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ALICO, INC. - Quarter Report: 2009 December (Form 10-Q)

10-Q
Table of Contents

 
 
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 December 31, 2009
or
     
o   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.)
     
P.O. Box 338, LaBelle, FL   33975
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: 863-675-2966
N/A
(Former name, former address and former fiscal year, if changed since last report.)
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.
þ Yes o 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No
There were 7,370,573 shares of common stock, par value $1.00 per share, outstanding at February 1, 2010.
 
 

 

 


 

Index
Alico, Inc.
Form 10-Q
For the quarter ended December 31, 2009
         
 
       
    3  
 
       
    3  
 
       
    15  
 
       
    22  
 
       
    22  
 
       
    23  
 
       
    23  
 
       
    23  
 
       
    23  
 
       
    23  
 
       
    23  
 
       
    24  
 
       
    24  
 
       
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

 

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Part I. Financial Information
Item 1. Financial Statements
ALICO, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                 
    Three months ended  
    December 31,  
    2009     2008  
Operating revenue
               
Agricultural operations
  $ 13,472     $ 18,088  
Non-agricultural operations
    646       957  
Real estate operations
          1,249  
 
           
Total operating revenue
    14,118       20,294  
 
           
 
               
Operating expenses
               
Agricultural operations
    13,517       17,457  
Non-agricultural operations
    266       257  
Real estate operations
    172       290  
 
           
Total operating expenses
    13,955       18,004  
 
           
 
               
Gross profit
    163       2,290  
Corporate general and administrative
    1,240       3,001  
 
           
Loss from continuing operations
    (1,077 )     (711 )
 
               
Other income (expenses):
               
Profit on sales of bulk real estate, net
          1,546  
Interest and investment (loss) income, net
    (58 )     933  
Interest expense
    (978 )     (2,079 )
Other
    172       11  
 
           
 
               
Total other (expense) income net
    (864 )     411  
 
           
 
               
Loss before income taxes
    (1,941 )     (300 )
Benefit from income taxes
    (571 )     (124 )
 
           
 
               
Net loss
  $ (1,370 )   $ (176 )
 
           
 
               
Weighted-average number of shares outstanding
    7,388       7,401  
 
           
 
               
Weighted-average number of shares outstanding assuming dilution
    7,388       7,401  
 
           
 
               
Per share amounts- net (loss) income
               
Basic
  $ (0.19 )   $ (0.02 )
Diluted
  $ (0.19 )   $ (0.02 )
Dividends
  $     $ 0.28  
See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    (Unaudited)        
    December 31,     September 30,  
    2009     2009  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 9,750     $ 18,794  
Investments
    4,527       3,410  
Accounts receivable, net
    5,940       1,929  
Income tax receivable
    6,590       5,994  
Mortgages and notes receivable
    70       72  
Inventories
    18,755       18,737  
Current deferred tax asset
    1,437       1,431  
Other current assets
    720       968  
 
           
 
               
Total current assets
    47,789       51,335  
 
               
Mortgages and notes receivable, net of current portion
    7,206       7,221  
Investments, deposits and other
    7,614       8,984  
Deferred tax assets
    7,356       7,356  
Cash surrender value of life insurance
    6,210       6,291  
Property, buildings and equipment
    181,460       178,736  
Less: accumulated depreciation
    (60,359 )     (59,688 )
 
           
 
               
Total assets
  $ 197,276     $ 200,235  
 
           
(continued)

 

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ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
                 
    (Unaudited)        
    December 31,     September 30,  
    2009     2009  
LIABILITIES & STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 3,144     $ 1,283  
Current portion of notes payable
    5,186       5,122  
Accrued expenses
    2,190       2,252  
Dividend payable
          1,014  
Accrued ad valorem taxes
          1,967  
Other current liabilities
    964       1,006  
 
           
 
               
Total current liabilities
    11,484       12,644  
 
               
Notes payable, net of current portion
    73,490       73,806  
Deferred retirement benefits, net of current portion
    3,268       3,229  
Other liabilities
    3,711       3,680  
 
           
 
               
Total liabilities
    91,953       93,359  
 
           
 
               
Stockholders’ equity:
               
Common stock
    7,377       7,377  
Additional paid in capital
    9,558       9,480  
Treasury stock
    (311 )     (52 )
Accumulated other comprehensive income
    1       3  
Retained earnings
    88,698       90,068  
 
           
 
               
Total stockholders’ equity
    105,323       106,876  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 197,276     $ 200,235  
 
           
See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Three months ended  
    December 31,  
    2009     2008  
 
Net cash used for operating activities
  $ (3,964 )   $ (5,967 )
 
