Alico, Inc. Fiscal 2016 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2016. The supplied filing is a fiscal 2016 Form 10-K, not a 2015 fourth-quarter filing; fourth-quarter data is presented separately in the filing. Alico is a Florida agribusiness and land-management company with approximately 122,000 acres, including approximately 48,000 gross citrus acres and 71,000 conservation and environmental resource acres.
Business Context
- Orange Co.: Citrus cultivation, citrus nursery operations, fruit purchasing and resale, and related harvesting, hauling and marketing services.
- Conservation and Environmental Resources: Cattle production, land leasing, sod and native plant sales, and conservation activities.
- Other Operations: Mining royalties, oil-related leases, improved farmland leasing and other activities. Sugarcane operations were exited following the 2014 sale of related land.
- Orange Co. generated 95.2% of fiscal 2016 operating revenue, underscoring the company’s high concentration in citrus.
Financial Performance
| Metric | FY2016 | FY2015 | Change |
|---|---|---|---|
| Operating revenues | $144.2 million | $153.1 million | (5.8%) |
| Gross profit | $35.1 million | $36.0 million | (2.6%) |
| Income from operations | $21.8 million | $19.5 million | 12.0% |
| Net income attributable to common stockholders | $7.0 million | $13.2 million | (47.1%) |
| Basic and diluted EPS | $0.84 | $1.64 | (48.8%) |
| Cash dividends declared per share | $0.24 | $0.24 | Flat |
| Cash flow from operations | $30.4 million | $33.7 million | (10.0%) |
Approximate margins were 24.3% gross, 15.2% operating and 4.9% net attributable to common stockholders in fiscal 2016, compared with 23.5%, 12.7% and 8.6%, respectively, in fiscal 2015.
Liquidity, Debt and Balance Sheet
| Metric | September 30, 2016 | September 30, 2015 |
|---|---|---|
| Cash and cash equivalents | $6.6 million | $5.5 million |
| Working capital | $54.4 million | $46.6 million |
| Current ratio | 3.90 to 1 | 2.93 to 1 |
| Total debt and lines of credit | $202.2 million | $205.5 million |
| Total assets | $458.7 million | $460.1 million |
| Alico stockholders’ equity | $173.5 million | $170.7 million |
- Available borrowing capacity was approximately $59.8 million under the $70.0 million working-capital line and $20.0 million under the $25.0 million revolving line, before considering approximately $10.2 million of outstanding letters of credit that reduced availability.
- Debt included $197.2 million of long-term debt and $5.0 million outstanding under a revolving line. Management stated that cash, operating cash flow and available credit were expected to satisfy liquidity needs for at least the next twelve months.
- The company was in compliance with its financial covenants at September 30, 2016. Debt is secured principally by citrus groves, farm and ranch land, current assets and other personal property.
Cash Flow and Capital Allocation
- Operating cash flow was $30.4 million, compared with $33.7 million in fiscal 2015.
- Investing cash outflow was $13.0 million, primarily including $14.3 million of capital expenditures. Fiscal 2015 investing outflow was substantially higher because of the Orange-Co acquisition.
- Financing cash outflow was $16.2 million, including $10.8 million of term-loan principal payments, $7.5 million of contingent acquisition consideration, $3.1 million of treasury-stock purchases and $2.0 million of dividends paid.
- Capital expenditures increased to $14.3 million from $11.5 million.
Material Changes Versus the Prior Comparable Period
- Revenue declined despite higher citrus pricing because processed citrus volume fell. Total processed boxes decreased 11.8%, pound solids declined 17.4%, and pound solids per box also decreased.
- Orange Co. revenue declined 6.1% and gross profit declined 2.7%. Higher prices per pound solid partly offset lower production.
- Conservation and Environmental Resources revenue increased 5.1%, but the segment moved from a $0.6 million gross profit to a $0.7 million gross loss, primarily because of lower cattle prices and higher operating expenses.
- General and administrative expense declined 19.9% to $13.2 million as acquisition-related professional fees decreased; fiscal 2016 included approximately $0.5 million of shareholder-litigation legal and settlement charges.
- Other expense, net, changed from $4.6 million of income in fiscal 2015 to $9.4 million of expense in fiscal 2016. The principal drivers were higher interest expense of $9.9 million and the absence of fiscal 2015’s $13.6 million real-estate gain and $1.1 million bargain-purchase gain.
- Fiscal 2015 included significant benefits from the Orange-Co acquisition and the gain on the sale of sugarcane land, making year-over-year net-income comparisons unusually unfavorable for fiscal 2016.
Outlook, Commentary, Risks and Unusual Items
- Management estimated that fiscal 2017 processed boxes would decline approximately 4.5% on a per-acre basis, while expecting higher price per pound solids because of the smaller Florida crop. Operating expenses were expected to remain consistent on a per-acre basis.
- The USDA forecast a Florida 2016–2017 orange crop of approximately 72.0 million boxes, down from 81.6 million boxes in 2015–2016. Citrus greening, citrus canker, premature fruit drop, smaller fruit and weather remain major operational risks.
- The company expected to have approximately 8,800 breeding cows in fiscal 2017, retain additional calves to expand the herd, and experience beef prices approximately 10% below fiscal 2016 levels. Operating expenses were expected to remain relatively consistent.
- A South Florida Water Management District contract provides for reimbursement of implementation costs up to $4.0 million and potential annual operations and maintenance payments of up to $12.0 million for ten operating years. Payments depend on permitting, project completion, compliance and annual governmental funding approval; fixed payments had not yet commenced at September 30, 2016.
- The company remains exposed to hurricanes, freezes, drought, flooding, water restrictions, labor availability, commodity pricing, interest rates, environmental regulation and changes in agricultural tax classifications. Most crops remain uninsured against hurricane risk.
- Shareholder litigation relating to the Silver Nip Citrus merger was settled and dismissed with prejudice after court approval in September 2016. The filing states that no other current legal proceedings were expected to have a material adverse effect.
- Subsequent events included a limited $8.0 million company guaranty of Silver Nip debt, a proposed $2.2 million sale of Alico Plant World, and a planned management transition under which Remy Trafelet would become CEO on January 1, 2017.
- 734 Investors and related parties beneficially owned approximately 59% of outstanding common stock, giving them effective control over director elections and other stockholder matters. The company is a Nasdaq “controlled company.”
Most Important Facts to Verify
- Whether citrus production, pound solids per box and Florida-wide crop conditions continue to decline, and whether higher pricing offsets lower volume.
- The company’s ability to service approximately $202.2 million of debt while funding citrus maintenance, capital expenditures and dividends.
- Compliance with debt-service coverage, current-ratio, tangible-net-worth and leverage covenants, including the effect of variable interest rates.
- Permitting, construction completion, funding approval and payment commencement for the water-storage contract.
- Actual effects of citrus greening and citrus canker mitigation treatments, weather events, water availability and labor constraints.
- Terms and financial effects of the planned management transition, related-party arrangements and the company’s concentrated ownership structure.
- Potential exposure from the deferred gain and post-closing payment obligations associated with the sugarcane land disposition, as well as outstanding letters of credit and other contractual commitments.