of Operations 38 Consolidated Statements of Changes in Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 41 All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes. 33 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Alico, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Alico, Inc. and its subsidiaries (the Company) as of September 30, 2023 and 2022, the related consolidated statements of operations, changes in equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated December 6, 2023 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Net Realizable Value of Unharvested Fruit Crop on the Trees As described within Note 3 to the financial statements, the Company values inventory at the lower of cost or net realizable value. At September 30, 2023, the consolidated inventory balance included unharvested fruit crop on the trees of $50,699,000. The Company assesses the carrying value of unharvested fruit crop on the trees, including the determination of adjustments to net realizable value, by applying judgment in developing estimates such as the expected future crop yield and future citrus pricing. We identified the net realizable value of unharvested fruit crop on the trees as a critical audit matter because of the significant judgments utilized by management in developing the accounting estimate. Auditing management’s estimates and assumptions required a high degree of auditor judgment and increased audit effort due to the impact these assumptions have on the net realizable value of unharvested fruit crop on the trees. Our audit procedures related to the Company’s estimates and assumptions of the net realizable value of unharvested fruit crop on the trees included the following, among others: 34 Table of Contents • We obtained an understanding of the relevant controls related to management’s evaluation of the net realizable value of unharvested fruit crop on the trees, and tested such controls for design and operating effectiveness, including controls around management’s evaluation of the expected future crop yield and future citrus pricing. • We tested the completeness of the population of unharvested fruit crop on the trees that were subject to net realizable value adjustments. • We recalculated the mathematical accuracy of the net realizable value of unharvested fruit crop on the trees. • We performed a comparison of management’s prior forecasts of future crop yield and future citrus pricing to actual results. • We performed site observations and obtained industry data to evaluate the reasonableness of management's estimates of future crop yield and future citrus pricing. /s/ RSM US LLP We have served as the Company's auditor since 2007. Orlando, Florida December 6, 2023 35 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Alico, Inc. Opinion on the Internal Control Over Financial Reporting We have audited Alico, Inc.'s and its subsidiaries (the Company) internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, 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) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022, the related consolidated statements of operations, changes in equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes to the consolidated financial statements of the Company and our report dated December 6, 2023 expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. 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. Definition and Limitations of Internal Control Over Financial Reporting 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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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. /s/ RSM US LLP Orlando, Florida December 6, 2023 36 Table of Contents ALICO, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) September 30, 2023 September 30, 2022 ASSETS Current assets: Cash and cash equivalents $ 1,062 $ 865 Accounts receivable, net 712 324 Inventories 52,481 27,682 Income tax receivable 1,200 1,116 Assets held for sale 1,632 205 Prepaid expenses and other current assets 1,718 1,424 Total current assets 58,805 31,616 Restricted cash 2,630 — Property and equipment, net 361,849 372,479 Goodwill 2,246 2,246 Other non-current assets 2,823 2,914 Total assets $ 428,353 $ 409,255 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,311 $ 3,366 Accrued liabilities 5,363 9,062 Current portion of long-term debt 2,566 3,035 Other current liabilities 825 1,062 Total current liabilities 15,065 16,525 Long-term debt, net 101,410 102,913 Lines of credit 24,722 4,928 Deferred income tax liabilities, net 36,410 35,589 Other liabilities 369 435 Total liabilities 177,976 160,390 Commitments and Contingencies (Note 14) Stockholders' equity: Preferred stock, no par value, 1,000,000 shares authorized; none issued — — Common stock, $ 1.00 par value, 15,000,000 shares authorized; 8,416,145 shares issued and 7,610,551 and 7,586,995 shares outstanding at September 30, 2023 and September 30, 2022, respectively 8,416 8,416 Additional paid in capital 20,045 19,784 Treasury stock, at cost, 806,341 and 829,150 shares held at September 30, 2023 and September 30, 2022, respectively ( 27,274 ) ( 27,948 ) Retained earnings 243,804 243,490 Total Alico stockholders' equity 244,991 243,742 Noncontrolling interest 5,386 5,123 Total stockholders' equity 250,377 248,865 Total liabilities and stockholders' equity $ 428,353 $ 409,255 See accompanying notes to the consolidated financial statements. 37 Table of Contents ALICO, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Years Ended September 30, 2023 2022 2021 Operating revenues: Alico Citrus $ 38,145 $ 89,681 $ 105,796 Land Management and Other Operations 1,701 2,266 2,768 Total operating revenues 39,846 91,947 108,564 Operating expenses: Alico Citrus 32,959 106,192 83,893 Land Management and Other Operations 441 520 778 Total operating expenses 33,400 106,712 84,671 Gross profit (loss) 6,446 ( 14,765 ) 23,893 General and administrative expenses 10,643 10,079 9,453 (Loss) income from operations ( 4,197 ) ( 24,844 ) 14,440 Other income (expense), net: Investment and interest income, net 58 21 23 Interest expense ( 4,911 ) ( 3,324 ) ( 3,987 ) Gain on sale of property and equipment 11,509 41,102 35,898 Other income, net — — 13 Total other income, net 6,656 37,799 31,947 Income before income taxes 2,459 12,955 46,387 Income tax provision 801 1,069 11,567 Net income 1,658 11,886 34,820 Net loss attributable to noncontrolling interests 177 573 39 Net income attributable to Alico, Inc. common stockholders $ 1,835 $ 12,459 $ 34,859 Per share information attributable to Alico, Inc. common stockholders: Earnings per common share: Basic $ 0.24 $ 1.65 $ 4.64 Diluted $ 0.24 $ 1.65 $ 4.64 Weighted-average number of common shares outstanding: Basic 7,602 7,560 7,516 Diluted 7,602 7,568 7,519 Cash dividends declared per common share $ 0.20 $ 2.00 $ 1.36 See accompanying notes to the consolidated financial statements . 38 Table of Contents ALICO, INC. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in thousands) Common stock Additional Paid-In Capital Treasury Stock Retained Earnings Total Alico, Inc. Equity Non- controlling Interest Total Equity Shares Amount Shares Amount September 30, 2020 8,416 $ 8,416 $ 19,685 924 $ ( 30,779 ) $ 221,531 $ 218,853 $ 5,441 $ 224,294 Net income (loss) — — — — — 34,859 34,859 ( 39 ) 34,820 Dividends — — — — — ( 10,227 ) ( 10,227 ) — ( 10,227 ) Stock-based compensation — — 304 ( 33 ) 926 — 1,230 — 1,230 September 30, 2021 8,416 8,416 19,989 890 ( 29,853 ) 246,163 244,715 5,402 250,117 Net income (loss) — — — — — 12,459 12,459 ( 573 ) 11,886 Dividends — — — — — ( 15,132 ) ( 15,132 ) — ( 15,132 ) Capital contribution received from noncontrolling interest — — — — — — — 294 294 Executives stock exercises — — 34 — 431 — 465 — 465 Stock-based compensation — — ( 239 ) ( 61 ) 1,474 — 1,235 — 1,235 September 30, 2022 8,416 8,416 19,784 829 ( 27,948 ) 243,490 243,742 5,123 248,865 Net income (loss) — — — — — 1,835 1,835 ( 177 ) 1,658 Dividends — — — — — ( 1,521 ) ( 1,521 ) — ( 1,521 ) Capital contribution received from noncontrolling interest — — — — — — — 440 440 Stock-based compensation — — 261 ( 23 ) 674 — 935 — 935 September 30, 2023 8,416 $ 8,416 $ 20,045 806 $ ( 27,274 ) $ 243,804 $ 244,991 $ 5,386 $ 250,377 See accompanying notes to the consolidated financial statements . 