ALICO, INC. - Annual Report: 2013 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended September 30, 2013

or

For the transition period from                  to                 

Commission File Number: 0-261

Alico, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

None

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨

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

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

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

The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the closing price, as quoted on the NASDAQ as of March 31, 2013 (the last business day of Alico’s most recently completed second fiscal quarter) was $105,650,817.50. Solely for the purposes of this calculation, the registrant has elected to treat all executives, officers and greater than 10% shareholders as affiliates of the registrant. There were 7,274,339 shares of stock outstanding at December 2, 2013.

Documents Incorporated by Reference:

Portions of the Proxy Statement of Registrant to be dated on or before January 28, 2014, are incorporated by reference in Part III of this report.

ALICO, INC.

FORM 10-K

For the fiscal year ended September 30, 2013

Cautionary Statement

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

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

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

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

Part 1

Item  1. Business.

Alico, Inc. (“Alico”) is a Florida agribusiness and land management company built for today and backed by a legacy of achievement and innovation in citrus, sugar, cattle and resource conservation.

We own approximately 130,800 acres of land in six Florida counties (Alachua, Collier, Glades, Hendry, Lee and Polk) and, in addition to our principal lines of business in citrus groves, improved farmland including sugar cane, cattle ranching and conservation, and related support operations. We also receive royalties from rock mining and oil production.

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

We manage our land based upon its primary usage and review its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, we operate an Agricultural Supply Chain Management business that is not tied directly to our land holdings and Other Operations that include leasing mines and oil extraction rights to third parties.  We present our financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  In the fourth quarter of fiscal year 2013, we changed our internal operations to align with the way we manage our business operations. As a result, we have realigned our financial reporting segments to match our internal operations.  We have reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect our previously reported consolidated results.  The only change to previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

The Land We Manage

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

We operate and manage Citrus Groves, Improved Farmland, Ranch and Conservation and Other Land. Our holdings and the operating activities in which we engage are categorized in the following table:

Citrus Groves

We own and manage Citrus Groves in Collier, Hendry and Polk Counties and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Citrus Groves total approximately 17,400 gross acres or 13.3% of our land holdings. Our Citrus acreage is detailed in the following table:

Of the approximately 17,400 gross acres of citrus groves we own and manage, approximately 6,400 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of citrus trees but which are not capable of directly producing fruit. The approximately 11,000 remaining acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently producing, acres that are developing (acres that are planted in trees too young to commercially produce fruit) and acres that are fallow.

Our Citrus Groves segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales to the processed market constitute approximately 95% of our citrus sales annually. We produce Early and Mid-Season varieties, primarily Hamlin oranges, as well as a Valencia variety for the processed market. We deliver our fruit to the processors in boxes which contain 90 pounds of oranges. Because the processors convert the majority of the citrus crop into orange juice, they generally do not buy their citrus on a per box basis but rather on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. We have produced 24,746,000, 29,069,000, and 23,976,000 pound solids for each of the years ended September 30, 2013, 2012, and 2011, on boxes delivered to processing plants of 3,867,000, 4,357,000, and 3,773,000, respectively. The average pound solids per box was 6.40, 6.68, and 6.34 for each of the years ended September 30, 2013, 2012, and 2011, respectively. 

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

All citrus to be produced for the processed citrus market in fiscal year 2013-2014 is under minimum price contracts with a floor price of approximately $1.60 per pound solids. We believe that other markets are available for our citrus products; however, new arrangements may be less favorable than our current contracts.

Our sales to the fresh market constitute approximately 5% of our citrus sales annually. We produce numerous varieties to the fresh fruit market including grapefruit, navel and other fresh varieties. Generally, our fresh fruit is sold to packing houses by the box, and the packing houses are responsible for the harvest and haul of these boxes. We have produced 251,000, 278,000, and 289,000 boxes for each of the years ended September 30, 2013, 2012, and 2011, respectively. The majority of our citrus to be produced for the fresh citrus market in fiscal year 2013-2014 is under fixed price contracts.

Revenue from Citrus Groves operations was approximately 43.0%, 43.6%, and 47.8% of our total operating revenues for the fiscal years ended September 30, 2013, 2012, and 2011, respectively.

Improved Farmland

We own and manage Improved Farmland in Hendry County and engage in farming the land and leasing some of the acreage to others to farm. Of our land holdings, Improved Farmland totals approximately 44,100 gross acres or 33.7% of our total acreage. Our Improved Farmland acreage is detailed in the following table:

Our Improved Farmland includes approximately 30,600 gross acres currently used for Sugarcane farming, approximately 5,800 gross acres of irrigated farmland currently used for farm leasing and other purposes and approximately 7,700 gross acres of permitted but undeveloped land (acres that are permitted for farming but that have not yet been cleared, leveled and irrigated for commercial farming).

