UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
 
 
 
 
 
 
 
 
 
 
X
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
 
EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
For the quarter ended November 30, 2005
 
 
Or
 
 
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
 
 
 
IRS Employer
 
 
 
incorporation or organization)
 
 
 
identification number
 
 
 
 
 
 
 
 
 
 
 
 
 
P.O. Box 338, La Belle, Florida
 
33975
 
 
 
 
(Address of principal executive offices)
 
 
Zip code
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Registrant's telephone number including area code
 
(863) 675-2966
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 such registrant was required to file such reports),
 
 
and (2) has been subject to such filing requirements for the past 90 days.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yes
X
 
No
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
 
 
12b-2 of the Exchange Act).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Yes
X
 
No
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
There were 7,368,612 shares of common stock, par value $1.00 per share, outstanding
 
 
at November 30, 2005.
 
 
 
 
 
 
 
1

Explanatory note

This Amendment on Form 10Q/A constitutes Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended November 30, 2005 which was previously filed with the Securities and Exchange Commission (the "SEC") on January 17, 2006. We are amending the footnotes to the financial statements, Management's Discussion and Analysis and Item 4, the evaluation of disclosure controls and procedures.

This Amendment amends the footnotes to the financial statements, Management's Discussion and Analysis and Item 4, the evaluation of disclosure controls and procedures and does not reflect events occurring after the original filing date of the Quarterly Report on January 17, 2006.
2

Part I. Financial information
 
 
 
 
 
Item 1. Financial statements
 
 
 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
 
 
(Unaudited)
 
 
 
 
 
(in thousands except per share data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Three months ended November 30,
 
 
 
 
2005
 
 
2004
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Citrus
 
$
1,208
 
$
879
 
Sugarcane
 
 
1,986
 
 
2,453
 
Ranch
 
 
2,224
 
 
2,135
 
Rock & sand royalties
 
 
236
 
 
880
 
Oil lease & land rentals
 
 
417
 
 
476
 
Plants and trees
 
 
566
 
 
628
 
Retail land sales
 
 
25
 
 
187
 
 
 
 
 
 
 
 
 
Operating revenue
 
 
6,662
 
 
7,638
 
 
 
 
 
 
 
 
 
Cost of sales:
 
 
 
 
 
 
 
Citrus production, harvesting & marketing
 
 
588
 
 
75
 
Sugarcane production, harvesting and hauling
 
 
2,623
 
 
2,079
 
Ranch
 
 
1,711
 
 
1,902
 
Plants and trees
 
 
875
 
 
555
 
Retail land sales
 
 
11
 
 
102
 
Casualty losses
 
 
5,707
 
 
408
 
 
 
 
 
 
 
 
 
Total costs of sales
 
 
11,515
 
 
5,121
 
 
 
 
 
 
 
 
 
Gross profit (loss)
 
 
(4,853
)
 
2,517
 
 
 
 
 
 
 
 
 
General & administrative expenses
 
 
1,824
 
 
1,734
 
 
 
 
 
 
 
 
 
Income (loss) from operations
 
 
(6,677
)
 
783
 
 
 
 
 
 
 
 
 
Other income (expenses):
 
 
 
 
 
 
 
Sale of real estate
 
 
5,555
 
 
-
 
Cost of real estate sales
 
 
1,162
 
 
-
 
Net profit on the sale of real estate
 
 
4,393
 
 
-
 
Interest & investment income
 
 
4,985
 
 
1,264
 
Interest expense
 
 
(991
)
 
(508
)
Other
 
 
89
 
 
(32
)
 
 
 
 
 
 
 
 
Total other income, net
 
 
8,476
 
 
724
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 
1,799
 
 
1,507
 
Provision for income taxes
 
 
646
 
 
542
 
 
 
 
 
 
 
 
 
Net income
 
$
1,153
 
$
965
 
 
 
 
 
 
 
 
 
Weighted-average number of shares outstanding
 
 
7,369
 
 
7,312
 
 
 
 
 
 
 
 
 
Per share amounts:
 
 
 
 
 
 
 
Basic
 
$
0.16
 
$
0.13
 
Fully diluted
 
$
0.16
 
$
0.13
 
Dividends
 
$
-
 
$
-
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
3

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
 
 
 
 
 
 
 
 
 November 30,
 
 
 
 
 
 
 