39 Table of Contents ALICO, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2023 2022 2021 Net cash (used in) provided by operating activities: Net income $ 1,658 $ 11,886 $ 34,820 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation, depletion and amortization 15,487 15,229 15,122 Debt issue costs expense 141 255 179 Deferred income tax provision (benefit) 821 ( 3,876 ) 2,249 Gain on sale of property and equipment ( 11,509 ) ( 41,102 ) ( 35,898 ) Inventory net realizable value adjustment 1,616 6,676 — Casualty loss – tree and building damage — 1,400 — Loss on disposal of property and equipment 9,624 3,251 2,338 Inventory casualty loss — 14,900 — Stock-based compensation expense 935 1,235 1,230 Other, net ( 2 ) 160 ( 117 ) Changes in operating assets and liabilities: Accounts receivable ( 388 ) 5,781 ( 1,758 ) Inventories ( 26,415 ) ( 5,881 ) ( 2,522 ) Prepaid expenses ( 294 ) ( 271 ) ( 115 ) Income tax receivable ( 84 ) 2,117 ( 2,452 ) Other assets 235 ( 450 ) 575 Accounts payable and accrued liabilities 2,420 ( 5,111 ) 3,429 Other liabilities ( 499 ) 324 ( 576 ) Net cash (used in) provided by operating activities ( 6,254 ) 6,523 16,504 Cash flows from investing activities: Purchases of property and equipment ( 16,656 ) ( 20,731 ) ( 22,258 ) Acquisition of citrus groves ( 77 ) ( 136 ) ( 18,527 ) Proceeds from sale of property and equipment 11,359 43,159 37,266 Proceeds from property and casualty insurance 839 — — Other, net 412 176 251 Net cash (used in) provided by investing activities ( 4,123 ) 22,468 ( 3,268 ) Cash flows from financing activities: Repayments on revolving lines of credit ( 59,458 ) ( 52,227 ) ( 50,735 ) Borrowings on revolving lines of credit 79,252 57,155 47,793 Principal payments on term loans ( 2,098 ) ( 19,598 ) ( 21,957 ) Capital contribution received from noncontrolling interest 441 294 — Proceeds from exercise of stock options — 465 — Dividends paid ( 4,933 ) ( 15,101 ) ( 7,138 ) Net cash provided by (used in) financing activities 13,204 ( 29,012 ) ( 32,037 ) Net increase (decrease) in cash and cash equivalents and restricted cash 2,827 ( 21 ) ( 18,801 ) Cash and cash equivalents and restricted cash at beginning of the period 865 886 19,687 Cash and cash equivalents and restricted cash at end of the period $ 3,692 $ 865 $ 886 Supplemental disclosure of cash flow information: Cash paid for interest; net of amount capitalized $ 4,433 $ 3,192 $ 3,940 Cash paid for income taxes $ — $ 3,430 $ 11,770 Supplemental disclosure of non-cash investing and financing activities: Dividends declared but unpaid $ 381 $ 3,793 $ 3,763 See accompanying notes to the consolidated financial statements. 40 Table of Contents ALICO, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Basis of Presentation Description of Business Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company”, “we”, “us” or “our”), is a Florida agribusiness and land management company owning approximately 72,000 acres of land and also mineral rights throughout Florida. Alico holds these mineral rights on substantially all its owned acres, with additional mineral rights on other acres. The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications: (i) Alico Citrus and (ii) Land Management and Other Operations. Financial results are presented based upon these two business segments (Alico Citrus and Land Management and Other Operations). Basis of Presentation The Company has prepared the accompanying financial statements on a consolidated basis. These accompanying Consolidated Financial Statements, which are referred to herein as the “Financial Statements,” have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and account balances between the consolidated businesses have been eliminated. Segments Operating segments are defined in the criteria established under the Financial Accounting Standards Board – Accounting Standards Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by John E. Kiernan, the Company’s President and Chief Executive Officer and chief operating decision maker (“CODM”), in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on two operating segments: (i) Alico Citrus and (ii) Land Management and Other Operations. Principles of Consolidation The Financial Statements include the accounts of Alico and the accounts of all the subsidiaries in which a controlling interest is held by the Company. Under U.S. GAAP, consolidation is generally required for investments of more than 50% of the outstanding voting stock of an investee, except when control is not held by the majority owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings, LLC and subsidiaries, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC (“Citree”). The Company considers the criteria established under FASB ASC Topic 810, “Consolidations” in its consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific assumptions that the Company believes to be reasonable. Noncontrolling Interest in Consolidated Subsidiary The Financial Statements include all assets and liabilities of the less-than-100%-owned subsidiary the Company controls, Citree. Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had a net loss of $ 361 thousand for the year ended September 30, 2023, a net loss of $ 1,170 thousand for the year ended September 30, 2022, and a net loss of $ 79 thousand for the year ended September 30, 2021, respectively, of which a net loss of $ 184 thousand, a net loss of $ 597 thousand, and a net loss of $ 41 thousand were attributable to the Company for the years ended September 30, 2023, 2022 and 2021, respectively. The net loss for the year ended September 30, 2023 was primarily due to lower revenue as a result of the fruit drop from Hurricane Ian. The net loss for the year ended September 30, 2022 was primarily due to the inventory casualty loss and net realizable value adjustment as result of the fruit loss sustained from Hurricane Ian. 41 Table of Contents Recent Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. The Company’s floating rate notes and variable funding notes have historically borne interest at fluctuating interest rates based on LIBOR. Given the anticipated cessation of LIBOR, the Company renegotiated its variable rate loan agreements, to instead utilize fluctuating interest rates based on the 30 day Secured Overnight Financing Rate (SOFR), some with the change having taken effect late in the year ended September 30, 2022, and one with the change having taken effect early in the year ended September 30, 2023. ASU 2020-04 was effective March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the sunset date from December 31, 2022 to December 31, 2024. The adoption of this standard will not have a material effect on the Company's consolidated financial statements, as it has converted all of its variable rate loan agreements from LIBOR to SOFR as noted above. The Company has reviewed other recently issued accounting standards which have not yet been adopted to determine their potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures. Reclassifications Certain prior year amounts have been reclassified in the accompanying Financial Statements for consistent presentation to the current period. These reclassifications had no impact on net income, equity, cash flows or working capital as previously reported. Seasonality The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of Alico’s year produce most of the Company’s annual revenue. Working capital requirements are typically greater in the first and fourth quarters of the year, coinciding with harvesting cycles. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full year ended September 30. Note 2. Summary of Significant Accounting Policies Revenue Recognition Revenues are derived from the sale of processed fruit, fresh fruit, other citrus revenue, revenues from grove management services, leasing revenue and other resource revenues. Most of the revenue is generated from the sale of citrus fruit to processing facilities, fresh fruit sales and grove management services. For fruit sales, the Company recognizes revenue in the amount it expects to be entitled to be paid, determined when control of the products or services is transferred to its customers, which occurs upon delivery of and acceptance of the fruit by the customer and when the Company has a right to payment. For the sale of fruit, the Company has identified one performance obligation, which is the delivery of fruit to the processing facility of the customer (or harvesting of the citrus in the case of fresh fruit) for each separate variety of fruit identified in the respective contract with the respective customer. The Company initially recognizes revenue in an amount which is estimated based on contractual and market prices, if such market price falls within the range (known as “floor” and “ceiling” prices) identified in the specific respective contracts. Additionally, the Company also has a contractual agreement whereby revenue is determined based on applying a cost-plus structure methodology. As such, since all these contracts contain elements of variable consideration, the Company recognizes this variable consideration by using the expected value method. On a quarterly basis, management reviews the reasonableness of the revenues accrued based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues at the close of the harvesting season can result in either an increase or decrease to reported revenues. Receivables under contracts, whereby pricing is based on contractual and market prices, are primarily paid at the floor amount and are collected within seven days after the harvest week. Any adjustments to pricing as a result of changes in market prices are generally collected or paid thirty to sixty days after final market pricing is published. Receivables under those contracts where pricing is based off a cost-plus structure methodology are paid at the final prior year rate. Any adjustments to pricing because of the cost-plus calculation are collected or paid upon finalization of the calculation and agreement by both parties. As of September 30, 2023, and September 30, 2022, the Company had total receivables relating to sales of citrus of $ 394 thousand and $ 171 thousand, respectively, recorded in Accounts Receivable, net, in the Consolidated Balance Sheets. 42 Table of Contents For grove management services, the Company has identified one performance obligation, which is the management of the third party’s groves. Grove management services include caretaking of the citrus groves, harvesting and hauling of citrus, management and coordination of citrus sales and other related activities. The Company is reimbursed for expenses incurred in the execution of its management duties and the Company receives a per acre management fee. The Company recognizes operating revenue, including a management fee, and corresponding operating expenses when such services are rendered and consumed. In June 2022, a group of third-party grove owners, who are affiliated with each other (collectively, the “Grove Owners”), for which the Company was managing groves under a Property Management Agreement executed on July 16, 2020 with the Grove Owners, under which the Company performed grove management services, terminated the management relationship under the Property Management Agreement with the Company as the Grove Owners decided to exit the citrus business. As a result, all services relating to this Property Management Agreement and the accompanying management fee and reimbursed costs associated with performing grove management services ceased as of June 10, 2022. The Company recorded $ 0 , $ 10,598 thousand and $ 15,752 thousand of operating revenue relating to these grove management services, including the management fee, during the years ended September 30, 2023, 2022 and 2021, respectively. The Company recorded $ 0 , $ 9,711 thousand and $ 14,342 thousand of operating expenses relating to these grove management services during the years ended September 30, 2023, 2022 and 2021, respectively. Disaggregated Revenue Revenues disaggregated by significant products and services for the years ended September 30, 2023, 2022 and 2021 are as follows: (in thousands) Years Ended September 30, 2023 2022 2021 Alico Citrus Early and Mid-Season $ 11,954 $ 28,287 $ 31,525 Valencias 23,906 47,529 55,918 Fresh Fruit and other 1,051 1,937 1,370 Grove Management Services 1,234 11,928 16,983 Total $ 38,145 $ 89,681 $ 105,796 Land Management and Other Operations Land and Other Leasing $ 1,327 $ 1,655 $ 2,404 Other 374 611 364 Total $ 1,701 $ 2,266 $ 2,768 Total Revenues $ 39,846 $ 91,947 $ 108,564 Fair Value Measurements The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability into a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: • Level 1 – Observable inputs such as quoted market prices for identical assets and liabilities in active markets; • Level 2 – Inputs, other than the quoted prices for identical assets and liabilities in active markets, for which significant other observable market inputs are readily available; 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. The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the short term and immediate nature of these financial instruments. 43 Table of Contents The carrying amounts and estimated fair values (Level 2) of debt instruments are as follows: (in thousands) September 30, 2023 September 30, 2022 Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value Corporate debt Current long-term debt $ 2,566 $ 2,325 $ 3,035 $ 2,847 Long-term debt $ 126,753 $ 115,851 $ 108,589 $ 102,558 As of September 30, 2023 and 2022, the Company did not have any assets held for sale that had been measured at fair value on a non-recurring basis. Cash and Cash Equivalents The Company considers cash in banks and highly liquid instruments with an original maturity of three months or less to be cash and cash equivalents. At various times throughout the year ended September 30, and as of September 30, 2023, some accounts held at financial institutions were in excess of the federally insured limit of $ 250 thousand. The Company has not experienced any losses on these accounts and believes credit risk to be minimal. Restricted Cash Restricted cash is comprised of cash received from the sale of certain assets in which the use of funds is restricted. For certain sales transactions, the Company sells property which serves as collateral for specific debt obligations and/or for which the Company intends to complete a (“1031 Exchange”) under section 1031 of the Internal Revenue Code. A 1031 Exchange allows a taxpayer to defer all or a portion of income taxes on the sale of real property provided it can identify replacement real property within 45 days and close on the purchase of the replacement real property within 180 days after the closing of the initial sale. If an acceptable transaction is not consummated within this time period, the Company will need to pay income taxes on the gain from the sales transaction. Accounts receivable Accounts receivable from customers are generated from revenues based on the sale of citrus, grove management, leasing and other transactions. The Company grants credit in the course of its operations to third party customers. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides an allowance for doubtful accounts for amounts which are not probable of collection. The estimate, evaluated quarterly by the Company, is based on historical collection experience, current macroeconomic climate and market conditions and a review of the current status of each customer’s account. Changes in the financial viability of significant customers and worsening of economic conditions may require changes to its estimate of the recoverability of the receivables. Such changes in estimates are recorded in the period in which these changes become known. The bad debt expense is included in general and administrative expenses in the Consolidated Statements of Operations. The following table presents accounts receivable, net, as of September 30, 2023 and 2022: (in thousands) September 30, 2023 2022 Accounts receivable $ 726 $ 338 Allowance for doubtful accounts ( 14 ) ( 14 ) Accounts receivable, net $ 712 $ 324 44 Table of Contents Concentrations Accounts receivable from the Company’s major customer as of September 30, 2023 and 2022, and revenue from such customer for the years ended September 30, 2023, 2022 and 2021, are as follows: (in thousands) Accounts Receivable Revenue % of Total Revenue 2023 2022 2023 2022 2021 2023 2022 2021 Tropicana $ — $ — $ 32,403 $ 73,791 $ 84,136 81.3 % 79.7 % 77.5 % The citrus industry is subject to various factors over which growers have limited or no control, including weather conditions, disease, pestilence, water supply and market price fluctuations. Market prices are highly sensitive to aggregate domestic and foreign crop sizes, as well as factors including, but not limited to, weather and competition from foreign countries. The overall increase in Tropicana revenue, as a percentage of sales, was primarily due to lower caretaking revenue due to the termination in June 2022 of the agreement entered