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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
 
 
 
For the Quarterly Period Ended
December 31, 2019
 
 
 
 
 
or
 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
 
For the transition period
 
 
from____________________
to_________________________
Commission File Number: 0-261
 
ALICO, INC.
(Exact name of registrant as specified in its charter)

Florida
 
59-0906081
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
10070 Daniels Interstate Court
 
 
 
 
Suite 100
Fort Myers
FL
 
33913
(Address of principal executive offices)
 
(Zip Code)

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



Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock
ALCO
Nasdaq Global Select Market


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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No



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

Large Accelerated Filer
Accelerated Filer
Non-accelerated filer
Smaller Reporting Company
Emerging Growth Company
 
 


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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


There were 7,479,671 shares of common stock outstanding at February 3, 2020.
 



1



ALICO, INC.
FORM 10-Q
For the three months ended December 31, 2019 and 2018
Table of Contents

 
 


2



PART I
Item 1. Condensed Consolidated Financial Statements


Index to Condensed Consolidated Financial Statements
 
Page





1



 
ALICO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
 
 
 
December 31,
 
September 30,
 
 
2019
 
2019
 
 
(Unaudited)
 
 
 
ASSETS
 
 

 
Current assets:
 
 
 

 
Cash and cash equivalents
$
5,546

 
$
18,630

 
Accounts receivable, net
1,852

 
713

 
Inventories
43,288

 
40,143

 
Assets held for sale
1,442

 
1,442

 
Prepaid expenses and other current assets
1,526

 
1,049

 
Total current assets
53,654

 
61,977

 
 
 
 
 
 
Restricted cash
719

 
5,208

 
Property and equipment, net
345,572

 
345,648

 
Goodwill
2,246

 
2,246

 
Other non-current assets
2,878

 
2,309

 
Total assets
$
405,069

 
$
417,388

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Current liabilities:
 
 
 

 
Accounts payable
$
1,493

 
$
4,163

 
Accrued liabilities
4,449

 
7,769

 
Long-term debt, current portion
5,130

 
5,338

 
Deferred retirement obligations
5,226

 
5,226

 
Income taxes payable
5,897

 
5,536

 
Other current liabilities
797

 
919

 
Total current liabilities
22,992

 
28,951

 
 
 
 
 
 
Long-term debt:
 
 
 
 
Principal amount, net of current portion
151,187

 
158,111

 
Less: deferred financing costs, net
(1,286
)
 
(1,369
)
 
Long-term debt less current portion and deferred financing costs, net
149,901

 
156,742

 
Deferred income tax liabilities, net
32,125

 
32,125

 
Other liabilities
363

 
172

 
Total liabilities
205,381

 
217,990

 
Commitments and Contingencies (Note 12)


 


 
Stockholders' equity:
 
 
 

 
Preferred stock, no par value, 1,000,000 shares authorized; none issued

 

 
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 shares issued and 7,475,200 and 7,476,513 shares outstanding at December 31, 2019 and September 30, 2019, respectively
8,416

 
8,416

 
Additional paid in capital
19,857

 
19,781

 
Treasury stock, at cost, 940,945 and 939,632 shares held at December 31, 2019 and September 30, 2019, respectively
(31,956
)
 
(31,943
)
 
Retained earnings
198,169

 
198,049

 
Total Alico stockholders' equity
194,486

 
194,303

 
Noncontrolling interest
5,202

 
5,095

 
Total stockholders' equity
199,688

 
199,398

 
Total liabilities and stockholders' equity
$
405,069

 
$
417,388

See accompanying notes to the condensed consolidated financial statements.

2



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
 
 
 
 
 
Three Months Ended December 31,
 
2019
 
2018
Operating revenues:
 
 
 
Alico Citrus
$
10,175

 
$
13,897

Water Resources and Other Operations
830

 
882

Total operating revenues
11,005

 
14,779

Operating expenses:
 

 
 

Alico Citrus
4,840

 
10,874

Water Resources and Other Operations
551

 
723

Total operating expenses
5,391

 
11,597

Gross profit
5,614

 
3,182

General and administrative expenses
2,760

 
3,450

Income (loss) from operations
2,854

 
(268
)
Other (expense) income:
 

 
 

Interest expense
(1,544
)
 
(1,917
)
Gain on sale of real estate, property and equipment and assets held for sale
25

 
22

Change in fair value of derivatives

 
(956
)
Other expense
(76
)
 
(13
)
Total other expenses, net
(1,595
)
 
(2,864
)
Income (loss) before income taxes
1,259

 
(3,132
)
Income tax provision (benefit)
361

 
(629
)
Net income (loss)
898

 
(2,503
)
Net (income) loss attributable to noncontrolling interests
(107
)
 
36

Net income (loss) attributable to Alico, Inc. common stockholders
$
791

 
$
(2,467
)
Per share information attributable to Alico, Inc. common stockholders:
 
 
 
Earnings (loss) per common share:
 

 
 

Basic
$
0.11

 
$
(0.33
)
Diluted
$
0.11

 
$
(0.33
)
Weighted-average number of common shares outstanding:
 

 
 

Basic
7,477

 
7,479

Diluted
7,491

 
7,479

 
 
 
 
Cash dividends declared per common share
$
0.09

 
$
0.06


See accompanying notes to the condensed consolidated financial statements.

3



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
Additional Paid-In
 
Treasury
 
Retained
 
Total Alico, Inc.
 