               
Cash flows from investing activities:
               
Purchases of property and equipment
    (4,011 )     (2,325 )
Purchases of other investments
    (5 )     (121 )
Proceeds from sales of property and equipment
    433       172  
Purchases of marketable securities
    (9 )     (335 )
Proceeds from sales of marketable securities
    150       21,527  
Note receivable collections
    17       1,792  
 
           
 
               
Net cash (used for) provided by investing activities
    (3,425 )     20,710  
 
           
 
               
Cash flows from financing activities:
               
Principal payments on notes payable
    (14,252 )     (4,930 )
Proceeds from notes payable
    14,000       16,669  
Treasury stock purchases
    (389 )     (604 )
Dividends paid
    (1,014 )     (2,035 )
 
           
 
               
Net cash (used for) provided by financing activities
    (1,655 )     9,100  
 
           
 
               
Net (decrease) increase in cash and cash equivalents
  $ (9,044 )   $ 23,843  
 
               
Cash and cash equivalents:
               
At beginning of period
  $ 18,794     $ 54,370  
 
           
 
               
At end of period
  $ 9,750     $ 78,213  
 
           
 
               
Supplemental disclosures of cash flow information
               
Cash paid for interest, net of amount capitalized
  $ 934     $ 2,396  
 
           
Cash paid for income taxes
  $     $ 285  
 
           
 
               
Supplemental schedule of non-cash investing activities:
               
 
               
Reclassification of breeding herd to property and equipment
  $ 557     $ 552  
 
           
See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except for per share data)
1. Basis of financial statement presentation:
The accompanying condensed consolidated financial statements (“Financial Statements”) include the accounts of Alico, Inc. (“Alico”) and its wholly owned subsidiaries, Alico Land Development, Inc. (“ALDI”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”) (collectively referred to as the “Company”) after elimination of all significant intercompany balances and transactions.
The following Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading.
The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company’s annual report for the year ended September 30, 2009. In the opinion of Management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of its consolidated financial position at December 31, 2009 and September 30, 2009 and the consolidated results of operations and cash flows for the three month periods ended December 31, 2009 and 2008.
The Company is involved in agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2008 have been reclassified to conform to the 2009 presentation. Footnote presentation of dollar values are in thousands.
2. Income taxes:
Alico’s effective tax rate was 29.4% and 41.4% for the quarters ended December 31, 2009 and 2008, respectively. The December 2009 rate differed from the expected combined Federal and State blended rate of 38% primarily due to permanent differences between book and tax income, primarily resulting from an increase in the cash surrender value of life insurance contracts which was recognized as a gain for book purposes, but is not taxable. The December 2008 rate differed from the expected combined Federal and State blended rate of 38% due to a decline in the cash surrender value of life insurance contracts, which was recognized as a loss for book purposes, but is not deductable for tax purposes.
The Company applies a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change.
At December 31, 2009, the Company had $1.1 million of potential tax exposure related to uncertain tax positions which was included as other non current liabilities in the accompanying balance sheets. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and records the interest and penalties in the liability for uncertain tax positions.

 

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The IRS is currently auditing Alico’s amended tax returns for the fiscal years ended August 31, 2007, 2006, and 2005 and the short period return filed for the transition month ended September 30, 2007. Alico has extended the statute of limitations on the originally filed 2005 and 2006 tax returns to December 31, 2010 pursuant to a request by IRS exams. The IRS has proposed several adjustments to the returns as filed at the time of this report, relating to timing of deductions and the treatment of intercompany transactions between Alico and its Agri subsidiary. The Company is in discussions with the IRS concerning these proposed adjustments. As of the filing date of this report, the IRS has not issued a thirty day letter, nor quantified any additional proposed taxes, interest or penalties. The state income tax returns for the years under audit by the IRS have not been audited by the states and are subject to audit for the same tax periods open for federal tax purposes.
3. Indebtedness:
The following table reflects outstanding debt under the Company’s various loan agreements:
                                         
    Revolving             Mortgage              
    line of             note              
    credit     Term note     payable     All other     Total  
December 31, 2009
                                       
Principal balance outstanding
    28,340       44,900       5,383       53       78,676  
Remaining available credit
    46,660                         46,660  
Effective interest rate
    2.50 %     6.79 %     6.68 %   Various          
Scheduled maturity date
  Aug 2012   Sep 2018   Mar 2014   Various          
Collateral
  Real estate   Real estate   Real estate   Various          
 
