Alico, Inc. Form 10-K Summary
Reporting period: Fiscal year ended September 30, 2013. The request metadata references “2012 Q4,” but the provided filing is Alico’s fiscal 2013 Form 10-K, filed December 9, 2013.
Business context
Alico is a Florida agribusiness and land-management company owning approximately 130,800 acres across six Florida counties. Operations comprise Citrus Groves, Agricultural Supply Chain Management, Improved Farmland, Ranch and Conservation, and Other Operations, including mining royalties and oil-related activities. The company’s principal products are citrus, sugarcane, cattle, sod, native plants and land-leasing services.
During the fourth quarter of fiscal 2013, Alico realigned its reporting segments to match internal management. Prior periods were reclassified for presentation purposes; consolidated results were unchanged.
Financial performance and liquidity
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Operating revenue | $101.7 million | $127.2 million | (20.1%) |
| Gross profit | $21.7 million | $32.2 million | (32.8%) |
| Income from operations | $11.9 million | $23.7 million | (49.7%) |
| Other income, net | $19.7 million | $5.7 million | +245.1% |
| Net income | $19.6 million | $18.5 million | +6.3% |
| Diluted EPS | $2.67 | $2.51 | +6.4% |
| Cash flow from operations | $13.4 million | $23.6 million | (43.2%) |
| Capital expenditures | $18.9 million | $15.9 million | +18.9% |
| Cash and cash equivalents | $24.6 million | $13.3 million | +$11.3 million |
| Total debt | $36.0 million | $39.9 million | (9.8%) |
Gross margin declined to approximately 21.3% from 25.3%, and operating margin declined to approximately 11.7% from 18.7%. Net margin increased to approximately 19.3% from 14.5%, primarily because of the $20.3 million pre-tax gain from the conservation easement transaction.
Working capital increased to $48.3 million from $34.3 million, and the current ratio improved to 5.20:1 from 3.00:1. A $60 million revolving credit line was available at September 30, 2013, with no revolving balance outstanding. Debt is primarily a term loan secured by real estate and maturing in October 2020. The company reported compliance with all debt covenants.
Material changes versus the prior comparable period
- Citrus Groves revenue declined 21.2% to $43.7 million and gross profit declined 50.2% to $12.2 million. Processed boxes fell 11.2%, pound solids fell 14.9%, and pound solids per box declined from 6.68 to 6.40. Weather, disease and pests, including citrus greening, contributed to lower production; fertilizer costs also increased.
- Agricultural Supply Chain Management revenue declined 41.2% to $28.4 million and gross profit declined 27.8% to $0.5 million, reflecting lower statewide citrus production, lower volumes and lower pricing.
- Improved Farmland revenue increased 43.1% to $21.9 million and gross profit increased 52.7% to $5.7 million. Sugarcane volume increased substantially as producing acreage expanded, although the price per net standard ton declined.
- Ranch and Conservation revenue declined 8.1% to $6.8 million and gross profit declined 23.2% to $3.0 million, mainly because of lower calf pricing and fewer culls sold.
- Corporate, general and administrative expense increased 14.7% to $9.7 million, including approximately $1.8 million of transaction-related costs.
- Operating cash flow declined despite higher net income because the conservation-easement gain is noncash for operating-cash-flow purposes and working-capital changes were less favorable.
- Capital expenditures increased to $18.9 million, including farmland improvements, sugarcane planting, citrus nursery development, breeding-herd purchases and equipment.
Unusual items, outlook and management commentary
- In July 2013, Alico sold a perpetual conservation easement covering approximately 11,600 acres to the USDA for $20.7 million and recorded a gain of approximately $20.3 million. Alico retained title and certain recreational, subsurface-resource and water rights.
- Management expected fiscal 2014 citrus boxes to be not materially below fiscal 2013 levels and expected citrus revenue and gross profit to remain approximately in line, with potential upside from higher pound-solids pricing.
- Management expected fiscal 2014 sugarcane gross profit to decline by approximately $1.0 million to $2.3 million. The sole sugarcane customer indicated expected pricing of $28 to $30 per net standard ton, versus $36.86 in fiscal 2013.
- Ranch and Conservation gross profit was expected to increase by approximately $0.6 million, supported by a larger breeding herd and approximately 600 additional calves scheduled for sale.
- Management expected fiscal 2014 liquidity to remain sufficient, capital expenditures to decrease by approximately $4.5 million to $6.0 million, and most of the remaining Magnolia investment to be returned during fiscal 2014.
- The Board approved a 50% increase in the quarterly cash dividend effective in the first quarter of fiscal 2014; dividends remain subject to quarterly approval.
- On November 19, 2013, 734 Investors and its designee acquired approximately 51% of Alico’s voting stock for $137.8 million, resulting in a change in control. Several directors resigned, new directors were appointed, and Clayton G. Wilson became CEO. Rabo consented to the transaction and CEO change, avoiding a debt default.
- The change in control triggered issuance of 152,403 treasury shares to certain named executive officers, subject to tax withholding. Former CEO JD Alexander entered into a two-year consulting arrangement totaling $2.0 million.
Principal risks and contingencies
- Approximately 20.7% of fiscal 2013 revenue came from USSC, which purchased 100% of Alico’s sugarcane production. Loss or unfavorable renegotiation of this relationship could materially affect results.
- Agricultural results are exposed to hurricanes, freezes, drought, flooding, heat, disease, pests, commodity prices, labor availability, input costs and changing consumer demand. Most crops remain uninsured.
- Citrus greening and citrus canker are present in Florida and have no known cure, creating potential multi-year production impacts.
- Debt covenants require a minimum 1.50:1 current ratio, debt-to-assets of no more than 60%, tangible net worth of at least $80 million and debt coverage of at least 1.15:1. Earnings volatility could create covenant-compliance risk.
- More than 35% of agricultural land is located in a contiguous Hendry County area, increasing geographic and weather concentration.
- Changes to Florida agricultural tax classifications or Green Belt valuation could increase real estate taxes materially.
- Environmental liabilities, water-use restrictions, pesticide exposure, land-use regulation and competition from domestic and foreign producers could adversely affect performance.
- The 51% shareholder has effective control over director elections and corporate matters, while the limited public float may increase share-price volatility.
- Contractual obligations totaled approximately $87.4 million, including debt, interest, citrus purchase contracts, retirement benefits, consulting obligations and leases.
- Management reported no current legal matter expected to have a material adverse effect. The prior IRS examination was settled for federal taxes and interest of approximately $0.8 million plus state payments.
Investor verification checklist
- Verify the sustainability of earnings excluding the $20.3 million conservation-easement gain.
- Reconcile fiscal 2014 citrus production, pound-solids pricing, citrus-greening impacts and fertilizer costs with subsequent results.
- Confirm sugarcane pricing, USSC contract status and the effect of the expected $28 to $30 per-ton price range.
- Review debt-covenant calculations, collateral coverage, floating-rate exposure and the $60 million undrawn revolving facility.
- Assess the cash-flow impact of capital expenditures, dividends, treasury-stock issuance and the expected Magnolia investment distributions.
- Review the financial and governance implications of the November 2013 change in control, including executive compensation, share issuance and consulting obligations.
- Evaluate exposure to weather, water availability, citrus disease, agricultural labor and Florida property-tax classification changes.
- Confirm that segment reclassifications do not obscure like-for-like operating trends; the filing states that consolidated results were unaffected.