UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number: 0-261

Alico, Inc.

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

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. ☑R Yes ☐£ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☑ Yes☐R Yes£ 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. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐£ Yes ☑R No

There were 7,370,8238,277,513 shares of common stock, par value $1.00 per share, outstanding as of January 30,May 7, 2015.

ALICO, INC.

INDEX TO FORM 10-Q

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands, except per share amounts)

See accompanying notes to condensed consolidated financial statements (unaudited).

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands, except share and per share amounts)

See accompanying notes to condensed consolidated financial statements (unaudited).

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)

See accompanying notes to condensed consolidated financial statements (unaudited).

ALICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

Alico Inc. (“Alico”), and its wholly owned subsidiaries (collectively, the “Company”), are an agribusiness and land management company. The Company wholly owns approximately 113,400121,000 acres of land in eighttwelve Florida Countiescounties (Alachua, Charlotte, Collier, DeSoto,Desoto, Glades, Hardee, Hendry, Highlands, Lee, Martin, Osceola and Polk). and includes approximately 90,000 acres of mineral rights. In addition to principal lines of business in citrus groves, improved farmland, leasing, cattle ranching and conservation, and related support operations, we also receive royalties from rock mining and oil production.

Common Control Acquisition between the Company and 734 Citrus Holdings, LLC

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, Chief Executive Officer of the Company, 5% and an entity controlled by Mr. Clay Wilson owned, 20.11%.

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s common stock. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734 Agriculture is able to elect all of the Directors and, consequently, control Alico. 

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 surviving the Merger as a wholly owned subsidiary of the Company. Pursuant to the Merger Agreement, at closing, the Company issued 923,257 shares (the “Stock Issuance”) of the Company’s common stock, par value $1.00 per share (the “Common Stock”), 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 $6,952,000. The Company acquired assets at net book value of $65,739,000 and total net assets of $18,509,000. The shares issued were recorded at the carrying amount of the net assets transferred. The holders of membership interests in Silver Nip Citrus will also receive additional Company shares based on the value of the proceeds received by the Company from the sale of citrus fruit harvested on Silver Nip Citrus’ real property following the conclusion of the 2014-2015 citrus harvest season.

The Company expensed $811,000 in professional and legal fees in connection with the Merger in the six months ended March 31, 2015.

Basis of Presentation

Because the Company and Silver Nip Citrus were under common control, we are required under generally accepted accounting principles in the United States (“GAAP”) to account for this Common Control Acquisition in a manner similar to the pooling of interest method of accounting. Under this method of accounting, our balance sheet reflects Silver Nip Citrus’ historical carryover basis in the assets and liabilities instead of reflecting the fair market value of the assets and liabilities. We have also retrospectively recast our financial statements to combine the operating results of the Company and Silver Nip Citrus from the date common control began, November 19, 2013.

The accompanying (a) condensed combined consolidated balance sheet as of September 30, 2014, which has been derived from audited financial statements, and (b) unaudited condensed combined consolidated interim financial statements (the “Financial Statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Statements include all adjustments, consisting of normal and recurring adjustments, which in the opinion of management were necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results of the interim period are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

Due to the fact Silver Nip Citrus’ fiscal year end is June 30, the Company’s condensed combined consolidated financial condition as of March 31, 2015 includes the financial condition of Silver Nip Citrus as of December 31, 2014, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2015 includes the Silver Nip Citrus results of operations for the six months ended December 31, 2014. The Company’s combined consolidated financial condition as of March 31, 2014 reflects the financial condition of Silver Nip Citrus as of December 31, 2013, and the Company’s condensed combined consolidated results of operations for the six months ended March 31, 2014 includes Silver Nip Citrus’ results of operations from November 19, 2013 (the initial date of common control) through December 31, 2013.

The Financial Statements have been presented according to the rules and regulations of the Securities and Exchange Commission (“SEC”), instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information, footnotes and disclosures normally included in annual financial statements, prepared in accordance with GAAP, have been condensed or omitted in accordance with those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. The Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2014.