2005
 
 
August 31,
 
 
 
 (unaudited)
 
 
2005
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
      Cash and cash equivalents
 
$
43,620
 
$
13,384
 
      Marketable securities
 
 
34,926
 
 
70,824
 
      Accounts receivable
 
 
9,035
 
 
11,216
 
      Mortgages and notes receivable
 
 
415
 
 
2,370
 
      Inventories
 
 
15,683
 
 
20,902
 
      Deposits in escrow
 
 
5,599
 
 
6,812
 
      Land held for development and sale
 
 
1,157
 
 
1,809
 
      Prepaid expenses
 
 
1,339
 
 
1,660
 
 
 
 
 
 
 
 
 
          Total current assets
 
 
111,774
 
 
128,977
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages and note receivable
 
 
9,316
 
 
6,395
 
Investments
 
 
724
 
 
692
 
Cash surrender value of life insurance
 
 
5,736
 
 
5,676
 
Property, buildings and equipment
 
 
160,265
 
 
150,997
 
Less: accumulated depreciation
 
 
(44,470
)
 
(45,043
)
 
 
 
 
 
 
 
 
          Total assets
 
$
243,345
 
$
247,694
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 

4

 
ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 November 30,
 
 
 
 
 
 
 
2005
 
 
August 31,
 
 
 
 (unaudited)
 
 
2005
 
LIABILITIES & STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
      Accounts payable
 
$
2,169
 
$
2,180
 
      Current portion of notes payable
 
 
3,312
 
 
3,309
 
      Accrued expenses
 
 
2,063
 
 
3,588
 
      Insurance claims payable
 
 
1,404
 
 
1,404
 
      Dividend payable
 
 
1,844
 
 
1,842
 
      Accrued ad valorem taxes
 
 
-
 
 
2,008
 
      Deferred income taxes
 
 
1,406
 
 
2,280
 
      Due to profit sharing
 
 
98
 
 
432
 
      Donation payable
 
 
800
 
 
776
 
 
 
 
 
 
 
 
 
          Total current liabilities
 
 
13,096
 
 
17,819
 
 
 
 
 
 
 
 
 
Notes payable
 
 
51,509
 
 
48,039
 
Deferred income taxes
 
 
12,941
 
 
13,424
 
Deferred retirement benefits
 
 
4,415
 
 
4,376
 
Commissions payable
 
 
2,833
 
 
2,125
 
Other non-current liability
 
 
16,954
 
 
16,954
 
Donation payable
 
 
761
 
 
771
 
 
 
 
 
 
 
 
 
          Total liabilities
 
 
102,509
 
 
103,508
 
 
 
 
 
 
 
 
 
Stockholders' equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock
 
 
7,375
 
 
7,369
 
Additional paid in capital
 
 
9,386
 
 
9,183
 
Treasury stock
 
 
(459
)
 
-
 
Accumulated other comprehensive income (loss)
 
 
(214
)
 
2,195
 
Retained earnings
 
 
124,748
 
 
125,439
 
 
 
 
 
 
 
 
 
          Total stockholders' equity
 
 
140,836
 
 
144,186
 
 
 
 
 
 
 
 
 
          Total liabilities and stockholders' equity
 
$
243,345
 
$
247,694
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
5

 
ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
Three months ended November 30,
 
 
 
 
2005
 
 
2004
 
 
 
 
 
 
 
 
 
Increase (Decrease) in Cash and Cash Equivalents:
 
 
 
 
 
 
 
Cash flows from operating activities:
 
 
 
 
 
 
 
    Net cash (used for) provided by operating activities
 
$
(4,125
)
$
1,274
 
 
 
 
 
 
 
 
 
Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Increase in land inventories
 
 
652
 
 
-
 
    Real estate deposits and commissions
 
 
(945
)
 
-
 
    Purchases of property and equipment
 
 
(12,537
)
 
(7,314
)
    Proceeds from sales of property and equipment
 
 
1,696
 
 
203
 
    Proceeds from the sale of real estate
 
 
5,555
 
 
-
 
    Purchases of marketable securities and investments
 
 
(21,241
)
 
(10,698
)
    Proceeds from sales of marketable securities
 
 
59,981
 
 
1,770
 
    Other
 
 
30
 
 
67
 
 
 
 
 
 
 
 
 
      Net cash provided by (used for) investing activities
 
 
33,191
 
 
(15,972
)
 
 
 
 
 
 
 
 
Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    Proceeds from exercising stock options
 
 
-
 
 
106
 
    Proceeds from bank loan
 
 
42,645
 
 
6,089
 
    Repayment of bank loan
 
 
(39,172
)
 
(4,313
)
    Treasury stock purchased
 
 
(459
)
 
-
 
    Dividends paid
 
 
(1,844
)
 
-
 
 
 
 
 
 
 
 
 
      Net cash provided by financing activities
 
 
1,170
 
 
1,882
 
 
 
 
 
 
 
 
 
      Net increase (decrease) in cash and cash equivalents
 
$
30,236
 
$
(12,816
)
 
 
 
 
 
 
 
 
Cash and cash equivalents:
 
 
 
 
 
 
 
    At beginning of year
 
$
13,384
 
$
24,299
 
 
 
 
 
 
 
 
 
    At end of period
 
$
43,620
 
$
11,483
 
 
 
 
 
 
 
 
 
Supplemental disclosures of cashflow information:
 
 
 
 
 
 
 
Cash paid for interest, net of amount capitalized
 
$
858
 
$
620
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 
 
 
 
6

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 include the accounts of Alico, Inc. (“Alico”) and its wholly owned subsidiaries, Saddlebag Lake Resorts, Inc. (“Saddlebag”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, LLC and Alico Plant World, LLC (collectively referred to as the "Company") after elimination of all significant intercompany balances and transactions.
 
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 year ended August 31, 2005. 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 November 30, 2005 and the consolidated results of operations for the three month periods ended November 30, 2005 and 2004, and the consolidated cash flows for the three month periods ended November 30, 2005 and 2004.
 
The basic business of the Company is agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. Fluctuation in the market prices for citrus fruit has caused the Company to recognize additional revenue from the prior year's crop totaling $418 thousand in 2005 and $31 thousand in 2004.
 
The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2004 have been reclassified to conform to the 2005 presentation.
 
2. Real Estate:
 
Real estate sales are recorded under the accrual method of accounting. Under this method, a sale is not recognized until certain criteria are met including whether the profit is determinable, collectibility of the sales price is reasonably assured and the earnings process is complete.

In October 2005, the Company through Alico-Agri, purchased 291 acres of lake-front property in Polk County, Florida, for $9.2 million.

In November 2005, the Company sold approximately 280 acres of citrus grove land located south of Labelle, Florida in Hendry County for $5.6 million cash in escrow. The Company will retain operating rights to the grove until residential development begins. The Company is exploring the possibility of a like-kind exchange regarding this transaction. The Company recognized a net profit on the sale of $4.4 million.
 
3. Marketable Securities Available for Sale:
 
The Company has classified 100% of investments in marketable securities as available for sale and, as such, the securities are carried at estimated fair value. Unrealized gains and losses determined to be temporary are recorded as other comprehensive income, net of related deferred taxes, until realized. Unrealized losses determined to be other than temporary are recognized in the period the determination is made.
 
7

 
The cost and estimated fair values of marketable securities available for sale at November 30, 2005 and August 31, 2005 were as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 November 30, 2005
 
 August 31, 2005
 
 
 
    (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Gross
 
 
Estimated
 
 
 
 
 
Gross
 
 
Estimated
 
 
 
 
 
 
 Unrealized
 
 
Fair
 
 
 
 
 
Unrealized
 
 
Fair
 
Equity securities:
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Value
 
 
Cost
 
 
Gains
 
 
Losses
 
 
Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stocks
 
$
-
 
$
-
 
$
-
 
$
-
 
$
1,363
 
$
81
 
$
(17
)
$
1,427
 
Common stocks
 
 
1,575
 
 
-
 
 
-
 
 
1,575
 
 
6,483
 
 
1,066
 
 
(218
)
 
7,331
 
Mutual funds
 
 
-
 
 
-
 
 
-
 
 
-
 
 
17,029
 
 
2,846
 
 
(86
)
 
19,789
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total equity securities
 
 
1,575
 
 
-
 
 
-
 
 
1,575
 
 
24,875
 
 
3,993
 
 
(321
)
 
28,547
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Debt securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds
 
$
15,550
 
$
22
 
$
(9
)
$
15,563
 
$
20,548
 
$
74
 
$
-
 
$
20,622
 
Mutual funds
 
 
-
 
 
-
 
 
-
 
 
-
 
 
4,344
 
 
155
 
 
(76
)
 
4,423
 
Fixed maturity funds
 
 
420
 
 
-
 
 
-
 
 
420
 
 
2,799
 
 
-
 
 
(41
)
 
2,758
 
Corporate bonds
 
 
17,723
 
 
-
 
 
(355
)
 
17,368
 
 
14,897
 
 
12
 
 
(435
)
 
14,474
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total debt securities
 
 
33,693
 
 
22
 
 
(364
)
 
33,351
 
 
42,588
 
 
241
 
 
(552
)
 
42,277
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Marketable securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
available for sale
 
$
35,268
 
$
22
 
$
(364
)
$
34,926
 
$
67,463
 
$
4,234
 
$
(873
)
$
70,824
 

The aggregate fair value of investments in debt securities as of November 30, 2005 by contractual maturity date, consisted of the following:

                                                                                            Aggregate
                                                                                            Fair Value

Due in one year or less                                                       $ 27,481
Due between one and two years                                           5,870

Total                                                                                      $ 33,351
                                                                       
 
The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at November 30, 2005.
8

 
 
 
Less than 12 months
 
12 months or greater
 
Total
 
 
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
Fair
 
Unrealized
 
 
 
Value
 
Losses
 
Value
 
Losses
 
Value
 
Losses
 
Preferred stocks
 
$ -
 
$ -
 
$ -
 
$ -
 
$ -
 
$ -
 
Common stocks
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Equity mutual funds
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Municipal bonds
 
 
4,713
 
 
9
 
 
-
 
 
-
 
 
4,713
 
 
9
 
Debt mutual funds
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Fixed maturity funds
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
Corporate bonds
 
 
13,667
 
 
268
 
 
3,701
 
 
87
 
 
17,368
 
 
355
 
Total
 
$
18,380
 
$
277
 
$
3,701
 
$
87
 
$
22,081
 
$
364
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net realized gains on the sale of securities for the three months ended November 30, 2005 and 2004 were $3.3 million and $0.5 million, respectively.
 
9

Equity securities and funds.
During the quarter management decided to sell its equity investments prior to December 31, 2005 and to reinvest in liquid debt securities. An adjustment of $29 thousand was made during the quarter to reduce the cost of the remaining equity securities determined to be other than temporarily impaired to market value at November 30, 2005 and charged to interest and investment income.

Debt instruments and funds. The unrealized losses on municipal bonds and corporate bonds were primarily due to changes in interest rates. At November 30, 2005 the Company held loss positions in 4 municipal bonds and 8 corporate bond positions. Because the decline in market values of these securities is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not believe any of the unrealized losses represent other than temporary impairment based on evaluations of available evidence as of November 30, 2005.

4. Mortgage and notes receivable:


Mortgage and notes receivable arose from real estate sales. The balances are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
 November 30,
 
 
 
 
 
 
 
2005
 
 
August 31,
 
 
 
 (Unaudited)
 
 
2005
 
 
 
 
 
 
 
 
 
Mortgage notes receivable on retail land sales
 
$
579
 
$
580
 
Mortgage notes receivable on bulk land sales
 
 
56,976
 
 
56,976
 
Other notes receivable
 
 
-
 
 
10
 
 
 
 
 
 
 
 
 
Total mortgage and notes receivable
 
 
57,555
 
 
57,566
 
Less: Deferred revenue
 
 
(45,230
)
 
(46,207
)
      Discount on note to impute market interest
 
 
(2,594
)
 
(2,594
)
      Current portion
 
 
(415
)
 
(2,370
)
 
 
 
 
 
 
 
 
Non-current portion
 
$
9,316
 
$
6,395
 
 
10


5. Inventories:
 
A summary of the Company's inventories is shown below:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 November 30,
 
 
 
 
 
 
 
2005
 
 
August 31,
 
 
 
 (unaudited)
 
 
2005
 
 
 
 
 
 
 
 
 
Unharvested citrus
 
$
7,223
 
$
8,176
 
Unharvested sugarcane
 
 
2,250
 
 
5,691
 
Beef cattle
 
 
4,572
 
 
5,024
 
Unharvested sod
 
 
540
 
 
831
 
Plants in greenhouses
 
 
948
 
 
1,156
 
Unharvested vegetables
 
 
150
 
 
24
 
 
 
 
 
 
 
 
 
Total inventories
 
$
15,683
 
$
20,902
 
 
 
 
 
 
 
 
 
The Company's unharvested sugarcane and cattle are partially uninsured.
 
 
 
 
 
 
 
 
Hurricane Wilma, a category three hurricane swept through southwest Florida in October 2005. The hurricane caused extensive damage to the Company’s crops and infrastructure in Collier and Hendry Counties. During August and September of 2004 a series of three hurricanes struck a portion of the Company’s citrus groves in Polk County Florida. The Company recognized losses resulting from damages to inventory from the hurricanes as follows:
 

 
 
Three months ended November 30,
 
 
 
 (unaudited)
 
 
 
 
2005
 
 
2004
 
 
 
 
 
 
 
 
 
Unharvested citrus
 
$
3,448
 
$
408
 
Unharvested sugarcane
 
 
3,010
 
 
-
 
Unharvested vegetables
 
 
147
 
 
-
 
 
 
 
 
 
 
 
 
Inventory losses resulting from casualty
 
$
6,605
 
$
408
 
 
The Company records its inventory at the lower of cost or net realizable value. Due to changing market conditions, the Company determined that its inventories for sugarcane, sod and plants in greenhouses had accumulated costs in excess of their estimated net realizable value. The Company recorded losses of $834, $85 and $346 for its sugarcane, sod and plants, respectively, during the three months ended November 30, 2005 and included the adjustment as cost of sales for the quarter ended November 30, 2005. The cost basis of all inventories were below their estimated net realizable values at November 30, 2004.
11

 
6. Income taxes:
 
The provision for income taxes for the three months ended November 30, 2005 and 2004 is summarized as follows:
 
 
 
Three months ended November 30,
 
 
 
(unaudited)
 
 
 
 
2005
 
 
2004
 
 
 
 
 
 
 
 
 
Current:
 
 
 
 
 
 
 
    Federal income tax
 
$
497
 
$
433
 
    State income tax
 
 
53
 
 
46
 
 
 
 
550
 
 
479
 
 
 
 
 
 
 
 
 
Deferred:
 
 
 
 
 
 
 
    Federal income tax
 
 
87
 
 
57
 
    State income tax
 
 
9
 
 
6
 
 
 
 
96
 
 
63
 
 
 
 
 
 
 
 
 
Total provision for income taxes
 
$
646
 
$
542
 
 
 
 
 
 
 
 
 
 
The Internal Revenue Service is examining the Company’s tax returns for the years ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for calendar years 2003, 2002, 2001 and 2000. The examinations began in October 2003. Any assessments resulting from the examinations will be currently due and payable. No assessments have been proposed to date. A revenue agent issued a report in May 2004, challenging Agri's tax-exempt status for the years examined; however, the report did not quantify the adjustment or the assessment proposed. Agri responded with a written report that disputes the facts, interpretation of law, and conclusions cited in the Agent’s report. Upon receipt of Agri’s response in July 2004, the Agent proposed requesting a Technical Advice Memorandum (TAM) from the national office to assist in settling the differences. Currently, discussions are ongoing between the agents and Agri as to the technical requirements and the appropriate scope for the proposed TAM filing. The Company cannot predict what position the IRS will ultimately take with respect to this matter. The Revenue Agent's report regarding Alico could be issued within the current fiscal year. See also footnote 8 to the condensed consolidated financial statements.
 
Since January 1, 2004 Agri has been filing as a taxable entity.  This change in tax status is a direct result of changes in the Internal Revenue Code increasing premium and other annual income levels.  Due to these changes, Agri no longer qualifies as a tax-exempt entity.
 
7. Indebtedness:

In October 2005, Alico, Inc. entered into a Credit Facility with a commercial lender. The Credit Facility provides the Company with a $175 million revolving line of credit until August 1, 2010 to be used for general corporate purposes including: (i) the normal operating needs of the Company and its operating divisions, (ii) to refinance existing lines of credit and (iii) to finance the Ginn Receivable (as defined in the Loan Agreement). The terms also allow an annual extension at the lender’s option.
 
Under the Credit Facility, revolving borrowings require quarterly interest payments beginning January 1, 2006 at LIBOR plus a variable rate between 0.8% and 1.5% depending on the Company’s debt ratio. The maximum available credit will be reduced annually by approximately $14 million in August 2006, $31 million in August 2007 and $31 million in August 2008, leaving a remaining balance of $100 million from August 1, 2008 to the note’s maturity at August 1, 2010.

The Credit Facility is partially collateralized by a mortgage on approximately 7,680 acres of agricultural property in Hendry County, Florida and any subsequent real estate acquisitions by the Company obtained with advances under the Credit Facility.

Under the Credit Facility it is an event of default if the Company fails to make the payments required of it or otherwise to fulfill the provisions and covenants applicable to it. In the event of default, the Loan shall bear an increased interest rate of 2% in addition to the then-current rate specified in the Note. Alternatively, in the event of default the lender may, at its option, terminate its revolving credit commitment and require immediate payment of the entire unpaid principal amount of the Loan, accrued interest and all other obligations immediately due and payable.

The Credit Facility also contains numerous restrictive covenants including those requiring the Company to maintain minimum levels of net worth, retain certain Debt, Current and Fixed Charge Coverage Ratios, and set limitations on the extension of loans or additional borrowings by the Company or any subsidiary.
 
12

Outstanding debts under the Company’s various loan agreements was as follows at November 30, 2005 and August 31, 2005:
 

November 30, 2005
 
(Unaudited)
 
 
 
 
 
 Additional
 
 
 
 
 
 
 
 
 
 Principal
 
 Credit
 
 
Interest
 
 
 
 
 
 
 Balance
 
 Available
 
 
Rate
 
 
Collateral
 
a) Revolving credit line
 
$
40,120
 
$
134,880
 
 
Libor +0.8
%
 
Unsecured
 
b) Credit line
 
 
4,000
 
 
-
 
 
5.80
%
 
Unsecured
 
c) Mortgage note payable
 
 
10,556
 
 
-
 
 
6.68
%
 
Real estate
 
d) Other
 
 
145
 
 
-
 
 
7.00
%
 
Real estate
 
Total
 
$
54,821
 
$
134,880
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Additional
 
 
 
 
 
 
 
August 31, 2005
 
 Principal
 
 Credit
 
 
Interest
 
 
 
 
 
 
Balance
 
 Available
 
 
Rate
 
 
Collateral
 
b) Credit line
 
$
4,000
 
$
-
 
 
5.80
%
 
Unsecured
 
c) Mortgage note payable
 
 
10,872
 
 
-
 
 
6.68
%
 
Real estate
 
d) Other
 
 
146
 
 
-
 
 
7.00
%
 
Real estate
 
e) Revolving credit line
 
 
21,330
 
 
4,670
 
 
Libor +1
%
 
Unsecured
 
f) Demand note
 
 
-
 
 
3,000
 
 
Libor +1
%
 
Unsecured
 
g) Revolving credit line
 
 
15,000
 
 
-
 
 
Libor +0.8
%
 
Unsecured
 
Total
 
$
51,348
 
$
7,670
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
a) Terms described above
b) 5-year fixed rate term loan with commercial lender. $2 million principal due annually. Interest due quarterly.
c) First mortgage on 7,680 acres of cane, citrus, pasture and improvements in Hendry County, Florida with commercial lender. Monthly principal payments of $106 thousand plus
accrued interest.
d) First mortgage on a parcel of land in Polk County, Florida with private seller. Annual equal payments of $55 thousand.
 
e) Line of credit with commerical bank, refinanced in October, 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
f) Working capital loan with commerical bank, due on demand, refinanced in October, 2005
 
 
 
 
 
 
 
 
 
 
g) Line of credit with commercial lender, refinanced in October, 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Libor rate was 4.41% at November 30, 2005 and 3.87% at August 31, 2005.
 
13

 
Maturities of the Company's debt at November 30, 2005 is as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
Due within 1 year
 
$
3,312
 
Due between 1 and 2 years
 
 
3,315
 
Due between 2 and 3 years
 
 
1,318
 
Due between 3 and 4 years
 
 
1,267
 
Due between 4 and 5 years
 
 
41,387
 
Due beyond five years
 
 
4,222
 
      Total
 
$
54,821
 
 
 
 
 
 
Interest costs expensed and capitalized to property, buildings and equipment was as follows:


 
 
Three months ended November 30,
 
 
 (unaudited)
 
 
 
2005
 
 
2004
 
 
 
 $
 
 
 $
 
 
Interest expense
 
 
991
 
 
508
 
Interest capitalized
 
 
17
 
 
51
 
 
 
 
 
 
 
 
 
Total interest costs
 
 $
1,008
 
 $
559
 
 
 
 
 
 
 
 
 
 
14

8. Other non-current liability:
 
Alico formed a wholly owned insurance subsidiary, Agri Insurance Company, Ltd. (Bermuda) ("Agri") in June of 2000. Agri was formed in response to the lack of insurance availability, both in the traditional commercial insurance markets and governmental sponsored insurance programs, suitable to provide coverage for the increasing number and potential severity of agricultural events. Such events include citrus canker, crop diseases, livestock related maladies and weather. Alico’s goal included not only pre-funding its potential exposures related to the aforementioned events, but also to attempt to attract new underwriting capital if it is successful in profitably underwriting its own potential risks as well as similar risks of its historic business partners.
 
Alico capitalized Agri by contributing real estate located in Lee County Florida. The real estate was transferred at its historical cost basis. Agri received a determination letter from the Internal Revenue Service (IRS) stating that Agri was exempt from taxation provided that net premium levels, consisting only of premiums with third parties, were below an annual stated level ($350 thousand). Third party premiums remained below the stated annual level. As the Lee County real estate was sold, substantial gains were generated in Agri, creating permanent book/tax differences.
 
Since receiving the favorable IRS determination letter, certain transactions, entered into by other taxpayers under the same IRS Code Section came under scrutiny and criticism by the news media. In reaction, Management has recorded a contingent liability of $17.0 million at November 30, 2005 and August 31, 2005 for income taxes in the event of an IRS challenge. Management’s decision has been influenced by perceived changes in the regulatory environment. The Company believes that it can successfully defend any such challenge. However, because it is probable that a challenge will be made and possible that it may be successful, Management has provided for the contingency.
 
Since January 1, 2004 Agri has been filing as a taxable entity.  This change in tax status is a direct result of changes in the Internal Revenue Code increasing premium and other annual income levels.  Due to these changes, Agri no longer qualifies as a tax-exempt entity.

The Internal Revenue Service is examining the Company’s tax returns for the years ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for calendar years 2003, 2002, 2001 and 2000. The examinations began in October 2003. Any assessments resulting from the examinations will be currently due and payable. No assessments have been proposed to date. A revenue agent issued a report in May 2004, challenging Agri’s tax exempt status for the years examined; however, the report did not quantify the adjustment or assessment proposed. Agri responded with a written report that disputes the facts, interpretation of law, and conclusions cited in the Agent’s report. Upon receipt of Agri’s response in July 2004, the Agent has proposed requesting a Technical Advice Memorandum (TAM) from the national office to assist in settling the differences. Currently, discussions are ongoing between the agents and Agri as to the technical requirements and the appropriate scope for the proposed TAM filing. The IRS has not proposed any adjustments to date for Alico. The Company cannot predict what position the IRS will ultimately take with respect to this matter. The Revenue Agent’s report regarding Alico could be issued within the current fiscal year.

9. Dividends:
 
At its meeting on September 30, 2005 the Board of Directors declared a regular quarterly dividend of $0.25 per share payable to stockholders of record as of December 31, 2005, with payment expected on or around January 15, 2006. At its Board of Directors meeting immediately following the annual shareholders meeting held on January 6, 2006, the Board declared a regular quarterly dividend of $0.25 per share payable to shareholders of record as of March 31, 2006 with payment expected on or about April 15, 2006.
 
15

10. Disclosures about reportable segments:

Alico has three reportable segments: citrus, sugarcane, and ranching. The commodities produced by these segments are sold to wholesalers and processors who prepare the products for consumption. The Company's operations are located in Florida.
 
The accounting policies of the segments are the same as those described in the summary of significant accounting policies in the Company's annual report on Form 10K filed for the fiscal year ended August 31, 2005. Alico, Inc. evaluates performance based on profit or loss from operations before income taxes. Alico, Inc.'s reportable segments are strategic business units that offer different products. They are managed separately because each segment requires different management techniques, knowledge and skills.
 
