# ALICO, INC. (ALCO) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from ALICO, INC.'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/3545/000095017022026459/alco-20220930.htm Accession: 0000950170-22-026459 Filing date: 2022-12-13 Report date: 2022-09-30 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ALCO/ All MD&A years: /company/ALCO/mda/ Previous year: /company/ALCO/mda/fy2021/ (FY 2021) Next year: /company/ALCO/mda/fy2023/ (FY 2023) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related Notes thereto. Cautionary Statement Regarding Forward-Looking Information We provide forward-looking information in this Annual Report on Form 10-K, particularly in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report on Form 10-K that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management and can be identified by terms such as “plans,” “expect,” “may,” "anticipate,” “intend,” “should be,” “will be” “is likely to,” “believes,” and similar expressions referring to future periods. Alico believes the expectations reflected in the forward-looking statements are reasonable but cannot guarantee future results, level of activity, performance or achievements. Actual results may differ materially from those expressed or implied in the forward-looking statements. Therefore, Alico cautions you against relying on any of these forward-looking statements. Factors which may cause future outcomes to differ materially from those foreseen in forward-looking statements include, but are not limited to: changes in laws, regulation and rules, including tax laws and tax rates; climate change; weather conditions that affect production, transportation, storage, demand, import and export of fresh product and their by-products, and that may result in impairment expense such as the freeze in the last week of January 2022 or Hurricane Ian in the last week of September 2022; increased pressure from diseases including citrus greening and citrus canker, as well as insects and other pests; disruption of water supplies or changes in water allocations; market pricing of citrus; pricing and supply of raw materials and products; market responses to industry volume pressures; pricing and supply of energy, including, but not limited to, changes due in part to the deadly conflict in Ukraine; changes in interest rates; availability of refinancing; availability of financing for land development activities and other growth and corporate opportunities; onetime events; acquisitions and divestitures; ability to make strategic acquisitions or divestitures; our ability to maintain effective internal control over financial reporting; the impact of, and costs related to, any investigations, legal or administrative actions that may result from the restatements described in this Annual Report on Form 10-K; ability to redeploy proceeds from divestitures; ability to consummate selected land acquisitions; ability to take advantage of tax deferral options; ability to retain executive officers and to replace departed executive officers; ability to replace the Company’s primary third party grove management customer and even further expand the third party grove management program; ability to complete and implement land use planning activities, including adding to entitlements applicable to owned real estate; seasonality; labor disruptions; inability to pay debt obligations; inability to engage in certain transactions due to restrictive covenants in debt instruments; government restrictions on land use; changes in land values, agricultural or otherwise; the extent to which real estate value appreciates; impact of the COVID-19 outbreak and coronavirus pandemic on our agriculture operations, including without limitation demand for product, supply chain, health and availability of our labor force, the labor force of contractors we engage, and the labor force of our competitors; other risks related to the duration and severity of the COVID-19 outbreak and coronavirus pandemic and its impact on Alico’s business; the impact of the COVID-19 outbreak and coronavirus pandemic on the U.S. and global economies and financial markets, including without limitation related legislative and regulatory initiatives; access to governmental loans and incentives; access to governmental relief programs; settlement of insurance claims; any reduction in the public float resulting from repurchases of common stock by Alico; changes in equity awards to employees; whether the Company's dividend policy, including its recent increased dividend amounts, is continued; expressed desire of certain of our stockholders to liquidate their shareholdings by virtue of past market sales of common stock, by sales of common stock or by way of future transactions designed to consummate such expressed desire; political changes and economic crises; ability to implement ESG initiatives; competitive actions by other companies; increased competition from international companies; changes in environmental regulations and their impact on farming practices; the land ownership policies of governments; changes in government farm programs and policies and international reaction to such programs; changes in pricing calculations with our customers; fluctuations in the value of the U.S. dollar, interest rates, inflation and deflation rates; length of terms of contracts with customers; impact of concentration of sales to one customer; and changes in and effects of crop insurance programs, global trade agreements, trade restrictions and tariffs; and soil conditions, harvest yields, prices for commodities, and crop production expenses. These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report on Form 10-K. Restatement of Previously Issued Consolidated Financial Statements As described in the Explanatory Note above, Note 2, “Restatement of Previously Issued Consolidated Financial Statements” of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K, and Exhibit 99.1, Select Balance Sheet Data (Restated) for each of the eight quarterly periods in fiscal 2022 and 2021 filed herewith, we have restated our audited consolidated balance sheet, statements of changes in equity and related disclosures as of September 30, 2021 to reflect adjustments in the amounts of previously reported deferred tax liabilities and retained earnings. The restatement also impacted the same line items in the audited consolidated balance sheet, statements of 27 changes in equity and related disclosures as of September 30, 2022 included in this Annual Report on Form 10-K. In addition, as reflected in Exhibit 99.1 to this Annual Report on Form 10-K, we have restated our unaudited consolidated balance sheet, statements of changes in equity and related disclosures as of the end of each quarterly period ended June 30, 2022, March 31, 2022, December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021, and December 30, 2020, in each case, to reflect adjustments in the amounts of previously reported deferred tax liabilities and retained earnings. These adjustments did not impact any of the items in our results of operations or our liquidity discussed in this section or in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in each of our Annual Report on Form 10-K for the year ended September 30, 2021 or our Quarterly Reports on Form 10-Q for each of the quarters ended June 30, 2022, March 31, 2022, December 31, 2021, June 30, 2021, March 31, 2021, and December 31, 2020. Introduction Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a holding company with assets and related operations in agriculture, land management and natural resources. We are a Florida agribusiness and land management company with a legacy of achievement and innovation in citrus, cattle and resource conservation. We own approximately 74,000 gross acres of land and approximately 90,000 acres of mineral rights throughout Florida. Alico holds these mineral rights on substantially all its owned acres, with additional mineral rights on other acres. Our principal lines of business are now citrus groves and land management and other operations, which include land conservation, encompassing environmental services, land leasing and related support operations. Prior to the sale of certain ranch land to the State of Florida in September 2020, the Company’s business line also included Water Resources. Our mission is to create value for our customers and stockholders by managing existing lands to their optimal current income and total returns. Alico opportunistically acquires new agricultural assets and produces high quality agricultural products while exercising responsible environmental stewardship. Management's Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of results of operations, financial condition and changes in financial condition for the periods presented. This MD&A is organized as follows: • Business Overview. This section provides a general description of our business, as well as other matters that we believe are important in understanding our results of operations and financial condition. • Consolidated Results of Operations. This section provides an analysis of our results of operations for each of the three fiscal years in the period ended September 30, 2022. Our discussion is presented on a consolidated basis and includes certain discussions on future trends by segment. • Liquidity and Capital Resources. This section provides an analysis of our cash flows for each of the three fiscal years in the period ended September 30, 2022 and our outstanding debt, commitments and cash resources as of September 30, 2022. • Critical Accounting Policies and Estimates. This section identifies those accounting policies that we consider important to our results of operations and financial condition, require significant judgment and involve significant management estimates. Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, “Summary of Significant Accounting Policies,” to the accompanying Consolidated Financial Statements. Business Overview Business Description Alico, Inc., together with its subsidiaries (collectively, “Alico”, the “Company”, “we”, “us” or “our”) generates operating revenues primarily from the sale of its citrus products, caretaking management services, and grazing and hunting leasing. The Company operates as two business segments, and all of its operating revenues are generated in the United States. For the fiscal year ended September 30, 2022, the Company generated operating revenues of approximately $91,947,000, loss from operations of approximately $24,844,000, and net income attributable to common stockholders of approximately $12,459,000. Cash provided by operating activities was approximately $6,523,000 for the fiscal year ended September 30, 2022. Fiscal Year Highlights and Other Developments Hurricane Ian On September 28, 2022, Hurricane Ian made landfall in Florida and the majority of the Company’s groves were impacted by the storm. We believe the lessons learned over the past 125 years, especially since Hurricane Irma in 2017, allowed us to be better prepared prior to landfall and to more rapidly begin recovery after impact. The implementation of our disaster programs, our dedicated workforce, and our experienced 28 management appear to have limited the damage to our properties. Our approximately 48,900 gross acres of citrus groves, which are in Charlotte, Collier, DeSoto, Hardee, Hendry, Highlands and Polk Counties, sustained hurricane, or tropical storm force winds for varying durations of time. Field assessments identified significant drop of fruit from the trees and the estimated impact has been reflected in the casualty loss and inventory impairment charge in the fourth quarter ended September 30, 2022. While we lost a small percentage of trees, the force and duration of the storm impacted the majority of the groves. Based upon prior experience with serious storms of this nature, we expect it will take up to two full seasons or more for the groves to recover to pre-hurricane production levels. We maintain crop insurance and are working closely with our insurers and adjusters to evaluate and determine the amount of insurance recovery we may be entitled to, if any. We are also working with Florida Citrus Mutual, the industry trade group, and government agencies on securing potential federal relief funds. Departure and Appointment of Chief Financial Officer On May 17, 2022, Richard Rallo notified the Company of his decision to resign from his role as the Company’s Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) effective as of May 31, 2022. Mr. Rallo’s decision to resign was for personal reasons to eliminate extensive travel and/or avoid relocation to Florida and was not related to any disagreement with the Company or its independent registered public accountants on any matter relating to the Company’s financial or accounting operations, policies, or practices. Mr. Rallo agreed to provide consulting services to the Company through December 31, 2022 and has been providing such services. On September 6, 2022, the Company announced the appointment of Perry G. Del Vecchio, age 55, as the Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, effective as of September 6, 2022. Mr. Del Vecchio is responsible for all corporate finance, treasury and accounting functions of the Company and reports directly to John Kiernan, the Company's President and Chief Executive Officer. Employment and Bonus Agreement On April 1, 2022, the Company entered into an amended and restated employment agreement with John E. Kiernan (the “Employment Agreement”). At the same time, the Company and Mr. Kiernan entered into an annual performance and long-term bonus agreement (the “Bonus Agreement”). Pursuant to the Employment Agreement, Mr. Kiernan will remain President and Chief Executive Officer of the Company, for a term commencing on April 1, 2022, and ending on September 30, 2024, subject to extension and termination pursuant to the provisions of the Employment Agreement. The Bonus Agreement sets forth the terms under which Mr. Kiernan would be eligible and entitled to short-term and long-term incentive cash and equity bonuses. For further details of this Employment and Bonus Agreement, please see the Form 8-K filed by the Company on April 5, 2022. Termination of the Citrus Grove Management Agreement In June 2022, the Company was notified by a primary group of third-party grove owners, who are affiliated with each other (collectively, the “Grove Owners”) and for which the Company was managing groves, that the Grove Owners were terminating the management relationship under a certain property management agreement dated as of July 16, 2020 (the “Property Management Agreement”) with the Company, as the Grove Owners decided to exit the citrus business. As a result, all services relating to this caretaking management initiative, and the accompanying management fee and reimbursed costs associated with performing caretaking management services, ceased as of June 10, 2022. Prepayment and Restructure of Fixed-Rate Term Loans On April 29, 2022, the Company made a prepayment on one of its Met Variable-Rate Term Loans in an amount of approximately $15,625,000 and the loan, after also considering a final scheduled principal payment made on May 2, 2022, was fully satisfied. In April 2021, the Company made a prepayment of $10,312,500 on the Met Fixed-Rate Term Loans and, effective May 1, 2021, the Company modified its Met Fixed-Rate Term Loans, which in the aggregate, after the prepayment, had a balance of $70,000,000, to be interest only with a balloon payment to be paid at maturity, which is November 1, 2029. As part of this modification, the interest rate on these Met Fixed-Rate Term Loans, which were bearing interest at 4.15%, has been adjusted to 3.85% and the Company no longer has the prepayment option previously allowed under the arrangement. Sales of Land During the fiscal year ended September 30, 2022, the Company sold approximately 1,187 acres from the Alico Ranch to third parties for approximately $5,997,000 and recognized a gain of approximately $5,616,000. One of these sales transactions, consisting of approximately 142 acres, was sold to an employee of the Company for approximately $651,000. 29 On March 15, 2022, the Company sold approximately 6,286 acres of Alico Ranch to third parties at an average sales price of $4,500 per acre, realizing approximately $28,288,000 of gross proceeds. The COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the current novel coronavirus outbreak (“COVID-19”) to be a global pandemic. In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These measures had a significant adverse impact upon many sectors of the economy, including certain agriculture businesses. While epidemiological conditions in the United States have improved as of September 30, 2022, and most of the restrictions on social and commercial activity have been relaxed, a resurgence of the virus could cause epidemiological and macroeconomic conditions to deteriorate and more severe restrictions to be put in place. It is not possible for the Company to predict the duration or magnitude of any adverse effects due to a resurgence at this time. We will continue to monitor the COVID-19 pandemic and its impacts on our business, financial condition, and results of operations. To date, the Company has experienced no material adverse impacts from this pandemic. Federal Relief Program – Hurricane Ian It remains unclear whether there may be Hurricane Ian federal relief programs and, if available, the extent to which the Company will be eligible. The Company intends to take advantage of any such available programs as and when they become available. The Company is currently working with Florida Citrus Mutual, the industry trade group, and government agencies on federal relief programs. Federal Relief Program – Hurricane Irma The Company was eligible for Hurricane Irma federal relief programs for block grants that were being administered through the State of Florida. The Company received a total of approximately $25,600,000 in Hurricane Irma federal relief for the period ended September 30, 2019 through September 30, 2022. During the fiscal years ended September 30, 2022, 2021 and 2020, the Company received approximately $1,123,000, $4,299,000 and $4,629,000, respectively, under the Florida Citrus Recovery Block Grant (“CRBG”) program. These federal relief proceeds are included as a reduction to operating expenses in the Consolidated Statements of Operations. 