Alico, Inc. Form 10-Q Summary
Reporting period: Three and six months ended March 31, 2012; filed May 10, 2012. The request metadata identifies “2011 Q2,” but the filing is for fiscal 2012 second quarter. Alico is a Florida land-management and agricultural company owning approximately 139,600 acres and operating in citrus, sugarcane, cattle, citrus supply-chain services, land leasing, and real estate.
Financial Results
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Operating revenue | $54.1 million, up 48.3% | $80.2 million, up 51.2% |
| Gross profit | $14.3 million, up 76.9% | $19.8 million, up 87.6% |
| Income from operations | $12.4 million, up 92.1% | $16.0 million, up 129.5% |
| Net income | $7.4 million, up 173.4% | $9.3 million, up 256.9% |
| Diluted EPS | $1.01 versus $0.37 | $1.27 versus $0.36 |
| Operating cash flow | Not separately provided | $13.6 million versus $8.9 million |
Gross margin improved to approximately 26.4% for the quarter and 24.7% for the six-month period, compared with approximately 22.1% and 19.9%, respectively, in the prior comparable periods. Net margin increased to approximately 13.7% for the quarter and 11.7% year to date, compared with 7.4% and 4.9%.
- Agricultural revenue increased 49.8% for the quarter and 52.8% year to date, driven by higher citrus and sugarcane production, an earlier Valencia harvest, and favorable pricing.
- Bowen revenue increased 66.7% for the quarter and 62.8% year to date; Citrus Groves revenue increased 29.3% and 36.0%; Sugarcane revenue increased 102.0% and 83.1%.
- Sugarcane production benefited from approximately 3,202 additional producing acres in fiscal 2012, while management expects approximately 13,600 producing acres in fiscal 2013.
- Interest and investment results improved materially because the prior-year period included a $1.7 million reserve for a Farm Credit patronage interest. Interest expense also declined as debt and average interest rates decreased.
Liquidity, Capital Resources, and Debt
- Cash and cash equivalents were $0.8 million at March 31, 2012, compared with $1.3 million at September 30, 2011. Working capital was $17.3 million, broadly unchanged from $17.4 million.
- Total debt was $49.7 million, down from $57.2 million. Debt consisted principally of an $8.2 million revolving-line balance, a $39.0 million term note, and a $2.5 million mortgage.
- The $60.0 million revolving credit facility had approximately $51.8 million available. The company was in compliance with all debt covenants.
- Cash provided by operations was $13.6 million. Capital expenditures were $7.9 million, including $4.5 million for sugarcane expansion. Financing activities used $8.9 million, including debt repayments and $1.2 million of dividends.
- Management believes cash, operating cash flow, and available revolving credit will provide sufficient liquidity for foreseeable working-capital and capital-expenditure needs.
Material Changes, Outlook, and Unusual Items
- Management attributed the improved results primarily to higher agricultural production, earlier Valencia harvesting, and favorable citrus and sugarcane pricing. Cattle pricing also improved, and management expected continued benefit for the remainder of fiscal 2012.
- The business is seasonal and exposed to weather, agricultural yields, commodity prices, harvesting conditions, and market demand. Interim results are not necessarily indicative of the full fiscal year.
- On April 23, 2012, Alico announced contracts to sell approximately 4,020 acres of surplus Polk County land for approximately $10.1 million. The company expected a pre-tax gain of approximately $9.2 million in the third quarter of fiscal 2012. The buyers are related parties; the transactions were reviewed and approved by the independent Audit Committee.
- The IRS tax examination settlement for 2005–2007 was being finalized. The original IRS claims totaled $31.1 million of taxes and penalties, but the agreed settlement was expected to require approximately $1.4 million of federal and state taxes, interest, and related amounts. Approximately $0.7 million had already been paid; final IRS interest and state amounts remained subject to computation.
- A shareholder derivative action was settled in April 2012 and approved by the court on May 4, 2012. Alico separately sought recovery of attorney fees and costs.
- Bowen had approximately $14.5 million of remaining citrus purchase obligations for fiscal 2012 and 2013, substantially covered by sales agreements totaling approximately $14.6 million.
- Atlantic Blue Group owned approximately 51% of Alico’s common stock and controlled the election of directors. The filing disclosed related-party transactions involving directors, affiliated citrus operations, and the land sales described above.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting or previously disclosed risk factors.
Important Facts for Investors to Verify
- Confirm the closing, cash proceeds, related-party approvals, and approximately $9.2 million gain from the two land sales.
- Monitor the final IRS settlement, including federal interest, state taxes, and any remaining receivable or payment obligations.
- Assess the sustainability of the strong agricultural results after the favorable harvest timing, production increases, and pricing comparisons.
- Review exposure to weather, citrus and sugarcane prices, crop yields, seasonal working-capital requirements, and floating LIBOR-based borrowing costs.
- Verify debt maturities, revolving-credit availability, covenant compliance, and the effect of continued capital spending on liquidity.
- Evaluate the implications of Atlantic Blue Group’s 51% ownership and the disclosed related-party transactions.