Alico, Inc. 2017 Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2017. The request metadata references “2016 Q4,” but the supplied filing is Alico’s fiscal 2017 Form 10-K.
Business Context
Alico is a Florida agribusiness and land-management company owning approximately 121,775 acres across 12 Florida counties, including about 90,000 acres of mineral rights. Its segments are Alico Citrus, Conservation and Environmental Resources, and Other Operations. Citrus generated 95.1% of fiscal 2017 operating revenue. The company had 283 full-time employees.
Key Financial Metrics
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Operating revenue | $129.829 million | $144.196 million | Down 10.0% |
| Gross profit | $8.930 million | $35.059 million | Down 74.5% |
| Operating income (loss) | $(6.094) million | $21.846 million | Declined $27.940 million |
| Net income (loss) attributable to common stockholders | $(9.451) million | $6.993 million | Turned to loss |
| Basic and diluted EPS | $(1.14) | $0.84 | Declined $1.98 |
| Cash flow from operations | $28.229 million | $30.357 million | Down 7.0% |
| Capital expenditures | $13.353 million | $14.305 million | Down $0.952 million |
| Cash and cash equivalents | $3.395 million | $6.625 million | Down $3.230 million |
| Total assets | $419.182 million | $455.445 million | Down $36.263 million |
| Total debt principal | $186.476 million | $202.219 million | Down $15.743 million |
| Dividends declared per share | $0.24 | $0.24 | No change |
Fiscal 2017 included approximately $14.688 million of Hurricane Irma-related inventory casualty and net-realizable-value adjustments, approximately $9.346 million of long-lived-asset impairments, approximately $9.141 million of interest expense, and a $2.181 million gain on asset sales. The reported tax benefit was $3.846 million.
Operating Performance and Material Changes
- Alico Citrus: Revenue declined 10.1% to $123.441 million and gross profit declined 67.1% to $11.494 million. Processed boxes harvested fell 17.8% to 7.259 million, and pound solids produced fell 17.1% to 42.611 million. Higher pricing partially offset lower volume.
- Conservation and Environmental Resources: Revenue declined 15.5% to $4.793 million and gross loss widened to $4.021 million, primarily reflecting asset impairments and higher other expenses.
- Other Operations: Revenue increased 28.1% to $1.595 million, while gross profit increased to $1.457 million.
- General and administrative expense increased 13.7% to $15.024 million, principally because of executive employment, separation, consulting, and stock-compensation costs.
- Operating cash flow remained positive but declined 7.0%. Financing activities used $21.374 million, including net debt repayment, dividends, share repurchases, and capital-lease payments.
Debt, Liquidity, and Commitments
- Debt principal outstanding was $186.476 million, with $4.550 million classified as current. Debt was secured primarily by citrus groves, ranch land, current assets, and other property.
- At September 30, 2017, the company had no outstanding balance on its revolving credit lines. Approximately $59.7 million was available under the $70 million working-capital line and $25 million was available under the revolving line of credit, subject to borrowing conditions and letters of credit.
- Outstanding standby letters of credit totaled approximately $10.3 million. Total contractual obligations disclosed were $261.269 million, including debt, interest, retirement benefits, leases, and tree-purchase commitments.
- The company reported compliance with its debt covenants, including minimum debt-service coverage, tangible-net-worth, current-ratio, debt-to-assets, and capital-expenditure requirements.
- Management stated that cash on hand, operating cash flow, asset sales, and available credit facilities should satisfy working-capital needs, debt service, and capital expenditures for at least the next 12 months. This assessment is subject to hurricane-related revenue and cash-flow pressure, covenant compliance, and credit availability.
Outlook, Commentary, Risks, and Unusual Items
- Hurricane Irma: Management expects fiscal 2018 citrus production to decline 40%–45% from the prior season, with approximately 4.0–4.4 million boxes expected. Recovery is expected to take at least two seasons, with pre-hurricane production potentially returning by fiscal 2020. Insurance and possible federal relief recoveries had not been recognized because the amount was not yet probable and reasonably estimable.
- Alico 2.0: The modernization program targets citrus expenses of $2,164 per acre versus $3,314 in fiscal 2016, cost per pound solid of $1.56 versus $2.14, and more than a 25% reduction in citrus general and administrative expense over two years. The program includes outsourcing selected activities, selling non-core assets, closing the Gainesville nursery, and ending direct cattle operations in favor of leasing the ranch.
- The company plans to plant more than 400,000 trees in fiscal 2018 and expects capital expenditures of approximately $15 million–$16 million, largely for tree purchases and planting.
- The water-storage contract with the South Florida Water Management District could reimburse up to $4 million of implementation costs and provide annual fixed payments of up to $12 million during operations. No revenue had been recognized; payments depend on permitting, construction completion, compliance, and annual funding approval.
- Tropicana accounted for 85.6% of fiscal 2017 revenue, creating substantial customer-concentration risk. Citrus greening, citrus canker, weather, water availability, labor availability, commodity pricing, and Florida hurricane exposure remain significant risks.
- The largest stockholder, 734 Investors and related controlling persons, beneficially owned approximately 59.5% of outstanding common stock, creating controlled-company and governance risks.
- The shareholder litigation related to the Silver Nip Citrus merger was settled and dismissed with prejudice in fiscal 2016. The company reported no current legal proceedings expected to have a material adverse effect.
- RSM US LLP issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most Important Facts to Verify
- Whether Hurricane Irma insurance proceeds or government relief funds are ultimately received, and whether further inventory or grove impairments are recorded.
- Actual fiscal 2018 box production, pricing, pound solids, operating costs, and cash flow compared with management’s 40%–45% production-decline forecast.
- Whether Alico 2.0 achieves its targeted cost reductions and whether the planned ranch lease, asset sales, and operational shutdowns are completed.
- Availability of revolving credit after letters of credit, compliance with debt covenants, interest-rate exposure, and the company’s ability to service approximately $186.5 million of debt.
- Customer concentration and the continued commercial relationship and pricing terms with Tropicana.
- Permitting, construction progress, funding approvals, and eventual revenue recognition for the water-storage contract.
- The sustainability of the $0.24 annual dividend and ongoing share repurchases given the fiscal 2017 loss and hurricane-related cash-flow risks.