                                       
September 30, 2009
                                       
Principal balance outstanding
    27,340       45,828       5,700       60       78,928  
Remaining available credit
    47,660                         47,660  
Effective interest rate
    2.63 %     6.79 %     6.68 %   Various          
Scheduled maturity date
  Aug 2012   Sep 2018   Mar 2014   Various          
Collateral
  Real estate   Real estate   Real estate   Various          
Alico, Inc. has a Term Note, a Mortgage and a Revolving Line of Credit with Farm Credit of Southwest Florida. All three agreements are cross collateralized by 7,680 acres of real estate in Hendry County used for farm leases, sugarcane and citrus production. The Term Note and Revolving Line of Credit are collateralized by an additional 43,847 acres of real estate in Hendry County used for farm leases and cattle ranching.
The Term Note calls for equal payments of principal and interest of $1.7 million per quarter over a ten year term until maturity. The Mortgage note calls for monthly principal payments of $106 thousand plus accrued interest until maturity. At December 31, 2009 Alico was in compliance with all of its covenants under the various loan agreements.

 

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Maturities of the Company’s debt at December 31, 2009 were as follows:
         
    December 31,  
    2009  
Due within 1 year
  $ 5,186  
Due between 1 and 2 years
    5,458  
Due between 2 and 3 years
    34,077  
Due between 3 and 4 years
    6,040  
Due between 4 and 5 years
    5,421  
Due beyond five years
    22,494  
 
     
Total
  $ 78,676  
 
     
Interest costs expensed and capitalized to property, buildings and equipment were as follows:
                 
    Three months ended  
    December 31,  
    2009     2008  
Interest expense
  $ 978     $ 2,079  
Interest capitalized
    29       13  
 
           
 
               
Total interest cost
  $ 1,007     $ 2,092  
 
           
As an agricultural credit cooperative, Farm Credit of Southwest Florida is owned by the member-borrowers who purchase stock and earn participation certificates in the cooperative. Allocations of patronage are made to members on an annual basis according to the proportionate amount of interest paid by the member. Allocations are made in cash and non-cash participation certificates. The Company reduced its interest expense by $34 thousand and $31 thousand during the three months ended December 31, 2009 and 2008, respectively for patronage allocations.

 

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4. Disclosures about reportable segments:
Alico has six reportable segments: Bowen, Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing. Alico’s operations are located in Florida. Alico accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.
Bowen’s operations include harvesting, hauling and marketing citrus for both Alico and other outside growers in the state of Florida. Bowen’s operations also include the purchase and resale of citrus fruit. Alico’s Citrus Grove operations consist of cultivating citrus trees in order to produce citrus for delivery to the fresh and processed citrus markets in the state of Florida. Alico’s sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. Alico’s cattle operation is engaged primarily in the production of beef cattle, feeding cattle at western feedlots and the raising of replacement heifers.
The goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption.
Alico’s real estate segment, ALDI is engaged in the planning and strategic positioning of all Company owned land. These actions include seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop property in the future. The real estate segment is also responsible for negotiating and renegotiating sales and options contracts. Alico’s leasing segment rents land to others on a tenant-at-will basis for grazing, farming, oil exploration and recreational uses.
The following table summarizes the performance of the Company’s segments for the unaudited three month periods ended December 31, 2009 and 2008, and the related assets and depreciation at December 31, 2009 and September 30, 2009:

 

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    Three months ended  
    December 31,  
    2009     2008  
Revenues (from external customers except as noted)
               
Bowen
  $ 5,512     $ 6,971  
Intersegment sales through Bowen
    1,189       1,480  
Citrus groves
    4,772       5,899  
Sugarcane
    1,802       3,191  
Cattle
    198       241  
Real estate
          1,249  
Leasing
    597       814  
Vegetables
    1,130       1,653  
 
           
Revenue from segments
    15,200       21,498  
Other operations
    107       276  
Less: intersegment revenues eliminated
    (1,189 )     (1,480 )
 
           
 
               
Total operating revenue
  $ 14,118     $ 20,294  
 
           
 
               
Operating expenses
               
Bowen
    5,769       6,740  
Intersegment sales through Bowen
    1,189       1,480  
Citrus groves
    4,091       5,049  
Sugarcane
    1,937       3,320  
Cattle
    138       550  
Real estate
    172       290  
Leasing
    256       229  
Vegetables
    1,498       1,553  
 
           
Segment operating expenses
    15,050       19,211  
Other operations
    94       273  
Less: intersegment expenses eliminated
    (1,189 )     (1,480 )
 
           
 
               
Total operating expenses
  $ 13,955     $ 18,004  
 
           
 
               
Gross profit (loss):
               
Bowen
    (257 )     231  
Citrus groves
    681       850  
Sugarcane
    (135 )     (129 )
Cattle
    60       (309 )
Real estate
    (172 )     959  
Leasing
    341       585  
Vegetables
    (368 )     100  
 
