UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



	þ	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

		For the Quarterly Period Ended ~~June 30,~~December 31, 2017

		or



¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period
	from____________________	to_________________________

Commission File Number: 0-261

Alico, Inc.

(Exact name of registrant as specified in its charter)



Florida		59-0906081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

10070 Daniels Interstate Court,
Suite 100, Fort Myers, FL		33913
(Address of principal executive offices)		(Zip Code)

239-226-2000

(Registrant’s telephone number, including area code)

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

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



Large accelerated filer	¨	Accelerated filer	þ
Non-accelerated filer	¨	Smaller Reporting Company	¨
		Emerging Growth Company	¨

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

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

There were ~~8,253,591~~8,249,357 shares of common stock outstanding at ~~August 3, 2017.~~February 5, 2018.

ALICO, INC.

FORM 10-Q

~~Table of Contents~~For the threemonths ended December 31, 2017 and 2016

Part 1 - FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial ~~Statements.~~Statements (Unaudited).

Index to Condensed Consolidated Financial Statements



	Page
Condensed Consolidated Balance Sheets as of ~~June 30,~~December 31, 2017 (Unaudited) and September 30, ~~2016~~2017	1
Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017 and 2016 (Unaudited)	2
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and 2016 (Unaudited)	3
Notes to Condensed Consolidated Financial Statements (Unaudited)	4

ALICO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)


	June 30,			September 30,			December 31,			September 30,
	2017			2016			2017			2017
	(unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,944		$	6,625		$	948		$	3,395
Accounts receivable, net	11,844			4,740			11,875			4,286
Inventories	39,497			58,469			33,180			36,204
Income tax receivable	275			1,013
Assets held for sale	3,223			—			18,295			20,983
Prepaid expenses and other current assets	2,419			1,024			1,985			1,621
Total current assets	67,202			71,871			66,283			66,489

Property and equipment, net	376,010			379,247			348,509			349,337
Goodwill	2,246			2,246			2,246			2,246
Deferred financing costs, net of accumulated amortization	325			389			200			262
Other non-current assets	1,438			1,692			724			848
Total assets	$	447,221		$	455,445		$	417,962		$	419,182

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,502		$	5,975		$	2,097		$	3,192
Accrued liabilities	4,564			6,920			4,551			6,781
Long-term debt, current portion	4,525			4,493			4,575			4,550
Income taxes payable	1,539			—
Obligations under capital leases, current portion	8			288
Other current liabilities	947			1,002			1,069			1,460
Total current liabilities	13,085			18,678			12,292			15,983

Long-term debt:
Principal amount	184,633			192,726
Principal amount, net of current portion							180,783			181,926
Less: deferred financing costs, net	(1,819		)	(1,980		)	(1,715		)	(1,767		)
Long-term debt less deferred financing costs, net	182,814			190,746
Long-term debt less current portion and deferred financing costs, net							179,068			180,159
Lines of credit	—			5,000			7,123			—
Deferred tax liability	35,493			31,056
Deferred income tax liabilities							14,691			27,108
Deferred gain on sale	26,203			27,204			26,643			26,440
Deferred retirement obligations	4,179			4,198			4,109			4,123
Obligations under capital leases	9			300
Total liabilities	261,783			277,182			243,926			253,813
Commitments and Contingencies (Note 8)
Commitments and Contingencies (Note 11)
Stockholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; none issued	—			—			—			—
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 shares issued and 8,261,308 and 8,315,535 shares outstanding at June 30, 2017 and September 30, 2016, respectively	8,416			8,416
Common stock, $1.00 par value, 15,000,000 shares authorized; 8,416,145 and 8,416,145 shares issued and 8,249,357 and 8,238,830 shares outstanding at December 31, 2017 and September 30, 2017, respectively							8,416			8,416
Additional paid in capital	18,489			18,155			18,890			18,694
Treasury stock, at cost, 154,837 and 100,610 shares held at June 30, 2017 and September 30, 2016, respectively	(5,863		)	(4,585		)
Treasury stock, at cost, 166,788 and 177,315 shares held at December 31, 2017 and September 30, 2017, respectively							(6,275		)	(6,502		)
Retained earnings	159,587			151,504			148,285			140,033
Total Alico stockholders' equity	180,629			173,490			169,316			160,641
Noncontrolling interest	4,809			4,773			4,720			4,728
Total stockholders' equity	185,438			178,263			174,036			165,369
Total liabilities and stockholders' equity	$	447,221		$	455,445		$	417,962		$	419,182

See accompanying notes to the condensed consolidated financial statements.

ALICO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2017			2016			2017			2016			2017			2016
Operating revenues:
Alico Citrus	$	49,993		$	45,639		$	122,537		$	135,916		$	17,079		$	16,877
Conservation and Environmental Resources	1,001			877			1,789			2,528			363			301
Other Operations	524			337			837			902			91			267
Total operating revenues	51,518			46,853			125,163			139,346			17,533			17,445
Operating expenses:
Alico Citrus	35,059			31,706			90,067			101,030			16,295			14,085
Conservation and Environmental Resources	1,451			1,399			2,726			3,540			597			514
Other Operations	—			65			93			212			59			93
Total operating expenses	36,510			33,170			92,886			104,782			16,951			14,692
Gross profit	15,008			13,683			32,277			34,564			582			2,753
General and administrative expenses	3,709			2,747			10,896			9,521			3,886			3,788
Income from operations	11,299			10,936			21,381			25,043
Loss from operations													(3,304		)	(1,035		)
Other (expense) income:
Interest expense	(2,223		)	(2,470		)	(6,924		)	(7,448		)	(2,255		)	(2,327		)
Gain (loss) on sale of real estate	157			(284		)	1,989			618
Other expense, net	(96		)	(120		)	(120		)	(419		)
Gain on sale of real estate and property and equipment													1,736			436
Other income (expense), net													144			(90		)
Total other expense, net	(2,162		)	(2,874		)	(5,055		)	(7,249		)	(375		)	(1,981		)
Income before income taxes	9,137			8,062			16,326			17,794
Provision for income taxes	3,665			3,392			6,713			7,419
Net income	5,472			4,670			9,613			10,375
Net loss (income) attributable to noncontrolling interests	7			11			(36		)	29
Net income attributable to Alico, Inc. common stockholders	$	5,479		$	4,681		$	9,577		$	10,404
Loss before income taxes													(3,679		)	(3,016		)
Income tax benefit													(12,417		)	(1,273		)
Net income (loss)													8,738			(1,743		)
Net loss attributable to noncontrolling interests													8			8
Net income (loss) attributable to Alico, Inc. common stockholders													$	8,746		$	(1,735	)
Per share information attributable to Alico, Inc. common stockholders:
Earnings per common share:
Earnings (loss) per common share:
Basic	$	0.66		$	0.56		$	1.15		$	1.25		$	1.06		$	(0.21	)
Diluted	$	0.66		$	0.56		$	1.15		$	1.25		$	1.05		$	(0.21	)
Weighted-average number of common shares outstanding:
Basic	8,293			8,309			8,315			8,299			8,245			8,324
Diluted	8,364			8,309			8,340			8,309			8,364			8,324

Cash dividends declared per common share	$	0.06		$	0.06		$	0.18		$	0.18		$	0.06		$	0.06

See accompanying notes to the condensed consolidated financial statements.

ALICO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended June 30,						Three Months Ended December 31,
	2017			2016			2017			2016

Cash flows from operating activities:
Net income	$	9,613		$	10,375
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of sugarcane land	(422		)	(618		)
Net cash used in operating activities:
Net income (loss)							$	8,738		$	(1,743	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred gain on sale of sugarcane land							(141		)	(300		)
Depreciation, depletion and amortization	11,529			12,088			3,490			3,916
Deferred income taxes	4,437			7,288
(Gain) loss on sale of property and equipment	(1,338		)	626
Deferred income tax benefit							(12,417		)	(1,273		)
Gain on sale of property and equipment							(1,596		)	(205		)
Non-cash interest expense on deferred gain on sugarcane land	1,060			1,051			344			356
Stock-based compensation expense	1,230			635			423			440
Other	145			473			(44		)	125
Changes in operating assets and liabilities:
Accounts receivable	(7,104		)	(10,932		)	(7,589		)	(7,177		)
Inventories	17,350			14,147			3,024			(4,053		)
Income tax receivable	738			861
Prepaid expenses and other assets	(1,359		)	(1,193		)	(240		)	(1,579		)
Accounts payable and accrued expenses	(6,826		)	(196		)	(3,298		)	(4,823		)
Income tax payable	1,539			—
Other liabilities	(1,692		)	(420		)	(383		)	(1,121		)
Net cash provided by operating activities	28,900			34,185
Net cash used in operating activities							(9,689		)	(17,437		)

Cash flows from investing activities:
Purchases of property and equipment	(11,450		)	(9,115		)	(3,561		)	(2,357		)
Proceeds from sale of property and equipment	3,016			—			5,300			—
Other	155			164			—			547
Net cash used in investing activities	(8,279		)	(8,951		)
Net cash provided by (used in) investing activities							1,739			(1,810		)

Cash flows from financing activities:
Proceeds from term loans	—			2,500
Principal payments on revolving lines of credit	(70,770		)	(53,882		)
Repayments on revolving lines of credit							(10,608		)	(5,000		)
Borrowings on revolving lines of credit	65,770			53,882			17,731			21,945
Principal payments on term loans	(8,061		)	(8,080		)	(1,118		)	(2,699		)
Contingent consideration paid	—			(7,500		)
Treasury stock purchases	(2,174		)	(3,141		)
Dividends paid	(1,496		)	(1,497		)	(494		)	(498		)
Capital lease obligation payments	(571		)	—			(8		)	—
Net cash used in financing activities	(17,302		)	(17,718		)
Net cash provided by financing activities							5,503			13,748

Net increase in cash and cash equivalents	3,319			7,516
Net decrease in cash and cash equivalents							(2,447		)	(5,499		)
Cash and cash equivalents at beginning of the period	6,625			5,474			3,395			6,625

Cash and cash equivalents at end of the period	$	9,944		$	12,990		$	948		$	1,126

See accompanying notes to the condensed consolidated financial statements.

ALICO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(Unaudited)~~

Note 1. Basis of Presentation

Description of Business

Alico, Inc. (“Alico”), together with its subsidiaries (collectively, the “Company", "we", "us" or "our”), is a Florida agribusiness and land management company owning approximately 122,000 acres of land throughout Florida, including approximately 90,000 acres of mineral rights. The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications - Alico Citrus ~~(formerly called "Orange Co.")~~ and Conservation and Environmental Resources. Financial results are presented based upon its three business ~~segments: Alico~~segments (Alico Citrus, Conservation and Environmental Resources and Other ~~Operations.~~Operations).

Basis of Presentation

The Company has prepared the accompanying financial statements on a condensed consolidated basis. These accompanying unaudited condensed consolidated interim financial statements, which are referred to herein as the “Financial Statements", have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to Article 10-01 of Regulation S-X of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. These Financial Statements do not include all of the disclosures required for complete annual financial statements and, accordingly, certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with U.S. GAAP, have been condensed or omitted in accordance with SEC rules and regulations. Accordingly, the Financial Statements should be read in conjunction with the Company's audited Consolidated ~~and Combined~~ Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016,~~2017, as filed with the SEC on December ~~6, 2016.~~11, 2017.

The Financial Statements presented in this Form 10-Q are unaudited. However, in the opinion of management, such Financial Statements include all adjustments, consisting solely of normal recurring adjustments, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP applicable to interim periods.

Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the current fiscal year ending September 30, ~~2017.~~2018. All intercompany transactions and account balances between the consolidated businesses have been eliminated.

Segments

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

Principles of Consolidation

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

Use of Estimates

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

future events. The Company evaluates estimates on an ongoing basis. The estimates are based on current and expected economic conditions, historical experience, the experience and judgment of the Company’s management and various other specific

assumptions that the Company believes to be reasonable. The Company evaluates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in the Company’s evaluations.

Noncontrolling Interest in Consolidated ~~Affiliate~~Subsidiary

The Financial Statements include all assets and liabilities of the less-than-100%-owned ~~affiliate~~subsidiary the Company controls, Citree Holdings I, LLC (“Citree”). Accordingly, the Company has recorded a noncontrolling interest in the equity of such entity. Citree had ~~net income of approximately $72,585 and~~ a net loss of ~~$59,568~~$16,219 and $15,848 for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and 2016, respectively, of which 51% is attributable to the Company.

~~Business Combinations~~

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in FASB ASC 805, “Business Combinations”, which requires the acquiring entity in a business combination to recognize the fair value of all assets acquired, liabilities assumed and any noncontrolling interest in the acquiree and establishes the acquisition date as the fair value measurement date. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and noncontrolling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with FASB ASC 805, the Company recognizes and measures goodwill, if any, as of the acquisition date, as the excess of the fair value of the consideration paid over the fair value of the identified net assets acquired.