The approximately 30,600 gross acres currently used for Sugarcane farming are detailed in the table below:

The sugarcane farmland we own and manage, approximately 11,700 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention and drainage ditches integral to the cultivation of sugarcane but which are not capable of directly producing sugarcane. The remaining approximately 18,900 acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing sugarcane.

Our sugarcane crops are planted in the sandy soils of Hendry County and are generally replanted every four years. On average, three annual crops are harvested from one field before production and sugar concentration declines to an unacceptable level and the sugarcane crop is plowed under. The first crop that emerges from the planted cane is called plant cane and the subsequent crops are termed first stubble and second stubble. The sugarcane fields are generally fallow in the fourth year and are leased to other farmers to plant seasonal crops such as sweet corn, peanuts and watermelons. Approximately 2,200 acres of second stubble was harvested and plowed under in fiscal year 2013.

Developing acres are sugarcane acres that are being planted and cultivated in fiscal year 2014 and which will produce plant cane in fiscal year 2015. The 4,500 acres that are classified as second stubble for fiscal year 2013 and the 1,600 acres that are classified as third stubble will be harvested in the first quarter of fiscal year 2014. Portions of the 4,500 acres may be cultivated for an additional year to create a third stubble crop in fiscal year 2015, while the remainder and all of the 1,600 acres of third stubble will be plowed under and become leaseable fallow land.

We have sold 100% of our sugarcane to United States Sugar Corporation (“USSC”), a local Florida sugar processor, since the inception of our sugarcane program in 1988. The location of our sugarcane fields relative to the USSC processing plant is favorable and allows for efficient and cost effective delivery of our sugarcane. Alternative plant locations are less favorable, and, as a result, the loss of USSC as a customer could have a material adverse effect on our sugarcane operations; however, we do have a purchase agreement with USSC through March 31, 2014 that includes a minimum pricing clause. On March 31, 2014, the purchase agreement will automatically extend for one additional year, unless either party gives written notice of termination by the preceding January 1. If written notice of termination is provided by either party, the planted sugarcane, including any subsequent stubble years will continue to be subject to the purchase agreement.

During fiscal years ended September 30, 2013, 2012, and 2011, revenue from improved farmland operations was 21.6%, 12.0% and 8.8% of our total operating revenue, respectively.

Of our approximately 44,100 gross acres of Improved Farmland, approximately 5,800 gross acres are classified as irrigated farmland that is currently used for leasing and other purposes and 7,700 gross acres are classified as permitted but undeveloped. The detail of our irrigated farmland and permitted but undeveloped farmland is presented in the following table:

Of our approximately 5,800 gross acres of irrigated farmland, approximately 2,300 acres are leaseable. Of our 7,700 gross acres of permitted but undeveloped land, we estimate that with proper clearing and development we could yield four to five thousand net leaseable acres.

Ranch and Conservation

We own and manage Ranch and Conservation land in Collier, Hendry and Polk Counties and engage in Cattle Production, Sod and Native Plant Sales, Land Leasing for recreational and grazing purposes and conservation activities. Of our land holdings, Ranch and Conservation totals approximately 67,400 gross acres or 51.5% of our total acreage. Our Ranch and Conservation acreage is detailed in the following table:

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

Our Cattle operation is engaged in the production of beef cattle. It is located in Hendry and Collier Counties. The breeding herd consisted of an average of 8,700 cows and bulls. We primarily sell our calves to feed yards and yearling grazing operations in the United States. We also sell cattle through local livestock auction markets and to contract cattle buyers in the United States. These buyers provide ready markets for our cattle. We believe that the loss of any one or a few of these buyers would not have a material effect on our Cattle operations. Revenue from ranch and conservation operations was approximately 6.6%, 5.8%, and 6.1% of total operating revenue for each of the years ended September 30, 2013, 2012, and 2011, respectively.

In the fourth quarter of fiscal year 2013 we granted an easement to the United States Department of Agriculture (“USDA”), through its administering agency, The Natural Resources Conservation Service, on approximately 11,600 acres of our Ranch and Conservation land located in Hendry County resulting in a gain of $20.3 million, which was recorded in Other Income on the Statement of Comprehensive Income.

