Form 10-Q
Table of Contents

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
     
þ    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2009
or
     
o   Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 0-261
Alico, Inc.
(Exact name of registrant as specified in its charter)
     
Florida   59-0906081
     
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
P.O. Box 338, LaBelle, FL   33975
     
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: 863-675-2966
N/A
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes þ No
There were 7,370,043 shares of common stock, par value $1.00 per share, outstanding at August 2, 2009.
 
 

 

 


 

Index
Alico, Inc.
Form 10-Q
For the quarter ended June 30, 2009
       
   
 
   
  3  
 
   
  23  
 
   
  32  
 
   
  32  
 
   
   
 
   
  32  
 
   
  33  
 
   
  33  
 
   
  33  
 
   
  33  
 
   
  33  
 
   
  33  
 
   
  34  
 
   
 Exhibit 31.1
 Exhibit 31.2
 Exhibit 32.1
 Exhibit 32.2

 

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Part I. Financial Information
Item 1. Financial Statements
ALICO, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Operating revenue
                               
Agricultural operations
  $ 30,424     $ 41,535     $ 80,905     $ 107,102  
Non-agricultural operations
    757       611       2,544       2,009  
Real estate operations
          1       1,372       3,870  
 
                       
Total operating revenue
    31,181       42,147       84,821       112,981  
 
                       
 
                               
Operating expenses
                               
Agricultural operations
    26,873       35,292       76,010       94,023  
Non-agricultural operations
    334       204       907       448  
Real estate operations
    231       294       819       1,727  
 
                       
Total operating expenses
    27,438       35,790       77,736       96,198  
 
                       
 
                               
Gross profit
    3,743       6,357       7,085       16,783  
Corporate general and administrative
    1,671       3,568       7,483       10,365  
 
                       
Profit (loss) from continuing operations
    2,072       2,789       (398 )     6,418  
 
                               
Other income (expenses):
                               
Profit on sales of bulk real estate, net
                1,546       817  
Interest and investment income (loss), net
    (151 )     1,184       826       6,582  
Interest expense
    (1,122 )     (1,400 )     (4,459 )     (4,969 )
Other
    (33 )     97       6,985       82  
 
                       
 
                               
Total other income (expense) net
    (1,306 )     (119 )     4,898       2,512  
 
                       
 
                               
Income from continuing operations before income taxes
    766       2,670       4,500       8,930  
Provision for (benefit from) income taxes
    157       (3,129 )     2,010       (752 )
 
                       
Income from continuing operations
    609       5,799       2,490       9,682  
Loss from discontinued operations, net of taxes
          (816 )           (927 )
 
                       
 
                               
Net income
  $ 609     $ 4,983     $ 2,490     $ 8,755  
 
                       
 
                               
Weighted-average number of shares outstanding
    7,367       7,364       7,368       7,364  
 
                       
 
                               
Weighted-average number of shares outstanding assuming dilution
    7,370       7,389       7,374       7,383  
 
                       
 
                               
Per share amounts- income from continuing operations:
                               
Basic
  $ 0.08     $ 0.79     $ 0.34     $ 1.31  
Diluted
  $ 0.08     $ 0.78     $ 0.34     $ 1.31  
 
                               
Per share amounts- net income
                               
Basic
  $ 0.08     $ 0.68     $ 0.34     $ 1.19  
Diluted
  $ 0.08     $ 0.67     $ 0.34     $ 1.19  
Dividends
  $ 0.14     $ 0.28     $ 0.55     $ 0.83  
See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
                 
    (Unaudited)        
    June 30,     September 30,  
    2009     2008  
 
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 25,465     $ 54,370  
Investments
    3,404       24,267  
Accounts receivable, net
    4,245       5,394  
Federal income tax receivable
    4,200       6,388  
Mortgages and notes receivable
    72       2,830  
Inventories
    16,295       27,451  
Deferred tax asset
    1,630       1,507  
Other current assets
    822       923  
 
           
 
               
Total current assets
    56,133       123,130  
 
           
 
               
Mortgages and notes receivable, net of current portion
    7,271       4,774  
Investments, deposits and other non-current assets
    9,606       6,975  
Deferred tax assets
    6,054       6,056  
Cash surrender value of life insurance, designated
    5,815       7,585  
Property, buildings and equipment
    183,252       181,429  
Less: accumulated depreciation
    (58,639 )     (56,017 )
 
           
 
               
Total assets
  $ 209,492     $ 273,932  
 
           
(continued)

 

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ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)
                 
    (Unaudited)        
    June 30,     September 30,  
    2009     2008  
 
LIABILITIES & STOCKHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 2,252     $ 1,847  
Income taxes payable
          281  
Notes payable
    5,051       5,470  
Accrued expenses
    2,977       3,372  
Dividend payable
    1,013       2,027  
Accrued ad valorem taxes
    1,408       2,270  
Other current liabilities
    924       2,933  
 
           
 
               
Total current liabilities
    13,625       18,200  
 
               
Notes payable, net of current portion
    76,281       132,288  
Deferred retirement benefits, net of current portion
    3,186       4,151  
Commissions and deposits payable
    2,616       3,800  
 
           
 
               
Total liabilities
    95,708       158,439  
 
           
 
               
Stockholders’ equity:
               
Common stock
    7,377       7,376  
Additional paid in capital
    9,552       9,474  
Treasury stock
    (376 )     (64 )
Accumulated other comprehensive income (loss)
    7       (92 )
Retained earnings
    97,224       98,799  
 
           
 
               
Total stockholders’ equity
    113,784       115,493  
 
           
 
               
Total liabilities and stockholders’ equity
  $ 209,492     $ 273,932  
 
           
See accompanying Notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
                 
    Nine months ended  
    June 30,  
    2009     2008  
 
Net cash provided by operating activities
  $ 18,596     $ 26,622  
 
               
Cash flows from investing activities:
               
Purchases of property and equipment
    (5,141 )     (4,418 )
Purchases of investments
    (9,127 )     (40,654 )
Proceeds from sales of property and equipment
    466       1,478  
Proceeds from sales of investments
    26,948       48,318  
Note receivable collections
    1,776       2,844  
 
           
 
               
Net cash provided by investing activities
    14,922       7,568  
 
           
 
               
Cash flows from financing activities:
               
Principal payments on notes payable
    (80,462 )     (37,232 )
Proceeds from notes payable
    24,036       21,959  
Proceeds from stock option exercises
    16       31  
Treasury stock purchases
    (934 )     (1,196 )
Dividends paid
    (5,079 )     (6,073 )
 
           
 
               
Net cash used for financing activities
    (62,423 )     (22,511 )
 
           
 
               
Net (decrease) increase in cash and cash equivalents
  $ (28,905 )   $ 11,679  
 
               
Cash and cash equivalents:
               
At beginning of period
  $ 54,370     $ 31,599  
 
           
 
               
At end of period
  $ 25,465     $ 43,278  
 
           
 
               
Supplemental disclosures of cash flow information
               
Cash paid for interest, net of amount capitalized
  $ 4,818     $ 6,664  
 
           
Cash paid for income taxes
  $ 1,482     $  
 
           
 
               
Supplemental schedule of non-cash investing activities:
               
Reclassification of breeding herd to property and equipment
  $ 552     $ 458  
 
           
See accompanying notes to Condensed Consolidated Financial Statements.

