UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2013

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

incorporation or organization)

(I.R.S. Employer

Identification No.)

   
10070 Daniels Interstate Court Suite 100 Fort Myers, FL 33913
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 239-226-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

   

Title of class:

 

Name of each exchange on which registered:

 

COMMON CAPITAL STOCK, $1.00 Par value,

Non-cumulative

NASDAQ

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as define in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

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 filings requirements for the past 90 days.    Yes  þ    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 (§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).    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     þ

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 definition of “accelerated filer” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

       
Large accelerated filer ¨ Accelerated filer þ
       
Non-accelerated filer ¨   Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No   þ

The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the closing price, as quoted on the NASDAQ as of March 31, 2013 (the last business day of Alico’s most recently completed second fiscal quarter) was $105,650,817.50. Solely for the purposes of this calculation, the registrant has elected to treat all executives, officers and greater than 10% shareholders as affiliates of the registrant. There were 7,274,339 shares of stock outstanding at December 2, 2013.

 

Documents Incorporated by Reference:

Portions of the Proxy Statement of Registrant to be dated on or before January 28, 2014, are incorporated by reference in Part III of this report.

 
 
 

ALICO, INC.

FORM 10-K

For the fiscal year ended September 30, 2013

 

   
Part I  
   
Item 1. Business 1
   
Item 1A. Risk Factors 11
   
Item 1B. Unresolved Staff Comments 15
   
Item 2. Properties 16
   
Item 3. Legal Proceedings 17
   
Item 4. Mine Safety Disclosures 17
   
Part II  
   
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 18
   
Item 6. Selected Financial Data 21
   
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 36
   
Item 8. Financial Statements and Supplementary Data 37
   
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 64
   
Item 9A. Controls and Procedures 64
   
Item 9B. Other Information 64
   
Part III  
   
Item 10. Directors, Executive Officers and Corporate Governance 65
   
Item 11. Executive Compensation 65
   
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 65
   
Item 13. Certain Relationships and Related Transactions, and Director Independence 65
   
Item 14. Principal Accountants’ Fees and Services 65
   
Part IV  
   
Item 15. Exhibits and Financial Statement Schedules 66

 

 
 

Cautionary Statement

 

This annual report on Form 10-K contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words “may,” “will,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or other words or expressions of similar meaning. We have based these forward-looking statements on our current expectations about future events. The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans.

 

In addition, this annual report on Form 10-K contains industry data related to our business and the markets in which we operate. This data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results could differ from the projections. We urge you to carefully review this annual report on Form 10-K, particularly the section “Risk Factors,” for a complete discussion of the risks of an investment in our common stock.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this annual report, some of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this annual report as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

As used throughout this Annual Report on Form 10-K, the terms “Alico,” the “Company,” “we,” “our,” or “us” include Alico, Inc. and its consolidated subsidiaries unless the context indicates otherwise.

 

 
 

Part 1

 

Item  1. Business.

 

Alico, Inc. (“Alico”) is a Florida agribusiness and land management company built for today and backed by a legacy of achievement and innovation in citrus, sugar, cattle and resource conservation.

 

We own approximately 130,800 acres of land in six Florida counties (Alachua, Collier, Glades, Hendry, Lee and Polk) and, in addition to our principal lines of business in citrus groves, improved farmland including sugar cane, cattle ranching and conservation, and related support operations. We also receive royalties from rock mining and oil production.

 

Our mission is to create value for our customers, clients and shareholders by managing existing lands to their optimal current income and total returns, opportunistically acquiring new agricultural assets and producing high quality agricultural products while exercising responsible environmental stewardship.

 

We manage our land based upon its primary usage and review its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, we operate an Agricultural Supply Chain Management business that is not tied directly to our land holdings and Other Operations that include leasing mines and oil extraction rights to third parties.  We present our financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  In the fourth quarter of fiscal year 2013, we changed our internal operations to align with the way we manage our business operations. As a result, we have realigned our financial reporting segments to match our internal operations.  We have reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect our previously reported consolidated results.  The only change to previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

 

 

The Land We Manage

 

We regularly review our land holdings to determine the best use of each parcel based upon our management expertise. Our total return profile is a combination of operating income potential and long-term appreciation. Land holdings not meeting our total return criteria are considered surplus to our operations and will be sold or exchanged for land considered to be more compatible with our business objectives and total return profile.

 

We operate and manage Citrus Groves, Improved Farmland, Ranch and Conservation and Other Land. Our holdings and the operating activities in which we engage are categorized in the following table:

 

   Gross
Acreage
    Operating Activities
        
 Citrus Groves  17,400   Citrus Cultivation
 Improved Farmland  44,100   Farming; Leasing
 Ranch and Conservation  67,400   Cattle Grazing; Sod and Native Plant Sales; Leasing; Conservation
 Other Land  1,900   Mining; Citrus Nursery
        
 Total  130,800    

 

 

Citrus Groves

 

We own and manage Citrus Groves in Collier, Hendry and Polk Counties and engage in the cultivation of citrus trees to produce citrus for delivery to the fresh and processed citrus markets. Citrus Groves total approximately 17,400 gross acres or 13.3% of our land holdings. Our Citrus acreage is detailed in the following table:

 

1
 
  Net Plantable  Total Plantable      
  Producing  Developing  Fallow    Support  Gross
                  
 Hendry County  3,400    100    100    3,600    1,600    5,200 
 Polk County  3,100    100    100    3,300    2,000    5,300 
 Collier County  4,100    -    -    4,100    2,800    6,900 
                              
 Total  10,600    200    200    11,000    6,400    17,400 

 

 

Of the approximately 17,400 gross acres of citrus groves we own and manage, approximately 6,400 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention, water retention and drainage ditches integral to the cultivation of citrus trees but which are not capable of directly producing fruit. The approximately 11,000 remaining acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing fruit. These include acres that are currently producing, acres that are developing (acres that are planted in trees too young to commercially produce fruit) and acres that are fallow.

 

Our Citrus Groves segment cultivates citrus trees to produce citrus for delivery to the processed and fresh citrus markets. Our sales to the processed market constitute approximately 95% of our citrus sales annually. We produce Early and Mid-Season varieties, primarily Hamlin oranges, as well as a Valencia variety for the processed market. We deliver our fruit to the processors in boxes which contain 90 pounds of oranges. Because the processors convert the majority of the citrus crop into orange juice, they generally do not buy their citrus on a per box basis but rather on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. We have produced 24,746,000, 29,069,000, and 23,976,000 pound solids for each of the years ended September 30, 2013, 2012, and 2011, on boxes delivered to processing plants of 3,867,000, 4,357,000, and 3,773,000, respectively. The average pound solids per box was 6.40, 6.68, and 6.34 for each of the years ended September 30, 2013, 2012, and 2011, respectively. 

 

We generally use multi-year contracts with citrus processors that include pricing structures based on a minimum (“floor”) price with a price increase (“rise”) based on market conditions. Therefore, if pricing in the market is favorable relative to our floored price, we benefit from the incremental difference between the floor and the final market price.

 

All citrus to be produced for the processed citrus market in fiscal year 2013-2014 is under minimum price contracts with a floor price of approximately $1.60 per pound solids. We believe that other markets are available for our citrus products; however, new arrangements may be less favorable than our current contracts.

 

Our sales to the fresh market constitute approximately 5% of our citrus sales annually. We produce numerous varieties to the fresh fruit market including grapefruit, navel and other fresh varieties. Generally, our fresh fruit is sold to packing houses by the box, and the packing houses are responsible for the harvest and haul of these boxes. We have produced 251,000, 278,000, and 289,000 boxes for each of the years ended September 30, 2013, 2012, and 2011, respectively. The majority of our citrus to be produced for the fresh citrus market in fiscal year 2013-2014 is under fixed price contracts.

 

Revenue from Citrus Groves operations was approximately 43.0%, 43.6%, and 47.8% of our total operating revenues for the fiscal years ended September 30, 2013, 2012, and 2011, respectively.

 

Improved Farmland

 

We own and manage Improved Farmland in Hendry County and engage in farming the land and leasing some of the acreage to others to farm. Of our land holdings, Improved Farmland totals approximately 44,100 gross acres or 33.7% of our total acreage. Our Improved Farmland acreage is detailed in the following table:

2
 
  Gross Acres
   
 Sugarcane 30,600
 Leaseable 5,800
 Permitted but undeveloped 7,700
   
 Total improved farmland 44,100

 

 

Our Improved Farmland includes approximately 30,600 gross acres currently used for Sugarcane farming, approximately 5,800 gross acres of irrigated farmland currently used for farm leasing and other purposes and approximately 7,700 gross acres of permitted but undeveloped land (acres that are permitted for farming but that have not yet been cleared, leveled and irrigated for commercial farming).

 

The approximately 30,600 gross acres currently used for Sugarcane farming are detailed in the table below:

 

   Net Plantable         
   Developing  Plant Cane  First Stubble  Second Stubble  Third Stubble  Total Plantable  Support  Gross
                                         
 Hendry County   2,200    5,300    5,300    4,500    1,600    18,900    11,700    30,600 

 

 

The sugarcane farmland we own and manage, approximately 11,700 acres are classified as support acreage. Support acreage includes acres used for roads, barns, water detention and drainage ditches integral to the cultivation of sugarcane but which are not capable of directly producing sugarcane. The remaining approximately 18,900 acres are classified as net plantable acres. Net plantable acres are those that are capable of directly producing sugarcane.

 

Our sugarcane crops are planted in the sandy soils of Hendry County and are generally replanted every four years. On average, three annual crops are harvested from one field before production and sugar concentration declines to an unacceptable level and the sugarcane crop is plowed under. The first crop that emerges from the planted cane is called plant cane and the subsequent crops are termed first stubble and second stubble. The sugarcane fields are generally fallow in the fourth year and are leased to other farmers to plant seasonal crops such as sweet corn, peanuts and watermelons. Approximately 2,200 acres of second stubble was harvested and plowed under in fiscal year 2013.

 

Developing acres are sugarcane acres that are being planted and cultivated in fiscal year 2014 and which will produce plant cane in fiscal year 2015. The 4,500 acres that are classified as second stubble for fiscal year 2013 and the 1,600 acres that are classified as third stubble will be harvested in the first quarter of fiscal year 2014. Portions of the 4,500 acres may be cultivated for an additional year to create a third stubble crop in fiscal year 2015, while the remainder and all of the 1,600 acres of third stubble will be plowed under and become leaseable fallow land.

 

We have sold 100% of our sugarcane to United States Sugar Corporation (“USSC”), a local Florida sugar processor, since the inception of our sugarcane program in 1988. The location of our sugarcane fields relative to the USSC processing plant is favorable and allows for efficient and cost effective delivery of our sugarcane. Alternative plant locations are less favorable, and, as a result, the loss of USSC as a customer could have a material adverse effect on our sugarcane operations; however, we do have a purchase agreement with USSC through March 31, 2014 that includes a minimum pricing clause. On March 31, 2014, the purchase agreement will automatically extend for one additional year, unless either party gives written notice of termination by the preceding January 1. If written notice of termination is provided by either party, the planted sugarcane, including any subsequent stubble years will continue to be subject to the purchase agreement.

 

During fiscal years ended September 30, 2013, 2012, and 2011, revenue from improved farmland operations was 21.6%, 12.0% and 8.8% of our total operating revenue, respectively.

 

3
 

Of our approximately 44,100 gross acres of Improved Farmland, approximately 5,800 gross acres are classified as irrigated farmland that is currently used for leasing and other purposes and 7,700 gross acres are classified as permitted but undeveloped. The detail of our irrigated farmland and permitted but undeveloped farmland is presented in the following table:

 

  Gross Acres  Net
Leaseable
  Estimated
Net
Leaseable
         
 Leaseable  5,800    2,300    N/A
 Permitted but undeveloped  7,700     N/A     4,000 to 5,000

 

 

Of our approximately 5,800 gross acres of irrigated farmland, approximately 2,300 acres are leaseable. Of our 7,700 gross acres of permitted but undeveloped land, we estimate that with proper clearing and development we could yield four to five thousand net leaseable acres.

 

Ranch and Conservation

 

We own and manage Ranch and Conservation land in Collier, Hendry and Polk Counties and engage in Cattle Production, Sod and Native Plant Sales, Land Leasing for recreational and grazing purposes and conservation activities. Of our land holdings, Ranch and Conservation totals approximately 67,400 gross acres or 51.5% of our total acreage. Our Ranch and Conservation acreage is detailed in the following table:

 

  Acreage
   
 Hendry County 60,500
 Polk County 2,900
 Collier County 4,000
   
 Total 67,400

 

 

We frequently lease the same acreage for more than one purpose. The portion of our Ranch and Conservation acreage that is leased for each purpose is detailed in the table below:

 

  Grazing  Recreational
      
 Hendry County 1,900  57,500
 Polk County 2,300  1,300
 Collier County 4,000  3,500

 

 

Our Cattle operation is engaged in the production of beef cattle. It is located in Hendry and Collier Counties. The breeding herd consisted of an average of 8,700 cows and bulls. We primarily sell our calves to feed yards and yearling grazing operations in the United States. We also sell cattle through local livestock auction markets and to contract cattle buyers in the United States. These buyers provide ready markets for our cattle. We believe that the loss of any one or a few of these buyers would not have a material effect on our Cattle operations. Revenue from ranch and conservation operations was approximately 6.6%, 5.8%, and 6.1% of total operating revenue for each of the years ended September 30, 2013, 2012, and 2011, respectively.