Our Other Segments

In addition to owning and managing approximately 130,800 gross acres of land in Central and Southwest Florida, Alico also engages in complimentary lines of business. Our Agricultural Supply Chain Management and Support

lines of business include activities related to value-added services provided which include agricultural contracting for harvesting hauling and marketing and the purchase and resale of fruit while our Other Operations line of business includes activities related to rock and sand mining, oil exploration and other insignificant lines of business. A summary of the Agricultural Supply Chain Management and Support line of business follows:

Segment Financial Results

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

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

Highlights

Change in Majority Owner

On November 19, 2013, 734 Investors, LLC (the “Buyer”), an investment fund affiliated with 734 Agriculture, LLC (“734 Agriculture”) and George R. Brokaw, a Member of 734 Agriculture and the Buyer’s designee (the “Designee”), completed the previously announced purchase from Alico Holding, LLC (the “Seller”), a company wholly owned by Atlantic Blue Group, Inc., of 3,725,457 shares of common stock, par value $1 per share, of Alico owned by the Seller for $37.00 per share, for an aggregate purchase price of approximately $137,841,909 in cash (the “Share Purchase”). The Buyer used equity investments from its members of approximately $123,410,000 and debt financing of $13,691,909 to fund its portion of the purchase price. The Designee used cash on hand to fund his portion of the purchase price.

The common stock acquired by the Buyer and the Designee represents approximately 51% of our outstanding voting securities. On November 15, 2013, the Buyer amended and restated its LLC operating agreement (the “LLC Agreement”) to admit new members and to designate 734 Agriculture as the managing member, with authority to administer the affairs of the Buyer, including the voting and disposition of shares of Common Stock, subject to certain restrictions set forth therein. The Buyer also entered into an agreement with the Designee (the “Designee Agreement”), dated as of November 15, 2013, providing that the Designee will vote the shares of our common stock acquired in the Share Purchase as directed by the Buyer and will not transfer, sell or otherwise dispose of those shares except pro rata with the Buyer’s disposition of its shares of our common stock. As a result, upon the consummation of the Share Purchase, the Buyer and 734 Agriculture will have the voting power to control the election of our directors and any other matter requiring the affirmative vote or consent of our shareholders.

The LLC Agreement also provides that the Buyer and 734 Agriculture will cause one of our directors so elected (or two, if our Board of Directors (the “Board”) is comprised of eleven or more members) to be an individual or individuals nominated by an affiliate of Arlon Group, so long as such nominee(s) satisfies certain conditions set forth in the LLC Agreement, including compliance with director independence and other criteria of the Company, the Nasdaq Global Select Stock Market (“Nasdaq”) and the Securities and Exchange Commission (the “SEC”) and applicable provisions of the Securities Exchange Act of 1934 (the “Exchange Act”), and qualification to serve as a director under the laws of the State of Florida.

We are not a party to the LLC Agreement or the Designee Agreement. The foregoing information concerning the LLC Agreement and the Designee Agreement has been furnished to us by the Buyer and 734 Agriculture, and we assume no responsibility for the accuracy of any such information.

Appointment of Directors; Resignation of Directors

With the closing of the Share Purchase, the previously announced election of the following individuals to our board of directors (the “Board”) became effective: Mr. Brokaw, Member of 734 Agriculture; Remy W. Trafelet, Manager of 734 Agriculture; W. Andrew Krusen, Chairman and CEO of Dominion Financial Group; Benjamin D. Fishman, Managing Principal of Arlon Group; Henry R. Slack, former Chairman of the Board of Terra Industries, Inc. and Senior Partner of Quarterwatch, LLC; Clayton G. Wilson, former CEO of 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip”) and Chairman of the Board of Latt Maxcy Corporation; and R. Greg Eisner, Head of Strategy of Dubin & Company, LLC. In accordance with the LLC Agreement, Arlon Group proposed that Mr. Fishman be included in the slate of new directors to be elected to the Board. Biographical information on each of the directors elected to the Board can be found in the Company’s Schedule 14f-1 filed with the SEC on November 8, 2013 (the “Schedule 14f-1”), under the section entitled “Directors Designated by 734 Investors—734 Investors’ Designees.”

Ramon A. Rodriguez remained on the Board and will continue to serve as director of the Company following the Share Purchase. In addition, Adam D. Compton, who previously resigned subject to and effective upon the closing of the Share Purchase, was reelected to the Board on November 22, 2013. Biographical information on Messrs. Rodriguez and Compton can be found in the Schedule 14f-1 under the section entitled “Board of Directors.”

Upon the Closing of the Share Purchase, the following individuals ceased to be directors pursuant to their previously disclosed resignations: JD Alexander, Dykes Everett, Thomas H. McAuley, Charles L. Palmer, John D. Rood, and Gordon Walker, PhD. Mr. Robert J. Viguet, Jr. resigned from the Board on November 21, 2013.