Principles of Consolidation

The Financial Statements include the accounts of Alico, Inc. and its wholly-owned subsidiaries. The Company’s subsidiaries include: Alico Land Development, Inc., Alico-Agri, Ltd., Alico Plant World, LLC, Alico Fruit Company, LLC (formerly Bowen Brothers Fruit Company, LLC”) and, Alico Citrus Nursery, LLC, 734 Citrus LLC and Citree Holdings 1, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

Non-controllingNoncontrolling Interests in Consolidated Affiliate

The condensed combined consolidated financial statements include all assets and liabilities of the less-than-100%-owned affiliate the Company controls, Citree Holdings I, LLC (“Citree”). Accordingly, the Company has recorded non-controllingnoncontrolling interests in the equity of such entity. Citree did not have any income or loss for the quarter ended DecemberMarch 31, 2014,2015, and therefore there is no allocation of income or loss to the non-controllingnoncontrolling interest holders based upon theirthe portion of the subsidiary they own.

Business Combinations

The Company accounts for its business acquisitions under the acquisition method of accounting as indicated in ASC No. 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 non-controllingnoncontrolling interest in the acquiree;acquiree, and establishes the acquisition date as the fair value measurement point. Accordingly, the Company recognizes assets acquired and liabilities assumed in business combinations, including contingent assets and liabilities and non-controllingnoncontrolling interest in the acquiree, based on fair value estimates as of the date of acquisition. In accordance with ASC No. 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 we acquire 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 similar to the pooling of interest method of accounting, whereby the assets and liabilities are recorded at the transferring entity’s historical cost instead of reflecting the fair market value of assets and liabilities.

Reclassifications

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the fiscal year 2015 presentation. These reclassifications had no impact on working capital, net income, stockholders’ equity or cash flows as previously reported.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates based upon future events. The Company periodically evaluates the estimates. The estimates are based on current and expected economic conditions, historical experience and various other specific assumptions that the Company believes to be reasonable.

Seasonality

The Company is primarily engaged in agriculture,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 our working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our planting cycles.year. The results of the reported period herein are not necessarily indicative of the results for any other interim periods or the entire fiscal year.

Note 2. Inventories

A summary of the Company’s inventories consisted of the following at DecemberMarch 31, 20142015 and September 30, 2014:

Note 3. Property, Buildings and Equipment, Net

Property, buildings and equipment consisted of the following at DecemberMarch 31, 20142015 and September 30, 2014:

Land Purchase

Silver Nip Citrus purchased approximately 1,500 acres of citrus groves that included land, trees and fruit inventory as well as irrigation and other equipment on September 4, 2014. The purchase price was approximately $17,600,000 which was funded through cash plus additional financing of $11,000,000 in term debt (see “Note 7. Long -Term Debt” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

Land Sale

Certain Silver Nip Citrus land with a cost of $2,832,159 was classified as held for sale as of September 30, 2014. It was sold during the six month period ended March 31, 2015 resulting in a gain on sale of assets of $2,926,553.

Asset Impairment

The Company recorded an impairment loss of approximately $541,000 during the quarter ended March 31, 2015 on property classified as Assets Held for Sale. The Company entered into a sales contract on February 17, 2015, which triggered the impairment of the property based on the negotiated sales price. The property was closed on April 3, 2015 and the Company received approximately $1,509,000 in net sales proceeds.

Note 4. Orange-Co Acquisition

On December 2, 2014, the Company completed the acquisition of certain citrus and related assets of Orange-Co, LP (“Orange-Co”) pursuant to an Asset Purchase Agreement, which we refer to as the Orange-Co Purchase Agreement, dated as of December 1, 2014 and 51% of the ownership interests of Citree Holdings 1, LLC. The assets Alico purchased include approximately 20,263 acres of citrus groves in DeSoto and Charlotte Counties, Florida, which comprise one of the largest contiguous citrus grove properties in the state of Florida. The total purchase price was approximately $282,032,000$276,673,300, net of $2,060,000 in cash acquired, including: (1) $147,500,000 in initial cash consideration funded from the proceeds of the sugarcane disposition (see “Note 5. Assets held for sale” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)) and new term debt, subject to adjustment as set forth in the Orange-Co Purchase Agreement;debt; (2) up to $7,500,000 in additional cash consideration to be released from escrow in equal parts, subject to certain limitations, on December 1, 2015 and June 1, 2016; (3) the refinancing of Orange-Co’s outstanding debt including approximately $91,200,000$91,371,000 in term debt and a working capital facility of approximately $27,800,000$27,775,000 and (4) the assumption of certain other liabilities.liabilities totaling $4,587,000. On December 1, 2014, Alico deposited an irrevocable standby letter of credit issued by Rabo Agrifinance, Inc., or Rabo, in the aggregate amount of $7,500,000 into an escrow account to fund the additional cash consideration.