           
 
               
Gross profit from segments
    150       2,287  
Other
    13       3  
 
           
 
               
Gross Profit
  $ 163     $ 2,290  
 
           

 

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    Three months ended  
    December 31,  
    2009     2008  
Depreciation, depletion and amortization:
               
Bowen
  $ 82     $ 89  
Citrus groves
    512       535  
Sugarcane
    322       391  
Cattle
    331       422  
Leasing
    59       35  
Vegetable
    60       47  
 
           
Total segment depreciation and amortization
    1,366       1,519  
Other depreciation, depletion and amortization
    274       422  
 
           
Total depreciation, depletion and amortization
  $ 1,640     $ 1,941  
 
           
 
               
                 
    December 31,  
    2009     2008  
Total assets:
               
Bowen
  $ 4,208     $ 3,798  
Citrus groves
    48,127       51,895  
Sugarcane
    42,843       44,394  
Cattle
    13,505       19,989  
Leasing
    4,459       4,651  
Vegetables
    4,704       6,024  
 
           
Segment assets
    117,846       130,751  
Other Corporate assets
    79,430       150,120  
 
           
Total assets
  $ 197,276     $ 280,871  
 
           
5. Treasury Stock:
The Company’s Board of Directors has authorized the repurchase of up to 350,000 shares of the Company’s common stock through November 1, 2013 for the purpose of funding restricted stock grants under its 2008 Incentive Equity Plan in order to provide restricted stock to eligible Directors and Senior Managers and align their interests with those of the Company’s shareholders. Previously Alico provided incentives under its 1998 Plan, and was authorized to purchase up to 650,000 shares prior to the Plan’s expiration in November 2008.
The stock repurchases began in November 2005 and will be made on a quarterly basis until November 1, 2013 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the provisions of SEC Rule 10b-18.

 

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The following table provides information relating to purchases of the Company’s common shares by the Company on the open market pursuant to the aforementioned plans during the quarter ended December 31, 2009:
                                 
                    Total shares        
                    purchased as     Total dollar  
                    part of publicly     value of shares  
    Total number of     Average price     announced plans     purchased  
Month   shares purchased     paid per share     or programs     (thousands)  
 
October
    4,000     $ 29.53       4,000     $ 118  
December
    9,692       27.93       9,692       271  
 
                       
 
                               
Total
    13,692     $ 28.39       13,692     $ 389  
 
                       
In accordance with the approved plan, the Company may purchase an additional 310,808 shares.
6. Fair Value Measurements:
The carrying amounts in the balance sheets for accounts receivable, mortgages and notes receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short term maturity of these items. When stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. Alico carries its investments and securities available for sale at fair value. The carrying amounts reported for Alico’s long-term debt approximates fair value because they are transactions with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:
Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

 

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The following table represents the fair values of Alico’s financial assets and liabilities as of December 31, 2009:
                                 
            Quoted prices in              
            active markets for     Significant other     Significant  
            identical assets     observable inputs     unobservable inputs  
Description   Fair Value     (level 1)     (level 2)     (level 3)  
Assets:
                               
Available for sale investments
  $ 7,774     $ 3,537     $ 3,129     $ 1,108  
Other investments
    4,367             1,305       3,062  
 
                       
 
  $ 12,141     $ 3,537     $ 4,434     $ 4,170  
 
                       
The following is a reconciliation of beginning and ending balances for securities using level 3 inputs as defined above for the quarter ended December 31, 2009:
                         
    Available for sale     Other        
    investments     investments     Total  
Beginning balance
  $ 1,108     $ 3,081     $ 4,189  
Realized and unrealized gains (losses) included in earnings
          (19 )     (19 )
Realized and unrealized gains (losses) included in other comprehensive income
                 
Purchases, sales, issuances and settlements
                 
Transfers in or out of level 3
                 
 
                 
Ending balance
  $ 1,108     $ 3,062     $ 4,170  
 
                 
 
                       
                 
    Interest and        
    investment income     Total  
Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets held at December 31, 2009
  $ 111     $ 111  
 