30 Consolidated Results of Operations The following discussion provides an analysis of Alico's results of operations and should be read in conjunction with the accompanying Consolidated Statements of Operations for the fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended","","","","","","","","","Fiscal Year Ended"],["","","September 30,","","","Change","","","September 30,","","","Change"],["","","2022","","","2021","","","$","","","%","","","2021","","","2020","","","$","","","%"],["Operating revenues:"],["Alico Citrus","","$","89,681","","","$","105,796","","","$","(16,115",")","","","(15.2",")%","","$","105,796","","","$","89,369","","","$","16,427","","","","18.4","%"],["Land Management and Other Operations","","","2,266","","","","2,768","","","","(502",")","","","(18.1",")%","","","2,768","","","","3,138","","","","(370",")","","","(11.8",")%"],["Total operating revenues","","","91,947","","","","108,564","","","","(16,617",")","","","(15.3",")%","","","108,564","","","","92,507","","","","16,057","","","","17.4","%"],["Gross (loss) profit:"],["Alico Citrus","","","(16,511",")","","","21,903","","","","(38,414",")","","NM","","","","21,903","","","","17,088","","","","4,815","","","","28.2","%"],["Land Management and Other Operations","","","1,746","","","","1,990","","","","(244",")","","","(12.3",")%","","","1,990","","","","831","","","","1,159","","","","139.5","%"],["Total gross (loss) profit","","","(14,765",")","","","23,893","","","","(38,658",")","","NM","","","","23,893","","","","17,919","","","","5,974","","","","33.3","%"],["General and administrative expenses","","","10,079","","","","9,453","","","","626","","","","6.6","%","","","9,453","","","","10,998","","","","(1,545",")","","","(14.0",")%"],["(Loss) income from operations","","","(24,844",")","","","14,440","","","","(39,284",")","","NM","","","","14,440","","","","6,921","","","","7,519","","","","108.6","%"],["Total other income, net","","","37,799","","","","31,947","","","","5,852","","","","18.3","%","","","31,947","","","","24,456","","","","7,491","","","","30.6","%"],["Income before income taxes","","","12,955","","","","46,387","","","","(33,432",")","","","(72.1",")%","","","46,387","","","","31,377","","","","15,010","","","","47.8","%"],["Income tax provision","","","1,069","","","","11,567","","","","(10,498",")","","","(90.8",")%","","","11,567","","","","7,663","","","","3,904","","","","50.9","%"],["Net income","","","11,886","","","","34,820","","","","(22,934",")","","","(65.9",")%","","","34,820","","","","23,714","","","","11,106","","","","46.8","%"],["Net loss (income) attributable to noncontrolling interests","","","573","","","","39","","","","534","","","NM","","","","39","","","","(52",")","","","91","","","NM"],["Net income attributable to Alico, Inc. common stockholders","","$","12,459","","","$","34,859","","","$","(22,400",")","","","(64.3",")%","","$","34,859","","","$","23,662","","","$","11,197","","","","47.3","%"]] [[/GREPCENT_TABLE]] NM - Not Meaningful The following table presents our operating revenues, by segment, as a percentage of total operating revenues for the fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["","","Fiscal Year Ended"],["","","September 30,"],["","","2022","","","2021","","","2020"],["Operating revenues:"],["Alico Citrus","","","97.5","%","","","97.5","%","","","96.6","%"],["Land Management and Other Operations","","","2.5","%","","","2.5","%","","","3.4","%"],["Total operating revenues","","","100.0","%","","","100.0","%","","","100.0","%"]] [[/GREPCENT_TABLE]] 31 The following discussion provides an analysis of the Company's operating segments: Alico Citrus [[GREPCENT_TABLE]] [["(in thousands, except per box and per pound solids data)"],["","","Fiscal Year Ended","","","","","","","","","Fiscal Year Ended"],["","","September 30,","","","Change","","","September 30,","","","Change"],["","","2022","","","2021","","","Unit","","","%","","","2021","","","2020","","","Unit","","","%"],["Operating Revenues:"],["Early and Mid-Season","","$","28,287","","","$","31,525","","","$","(3,238",")","","","(10.3",")%","","$","31,525","","","$","31,303","","","$","222","","","","0.7","%"],["Valencias","","","47,529","","","","55,918","","","","(8,389",")","","","(15.0",")%","","","55,918","","","","50,060","","","","5,858","","","","11.7","%"],["Fresh Fruit","","","1,256","","","","608","","","","648","","","","106.6","%","","","608","","","","2,321","","","","(1,713",")","","","(73.8",")%"],["Grove Management Services","","","11,928","","","","16,983","","","","(5,055",")","","","(29.8",")%","","","16,983","","","","4,599","","","","12,384","","","NM"],["Purchase and Resale of Fruit","","","574","","","","623","","","","(49",")","","","(7.9",")%","","","623","","","","850","","","","(227",")","","","(26.7",")%"],["Other","","","107","","","","139","","","","(32",")","","","(23.0",")%","","","139","","","","236","","","","(97",")","","","(41.1",")%"],["Total","","$","89,681","","","$","105,796","","","$","(16,115",")","","","(15.2",")%","","$","105,796","","","$","89,369","","","$","16,427","","","","18.4","%"],["Boxes Harvested:"],["Early and Mid-Season","","","2,175","","","","2,519","","","","(344",")","","","(13.7",")%","","","2,519","","","","3,146","","","","(627",")","","","(19.9",")%"],["Valencias","","","3,274","","","","3,779","","","","(505",")","","","(13.4",")%","","","3,779","","","","4,165","","","","(386",")","","","(9.3",")%"],["Total Processed","","","5,449","","","","6,298","","","","(849",")","","","(13.5",")%","","","6,298","","","","7,311","","","","(1,013",")","","","(13.9",")%"],["Fresh Fruit","","","91","","","","61","","","","30","","","","49.2","%","","","61","","","","267","","","","(206",")","","","(77.2",")%"],["Total","","","5,540","","","","6,359","","","","(819",")","","","(12.9",")%","","","6,359","","","","7,578","","","","(1,219",")","","","(16.1",")%"],["Pound Solids Produced:"],["Early and Mid- Season","","","11,034","","","","13,598","","","","(2,564",")","","","(18.9",")%","","","13,598","","","","17,947","","","","(4,349",")","","","(24.2",")%"],["Valencias","","","17,756","","","","22,042","","","","(4,286",")","","","(19.4",")%","","","22,042","","","","25,631","","","","(3,589",")","","","(14.0",")%"],["Total","","","28,790","","","","35,640","","","","(6,850",")","","","(19.2",")%","","","35,640","","","","43,578","","","","(7,938",")","","","(18.2",")%"],["Pound Solids per Box:"],["Early and Mid-Season","","","5.07","","","","5.40","","","","(0.33",")","","","(6.1",")%","","","5.40","","","","5.70","","","","(0.30",")","","","(5.3",")%"],["Valencias","","","5.42","","","","5.83","","","","(0.41",")","","","(7.0",")%","","","5.83","","","","6.15","","","","(0.32",")","","","(5.2",")%"],["Price per Pound Solids:"],["Early and Mid-Season","","$","2.56","","","$","2.32","","","$","0.24","","","","10.3","%","","$","2.32","","","$","1.74","","","$","0.58","","","","33.3","%"],["Valencias","","$","2.68","","","$","2.54","","","$","0.14","","","","5.5","%","","$","2.54","","","$","1.95","","","$","0.59","","","","30.3","%"],["Price per Box:"],["Fresh Fruit","","$","13.80","","","$","9.97","","","$","3.83","","","","38.4","%","","$","9.97","","","$","8.69","","","$","1.28","","","","14.7","%"],["Operating Expenses:"],["Cost of Sales","","$","81,944","","","$","55,660","","","$","26,284","","","","47.2","%","","$","55,660","","","$","52,492","","","$","3,168","","","","6.0","%"],["Harvesting and Hauling","","","15,965","","","","16,922","","","","(957",")","","","(5.7",")%","","","16,922","","","","19,897","","","","(2,975",")","","","(15.0",")%"],["Grove Management Services","","","10,547","","","","15,084","","","","(4,537",")","","","(30.1",")%","","","15,084","","","","3,817","","","","11,267","","","NM"],["Purchase and Resale of Fruit","","","449","","","","526","","","","(77",")","","","(14.6",")%","","","526","","","","704","","","","(178",")","","","(25.3",")%"],["Other","","","(2,713",")","","","(4,299",")","","","1,586","","","","(36.9",")%","","","(4,299",")","","","(4,629",")","","","330","","","","(7.1",")%"],["Total","","$","106,192","","","$","83,893","","","$","22,299","","","","26.6","%","","$","83,893","","","$","72,281","","","$","11,612","","","","16.1","%"],["Gross (Loss) Profit","","$","(16,511",")","","$","21,903","","","$","(38,414",")","","NM","","","$","21,903","","","$","17,088","","","$","4,815","","","","28.2","%"]] [[/GREPCENT_TABLE]] NM - Not Meaningful Our citrus groves produce the majority of our annual operating revenues and the citrus grove business is seasonal because it is tied to the growing and harvest season. Historically, the second and third quarters of Alico's fiscal year produce the majority of the annual revenues and working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with the growing cycles. The Company sells its Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. The processors generally buy the citrus crop on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. The Company’s fresh fruit is generally sold to packing houses that purchase the citrus on a per box basis. The Company also provides citrus grove caretaking and harvest and haul management services to third parties from which revenues are generated, including a management fee. Other revenues consist of the purchase and reselling of fruit. Alico's operating expenses consist primarily of cost of sales, harvesting and hauling costs and grove management service costs. Cost of sales represents the cost of maintaining the citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and 32 hauling costs represent the costs of bringing citrus product to processors and varies based upon the number of boxes produced. Grove management services include those costs associated with citrus grove caretaking and harvest and haul management services provided to third parties. Other expenses include the period costs of reselling third-party fruit. The decrease in revenue for the fiscal year ended September 30, 2022, compared to the fiscal year ended September 30, 2021 was primarily due to a decrease in both the Early and Mid-Season and Valencia fruit harvested and a decrease in grove management services revenue. The decrease in Early and Mid-Season and