The Company acquired Orange-Co to transform our citrus business and meaningfully enhance the Company’s position in the citrus industry. The Company has included the financial results of Orange-Co in the consolidated financial statements from the date of acquisition in the Citrus Groves operating segment and includessegment. These results include approximately $7,000,000$37,625,000 in revenue and $1,600,000$7,786,000 in income from operations.gross profit.

This acquisition was accounted for under the acquisition method of accounting. Accordingly, the Company recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The excess of the purchase price over the fair value of assets acquired, net of liabilities assumed, and noncontrolling interests is recognized as goodwill. All goodwill recognized will be deductible for income tax purposes. The initial accounting for the business combination is not complete and adjustments to provisional amounts, or recognition of additional assets acquired or liabilities assumed, may occur as more detailed analyses are completed and additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The Company expensed $2,579,000$3,037,000 in professional and legal fees in connection with the Orange-Co acquisition.

acquisition, in the six months ended March 31, 2015.

The following table summarizes the consideration paid for the acquired assets and the preliminary acquisition accounting for the fair values of the assets recognized and liabilities assumed in the Condensed Combined Consolidated Balance Sheets at the acquisition date. These balances are subject to change when final asset valuations are obtained and the potential for liabilities has been evaluated.

The fair value of the consideration paid for the acquisition of the net assets was as follows:

The unaudited pro-forma information below for the three and six months ended DecemberMarch 31, 20142015 and 20132014 gives effect to this acquisition as if the acquisitions had occurred on October 1, 2013. The pro-forma financial information is not necessarily indicative of the results of operations if the acquisition had been effective as of this date.

Note 5. Assets Held for Sale

Sugarcane land

On November 21, 2014, the Company completed the sale of approximately 36,000 acres of land used for sugarcane production and land leasing in Hendry County, Florida to Global Ag Properties, LLC (“Global Ag Properties”) for $97,913,921 in cash. We had previously leased approximately 30,600 of these acres to United States Sugar Corporation (the “USSC Lease”). The USSC Lease was assigned to Global Ag Properties in conjunction with the land sale.

Net proceeds from the sugarcane land sale of $97,126,000 were deposited with a Qualified Intermediary in anticipation of the Orange-Co asset acquisition in a tax deferred like kind exchange pursuant to Internal Revenue Code Section §1031 (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)).

The sales price is subject to post-closing adjustments over a ten (10)-year period. The Company realized a gain of $42,753,000 on the sale. However, $29,140,000 of the gain has been deferred due to itsthe Company’s continuing involvement in the property pursuant to a post-closing agreement and the potential price adjustments. The deferral represents the Company’s estimate of the maximum exposure to loss as a result of the continuing involvement. A net gain of $13,613,000 was recognized in the financial statements as of and for the quartersix months ended DecemberMarch 31, 2014.

2015.

As a result of the disposition of our sugarcane land, we are no longer involved in sugarcane operations, and, as of November 21, 2014, the Improved Farmland segment was no longer material to our business, however, the sugarcane operation has not been classified as a discontinued operation due to the post-closing adjustments, amongst other involvement, as described above.

Our sugarcane land was classified as assets held for sale as of September 30, 2014.

Note 6. Income Taxes

The Company’s effective tax rates were 39.4%31.0% and 43.7%38% for the threesix months ended DecemberMarch 31, 20142015 and 2013,2014, respectively.

The Company applies a “more likely than not” threshold to the recognition and non-recognitionnonrecognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. The Company had no reserve for uncertain tax positions at DecemberMarch 31, 20142015 and September 30, 2014. The Company recognizes interest and/or penalties related to income tax matters in income tax expense and in income taxes payable.

The Internal Revenue Service (“IRS”) is currently auditing Alico’s tax return for the fiscal year ended September 30, 2013.

Note 7. Long-Term Debt

Outstanding debt under the Company’s various loan agreements is presented in the table below:

Debt as RefinancedRefinancing on December 3, 2014

The Company refinanced its outstanding debt on December 3, 2014 in connection with the Orange-Co acquisition (see “Note 4. Orange-Co Acquisition” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)). The debt facilities include $125,000,000$114,688,000 in fixed rate term loans, $57,500,000$56,781,000 in 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.Rabo Agrifinance, Inc. (“Rabo”).