           
7. Subsequent Events:
During the first two weeks of January 2010, a cold air mass moved into the State of Florida causing temperatures to drop into the mid 20’s for several consecutive nights. These temperatures caused damage to the Company’s vegetable crops, resulting in a loss currently estimated to be $1.2 million. This loss will be recognized during the Company’s fiscal quarter ending March 31, 2010. Damages to the Company’s citrus and sugarcane crops were minimal.
There were no other subsequent events to report during this period. Subsequent events were evaluated through the filing date of this report, February 9, 2010.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
Some of the statements in this document include statements about future expectations. Statements that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. These forward-looking statements, which include references to one or more potential transactions, expectation of results and strategic alternatives under consideration are predictive in nature or depend upon or refer to future events or conditions, are subject to known, as well as unknown risks and uncertainties that may cause actual results to differ materially from Company expectations. There can be no assurance that any future transactions will occur or be structured in the manner suggested or that any such transaction will be completed. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.
Liquidity and Capital Resources
Dollar amounts listed in thousands:
                 
    December 31,     September 30,  
    2009     2009  
Cash & liquid investments
  $ 14,277     $ 22,204  
Total current assets
    47,789       51,335  
Current liabilities
    11,484       12,644  
Working capital
    36,305       38,691  
Total assets
    197,276       200,235  
Notes payable
  $ 78,676     $ 78,928  
Current ratio
    4.16:1       4.06:1  
Management believes that Alico will be able to meet its working capital requirements for the foreseeable future with internally generated funds and through its credit commitments. Alico has credit commitments under a revolving line of credit that provides for revolving credit of up to $75.0 million. Of the $75.0 million credit commitment, $46.7 million was available for Alico’s general use at December 31, 2009 (see Note 3 to the Unaudited Condensed Consolidated Financial Statements).
Cash flows from Operations
Cash flows used for operations were $4.0 million and $6.0 million for the fiscal quarters ended December 31, 2009 and 2008, respectively. The Company begins harvesting its crops during the first quarter of its fiscal year, requiring cash outlays to generate accounts receivable. Cash flows from operations are expected to improve in subsequent quarters as these receivables are collected.

 

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Cash flows from Investing
Cash outlays for land, equipment, buildings, and other improvements totaled $4.0 million and $2.3 million during the quarters ended December 31, 2009 and 2008, respectively. The Company expended $2.3 million during the quarter ended December 31, 2009 toward developing 4,500 acres of sugarcane plantings, which should be available for harvest during the Company’s 2011 fiscal year.
During the quarter ended December 31, 2008, Alico began liquidating its Agri subsidiary by selling marketable securities held by Agri which were subsequently utilized as pre-liquidation distributions enabling Alico to pay $50 million on its Revolving Line of Credit in January 2009.
In November 2008, Alico’s subsidiary, Alico-Agri, Ltd., received a principal payment on a note receivable of $1.8 million related to a real estate sale. The purchaser subsequently defaulted on the note in April 2009. Alico-Agri has initiated foreclosure proceedings in order to reclaim the property. When the foreclosure becomes final, the net mortgage note receivable of $7.1 million (consisting of the note balance of $52.2 million less deferred revenue of $45.1 million), plus accrued interest through March 31, 2009 of $0.3 million, reduced by the associated commissions payable account of $2.6 million will be reclassified as basis in the property.
Recent market conditions have depressed Florida real estate markets causing the predictability of real estate sales including timing and market values to be problematic. Alico continues to market parcels of its real estate holdings which are deemed by Management and the Board of Directors to be excess to the immediate needs of Alico’s core operations. The sale of any of these parcels could be material to the future operations and cash flows of Alico.
Cash flows from Financing
Alico’s Board of Directors has authorized the repurchase of up to 350,000 shares of Alico’s common stock through November 1, 2013, for the purpose of funding restricted stock grants under its Incentive Equity Plans in order to provide restricted stock to eligible Directors and Senior Managers to align their interests with those of Alico’s shareholders.
All purchases will be made subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the impact of the purchases upon the market for Alico’s shares. The stock repurchases will be made on a quarterly basis until November 1, 2013 through open market transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. Alico will use internally generated funds and available working capital to make the purchases. In accordance with the approved plans, at December 31, 2009 an additional 310,808 shares were available for acquisition. Alico purchased 13,692 shares in the open market at an average price of $28.39 during the quarter ended December 31, 2009 and 15,733 shares at an average price of $38.37 per share during the quarter ended December 31, 2008.
Alico paid quarterly dividends of $0.275 per share on November 14, 2008, February 15, 2009, May 15, 2009, August 15, 2009 and November 15, 2009. The Board has temporarily suspended dividends until the operating results of the Company improve. The Board will continue to assess financial condition, compliance with debt covenants, and earnings of Alico in determining its dividend policy.