into in July 2020 with a group of third-party grove owners, who were affiliated with each other, to provide citrus grove caretaking and harvest and haul management services for 7,000 acres owned by such third parties. Under the terms of this agreement, the Company was reimbursed by the third parties for all its costs incurred related to providing these services and received a management fee based on acres covered under this agreement. The Company records both an increase in revenues and expenses when the Company provides these citrus grove caretaking management services. Real Estate In February 2017, the FASB issued ASU 2017-05, “ Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets ” (ASC 610-20): This standard clarified the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets and clarified the scope and application of ASC 610-20 on the sale, transfer, and derecognition of nonfinancial assets and in substance nonfinancial assets to non-customers, including partial sales. The standard provided guidance on how gains and losses on transfers of nonfinancial assets and in substance nonfinancial assets to non-customers are recognized. The Company recognizes a gain on the sale of real estate as outlined by ASC 610-20. Inventories The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition, irrigation, and depreciation, are capitalized into inventory throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating expenses in the Consolidated Statements of Operations. 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. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation, depletion and amortization. Major improvements are capitalized while expenditures for maintenance and repairs are expensed when incurred. Costs related to the development of citrus groves through planting of trees are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs, among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for 4 years. After 4 years, a planting 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. Real estate costs incurred for the acquisition, development and construction of real estate projects are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives of the depreciable assets, with the exception of leasehold improvements and assets acquired through capital leases, which are depreciated over their estimated useful lives if the lease transfers ownership or contains a bargain purchase option, otherwise the term of the lease. The estimated useful lives for property and equipment are primarily as follows: Citrus trees 25 years Equipment and other facilities 3 - 20 years Buildings and improvements 15 - 39 years Changes in circumstances, such as technological advances, or changes to our business model or capital strategy could result in the actual useful lives differing from the original estimates. In those cases where the Company determines that the useful 45 Table of Contents life of property and equipment should be shortened, Alico depreciates the asset over its revised estimated remaining useful life, thereby increasing depreciation expense (see Note 5. Property and Equipment, Net for further information). 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 or asset group may not be recoverable. The Company records impairment losses on long-lived assets used in operations, or asset group, 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 or asset group over the remaining lives of the assets or asset group are less than the carrying amounts of those assets. In calculating impairments and the estimated cash flows, the Company assigns its asset groups by determining the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of the other Company assets. The net carrying values of assets or asset group not recoverable are reduced to their fair values. Alico’s cash flow estimates are based on historical results adjusted to reflect best estimates of future market conditions and operating conditions. For the years ended September 30, 2023, 2022 and 2021, the Company did not recognize any impairment of long-lived assets. As of September 30, 2023 and 2022, long-lived assets were comprised of property and equipment. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price of acquired businesses over the fair value of the assets acquired less liabilities assumed in connection with such acquisition. In accordance with the provisions of ASC 350, Intangibles-Goodwill and Other, goodwill and intangible assets with indefinite useful lives acquired in an acquisition are not amortized, but instead are tested for impairment at least annually, on the same date, or more frequently, should an event occur or circumstances indicate that the carrying amount may be impaired. Such events or circumstances may be a significant change in business climate, economic and industry trends, legal factors, negative operating performance indicators, significant competition, changes in strategy or disposition of a reporting unit or a portion thereof. The carrying value of goodwill is tested for impairment annually as of September 30, and, additionally on an interim basis, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The accounting standards for goodwill allow for the assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company does not utilize a qualitative assessment approach, then the quantitative goodwill impairment test is utilized to identify potential impairments. The Company identifies any potential impairment by comparing the carrying value of a reporting unit to its fair value. The Company typically determines the fair value of its reporting units using a discounted cash flow valuation approach. If a potential impairment is identified, the Company will determine the amount of goodwill impairment by comparing the fair value of a reporting unit with its carrying amount. As of September 30, 2023 and 2022, no impairment was required. Other Non-Current Assets Other non-current assets primarily include intangible assets relating to mineral rights, water permits, right-of-use assets relating to lease obligations, investments owned in agricultural cooperatives, cash surrender value on life insurance, and deposits on the purchase of citrus trees. Investments in stock related to agricultural cooperatives are carried at cost. Income Taxes The Company uses the asset and liability method of accounting for deferred income taxes. The provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion or all 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. See Note 9. Income Taxes for detail of valuation allowances recognized during the year ended September 30, 2023, 2022 and 2021. 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. 46 Table of Contents Earnings per Share Basic earnings per share for the Company’s common stock is calculated by dividing net income attributable to Alico common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares of common stock issuable under equity-based compensation plans in accordance with the treasury stock method, or any other type of securities convertible into common stock, except where the inclusion of such common shares would have an anti-dilutive effect. The following table presents a reconciliation of basic to diluted weighted average common shares outstanding for the years ended September 30, 2023, 2022 and 2021: (in thousands) Years Ended September 30, 2023 2022 2021 Weighted Average Common Shares Outstanding – Basic 7,602 7,560 7,516 Effect of dilutive securities – stock options and unrestricted stock — 8 3 Weighted Average Common Shares Outstanding – Diluted 7,602 7,568 7,519 Non-vested restricted shares of common stock entitle the holder to receive non-forfeitable dividends upon issuance and are included in the calculation of diluted earnings per common share. Stock-Based Compensation Stock-based compensation is measured based on the fair value of the equity award at the grant date and is expensed on a straight-line basis over the vesting period. Upon the vesting of restricted stock, the Company issues common stock from common shares held in treasury. The Company recognizes the impact of forfeitures as they occur. See Note 8. Stock-based Compensation for a discussion of the Company’s stock-based compensation plans. Note 3. Inventories Inventories consist of the following at September 30, 2023 and 2022: (in thousands) September 30, 2023 2022 Unharvested fruit crop on the trees $ 50,699 $ 26,717 Other 1,782 965 Total inventories $ 52,481 $ 27,682 The Company records