 

In the fourth quarter of fiscal year 2013 we granted an easement to the United States Department of Agriculture (“USDA”), through its administering agency, The Natural Resources Conservation Service, on approximately 11,600 acres of our Ranch and Conservation land located in Hendry County resulting in a gain of $20.3 million, which was recorded in Other Income on the Statement of Comprehensive Income.

 

Our Other Segments

 

In addition to owning and managing approximately 130,800 gross acres of land in Central and Southwest Florida, Alico also engages in complimentary lines of business. Our Agricultural Supply Chain Management and Support

4
 

lines of business include activities related to value-added services provided which include agricultural contracting for harvesting hauling and marketing and the purchase and resale of fruit while our Other Operations line of business includes activities related to rock and sand mining, oil exploration and other insignificant lines of business. A summary of the Agricultural Supply Chain Management and Support line of business follows:

·Alico Fruit Company is a wholly owned subsidiary purchased in February 2006 to provide additional citrus marketing expertise and the ability to manage the delivery of our own citrus crop. Its operations include supply chain management (contracting for harvest, hauling and marketing) for Alico’s citrus crop and for other growers. The operation also includes the purchase and resale of citrus fruit. During the fiscal years ended September 30, 2013, 2012, and 2011, Alico Fruit Company’s revenue was 27.9%, 38.0% and 36.6% of our total operating revenue, respectively.
·In the third quarter of fiscal year 2013, we acquired approximately 400 acres of land in Alachua County on which we are constructing a citrus tree nursery which will be included in the Agricultural Supply Chain Management line of business.

 

Segment Financial Results

 

We create value for our customers, clients and investors by managing our land holdings to their highest and best returns and by producing the highest quality agricultural products, implementing innovative land management and responsible environmental stewardship in the communities where we operate.

 

The following table presents the operating revenues and gross profit of the segments:

 

(in thousands) Fiscal Year Ended September 30,
  2013  2012  2011
         
Revenues:              
Citrus Groves $43,689   $55,423   $47,088 
Agricultural Supply Chain Management  28,412    48,334    36,115 
Improved Farmland  21,917    15,316    8,642 
Ranch and Conservation  6,755    7,348    6,015 
Other Operations  888    766    732 
Intersegment Revenues  10,981    11,820    9,679 
Eliminations  (10,981)   (11,820)   (9,679)
               
Total revenue  101,661    127,187    98,592 
               
Operating expenses:              
Citrus Groves  31,533    30,995    27,764 
Agricultural Supply Chain Management  27,949    47,693    35,109 
Improved Farmland  16,202    11,574    7,343 
Ranch and Conservation  3,798    3,497    3,640 
Other Operations  505    1,196    1,303 
               
Total operating expenses  79,987    94,955    75,159 
               
Gross profit:              
Citrus Groves  12,156    24,428    19,324 
Agricultural Supply Chain Management  463    641    1,006 
Improved Farmland  5,715    3,742    1,299 
Ranch and Conservation  2,957    3,851    2,375 
Other Operations  383    (430)   (571)
               
Total gross profit $21,674   $32,232   $23,433 

 

 

 

 

 

5
 

Highlights

 

Change in Majority Owner

 

On November 19, 2013, 734 Investors, LLC (the “Buyer”), an investment fund affiliated with 734 Agriculture, LLC (“734 Agriculture”) and George R. Brokaw, a Member of 734 Agriculture and the Buyer’s designee (the “Designee”), completed the previously announced purchase from Alico Holding, LLC (the “Seller”), a company wholly owned by Atlantic Blue Group, Inc., of 3,725,457 shares of common stock, par value $1 per share, of Alico owned by the Seller for $37.00 per share, for an aggregate purchase price of approximately $137,841,909 in cash (the “Share Purchase”). The Buyer used equity investments from its members of approximately $123,410,000 and debt financing of $13,691,909 to fund its portion of the purchase price. The Designee used cash on hand to fund his portion of the purchase price.

 

The common stock acquired by the Buyer and the Designee represents approximately 51% of our outstanding voting securities. On November 15, 2013, the Buyer amended and restated its LLC operating agreement (the “LLC Agreement”) to admit new members and to designate 734 Agriculture as the managing member, with authority to administer the affairs of the Buyer, including the voting and disposition of shares of Common Stock, subject to certain restrictions set forth therein. The Buyer also entered into an agreement with the Designee (the “Designee Agreement”), dated as of November 15, 2013, providing that the Designee will vote the shares of our common stock acquired in the Share Purchase as directed by the Buyer and will not transfer, sell or otherwise dispose of those shares except pro rata with the Buyer’s disposition of its shares of our common stock. As a result, upon the consummation of the Share Purchase, the Buyer and 734 Agriculture will have the voting power to control the election of our directors and any other matter requiring the affirmative vote or consent of our shareholders.

 

The LLC Agreement also provides that the Buyer and 734 Agriculture will cause one of our directors so elected (or two, if our Board of Directors (the “Board”) is comprised of eleven or more members) to be an individual or individuals nominated by an affiliate of Arlon Group, so long as such nominee(s) satisfies certain conditions set forth in the LLC Agreement, including compliance with director independence and other criteria of the Company, the Nasdaq Global Select Stock Market (“Nasdaq”) and the Securities and Exchange Commission (the “SEC”) and applicable provisions of the Securities Exchange Act of 1934 (the “Exchange Act”), and qualification to serve as a director under the laws of the State of Florida.

 

We are not a party to the LLC Agreement or the Designee Agreement. The foregoing information concerning the LLC Agreement and the Designee Agreement has been furnished to us by the Buyer and 734 Agriculture, and we assume no responsibility for the accuracy of any such information.

 

Appointment of Directors; Resignation of Directors

 

With the closing of the Share Purchase, the previously announced election of the following individuals to our board of directors (the “Board”) became effective: Mr. Brokaw, Member of 734 Agriculture; Remy W. Trafelet, Manager of 734 Agriculture; W. Andrew Krusen, Chairman and CEO of Dominion Financial Group; Benjamin D. Fishman, Managing Principal of Arlon Group; Henry R. Slack, former Chairman of the Board of Terra Industries, Inc. and Senior Partner of Quarterwatch, LLC; Clayton G. Wilson, former CEO of 734 Citrus Holdings, LLC d/b/a Silver Nip Citrus (“Silver Nip”) and Chairman of the Board of Latt Maxcy Corporation; and R. Greg Eisner, Head of Strategy of Dubin & Company, LLC. In accordance with the LLC Agreement, Arlon Group proposed that Mr. Fishman be included in the slate of new directors to be elected to the Board. Biographical information on each of the directors elected to the Board can be found in the Company’s Schedule 14f-1 filed with the SEC on November 8, 2013 (the “Schedule 14f-1”), under the section entitled “Directors Designated by 734 Investors—734 Investors’ Designees.”

 

Ramon A. Rodriguez remained on the Board and will continue to serve as director of the Company following the Share Purchase. In addition, Adam D. Compton, who previously resigned subject to and effective upon the closing of the Share Purchase, was reelected to the Board on November 22, 2013. Biographical information on Messrs. Rodriguez and Compton can be found in the Schedule 14f-1 under the section entitled “Board of Directors.”

 

6
 

Upon the Closing of the Share Purchase, the following individuals ceased to be directors pursuant to their previously disclosed resignations: JD Alexander, Dykes Everett, Thomas H. McAuley, Charles L. Palmer, John D. Rood, and Gordon Walker, PhD. Mr. Robert J. Viguet, Jr. resigned from the Board on November 21, 2013.

 

In connection with the change in the membership of the Board:

 

·Mr. Slack was appointed to serve as Chairman of the Board;

 

·Messrs. Trafelet (Chair), Brokaw, Fishman and Slack were appointed to serve as members of the Executive Committee of the Board;

 

·Messrs. Rodriguez (Chair), Compton and Krusen were appointed to serve as members of the Audit Committee of the Board;

 

·Messrs. Eisner (Chair), Brokaw and Krusen were appointed to serve as members of the Compensation Committee of the Board; and

 

·Messrs. Brokaw (Chair), Compton, Eisner and Fishman were appointed to serve as members of the Nominations and Governance Committee of the Board.

 

Appointment of Mr. Wilson as the Company’s Chief Executive Officer

 

Upon the closing of the Share Purchase, Mr. Alexander ceased to be our CEO pursuant to his previously disclosed resignation. On November 22, 2013, the Board appointed Mr. Wilson to serve as our Chief Executive Officer (“CEO”), effective immediately. Mr. Wilson also resigned from his position as CEO of Silver Nip effective the same date. Biographical information on Mr. Wilson can be found in our Schedule 14f-1 under the section entitled “Directors Designated by 734 Investors—734 Investors’ Designees—Mr. Clayton G. Wilson.” We expect to negotiate and enter into an employment agreement with Mr. Wilson, which will provide for compensation and other terms of employment appropriate for his position. During the interim period beginning on November 22, 2013 and ending when a definitive employment agreement with Mr. Wilson becomes effective, Mr. Wilson’s compensation will be equivalent to the compensation he previously received as CEO of Silver Nip, which is expected to consist of an annual base salary of $150,000 and customary fringe benefits (including employee welfare and retirement benefits) provided to our executive officers.

 

Silver Nip Agreement

 

On November 22, 2013, we entered into an employee lease agreement with Mr. Wilson and Silver Nip (the “Silver Nip Agreement”). Silver Nip is owned and controlled by Messrs. Brokaw, Trafelet and Wilson.

 

The Silver Nip Agreement provides, subject to the terms and conditions set forth therein, for us to furnish Mr. Wilson’s services to Silver Nip to perform the functions and services that Mr. Wilson has previously performed for Silver Nip prior to his resignation as CEO (the “Resignation Date”). The Silver Nip Agreement provides that Mr. Wilson will spend a majority of his working time performing functions and services for us and that in no event will Mr. Wilson be required to take any action that he or Alico determines could conflict with Mr. Wilson’s exercise of his fiduciary duties under applicable law owed to us or could interfere with the performance of his duties as an executive officer of the Company. In exchange for furnishing Mr. Wilson’s services, Silver Nip has agreed to pay us the cash salary that would have been paid to Mr. Wilson pursuant to his previous employment arrangement with Silver Nip, had that arrangement continued to be in force.

 

The Silver Nip Agreement continues through December 31, 2013. If neither party has provided the other with written notice of an intention to terminate the Silver Nip Agreement at least three business days before December 31, 2013 (or any subsequent renewal period), the Silver Nip Agreement will automatically renew for a one month period. In addition, Silver Nip may terminate the Silver Nip Agreement at any time upon 10 business days’ prior written notice to us.

 

7
 

Sale of Easement

 

In July, 2013, we granted a warranty easement deed to the United States Department of Agriculture, through its administering agency, The Natural Resources Conservation Service, granting a conservation easement on approximately 11,600 acres located in Hendry County, FL (the “Property”) for $20,678,000. The easement agreement states the Property will be enrolled in perpetuity in the Wetlands Reserve Program designed to restore, protect and enhance the values of the wetlands and for the conservation of natural resources. We will retain title to the Property and the right to various recreational uses including hunting, fishing and leasing of such rights. Additionally, we reserve the right to subsurface resources including oil, gas, minerals and geothermal resources underlying the easement area and the right to water uses and water rights identified as reserved to us.

 

Supplemental Information

 

Information regarding the revenues, earnings and total assets of each of our operating segments can be found in Item 8. Financial Statements and Supplementary Data, Note 15. Segment Information in Notes to our Consolidated Financial Statements included in this Annual Report. Substantially all of our revenues are generated from domestic customers. All of our assets are located in the United States.

 

Strategy

 

Our core business strategy is to maximize shareholder value through continuously improving the return on our invested capital, either by holding and managing our existing land through skilled agricultural production, leasing, or other opportunistic means of monetization, disposing of under productive land or business units, and/or acquiring new land or operations with appreciation potential.

 

Our objectives are to produce the highest quality agricultural products, create innovative land uses, opportunistically acquire and convert undervalued assets, sell-under productive land not meeting our total return profile, generate recurring and sustainable profit with the appropriate balance of risk and reward, and exceed the expectations of shareholders, customers, clients and partners.

 

Our strategy is based on best management practices of our agricultural operations, environmental and conservation stewardship of our land and natural resources. We manage our land in a sustainable manner and evaluate the effect of changing land uses while considering new opportunities. Our commitment to environmental stewardship is fundamental to Alico's core beliefs.