In connection with the change in the membership of the Board:

Appointment of Mr. Wilson as the Company’s Chief Executive Officer

Upon the closing of the Share Purchase, Mr. Alexander ceased to be our CEO pursuant to his previously disclosed resignation. On November 22, 2013, the Board appointed Mr. Wilson to serve as our Chief Executive Officer (“CEO”), effective immediately. Mr. Wilson also resigned from his position as CEO of Silver Nip effective the same date. Biographical information on Mr. Wilson can be found in our Schedule 14f-1 under the section entitled “Directors Designated by 734 Investors—734 Investors’ Designees—Mr. Clayton G. Wilson.” We expect to negotiate and enter into an employment agreement with Mr. Wilson, which will provide for compensation and other terms of employment appropriate for his position. During the interim period beginning on November 22, 2013 and ending when a definitive employment agreement with Mr. Wilson becomes effective, Mr. Wilson’s compensation will be equivalent to the compensation he previously received as CEO of Silver Nip, which is expected to consist of an annual base salary of $150,000 and customary fringe benefits (including employee welfare and retirement benefits) provided to our executive officers.

Silver Nip Agreement

On November 22, 2013, we entered into an employee lease agreement with Mr. Wilson and Silver Nip (the “Silver Nip Agreement”). Silver Nip is owned and controlled by Messrs. Brokaw, Trafelet and Wilson.

The Silver Nip Agreement provides, subject to the terms and conditions set forth therein, for us to furnish Mr. Wilson’s services to Silver Nip to perform the functions and services that Mr. Wilson has previously performed for Silver Nip prior to his resignation as CEO (the “Resignation Date”). The Silver Nip Agreement provides that Mr. Wilson will spend a majority of his working time performing functions and services for us and that in no event will Mr. Wilson be required to take any action that he or Alico determines could conflict with Mr. Wilson’s exercise of his fiduciary duties under applicable law owed to us or could interfere with the performance of his duties as an executive officer of the Company. In exchange for furnishing Mr. Wilson’s services, Silver Nip has agreed to pay us the cash salary that would have been paid to Mr. Wilson pursuant to his previous employment arrangement with Silver Nip, had that arrangement continued to be in force.

The Silver Nip Agreement continues through December 31, 2013. If neither party has provided the other with written notice of an intention to terminate the Silver Nip Agreement at least three business days before December 31, 2013 (or any subsequent renewal period), the Silver Nip Agreement will automatically renew for a one month period. In addition, Silver Nip may terminate the Silver Nip Agreement at any time upon 10 business days’ prior written notice to us.

Sale of Easement

In July, 2013, we granted a warranty easement deed to the United States Department of Agriculture, through its administering agency, The Natural Resources Conservation Service, granting a conservation easement on approximately 11,600 acres located in Hendry County, FL (the “Property”) for $20,678,000. The easement agreement states the Property will be enrolled in perpetuity in the Wetlands Reserve Program designed to restore, protect and enhance the values of the wetlands and for the conservation of natural resources. We will retain title to the Property and the right to various recreational uses including hunting, fishing and leasing of such rights. Additionally, we reserve the right to subsurface resources including oil, gas, minerals and geothermal resources underlying the easement area and the right to water uses and water rights identified as reserved to us.

Supplemental Information

Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Item 8. Financial Statements and Supplementary Data, Note 15. Segment Information in Notes to our Consolidated Financial Statements included in this Annual Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.

Strategy

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

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

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

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

invested capital by purchasing, selling, harvesting and hauling citrus fruit for other producers in the state of Florida.  The services provided by, and the relationships and industry information generated through, operating our Agricultural Supply Chain Management segment are complimentary to the operation and strategic positioning of our Citrus Groves Segment.

Competition

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

The sale and leasing of land is very competitive in the counties where we own land. The degree of competition has increased due to the current economic climate, which has caused an oversupply of comparable real estate available for sale or lease due to the decline in demand as a result of the continuing underperforming economy.  

Environmental Regulations

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

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

Employees

As of September 30, 2013, we had 154 full-time employees. Our employees work in the following divisions:

Seasonal Nature of Business

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

Capital resources and raw materials

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

Available Information

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

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

Item 1A. Risk Factors.

The following are what we believe to be the principal risks known to us that could cause a material adverse effect on our business, financial condition, results of operations, cash flows, strategies and prospects.

General

We have a 51% shareholder that has effective control over the election of our Board of Directors and a limited public float which could affect the price of our stock.

In November 2013, 734 Investors, LLC ("734 Investors"), acquired approximately 51% of Alico's common stock from Atlantic Blue Group, Inc. ("Atlanticblue"). In connection with that transaction, eight of our directors resigned, and our Board of Directors elected seven nominees proposed by 734 Investors to fill the vacancies. Alico does not have cumulative voting for directors. Accordingly, by virtue of its ownership percentage, 734 Investors is able to elect all of our directors and effectively controls Alico. Our shareholders other than 734 Investors have no control over who our directors or management will be. Our Board of Directors has determined that a majority of our current directors are independent within the meaning of Nasdaq listing standards, but these standards do not require that a majority of our directors be independent because we are a "controlled company." In addition, because we have a majority shareholder we have a limited public float, and our common stock is more thinly traded and its market price may fluctuate more than stocks with a larger public float.