The term loans and RLOC are secured by approximately 38,700 gross acres of citrus groves and 14,000 gross acres of farmland. The WCLC is secured by current assets and certain other personal property owned by the Company.

The term loans are subject to combined quarterly principal payments of $2,281,250 and mature November 1, 2029. The fixed rate term loans bear interest at 4.15%, and the variable rate term loans bear interest at a rate equal to 90 day LIBOR plus 150 basis points (the “LIBOR spread”). The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and every two years thereafter. Interest on the term loans is payable quarterly.

The Company in addition to mandatory principal payments, may prepay up to $8,750,000 of the fixed rate term loan principal annually without penalty, and any such prepayments shall be applied to reduce subsequent mandatory principal payments. The maximum annual prepayment has been made for the current fiscal year. The variable rate term loans may be prepaid without penalty.

The RLOC bears interest at a floating rate equal to 90 day LIBOR plus 150 basis points payable quarterly. The LIBOR spread is subject to adjustment by the lender on May 1, 2017 and 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. The RLOC is available for funding general corporate needs.

The WCLC is a revolving credit facility and is available for funding working capital and general corporate needs. The interest rate on the WCLC is based on the one month LIBOR plus a spread. The spread is adjusted quarterly based on our 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. Interest on theThe WCLC is payable quarterly and the WCLC outstanding principal is due at maturity date offacility matures November 1, 2016.

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 our debt service coverage ratio for the preceding quarter and can vary from 20 to 30 basis points.

The WCLC agreement provides for Rabo to issue up to $20,000,000 in letters of credit on our behalf. At DecemberMarch 31, 2014,2015, there was $17,300,000$17,498,500 in outstanding letters of credit which correspondingly reduced our availability under the WCLC.line of credit.

The Company capitalized approximately $2,834,000 of debt issuance costs and recognized a loss on extinguishment of debt of approximately $568,000 as a result of the refinancing.$585,000.

The facilities above are subject to various covenants including the following financial covenants (1) minimum debt service coverage ratio of 1.10 to 1.00, (2) tangible net worth of at least $160,000,000 increased annually by 10% of consolidated net income for the preceding year, (3) minimum current ratio of 1.50 to 1.00 (4) debt to total assets ratio not greater than 0.625.625 to 1.00, and, solely in the case of the WCLC, (5) a limit on capital expenditures of $30,000,000 per fiscal year. The Company is in compliance with all covenants at March 31, 2015.

Debt Prior to Refinancing

Prior to the December 3, 2014 refinancing, the Company had a $34,000,000 term loan and a $60,000,000 revolving line of credit (“Old RLOC”) with Rabo.

The term loan required quarterly payments of interest at a floating rate of one month LIBOR plus 225 basis points and quarterly principal payments of $500,000. The term loan was refinanced in connection with the Orange-Co acquisition.

The Old RLOC had an interest rate based on one month LIBOR plus a spread. The spread was determined based upon our debt service coverage ratio for the preceding fiscal year and could vary from 195 to 295 basis points. The rate was LIBOR plus 195 basis points at the date of the refinancing and September 30, 2014. Interest on the Old RLOC was payable quarterly. The Old RLOC was subject to an unused commitment fee of 20 basis points on the annual average unused availability. There was no balance outstanding at the time of the refinancing or September 30, 2014.

Loan origination fees incurred as a result of entry into the Rabo credit facility loan agreement, including appraisal fees, document stamps, legal fees and lender fees of approximately $1,202,000 were capitalized in fiscal year 2010 and were being amortized over the term of the loan agreement. The unamortized balance of the loan origination fees at the time of December 3, 2014 refinancing was approximately $697,000 of which approximately $379,000$396,000 was expensed as a loss on extinguishment of debt and approximately $318,000$301,000 will be amortized over the applicable terms of the new loans.

At September 30, 2014, the Company was in compliance with the financial debt covenants and terms of the Rabo loan agreement.