 

We position our three categories of land based upon their suitability for a particular purpose and their potential to generate value:

 

·We position our Citrus Groves to efficiently utilize capital to consistently generate high-quality commercially viable citrus fruit for the processed or fresh markets while managing the weather and disease related risks inherent in the citrus business. 
·We position our Improved Farmlands to generate returns on permitted and farmable acreage.  Based upon our interpretation of industry information and the potential for returns, we plant and cultivate sugarcane on our improved farmlands, lease our improved farmlands to third parties, allow our improved farmland to remain fallow, and/or convert our improved farmlands to other crops.
·We position our Ranch and Conservation lands to opportunistically generate returns based largely upon the size of the parcels and their location relative to the important wetlands of southern Florida.  We consistently raise cattle for sale on our Ranch and Conservation lands and lease our lands for grazing and recreational purposes to maintain our agricultural property tax classifications as well as to generate minimal returns on the lands while we investigate and execute on opportunities to monetize these lands through conservation programs.
·We position our Agricultural Supply Chain Management business to manage the harvesting and hauling of the fruit produced by our Citrus Groves segment as well as to provide for returns on its
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invested capital by purchasing, selling, harvesting and hauling citrus fruit for other producers in the state of Florida.  The services provided by, and the relationships and industry information generated through, operating our Agricultural Supply Chain Management segment are complimentary to the operation and strategic positioning of our Citrus Groves Segment.

·Where appropriate, we engage in other operations.  These operations include leasing mineral and oil rights to third parties where resource supplies are sufficient and other uses of our land holdings do not currently provide for returns greater than those provided by these leases.

 

Competition

 

Alico is engaged in a variety of agricultural and nonagricultural activities, all of which are in highly competitive markets. Citrus is grown domestically in several states including Florida, California, Arizona and Texas, as well as foreign countries, most notably Brazil. Competition is impacted by several factors including production, market prices, weather, disease, export /import restrictions and currency exchange rates. Sugarcane products compete with sugar beets in the United States as well as imported sugar and sugar products from Brazil and Mexico. Beef cattle are produced throughout the United States and domestic beef sales also compete with imported beef. Forest and rock products are produced in many parts of the United States.

 

The sale and leasing of land is very competitive in the counties where we own land. The degree of competition has increased due to the current economic climate, which has caused an oversupply of comparable real estate available for sale or lease due to the decline in demand as a result of the continuing underperforming economy.  

 

Environmental Regulations

 

Our operations are subject to various federal, state and local laws regulating the discharge of materials into the environment. Management believes we are in compliance with all such rules including permitting and reporting requirements. Compliance has not had a material effect upon our financial position, results of operations or cash flows.

 

Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations. In addition, we require lessees of our property to comply with environmental regulations as a condition of leasing.

9
 

Employees

 

As of September 30, 2013, we had 154 full-time employees. Our employees work in the following divisions:

 

 Agricultural Supply Chain Management 26
 Citrus Groves 73
 Improved Farmland 17
 Ranch and Conservation 3
 Heavy Equipment 16
 Other Operations 2
 General and Administrative 17
   
 Total 154

 

 

Seasonal Nature of Business

 

Revenues from Alico’s agri-business operations are seasonal in nature. The following table illustrates the seasonality of our agri-business revenues:

 

 

Capital resources and raw materials

 

Management believes that Alico will be able to meet its working capital requirements for the foreseeable future through internally generated funds and our existing credit line. Alico has credit commitments that provide for revolving credit that is available for our general use. Raw materials needed to cultivate the various crops grown by Alico consist primarily of fertilizers, herbicides and fuel and are readily available from local suppliers.

 

Available Information

 

Our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports may be viewed or downloaded electronically, free of charge, from our website http://www.alicoinc.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). In addition, you may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. To obtain information on the operation of the Public Reference room, you may call the SEC at 1-800-SEC-0330. Our recent press releases are also available to be viewed or downloaded electronically at http://www.alicoinc.com.

 

We will also provide electronic copies of our SEC filings free of charge upon request. Any information posted on or linked from our website is not incorporated by reference into this Annual Report on Form 10-K. The SEC also maintains a website at http://sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.  

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Item 1A. Risk Factors.

The following are what we believe to be the principal risks known to us that could cause a material adverse effect on our business, financial condition, results of operations, cash flows, strategies and prospects.

 

General

 

We have a 51% shareholder that has effective control over the election of our Board of Directors and a limited public float which could affect the price of our stock.

 

In November 2013, 734 Investors, LLC ("734 Investors"), acquired approximately 51% of Alico's common stock from Atlantic Blue Group, Inc. ("Atlanticblue"). In connection with that transaction, eight of our directors resigned, and our Board of Directors elected seven nominees proposed by 734 Investors to fill the vacancies. Alico does not have cumulative voting for directors. Accordingly, by virtue of its ownership percentage, 734 Investors is able to elect all of our directors and effectively controls Alico. Our shareholders other than 734 Investors have no control over who our directors or management will be. Our Board of Directors has determined that a majority of our current directors are independent within the meaning of Nasdaq listing standards, but these standards do not require that a majority of our directors be independent because we are a "controlled company." In addition, because we have a majority shareholder we have a limited public float, and our common stock is more thinly traded and its market price may fluctuate more than stocks with a larger public float.

 

We have a major customer that purchases 100% of our sugarcane production.

 

We have sold 100% of our sugarcane to USSC since the inception of our sugarcane program in 1988 and which revenue accounted for 20.6% of our total operating revenues in fiscal year 2013. The location of our sugarcane fields relative to the USSC processing plant is favorable and allows for efficient and cost effective delivery of our sugarcane. Alternative plant locations are less favorable, and, as a result, the loss of USSC as a customer could have a material adverse effect on our sugarcane operations. We have a purchase agreement with USSC through March 31, 2014, that includes a minimum pricing clause. On March 31, 2014, the purchase agreement will automatically extend for one additional year, unless either party gives written notice of termination by January 1, 2014. If written notice of termination is provided by either party, the existing planted cane and any subsequent stubble cuts will be subject to the purchase agreement.

 

Alico benefits from reduced real estate taxes due to the agricultural classification of a majority of its land.  Changes in the classification or valuation methods employed by county property appraisers could cause significant changes in our real estate tax liabilities.

 

In each of the fiscal years ended September 30, 2013, 2012, and 2011, we paid $2,196,0000, $2,275,000, and $2,458,000 in real estate taxes, respectively.  These taxes were based upon the agricultural use (“Green Belt”) values determined by the county property appraiser in which counties we own land, of $69,687,000, $82,975,000, and $92,038,000 for each of the years ended September 30, 2013, 2012, and 2011, respectively, which differs significantly from the fair values determined by the county property appraisers of $516,919,000, $529,542,000, and $540,168,000, respectively.  Changes in state law or county policy regarding the granting of agricultural classification or calculation of Green Belt values or average millage rates could significantly impact our results of operations, cash flow and financial position.

 

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Alico manages its properties in an attempt to capture their highest and best use and customarily does not sell property until it no longer meets our total return profile.

 

The goal for our land management program is to manage and selectively improve our lands for their most profitable use. We continually evaluate our properties focusing on location, soil capabilities, subsurface composition, topography, transportation, availability of markets for our crops, the climatic characteristics of each of the tracts, long-term capital appreciation and operating income potential. While we are primarily engaged in agricultural activities, when land does not meet our total return profile, we may determine that the property is surplus to our activities and place the property for sale or exchange.

 

Alico is subject to environmental regulations. Compliance with applicable environmental laws may substantially increase our costs of doing business which could reduce our profits.

 

We are subject to various laws and regulations relating to the operation of our properties, which are administered by numerous federal, state and local governmental agencies. We face a potential for environmental liability by virtue of our ownership of real property. If hazardous substances (including herbicides and pesticides used by us or by any persons leasing our lands) are discovered emanating from any of our lands and the release of such substances presents a threat of harm to the public health or the environment, we may be held strictly liable for the cost of remediation of these hazardous substances. In addition, environmental laws that apply to a given site can vary greatly according to the site’s location, its present and former uses, and other factors such as the presence of wetlands or endangered species on the site. Management monitors environmental legislation and requirements and makes every effort to remain in compliance with such regulations. Furthermore, Alico requires lessees of its properties to comply with environmental regulations as a condition of leasing. We also purchase insurance for environmental liability when it is available; however, these insurance contracts may not be adequate to cover such costs or damages or may not continue to be available at prices and terms that would be satisfactory. It is possible that in some cases the cost of compliance with these environmental laws could exceed the value of a particular tract of land, make it unsuitable for use in what would otherwise be its highest and best use, and/or be significant enough that it would have a materially adverse effect on us.

 

Our business may be adversely affected if we lose key employees.

 

We depend to a large extent on the services of certain key management personnel. These individuals have extensive experience and expertise in our business lines and segments in which they work. The loss of any of these individuals could have a material adverse effect on our operations. We do not maintain key-man life insurance with respect to any of our employees. Our success will be dependent on our ability to continue to employ and retain skilled personnel in our business lines and segments.

 

Agricultural Risks — General

 

Agricultural operations traditionally provide almost all of our operating revenues. Agriculture operations are subject to a wide variety of risks including product pricing due to variations in supply and demand, weather, disease, input costs and product liability.

 

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Agricultural products are subject to supply and demand pricing which is not predictable.

 

Although our processed citrus and sugarcane are subject to minimum pricing we are unable to predict with certainty the final price we will receive for our products. In some instances the harvest and growth cycle will dictate when such products must be marketed which may or may not be advantageous in obtaining the best price. Excessive supplies tend to cause severe price competition and lower prices for the commodity affected. Limited supply of certain agricultural commodities due to world and domestic market conditions can cause commodity prices to rise in certain situations. Alico attempts to mitigate these risks by using contracts with citrus and sugarcane processors that include pricing structures based on a minimum (“floor”) price and with a price increase (“rise”) if market prices exceed the floor price. As a result, our profitability may be subject to significant variability.

 

Alico’s agricultural assets are concentrated and the effects of adverse weather conditions could adversely affect our results of operations and financial position.

 

Our agricultural operations are concentrated in south Florida with more than 35% of our agricultural lands located in a contiguous parcel in Hendry County. Because our agricultural properties are located in close proximity to each other, the impact of adverse weather conditions may be material to Alico’s results of operations. Florida is particularly susceptible to the occurrence of hurricanes. Depending on where any particular hurricane makes landfall, our properties could experience significant, if not catastrophic damage. Hurricanes have the potential to destroy crops, affect cattle breeding and impact citrus and sugarcane production through the loss of fruit and destruction of trees and/or plants either as a result of high winds or through the spread of windblown disease. Such damage could materially affect our citrus, sugarcane and cattle operations and could result in a loss of revenue from those products for a multi-year period. Alico seeks to minimize hurricane risk by the purchase of insurance contracts, but the majority of our crops remain uninsured. In addition to hurricanes, the occurrence of other natural disasters and climate conditions in Florida, such as tornadoes, floods, freezes, unusually heavy or prolonged rain, droughts and heat waves, could have a material adverse effect on our operations and our ability to realize income from our crops or cattle.

 

Alico’s agricultural earnings comprise substantially all of its revenues and are subject to wide volatility which could result in breaches of loan covenants.

 

Borrowing capacity represents a major source of our working capital. We currently have a credit facility with Rabo AgriFinance, Inc. that includes a Revolving Line of Credit and a Term Loan. These loans are subject to covenants requiring Alico to maintain a minimum current ratio of 1.5:1, a debt to assets ratio no greater than 60%, tangible net worth of at least $80 million, and a minimum debt coverage ratio of 1.15:1. While we currently expect to remain in compliance with these covenants, because of the volatility of our earnings stream and the factors causing this volatility, we are unable to directly control compliance. We believe that, based on factors currently known, we will continue to remain in compliance with our Revolving Line of Credit and Term Loan. We negotiated a less restrictive debt coverage ratio covenant to provide that the covenant must be breached in two consecutive years in order to be considered an event of default. Nevertheless, due to earnings volatility and factors unknown to us at this time, it is possible that a loan covenant could be breached, a default occur, and the major portion of our borrowings become due which could have a material adverse impact on our financial position, results of operations and cash flows.

 

Water Use Regulation restricts Alico’s access to water for agricultural use.

 

Our agricultural operations are dependent upon the availability of adequate surface and underground water. The availability of water is regulated by the State of Florida through water management districts which have jurisdiction over various geographic regions in which our lands are located. Currently, we have permits in place for the next 15 to 20 years for the use of underground and surface water which are adequate for our agricultural needs.

 

Surface water in Hendry County, where much of our agricultural land is located, comes from Lake Okeechobee via the Caloosahatchee River and a system of canals used to irrigate such land. The Army Corps of Engineers controls the level of Lake Okeechobee and ultimately determines the availability of surface water even though the use of water has been permitted by the State of Florida through the water management district. The Army Corps of

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Engineers decided in 2010 to lower the permissible level of Lake Okeechobee in response to concerns about the ability of the levee surrounding the lake to restrain rising waters which could result from hurricanes. Changes in availability of surface water use may result during times of drought, because of lower lake levels and could have a materially adverse effect on our agricultural operations, financial position, results of operations and cash flows.