 

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Results from Operations
Unaudited results for the quarters ended December 31, 2009 and 2008 were as follows (in thousands):
                 
    2009     2008  
 
               
Operating revenue
  $ 14,118     $ 20,294  
Gross profit
    163       2,290  
General & administrative expenses
    (1,240 )     (3,001 )
Loss from continuing operations
    (1,077 )     (711 )
Profit on sale of real estate
          1,546  
Interest and investment (loss) income
    (58 )     933  
Interest expense
    (978 )     (2,079 )
Other income
    172       11  
Income tax benefit
  $ 571     $ 124  
Effective income tax rate
    29.4 %     41.4 %
Net loss
  $ (1,370 )   $ (176 )
Alico’s agricultural and real estate operations generally combine to produce the majority of operating revenue, gross profit and income from operations. The decrease in income from continuing operations for the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 was primarily due to reduced profit from real estate activities and agricultural activities.
Profit from the Sale of Real Estate
Beginning in the fiscal year ended August 31, 2006, Alico intensified its efforts toward the planning and strategic positioning of all Company owned land through its Alico Land Development subsidiary. These actions included the hiring of a real estate professional, seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop property in the future. Proceeds from the contracts negotiated or substantially renegotiated subsequent to August 31, 2006 are classified as operating items, while proceeds from sales that originated prior to that time and are not deemed to be substantially modified according to U.S. GAAP, are classified as non-operating.
Real estate sales are recorded under the accrual method of accounting. Gains from commercial or bulk land sales are not recognized until payments received for property to be developed within two years after the sale equal 20%, or property to be developed after two years equal 25% of the contract sales price according to the installment sales method.
Alico’s real estate revenue during the quarter ended December 31, 2008 primarily resulted from three contracts with the Ginn Companies for real estate in Lee County Florida referred to as “East”, “West” and “Crockett”. In October 2008, Ginn elected not to exercise its option on the West property, and relinquished any claim it might have had on the Crockett property.

 

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In connection with the restructure, Alico’s Alico-Agri subsidiary received a principal payment of $1.8 million on the East contract in November of 2008. Alico-Agri recognized a profit of $1.5 million as non-operating revenue under the installment method related to the receipt. Additionally, the Company recognized $1.2 million of operating revenue in October 2008 upon the expiration of the West contract option that had previously been deferred. In April 2009, the buyer defaulted on the third contract. The Company has initiated foreclosure proceedings to reclaim the property.
Recent market conditions have depressed Florida real estate markets causing the predictability of real estate sales including timing and market values to be problematic. Alico continues to market parcels of its real estate holdings which are deemed by Management and the Board of Directors to be excess to the immediate needs of Alico’s core operations. The sale of any of these parcels could be material to the future operations and cash flows of Alico.
Interest and Investment Income
Interest and investment income is generated principally from mortgages held on real estate sold on the installment basis, investments in corporate and municipal bonds, mutual funds, and U.S. Treasury securities.
As a result of the mortgage default and the liquidation of investments as discussed earlier, the Company’s earnings from interest and investing declined substantially during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008. Additionally, the Company held auction rate securities with a face value of approximately $5.2 million at December 31, 2009 for which there is not a current liquid market. As a result of the illiquid nature of these investments, the Company recognized an impairment loss of $111 thousand during the quarter ended December 31, 2009 which was charged against interest and investment income.
Interest Expense
Interest expense was lower for the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008, primarily due to decreased outstanding debt. During January 2009, Alico reduced its outstanding debt by $50 million. This action resulted in lower interest expense to the Company during the fiscal quarter ending December 31, 2009 when compared with the quarter ended December 31, 2008.
Provision for Income taxes
Alico’s effective tax rate was 29.4% and 41.4% for the quarters ended December 31, 2009 and 2008, respectively. The December 2009 rate differed from the expected combined Federal and State blended rate of 38% primarily due to an increase in the cash surrender value of life insurance contracts which was recognized as a gain for book purposes, but is not taxable. The December 2008 rate differed from the expected combined Federal and State blended rate of 38% due to a decline in the cash surrender value of life insurance contracts, which was recognized as a loss for book purposes, but is not deductable for tax purposes.

 

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Operating Revenue
                 
    Three months ended  
    December 31,  
    2009     2008  
Revenues
               
Agriculture:
               
Bowen
  $ 5,512     $ 6,971  
Citrus groves
    4,772       5,899  
Sugarcane
    1,802       3,191  
Cattle
    198       241  
Vegetables
    1,130       1,653  
Sod
    54       133  
Native trees and shrubs
    4       18  
 
           
Agriculture operations revenue
    13,472       18,106  
Real estate activities
          1,249  
Land leasing and rentals
    597       814  
Mining royalties
    49       125  
 
           
 
               
Total operating revenue
  $ 14,118     $ 20,294  
 
           
Operating revenues declined by 30% during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008, primarily due to reduced revenues from agriculture activities.
Gross Profit
                 