Silver Nip Citrus Debt

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

There are two fixed rate term loans with total outstanding balances of $26,970,000 and $27,550,000 at December 31, 2014 and June 30, 2014, respectively. Principal of $290,000 is payable quarterly. Interest accrues at 5.35% and is also payable quarterly. The Company may prepay up to $5,000,000 of principal without penalty. The loan is secured by real estate in Collier, Hardee, Hendry, Highlands, Martin, Osceola and Polk Counties, Florida.

In connection with the purchase of 1,500 acres of citrus grove on September 4, 2014 (see “Note 3. Property, Buildings and Equipment, Net” in the Notes to the Condensed Combined Consolidated Financial Statements (Unaudited)), Silver Nip Citrus has a fixed rate term loan with Prudential with an outstanding balance of $5,500,000 at December 31, 2014 that bears interest at the rate of 3.85%. Principal in the amount of $55,000 is payable quarterly together with accrued interest. The loan is secured by real estate in Charlotte County, Florida.

Silver Nip Citrus also has a fixed rate term loan with Prudential with an outstanding balance of $5,500,000 at December 31, 2014 that bears interest at the rate of 3.45%. The rate is subject to adjustment on September 1, 2019 and every five years thereafter until maturity. Principal of $55,000 is payable quarterly together with accrued interest. The loan is secured by real estate in Charlotte County, Florida.

Silver Nip Citrus has a $6,000,000 revolving line of credit with Prudential. Outstanding balances were $5,736,000 and $3,160,000 at December 31, 2014 and June 30, 2014, respectively. The interest rate on the line is based the three month LIBOR rate plus 275 basis points. Interest is payable semi-annually with outstanding principal due at maturity.

The Silver Nip Citrus facilities are subject to a financial covenant requiring a current ratio of at least 2.00 to 1.00 measured at the end of each fiscal year. The Company was in compliance with all covenants related to the Silver Nip debt at June 30, 2014.

The Silver Nip Citrus facilities are personally guaranteed by George Brokaw, Remy Trafelet and Clayton Wilson.

Debt Maturities

Maturities of the Company’s debt were as follows at DecemberMarch 31, 2014:2015:

Interest costs expensed and capitalized to property, buildings and equipment were as follows:

Note 8. Disclosures about reportable segments

The Company manages its land based upon its primary usage and reviews its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, it operates an Agricultural Supply Chain Management business that is not tied directly to its land holdings and Other Operations that include a citrus nursery and leasing mines and oil extraction rights to third parties.  The Company presents its financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  A description of the Company’s business segments is as follows:

Intersegment sales and transfers are accounted by the Company as if the sales or transfers were to third parties at current market prices. 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 from operations before general and administrative costs, interest expense and income taxes not including nonrecurring gains and losses.  

The accounting policies of the segments are the same as those described in Note 2,1, Description of Business and Basis of Presentation and Summary of Significant Accounting Policies.Presentation. Total revenues represent sales to unaffiliated customers, as reported in the Company’s Condensed Combined Consolidated StatementsStatement of Operations.Comprehensive Income. All intercompany transactions have been eliminated.

Information by business segment is as follows:

Note 9. Stockholders’ Equity

Effective November 1, 2008,January 27, 2015, the Company’s Board of Directors authorizedadopted the repurchaseStock Incentive Plan of 2015 (the “2015 Plan”) which provides for up to 350,000an additional 1,250,000 shares available for issuance to provide a long-term incentive plan for officers, employees, directors and/or consultants to directly link incentives to shareholders value. The 2015 Plan was approved by shareholders on February 25, 2015.

The adoption of the Company’s common stock through November2015 Plan superseded the 2013 for the purpose of funding awards under its 2008 Incentive Equity Plan. Plan (“2013 Plan”), which had been in place since April 2013.

There are no awards outstanding under the 2015 Plan or the 2013 Plan at March 31, 2015 or September 30, 2014.

In September 2013,March 2015, the Board of Directors authorized the repurchase of up to 105,00020,000 shares of the Company’s common stock beginning in November 2013March 25, 2015 and continuing through April 2018.March 25, 2016. The stock repurchases began in November 2008 and were made on a quarterly basis 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. All repurchases were made on or subsequent to March 25, 2015. The following table illustrates the Company’s treasury stock purchases and issuances for the threesix months ended DecemberMarch 31, 2014:2015:

Stock-based compensation expense recognized in the Condensed Combined Consolidated Statements of Comprehensive Income in general and administrative expenses was $254,000 and $525,000$509,000 for the three and six months ended DecemberMarch 31, 20142015, respectively, and 2013,$204,000 and $705,000 for the three and six months ended March 31, 2014, respectively. Stock-based compensation is recorded for Board of Directors fees paid in treasury stock and the Long Term Incentive Compensation Plan restricted common stock awards.