 

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ALICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except for per share data)
1. Basis of financial statement presentation:
The accompanying condensed consolidated financial statements (“Financial Statements”) include the accounts of Alico, Inc. (“Alico”) and its wholly owned subsidiaries, Alico Land Development, Inc., Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”) (collectively referred to as the “Company”) after elimination of all significant intercompany balances and transactions.
The following Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading.
The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company’s annual report for the fiscal year ended September 30, 2008. In the opinion of Management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of its consolidated financial position at June 30, 2009 and September 30, 2008 and the consolidated results of operations and cash flows for the three and nine month periods ended June 30, 2009 and 2008.
The Company is involved in agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2008 have been reclassified to conform to the 2009 presentation.

 

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2. Investments, deposits and other non-current assets:
The Company’s investments, deposits and other non-current assets consisted of the following:
                                                 
    June 30, 2009     September 30, 2008  
    (Unaudited)        
    Current     Non-current     Total     Current     Non-current     Total  
Auction rate municipal bonds
  $     $ 3,841     $ 3,841     $ 20,591     $ 2,755     $ 23,346  
Auction rate mutual funds (municipals)
          1,111       1,111             1,325       1,325  
U.S. Treasury notes and bonds
                      1,599             1,599  
Corporate bonds
    2,008             2,008       140             140  
Certificates of deposit
    1,396       117       1,513       1,937             1,937  
 
                                   
Available for sale securities
    3,404       5,069       8,473       24,267       4,080       28,347  
Cooperative retains receivable, net
          1,252       1,252             1,095       1,095  
Stock in agricultural cooperatives
          732       732             804       804  
Escrowed funds
          150       150             150       150  
Intangibles
          614       614             629       629  
Tax certificates
          1,305       1,305                    
Other
          484       484             217       217  
 
                                   
Total
  $ 3,404     $ 9,606     $ 13,010     $ 24,267     $ 6,975     $ 31,242  
 
                                   
The Company reports available for sales securities at estimated fair value. Unrealized gains and losses occurring solely due to changes in market interest rates are recorded as other comprehensive income, net of related deferred taxes, until realized. During the quarter ended June 30, 2009, the Company recognized losses totaling $213 thousand which were determined to be other than temporary impairments in fair values. These losses related to the auction rate municipal bonds and mutual funds held by the Company, for which there is not currently an active market.
The cost and estimated fair value of available for sale securities at June 30, 2009 and September 30, 2008 were as follows:
                                                                 
    June 30, 2009     September 30, 2008  
    (Unaudited)        
            Gross     Estimated             Gross     Estimated  
            Unrealized     Fair             Unrealized     Fair  
    Cost     Gains     Losses     Value     Cost     Gains     Losses     Value  
 
                                                               
Municipal bonds
  $ 3,841     $     $     $ 3,841     $ 23,493     $ 3     $ (150 )   $ 23,346  
Certificates of Deposit
    1,513                   1,513       1,937                   1,937  
US Treasury Notes & Bonds
                            1,592       7             1,599  
Mutual Funds
    1,111                   1,111       1,325                   1,325  
Corporate bonds
    2,001       7             2,008       150             (10 )     140  
 
                                               
 
                                                               
Total
  $ 8,466     $ 7     $     $ 8,473     $ 28,497     $ 10     $ (160 )   $ 28,347  
 
                                               
Non current portion
                            (5,069 )                             (4,080 )
 
                                                           
Current
                          $ 3,404                             $ 24,267  
 
                                                           

 

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The aggregate fair value of investments in debt instruments (net of mutual funds of $1,111) as of June 30, 2009 by contractual maturity date consisted of the following:
         
Due within 1 year
  $ 1,396  
Due between 1 and 2 years
    2,008  
Due between 2 and 3 years
     
Due between 3 and 4 years
     
Due between 4 and 5 years
     
Due beyond five years
    3,958  
 
     
 
       
Total
  $ 7,362  
 
     
There were no gross unrealized losses that were deemed to be temporarily impaired at June 30, 2009.

 

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3. Mortgages and notes receivable:
The balances of the Company’s mortgages and notes receivable were as follows:
                 
    June 30,     September 30,  
    2009     2008  
    (unaudited)        
 
               
Mortgage notes receivable on retail land sales
  $ 186     $ 205  
Mortgage notes receivable on bulk land sales
    52,320       54,108  
Note receivable- other
    86       90  
 
           
Total mortgage and notes receivable
    52,592       54,403  
Less: Deferred revenue
    (45,246 )     (46,793 )
Discount on notes to impute market interest
    (3 )     (6 )
Current portion
    (72 )     (2,830 )
 
           
 
               
Non-current portion
  $ 7,271     $ 4,774  
 
           
The mortgage note receivable on bulk land sales relates to a parcel in Lee County, Florida referred to as the “East parcel” which was sold to the Ginn Companies (“Ginn”). In July 2005, Alico’s subsidiary, Alico-Agri, entered into a sales contract for the East property, consisting of approximately 4,538 acres for a total sales price of $62.9 million. At the time of the sale, Alico-Agri received a down payment of $6.2 million and a mortgage note of $56.6 million in exchange for the East parcel.
Alico-Agri records real estate sales following the provisions in Financial Accounting Standards Board, or FASB, Statement of Financial Accounting Standards No. 66, “Accounting for Sales of Real Estate,” Under these guidelines, gains from commercial or bulk land sales are not recognized until payments received for property to be developed within two years after the sale represent a 20% continuing interest in the property or for property to be developed after two years, a 25% continuing interest in the property according to the installment sales method. The continuing interest thresholds for gain recognition have not been met for the East contract and Alico-Agri is recognizing gains proportionate to principal receipts through deferred gain accounts which serve to discount the mortgage note receivables under the installment method.
In November 2008, Alico-Agri received a principal payment of $1.8 million on the East contract. Alico-Agri recognized a profit of $1.5 million as non-operating revenue under the installment method related to the receipt. Additionally during the quarter ended December 31, 2008, the Company recognized $1.2 million of operating revenue upon the expiration of an option contract that had previously been deferred.
Interest was scheduled to accrue on the unpaid balance of the note and be paid in quarterly installments. The note was scheduled to bear interest at HSH LIBOR plus 150 basis points from September 29, 2008 to September 28, 2009, HSH LIBOR plus 200 basis points from September 29, 2009 to September 28, 2010 and HSH LIBOR plus 250 basis points thereafter until the note is paid in full.
In April 2009, the purchaser defaulted on the East parcel contract. Under the terms of the contract, a quarterly interest payment of $283 thousand was due on March 30, 2009 but the payment was not received. Alico-Agri has initiated foreclosure proceedings and ceased accruing interest on the note at March 31, 2009. A development order for the property allows up to 336 residential units. Pursuant to the contract, Ginn is entitled to receive a release of 399 acres in exchange for prior principal payments. When the foreclosure becomes final, the net mortgage note receivable of $7.1 million (consisting of the note balance of $52.3 million less deferred revenue of $45.2 million), plus accrued interest through March 31, 2009 of $0.3 million, reduced by the associated commissions payable account of $2.6 million will be reclassified as basis in the property.