Valencia fruit harvested was primarily driven by a decrease in processed box production and a decrease in pound solids per box. The processed box production for the fiscal year ended September 30, 2022 decreased by 13.5%, as compared to the same period in the prior fiscal year, primarily due to greater fruit drop, attributed to disease and weather conditions. In addition, as previously mentioned, in late January 2022, the Company’s groves, along with many of the other groves in Florida, were impacted by a freeze event. Specifically, the Company’s Valencia box production was negatively impacted by the freeze event. Because the Company’s Early and Mid-Season harvest was substantially complete at the time of the freeze, there was no material impact to the Company’s Early and Mid-Season box production because of this freeze event. The aggregate decrease in pound solids per box of 6.6% during the fiscal year ended September 30, 2022, as compared to the prior fiscal year ended September 30, 2021, was mainly due to the internal quality of the fruit not being as strong as it had been in the previous year. This decrease in pound solids per box was also due in part to an acceleration of the harvesting of the Valencia crop in the fiscal year ended September 30, 2022, which acceleration was implemented in an effort to maximize the box production and avoid less damage due to the freeze event, but as a result led to the realization of lower pound solids per box. Partially offsetting the decrease in processed box production and pound solids per box for the fiscal year ended September 30, 2022, compared to the fiscal year ended September 30, 2021, was an increase in the price per pound solid of 7.2%, the increase in large part was due to production being down in Florida as well as in Brazil and due to the continued strong consumption of Not from Concentrate Orange Juice (“NFC”), both of which have led to continued low inventory levels. The Company, for the fiscal year ended September 30, 2022 compared to the fiscal year ended September 30, 2021, recorded a decrease in revenue from grove management services. The decrease is primarily due to the Grove Owners, to whom the Company was providing caretaking management services, deciding to exit the citrus business at the beginning of the three months ended June 30, 2022. This decision to exit the citrus business eliminated the need for caretaking management services. As a result, caretaking management services and the accompanying reimbursement of caretaking expenses decreased during the fiscal year ended September 30, 2022, when compared to the same period in the prior year. Additionally, all services relating to caretaking management services ceased on June 10, 2022 and the accompanying caretaking management fee ceased on June 30, 2022. The Company recorded approximately $10,598,000 and $15,752,000 of operating revenue relating to these grove management services, including the management fee, in the fiscal years ended September 30, 2022 and 2021, respectively. The Company recorded approximately $9,711,000 and $14,342,000 of operating expenses relating to these grove management services in fiscal years ended September 30, 2022 and 2021, respectively. The USDA, in its October 12, 2022 Citrus Crop Forecast for the 2021-22 harvest season, indicated the overall Florida orange crop decreased from approximately 52,950,000 boxes for the 2020-21 crop year to approximately 41,050,000 boxes for the 2021-22 crop year, a decrease of approximately 22.5%. The Company experienced a decline in total box production in the 2021-2022 harvest season crop of 12.9%. The Company believes this lower rate of decline, as compared to the state forecast, is due to the efficiencies of the Company’s comprehensive grove management program, as well as certain precautionary measures the Company took to minimize the impact of the freeze event on its groves and production. The increase in operating expenses for the fiscal year ended September 30, 2022, as compared to the fiscal year ended September 30, 2021, primarily relates to the Company recording adjustments to inventory as a result of Hurricane Ian. During the fourth quarter ended September 30, 2022, the Company recorded an inventory casualty loss adjustment of approximately $14,900,000 and an inventory impairment adjustment of approximately $6,676,000 to adjust the inventory to its estimated net realizable value as of September 30, 2022. Partially offsetting the increase was a reduction in expenses related to the grove management services as a result of the Grove Owners termination of the Property Management Agreement in June 2022. The increase in revenue for the fiscal year ended September 30, 2021, compared to the fiscal year ended September 30, 2020 was primarily due to an increase in the revenue generated from grove management services and the Valencia fruit harvested. On July 16, 2020, the Company executed an agreement with a group of third parties, who are affiliated with each other (collectively, the “Grove Owners”), to provide citrus grove caretaking and harvest and haul management services for approximately 7,000 acres at the time of executing the contract. Under the terms of this agreement, the Company was reimbursed by the Grove Owners for all its costs incurred related to providing these services and received a management fee based on acres. The Company recorded both an increase in revenues and expenses as the Company 33 provided these citrus grove caretaking management services. For the fiscal year ended September 30, 2021, the Company recorded approximately $15,752,000 of operating revenue relating to these grove management services, including the management fee, as compared to approximately $3,311,000 in the fiscal year ended September 30, 2020. The increase from the Valencia fruit harvest was driven by an increase in the market price per pound solids as compared to the prior year. The increase in the price per pound solids was due to increased consumption of Not-from-Concentrate Orange Juice (“NFC”) as well as tighter supplies of citrus fruit from Florida, Brazil, and Mexico, which, in turn, led to reduced inventory levels. Largely offsetting this increase in pricing was the effect of fewer Valencia boxes harvested and lower pound solids per box for the fiscal year ended September 30, 2021, compared to the fiscal year ended September 30, 2020. The Company, along with the Florida industry in general, recorded a smaller number of boxes harvested as a result of greater fruit drop rate during the current harvest season as compared to the previous year. In addition, the internal quality of the fruit was not as strong as in the previous year resulting in lower pound solids per box during the fiscal year ended September 30, 2021. Total processed boxes harvested in fiscal year 2021 decreased by approximately 13.9%, as compared to fiscal year 2020. Pound solids decreased by approximately 24.2% for the Early and Mid-Season crop and decreased by approximately 14.0% for the Valencia crop. The combination of these items resulted in approximately 7,938,000 fewer pound solids sold in fiscal year 2021, as compared to fiscal year 2020. The increase in citrus cost of sales for the fiscal year ended September 30, 2022 was mainly due to recording inventory adjustments relating to the estimated casualty loss and inventory impairment as a result of Hurricane Ian of $14,900,000 and $6,676,000, respectively, as well as increases in fuel and fertilizer costs, when compared to the fiscal year ended September 30, 2021. Partially offsetting these increases was a decrease in the Company's caretaking expenses for the fiscal year ended September 30, 2022, as compared to the fiscal year ended September 30, 2021, due to the Grove Owners deciding to exit the citrus business during the quarter ended June 30, 2022. Additionally, a reduction in harvest and haul expenses was recognized due to a decrease in Early and Mid-Season and Valencia boxes harvested, as compared to the same period in the prior year, due to the termination of the management relationship under the Property Management Agreement with the Grove Owners during the quarter ended June 30, 2022. The decrease in gross profit for fiscal year 2022, as compared to fiscal year 2021, related primarily to decreased revenues of approximately $16,115,000 discussed above, and the recording of an inventory casualty loss of approximately $14,900,000 and inventory impairment of approximately $6,676,000 relating to fruit loss as a result of Hurricane Ian. The increase in operating expenses for the fiscal year 2021, as compared to the fiscal year 2020, primarily relates to grove management services it provides to third parties. As mentioned above, the Company executed an agreement with the Grove Owners to provide citrus grove caretaking and harvest and haul management services for approximately 7,000 acres owned by such Grove Owners. Under this agreement, for the fiscal years ended September 30, 2021 and 2020, the Company recorded approximately $14,342,000 and $3,016,000, respectively, of operating expenses relating to these grove management services. Additionally, the increase in operating expenses was attributable to the Company purchasing additional citrus acres in May and October 2020, which resulted in cost of sales relating to these groves in the fiscal year ended September 30, 2021. Partially offsetting these increases was a reduction in harvest and haul expenses attributable to a decrease in Early and Mid-season and Valencia boxes harvested. The credit amounts shown in “Other” in operating expenses above, for the most part, represent federal relief proceeds received under the CRBG program for the fiscal years ended September 30, 2022, 2021, and 2020. 