ALICO, INC. 10-Q Summary: Period Ended June 30, 2010
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2010, and the nine-month period ended June 30, 2010, for Alico, Inc. Alico is a Florida-based agricultural and real estate company with operations in citrus groves, sugarcane, cattle, land leasing, and real estate development. The company is a non-accelerated filer. As of August 2, 2010, there were 7,379,229 shares of common stock outstanding.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Jun 30, 2010 | 9 Months Ended Jun 30, 2010 | 9 Months Ended Jun 30, 2009 |
|---|---|---|---|
| Total Operating Revenue | $28,440 | $74,212 | $84,821 |
| Gross Profit | $5,215 | $9,268 | $7,085 |
| Net Income | $2,288 | $2,268 | $2,490 |
| Diluted EPS | $0.31 | $0.31 | $0.34 |
| Cash and Cash Equivalents | $19,415 | $19,415 | $25,465 |
| Total Debt (Notes Payable) | $81,274 | $81,274 | $78,928 |
| Working Capital | $34,301 | $34,301 | $38,691 |
| Operating Cash Flow (9 Months) | N/A | $12,795 | $18,596 |
Liquidity: The company maintains a current ratio of 4.00:1. A revolving line of credit of up to $75.0 million exists, with $41.5 million available at June 30, 2010.
Material Changes vs. Prior Period
- Revenue Decline: Total operating revenue decreased 8.8% for the quarter and 12.5% for the nine-month period compared to the prior year. This was primarily driven by reduced revenues from sugarcane (due to replanting cycles) and cattle (due to timing of sales).
- Profitability Improvement: Despite lower revenue, gross profit increased significantly (39.6% for the quarter and 30.8% for the nine months) due to higher citrus prices following freezes in Florida and cost control measures. Operating profit for the nine months turned from a loss of $398,000 in 2009 to a profit of $5,027,000 in 2010.
- Net Income Comparison: Net income for the nine months ended June 30, 2010 ($2.27 million) was lower than the prior year ($2.49 million). The prior year included a $7.0 million one-time settlement payment from a vendor classified as "other income," which is not present in the current period.
- Investment Activity: In May 2010, Alico invested $12.15 million for a 39% equity interest in Magnolia TC 2, LLC, a fund acquiring tax certificates on delinquent Florida properties. This generated $846,000 in investment income for the quarter.
Guidance, Outlook, and Risks
- Dividend Suspension: The Board of Directors has temporarily suspended dividends until operating results improve. No dividends were paid in the current quarter or nine-month period.
- Real Estate Foreclosure: A significant legal proceeding involves a $52.2 million mortgage held by Alico-Agri on a 4,157-acre parcel in Lee County. A final summary judgment of foreclosure was signed in July 2010, with an auction scheduled for August 18, 2010. Alico has the option to retain the property up to the mortgage balance or allow a third-party sale.
- Operational Shifts: Vegetable operations were ceased in June 2010 due to recurring losses from freezing temperatures. Assets are being redeployed to other divisions. Sugarcane production is expected to recover in fiscal year 2011 following replanting efforts.
- Legal Proceedings: A shareholder derivative action filed in 2008 alleging breaches of fiduciary duty by directors remains pending. A Special Committee of Independent Directors recommended dismissing the litigation, and a motion to dismiss has been filed.
- Market Risks: The company faces risks related to volatile agricultural commodity prices, weather conditions (freezes), and depressed Florida real estate markets affecting the timing and value of land sales.
Investor Verification Checklist
- Verify the outcome of the August 18, 2010, auction for the Lee County property and whether Alico retains the asset or receives cash proceeds.
- Monitor the performance of the new Magnolia TC 2, LLC investment and its impact on future interest and investment income.
- Track the recovery of sugarcane production volumes and pricing in the upcoming fiscal year 2011.
- Review the status of the shareholder derivative lawsuit and any potential financial impact from the litigation.
- Assess the company's ability to generate sufficient cash flow to service its $81.3 million debt load without dividend payments.