 

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4. Inventories:
A summary of the Company’s inventories is shown below:
                 
    June 30,     September 30,  
    2009     2008  
    (unaudited)      
 
               
Unharvested fruit crop on trees
  $ 10,702     $ 14,322  
Unharvested sugarcane
    1,508       5,978  
Beef cattle
    3,464       5,065  
Unharvested sod
    320       449  
Plants and vegetables
    270       1,563  
Rock, fill and other
    31       74  
 
           
 
               
Total inventories
  $ 16,295     $ 27,451  
 
           
The following schedule details net realizable value adjustments to the Company’s inventories for the periods reported. All adjustments to inventory resulted from changing market conditions for the respective crops and were realized as cost of sales in the period of adjustment (unaudited):
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Unharvested citrus
  $     $     $ 878     $  
Unharvested sugarcane
    716             1,286        
Beef cattle
          549       1,011       1,552  
Unharvested sod
          461       538       461  
Unharvested vegetables
                658       261  
Rock, fill and other
                       
 
                       
Total
  $ 716     $ 1,010     $ 4,371     $ 2,274  
 
                       

 

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5. Income taxes:
The provision for income taxes for the three and nine months ended June 30, 2009 and June 30, 2008 is summarized as follows (unaudited):
                                                 
    Three months ended June 30,     Nine months ended June 30,  
    2009     2009  
    Continuing     Discontinued             Continuing     Discontinued        
    Operations     Operations     Total     Operations     Operations     Total  
Current
                                               
Federal
  $ 134     $     $ 134     $ 1,755     $     $ 1,755  
State
    23             23       433             433  
 
                                   
Total current
    157             157       2,188             2,188  
 
                                               
Deferred
                                               
Federal
                      (121 )           (121 )
State
                      (57 )           (57 )
 
                                   
Total deferred
                      (178 )           (178 )
 
                                   
 
                                               
Total Provision
  $ 157     $     $ 157     $ 2,010     $     $ 2,010  
 
                                   
                                                 
    Three months ended June 30,     Nine months ended June 30,  
    2008     2008  
    Continuing     Discontinued             Continuing     Discontinued        
    Operations     Operations     Total     Operations     Operations     Total  
Current
                                               
Federal
  $ (380 )   $ (420 )   $ (800 )   $ 1,414     $ (477 )   $ 937  
State
    546       (77 )     469       865       (87 )     778  
 
                                   
Total current
    166       (497 )     (331 )     2,279       (564 )     1,715  
 
                                               
Deferred
                                               
Federal
    (2,431 )           (2,431 )     (2,529 )           (2,529 )
State
    (864 )           (864 )     (502 )           (502 )
 
                                   
Total deferred
    (3,295 )           (3,295 )     (3,031 )           (3,031 )
 
                                   
 
                                               
Total Provision
  $ (3,129 )   $ (497 )   $ (3,626 )   $ (752 )   $ (564 )   $ (1,316 )
 
                                   
The Internal Revenue Service (“IRS”) is currently auditing Alico’s amended tax returns for the fiscal years ended August 31, 2007, 2006 and 2005 and the short period return filed for the transition month ended September 30, 2007. Alico has extended the statute of limitations on the originally filed 2005 tax return to June 30, 2010 pursuant to a request by IRS Exams.

 

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6. Indebtedness:
The following table reflects outstanding debt under the Company’s various loan agreements:
                                         
    Revolving line             Mortgage note              
    of credit     Term note     payable     All other     Total  
June 30, 2009
                                       
Principal balance outstanding
    28,540       46,749       6,017       26       81,332  
Remaining available credit
    46,460                         46,460  
Effective interest rate
    2.80 %     6.79 %     6.68 %   Various          
Scheduled maturity date
  Aug. 2012     Sept. 2018     Mar. 2014     Various          
Collateral
  Real Estate     Real Estate     Real Estate     Various          
 
                                       
September 30, 2008
                                       
Principal balance outstanding
    80,740       50,000       6,967       51       137,758  
Remaining available credit
    44,260                         44,260  
Effective interest rate
    4.25 %     6.79 %     6.68 %   Various          
Scheduled maturity date
  Aug. 2011     Sept. 2018     Mar. 2014     Various          
Collateral
  Real Estate     Real Estate     Real Estate     Various        
Alico, Inc. has a Term Note, a Mortgage and a Revolving Line of Credit (RLOC) with Farm Credit of Southwest Florida. All three agreements are cross collateralized by 7,680 acres of real estate in Hendry County used for farm leases, sugarcane and citrus production. The Term Note and Revolving Line of Credit are additionally collateralized by 43,847 acres of real estate in Hendry County used for cattle ranching, farm and recreational leases.
The Term Note calls for equal payments of principal and interest of $1.7 million per quarter over a ten year term until maturity. The Mortgage note calls for monthly principal payments of $106 thousand plus accrued interest until maturity.
On March 30, 2009 the Company modified its RLOC with Farm Credit of Southwest Florida. According to the terms of the modification, the total availability of funds pursuant to the RLOC was reduced from $125 million to $75 million. Additionally, several covenants were modified as follows: a) the covenant requiring the Company to maintain stockholder equity of at least $110 million was eliminated in its entirety b) the minimum current ratio was increased to 2.5 to 1 from 2.0 to 1 and c) the fixed charge coverage ratio was replaced by a debt coverage ratio requiring the Company to maintain a debt coverage of not less than 1.10 to 1 on a rolling four quarter basis. The maturity date of the RLOC was extended from August 1, 2011 to August 1, 2012. The interest rate index was changed from 3 month LIBOR to 1 month LIBOR, and the interest rate spreads increased by 100 basis points. The Company also pledged an additional 10,147 acres of real estate in Hendry County, Florida bringing the total acres pledged to 51,527. In addition to the covenants discussed above, the agreements set limitations on the extension of loans or additional borrowings by Alico or any subsidiary. The covenants also restrict Alico’s activities regarding investments, liens, borrowing and leasing. The RLOC provides $75.0 million which may be used for general corporate purposes including: (i) the normal operating needs of Alico and its operating divisions, (ii) the purchase of capital assets and (iii) the payment of dividends. The Revolving Line of Credit also allows for an annual extension at the lender’s option.
The Company’s Chairman of the Board of Directors, John R. Alexander, was a member of the Board of Directors of the Company’s primary lender, Farm Credit of Southwest Florida from 1992 to April 2009. During his tenure, Mr. Alexander abstained from voting on matters that directly affected the Company.

 

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Maturities of the Company’s debt were as follows:
         
    June 30,  
    2009  
Due within 1 year
  $ 5,051  
Due between 1 and 2 years
    5,305  
Due between 2 and 3 years
    5,580  
Due between 3 and 4 years
    34,424  
Due between 4 and 5 years
    5,885  
Due beyond five years
    25,087  
 
     
Total
  $ 81,332  
 
     
Interest costs expensed and capitalized to property, buildings and equipment were as follows (unaudited):
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
 
Interest expense
  $ 1,122     $ 1,400     $ 4,459     $ 4,969  
Interest capitalized
    11       11       38       26  
 
                       
 
                               
Total interest cost
  $ 1,133     $ 1,411     $ 4,497     $ 4,995  
 
                       
As an agricultural credit cooperative, Farm Credit of Southwest Florida is owned by the member-borrowers who purchase stock and earn participation certificates in the cooperative. Allocations of patronage are made to members on an annual basis according to the proportionate amount of interest paid by the member. Allocations are made in cash and non-cash participation certificates. The Company reduced its interest expense by $34 thousand and $101 thousand during the three and nine months ended June 30, 2009, respectively, and by $1.0 million during the three and nine months ended June 30, 2008, respectively for patronage allocations. Patronage receivable is included with investments, deposits and other non-current assets.
7. Discontinued Operations:
Effective June 30, 2008, the Company ceased operating its Alico Plant World facility. The Company is currently leasing the Alico Plant World facilities to a commercial greenhouse operator and has also sold a portion of the equipment used to operate the greenhouse. The results of Alico Plant World’s operations have been reported as discontinued operations.