Note 10. Commitments and Contingencies

On March 11, 2015, a putative shareholder class action lawsuit was filed by Shiva Y. Stein in the Circuit Court of the Twentieth Judicial District in and for Lee County, Florida, against Alico, Inc. (“Alico”), its current and certain former directors, 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip”), 734 Investors, LLC (“734 Investors”), 734 Agriculture, LLC (“734 Agriculture”) and 734 Sub, LLC (“734 Sub”) in connection with the acquisition of Silver Nip by Alico (the “Acquisition”). The complaint alleges that Alico’s directors at the time of the Acquisition, 734 Investors and 734 Agriculture breached fiduciary duties to Alico stockholders in connection with the Acquisition and that Silver Nip and 734 Sub aided and abetted such breaches. The lawsuit seeks, among other things, monetary and equitable relief, costs, fees (including attorneys’ fees) and expenses. We believe that this lawsuit is without merit and intend to contest it vigorously.

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

Note 10.11. Related Party Transactions

Change in Control Transaction

On November 19, 2013, 734 Agriculture, LLC (“734 Agriculture”) and its affiliates, including 734 Investors, LLC (“734 Investors”), completed the previously announced purchase from Alico Holding, LLC, a company wholly owned by Atlantic Blue Group, Inc. (“Atlanticblue”), of 3,725,457 shares of our common stock (the “Share Purchase”).

The common stock acquired by 734 Agriculture and its affiliates, including 734 Investors, representsrepresented approximately 51% of the Company’s outstanding voting securities. On November 15, 2013, 734 Investors amended and restated its LLC operating agreement (the “LLC Agreement”) to admit new members and to designate 734 Agriculture as the managing member, with authority to administer the affairs of 734 Investors, including the voting and disposition of shares of common stock, subject to certain restrictions set forth therein. As a result, upon the consummation of the Share Purchase, 734 Agriculture and its affiliates, including 734 Investors, acquired the voting power to control the election of the Company’s Directors and any other matter requiring the affirmative vote or consent of the Company’s shareholders. Messrs. Remy W. Trafelet and George R. Brokaw are the two controlling persons of 734 Agriculture.

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

Upon the Closing of the Share Purchase, Mr. JD Alexander ceased to be the Company’s CEO pursuant to his previously disclosed resignation. On November 22, 2013, the Board appointed Mr. Wilson to serve as the CEO, effective immediately.

734 Investors and 734 Agriculture

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired all of the approximately 51% of Alico’s common stock then owned by Atlanticblue. 734 Investors now beneficially owns, directly or indirectly, approximately 51% of the outstanding shares of the Company’s common stock and possesses the voting power to control the election of the Company’s Directors and any other matter requiring the affirmative vote or consent of the Company’s shareholders. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734 Investors and 734 Agriculture are able to elect all of the Directors and, consequently, control Alico. Messrs. Brokaw and Trafelet are the two controlling persons of 734 Agriculture.

734 Citrus Holdings, LLC, d/b/a Silver Nip

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

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

The Silver Nip Agreement provides that if neither the Company nor Silver Nip has provided the other with written notice of an intention to terminate the Silver Nip Agreement at least three business days before the month’s end (or any subsequent renewal period), the Silver Nip Agreement will automatically renew for a one-month period. In addition, Silver Nip may terminate the Silver Nip Agreement at any time upon 10 business days’ prior written notice to the Company. As of December 31, 2014 neither the Company nor Silver Nip has provided written notice to terminate the Silver Nip Agreement. The description of the Silver Nip Agreement is qualified in its entirety by reference to the complete terms and conditions of the agreement, which is listed as an exhibit to the Company’s Current Report on Form 8-K filed on November 25, 2013. During the three months ended December 31, 2014, the Company has received $37,500 under this agreement, respectively. During the three months ended December 31, 2014 and 2013, Alico Fruit Company hauled 169,074 and zero boxes of fruit for Silver Nip Citrus for $64,734 and $0, respectively. The hauling was performed at customary terms and at rates that are extended to outside third parties.