When the Company acquires a business from an entity under common control, whereby the companies are ultimately controlled by the same party, or parties, both before and after the transaction, it is treated similarly to the pooling of interest method of accounting. The assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.

Recent Accounting Pronouncements

In ~~January 2017,~~May 2014, the FASB issued Accounting Standard Update ("ASU") 2014-09, “Revenue from Contracts with Customers,” as a new ASC topic (Topic 606). The core principle of this ASU ~~2017-01, "Business Combinations (Topic 805): Clarifying~~is that an entity should recognize revenue to depict the ~~Definition~~transfer of ~~a Business"~~promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU further provides guidance for any entity that either enters into contracts with customers to ~~assist entities with evaluating when a set~~transfer goods or services or enters into contracts for the transfer of ~~transferred~~nonfinancial assets, ~~and activities (set) is a business. Under~~unless those contracts are within the ~~new guidance, an entity first determines whether substantially all~~scope of other standards (for example, lease contracts). The FASB subsequently issued ASU 2015-14 to defer the ~~fair value~~effective date of ~~the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. The~~ ASU ~~is effective for fiscal years~~2014-09 until annual reporting periods beginning after December 15, 2017, ~~and interim periods within those years. The ASU will be applied prospectively to any transactions occurring within the period of adoption. Early adoption is permitted.~~

In January 2017, the FASB issued ASU 2017-04, which simplifies the accounting for goodwill impairment. The updated guidance eliminates Step 2 of the impairment test, which requires entities to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value, determined in Step 1. This guidance will become effective for us in fiscal years beginning after December 15, 2019, including interim periods within that reporting ~~period. We will adopt this guidance~~period, with earlier adoption permitted. The FASB also recently issued ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing," and 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients," that clarify or amend the original Topic 606. ASU 2014-09 can be adopted using one of two retrospective transition methods: 1) retrospectively to each prior reporting period presented or 2) as a ~~prospective approach. Earlier adoption~~cumulative-effect adjustment as of the date of adoption. The Company has not yet selected a transition method and is ~~permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are~~ currently evaluating the impact ~~on our consolidated financial statements.~~

~~In February 2017, the FASB issued~~of ASU 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): The ASU clarifies that ASC 610-20 applies to the derecognition of nonfinancial assets and in substance nonfinancial assets unless other specific guidance applies. As a result, it will not apply to the derecognition of businesses, nonprofit activities, or financial assets (including equity method investments), or to contracts with customers. The ASU also clarifies that an in substance nonfinancial asset is an asset or group of assets for which substantially all of the fair value consists of nonfinancial assets and the group or subsidiary is not a business.

In addition, transfers of nonfinancial assets to another entity in exchange for a noncontrolling ownership interest in that entity will be accounted for under ASC 610-20, removing specific guidance on such partial exchanges from ASC 845, ~~Nonmonetary Transactions~~.

As a result, guidance specific to real estate sales in ASC 360-20 will be eliminated. As such, sales and partial sales of real estate assets will now be subject to the same derecognition model as all other nonfinancial assets.

The ASU will also impact the accounting for partial sales of nonfinancial assets (including in substance real estate). When an entity transfers its controlling interest in a nonfinancial asset, but retains a noncontrolling ownership interest, the entity will measure the retained interest at fair value. This will result in full gain/loss recognition upon the sale of a controlling interest in a nonfinancial asset. Current guidance generally prohibits gain recognition2014-09 on the ~~retained interest.~~

The ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years and early adoption is permitted. The ASU will be applied prospectively to any transaction occurring from the date of adoption.

In May 2017, the FASB issued ASU 2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a share-based payment award if the award's fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. We do not expect this new guidance to have a material impact on our consolidated financial statements.

~~Reclassifications~~

~~Certain prior year amounts have been reclassified in the accompanying~~Company’s Financial Statements for consistent presentation to the current period. These reclassifications had no impact on net income, equity or cash flows as previously reported; however, working capital decreased by approximately $1,184,000 at September 30, 2016.upon adoption.

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 our fiscal year generally produce the majority of our annual revenue, and working capital requirements are typically greater in the first and fourth quarters of the fiscal year. The results of the reported periods herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

Note 2. Inventories

Inventories consist of the following at ~~June 30,~~December 31, 2017 and September 30, ~~2016:~~2017:


(in thousands)	June 30, 2017		September 30, 2016		December 31,		September 30,
					2017		2017
Unharvested fruit crop on the trees	$	32,940	$	52,204	$	29,551	$	32,145
Beef cattle	3,389		783		2,254		1,954
Citrus tree nursery	—		3,090
Other	3,168		2,392		1,375		2,105
Total inventories	$	39,497	$	58,469	$	33,180	$	36,204

The Company records its inventory at the lower of cost or net realizable value. For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017 and 2016 the ~~Company recorded an adjustment to reduce inventory by approximately $800,000 as a result of the Company's decision to phase out its operation at one of its nurseries. The~~ Company did not record any adjustments to reduce ~~inventories~~inventory to net realizable ~~value for~~value.

In September 2017, the ~~nine months~~State of Florida's citrus business, including the Company's unharvested citrus crop, was significantly impacted by Hurricane Irma. For the year ended ~~June~~September 30, ~~2016. Additionally,~~2017, the Company ~~reclassified~~recorded a casualty loss on its inventory. In calculating this casualty loss, the ~~remaining citrus tree nursery~~Company made certain estimates. As of December 31, 2017, there were no revisions to these estimates which required any further inventory losses to be recorded. The Company continues to work closely with its insurers and adjusters to determine the amount of insurance recoveries, if any, the Company may be entitled to.

Note 3. Assets Held for Sale

During fiscal 2017, in accordance with its strategy to dispose of non-core and under-performing assets, the following assets have been classified as assets held for sale as of December 31, 2017 and September 30, 2017:



(in thousands)	Carrying Value
	December 31,		September 30,
	2017		2017
Office Building	$	—	$	3,214
Nursery - Gainsville	6,500		6,500
Chancey Bay	4,179		4,179
Gal Hog	70		70
Breeding Herd	6,133		5,858
Winterhaven	251		—
Trailers	1,162		1,162
Total Assets Held For Sale	$	18,295	$	20.983

On October 30, 2017, the Company sold its corporate office building in Fort Myers, Florida for $5,300,000 and realized a gain of approximately $1,800,000. The sales agreement provides that the Company will lease back a portion of the office space for five years.

Negotiations with interested parties for certain assets held for sale have already taken place, and in January, 2018 the Company sold its breeding herd and a portion of their trailers (See Note 13). Assets held for sale consists solely of property and ~~equipment at June 30, 2017.~~ equipment.

The Company recorded an impairment loss of approximately $4,131,000 during fiscal year 2017 on these assets classified as assets held for sale.

Note 3.4. Property and Equipment, Net

Property and equipment, net consists of the following at ~~June 30,~~December 31, 2017 and September 30, ~~2016:~~2017:



(in thousands)	December 31,			September 30,
	2017			2017
Citrus trees	$	261,286		$	258,949
Equipment and other facilities	54,840			54,592
Buildings and improvements	8,279			8,835
Total depreciable properties	324,405			322,376
Less: accumulated depreciation and depletion	(85,498		)	(82,443		)
Net depreciable properties	238,907			239,933
Land and land improvements	109,602			109,404
Net property and equipment	$	348,509		$	349,337

(in thousands) June 30, 2017 September 30, 2016

Citrus trees $ 267,444
$ 253,665
Equipment and other facilities 60,812
59,355
Buildings and improvements 15,987
21,780
Breeding herd 10,329
10,921
Total depreciable properties 354,572
345,721
Less: accumulated depreciation and depletion (88,554 ) (83,122 )
Net depreciable properties 266,018
262,599
Land and land improvements 109,992
116,648
Net property and equipment $ 376,010
$ 379,247

On February 2, 2017, the Company sold 49 acres of land and facilities in Hendry County, Florida, to its former tenant for $2,200,000, resulting in a gain of approximately $1,400,000 which is included in gain on sale of real estate on the Condensed Consolidated Statement of Operations for the nine months ended June 30, 2017.

~~Asset held for sale~~

In March 2017, the Company's Board of Directors approved listing its office building in Fort Myers, Florida, for sale for approximately $6,000,000. As a result, the Company reclassified the net book value of the property of approximately $3,223,000 to assets held for sale as of March 31, 2017. The estimated fair value of the property exceeds the net book value, and no impairment was recognized as a result of the reclassification.

Note 4.5. Long-Term Debt and Lines of Credit

Debt Refinancing

The Company refinanced its outstanding debt obligations on December 3, 2014 in connection with the Orange-Co acquisition. These credit facilities initially included $125,000,000 in fixed interest rate term loans (“Met Fixed-Rate Term Loans”), $57,500,000 in variable interest rate term loans (“Met Variable-Rate Term Loans”), and a $25,000,000 revolving line of credit (“RLOC”) with Metropolitan Life Insurance Company and New England Life Insurance Company (collectively “Met”), and a $70,000,000 working capital line of credit (“WCLC”) with Rabo Agrifinance, Inc. (“Rabo”).

The term loans and RLOC are secured by real property. The security for the term loans and RLOC consists of approximately 38,200 gross acres of citrus groves and 5,762 gross acres of ranch land. The WCLC is collateralized by the Company’s current assets and certain other personal property owned by the Company.

The term loans, collectively, are subject to quarterly principal payments of $2,281,250, and mature November 1, 2029. The Met Fixed-Rate Term Loans bear interest at 4.15% per annum, and the Met Variable-Rate Term Loans bear interest at a rate equal to 90 day LIBOR plus ~~165~~150 basis points (the “LIBOR spread”). The LIBOR spread ~~was adjusted~~is subject to adjustment by the lender on May 1, ~~2017~~2019 and ~~is subject to further adjustment~~ every two years thereafter until maturity. Interest on the term loans is payable quarterly.

The interest rates on the Met Variable-Rate Term Loans were ~~2.82%~~3.03% per annum and ~~2.25%~~2.96% per annum as of ~~June 30,~~December 31, 2017 and September 30, ~~2016,~~2017, respectively.

The Company may prepay up to $8,750,000 of the Met Fixed-Rate Term Loan principal annually without penalty, and any such prepayments may be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment was made for calendar year 2015 and remains available to reduce future mandatory principal payments ifshould the Company ~~elects~~elect to do so. ~~There have been no additional optional prepayments after calendar year 2015.~~During the first quarter of fiscal 2018, the company elected not to make its principal payment and utilized its prepayment to satisfy its payment requirement. The Met Variable-Rate Term Loans may be prepaid without penalty.

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus ~~165~~150 basis points, payable quarterly. The LIBOR spread was adjusted by the lender on May 1, 2017 and is subject to further adjustment every two years thereafter. Outstanding principal, if any, is due at maturity on November 1, 2019. The RLOC is subject to an annual commitment fee of 25 basis points on the unused portion of the line of credit. The RLOC is available for funding general corporate needs. The variable interest rate was ~~2.82% per annum~~3.03% and ~~2.25%~~2.96% per annum as of ~~June 30,~~December 31, 2017 and September 30, ~~2016,~~2017, respectively. Availability under the RLOC was $25,000,000 as of ~~June 30,~~December 31, 2017.

The WCLC is a revolving credit facility and is available for funding working capital and general corporate requirements. The interest rate on the WCLC is based on the one month LIBOR, plus a spread, which is adjusted quarterly, based on the Company's debt service coverage ratio for the preceding quarter and can vary from 175 to 250 basis points. The rate is currently at LIBOR plus 175 basis points. The variable interest rate was ~~2.80%~~3.11% per annum and ~~2.27%~~2.99% per annum as of ~~June 30,~~December 31, 2017 and September 30, ~~2016,~~2017, respectively. The WCLC agreement was amended on September 30, ~~2016,~~2017, and the primary terms of the amendment were ~~(1)~~ an extension of the maturity to November 1, 2018, (2) the amendment permits the Company to provide a limited $8,000,000 guaranty of the Silver Nip Citrus debt (see below) and (3) the amendment makes debt service coverage a quarterly rather than annual covenant.2019. There were no changes to the commitment amount or interest rate. Availability under the WCLC was approximately ~~$59,700,000~~$52,577,000 as of ~~June~~December 31, 2017 and September 30, ~~2017.~~2017, respectively.

The WCLC is subject to a quarterly commitment fee on the daily unused availability under the line computed as the commitment amount less the aggregate of the outstanding loans and outstanding letters of credit. The commitment fee is adjusted quarterly based on Alico's debt service coverage ratio for the preceding quarter and can vary from a minimum of 20 basis points to a maximum of 30 basis points. Commitment fees to date have been charged at 20 basis points.