 

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8. Disclosures about reportable segments:
Alico has six reportable segments: Bowen, Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing. Alico’s operations are located in Florida. Alico accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. Descriptions of the various activities of the segments are described fully in the Company’s annual report on Form 10-K.
Although the Vegetable segment does not meet the quantitative thresholds to be considered as a reportable segment, information about this segment may be useful and has been included in the schedules below. For a description of the business activities of the Vegetable segment please refer to Item 1 of the Company’s most recent annual report on Form 10-K.
The following tables summarize the performance of the Company’s segments for the unaudited three and nine month periods ended June 30, 2009 and 2008, and the related assets and depreciation at June 30, 2009 (unaudited) and September 30, 2008:

 

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    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Revenues (from external customers except as noted)
                               
Bowen
  $ 10,818     $ 17,451     $ 27,461     $ 44,294  
Intersegment sales through Bowen
    3,305       4,109       8,274       9,667  
Citrus groves
    14,876       17,528       35,698       40,679  
Sugarcane
    307       1,581       7,368       9,341  
Cattle
    2,838       3,049       5,207       6,451  
Real estate
          1       1,372       3,870  
Leasing
    703       504       2,249       1,617  
Vegetables
    1,378       1,522       4,670       5,460  
 
                       
Revenue from segments
    34,225       45,745       92,299       121,379  
Other operations
    261       511       796       1,269  
Less: intersegment revenues eliminated
    (3,305 )     (4,109 )     (8,274 )     (9,667 )
 
                       
 
                               
Total operating revenue
  $ 31,181     $ 42,147     $ 84,821     $ 112,981  
 
                       
 
                               
Operating expenses
                               
Bowen
    9,960       16,595       25,862       42,579  
Intersegment sales through Bowen
    3,305       4,109       8,274       9,667  
Citrus groves
    10,851       11,476       27,205       27,625  
Sugarcane
    723       1,622       9,703       9,240  
Cattle
    2,705       3,412       6,092       7,741  
Real estate
    231       294       819       1,727  
Leasing
    311       146       830       315  
Vegetables
    2,417       1,392       6,641       5,505  
 
                       
Segment operating expenses
    30,503       39,046       85,426       104,399  
Other operations
    240       853       584       1,466  
Less: intersegment expenses eliminated
    (3,305 )     (4,109 )     (8,274 )     (9,667 )
 
                       
 
                               
Total operating expenses
  $ 27,438     $ 35,790     $ 77,736     $ 96,198  
 
                       
 
                               
Gross profit (loss):
                               
Bowen
    858       856       1,599       1,715  
Citrus groves
    4,025       6,052       8,493       13,054  
Sugarcane
    (416 )     (41 )     (2,335 )     101  
Cattle
    133       (363 )     (885 )     (1,290 )
Real estate
    (231 )     (293 )     553       2,143  
Leasing
    392       358       1,419       1,302  
Vegetables
    (1,039 )     130       (1,971 )     (45 )
 
                       
 
                               
Gross profit from segments
    3,722       6,699       6,873       16,980  
Other
    21       (342 )     212       (197 )
 
                       
 
                               
Gross Profit
  $ 3,743     $ 6,357     $ 7,085     $ 16,783  
 
                       

 

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    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Depreciation, depletion and amortization:
                               
Bowen
  $ 87     $ 89     $ 263     $ 267  
Citrus groves
    535       555       1,598       1,666  
Sugarcane
    324       392       1,178       1,321  
Cattle
    411       461       1,251       1,402  
Leasing
    58       23       151       67  
Vegetable
    54       38       154       97  
 
                       
Total segment depreciation and amortization
    1,469       1,558       4,595       4,820  
Other depreciation, depletion and amortization
    248       455       1,065       1,370  
 
                       
Total depreciation, depletion and amortization
  $ 1,717     $ 2,013     $ 5,660     $ 6,190  
 
                       
                 
    June 30,     September 30,  
    2009     2008  
    (unaudited)        
Total assets:
               
Bowen
  $ 2,025     $ 2,581  
Citrus groves
    44,304       49,201  
Sugarcane
    41,992       43,525  
Cattle
    16,880       18,343  
Leasing
    4,569       2,370  
Vegetables
    3,061       4,213  
 
           
Segment assets
    112,831       120,233  
Other Corporate assets
    96,661       153,699  
 
           
Total assets
  $ 209,492     $ 273,932  
 
           
9. Stock Compensation Plans:
The Board of Directors of the Company may grant options, stock appreciation rights, and/or restricted stock to certain directors and employees. No stock options or stock appreciation rights were granted during the nine months ended June 30, 2009 or 2008.
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.
In fiscal year 2006, the Company began granting restricted shares to certain key employees as long term incentives. The restricted shares vest in accordance with the terms and description outlined in the tables following. The payment of each installment is subject to continued employment with the Company. At June 30, 2009 and September 30, 2008 there were 31,278 and 27,707 restricted shares, respectively, vested in accordance with these grants.

 

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The following table summarizes the Company’s restricted share awards granted to date including compensation expense related to such grants for the nine month periods ended June 30, 2009 and 2008:
                                         
                                    Weighted  
                    Compensation     Compensation     Average  
                    Expense     Expense     Grant date  
            Fair Market Value     Recognized for     Recognized for     Fair value  
Grant Date   Shares Granted     on Date of Grant     2009     2008     Per share  
April 2006
    20,000     $ 908               129          
October 2006
    20,000       1,239               453          
January 2008
    25,562       1,040       185       417          
September 2008
    7,500       331       72                
 
                             
 
                                       
Total
    73,062     $ 3,518     $ 257     $ 999     $ 48.15  
 
                             
The shares granted in April 2006 were recognized as forfeited in September 2008. 4,000 of the shares granted in October 2006 related to past service and were immediately vested and an additional 4,000 shares vested September 30, 2007. The remaining shares under the October 2006 grant vested June 30, 2008.
A grant of 25,562 restricted shares was made to four senior executives in January 2008 with a fair value of $40.67 per share, in order to replace previous retirement benefits offered. 7,707 of the shares granted in January 2008 related to previously vested retirement benefits and vested immediately. 3,571 of the shares vested in January 2009. The remaining 14,284 shares granted in January 2008 vest 20% annually in January of each year until fully vested. The shares granted in September 2008 vest 20% annually beginning in September 2010 until fully vested.
Alico recognizes compensation cost equal to the fair value of the stock at the grant dates prorated over the vesting period of each award. The fair value of the 21,784 shares of unvested restricted stock awards at June 30, 2009 was $654 thousand. Compensation cost of $911 thousand will be recognized over a weighted average period of four years.
10. Revision of Prior Period Amounts:
During the second quarter of the fiscal year ended September 30, 2008, the Company discovered an error in its accrual of Cooperative retains related to prior periods totaling $855 thousand. The error did not have an impact on the previously reported cash flows from operating, financing or investing activities, and was considered immaterial to the Company’s previously reported results of operations for the fiscal years ended August 31, 2007 and August 31, 2006. However, since the impact of this error would have been material to the results of operations for the fiscal year ended September 30, 2008, the Company applied the guidance of Staff Accounting Bulletin 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements (“SAB 108”). This guidance requires that the prior period financial statements be corrected, even though the revision was immaterial to the prior period financial statements.

 

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Based on SAB 108, the prior period income statement amounts have been corrected to include the following adjustments:
                                                 
    Originally filed     Restatement     Adjusted  
            Nine             Nine             Nine  
    Quarter     months     Quarter     months     Quarter     months  
    ended     ended     ended     ended     ended     ended  
    June 30, 2008     June 30, 2008     June 30, 2008  
 
                                               
Interest and Investment income
    1,184       7,437             (855 )     1,184       6,582  
Income from continuing operations before income taxes
    2,670       9,785             (855 )     2,670       8,930  
Provision for income taxes
    (3,129 )     (453 )           (299 )     (3,129 )     (752 )
Income from continuing operations
    5,799       10,238             (556 )     5,799       9,682  
Net income
    4,983       9,311             (556 )     4,983       8,755  
Earnings per share from continuing operations
    0.79       1.39             (0.08 )     0.79       1.31  
Earnings per share
    0.68       1.26             (0.07 )     0.68       1.19  
The cumulative effect of the adjustment on the Company’s balance sheet was included in the audited balances as of September 30, 2008.
11. Treasury Stock:
The Company’s Board of Directors has authorized the repurchase of up to 131,000 shares of the Company’s common stock through August 31, 2010, for the purpose of funding restricted stock grants under an Incentive Equity Plan in order to provide restricted stock to eligible Directors and Senior Managers and align their interests with those of the Company’s shareholders.
The stock repurchases began in November 2005 and will be made on a quarterly basis until August 31, 2010 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the safe harbor provisions of Rule 10b-18.
The following table provides information relating to purchases of the Company’s common shares by the Company on the open market pursuant to the aforementioned plans during the quarter ended June 30, 2009:
                                 
                    Total shares        
                    purchased as part        
                    of publicly     Total dollar value  
    Total number of     Average price paid     announced plans or     of shares purchased  
Date   shares purchased     per share     programs     (thousands)  
May
    3,000     $ 27.21       3,000     $ 82  
 
                       
 
                               
Total
    3,000     $ 27.21       3,000     $ 82  
 
                       
Total shares purchased under the plan have totaled 97,238 since November 2005. In accordance with the approved plan, the Company may purchase an additional 33,762 shares.

 

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12. Fair Value of Financial Instruments:
The carrying amounts in the consolidated balance sheets for accounts receivable, mortgages and notes receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short term maturity of these items. When stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. Alico carries its investments and securities available for sale at fair value. The carrying amounts reported for Alico’s long-term debt approximates fair value because they are transactions with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market.
Alico implemented SFAS 157, “Fair Value Measurements” (SFAS 157) on October 1, 2008. SFAS 157 defines fair value, establishes a framework for its measurement, and expands disclosures about fair value measurements. The adoption of SFAS 157 did not have a material effect on the Company’s consolidated financial position, cash flows, or results of operations.
In 2007, the Financial Accounting Standards Board (FASB) issued FASB Staff Position FAS 157-2 (FSP 157-2), which provided a one year deferral for the implementation of SFAS 157 for non-financial assets and liabilities measured at fair value that are recorded or disclosed on a non-recurring basis. Alico has elected to apply the FSP 157-2 deferral to the applicable non financial assets and liabilities, consisting of certain parcels of real estate, until October 1, 2009.
SFAS 157 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between markets participants at the measurement date. SFAS 157 requires disclosures that categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The SFAS 157 fair value hierarchy is defined as follows:
Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.
Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

 

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The following table represents the fair values of Alico’s financial assets and liabilities as of June 30, 2009:
                                 
            Quoted prices in              
            active markets for     Significant other     Significant  
            identical assets     observable inputs     unobservable inputs  
Description   Fair Value     (level 1)     (level 2)     (level 3)  
Assets:
                               
Available for sale investments
  $ 8,473     $ 3,521     $ 3,841     $ 1,111  
Other investments
    4,537             1,305       3,232  
Cash surrender value of life insurance policies
    5,815             5,815        
 
                       
 
  $ 18,825     $ 3,521     $ 10,961     $ 4,343  
 
                       
 
                               
Liabilities:
                               
Deferred retirement benefits
  $ 3,458     $     $     $ 3,458  
 
                       
The following is a reconciliation of beginning and ending balances for securities using level 3 inputs as defined above for the quarter ended June 30, 2009:
                         
    Available for sale     Other        
    investments     investments     Total  
Beginning balance
  $ 1,170     $ 3,475     $ 4,645  
Realized and unrealized gains (losses) included in earnings
    (34     (91 )     (125 )
Realized and unrealized gains (losses) included in other comprehensive income
                 
Purchases, sales, issuances and settlements
    (25     (35 )     (60 )
Transfers in or out of level 3
        (117 )     (117 )
 
                 
Ending balance
  $ 1,111     $ 3,232     $ 4,343  
 
                 
                 
    Interest and        
    investment income     Total  
Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets held at June 30, 2009
  $ (283 )   $ (283 )
 
           
         
    Deferred  
    retirement  
    benefits  
Beginning balance
    3,414  
Realized and unrealized gains (losses) included in earnings
     
Realized and unrealized gains (losses) included in other comprehensive income
     
Purchases, sales, issuances and settlements
    44  
Transfers in or out of level 3
     
 
     
Ending balance
    3,458  
 
     
 
       
Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to liabilities held at June 30, 2009
  $  
 
     
Alico utilized third party service providers to evaluate its investment and deferred retirement liability. Cash surrender values were provided by the Company’s policy providers.

 

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13. Other income:
A settlement agreement with a vendor resulted in a $7.0 million payment to Alico on March 20, 2009. Under the agreement, the vendor admits no wrongdoing and stipulates that Alico cannot divulge the vendor’s name or the agreement’s circumstances. Alico recognized the payment as other income during its second quarter ended March 31, 2009.
14. New accounting pronouncements
Alico adopted the requirements of the following accounting pronouncements effective June 30, 2009:
     
 
  FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” is effective for interim reporting periods ending after June 15, 2009. This FSP amends Financial Accounting Standards Board (“FASB”) Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require those disclosures in summarized financial information at interim reporting periods. As this pronouncement is only disclosure-related, it did not have an impact on Alico’s financial position or results of operations. The disclosure requirements of this FSP are presented in Note 12 to the Condensed Consolidated Financial Statements — Fair Value Measurement.
     
 
  SFAS No. 165, “Subsequent Events,” is effective for interim reporting periods ending after June 15, 2009. The adoption of this statement did not have an impact on Alico’s financial position or results of operations. The disclosure requirements of this FSP are presented in Note 15 to the Condensed Consolidated Financial Statements — Subsequent Events.
     
 
  FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” is effective for interim reporting periods ending after June 15, 2009. The adoption of this statement did not have an impact on Alico’s financial position or results of operations.
15. Subsequent Events:
At its meeting on July 31, 2009, the Board of Directors declared a quarterly dividend of $0.1375 per share payable to shareholders of record as of October 31, 2009 with payment expected on or about November 15, 2009.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
Some of the statements in this document include statements about future expectations. Statements that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. These forward-looking statements, which include references to one or more potential transactions, expectation of results and strategic alternatives under consideration are predictive in nature or depend upon or refer to future events or conditions, are subject to known, as well as unknown risks and uncertainties that may cause actual results to differ materially from Company expectations. There can be no assurance that any future transactions will occur or be structured in the manner suggested or that any such transaction will be completed. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.
Liquidity and Capital Resources
Dollar amounts listed in thousands:
                 
    June 30,     September 30,  
    2009     2008  
Cash & liquid investments
  $ 28,869     $ 78,637  
Total current assets
    56,133       123,130  
Current liabilities
    13,625       18,200  
Working capital
    42,508       104,930  
Total assets
    209,492       273,932  
Notes payable
  $ 81,332     $ 137,758  
Current ratio
    4.12:1       6.77:1  
Management believes that Alico will be able to meet its working capital requirements for the foreseeable future with internally generated funds and credit availability. Alico has credit commitments under a revolving line of credit that provides for revolving credit of up to $75.0 million. Of the $75.0 million credit commitment, $46.5 million was available for Alico’s general use at June 30, 2009 (see Note 6 to the Unaudited Condensed Consolidated Financial Statements).
Cash flows from Operations
Cash flows from operations were $18.6 million and $26.6 million for the nine months ended June 30, 2009 and 2008, respectively. Overall, revenues and gross profits during fiscal year 2009 are expected to remain lower than those of fiscal year 2008 due to a decrease in returns from agricultural operations. The market prices Alico receives for citrus products, typically Alico’s largest source of gross profit, have declined due to increased Florida citrus production and carryover inventories at citrus processing plants.

 

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During the last week of January and the first week of February 2009, a cold front swept through Florida causing temperatures to drop into the mid 20’s causing damage to Alico’s sugarcane and vegetable crops of approximately $1.4 million.
Alico experienced increases in the cost of fertilizer, herbicides, insecticides and fuel during the fiscal year ended September 30, 2008. A large portion of these costs related to the production of fiscal year 2009 crops and were inventoried. These costs are being charged to fiscal year 2009 operating expenses as crops are harvested. While several input costs, including fuel, have recently declined from higher levels, significant reductions will not be realized through gross profit until the fiscal year 2010 crops are harvested, assuming the lower costs continue.
A Settlement Agreement with a vendor resulted in a $7.0 million payment to Alico on March 20, 2009. Under the agreement, the vendor admits no wrongdoing and stipulates that Alico cannot divulge the vendor’s name or the agreement’s circumstances. Alico recognized the payment as other income during the second fiscal quarter ended March 31, 2009.
In December 2008, Alico offered an option to former and retired employees who were covered under a non-qualified defined benefit deferred compensation plan to terminate future benefits under the plan in exchange for cash equal to the net present value of future vested benefits. Participants with future discounted vested benefits of $1.4 million elected to receive cash pursuant to the option and were paid in January 2009. Life insurance policies used to fund the liability were liquidated to fund the distributions.
Cash flows from Investing Activities
Alico is currently working to dissolve its Agri-Insurance subsidiary. Proceeds received from the liquidation of investments held by Agri, enabled Alico to pay $50.0 million on its RLOC in January 2009.
In November 2008, Alico’s subsidiary, Alico-Agri, Ltd., received a payment of $2.5 million, consisting of principal, interest and fees, in connection with the restructure of a real estate contract (“East”) with Ginn- LA Naples, Ltd, LLLP (“Ginn”).
Recent market conditions have depressed Florida real estate markets causing the predictability of real estate sales including timing and market values to be problematic. Alico, through its subsidiary Alico Land Development, continues to market parcels of its real estate holdings which are deemed by Management and the Board of Directors to be excess to the immediate needs of Alico’s core operations. The sale of any of these parcels could be material to the future operations and cash flows of Alico.
Cash flows from Financing Activities
On March 30, 2009, the Company modified its Revolving Line of Credit (RLOC) with Farm Credit of Southwest Florida. According to the terms of the modification, the total availability of funds under the RLOC was reduced to $75.0 million from $125.0 million. Additionally, several covenants were modified as follows: a) the covenant requiring the Company to maintain stockholder equity of at least $110 million was eliminated in its entirety b) the minimum current ratio was increased to 2.5 to 1 from 2.0 to 1 and c) the fixed charge coverage ratio was replaced by a debt coverage ratio requiring the Company to maintain a debt coverage of not less than 1.10 to 1 on a rolling four quarter basis. The maturity date of the RLOC was extended from August 1, 2011 to August 1, 2012. The interest rate index was changed from 3 month LIBOR to 1 month LIBOR, and the interest rate spreads increased by 100 basis points. The Company also pledged an additional 10,147 acres of real estate in Hendry County, Florida. In addition to the covenants discussed above, the agreements set limitations on the extension of loans or additional borrowings by Alico or any subsidiary. The covenants also restrict Alico’s activities regarding investments, liens, borrowing and leasing.

 

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Alico is currently working to dissolve its Agri-Insurance subsidiary. Proceeds received from Agri in the form of pre-liquidation distributions enabled Alico to pay $50.0 million on its Revolving Line of Credit in January 2009.
Alico’s Board of Directors has authorized the repurchase of up to 131,000 shares of Alico’s common stock through August 31, 2010, for the purpose of funding restricted stock grants under its Incentive Equity Plans in order to provide restricted stock to eligible Directors and Senior Managers to align their interests with those of Alico’s shareholders. All purchases will be made subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the impact of the purchases upon the market for Alico’s shares. The stock repurchases will be made on a quarterly basis until August 31, 2010 through open market transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. Alico will use internally generated funds and available working capital to make the purchases. In accordance with the approved plans, at June 30, 2009 an additional 33,762 shares were available for acquisition. Alico purchased 3,000 and 25,500 shares in the open market during the three and nine months ended June 30, 2009 at an average price of $27.21 and $36.63 per share, respectively, and purchased 9,768 and 27,968 shares in the open market during the three and nine months ended June 30, 2008 at an average price of $40.32 and $42.76 per share, respectively.
Alico paid quarterly dividends of $0.1375 per share on May 15, 2009 and $0.275 per share on February 15, 2009, November 15, 2008, August 15, 2008, May 16, 2008, January 15, 2008 and October 15, 2007. At its meeting on June 5, 2009, the Board of Directors declared a quarterly dividend of $0.1375 per share payable to stockholders of record as of July 31, 2009 with payment expected on or around August 15, 2009. At its meeting on July 31, 2009, the Board of Directors declared a quarterly dividend of $0.1375 per share payable to shareholders of record as of October 31, 2009 with payment expected on or about November 15, 2009. The Board will continue to assess financial condition, compliance with debt covenants, and earnings to determine future dividends.
Cash outlays for land, equipment, buildings, and other improvements totaled $5.1 million and $4.4 million during the nine months ended June 30, 2009 and 2008, respectively.

 

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Results from Operations
Unaudited results for the quarters ended June 30, 2009 and 2008 were as follows (dollars in thousands):
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
 
Operating revenue
  $ 31,181       42,147       84,821       112,981  
Gross profit
    3,743       6,357       7,085       16,783  
General & administrative expenses
    1,671       3,568       7,483       10,365  
(Loss) profit from continuing operations
    2,072       2,789       (398 )     6,418  
Profit on sale of real estate
                1,546       817  
Interest and investment income
    (151 )     1,184       826       6,582  
Interest expense
    (1,122 )     (1,400 )     (4,459 )     (4,969 )
Other income (expense)
    (33 )     97       6,985       82  
Income tax provision
    (157 )     3,129       (2,010 )     752  
Effective income tax rate
    20.5 %     -117.2 %     44.7 %     -8.4 %
Income from continuing operations
  $ 609       5,799       2,490       9,682  
Alico’s agricultural and real estate operations generally combine to produce the majority of operating revenue, gross profit and income from operations. The decrease in income from continuing operations for the quarter and nine months ended June 30, 2009 compared with the quarter and nine months ended June 30, 2008 was primarily due to reduced profit from agricultural activities.
General and Administrative Expenses
Alico has taken aggressive steps to reduce its general and administrative expenses. These actions have included staff reductions, self imposed director fee reductions, and reducing employee benefit programs. Accordingly, general and administrative expenses declined by 53% and 28% for the three and nine months ended June 30, 2009 when compared with the three and nine months ended June 30, 2008, respectively.
Profit from the Sale of Real Estate
Beginning in the fiscal year ended August 31, 2006, Alico, through its Alico Land Development subsidiary, intensified its efforts toward the planning and strategic positioning of all Company owned land. These actions included the hiring of a real estate professional and seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop property in the future. Proceeds from the contracts negotiated or substantially renegotiated subsequent to August 31, 2006 are classified as operating items, while proceeds from sales that originated prior to that time and are not deemed to be substantially modified according to U.S. GAAP, are classified as non-operating.
Real estate sales are recorded under the accrual method of accounting. Gains from commercial or bulk land sales are not recognized until payments received for property to be developed within two years after the sale equal 20%, or property to be developed after two years equal 25% of the contract sales price according to the installment sales method.
Alico’s real estate revenues during the quarters ended June 30, 2009 and 2008 have primarily resulted from three contracts with the Ginn Companies for real estate in Lee County Florida referred to as “East”, “West” and “Crockett”. In October 2008, the three contracts were renegotiated, with Ginn choosing not to exercise its option on the West property, and relinquishing any claim it might have had on the Crockett property.

 

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In connection with the restructure, Alico’s Alico-Agri subsidiary received a principal payment of $1.8 million on the East contract in November of 2008. Alico-Agri recognized a profit of $1.5 million as non-operating revenue under the installment method related to the receipt. Additionally, the Company recognized $1.2 million of operating revenue in October 2008 upon the expiration of the West contract option that had previously been deferred.
On April 22, 2009, Alico-Agri announced that the Ginn Companies had defaulted on its contract with the Company’s subsidiary, Alico-Agri Ltd, related to the purchase of property in Lee County, Florida. Under the terms of the contract, a quarterly interest payment of $283 thousand was due on March 30, 2009 but was not received. Alico-Agri has initiated foreclosure proceedings. The property consists of a 4,538 acre parcel located next to Florida Gulf Coast University in Lee County, Florida a portion of which was a former rock mine. A development order for the property allows up to 336 residential units. Pursuant to the contract, Ginn is entitled to receive a release of 399 acres in exchange for prior principal payments. When the foreclosure becomes final, the net mortgage note receivable of $7.1 million (consisting of the note balance of $52.3 million less deferred revenue of $45.2 million), plus accrued interest of $0.3 million, reduced by the associated commissions payable account of $2.6 will be reclassified as basis in the property.
During the nine months ended June 30, 2008, Alico-Agri recognized a profit of $0.8 million under the installment method on the East contract and $3.9 million profit related to extension payments received pursuant to the West and Crockett contracts.
Recent market conditions have depressed Florida real estate markets causing the predictability of real estate sales including timing and market values to be problematic. Alico, through its Alico Land Development subsidiary, continues to market parcels of its real estate holdings which are deemed by Management and the Board of Directors to be excess to the immediate needs of Alico’s core operations. The sale of any of these parcels could be material to the future operations and cash flows of Alico.
At its meeting on July 31, 2009, the Board directed Management and the Board’s Real Estate Committee to begin a search process for parties interested in purchasing or leasing portions of the Corporation’s real estate assets including but not limited to parts of its ranch properties in Hendry County currently devoted to its cattle operations. The purpose of the strategy is to redeploy those assets into properties with higher current returns.
Interest and Investment Income
Interest and investment income is generated principally from mortgages held on real estate sold on the installment basis, investments in corporate and municipal bonds, mutual funds, and U.S. Treasury securities.
Alico is currently working to dissolve its Agri-Insurance subsidiary. In connection with this activity, a substantial portion of marketable securities were converted to cash, resulting in lower interest earnings for the quarter ended June 30, 2009 when compared to the quarter ended June 30, 2008. Additionally, market interest rates for municipal bonds, which comprise a substantial portion of the marketable securities portfolio, have declined over the same time period.
Alico currently holds several auction rate securities having a total face value of $5.5 million. These securities are highly rated and continue to pay interest, but are not currently liquid. Due to the current state of the markets for these securities, Alico recognized an impairment of $0.2 million and $0.5 million for the quarter and nine months ended June 30, 2009, respectively and recognized the charges as a reduction of investment income. The impaired securities were classified as non-current investments at June 30, 2009 and September 30, 2008.
Interest Expense
Interest expense for the three and nine months ended June 30, 2009 was slightly below prior year amounts. The overall debt level of the Company has declined over the past nine months as the Company has made efforts to reduce the outstanding principal balance of its RLOC.

 

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Provision for Income taxes
Alico’s effective tax rate was 44.7% and (8.4% ) for the nine months ended June 30, 2009 and 2008, respectively. The June 2008 rate was impacted by adjustments related to IRS proceedings for the tax years 2000, 2001, 2002, 2003 and 2004. The IRS proceedings for those years have been fully settled. The IRS is currently auditing the Company’s tax returns for 2005, 2006, 2007 and the transition return for the month ended September 30, 2007.

 

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Operating Revenue
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Revenues
                               
Agriculture:
                               
Bowen Brothers Fruit
  $ 10,818     $ 17,451     $ 27,461     $ 44,294  
Citrus groves
    14,876       17,528       35,698       40,679  
Sugarcane
    307       1,581       7,368       9,341  
Cattle
    2,838       3,049       5,207       6,451  
Vegetables
    1,378       1,522       4,670       5,460  
Sod and native plants
    207       404       501       877  
 
                       
Agriculture operations revenue
    30,424       41,535       80,905       107,102  
Real estate operations
          1       1,372       3,870  
Land leasing and rentals
    703       504       2,249       1,617  
Mining royalties
    54       107       295       392  
 
                       
 
                               
Total operating revenue
  $ 31,181     $ 42,147     $ 84,821     $ 112,981  
 
                       
Operating revenues declined by 26% and 25% during the quarter and nine months ended June 30, 2009, respectively, when compared with the quarter and nine months ended June 30, 2008, primarily due to reduced revenues from agricultural activities.
Gross Profit
                                 
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2009     2008     2009     2008  
Gross profit (loss):
                               
Agriculture:
                               
Bowen Brothers Fruit
  $ 858     $ 856     $ 1,599     $ 1,715  
Citrus groves
    4,025       6,052       8,493       13,054  
Sugarcane
    (416 )     (41 )     (2,335 )     101  
Cattle
    133       (363 )     (885 )     (1,290 )
Vegetables
    (1,039 )     130       (1,971 )     (45 )
Sod and native plants
    (10 )     (391 )     (6 )     (456 )
 
                       
Gross profit from agricultural operations
    3,551       6,243       4,895       13,079  
Real estate activities
    (231 )     (293 )     553       2,143  
Land leasing and rentals
    392       358       1,419       1,302  
Mining royalties
    31       49       218       259  
 
                       
Gross Profit
    3,743       6,357       7,085       16,783  
 
                       
Alico measures gross profit from its operations before any allocation of corporate overhead or interest charges. Gross profit is dependent upon the prices received for each of the Company’s products, less harvesting, marketing and delivery costs and the direct costs of producing the products. These prices are based on market factors and are largely out of the Company’s control.
The decline in gross profit during the quarter and nine months ended June 30, 2009 compared with the quarter and nine months ended June 30, 2008 was primarily due to reduced profit from agricultural operations.