    Three months ended  
    December 31,  
    2009     2008  
Gross profit (loss):
               
Agriculture:
               
Bowen
  $ (257 )   $ 231  
Citrus groves
    681       850  
Sugarcane
    (135 )     (129 )
Cattle
    60       (309 )
Vegetables
    (368 )     100  
Sod
    (18 )     (112 )
Native trees and shrubs
    (8 )     18  
 
           
Gross profit from agricultural operations
    (45 )     649  
Real estate activities
    (172 )     959  
Land leasing and rentals
    341       585  
Mining royalties
    39       97  
 
           
Gross Profit
    163       2,290  
 
           
Alico measures gross profit from its operations before any allocation of corporate overhead or interest charges. Gross profit is dependent upon the prices received for each of the Company’s products, less harvesting, marketing and delivery costs and the direct costs of producing the products.

 

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The decline in gross profit during the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 was primarily due to reduced profit from agriculture and real estate activities.
Agricultural Operations
Agricultural operations generate a large portion of Alico’s revenues. Agricultural operations are subject to a wide variety of risks including weather and disease. As a producer of agricultural products, Alico’s ability to control the prices it receives from its products is limited, and prices for agricultural products can be volatile. Operating results are largely dictated by market conditions. Agriculture revenues decreased during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008 due to a delay in the timing of the citrus harvest. This decline is expected to reverse during the quarter ending March 31, 2010.
Bowen
Bowen’s operations generated revenues of $5.5 million and $7.0 million for the quarters ended December 31, 2009 and 2008, respectively. Gross (losses) profits were ($257 thousand), and $231 thousand during the quarters ended December 31, 2009 and 2008, respectively. Due to a smaller Florida orange crop and fruit maturity levels taking longer to reach minimum standards, citrus processing plants began accepting fruit for processing later in the 2009-10 season when compared with the 2008-09 season. This delay has created a timing difference in revenue and profit recognition which is expected to reverse itself during the quarter ending March 31, 2010.
Citrus Groves
The Citrus Groves division recorded gross revenues of $4.8 million and $5.9 million and gross profits of $681 thousand and $850 thousand, for the quarters ended December 31, 2009 and 2008, respectively. The decrease in revenue and gross profits for the quarter ended December 31, 2009 compared with December 31, 2008 was due to a decrease in the number of citrus boxes harvested, and is timing related. Due to a smaller Florida orange crop and fruit maturity levels taking longer to reach minimum standards, citrus processing plants began accepting fruit for processing later in the 2009-10 season when compared with the 2008-09 season. This delay has created a timing difference in revenue and profit recognition which is expected to reverse itself during the quarter ending March 31, 2010.
Sugarcane
Alico’s sugarcane operations consist of cultivating raw sugarcane for sale to a sugar processor. Sugarcane revenues were $1.8 million and $3.2 million during the quarters ended December 31, 2009 and 2008, respectively. Sugarcane generated losses of $135 thousand and $129 thousand during the quarters ended December 31, 2009 and 2008, respectively.
To maintain maximum production, sugarcane crops grown on sandy soil such as Alico’s, must be rotated every three years. Sugarcane plantings tend to produce less tonnage per acre with each successive crop. Due to dwindling profit margins, uncertainty surrounding the facility where the Company delivers its product, and an unfavorable price determinant, Alico chose to reduce its sugarcane planting activities during the fiscal years ended September 30, 2008 and August 31, 2007. Since that time, the market outlook for sugar has improved, key input costs such as fuel and fertilizer have declined, more details concerning the future of the facility have become known and the Company was able to successfully negotiate a more favorable pricing arrangement with its sole customer.

 