~~There was no~~The outstanding balance on the WCLC was approximately $7,123,000 at ~~June 30,~~December 31, 2017. The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of ~~June 30,~~December 31, 2017, there was approximately $10,300,000 in outstanding letters of credit, which correspondingly reduced the Company's availability under the line of credit.

~~The~~These credit facilities noted above are subject to various covenants including the following financial covenants: (i) minimum debt service coverage ratio of 1.10 to 1.00, (ii) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding year, or approximately $162,300,000 for the year ending September 30, 2017, (iii) minimum current ratio of 1.50 to 1.00, (iv) debt to total assets ratio not greater than .625 to 1.00, and, solely in the case of the WCLC, (v) a limit on capital expenditures of $30,000,000 per fiscal year. As of ~~June 30,~~December 31, 2017, the Company was in compliance with all of the financial covenants.

The credit facilities also include a Met Life term loan collateralized by real estate owned by Citree (“Met Citree Loan”). This is a $5,000,000 credit facility that bears interest at a fixed rate of 5.28% per annum. An initial advance of $500,000 was made at closing on March 4, 2014. The loan agreement was amended to provide for an interim advance of $2,000,000 on September 17, 2015, and the interest rate was adjusted to 5.30% per annum at the time of the interim advance. The final $2,500,000 advance was funded on April 27, 2016 and the interest rate was adjusted to 5.28%. Principal payments on this term loan commence February 1, 2018 and are payable quarterly thereafter. The loan matures February 5, 2029.

Silver Nip Citrus Debt

~~Silver Nip Citrus has various loans payable to Prudential Mortgage Capital Company, LLC (“Prudential”) as described below.~~

There are two fixed-rate term loans, with an original combined balance of $27,550,000, bearing interest at 5.35% per annum (“Pru Loans A & B”). Principal of $290,000 is payable quarterly, together with accrued interest. The Company may prepay up to $5,000,000 of principal without penalty. On February 15, 2015, Silver Nip Citrus made a prepayment of $750,000. The loans are collateralized by real estate in Collier, Hardee, Highlands, Martin, Osceola and Polk Counties, Florida and mature June 1, 2033.

Silver Nip Citrus entered into two additional fixed-rate term loans with Prudential to finance the acquisition of a 1,500 acre citrus grove on September 4, 2014. Each loan was in the original amount of $5,500,000. Principal of $55,000 per loan is payable quarterly, together with accrued interest. One loan bears interest at 3.85% per annum (“Pru Loan E”), while the other bears interest at 3.45% per annum (“Pru Loan F”). The interest rate on Pru Loan E is subject to adjustment on September 1, 2019 and every year thereafter until maturity. Both loans are collateralized by real estate in Charlotte County, Florida. Pru Note E matures September 1, 2021, and Pru Note F matures September 1, 2039.

The Silver Nip Citrus credit agreements were amended on December 1, 2016. The primary terms of the amendments were (1) the Company provided a limited $8,000,000 guaranty of the Silver Nip debt, (2) the limited personal guarantees provided by George Brokaw, Remy Trafelet and Clayton Wilson prior to the Company’s merger with Silver Nip Citrus, and also totaling $8,000,000, were released and (3) the consolidated current ratio covenant requirement ~~measured on an annual basis,~~ was reduced from 1.50 to 1.00 to ~~1:00~~1.00 to 1:00. Silver Nip Citrus was in compliance with the current ratio covenant as of ~~September 30, 2016,~~December 31, 2017, the most recent measurement date.

Other Modifications of Rabo and Prudential Credit Agreements

In February 2015, Rabo agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus up to $7,000,000 on a revolving basis for cash management purposes. These advances would be funded from either cash on hand or draws on the Company’s WCLC.

Silver Nip Citrus has provided a $7,000,000 limited guaranty and security agreement granting Rabo a security interest in crops, accounts receivable, inventory and certain other assets.

This modification required the amendment of various Prudential and Rabo loan documents and mortgages.

The following table summarizes long-term debt and related deferred financing costs net of accumulated amortization at ~~June 30,~~December 31, 2017 and September 30, ~~2016:~~2017:


	June 30, 2017				September 30, 2016				December 31, 2017				September 30, 2017
	Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net
	(in thousands)								(in thousands)

Long-term debt, net of current portion:
Met Fixed-Rate Term Loans	$	100,625	$	985	$	105,312	$	1,080	$	99,062	$	924	$	99,062	$	954
Met Variable-Rate Term Loans	50,313		453		52,469		497		48,876		425		49,594		439
Met Citree Term Loan	5,000		50		5,000		53		5,000		48		5,000		49
Pru Loans A & B	23,320		262		24,190		274		22,740		253		23,030		258
Pru Loan E	4,950		26		5,115		32		4,840		23		4,895		25
Pru Loan F	4,950		43		5,115		44		4,840		42		4,895		42
John Deere equipment loan	—		—		18		—
	189,158		1,819		197,219		1,980		185,358		1,715		186,476		1,767
Less current portion	4,525		—		4,493		—		4,575		—		4,550		—
Long-term debt	$	184,633	$	1,819	$	192,726	$	1,980	$	180,783	$	1,715	$	181,926	$	1,767

The following table summarizes lines of credit and related deferred financing costs net of accumulated amortization at ~~June 30,~~December 31, 2017 and September 30, ~~2016:~~2017:


	June 30, 2017				September 30, 2016				December 31, 2017				September 30, 2017
	Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net		Principal		Deferred Financing Costs, Net
	(in thousands)								(in thousands)

Lines of Credit:
RLOC	$	—	$	121	$	5,000	$	159	$	—	$	96	$	—	$	109
WCLC	—		204		—		230		7,123		104		—		153
Lines of Credit	$	—	$	325	$	5,000	$	389	$	7,123	$	200	$	—	$	262

Future maturities of long-term debt and lines of credit as of ~~June 30,~~December 31, 2017 are as follows:


(in thousands)

Due within one year	$	4,525	$	4,575
Due between one and two years	8,375		15,548
Due between two and three years	10,950		10,975
Due between three and four years	10,975		14,935
Due between four and five years	10,975		10,755
Due beyond five years	143,358		135,693

Total future maturities	$	189,158	$	192,481

Interest costs expensed and capitalized were as follows:

(in thousands)
Three Months Ended June 30, Nine Months Ended June 30,
2017 2016 2017 2016
Interest expense $ 2,223
$ 2,470
$ 6,924
$ 7,448
Interest capitalized 74
41
201
122
Total $ 2,297
$ 2,511
$ 7,125
$ 7,570

~~Note 5. Earnings Per Common Share~~

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

~~For the three and nine months ended June 30, 2017 and 2016, basic and diluted earnings per common share were as follows:~~

(in thousands except per share amounts)
Three Months Ended June 30, Nine Months Ended June 30,
2017 2016 2017 2016

Net income attributable to Alico, Inc. common stockholders $ 5,479
$ 4,681
$ 9,577
$ 10,404

Weighted average number of common shares outstanding - basic 8,293
8,309
8,315
8,299
Dilutive effect of equity-based awards 71
—
25
10
Weighted average number of common shares outstanding - diluted 8,364
8,309
8,340
8,309

Net income per common share attributable to Alico, Inc. common stockholders:
Basic $ 0.66
$ 0.56
$ 1.15
$ 1.25
Diluted $ 0.66
$ 0.56
$ 1.15
$ 1.25



(in thousands)
	Three Months Ended December 31,
	2017		2016
Interest expense	$	2,255	$	2,327
Interest capitalized	134		63
Total	$	2,389	$	2,390

Note 6. Accrued Liabilities

Accrued Liabilities consist of the following at December 31, 2017 and September 30, 2017:



(in thousands)	December 31,		September 30,
	2017		2017

Ad valorem taxes	$	—	$	2,648
Accrued interest	1,203		1,165
Accrued employee wages and benefits	1,169		1,320
Accrued dividends	494		494
Current portion of deferred retirement obligations	315		315
Accrued insurance	266		166
Other accrued liabilities	1,104		673
Total accrued liabilities	$	4,551	$	6,781

The computation of diluted earnings per common share for the three and nine months ended June 30, 2017 includes the impact of certain equity awards because they are dilutive. Such awards are comprised of 750,000 stock options granted to Executive Officers (see Note 7. "Stockholders' Equity") during the nine months ended June 30, 2017.

Note 7.Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act contains significant changes to corporate taxes, including a permanent reduction of the U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s statutory rate for fiscal year ended September 30, 2018 will be 24.5%, based on a fiscal year blended rate calculation. The 21% U.S. corporate tax rate will apply to fiscal years ending September 30, 2019 and each year thereafter.

Additionally, the Act requires a one-time remeasurement of certain tax related assets and liabilities. During the first quarter ended December 31, 2017, the Company made certain estimates related to the impact of the Act including the remeasurement of deferred taxes at the new expected tax rate and a revised effective tax rate for the year ended September 30, 2018, which was used to compute current tax expense for the first quarter ended December 31, 2017. The amounts recorded in the three months ended December 31, 2017 for the remeasurement of deferred tax liabilities principally relate to the reduction in the U.S. corporate income tax rate. The Company has recorded a tax benefit of approximately $11,300,000 to account for these deferred tax impacts.

Note 6.8. Earnings Per Common Share

For the three months ended December 31, 2017 and 2016, basic and diluted earnings per common share were as follows:



(in thousands except per share amounts)
	Three Months Ended December 31,
	2017		2016

Net income (loss) attributable to Alico, Inc. common stockholders	$	8,746	$	(1,735	)

Weighted average number of common shares outstanding - basic	8,245		8,324
Dilutive effect of equity-based awards	119		—
Weighted average number of common shares outstanding - diluted	8,364		8,324

Net income (loss) per common shares attributable to Alico, Inc. common stockholders:
Basic	$	1.06	$	(0.21	)
Diluted	$	1.05	$	(0.21	)

The computation of diluted earnings per common share for the three months ended December 31, 2017 includes the impact of certain equity awards because they are dilutive. Such awards are comprised of 750,000 stock options granted to Executive Officers (see Note 12. "Related Party Transactions") during the three months ended December 31, 2016.

Note 9. Segment Information

Segments

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

The Company manages its land based upon its primary usage, and reviews its performance based upon two primary classifications: Alico Citrus and Conservation and Environmental Resources. In addition, Other Operations include leasing mines and oil extraction rights to third parties, as well as leasing improved farmland to third parties.

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

Information by operating segment is as follows:


(in thousands)	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2017			2016			2017			2016			2017			2016
Revenues:
Alico Citrus	$	49,993		$	45,639		$	122,537		$	135,916		$	17,079		$	16,877
Conservation and Environmental Resources	1,001			877			1,789			2,528			363			301
Other Operations	524			337			837			902			91			267
Total revenues	51,518			46,853			125,163			139,346			17,533			17,445

Operating expenses:
Alico Citrus	35,059			31,706			90,067			101,030			16,295			14,085
Conservation and Environmental Resources	1,451			1,399			2,726			3,540			597			514
Other Operations	—			65			93			212			59			93
Total operating expenses	36,510			33,170			92,886			104,782			16,951			14,692

Gross profit (loss):
Alico Citrus	14,934			13,933			32,470			34,886			784			2,792
Conservation and Environmental Resources	(450		)	(522		)	(937		)	(1,012		)	(234		)	(213		)
Other Operations	524			272			744			690			32			174
Total gross profit	$	15,008		$	13,683		$	32,277		$	34,564		$	582		$	2,753

Depreciation, depletion and amortization:
Alico Citrus	$	3,508		$	3,418		$	10,529		$	10,166		$	3,398		$	3,516
Conservation and Environmental Resources	150			342			469			871			59			169
Other Operations	3			106			66			306			11			32
Other Depreciation, Depletion and Amortization	72			178			465			745			22			199
Total depreciation, depletion and amortization	$	3,733		$	4,044		$	11,529		$	12,088		$	3,490		$	3,916



(in thousands)	December 31,		September 30,
	2017		2017
Assets:
Alico Citrus	$	389,351	$	387,972
Conservation and Environmental Resources	15,314		13,845
Other Operations	10,889		10,974
Other Corporate Assets	2,408		6,391
Total Assets	$	417,962	$	419,182

(in thousands) June 30, 2017 September 30, 2016

Assets:
Alico Citrus $ 403,249
$ 410,663
Conservation and Environmental Resources 14,955
13,073
Other Operations 20,089
22,050
Other Corporate Assets 8,928
9,659
Total Assets $ 447,221
$ 455,445

~~Note 7. Stockholders' Equity~~

~~Stock-Based Compensation~~

The Company recognizes stock-based compensation expense for (i) Board of Directors fees (paid in treasury stock) and (ii) the Stock Incentive Plan of 2015 (paid in restricted stock). Stock-based compensation expense for the Board of Director fees and Named Executive Officers was approximately $189,000 and $819,000 for the three and nine months ended June 30, 2017, respectively, and approximately $214,000 and $635,000 for the three and nine months ended June 30, 2016, respectively. Stock-based compensation expense is recognized in general and administrative expenses in the Condensed Consolidated Statements of Operations.

