What changed in this filing

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Item 7. Management’s Discussion and Analysis

2020-12-08 compared with 2019-12-05 · 148 added, 213 removed, 321 unchanged (53% of the section changed)

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Cautionary Statement Regarding Forward-Looking Information

We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Any statements in this Annual Report on Form 10-K that are not historical facts are forward-looking statements.

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acquisitions and divestitures;

our ability to achieve the anticipated cost savings under the Alico 2.0 Modernization program;

labor disruptions;

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changes in agricultural land values;

market and pricing risks due to concentrated ownership of stock market and pricing risks due to concentrated ownership of stock;

the Company's receipt of future funding from the state of Florida in connection with water retention projects;

any Federal relief received in the future by the Company in connection with Hurricane Irma;

any reduction in the public float resulting from the 2018 tender offer or any subsequent repurchases of common stock by the Company;

recent changes in the Equity Plan awards to Employees;

continuation of the Company's dividend policy;

expressed desire of certain of our stockholders to liquidate their shareholdings by virtue of past market sales of common stock by sales of common stock or by way of future transactions;

impact of the COVID-19 outbreak and coronavirus pandemic on our agriculture operations, including without limitation demand for product, supply chain, health and availability of our labor force, the labor force of contractors we engage, and the labor force of our competitors;

other risks related to the duration and severity of the COVID-19 outbreak and coronavirus pandemic and its impact on Alico’s business;

the impact of the COVID-19 outbreak and coronavirus pandemic on the U.S.

and global economies and financial markets;

access to governmental loans and incentives;

any reduction in the public float resulting from repurchases of common stock by Alico;

changes in equity awards to employees;

whether the Company's dividend policy, including its recent increased dividend amounts, is continued;

expressed desire of certain of our shareholders to liquidate their shareholdings by virtue of past market sales of common stock, by sales of common stock or by way of future transactions;

political changes and economic crises;

competitive actions by other companies;

changes in dividends;

increased competition from international companies;

changes in environmental regulations and their impact on farming practices;

the ability to secure permits for the Water Storage Contract and Project from the South Florida Water Management District;

the land ownership policies of governments;

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changes in pricing calculations with our customers;

fluctuations in the value of the U.

fluctuations in the value of the U.S.

dollar, interest rates, inflation and deflation rates;

changes in and effects of crop insurance programs, global trade agreements, trade restrictions and tariffs;

length of terms of contracts with customers;

and changes in and effects of crop insurance programs, global trade agreements, trade restrictions and tariffs;

and soil conditions, harvest yields, prices for commodities, and crop production expenses.

These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K.

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We are a Florida agribusiness and land management company with a legacy of achievement and innovation in citrus, cattle and resource conservation.

We own approximately 111,000 acres of land in eight Florida counties which includes approximately 90,000 acres of mineral rights.

Our principal lines of business are now citrus groves and water storage and other operations, which include environmental services, land leasing and related support operations.

We own approximately 100,000 acres of land in eight Florida counties, holding mineral rights on approximately 90,000 of those owned acres.

Our principal lines of business are now citrus groves and land management and other operations, which include land conservation, encompassing environmental services, land leasing and related support operations.

Prior to the sale of certain ranch land to the State of Florida in September 2020, the Company’s business line also included Water Resources.

Prior to the sale of our breeding herd in January 2018, the Company’s business line also included cattle ranching.

Our mission is to create value for our customers and stockholders by managing existing lands to their optimal current income and total returns.

Our mission is to create value for our customers and shareholders by managing existing lands to their optimal current income and total returns.

Alico opportunistically acquires new agricultural assets and produces high quality agricultural products while exercising responsible environmental stewardship.

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Consolidated Results of Operations.

This section provides an analysis of our results of operations for the three fiscal years ended September 30, 2019.

This section provides an analysis of our results of operations for each of the three fiscal years ended September 30, 2020.

Our discussion is presented on a consolidated basis and includes discussion on future trends by segment.

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The Company operates as two business segments and all of its operating revenues are generated in the United States.

During the fiscal year ended September 30, 2019, the Company generated operating revenues of approximately $122,251,000 , income from operations of approximately $45,214,000 , and net income attributable to common stockholders of approximately $37,833,000 .

Cash provided by operating activities was approximately $48,832,000 during the fiscal year ended September 30, 2019.

For the fiscal year ended September 30, 2020, the Company generated operating revenues of approximately $92,507,000, income from operations of approximately $6,921,000, and net income attributable to common stockholders of approximately $23,662,000.

Cash provided by operating activities was approximately $1,049,000 for the fiscal year ended September 30, 2020.

Fiscal Year Highlights and Other Developments

Alico 2.0 Modernization Program

On November 16, 2017, we announced the Alico 2.0 Modernization Program (“Alico 2.0”).

This program was intended to transform three legacy businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, Alico Citrus, so we would remain one of the leaders in the U.S.

citrus industry.

This initiative was to explore every aspect of Alico’s citrus and ranch operations, including corporate and operational cost structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources efficiency.

Under this program, Alico expected to reduce its operating costs.

Alico has executed on the efficiencies identified and has improved margins through better purchasing, more precise application of selected fertilizers and chemicals, outsourcing work such as harvesting, hauling, and certain caretaking tasks, and by streamlining grove management.

We have also deployed a more efficient labor model that is consistent and uniform for field staffing and grove operations and is aligned with the geographical footprint of the citrus groves.

This effort has helped to transition us to a high-quality, low-cost producer of citrus which we anticipate will continue for future years to come.

In combination with these efforts, the Company worked to maintain operational efficiencies and deploy its resources to solidify the Company's position as a leader in the recovering citrus industry.

Under Alico 2.0, we also decided to divest assets that generated low rates of return and shut down parts of our operations that were not profitable.

Alico Citrus has generated cash of $57,800,000, under Alico 2.0 through September 30, 2019.

This has been facilitated through (i) the shut down and sale of its nursery in Gainesville, Florida, (ii) the sale of certain underperforming groves, (ii) the sale of its breeding herd, (iv) the sale of certain parcels of land on its Ranch, (v) the sale of certain trailers related to our logistics division, and (vi) the sale of certain real estate assets that were not strategic to our business plan.

In January 2018, the Company sold its breeding herd and leased grazing rights on the Ranch to a third party operator.