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The Company has undertaken a program to replant its sugarcane fields in order to achieve prior production levels. However, due to the growing cycle of sugarcane crops, the results from these efforts will not be realized until fiscal year 2011. Accordingly, the Company’s expected sugarcane tonnage for the fiscal year ending September 30, 2010 is expected to be approximately 40% of its fiscal 2009 production.
Cattle
Cattle revenues were $198 thousand and $241 thousand and profits (losses) from cattle operations were $60 thousand and ($309 thousand) for the quarters ended December 31, 2009 and 2008, respectively. The Company has implemented cost cutting measures in its cattle operations and is currently striving to refocus itself as a low cost high quality cattle producer.
Vegetables
Revenues from the sale of vegetables were $1.1 million and $1.7 million for the quarters ended December 31, 2009 and 2008, respectively. Gross (losses) profits from the vegetable division were ($368 thousand) and $100 thousand over the same periods. Prices for sweet corn were lower during the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 causing both revenue and profits to decline.
During the first two weeks of January 2010, a cold air mass moved into the State of Florida causing temperatures to drop into the mid 20’s for several consecutive nights. These temperatures caused damage to the Company’s vegetable crops, resulting in a loss currently estimated to be $1.2 million. This loss will be recognized during the Company’s fiscal quarter ending March 31, 2010.
Non Agricultural Operations
Land leasing and rentals
Alico rents land to others on a tenant-at-will basis, for grazing, farming, oil exploration and recreational uses. Revenues from land rentals were $597 thousand and $814 thousand for the quarters ended December 31, 2009 and December 31, 2008, respectively, generating gross profits of $341 thousand and $585 thousand, respectively. Several farming leases were not renewed during the current season. The Company is actively pursuing alternative tenants to fill these vacancies and plans to increase its leasing activities as opportunity allows.
Off Balance Sheet Arrangements
Alico through its wholly owned subsidiary Bowen, enters into purchase contracts for the purchase of citrus fruit during the normal course of its business. The remaining obligations under these purchase agreements totaled $11.2 million at December 31, 2009. All of these purchase obligations except for $0.6 million were covered by sales agreements at prices exceeding cost. In addition, Bowen had sales contracts totaling $0.9 million at December 31, 2009 for which purchases had not been contracted. Bowen’s management currently believes that all committed purchase quantities can be sold at a profit and all committed sales quantities can be purchased below the committed sales price.

 

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Disclosure of Contractual Obligations
There were no material changes from the Contractual Obligations schedule included in the Company’s filing on Form 10-K outside of those occurring during the ordinary course of the Company’s business during the interim period.
Critical Accounting Policies and Estimates
There have been no substantial changes in the Company’s policies regarding critical accounting issues or estimates since the Company’s last annual report on form 10-K.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Reference is made to the discussion under Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the company’s 2009 Annual Report on Form 10-K for the fiscal year ended September 30, 2009. There have been no material changes in this item since the Company’s disclosure of in its last annual report on Form 10-K.
ITEM 4. Controls and Procedures
The Company’s management, including the Principal Executive Officer and Chief Financial Officer, have evaluated the effectiveness of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in the internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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FORM 10-Q
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
On October 29, 2008 Alico was served with a shareholder derivative action complaint filed by Baxter Troutman against JD Alexander and John R. Alexander which names Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlanticblue, a (51%) shareholder of Alico. From February 26, 2004 until January 18, 2008 Mr. Troutman was a director of Alico. The complaint alleges that JD Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants JD Alexander and John R. Alexander and improperly included a proposed special dividend; and that the Alexanders’ sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005. As a result the complaint is seeking damages to be paid to Alico by the Alexanders’ in excess of $1,000,000. The complaint concedes that Mr. Troutman has not previously made demand upon Alico to take action for the alleged wrongdoing as required by Florida law alleging that he believed such a demand would be futile. A copy of the Complaint may be obtained from the Clerk of the Circuit Court in Polk County, Florida.
On June 3, 2009 a Special Committee of Alico’s Board of Directors comprised entirely of Independent Directors and which was constituted to investigate the shareholder derivative action filed by Mr. Troutman, completed its investigation with the assistance of independent legal counsel, and determined that it would not be in Alico’s best interest to pursue such litigation. Alico has filed a motion to dismiss the litigation based upon the findings of the Special Committee. A copy of the report was filed with the Court and it and the other pleadings in the case are available from the Clerk of Circuit Court in Polk County, Florida by reference to the matter of Baxter G. Troutman, Plaintiff vs. John R. Alexander, John D. Alexander, Defendants and Alico, Inc. Nominal Defendant, Case No. 08-CA-10178 Circuit Court, 10th Judicial Circuit, Polk County, Florida.
There are no additional items to report during this interim period.
ITEM 1A. Risk Factors.
There were no significant changes regarding risk factors from those disclosed in the Company’s annual report on Form 10-K.
ITEM 2. Unregistered Sales of Equity Securities.
There are no items to report during this interim period.
ITEM 3. Defaults Upon Senior Securities.
There are no items to report during this interim period.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There are no items to report during this interim period.

 

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ITEM 5. Other Information.
There are no items to report during this interim period.
ITEM 6. Exhibits.
     
Exhibit 31.1  
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 31.2  
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 32.1  
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
   
 
Exhibit 32.2  
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

 

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SIGNATURES
Pursuant to the requirements 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)
February 9, 2010
Steven M. Smith
President & Principal Executive Officer
(Signature)
February 9, 2010
Patrick W. Murphy
Chief Financial Officer
(Signature)
February 9, 2010
Jerald R. Koesters
Controller
(Signature)

 

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