~~Stock Option Grant~~

A stock option grant of 300,000 options in the case of Mr. Trafelet and 225,000 options in the case of each of Messrs. Slack and Brokaw (collectively, the “Option Grants”) were granted on December 31, 2016. The option price was set at $27.15, the closing price on December 31, 2016. The Option Grants will vest as follows: (i) 25% of the options will vest if the price of the Company’s common stock during a consecutive 20-trading day period exceeds $60.00; (ii) 25% of the options will vest if such price exceeds $75.00; (iii) 25% of the options will vest if such price exceeds $90.00; and (iv) 25% of the options will vest if such price exceeds $105.00. If the applicable stock price hurdles have not been achieved by (A) the second anniversary of the Executive’s termination of employment, if the Executive’s employment is terminated due to death or disability, (B) the date that is 18 months following the Executive’s termination of employment, if the Executive’s employment is terminated by the Company without cause, by the Executive with good reason, or due to the Executive’s retirement, or (C) the date of the termination of the Executive’s employment for any other reason, then any unvested options will be forfeited. In addition, if the applicable stock price hurdles have not been achieved by the fifth anniversary of the grant date (or the fourth anniversary of the grant date, in the case of the tranche described in clause (i) above), then any unvested options will be forfeited. The Option Grants will also become vested to the extent that the applicable stock price hurdles are satisfied in connection with a change in control of the Company.

The fair value of the Option Grants was estimated on the date of grant using a Monte Carlo valuation model that uses the assumptions noted in the following table. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from different time-frames for the various market conditions being met.



~~Expected Volatility~~	~~32.19~~	%
~~Expected Term (in years)~~	~~2.6 - 4.0~~
~~Risk Free Rate~~	~~2.45~~	%

~~The weighted-average grant-date fair value of the Option Grants was $3.53. There were no additional stock options granted, exercised or forfeited for the three and nine months ended June 30, 2017.~~

Stock compensation expense related to the options totaled approximately $205,000 and $411,000 for the three and nine months ended June 30, 2017 and as of June 30, 2017 , respectively, and there was approximately $2,235,000 of total unrecognized stock

compensation cost related to nonvested share-based compensation for the Option Grants. Total unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.8 years.

~~Stock Repurchase Authorizations~~

In fiscal year 2015, the Board of Directors authorized the repurchase of up to 170,000 shares of the Company’s common stock beginning March 26, 2015, and continuing through December 31, 2016 (the "2015 Authorization"). The 2015 Authorization was completed on January 7, 2016. These stock repurchases were made through open market transactions at times and in such amounts as the Company’s broker determined subject to the provisions of SEC Rule 10b-18. The Company also adopted Rule 10b5-1 share repurchase plans under the Securities Exchange Act of 1934 (the “Plans”) in connection with the 2015 Authorization. The Plans allow the Company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods.

In fiscal year 2016, the Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s common stock beginning February 18, 2016 and continuing through February 17, 2017 (the "2016 Authorization"). No shares were repurchased under the 2016 Authorization prior to its expiration on February 17, 2017.

In fiscal year 2017, the Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock beginning March 9, 2017 and continuing through March 9, 2019 (the “2017 Authorizations”). The repurchases will be made from time to time by the Company in the open market or in privately negotiated transactions. The Company adopted a Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”). The Plan allows the Company to repurchase its shares at times when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. For the three and nine months ended June 30, 2017, the Company purchased 51,121 and 75,623 shares at a cost of approximately $1,534,000 and $2,174,000 under the 2017 Authorizations.

~~The following table illustrates the Company’s treasury stock purchases and issuances for the nine months ended June 30, 2017:~~

(in thousands, except share amounts)
Shares Cost
Balance as of September 30, 2016 100,610
$ 4,585
Purchased 75,623
2,174
Issued to Directors (21,396 ) (896 )

Balance as of June 30, 2017 154,837
$ 5,863

Note 8.10. Stockholders' Equity

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

Stock Compensation - Board of Directors

The Board of Directors can either elect to receive stock compensation or cash for their fees for services provided. Stock-based compensation expense relating to the Board of Director fees was approximately $192,000 and $255,000 for the three months ended December 31, 2017 and 2016, respectively.

Restricted Stock

In fiscal year 2015, the Company awarded 12,500 restricted shares of the Company’s common stock (“Restricted Stock”) to two senior executives under the 2015 Plan at a weighted average fair value of $49.49 per common share, vesting over three to five years.

In November 2017, a senior executive was awarded 5,000 restricted shares of the Company’s common stock (“Restricted Stock”) under the 2015 Plan at a weighted average fair value of $31.95 per common share, vesting over approximately three years.

Stock compensation expense related to the Restricted Stock totaled approximately $26,000 and $150,000 for the three months ended December 31, 2017 and 2016, respectively. There was approximately $283,000 and $413,000 of total unrecognized stock compensation costs related to unvested stock compensation for the Restricted Stock grants at December 31, 2017 and 2016, respectively.

Stock Option Grant

Stock compensation expense related to the options totaled approximately $205,000 and $0 for the three months ended December 31, 2017 and 2016, respectively. At December 31, 2017 and 2016, there was approximately $1,822,000 and $2,646,000 of total unrecognized stock compensation costs related to unvested share-based compensation for the option grants, respectively. The total unrecognized compensation cost is expected to be recognized over a weighted-average period of approximately 2.3 years.



Expected Volatility	32.19	%
Expected Term (in years)	2.6 - 4.0
Risk Free Rate	24.5	%

The weighted-average grant-date fair value of the Option Grants was $3.53. There were no additional stock options granted, exercised or forfeited for the three months ended December 31, 2017.

Stock Repurchase Authorizations

For the three months ended December 31, 2017, the Company did not purchase any shares under the 2017 Authorization and has 477,500 shares available to purchase in accordance with the 2017 Authorization.

In fiscal year 2016, the Board of Directors authorized the repurchase of up to 50,000 shares of the Company’s outstanding common stock beginning February 18, 2016 and continuing through February 17, 2017 (the "2016 Authorization"). No shares were repurchased under the 2016 Authorization.

The following table illustrates the Company’s treasury stock issuances for the three months ended December 31, 2017:



(in thousands, except share amounts)
	Shares		Cost
Balance as of September 30, 2017	177,315		$	6,502
Issued to Employees and Directors	(10,527	)	(227		)

Balance as of December 31, 2017	166,788		$	6,275

Note 11. Commitments and Contingencies

Letters of Credit

The Company ~~had~~has outstanding standby letters of credit in the total amount of approximately $10,300,000 at ~~June~~December 31, 2017 and September 30, 2017, respectively, to secure its various contractual obligations.

Legal Proceedings

From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There are no other current legal proceedings to which the Company is a party or of which any of its property is subject that it believes will have a material adverse effect on its financial position, results of operations or cash flows.

~~Note 9. Related Party Transactions~~

~~Clayton G. Wilson~~

The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”), the Company’s Chief Executive Officer, pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the Company effective as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he will continue to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting Agreement provides that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Wilson will be entitled to vesting of any unvested portion of the restricted stock award granted to him under his Employment Agreement. In addition, the Separation and Consulting Agreement provides that Mr. Wilson will serve as a consultant to the Company during 2017 and will receive an aggregate consulting fee of $750,000 for such services (payable $200,000 in an initial lump sum, $275,000 in a lump sum on July 1, 2017, and $275,000 in six equal monthly installments commencing July 31, 2017 and ending December 31, 2017). If the Company terminates the consulting period for any reason, it will continue to pay the consulting fees described in the immediately preceding sentence, subject to Mr. Wilson’s continued compliance with the restrictive covenants set forth in his employment agreement. The Company expensed $187,500 and $375,000 for the three and nine months ended June 30, 2017. Mr. Wilson resigned as a member of the Company’s Board of Directors effective February 27, 2017.

~~Remy W. Trafelet, Henry R. Slack, and George R. Brokaw~~

On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with each of Remy W. Trafelet, Henry R. Slack, and George R. Brokaw (collectively, the “Executives”). Mr. Trafelet serves as the President and Chief Executive Officer of the Company, Mr. Slack serves as the Executive Chairman of the Company, and Mr. Brokaw serves as the Executive Vice Chairman of the Company, and each of them continues to serve on the Company’s Board of Directors. The Employment Agreements provide for an annual base salary of $400,000 in the case of Mr. Trafelet and $250,000 in the case of each of Messrs. Slack and Brokaw and, additionally, provided for payment to the Executives an amount in cash equal to $400,000 to Mr. Trafelet and $250,000 to each of Messrs. Slack and Brokaw within five business days of December 31, 2016. The Employment Agreements also provided stock option grants as described in Note 7. "Stockholders' Equity."

The Employment Agreements also provide that, if the applicable Executive’s employment is terminated by the Company without “cause” or the applicable Executive resigns with “good reason” (as each such term is defined in the Employment Agreements), then, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, the Executive will be entitled to cash severance in an amount equal to 24 months (in the case of Mr. Trafelet) or 18 months (in the case of Messrs. Slack and Brokaw) of the Executive’s annual base salary.

The Employment Agreement includes various restrictive covenants in favor of the Company, including a confidentiality covenant, a nondisparagement covenant, and 12-month post-termination noncompetition and customer and employee nonsolicitation covenants.

~~Silver Nip Citrus Merger Agreement~~

Effective February 28, 2015, the Company completed the merger (“Merger”) with 734 Citrus Holdings, LLC (“Silver Nip Citrus”) pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with 734 Sub, LLC, a wholly owned subsidiary of the Company (“Merger Sub”), Silver Nip Citrus and, solely with respect to certain sections thereof, the equity holders of Silver Nip Citrus. The ownership of Silver Nip Citrus was held by 734 Agriculture, 74.89%, Mr. Clay Wilson, former Chief Executive Officer of the Company, 5% and an entity controlled by Mr. Clay Wilson owned, 20.11%.

~~734 Agriculture has control over both Silver Nip Citrus and the Company, and therefore, the Merger was treated as a common control acquisition.~~

At closing of the Merger, Merger Sub merged with and into Silver Nip Citrus, with Silver Nip Citrus and its affiliates surviving the Merger as wholly owned subsidiaries of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares of the Company’s common stock, par value $1.00 per share, to the holders of membership interests in Silver Nip Citrus. Silver Nip Citrus’ outstanding net indebtedness at the closing of the Merger was approximately $40,278,000, and other liabilities totaled approximately $8,446,000. The Company acquired assets with a book value of approximately $65,739,000, and total net assets of approximately $17,015,000. The shares issued were recorded at the carrying amount of the net assets transferred. The closing price of the Company's common stock on February 27, 2015 was $45.67.

Through September 30, 2016, the former holders of membership interests (the "Members") in Silver Nip Citrus earned and were issued an additional 148,705 shares of the Company’s common stock pursuant to the Merger Agreement. The additional purchase consideration was based on the final value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’s citrus groves for 2014-2015 citrus harvest season. No additional consideration of Company common shares is due in connection with the Merger.

~~JD Alexander~~

On November 6, 2013, JD Alexander tendered his resignation as Chief Executive Officer, and as an employee of the Company, subject to and effective immediately after the Closing of the Share Purchase transaction on November 19, 2013. Mr. Alexander’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On November 6, 2013, the Company and Mr. Alexander also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Alexander provided consulting services to the Company during the two-year period after the Closing, (ii) Mr. Alexander agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of two years after the Closing, and (iii) the Company paid Mr. Alexander $2,000,000 for such services and covenants in twenty-four monthly installments. The Company expensed approximately $0 and $167,000 for the nine months ended June 30, 2017 and 2016, respectively, under the Consulting and Non-Competition Agreement which concluded in November 2015.

~~Ken Smith~~

On March 20, 2015, Ken Smith tendered his resignation as Chief Operating Officer, and as an employee of the Company. Mr. Smith’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On March 20, 2015, the Company and Mr. Smith also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Smith provided consulting services to the Company during the three-year period after the resignation date, (ii) Mr. Smith agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of two years after the resignation date, and (iii) the Company paid Mr. Smith $925,000 for such services and covenants. The Company expensed approximately $0 and $50,000 under the Consulting and Non-Competition Agreement for the three months ended June 30, 2017 and 2016, respectively, and expensed approximately $100,000 and $150,000 for the nine months ended June 30, 2017 and 2016, respectively.