We have a major customer that purchases 100% of our sugarcane production.

We have sold 100% of our sugarcane to USSC since the inception of our sugarcane program in 1988 and which revenue accounted for 20.6% of our total operating revenues in fiscal year 2013. The location of our sugarcane fields relative to the USSC processing plant is favorable and allows for efficient and cost effective delivery of our sugarcane. Alternative plant locations are less favorable, and, as a result, the loss of USSC as a customer could have a material adverse effect on our sugarcane operations. We have a purchase agreement with USSC through March 31, 2014, that includes a minimum pricing clause. On March 31, 2014, the purchase agreement will automatically extend for one additional year, unless either party gives written notice of termination by January 1, 2014. If written notice of termination is provided by either party, the existing planted cane and any subsequent stubble cuts will be subject to the purchase agreement.

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

In each of the fiscal years ended September 30, 2013, 2012, and 2011, we paid $2,196,0000, $2,275,000, and $2,458,000 in real estate taxes, respectively.  These taxes were based upon the agricultural use (“Green Belt”) values determined by the county property appraiser in which counties we own land, of $69,687,000, $82,975,000, and $92,038,000 for each of the years ended September 30, 2013, 2012, and 2011, respectively, which differs significantly from the fair values determined by the county property appraisers of $516,919,000, $529,542,000, and $540,168,000, respectively.  Changes in state law or county policy regarding the granting of agricultural classification or calculation of Green Belt values or average millage rates could significantly impact our results of operations, cash flow and financial position.

Alico manages its properties in an attempt to capture their highest and best use and customarily does not sell property until it no longer meets our total return profile.

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

Alico is subject to environmental regulations. Compliance with applicable environmental laws may substantially increase our costs of doing business which could reduce our profits.

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

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

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

Agricultural Risks — General

Agricultural operations traditionally provide almost all of our operating revenues. Agriculture operations are subject to a wide variety of risks including product pricing due to variations in supply and demand, weather, disease, input costs and product liability.

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

Although our processed citrus and sugarcane are subject to minimum pricing we are unable to predict with certainty the final price we will receive for our products. In some instances the harvest and growth cycle will dictate when such products must be marketed which may or may not be advantageous in obtaining the best price. Excessive supplies tend to cause severe price competition and lower prices for the commodity affected. Limited supply of certain agricultural commodities due to world and domestic market conditions can cause commodity prices to rise in certain situations. Alico attempts to mitigate these risks by using contracts with citrus and sugarcane processors that include pricing structures based on a minimum (“floor”) price and with a price increase (“rise”) if market prices exceed the floor price. As a result, our profitability may be subject to significant variability.

Alico’s agricultural assets are concentrated and the effects of adverse weather conditions could adversely affect our results of operations and financial position.

Our agricultural operations are concentrated in south Florida with more than 35% of our agricultural lands located in a contiguous parcel in Hendry County. Because our agricultural properties are located in close proximity to each other, the impact of adverse weather conditions may be material to Alico’s results of operations. Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our properties could experience significant, if not catastrophic damage. Hurricanes have the potential to destroy crops, affect cattle breeding and impact citrus and sugarcane production through the loss of fruit and destruction of trees and/or plants either as a result of high winds or through the spread of windblown disease. Such damage could materially affect our citrus, sugarcane and cattle operations and could result in a loss of revenue from those products for a multi-year period. Alico seeks to minimize hurricane risk by the purchase of insurance contracts, but the majority of our crops remain uninsured. In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, freezes, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our operations and our ability to realize income from our crops or cattle.

Alico’s agricultural earnings comprise substantially all of its revenues and are subject to wide volatility which could result in breaches of loan covenants.

Borrowing capacity represents a major source of our working capital. We currently have a credit facility with Rabo AgriFinance, Inc. that includes a Revolving Line of Credit and a Term Loan. These loans are subject to covenants requiring Alico to maintain a minimum current ratio of 1.5:1, a debt to assets ratio no greater than 60%, tangible net worth of at least $80 million, and a minimum debt coverage ratio of 1.15:1. While we currently expect to remain in compliance with these covenants, because of the volatility of our earnings stream and the factors causing this volatility, we are unable to directly control compliance. We believe that, based on factors currently known, we will continue to remain in compliance with our Revolving Line of Credit and Term Loan. We negotiated a less restrictive debt coverage ratio covenant to provide that the covenant must be breached in two consecutive years in order to be considered an event of default. Nevertheless, due to earnings volatility and factors unknown to us at this time, it is possible that a loan covenant could be breached, a default occur, and the major portion of our borrowings become due which could have a material adverse impact on our financial position, results of operations and cash flows.

Water Use Regulation restricts Alico’s access to water for agricultural use.