34 Land Management and Other Operations The table below presents key operating measures for the fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended","","","","","","","","","Fiscal Year Ended"],["","","September 30,","","","Change","","","September 30,","","","Change"],["","","2022","","","2021","","","$","","","%","","","2021","","","2020","","","$","","","%"],["Revenue From:"],["Land and other leasing","","$","1,655","","","$","2,404","","","$","(749",")","","","(31.2",")%","","$","2,404","","","$","2,683","","","$","(279",")","","","(10.4",")%"],["Other","","","611","","","","364","","","","247","","","","67.9","%","","","364","","","","455","","","","(91",")","","","(20.0",")%"],["Total","","$","2,266","","","$","2,768","","","$","(502",")","","","(18.1",")%","","$","2,768","","","$","3,138","","","$","(370",")","","","(11.8",")%"],["Operating Expenses:"],["Land and other leasing","","$","516","","","$","762","","","$","(246",")","","","(32.3",")%","","$","762","","","$","955","","","$","(193",")","","","(20.2",")%"],["Water conservation","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","%","","","\u2014","","","","1,346","","","","(1,346",")","","","(100.0",")%"],["Other","","","4","","","","16","","","","(12",")","","","(75.0",")%","","","16","","","","6","","","","10","","","","166.7","%"],["Total","","$","520","","","$","778","","","$","(258",")","","","(33.2",")%","","$","778","","","$","2,307","","","$","(1,529",")","","","(66.3",")%"],["Gross Profit","","$","1,746","","","$","1,990","","","$","(244",")","","","(12.3",")%","","$","1,990","","","$","831","","","$","1,159","","","","139.5","%"]] [[/GREPCENT_TABLE]] Land and other leasing include lease income from leases for grazing rights, hunting leases, a farm lease, a lease to a third party of an aggregate mine, leases of oil extraction rights to third parties, and other miscellaneous income. The decrease in revenues from Land Management and Other Operations for the fiscal year ended September 30, 2022, compared to the fiscal year ended September 30, 2021, was primarily due to a reduction in the leased acreage relating to grazing and hunting leases. The reduction in the leased acreage was due to the sale of certain acres in fiscal year 2022, which were previously included under these lease arrangements, thus resulting in fewer acres being leased under these grazing and hunting leases during fiscal year 2022. The decrease in revenues from Land Management and Other Operations for the fiscal year ended September 30, 2021, compared to the fiscal year ended September 30, 2020, was primarily due to a reduction in the leased acreage relating to grazing and hunting leases. The reduction in the leased acreage was due to the sale of certain acres in fiscal year 2021, which were previously included under these lease arrangements, thus resulting in fewer acres now being leased under these grazing and hunting leases during fiscal year 2021. Upon the Company selling approximately 10,700 acres on the western part of Alico Ranch to the State of Florida, as mentioned above, and deciding to no longer pursue permit approval activities for a previously proposed water management project, the Company wrote-down approximately $598,000 of assets relating to this project during the fourth quarter of the fiscal year ended September 30, 2020. General and Administrative General and administrative expenses for the fiscal year ended September 30, 2022 were approximately $10,079,000, compared to approximately $9,453,000 for the fiscal year ended September 30, 2021. The increase was attributable in large part to increases relating to (i) an increase in legal expense in the twelve months ended September 30, 2022, when compared to the twelve months ended September 30, 2021, with the fiscal year 2021 legal expense having been lower because of a reimbursement of approximately $658,000 from insurers for a corporate legal matter from 2018 that was received during the twelve months ended September 30, 2021, (ii) a net increase in stock compensation expense of approximately $188,000 relating to restricted stock awarded to certain executives, senior managers and employees, and (iii) an increase of approximately $91,500 relating to a company-sponsored incentive for employees to obtain the COVID 19 vaccine. Partially offsetting these increases were reductions relating to (i) a decrease in payroll expenses of approximately $268,000 primarily relating to the reduction in administrative personnel made during the fiscal year ended September 30, 2021 and during the twelve months ended September 30, 2022, and (ii) a reduction in Company’s director fees of approximately $183,000, relating to a modification of the compensation arrangement for the Board of Directors. General and administrative expenses for the fiscal year ended September 30, 2021 were approximately $9,453,000, compared to approximately $10,998,000 for the fiscal year ended September 30, 2020. The decrease in general and administrative expenses for the fiscal year ended September 30, 2021, as compared to the fiscal year ended September 30, 2020, was attributable to (i) a reduction in legal expense of approximately $805,000, primarily resulting from the receipt of insurance proceeds for the reimbursement of legal fees in the amount of approximately $658,000 during the fiscal year ended September 30, 2021 relating to corporate legal matters, (ii) a reduction in stock compensation expense of approximately $241,000 in light of the fact that in the prior fiscal year, in January 2020 certain stock options had vested, which in turn resulted in an acceleration of expense in that prior fiscal year, (iii) a reduction in payroll expenses for the fiscal year ended September 30, 2021 of approximately $259,000 relating to the resignation of a senior manager in December 2019 and the reduction in other administrative personnel made during fiscal year ended September 30, 2021 and (iv) a reduction in pension expense related to the Company’s deferred retirement benefit 35 plan of approximately $207,000 as a result of the Company terminating such plan and paying out each of the plan participants in August 2020. Partially offsetting this decrease was the Company’s incurring of approximately $200,000 in corporate advisory fees in the fiscal year ended September 30, 2021. Other Income, net Other income, net, for the fiscal years ended September 30, 2022 and 2021 was approximately $37,799,000 and approximately $31,947,000, respectively. The increase in other income, net was primarily due to the Company recognizing significant gains on sales of real estate, property and equipment and assets held for sale in both fiscal years. For the fiscal year ended September 30, 2022, the Company recorded gains on sale of real estate, property and equipment and assets held for sale of approximately $41,102,000 relating primarily to the sale of approximately 9,400 acres from the Alico Ranch to several third parties. For the fiscal year ended September 30, 2021, the Company recognized a gain on sale of real estate, property and equipment and assets held for sale of approximately $35,898,000. Additionally, a decrease in interest expense of approximately $663,000 for the fiscal year ended September 30, 2022, as compared to the fiscal year ended September 30, 2021, was primarily due to the reduction of the Company’s long-term debt from the making of mandatory principal payments and certain prepayments. Other income, net, for the fiscal years ended September 30, 2021 and 2020 was approximately $31,947,000 and approximately $24,456,000, respectively. The increase in other income, net was primarily due to the Company recognizing significant gains on sales of real estate, property and equipment and assets held for sale in both fiscal years. For the fiscal year ended September 30, 2021, the Company recorded gains on sale of real estate, property and equipment and assets held for sale of approximately $35,898,000 relating primarily to the sale of approximately 19,776 acres from the Alico Ranch to several third parties. For the fiscal year ended September 30, 2020, the Company recognized a gain on sale of real estate, property and equipment and assets held for sale of approximately $30,424,000. Additionally, a decrease in interest expense of approximately $1,994,000 for the fiscal year ended September 30, 2021, as compared to the fiscal year ended September 30, 2020, was primarily due to the reduction of the Company’s long-term debt from the making of mandatory principal payments and certain prepayments. In addition, the Company maintained lower balances on both its working capital line of credit and revolving line of credit, which also resulted in reduced interest expense. Income Taxes For the fiscal years ended September 30, 2022, 2021 and 2020, the provision for income taxes was approximately $1,069,000, $11,567,000 and $7,663,000, respectively, and the related effective income tax rates were approximately 8.25%, 24.94% and 24.42%, respectively. The decrease in the dollar amount of the tax provision for the fiscal year ended September 30, 2022 is the result of the Company generating lower net income during the current fiscal year as compared to the prior fiscal year and recognizing a charitable deduction for tax purposes. During the fiscal year ended September 30, 2022, the Company sold 1,638 acres of land to the state of Florida at a price below market value, which