~~W. Mark Humphrey~~

On June 1, 2015, W. Mark Humphrey tendered his resignation as Senior Vice President and Chief Financial Officer, and as an employee of the Company. On June 1, 2015, the Company and Mr. Humphrey entered into a Separation and Consulting Agreement under which (i) Mr. Humphrey was to provide consulting services to the Company for a one-year period after his resignation, and (ii) Mr. Humphrey was entitled to the following benefits: (a) $100,000 in cash in a lump sum and (b) a consulting fee of $350,000 payable monthly during the period commencing on his resignation date and ending on the first anniversary of his resignation date. The Company expensed approximately $0 and $58,000 under the Separation and Consulting Agreement for the three months ended June 30, 2017 and 2016, respectively, and approximately $0 and $238,000 for the nine months ended June 30, 2017 and 2016, respectively. On June 1, 2015 the Company appointed John E. Kiernan to serve as Senior Vice President and Chief Financial Officer. Effective September 1, 2015, Mr. Humphrey was re-hired and appointed to serve as Senior Vice President and Chief Accounting Officer and continued to receive monthly payments under the Separation and Consulting Agreement through the first anniversary of his resignation date. Mr. Humphrey resigned as Senior Vice President and Chief Accounting Officer and as an employee of the Company effective April 3, 2017.

~~Shared Services Agreement~~

The Company has a shared services agreement with Trafelet Brokaw & Co., LLC (“TBCO”), whereby the Company reimburses TBCO for use of office space and various administrative and support services. The annual cost of the office and services is approximately $592,000. The agreement will expire in May 2018. The Company expensed approximately $222,000 and $191,000 under the Shared Services Agreement for each of the three months ended June 30, 2017 and 2016, respectively, and approximately $443,000 and $389,000 for the nine months ended June 30, 2017 and 2016, respectively.

Note ~~10. Accrued Liabilities~~12. Related Party Transactions

~~Accrued liabilities consist~~

Clayton G. Wilson

The Company entered into a Separation and Consulting Agreement with Clayton G. Wilson (the “Separation and Consulting Agreement”), the Company’s Chief Executive Officer, pursuant to which Mr. Wilson stepped down as Chief Executive Officer of the ~~following at June 30,~~Company effective as of December 31, 2016. Under the Separation and Consulting Agreement, Mr. Wilson also acknowledged and agreed that he would continue to be bound by the restrictive covenants set forth in his Employment Agreement with the Company. The Separation and Consulting Agreement provided that, subject to his execution, delivery, and non-revocation of a general release of claims in favor of the Company, Mr. Wilson would be entitled to vesting of any unvested portion of the restricted stock award granted to him under his Employment Agreement. In addition, the Separation and Consulting Agreement provided that Mr. Wilson serve as a consultant to the Company during 2017 and ~~September 30, 2016:~~would receive an aggregate consulting fee of $750,000 for such services (payable $200,000 in an initial lump sum, $275,000 in a lump sum on July 1, 2017, and $275,000 in six equal monthly installments commencing July 31, 2017 and ending December 31, 2017). As of December 31, 2017 the Company satisfied its obligation to Mr. Wilson in full. The Company expensed $187,500 for the three months ended December 31, 2017. Mr. Wilson resigned as a member of the Company’s Board of Directors effective February 27, 2017.

Remy W. Trafelet, Henry R. Slack, and George R. Brokaw

(in thousands) June 30, 2017 September 30, 2016

Ad valorem taxes $ 1,818
$ 2,736
Accrued interest 1,154
1,135
Accrued employee wages and benefits 330
964
Current portion of deferred retirement obligations 342
342
Accrued dividends 496
498
Inventory received but not invoiced —
710
Other accrued liabilities 424
535
Total accrued liabilities $ 4,564
$ 6,920
On December 31, 2016, the Company entered into new employment agreements (collectively, the “Employment Agreements”) with each of Remy W. Trafelet, Henry R. Slack, and George R. Brokaw (collectively, the “Executives”). Mr. Trafelet serves as the President and Chief Executive Officer of the Company, Mr. Slack serves as the Executive Chairman of the Company, and Mr. Brokaw serves as the Executive Vice Chairman of the Company, and each of them continues to serve on the Company’s Board of Directors. The Employment Agreements provide for an annual base salary of $400,000 in the case of Mr. Trafelet and $250,000 in the case of each of Messrs. Slack and Brokaw and, additionally, provided for payment to the Executives an amount in cash equal to $400,000 to Mr. Trafelet and $250,000 to each of Messrs. Slack and Brokaw within five business days of December 31, 2016.

As part of their employment agreements, each of the Executives were granted stock options. A stock option grant of 300,000 options in the case of Mr. Trafelet, and 225,000 options in the case of each of Messrs. Slack and Brokaw (collectively, the “Option Grants”) was provided. The Option Grants vest in accordance with the terms as described in Note 10.

As of June 26, 2017, both Messrs. Slack and Brokaw have agreed to waive payment of their salary.

Ken Smith

On March 20, 2015, Ken Smith tendered his resignation as Chief Operating Officer, and as an employee of the Company. Mr. Smith’s resignation included a waiver of any rights to any payments under his Change-in-Control Agreement with the Company. On March 20, 2015, the Company and Mr. Smith also entered into a Consulting and Non-Competition Agreement under which (i) Mr. Smith will provide consulting services to the Company during the three-year period after the resignation date, (ii) Mr. Smith agreed to be bound by certain non-competition covenants relating to the Company’s citrus operations and non-solicitation and non-interference covenants for a period of two years after the resignation date, and (iii) the Company paid Mr. Smith $925,000 for such services and covenants. The Company expensed $0 and approximately $50,000 under the Consulting and Non-Competition Agreement for each of the three months ended December 31, 2017 and 2016, respectively.

Shared Services Agreement

The Company has a shared services agreement with Trafelet Brokaw Capital Management, L.P. (“TBCM”), whereby the Company will reimburse TBCM for use of office space and various administrative and support services. The annual cost of the office and

services is approximately $592,000. The agreement will expire in May 2018. The Company expensed approximately $148,000 and $73,000 under the Shared Services Agreement for the three months ended December 31, 2017 and 2016, respectively.

Note ~~11.~~13. Subsequent ~~Event~~Events

On ~~August 1, 2017,~~January 19, 2018, the Company ~~entered into an agreement~~sold certain trailers to ~~sell its corporate office building in Fort Myers, Florida~~a third party for ~~$5,550,000.~~$500,000. The ~~contract provides the buyer a period of time to conduct due diligence,~~Company received $125,000 and the ~~buyer may terminate the contract for any reason during the diligence period.~~remaining portion is to be paid in accordance with a promissory note over three years. The ~~building is shown~~trailers were classified as an Asset Held for Sale in the accompanying ~~balance sheet~~Condensed Consolidated Balance Sheets at ~~June~~December 31, 2017 and September 30, 2017.

On January 25, 2018, the Company sold its breeding herd to a third party for approximately $7,800,000. The breeding herd was classified as an Asset Held for Sale in the accompanying Condensed Consolidated Balance Sheets at December 31, 2017 and September 30, 2017. ~~The agreement provides that~~As part of this transaction, the ~~Company~~purchaser will also lease ~~back a portion of~~grazing and other rights on the ~~office space for five years.~~Alico Ranch from the Company.

Item 2. 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 Condensed Consolidated Financial Statements and related Notes thereto. Additional context can also be found in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016,~~2017 as filed with the Securities and Exchange Commission (“SEC”) on December ~~6, 2016.~~11, 2017.

Cautionary Statement Regarding Forward-Looking Information

We provide forward-looking information in this Quarterly Report on Form 10-Q, particularly in this Management’s Discussion and Analysis and Results of Operations, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report on Form 10-Q 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. Factors which may cause future outcomes to differ materially from those foreseen in forward-looking statements include, but are not limited to: changes in laws, regulation and rules; weather conditions that affect production, transportation, storage, demand, import and export of fresh product and their by-products, increased pressure from diseases including citrus greening and citrus canker, as well as insects and other pests; disruption of water supplies or changes in water allocations; pricing and supply of raw materials and products; market responses to industry volume pressures; pricing and supply of energy; changes in interest rates; availability of financing for land development activities and other growth opportunities; onetime events; acquisitions and divestitures including our ability to achieve the anticipated results of the Orange-Co acquisition and Silver Nip Citrus merger; seasonality; our ability to achieve the anticipated cost savings under the Alico 2.0 Modernization program; labor disruptions; inability to pay debt obligations; inability to engage in certain transactions due to restrictive covenants in debt instruments; government restrictions on land use; changes in agricultural land values; changes in dividends; and market and pricing risks due to concentrated ownership of stock. 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 described in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016~~2017 and our Quarterly Reports on Form 10-Q.

Business Overview

Business Description

Alico, Inc. (the "Company" ~~or "Alico"~~) generates operating revenues primarily from the sale of its citrus products and ~~cattle ranching~~conservation and resources operations. The Company operates as three business segments and substantially all of its operating revenues are generated in the United States. During the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017, Alico generated operating revenues of approximately ~~$51,518,000 and $125,163,000, respectively, income~~$17,533,000, loss from operations of approximately ~~$11,299,000 and $21,381,000, respectively,~~$3,304,000, and net income attributable to common stockholders of approximately ~~$5,479,000 and $9,577,000, respectively.~~$8,746,000. Cash ~~provided by operating activities~~used in operations was approximately ~~$28,900,000~~$9,689,000 during the ~~nine~~three months ended ~~June 30,~~December 31, 2017.

Business Segments

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

The Company operates three segments related to its various land holdings, as follows:

Alico Citrus includes activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets, including activities related to the purchase and resale of fruit, ~~and~~as well as, to value-added services, which include contracting for the harvesting, marketing and hauling of citrus.

Conservation and Environmental Resources includes activities related to cattle grazing, sod, native plant and animal sales, leasing, management and/or conservation of unimproved native pasture land.

Other Operations consists of activities related to rock mining royalties, oil exploration and other insignificant lines of business. Also included are activities related to owning and/or leasing improved farmland. Improved farmland is acreage that has been converted, or is permitted to be converted, from native pasture and which may have various improvements including irrigation, drainage and roads.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company's financial condition and results of operations is based upon its unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires ~~management~~it to make certain estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Alico bases these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally, the Company evaluates the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no significant changes during this reporting period to the policies and disclosures set forth in Part II, Item 7 in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016.~~2017.

See Note 1. "Basis of Presentation" to the condensed consolidated financial statements in Item 1 of Part I of this 10-Q, for a detailed description of recent accounting pronouncements.

Recent Developments

~~As disclosed~~On November 16, 2017, Alico announced the Alico 2.0 Modernization Program (“Alico 2.0”). The program is focused on ~~a Form 8-K filed on January 4, 2017, Clayton G. Wilson resigned as Chief Executive Officer and Remy W. Trafelet, a Director~~aggressively improving the operations of the Company ~~was~~and optimizing its return on capital employed through cost reductions, increased efficiencies and disposition of non-performing assets. The Program began in early 2017 to transform Alico’s three legacy businesses (Alico, Orange Co., and Silver Nip) into a single efficient enterprise, now called Alico Citrus. Every aspect of Alico’s citrus and ranch operations, all back office support activities, and the productivity of all assets were analyzed to determine how to eliminate costs that will not negatively affect citrus production and also improve performance throughout the Company. The changes required to realize those improvements have now been implemented. As part of the program, Alico realigned its management structure and appointed Danny Sutton as the President and ~~Chief Executive Officer effective as~~General Manager of ~~December 31, 2016. Mr. Wilson resigned~~Alico Citrus.

As indicated in Alico’s 2.0, the Company intended to divest itself from and cease operations at the ~~Board of Directors effective February 27, 2017. Mr. Trafelet~~Ranch. On January 25, 2018, the Company sold its breeding herd and leased grazing and other rights on its Ranch to a third party for approximately $7,800,000. The Company will continue to ~~serve as a member of~~own the ~~Company’s Board of Directors. Also effective December 31, 2016, Henry R. Slack~~property and ~~George R. Brokaw were appointed Executive Chairman~~conduct its long term water dispersement program and ~~Executive Vice Chairman, respectively, and each of them will continue to serve as members of the Company’s Board of Directors.~~

wildlife management programs.