However, the Company continues to own the property and continues to conduct its long-term dispersed water program and wildlife management programs.

Alico 2.0 also included an enhanced program to plant more citrus trees.

The Company planted over 400,000 trees in both fiscal year 2019 and 2018 to help position the Company for future production growth.

On September 5, 2018, the Board of Directors approved and Alico announced the commencement of an issuer offer (the “Tender Offer”) to purchase up to $19,999,990 in value of shares of its common stock at a purchase price of $34.00 per share.

On October 3, 2018, upon the terms and subject to the conditions described in the Offer to Purchase dated September 5, 2018, including the ability to increase the aggregate value of shares purchased, Alico repurchased an aggregate of 752,234 shares at a price of $34.00 per share aggregating $25,575,956.

These shares represented approximately 9.2% of the total number of shares of the Company’s common stock issued and outstanding as of October 2, 2018.

Included in the 752,234 shares were 163,999 shares that the Company elected to purchase pursuant to its right to purchase up to an additional 2% of its outstanding shares of common stock.

734 Investors, LLC, Alico’s largest stockholder from 2013 until November 12, 2019, participated in the Tender Offer by selling a small percentage of its holdings of the Company’s common stock.

Members of neither the management team nor the Board of Directors sold any shares directly in the Tender Offer.

Termination Proceedings against Mr.

On November 19, 2018, Alico, with unanimous approval of the members of the Board of Directors, other than Remy W.

Trafelet, notified Mr.

Trafelet, who was at the time the Company's President and Chief Executive Officer and a member of the Board of Directors, that it intended to consider terminating his employment for “cause” pursuant to the terms of his employment agreement with the Company and option agreements entered into under the Company's Stock Incentive Plan of 2015 (collectively, the “Compensation Documents”).

On November 28, 2018, the parties in the Florida Litigation (as defined below) stipulated to an order which provided, among other things, that pending the resolution of the Delaware Litigation (as defined below), the Board of Directors would not take any action out of the routine day-to-day operations conducted in the ordinary course of business, including removing any corporate officers or directors from positions held as of November 27, 2018.

As described in “Note 16.

Commitments and Contingencies” to the condensed consolidated financial statements in Part II Item 8, of this Annual Report on Form 10-K, on February 11, 2019, the parties to the Florida Litigation entered into the Alico Settlement Agreement wherein the parties agreed to promptly dismiss all claims in the Florida Litigation, including those related to the termination proceedings against Mr.

Trafelet, and Mr.

Trafelet agreed to voluntarily resign as President and Chief Executive Officer and a member of the Company’s Board of Directors, effective upon the execution of the Alico Settlement Agreement.

As contemplated by the Alico Settlement Agreement, on February 11, 2019, the Company entered into the Consulting Agreement with Mr.

Trafelet and 3584, Inc.

(the "Consultant").

Pursuant to the Consulting Agreement, Mr.

Trafelet agreed to make himself available to provide consulting services to the Company through the Consultant for up to 24 months.

In exchange for the consulting services, the Consultant is receiving an annual consulting fee of $400,000.

If the Company terminates the consulting period (other than in certain specified circumstances), the Company will continue to pay the consulting fees described in the immediately preceding sentence through the balance of the 24-month term.

In addition, as contemplated by the Alico Settlement Agreement, the Company entered into the Registration Rights Agreement with Mr.

Trafelet, relating to the Registrable Securities.

The Registration Rights Agreement required the Company to, among other things and subject to the terms and conditions thereof, use reasonable best efforts to file with the SEC a registration statement on Form S-3 covering the resale of the Registrable Securities.

On October 10, 2019, Mr.

Trafelet executed a waiver whereby he waived the S-3 Registration Rights but maintained all other rights arising under the Registration Rights Agreement and all rights arising under Section 14 of the Alico Settlement Agreement.

Management and Board Changes

On April 11, 2019, the Board of Directors announced the appointment of Mr.

Kiernan as President and Chief Executive Officer and Mr.

Richard Rallo as Chief Financial Officer, both effective July 1, 2019.

Additionally, Mr.

Fishman, the Company’s current Interim President, agreed to resign from this position effective July 1, 2019.

In addition, on April 11, 2019, Mr.

Slack, the current Executive Chairman of the Board, informed the Board that he agreed to step down as Executive Chairman of the Board, effective July 1, 2019.

Slack’s decision to step down as Executive Chairman of the Board was not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

Slack will remain a member of the Board of Directors.

The Board appointed Mr.

Fishman, the Company’s current Interim President, to the role of non-employee Executive Chairman of the Board, effective July 1, 2019.

On April 29, 2019, the Board of Directors appointed Mr.

Purse as a member of the Board of Directors, to serve until the 2020 annual meeting of the Company’s shareholders or until his earlier death, resignation, or removal in accordance with the Amended and Restated Bylaws of the Company.

The Board of Directors has affirmatively determined that Mr.

Purse qualifies as an independent director under the rules of the Nasdaq Stock Exchange and as defined under applicable law.

Purse has also been appointed to serve as a member of the audit committee of the Board of Directors.

The COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the current novel coronavirus outbreak (“COVID-19”) to be a global pandemic.

In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country have imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

These measures have had a significant adverse impact upon many sectors of the economy, including certain agriculture businesses.

During March 2020, as a precautionary measure to ensure financial flexibility and maintain maximum liquidity in response to the COVID-19 pandemic, the Company implemented several measures that we believe would help ensure sufficient liquidity for the next several months, including drawing down an aggregate of $70,000,000 on its revolving credit facilities.

This decision was made to safeguard the Company’s liquidity and to increase available cash on hand in the event that a more protracted COVID-19 outbreak were to put a significant strain on the financial institutions and their ability to loan funds.

As of September 30, 2020, the Company, believing that despite the protracted COVID-19 outbreak, the financial institutions industry was experiencing less negative impact from the outbreak than originally expected, proceeded to pay down the majority of the amounts drawn under its revolving credit facilities.

Additionally, for the protection of our employees per the Centers For Disease Control and Prevention (CDC) guidelines, the Company arranged to have the majority of office personnel work remotely, has taken steps to allow and encourage greater separation for our employed and contracted field workers and has worked with its harvesters, haulers and suppliers to minimize interactions.

The Company continues to assess the situation on a routine basis.

To date, the Company has experienced no material adverse impacts from this pandemic.

