ALICO, INC. 10-Q Summary: Quarter Ended March 31, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2009, and the six-month period ended March 31, 2009. Alico, Inc. is a Florida-based agricultural and real estate company with operations in citrus, sugarcane, cattle, vegetables, and land leasing. The company is an accelerated filer and is not a shell company. As of May 4, 2009, there were 7,369,201 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Q1 2009 | Q1 2008 | 6 Months 2009 | 6 Months 2008 |
|---|---|---|---|---|
| Total Operating Revenue | $33,346 | $48,182 | $53,640 | $70,834 |
| Gross Profit | $1,052 | $6,155 | $3,342 | $10,426 |
| Net Income | $2,057 | $1,538 | $1,881 | $3,772 |
| Diluted EPS (Net Income) | $0.28 | $0.21 | $0.25 | $0.51 |
| Cash and Equivalents | $22,656 | $54,370 (Sep 08) | $22,656 | $31,599 (Sep 08) |
| Total Debt (Notes Payable) | $88,572 | $137,758 (Sep 08) | $88,572 | $137,758 (Sep 08) |
| Working Capital | $49,354 | $104,930 (Sep 08) | $49,354 | $104,930 (Sep 08) |
| Current Ratio | 4.35:1 | 6.77:1 (Sep 08) | 4.35:1 | 6.77:1 (Sep 08) |
Segment Performance (6 Months 2009): Agricultural operations generated $50.48 million in revenue but reported a gross profit of only $1.34 million, driven by losses in sugarcane ($1.92 million loss) and cattle ($1.02 million loss). Real estate operations contributed $1.37 million in revenue and $0.78 million in gross profit.
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenue decreased 31% year-over-year for the quarter and 24% for the six-month period, primarily due to lower agricultural returns.
- Operating Loss: Profit from continuing operations before other income was a loss of $1.76 million for the quarter and $2.47 million for the six months, compared to profits of $2.27 million and $3.63 million in the prior year periods.
- Debt Reduction: Total notes payable decreased significantly from $137.8 million (Sept 30, 2008) to $88.6 million (March 31, 2009), largely due to a $50 million principal payment on the Revolving Line of Credit (RLOC) funded by the liquidation of investments from the Agri-Insurance subsidiary.
- Unusual Income: Net income was bolstered by a $7.0 million settlement payment from a vendor recognized as "Other income" in the quarter ended March 31, 2009. Without this item, the company would have reported a net loss.
- Inventory Impairments: The company recognized $3.66 million in inventory write-downs for the six months ended March 31, 2009, due to cold weather damage (sugarcane and vegetables) and declining market prices (cattle and vegetables).
Guidance, Outlook, Risks, and Contingencies
- Outlook: Management expects revenues and gross profits for fiscal year 2009 to remain lower than fiscal year 2008 due to reduced agricultural returns. Citrus prices have declined due to increased production and carryover inventories.
- Real Estate Default: On April 22, 2009 (subsequent to the period end), the purchaser (Ginn Companies) defaulted on a land sale contract for the "East parcel" in Lee County, Florida. Alico is evaluating options to reclaim the 4,538-acre property. The net mortgage note receivable of $7.1 million may be reclassified as basis in the property.
- Debt Covenant Modification: On March 30, 2009, the RLOC with Farm Credit of Southwest Florida was modified. The credit limit was reduced from $125 million to $75 million. The equity covenant was eliminated, but the minimum current ratio was increased to 2.5:1, and a new debt coverage ratio of 1.10:1 was instituted. Interest rate spreads increased by 100 basis points.
- Investment Impairment: The company recognized $338,000 in losses related to auction rate municipal bonds and mutual funds deemed to have other-than-temporary declines in value.
- Legal Proceedings: A shareholder derivative action was filed in October 2008 against directors J.D. Alexander and John R. Alexander alleging breaches of fiduciary duty regarding a proposed merger. The suit seeks damages in excess of $1 million.
Key Facts for Investor Verification
- Sustainability of Net Income: Verify the impact of the $7.0 million one-time vendor settlement on the reported net income of $2.06 million for the quarter. Operating results from continuing operations were negative before this item.
- Real Estate Exposure: Assess the financial impact of the Ginn Companies default on the "East parcel" and the potential reclassification of the $7.1 million note receivable.
- Liquidity Position: Confirm the company's ability to maintain the new 2.5:1 current ratio covenant under the modified RLOC, especially given the decline in cash and liquid investments from $78.6 million to $29.5 million.
- Agricultural Volatility: Monitor the recovery of sugarcane and vegetable segments following the $1.4 million in weather-related crop damage and inventory impairments recognized in the quarter.
- Debt Structure: Review the implications of the increased interest rate spreads and the reduction in available credit capacity ($40.4 million remaining) on future capital flexibility.