 

Alico’s citrus groves are subject to damage and loss from disease including but not limited to Citrus Canker and Citrus Greening

 

Our citrus groves are subject to damage and loss from diseases such as Citrus Greening and Citrus Canker. Each of these diseases is widespread in Florida and exists in our groves and in the areas where our groves are located.

 

Citrus greening is one of the most serious citrus plant diseases in the world. It is also known as Huanglongbing (HLB) or yellow dragon disease. Once a tree is infected, it decreases the productivity of infected trees. While the disease poses no threat to humans or animals, it has devastated citrus crops throughout the United States and abroad. The disease is spread by insects known as Asian citrus psyllids. The infected insect spreads the disease as it feeds on the leaves and stems of citrus trees.

 

Named for its green, misshapen fruit, citrus greening disease has now killed millions of citrus plants in the southeastern United States and has spread across the entire country. Infected trees produce fruits that are green, misshapen and bitter, unsuitable for sale as fresh fruit or for juice. Infected trees can die within a few years.

 

Alico uses a pesticide program to control these psyillids and an enhanced foliar nutritional program to mitigate the damage to infected trees. At the present time, there is no known cure for Citrus Greening once trees are infected.

 

Citrus canker is a disease affecting citrus species and is caused by a bacterium and is spread by contact with infected trees or by windblown transmission. There is no known cure for Citrus Canker at the present time although some management practices including the use of copper-based bactericides can mitigate its spread and lessen its effect on infected trees; however, there is no assurance that available technologies to control such disease will be effective.

 

We use best management practices to attempt to control diseases and their spread. Both of these diseases pose a significant threat to the Florida Citrus industry and to our citrus groves. We are managing the affects and the spread of these diseases in our groves which, left unmanaged, could cause a material adverse effect to our citrus grove operations, financial position, results of operations and cash flows.

 

Use of pesticides and herbicides and other materials by Alico or its lessees could create liability for Alico.

 

Alico and some of the parties to whom we lease land for agricultural purposes use herbicides, pesticides and other hazardous substances in the operation of their businesses. All pesticides and herbicides used by us have been approved for use by the proper governmental agencies with the hazards attributable to each substance appropriately labeled and described. We maintain policies requiring our employees to apply such chemicals strictly in accordance with the labeling. As a condition of our leasing agreements, we require that third parties also adhere to proper handling and disposal of such materials; however, we do not have full knowledge or control over the chemicals used by third parties who lease our lands for cultivation. It is possible that some of these herbicides and pesticides could be harmful to humans if used improperly or that there may be unknown hazards associated with such chemicals despite any contrary government or manufacturer labels. We might have to pay the costs or damages associated with the improper application, accidental release or the use or misuse of such substances, which could have a materially adverse effect.

 

Changes in immigration laws could impact the ability of Alico to harvest its crops.

 

We engage third parties to provide personnel for our harvesting operations. The availability and number of such workers is subject to decrease if there are changes in the U.S. immigration laws. The scarcity of available personnel to harvest our agricultural products could cause harvesting costs to increase or could lead to the loss of product that

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is not timely harvested which could have a material adverse effect to our citrus grove operations, financial position, results of operations and cash flows.

 

Changes in demand for Alico’s agricultural products can affect demand and pricing of such products.

 

The general public’s demand for particular food crops we grow and sell could reduce prices for some of our products. To the extent that consumer preferences evolve away from products we produce and we are unable to modify our products or develop products that satisfy new customer preferences, there could be a decrease in prices for our products. Even if market prices are unfavorable, produce items which are ready to be or have been harvested must be brought to market. Additionally, we have significant investments in our citrus groves and sugarcane fields and cannot easily shift to alternative crops for this land. A decrease in the selling price received for our products due to the factors described above could have a materially adverse effect on Alico.

 

We face significant competition in its agricultural operations.

 

We face significant competition in our agricultural operations both from domestic and foreign producers and do not have any branded products. Foreign growers generally have an equal or lower cost of production, less environmental regulation and in some instances, greater resources and market flexibility than Alico. Because foreign growers have greater flexibility as to when they enter the U.S. market, we cannot always predict the impact these competitors will have on our business and results of operations. The competition we face from foreign suppliers of sugar and orange juice is mitigated by quota restrictions on sugar imports imposed by the U.S. government and by a governmentally imposed tariff on orange imports. A change in the government’s sugar policy allowing more imports or a reduction in the orange juice tariff could adversely impact our results of operations.

 

Item  1B. Unresolved Staff Comments.

 

None.  

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Item 2. Properties

 

At September 30, 2013, Alico owned approximately 130,800 acres of land located in six counties in Florida. Acreage in each county and the primary classification with respect to the present use of these properties is shown in the following table:

 

  Total  Hendry  Polk  Collier  Glades  Lee  Alachua
                     
 Citrus Groves  17,400    5,200    5,300    6,900    -    -    - 
 Improved Farmland:                                  
 Sugarcane  30,600    30,600    -    -    -    -    - 
 Irrigated  5,800    5,800    -    -    -    -    - 
 Permitted by undeveloped  7,700    7,700    -    -    -    -    - 
                                   
 Total Improved Farmland  44,100    44,100    -    -    -    -    - 
 Ranch Land and Conservation  67,400    60,500    2,900    4,000    -    -    - 
 Commercial and Residential  400    -    -    -    -    -    400 
 Mining  1,400    900    -    -    500    -    - 
 Other  100    100    -    -    -    -    - 
                                   
 Total  130,800    110,800    8,200    10,900    500    -    400 

 

 

Approximately 43,277 acres of the properties listed are encumbered by credit agreements totaling $96,000,000 at September 30, 2013. For a more detailed description of the agreements and collateral please see Item 8. Financial Statements, Note 10. Long-Term Debt in the Notes to the Consolidated Financial Statements.

 

Citrus Groves acreage is as follows:

 

  Net Plantable  Total Plantable      
  Producing  Developing  Fallow    Support  Gross
                              
 Hendry County  3,400    100    100    3,600    1,600    5,200 
 Polk County  3,100    100    100    3,300    2,000    5,300 
 Collier County  4,100    -    -    4,100    2,800    6,900 
                              
 Total  10,600    200    200    11,000    6,400    17,400 

 

 

Sugarcane acreage is as follows:

 

  Net Plantable  Total Plantable      
  Developing  Plant Cane  First Stubble  Second Stubble  Third Stubble   Support  Gross
                                        
 Hendry County  2,200    5,300    5,300    4,500    1,600    18,900    11,700    30,600 

 

 

Land lease acreage is included in the total acres of Improved Farmlands, Ranch Lands and Other and as follows:

 

  Hendry  Polk  Collier  Glades  Lee  Total
                  
 Farming  1,500    -    -    -    -    1,500 
 Grazing  1,900    2,300    4,000    100    -    8,300 
 Recreational  57,500    1,300    3,500    -    -    62,300 
 Oil and Other  -    -    -    -    -    - 
                              
 Total  60,900    3,600    7,500    100    -    72,100 

 

 

We currently collect mining royalties on a 526 acre parcel of land located in Glades County, Florida. These royalties do not represent a significant portion of our revenue or operating profits. We are seeking permits to develop an additional mine on an 886 acre parcel in Hendry County to be used as a sand mine. Approximately 1,382 acres in Collier County are suitable for a rock mine. We are not currently pursuing permits for the Collier County mine

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given the low level of demand in the current market. The Hendry County parcel is currently classified as ranch land, while the Collier County parcel is classified as citrus. Based on initial estimates by third party engineering firms, the aggregate reserve of the Glades County parcel is approximately 26 million tons, the sand reserve of the Hendry County parcel is approximately 53 million tons and the aggregate reserve of the Collier County parcel is approximately 140 million tons.

 

Item 3. Legal Proceedings.

 

From time to time, we establish estimated accruals for litigation matters which meet the requirements of ASC 450—Contingencies. There are no current matters that we believe will have a material adverse effect on our financial position or results of operations.

 

Shareholder Derivative Action

 

On October 29, 2008, Alico was served with a shareholder derivative complaint filed by Baxter Troutman against JD Alexander, our former Chief Executive Officer and Director, and John R. Alexander, our former Chairman of the Board, which named Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust, Inc.) (“Atlanticblue”), a 51% shareholder of Alico. From February 26, 2004 until January 18, 2008, Mr. Troutman was a director of Alico. The complaint alleged that JD 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 JD Alexander and John R. Alexander (“the Alexanders”) 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.

 

On May 16, 2012 the Circuit Court of the 10th Judicial Circuit in Polk County, FL approved an agreement thereby settling the shareholder derivative action complaint. As a condition of the agreement, Mr. Troutman was required to file a notice of voluntary dismissal of the civil action against the Alexanders with prejudice. The Company, by determination of the Special Litigation Committee comprised of four independent directors of its Board of Directors, filed a motion against Mr. Troutman seeking recovery of attorney fees and costs incurred in its defense. In response, Mr. Troutman has filed motions seeking recovery of his attorney’s fees from Alico. 

 

Internal Revenue Service

 

The IRS examined the returns of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007. Based on their examinations, the IRS claimed we owed taxes and penalties of $31,100,000, consisting of $14,500,000 in taxes and $16,600,000 in penalties. We contested the issues raised by the IRS during the examinations and pursued resolution through the IRS Appeals process.

 

On May 16, 2012, the Company reached a settlement with the IRS related to its examination of the returns of Alico, Agri-Insurance, Ltd., (a former subsidiary of the Company) and Alico-Agri for the tax years 2005 through 2007. As a result of the settlement, the Company paid Federal taxes of $613,000 and interest of $225,000. On October 9, 2012, the Company paid the State of Florida $318,000 for taxes and $5,000 for interest as a result of the IRS settlement. The Company accrued $149,000 at September 30, 2012, for additional state interest and penalties. The actual amount paid was $135,000 for state interest. No amount was due for state penalties, and the remaining accrual was reversed during the second quarter of fiscal year 2013.

 

Item  4. Mine Safety Disclosure

 

None.

 

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PART II

Item  5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Common Stock Prices

 

Our common stock is traded on the NASDAQ Stock Market, LLC (“NASDAQ”) under the symbol ALCO. The high and low sales prices in each quarter in the fiscal years 2013 and 2012 are presented below:

 

   2013 Price  2012 Price
   High  Low  High  Low
             
 Quarter Ended:                      
 December 31    $38.78   $30.27   $23.56   $17.85 
 March 31    $47.00   $36.93   $24.85   $19.02 
 June 30    $46.48   $39.61   $30.81   $21.06 
 September 30    $47.60   $39.19   $32.80   $26.37 

 

 

Holders

 

On October 31, 2012, our stock transfer records indicate there were approximately 305 holders of record of our common stock. The number of registered holders includes banks and brokers who act as nominee, each of whom may represent more than one shareholder.

 

Dividends

 

The following table presents cash dividends per common share declared in fiscal years 2013, 2012, and 2011 and paid in fiscal years 2014, 2013, and 2012.

 

   Record Date  Payment Date  Amount Paid
Per Share
          
 Declaration Date:           
 September 29, 2011   October 31, 2011   November 15, 2011  $0.12 
 December 15, 2011   December 30, 2011   January 16, 2012  $0.04 
 February 17, 2012   March 30, 2012   April 16, 2012  $0.04 
 April 27, 2012   June 29, 2012   July 16, 2012  $0.04 
 July 27, 2012   September 28, 2012   October 15, 2012  $0.04 
 September 27, 2012   December 28, 2012   January 14, 2013  $0.08 
 January 8, 2013   March 28, 2013   April 15, 2013  $0.08 
 May 2, 2013   June 28, 2013   July 15, 2013  $0.08 
 July 18, 2013   September 30, 2013   October 15, 2013  $0.08 
 September 25, 2013   December 31, 2013   January 14, 2014  $0.12 

 

 

The Board of Directors reinstated a quarterly dividend policy during fiscal year 2012.

 

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Stock Performance Graph

 

The graph below represents our common stock performance, comparing the value of $100 invested on September 30, 2008 in our common stock, the S&P 500 and a Company-constructed peer group, which included Forestar Group, Inc., Limoneira Company, The St. Joe Company, Tejon Ranch Co. and Texas Pacific Land Trust.

 

 

(Includes reinvestment of dividends)

 

   Base Period Sep-08  Indexed Returns for Years Ending
     Sep-09  Sep-10  Sep-11  Sep-12  Sep-13
                   
 Company Name/Index:                              
 Alico, Inc.  $100.00   $63.57   $50.51   $42.86   $68.96   $91.61 
 S&P 500 Index  $100.00   $90.63   $97.84   $97.00   $123.52   $144.17 
 Peer Group  $100.00   $77.41   $81.91   $66.45   $92.69   $122.16 

 

 

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Equity Compensation Arrangements

 

The 2008 Incentive Equity Plan was effective from November 2008 through March 2013. It provided for the issuance of up to 350,000 shares of the Company’s stock to Directors and Officers. The 2008 Incentive Equity Plan was superseded by the 2013 Incentive Equity Plan in April 2013. It provides for the issuance of up to 350,000 shares of the Company’s stock to Directors and Officers through March 2018. All shares issued or to be issued under either of the two equity incentive plans must be shares previously repurchased by the Company.