its inventory at the lower of cost or net realizable value. In September 2022, the state of Florida’s citrus business, including the Company’s unharvested citrus crop, was significantly impacted by Hurricane Ian. The impact of Hurricane Ian resulted in the premature drop of unharvested fruit. Accordingly, for the years ended September 30, 2023 and 2022, the Company recorded $ 1,616 thousand and $ 6,676 thousand, respectively, for adjustments to reduce inventory to net realizable value as a result of the impact of Hurricane Ian, which impacted the Company’s unharvested citrus crop for the year ended September 30, 2022. The Company undertook a process to estimate the amount of inventory casualty loss as of the date of Hurricane Ian. Such process included a number of factors including touring all of the citrus groves by operational personnel to assess the estimated fruit drop by grove and the impact of damage to the citrus trees, and an estimate of fruit the Company expects to produce for the 2022-2023 harvest season after Hurricane Ian. As a result, the Company recorded, for the year ended September 30, 2022, a casualty loss to reduce the carrying value of unharvested fruit crop on trees inventory by $ 14,900 thousand. In the year ended September 30, 2023, the Company received insurance proceeds relating to Hurricane Ian of approximately $ 27,389 thousand for crop claims and $ 839 thousand relating to property and casualty damage claims, which have been recorded as a reduction in operating expenses in the Consolidated Statements of Operations. No further insurance proceeds related to Hurricane Ian are expected. In December 2022, the Consolidated Appropriations Act was signed into law by the federal government; however, the details of the mechanism and funding of any Hurricane Ian relief still remains unclear and, if available, the extent to which we will be eligible. We intend to take advantage of any such available programs as and when they become available. We are currently working with Florida Citrus Mutual, the industry trade group, and government agencies on the federal relief programs available as part of the Consolidated Appropriations Act. 47 Table of Contents The Company was eligible for Hurricane Irma federal relief programs for block grants that were being administered through the State of Florida. During the years ended September 30, 2023, 2022 and 2021, the Company received $ 1,315 thousand, $ 1,123 thousand and $ 4,299 thousand, respectively, under the Florida Citrus Recovery Block Grant (“CRBG”) program. No further federal relief proceeds are expected related to Hurricane Irma. These federal relief proceeds are included as a reduction to operating expenses in the Consolidated Statements of Operations. Note 4. Assets Held for Sale In accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been classified as assets held for sale as of September 30, 2023 and September 30, 2022: (in thousands) Carrying Value Years Ended September 30, 2023 2022 Ranch $ 1,632 $ 205 Total assets held for sale $ 1,632 $ 205 On September 18, 2023, the Company signed an Option Agreement for Sale and Purchase (“Option Agreement”) with the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida for the sale of 17,229 acres of the Alico Ranch. On September 21, 2023, Florida Governor Ron DeSantis and the Florida Cabinet approved the purchase of this land from Alico, under the Florida Forever Program, for approximately $ 77,600 thousand. The sale is expected to close between December 2023 and February 2024. During the year ended September 30, 2023, we sold approximately 2,255 acres of ranch land for approximately $ 12,000 thousand and recognized a gain of $ 11,432 thousand (including approximately 85 acres to Mr. John E. Kiernan, the Company’s President and CEO, on October 20, 2022, for $ 439 thousand ($ 5,161 per acre)). See Note 13. Related Party Transactions for further information. During the year ended September 30, 2022 we sold approximately 9,414 acres of ranch land for $ 41,421 thousand and recognized a gain of $ 39,124 thousand. The Company recorded no impairment loss during the years ended September 30, 2023 and 2022. During the year ended September 30, 2023, these proceeds were used for general corporate purposes. During the year ended September 30, 2022, the Company used a portion of the proceeds from these various asset sales to pay down debt (see Note 6. Long-Term Debt and Lines of Credit for further information), purchase citrus groves and pay the dividend during the year. Note 5. Property and Equipment, Net Property and equipment, net consists of the following at September 30, 2023 and September 30, 2022: (in thousands) September 30, 2023 2022 Citrus trees $ 328,421 $ 329,582 Equipment and other facilities 57,779 58,021 Buildings and improvements 7,081 7,374 Total depreciable properties 393,281 394,977 Less: accumulated depreciation and depletion ( 144,150 ) ( 135,990 ) Net depreciable properties 249,131 258,987 Land and land improvements 112,718 113,492 Property and equipment, net $ 361,849 $ 372,479 For the year ended September 30, 2022, the Company recorded a casualty loss of $ 1,400 thousand with respect to one of its groves, which sustained tree loss of $ 1,300 thousand, and damage to one of its buildings of $ 100 thousand, as a direct result of Hurricane Ian. For the years ended September 30, 2023, 2022 and 2021, the Company recognized a loss on the disposal of property and equipment of $ 9,624 thousand, $ 3,251 thousand and $ 2,338 thousand, respectively, due to tree clippings. The significant 48 Table of Contents increase for the year ended September 30, 2023 was principally driven by a change in plans with respect to the management of a portion of one of its groves and an increase in clippings to support the planting of new trees. In the year ended September 30, 2023, the Company recognized a $ 3,744 thousand loss on the disposal of a portion of one of its citrus groves, as it entered into a lease with a third-party to remove these trees and allow them to utilize this portion of the grove for other agricultural development. Note 6. Long-Term Debt and Lines of Credit The following table summarizes long-term debt at September 30, 2023 and September 30, 2022: (in thousands) September 30, 2023 September 30, 2022 Long-term debt, net of current portion: Met fixed-rate term loans $ 70,000 $ 70,000 Met variable-rate term loans 19,094 19,906 Met Citree term loan 3,888 4,013 Pru loans A & B 11,615 12,777 Deferred financing fees ( 621 ) ( 748 ) 103,976 105,948 Less current portion of long-term debt 2,566 3,035 Long-term debt, net $ 101,410 $ 102,913 The following table summarizes amounts outstanding under lines of credit and related deferred financing costs, net of accumulated amortization at September 30, 2023 and September 30, 2022: (in thousands) September 30, 2023 September 30, 2022 Lines of Credit: RLOC $ — $ — WCLC 24,722 4,928 Deferred financing fees (1) ( 95 ) ( 110 ) Lines of Credit $ 24,627 $ 4,818 1- Represents deferred financing fees on the RLOC. Future maturities of long-term debt and lines of credit as of September 30, 2023 are as follows: (in thousands) September 30, 2023 Due within one year $ 2,566 Due between one and two years 3,035 Due between two and three years 27,757 Due between three and four years 3,035 Due between four and five years 3,035 Due beyond five years 89,891 Total future maturities $ 129,319 49 Table of Contents Interest costs expensed and capitalized were as follows: (in thousands) Years Ended September 30, 2023 2022 2021 Interest expense $ 4,911 $ 3,324 $ 3,987 Interest capitalized 1,439 1,493 1,431 Total $ 6,350 $ 4,817 $ 5,418 Debt The Company’s credit facilities consist of fixed interest rate term loans originally in the amount of $ 125,000 thousand (“Met Fixed-Rate Term Loans”), variable interest rate term loans originally in the amount of, $ 57,500 thousand (“Met Variable-Rate Term Loans”), a $ 25,000 thousand revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a $ 70,000 thousand working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”). At September 30, 2023 and 2022, $ 25,000 thousand and $ 25,000 thousand, is available under the RLOC, respectively, and $ 45,030 thousand and $ 64,762 thousand was available under the WCLC, respectively. The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of 38,200 gross acres of citrus groves and originally included 5,800 gross acres of ranch land. In April 2021, the 5,800 gross acres of ranch land was released as security against the term loans and RLOC and only the 38,200 gross acres of citrus groves remain as security for the term loans and RLOC. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company. Initially, the Met Fixed-Rate Term Loans were subject to quarterly principal payments of $ 1,563 thousand and bore interest at 4.15 % per annum. Effective May 1, 2021, the Company modified its Met Fixed-Rate Term Loans, which, in the aggregate, have a balance of $ 70,000 thousand after the prepayment of $ 10,313 thousand made in April 2021, and have a balance of $ 70,000 thousand to be interest-only, with a balloon payment to be paid at maturity on November 1, 2029. The interest rate on these Met Fixed-Rate Term Loans, which were bearing interest at 4.15 %, was adjusted to 3.85 %. As part of this modification, the Company no longer has the prepayment option previously allowed under the arrangement. The Met Variable-Rate Term Loans are subject to quarterly principal payments of $ 406 thousand and historically bear an interest rate equal to 90-day LIBOR plus 165 basis points (the “LIBOR spread”). Effective February 17, 2023, the Company agreed to defer the next three quarterly principal payments which were previously due May 2023, August 2023 and November 2023 to the maturity date of the loan. For the year ended September 30, 2022, the LIBOR rate was effective from October 1, 2021 through July 31, 2022. The LIBOR spread was subject to adjustment by Met beginning May 1, 2017 and was subject to further adjustment every two years thereafter until maturity. No adjustment was made at May 1, 2019, or at May 1, 2021. Effective August 1, 2022, the interest rate was renegotiated to the One Month Term Secured Overnight Financing Rate (SOFR) plus 175 basis points (the “SOFR spread”). The SOFR spread is subject to adjustment by Met every 2 years beginning May 1, 2023, until maturity. Interest on the term loans is payable quarterly. The interest rates on the Met Variable-Rate Term Loans were 7.52 % per annum and 4.27 % per annum, as of September 30, 2023 and September 30, 2022, respectively. The Met Variable-Rate Term Loans mature on November 1, 2029. With respect to the RLOC, for the year ended September 30, 2022, the LIBOR-based rate was effective from October 1, 2021 through July 31, 2022 and bears interest at a floating rate equal to 90-day LIBOR plus 165 basis points, payable quarterly. Effective August 1, 2022, the LIBOR-based rate was renegotiated to SOFR plus 175 basis points. The SOFR spread is subject to adjustment by lender every 2 years beginning May 1, 2023, until maturity on November 1, 2029. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit and is available for funding general corporate purposes. The variable interest rate was 7.52 % per annum and 4.27 % per annum as of September 30, 2023 and September 30, 2022, respectively. The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. T he WCLC agreement was amended on October 27, 2022, and the primary terms of the amendment were an extension of the maturity to November 1, 2025, and the conversion of the interest rate from LIBOR plus a spread to SOFR plus a spread, which spread is adjusted quarterly, based on the Company’s debt service coverage ratio for the preceding quarter and can vary from 175 to 250 basis points . There were no changes to the commitment amount. The rate at September 30, 2023 was SOFR plus 175 basis points. The variable interest rate was 7.07 % per annum and 4.31 % per annum as of September 30, 2023 and September 30, 2022, respectively. The WCLC agreement provides for Rabo to issue up to $ 2,000 thousand in letters of credit on the Company’s behalf, of which $ 248 thousand and $ 310 thousand were issued as of September 30, 2023 and September 30, 2022, respectively. The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on Alico’s debt service coverage ratio for the preceding quarter and can vary from a minimum of 50 Table of Contents 20 basis points to a maximum of 30 basis points. Commitment fees to date have been charged at 20 basis points, except from May 18, 2023 through August 8, 2023 when they were charged at 30 basis points. These credit facilities noted above are subject to various covenants, including the following financial covenants: (i) minimum debt service coverage ratio of 1.10 to 1.00; (ii) tangible net worth of at least $ 160,000 thousand increased annually by 10 % of consolidated net income for the preceding years, or $ 174,628 thousand applicable for the year ended September 30, 2023; (iii) minimum current ratio of 1.50 to 1.00; (iv) debt to total assets ratio not greater than .625 to 1.00; and (v) solely in the case of the WCLC, a limit on capital expenditures of $ 30,000 thousand per year ended September 30. As of September 30, 2023, the Company was in compliance with all of the financial covenants. Credit facilities also include a Met Life term loan collateralized by 1,200 gross acres of citrus grove owned by Citree (“Met Citree Loan”). This is a $ 5,000 thousand credit facility that bears interest at a fixed rate of 5.28 % per annum. Principal and interest payments are made on a quarterly basis. Effective February 17, 2023, the Company agreed to defer the next three quarterly principal payments which were previously due May 2023, August 2023 and November 2023 to the maturity date of the loan. The loan matures in February 2029. Silver Nip Citrus Debt There are two fixed-rate term loans, with an original combined balance of $ 27,550 thousand, bearing interest at 5.35 % per annum (“Pru Loans A & B”). Principal of $ 290 thousand is payable quarterly, together with accrued interest. On February 15, 2015, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip Citrus”) made a prepayment of $ 750 thousand. In addition, the Company made prepayments of $ 4,453 thousand in the second quarter of 2018 with proceeds from the sale of certain properties, which were collateralized under these loans. The Company may prepay up to $ 5,000 thousand of principal without penalty. As such, the Company exceeded the allowed $ 5,000 thousand prepayment by $ 203 thousand and was required to make a premium payment of $ 22 thousand. The loans are collateralized by approximately 5,700 acres of citrus groves in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, 2033, respectively. The Pru Loans A & B are subject to a financial covenant whereby the consolidated current ratio requirement is 1.00 to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of September 30, 2023. Deferred Financing Costs Costs incurred to obtain financing are deferred and amortized to "Interest expense" in the consolidated statement of operations over the related financing period using the effective interest method. The Company records debt issuance costs as a direct reduction of the carrying value of the related debt. Financing costs related to the undrawn RLOC are included in "Other non-current assets" in the consolidated balance sheet. Note 7. Accrued Liabilities Accrued liabilities consist of the following at September 30, 2023 and September 30, 2022: (in thousands) September 30, 2023 2022 Ad valorem taxes $ 2,134 $ 2,024 Accrued interest 1,102 764 Accrued employee wages and benefits 1,007 1,713 Accrued dividends 381 3,793 Accrued insurance 345 345 Professional fees 307 303 Other accrued liabilities 87 120 Total accrued liabilities $ 5,363 $ 9,062 Note 8. Stock-based Compensation Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which provides for up to 1,250 thousand common shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to stockholder value, with approximately 1,145 thousand remaining available for issuance under the 2015 Plan. The 2015 Plan was approved by the Company’s stockholders in February 2015. The Company’s 2015 Plan provides for grants to executives in various forms including restricted shares of the Company’s common stock and stock options. Awards are discretionary and are determined by the 51 Table of Contents 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. The Company recognizes stock-based compensation expense for (i) Board of Directors fees (generally paid in treasury stock); and (ii) other awards under the 2015 Plan (paid in restricted stock and stock options). Stock-based compensation expense is recognized in general and administrative expenses in the Consolidated Statements of Operations. Stock Compensation – Board of Directors The Board of Directors can either elect to receive stock compensation or