Alico, Inc. Form 10-Q Summary
Reporting period: Three and nine months ended June 30, 2012, compared with the corresponding 2011 periods. The request metadata identifies “2011 Q3,” but the filing itself is a Form 10-Q for the quarter ended June 30, 2012, filed August 9, 2012. Financial statements are unaudited.
Business Context
Alico is a Florida land-management and agribusiness company owning approximately 135,590 acres. Its operations include citrus, sugarcane, cattle, citrus harvesting and marketing, land leasing, mining royalties, and real estate activities. Agricultural operations generated approximately 98% of operating revenue during both the quarter and nine-month period.
Financial Metrics
| Metric | Three Months Ended June 30 | Nine Months Ended June 30 |
|---|---|---|
| Operating revenue | $40.4 million, up 2.8% | $120.6 million, up 30.6% |
| Gross profit | $10.5 million, down 11.1% | $30.3 million, up 35.5% |
| Income from operations | $8.6 million, down 14.3% | $24.6 million, up 44.5% |
| Net income | $9.6 million, up 60.9% | $19.0 million, up 120.7% |
| Diluted earnings per share | $1.31 | $2.58 |
| Operating cash flow | Not separately provided | $25.6 million versus $7.2 million |
Gross margin was approximately 26.0% for the quarter and 25.1% for the nine months, compared with approximately 30.1% and 24.2%, respectively, in the prior-year periods. Net margin was approximately 23.8% for the quarter and 15.7% for the nine months, compared with 15.2% and 9.3%, respectively.
- Liquidity: Cash and cash equivalents were $4.0 million, restricted cash was $10.7 million, working capital was $32.8 million, and the current ratio was 2.67:1 at June 30, 2012.
- Debt: Total debt was $40.7 million, down from $57.2 million at September 30, 2011. The revolving credit line had no outstanding balance and $60.0 million remained available. The term note balance was $38.5 million and the mortgage balance was $2.2 million.
- Capital expenditures: Approximately $12.2 million during the first nine months, including $7.2 million for sugarcane expansion and related improvements.
- Dividends: $0.04 per share declared during the quarter and $0.12 per share for the nine-month period, compared with no dividends in the prior-year periods.
- Equity: Stockholders’ equity increased to $128.8 million from $110.7 million at September 30, 2011.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue growth was driven by higher Bowen fruit sales, increased citrus and sugarcane production, and favorable sugarcane pricing.
- Sugarcane revenue increased 86.6% for the nine months, while sugarcane gross profit increased 303.7%, reflecting additional planted acreage, higher production, and favorable prices.
- Citrus Groves revenue increased 18.6% and gross profit increased 25.8% for the nine months. However, third-quarter citrus gross profit declined 8.1% because Valencia prices fell 6.5% and harvest and haul costs increased.
- Third-quarter consolidated gross profit and operating income declined despite modest revenue growth, primarily because of lower Valencia prices, higher citrus harvesting costs, and costs incurred earlier than in the prior year.
- Net income benefited from a $9.1 million pretax gain on sales of Polk County land, partly offset by a $1.9 million impairment on Lee County properties held for sale.
- Debt declined by approximately $16.4 million, including repayment of the revolving credit balance. Interest expense decreased 18.0% for the nine months.
- Operating cash flow increased substantially, supported by higher net income and favorable working-capital changes.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that available cash, operating cash generation, and the $60.0 million revolving facility should provide sufficient liquidity for foreseeable working-capital and capital-expenditure needs.
- Management expected fiscal 2013 sugarcane production to increase from approximately 5,200 additional acres planted in fiscal 2012, bringing producing acreage to approximately 13,600.
- Management expected to benefit from higher cattle prices through the remainder of fiscal 2012; most 2011–2012 calves were contracted for sale in the fourth quarter.
- Alico agreed to sell approximately 5,200 acres of Lee County property for $10.0 million, with closings scheduled for July 25 and October 3, 2012. The carrying value was reduced by the recorded $1.9 million impairment.
- Proceeds of approximately $8.7 million from Polk County land sales were held in escrow and were released to the Company on July 31, 2012 after no like-kind exchange property was identified. The remaining $2.0 million Lee County deposit was expected to become available after the October closing.
- The IRS settlement for tax years 2005–2007 required $613,000 of federal tax, approximately $225,000 of federal interest, and estimated state tax, penalties, and interest of approximately $435,000. Federal tax was paid and federal interest was paid in July 2012; the filing does not provide a final state payment amount.
- A shareholder derivative action was settled and approved by the court in May 2012. The Company continued seeking recovery of defense fees and costs.
- The agricultural business is seasonal and exposed to weather, crop yields, commodity prices, citrus market prices, sugarcane pricing, cattle prices, and operating costs. Management stated that there were no material changes to previously disclosed risk factors or market-risk disclosures.
- Related-party transactions included citrus marketing and land sales involving entities controlled by or affiliated with significant shareholders, directors, or their relatives. These transactions were subject to stated Audit Committee or other approval procedures.
- In July 2012, the Board authorized management to proceed with acquiring and permitting land for an initial citrus-tree nursery in North Central Florida; financial commitments were not clearly provided.
Important Facts to Verify
- Completion, timing, and cash proceeds from the Lee County property sales and related release of the $2.0 million deposit.
- Whether the $9.1 million Polk County land-sale gain and $1.9 million impairment are representative of ongoing earnings; both are unusual real-estate items.
- Execution and returns from the sugarcane expansion and the expected fiscal 2013 production increase.
- Final state tax settlement amounts and any remaining tax-related obligations.
- Terms and covenant compliance under the amended credit agreement, including the reduced minimum current-ratio requirement of 1.50:1.00.
- Commodity-price, weather, crop-yield, citrus disease, and agricultural-cost risks, particularly given the decline in third-quarter citrus margins.
- Nature and financial impact of related-party land sales, crop marketing, purchases, and litigation-fee reimbursements.