Condensed Consolidated Results of Operations

The following discussion provides an analysis of Alico's results of operations and should be read in conjunction with the accompanying Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017 and 2016:


(in thousands)	Three Months Ended June 30,											Nine Months Ended June 30,												Three Months Ended
	Three Months Ended June 30,						Change											Change					December 31,							Change
	2017			2016			$			%		Nine Months Ended June 30,	2017			2016				$			%		2017			2016				$			%
Operating revenues:
Alico Citrus	$	49,993		$	45,639		$	4,354		9.5	%	$	122,537		$	135,916			$	(13,379	)	(9.8	)%	$	17,079		$	16,877			$	202		1.2	%
Conservation and Environmental Resources	1,001			877			124			14.1	%	1,789			2,528				(739		)	(29.2	)%	363			301				62			20.6	%
Other Operations	524			337			187			55.5	%	837			902				(65		)	(7.2	)%	91			267				(176		)	(65.9	)%
Total operating revenues	51,518			46,853			4,665			10.0	%	125,163			139,346				(14,183		)	(10.2	)%	17,533			17,445				88			0.5	%

Gross profit (loss):
Alico Citrus	14,934			13,933			1,001			7.2	%	32,470			34,886				(2,416		)	(6.9	)%	784			2,792				(2,008		)	(71.9	)%
Conservation and Environmental Resources	(450		)	(522		)	72			(13.8	)%	(937		)	(1,012		)		75			(7.4	)%	(234		)	(213		)		(21		)	9.9	%
Other Operations	524			272			252			92.6	%	744			690				54			7.8	%	32			174				(142		)	(81.6	)%
Total gross profit	15,008			13,683			1,325			9.7	%	32,277			34,564				(2,287		)	(6.6	)%	582			2,753				(2,171		)	(78.9	)%

General and administrative expenses	3,709			2,747			962			35.0	%	10,896			9,521				1,375			14.4	%	3,886			3,788				98			2.6	%
Income from operations	11,299			10,936			363			3.3	%	21,381			25,043				(3,662		)	(14.6	)%
Loss from operations																								(3,304		)	(1,035		)		(2,269		)	219.2	%
Total other expense, net	(2,162		)	(2,874		)	712			(24.8	)%	(5,055		)	(7,249		)		2,194			(30.3	)%	(375		)	(1,981		)		1,606			(81.1	)%
Income before income taxes	9,137			8,062			1,075			13.3	%	16,326			17,794				(1,468		)	(8.2	)%
Provision for income taxes	3,665			3,392			273			8.0	%	6,713			7,419				(706		)	(9.5	)%
Net income	5,472			4,670			802			17.2	%	9,613			10,375				(762		)	(7.3	)%
Net loss (income) attributable to noncontrolling interests	7			11			(4		)	(36.4	)%	(36		)	29				(65		)	NM
Net income attributable to Alico, Inc. common stockholders	$	5,479		$	4,681		$	798		17.0	%	$	9,577		$	10,404			$	(827	)	(7.9	)%
Loss before income taxes																								(3,679		)	(3,016		)		(663		)	22.0	%
Income tax benefit																								(12,417		)	(1,273		)		(11,144		)	NM
Net income (loss)																								8,738			(1,743		)		10,481			NM
Net loss attributable to noncontrolling interests																								8			8				—			NM
Net income (loss) attributable to Alico, Inc. common stockholders																								$	8,746		$	(1,735	)		$	10,481		NM

NM - Not Meaningful

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

Alico Citrus

The table below presents key operating measures for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017 and 2016:


(in thousands, except per box and per pound solids data)	(in thousands, except per box and per pound solids data)																			(in thousands, except per box and per pound solids data)
	Three Months Ended June 30,									Nine Months Ended June 30,
	Three Months Ended June 30,				Change									Change					Three Months Ended December 31,
	2017		2016		$			%		Nine Months Ended June 30,	2017		2016			$			Three Months Ended December 31,					%		Change
																				2017		2016			Unit			%
Operating Revenues:
Early and Mid-Season	$	222	$	162	$	60		37.0	%	$	45,917	$	43,772		$	2,145		4.9	%	$	15,417	$	13,669		$	1,748		12.8	%
Valencias	46,728		41,413		5,315			12.8	%	67,045		75,020			(7,975		)	(10.6	)%
Fresh Fruit	1,356		771		585			75.9	%	5,735		5,173			562			10.9	%	1,088		2,621			(1,533		)	(58.5	)%
Purchase and Resale of Fruit	1,004		2,270		(1,266		)	(55.8	)%	2,033		8,188			(6,155		)	(75.2	)%	35		99			(64		)	(64.6	)%
Other	683		1,023		(340		)	(33.2	)%	1,807		3,763			(1,956		)	(52.0	)%	539		488			51			10.5	%
Total	$	49,993	$	45,639	$	4,354		9.5	%	$	122,537	$	135,916		$	(13,379	)	(9.8	)%	$	17,079	$	16,877		$	202		1.2	%
Boxes Harvested:
Early and Mid-Season	—		30		(30		)	(100.0	)%	3,215		3,634			(419		)	(11.5	)%	1,214		1,029			185			18.0	%
Valencias	2,819		2,854		(35		)	(1.2	)%	4,044		5,195			(1,151		)	(22.2	)%
Total Processed	2,819		2,884		(65		)	(2.3	)%	7,259		8,829			(1,570		)	(17.8	)%	1,214		1,029			185			18.0	%
Fresh Fruit	84		52		32			61.5	%	328		401			(73		)	(18.2	)%	73		129			(56		)	(43.4	)%
Total	2,903		2,936		(33		)	(1.1	)%	7,587		9,230			(1,643		)	(17.8	)%	1,287		1,158			129			11.1	%
Pound Solids Produced:
Early and Mid-Season	—		19		(19		)	(100.0	)%	17,950		20,167			(2,217		)	(11.0	)%	6,069		5,440			629			11.6	%
Valencias	17,194		17,338		(144		)	(0.8	)%	24,661		31,237			(6,576		)	(21.1	)%
Total	17,194		17,357		(163		)	(0.9	)%	42,611		51,404			(8,793		)	(17.1	)%	6,069		5,440			629			11.6	%
Pound Solids per Box:
Early and Mid-Season	NM		NM		NM			NM		5.58		5.55			0.03			0.5	%	5.00		5.29			(0.29		)	(5.5	)%
Valencias	6.10		6.07		0.03			0.5	%	6.10		6.01			0.09			1.5	%
Price per Pound Solids:
Early and Mid-Season	NM		NM		NM			NM		$	2.56	$	2.17		$	0.39		18.0	%	$	2.54	$	2.51		$	0.03		1.2	%
Valencias	$	2.72	$	2.39	$	0.33		13.8	%	$	2.72	$	2.40		$	0.32		13.3	%
Price per Box:
Fresh Fruit	$	16.14	$	14.83	$	1.31		8.8	%	$	17.48	$	12.90		$	4.58		35.5	%	$	14.75	$	20.32		$	(5.57	)	(27.4	)%
Operating Expenses:
Cost of Sales	$	24,158	$	20,598	$	3,560		17.3	%	$	62,694	$	65,390		$	(2,696	)	(4.1	)%	$	12,245	$	8,630		$	3,615		41.9	%
Fresh Fruit Packaging	—		—		—			NM		1,142		—			1,142			NM		—		1,182			(1,182		)	NM
Harvesting and Hauling	7,909		8,468		(559		)	(6.6	)%	21,410		25,026			(3,616		)	(14.4	)%	3,497		3,747			(250		)	(6.7	)%
Purchase and Resale of Fruit	905		2,157		(1,252		)	(58.0	)%	1,864		7,815			(5,951		)	(76.1	)%	41		97			(56		)	(57.7	)%
Other	2,087		483		1,604			NM		2,957		2,799			158			5.6	%	512		429			83			19.3	%
Total	$	35,059	$	31,706	$	3,353		10.6	%	$	90,067	$	101,030		$	(10,963	)	(10.9	)%	$	16,295	$	14,085		$	2,210		15.7	%

Gross Profit	$	14,934	$	13,933	$	1,001		7.2	%	$	32,470	$	34,886		$	(2,416	)	(6.9	)%

NM - Not Meaningful

Alico primarily 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 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 citrus on a per box basis. Purchase and resale of fruit relates to the buying of fruit from third parties and generally reselling this fruit to processors. These revenues and costs vary based on the number of boxes bought and sold. Other revenues consist of third-party grove caretaking and the contracting for harvesting and hauling of citrus.

The Company's operating expenses consist primarily of cost of sales and harvesting and hauling costs. Cost of sales represents the cost of maintaining Alico's citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and hauling costs represent the costs of bringing citrus product to processors, and varies based upon the number of boxes produced. Other expenses include the period costs of third-party grove caretaking, and the contracting for harvesting and hauling activities.

~~Alico Citrus’ completed its 2016-17 harvest season during the quarter ended June 30, 2017. Operating~~The increase in operating revenues for the three months ended ~~June 30,~~December 31, 2017, ~~increased~~as compared to the three months ended ~~June 30,~~December 31, 2016, asis primarily due to the timing of when the Early and Mid-Season fruit was harvested. As a result of ~~timing~~Hurricane Irma, the Company commenced the harvesting of its Early and Mid-Season fruit ~~sales, increased~~in late October, as compared to the harvesting commencing

in mid to late November in the previous harvest season. As such, the Company has harvested a greater number of boxes in the three month period ended December 31, 2017 as compared to the same period in 2016. The increase from the greater number of boxes being harvested was partially offset by a reduction in pound solids per box ~~and higher prices. Operating revenues decreased for~~of 0.29. The Company will complete the ~~nine months ended June 30, 2017~~harvesting earlier in the current fiscal year, as compared to the ~~nine months ended June 30, 2016 due to decreased box production. The~~prior year, for its Early and Mid-Season fruit and anticipates an overall decrease in ~~box production~~the number of boxes harvested and revenues generated from Early and Mid-Season fruit for the 2018 harvest as compared to the prior year. Offsetting this increase was ~~partially offset by increased pound solids~~fewer boxes of fresh fruit sold at a lower price per box, ~~and higher prices. The decrease~~as compared to the same period in ~~revenues from Purchase and Resale of Fruit and Other revenues for both~~ the ~~three and nine months ended June 30, 2017 reflects the Company’s decision to reduce third party fruit purchases and discontinue third party harvesting and hauling activities.~~prior year.

The USDA, in its ~~July~~January 12, ~~2017~~2018 Citrus Crop Forecast for the ~~2016-17~~2017-18 harvest season, indicated that the Florida orange crop ~~finished at~~will decrease from approximately 68,700,000 boxes ~~which was down from~~for the 2016-17 crop year to approximately ~~81,700,000~~46,000,000 boxes for the ~~2015-16~~2017-18 crop year, a decrease of approximately ~~15.9%~~33.0%. The ~~Company’s 2016-17 production totaled approximately 7,587,000 boxes representing a decrease~~significant decline is primarily the result of ~~approximately 17.8% from the 2015-16 crop year. These declines are believed to be attributable to various factors, including changes in weather impacting bloom, horticultural practices~~Hurricane Irma and the ~~effects~~related fruit loss experienced as well as the stress on the citrus trees for short-term fruit growth.

We originally estimated our 2018 processed boxes will decrease by approximately 40-45% compared to our fiscal year 2017 processed boxes, on a per acre basis. Based on the harvesting of ~~Citrus Greening. The industry and~~fruit through the first quarter of fiscal 2018, the Company ~~continue to experience premature fruit drop and smaller sized fruit a a result~~estimate of ~~these factors. The industry and Company experienced higher prices per pound solid~~reduced production for fiscal year ~~2017 compared to~~2018 will remain unchanged. We expect that our operating expenses for fiscal year ~~2016 as a result of the statewide decrease in crop production, and the Company benefited from increased pound solids per box in~~2018 will remain consistent with fiscal year ~~2017.~~ 2017 on a per acre basis.

~~Our~~The increase in cost of sales for the three months ended ~~June 30, 2017 increased largely due to timing as a higher proportion of our annual sales occurred in the quarter ended June 30,~~December 31, 2017 compared to three months ended December 31, 2016 primarily relates to the ~~quarter ended June 30, 2016. Our cost~~timing of ~~sales~~the harvesting of the Early and Mid-Season fruit as well as costs incurred for clean-up and repairs as a result of Hurricane Irma. As a result of commencing the harvesting of Early and Mid-Season fruit earlier in the season and harvesting a greater percentage of boxes, in relation to estimated total boxes to be harvested for the ~~nine~~full season, in the three months ended June 30, 2017 decreased by approximately $2,700,000 compared to the nine months ended June 30, 2016 despite the challenges of unusual weather and disease; however, the cost of production per pound solid increased 15.6% to $1.41 for the nine months ended June 30,December 31, 2017 as compared to ~~$1.22 in~~ the same period ~~last~~in the prior year, ~~because~~a greater percentage of ~~lower volumes supporting~~costs were allocated to Cost of Sales in the ~~cost base.~~period.