cash for their fees for services provided. Stock-based compensation expense relating to the Board of Directors fees was $ 588 thousand, $ 661 thousand and $ 844 thousand for the years ended September 30, 2023, 2022 and 2021, respectively. Restricted Stock Awards (“RSAs”) The following table represents a summary of the status of the Company’s RSAs: Restricted Stock Awards Shares Weighted- Average Grant Date Fair Value Outstanding at September 30, 2022 28,546 $ 37.82 Granted during year 2023 (a) 50 32.30 Vested during year 2023 (b) ( 11,037 ) 37.82 Forfeited during year 2023 ( 19 ) 32.30 Outstanding and expected to vest at 2023 (c) 17,540 $ 37.82 a. The weighted average fair value of RSAs granted in year 2023 and 2022 was $ 32.30 and $ 37.82 , respectively. b. The total fair value of all RSAs vested in year 2023 and 2022 was $ 417 thousand and $ 214 thousand, respectively. c. The weighted average remaining contractual term is 1.8 years and the aggregate intrinsic value of RSAs expected to vest is $ 438 thousand. Stock compensation expense related to the RSAs totaled $ 329 thousand, $ 459 thousand and $ 144 thousand for the years ended September 30, 2023, 2022 and 2021, respectively. There was $ 376 thousand of total unrecognized stock compensation costs related to RSAs at September 30, 2023. Stock Options All outstanding stock options are fully vested at September 30, 2023. The following table represents a summary of the Company’s stock option activity: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding – September 30, 2022 (a) 126,500 $ 33.78 0 — Exercised during year 2023 — — 0 — Forfeitures/expired during year 2023 ( 88,500 ) 33.96 0 — Outstanding – September 30, 2023 38,000 $ 33.75 3.3 — a. Includes 29,500 options which would vest if the price of the Company’s common stock during a consecutive 20 -trading day period exceeds $ 40 ; 29,500 options which would vest if the price of the Company’s common stock during a consecutive 20 -trading day period exceeds $ 45 ; and 29,500 options which would vest if the price of the Company’s common stock during a consecutive 20 -trading day period exceeds $ 50 . Stock compensation expense related to the options totaled $ 18 thousand, $ 115 thousand and $ 242 thousand for the years ended September 30, 2023, 2022 and 2021, respectively. Forfeitures of RSAs and stock options were recognized as incurred. At September 30, 2023 and September 30, 2022, there was $ 0 and $ 18 thousand, respectively, of total unrecognized stock compensation costs related to unvested share-based compensation for the option grants. 52 Table of Contents Total stock-based compensation expense for the years ended September 30, 2023, 2022 and 2021, which was recognized in general and administrative expense, was $ 935 thousand, $ 1,235 thousand and $ 1,230 thousand, respectively. Note 9. Income Taxes The Federal and State filings remain subject to examination by tax authorities for tax periods ending after September 30, 2018. The income tax provision for the years ended September 30, 2023, 2022 and 2021 consists of the following: (in thousands) Years Ended September 30, 2023 2022 2021 Current: Federal income tax $ ( 18 ) $ 3,884 $ 7,347 State income tax ( 2 ) 1,061 1,971 Total current ( 20 ) 4,945 9,318 Deferred: Federal income tax 630 ( 5,943 ) 2,144 State income tax 330 ( 2,242 ) 105 Valuation allowance ( 139 ) 4,309 — Total deferred 821 ( 3,876 ) 2,249 Income tax provision $ 801 $ 1,069 $ 11,567 Income tax provision attributable to income before income taxes differed from the amount computed by applying the statutory federal income tax rate of 21% to income before income taxes for each of the years ended September 30, 2023, September 30, 2022 and September 30, 2021, respectively, as a result of the following: (in thousands) Years Ended September 30, 2023 2022 2021 Amount Tax Rate Amount Tax Rate Amount Tax Rate Income tax at the statutory federal rate $ 516 21.0 % $ 2,560 19.8 % $ 9,741 21.0 % Increase (decrease) resulting from: State income taxes, net of federal benefit 265 10.8 % 120 0.9 % 1,645 3.5 % Permanent and other reconciling items, net 27 1.1 % 44 0.3 % 41 0.1 % Land Donation – Bargain Sale — — % ( 6,279 ) ( 48.5 %) — — % Valuation allowance ( 139 ) ( 5.7 %) 4,309 33.3 % — — % Other 132 5.4 % 315 2.4 % 140 0.3 % Income tax provision $ 801 32.6 % $ 1,069 8.3 % $ 11,567 24.9 % 53 Table of Contents The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of September 30, 2023, and 2022 are presented below: (in thousands) September 30, 2023 2022 Deferred tax assets: Goodwill $ 10,836 $ 12,623 Inventories 1,307 5,577 Stock compensation 279 198 Accrued bonus 29 — Intangibles 345 399 Charitable contribution carryforward 5,809 5,776 Net operating loss 3,762 — Interest expense limitation 1,599 — Other 129 108 Total deferred tax assets 24,095 24,681 Deferred tax liabilities: Property and equipment 55,163 55,007 Investment in Citree 943 740 Prepaid insurance 229 214 Total deferred tax liabilities 56,335 55,961 Valuation allowance 4,170 4,309 Net deferred income tax liabilities $ ( 36,410 ) $ ( 35,589 ) The Company has a federal net operating loss carryforward of $ 17,400 thousand and state net operating loss carryforward of $ 2,400 thousand at September 30, 2023, which resulted in deferred tax assets of $ 3,657 thousand and $ 105 thousand, respectively. Both federal and state net operating losses have an indefinite life. The Company has established a partial valuation allowance on our charitable contribution carryforward as of September 30, 2022, as the amount of expected future taxable income is not likely to support the use of the deferred tax asset before it expires. The valuation allowance at September 30, 2023 and 2022 was $ 4,170 thousand and $ 4,309 thousand, respectively. Note 10. Segment Information Segments Operating segments are defined in the criteria established under the FASB ASC Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on two operating segments: Alico Citrus and Land Management and Other Operations. Total revenues represent sales to unaffiliated customers, as reported in the Consolidated Statements of Operations. Goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including nonrecurring gains and losses. 54 Table of Contents Information by operating segment is as follows: (in thousands) Years Ended September 30, 2023 2022 2021 Revenues: Alico Citrus $ 38,145 $ 89,681 $ 105,796 Land Management and Other Operations 1,701 2,266 2,768 Total revenues 39,846 91,947 108,564 Operating expenses: Alico Citrus 32,959 106,192 83,893 Land Management and Other Operations 441 520 778 Total operating expenses 33,400 106,712 84,671 Gross profit (loss): Alico Citrus 5,186 ( 16,511 ) 21,903 Land Management and Other Operations 1,260 1,746 1,990 Total gross profit (loss) $ 6,446 $ ( 14,765 ) $ 23,893 Capital expenditures: Alico Citrus $ 16,733 $ 20,867 $ 41,785 Total capital expenditures $ 16,733 $ 20,867 $ 41,785 Depreciation, depletion and amortization: Alico Citrus $ 14,999 $ 14,697 $ 14,523 Land Management and Other Operations 67 98 147 Other Depreciation, Depletion and Amortization 421 434 452 Total depreciation, depletion and amortization $ 15,487 $ 15,229 $ 15,122 Assets: Alico Citrus $ 415,030 $ 396,266 Land Management and Other Operations 11,722 11,326 Other Corporate Assets 1,601 1,663 Total Assets $ 428,353 $ 409,255 Note 11. Leases The Company determines whether an arrangement is a lease at inception. The Company’s leases consist of operating lease arrangements for certain office space, tractor leases and IT facilities. When these lease arrangements include lease and non-lease components, the Company accounts for lease components and non-lease components (e.g., common area maintenance) separately based on their relative standalone prices. Any lease arrangements with an initial term of 12 months or less are not recorded on the Company’s Consolidated Balance Sheets, and it recognizes lease cost for these lease arrangements on a straight-line basis over the applicable lease term. Many lease arrangements provide the options to exercise one or more renewal terms or to terminate the lease arrangement. When the options are reasonably certain to be exercised the Company includes these options when it will be reasonably certain to exercise them in the lease term used to establish the right-of-use assets and lease liabilities. Generally, lease agreements do not include an option to purchase the leased asset, residual value guarantees or material restrictive covenants. 