resulted in a charitable contribution and a charitable deduction for tax purposes. The charitable contribution generated a tax benefit of $6,300,000 of which approximately $500,000 was utilized in the current fiscal year. The Company does not anticipate it will be able to recognize the entire charitable deduction carryover before it expires in 2027. A valuation allowance of $4,300,000 was recorded to partially offset the charitable contribution carryover deferred tax asset, resulting in a net benefit of $1,500,000. The increase in the dollar amount of the tax provision for the fiscal year ended September 30, 2021 is the result of the Company generating greater net income during the fiscal year 2021 as compared to the prior fiscal year. Seasonality The Company is primarily engaged in the production of fruit for sale to citrus markets, which is of a seasonal nature, and subject to the influence of natural phenomena and wide price fluctuations. Historically, the second and third quarters of Alico's fiscal year produce the majority of the Company's annual revenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Because of the seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for the full fiscal year. 36 Liquidity and Capital Resources A comparative balance sheet summary is presented in the following table: [[GREPCENT_TABLE]] [["(in thousands)","","September 30,"],["","","2022","","","2021","","","Change"],["Cash and cash equivalents","","$","865","","","$","886","","","$","(21",")"],["Total current assets","","$","31,616","","","$","54,913","","","$","(23,297",")"],["Total current liabilities","","$","16,525","","","$","22,306","","","$","(5,781",")"],["Working capital","","$","15,091","","","$","32,607","","","$","(17,516",")"],["Total assets","","$","409,255","","","$","433,217","","","$","(23,962",")"],["Principal amount of term loans and lines of credit","","$","111,624","","","$","126,294","","","$","(14,670",")"],["Current ratio","","1.91 to 1","","","2.46 to 1"]] [[/GREPCENT_TABLE]] Sources and Uses of Liquidity and Capital Alico's business has historically generated positive net cash flows from operating activities. Sources of cash primarily include cash flows from operations, sales of under-performing land and other assets, amounts available under the Company's credit facilities and access to capital markets. Access to additional borrowings under revolving lines of credit is subject to the satisfaction of customary borrowing conditions. As a public company, Alico may have access to other sources of capital. However, access to, and availability of, financing on acceptable terms in the future will be affected by many factors, including (i) financial condition, prospects, and credit rating, (ii) liquidity of the overall capital markets and (iii) the state of the economy. There can be no assurance that the Company will continue to have access to the capital markets on acceptable terms, or at all. The principal uses of cash that affect Alico's liquidity position include the following: operating expenses including employee costs, the cost of maintaining the citrus groves, harvesting and hauling of citrus products, capital expenditures, stock repurchases, dividends, debt service costs including interest and principal payments on term loans and other credit facilities and acquisitions. Management believes that a combination of cash-on-hand, cash generated from operations, asset sales and availability under the Company's lines of credit will provide sufficient liquidity to service the principal and interest payments on its indebtedness and will satisfy working capital requirements and capital expenditures for at least the next twelve months and over the long term. Borrowing Facilities and Long-term Debt Alico has a $70,000,000 working capital line of credit, which maturity was just extended to November 2025 on October 27, 2022, of which approximately $64,762,000 is available for general use as of September 30, 2022, and a $25,000,000 revolving line of credit, all of which is available for general use as of September 30, 2022 (see Note 6. “Long-Term Debt and Lines of Credit" to the accompanying Consolidated Financial Statements). Additionally, effective May 1, 2021, the Company converted its Met Fixed-Rate Term Loans into interest bearing only loans with a balloon payment of the balance due at maturity, which is November 1, 2029. Such conversion has increased available cash and can be expected to continue to increase the available cash for the foreseeable future. With the increase in available cash, the Company could utilize the available cash for other possible uses such as paying down indebtedness, citrus grove acquisitions, share repurchases, additional increased dividends, and funding operations under extenuating circumstances, like most recently, Hurricane Ian. If the Company chooses to pursue significant growth and other corporate opportunities, such as the transaction whereby it acquired 3,280 citrus grove acres on October 30, 2020 for $18,230,000, pay down of indebtedness, engaging in share repurchases or paying increased dividends, these actions could have a material adverse impact on its cash balances and may require the Company to finance such activities by drawing down on its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional financing could adversely impact Alico's ability to pursue different growth and other corporate opportunities. The level of debt could have important consequences on Alico's business, including, but not limited to, increasing its vulnerability to general adverse economic and industry conditions, limiting the availability of cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements, and limiting flexibility in planning for, or reacting to, changes in its business and industry. Alico’s credit facilities are subject to various debt 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 $173,216,000 applicable for the year ended September 30, 2022; (iii) minimum current ratio of 1.50 to 1.00; (iv) debt to 37 total assets ratio not greater than .625 to 1.00; and (v) solely in the case of the WCLC, a limit on capital expenditures of $30,000,000 per fiscal year. As of September 30, 2022, the Company was in compliance with all of the financial covenants. Cash Management Impacts Cash and cash equivalents decreased from approximately $886,000 as of September 30, 2021 to approximately $865,000 as of September 30, 2022. Cash and cash equivalents and restricted cash decreased from approximately $19,687,000 as of September 30, 2020 to approximately $886,000 as of September 30, 2021. The components of these changes are discussed below. Consolidated Statements of Cash Flows The following table details the items contributing to the changes in cash and cash equivalents and restricted cash for fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended September 30,"],["","","2022","","","2021","","","2020"],["Net cash provided by operating activities","","$","6,523","","","$","16,504","","","$","1,049"],["Net cash provided by (used in) investing activities","","","22,468","","","","(3,268",")","","","9,489"],["Net cash used in financing activities","","","(29,012",")","","","(32,037",")","","","(14,689",")"],["Net decrease in cash and cash equivalents and restricted cash","","$","(21",")","","$","(18,801",")","","$","(4,151",")"]] [[/GREPCENT_TABLE]] Net Cash Provided By Operating Activities [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended September 30,","","","","","","Fiscal Year Ended September 30,"],["","","2022","","","2021","","","Change","","","2021","","","2020","","","Change"],["Net income","","$","11,886","","","$","34,820","","","$","(22,934",")","","$","34,820","","","$","23,714","","","$","11,106"],["Depreciation, depletion and amortization","","","15,229","","","","15,122","","","","107","","","","15,122","","","","14,282","","","","840"],["Debt issue costs expense","","","255","","","","179","","","","76","","","","179","","","","238","","","","(59",")"],["Deferred income tax (benefit) expense","","","(3,876",")","","","2,249","","","","(6,125",")","","","2,249","","","","7,603","","","","(5,354",")"],["Cash surrender value","","","160","","","","(14",")","","","174","","","","(14",")","","","(10",")","","","(4",")"],["Deferred retirement benefits","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","(5,226",")","","","5,226"],["Gain on sale of real estate, property and equipment and assets held for sale","","","(41,102",")","","","(35,898",")","","","(5,204",")","","","(35,898",")","","","(30,424",")","","","(5,474",")"],["Inventory net realizable value adjustment","","","6,676","","","","\u2014","","","","6,676","","","","\u2014","","","\u2014","","","","\u2014"],["Casualty loss - tree damage","","","1,258","","","","\u2014","","","","1,258","","","","\u2014","","","","\u2014","","","","\u2014"],["Loss on disposal of property and equipment","","","3,251","","","","2,338","","","","913","","","","2,338","","","","1,382","","","","956"],["Inventory casualty loss","","","14,900","","","\u2014","","","","14,900","","","\u2014","","","\u2014","","","","\u2014"],["Casualty loss - building","","","142","","","","\u2014","","","","142","","","","\u2014","","","","\u2014","","","","\u2014"],["Impairment of long-lived assets","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","598","","","","(598",")"],["Impairment of right-of-use asset","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","87","","","","(87",")"],["Insurance proceeds received for damage to property and