ALICO, INC. 10-Q Summary: Quarter Ended June 30, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2009, and the nine-month period ended June 30, 2009, for ALICO, INC. (Alico). Alico 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 August 2, 2009, there were 7,370,043 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | Three Months Ended June 30, 2009 | Nine Months Ended June 30, 2009 |
|---|---|---|
| Total Operating Revenue | $31,181 | $84,821 |
| Gross Profit | $3,743 | $7,085 |
| Net Income | $609 | $2,490 |
| Net Income Per Share (Diluted) | $0.08 | $0.34 |
| Cash and Cash Equivalents | $25,465 | $25,465 (Ending Balance) |
| Net Cash Provided by Operating Activities | N/A | $18,596 |
| Total Debt (Notes Payable) | $81,332 | $81,332 (Ending Balance) |
| Working Capital | $42,508 | $42,508 (Ending Balance) |
| Current Ratio | 4.12:1 | 4.12:1 (Ending Balance) |
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenue decreased 26% for the quarter and 25% for the nine-month period compared to the prior year, primarily driven by lower agricultural returns.
- Profitability: Net income dropped significantly from $4.983 million (quarter) and $8.755 million (nine months) in 2008 to $609,000 and $2.490 million, respectively, in 2009.
- Segment Performance:
- Citrus: Revenues and gross profits declined due to consumer price resistance and high industry inventories.
- Sugarcane: Recorded a loss of $2.335 million for the nine months ended June 30, 2009, compared to a profit of $101,000 in the prior year. This was due to cold weather damage ($1.1 million) and inventory impairments ($1.3 million) related to aging crops.
- Cattle: Recorded a loss of $885,000 for the nine months, attributed to forward corn purchase contracts locking in higher costs before market prices fell.
- Vegetables: Recorded a loss of $1.971 million for the nine months due to cold weather damage and rising production costs.
- Real Estate Default: The purchaser (Ginn Companies) defaulted on the "East parcel" contract in April 2009. Alico has initiated foreclosure proceedings. The net mortgage note receivable of $7.1 million will be reclassified as property basis upon finalization.
- Debt Reduction: Total notes payable decreased from $137.8 million (Sept 30, 2008) to $81.3 million (June 30, 2009), largely due to a $50 million payment on the Revolving Line of Credit (RLOC) funded by the liquidation of the Agri-Insurance subsidiary.
- Unusual Items: A $7.0 million settlement payment from a vendor was recognized as "Other Income" in the second quarter (ended March 31, 2009), boosting nine-month results.
Guidance, Outlook, and Risks
- Outlook: Management expects revenues and gross profits for fiscal year 2009 to remain lower than fiscal year 2008 due to reduced agricultural returns. Significant cost reductions in fuel and inputs will not impact gross profit until fiscal year 2010 crops are harvested.
- Real Estate Strategy: The Board has directed management to search for parties interested in purchasing or leasing portions of the corporation's real estate assets, including ranch properties, to redeploy assets into higher-return uses.
- Dividends: The Board declared a quarterly dividend of $0.1375 per share on July 31, 2009, payable November 15, 2009. Future dividends depend on financial condition and debt covenant compliance.
- Debt Covenants: In March 2009, the RLOC was modified. The total availability was reduced 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.
- Risks:
- Weather: Cold fronts in early 2009 caused approximately $1.4 million in damage to sugarcane and vegetable crops.
- Market Volatility: Prices for agricultural products (citrus, cattle feed) are volatile and largely out of the company's control.
- Real Estate Liquidity: Depressed Florida real estate markets make the timing and value of land sales unpredictable.
- Investment Impairments: The company recognized $213,000 in other-than-temporary impairments on auction rate securities during the quarter.
- Legal Proceedings: A shareholder derivative suit filed in October 2008 against directors regarding a 2004 merger proposal is ongoing. A Special Committee of Independent Directors recommended dismissing the litigation, and a motion to dismiss has been filed.
Investor Verification Checklist
- Real Estate Foreclosure: Verify the status and potential recovery value of the $7.1 million net mortgage note receivable from the Ginn Companies default.
- Agricultural Crop Cycles: Assess the impact of aging sugarcane plantings on fiscal year 2010 yields and the company's strategy for replanting.
- Debt Covenant Compliance: Monitor the company's ability to maintain the new 2.5:1 current ratio and 1.10:1 debt coverage ratio under the modified RLOC.
- Investment Portfolio: Review the liquidity status of the $5.5 million in auction rate securities and potential for further impairments.
- Cost Structure: Evaluate the timeline for realizing lower input costs (fuel, fertilizer) in gross margins, which is projected for fiscal year 2010.