ALICO, INC. 10-Q Summary: Period Ended March 31, 2011
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 2011 for ALICO, INC., a land management company operating in Central and Southwest Florida. The company manages approximately 139,607 acres and operates through six reportable segments: Bowen Brothers Fruit, Citrus Groves, Sugarcane, Cattle, Real Estate, and Leasing. The company is a non-accelerated filer.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2011 | Six Months Ended Mar 31, 2011 |
|---|---|---|
| Total Operating Revenue | $36.49 million | $53.05 million |
| Gross Profit | $8.07 million | $10.56 million |
| Net Income | $2.71 million | $2.62 million |
| Diluted EPS | $0.37 | $0.36 |
| Cash from Operations (6mo) | $8.94 million | |
| Total Debt Outstanding | $66.57 million | |
| Available Credit | $37.25 million | |
| Working Capital | $22.76 million |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 15.3% quarter-over-quarter and 15.9% year-over-year (six months), driven primarily by favorable market pricing for citrus and sugarcane, and increased sugarcane production from replanting efforts.
- Profitability Surge: Net income for the three months ended March 31, 2011, doubled to $2.71 million from $1.35 million in the prior year. For the six-month period, the company reported a net income of $2.62 million compared to a net loss of $20,000 in the prior year.
- Segment Performance:
- Citrus Groves: Revenue up 19.2% QoQ; gross profit up 60.2% due to higher prices and yields.
- Sugarcane: Revenue up 75.5% QoQ; gross profit turned positive ($214k) from a loss in the prior year.
- Vegetables: Operations were discontinued in June 2010, eliminating prior period losses.
- Interest Expense: Decreased 24.1% QoQ and 37.9% YoY (six months) due to lower interest rates following a refinancing in September 2010.
- Investment Income: Reported a net loss of $1.57 million for the quarter, largely due to a $1.7 million write-off of allocated surplus from Farm Credit of Florida, which suspended distributions.
Outlook, Risks, and Contingencies
- IRS Dispute (Material Contingency): The IRS issued Revenue Agent Reports challenging tax positions for years 2005–2007, claiming additional taxes and penalties of $29.8 million. The company intends to vigorously defend these positions. Management notes that an adverse outcome could materially affect liquidity, though they believe the issues are primarily timing-related regarding deferred taxes.
- Legal Proceedings: A shareholder derivative action filed in 2008 remains pending; the company has filed a motion to dismiss based on a Special Committee investigation.
- Capital Expenditures: The company purchased a new building for $2.4 million in March 2011 for future corporate office relocation. Additional spending included $2.6 million for sugarcane expansion.
- Stock Repurchase: The Board authorized the repurchase of up to 350,000 shares. As of March 31, 2011, 281,232 shares remained available for purchase.
Investor Verification Checklist
- IRS Tax Dispute: Verify the status of the $29.8 million tax and penalty claim and the company's legal strategy.
- Commodity Pricing: Monitor future market prices for citrus and sugarcane, as revenue growth is heavily dependent on favorable pricing.
- Weather Impact: Assess potential risks from freezing weather to citrus crops, which recently caused industry-wide yield reductions.
- Liquidity Position: Review the impact of the $1.7 million Farm Credit write-off on future investment income projections.
- Debt Covenants: Confirm continued compliance with loan covenants, particularly given the significant debt load relative to cash flow.