Non-controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
Equity
 
Interest
 
Equity
Balance at September 30, 2019
8,416

$
8,416

 
$
19,781

 
$
(31,943
)
 
$
198,049

 
$
194,303

 
$
5,095

 
$
199,398

Net income


 

 

 
791

 
791

 
107

 
898

Dividends


 

 

 
(671
)
 
(671
)
 

 
(671
)
Treasury stock purchases


 

 
(238
)
 

 
(238
)
 

 
(238
)
Stock-based compensation:
 

 

 
 

 
 

 
 

 
 
 
 
 
 
Directors


 
(32
)
 
225

 

 
193

 

 
193

Executives


 
108

 

 

 
108

 

 
108

Balance at December 31, 2019
8,416

$
8,416

 
$
19,857

 
$
(31,956
)
 
$
198,169

 
$
194,486

 
$
5,202

 
$
199,688

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
Additional Paid-In
 
Treasury
 
Retained
 
Total Alico, Inc.
 
Non-controlling
 
Total
 
Shares
Amount
 
Capital
 
Stock
 
Earnings
 
Equity
 
Interest
 
Equity
Balance at September 30, 2018
8,416

$
8,416

 
$
20,126

 
$
(7,536
)
 
$
151,111

 
$
172,117

 
$
5,478

 
$
177,595

Net loss


 

 

 
(2,467
)
 
(2,467
)
 
(36
)
 
(2,503
)
Dividends


 

 

 
(447
)
 
(447
)
 

 
(447
)
Treasury stock purchases


 

 
(25,576
)
 

 
(25,576
)
 

 
(25,576
)
ASC 610-20 adoption


 

 

 
14,601

 
14,601

 

 
14,601

Stock-based compensation:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directors


 
(57
)
 
295

 

 
238

 

 
238

Executives


 
315

 

 

 
315

 

 
315

Balance at December 31, 2018
8,416

$
8,416

 
$
20,384

 
$
(32,817
)
 
$
162,798

 
$
158,781

 
$
5,442

 
$
164,223


See accompanying notes to the condensed consolidated financial statements.

4



ALICO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 
 
 
 
 
Three Months Ended December 31,
 
2019
 
2018
Net cash used in operating activities:


 


Net income (loss)
$
898

 
$
(2,503
)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 

 
 

Depreciation, depletion and amortization
3,609

 
3,458

Deferred income tax expense (benefit)

 
(629
)
Gain on sale of real estate, property and equipment and assets held for sale
(25
)
 
(22
)
Change in fair value of derivatives

 
956

Impairment of long-lived assets
88

 

Impairment of right-of-use asset
87

 

Stock-based compensation expense
301

 
553

Other

 
(7
)
Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(1,139
)
 
(4,298
)
Inventories
(3,145
)
 
(1,425
)
Prepaid expenses
(477
)
 
(343
)
Income tax receivable

 
(469
)
Other assets
(457
)
 

Accounts payable and accrued liabilities
(6,213
)
 
(5,636
)
Income tax payable
361

 
(1,691
)
Other liabilities
69

 
55

Net cash used in operating activities
(6,043
)
 
(12,001
)
 
 
 
 
Cash flows from investing activities:
 

 
 

Purchases of property and equipment
(3,541
)
 
(3,458
)
Net proceeds from sale of property and equipment and assets held for sale
42

 
202

Change in deposits on purchase of citrus trees
(194
)
 
(632
)
Advances on notes receivables, net
4

 
4

Net cash used in investing activities
(3,689
)
 
(3,884
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Repayments on revolving lines of credit

 
(6,948
)
Borrowings on revolving lines of credit

 
26,577

Principal payments on term loans
(7,132
)
 
(2,707
)
Treasury stock purchases
(238
)
 
(25,576
)
Dividends paid
(448
)
 
(447
)
Deferred financing costs
(23
)
 

Net cash used in financing activities
(7,841
)
 
(9,101
)
 
 
 
 
Net decrease in cash and cash equivalents and restricted cash
(17,573
)
 
(24,986
)
Cash and cash equivalents and restricted cash at beginning of the period
23,838

 
32,260

 
 
 
 
Cash and cash equivalents and restricted cash at end of the period
$
6,265

 
$
7,274


See accompanying notes to the condensed consolidated financial statements.

5



ALICO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Description of Business and Basis of Presentation
Description of Business
 
Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately 111,000 acres of land throughout Florida, including approximately 90,000 acres of mineral rights. The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications: (i) Alico Citrus and (ii) Water Resources and Other Operations. Financial results are presented based upon these two business segments. 

Basis of Presentation

The Company has prepared the accompanying financial statements on a condensed consolidated basis. These accompanying unaudited condensed consolidated interim financial statements, which are referred to herein as the “Financial Statements", have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to Article 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. These Financial Statements do not include all of the disclosures required for complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations. Accordingly, the Financial Statements should be read in conjunction with the Company's audited Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019, as filed with the SEC on December 5, 2019.
The Financial Statements presented in this Form 10-Q are unaudited. However, in the opinion of management, such Financial Statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods.
Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the current fiscal year ending September 30, 2020. All intercompany transactions and account balances between the consolidated businesses have been eliminated.

Segments

Operating segments are defined in the criteria established under the Financial Accounting Standards Board - Accounting Standards Codification (“FASB ASC”) Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on two operating segments: (i) Alico Citrus and (ii) Water Resources and Other Operations.