equipment","","","\u2014","","","","(103",")","","","103","","","","(103",")","","\u2014","","","","(103",")"],["Stock-based compensation expense","","","1,235","","","","1,230","","","","5","","","","1,230","","","","1,306","","","","(76",")"],["Change in working capital","","","(3,491",")","","","(3,419",")","","","(72",")","","","(3,419",")","","","(12,501",")","","","9,082"],["Net cash provided by operating activities","","$","6,523","","","$","16,504","","","$","(9,981",")","","$","16,504","","","$","1,049","","","$","15,455"]] [[/GREPCENT_TABLE]] The decrease in net cash provided by operating activities for the fiscal year ended September 30, 2022, as compared to the fiscal year ended September 30, 2021, was primarily due to a decrease in net income and deferred income tax expense and was partially offset by the Company recording an inventory casualty loss and inventory net realizable value adjustment which were the direct result of Hurricane Ian and other casualty losses on fixed assets (see Note 3. “Inventories” in the Notes to the Consolidated Financial Statements for further discussion on inventory casualty loss and net realizable adjustment). The increase in net cash provided by operating activities for the fiscal year ended September 30, 2021, as compared to the fiscal year ended September 30, 2020, was primarily due to an increase in net income and an increase in working capital which was primarily driven by an increase in accounts payable and timing of income tax payments. The increase in accounts payable relates to the timing and billing of fertilizer and 38 chemical applications in the citrus groves. Offsetting a significant portion of this increase was the amount of gain on sale of real estate, property and equipment and assets held for sale being greater in the fiscal year ended September 30, 2021 as compared to the prior year, primarily resulting from a greater number of acres being sold in the fiscal year ended September 30, 2021. Due to the seasonal nature of Alico's business, working capital requirements are typically greater in the first and fourth quarters of its fiscal year. Cash flows from operating activities typically improve in the second and third fiscal quarters, as sales of its harvested citrus are made. Net Cash Provided By (Used In) Investing Activities The following table details the items contributing to Net Cash Provided By (Used In) Investing Activities for the fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended September 30,","","","","","","Fiscal Year Ended September 30,"],["","","2022","","","2021","","","Change","","","2021","","","2020","","","Change"],["Purchases of property and equipment","","$","(20,731",")","","$","(22,258",")","","$","1,527","","","$","(22,258",")","","$","(18,785",")","","$","(3,473",")"],["Purchases of citrus groves","","","(136",")","","","(18,527",")","","","18,391","","","","(18,527",")","","","(2,920",")","","","(15,607",")"],["Net proceeds from sale of real estate, property and equipment and assets held for sale","","","43,159","","","","37,266","","","","5,893","","","","37,266","","","","31,541","","","","5,725"],["Insurance proceeds received for damage to property and equipment","","","\u2014","","","","103","","","","(103",")","","","103","","","\u2014","","","","103"],["Change in deposits on purchase of citrus trees","","","176","","","","217","","","","(41",")","","","217","","","","(458",")","","","675"],["Advances on notes receivables, net","","","\u2014","","","","371","","","","(371",")","","","371","","","","136","","","","235"],["Purchases of mineral rights","","","\u2014","","","","(453",")","","","453","","","","(453",")","","","\u2014","","","","(453",")"],["Other","","","\u2014","","","","13","","","","(13",")","","","13","","","","(25",")","","","38"],["Net cash provided by (used in) investing activities","","$","22,468","","","$","(3,268",")","","$","25,736","","","$","(3,268",")","","$","9,489","","","$","(12,757",")"]] [[/GREPCENT_TABLE]] The shift from net cash used in investing activities for the fiscal year ended September 30, 2021 to net cash provided by investing activities for the fiscal year ended September 30, 2022 was primarily due to a reduction in the purchase of additional citrus groves in the fiscal year ended September 30, 2022. Additionally, net proceeds received for the sale of real estate, property and equipment and assets held for sale was greater in the fiscal year ended September 30, 2022, as compared to the same period in the prior year (see Note 4. “Assets Held for Sale” and Note 5. “Property and Equipment, Net” to the accompanying Consolidated Financial Statements), including the Company’s receipt of approximately $5,893,000 more in net proceeds from the sale of ranch land to various third parties in the fiscal year ended September 30, 2022, than the proceeds received in the fiscal year ended September 30, 2021. 39 The shift from net cash provided by investing activities for the fiscal year ended September 30, 2020 to net cash used in investing activities for the fiscal year ended September 30, 2021 was primarily due to the use of funds to purchase approximately 3,280 gross acres located in Hendry County for a purchase price of approximately $18,230,000 in October 2020 and the acquisition of additional smaller citrus groves. Partially offsetting this shift was net proceeds received for the sale of real estate, property and equipment and assets held for sale being greater in the fiscal year ended September 30, 2021 as compared to the same period in the prior year (see Note 4. “Assets Held for Sale” and Note 5. “Property and Equipment, Net” to the accompanying Consolidated Financial Statements), including the Company’s receipt of approximately $5,725,000 more proceeds from the sale of ranch land to various third parties in the fiscal year ended September 30, 2021 than the proceeds received in the fiscal year ended September 30, 2020. Net Cash Used In Financing Activities The following table details the items contributing to Net Cash Used In Financing Activities for the fiscal years ended September 30, 2022, 2021 and 2020: [[GREPCENT_TABLE]] [["(in thousands)","","Fiscal Year Ended September 30,","","","","","","Fiscal Year Ended September 30,"],["","","2022","","","2021","","","Change","","","2021","","","2020","","","Change"],["Repayments on revolving lines of credit","","$","(52,227",")","","$","(50,735",")","","$","(1,492",")","","$","(50,735",")","","$","(114,581",")","","$","63,846"],["Borrowings on revolving lines of credit","","","57,155","","","","47,793","","","","9,362","","","","47,793","","","","117,523","","","","(69,730",")"],["Principal payments on term loans","","","(19,598",")","","","(21,957",")","","","2,359","","","","(21,957",")","","","(15,198",")","","","(6,759",")"],["Treasury stock purchases","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","(238",")","","","238"],["Dividends paid","","","(15,101",")","","","(7,138",")","","","(7,963",")","","","(7,138",")","","","(2,466",")","","","(4,672",")"],["Exercise of stock options","","","465","","","","\u2014","","","","465","","","","\u2014","","","","\u2014","","","","\u2014"],["Deferred financing costs","","","\u2014","","","","\u2014","","","","\u2014","","","","\u2014","","","","(23",")","","","23"],["Capital contribution received from noncontrolling interest","","","294","","","","\u2014","","","","294","","","","\u2014","","","","294","","","","(294",")"],["Net cash used in financing activities","","$","(29,012",")","","$","(32,037",")","","$","3,025","","","$","(32,037",")","","$","(14,689",")","","$","(17,348",")"]] [[/GREPCENT_TABLE]] The decrease in net cash used in financing activities for the fiscal year ended September 30, 2022, as compared to the fiscal year ended September 30, 2021, was primarily due to an increase in the net borrowings under the revolving line of credit, as well as lower principal payments on the term loans, partially offset by an increase in the dividends paid. During the fiscal year ended September 30, 2022, the company made a prepayment on one of its Met Variable-Rate Term Loans in an amount of approximately $15,625,000 and during the fiscal year ended September 30, 2021, the Company prepaid approximately $10,312,000 of principal on its fixed rate term loans with MetLife and also paid approximately $4,070,000 of principal on one of its loans outstanding with Prudential, which matured in September 2021. Partially offsetting these changes in borrowings was the Company's payment of a greater amount of dividends to stockholders of the Company’s common stock during the current fiscal year, as compared to the prior year, as a result of the Company increasing its annual dividend to $2.00 per common share in June 2021. Additionally, the conversion of the Company’s Met Fixed-Rate Term Loans into interest bearing only loans with a balloon payment of the balance due on November 1, 2029, further reduced the principal payments required. The increase in net cash used in financing activities for the fiscal year ended September 30, 2021, as compared to the fiscal year ended September 30, 2020, was primarily due to the Company paying down a greater amount on its long-term debt during the fiscal year ended September 30, 2021, as compared to the prior year. During fiscal year ended September 30, 2021, the Company prepaid approximately $10,312,000 of principal on its fixed rate term loans with MetLife and also paid approximately $4,070,000 of principal on one of its loans outstanding with Prudential which matured in September 2021. Partially offsetting these increased payments was the effect of the conversion of the Company’s Met Fixed-Rate Term Loans into interest bearing only loans with a balloon payment of the balance due on November 1, 2029. Additionally, the Company paid a greater amount of dividends to stockholders of the Company’s common stock during the fiscal year ended September 30, 2021, as compared to the prior year, as a result of the Company increasing its annual dividend to $2.00 per common share in June 2021. The Company also paid down, net of borrowings, its revolving line of credit during the fiscal year ended September 30, 2021 as compared to the prior fiscal year. Alico had $4,928,000 outstanding on its revolving lines of credit as of September 30, 2022 and approximately $89,762,000 remaining availability. The WCLC line of credit agreement provides for Rabo Agrifinance, Inc. to issue up to $2,000,000 in letters of credit on the Company’s behalf. As of September 30, 2022, there was approximately $310,000 in outstanding letters of credit, which correspondingly reduced Alico's availability under the line of credit. 