Silver Nip Merger Agreement

On December 2, 2014,Effective February 28, 2015, the Company entered intocompleted 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 which consist ofwas held by 734 Agriculture, 74.89%, Mr. Clay Wilson, Chief Executive Officer of the Company, 5% and an entity controlled by Mr. Wilson. TheClay Wilson owned, 20.11%.

On November 19, 2013, 734 Agriculture and its affiliates, including 734 Investors, acquired approximately 51% of the Company’s common stock. 734 Agriculture is the sole managing member of 734 Investors. By virtue of their ownership percentage, 734 Agriculture is able to elect all of the Directors and, consequently, control Alico. 

734 Agriculture has control over both Silver Nip Citrus and the Company and therefore the Merger Agreement provides that, uponwas treated as a common control acquisition.

At closing of the terms and subject to the conditions set forth therein,Merger, Merger Sub will mergemerged with and into Silver Nip Citrus, (the “Merger”), with Silver Nip Citrus surviving the Merger as a wholly owned subsidiary of the Company. SubjectPursuant to the terms and conditions set forth in the Merger Agreement, at closing, the Company will issueissued 923,257 shares (the “Stock Issuance”) of the Company’s common stock, par value $1.00 per share (the “Common Stock”), to the equity holders of membership interests in Silver Nip Citrus as follows (the “Stock Issuance”):

The Company currently estimates thatCitrus. Silver Nip Citrus’sCitrus’ outstanding net indebtedness at the closing of the Merger will bewas approximately $42,600,000$40,278,000 and thatother liabilities totaled $6,952,000. The Company acquired assets at net book value of $65,739,000 and total net assets of $18,509,000. The shares issued were recorded at the carrying amount of the net assets transferred. The holders of membership interest in Silver Nip Citrus will have spent approximately $17,900,000 in relation toalso receive additional Company shares based on the TRB Groves and $250,000 in transaction expenses that are subject tovalue of the adjustment. Based on these estimates,proceeds received by the Company would issue approximately 800,500 sharesfrom the sale of common stock atcitrus fruit harvested on Silver Nip Citrus’ real property following the closingconclusion of the Merger.

734 Agriculture owns 74.89% of the membership interests of Silver Nip Citrus and Messrs. Brokaw and Trafelet serve on the board of directors of Silver Nip Citrus. Mr. Wilson owns 5% of the membership interests of Silver Nip Citrus directly and 20.11% of such membership interests indirectly through Rio Verde Ventures, LLC, an entity controlled by him. Mr. Wilson also manages the day-to-day operations of Silver Nip Citrus and serves as a member of Silver Nip Citrus’s board of directors.2014-2015 citrus harvest season.

The Company has filed an information statement with the SECexpensed $811,000 in accordance with Regulation 14C of the Exchange Actprofessional and legal fees in connection with the approval ofMerger in the Stock Issuance by the written consent of 734 Investors, which owns a majority of Alico’s outstanding common stock. For more information about the Merger and the Stock Issuance, please refer to the information statement.six months ended March 31, 2015.

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 includes 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 will provide 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 will pay Mr. Alexander for such services and covenants $2,000,000 in twenty-four monthly installments. Mr. Alexander also agreed, in a separate side letter with the Company, not to sell or transfer the shares that were awarded pursuant to his Restricted Stock Award Agreement (other than to a family trust) for a period of two years after the Closing. Mr. Alexander also executed a general release in favor of the Company.

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 includes 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 will pay Mr. Smith up to $1,225,000 for such services and covenants.

Note 12. Subsequent Events

Modification of Credit Agreements

The Silver Nip Citrus line of credit with Prudential was paid in full and terminated on April 28, 2015. Rabo has agreed, subject to certain conditions, that the Company may loan Silver Nip Citrus up to $7,000,000 on a revolving basis. These advances would be funded from either cash on hand or draws on the Company’s $70,000,000 Rabo working capital line of credit.

Silver Nip has provided a $7,000,000 limited guaranty and a 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.

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 unaudited condensed combined consolidated financial statements and related notes included elsewhere in this Form 10-Q. Additional context can also be found in our Form 10-K for the fiscal year ended September 30, 2014, as filed with the Securities and Exchange Commission (“SEC”) on December 12, 2014.