Citrus Grove Management Agreement

On July 16, 2020, the Company executed an agreement with an affiliated group of third parties to provide citrus grove caretaking and harvest and haul management services for approximately 7,000 acres owned by such third parties.

Pursuant to this agreement, the Company is to be reimbursed by the third parties for all of its costs incurred related to providing these services and also is to receive a management fee based on acres covered under this agreement.

Agreements with Tropicana

On each of May 18, 2020 and May 20, 2020, the Company entered into a new agreement to supply Tropicana, its largest customer, with citrus fruit.

These new agreements are effective October 1, 2020, conclude on July 31, 2024, and succeed an existing agreement that expired at the end of September 2020.

Federal Relief Program

The Company is eligible for Hurricane Irma federal relief programs for block grants that are being administered through the State of Florida.

During the fourth quarter of 2019 and for the fiscal year ended September 30, 2019, the Company received approximately $15,597,000 under the Florida Citrus Recovery Block Grant (“CRBG”) program.

This represents the Part 1 and a portion of the Part 2 reimbursement under a three-part program.

Subsequent to fiscal year end 2019, the Company received additional proceeds of approximately $4,136,000 under the Florida CRBG program.

This represents another portion of the Part 2 reimbursement under a three-part program.

The timing and amount to be received under the remaining portion of Part 2 and Part 3 of the program, if any, has not been finalized.

During the fiscal year ended September 30, 2020 and 2019, the Company received approximately $4,629,000 and $15,597,000, respectively, under the Florida Citrus Recovery Block Grant (“CRBG”) program.

This represents the Part 1 and Part 2 reimbursement under a three-part program.

The timing and amount to be received under Part 3 of the program, if any, has not been finalized.

Distribution of Shares by 734 Investors

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Prior to such distribution, 734 Investors was the Company’s largest shareholder.

Employee and Board of Directors Matters

On August 6, 2020, the Board of Directors increased the number of its directors by two and appointed Mr.

Adam Putnam and Ms.

Kate English as directors, each to serve until the 2021 annual meeting of the Company’s shareholders or until his or her earlier death, resignation, or removal in accordance with the Amended and Restated Bylaws of the Company.

In December 2019, Mr.

Brokaw, the then Executive Vice Chairman, informed the Board of Directors that he would voluntarily step down as Executive Vice Chairman effective December 31, 2019 and that change has taken effect.

After the effectiveness of this change, Mr.

Brokaw has remained a member of the Board of Directors.

Effective February 27, 2020 (which was immediately after the 2020 Annual Meeting of Shareholders), by way of action that has been taken by and at the direction of the Board of Directors, Benjamin D.

Fishman, the non-employee Executive Chairman, became the Chairman of the Board.

Fishman has remained a non-employee director.

Condensed Consolidated Results of Operations

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Operating revenues:

Water Resources and Other Operations

Land Management and Other Operations

Total operating revenues

Gross profit (loss):

Water Resources and Other Operations

Land Management and Other Operations

Total gross profit

General and administrative expenses

Income (loss) from operations

Total other income (expense)

Income (loss) before income taxes

Income tax provision (benefit)

Net income (loss)

Net loss attributable to noncontrolling interests

Net income (loss) attributable to Alico, Inc.

Income from operations

Total other income, net

Income before income taxes

Income tax provision

Net (income) loss attributable to noncontrolling interests

Net income attributable to Alico, Inc.

common stockholders

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Operating revenues:

Water Resources and Other Operations

Land Management and Other Operations

Total operating revenues

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

The table below presents key operating measures for the fiscal years ended September 30, 2019, 2018 and 2017:

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

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Early and Mid-Season

Grove Management Services

Purchase and Resale of Fruit

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Harvesting and Hauling

Grove Management Services

Purchase and Resale of Fruit

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Our citrus groves produce the majority of our annual operating revenues and the citrus grove business is seasonal because it is tied to the growing and harvest season.

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Other expenses include the period costs of third-party grove caretaking and the purchase and reselling of fruit.

The decrease in revenue for the fiscal year ended September 30, 2020, compared to the fiscal year ended September 30, 2019 was due to a decrease in the price per pound solids as well as a decrease in aggregate processed box production.

The decrease in the price per pound solids in the market place was a result of excess supply from domestic and international growers.

The decrease in aggregate processed box production was the result of greater fruit drop and smaller fruit size of Valencias in the current harvest season as compared to the prior harvest season, offset in part by an increase in processed box production of the Early and Mid-season fruit.

As previously disclosed, the Company anticipated a reduction in the market prices throughout the 2019-20 harvest season as a result of the excess supply from domestic and international growers.

However, due to an increase in the consumption of Not from Concentrate Orange Juice ("NFC"), as indicated in the published Nielsen data, since March 2020, inventory levels have decreased and, as a result, the Company anticipates that market pricing will improve in the 2020-21 harvest season.

The Company completed its harvest season in the middle of May 2020 and was able to complete the harvest without any negative impact from the COVID-19 pandemic.

The increase in revenues for the fiscal year ended September 30, 2019, compared to the fiscal year ended September 30, 2018, was primarily related to the negative impact of Hurricane Irma on the prior fiscal year harvest.

As a result of Hurricane Irma, which occurred in September 2017, the Company experienced a greater amount of fruit drop and consequently harvested approximately 3,202,000 fewer boxes in fiscal year 2018, as compared to the fiscal year 2019.

The Company also saw an overall increase in pound solids per box in the fiscal year 2019, which was 5.91 as compared to 5.64 for the fiscal year 2018.

In addition, the increase in revenue, to a smaller extent, was due to a greater number of boxes of fresh fruit being sold for the fiscal year 2019.

The decrease in revenues for the fiscal year ended September 30, 2018, compared to the fiscal year ended September 30, 2017, was primarily due to the impact of Hurricane Irma.

The Company experienced a greater amount of fruit drop from the impact of Hurricane Irma and consequently harvested approximately 2,557,000 fewer processed boxes in fiscal year 2018, as compared to the same period in fiscal year 2017.

The Company also saw an overall decrease in pound solids per box which went from 5.87 in the fiscal year ended September 30, 2017 to 5.64 in the fiscal year ended September 30, 2018.

The Company did experience a smaller fruit drop with respect to its Valencia fruit which is harvested later in the year as compared to the Early and Mid-Season variety and as such realized a smaller overall reduction in boxes produced.