The following table presents information for each of the Company's operating segments as of and for the three months ended November 30, 2005:


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Consolidated
 
 
 
 Citrus
 
 
Sugarcane
 
 
Ranch
 
 
Other
 
 Total
 
Revenue
 
$
1,208
 
$
1,986
 
$
2,224
 
$
11,873
 
$
17,291
 
Costs and expenses
 
 
588
 
 
2,623
 
 
1,711
 
 
10,570
 
 
15,492
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
620
 
 
(637
)
 
513
 
 
1,303
 
 
1,799
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
627
 
 
497
 
 
413
 
 
242
 
 
1,779
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment assets
 
$
43,957
 
$
46,396
 
$
20,827
 
$
132,165
 
$
243,345
 
 
 

The following table presents information for each of the Company's operating segments as of and for the three months ended November 30, 2004:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated
 
 
 
 Citrus
 
 
Sugarcane
 
 
Ranch
 
 
Other
 
 
Total
 
Revenue
 
$
879
 
$
2,453
 
$
2,135
 
$
3,435
 
$
8,902
 
Costs and expenses
 
 
75
 
 
2,079
 
 
1,902
 
 
3,339
 
 
7,395
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment profit (loss)
 
 
804
 
 
374
 
 
233
 
 
96
 
 
1,507
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
619
 
 
527
 
 
375
 
 
184
 
 
1,705
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Segment assets
 
$
54,215
 
$
50,743
 
$
22,002
 
$
115,003
 
$
241,963
 
16

11. Stock Compensation Plans:
 
On November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan ("the Incentive Plan") pursuant to which the Board of Directors of the Company may grant options, stock appreciation rights, and/or restricted stock to certain directors and employees. The Incentive Plan authorizes grants of shares or options to purchase up to 650,000 shares of authorized but unissued common stock. Stock options granted have a strike price and vesting schedules, which are at the discretion of the Board of Directors
and determined on the effective date of the grant. The strike price cannot be less than 50% of the market price.

No stock options were issued during the three months ended November 30, 2005 and 2004. Because no stock options were issued during the periods, there was no difference in net income and proforma net income for the three months ended November 30, 2005 and 2004.
 
At November 30, 2005 and August 31, 2005, there were 16,371 shares exercisable and 292,844 shares available for grant.

12. Other Comprehensive Income:
 
Other comprehensive income, arising from market fluctuations in the Company's securities portfolio, was as follows:


 
 
 Three months ended November 30,
 
 
 (Unaudited)
 
 
 
2005
 
 
2004
 
Balance of Other Comprehensive Income
 
 
 
 
 
 
 
at beginning of period
 
$
2,195
 
$
1,529
 
 
 
 
 
 
 
 
 
Change resulting from market flucuations, net of
 
 
 
 
 
 
 
tax, and realized gains and losses
 
 
(2,409
)
 
1,798
 
 
 
 
 
 
 
 
 
Other Comprehensive Income at end of period
 
$
(214
)
$
3,327
 
 
 
 
 
 
 
 
 
 
13. Future Application of Accounting Standards:

In May 2005 the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”. SFAS 154 replaces APB No. 20, “Accounting Changes”, and SFAS No. 3, “Reporting Changes in Interim Financial Statements”. SFAS No. 154 changes the accounting for, and reporting of, a change in accounting principle. SFAS No. 154 requires retrospective application to the prior period’s financial statements of voluntary changes in accounting principle and changes required by new accounting standards when the standard does not include specific transition provisions, unless it is impractical to do so. SFAS No. 154 is effective for accounting changes and corrections of errors in fiscal years beginning after December 15, 2005. Currently, the Company is not aware of any financial impact that the adoption of this statement will have on its consolidated financial statements.

14. Casualty Losses:
 
Hurricane Wilma, a category three hurricane, swept through southwest Florida in October 2005. The hurricane caused extensive damage to the Company’s crops and infrastructure in
17

Collier and Hendry Counties. Additionally, canker was confirmed in three groves totaling 420 acres. During August and September of 2004 a series of three hurricanes struck a portion of the Company’s citrus groves in Polk County Florida. The Company recognized losses resulting from damages caused by the hurricanes and canker as follows:
 
 
 
November 30,
 
November 30,
 
 
 
2005
 
2004
 
 
 
(unaudited)
 
(unaudited)
 
 
 
 
 
 
 
 
 
Inventoried costs
 
$
6,605
 
$
408
 
Basis of property and equipment