~~Harvesting~~Alico 2.0 explored every aspect of Alico’s citrus and ranch operations, including corporate and operational cost structures, grove costs, purchasing and procurement, non-performing and under-performing assets, professional fees, and human resources efficiency. Under this program, we expect to reduce total expenses per acre from $3,314/acre in fiscal 2016 to $2,164/acre when Alico 2.0 is fully implemented, which is expected to be over the next two years. Overall, we anticipate the program should reduce the Company’s cost to produce a pound solid from $2.14 to $1.56. This efficiency will be achieved through better purchasing, more precise application of selected fertilizers and chemicals, outsourcing work such as harvesting, hauling, ~~costs decreased~~and certain caretaking tasks, and by streamlining grove management. We also will be deploying a more efficient labor model that is consistent and uniform for field staffing and grove operating programs and aligns with the ~~three and nine months ended June 30, 2017 compared to three and nine months ended June 30, 2016 due to a reduction in boxes harvested and the locations~~geographical footprint of the ~~boxes harvested relative~~citrus groves. However, there can be no assurance that we will be able to ~~processing plants in~~achieve the respective periods. Harvesting and hauling costs of $2.72 per box and $2.82 per box for the three and nine months ended June 30, 2017, respectively, are approximately $0.16 less and $0.11 greater than the three and nine months ended June 30, 2016. The decrease in purchase and resale of fruit for the three and nine months ended June 30, 2017 compared to the same periods in fiscal year 2016 relates to decreased purchase and resale activity.

The Company owns and operated two citrus nurseries, one in Gainesville, Florida and the other in Arcadia, Florida. Effective April 28, 2017, the Company commenced a phase out of the Gainesville nursery operations and began consolidation of nursery operations at its Arcadia location. The Company recognized approximately $1,200,000 of transition and inventory spoilage expenses which are primarily responsible for the increase in other expenses for the three months ended June 30, 2017. Other citrus expenses decreased for the nine months ended June 30, 2017 due to the elimination of contract harvesting and hauling activity, partially offset by the nursery transition expenses.

anticipated cost savings under Alico 2.0.

Conservation and Environmental Resources

The table below presents key operating measures for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017 and 2016:

(in thousands, except per pound data)
Three Months Ended June 30, Change Nine Months Ended June 30, Change
2017 2016 $ % 2017 2016 $ %
Revenue From:

Sale of Calves $ 381
$ 149
$ 232
155.7 % $ 401
$ 1,353
$ (952 ) (70.4 )%
Sale of Culls 601
526
75
14.3 % 625
526
99
18.8 %
Land Leasing 19
202
(183 ) (90.6 )% 474
645
(171 ) (26.5 )%
Other —
—
—
NM
289
4
285
NM
Total $ 1,001
$ 877
$ 124
14.1 % $ 1,789
$ 2,528
$ (739 ) (29.2 )%
Pounds Sold:

Calves 225
93
132
141.9 % 241
810
(569 ) (70.2 )%
Culls 919
714
205
28.7 % 964
714
250
35.0 %
Price Per Pound:

Calves $ 1.69
$ 1.60
$ 0.09
5.6 % $ 1.66
$ 1.67
$ (0.01 ) (0.6 )%
Culls $ 0.65
$ 0.74
$ (0.09 ) (12.2 )% $ 0.65
$ 0.74
$ (0.09 ) (12.2 )%
Operating Expenses:

Cost of Calves Sold $ 416
$ 149
$ 267
179.2 % $ 440
$ 1,021
$ (581 ) (56.9 )%
Cost of Culls Sold 543
299
244
81.6 % 572
299
273
91.3 %
Land Leasing Expenses 119
20
99
NM
208
120
88
73.3 %
Water Conservation 373
931
(558 ) (59.9 )% 1,475
2,100
(625 ) (29.8 )%
Other —
—
—
NM
31
—
31
NM
Total $ 1,451
$ 1,399
$ 52
3.7 % $ 2,726
$ 3,540
$ (814 ) (23.0 )%

Gross loss $ (450 ) $ (522 ) $ 72
(13.8 )% $ (937 ) $ (1,012 ) $ 75
(7.4 )%



(in thousands, except per pound data)
	Three Months Ended December 31,				Change
	2017		2016		$			%
Revenue From:
Sale of Calves	$	57	$	20	$	37		NM
Land Leasing	247		230		17			7.4	%
Other	59		51		8			15.7	%
Total	$	363	$	301	$	62		20.6	%
Pounds Sold:
Calves	49		16		33			NM
Price Per Pound:
Calves	$	1.17	$	1.22	$	(0.05	)	(4.1	)%
Operating Expenses:
Cost of Calves Sold	$	69	$	24	$	45		NM
Land Leasing Expenses	133		32		101			NM
Water Conservation	395		458		(63		)	(13.7	)%
Total	$	597	$	514	$	83		16.1	%

NM - Not Meaningful

Ranch

The increase in revenues from the sale of calves for the three ~~months~~month ended ~~June 30,~~December 31, 2017, as compared to the three months ended ~~June 30,~~December 31, 2016, is primarily due to ~~additional pounds sold along with increased calve prices. The additional cull pounds sold resulted from the implementation of a stocker cattle program with the initial stocker sales occurring~~an increase in the ~~three months ended June 30, 2017. The~~number of calves sold, partially offset by a decrease in ~~revenues for the nine months ended June 30, 2017 as compared to the nine months ended June 30, 2016 is due to timing, as~~price per pound sold.

In January 2018, the Company ~~held an additional 1,000 calves in inventory at September 30, 2015, which have historically been~~ sold the breeding herd and leased the ranch to market in the fourth quarter of the fiscal year but were instead sold in the first quarter of fiscal year 2016. Cost of cattle sales increased for the three months ended June 30, 2017 in relation to increased sales. Conversely, cost of cattle sales decreased for the nine months ended June 30, 2017 in relation to decreased sales.a third party operator. The Company ~~recognized other revenues of $289,000 for~~will continue to own the ~~nine months ended June 30, 2017, primarily from palm tree sales.~~property and conduct its long term water dispersement program and wildlife management programs.

Conservation

In December 2012, the ~~South Florida Water Management District ("SFWMD")~~SFWMD issued a solicitation request for projects to be considered for the Northern Everglades Payment for Environmental Services Program. In March 2013, the Company submitted its response proposing a dispersed water management project on a portion of its ranch land.

On December 11, 2014, the SFWMD approved a contract with the Company. The contract term is eleven years and allows up to one year for implementation (design, permitting, construction and construction completion certification) and ten years of operation, whereby the Company will provide water retention services. Payment for these services includes an amount not to exceed $4,000,000 of reimbursement for implementation. In addition, it provides for an annual fixed payment of $12,000,000 for operations and maintenance costs, as long as the project is in compliance with the contract and subject to annual District Board approval of funding. The contract specifies that the District Board has to approve the payments annually and there can be no assurance that it will approve the annual

fixed payments. The Florida budget for the state’s 2017/2018 fiscal year aswas approved and included funding for the Program. ~~Permitting is currently underway with construction to follow immediately upon receipt of permits. The Company has not recognized any revenue to date from the contract.~~ Operating expenses were approximately ~~$373,000~~$395,000 and ~~$931,000~~$458,000 for the three months ended ~~June 30, 2017 and 2016, respectively, and approximately $1,475,000 and $2,100,000 for the nine months ended June 30,~~December 31, 2017 and 2016, respectively.

~~Other Operations~~

Other Operations revenues and gross profit for the three and nine months ended June 30, 2017 and the three and nine months ended June 30, 2016 were immaterial to the Condensed Consolidated Statements of Operations.

General and Administrative

General and administrative expenses for the three months ended ~~June 30,~~December 31, 2017 totaled approximately ~~$3,709,000~~$3,886,000 compared to approximately ~~$2,747,000~~$3,788,000 for the three months ended ~~June 30,~~December 31, 2016. The ~~three month~~ increase ~~of $962,000 is primarily attributable to expenses related to employment agreements of new executives, including increases~~ in ~~stock compensation expense and severance costs related to personnel changes in citrus operations offset by a decrease in third party consulting expenses.~~

~~General~~general and administrative expenses for the ~~nine~~three months ended ~~June 30,~~December 31, 2017, ~~totaled approximately $10,896,000~~as compared to ~~approximately $9,521,000 for~~ the ~~nine months ended June 30, 2016. The nine month~~same period in 2016, was the result of an increase of ~~$1,375,000 is~~the following:

separation and consulting agreement expenses of approximately $388,000

an accrual for paid time off of approximately $120,000, and

audit and tax fees of approximately $100,000.

These increases were primarily ~~attributable to expenses related to employment agreements of new executives, including increases in stock compensation expense and severance costs related to personnel changes in citrus operations~~ offset by ~~reduced transaction and litigation related professional fees.~~expenses incurred in in the first quarter of December 2016 relating to one-time consulting expenses incurred.

Other ~~Expense,~~(Expense) Income, net

Other expense, net for the three months ended ~~June 30,~~December 31, 2017 and 2016 was approximately $375,000 and approximately$1,981,000, respectively. The decrease in the expense is ~~approximately $712,000 less than~~primarily due to the ~~same period of the prior year due primarily to~~Company recording a ~~reduction in interest expense of approximately $247,000 on reduced debt outstanding and an increase in~~ gain on ~~sale of real estate of approximately $441,000, due primarily to an increase in recognition of deferred gain on sale of asset.~~

Other expense, net for the nine months ended June 30, 2017 is approximately $2,194,000 less than the same period of the prior year due primarily to a reduction in interest expense of approximately $524,000 on reduced debt outstanding and an increase in gain on sale of real estate of approximately $1,371,000, due primarily to the sale of ~~49 acres~~its office building in Fort Myers, Florida, of ~~land and facilities in Hendry County, Florida, in February 2017.~~approximately $1,800,000. As part of the sale, the Company has entered into a lease arrangement with the buyer for a portion of the office space.

~~Provision~~Benefit for Income Taxes

The ~~provision~~benefit for income tax was approximately ~~$3,665,000~~$12,417,000 and ~~$3,392,000~~$1,273,000 for the three months ended ~~June 30, 2017 and 2016, respectively, and $6,713,000 and $7,419,000 for the nine months ended June 30,~~December 31, 2017 and 2016, respectively. The ~~Company’s effective income~~increase primarily resulted from approximately $11,300,000 in non-cash tax ~~rates were 41.1% and 41.7% for~~benefit recorded to remeasure the ~~nine months ended June 30, 2017 and 2016, respectively.~~Company's net deferred tax liabilities to the 21% corporate tax rate that was enacted December 22, 2017.

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 ~~our~~Alico's fiscal year ~~generally~~ produce the majority of ~~our~~the Company's annual ~~revenue, and working~~revenue. Working capital requirements are typically greater in the first and fourth quarters of the fiscal year, coinciding with harvesting cycles. Due to Hurricane Irma, in the first quarter of fiscal 2018 Alico produced a greater percentage of boxes harvested, as compared to the estimated totals for the full harvest season, then in past years. As a result, the working capital requirements may vary from the typical trends we have historically experienced in the current year. ~~The results~~Because of the ~~reported periods herein~~seasonality of the business, results for any quarter are not necessarily indicative of the results that may be achieved for ~~future interim periods or~~ the ~~entire~~full fiscal year.

Liquidity and Capital Resources

A comparative balance sheet summary is presented in the following table:


(in thousands)	June 30, 2017		September 30, 2016		Change			December 31,		September 30,
								2017		2017		Change
Cash and cash equivalents	$	9,944	$	6,625	$	3,319		$	948	$	3,395	$	(2,447	)
Total current assets	$	67,202	$	71,871	$	(4,669	)	$	66,283	$	66,489	$	(206	)
Total current liabilities	$	13,085	$	18,678	$	(5,593	)	$	12,292	$	15,983	$	(3,691	)
Working capital	$	54,117	$	53,193	$	924		$	53,991	$	50,506	$	3,485
Total assets	$	447,221	$	455,445	$	(8,224	)	$	417,962	$	419,182	$	(1,220	)
Principal amount of term loans and line of credit	$	189,158	$	202,219	$	(13,061	)
Principal amount of term loans and lines of credit								$	192,481	$	186,476	$	6,005
Current ratio	5.14 to 1		3.85 to 1					5.39 to 1		4.16 to 1

Management believes that a combination of cash-on-hand, cash generated from operations, assets sales and availability under the Company's lines of credit will provide sufficient liquidity to service the principal and interest payments on its indebtedness and will satisfy working capital requirements and capital expenditures for at least the next twelve months and over the long term. Alico has a $70,000,000 working capital line of credit, of which approximately ~~$59,700,000~~$52,600,000 is available for general use as of ~~June 30,~~December 31, 2017, and a $25,000,000 revolving line of credit, all of which is available for general use as of ~~June 30,~~December 31, 2017 (see Note 4.5. “Long-Term Debt and Lines of Credit" to the accompanying Condensed Consolidated Financial Statements). If the Company pursues significant growth opportunities in the future, it could have a material adverse impact on its cash balances and ~~the Company~~ may need to finance such activities by drawing down monies under its lines of credit or by obtaining additional debt or equity financing. There can be no assurance that additional financing will be available to the Company when needed or, if available, that it can be obtained on commercially reasonable terms. Any inability to obtain additional financing could impact Alico's ability to pursue different growth opportunities.

