Alico, Inc. Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2015. The request metadata references “2014 Q4,” but the supplied filing is the fiscal 2015 Form 10-K, filed December 10, 2015.
Business Context
Alico is a Florida agribusiness and land management company owning approximately 121,000 acres across 12 Florida counties, including approximately 90,000 acres of mineral rights. Its principal activities are citrus production, cattle ranching and conservation, agricultural supply-chain services, citrus nursery operations, mining royalties and oil-rights leasing.
- Citrus Groves represented 91.2% of fiscal 2015 operating revenue.
- The company produced approximately 10.5 million citrus boxes, including 10.0 million processed boxes and 466,000 fresh-fruit boxes.
- The company had 346 full-time employees at September 30, 2015.
Financial Results and Key Metrics
| Metric | FY2015 | FY2014 | Change |
|---|---|---|---|
| Operating revenue | $153.1 million | $104.0 million | +47.3% |
| Gross profit | $36.0 million | $21.2 million | +69.3% |
| Income from operations | $19.1 million | $9.9 million | +92.2% |
| Net income attributable to common stockholders | $15.8 million | $9.0 million | +74.5% |
| Diluted earnings per share | $1.96 | $1.23 | +59.3% |
| Cash flow from operating activities | $33.9 million | $28.0 million | +21.0% |
| Capital expenditures | $11.9 million | $13.2 million | -9.8% |
| Adjusted free cash flow | $18.1 million | $17.4 million | +4.3% |
| Adjusted EBITDA | $48.1 million | $23.9 million | +101.3% |
Gross margin increased to approximately 23.5% from 20.4%, while operating margin increased to approximately 12.4% from 9.5%. The effective income tax rate was 40.9%, compared with 52.2% in fiscal 2014.
Liquidity, Debt and Balance Sheet
- Cash and cash equivalents declined to $7.4 million from $31.0 million.
- Working capital was $47.0 million, down from $105.0 million; the current ratio declined to 2.99 from 6.08.
- Total debt obligations increased to $205.9 million from $64.8 million, primarily due to financing for citrus acquisitions.
- Long-term debt consisted principally of $125.0 million of fixed-rate term loans at 4.15% and $57.5 million of variable-rate term loans, with the variable rate approximately 1.80% at year-end.
- The company had a $25.0 million undrawn revolving line and a $70.0 million working-capital facility, with approximately $52.5 million of availability after outstanding letters of credit.
- Debt agreements include financial covenants. Management reported compliance as of September 30, 2015.
- Contractual obligations totaled approximately $295.5 million, including $205.9 million of principal and $72.8 million of interest on long-term debt.
Material Changes Versus the Prior Comparable Period
- Orange-Co acquisition: Completed December 2, 2014, adding approximately 20,263 acres of citrus groves. The acquisition contributed approximately $72.6 million of revenue and $17.9 million of gross profit in fiscal 2015.
- Silver Nip Citrus merger: Completed February 28, 2015 as a common-control transaction. Alico issued 923,257 shares at closing and an additional 115,782 shares in September 2015, with possible additional shares tied to harvest proceeds.
- Sugarcane disposition: Approximately 36,000 acres were sold for approximately $97.9 million. A net gain of approximately $13.6 million was recognized in fiscal 2015, while approximately $29.1 million remained deferred due to continuing involvement and potential post-closing adjustments.
- Business concentration: Citrus revenue increased to 91.2% of total revenue from 60.0%, while Improved Farmland revenue fell to $0.9 million from $20.4 million after the sugarcane disposition.
- Operating expenses: General and administrative expense rose 49.1% to $16.9 million, primarily because of acquisition, disposition, merger, consulting and legal costs.
- Production: Total citrus boxes harvested increased 140.4% to 10.5 million, but pound solids per box declined to 6.21 from 6.44. On a pro forma basis, total pound solids were essentially flat year over year, indicating that much of the reported production growth resulted from acquisitions.
- Dividends and repurchases: The declared dividend remained $0.24 per share for the year, or $0.06 per quarter. The company repurchased 91,554 shares for approximately $4.0 million during fiscal 2015.
Guidance, Outlook, Risks and Unusual Items
- Management estimated fiscal 2016 processed boxes would be relatively flat on a per-acre basis and expected operating expenses to remain broadly in line with fiscal 2015 on a per-acre basis.
- The USDA forecast a 23.6% decline in the statewide Florida orange crop for the 2015–2016 season. Management expected lower statewide supply to support citrus pricing at or above fiscal 2015 levels, but this outcome is uncertain.
- Management expected approximately 1,000 calves to be sold in fiscal 2016 and planned to expand the breeding herd to approximately 9,300 cows.
- A water-storage contract with the South Florida Water Management District could provide up to $4.0 million of implementation reimbursement and $12.0 million annually for operations and maintenance, subject to compliance, funding and annual approval. State funding was uncertain and the contract could be terminated if funding is unavailable.
- Material unusual items included a $16.5 million gain on real estate sales, a $1.1 million debt-extinguishment loss, a $1.1 million bargain-purchase gain, $0.5 million of asset impairment, approximately $8.4 million of interest expense and $8.1 million of acquired citrus-inventory fair-value adjustments.
- Key operating risks include citrus greening and citrus canker, hurricanes and other weather events, water availability, commodity pricing, labor availability, foreign competition, customer concentration, environmental regulation and changes in agricultural tax classifications.
- Two shareholder lawsuits relating to the Silver Nip acquisition were consolidated. As of October 2015, the parties had reached an agreement in principle to settle, subject to documentation, notice and court approval.
- 734 Investors and related parties beneficially owned approximately 57.7% of the common stock, giving them effective control over director elections and other shareholder matters. The Silver Nip transaction was a related-party, common-control acquisition.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important Facts for Investors to Verify
- Whether citrus-grove acquisition synergies and expected pricing offset disease-related declines in yield and the forecast statewide crop reduction.
- Remaining cash availability, letters of credit, the November 2016 working-capital facility maturity and compliance with debt-service, leverage and current-ratio covenants.
- The final amount and timing of the deferred sugarcane-sale gain and any post-closing price adjustments or guarantee payments.
- The final settlement terms and financial impact of the consolidated shareholder litigation concerning the Silver Nip merger.
- The amount of any additional shares issuable to former Silver Nip owners and the resulting dilution.
- Annual approval and funding of the SFWMD water-storage contract and whether expected payments will be realized.
- The sustainability of the $0.24 per-share annual dividend and the company’s future share-repurchase activity given higher leverage and lower cash balances.