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

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

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

Alico’s citrus groves are subject to damage and loss from disease including but not limited to Citrus Canker and Citrus Greening

Our citrus groves are subject to damage and loss from diseases such as Citrus Greening and Citrus Canker. Each of these diseases is widespread in Florida and exists in our groves and in the areas where our groves are located.

Citrus greening is one of the most serious citrus plant diseases in the world. It is also known as Huanglongbing (HLB) or yellow dragon disease. Once a tree is infected, it decreases the productivity of infected trees. While the disease poses no threat to humans or animals, it has devastated citrus crops throughout the United States and abroad. The disease is spread by insects known as Asian citrus psyllids. The infected insect spreads the disease as it feeds on the leaves and stems of citrus trees.

Named for its green, misshapen fruit, citrus greening disease has now killed millions of citrus plants in the southeastern United States and has spread across the entire country. Infected trees produce fruits that are green, misshapen and bitter, unsuitable for sale as fresh fruit or for juice. Infected trees can die within a few years.

Alico uses a pesticide program to control these psyillids and an enhanced foliar nutritional program to mitigate the damage to infected trees. At the present time, there is no known cure for Citrus Greening once trees are infected.

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

We use best management practices to attempt to control diseases and their spread. Both of these diseases pose a significant threat to the Florida Citrus industry and to our citrus groves. We are managing the affects and the spread of these diseases in our groves which, left unmanaged, could cause a material adverse effect to our citrus grove operations, financial position, results of operations and cash flows.

Use of pesticides and herbicides and other materials by Alico or its lessees could create liability for Alico.

Alico and some of the parties to whom we lease land for agricultural purposes use herbicides, pesticides and other hazardous substances in the operation of their businesses. All pesticides and herbicides used by us have been approved for use by the proper governmental agencies with the hazards attributable to each substance appropriately labeled and described. We maintain policies requiring our employees to apply such chemicals strictly in accordance with the labeling. As a condition of our leasing agreements, we require that third parties also adhere to proper handling and disposal of such materials; however, we do not have full knowledge or control over the chemicals used by third parties who lease our lands for cultivation. It is possible that some of these herbicides and pesticides could be harmful to humans if used improperly or that there may be unknown hazards associated with such chemicals despite any contrary government or manufacturer labels. We might have to pay the costs or damages associated with the improper application, accidental release or the use or misuse of such substances, which could have a materially adverse effect.

Changes in immigration laws could impact the ability of Alico to harvest its crops.

We engage third parties to provide personnel for our harvesting operations. The availability and number of such workers is subject to decrease if there are changes in the U.S. immigration laws. The scarcity of available personnel to harvest our agricultural products could cause harvesting costs to increase or could lead to the loss of product that

is not timely harvested which could have a material adverse effect to our citrus grove operations, financial position, results of operations and cash flows.

Changes in demand for Alico’s agricultural products can affect demand and pricing of such products.

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

We face significant competition in its agricultural operations.

We face significant competition in our agricultural operations both from domestic and foreign producers and do not have any branded products. Foreign growers generally have an equal or lower cost of production, less environmental regulation and in some instances, greater resources and market flexibility than Alico. Because foreign growers have greater flexibility as to when they enter the U.S. market, we cannot always predict the impact these competitors will have on our business and results of operations. The competition we face from foreign suppliers of sugar and orange juice is mitigated by quota restrictions on sugar imports imposed by the U.S. government and by a governmentally imposed tariff on orange imports. A change in the government’s sugar policy allowing more imports or a reduction in the orange juice tariff could adversely impact our results of operations.

Item  1B. Unresolved Staff Comments.

None.  

Item 2. Properties

At September 30, 2013, Alico owned approximately 130,800 acres of land located in six counties in Florida. Acreage in each county and the primary classification with respect to the present use of these properties is shown in the following table:

Approximately 43,277 acres of the properties listed are encumbered by credit agreements totaling $96,000,000 at September 30, 2013. For a more detailed description of the agreements and collateral please see Item 8. Financial Statements, Note 10. Long-Term Debt in the Notes to the Consolidated Financial Statements.

Citrus Groves acreage is as follows:

Sugarcane acreage is as follows:

Land lease acreage is included in the total acres of Improved Farmlands, Ranch Lands and Other and as follows:

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

given the low level of demand in the current market. The Hendry County parcel is currently classified as ranch land, while the Collier County parcel is classified as citrus. Based on initial estimates by third party engineering firms, the aggregate reserve of the Glades County parcel is approximately 26 million tons, the sand reserve of the Hendry County parcel is approximately 53 million tons and the aggregate reserve of the Collier County parcel is approximately 140 million tons.

Item 3. Legal Proceedings.

From time to time, we establish estimated accruals for litigation matters which meet the requirements of ASC 450—Contingencies. There are no current matters that we believe will have a material adverse effect on our financial position or results of operations.