Our level of debt could have important consequences on our business, including, but not limited to, increasing our vulnerability to general adverse economic and industry conditions, limiting the availability of our cash flow to fund future investments, capital expenditures, working capital, business activities and other general corporate requirements and limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

Net Cash ~~Provided by~~Used In Operating Activities

The following table details the items contributing to Net Cash ~~Provided by~~Used In Operating Activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and 2016:


(in thousands)	Nine Months Ended June 30,									Three Months Ended December 31,
	2017			2016			Change			2017			2016			Change
Net income	$	9,613		$	10,375		$	(762	)
Gain on sale of sugarcane land	(422		)	(618		)	196
Net income (loss)										$	8,738		$	(1,743	)	$	10,481
Deferred gain on sale of sugarcane land										(141		)	(300		)	159
Depreciation, depletion and amortization	11,529			12,088			(559		)	3,490			3,916			(426		)
Deferred income taxes	4,437			7,288			(2,851		)
(Gain) loss on sale of property and equipment	(1,338		)	626			(1,964		)
Deferred income tax benefit										(12,417		)	(1,273		)	(11,144		)
Gain on sale of property and equipment										(1,596		)	(205		)	(1,391		)
Non-cash interest expense on deferred gain on sugarcane land	1,060			1,051			9			344			356			(12		)
Stock-based compensation expense	1,230			635			595			423			440			(17		)
Other	145			473			(328		)	(44		)	125			(169		)
Change in working capital	2,646			2,267			379			(8,486		)	(18,753		)	10,267
Net cash provided by operating activities	$	28,900		$	34,185		$	(5,285	)
Net cash used in operating activities										$	(9,689	)	$	(17,437	)	$	7,748

The ~~factors contributing to the decrease~~increase in net ~~income~~cash used in operating activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017, ~~versus~~as compared to the same period in 2016, was due to a non-cash decrease in deferred tax liabilities, primarily as result of ~~the prior year, are discussed in “Condensed Consolidated Results of Operations.”~~new tax legislation which went into effect on December 22, 2017.

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 its citrus crops are ~~harvested and delivered to customers.~~

harvested.

Net Cash ~~Used In~~Provided By (Used In) Investing Activities

The following table details the items contributing to Net Cash ~~Used in~~Provided By (Used In) Investing Activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and 2016:


(in thousands)	Nine Months Ended June 30,									Three Months Ended December 31,
	2017			2016			Change			2017			2016			Change
Capital expenditures:
Citrus nursery	$	—		$	(208	)	$	208
Citrus tree development	(6,789		)	(4,210		)	(2,579		)	$	(2,628	)	$	(1,113	)	$	(1,515	)
Breeding herd purchases	(287		)	(826		)	539			(317		)	(91		)	(226		)
Rolling stock, equipment and other	(4,354		)	(3,871		)	(483		)
Equipment and other										(616		)	(1,070		)	454
Other	(20		)	—			(20		)	—			(83		)	83
Total	(11,450		)	(9,115		)	(2,335		)	(3,561		)	(2,357		)	(1,204		)

Proceeds from sale of property and equipment	3,016			—			3,016			5,300			—			5,300
Proceeds from sale of assets										—			432			(432		)
Other	155			164			(9		)	—			115			(115		)
Net cash used in investing activities	$	(8,279	)	$	(8,951	)	$	672
Net cash provided by (used in) investing activities										$	1,739		$	(1,810	)	$	3,549

The ~~decrease~~increase in net cash ~~used in~~provided by (used in) investing activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017, as compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2016, was primarily due to proceeds received from the sale of ~~assets~~Alico's corporate office building in ~~the nine months ended June 30, 2017,~~Fort Myers, Florida, for $5,300,000. This increase was partially offset by ~~increased tree development costs.~~greater capital expenditures in the three months ended December 31, 2017, as compared to the same period in the prior year.

Net Cash ~~Used in~~Provided By Financing Activities

The following table details the items contributing to Net Cash ~~Used in~~Provided by Financing Activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and 2016:


(in thousands)	Nine Months Ended June 30,									Three Months Ended December 31,
	2017			2016			Change			2017			2016			Change
Proceeds from term loans	$	—		$	2,500		$	(2,500	)
Principal payments on revolving lines of credit	(70,770		)	(53,882		)	(16,888		)
Repayments on revolving lines of credit										$	(10,608	)	$	(5,000	)	$	(5,608	)
Borrowings on revolving lines of credit	65,770			53,882			11,888			17,731			21,945			(4,214		)
Principal payments on term loans	(8,061		)	(8,080		)	19			(1,118		)	(2,699		)	1,581
Contingent consideration paid	—			(7,500		)	7,500
Treasury stock purchases	(2,174		)	(3,141		)	967
Dividends paid	(1,496		)	(1,497		)	1			(494		)	(498		)	4
Capital lease obligation payments	(571		)	—			(571		)	(8		)	—			(8		)
Net cash used in financing activities	$	(17,302	)	$	(17,718	)	$	416
Net cash provided by financing activities										$	5,503		$	13,748		$	(8,245	)

The decrease in net cash ~~used~~provided by financing activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2017, as compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2016, was primarily due to ~~a non-recurring contingent consideration payment in~~increased repayments on the ~~nine months ended June 30, 2016~~revolving line of credit and ~~decreased treasury stock purchases in~~reduced borrowings on the ~~nine months ended June 30, 2017 offset by an increase in net debt repayments in the nine months ended June 30, 2017.~~revolving lines of credit.

Alico ~~paid,~~drew, on a net basis, ~~$5,000,000 and $0~~$7,123,000 on its revolving lines of credit, primarily to fund working capital requirements and investing activities for the ~~nine~~three months ended ~~June 30, 2017 and 2016.~~December 31, 2017.

The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on the Company’s behalf. As of ~~June 30,~~December 31, 2017, there was approximately $10,300,000 in outstanding letters of credit which correspondingly reduced Alico's availability under the line of credit.

~~On December 1, 2015 and June 1, 2016,~~As a result of Hurricane Irma, the Company ~~paid $3,750,000 of additional consideration~~experienced fruit loss during September 2017. As discussed in the Alico's Annual Report on Form 10-K for the fiscal year ended September 30, 2017, the Company anticipates revenue and cash flow will be negatively impacted. The Company originally estimated a 40-45% reduction in production as compared to the prior season completed June 2017. Based on the ~~Orange-Co acquisition, as contemplated~~harvesting of fruit through the first quarter of fiscal 2018, the Company still estimates production will be reduced by the Orange-Co Purchase Agreement. Alico's $3,750,000 irrevocable letter of credit securing the final payment of the additional consideration was terminated following the final cash consideration payment.

40-45%.

Purchase Commitments

The Company ~~through its wholly owned subsidiary Alico Fruit Company, previously entered~~enters into contracts for the purchase of citrus ~~fruit~~trees during the normal course of its business. ~~These obligations were typically covered by sales agreements. Alico Fruit~~As of December 31, 2017, the Company ~~is no longer engaged in contracted purchase and resale of fruit, and there were no obligations~~had approximately $1,072,000 relating to outstanding ~~at June 30, 2017.~~

~~The Company enters into fruit marketing agreements to purchase fruit from certain third party growers in connection with providing caretaking services to~~commitments for these ~~growers. These obligations are typically covered by sales agreements.~~purchases, which will be paid upon delivery.

Contractual Obligations and Off Balance Sheet Arrangements

There have been no material changes during this reporting period to the disclosures set forth in Part II, Item 7 in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016.~~2017.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

There have been no material changes during this reporting period in the disclosures set forth in Part II, Item 7A in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016,~~2017, as filed with the SEC on December ~~6, 2016.~~11, 2017.

Item 4. Controls and Procedures.


(a)	Evaluation of Disclosure Controls and Procedures.

Alico's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the disclosure controls and procedures as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, Alico's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective.


(b)	Changes in Internal Control over Financial Reporting.

During the ~~third~~first fiscal quarter ended ~~June 30,~~December 31, 2017 there were no changes in Alico's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal ~~Proceedings~~Proceedings.

From time to time, Alico may be involved in litigation relating to claims arising out of its operations in the normal course of business. There are no current legal proceedings to which the Company is a party or of which any of its property is subject that it believes will have a material adverse effect on its financial condition, results of operations or cash flows.

Item 1A. Risk ~~Factors~~Factors.

There have been no material changes in the risk factors set forth in Part 1, Item 1A, “Risk Factors” in Alico's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2016,~~2017, as filed with the SEC on December ~~6, 2016.~~11, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of ~~Proceeds~~Proceeds.

There were no sales of unregistered equity securities during the period.

In fiscal year 2017, the Board of Directors authorized the repurchase of up to $7,000,000 of the Company’s common stock in two separate authorizations (the "2017 Authorization"). In March 2017, our Board of Directors authorized the repurchase of up to $5,000,000 of the Company’s common stock beginning March 9, 2017 and continuing through March 9, ~~2019 (the “2017 Authorization”).~~2019. In May 2017, our Board of Directors authorized the repurchase of up to an additional $2,000,000 of the Company’s common stock beginning May 24, 2017 and continuing through May 24, 2019. The stock repurchases ~~will be~~ made ~~from time to time by the Company in the~~under this repurchase were made through open market or in privately negotiated transactions. The Company adopted a Rule 10b5-1 share repurchase plan under the Securities Exchange Act of 1934 (the “Plan”). The Plan allows the Company to repurchase its sharestransactions at times ~~when it otherwise might be prevented from doing so under insider trading laws or because~~and in such amounts as the Company’s broker determined subject to the provisions of ~~self-imposed trading blackout periods.~~ SEC Rule 10b-18.

For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2017, the Company ~~purchased 51,121~~did not purchase any shares in accordance with the 2017 Authorization and ~~75,623~~has 477,500 shares ~~respectively, at a cost of approximately $1,534,000 and $2,174,000, respectively, under~~available to purchase in accordance with the 2017 Authorization.

Item 3. Defaults Upon Senior ~~Securities~~Securities.

None.

Item 4. Mine Safety ~~Disclosures~~Disclosure.

Not Applicable.

Item 5. Other ~~Information~~Information.

None.

Item 6. Exhibits.



Exhibit Number		Exhibit Index
3.1		Restated Certificate of Incorporation, Dated February 17, 1972 (incorporated by reference to ~~Alico’s Registration Statement~~Exhibit 3.1 of the Company's Annual Report on Form ~~S-1 dated February 24, 1972, Registration No. 2-43156)~~10-K filed with the Commission on December 11, 2017)
3.2		Certificate of Amendment to Certificate of Incorporation, Dated January 14, 1974 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.3		Amendment to Articles of Incorporation, Dated January 14, 1987 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.4		Amendment to Articles of Incorporation, Dated December 27, 1988 (incorporated by reference to Alico’s Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3.5		By-Laws of Alico, Inc., amended and restated ~~(incorporated~~(Incorporated by reference to Exhibit 3.1 of the Company’s current report on Form 8-K, filed with the Commission on January 25, 2013)
~~10.1~~	*	Offer of Employment Letter dated June 16, 2017 between Richard Rallo and Alico, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K, filed with the Commission on August 7, 2017)
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Rule 13a-14(a) certification
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101
101.INS	**	XBRL Instance Document
101.SCH	**	XBRL Taxonomy Extension Schema Document
101.CAL	**	XBRL Taxonomy Calculation Linkbase Document
101.DEF	**	XBRL Taxonomy Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document



*	~~Denotes a management contract or compensatory plan, contract or arrangement.~~
*	In accordance with Rule 406T of Regulation S-T, these XBRL (eXtensible Business Reporting Language) documents are furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability under these sections.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	ALICO, INC. (Registrant)

~~August 7, 2017~~February 6, 2018	By:	/s/ Remy W. Trafelet
		Remy W. Trafelet
		President and Chief Executive Officer

~~August 7, 2017~~February 6, 2018	By:	/s/ John E. Kiernan
		John E. Kiernan
		~~Senior~~Executive Vice President and Chief Financial Officer



Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements	1
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	27
Part II - OTHER INFORMATION
Item 1. Legal Proceedings	28
Item 1A. Risk Factors	28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3. Defaults Upon Senior Securities	28
Item 4. Mine Safety Disclosures	28
Item 5. Other Information	28
Item 6. Exhibits	29
Signatures	30