40 Contractual Obligations Alico has various contractual obligations which are fixed and determinable. The following table presents the Company's significant contractual obligations and commercial commitments on an undiscounted basis as of September 30, 2022 and the future periods in which such obligations are expected to be settled in cash. [[GREPCENT_TABLE]] [["(in thousands)","","Payments Due by Period"],["","","Total","","","1 Year","","","1-3 Years","","","3-5 Years","","","5+ Years"],["Long-term debt","","$","111,624","","","$","3,035","","","$","6,070","","","$","10,998","","","$","91,521"],["Interest on long-term debt","","","25,567","","","","4,340","","","","8,086","","","","7,295","","","","5,846"],["Operating leases","","","822","","","","446","","","","261","","","","115","","","","\u2014"],["Tree purchase commitments","","","5,891","","","","5,891","","","","\u2014","","","","\u2014","","","","\u2014"],["Total","","$","143,904","","","$","13,712","","","$","14,417","","","$","18,408","","","$","97,367"]] [[/GREPCENT_TABLE]] Purchase Commitments The Company enters into contracts for the purchase of citrus trees during the normal course of its business. As of September 30, 2022, the Company had approximately $5,891,000 relating to outstanding commitments for these purchases, which will be paid upon delivery. Impact of Inflation and Changing Prices Our financial statements included in this Annual Report on Form 10-K have been prepared in accordance with U.S. GAAP, which requires us to measure financial position and operating results primarily in terms of historic dollars. Changes in the relative value of money due to inflation or recession generally are not considered. We are exposed to the impact of inflation on our cost of products sold. We use a number of strategies to mitigate the effects of cost inflation including commodity hedging and pursuing cost productivity initiatives. We experienced higher inflation in fiscal year 2022 and expect to experience increased inflation in fiscal year 2023. Pricing actions and supply chain productivity initiatives introduced at the end of fiscal year 2021 will mitigate a portion of this inflationary pressure, but we do not expect such benefits will fully offset the incremental costs in fiscal year 2023. Critical Accounting Policies and Estimates Alico's Consolidated Financial Statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in those financial statements and accompanying notes. Management considers an accounting policy to be critical if it is important to the Company's financial condition and results of operations and if it requires significant judgment and estimates on the part of management in its application. Management considers an accounting estimate to be critical if it is made in accordance with generally accepted accounting principles, involves a significant level of estimation uncertainty, and has had or is reasonably likely to have a material impact on the Company’s financial condition or results of operations. Alico considers policies and estimates relating to the following matters to be critical accounting policies: Revenue Recognition The Company recognizes revenue at the amount it expects to be entitled to be paid, determined when control of the products or services is transferred to its customers, which occurs upon delivery of and acceptance of the fruit by the customer and the Company has a right to payment. For grove management services, the Company recognizes operating revenue, including a management fee, when services are rendered and consumed. Management reviews the reasonableness of the revenue accruals quarterly based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the fiscal year to these estimates as more current relevant industry information becomes available. Differences between the estimates and the final realization of revenues can be significant and can be either positive or negative. During the periods presented in this Annual Report on Form 10-K, no material adjustments were made to the reported revenues from our crops. Inventories The costs of growing crops, including but not limited to labor, fertilization, fuel, crop nutrition and irrigation, are capitalized into inventory throughout the respective crop year. Such costs are expensed as cost of sales when the crops are harvested and are recorded as operating expenses in the Consolidated Statements of Operations. Inventories are stated at the lower of cost or net realizable value. The cost for unharvested citrus crops is based on accumulated production costs incurred during the period from January 1 through the balance sheet date. In the event that there is a casualty loss due to severe weather or other significant incident which negatively impacts inventory, the company will undertake a process to estimate the amount of casualty loss. The process includes a number of factors, including touring all of the citrus groves by operational personnel, to assess the estimated fruit drop by grove and estimate the amount of fruit the Company expects to produce for the respective harvest 41 season. As a result of this process, the Company would estimate the amount of casualty loss, if any, to reduce the carrying value of unharvested fruit crop on trees inventory. Property and Equipment Property and equipment are stated at cost, net of accumulated depreciation and amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads and reservoirs among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated. Income Taxes The Company uses the asset and liability method of accounting for deferred income taxes. The provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Projected future taxable income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse or beneficial impact on the Company’s income tax provision and net income or loss in the period the determination is made. For the fiscal year ended September 30, 2022, the Company recorded a valuation allowance of approximately $4,300,000, and for the fiscal years ended September 30, 2021 and 2020, the Company did not record any valuation allowances. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which a change in judgment occurs. The Company records interest related to unrecognized tax benefits in income tax expense. Impairment of Long-Lived Assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The Company records impairment losses on long-lived assets used in operations, other than goodwill, when events and circumstances indicate that the asset or asset group might be impaired and the estimated cash flows (undiscounted and without interest charges) to be generated by those assets or asset group over the remaining lives of the assets are less than the carrying amounts of those assets. In calculating impairments and the estimated cash flows, the Company assigns its asset groups by determining the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of the other Company assets. The net carrying values of assets or asset groups not recoverable are reduced to their fair values. Our cash flow estimates are based on historical results adjusted to reflect our best estimates of future market conditions and operating conditions. As of September 30, 2022 and 2021, long-lived assets were comprised of property and equipment. Fair Value Measurements The carrying amounts in the balance sheets for operating accounts receivable, accounts payable and accrued liabilities approximate fair value because of the immediate or short-term maturity of these items. The carrying amounts reported for our long-term debt approximates fair value as our borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three 42 different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows: Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities. Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly. Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date. Impact of Accounting Pronouncements See Item 8. "Financial Statements and Supplementary Data" - Note 1. "Description of Business and Basis of Presentation" for additional information about the impact of accounting pronouncements. Subsequent Events The working capital line of credit agreement was amended on October 27, 2022, and the primary terms of the amendment were an extension of the maturity to November 1, 2025, and the conversion of the interest rate from LIBOR plus a spread to SOFR plus a spread, which 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, effective October 1, 2022. There were no changes to the commitment amount. 43