Principles of Consolidation

The Financial Statements include the accounts of Alico and the accounts of all the subsidiaries in which a controlling interest is held by the Company. Under U.S. GAAP, consolidation is generally required for investments of more than 50% of the outstanding voting stock of an investee, except when control is not held by the majority owner. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC, Alico Citrus Nursery, LLC, Alico Chemical Sales, LLC, 734 Citrus Holdings, LLC and subsidiaries, Alico Fresh Fruit, LLC, Alico Skink Mitigation, LLC and Citree Holdings 1, LLC (“Citree”). The Company considers the criteria established under FASB ASC Topic 810, “Consolidations” in its consolidation process. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the accompanying Financial Statements, the disclosure of contingent assets and liabilities in the Financial Statements and the accompanying Notes, and the reported amounts of revenues and expenses and cash flows during the periods presented. Actual results could differ from those estimates. The

6



Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific assumptions that the Company believes to be reasonable.

Restricted Cash

Restricted cash is comprised of cash received from the sale of certain assets in which the use of funds is restricted. For certain sales transactions, the Company sells property which serves as collateral for specific debt obligations. As a result, the sale proceeds can only be used to purchase like-kind citrus groves acceptable to the debt holder or to pay down existing debt obligations. During fiscal year ended September 30, 2019, the Company utilized restricted cash of $1,800,000 towards the purchase of citrus groves. Such purchases are included as part of the collateral under certain debt obligations. Additionally, in November 2019, the Company utilized restricted cash to pay down existing debt, including interest, of $4,489,000. If the remaining restricted cash is not otherwise used as of September 30, 2020, it will be used to pay down principal on Company debt. Based on the contractual uses of restricted cash, these amounts have been classified as non-current.

Revenue Recognition
 
Revenues are derived from the sale of processed fruit, fresh fruit, other citrus revenue, leasing revenue and other water and resource revenues. The majority of the revenue is generated from the sale of citrus fruit to processing facilities and fresh fruit sales. 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.

The Company has identified one performance obligation as the delivery of fruit to the processing facility (or harvesting of the citrus in the case of fresh fruit) of the customer for each separate variety of fruit identified in the contract. The Company initially recognizes revenue in an amount which is estimated based on contractual and market prices, if such market price falls within the range (known as “floor” and “ceiling” prices) identified in the specific contracts. Additionally, the Company also has a contractual agreement whereby revenue is determined based on applying a cost-plus structure methodology. As such, since these contracts contain elements of variable consideration, the Company recognizes this variable consideration by using the expected value method. On a quarterly basis, management reviews the reasonableness of the revenues accrued based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues at the close of the harvesting season can result in either an increase or decrease to reported revenues. During the periods presented, no material adjustments were made to the reported citrus revenues.

Receivables under contracts, whereby pricing is based on contractual and market prices, are primarily paid at the floor amount and are collected within seven days after the harvest week. Any adjustments to pricing as a result of changes in market prices are collected or paid thirty to sixty days after final market pricing is published. Receivables under contracts, whereby pricing is based off a cost-plus structure methodology, are paid at the final prior year rate. Any adjustments to pricing as a result of the cost-plus calculation are collected or paid upon finalization of the calculation and agreement by both parties. As of December 31, 2019, and September 30, 2019, the Company had total receivables relating to sales of citrus of approximately $1,500,000 and $160,000, respectively, recorded in Accounts Receivable, net, in the Condensed Consolidated Balance Sheets.


7



Disaggregated Revenue

Revenues disaggregated by significant products and services for the three months ended December 31, 2019 and 2018 are as follows:

(in thousands)
 
 
 
 
Three Months Ended December 31,
 
2019
 
2018
Alico Citrus
 
 
 
Early and Mid-Season
$
9,066

 
$
11,645

Fresh Fruit
735

 
1,906

Other
374

 
346

Total
$
10,175

 
$
13,897

 
 
 
 
Water Resources and Other Operations
 
 
 
Land and other leasing
$
663

 
$
734

Other
167

 
148

Total
$
830

 
$
882

 
 
 
 
Total Revenues
$
11,005

 
$
14,779



Noncontrolling Interest in Consolidated Subsidiary

The Financial Statements include all assets and liabilities of the less-than-100%-owned subsidiary the Company controls, Citree. Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had net income of $218,414 and a net loss of $73,502 for the three months ended December 31, 2019 and 2018, respectively, of which 51% is attributable to the Company.

Recent Accounting Pronouncements

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, “Intangibles-Goodwill and Other” (Topic 350), which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in the fiscal years beginning after December 15, 2019, including interim periods within those reporting periods. We will adopt this guidance using a prospective approach. Earlier adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of ASU 2017-04 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2020.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements” (ASU 2018-13), which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. ASU 2018-13 is effective for annual and interim periods in the fiscal years beginning after December 15, 2019. Early adoption is permitted. Retrospective adoption is required, except for certain disclosures, which will be required to be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The Company does not expect the adoption of ASU 2018-13 will have a material impact on its consolidated financial statements and will adopt the standard effective October 1, 2020.

In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments-Credit Losses.” ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Leases (Topic 842). The standard is effective for us on October 1, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2018-19 to have a material impact on its consolidated financial statements of the Company.

8



The Company has reviewed other recently issued accounting standards which have not yet been adopted in order to determine their potential effect, if any, on the results of operations or financial condition. Based on the review of these other recently issued standards, the Company does not currently believe that any of those accounting pronouncements will have a significant effect on its current or future financial position, results of operations, cash flows or disclosures.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842).” This guidance requires entities that sign leases as a lessee to recognize right-of-use assets and lease liabilities for those leases classified as operating leases under previous U.S. GAAP. The accounting applied by a lessor is largely unchanged from that applied under previous U.S. GAAP. The Company adopted ASU 2016-02 on October 1, 2019.