In addition, the decrease in revenue, to a smaller extent, was due to fewer boxes of fresh fruit being sold for the fiscal year ended September 30, 2018.

The decrease in revenues from purchase and resale of fruit and other revenues reflects the Company’s decision to reduce third party fruit purchases and third party caretaking services.

The Company also saw an overall increase in pound solids per box in fiscal year 2019, which was 5.91 as compared to 5.64 for fiscal year 2018.

In addition, the increase in revenue, to a smaller extent, was due to a greater number of boxes of fresh fruit being sold in fiscal year 2019.

Total processed boxes harvested in fiscal year 2020 decreased by approximately 7.5%, as compared to fiscal year 2019.

Pound solids increased by approximately 6.4% and decreased by approximately 14.1% for the Early and Mid-Season and Valencia oranges, respectively.

The combination of these items resulted in approximately 3,149,000 fewer pound solids sold in fiscal year 2020, as compared to fiscal year 2019.

Total processed boxes harvested in fiscal year 2019 increased by approximately 68.1%, as compared to fiscal year 2018.

Pound solids per box increased by approximately 6.9% and approximately 4.0% for the Early and Mid-Season and Valencia oranges, respectively.

Pound solids increased by approximately 6.9% and approximately 4.0% for the Early and Mid-Season and Valencia oranges, respectively.

The combination of these items resulted in approximately 20,214,000 of additional pound solids sold in fiscal year 2019, as compared to fiscal year 2018.

Total processed boxes harvested in fiscal year 2018 declined by approximately 35.2%, as compared to fiscal year 2017.

Pound solids per box decreased by approximately 9.1% and approximately 1.8% for the Early and Mid-Season and Valencia oranges, respectively.

The combination of these items resulted in approximately 16,098,000 less pound solids sold in fiscal year 2018, as compared to fiscal year 2017.

The USDA, in its November 8, 2019 Citrus Crop Forecast for the 2019-20 harvest season, indicated its expectation that the Florida orange crop will increase from approximately 71,600,000 boxes for the 2018-19 crop year to approximately 74,000,000 boxes for the 2019-20 crop year, an increase of approximately 3.4%.

While the production is estimated to be slightly higher than in the prior year, the Company anticipates there will be a continued reduction in the market prices in the 2019-20 harvest season as a result of excess supply from domestic and international growers.

The Company originally estimated its fiscal year 2019 processed boxes would increase by approximately 31%-37% compared to processed boxes for fiscal year 2018.

Based on the harvesting of fruit, the Company increased processed box production for fiscal year 2019 by approximately 68% compared to processed boxes for fiscal year 2018.

The improvement is the result of both the Early & Mid-season and Valencia variety fruit experiencing less fruit drop then was anticipated upon making the estimate in production.

The increase in gross profit for fiscal year 2019, as compared to fiscal year 2018, was primarily a result of (i) increased citrus revenue and (ii) proceeds received under CRBG program relating to Hurricane Irma, which was recorded as a reduction of operating costs.

The increase in operating expenses was due to the increased harvesting and hauling costs, which is the direct result of increased citrus processed box production and (ii) the Company allocating a greater amount of its accumulated costs to its cost of goods sold.

Partially offsetting this increase in operating expenses was the Company received a greater amount of funds through the CRBG

and insurance claim reimbursement relating to Hurricane Irma in fiscal year 2019, as compared to the same period in fiscal year 2018.

The increase in gross profit for fiscal year 2018, as compared to fiscal year 2017, was primarily driven by a decrease in operating expenses, which was partially offset by a reduction in revenues.

The decrease in operating costs is due to (i) the Company allocating a smaller amount of accumulated costs to cost of goods sold, (ii) less harvesting and hauling costs incurred due to fewer boxes being harvested, and (iii) the Company receiving approximately $9,429,000 of insurance proceeds.

Partially offsetting this decrease in operating expenses, along with the reduction in revenue, was impairment charges of approximately $3,349,000 relating to net realizable adjustment on inventory and long-lived assets.

The decrease in revenue is primarily a result of the impact of Hurricane Irma.

Water Resources and Other Operations

The USDA, in its November 10, 2020 Citrus Crop Forecast for the 2020-21 harvest season, indicated its expectation that the Florida orange crop will decrease from approximately 67,300,000 boxes for the 2019-20 crop year to approximately 57,000,000 boxes for the 2020-21 crop year, a decrease of approximately 15.3%.

As production is estimated to be lower than in the prior year, the Company anticipates there will be an increase in market prices in the 2020-21 harvest season primarily driven by an increase in demand for NFC orange juice, which will more than offset the negative impact from the estimated decline in production.

The increase in operating expenses for the fiscal year 2020, as compared to the fiscal year 2019, primarily relates to the Company receiving less federal relief proceeds through the Florida CRBG program relating to Hurricane Irma, which are recorded as a reduction of operating expenses, during fiscal year 2020, as compared to fiscal year 2019.

The Company received proceeds of approximately $4,629,000 and $15,597,000 through the Florida CRBG program relating to Hurricane Irma during the fiscal years ended September 30, 2020 and 2019, respectively.

Additionally, the Company recorded additional grove management services expense of approximately $3.0 million.

Partially offsetting this decrease in operating expenses was a reduction in harvesting and hauling costs experienced by the Company as a result of fewer processed boxes being harvested during the fiscal year ended September 30, 2020 as compared to the same period in the prior year.

Under the terms of this agreement, the Company is to be reimbursed by the third parties for all of its costs incurred related to providing these services and also is to receive a management fee based on acres covered under this agreement.

As the Company provides these citrus grove caretaking management services, the Company will be recording both an increase in revenues and expenses.

For the fourth quarter ended September 30, 2020, the Company recorded approximately $3,300,000 of operating revenue, including the management fee, and approximately $3,000,000 of operating expenses relating to this arrangement.

Land Management and Other Operations

The table below presents key operating measures for the fiscal years ended September 30, 2020, 2019 and 2018:

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NM - Not meaningful

Land and other leasing includes lease income from a lease for grazing rights, hunting leases, a lease to a third party of an aggregate mine and leases of oil extraction rights to third parties, and farm lease revenue.

The slight increase in revenues from Water Resources and Other Operations for the fiscal year ended September 30, 2019 is primarily due to the Company recording a full year of grazing lease revenue in fiscal year 2019, while only recording nine months of revenue as the lease for these grazing rights was executed on January 8, 2018, at the time of the sale of the cattle herd.

Land and other leasing include lease income from leases for grazing rights, hunting leases, a farm lease, a lease to a third party of an aggregate mine, leases of oil extraction rights to third parties, and other miscellaneous income.

The slight decrease in revenues from Land Management and Other Operations for the fiscal year ended September 30, 2020 is primarily due to a reduction in the leased acreage relating to a cattle grazing lease.

The reduction in the leased acreage was due to certain acres, which were included under this lease arrangement, having been sold in September 2019.

On September 11, 2020, the Company sold approximately 10,700 acres on the western part of Alico Ranch to the State of Florida.

Because the acres involved in the sale would have been critical to our planned dispersed water storage project, the Company has decided to no longer pursue permit approval activities for this particular project.

As a result of this decision, the Company wrote-down approximately $598,000 of assets relating to this project during the fourth quarter of the fiscal year ended September 30, 2020.

The Company anticipates that it will have no further expenses incurred relating to the dispersed water storage project moving forward.

The slight increase in revenues from Land Management and Other Operations for the fiscal year ended September 30, 2019 is primarily due to the Company recording a full year of grazing lease revenue in fiscal year 2019, while only recording nine months of revenue as the lease for these grazing rights was executed on January 8, 2018, at the time of the sale of the cattle herd.

Partially offsetting this increase was a decrease in farm lease revenue as a result of a lease not being renewed in fiscal year 2019.

The Company continues to own the property and conduct its dispersed long-term water program and wildlife management programs.

The decrease in revenues from Water Resources and Other Operations for the fiscal year 2018, as compared to fiscal year 2017, was primarily due to selling of Alico's cattle herd in January 2018.

All inventory costs that were accumulated at the date of sale were expensed.

As part of this transaction, the Company entered into a long-term leasing arrangement with the purchaser for the grazing rights on the Ranch that provides an annual revenue stream of approximately $1,200,000.

As a result of these changes, Alico renamed this division to Water Resources and Other Operations to reflect its focus on water storage and nutrient reduction.

Alico believes that its dispersed water storage project is the largest and most cost-effective project of its kind in the United States, and believes, once permits from state and federal agencies have been approved, the project will store and prevent large volumes of water from entering the Caloosahatchee River, will remove substantial amounts of nitrogen from the watershed, and will help to rehydrate natural systems that eventually flow south into the Everglades.

Water storage and conservation

In December 2012, the South Florida Water Management District ("SFWMD") issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program.

In March 2013, the Company submitted its response proposing a dispersed water management project on a portion of its Ranch land to reduce harmful discharges to the Caloosahatchee Estuary.

On December 11, 2014, the SFWMD approved a contract with the Company.

The contract term is eleven years and allows up to one year for implementation (design, permitting, construction and construction completion certification) and ten years of operation, whereby the Company will provide water retention services.

Payment 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 District Board approval of funding.

The contract specifies that the District Board has to approve the payments annually and there can be no assurance that it will approve the annual fixed payments.

On September 19, 2018, the SFWMD issued a press release announcing the issuance of an Environmental Resource Permit for Alico.

The SFWMD release also stated that (i) the issuance of the permit cleared the path for Alico to deliver a regional dispersed water storage project in the Caloosahatchee Watershed that has the opportunity to significantly reduce excessive Lake Okeechobee releases and storm water runoff to the Caloosahatchee Estuary, (ii) Alico has all necessary state approvals to proceed, and (iii) the project is expected to be operational within one year from the start of construction, which is contingent on Alico securing additional local and federal approvals.

These approvals include a compatible use agreement from the Natural Resources Conservation Service, as well as approvals from the local water control districts.

The project has made substantial progress toward receiving federal authorization from the US Army Corps of Engineers which includes consultation with US Fish & Wildlife Service and the Tribes of Florida.

The approved Florida budget for the state’s 2019/2020 fiscal year included funding for the Program.

Operating expenses were approximately $1,206,000, $1,619,000 and $1,794,000 for each of the three fiscal years ended September 30, 2019, 2018 and 2017, respectively.

General and Administrative

General and administrative expenses for the fiscal year ended September 30, 2020 was approximately $10,998,000, compared to approximately $15,146,000 for the fiscal year ended September 30, 2019.

The decrease in general and administrative expenses for the fiscal year ended September 30, 2020, as compared to the fiscal year ended September 30, 2019, was primarily due to professional fees, relating to a corporate litigation matter, of approximately $2,300,000 being incurred for the fiscal year ended September 30, 2019.

This litigation was settled and no further expenses were incurred relating to this matter during the fiscal year ended September 30, 2020.

Additionally, as part of this settlement, the Company recorded consulting and separation fees of $800,000 during the fiscal year ended September 30, 2019.

The Company also experienced a reduction due to (i) a one-time pension expense related to its deferred retirement benefit plan of approximately $965,000 in fiscal year 2019, (ii) a reduction in payroll expenses for the fiscal year ended September 30, 2020 of approximately $331,000 relating to one of the senior managers resigning in December 2019 and a reduction in bonuses granted to senior management, (iii) a decrease in stock compensation expense of approximately $204,000 as a result of certain stock options expense being accelerated in fiscal year ended September 30, 2020 and (iv) other smaller decreases in rent, consulting and Board of Director fees aggregating approximately $445,000.

Partially offsetting these decreases was a lower amount of stock compensation expense of $823,000 recognized in fiscal year ended September 30, 2019 as a result of a former senior executive forfeiting his stock options as part of the settled litigation and an increase in Directors and Officers insurance of approximately $247,000.

The slight increase in general and administrative expenses for the fiscal year ended September 30, 2019, as compared to the fiscal year ended September 30, 2018, was primarily due to an increase in professional fees, relating to a corporate litigation matter, of approximately $2,300,000 during the fiscal year ended September 30, 2019.

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The Company also recorded a one-time pension expense related to its deferred retirement benefit plan of approximately $965,000 in fiscal year 2019.