 

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Agricultural Operations
Agricultural operations generate a large portion of Alico’s revenues. Agricultural operations are subject to a wide variety of risks including weather and disease. As a producer of agricultural products, Alico’s ability to control the prices it receives from its products is limited, and prices for agricultural products can be volatile. Operating results are largely dictated by market conditions.
Bowen
Bowen revenues declined both for the quarter and nine months ended June 30, 2009 when compared with the prior year. Citrus prices have declined this season due to consumer price resistance and large amounts of juice inventories throughout the industry. Bowen’s operations include providing harvesting, hauling and marketing services for growers for a fee, as well as purchasing fruit from growers and reselling to processors at a slight margin. Because of the marginal nature of the business, Bowen has been able to maintain profitability at a somewhat consistent level compared with the prior year despite the revenue decline.
Citrus Groves
The Company experienced lower prices for its citrus product during the quarter and nine months ended June 30, 2009 when compared with the corresponding periods in the prior year, due to consumer price resistance and large amounts of juice inventories throughout the industry. The price decline caused reductions in both citrus revenues and gross profits for the three and nine month periods ended June 30, 2009 when compared with the corresponding periods in the prior year.
Sugarcane
Sugarcane operations generated losses of $0.4 million and $2.3 million during the quarter and nine months ended June 30, 2009, respectively, compared with a loss of $0.0 million and a profit of $0.1 million during the corresponding periods of the prior year.
During the last week of January and the first week of February 2009, a cold front swept through Florida causing temperatures to drop into the mid 20’s and causing damage to Alico’s sugarcane crop of approximately $1.1 million, which was recognized during the quarter ended March 31, 2009.
Sugarcane plantings must be rotated on a three year cycle in order to sustain profitable yields. In fiscal year 2007, the Company did not plant additional sugarcane due to the market outlook at that time and uncertainty surrounding the sugar mill to which the Company delivers its product. Due to the age of current sugarcane plantings, the Company expects a significant yield reduction during fiscal year 2010. Because of the reduced yield expectation, the Company has recognized total inventory impairments of $1.3 million related to its 2010 crop during the nine months ended June 30, 2009.
Based on expected improved pricing resulting from recent contract negotiations, the Company is currently evaluating its future options regarding its sugarcane operations.

 

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Cattle
In an effort to minimize risk related to its feeding efforts, the Company utilized forward purchase contracts for corn used as cattle feed during the nine months ended June 30, 2009. Subsequent declines in the price of corn after the execution of the contract could not be realized due to the forward purchases, causing the Company to realize substantial losses. Additionally, the cost of raising and delivering calves to market have increased significantly during the past several years, largely the result of increased cost of feeding and fuel.
The cattle industry has typically operated on a ten year cycle as cow-calf producers expand inventories in response to profits and reduce herd sizes in response to decreased profitability. Alico’s cattle strategy has been to reduce herd sizes during the expansion phase of the cycle and building herd size through opportunistic acquisitions during the contraction phase. Several atypical factors have combined to alter the cattle cycle in the past few years including the utilization of former pastures for corn production due to increased ethanol demand, and drought conditions in the Southeastern United States. Due to these changes, Alico is revaluating its cattle strategy to determine the most profitable course of action in the current environment.
Vegetables
During the last week of January and the first week of February 2009, a cold front swept through Florida causing temperatures to drop into the mid 20’s causing damage to Alico’s vegetable crops. Additionally, increased production costs together with a decline in prices received for corn and beans caused the Company to recognize losses from its vegetable division during the quarter and nine months ended June 30, 2009.
Off Balance Sheet Arrangements
Alico through its wholly owned subsidiary Bowen, enters into purchase contracts for the purchase of citrus fruit during the normal course of its business. The remaining obligations under these purchase agreements totaled $0.3 million at June 30, 2009. In addition, Bowen had sales contracts totaling $1.4 million at June 30, 2009 for which purchases had not been contracted. Bowen management currently believes that all committed sales quantities can be purchased below committed sales price.
During the second quarter of fiscal year 2007, the Company formed a new company, Alico-J&J, LLC and entered into a joint venture with J&J Produce to produce vegetables on land owned by Alico, Inc. Under the terms of the joint venture, Alico served as a guarantor for five-year equipment leases to the joint venture. Effective June 30, 2008, the Company discontinued its participation in Alico-J&J, LLC. J&J Farms continued to utilize the equipment and make the monthly lease payments through June 2009. Alico, J&J and the lessor of the equipment have agreed to an orderly disposal of the equipment which will terminate Alico’s remaining obligations. Alico’s maximum total remaining unpaid obligations under these leases, should J&J Farms default on its obligations, was $0.2 million at June 30, 2009.
Disclosure of Contractual Obligations
There were no material changes from the Contractual Obligations schedule included in the Company’s filing on Form 10-K outside of those occurring during the ordinary course of the Company’s business during the interim period.

 

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Critical Accounting Policies and Estimates
There have been no substantial changes in the Company’s policies regarding critical accounting issues or estimates since the Company’s last annual report on form 10-K.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Reference is made to the discussion under Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the company’s 2008 Annual Report on Form 10-K for the fiscal year ended September 30, 2008. There are no material changes since the Company’s disclosure of this item on its last annual report on Form 10-K.
ITEM 4. Controls and Procedures
The Company’s management, including the Principal Executive Officer and Chief Financial Officer, have evaluated the effectiveness of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in the internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
FORM 10-Q
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
On October 29, 2008 Alico was served with a shareholder derivative action complaint filed by Baxter Troutman against J. D. Alexander and John R. Alexander which names Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlanticblue, Inc., a (51%) shareholder of Alico. From February 26, 2004 until January 18, 2008, Mr. Troutman was a director of Alico. The complaint alleges that J.D. Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants J. D. Alexander and John R. Alexander and improperly included a proposed special dividend; and that the Alexanders’ sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005. As a result the complaint is seeking damages to be paid to Alico by the Alexanders in excess of $1,000,000. The complaint concedes that Mr. Troutman has not previously made demand upon Alico to take action for the alleged wrongdoing as required by Florida law alleging that he believed such a demand would be futile.
On June 3, 2009, a Special Committee of Alico’s Board of Directors comprised entirely of Independent Directors and which was constituted to investigate the shareholder derivative action filed by Mr. Troutman, completed its investigation and determined that it would not be in Alico’s best interest to pursue such litigation. Alico has filed a motion to dismiss the litigation based upon the findings of the Special Committee. A copy of the report was filed with the Court, and it and the other pleadings in the case are available from the Clerk of the Circuit Court in Polk County, Florida by reference to the matter of Baxter G. Troutman, Plaintiff, vs. John R. Alexander, John D. Alexander, Defendants and Alico, Inc. Nominal Defendant, Case No. 08-CA-10178 Circuit Court, 10th Judicial Circuit, Polk County, Florida.
There are no additional items to report during this interim period.

 

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ITEM 1A. Risk Factors.
There were no significant changes regarding risk factors from those disclosed in the Company’s annual report on Form 10-K.
ITEM 2. Unregistered sales of Equity Securities and Use of Proceeds.
There are no items to report during this interim period.
ITEM 3. Defaults Upon Senior Securities.
There are no items to report during this interim period.
ITEM 4. Submission of Matters to a Vote of Security Holders.
There are no items to report during this interim period.
ITEM 5. Other Information.
There are no items to report during this interim period.
ITEM 6. Exhibits.
         
  Exhibit 31.1    
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  Exhibit 31.2    
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
       
 
  Exhibit 32.1    
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
       
 
  Exhibit 32.2    
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

 

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALICO, INC.
(Registrant)
August 10, 2009
Steven M. Smith
President & Principal Executive Officer
(Signature)
August 10, 2009
Patrick W. Murphy
Chief Financial Officer
(Signature)
August 10, 2009
Jerald R. Koesters
Controller
(Signature)

 

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EXHIBIT INDEX
     
Exhibit No.   Description
   
 
Exhibit 31.1  
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 31.2  
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
 
Exhibit 32.1  
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
   
 
Exhibit 32.2  
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

 

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