Shareholder Derivative Action

On October 29, 2008, Alico was served with a shareholder derivative complaint filed by Baxter Troutman against JD Alexander, our former Chief Executive Officer and Director, and John R. Alexander, our former Chairman of the Board, which named Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust, Inc.) (“Atlanticblue”), a 51% shareholder of Alico. From February 26, 2004 until January 18, 2008, Mr. Troutman was a director of Alico. The complaint alleged that JD Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants JD Alexander and John R. Alexander (“the Alexanders”) and improperly included a proposed special dividend; and that the Alexanders sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005.

On May 16, 2012 the Circuit Court of the 10th Judicial Circuit in Polk County, FL approved an agreement thereby settling the shareholder derivative action complaint. As a condition of the agreement, Mr. Troutman was required to file a notice of voluntary dismissal of the civil action against the Alexanders with prejudice. The Company, by determination of the Special Litigation Committee comprised of four independent directors of its Board of Directors, filed a motion against Mr. Troutman seeking recovery of attorney fees and costs incurred in its defense. In response, Mr. Troutman has filed motions seeking recovery of his attorney’s fees from Alico. 

Internal Revenue Service

The IRS examined the returns of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007. Based on their examinations, the IRS claimed we owed taxes and penalties of $31,100,000, consisting of $14,500,000 in taxes and $16,600,000 in penalties. We contested the issues raised by the IRS during the examinations and pursued resolution through the IRS Appeals process.

On May 16, 2012, the Company reached a settlement with the IRS related to its examination of the returns of Alico, Agri-Insurance, Ltd., (a former subsidiary of the Company) and Alico-Agri for the tax years 2005 through 2007. As a result of the settlement, the Company paid Federal taxes of $613,000 and interest of $225,000. On October 9, 2012, the Company paid the State of Florida $318,000 for taxes and $5,000 for interest as a result of the IRS settlement. The Company accrued $149,000 at September 30, 2012, for additional state interest and penalties. The actual amount paid was $135,000 for state interest. No amount was due for state penalties, and the remaining accrual was reversed during the second quarter of fiscal year 2013.

Item  4. Mine Safety Disclosure

None.

PART II

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

Common Stock Prices

Our common stock is traded on the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol ALCO. The high and low sales prices in each quarter in the fiscal years 2013 and 2012 are presented below:

Holders

On October 31, 2012, our stock transfer records indicate there were approximately 305 holders of record of our common stock. The number of registered holders includes banks and brokers who act as nominee, each of whom may represent more than one shareholder.

Dividends

The following table presents cash dividends per common share declared in fiscal years 2013, 2012, and 2011 and paid in fiscal years 2014, 2013, and 2012.

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

Stock Performance Graph

The graph below represents our common stock performance, comparing the value of $100 invested on September 30, 2008 in our common stock, the S&P 500 and a Company-constructed peer group, which included Forestar Group, Inc., Limoneira Company, The St. Joe Company, Tejon Ranch Co. and Texas Pacific Land Trust.

(Includes reinvestment of dividends)

Equity Compensation Arrangements

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

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

Issuer Repurchases of Equity Securities

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

Through September 30, 2013, the Company had purchased 165,495 shares and had available to purchase an additional 184,505 in accordance with the 2008 Authorization. The following table describes our purchases of our common stock during the fourth quarter of 2013.

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

We had various arrangements with UBS Investment Bank (“UBS”) between September 27, 2012 and November 1, 2013 to purchase securities under an authorization in accordance with the timing, price and volume restrictions contained in sections (b)(2)-(4) of Rule 10b-18.

During the period from September 27 through November 1, 2013, UBS agreed to purchase securities

according to the various authorizations. The limit prices ranged from less than or equal to $31.00 per share to less than or equal to $40.00 per share at various times.

We purchased 38,547, 35,221, 1,680, and 439 shares in the open market during the first, second, third and fourth quarters of fiscal year 2013, respectively, at a weighted average price of $38.14 per share.

We purchased zero, 12,026, zero, and 306 shares in the open market during the first, second, third and fourth quarters of fiscal year 2012, respectively, at a weighted average price of $24.12 per share.

We purchased 7,534, 32,268, 768 and 7,710 shares in the open market during the first, second, third and fourth quarters of fiscal year 2011, respectively, at a weighted average price of $24.96 per share.

Item 6. Selected Financial Data.

Notes regarding selected financial data:

During the year ended September 30, 2009, we utilized cash to reduce our outstanding debt by $59,524,000, resulting in a reduction in total assets and long-term obligations.

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

Net income from continuing operations includes the gain on the sale of real estate totaling $9,113,000 on land sold during fiscal year 2012 and impairment charges of $1,918,000 on assets held for sale in the consolidated balance sheet as of September 30, 2012.