 

The following table illustrates the shares remaining available for future issuance under the 2013 Incentive Equity Plan:

 

   Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity plans
          
Plan Category:         
 Equity compensation plans approved by security holders   -    -    334,126 
                
 Total   -    -    334,126 

 

 

 

Issuer Repurchases of Equity Securities

 

The Board of Directors previously authorized the repurchase of up to 350,000 shares of our common stock from shareholders beginning in November 2008 and ending in November 2013 (the “2008 Authorization”). In September 2013, the Board of Directors authorized the repurchase of 105,000 shares of stock from shareholders beginning in November 2013 and continuing through April 2018 (the “2013 Authorization”). Stock repurchases under these authorizations will be made on a quarterly basis until April 2018, through open market transactions, at times and in such amounts as the Company’s broker determines, or through other transactions subject to the provisions of SEC Rule 10b-18.

 

Through September 30, 2013, the Company had purchased 165,495 shares and had available to purchase an additional 184,505 in accordance with the 2008 Authorization. The following table describes our purchases of our common stock during the fourth quarter of 2013.

 

    Total Number of Shares Purchased  Average Price Paid Per Share  Total Shares Purchased As Part of Publicly Announced Plan or Program  Maximum Number of Shares that May Yet Be Purchased Under the Plan or Program
              
 Date:                     
 Month of July 2013    -   $-    -    184,944 
 Month of August 2013    -   $-    -    184,944 
 Month of September 2013    439   $40.00    439    184,505 

 

 

We do not anticipate that any purchases under the Board of Directors’ authorizations will be made from any officer, director or control person.

 

We had various arrangements with UBS Investment Bank (“UBS”) between September 27, 2012 and November 1, 2013 to purchase securities under an authorization in accordance with the timing, price and volume restrictions contained in sections (b)(2)-(4) of Rule 10b-18.

 

During the period from September 27 through November 1, 2013, UBS agreed to purchase securities

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according to the various authorizations. The limit prices ranged from less than or equal to $31.00 per share to less than or equal to $40.00 per share at various times.

 

We purchased 38,547, 35,221, 1,680, and 439 shares in the open market during the first, second, third and fourth quarters of fiscal year 2013, respectively, at a weighted average price of $38.14 per share.

 

We purchased zero, 12,026, zero, and 306 shares in the open market during the first, second, third and fourth quarters of fiscal year 2012, respectively, at a weighted average price of $24.12 per share.

 

We purchased 7,534, 32,268, 768 and 7,710 shares in the open market during the first, second, third and fourth quarters of fiscal year 2011, respectively, at a weighted average price of $24.96 per share.

 

 

Item 6. Selected Financial Data.

 

(in thousands, except per share amounts)  September 30,
   2013  2012  2011  2010  2009
                
 Operating revenue  $101,661   $127,187   $98,592   $79,792   $89,528 
 Net income (loss) from continuing operations  $19,646   $18,489   $7,097   $(623)  $(3,649)
 Income (loss) from continuing operations per weighted average common share  $2.67   $2.51   $0.96   $(0.08)  $(0.49)
 Weighted average number of shares outstanding   7,357    7,355    7,363    7,374    7,377 
 Cash dividends declared per share  $0.36   $0.20   $0.12   $0.10   $0.69 
 Total assets  $198,840   $185,083   $180,035   $188,817   $200,235 
 Long-term obligations  $36,000   $39,900   $57,158   $75,668   $80,715 

 

 

Notes regarding selected financial data:

 

During the year ended September 30, 2009, we utilized cash to reduce our outstanding debt by $59,524,000, resulting in a reduction in total assets and long-term obligations.

 

During the year ended September 30, 2011, we utilized cash to reduce our outstanding debt by $18,510,000 resulting in a reduction in total assets and long-term obligations.

 

Net income from continuing operations includes the gain on the sale of real estate totaling $9,113,000 on land sold during fiscal year 2012 and impairment charges of $1,918,000 on assets held for sale in the consolidated balance sheet as of September 30, 2012.

 

During the year ended September 30, 2012, we utilized cash from operations and investing activities to reduce our outstanding debt by approximately $17,258,000, resulting in a reduction in long-term obligations. See Item 8. Financial Statements and Schedules, Note 10. Long Term Debt in the Notes to the Consolidated Financial Statements.

 

Net income from continuing operations includes the gain on the sale of real estate totaling $20,299,000 on easements sold during fiscal year 2013.

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Statement Regarding Forward-Looking Information

 

We make forward-looking statements in this Annual Report, particularly in this Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Annual Report that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would,” and similar expression are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those Risks Factors included in Part I, Item 1A and elsewhere in this Annual Report.

 

Overview

 

We manage our land based upon its primary usage and review its performance based upon three primary classifications – Citrus Groves, Improved Farmland and Ranch and Conservation.  In addition, we operate an Agricultural Supply Chain Management business that is not tied directly to our land holdings and Other Operations that include leasing mines and oil extraction rights to third parties.  We present our financial results and the related discussions based upon these five segments (Citrus Groves, Improved Farmland, Ranch and Conservation, Agricultural Supply Chain Management and Other Operations).  In the fourth quarter of fiscal year 2013, we changed our internal operations to align with the way we manage our business operations. As a result, we have realigned our financial reporting segments to match our internal operations.  We have reclassified prior years to conform to the fiscal year 2013 presentation.  None of these changes affect our previously report consolidated results.  The primary change in previously reported segment results is to reclassify the former Land Leasing and Rentals segment’s revenues and expenses to the related land classifications.

 

We own approximately 130,800 acres of land in six Florida counties (Alachua, Collier, Glades, Hendry, Lee and Polk), and operate five segments.

 

Segments

 

We operate five segments related to our various land holdings.

 

·Citrus Groves include activities related to planting, owning, cultivating and/or managing citrus groves in order to produce fruit for sale to fresh and processed citrus markets.

 

·Agricultural Supply Chain Management and Support includes activities related to the purchase and resale of fruit, as well as, to value-added services which include contracting for the harvesting, marketing and hauling of citrus.

 

·Improved Farmland includes activities related to planting, owning, cultivating, managing and/or leasing improved farmland. Improved farmland is acreage that has been converted, or is permitted to be converted, from native pasture and which may have various improvements including irrigation, drainage and roads.

 

·Ranch and Conservation includes activities related to cattle grazing, sod, native plant and animal sales, leasing, management and/or conservation of unimproved native pasture land.

 

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·Other Operations include activities related to rock mining royalties, oil exploration and other insignificant lines of business.

 

 

Critical Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. Management evaluates the estimates and assumptions on an on-going basis, based upon historical experience and various other factors and circumstances. Management believes that the estimates and assumptions are reasonable in the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. The following critical accounting policies have been identified that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements.  

 

Revenue Recognition - Revenue from agricultural crops is recognized at the time the crop is harvested and delivered to the customer. Alico recognizes revenue from cattle sales at the time the cattle are delivered. Management reviews the reasonableness of the revenue accruals quarterly based on buyers’ and processors’ advances to growers, cash and futures markets and experience in the industry. Adjustments are made throughout the year to these estimates as more current relevant information regarding the specific markets become available. Differences between the estimates and the final realization of revenue can be significant and can be either positive or negative. During the periods presented in this report on Form 10-K, no material adjustments were made to the reported revenues from Alico’s crops.

 

Alico Fruit’s operations primarily consist of providing supply chain management services to Alico, as well as to other citrus growers and processors in the State of Florida. Alico Fruit also purchases and resells citrus fruit; in these transactions, Alico Fruit (i) acts as a principal; (ii) takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns. Therefore, Alico Fruit recognizes revenue based on the gross amounts due from customers for its marketing activities. Supply chain management service revenues are recognized when the services are performed.

 

Variable Interest and Equity Method Investments - We evaluate investments for which we do not hold an equity interest of at least 50% based on the amount of control we exercise over the operations of the investee, our exposure to losses in excess of our investment, our ability to significantly influence the investee and whether we are the primary beneficiary of the investee. In May 2010, we invested $12,150,000 to obtain a 39% equity interest in Magnolia TC 2, LLC (“Magnolia”), a Florida limited liability company whose primary business activity is acquiring tax certificates issued by various counties in the State of Florida on properties which have been declared delinquent. Based on the criteria above, we are accounting for our investment in Magnolia in accordance with the equity method, whereby the investment in Magnolia is recorded as the line item, Investment in Magnolia, on our consolidated balance sheets, and changes in the account resulting from Magnolia’s prorated earnings or losses up to our initial investment are recognized as income or loss to us.

 

Inventory - We capitalize the cost of growing crops into inventory until the time of harvest. Once a given crop is harvested, the related inventoried costs are recognized as a cost of sale to provide an appropriate matching of costs incurred with the related revenue recognized. We record inventory at the lower of cost or net realizable value. Management regularly assesses estimated inventory valuations based on current and forecasted usage of the related commodity, observable prices, estimated completion costs and other relevant factors that may affect the net realizable value.

 

Property, Buildings and Equipment - Property, buildings and equipment are stated at cost, net of accumulated depreciation or amortization. Major improvements are capitalized while maintenance and repairs are expensed in the period the cost is incurred. Costs related to the development of citrus groves, through planting of trees, are capitalized. Such costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs among other costs. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for four

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years. After four years, a grove is considered to have reached maturity and the accumulated costs are depreciated over 25 years, except for land clearing and excavation, which are considered costs of land and not depreciated.

 

Costs related to the development of sugarcane are capitalized in a similar manner as citrus groves. However, sugarcane matures in one year and, we will typically harvest an average of three crops (one per year) from one planting. As a result, cultivation and caretaking costs are expensed as the crop is harvested, while the development and planting costs are depreciated over three years.

 

The breeding herd consists of purchased animals and replacement breeding animals raised on our ranch. Purchased animals are stated at the cost of acquisition. The cost of animals raised on the ranch is based on the accumulated cost of developing such animals for productive use. Breeding animals are depreciated over 6-7 years. 

 

Impairment of Long-Lived Assets - We evaluate property, buildings, cattle, equipment and other long-lived assets for impairment when events or changes in circumstances (triggering events) indicate that the carrying value of assets contained in our financial statements may not be recoverable. Depending on the asset under review, we use varying methods to determine fair value, such as discounting expected future cash flows, determining resale values by market or applying a capitalization rate to net operating income using prevailing rates for a given market. Unfavorable changes in economic conditions and net operating income for a specific property will change our estimates. If an impairment loss is recognized, the adjusted carrying amount of the asset becomes its cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated or amortized over the remaining useful life of that asset.

 

Income Taxes - In preparing our consolidated financial statements, significant judgment is required to estimate our income taxes. Our estimates are based on our interpretations of federal and state laws. Deferred income taxes are recognized for the income tax effect of temporary differences between financial statement carrying amounts and the income tax bases of assets and liabilities. We regularly review our deferred income tax assets to determine whether future taxable income will be sufficient to realize the benefits of these assets. A valuation allowance is provided for deferred income tax assets for which it is deemed, more likely than not, that future taxable income will not be sufficient to realize the related income tax benefits from these assets. The amount of the net deferred income tax asset that is considered realizable could be adjusted if estimates of future taxable income are adjusted. We apply a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. Adjustments to temporary differences, permanent differences or uncertain tax positions could materially impact our financial position, cash flows and results of operations.

 

Fair Value Measurements - The carrying amounts in the 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, we discount mortgage notes receivable to reflect their estimated fair value. We carry our investments at fair value. The carrying amounts reported for our long-term debt approximates fair value as our borrowings with commercial lenders are at interest rates that vary with market conditions and fixed rates that approximate market rates for comparable loans.

 

Fair value is defined 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 market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The 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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Recent Accounting Pronouncements

 

Title   Prescribed
Effective Date
   Alico's Status   Commentary
Update No. 2013-11—Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)  1/1/2013
(Q2 2014)
  Unadopted  The Company does not believe that adoption of the standard will have a material impact on its results of operations or financial position upon adoption.
           
Update 2013-02—Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income  1/1/2013
(Q2 2014)
  Unadopted  The Company does not believe that adoption of the standard will have a material impact on its results of operations or financial position upon adoption.
           
Update 2013-01—Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities  10/1/2014
(Q1 2015)
  Unadopted  The Company does not believe that adoption of the standard will have a material impact on its results of operations or financial position upon adoption.

 

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Recent Events

 

Conservation Easement Closing

 

In July, 2013, we granted a warranty easement deed to the United States Department of Agriculture, through its administering agency, The Natural Resources Conservation Service, granting a conservation easement on approximately 11,600 acres located in Hendry County (the “Property”) for $20,678,000. The easement agreement states the Property will be enrolled in perpetuity in the Wetlands Reserve Program designed to restore, protect and enhance the values of the wetlands and for the conservation of natural resources. We will retain title to the Property and the right to various recreational uses including hunting, fishing and leasing of such rights. Additionally, we reserve the right to subsurface resources including oil, gas, minerals and geothermal resources underlying the easement area and the right to water uses and water rights identified as reserved to us.

 

2014 Outlook:

 

The discussion below of the fiscal year 2014 outlook for Results of Operations and Liquidity and Capital Resources reflects management’s estimates and expectations as of the date of this filing.  There can be no assurance that the events or related outcomes presented below will occur.

 

Results of Operations:

 

·Citrus Groves – For fiscal year 2013, we produced 3,867,000 boxes of processed fruit and 24,746,000 pound solids and received $1.66 per pound solid.  The USDA, in its November 8, 2013 Citrus Crop Forecast indicated that it believes the Florida orange crop will decline from 133,600,000 boxes for the 2012/2013 crop year to 125,000,000 boxes for the 2013/2014 crop year, a decline of 6.4%.  However, we expect our 2014 processed boxes to be not materially less than our 2013 processed boxes.  We expect that the forecasted decline in the size of the statewide crop could cause the price per pound solids for fiscal year 2014 to increase versus the price for fiscal year 2013.  We expect that operating expenses for fiscal year 2014 will remain in-line with fiscal year 2013.  Under these assumptions, we would expect that fiscal year 2014 Citrus Groves revenues and gross profit would remain approximately in-line with fiscal year 2013 Citrus Groves revenues and gross profit, and that both revenues and gross profit could increase over fiscal year 2013 based upon fluctuations in the pound solid pricing and the ultimate size of the statewide 2013/2014 crop.

 

·Improved Farmland – For fiscal year 2013, we produced 546,000 net standard tons of sugarcane on 13,272 net acres of farmland and received $36.86 per net standard ton plus a molasses bonus of $1.47 per net standard ton.  For fiscal year 2014, we expect that we will harvest approximately 16,700 net acres of sugarcane and expect that production per acre will decrease by approximately 5%.  USSC, our sole sugarcane customer, has indicated that sugarcane prices for fiscal year 2014 will be in the range of $28.00 to $30.00 per net standard ton and that the molasses bonus should remain in-line with fiscal year 2013.  Despite an anticipated increase in production as compared to fiscal year 2013, we expect that operating expenses will remain relatively in-line with fiscal year 2013.  Under these assumptions, we would expect that fiscal year 2014 Improved Farmland gross profit would decline by $1.0 million to $2.3 million.

 

·Ranch and Conservation – For fiscal year 2013, we had a breeding herd of approximately 8,500 cows which produced calves and culls and generated $5,546,000 of revenue at an average price of $1.32 per pound.  For fiscal year 2014, we expect to have a breeding herd of approximately 9,300 cows and expect that the price per pound of beef sold will remain in line with the price per pound for fiscal year 2013.  In addition, we expect to sell approximately 600 additional calves that were in inventory at September 30, 2013.  We expect operating expenses for fiscal year 2014 to remain relatively in-line with fiscal year 2013. Under these assumptions, we would expect that fiscal year 2014 Ranch and Conservation gross profit would increase by approximately $0.6 million as compared to fiscal year 2013.

 

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·Agricultural Supply Chain Management and Other Operations – For fiscal year 2014, we would expect gross profit for both segments to remain relatively in-line with fiscal year 2013, while we expect revenue from the Agricultural Supply Chain Management segment to decline at approximately the same rate as the statewide production of citrus described above.

 

·General and Administrative - Excluding costs related to the change in majority shareholder and other change in control related expenses, General and Administrative expenses are expected to grow at a rate that approximates inflation versus fiscal year 2013. 

 

·Other Income - Other Income is comprised of interest expense and investment income, both of which are expected to remain in line with fiscal year 2013 for fiscal year 2014. Management does not currently anticipate any material property sales will occur in fiscal year 2014.

 

Liquidity and Capital Resources:

 

·Liquidity – We expect that we will continue to have sufficient liquidity to fund our operations and strategic initiatives at least through fiscal year 2014.

 

·Cash from Operating Activities – To the extent that our Net Income is impacted by the expectations listed in Results of Operations above, our cash flow from operations for fiscal year 2014 will also be directly impacted.  We do not expect any out of the ordinary changes in working capital for fiscal year 2014.

 

·Cash from Investing Activities – We completed the expansion of our sugarcane land in fiscal year 2013. Therefore, for fiscal year 2014 we expect that capital expenditures will decrease between $4.5 million and $6.0 million versus fiscal year 2013. We do not expect to receive any out of the ordinary proceeds from the sale of fixed assets in fiscal year 2014. However, we do expect that the majority of the balance of the investment in the Magnolia fund will be returned to us in fiscal year 2014.

 

·Cash from Financing Activities – Our stock repurchase program expired on November 1, 2013.  Our Board of Directors approved a 50% increase in our quarterly cash dividend effective in the first quarter of fiscal year 2014.  Dividends are evaluated and approved on a quarterly basis.

 

 

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Results of Operations

 

The following table sets forth a comparison of results of operations for the fiscal years ended September 30, 2013, 2012, and 2011:

 

(in thousands)  Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2013  2012  $  %  2012  2011  $  %
                         
 Operating revenues:                                        
Citrus Groves  $43,689   $55,423   $(11,734)   (21.2)%  $55,423   $47,088   $8,335    17.7%
Agricultural Supply Chain Management   28,412    48,334    (19,922)   (41.2)%   48,334    36,115    12,219    33.8%
Improved Farmland   21,917    15,316    6,601    43.1%   15,316    8,642    6,674    77.2%
Ranch and Conservation   6,755    7,348    (593)   (8.1)%   7,348    6,015    1,333    22.2%
Other Operations   888    766    122    15.9%   766    732    34    4.6%
 Total operating revenues   101,661    127,187    (25,526)   (20.1)%   127,187    98,592    28,595    29.0%
                                         
 Gross Profit:                                        
Citrus Groves   12,156    24,428    (12,272)   (50.2)%   24,428    19,324    5,104    26.4%
Agricultural Supply Chain Management   463    641    (178)   (27.8)%   641    1,006    (365)   (36.3)%
Improved Farmland   5,715    3,742    1,973    52.7%   3,742    1,299    2,443    188.1%
Ranch and Conservation   2,957    3,851    (894)   (23.2)%   3,851    2,375    1,476    62.1%
Other Operations   383    (430)   813    (189.1)%   (430)   (571)   141    (24.7)%
 Total gross profit   21,674    32,232    (10,558)   (32.8)%   32,232    23,433    8,799    37.5%
 Corporate, general and                                        
 administrative expenses   9,739    8,490    1,249    14.7%   8,490    8,196    294    3.6%
                                         
 Income from operations   11,935    23,742    (11,807)   (49.7)%   23,742    15,237    8,505    55.8%
 Other income (expense), net   19,740    5,720    14,020    245.1%   5,720    (2,710)   8,430    (311.1)%
                                         
 Income before income taxes   31,675    29,462    2,213    7.5%   29,462    12,527    16,935    135.2%
 Income taxes   (12,029)   (10,973)   (1,056)   9.6%   (10,973)   (5,430)   (5,543)   102.1%
                                         
 Net income  $19,646   $18,489   $1,157    6.3%  $18,489   $7,097   $11,392    160.5%

 

 

A discussion of our segment results of operations follows.

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Citrus Groves

 

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

 

(in thousands, except per box and per pound solid data)                  
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2013  2012  $  %  2012  2011  $  %
                         
 Revenue From:                                        
 Early and Mid Season  $17,923   $24,376   $(6,453)   (26.5)%  $24,376   $20,280   $4,096    20.2%
 Valencias   23,216    28,331    (5,115)   (18.1)%   28,331    24,321    4,010    16.5%
 Fresh Fruit   2,451    2,582    (131)   (5.1)%   2,582    2,527    55    2.2%
 Other   99    134    (35)   (26.1)%   134    (40)   174    (435.0)%
 Total  $43,689   $55,423   $(11,734)   (21.2)%  $55,423   $47,088   $8,335    17.7%
                                         
 Boxes Harvested:                                        
 Early and Mid Season   1,900    2,186    (286)   (13.1)%   2,186    1,982    204    10.3%
 Valencias   1,967    2,171    (204)   (9.4)%   2,171    1,791    380    21.2%
 Total Processed   3,867    4,357    (490)   (11.2)%   4,357    3,773    584    15.5%
                                         
 Fresh Fruit   251    278    (27)   (9.7)%   278    289    (11)   (3.8)%
 Total   4,118    4,635    (517)   (11.2)%   4,635    4,062    573    14.1%
                                         
 Pound Solids Produced:                                        
 Early and Mid Season   11,612    14,030    (2,418)   (17.2)%   14,030    12,167    1,863    15.3%
 Valencias   13,134    15,039    (1,905)   (12.7)%   15,039    11,809    3,230    27.4%
 Total   24,746    29,069    (4,323)   (14.9)%   29,069    23,976    5,093    21.2%
                                         
 Pound Solids per Box:                                        
 Early and Mid Season   6.11    6.42    (0.31)   (4.8)%   6.42    6.14    0.28    4.6%
 Valencias   6.68    6.93    (0.25)   (3.6)%   6.93    6.59    0.33    5.1%
                                         
 Price per Pound Solid:                                        
 Early and Mid Season  $1.54   $1.74   $(0.19)   (11.2)%  $1.74   $1.67   $0.07    4.2%
 Valencias  $1.77   $1.88   $(0.12)   (6.2)%  $1.88   $2.06   $(0.18)   (8.5)%
                                         
 Price per Box:                                        
 Fresh Fruit  $9.76   $9.29   $0.48    5.1%  $9.29   $8.74   $0.54    6.2%
                                         
 Operating Expenses:                                        
 Cost of Sales  $19,803   $17,822   $1,981    11.1%  $17,822   $16,587   $1,235    7.4%
 Harvesting and Hauling   11,473    13,173    (1,700)   (12.9)%   13,173    11,171    2,002    17.9%
 Other   257    -    257    NM    -    6    (6)   (100.0)%
 Total  $31,533   $30,995   $538    1.7%  $30,995   $27,764   $3,231    11.6%

 

 

We sell our Early and Mid-Season and Valencia oranges to processors that convert the majority of the citrus crop into orange juice. They generally buy their citrus on a pound solids basis, which is the measure of the soluble solids (sugars and acids) contained in one box of fruit. Fresh Fruit is generally sold to packing houses that purchase their citrus on a per box basis. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our citrus groves for the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing citrus product to processors and varies based upon the number of boxes produced.

 

The declines for fiscal year 2013 versus fiscal year 2012 in boxes harvested, pound solids produced and pound solids per box are being driven by growing season fluctuations in production which may be attributable to various factors, including changes in weather, horticultural practices and the effects of diseases and pests, including Citrus Greening. The industry and the Company both experienced higher than normal premature fruit drop in certain areas of our groves that also contributed to the smaller harvest.

 

The statewide environmental and horticultural factors described above have negatively impacted our crops and key operating measures presented above. The Florida orange crop declined by 13,300,000 boxes or approximately 9% versus the prior year.

 

The decline in Citrus Groves gross profit for fiscal year 2013 versus fiscal year 2012 relates primarily to the changes in revenue discussed above plus an increase of 11.1% in growing costs for the fiscal year 2013 crop to $19,803,000 from $17,822,000, primarily driven by increases in the market price of fertilizer. Per box harvest and hauling costs remained relatively in line.

 

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The increases for fiscal year 2012 versus fiscal year 2011 in boxes harvested, pound solids produced and pound solids per box were driven by favorable weather conditions during the growing season, combined with improved foliar nutrition and horticultural programs in our groves.

 

Agricultural Supply Chain Management

 

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

 

(in thousands, except per box and per pound solid data)                  
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2013  2012  $  %  2012  2011  $  %
                         
 Purchase and Resale of Fruit:                                        
 Revenue  $22,858   $41,319   $(18,461)   (44.7)%  $41,319   $30,975   $10,344    33.4%
 Boxes Sold   2,377    3,235    (858)   (26.5)%   3,235    3,041    194    6.4%
 Pounds Solids Sold   14,839    21,097    (6,258)   (29.7)%   21,097    19,066    2,031    10.7%
 Pounds Solids per Box   6.24    6.52    (0.28)   (4.3)%   6.52    6.27    0.25    4.0%
 Price per Pound Solids  $1.54   $1.96   $(0.42)   (21.3)%  $1.96   $1.62   $0.33    20.6%
                                         
 Value Added Services:                                        
 Revenue  $3,592   $4,443   $(851)   (19.2)%  $4,443   $2,425   $2,018    83.2%
 Value Added Boxes   2,761    3,031    (270)   (8.9)%   3,031    1,629    1,402    86.1%
                                         
 Other Revenue  $1,962   $2,572    (610)   (23.7)%  $2,572   $2,715    (143)   (5.3)%

 

 

For fiscal year 2013 versus fiscal year 2012, the declines in Purchase and Resale of Fruit revenue, boxes sold, pound solids sold, pound solids per box and price per pound solids as well as the declines in Value Added Services revenue and boxes, are all being driven primarily by statewide harvest and market conditions as discussed under Citrus Groves above. The decline in Alico Fruit Company gross profit relates primarily to the changes in revenue outlined above.