The Company determines whether an arrangement is a lease at inception. The Company’s leases consist of operating lease arrangements for certain office space and IT facilitates. When these lease arrangements include lease and non-lease components, the Company accounts for lease components and non-lease components (e.g. common area maintenance) separately based on their relative standalone prices.

Any lease arrangements with an initial term of 12 months or less are not recorded on the Company’s Condensed Consolidated Balance Sheet, and it recognizes lease cost for these lease arrangements on a straight-line basis over the lease term. Many lease arrangements provide the options to exercise one or more renewal terms or to terminate the lease arrangement. The Company includes these options when it will be reasonably certain to exercise them in the lease term used to establish the right of use assets and lease liabilities. Generally, lease agreements do not include an option to purchase the leased asset, residual value guarantees or material restrictive covenants.

As most of our lease arrangements do not provide an implicit interest rate, the Company applies an incremental borrowing rate based on the information available at the commencement date of the lease arrangement to determine the present value of lease payments.

No lease costs associated with finance leases and sale-leaseback transactions occurred and our lease income associated with lessor and sublease arrangements are not material to our Condensed Consolidated Financial Statements.

Our operating leases are reported in our Condensed Consolidated Balance Sheet as follows:
(in thousands)
 
 
 
 
 
 
 
 
 
Operating lease components
 
Classification
 
December 31, 2019
Right-of-use assets
 
Other non-current assets
 
$
376

Current lease liabilities
 
Other current liabilities
 
$
175

Non-current lease liabilities
 
Other liabilities
 
$
290



Our operating leases cost components are reported in our Condensed Consolidated Statement of Operations as follows:
(in thousands)
 
 
 
 
 
 
 
 
Three Months Ended
Operating lease components
 
Classification
 
December 31, 2019
Operating lease costs
 
General and administration expenses
 
$
52

Operating lease right-of-use asset impairment
 
Other expenses
 
$
87




9



Future maturities of our operating lease obligations as of December 31, 2019 by fiscal year are as follows:
(in thousands)
 
 
 
 
 
 
 
2020
 
 
$
189

2021
 
 
186

2022
 
 
117

2023
 
 

2024
 
 

2025 and thereafter
 
 

Total noncancelable future lease obligations
 
 
$
492

Less: Interest
 
 
(27
)
Present value of lease obligations
 
 
$
465


 
The weighted-average remaining lease term and weighted-average discount rate for our operating leases are as follows:
 
December 31, 2019
Weighted-average remaining lease term
2.83

 
years
Weighted-average discount rate
3.89
%
 
 


Cash flow information related to leases consists of the following:
 
 
(in thousands)
 
 
Three Months Ended
 
 
 
December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash flows from operating leases
 
 
$
50

 
 
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
 
 
Operating leases
 
 
$
511



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.


Note 2. Inventories

Inventories consist of the following at December 31, 2019 and September 30, 2019:
(in thousands)
December 31,
 
September 30,
 
2019
 
2019
Unharvested fruit crop on the trees
$
42,572

 
$
39,276

Other
716

 
867

Total inventories
$
43,288

 
$
40,143


The Company records its inventory at the lower of cost or net realizable value. For the three months ended December 31, 2019, the Company did not record any adjustments to reduce inventory to net realizable value.

10



During the fiscal year ended September 30, 2018, the Company received insurance proceeds relating to Hurricane Irma of approximately $477,000 for property and casualty damage claims and approximately $8,952,000 for crop claims. During the fiscal year ended September 30, 2019, the Company received additional insurance proceeds relating to Hurricane Irma of approximately $486,000 in property and casualty claims reimbursement. There are no further property and casualty or crop insurance claims pending relating to Hurricane Irma.
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, 2019, the Company received approximately $15,597,000 under the Florida Citrus Recovery Block Grant (“CRBG”) program. This represented the Part 1 and a portion of the Part 2 reimbursement under the three-part program. During the three months ended December 31, 2019, the Company received additional proceeds of approximately $4,466,000 under the Florida CRBG program. This represented the remaining portion of the Part 2 reimbursement under the three-part program. The timing and amount to be received under the Part 3 of the program, if any, has not been finalized. These federal relief proceeds are included as a reduction to operating expenses in the Condensed Consolidated Statements of Operations.


Note 3. Assets Held for Sale

In accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been classified as assets held for sale at December 31, 2019 and September 30, 2019:

(in thousands)
Carrying Value
 
December 31,
 
September 30,
 
2019
 
2019
East Ranch
$
1,442

 
$
1,442

     Total Assets Held For Sale
$
1,442

 
$
1,442



On October 30, 2018, the Company sold certain parcels at Frostproof for approximately $206,000 and realized a gain of approximately $12,000.


Note 4. Property and Equipment, Net

Property and equipment, net consists of the following at December 31, 2019 and September 30, 2019:

(in thousands)
December 31,
 
September 30,
 
2019
 
2019
Citrus trees
$
284,578

 
$
281,149

Equipment and other facilities
54,429

 
54,622

Buildings and improvements
8,201

 
8,224

Total depreciable properties
347,208

 
343,995

Less: accumulated depreciation and depletion
(107,471
)
 
(104,169
)
Net depreciable properties
239,737

 
239,826

Land and land improvements
105,835

 
105,822

Property and equipment, net
$
345,572

 
$
345,648



11




During the three months ended December 31, 2019, the Company recorded impairments of approximately $88,000 relating to the loss of citrus trees.

During the fiscal year ended September 30, 2019, the Company purchased 203 acres of citrus blocks for approximately $1,950,000. These purchases were made from grove owners from within the Company’s existing grove locations. In April 2019, the lender, PGIM Real Estate Finance, LLC (“Prudential”), agreed to accept those purchases completed through April 2019 as substitute collateral and release $1,800,000 from restricted cash, which was completed in the fourth quarter of fiscal year 2019. In the fiscal year 2019, subsequent to April 2019, there were two additional purchases of Citrus blocks for approximately $100,000 that are not included as part of the substitution collateral. In the three months ended December 31, 2019, two additional purchases of Citrus blocks for approximately $70,000 were completed.

On September 27, 2019, the Company sold approximately 5,500 acres from its West Ranch for approximately $14,775,000 and realized a gain on sale of approximately $13,033,000. Upon the sale of these acres, the lease rate pertaining to the grazing and other rights was adjusted from $98,750 to $80,000 per month, as these acres were previously being leased to a third party.

12



Note 5. Long-Term Debt and Lines of Credit

The following table summarizes long-term debt and related deferred financing costs, net of accumulated amortization at December 31, 2019 and September 30, 2019:

 
December 31, 2019
 
September 30, 2019
(in thousands)
Principal
 
Deferred Financing Costs, Net
 
Principal
 
Deferred Financing Costs, Net
 
 
 
 
 
 
 
 
Long-term debt, net of current portion:
 
 
 
 
 
 
 
Met Fixed-Rate Term Loans
$
88,125

 
$
699

 
$
89,688

 
$
724

Met Variable-Rate Term Loans
43,125

 
321

 
43,844

 
334

Met Citree Term Loan
4,700

 
39

 
4,750

 
40

Pru Loans A & B
15,967

 
220

 
16,257

 
224

Pru Loan E
4,400

 
7

 
4,455

 
9

Pru Loan F

 

 
4,455

 
38

 
156,317

 
1,286

 
163,449

 
1,369

Less current portion
5,130

 

 
5,338

 

Long-term debt
$
151,187

 
$
1,286

 
$
158,111

 
$
1,369



The following table summarizes lines of credit and related deferred financing costs, net of accumulated amortization at December 31, 2019 and September 30, 2019:

 
December 31, 2019
 
September 30, 2019
(in thousands)
Principal
 
Deferred Financing Costs, Net
 
Principal
 
Deferred Financing Costs, Net
 
 
 
 
 
 
 
 
Lines of Credit:
 
 
 
 
 
 
 
RLOC
$

 
$
153

 
$

 
$
8

WCLC

 

 

 

Lines of Credit
$

 
$
153

 
$

 
$
8



Future maturities of long-term debt as of December 31, 2019 are as follows:
(in thousands)
 
 
 
Due within one year
$
5,130

Due between one and two years
14,715

Due between two and three years
10,535

Due between three and four years
10,535

Due between four and five years
10,535

Due beyond five years
104,867

 
 
Total future maturities
$
156,317



13



Interest costs expensed and capitalized were as follows:
(in thousands)
Three Months Ended December 31,
 
2019
 
2018
Interest expense
$
1,544

 
$
1,917

Interest capitalized
269

 
216

Total
$
1,813

 
$
2,133


Debt

The Company's credit facilities consist of $125,000,000 in fixed interest rate term loans (“Met Fixed-Rate Term Loans”), $57,500,000 in variable interest rate term loans (“Met Variable-Rate Term Loans”), a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of approximately 38,200 gross acres of citrus groves and 5,800 gross acres of ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.

The term loans, collectively, are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The Met Fixed-Rate Term Loans bear interest at 4.15% per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to 90 day LIBOR plus 165 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by Met beginning May 1, 2017 and is subject to further adjustment every two years thereafter until maturity. No adjustment was made at May 1, 2019. Interest on the term loans is payable quarterly. The interest rates on the Met Variable-Rate Term Loans were 3.58% per annum and 3.91% per annum as of December 31, 2019 and September 30, 2019, respectively. 
The Company may prepay up to $8,750,000 of the Met Fixed-Rate Term Loan principal annually without penalty, and any such prepayments may be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment was made for calendar year 2015. During the first and second quarter of fiscal year 2018, the Company elected not to make its principal payment and utilized a portion of its 2015 prepayment to satisfy its principal payment requirements for such quarters. At December 31, 2019, the Company had $5,625,000 remaining available to reduce future mandatory principal payments should the Company elect to do so. The Met Variable-Rate Term Loans may be prepaid without penalty.
The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 165 basis points, payable quarterly. The LIBOR spread was adjusted by Met on May 1, 2017 and is subject to further adjustment every two years thereafter. No adjustment was made at May 1, 2019. In October 2019, the RLOC agreement was modified to extend the current maturity of November 1, 2019 to November 1, 2029. As part of the agreement to extend the current maturity, the interest rate will be held at the rate in effect at the time the agreement was entered into until February 2020. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit. The RLOC is available for funding general corporate needs. The variable interest rate was 3.91% and 3.91% per annum as of December 31, 2019 and September 30, 2019, respectively. Availability under the RLOC was $25,000,000 as of December 31, 2019.
The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate on the WCLC is based on the one month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's debt service coverage ratio for the preceding quarter and can vary from 175 to 250 basis points. The rate is currently at LIBOR plus 175 basis points. The variable interest rate was 3.46% and 3.85% per annum as of December 31, 2019 and September 30, 2019, respectively. The WCLC agreement was amended on September 20, 2018, and the primary terms of the amendment were an extension of the maturity to November 1, 2021. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately $69,600,000 and $69,540,000 as of December 31, 2019 and September 30, 2019, respectively.
The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on Alico's debt service coverage ratio for the preceding quarter and can vary from a minimum of 20 basis points to a maximum of 30 basis points. Commitment fees to date have been charged at 20 basis points.
There were no amounts outstanding on the WCLC at December 31, 2019. The WCLC agreement provides for Rabo to issue up to $2,000,000, reduced from $20,000,000 during fiscal year 2019, in letters of credit on the Company’s behalf. As of December 31,

14



2019, there was approximately $399,000 in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.
In 2014, the Company capitalized approximately $2,834,000 of debt financing costs related to the refinancing and approximately $339,000 of costs related to the retired debt. Additionally, financing costs of approximately $23,000 and $133,000 were incurred in the three months ended December 31, 2019 and for the fiscal year ended September 30, 2019, respectively, in connection with the extension of the RLOC. All costs are included in deferred financing and being amortized to interest expense over the applicable terms of the obligations. The unamortized balance of deferred financing costs related to the financing above was approximately $1,173,000 and approximately $1,066,000 at December 31, 2019 and September 30, 2019, respectively.

These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of 1.10 to 1.00, (ii) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding years, or approximately $167,364,000 for the year ended September 30, 2019, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, (v) solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of December 31, 2019, the Company was in compliance with all of the financial covenants.
Credit facilities also include a Met Life term loan collateralized by 1,200 gross acres of citrus grove owned by Citree ("Met Citree Loan"). This is a $5,000,000 credit facility that bears interest at a fixed rate of 5.28% per annum. Principal and interest payments are made on a quarterly basis. At December 31, 2019 and September 30, 2019 there was an outstanding balance of $4,700,000 and $4,750,000, respectively. The loan matures in February 2029. The unamortized balance of deferred financing costs related to this loan was approximately $39,000 and $40,000 at December 31, 2019 and September 30, 2019, respectively.

Transition from LIBOR

The Company is currently evaluating the impact of the transition from LIBOR as an interest rate benchmark to other potential alternative reference rates. Currently, the Company has debt instruments in place that reference LIBOR-based rates. The transition from LIBOR is estimated to take place in 2021 and management will continue to actively assess the related opportunities and risks involved in this transition.

Silver Nip Citrus Debt

There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum (“Pru Loans A & B”). Principal of $290,000 is payable quarterly, together with accrued interest. On February 15, 2015, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip Citrus”) made a prepayment of $750,000. In addition, the Company made prepayments of approximately $4,453,000 in the second fiscal quarter of 2018 with proceeds from the sale of certain properties, which were collateralized under these loans. The Company may prepay up to $5,000,000 of principal without penalty. As such, the Company exceeded the allowed $5,000,000 prepayment by approximately $203,000 and was required to make a premium payment of approximately $22,000. The loans are collateralized by approximately 5,700 of citrus groves in Collier, Hardee, Highlands and Polk Counties, Florida and mature on June 1, 2029 and June 1, 2033, respectively.
 
Silver Nip Citrus entered into two additional fixed-rate term loans with Prudential to finance the acquisition of a 1,500 acre citrus grove on September 4, 2014. Each loan was in the original amount of $5,500,000. Principal of $55,000 per loan is payable quarterly, together with accrued interest. One loan bears interest at 3.85% per annum (“Pru Loan E”), while the other bears interest at 3.45% per annum (“Pru Loan F”). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. No adjustment was made at September 1, 2019. Both loans are collateralized by approximately 1,500 gross acres of citrus groves in Charlotte County, Florida.

In November 2019, the Company prepaid Pru Note F in full in the amount of $4,455,000. As a result of this prepayment, the Company’s required annual principal payments will be reduced by $220,000 per annum. Pru Note E matures September 1, 2021.

The Silver Nip Citrus credit agreements are subject to a financial covenant whereby the consolidated current ratio requirement is 1.00 to 1.00. Silver Nip Citrus was in compliance with the current ratio covenant as of December 31, 2019.

The unamortized balance of deferred financing costs related to the Silver Nip Citrus debt was approximately $227,000 and $271,000 at December 31, 2019 and September 30, 2019, respectively.

15



Note 6. Accrued Liabilities
Accrued liabilities consist of the following at December 31, 2019 and September 30, 2019:
(in thousands)
December 31,
 
September 30,
 
2019
 
2019
 
 
 
 
Ad valorem taxes
$

 
$
2,117

Accrued interest
1,033

 
1,110

Accrued employee wages and benefits
927

 
2,525

Accrued dividends
672

 
448

Accrued contractual obligation associated with sale of real estate

 
402

Accrued harvest and haul
277

 

Consulting and separation charges
400

 
400

Accrued insurance
871

 
544

Other accrued liabilities
269

 
223

Total accrued liabilities
$
4,449

 
$
7,769




Note 7. Derivative Asset and Derivative Liabilities/Deferred Gain on Sale

On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global”) for approximately $97,900,000 in cash.

The sales price was subject to post-closing adjustments over a ten year period. The Company realized a gain of approximately $42,753,000 on the sale. Initially, $29,140,000 of the gain was deferred due to the Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represented the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement. A net gain of approximately $13,613,000 was recognized at the time of the sale.

On October 1, 2018, the Company adopted ASC 610-20 and reevaluated the original post closing agreement under the guidance of ASC 610-20. As such, the Company recorded a derivative asset and derivative liabilities, which resulted in an increase to retained earnings of $10,897,000, net of taxes. This adjustment consisted of recording a derivative asset in the amount of $3,553,000 relating to potential payments due Alico from Global Ag Properties USA, LLC (“Global Ag”) and a derivative liability of $13,864,000 relating to potential payments due Global Ag from Alico. In the first quarter ended December 31, 2018, the Company recorded a loss of $956,000, which reflects the change in fair value of the derivative asset and derivative liabilities. In the three months ended March 31, 2019, the Company recorded an additional loss of $33,000.

On December 7, 2018, the Company and Global Ag entered into a Termination of Post Closing Agreement (the “2018 Post Closing Agreement”), pursuant to which the parties thereto agreed to certain terms and conditions under which a Post Closing Agreement, dated as of November 21, 2014 (the “2014 Post Closing Agreement”), may be terminated prior to the expiration of its stated term and with the payment of certain termination payments. The 2014 Post Closing Agreement was entered into in connection with the November 21, 2014 closing (the “Land Disposition”) of the sale by Alico to Global Ag of certain land used for sugarcane production and land leasing in Hendry County, Florida (the “Land”).

The 2014 Post Closing Agreement contained obligations, including possible payments by Alico and by Global Ag to each other over a ten year period following the closing of the Land Disposition, with the payments each year being based on the difference, if any, between certain computed amounts. Since the time of the closing of the Land Disposition and up through March 11, 2019, the computations have resulted in payments being made each year by Alico to Global Ag., which have aggregated approximately $6,518,000.

The 2018 Post Closing Agreement provided for (i) the termination of the 2014 Post Closing Agreement following the satisfaction of certain terms and conditions set forth in the termination agreement and (ii) the deposit by wire transfer into escrow of an aggregate of $11,300,000 following notification by Global Ag to Alico of the closing date of a sale of the Land by Global Ag to a third party. The conditions to the termination of the 2014 Post Closing Agreement and the payment of funds to Global Ag included (a) Global Ag’s assignment to the third party buyer, and such third party buyer’s assumption, of certain specified water management obligations, irrigation and drainage easement obligations, access easements obligations and obligations under a certain option to purchase certain railroad property owned by Alico, (b) delivery to the escrow agent of all instruments and consideration required

16



to consummate the closing by Global Ag of the sale of the Land to the third party buyer, and (c) delivery to the escrow agent of copies of a water management project cooperation agreement running in favor of Alico and signed by Global Ag and the third party buyer.

On March 11, 2019, the 2018 Post Closing Agreement was completed. As such, all the conditions of the termination of the 2014 Post Closing Agreement, mentioned above, were met with the sale of the sugarcane land to a third party. As a result, the Company does not have any future liabilities or commitments to Global Ag in connection with the 2014 Post Closing Agreement.


Note 8. Income Taxes

In October 2019, the Internal Revenue Service concluded their audit of the September 30, 2015 tax year with no changes. The Federal and state filings remain subject to examination by tax authorities for tax periods ending after September 30, 2015.

The impact of adopting ASC 610 -20 was modified in the quarter ended March 31, 2019 to reflect the deferred tax impact of this adoption. The deferred tax asset related to the deferred gain on sale has been decreased by $3,704,000 with a corresponding decrease to retained earnings in the quarter ended March 31, 2019, offsetting the October 1, 2018 increase of $14,601,000 to retained earnings for the ASC 610-20 implementation (see Note 7. “Derivative Asset and Derivative Liabilities/Deferred Gain on Sale”).


Note 9. Earnings Per Common Share

Basic earnings per share for Alico's common stock is calculated by dividing net income attributable to Alico, Inc. common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted earnings per common share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of common shares issuable under equity-based compensation plans in accordance with the treasury stock method, except where the inclusion of such common shares would have an anti-dilutive impact.

For the three months ended December 31, 2019 and 2018, basic and diluted earnings per common share were as follows:

(in thousands except per share amounts)
 
 
 
 
Three Months Ended December 31,
 
2019
 
2018
 
 
 
 
Net income (loss) attributable to Alico, Inc. common stockholders
$
791

 
$
(2,467
)
 
 
 
 
Weighted average number of common shares outstanding - basic
7,477

 
7,479

Dilutive effect of equity-based awards
14

 

Weighted average number of common shares outstanding - diluted
7,491

 
7,479

 
 
 
 
Net income (loss) per common shares attributable to Alico, Inc. common stockholders:
 
 
 
Basic
$
0.11

 
$
(0.33
)
Diluted
$
0.11

 
$
(0.33
)


For the three months ended December 31, 2019 there were no anti-dilutive equity awards excluded from the calculation of diluted earnings per common share. For the three months ended December 31, 2018, certain stock options were excluded from the diluted earnings per share because they were anti-dilutive.



17



Note 10. Segment Information

Segments

Operating segments are defined in the criteria established under the FASB ASC Topic 280 as components of public entities that engage in business activities from which they may earn revenues and incur expenses for which separate financial information is available and which is evaluated regularly by the Company’s chief operating decision maker (“CODM”) in deciding how to assess performance and allocate resources. The Company’s CODM assesses performance and allocates resources based on two operating segments: Alico Citrus and Water Resources and Other Operations.

Total revenues represent sales to unaffiliated customers, as reported in the Condensed Consolidated Statements of Operations. Goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company evaluates the segments’ performance based on direct margins (gross profit) from operations before general and administrative expenses, interest expense, other income (expense) and income taxes, not including nonrecurring gains and losses.

Information by operating segment is as follows:
(in thousands)
Three Months Ended December 31,
 
2019
 
2018
Revenues:
 

 
 

Alico Citrus
$
10,175

 
$
13,897

Water Resources and Other Operations
830

 
882

Total revenues
11,005

 
14,779

 
 
 
 
Operating expenses:
 
 
 
Alico Citrus
4,840

 
10,874

Water Resources and Other Operations
551

 
723

Total operating expenses
5,391

 
11,597

 
 
 
 
Gross profit:
 
 
 
Alico Citrus
5,335

 
3,023

Water Resources and Other Operations
279

 
159

Total gross profit
5,614

 
3,182

 
 
 
 
Depreciation, depletion and amortization:
 
 
 
Alico Citrus
3,437

 
3,287

Water Resources and Other Operations
46

 
50

Other Depreciation, Depletion and Amortization
126

 
121

Total depreciation, depletion and amortization
$
3,609

 
$
3,458


(in thousands)
December 31,
 
September 30,
 
2019
 
2019
Assets:
 
 
 

Alico Citrus
$
388,396

 
$
401,212

Water Resources and Other Operations
15,267

 
15,332

Other Corporate Assets
1,406

 
844

Total Assets
$
405,069

 
$
417,388





18



Note 11. Stockholders' Equity

Effective January 27, 2015, the Company’s Board of Directors adopted the 2015 Stock Incentive Plan (the “2015 Plan”) which provides for up to 1,250,000 common shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to stockholder value. The 2015 Plan was approved by the Company’s stockholders in February 2015. The Company’s 2015 Plan provides for grants to executives in various forms including restricted shares of the Company’s common stock and stock options. Awards are discretionary and are determined by the Compensation Committee of the Board of Directors. Awards vest based upon service conditions. Non-vested restricted shares generally vest over requisite service periods of one to six years from the date of grant.

The Company recognizes stock-based compensation expense for (i) Board of Directors fees (paid in treasury stock), and (ii) other awards under the 2015 Plan (paid in restricted stock and stock options). Stock-based compensation expense is recognized in general and administrative expenses in the Condensed Consolidated Statements of Operations.

Stock Compensation - Board of Directors

The Board of Directors can either elect to receive stock compensation or cash for their fees for services provided. Stock-based compensation expense relating to the Board of Director fees was approximately $193,000 and $238,000 for the three months ended December 31, 2019 and 2018, respectively.

Restricted Stock

Stock compensation expense related to the Restricted Stock totaled approximately $26,000 and $26,000 for the three months ended December 31, 2019 and 2018, respectively. There was approximately $43,000 and $69,000 of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at December 31, 2019 and September 30, 2019, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of 0.50 years.

Stock Option Grant

Stock option grants of 118,000 options to certain Officers and Managers of the Company (collectively the “2020 Option Grants,”) were granted on October 11, 2019. The option exercise price was set at $33.96, the closing price on October 11, 2019. The 2020 Option Grants will vest as follows: (i) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $35.00; (ii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00; (iii) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $45.00; and (iv) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $50.00. If the applicable stock price hurdles have not been achieved by (A) the date that is 18 months following the termination of employment, if the employment is terminated due to death or disability, (B) the date that is 12 months following the termination of employment, if the employment is terminated by the Company without cause, by the employee with good reason, or due to the employee’s retirement, or (C) the date of the termination of employment for any other reason, then any unvested options will be forfeited. In addition, if the applicable stock price hurdles have not been achieved by the December 31, 2022 then any unvested options will be forfeited. The 2020 Option Grants will also become vested to the extent that the applicable stock price hurdles are satisfied in connection with a change in control of the Company. As of December 31, 2019, the Company’s stock closed at $35.83 per share. During the three months ended December 31, 2019, the stock did not trade above $35.00 per share for twenty consecutive days. Accordingly, none of the 2020 Option Grants
are vested at December 31, 2019.

Stock option grants of 10,000 options to Mr. John Kiernan (the “2019 Option Grants”) were granted on October 25, 2018. The option exercise price for these options was set at $33.34, the closing price on October 25, 2018. The 2019 Option Grants will vest as follows: (i) 3,333 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $40.00; (ii) 3,333 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $45.00; (iii) 3,334 of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $50.00. If the applicable stock price hurdles have not been achieved by (A) the date that is 18 months following the Executive’s termination of employment, if the Executive’s employment is terminated due to death or disability, (B) the date that is 12 months following the Executive’s termination of employment, if the Executive’s employment is terminated by the Company without cause, by the Executive with good reason, or due to the Executive’s retirement, or (C) the date of the termination of the Executive’s employment for any other reason, then any unvested options will be forfeited. In addition, if the applicable stock price hurdles have not been achieved by December 31, 2021 then any unvested options will be forfeited. The 2019 Option Grants will also become vested to the extent that the applicable stock price hurdles are satisfied in connection

19



with a change in control of the Company. As of December 31, 2019, the Company’s stock was trading at $