Alico, Inc. Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2014. The filing was signed December 12, 2014. Alico is a Florida agribusiness and land-management company operating approximately 129,200 acres across seven Florida counties, with citrus groves, improved farmland, ranch and conservation land, agricultural supply-chain services, and other operations.
Financial performance and position
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Operating revenue | $88.7 million | $101.7 million | Down 12.8% |
| Gross profit | $20.1 million | $21.7 million | Down 7.3% |
| Gross margin | 22.7% | 21.3% | Improved |
| Income from operations | $7.9 million | $11.9 million | Down 34.2% |
| Operating margin | 8.9% | 11.7% | Declined |
| Net income | $8.1 million | $19.6 million | Down 59.0% |
| Diluted EPS | $1.09 | $2.67 | Down 59.2% |
| Cash flow from operations | $27.5 million | $13.4 million | Up $14.0 million |
| Cash and equivalents | $30.8 million | $24.6 million | Up $6.2 million |
| Total assets | $203.6 million | $198.8 million | Up $4.7 million |
| Long-term debt and current portion | $34.0 million | $36.0 million | Down $2.0 million |
Citrus Groves revenue increased 7.7% to $47.1 million and gross profit increased 38.7% to $16.9 million. Higher citrus prices more than offset a 16.4% decline in boxes harvested and a 14.9% decline in pound solids produced. Citrus represented approximately 53% of operating revenue.
Agricultural Supply Chain Management revenue fell 56.4% to $12.4 million, primarily because management reduced external fruit-handling activity. Improved Farmland revenue declined 6.8% to $20.4 million and generated a $0.9 million gross loss, including an approximately $2.3 million charge related to the transition from sugarcane farming to leasing. Ranch and Conservation revenue increased 21.0% to $8.2 million, with gross profit increasing 29.9% to $3.8 million.
Corporate, general and administrative expense increased 25.6% to $12.2 million, reflecting approximately $2.6 million of change-in-control costs and a $1.8 million increase in professional fees. FY2014 net income also included a $4.8 million gain on the sale of real estate, compared with a $20.3 million gain on a conservation easement in FY2013.
Working capital was $96.4 million at September 30, 2014, compared with $48.3 million in the prior year. The current ratio improved to 7.14-to-1 from 5.20-to-1. The company reported $60.0 million of undrawn revolving credit availability and stated that cash, operating cash flow, and available credit should meet working-capital and capital-expenditure needs for at least 12 months.
FY2014 investing cash outflows were $11.3 million, including $13.1 million of capital expenditures and $16.5 million for a citrus-grove acquisition, partly offset by $14.5 million of proceeds from property disposals. Financing cash outflows were $9.9 million, including $2.0 million of debt repayment, $4.8 million of share repurchases, and $2.8 million of dividends.
Material changes versus the prior comparable period
- Citrus production declined materially, but higher prices increased citrus revenue and gross profit.
- External citrus supply-chain activity was intentionally reduced, sharply lowering revenue and leaving only $0.1 million of segment gross profit.
- Alico entered a triple-net lease with United States Sugar Corporation in May 2014 and ceased directly farming sugarcane.
- On November 21, 2014, after year-end, Alico sold approximately 36,000 sugarcane acres for approximately $97.9 million and assigned the related lease. Improved Farmland subsequently became immaterial to the business.
- The company purchased a 1,241-acre citrus grove for approximately $16.5 million in September 2014.
- Control changed in November 2013 when 734 Agriculture and affiliates acquired approximately 51% of Alico’s voting stock. The transaction resulted in a new board and new chief executive officer, Clayton G. Wilson.
- Dividends declared decreased to $0.24 per share from $0.36 per share. Quarterly dividends were reduced beginning in the third quarter to retain cash.
- Segment reporting was realigned in FY2013, with prior periods reclassified; management stated that consolidated results were unaffected.
Outlook, transactions, risks and unusual items
- Management expected FY2015 citrus boxes per acre to be not materially below FY2014 levels, citrus prices to remain at or above FY2014 levels, and citrus operating expenses per acre to remain broadly in line.
- Management expected agricultural supply-chain gross profit to remain relatively in line with FY2014, while cattle prices and operating expenses were also expected to remain broadly comparable.
- On December 2, 2014, Alico completed the approximately $274 million Orange-Co acquisition, adding approximately 20,263 citrus-grove acres. The transaction included $147.5 million of initial cash consideration, up to $7.5 million of additional consideration, assumed or refinanced debt of approximately $119.0 million, and other liabilities.
- The Orange-Co acquisition was financed through $182.5 million of MetLife term loans, $25.0 million of MetLife revolving commitments, and a $70.0 million Rabobank working-capital facility.
- Alico also entered into a proposed merger with related-party Silver Nip Citrus, potentially requiring issuance of up to 1,463,544 shares initially plus additional contingent shares. Completion was subject to shareholder approval, appraisal, audit, consents, and other conditions.
- The South Florida Water Management District approved an 11-year water-retention contract after year-end. The contract provides for up to $4.0 million of implementation reimbursement and annual payments of up to $12.0 million, subject to compliance and annual funding approval.
- Principal operating risks include citrus greening and citrus canker, hurricanes and other weather events, water availability and regulation, agricultural commodity prices, customer concentration, labor availability, environmental liabilities, and the concentration of future revenue in citrus.
- The company had $34.0 million of term debt outstanding at September 30, 2014, secured by real estate and subject to financial covenants. It was in compliance with those covenants. A one-percentage-point increase in interest rates would have increased annual pre-tax interest expense by approximately $0.35 million.
- There were no material legal proceedings reported. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether the Orange-Co acquisition and related financing materially increase leverage, interest expense, integration requirements, and citrus concentration in subsequent filings.
- The final consideration, share issuance, related-party terms, and completion status of the Silver Nip Citrus merger.
- The sustainability of citrus pricing and production given disease pressure, premature fruit drop, weather exposure, and declining consumer demand for orange juice.
- The accounting and tax treatment of the sugarcane disposition and Section 1031 reinvestment transactions.
- Whether the water-storage contract receives annual funding approvals and generates the anticipated implementation and operating payments.
- Future dividend capacity after the reduction in dividends and the significant post-year-end acquisition financing.
- Customer concentration, particularly the dependence on major citrus processors and the former sugarcane customer.