 

For fiscal year 2012 versus fiscal year 2011, the increases in Purchase and Resale of Fruit revenue, boxes sold, pound solids sold, pound solids per box and price per pound solids were all driven primarily by statewide harvest and market conditions as discussed under Citrus Groves above. The increase in Value Added Services revenue and boxes was driven primarily by the execution of a strategy to increase the number of boxes grown or handled by Alico relative to the overall Florida citrus marketplace. The decrease in Alico Fruit Company gross profit is primarily related to a one-time maintenance and improvement program implemented in fiscal year 2012 and continuing into the first quarter of fiscal year 2013 that was intended to improve our fleet of citrus trailers, partially offset by the increase in revenues outlined above.

 

 

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Improved Farmland

 

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

 

(in thousands, except per net standard ton and per acre data)                  
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2013  2012  $  %  2012  2011  $  %
                         
 Revenue From:                                        
 Sale of Sugarcane  $20,125   $13,931   $6,194    44.5%  $13,931   $7,567   $6,364    84.1%
 Molasses Bonus   800    512    288    56.3%   512    207    305    147.3%
 Land Leasing   779    873    (94)   (10.8)%   873    846    27    3.2%
 Other   213    -    213    NM   -    22    (22)   (100.0)%
 Total  $21,917   $15,316   $6,601    43.1%  $15,316   $8,642   $6,674    77.2%
                                         
 Net Standard Tons Sold   546    339    207    61.1%   339    205    134    65.4%
                                         
 Price Per Net Standard Ton:                                        
 Sale of Sugarcane  $36.86   $41.09   $(4.24)   (10.3)%  $41.09   $36.91   $4.18    11.3%
 Molasses  $1.47   $1.51   $(0.05)   (3.0)%  $1.51   $1.01   $0.50    49.6%
                                         
 Net Standard Tons/Acre   41.14    35.19    5.95    16.9%   35.19    31.87    3.32    10.4%
                                         
 Operating Expenses:                                        
 Cost of Sales  $11,580   $8,626   $2,954    34.2%  $8,626   $5,194   $3,432    66.1%
 Harvesting and Hauling   4,298    2,501    1,797    71.9%   2,501    1,643    858    52.2%
 Land Leasing Expenses   324    447    (123)   (27.5)%   447    506    (59)   (11.7)%
 Total  $16,202   $11,574   $4,628    40.0%  $11,574   $7,343   $4,231    57.6%
                                         
 NM - Not Meaningful                                        

 

 

For fiscal year 2013 versus fiscal year 2012, the increases in revenues and net standard tons sold relate primarily to the increase in producing acres to 13,272 in fiscal year 2013 from 9,634 in fiscal year 2012 as well as a 16.9% increase in net standard tons per acre. The increase in production is partially offset by the decrease in price per net standard ton that has resulted from changes in market conditions in fiscal year 2013 versus fiscal year 2012. Our Operating Expenses consist primarily of Cost of Sales and Harvesting and Hauling. Cost of Sales represents the cost of maintaining our sugarcane land for the preceding calendar year and does not vary in relation to production. Harvesting and Hauling represents the cost of bringing sugarcane product to our processor and varies based upon the number of net standard tons produced.

 

The increase in gross profit for fiscal year 2013 versus fiscal year 2012 is related primarily to the increase in revenues discussed above and a 2.3% decrease in growing costs per acre versus fiscal year 2012. This increase is partially offset by a 5% increase in per net standard ton harvest and hauling costs versus of the prior year.

 

Our sugarcane processor has informed us that the expected price of sugarcane for the 2013/2014 crop year will be in the range of $28.00 to $30.00 per net standard ton.

 

For fiscal year 2012 versus fiscal year 2011, the increases in revenues and net standard tons sold relate primarily to the increase in producing acres to 9,634 in fiscal year 2012 from 6,432 in fiscal year 2011 as well as a 10.4% increase in net standard tons per acre. The increase in production is aided by the increase in price per net standard ton that resulted from changes in market conditions in fiscal year 2012 versus fiscal year 2011.

 

The increase in gross profit for fiscal year 2012 versus fiscal year 2011 is related primarily to the increase in revenues discussed above, partially offset by a 10.9% increase in growing costs per acre versus fiscal year 2011.

 

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Ranch and Conservation

 

The table below presents key operating measures for the fiscal years ended September 30, 2013, 2012 and 2011:

 

(in thousands, except per pound data)
                         
   Fiscal Year Ended        Fiscal Year Ended      
   September 30,  Change  September 30,  Change
   2013  2012  $  %  2013  2012  $  %
                         
 Revenue From:                                        
 Sale of Calves  $4,797   $5,181   $(384)   (7.4)%  $5,181   $4,074   $1,107    27.2%
 Sale of Culls   560    713    (153)   (21.5)%   713    513    200    39.0%
 Land Leasing   983    1,067    (84)   (7.9)%   1,067    1,096    (29)   (2.6)%
 Other   415    387    28    7.2%   387    332    (1,307)   (393.7)%
 Total  $6,755   $7,348   $(593)   (8.1)%  $7,348   $6,015   $1,333    22.2%
                                         
 Pounds Sold:                                        
 Calves   3,229    3,182    47    1.5%   3,182    3,091    91    2.9%
 Culls   680    933    (253)   (27.1)%   933    856    77    9.0%
                                         
 Price Per Pound:                                        
 Calves  $1.49   $1.63   $(0.14)   (8.8)%  $1.63   $1.32   $0.31    23.5%
 Culls  $0.82   $0.76   $0.06    7.8%  $0.76   $0.60   $0.16    27.5%
                                         
 Operating Expenses:                                        
 Cost of Calves Sold  $3,274   $2,818   $456    16.2%  $2,818   $2,865   $(47)   (1.6)%
 Cost of Culls Sold   280    370    (90)   (24.3)%   370    314    56    17.8%
 Land Leasing Expenses   239    309    (70)   (22.7)%   309    378    (69)   (18.3)%
 Other   5    -    5    NM    -    83    (9)   (10.8)%
 Total  $3,798   $3,497   $301    8.6%  $3,497   $3,640   $(143)   (3.9)%
                                         
 NM - Not Meaningful                                        

 

 

The decrease in revenues from the sale of calves in fiscal year 2013 versus fiscal year 2012 results primarily from the decrease in price per pound, partially offset by a small increase in pounds sold. We have approximately 600 additional calves (approximately 290,000 pounds) that are expected to be sold in the first quarter of fiscal year 2014 that were raised during the 2012/2013 crop year and which were expected to be sold in the fourth quarter of fiscal year 2013. The decrease in revenues from the sale of culls for fiscal year 2013 versus fiscal year 2012 results primarily from the decrease in the number of pounds of culls sold, partially offset by the increase in the price per pound for culls. The number of head culled from our herd decreased versus fiscal year 2012 as the quality of our breeding herd was improved by culls sold in fiscal year 2012.

 

The increase in revenues from the sale of calves in fiscal year 2012 versus fiscal year 2011 results primarily from the increase in price per pound and a small increase in the number of pounds sold. The increase in revenues from sale of culls in fiscal year 2012 versus fiscal year 2011 results from a combination of the increase in the number of pounds sold and the increase in the price per pound for culls. The number of head culled from our herd increased versus fiscal year 2011 in order to improve the quality of our breeding herd for the future.

 

Other Operations

 

Other Operations includes leasing revenue of $445,000, $480,000, and $490,000 for fiscal years 2013, 2012 and 2011, respectively and gross profit of $155,000, $179,000, and $157,000 for fiscal years 2013, 2012 and 2011, respectively.

 

General and Administrative

 

The increase in general and administrative expenses for fiscal year 2013 versus fiscal year 2012 relates primarily to costs incurred related to the pursuit of a transaction as described in “Recent Events,” which totaled $1,816,000 in fiscal year 2013. Excluding those costs, general and administrative expenses decreased due primarily to a decrease in professional fees related to the settlement of the shareholder derivative lawsuit and the IRS appeal.

 

The increase in general and administrative expenses for fiscal year 2012 versus fiscal year 2011 relates primarily to the change in the status of our Chief Executive Officer from part-time to full-time, partially offset by a decrease in professional fees and other costs.

 

 

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Income Tax Expense

 

Our effective tax rates were 38.0%, 37.2% and 43.3% for the fiscal years ended September 30, 2013, 2012 and 2011, respectively. The change in rate in fiscal year 2013 versus fiscal year 2012 relates primarily to changes in the relative magnitude of various permanent book-tax differences. The change in rate in fiscal year 2012 versus fiscal year 2011 relates primarily to the IRS settlement which occurred in fiscal year 2011 and increased the effective tax rate.

 

At September 30, 2013, we had $54,205,000 of gross deferred tax assets comprised primarily of $27,224,000 of capital loss carry-forwards expiring in fiscal year 2018, $13,457,000 of state bonus depreciation disallowance, $8,286,000 of outside basis difference related to our investment in Alico-Agri, Ltd., and $4,371,000 of accrued pension costs. No valuation allowance was recorded on any of our deferred tax assets. We expect to realize all of our deferred tax assets prior to their expiration, if any.

 

Liquidity and Capital Resources

 

A comparative balance sheet summary is presented in the following table:

 

(in thousands)  September 30,   
   2013  2012  Change
          
Cash and cash equivalents  $24,583   $13,328   $11,255 
Restricted cash  $-   $2,500   $(2,500)
Investments  $260   $257   $3 
Total current assets  $59,795   $51,467   $8,328 
Total current liabilities  $11,491   $17,148   $(5,657)
Working capital  $48,304   $34,319   $13,985 
Total assets  $198,840   $185,083   $13,757 
Notes payable  $36,000   $39,900   $(3,900)
Current ratio   5.20 to 1    3.00 to 1      

 

 

We believe that our current cash position, revolving credit facility and the cash we expect to generate from operating activities will provide us with sufficient liquidity to satisfy our working capital requirements and capital expenditures for the foreseeable future. We have a $60,000,000 revolving line of credit (“RLOC”) which was available for our general use at September 30, 2013 (see “Note 10. Long-Term Debt” in the Notes to Consolidated Financial Statements).

 

The net increase in cash and cash equivalents was primarily due to the following factors:

 

·Closing of the Conservation Easement for $20,678,000,
·Cash provided by operations of $13,426,000,
·Capital expenditures of $18,924,000,
·Principal payments on debt of $3,900,000,
·Treasury stock purchases of $2,894,000, and
·Dividends paid of $2,048,000

 

In July, 2013, we closed a warranty easement deed with the United States Department of Agriculture, through its administering agency, The Natural Resources Conservation Service, granting a conservation easement on approximately 11,600 acres located in Hendry County, FL (the “Property”) for $20,678,000. The easement agreement states the Property will be enrolled in perpetuity in the Wetlands Reserve Program designed to restore, protect and enhance the values of the wetlands and for the conservation of natural resources. We generated an approximate $20,343,000 pre-tax gain which was booked in our fourth quarter results. Additionally, an approximately $20,400,000 capital gain for tax purposes will to be utilized against the $48 million capital loss carryforward generated by the Lee County property transactions in fiscal years 2012 and 2013.

 

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Net Cash Provided By Operating Activities

 

The following table details the items contributing to Net Cash Provided by Operating Activities for fiscal years 2013, 2012: and 2011:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2013  2012  Change  2012  2011  Change
                   
Net Income  $19,646   $18,489   $1,157   $18,489   $7,097   $11,392 
Depreciation and Amortization   9,675    8,429    1,246    8,429    7,327    1,102 
Net Gain Loss on Sale of Property                  -           
and Equipment   (20,894)   (8,800)   (12,094)   (8,800)   -    (8,800)
Other Non-Cash Income Expenses   9,907    6,205    3,702    6,205    1,028    5,177 
Change in Working Capital   (4,908)   (688)   (4,220)   (688)   1,295    (1,983)
                               
Cash from operations  $13,426   $23,635   $(10,209)  $23,635   $16,747   $6,888 

 

 

The factors contributing to the decrease in net income for fiscal year 2013 versus fiscal year 2012 are discussed in “Results of Operations.” Depreciation and Amortization increased versus fiscal year 2012 due to purchases of depreciable property and equipment during the last twelve months as well as additional capitalized sugarcane planting costs. The net gain on the sale of property and equipment increased from fiscal year 2012 due to the closing of the Conservation Easement in fiscal year 2013.

 

The factors contributing to the increase in net income for fiscal year 2012 versus fiscal year 2011 are discussed in “Results of Operations.” Depreciation and Amortization increased versus fiscal year 2011 due to purchases of depreciable property and equipment during the prior twelve months as well as additional capitalized sugarcane planting costs. The net gain on the sale of property and equipment increased from fiscal year 2011 due to the Lee County Land Sales discussed above.

 

Due to the seasonal nature of our business, working capital requirements are typically greater in the first and fourth quarters of our fiscal year coinciding with our planting and harvest cycles. Cash flows from operating activities typically improve in our second and third fiscal quarters as we harvest our crops.

 

Net Cash Used In Investing Activities

 

The following table details the items contributing to Net Cash Used in Investing Activities for fiscal years 2013, 2012 and 2011:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2013  2012  Change  2012  2011  Change
                   
Purchases of property and equipment:                              
Sugarcane planting  $(3,430)  $(4,444)  $1,014   $(4,444)  $(4,299)  $(145)
Improvements to farmland   (4,365)   (5,153)   788    (5,153)   -    (5,153)
Citrus nursery   (1,973)   -    (1,973)   -    -    - 
Citrus tree development   (977)   (895)   (82)   (895)   (1,527)   632 
Breeding herd purchases   (3,804)   (807)   (2,997)   (807)   (1,230)   423 
Purchase of corporate headquarters   -    -    -    -    (2,869)   2,869 
Rolling stock, equipment and other   (4,375)   (4,622)   247    (4,622)   (2,340)   (2,282)
                               
Total   (18,924)   (15,921)   (3,003)   (15,921)   (12,265)   (3,656)
                               
Disposal of property and equipment   24,381    18,095    6,286    18,095    1,221    16,874 
Return on investment in Magnolia   1,179    4,735    (3,556)   4,735    2,484    2,251 
Other   35    769    (734)   769    467    302 
                               
Cash from investing activities  $6,671   $7,678   $(4,010)  $7,678   $(8,093)  $12,115 

 

 

For fiscal year 2013 versus fiscal year 2012, Net Cash Provided by Investing Activities decreased slightly. The factors contributing to the decrease include an increase in purchases of property and equipment related primarily to

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completing the conversion of undeveloped and permitted land to approximately 4,000 producing acres of improved farmland in the current year period. Also included in purchases of property and equipment are the costs associated with planting the additional 4,000 acres of sugarcane as well as approximately 1,200 acres of fallow sugarcane land, the purchase of 396 acres of land in Alachua County for use as a citrus nursery and the purchase of approximately 2,200 additional heifers. The increase in disposal of property and equipment relates to the timing of the closings of the various sales recorded in the Statement of Comprehensive Income for fiscal year 2013 and 2012. The decrease in the return on investment in Magnolia versus fiscal year 2012 relates primarily to the suspension of cash distributions by Magnolia during the first three quarters of fiscal year 2013 while it converted a large portion of its tax certificate portfolio to tax deeds. Cash distributions re-commenced in the fourth quarter of fiscal year 2013 and are expected to continue until the investment is repaid in full.

 

For fiscal year 2012 versus fiscal year 2011, Net Cash Provided by Investing Activities increased significantly. Contributing to the increase were the Lee and Polk County Land Sales discussed above. Also contributing to the increase was an increase in distributions from the Magnolia fund versus the prior fiscal year. These positive factors were partially offset by an increase in capital expenditures related primarily to the preparation of land for and the planting of additional sugarcane.

 

Net Cash Used In Financing Activities

 

The following table details the items contributing to Net Cash Used in Financing Activities for fiscal year 2013 and 2012:

 

(in thousands)  Fiscal Year Ended
September 30,
     Fiscal Year Ended
September 30,
   
   2013  2012  Change  2012  2011  Change
                   
Principal payments on notes payable  $(3,900)  $(3,279)  $(621)  $(3,279)  $(1,281)  $(1,998)
Net repayments on revolving line of credit   -    (13,979)   13,979    (13,979)   (15,021)   1,042 
Treasury stock purchases   (2,894)   (298)   (2,596)   (298)   (1,205)   907 
Dividends paid   (2,048)   (1,765)   (283)   (1,765)   (737)   (1,028)
                               
Cash from financing activities  $(8,842)  $(19,321)  $10,479   $(19,321)  $(18,244)  $(1,077)

 

 

The increase in principal payments on notes payable for fiscal year 2013 relates to the payoff of the Farm Credit Mortgage (see “Note 10. Long-Term Debt” in the Notes to Consolidated Financial Statements). During fiscal year 2012, we paid down the revolving line of credit as shown above. No net repayments were made in fiscal year 2013. We increased our repurchases of stock for fiscal year 2013 subject to the provisions of SEC rule 10b-18 in order to fund grants under the 2008 and 2013 incentive equity plans (see “Note 11. Treasury Stock” in the Notes to Consolidated Financial Statements).

 

The increase in principal payments on notes payable for fiscal year 2012 relates to the commencement of payments under the Rabo Term Loan (see “Note 10. Long-Term Debt” in the Notes to Consolidated Financial Statements). During fiscal years 2012 and 2011, we used excess cash to pay down our revolving line of credit as shown above.

 

Contractual Obligations and Off Balance Sheet Arrangements

 

We have various contractual obligations which are recorded as liabilities in our consolidated financial statements. The following table presents our significant contractual obligations and commercial commitments on an undiscounted basis at September 30, 2013 and the future periods in which such obligations are expected to be settled in cash.

35
 
(in thousands)  Payments Due by Period
   Total  <1 Year  1-3 Years  3-5 Years  5+ Years
                
 Long-Term Debt  $36,000   $2,000   $4,000   $4,000   $26,000 
 Interest on Long-Term Debt   8,370    1,337    2,494    2,254    2,285 
 Citrus Purchase Contracts   24,238    10,474    13,764    -    - 
 Retirement Benefits   15,005    342    697    713    13,253 
 Consulting/Non-Compete Agreement   2,000    833    1,167    -    - 
 Leases   1,827    600    1,102    125    - 
                          
 Total  $87,440   $15,586   $23,224   $7,092   $41,538 

 

Interest is estimated on our long-term debt at 2.76% for the Rabo term loan and revolving line of credit. See Item 8. Financial Statements and Schedules, Note 10. Long Term Debt in the Notes to Consolidated Financial Statements.

 

Purchase Commitments

 

Alico, through its wholly owned subsidiary Alico Fruit, enters into contracts for the purchase of citrus fruit during the normal course of its business. The remaining obligations under these purchase agreements totaled approximately $24,238,000 at September 30, 2013 for delivery in fiscal years 2014 through 2016. All of these obligations are covered by sales agreements. Alico’s management currently believes that all committed purchase volume will be sold at cost or higher.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

 

Market Risk - Market risk represents the potential loss resulting from adverse changes in the value of financial instruments, either derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates, commodity prices, and equity security prices. The Company handles market risks in accordance with its established policies; however, Alico does not enter into derivatives or other financial instruments for trading or speculative purposes. The Company does consider, on occasion, the need to enter into financial instruments to manage and reduce the impact of changes in interest rates; however, the Company entered into no such instruments during the three-year period ended September 30, 2013. Alico held various financial instruments at September 30, 2013 and 2012, consisting of financial assets and liabilities reported in the Company’s Consolidated Balance Sheets and off-balance sheet exposures resulting from letters of credit issued for the benefit of Alico.

 

Interest Rate Risk - The Company is subject to interest rate risk from the utilization of financial instruments, such as term debt and other borrowings. The fair market value of long-term, fixed-interest rate debt is subject to interest rate risk. The Company’s primary long-term obligations are floating rate debt and are not subject to fair value risk. A one percentage-point increase in prevailing interest rates would have resulted in an increase in interest expense of $370,000 before income taxes for the year ended September 30, 2013.

 

Foreign-Exchange Rate Risk - The Company currently has no exposure to foreign-exchange rate risk because all of its financial instruments are denominated in U.S. dollars.

 

Commodity Price Risk - The Company has no financial instruments subject to commodity price risk.

 

Equity Security Price Risk - None of the Company’s financial instruments have potential exposure to equity security price risk.

 

36
 

Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

   
  Page
Report of Independent Registered Public Accounting Firm 38
Report of Independent Registered Public Accounting Firm 39
Consolidated Financial Statements of Alico, Inc.  
Consolidated Balance Sheets at September 30, 2013 and 2012 40
Consolidated Statements of Comprehensive Income for the fiscal years ended September 30, 2013, 2012 and 2011 41
Consolidated Statements of Stockholders’ Equity for the fiscal years ended September 30, 2013, 2012 and 2011 42
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2013, 2012 and 2011 43
Notes to Consolidated Financial Statements 44

 

All schedules are omitted for the reason that they are not applicable or the required information is included in the financial statements or notes.

37
 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alico, Inc.

We have audited the accompanying consolidated balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2013 and 2012, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alico, Inc. and Subsidiaries as of September 30, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2013, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Alico, Inc. and Subsidiaries’ internal control over financial reporting as of September 30, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992, and our report dated December 9, 2013, expressed an unqualified opinion on the effectiveness of Alico, Inc. and Subsidiaries’ internal control over financial reporting.

 

 
/s/ McGladrey LLP
Charlotte, North Carolina
December 9, 2013

 

38
 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alico, Inc.

We have audited Alico, Inc. and Subsidiaries’ internal control over financial reporting as of September 30, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992. Alico, Inc. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Alico, Inc. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 1992.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Alico, Inc. and Subsidiaries as of September 30, 2013 and 2012, and the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2013, and our report dated December 9, 2013 expressed an unqualified opinion.

 

 
/s/ McGladrey LLP
Charlotte, North Carolina
December 9, 2013

 

 

39
 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except share and per share amounts)

     

 

  September 30,
  2013  2012
      
ASSETS         
Current assets:         
Cash and cash equivalents $24,583   $13,328 
Restricted cash  -    2,500 
Investments  260    257 
Accounts receivable, net  4,266    3,071 
Income tax receivable  -    1,327 
Inventories  29,403    27,290 
Assets held for sale  -    2,475 
Other current assets  1,283    1,219 
Total current assets  59,795    51,467 
          
Investment in Magnolia Fund  5,086    5,607 
Investments, deposits and other non-current assets  1,991    2,145 
Deferred income taxes  -    2,168 
Cash surrender value of life insurance  897    862 
Property, buildings and equipment, net  131,071    122,834 
Total assets $198,840   $185,083 
          
LIABILITIES & STOCKHOLDERS’ EQUITY         
Current liabilities:         
Accounts payable $1,729   $4,929 
Long-term debt, current portion  2,000    3,267 
Accrued expenses  2,354    2,488 
Income taxes payable  1,171    484 
Dividend payable  1,461    883 
Accrued ad valorem taxes  1,634    1,685 
Other current liabilities  1,142    3,412 
Total current liabilities  11,491    17,148 
          
Long-term debt, net of current portion  34,000    36,633 
Deferred income taxes  6,584    - 
Deferred retirement benefits, net of current portion  4,029    3,756 
Total liabilities  56,104    57,537 
          
Commitments and contingencies         
          
Stockholders’ equity:         
Preferred stock, no par value. Authorized 1,000,000 shares; issued and outstanding, none  -    - 
Common stock, $1 par value; 15,000,000 shares authorized; 7,377,106 shares issued and 7,303,568 and 7,353,871 shares outstanding at September 30, 2013 and September 30, 2012, respectively  7,377    7,377 
Additional paid in capital  9,496    9,053 
Treasury stock at cost, 73,538 and 23,235 shares held at September 30, 2013 and September 30, 2012, respectively  (2,816)   (543)
Retained earnings  128,679    111,659 
Total stockholders’ equity  142,736    127,546 
Total liabilities and stockholders’ equity $198,840   $185,083 
          

 

See accompanying notes to consolidated financial statements.

 

 

40
 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share amounts)

       

 

   Fiscal Year Ended September 30,
   2013  2012  2011
Operating revenues:               
Citrus Groves  $43,689   $55,423   $47,088 
Agricultural Supply Chain Management   28,412    48,334    36,115 
Improved Farmland   21,917    15,316    8,642 
Ranch and Conservation   6,755    7,348    6,015 
Other Operations   888    766    732 
Total operating revenue   101,661    127,187    98,592 
                
Operating expenses:               
Citrus Groves   31,533    30,995    27,764 
Agricultural Supply Chain Management   27,949    47,693    35,109 
Improved Farmland   16,202    11,574    7,343 
Ranch and Conservation   3,798    3,497    3,640 
Other Operations   505    1,196    1,303 
Total operating expenses   79,987    94,955    75,159 
                
Gross profit   21,674    32,232    23,433 
Corporate general and administrative   9,739    8,490    8,196 
                
Income from operations   11,935    23,742    15,237 
                
Other (expense) income:               
Interest and investment income, net   704    97    (1,375)
Interest expense   (1,257)   (1,616)   (2,020)
Gain on sale of real estate   20,299    9,113    - 
Impairment of assets held for sale   -    (1,918)   - 
Other (loss) income, net   (6)   44    685 
Total other (expense) income, net   19,740    5,720    (2,710)
                
Income before income taxes   31,675    29,462    12,527 
Income tax expense   12,029    10,973    5,430 
                
Net income attributable to common shareholders   19,646    18,489    7,097 
                
Comprehensive income, net of tax effect   -    -    - 
                
Comprehensive income attributable to common shareholders  $19,646   $18,489   $7,097 
                
Weighted-average number of shares outstanding:               
Basic   7,313    7,355    7,363 
Diluted   7,357    7,355    7,363 
Earnings per common share:               
Basic  $2.69   $2.51   $0.96 
Diluted  $2.67   $2.51   $0.96 
                
Cash dividends declared per common share  $0.36   $0.20   $0.12 
                

 

See accompanying notes to consolidated financial statements.

41
 

ALICO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands)

   

 

<
  Common Stock  Additional Paid In Capital  Treasury Stock at Cost  Retained Earnings   
  Shares Issued  Amount        Total