55 Table of Contents As most of our lease arrangements do not provide an implicit interest rate, the Company applies an incremental borrowing rate based on the information available at the commencement date of the lease arrangement to determine the present value of lease payments. No lease costs associated with finance leases and sale-leaseback transactions occurred and our lease income associated with lessor and sublease arrangements are not material to our Consolidated Financial Statements. Our operating leases are reported in our Consolidated Balance Sheets as follows: (in thousands) Classification September 30, 2023 September 30, 2022 Operating lease components Right-of-use assets – non-current Other non-current assets $ 523 $ 755 Current lease liabilities Other current liabilities $ 254 $ 415 Non-current lease liabilities Other liabilities $ 305 $ 386 Our operating leases cost components are reported in our Consolidated Statements of Operations as follows: (in thousands) Classification September 30, 2023 September 30, 2022 Operating lease components Grove management services revenue Operating revenue $ — $ 116 Grove management services cost-of-sales Operating expenses $ — $ 116 Operating lease costs General and administrative expenses $ 128 $ 85 Future maturities of our operating lease obligations as of September 30, 2023, by year, are as follows: (in thousands) 2024 $ 255 2025 159 2026 145 2027 26 2028 — Total noncancelable future lease obligations $ 585 Less: Interest ( 26 ) Present value of lease obligations $ 559 September 30, 2023 Weighted-average remaining lease term 1.90 years Weighted-average discount rate 5.22 % 56 Table of Contents Cash flow information related to leases consists of the following: (in thousands) September 30, 2023 September 30, 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 211 $ 302 Right-of-use assets obtained in exchange for lease obligations: Operating leases $ 184 $ — Note 12. Employee Benefits Plans Profit Sharing and 401(k) Plans The Company maintains a 401(k) employee savings plan for eligible employees, which provides up to a 4 % matching contribution payable on employee payroll deferrals. The Company’s matching funds vest to the employee immediately, pursuant to a safe harbor election effective in October 2012. The Company’s contributions to the plan were $ 384 thousand, $ 398 thousand and $ 401 thousand for the years ended September 30, 2023, 2022 and 2021, respectively. The Company also maintains a Profit Sharing Plan (“Plan”) that is fully funded by contributions from the Company. Contributions to the Plan are discretionary and determined annually by the Company’s Board of Directors. Contributions to employee accounts are based on the participant’s compensation. The Company did not contribute to the Plan for the years ended September 30, 2023, 2022 and 2021, respectively. Note 13. Related Party Transactions Capital Contribution On June 6, 2023, all operating partners of Citree received a funding notice relating to an additional Cash Capital Contribution (“Contribution”) requirement of $ 900 thousand as a result of trees producing limited revenue due to the severity of the fruit drop resulting from Hurricane Ian, which negatively impacted both the box production and pounds solids. The Company’s portion of the Contribution was $ 460 thousand and was funded on June 22, 2023. The remaining portion of the Contribution of $ 440 thousand was funded by the noncontrolling parties. On September 6, 2022, all operating partners of Citree received a funding notice relating to an additional Contribution requirement of $ 600 thousand as a result of trees producing limited revenue because they are still in early-stage development, a freeze event occurred in January 2022 which negatively impacted both the box production and pounds solids, and the increased cost of fertilizer, other chemicals and fuel. The Company’s portion of the Contribution was $ 306 thousand and was funded on September 22, 2022. The remaining portion of the Contribution of $ 294 thousand was funded by the noncontrolling parties. Lease Agreement On January 1, 2022, Mr. Kiernan, the Company’s President and CEO, entered into a Hunting Lease Agreement and Real Estate Purchase and Sale Option Agreement with the Company (the “Kiernan Lease Agreement”). Under the Kiernan Lease Agreement, the Company leased approximately 93 acres of Company-owned, largely unimproved land (the “Land”) to Mr. Kiernan for a three-year term commencing on January 1, 2022, and ending on January 1, 2025, with a yearly rent of $ 1,860 . Additionally, under the terms of the Kiernan Lease Agreement, the Company granted to Mr. Kiernan an option to purchase the Land from the Company, exercisable only during the one-year period January 1, 2022, through January 1, 2023, and at a price of $ 480 thousand ($ 5,161 per acre), which price was based on an independent appraisal obtained by the Company. On January 5, 2022, Mr. Kiernan exercised his option to purchase the land. Pursuant to exercise of the option, the Company sold approximately 85 acres to Mr. Kiernan on October 20, 2022 for $ 439 thousand ($ 5,161 per acre). Note 14. Commitments and Contingencies Purchase Commitments The Company enters into contracts for the purchase of citrus trees during the normal course of its business. As of September 30, 2023, the Company had $ 4,350 thousand relating to outstanding commitments for these purchases that will be paid upon delivery of the remaining citrus trees. 57 Table of Contents Letters of Credit The Company had outstanding standby letters of credit in the total amount of $ 248 thousand and $ 310 thousand at September 30, 2023 and September 30, 2022, respectively, to secure its various contractual obligations. Legal Proceedings From time to time, Alico has been, and may in the future be, involved in litigation relating to claims arising out of its operations in the normal course of business. There are no current legal proceedings to which the Company is a party or of which any of its property is subject that it believes will have a material adverse effect on its financial position, results of operations or cash flows. On February 17, 2023, a class action complaint was filed in the Middle District of Florida captioned Sinder v. Alico, Inc. et al., Case No. 2:23-cv-00107 (the “Sinder” matter) asserting violations of Sections 10(b) and 20(a) of the Exchange Act of 1934 against the Company and certain of its current and former officers on behalf of a putative class of investors who purchased the Company’s common stock between February 4, 2021 and December 13, 2022. The complaint alleged, among other things, that the Company and certain of its current and former officers made false and misleading statements and failed to disclose certain information regarding the Company’s financial reporting and December 13, 2022 restatement of the Company’s previously issued financial statements. On August 28, 2023, the same day on which the Company’s motion to dismiss was due, the plaintiff voluntarily dismissed without prejudice the Sinder matter. On March 7, 2023, an alleged shareholder filed a derivative complaint purportedly on behalf of the Company against certain of its current and former officers and directors in the 20th Judicial Circuit for Lee County, Florida captioned Assad v. Brokaw et al., Case # 23-CA-001484 (the “Assad” matter). The complaint asserted claims of breach of fiduciary duty and unjust enrichment arising from substantially similar allegations as those contained in the securities class action described above. Following dismissal of the Sinder matter, the shareholder voluntarily dismissed without prejudice the Assad matter. Note 15. Subsequent Events On October 30, 2023, the Company entered into a Citrus Grove Management Agreement (the "Agreement") with an unaffiliated group of third parties to provide citrus grove caretaking and harvest and haul management services for approximately 3,300 acres owned by such third parties. Under the terms of the Agreement, the Company is reimbursed by the third parties for all its costs incurred related to providing these services and receives a management fee based on acres covered under this agreement. The Agreement may be terminated with written notice provided at least 60 days prior to the commencement of the next fiscal year, occurring subsequent to September 30, 2024 and with shorter notice under certain conditions. 58 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.