Partially offsetting these increases were decreases in expenses relating to (i) a reduction in stock compensation expense of $823,000 as a result of a former senior executive forfeiting his stock options as part of the settled litigation, (ii) a reduction in rent expense of approximately $450,000 as a result of the Company not renewing its lease for office space in New York City, (iii) an acceleration of stock compensation expense in fiscal year 2018 of approximately $782,000 as a result of two senior executives forfeiting a portion of their stock options, and (iv) a reduction in payroll costs of approximately $1,261,000 .

Partially offsetting these increases wer e decreases in expenses due to (i) a reduction in stock compensation expense of $823,000 as a result of a former senior executive forfeiting his stock options as part of the settled litigation, (ii) a reduction in rent expense of approximately $450,000 as a result of the Company not renewing its lease for office space in New York City, (iii) an acceleration of stock compensation expense in fiscal year 2018 of approximately $782,000 as a result of two senior executives forfeiting a portion of their stock options, and (iv) a reduction in payroll costs of approximately $1,261,000.

The reduction in payroll costs was primarily from (i) a reduction in separation expenses of approximately $388,000;

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and (iii) a reduction in executive compensation expense of approximately $725,000 relating to the resignation of a former senior executive.

The slight increase in general and administrative expenses in fiscal year 2018, as compared to the same period in fiscal year 2017, primarily relates to increases in (i) bonus awards provided to senior executives and managers, (ii) an acceleration of stock compensation expense as a result of two senior executives forfeiting a portion of their stock options, (iii) costs related to the Tender Offer which commenced in September 2018 and (iv) an increase in rent, which commenced October 30, 2017, as a result of the Company selling its office building in Fort Myers, FL, and leasing back a portion of the space.

These items resulted in an aggregate increase in general and administrative expenses of approximately $2,700,000.

These increases were offset by decreases primarily attributable to salary and stock compensation expenses incurred with respect to employment agreements executed for new executives in the fiscal year 2017 which did not occur in the fiscal year 2018, a reduction of expenses incurred relating to separation and consulting arrangements, as well as a reduction in bad debt expense and recruiting fees.

Other (Expense) Income

Other income for the fiscal years ended September 30, 2019 and 2018 was approximately $5,019,000 and approximately $2,665,000 , respectively.

The increase in other income was primarily due to the Company recording a higher gain on sale of real estate, property

and equipment and assets held for sale in fiscal year 2019, as compared to fiscal year 2018.

Other Income, net

Other income, net, for the fiscal years ended September 30, 2020 and 2019 was approximately $24,456,000 and approximately $5,019,000, respectively.

The increase in other income, net was primarily due to the Company recording a higher gain on sale of real estate, property and equipment and assets held for sale in fiscal year 2020, as compared to fiscal year 2019.

In fiscal year 2020, the Company recorded a gain of approximately $30,424,000, which was generated primarily from the sale of land on its West Ranch in September 2020 to the State of Florida.

For the fiscal year ended September 30, 2019, the Company recorded a gain of approximately $13,166,000, which was generated primarily for the sale of land on its West Ranch in September 2019.

Additionally, the Company recognized a reduction of approximately $1,199,000 in interest expense in fiscal year 2020 as a result of (i) the reduction of its long-term debt attributable to making its mandatory principal payments, (ii) the Company prepaying approximately $4,455,000 on its debt obligations and (iii) a reduction in interest rates.

Other income, net for the fiscal years ended September 30, 2019 and 2018 was approximately $5,019,000 and approximately $2,655,000, respectively.

The increase in other income, net was primarily due to the Company recording a higher gain on sale of real estate, property and equipment and assets held for sale in fiscal year 2019, as compared to fiscal year 2018.

In fiscal year 2019, the Company recorded a gain of approximately $13,166,000, which was generated primarily for the sale of land on its West Ranch in September 2019.

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Additionally, the Company incurred less interest expense of approximately $1,381,000 in fiscal year 2019, as compared to fiscal year 2018, primarily due to the Company recording imputed interest expense during the fiscal year ended September 30, 2018 relating to its Sugarcane transaction, which was terminated in fiscal year 2019.

Other income (expense), net, for the fiscal year ended September 30, 2018 and 2017 was approximately $2,655,000 and approximately $(7,248,000), respectively.

The shift from other expense, net to other income, net is primarily due to recording a higher gain on sale of real estate, property and equipment and assets held for sale.

For the fiscal year ended September 30, 2018, the Company sold certain properties and equipment which included its corporate office building in Fort Myers, Florida, its Gal Hog property and a land parcel within its East Ranch resulting in gains of approximately $1,751,000, $6,709,000 and $1,759,000, respectively.

During the fiscal year ended September 30, 2017, the Company sold land and facilities in Hendry County, Florida, which resulted in a gain of approximately $1,371,000.

Additionally, the Company incurred less interest expense of approximately $580,000 due to the continued pay-down of its long-term debt, as well as a prepayment made on a loan of approximately $4,453,000 with the proceeds from the asset sales.

For the fiscal years ended September 30, 2019, 2018 and 2017, the provision (benefit) for income taxes was approximately $12,783,000 , $390,000 and $(3,846,000) , respectively, and the related effective income tax rates were approximately 25.45%, 2.96% and 28.83%, respectively.

The change in the tax provision for the fiscal year ended September 30, 2019 is the result of the Company generating greater net income during the current fiscal year as compared to the prior fiscal year.

Additionally, a one-time non-cash deferred income tax benefit of approximately $9,847,000 was recorded in fiscal year 2018 which resulted from the remeasurement of the Company's net deferred tax liabilities due to the 21% corporate tax rate that was enacted December 22, 2017, and the expiration of its capital loss carryforward, which expired at September 30, 2018, of approximately $5,634,000 was recorded in fiscal year 2018, resulting in an additional income tax expense.

The change in the provision for income taxes for the fiscal year ended September 30, 2018, as compared to fiscal year 2017, primarily resulted from (i) the Company generating net income, (ii) a one-time non-cash deferred income tax benefit of approximately $9,847,000 resulting from the remeasurement of the Company's net deferred tax liabilities due to the 21% corporate tax rate that was enacted December 22, 2017, and (iii) the expiration of its capital loss carryforward, which expired at September 30, 2018, of approximately $5,634,000, resulting in an additional income tax expense.

For the fiscal years ended September 30, 2020, 2019 and 2018, the provision for income taxes was approximately $7,663,000, $12,783,000 and $390,000, respectively, and the related effective income tax rates were approximately 24.50%, 25.45% and 2.96%, respectively.

The change in the tax provision for the fiscal year ended September 30, 2020 is the result of the Company generating less net income during the current fiscal year as compared to the prior fiscal year.

The change in the tax provision for the fiscal year ended September 30, 2019 was the result of the Company generating greater net income during fiscal year 2019, as compared to the prior fiscal year.

Additionally, a one-time non-cash deferred income tax benefit of approximately $9,847,000 was recorded in fiscal year 2018 which resulted from the remeasurement of the Company's net deferred tax liabilities due to the 21% corporate tax rate that was enacted December 22, 2017, and an effect of the expiration of its capital loss carryforward, which expired at September 30, 2018, of approximately $5,634,000 which was recorded in fiscal year 2018, thus resulting in an additional income tax expense.

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.

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The principal uses of cash that affect Alico's liquidity position include the following:

operating expenses including employee costs, the cost of maintaining the citrus groves, harvesting and hauling of citrus products, capital expenditures, stock repurchases, dividends, and debt service costs including interest and principal payments on term loans and other credit facilities.

operating expenses including employee costs, the cost of maintaining the citrus groves, harvesting and hauling of citrus products, capital expenditures, stock repurchases, dividends, debt service costs including interest and principal payments on term loans and other credit facilities and acquisitions.

Management believes that a combination of cash-on-hand, cash generated from operations, asset sales and availability under the Company's lines of credit will provide sufficient liquidity to service the principal and interest payments on its indebtedness, and will satisfy working capital requirements and capital expenditures for at least the next twelve months and over the long term.

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Cash and cash equivalents and restricted cash decreased from approximately $23,838,000 as of September 30, 2019 to approximately $19,687,000 as of September 30, 2020.

Cash and cash equivalents and restricted cash increased by approximately $28,865,000 as of September 30, 2018, as compared to September 30, 2017.

Cash and cash equivalents and restricted cash decreased from approximately $32,260,000 as of September 30, 2018 to approximately $23,838,000 as of September 30, 2019.

The components of these changes are discussed below.

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Net cash provided by operating activities

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

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Net Cash Provided By Operating Activities

The following table details the items contributing to Net Cash Provided By Operating Activities for the fiscal years ended September 30, 2019, 2018 and 2017:

(in thousands)

Fiscal Year Ended September 30,

Net income (loss)

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Deferred gain on sale of sugarcane land

Depreciation, depletion and amortization

Loss on breeding herd sales

Deferred income tax expense (benefit)

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Deferred retirement benefits

Magnolia Fund undistributed loss (earnings)

Gain on sale of real estate, property and equipment and assets held for sale

Inventory net realizable value adjustment

Inventory casualty loss

Loss on disposal of property and equipment

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Impairment of long-lived assets

Impairment of right-of-use asset

Non-cash interest expense on deferred gain on sugarcane land

Insurance proceeds received for damage to property and equipment

Bad debt expense

Stock-based compensation expense

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Net cash provided by operating activities

The increase in net cash provided by operating activities for the fiscal year ended September 30, 2019, as compared to the same period in fiscal year 2018, was primarily due to (i) an increase in net income which was primarily driven by increased citrus sales and the receipt of federal disaster relief funds relating to Hurricane Irma, and (ii) an increase in working capital, which is due to a decrease in accounts receivable and an increase in income taxes payable.

The decrease in net cash provided by operating activities for the fiscal year ended September 30, 2018, as compared to the same period in the fiscal year 2017, was primarily due to the effect of the Company recognizing a greater gain on the sale of real estate,

property and equipment and assets held for sale as a result of the Company’s decision to divest itself from several non-core and underperforming assets during the fiscal year 2018.

Additionally, the Company experienced a decrease in working capital as compared to the previous fiscal year.

This is primarily the result of the Company having a smaller increase in accounts receivable due to lower revenues earned, and experiencing a smaller decrease in inventory levels due the Company taking an impairment on its inventory levels at September 30, 2017, which directly impacted the change for the fiscal year ended September 30, 2018.

This decrease was partially offset by an increase in net income.

The decrease in net cash provided by operating activities for the fiscal year ended September 30, 2020, as compared to the same period in fiscal year 2019, was primarily due to (i) an increase in gain on sale of real estate, property and equipment and assets held for sale in the fiscal year ended September 30, 2020, relating to the sale of certain sections of the West Ranch, (ii) a decrease in net income, which was primarily driven by decreased citrus sales, (iii) a decrease in the deferred retirement benefit as a result of the Company terminating its pension plan and paying all participants on August 30, 2020 and (iv) a decrease in working capital as a result of the payment of income taxes and an increase in accounts receivable related to the Company’s grove management services whereby the Company pays all growing costs and then is reimbursed in the future from proceeds of fruit sales of the third-party.

The increase in net cash provided by operating activities for the fiscal year ended September 30, 2019, as compared to the same period in fiscal year 2018, was primarily due to (i) an increase in net income which was primarily driven by increased citrus sales and the receipt of federal disaster relief funds relating to Hurricane and (ii) an increase in working capital, which is due to a decrease in accounts receivable and an increase in income taxes payable.

Due to the seasonal nature of Alico's business, working capital requirements are typically greater in the first and fourth quarters of its fiscal year.

Cash flows from operating activities typically improve in the second and third fiscal quarters, as sales of its harvested citrus are made.

Net Cash (Used In) Provided By Investing Activities

The following table details the items contributing to Net Cash (Used In) Provided By Investing Activities for the fiscal years ended September 30, 2019, 2018 and 2017:

Net Cash Provided By (Used In) Investing Activities

The following table details the items contributing to Net Cash Provided By (Used In) Investing Activities for the fiscal years ended September 30, 2020, 2019 and 2018:

(in thousands)

Fiscal Year Ended September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Purchases of property and equipment

Return on investment in Magnolia Fund

Net proceeds from sale of property and equipment and assets held for sale

Net proceeds from sale of real estate

Net proceeds from sale of real estate, property and equipment and assets held for sale

Insurance proceeds received for damage to property and equipment

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Advances on notes receivables, net

Net cash (used in) provided by investing activities

Net cash provided by (used in) investing activities

The shift from net cash used in investing activities for the fiscal year ended September 30, 2019 to net cash provided by investing activities for the fiscal year ended September 30, 2020 was primarily due to an increase in proceeds received on the sale of certain assets sold during fiscal year 2020, as compared to fiscal year 2019.

This is due to the Company divesting of more acres of land in fiscal year 2020, as compared to fiscal year 2019 (see Note 4.

“Assets Held for Sale” and Note 5.

“Property & Equipment, Net” to the accompanying Consolidated Financial Statements).

The change from net cash provided by investing activities for the fiscal year ended September 30, 2018 to net cash used in investing activities for the fiscal year ended September 30, 2019 was primarily due to a decrease in proceeds received on the sale of certain assets sold during fiscal year 2019, as compared to fiscal year 2018.

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In addition, the shift, to a smaller extent, was due to an increase in capital expenditures which was driven by the purchase of certain land blocks within its existing grove location.

The increase in net cash provided by (used in) investing activities for the fiscal year ended September 30, 2018, as compared to the fiscal year ended September 30, 2017, was primarily due to proceeds received from the sale of certain assets during the fiscal year 2018.

This increase was partially offset by greater capital expenditures in the fiscal year 2018, as compared to the same period in the prior fiscal year, as a result of the Company’s decision to plant more trees.

Net Cash Used In Financing Activities

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(in thousands)

Fiscal Year Ended September 30,

Fiscal Year Ended

September 30,

Fiscal Year Ended

September 30,

Repayments on revolving lines of credit

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Payment on termination of sugarcane agreement

Deferred Financing costs

Dividends paid

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Net cash used in financing activities

The increase in net cash used in financing activities for the fiscal year ended September 30, 2019, as compared to the fiscal year ended September 30, 2018, was primarily due to the Company purchasing 752,234 common shares through a tender offer, for an aggregate amount of approximately $25,576,000 , terminating its 2014 Post-Closing Agreement relating to sugarcane transaction pursuant to which the Company paid approximately $11,300,000 , and paying down, net of borrowings, of its revolving line of credit by approximately $2,265,000.

The decrease in net cash used in financing activities for the fiscal year ended September 30, 2018, as compared to the fiscal year ended September 30, 2017, was primarily due to decreased repayments on the revolving line of credit, which was partially offset by less borrowings being made on the revolving lines of credit.

Additionally, greater principal payments were made on the term loans of approximately $4,453,000 from a portion of the proceeds from the sale of assets, which was offset by the Company electing not to make its scheduled principal payment on certain other term loans for the first and second quarter of fiscal year 2018 of approximately $3,100,000, as it utilized its prepayment to satisfy its payment requirement.

Alico had no amount outstanding on its revolving lines of credit as of September 30, 2019 .

The decrease in net cash used in financing activities for the fiscal year ended September 30, 2020, as compared to the fiscal year ended September 30, 2019, was primarily due to the Company repurchasing its common shares through a tender offer in October 2018 for an aggregate approximate amount of $25,576,000 and the termination of its 2014 Post-Closing Agreement in March 2019 pursuant to which the Company paid $11,300,000.

Partially offsetting this shift was a prepayment of one of its long-term debt obligations in November 2019 in the amount of $4,455,000.

The increase in net cash used in financing activities for the fiscal year ended September 30, 2019, as compared to the fiscal year ended September 30, 2018, was primarily due to the Company purchasing 752,234 common shares through a tender offer, for an aggregate amount of approximately $25,576,000, the termination of its 2014 Post-Closing Agreement relating to sugarcane transaction pursuant to which the Company paid approximately $11,300,000, and a pay down, net of borrowings, of its revolving line of credit by approximately $2,265,000.

Alico had approximately $2,942,000 outstanding on its revolving lines of credit as of September 30, 2020 and approximately $91,659,000 remaining availability.

The WCLC line of credit agreement provides for Rabo Agrifinance, Inc.

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Interest on Long-Term Debt

Retirement Benefits

Consulting/Non-Compete Agreement

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The Company recognizes revenue at 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 the Company has a right to payment.

For grove management services, the Company recognizes operating revenue, including a management fee, when services are rendered and consumed.

The Company recognized revenues from cattle sales at the time the cattle were delivered.

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During the periods presented in this Annual Report on Form 10-K, no material adjustments were made to the reported revenues from our crops.

Alico Fruit Company ("AFC") operations primarily consist of providing supply chain management services to Alico, as well as to other citrus growers in the state of Florida.

AFC also purchases and resells citrus fruit;

in these transactions, AFC (i) acts as a principal;

(ii) takes title to the products;

and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns.

Therefore, AFC recognizes revenues based on the gross amounts due from customers for its marketing activities.

Supply chain management service revenues are recognized when the services are performed.

The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory throughout the respective crop year.

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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 consisted of purchased animals and animals raised on the Company’s ranches.

Purchased animals were stated at the cost of acquisition.

The cost of animals raised on the Ranch was based on the accumulated cost of developing such animals for productive use.

The breeding herd was sold in January 2018.

The Company uses the asset and liability method of accounting for deferred income taxes.

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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.

For the fiscal years ended September 30, 2019, 2018 and 2017, the Company recorded valuation allowances of $0, $5,634,000 and $0, respectively, relating to the unutilized capital

loss carryforwards which expired.

For the fiscal years ended September 30, 2020, 2019 and 2018, the Company recorded valuation allowances of $0, $0, and $5,634,000, respectively, relating to the unutilized capital loss carryforwards which expired.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

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Subsequent Events

On November 14, 2019, 734 Investors filed a Form 4 and an amendment to Schedule 13D with the SEC disclosing that on November 12, 2019, it distributed all of its shares of Company common stock previously held by it, consisting of 3,173,405 shares, on a pro rata basis, to its members.

Prior to such distribution, 734 Investors was the Company’s largest shareholder.

On December 5, 2019, the Board of Directors of the Company declared a first quarter of fiscal year 2020 cash dividend of $0.09 per share on its outstanding common stock to be paid to shareholders of record as of December 27, 2019, with payment expected on January 10, 2020.

On December 2, 2020, the Board of Directors of the Company declared a cash dividend for the first quarter of fiscal year 2021 of $0.18 per share on its outstanding common stock to be paid to shareholders of record as of December 24, 2020, with payment expected on January 8, 2021.

In November 2020, the Company awarded 5,885 shares of restricted stock to certain officers and managers under the 2015 Plan.

Compensatory Arrangements of Certain Officers.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis