Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes thereto.
Cautionary Statement Regarding Forward-Looking Information
We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis 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. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management and can be identified by terms such as “plans,” “expect,” “may,” "anticipate,” “intend,” “should be,” “will be” “is likely to,” “believes,” and similar expressions referring to future periods. Alico believes the expectations reflected in the forward-looking statements are reasonable but cannot guarantee future results, level of activity, performance or achievements. Actual results may differ materially from those expressed or implied in the forward-looking statements. Therefore, Alico cautions you against relying on any of these forward-looking statements. Factors which may cause future outcomes to differ materially from those foreseen in forward-looking statements include, but are not limited to: changes in laws, regulation and rules; weather conditions that affect production, transportation, storage, demand, import and export of fresh product and their by-products; increased pressure from diseases including citrus greening and citrus canker, as well as insects and other pests; disruption of water supplies or changes in water allocations; market pricing of citrus; pricing and supply of raw materials and products; market responses to industry volume pressures; pricing and supply of energy; changes in interest rates; availability of financing for land development activities and other growth and corporate opportunities; onetime events; acquisitions and divestitures; seasonality; labor disruptions; inability to pay debt obligations; inability to engage in certain transactions due to restrictive covenants in debt instruments; government restrictions on land use; changes in agricultural land values; 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; increased competition from international companies; changes in environmental regulations and their impact on farming practices; the land ownership policies of governments; changes in government farm programs and policies and international reaction to such programs; changes in pricing calculations with our customers; fluctuations in the value of the U.S. dollar, interest rates, inflation and deflation rates; 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 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.
26
Introduction
Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a holding company with assets and related operations in agriculture, land management and natural resources. We are a Florida agribusiness and land management company with a legacy of achievement and innovation in citrus, cattle and resource conservation. 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 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. Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of results of operations, financial condition and changes in financial condition for the periods presented. This MD&A is organized as follows:
•
Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition.
•
Consolidated Results of Operations. 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.
•
Liquidity and Capital Resources. This section provides an analysis of our cash flows for each of the three fiscal years ended September 30, 2020 and our outstanding debt, commitments and cash resources as of September 30, 2020.
•
Critical Accounting Policies. This section identifies those accounting policies that we consider important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, “Summary of Significant Accounting Policies,” to the accompanying Consolidated Financial Statements.
Business Overview
Business Description
Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company”, “we”, “us” or “our”) generates operating revenues primarily from the sale of its citrus products and grazing and hunting leasing. The Company operates as two business segments and all of its operating revenues are generated in the United States. 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
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.
27
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 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
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.
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. George R. 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. Mr. Fishman has remained a non-employee director.
28
Condensed Consolidated Results of Operations
The following discussion provides an analysis of Alico's results of operations and should be read in conjunction with the accompanying Consolidated Statements of Operations for the fiscal years ended September 30, 2020, 2019 and 2018:
(in thousands)
Fiscal Year Ended
Fiscal Year Ended
September 30,
Change
September 30,
Change
2020
2019
$
%
2019
2018
$
%
Operating revenues:
Alico Citrus
$
89,369
$
119,031
$
(29,662
)
(24.9
)%
$
119,031
$
78,121
$
40,910
52.4
%
Land Management and Other Operations
3,138
3,220
(82
)
(2.5
)%
3,220
3,160
60
1.9
%
Total operating revenues
92,507
122,251
(29,744
)
(24.3
)%
122,251
81,281
40,970
50.4
%
Gross profit (loss):
Alico Citrus
17,088
59,437
(42,349
)
(71.3
)%
59,437
26,412
33,025
125.0
%
Land Management and Other Operations
831
923
(92
)
(10.0
)%
923
(819
)
1,742
NM
Total gross profit
17,919
60,360
(42,441
)
(70.3
)%
60,360
25,593
34,767
135.8
%
General and administrative expenses
10,998
15,146
(4,148
)
(27.4
)%
15,146
15,058
88
0.6
%
Income from operations
6,921
45,214
(38,293
)
(84.7
)%
45,214
10,535
34,679
NM
Total other income, net
24,456
5,019
19,437
NM
5,019
2,655
2,364
89.0
%
Income before income taxes
31,377
50,233
(18,856
)
(37.5
)%
50,233
13,190
37,043
NM
Income tax provision
7,663
12,783
(5,120
)
(40.1
)%
12,783
390
12,393
NM
Net income
23,714
37,450
(13,736
)
(36.7
)%
37,450
12,800
24,650
192.6
%
Net (income) loss attributable to noncontrolling interests
(52
)
383
(435
)
NM
383
250
133
53.2
%
Net income attributable to Alico, Inc. common stockholders
$
23,662
$
37,833
$
(14,171
)
(37.5
)%
$
37,833
$
13,050
$
24,783
189.9
%
NM - Not meaningful
The following table presents our operating revenues, by segment, as a percentage of total operating revenues for the fiscal years ended September 30, 2020, 2019 and 2018:
Fiscal Year Ended
September 30,
2020
2019
2018
Operating revenues:
Alico Citrus
96.6
%
97.4
%
96.1
%
Land Management and Other Operations
3.4
%
2.6
%
3.9
%
Total operating revenues
100.0
%
100.0
%
100.0
%
29
The following discussion provides an analysis of the Company's operating segments:
Alico Citrus
(in thousands, except per box and per pound solids data)
Fiscal Year Ended
Fiscal Year Ended
September 30,
Change
September 30,
Change
2020
2019
Unit
%
2019
2018
Unit
%
Operating Revenues:
Early and Mid-Season
$
31,303
$
39,574
$
(8,271
)
(20.9
)%
$
39,574
$
24,309
$
15,265
62.8
%
Valencias
50,060
73,480
(23,420
)
(31.9
)%
73,480
48,865
24,615
50.4
%
Fresh Fruit
2,321
3,629
(1,308
)
(36.0
)%
3,629
2,054
1,575
76.7
%
Grove Management Services
4,599
1,342
3,257
NM
1,342
1,808
(466
)
(25.8
)%
Purchase and Resale of Fruit
850
943
(93
)
(9.9
)%
943
809
134
16.6
%
Other
236
63
173
NM
63
276
(213
)
(77.2
)%
Total
$
89,369
$
119,031
$
(29,662
)
(24.9
)%
$
119,031
$
78,121
$
40,910
52.4
%
Boxes Harvested:
Early and Mid-Season
3,146
3,114
32
1.0
%
3,114
1,811
1,303
71.9
%
Valencias
4,165
4,790
(625
)
(13.0
)%
4,790
2,891
1,899
65.7
%
Total Processed
7,311
7,904
(593
)
(7.5
)%
7,904
4,702
3,202
68.1
%
Fresh Fruit
267
210
57
27.1
%
210
125
85
68.0
%
Total
7,578
8,114
(536
)
(6.6
)%
8,114
4,827
3,287
68.1
%
Pound Solids Produced:
Early and Mid- Season
17,947
16,873
1,074
6.4
%
16,873
9,194
7,679
83.5
%
Valencias
25,631
29,854
(4,223
)
(14.1
)%
29,854
17,319
12,535
72.4
%
Total
43,578
46,727
(3,149
)
(6.7
)%
46,727
26,513
20,214
76.2
%
Pound Solids per Box:
Early and Mid-Season
5.70
5.42
0.28
5.2
%
5.42
5.07
0.35
6.9
%
Valencias
6.15
6.23
(0.08
)
(1.3
)%
6.23
5.99
0.24
4.0
%
Price per Pound Solids:
Early and Mid-Season
$
1.74
$
2.35
$
(0.61
)
(26.0
)%
$
2.35
$
2.64
$
(0.29
)
(11.0
)%
Valencias
$
1.95
$
2.46
$
(0.51
)
(20.7
)%
$
2.46
$
2.82
$
(0.36
)
(12.8
)%
Price per Box:
Fresh Fruit
$
8.69
$
17.28
$
(8.59
)
(49.7
)%
$
17.28
$
16.43
$
0.85
5.2
%
Operating Expenses:
Cost of Sales
$
52,492
$
52,037
$
455
0.9
%
$
52,037
$
46,477
$
5,560
12.0
%
Harvesting and Hauling
19,897
22,079
(2,182
)
(9.9
)%
22,079
12,821
9,258
72.2
%
Grove Management Services
3,817
774
3,043
NM
774
1,177
(403
)
(34.2
)%
Purchase and Resale of Fruit
704
788
(84
)
(10.7
)%
788
662
126
19.0
%
Other
(4,629
)
(16,084
)
11,455
(71.2
)%
(16,084
)
(9,428
)
(6,656
)
70.6
%
Total
$
72,281
$
59,594
$
12,687
21.3
%
$
59,594
$
51,709
$
7,885
15.2
%
Gross Profit
$
17,088
$
59,437
$
(42,349
)
(71.3
)%
$
59,437
$
26,412
$
33,025
125.0
%
NM - Not meaningful
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. Historically, the second and third quarters of Alico's fiscal year produce the majority of the annual revenues and working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with the growing cycles.
The Company sells its Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. They generally buy the citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. Fresh fruit is generally sold to packing houses that purchase the citrus on a per box basis. Other revenues consist of third-party grove caretaking and the purchase and reselling of fruit.
30
Alico's operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining the citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and hauling costs represent the costs of bringing citrus product to processors and varies based upon the number of boxes produced. Other expenses include the period costs of third-party grove caretaking and the 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 fiscal year 2019. 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 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.
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.
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. 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.
31
Land Management and Other Operations
The table below presents key operating measures for the fiscal years ended September 30, 2020, 2019 and 2018:
(in thousands)
Fiscal Year Ended
Fiscal Year Ended
September 30,
Change
September 30,
Change
2020
2019
$
%
2019
2018
$
%
Revenue From:
Land and other leasing
$
2,683
$
2,787
$
(104
)
(3.7
)%
$
2,787
$
2,595
$
192
7.4
%
Sale of calves and culls
—
—
—
NM
—
57
(57
)
(100.0
)%
Other
455
433
22
5.1
%
433
508
(75
)
(14.8
)%
Total
$
3,138
$
3,220
$
(82
)
(2.5
)%
$
3,220
$
3,160
$
60
1.9
%
Operating Expenses:
Land and other leasing
$
955
$
1,047
$
(92
)
(8.8
)%
$
1,047
$
1,072
$
(25
)
(2.3
)%
Cost of calves sold
—
—
—
NM
—
1,075
(1,075
)
(100.0
)%
Water conservation
1,346
1,206
140
11.6
%
1,206
1,619
(413
)
(25.5
)%
Other
6
44
(38
)
(86.4
)%
44
213
(169
)
(79.3
)%
Total
$
2,307
$
2,297
$
10
0.4
%
$
2,297
$
3,979
$
(1,682
)
(42.3
)%
Gross Profit (loss)
$
831
$
923
$
(92
)
(10.0
)%
$
923
$
(819
)
$
1,742
NM
NM - Not meaningful
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.
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.
32
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. This litigation has been resolved with a settlement being reached on February 11, 2019. The Company does not anticipate further professional fees relating to this litigation. 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 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 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; (ii) a reduction in accrual for paid-time-off of approximately $100,000; and (iii) a reduction in executive compensation expense of approximately $725,000 relating to the resignation of a former senior executive.
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. For the fiscal year ended September 30, 2018, the Company recorded a gain of $11,041,000 on the sale of real estate, property and equipment and assets held for sale, 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. 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.
Income Taxes
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.
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 fiscal year produce the majority of the Company's annual revenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year.
33
Liquidity and Capital Resources
A comparative balance sheet summary is presented in the following table:
(in thousands)
September 30,
2020
2019
Change
Cash and cash equivalents and restricted cash
$
19,687
$
23,838
$
(4,151
)
Total current assets
$
51,899
$
61,977
$
(10,078
)
Total current liabilities
$
21,158
$
28,951
$
(7,793
)
Working capital
$
30,741
$
33,026
$
(2,285
)
Total assets
$
423,937
$
417,388
$
6,549
Principal amount of term loans and lines of credit
$
148,251
$
163,449
$
(15,198
)
Current ratio
2.45 to 1
2.14 to 1
Alico's business has historically generated positive net cash flows from operating activities. Sources of cash primarily include cash flows from operations, sales of under-performing land and other assets, amounts available under the Company's credit facilities and access to capital markets. Access to additional borrowings under revolving lines of credit is subject to the satisfaction of customary borrowing conditions. As a public company, Alico may have access to other sources of capital. However, access to, and availability of, financing on acceptable terms in the future will be affected by many factors, including (i) financial condition, prospects and credit rating, (ii) liquidity of the overall capital markets and (iii) the state of the economy. There can be no assurance that the Company will continue to have access to the capital markets on acceptable terms, or at all.
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, 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. Alico has a $70,000,000 working capital line of credit, of which approximately $66,659,000 is available for general use as of September 30, 2020, and a $25,000,000 revolving line of credit, all of which is available for general use as of September 30, 2020 (see Note 6. “Long-Term Debt and Lines of Credit" to the accompanying Consolidated Financial Statements). If the Company pursues significant growth and other corporate opportunities, it could have a material adverse impact on its cash balances, and may need to finance such activities by drawing down monies under its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional financing could impact Alico's ability to pursue different growth and other corporate opportunities.
The level of debt could have important consequences on Alico's business, including, but not limited to, increasing its vulnerability to general adverse economic and industry conditions, limiting the availability of cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements, and limiting flexibility in planning for, or reacting to, changes in its business and industry.
Cash Management Impacts
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 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.
34
Consolidated Statements of Cash Flows
The following table details the items contributing to the changes in cash and cash equivalents and restricted cash for fiscal years ended September 30, 2020, 2019 and 2018:
(in thousands)
Fiscal Year Ended September 30,
2020
2019
2018
Net cash provided by operating activities
$
1,049
$
48,832
$
18,578
Net cash provided by (used in) investing activities
9,489
(4,960
)
22,924
Net cash used in financing activities
(14,689
)
(52,294
)
(12,637
)
Net (decrease) increase in cash and cash equivalents and restricted cash
$
(4,151
)
$
(8,422
)
$
28,865
Net Cash Provided By Operating Activities
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
2020
2019
Change
2019
2018
Change
Net income
$
23,714
$
37,450
$
(13,736
)
$
37,450
$
12,800
$
24,650
Deferred gain on sale of sugarcane land
—
—
—
—
(967
)
967
Depreciation, depletion and amortization
14,520
13,924
596
13,924
13,756
168
Deferred income tax expense (benefit)
7,603
3,267
4,336
3,267
(1,955
)
5,222
Cash surrender value
(10
)
11
(21
)
11
(27
)
38
Deferred retirement benefits
(5,226
)
829
(6,055
)
829
(41
)
870
Gain on sale of real estate, property and equipment and assets held for sale
(30,424
)
(13,166
)
(17,258
)
(13,166
)
(10,281
)
(2,885
)
Inventory net realizable value adjustment
—
808
(808
)
808
1,115
(307
)
Loss on disposal of property and equipment
659
—
659
—
207
(207
)
Change in fair value of derivatives
—
989
(989
)
989
—
989
Impairment of long-lived assets
1,321
396
925
396
2,234
(1,838
)
Impairment of right-of-use asset
87
—
87
—
—
—
Non-cash interest expense on deferred gain on sugarcane land
—
—
—
—
1,361
(1,361
)
Insurance proceeds received for damage to property and equipment
—
(486
)
486
(486
)
(477
)
(9
)
Stock-based compensation expense
1,306
824
482
824
2,613
(1,789
)
Other
—
—
—
—
29
(29
)
Change in working capital
(12,501
)
3,986
(16,487
)
3,986
(1,789
)
5,775
Net cash provided by operating activities
$
1,049
$
48,832
$
(47,783
)
$
48,832
$
18,578
$
30,254
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.
35
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,
2020
2019
Change
2019
2018
Change
Purchases of property and equipment
$
(21,705
)
$
(20,000
)
$
(1,705
)
$
(20,000
)
$
(16,352
)
$
(3,648
)
Net proceeds from sale of real estate, property and equipment and assets held for sale
31,541
14,602
16,939
14,602
39,780
(25,178
)
Insurance proceeds received for damage to property and equipment
—
486
(486
)
486
477
9
Change in deposits on purchase of citrus trees
(458
)
(108
)
(350
)
(108
)
(431
)
323
Advances on notes receivables, net
136
60
76
60
(575
)
635
Other
(25
)
—
(25
)
—
25
(25
)
Net cash provided by (used in) investing activities
$
9,489
$
(4,960
)
$
14,449
$
(4,960
)
$
22,924
$
(27,884
)
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. This is due to the Company divesting of several more assets in fiscal year 2018, 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). 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.
Net Cash Used In Financing Activities
The following table details the items contributing to Net Cash Used In Financing Activities for the fiscal years ended September 30, 2020, 2019 and 2018:
(in thousands)
Fiscal Year Ended
September 30,
Fiscal Year Ended
September 30,
2020
2019
Change
2019
2018
Change
Repayments on revolving lines of credit
$
(114,581
)
$
(89,231
)
$
(25,350
)
$
(89,231
)
$
(25,600
)
$
(63,631
)
Borrowings on revolving lines of credit
117,523
86,546
30,977
86,546
28,285
58,261
Principal payments on term loans
(15,198
)
(10,900
)
(4,298
)
(10,900
)
(12,127
)
1,227
Treasury stock purchases
(238
)
(25,576
)
25,338
(25,576
)
(2,215
)
(23,361
)
Payment on termination of sugarcane agreement
—
(11,300
)
11,300
(11,300
)
—
(11,300
)
Deferred Financing costs
(23
)
—
(23
)
—
—
—
Dividends paid
(2,466
)
(1,833
)
(633
)
(1,833
)
(1,972
)
139
Capital contribution received from noncontrolling interest
294
—
294
—
1,000
(1,000
)
Capital lease obligation payments
—
—
—
—
(8
)
8
Net cash used in financing activities
$
(14,689
)
$
(52,294
)
$
37,605
$
(52,294
)
$
(12,637
)
$
(39,657
)
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.
36
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. to issue up to $2,000,000 in letters of credit on the Company’s behalf. As of September 30, 2020, there was approximately $399,000 in outstanding letters of credit, which correspondingly slightly reduced Alico's availability under the line of credit.
Off-Balance Sheet Arrangements
None
Contractual Obligations
Alico has various contractual obligations which are fixed and determinable. The following table presents the Company's significant contractual obligations and commercial commitments on an undiscounted basis as of September 30, 2020 and the future periods in which such obligations are expected to be settled in cash.
(in thousands)
Payments Due by Period
Total
<1 Year
1-3 Years
3-5 Years
5+ Years
Long-Term Debt
$
148,251
$
9,145
$
21,070
$
21,070
$
96,966
Interest on Long-Term Debt
33,964
5,235
9,254
7,634
11,841
Consulting/Non-Compete Agreement
146
146
—
—
—
Operating Leases
891
519
324
48
—
Tree Purchase Commitments
3,014
3,014
—
—
—
Total
$
186,266
$
18,059
$
30,648
$
28,752
$
108,807
Purchase Commitments
The Company enters into contracts for the purchase of citrus trees during the normal course of its business. As of September 30, 2020, the Company had approximately $3,014,000 relating to outstanding commitments for these purchases, which will be paid upon delivery.
Impact of Inflation and Changing Prices
Our financial statements included in this Annual Report on Form 10-K have been prepared in accordance with U.S. GAAP, which requires us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession generally are not considered. The primary effect of inflation on our operations is reflected in increased operating costs. In our management’s opinion, changes in interest rates affect the financial condition to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as the inflation rate. Interest rates are highly sensitive to many factors that are beyond our control, including changes in the expected rate of inflation, the influence of general and local economic conditions and the monetary and fiscal policies of the United States government, its agencies and various other governmental regulatory authorities.
Critical Accounting Policies
Alico's Consolidated Financial Statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in those financial statements and accompanying notes. Management considers an accounting policy to be critical if it is important to the Company's financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. Alico considers policies relating to the following matters to be critical accounting policies:
37
Revenue Recognition
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. Management reviews the reasonableness of the revenue accruals quarterly based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the fiscal year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues can be significant and can be either positive or negative. During the periods presented in this Annual Report on Form 10-K, no material adjustments were made to the reported revenues from our crops.
Inventories
The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating expenses in the Consolidated 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 and amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads and reservoirs among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.
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. 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.
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.
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, other than goodwill, when events and circumstances indicate that the asset or asset group 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 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 groups not recoverable are reduced to their fair values. Our cash flow estimates are based on historical results adjusted to reflect our best estimates of future market conditions and operating conditions. As of September 30, 2020 and 2019, long-lived assets were comprised of property and equipment.
38
Fair Value Measurements
The carrying amounts in the balance sheets for operating accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these items. The carrying amounts reported for our long-term debt approximates fair value as our borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:
Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.
Impact of Accounting Pronouncements
See Item 8. "Financial Statements and Supplemental Data" - Note 1. "Description of Business and Basis of Presentation" for additional information about the impact of accounting pronouncements.
Subsequent Events
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.
On December 2, 2019, the Company entered into a new employment agreement (the “Rallo Employment Agreement”) with Richard Rallo. Mr. Rallo serves as Chief Financial Officer of the Company. The Rallo Employment Agreement provides for an annual base salary of $275,000. Mr. Rallo is eligible for an annual incentive compensation award with an annual target opportunity in an amount equal to 40% of his annual base salary.
The Rallo Employment Agreement also provides that, if Mr. Rallo’s employment is terminated by the Company without “cause” or Mr. Rallo resigns with “good reason” (as each such term is defined in the Rallo Employment Agreement), then, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Rallo will be entitled to (i) cash severance in an amount equal to 12 months of the annual base salary, (ii) the Accrued Obligations (as defined in the Rallo Employment Agreement) in a cash lump sum within 30 days after the date of termination, (iii) any rights or payments that are vested benefits or that Mr. Rallo is otherwise entitled to receive at or subsequent to the date of termination under any employee benefit plan or any other contract or agreement with the Company, and (iv) any Annual Bonus (as defined in the Rallo Employment Agreement) that has been earned but not paid as of the date of termination.
The Rallo Employment Agreement includes various restrictive covenants in favor of the Company, including a confidentiality covenant, a non-disparagement covenant, and 12-month post-termination noncompetition and customer and employee non-solicitation covenants.
In addition to his position as Chief Financial Officer, Mr. Rallo retains his position as the Company’s Principal Accounting Officer.
The foregoing description of the Rallo Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Rallo Employment agreement, which is attached hereto as Exhibit 10.37 to this Annual Report on Form 10-K and is incorporated herein by reference.
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