During the year ended September 30, 2012, we utilized cash from operations and investing activities to reduce our outstanding debt by approximately $17,258,000, resulting in a reduction in long-term obligations. See Item 8. Financial Statements and Schedules, Note 10. Long Term Debt in the Notes to the Consolidated Financial Statements.

Net income from continuing operations includes the gain on the sale of real estate totaling $20,299,000 on easements sold during fiscal year 2013.

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

Cautionary Statement Regarding Forward-Looking Information

We make forward-looking statements in this Annual Report, particularly in this Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expression are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report.

Overview

We manage our land based upon its primary usage and review its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, we operate an Agricultural Supply Chain Management business that is not tied directly to our land holdings and Other Operations that include leasing mines and oil extraction rights to third parties.  We present our financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  In the fourth quarter of fiscal year 2013, we changed our internal operations to align with the way we manage our business operations. As a result, we have realigned our financial reporting segments to match our internal operations.  We have reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect our previously report consolidated results.  The primary change in previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

We own approximately 130,800 acres of land in six Florida counties (Alachua, Collier, Glades, Hendry, Lee and Polk), and operate five segments.

Segments

We operate five segments related to our various land holdings.

Critical Accounting Policies and Estimates

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

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

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

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

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

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

years. 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.

Costs related to the development of sugarcane are capitalized in a similar manner as citrus groves. However, sugarcane matures in one year and, we will typically harvest an average of three crops (one per year) from one planting. As a result, cultivation and caretaking costs are expensed as the crop is harvested, while the development and planting costs are depreciated over three years.

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

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

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

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

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

Recent Accounting Pronouncements

Recent Events

Conservation Easement Closing

In July, 2013, we granted a warranty easement deed to the United States Department of Agriculture, through its administering agency, The Natural Resources Conservation Service, granting a conservation easement on approximately 11,600 acres located in Hendry County (the “Property”) for $20,678,000. The easement agreement states the Property will be enrolled in perpetuity in the Wetlands Reserve Program designed to restore, protect and enhance the values of the wetlands and for the conservation of natural resources. We will retain title to the Property and the right to various recreational uses including hunting, fishing and leasing of such rights. Additionally, we reserve the right to subsurface resources including oil, gas, minerals and geothermal resources underlying the easement area and the right to water uses and water rights identified as reserved to us.

2014 Outlook:

The discussion below of the fiscal year 2014 outlook for Results of Operations and Liquidity and Capital Resources reflects management’s estimates and expectations as of the date of this filing.  There can be no assurance that the events or related outcomes presented below will occur.

Results of Operations:

Liquidity and Capital Resources:

Results of Operations

The following table sets forth a comparison of results of operations for the fiscal years ended September 30, 2013, 2012, and 2011:

A discussion of our segment results of operations follows.

Citrus Groves

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

We sell our Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. They generally buy their citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. Fresh Fruit is generally sold to packing houses that purchase their citrus on a per box basis. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing citrus product to processors and varies based upon the number of boxes produced.

The declines for fiscal year 2013 versus fiscal year 2012 in boxes harvested, pound solids produced and pound solids per box are being driven by growing season fluctuations in production which may be attributable to various factors, including changes in weather, horticultural practices and the effects of diseases and pests, including Citrus Greening. The industry and the Company both experienced higher than normal premature fruit drop in certain areas of our groves that also contributed to the smaller harvest.

The statewide environmental and horticultural factors described above have negatively impacted our crops and key operating measures presented above. The Florida orange crop declined by 13,300,000 boxes or approximately 9% versus the prior year.

The decline in Citrus Groves gross profit for fiscal year 2013 versus fiscal year 2012 relates primarily to the changes in revenue discussed above plus an increase of 11.1% in growing costs for the fiscal year 2013 crop to $19,803,000 from $17,822,000, primarily driven by increases in the market price of fertilizer. Per box harvest and hauling costs remained relatively in line.

The increases for fiscal year 2012 versus fiscal year 2011 in boxes harvested, pound solids produced and pound solids per box were driven by favorable weather conditions during the growing season, combined with improved foliar nutrition and horticultural programs in our groves.

Agricultural Supply Chain Management

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

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

For fiscal year 2012 versus fiscal year 2011, the increases in Purchase and Resale of Fruit revenue, boxes sold, pound solids sold, pound solids per box and price per pound solids were all driven primarily by statewide harvest and market conditions as discussed under Citrus Groves above. The increase in Value Added Services revenue and boxes was driven primarily by the execution of a strategy to increase the number of boxes grown or handled by Alico relative to the overall Florida citrus marketplace. The decrease in Alico Fruit Company gross profit is primarily related to a one-time maintenance and improvement program implemented in fiscal year 2012 and continuing into the first quarter of fiscal year 2013 that was intended to improve our fleet of citrus trailers, partially offset by the increase in revenues outlined above.

Improved Farmland

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011: