Filed by Bowne Pure Compliance
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
|
|
|
þ |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2007
OR
|
|
|
o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-261
ALICO, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Florida
(State or other jurisdiction of incorporation or organization)
|
|
59-0906081
IRS Employer identification number |
|
|
|
P.O. Box 338, La Belle, Florida
(Address of principal executive offices)
|
|
33975
Zip code |
|
Registrants telephone number including area code
|
|
(863) 675-2966 |
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 o 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 o 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 o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or Regulation S-K is
not contained herein, and will not be contained, to the best of registrants 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.
Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act ((Check one):
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b of the
Exchange Act.)
Yes o 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 February 28, 2007 (the last business day of
Alicos most recently completed second fiscal quarter) was $173,611,502. There were 7,359,988
shares of stock outstanding at October 31, 2007.
Documents Incorporated by Reference:
Portions of the Proxy Statement of Registrant to be dated on or before December 31, 2007 are
incorporated by reference in Part III of this report.
INDEX
ALICO, INC.
FORM 10-K
For the year ended August 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Item 1, business. |
|
|
3 |
|
|
|
|
Item 1A, risk factors. |
|
|
9 |
|
|
|
|
Item 1B, unresolved staff comments. |
|
|
14 |
|
|
|
|
Item 2, properties. |
|
|
15 |
|
|
|
|
Item 3, legal proceedings. |
|
|
16 |
|
|
|
|
Item 4, submission of matters to a vote of security holders. |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Item 5, market for
registrants common equity, related stockholder matters and
issuer purchases of equity securities. |
|
|
17 |
|
|
|
|
Item 6, selected financial data. |
|
|
20 |
|
|
|
|
Item 7,
managements discussion and analysis of financial condition and
results of operations. |
|
|
21 |
|
|
|
|
Item 7A, quantitative and qualitative disclosure about market risk. |
|
|
33 |
|
|
|
|
Item 8, financial statements and supplementary data. |
|
|
34 |
|
|
|
|
Item 9, changes in
and disagreements with accountants on accounting and financial
disclosure. |
|
|
67 |
|
|
|
|
Item 9A, control and
procedures. |
|
|
67 |
|
|
|
|
Item 9B, other
information. |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
Item 10, directors, executive officers and corporate governance. |
|
|
71 |
|
|
|
|
Item 11, executive compensation. |
|
|
71 |
|
|
|
|
Item 12, security ownership of
certain beneficial owners and management and related stockholder
matters. |
|
|
71 |
|
|
|
|
Item 13, certain relationships and related transactions, and director independence. |
|
|
71 |
|
|
|
|
Item 14, principal accountants fees and services. |
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
Item 15, exhibits and financial statement schedules. |
|
|
71 |
|
|
|
|
Signatures. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certifications. |
|
|
|
|
|
|
|
|
|
|
|
Exhibit 10.2 |
Exhibit 10.3 |
Exhibit 10.10 |
Exhibit 11 |
Exhibit 12 |
Exhibit 14.1 |
Exhibit 14.2 |
Exhibit 31.1 |
Exhibit 31.2 |
Exhibit 32.1 |
2
PART I
Item 1. Business.
Alico, Inc. (the Company), which was formed February 29, 1960 as a spin-off of the Atlantic Coast
Line Railroad Company, is a land management company operating in Central and Southwest Florida. The
Companys primary asset is 135,466 acres of land located in Collier, Glades, Hendry, Lee and Polk
Counties. (See Item 2 for location and acreage by current primary use.) The Company is involved in
a variety of agribusiness pursuits in addition to land leasing and rentals, rock and sand mining
and real estate sales activities.
The Companys land is managed for multiple uses wherever possible. For example, cattle ranching,
forestry and land leased for farming, grazing, recreation and oil exploration utilize the same
acreage in some instances.
The charts below outline the relative contribution of each operation to the operating revenue,
profit and total assets of the Company during the past three years (all revenues are from external
customers within the United States). For further information regarding the Companys business
segments, please see Note 11 to the consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
52,716 |
|
|
$ |
30,869 |
|
|
$ |
|
|
Citrus groves |
|
|
47,484 |
|
|
|
22,188 |
|
|
|
26,231 |
|
Sugarcane |
|
|
9,432 |
|
|
|
8,926 |
|
|
|
9,323 |
|
Cattle |
|
|
9,977 |
|
|
|
5,700 |
|
|
|
11,017 |
|
Alico Plant World |
|
|
2,832 |
|
|
|
3,270 |
|
|
|
2,587 |
|
Vegetables |
|
|
3,803 |
|
|
|
2,389 |
|
|
|
|
|
Sod |
|
|
2,180 |
|
|
|
1,528 |
|
|
|
402 |
|
Native trees and shrubs |
|
|
249 |
|
|
|
142 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
Agriculture operations revenue |
|
|
128,673 |
|
|
|
75,012 |
|
|
|
49,791 |
|
Real estate activities |
|
|
3,329 |
|
|
|
113 |
|
|
|
810 |
|
Land leasing and rentals |
|
|
1,495 |
|
|
|
1,369 |
|
|
|
1,933 |
|
Mining royalties |
|
|
1,340 |
|
|
|
940 |
|
|
|
2,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
$ |
134,837 |
|
|
$ |
77,434 |
|
|
$ |
55,525 |
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
930 |
|
|
$ |
(268 |
) |
|
$ |
|
|
Citrus groves |
|
|
24,057 |
|
|
|
7,614 |
|
|
|
6,247 |
|
Sugarcane |
|
|
599 |
|
|
|
360 |
|
|
|
499 |
|
Cattle |
|
|
255 |
|
|
|
786 |
|
|
|
2,109 |
|
Alico Plant World |
|
|
17 |
|
|
|
(1,103 |
) |
|
|
459 |
|
Vegetables |
|
|
496 |
|
|
|
985 |
|
|
|
|
|
Sod |
|
|
862 |
|
|
|
688 |
|
|
|
(78 |
) |
Native trees and shrubs |
|
|
249 |
|
|
|
142 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit from agricultural operations |
|
|
27,465 |
|
|
|
9,204 |
|
|
|
9,467 |
|
Real estate activities |
|
|
(79 |
) |
|
|
52 |
|
|
|
482 |
|
Land leasing and rentals |
|
|
1,102 |
|
|
|
917 |
|
|
|
1,294 |
|
Mining royalties |
|
|
1,214 |
|
|
|
940 |
|
|
|
2,991 |
|
Net casualty loss (recovery) |
|
|
|
|
|
|
3,628 |
|
|
|
(1,888 |
) |
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
29,702 |
|
|
|
14,741 |
|
|
|
12,346 |
|
Profits from the sale of bulk real estate |
|
|
1,257 |
|
|
|
4,369 |
|
|
|
5,465 |
|
Net interest and investment income |
|
|
1,719 |
|
|
|
4,987 |
|
|
|
2,148 |
|
Corporate general and administrative and other |
|
|
(13,276 |
) |
|
|
(11,413 |
) |
|
|
(10,721 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,402 |
|
|
|
12,684 |
|
|
|
9,238 |
|
Provision for income taxes |
|
|
33,246 |
|
|
|
6,215 |
|
|
|
3,148 |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(13,844 |
) |
|
$ |
6,469 |
|
|
$ |
6,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
3,042 |
|
|
$ |
3,096 |
|
|
|
|
|
Citrus groves |
|
|
54,558 |
|
|
|
59,464 |
|
|
|
|
|
Sugarcane |
|
|
46,053 |
|
|
|
47,894 |
|
|
|
|
|
Cattle |
|
|
20,813 |
|
|
|
23,919 |
|
|
|
|
|
Alico Plant World |
|
|
6,711 |
|
|
|
6,515 |
|
|
|
|
|
Vegetables |
|
|
2,766 |
|
|
|
1,981 |
|
|
|
|
|
Sod |
|
|
5,362 |
|
|
|
4,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Agriculture |
|
|
139,305 |
|
|
|
147,060 |
|
|
|
|
|
Mining |
|
|
10,487 |
|
|
|
10,568 |
|
|
|
|
|
Other Corporate assets |
|
|
131,095 |
|
|
|
105,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
280,887 |
|
|
$ |
262,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is not in the retail land sales and development business, except through its wholly
owned subsidiary, Alico Land Development, Inc. (formerly known as Saddlebag Lake Resorts, Inc.)
However, the Company has from time to time sold properties which, in the judgment of Management and
the Board of Directors, were surplus to the Companys primary operations. Additionally, the
Companys wholly owned subsidiary, Alico-Agri, Ltd., has also engaged in bulk land sales. The
Company has recently taken actions to enhance the planning and strategic positioning of all Company
owned land. These actions include seeking
entitlement of the Companys land assets in order to preserve rights should the Company choose to
develop property in the future.
4
Subsidiary Operations
The Company has five wholly owned subsidiaries: Agri-Insurance Company, Ltd. (Agri), Alico-Agri,
Ltd. (Alico-Agri), Alico Plant World, LLC (Plant World), Bowen Brothers Fruit LLC (Bowen),
and Alico Land Development, Inc (formerly known as Saddle Bag Lake Resorts, Inc).
Agri
Agri, formed during fiscal 2000, was created to write crop insurance against catastrophic losses
due to weather and disease. Independent third party actuaries compute premiums and coverage amounts
for policies issued by Agri.
Agri hires independent actuaries and underwriters to set premiums for indemnities quoted and to
establish underwriting considerations. Premiums vary depending upon the size of the property, its
age and revenue-producing history, and the proximity of the insured property to known disease-prone
areas or other insured hazards.
Agri directly underwrote catastrophic business interruption coverage for its parent
company, Alico, Inc., insuring all but two of Alicos citrus groves during fiscal year 2005. The
total coverage under the policy was $34.0 million and the premiums charged for the policy was $1.5
million.
Alico-Agri
Alico-Agri, Ltd. was formed during fiscal year 2003 to manage the real estate holdings of Agri. The
partnership allows Alico to provide management and administrative services so that Agri can focus
on insurance issues. Agri transferred all of its property holdings and the related contracts to
Alico-Agri for a 99% partnership interest. Alico, the managing partner, transferred cash for a 1%
interest in the partnership.
Plant World
In September 2004, the Company, through Alico-Agri, purchased the assets of La Belle Plant World,
Inc. a wholesale grower and shipper of vegetable transplants to commercial farmers. The purchase
price was $4.9 million for the land, office building, greenhouses and associated equipment. Alico
Plant World, LLC was set up as a wholly owned subsidiary of Alico-Agri, Ltd. The assets of Plant
World were purchased to diversify Alicos agricultural operations and to leverage Alicos existing
relationships with the farming community.
Bowen
Alico, through its newly formed subsidiary Bowen, purchased the assets of Bowen Brothers Fruit Co.,
Inc. for $1.9 million in February 2006. The purchase was made to provide Alico with additional
marketing expertise and the ability to harvest its own fruit crop.
Alico Land Development
Alico Land Development, Inc. (formerly known as Saddlebag Lake Resorts, Inc.) has been active in
the subdivision, development and sale of real estate since its inception in 1971. Alico Land
Development has developed and sold two subdivisions near Frostproof, Florida. The Company has
recently taken actions to enhance the planning and strategic positioning of all Company owned land.
These actions include seeking entitlement of the Companys land assets in order to preserve rights
should the Company choose to develop property in the future.
The financial results of the operations of these subsidiaries are consolidated with those of the
Company. Intercompany activities and balances are eliminated in consolidation. (See Note 1 to the
Consolidated Financial Statements.)
5
Segments
The Company engages in a variety of agricultural pursuits as well as other land management
activities. For further information concerning segments please refer to Note 11 to the
Consolidated Financial Statements.
Agricultural Operations
Bowen Brothers
Bowens operations include harvesting, hauling and marketing citrus for both Alico and other
outside growers. Bowens operations also include the purchase and resale of citrus fruit. Bowen
Brothers was purchased in February 2006 to provide Alico with additional marketing expertise and
the ability to harvest its own fruit crop. During fiscal year 2007 and 2006, Bowen harvested
approximately 2.3 million and 900 thousand boxes of Alicos fruit, respectively. Bowen harvested
2.0 million and 2.7 million boxes of fruit for third parties during fiscal years 2007 and 2006,
respectively.
Citrus Groves
Alicos Citrus Grove operations consist of cultivating citrus trees in order to produce citrus for
delivery to the fresh and processed citrus markets. Approximately 10,582 acres of citrus were grown
and harvested during the 2006-07 season. Since 1983 the Company had maintained a marketing contract
covering the majority of the Companys citrus crop with Ben Hill Griffin, Inc. (Griffin), a Florida
corporation. The agreement provided for modifications to meet changing market conditions and
provides that either party could terminate the contract by furnishing advance written notice prior
to the first day of August before each fruit season. Notice was served in a timely fashion in
fiscal year 2005, and accordingly the fruit marketed under the terms of this contract was completed
during fiscal year 2007. Under the terms of the contract, the Companys fruit was packed and/or
processed and sold along with fruit from other growers, including Ben Hill Griffin, Inc. The
proceeds, less costs and a profit margin, are distributed on a pro rata basis as the finished
product is sold.
During the year ended August 31, 2007, approximately 34% of the Companys fruit crop was marketed
under this agreement, as compared to 78% for the year ended August 31, 2006 and 76% for the year
ended August 31, 2005.
Sugarcane
Alicos sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. The
crop is harvested by a co-op, proportionately owned by sugarcane growers, including Alico. The
Company had 10,254 acres, 10,138 acres, and 10,580 acres of sugarcane in production during fiscal
years 2007, 2006, and 2005, respectively. The 2007, 2006, and 2005 fiscal year crops yielded
approximately 290,000, 272,000 and 319,000 gross tons, respectively. An additional 3,007 acres of
planted cane was not yet mature for harvest during fiscal year 2007. Since the inception of its
sugarcane program in 1988, the Company has sold 100% of its product through a pooling agreement
with United States Sugar Corporation, a local Florida sugar mill. Under the terms of the pooling
agreement, the Companys sugarcane is processed and sold along with sugarcane from other growers.
The proceeds, less costs and a profit margin, are distributed on a pro rata basis as the finished
product is sold.
Cattle
The Companys cattle operations, located in Hendry and Collier Counties, Florida, is engaged
primarily in the production of beef cattle and the raising of replacement heifers. The breeding
herd consists of approximately 11,444 cows, bulls and replacement heifers. Approximately 68% of the
herd is from one to five years old, while the remaining 32% are at least six years old. The Company
primarily sells to packing and processing plants in the United States. The Company also sells
cattle through local livestock auction markets and to contract cattle buyers in the United States.
These buyers provide ready markets for the Companys cattle. In the opinion of Management, the loss
of any one or a few of these processing plants and/or buyers would not have a material adverse
effect on the Companys cattle operation.
6
Plant World
In September 2004, in order to diversify Alicos agricultural operations and to leverage Alicos
existing relationships with the farming community, the Company formed a subsidiary, Alico Plant
World and purchased the assets of a wholesale grower and shipper of commercial vegetable
transplants to commercial farmers. Plant Worlds infrastructure covers approximately 50 acres of
land. During fiscal years 2007, 2006 and 2005, Plant World shipped approximately 64.2 million, 85.8
million and 69.9 million vegetable transplants, respectively, to various farmers in several states.
The Company is also growing various ornamental varieties of plants in order to improve margins in
its nursery operations.
Vegetables
In fiscal year 2006 the Company began growing vegetables. In fiscal year 2007, the Company
harvested 218,063 crates of corn from 809 acres and 124,642 bushels of beans from 878 acres.
During fiscal year 2006, the Company planted 500 acres of sweet corn and 500 acres of green beans.
The corn crop produced approximately 119,000 crates, and the beans produced approximately 77,000
bushels.
In December of 2006, the Company entered into a joint venture with J&J Produce, Inc. of
Loxahatchee, Florida, to farm cucumbers, squash and zucchini on Company property. Under the terms
of the joint venture, Alico and J&J each own 50% of the newly formed Alico-J&J, LLC. Each member
shares equally in the management and profits of the venture. Approximately 140 acres were harvested
by the joint venture in fiscal year 2007, producing a yield of 56,725 bushels. Alicos portion of
the joint ventures loss during fiscal year 2007 was $57 thousand and has been included with the
vegetable segment in the consolidated statement of operations.
Sod
The Company is also engaged in the cultivation of sod for landscaping purposes. The Company had
463, 472 and 472 acres of sod in production during fiscal years 2007, 2006 and 2005, respectively.
The Company harvested approximately 12.5 million, 12.6 million, and 4.8 million square feet of
cultivated sod in fiscal years 2007, 2006 and 2005, respectively. The Company is currently
developing additional sod acreage. The Company entered into an agreement in fiscal year 2006 with a
United States sod wholesaler to market its crop. Additionally, the Company began selling
uncultivated sod (bahia) to local landscapers from its pastures in fiscal year 2005. The Company
harvested approximately 51.9 million, 15.9 million and 1.8 million square feet of uncultivated sod
during fiscal years 2007, 2006 and 2005, respectively.
Native trees and shrubs
A small percentage of the Companys properties are classified as timberlands. Thinning of timber
began in fiscal year 2006 and was completed during fiscal 2007. Additionally the Company sells
sabal palms, palm fans, oak trees and other horticultural commodities growing naturally on the
property. These products are sold to landscaping companies in Florida. The Company does not incur
any of the harvesting expenses for any of its tree or shrub sales.
Non Agricultural Operations
Mining Operations: Rock and Sand
Prior to July 2005, the Company leased a portion of its property in Lee County, Florida to CSR
America, Inc. of West Palm Beach, Florida for the mining and production of rock, aggregate, sand,
base rock and other road building and construction materials.
Royalties received for these products are based on a percentage of the F.O.B. plant sales price.
The Company sold the majority of the property in Lee County where the mines were located in July
2005. A contract is pending for the sale of the remaining Lee County property. The Company does
not anticipate any additional royalties from this property.
7
In May 2006, the Company paid $10.6 million to purchase a 526 acre riverfront mine site for rock
and fill in Glades County, Florida. The Company has allocated approximately 54% of the purchase
price to the rock and sand reserves, with the remaining 46% of the purchase price allocated as
residual land value based on the present value of the expected rock royalties over 20 years and the
expected residual value of the property after that time. Rock and sand reserves are depleted and
charged to cost of goods sold proportionately as the property is mined.
Additionally, the Company is currently seeking a permit for a rock mine on its Hendry County
property. Other properties are currently being evaluated for mine sites.
Land Rentals for Grazing, Agricultural, Oil Exploration and Other Uses
The Company rents land to others on a tenant-at-will basis, for grazing, farming, oil exploration
and recreational uses. The Company will continue to develop additional land to lease for farming
as strategically advantageous and profitable. There were no significant changes in the method of
rental for these purposes during the past fiscal year.
Competition
As indicated, the Company is primarily engaged in a variety of agricultural and nonagricultural
activities, all of which are in highly competitive markets. For instance, citrus is grown in
foreign countries and several states, the most notable of which are: Brazil, Florida, California,
and Texas. Beef cattle are produced throughout the United States and domestic beef sales also
compete with imported beef. Sugarcane products compete with products from sugar beets in the United
States as well as imported sugar and sugar products from foreign countries. Sod is produced
throughout the United States, as are vegetables and vegetable transplants. Forest and rock products
are produced in most parts of the United States. Leasing of land is also widespread.
The Companys share of the United States market for citrus, sugarcane, cattle, sod, vegetables,
vegetable transplants, mining and forest products is less than 3%.
Environmental Regulations
The Companys operations are subject to various federal, state and local laws regulating the
discharge of materials into the environment. Management believes the Company is in compliance with
all such rules and such compliance has not had a material effect upon capital expenditures,
earnings or the Companys competitive position.
While compliance with environmental regulations has not had a material economic effect on the
Companys operations, executive officers are required to spend a considerable amount of time
monitoring these matters. In addition, there are ongoing costs incurred in complying with
permitting and reporting requirements.
Employees
At August 31, 2007, the Company had a total of 228 full-time employees classified as follows: Bowen
15; Citrus 82; Sugarcane 12; Ranch 13; Plant World 21; Vegetables 9; Sod 6; Real Estate 2; Leasing
1; Facilities Maintenance Support 40; General and Administrative 27. Management is not aware of any
efforts by employees or outside organizers to create any type of labor union. Management believes
that the employer/employee relationship environment is such that labor organization activities are
unlikely to occur.
8
Seasonal Nature of Business
As with any agribusiness enterprise,
the Companys business operations are predominantly seasonal
in nature. The harvest and sale of citrus fruit generally occurs in all quarters, but is more
concentrated during the second and third fiscal quarters. Sugarcane is harvested during the first,
second and third fiscal quarters. Vegetable harvest and sales generally occur in the first, second
and third fiscal quarters. Vegetable transplant sales occur primarily in the first, second and
third fiscal quarters. Other segments of the Companys business such as its cattle and sod
sales, timber, mining and leasing operations, tend to be recurring rather than seasonal in nature.
Capital resources and raw materials
Management believes that the Company will be able to meet its working capital requirements for the
foreseeable future with internally generated funds. Additionally, the Company has credit
commitments that provide for revolving credit that is available for the Companys general use. Raw
materials needed to propagate the various crops grown by the Company are readily available from
local sources.
Available Information
The Companys internet address is: http://www.alicoinc.com. The Company files reports with
the Securities Exchange Commission (SEC) as required by SEC rules and regulations on Form 8-K,
Form 10-Q, Form 10-K and the annual proxy statement. These reports are available to the public to
read and copy at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
The Company is an electronic filer with the SEC and these reports are available through the SEC
internet site (http:www.sec.gov), and through the Companys website as soon as reasonably
practicable after filing with the SEC. Copies of documents filed with the SEC are also available
free of charge upon request.
Item 1A. Risk Factors
The Companys operations involve varying degrees of risk and each investor should consider the
specific risks and speculative features inherent in and affecting the business of the Company
before investing in the Company. In considering the following risk and speculative factors, an
investor should realize that there is a possibility of losing his or her entire investment.
The Companys financial condition and results of operations could be affected by the risk factors
discussed below. These factors may also cause actual results to differ materially from the results
contemplated by the forward looking statements in Managements Discussion and Analysis.
The list of risks below is not intended to be all inclusive. A complete listing of risks is beyond
the scope of this document. However, in contemplating the financial position and results of
operations of the Company, investors should carefully consider, among other factors, the following
risk factors:
General
The Company has not fully settled its appeal with the IRS.
The Company has been in negotiations with IRS Appeals regarding a thirty day letter issued by the
IRS pertaining to audits of Alico and its Agri Insurance subsidiary for the tax years 2000 through
2004. As a result of the negotiations, the Company has paid a total of $66.2 million, representing
$41.4 million of additional taxes, $20.7 million of interest, and $4.1 million of penalties. The
Company does not believe that any additional payments will be required to settle the matter with
the IRS and has submitted a closing agreement to IRS Appeals; however, IRS Appeals has not yet
executed the closing agreement and could take a position requiring the Company to remit additional
funds.
9
The Company has a 50.5% stockholder and a limited public float which could adversely affect the
price of its stock and restrict the ability of the minority shareholders to have a voice in
corporate governance.
Atlantic Blue Group, Inc. (Atlanticblue) (formerly Atlantic Blue Trust, Inc.) is the owner of
approximately 50.5% of the Companys common stock. Accordingly, the Companys common stock is
thinly traded and its market price may fluctuate significantly more than stocks with a larger
public float. Additionally by virtue of its ownership percentage, Atlanticblue is able to elect
all directors and, consequently, is deemed to control the Company. While Atlanticblue has issued a
governance letter dated September 29, 2006 reaffirming its commitment to maintaining a majority of
independent directors on Alicos Board of Directors, this commitment may be terminated at any time
upon 30 days prior written notice. The Company does not have cumulative voting. Accordingly,
stockholders of the Company other than Atlanticblue have no effective control over who the
management and directors of the Company are or will be.
The Company manages its properties in an attempt to capture its highest and best use and
customarily does not sell property until it determines that the property is surplus to its
agricultural activities by reason of its potential for industrial, commercial or residential use.
The Company has little control over when this occurs as real estate sales are primarily market
driven.
The Companys goal for its land management program is to manage and selectively improve its lands
for their most profitable use. To this end, the Company continually evaluates its properties
focusing on soil capabilities, subsurface composition, topography, transportation, availability of
markets for its crops and the climatic characteristics of each of the tracts. While the Company is
primarily engaged in agricultural activities, when land is determined to be better suited to
industrial, commercial or residential use, the Company has classified the property as surplus to
its agricultural activities and sold it. The Companys land management strategy is thus a long term
strategy to acquire, hold and manage land for its best use, selling surplus land at opportune times
and in a manner that would maximize the Companys profits from such surplus tracts. The timing for
when agricultural lands become best suited for industrial, commercial or residential use depends
upon a number of factors which are beyond the control of the Company such as:
|
|
|
population migration; |
|
|
|
|
national, regional and local economic conditions; |
|
|
|
|
conditions in local real estate markets (e.g., supply of land
verses demand); |
|
|
|
|
competition from other available property; |
|
|
|
|
current level of, or potential availability of roads and utilities; |
|
|
|
|
availability of governmental entitlements; |
|
|
|
|
government regulation and changes in real estate, zoning, land use,
environmental or tax laws; |
|
|
|
|
interest rates and the availability of financing, and; |
|
|
|
|
potential liability under environmental and other laws. |
The Company is not able to predict when its properties will become best suited for non-agricultural
use and has limited ability to influence this process. Additionally, changes from time to time in
any or a combination of these factors could result in delays in sales, the Companys ability to
sell tracts which are determined to be surplus or its ability to realize optimum pricing from such
sales.
10
The Company carries large receivables from seller-financed sales of large tracts of surplus land
the collectibility of which is subject to credit risk relating to debtors.
The Companys sale of surplus lands often involves buyer financing provided by the Company. In
addition to the cash deposit paid by a buyer of surplus land, the Company at times takes a mortgage
for the unpaid balance of the purchase price of the land sales contract. The collectibility of the
amounts owed and the likelihood that the Company will achieve the profitability promised by any
sales contract is dependent on the creditworthiness of the mortgagors, which often depends upon
their continued financial success. The purchasers of the surplus tracts are often developers,
whose success is in turn directly affected by multiple factors in the national and local real
estate markets, including but not limited to interest rates, demand for housing, competition from
other available land, and unanticipated costs of construction. Depending on the magnitude of its
debt to the Company, a mortgagors default on a sales contract or the bankruptcy of any material
purchaser of surplus land could have a materially adverse effect on the Company.
The Company is subject to environmental liability by virtue of owning significant holdings of real
estate assets.
The Company faces a potential for environmental liability by virtue of its ownership of real
property. If hazardous substances (including herbicides and pesticides used by the Company or by
any persons leasing the Companys lands) are discovered on or emanating from any of the Companys
lands and the release of such substances presents a threat of harm to the public health or the
environment, the Company 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 sites location, its present and former uses, and other factors such as the presence of
wetlands or endangered species on the site. Although the Company purchases insurance when it is
available for environmental liability, these insurance contracts may not be adequate to cover such
costs or damages or may not continue to be available to the Company 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 or be significant enough that it would
have a materially adverse effect on the Company.
The Company has three large customers that account for 46% of revenues.
For the fiscal year ended August 31, 2007, the Companys three largest customers accounted for
approximately 46% of operating revenues, with its largest customer accounting for 21% of operating
revenue. The Companys largest customer is U.S. Sugar, for whom the Company grows raw sugarcane.
Additionally, the Company sells citrus to Southern Gardens, a wholly owned subsidiary of U.S.
Sugar. The balance of the sales concentration is attributable to citrus contracts with Tropicana
(a subsidiary of PepsiCo) and Ben Hill Griffin, Inc. These marketing arrangements involve marketing
pools which allow the contracting party to market the Companys product in conjunction with the
product of other entities in the pool and pay the Company a proportionate share of the resulting
revenue from the sale of the entire pooled product. While the Company believes that it can replace
these arrangements with other marketing alternatives, it may not be able to do so quickly and the
results may not be as favorable as the current contracts.
Agricultural Risks General
Agricultural operations generate a large portion of the Companys 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.
11
Agricultural
products are subject to supply and demand pricing which is not predictable.
Because the Companys agricultural products are commodities, the Company is not able to predict
with certainty what price it will receive for its products; however, its costs are relatively
fixed. Additionally, the growth cycle of such products in many instances dictates 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 throughout the industry
affected. Conversely, shortages may cause higher prices. Shortages often result from adverse
growing conditions which can reduce available product of growers in affected growing areas while
not affecting others in non-affected growing areas. Since multiple variables which can affect
pricing are incurred before pricing and supply are known, the Company cannot accurately predict or
control from year to year what its profits or losses from agricultural operations will be.
The Companys agricultural assets are concentrated and the effects of adverse weather conditions
such as hurricanes can be exaggerated.
The Companys agricultural operations are concentrated in south Florida counties with more than 80%
of its agricultural lands located at Alico Ranch in Hendry County. All of these areas are subject
to occasional periods of drought, excess rain, flooding, and freeze. Crops require water in
different quantities at different times during the growth cycle. Accordingly, too much or too
little water at any given point can adversely impact production. While the Company attempts to
mitigate controllable weather risks through water management and crop selection, its ability to do
so is limited. The Companys operations in south and central Florida are also subject to the
risk of hurricanes. Hurricanes have the potential to destroy crops and impact citrus production
through the loss of fruit and destruction of trees either as a result of high winds or through the
spread of wind blown disease. The Company was impacted by hurricanes during fiscal years 2006,
2005 and 2004 and sustained losses relating to the storms during all three fiscal years. The
Company seeks to minimize hurricane risk by the purchase of insurance contracts, but a portion of
the Companys crops remain uninsured. Because the Companys agricultural properties are located in
relative close proximity to each other, the impact of adverse weather conditions may be magnified
in the Companys results of operations.
Water
Use Regulation restricts the Companys access to water for agricultural use.
The Companys agricultural operations are dependent upon the availability of adequate surface and
underground water needed to produce its crops. The availability of water for use in irrigation is
regulated by the State of Florida through water management districts which have jurisdiction over
various geographic regions in which the Companys lands are located. Currently, the Company has
permits for the use of underground and surface water which are adequate for its agricultural needs.
Surface water in Hendry County, where much of the Companys agricultural land is located, comes
from Lake Okeechobee via the Caloosahatchee River and the system of canals used to irrigate such
land. Since the Army Corps of Engineers controls the level of Lake Okeechobee, this organization
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. Recently the Army Corps
of Engineers decided to lower the permissible level of Lake Okeechobee in response to concerns
about the ability of the levees surrounding the lake to restrain rising waters which could result
from hurricanes. Changes in permitting for underground or surface water use during times of
drought, because of lower lake levels, may result in shortages of water for agricultural use by the
Company and could have a materially adverse effect on the Companys agricultural operations and
financial results.
12
The Companys citrus groves are subject to damage and loss from disease including but not limited
to citrus canker and citrus greening diseases.
The Companys citrus groves are subject to damage and loss from diseases such as Citrus Canker and
Citrus Greening. Each of these diseases are widespread in Florida and the Company has found
instances of Citrus Canker and/or Citrus Greening in several of its groves. Both diseases are
present in areas where Company groves are located. There is no known cure for Citrus Canker at the
present time although some pesticides inhibit the development of the disease. The disease is
spread by contact with infected trees or by wind blown transmission. The Companys policy is to
destroy trees which become infected with this disease or with Citrus Greening disease. The Company
maintains an inspection program to discover infestations early. Citrus Greening destroys infected
trees and is spread by psyllids. The Company utilizes a pesticide program to control these hosts.
There is no known pesticide or other treatment for Citrus Greening once trees are infected at the
present time. Both of these diseases pose a significant threat to the Florida Citrus industry and
to the Companys citrus groves. Wide spread dissemination of these diseases in the Companys
groves could cause a material adverse effect to the Companys operating results and citrus grove
assets.
Pesticide
and herbicide use by the Company or its lessees could create liability for the Company.
The Company and some of the parties to whom the Company leases land for agricultural purposes, use
herbicides, pesticides and other hazardous substances in the operation of their businesses. All
pesticides and herbicides used by the Company have been approved for use by the proper governmental
agencies with the hazards attributable to each substance appropriately labeled and described. The
Company applies such chemicals strictly in accordance with the labeling. However, the Company does
not have any knowledge or control over the chemicals used by third parties who lease the Companys
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. The Company might have to pay the
costs or damages associated with the improper application, accidental release or the use or misuse
of such substances.
Changes in immigration laws or enforcement of such laws could impact the ability of the Company to
harvest its crops.
The Company engages third parties to provide personnel for its harvesting operations. The
personnel engaged by such companies typically come from pools composed of immigrant labor. The
availability and number of such workers is subject to decrease if there are changes in the U.S.
immigration laws or by stricter enforcement of such laws. The scarcity of available personnel to
harvest the Companys agricultural products could cause the Companys harvesting costs to increase
or could lead to the loss of product that is not timely harvested which could have a materially
adverse effect upon the Company.
Changing public perceptions regarding the quality, safety or health risks of our agricultural
products can affect demand and pricing of such products.
The general publics perception regarding the quality, safety or health risks associated with
particular food crops the Company grows and sells could reduce demand and prices for some of the
Companys products. To the extent that consumer preferences evolve away from products the Company
produces for health or other reasons, and the Company is unable to modify its products or to
develop products that satisfy new customer preferences, there could be decreased demand for the
Companys products. Even if market prices are unfavorable, produce items which are ready to be or
have been harvested must be brought to market. Additionally, the Company has significant
investments in its citrus groves and cannot easily shift to alternative products for this land. A
decrease in the selling price received for the Companys products due to the factors described
above could have a materially adverse effect on the Company.
13
The Company faces significant competition in its agricultural operations.
The Company faces significant competition in its agricultural operations both from domestic and
foreign producers and does not have any branded products. Foreign growers generally have lower
cost of production, less environmental regulation and in some instances greater resources and
market flexibility than the Company. Because foreign growers have great flexibility as to when they
enter the U. S. market, the Company cannot always predict the impact these competitors will have on
its business and results of operations. The competition the Company faces from foreign suppliers
of sugar and orange juice is mitigated by quota restriction on sugar imports imposed by the U. S.
government and by a governmentally imposed tariff on U. S. orange imports. A change in the
governments sugar policy allowing more imports or a reduction in the U.S. orange juice tariff
would adversely impact the Company and negatively impact the Companys results of operations.
Item 1B. Unresolved Staff Comments
None.
14
Item 2. Properties.
At August 31, 2007, the Company owned a total of 135,466 acres of land located in five 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:
Alico, Inc. & Subsidiaries
Land Use Summary
August 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
Hendry |
|
|
Polk |
|
|
Collier |
|
|
Glades |
|
|
Lee |
|
Citrus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing acres |
|
|
10,582 |
|
|
|
3,048 |
|
|
|
3,405 |
|
|
|
4,129 |
|
|
|
|
|
|
|
|
|
Support and nonproductive* |
|
|
6,303 |
|
|
|
2,317 |
|
|
|
789 |
|
|
|
3,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Citrus |
|
|
16,885 |
|
|
|
5,365 |
|
|
|
4,194 |
|
|
|
7,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing acres |
|
|
10,254 |
|
|
|
10,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support and nonproductive* |
|
|
11,541 |
|
|
|
11,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sugarcane |
|
|
21,795 |
|
|
|
21,795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranch: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Improved pasture |
|
|
21,201 |
|
|
|
20,906 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-improved pasture |
|
|
21,752 |
|
|
|
20,038 |
|
|
|
602 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
Native pasture |
|
|
19,513 |
|
|
|
11,846 |
|
|
|
5,949 |
|
|
|
1,718 |
|
|
|
|
|
|
|
|
|
Support and nonproductive* |
|
|
24,263 |
|
|
|
23,207 |
|
|
|
376 |
|
|
|
680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Ranch |
|
|
86,729 |
|
|
|
75,997 |
|
|
|
7,222 |
|
|
|
3,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farming: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased acres |
|
|
4,886 |
|
|
|
4,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support and nonproductive* |
|
|
1,008 |
|
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total farming |
|
|
5,894 |
|
|
|
5,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sod: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing acres |
|
|
2,193 |
|
|
|
2,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Support and nonproductive* |
|
|
363 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sod |
|
|
2,556 |
|
|
|
2,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rock and Sand Mining |
|
|
526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526 |
|
|
|
|
|
Commercial & Residential |
|
|
1,081 |
|
|
|
54 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
135,466 |
|
|
|
111,661 |
|
|
|
11,482 |
|
|
|
10,836 |
|
|
|
526 |
|
|
|
961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes buildings, roads, water management systems, fallow lands and wetlands. |
15
Of the above lands, the Company utilizes approximately 21,000 acres of improved pasture plus
approximately 49,000 acres of semi-improved and native pasture for cattle production. Much of the
land is also leased for multi-purpose use such as oil exploration, farming and recreation.
From the inception of the Companys initial development program in 1948, the goal has been to
develop the lands for their most profitable use. Prior to implementation of the development
program, detailed studies were made of the properties focusing on soil capabilities, topography,
transportation, availability of markets and the climatic characteristics of each of the tracts.
Based on these and later studies, the use of each tract was determined. Management believes that
the Company lands are suitable for agricultural, residential and commercial uses. In the past some
of the land was considered surplus to the agricultural needs of the Company and, as indicated under
Item 1 of this report, sales of such surplus property were made from time to time.
The Company utilizes consultants to work with senior management and the Board of Directors to
enhance the planning and strategic positioning of all Company owned land. These consultants also
oversee the entitlement of the Companys land assets in order to preserve these rights should the
Company choose to develop the property in the future.
Management believes that each of the major agricultural programs is adequately supported by
equipment, buildings, fences, irrigation systems, drainage systems and other amenities required for
the operation of the projects.
Item 3. Legal proceedings
Alico formed a wholly owned insurance subsidiary, Agri in June of 2000. Agri was formed in response
to the lack of insurance availability, both in the traditional commercial insurance markets and
governmental sponsored insurance programs, suitable to provide coverage for the increasing number
and potential severity of agricultural events. Alicos goal included not only pre-funding its
potential exposures but also to attempt to attract new underwriting capital if it was successful in
profitably underwriting its own potential risks as well as similar risks of its historic business
partners.
Alico capitalized Agri by contributing real estate located in Lee
County, Florida. The real estate
was transferred at its historical cost basis. Agri received a determination letter from the
Internal Revenue Service (IRS) stating that Agri was exempt from taxation provided that net premium
levels, consisting only of premiums with third parties, were below an annual stated level ($350
thousand). Third party premiums remained below the stated annual level. As the Lee County real
estate was sold, substantial gains were generated in Agri, creating permanent book/tax differences.
The Company has been in negotiations with IRS Appeals regarding a thirty day letter issued by the
IRS pertaining to audits of Alico and its Agri-Insurance subsidiary for the tax years 2000 through
2004. As a result of the negotiations, the Company has paid a total of $66.2 million, representing
$41.4 million of additional taxes, $20.7 million of interest, and $4.1 million of penalties. The
Company does not believe that any additional payments will be required to settle the matter with
the IRS and has submitted a closing agreement to IRS Appeals; however, IRS Appeals has not yet
executed the closing agreement and could take a position requiring the Company to remit additional
funds.
When the IRS issue is ultimately settled, the Company expects to remit approximately $6.4 million
of state taxes. The interest on these taxes is estimated at $3.7 million at August 31, 2007 and
will continue to accrue until full payment is made.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
16
PART II
Item 5. Market for the Registrants Common Stock and Related Stockholder Matters.
Common Stock Prices
The common stock of Alico, Inc. is traded on the NASDAQ Stock Market, LLC (NASDAQ) under the
symbol ALCO. The high and low prices as reported by NASDAQ, by fiscal quarter, during the years
ended August 31, 2007 and 2006 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
Price |
|
|
Price |
|
|
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
62.92 |
|
|
$ |
54.03 |
|
|
$ |
51.95 |
|
|
$ |
42.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter |
|
$ |
57.75 |
|
|
$ |
47.04 |
|
|
$ |
47.50 |
|
|
$ |
42.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter |
|
$ |
62.24 |
|
|
$ |
46.25 |
|
|
$ |
58.76 |
|
|
$ |
42.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth Quarter |
|
$ |
65.00 |
|
|
$ |
45.86 |
|
|
$ |
59.35 |
|
|
$ |
48.40 |
|
Approximate Number of Holders of Common Stock
As of October 31, 2007 there were approximately 417 holders of record of the Companys Common Stock
as reported by the Companys transfer agent.
Dividend Information
Dividends declared during the last two fiscal years were as follows:
|
|
|
|
|
|
|
Record Date |
|
Payment Date |
|
Amount Paid Per Share |
|
September 30, 2005
|
|
October 15, 2005
|
|
$ |
0.250 |
|
December 31, 2005
|
|
January 15, 2006
|
|
$ |
0.250 |
|
March 31, 2006
|
|
April 15, 2006
|
|
$ |
0.250 |
|
June 30, 2006
|
|
July 15, 2006
|
|
$ |
0.250 |
|
September 29, 2006
|
|
October 15, 2006
|
|
$ |
0.275 |
|
December 29, 2006
|
|
January 15, 2007
|
|
$ |
0.275 |
|
March 30, 2007
|
|
April 16, 2007
|
|
$ |
0.275 |
|
June 29, 2007
|
|
July 16, 2007
|
|
$ |
0.275 |
|
On October 15, 2007, the Company paid a dividend of $0.275 per share to shareholders of record as
of September 28, 2007. At a Board of Directors meeting held on September 28, 2007 the Directors
declared a quarterly dividend of $0.275 per share payable to stockholders of record as of December
29, 2007, with payment expected on or about January 15, 2008.
The Companys ability to pay dividends in the immediate future is dependent on a variety of factors
including earnings and the financial condition of the Company. See Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations.
17
Issuer Purchases of Equity Securities
The following table presents information with respect to purchases of common stock of the Company
made during the three months ended August 31, 2007 by the Company or any affiliated purchaser of
the Company as defined in rule 10B-18(a)(3) under the Exchange Act.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Shares purchased |
|
number of |
|
|
Total |
|
Average |
|
as part of |
|
shares that can |
|
|
number of |
|
price |
|
publicly |
|
yet be purchased |
|
|
shares |
|
paid per |
|
announced plans |
|
under the plan or |
Period |
|
purchased |
|
share |
|
or programs (1)(2) |
|
programs |
|
06/01/07 06/30/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
07/01/07 07/31/07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
08/01/07 08/31/07
|
|
|
|
7,000 |
|
|
|
51.98 |
|
|
|
7,000 |
|
|
|
87,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
|
$ |
51.98 |
|
|
|
7,000 |
|
|
|
87,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On November 17, 2005 the Company publicly announced that its Board of Directors had
authorized a plan to purchase up to 31,000 shares of the Companys common stock through
August 31, 2007 for the purpose of funding its Director Stock Compensation Plan. |
|
(2) |
|
During January 2007, Alico announced that its Board of Directors had authorized the
repurchase of up to 100,000 shares of the Companys common stock through August 31, 2010,
in addition to the previously announced repurchases, for the purpose of funding restricted
stock grants under its 1998 Incentive Equity Plan in order to provide restricted stock to
eligible Senior Managers to align their interests with those of the Companys shareholders. |
Equity Compensation Arrangements
On November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan (The Plan) pursuant
to which the Board of Directors of the Company may grant options, stock appreciation rights, and/or
restricted stock to certain directors and employees. The Plan authorized grants of shares or
options to purchase up to 650,000 shares of authorized but unissued common stock.
On April 17, 2006 the Company hired a President and Chief Operating Officer. As a portion of the
total compensation package, the Board awarded 20,000 shares of restricted stock. Under the terms
of the agreement, the shares will vest 25% on April 17, 2010 and continue to vest 25% per year
until they are fully vested. The fair value per share was $45.25 on the date of the award.
On July 17, 2006 the Company hired a Vice President of Real Estate. As a portion of the total
compensation package, the Board awarded 13,000 shares of restricted stock. Under the terms of the
agreement, the shares were to vest 25% on July 17, 2010 and continue to vest 25% per year until
they were fully vested. The fair value per share was $53.13 on the date of the award. The grant
was forfeited due to the resignation of the individual during the third quarter of fiscal year
2007. Since none of the shares granted on July 17, 2006 had vested, the previously recognized
compensation cost of $93 thousand was reversed during the third quarter of fiscal year 2007.
On October 27, 2006, the Board awarded 20,000 shares of restricted stock to the Chief Executive
Officer as additional compensation. Under the terms of the agreement, 4,000 shares vested
effective August 31, 2006 and 4,000 vested effective August 31, 2007. The remaining shares will
vest 4,000 per year annually until they are fully vested. The fair value per share was $61.96 on
the date of the award.
18
During January 2007, Alico announced that its Board of Directors had authorized the repurchase of
up to 100,000 shares of the Companys common stock through August 31, 2010, in addition to
previously announced repurchases, for the purpose of funding restricted stock grants under its 1998
Incentive Equity Plan in order to provide restricted stock to eligible Senior Managers to align
their interests with those of the Companys shareholders.
The stock repurchases will be made on a quarterly basis between January 2007 and August 31, 2010
through open market transactions, at times and in such amounts as the Companys broker determines,
subject to the provisions of a 10b5-1 Plan which the Company has adopted for such purchases. The
timing and actual number of shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements and other market conditions. All purchases will be made
subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the
impact upon the market of the purchases for the Companys shares. The Company does not anticipate
that any purchases under the Plan will be made from any officer, director or control person. There
are currently no arrangements with any person for the purchase of the shares. The Company will use
internally generated funds to make the purchases. The Company had previously announced the
repurchase of 31,000 shares in order to fund its Director Compensation plan. In accordance with
the approved plans, the Company may purchase an additional 87,230 shares. Pursuant to these plans,
the Company purchased 7,000, 10,843 and 9,927 shares in the open market during the fourth, third
and second quarter of fiscal year 2007, respectively, at an average price of $53.45 per share.
The following schedules detail the various transactions outlined above:
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
|
|
|
|
|
|
|
for future issuance |
|
|
|
Number of securities |
|
|
|
|
|
under equity |
|
|
|
to be issued upon |
|
|
Weighted average |
|
|
compensation plans |
|
|
|
exercise of |
|
|
exercise price of |
|
|
(excluding securities |
|
|
|
outstanding options, |
|
|
outstanding options, |
|
|
reflected in |
|
Plan category |
|
warrants and rights |
|
|
warrants and rights |
|
|
column (a) |
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans approved by
security holders |
|
|
44,158 |
|
|
$ |
17.90 |
|
|
|
273,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
44,158 |
|
|
$ |
17.90 |
|
|
|
273,815 |
|
|
|
|
|
|
|
|
|
|
|
19
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31, |
|
Description |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
2003 |
|
|
|
(In Thousands, Except Per Share Amounts) |
|
|
Operating revenue |
|
$ |
134,837 |
|
|
$ |
77,434 |
|
|
$ |
55,525 |
|
|
$ |
52,057 |
|
|
$ |
48,285 |
|
Operating expenses |
|
|
105,135 |
|
|
|
62,693 |
|
|
|
43,179 |
|
|
|
39,306 |
|
|
|
43,582 |
|
Income from continuing operations |
|
|
16,228 |
|
|
|
2,982 |
|
|
|
2,321 |
|
|
|
6,667 |
|
|
|
4,703 |
|
Income from continuing operations
per weighted average common share |
|
$ |
2.20 |
|
|
$ |
0.40 |
|
|
$ |
0.32 |
|
|
$ |
0.92 |
|
|
$ |
0.66 |
|
Total Revenue |
|
|
143,930 |
|
|
|
92,594 |
|
|
|
75,384 |
|
|
|
87,779 |
|
|
|
66,532 |
|
Total Costs and Expenses |
|
|
124,528 |
|
|
|
79,910 |
|
|
|
66,146 |
|
|
|
59,979 |
|
|
|
47,448 |
|
Income Taxes |
|
|
33,246 |
|
|
|
6,215 |
|
|
|
3,148 |
|
|
|
9,987 |
|
|
|
6,425 |
|
Net (loss) Income |
|
|
(13,844 |
) |
|
|
6,469 |
|
|
|
6,090 |
|
|
|
17,813 |
|
|
|
12,659 |
|
Average Number of Shares Outstanding |
|
|
7,369 |
|
|
|
7,368 |
|
|
|
7,331 |
|
|
|
7,219 |
|
|
|
7,106 |
|
Net (loss) Income Per Share |
|
|
(1.88 |
) |
|
|
0.88 |
|
|
|
0.83 |
|
|
|
2.47 |
|
|
|
1.78 |
|
Cash Dividend Declared Per Share |
|
|
1.10 |
|
|
|
1.03 |
|
|
|
1.25 |
|
|
|
0.60 |
|
|
|
0.35 |
|
Current Assets |
|
|
127,216 |
|
|
|
110,913 |
|
|
|
128,977 |
|
|
|
125,925 |
|
|
|
90,204 |
|
Total Assets |
|
|
280,887 |
|
|
|
262,753 |
|
|
|
247,694 |
|
|
|
238,242 |
|
|
|
216,545 |
|
Current Liabilities |
|
|
17,519 |
|
|
|
18,078 |
|
|
|
17,819 |
|
|
|
10,136 |
|
|
|
10,124 |
|
Ratio-Current Assets to Current Liabilities |
|
|
7.26:1 |
|
|
|
6.14:1 |
|
|
|
7.24:1 |
|
|
|
12.42:1 |
|
|
|
8.91:1 |
|
Working Capital |
|
|
109,697 |
|
|
|
92,835 |
|
|
|
111,158 |
|
|
|
115,789 |
|
|
|
80,080 |
|
Long-Term Obligations |
|
|
145,164 |
|
|
|
103,572 |
|
|
|
85,689 |
|
|
|
82,908 |
|
|
|
80,239 |
|
Total Liabilities |
|
|
161,941 |
|
|
|
121,650 |
|
|
|
103,508 |
|
|
|
93,044 |
|
|
|
90,363 |
|
Stockholders Equity |
|
|
118,946 |
|
|
|
141,103 |
|
|
|
144,186 |
|
|
|
145,198 |
|
|
|
126,182 |
|
Alico, through its newly formed subsidiary Bowen, purchased the assets of Bowen Brothers Fruit Co.,
Inc. for $1.9 million in February 2006. The purchase was made to provide Alico with additional
marketing expertise and the ability to harvest its own fruit crop. Results from Bowen have been
included for fiscal years 2006 and 2007. For further information concerning on Bowens operations
and assets please refer to Note 11 of the consolidated financial statements.
20
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
Some of the statements in this document include statements about future expectations. Statements
that are not historical facts are forward-looking statements for the purpose of the safe harbor
provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. These
forward-looking statements, which include references to one or more potential transactions, and
strategic alternatives under consideration, are predictive in nature or depend upon or refer to
future events or conditions, are subject to known, as well as, unknown risks and uncertainties that
may cause actual results to differ materially from expectations. There can be no assurance that any
future transactions will occur or be structured in the manner suggested or that any such
transaction will be completed. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of future events, new information or otherwise.
When used in this document, or in the documents incorporated by reference herein, the words
anticipate, should, believe, estimate, may, intend, expect, and other words of similar meaning, are
likely to address the Companys growth strategy, financial results and/or product development
programs. Actual results, performance or achievements could differ materially from those
contemplated, expressed or implied by the forward-looking statements contained herein. The
considerations listed herein represent certain important factors the Company believes could cause
such results to differ. These considerations are not intended to represent a complete list of the
general or specific risks that may affect the Company. It should be recognized that other risks,
including general economic factors and expansion strategies, may be significant, presently or in
the future, and the risks set forth herein may affect the Company to a greater extent than
indicated.
The following discussion focuses on the results of operations and the financial condition of the
Company. This section should be read in conjunction with the Consolidated Financial Statements and
Notes.
Liquidity and Capital Resources
Working capital increased to $109.7 million at August 31, 2007 from $92.8 million at August 31,
2006. As of August 31, 2007, the Company had cash and cash equivalents of $34.8 million compared to
$25.1 million at August 31, 2006. Marketable securities decreased to $46.2 million from $50.1
million during the same period. The ratio of current assets to current liabilities increased to
7.26 to 1 at August 31, 2007 from 6.14 to 1 at August 31, 2006. Total assets increased by $18.1
million to $280.9 million at August 31, 2007, compared to $262.8 million at August 31, 2006.
Management believes that the Company will be able to meet its working capital requirements for the
foreseeable future with internally generated funds. In addition, the Company entered into a credit
facility in fiscal year 2006, which was amended during the fourth quarter of fiscal year 2007. The
commitments under the credit facility provides for revolving credit of up to $175.0 million. Of
the $175.0 million credit commitment, $46.6 million was available for the Companys general use at
August 31, 2007 (see Note 6 to Consolidated Financial Statements).
The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to
audits of Alico for the tax years 2000 through 2004. In the thirty day letter, the IRS proposed
several alternative theories as a basis for its argument that Alico should have reported additional
taxable income in the years under audit. These theories principally related to the formation and
capitalization of the Companys Agri Insurance subsidiary and its tax exempt status during the
years under audit. The total additional federal taxes, penalties and interest proposed by IRS
exams were in excess of $119.0 million. The Company has been working with IRS appeals to settle
the case and has reached a tentative agreement for the payment of federal taxes, penalties and
interest of approximately $66.2 million. In order to cease additional interest from accruing on
this liability, the Company has paid $66.2 million to the IRS from its revolving credit line.
Based on the contemplated settlement, the Company estimated additional state taxes and interest of
$10.1 million at August 31, 2007 which will be due and payable when the IRS audit is settled.
Further details regarding the settlement, including the future of Agri, are in ongoing negotiations
with the IRS and a proposed closing document has been prepared by the Companys tax counsel and
provided to IRS Appeals for review. The
Company expects full resolution of this matter by January 2008; however, the Company has executed
statute extensions with the IRS for the tax returns affected until December 31, 2008.
21
In December 2006, the Companys subsidiary, Alico-Agri, Ltd. restructured three contracts in
connection with the sale of property in Lee County, Florida. The original contracts were entered
into in 2001 and 2003, respectively, for approximately 5,609 acres. The Company received $7.5
million upon execution of the December 2006 restructured agreements.
Under the terms of the first restructured contract, $3.8 million of the closing proceeds were
applied to the existing mortgage receivable principal balance of $56.6 million and accrued interest
of $1.7 million was added back to the mortgage receivable as additional principal. Four annual
principal plus interest payments of the remaining $54.5 million mortgage will commence with a
scheduled payment of $13.6 million on September 28, 2007. The interest rate was renegotiated from
2.5% annually to 4.0% annually. The Company is recognizing the gain on the sale of this parcel
under the installment method.
The second contract, for a gross sales price of $63.5 million, was renegotiated to a series of four
annual options with up to four annual extensions. The first option was extended on September 28,
2007. In order to extend the time to exercise the option, the buyer must pay an annual extension
fee equal to 6% of the remaining unexercised sales price.
A third contract, for a gross sales price of $12.0 million, was renegotiated as a sales contract
with a purchase money mortgage. The mortgage provides for interest payments only for a period of
four years followed by four equal annual payments of principal together with accrued interest
thereon. The annual interest rate under the note is 6%. In order to obtain an extension on the
second contract, the third contract must also be extended. There are up to four annual extensions.
The second contract was extended on September 28, 2007.
Due to complications in the permitting process and an overall slowdown in the real estate market,
the Company agreed to restructure the first contract again in September 2007, with the terms to be
effective as of the original closing in July 2005. Under the terms of the restructure, the Company
received $6.8 million on October 22, 2007 representing $445 thousand of principal with the
remaining classified as interest. Additionally, under the terms of the renegotiated agreement,
Alico will receive quarterly interest payments based upon LIBOR, plus a percentage, as well as $3.5
million of principal on September 28, 2008, $12.0 million principal payments on September 28, 2009
& 2010, and the remaining principal of $26.6 million on September 28, 2011. Payments due under the
second and third contracts were made on September 28, 2007.
Overall,
gross profits during fiscal year 2008 are expected to be significantly lower than those
of fiscal year 2007. Management expects continued profitability from the Companys agricultural
operations during fiscal 2008, but at lower overall levels than experienced in fiscal year 2007.
Profits from citrus operations are expected to be reduced from fiscal 2007 levels due to a larger
expected Florida citrus crop. The final Florida orange production forecast for fiscal year 2007
was 128.9 million boxes, a year heavily impacted by hurricanes. The forecast for Florida orange
production is currently 168.0 million boxes. The higher production levels are expected to cause
unit prices and profits for citrus to decline in fiscal 2008.
The Company has implemented cost cutting measures in addition to improved crop rotation measures in
its sugarcane division. The Company has not planted any additional sugarcane acreage. As a
result, sugarcane profits are expected to be slightly lower in fiscal year 2008 than fiscal year
2007.
A severe drought affected the Companys ranch during the spring of fiscal year 2007 which caused
the Company to reduce its cattle herd in order to provide proper care for the remaining animals.
As a result, the cattle herd has been reduced by approximately 2,000 animals from its fiscal year
2006 levels. This reduction in cattle herd size will reduce the number of animals available for
sale in fiscal year 2008. The Company is working to improve its pasture lands and facilities to
generate better conception rates and carrying capacity for the future. The results of these
efforts however, will not affect the Companys cattle operations in fiscal year 2008. Accordingly,
the cattle division is expected to perform slightly better than breakeven in fiscal year 2008.
22
The Company began farming vegetables in fiscal year 2006 and will continue to expand that segment
during fiscal year 2008. Vegetable profits have been strong during the past two fiscal years, and
are expected to increase during fiscal year 2008 as vegetable acreage is expanded. The Company is
increasing its vegetable operations through its 50% owned subsidiary, Alico-J&J, LLC, which is a
joint venture with an experienced produce marketer.
Sod profits are expected to decline in fiscal year 2008, due to decreased demand for cultivated sod
varieties caused by a slowdown in the housing market. General and administrative expenses are
expected to decrease during fiscal year 2008. The Company has hired an internal audit staff in
order to lower the cost of SOX compliance. Additionally, costs for legal and consulting fees are
expected to decrease after the conclusion of the IRS appeal. Upon final settlement of the IRS
appeal, the Companys effective tax rate is expected to decrease.
Cash outlays for land, equipment, buildings, and other improvements totaled $9.1 million during the
year ended August 31, 2007, compared to $33.2 million during fiscal year 2006, and $12.9 million in
fiscal year 2005. In May 2006, Alico purchased 526 acres of riverfront mining property in Glades
County, Florida for $10.6 million. In February 2006, Alico, through its newly formed subsidiary
Bowen, purchased the assets of Bowen Brothers Fruit Co., Inc. for $1.9 million. In October 2005,
the Company through Alico-Agri, purchased 291 acres of lake-front property in Polk County, Florida,
for $9.2 million. Due to damages incurred in the hurricane in fiscal year 2006, the Company had to
replace 9 large barns, cattle feed structures, several employee houses and numerous greenhouses.
Additionally, the Company incurred the normal costs of capital maintenance of its sugarcane
plantings, raising replacement heifers for the cattle herd and replacing equipment. In September
2004, the Company, through Alico-Agri Ltd., purchased the assets of La Belle Plant World, Inc. The
purchase price was $4.9 million for the land, office building, greenhouses and associated
equipment.
The Company paid quarterly dividends of $0.275 per share on October 15, 2006, January 15, 2007,
April 16, 2007 and July 16, 2007. On October 15, 2007 the Company paid a quarterly dividend of
$0.275 per share to shareholders of record as of September 28, 2007. At its Board meeting on
September 28, 2007, the Board declared a quarterly dividend of $0.275 per share payable to
shareholders of record as of December 29, 2007 with payment expected on or about January 15, 2008.
During January 2007, Alico announced that its Board of Directors has authorized the repurchase of
up to 100,000 Shares of the Companys common stock through August 31, 2010, in addition to its
previously announced repurchase of 31,000 shares, for the purpose of funding restricted stock
grants under its 1998 Incentive Equity Plan in order to provide restricted stock to eligible Senior
Managers to align their interests with those of the Companys shareholders.
The stock repurchases will be made on a quarterly basis between January 2007 and August 31, 2010
through open market transactions, at times and in such amounts as the Companys broker determines
subject to the provisions of a 10b5-1 Plan which the Company has adopted for such purchases. The
timing and actual number of shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements and other market conditions. All purchases will be made
subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the
impact of the purchases upon the market for the Companys shares. The Company does not anticipate
that any purchases under the Plan will be made from any officer, director or control person. There
are currently no arrangements with any person for the purchase of the shares. The Company will use
internally generated funds to make the purchases. The Company had previously announced the
repurchase of 31,000 shares in order to fund its Director Compensation plan. In accordance with
the approved plans, the Company may purchase an additional 87,230 shares. The Company purchased
27,770 shares in the open market at an average price of $53.45 per share during fiscal year 2007.
23
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended August 31, |
|
Summary of results (in thousands): |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Operating revenue |
|
$ |
134,837 |
|
|
$ |
77,434 |
|
|
$ |
55,525 |
|
Gross profit |
|
|
29,702 |
|
|
|
14,741 |
|
|
|
12,346 |
|
General & administrative expenses |
|
|
13,474 |
|
|
|
11,759 |
|
|
|
10,025 |
|
Income from operations |
|
|
16,228 |
|
|
|
2,982 |
|
|
|
2,321 |
|
Profit on sale of real estate |
|
|
1,257 |
|
|
|
4,369 |
|
|
|
5,465 |
|
Interest and investment income |
|
|
7,461 |
|
|
|
9,053 |
|
|
|
4,443 |
|
Interest expense |
|
|
5,742 |
|
|
|
4,066 |
|
|
|
2,295 |
|
Other income (expense) |
|
|
198 |
|
|
|
346 |
|
|
|
(696 |
) |
Provision for income taxes |
|
|
33,246 |
|
|
$ |
6,215 |
|
|
$ |
3,148 |
|
Effective income tax rate |
|
|
171.3 |
% |
|
|
49.0 |
% |
|
|
34.1 |
% |
Net (loss) income |
|
|
($13,844 |
) |
|
$ |
6,469 |
|
|
$ |
6,090 |
|
Overall, income from operations improved significantly in fiscal year 2007 compared with fiscal
year 2006. Net income declined, however, due to the imposition of additional taxes on prior year
activities following the IRS audits. Operations by segment are discussed separately below.
General and Administrative
General and administrative expenses increased by 14.6% to $13.5 million in fiscal year 2007
compared with $11.8 million in fiscal year 2006. The increase was primarily due to salaries
related to the hiring of additional staff ($0.6 million), Sarbanes Oxley (SOX) compliance costs
($0.3 million), legal fees related to ongoing IRS audits ($0.3 million), adjustments to the
Companys workers compensation reserve ($0.2 million), and increased depreciation expense related
to capital expenditures ($0.2 million).
General and administrative expenses increased by 17.3% to 11.8 million in fiscal year 2006 compared
with $10.0 million in fiscal year 2005. An increase in pension expense due to normal retirement
benefits and a change in the discount rate used to value its defined benefit deferred compensation
plan was the largest component of the difference. The acquisitions of Bowen and Plant World
further contributed to the rise in general and administrative expenses, as did increased consulting
fees during fiscal year 2006 in connection with the ongoing IRS audits compared with the prior
fiscal year.
Profit from the Sale of Real Estate
The Company restructured several contracts for the sale of real estate during the second quarter of
fiscal year 2007. In connection with the restructuring, the Company recognized gains of $1.3
million of installment proceeds on a prior sale that was recorded as non-operating income.
Additionally, the Company recorded income in connection with a restructuring of a second contract
of $1.9 million that was classified as operating revenue in the second quarter of fiscal year 2007.
A third restructuring resulted in an installment gain of approximately $0.4 million that was
recognized as operating revenue in the second quarter of fiscal 2007.
Due to changes in the market price of Florida real estate, the Company evaluated several of its
properties for impairment at August 31, 2007. In conducting its evaluation, the Company reviewed
the estimated non- discounted cash flows from each of the properties and obtained independent third
party appraisals from a qualified real estate appraiser. Based on this information, the Company
determined that a 291 acre lakefront property in Polk County, Florida was impaired by approximately
$1.9 million. The impairment loss was included as a charge to real estate operating expenses
during the fourth quarter of fiscal year 2007.
24
In the first quarter of fiscal year
2006, the Company sold approximately 280 acres of citrus grove
located south of LaBelle, Florida in Hendry County for $5.6 million cash for a net gain of $4.4
million. The Company has retained operating rights to the grove until residential development
begins.
The sale of a Lee County parcel closed in escrow during the fourth quarter of fiscal year 2005. The
sales price was $62.9 million consisting of $6.2 million in cash at closing with the balance held
as a 2.5% mortgage note receivable of $56.7 million. At the time of the sale, a gain of $5.3
million was recognized. The remainder of the gain will be recognized on the installment method or
when principal collections from the sale represent a continuing interest of at least 20% of the
purchase price of the property.
Provision for Income taxes
The effective tax rate in fiscal year 2007 was 171.3% compared with 49.0% in fiscal year 2006 and
34.1% in fiscal year 2005. The rate increase for fiscal year 2007 was caused by adjustments
totaling approximately $26.2 million related to the ongoing IRS proceedings for tax years 2000,
2001, 2002, 2003 and 2004 (see Notes 7 and 9 to the consolidated financial statements).
The fiscal year 2006 increase was due to an adjustment of the tax contingency previously accrued.
The Company recognized an additional accrual of $3.3 million for interest in its income tax
provision for fiscal year 2006 related to the contingency.
Interest and Investment Income
Interest and investment income is generated principally from investments in corporate and municipal
bonds, mutual funds, U.S. Treasury securities, and mortgages held on real estate sold on the
installment basis.
Interest income for fiscal year 2007 was $7.5 million compared with $9.1 million in fiscal year
2006. In accordance with guidelines established by the Companys Board of Directors, the Company
restructured its investment portfolio during the first quarter of fiscal year 2006, focusing on
high quality fixed income securities with original maturities of less than 12 months. These sales
resulted in a net realized gain of $3.3 million in fiscal year 2006. Additionally, the Company
recognized interest income in connection with an installment sale of approximately $2.5 million in
fiscal year 2006. This interest, in conjunction with the realized gains mentioned above, was the
primary reason that interest and investment income increased in fiscal year 2006 when compared to
the prior year.
Interest Expense
Interest expense increased during fiscal years 2007 and 2006 when compared to the prior fiscal
years due to higher interest rates and debt levels. The majority of the Companys borrowings are
based on the London Interbank Offered Rate (LIBOR). The LIBOR rates increased to 5.38% in fiscal
year 2007 from 5.33% in fiscal year 2006 and 3.69% in fiscal year 2005. Total debt levels were
$136.9 million at August 31, 2007, $64.0 million at August 31, 2006 and $51.3 million at August 31,
2005.
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
52,716 |
|
|
$ |
30,869 |
|
|
$ |
|
|
Citrus groves |
|
|
47,484 |
|
|
|
22,188 |
|
|
|
26,231 |
|
Sugarcane |
|
|
9,432 |
|
|
|
8,926 |
|
|
|
9,323 |
|
Cattle |
|
|
9,977 |
|
|
|
5,700 |
|
|
|
11,017 |
|
Alico Plant World |
|
|
2,832 |
|
|
|
3,270 |
|
|
|
2,587 |
|
Vegetables |
|
|
3,803 |
|
|
|
2,389 |
|
|
|
|
|
Sod |
|
|
2,180 |
|
|
|
1,528 |
|
|
|
402 |
|
Native trees and shrubs |
|
|
249 |
|
|
|
142 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
Agriculture operations revenue |
|
|
128,673 |
|
|
|
75,012 |
|
|
|
49,791 |
|
Real estate activities |
|
|
3,329 |
|
|
|
113 |
|
|
|
810 |
|
Land leasing and rentals |
|
|
1,495 |
|
|
|
1,369 |
|
|
|
1,933 |
|
Mining royalties |
|
|
1,340 |
|
|
|
940 |
|
|
|
2,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
$ |
134,837 |
|
|
$ |
77,434 |
|
|
$ |
55,525 |
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues increased by 74.12% to $134.8 million in fiscal year 2007 compared with $77.4
million in fiscal year 2006. The increase was primarily due to higher citrus prices realized by
Bowen and the Companys citrus grove operations during fiscal year 2007.
Operating revenues increased by 39.5% to $77.4 million in fiscal year 2006 compared with $55.5
million in fiscal year 2005. The increase was primarily due to the Companys purchase of Bowen
during the second quarter of fiscal 2006. Bowens operations generated revenues of $30.9 million
from the date of acquisition to August 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal years ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
930 |
|
|
$ |
(268 |
) |
|
$ |
|
|
Citrus groves |
|
|
24,057 |
|
|
|
7,614 |
|
|
|
6,247 |
|
Sugarcane |
|
|
599 |
|
|
|
360 |
|
|
|
499 |
|
Cattle |
|
|
255 |
|
|
|
786 |
|
|
|
2,109 |
|
Alico Plant World |
|
|
17 |
|
|
|
(1,103 |
) |
|
|
459 |
|
Vegetables |
|
|
496 |
|
|
|
985 |
|
|
|
|
|
Sod |
|
|
862 |
|
|
|
688 |
|
|
|
(78 |
) |
Native trees and shrubs |
|
|
249 |
|
|
|
142 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit from agricultural operations |
|
|
27,465 |
|
|
|
9,204 |
|
|
|
9,467 |
|
Real estate activities |
|
|
(79 |
) |
|
|
52 |
|
|
|
482 |
|
Land leasing and rentals |
|
|
1,102 |
|
|
|
917 |
|
|
|
1,294 |
|
Mining royalties |
|
|
1,214 |
|
|
|
940 |
|
|
|
2,991 |
|
Net casualty loss (recovery) |
|
|
|
|
|
|
3,628 |
|
|
|
(1,888 |
) |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
29,702 |
|
|
|
14,741 |
|
|
|
12,346 |
|
Profits from the sale of bulk real estate |
|
|
1,257 |
|
|
|
4,369 |
|
|
|
5,465 |
|
Net interest and investment income |
|
|
1,719 |
|
|
|
4,987 |
|
|
|
2,148 |
|
Corporate general and administrative and other |
|
|
(13,276 |
) |
|
|
(11,413 |
) |
|
|
(10,721 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
19,402 |
|
|
$ |
12,684 |
|
|
$ |
9,238 |
|
|
|
|
|
|
|
|
|
|
|
26
Gross profit increased to $29.7 million for fiscal year 2007 compared with $14.7 million for fiscal
2006. Profits from agriculture operations totaled $27.5 million in fiscal 2007, an increase of
$18.3 million from fiscal 2006. This increase was primarily due to higher citrus prices and
volume. Gross profit from agricultural operations was $9.2 million in fiscal year 2006, down
slightly from the prior year results of $9.5 million. Due to the cyclical nature of agriculture,
the Company is continuing to diversify its agricultural ventures.
Agricultural Operations
Agricultural operations generate a large portion of the Companys revenues. Agricultural
operations are subject to a wide variety of risks including weather and disease. Additionally, it
is not unusual for agricultural commodities to experience wide variations in prices from year to
year or from season to season.
Bowen
Bowens operations generated revenues of $52.7 million and $30.9 million for the fiscal years 2007
and 2006, respectively. Gross profit recorded during fiscal year 2007 was $0.9 million compared to
a loss of $0.2 million for fiscal year 2006. By utilizing Bowen to harvest the Companys fruit
during fiscal years 2006 and 2007, the Company was also able to reduce citrus harvesting costs from
traditional market rates. The normal profit margin on intercompany harvesting was eliminated from
Bowens results, and the cost savings was reflected in the Companys Citrus Grove segment.
Citrus Groves
The Citrus Groves division recorded gross revenues of $47.5 million, $22.2 million and $26.2
million and gross profits of $24.1 million, $7.6 million
and $6.2 million, for the fiscal years
ended August 31, 2007, 2006 and 2005, respectively. Hurricanes, citrus diseases and increased real
estate development in the central and southern portions of Florida, where the majority of citrus in
the state is produced, have combined to reduce the supply of citrus for the past two years,
resulting in per unit price increases for citrus products across the industry. Revenue per box was
$13.29, $7.22 and $6.56 in fiscal years 2007, 2006 and 2005, respectively.
The Company has experienced reduced crops due to hurricanes and disease during the past two fiscal
years, harvesting 3.5 million, 3.3 million and 3.9 million 90 pound equivalent boxes of citrus in
fiscal years 2007, 2006 and 2005 respectively. The Company estimates that its fiscal year 2008
crop will be approximately 4.0 million boxes.
The fiscal year 2008 crop forecast by the USDA indicates that the supply of Florida round oranges
will increase which in turn may lower prices. The USDA forecast is for 168.0 million boxes for
fiscal year 2008 compared with production of 128.9 million boxes in fiscal year 2007, 147.9 million
boxes in fiscal year 2006 and 149.8 million boxes in fiscal year 2005.
Sugarcane
Sugarcane revenues were $9.4 million, $8.9 million and $9.3 million during fiscal years 2007, 2006
and 2005, respectively. Sugarcane generated gross profits of $0.6 million, $0.4 million and $0.5
million during fiscal years 2007, 2006 and 2005, respectively. During fiscal years 2007, 2006 and
2005, approximately 381,000, 342,000, and 407,000 standard tons of sugarcane were harvested.
Average prices per standard ton were $24.76, $26.02 and $22.91 for fiscal years 2007, 2006 and
2005, respectively, and average yields were 37.14, 36.73 and 40.71 standard tons per acre,
respectively.
Cattle
Cattle revenues were $10.0 million, $5.7 million and $11.0 million and gross profits from the sale
of cattle were $0.3 million, $0.8 million and $2.1 million for the fiscal years ended August 31,
2007, 2006 and 2005, respectively.
27
During fiscal year 2007, the Company implemented a program designed to improve conception rates and
reduce the supplemental feed costs of its cattle herd. The initiatives included improving the
Companys cattle pastures through fencing, grass plantings and reworking pastures where native weed
growth had reduced the forage available for the cattle. These projects will be ongoing. It is the
Companys belief that those projects will allow the cattle herd to be sustained to a greater degree
by grazing and will reduce the amount of supplements such as corn silage needed and thereby overall
feeding costs. Furthermore, the Company is reducing the overall number of cattle on the property
to allow for more grazing area per animal. In fiscal year 2007, the Company reduced its breeding
herd by approximately 2,000 animals that were identified as poor producers. The sale of these
animals generated revenues of $1.5 million during fiscal year 2007.
The core business of the Companys cattle operation is the sale of calves through western feedlots
to meat packing facilities, or if advantageous, to third parties directly from the ranch. Due to a
severe drought during fiscal year 2007 and the stress effect of prior hurricanes on the cattle
herd, fewer calves were born in fiscal year 2007 (8,488) than in fiscal year 2006 (9,029). The
reduced number of births resulted in increased unit costs to current year calves, causing overall
profit margins to decline in fiscal year 2007 when compared with fiscal year 2006.
During fiscal year 2005, in order to take advantage of record high prices for calves, the Company
sold a portion of its calf crop that would have normally been delivered to western feedlots.
Calves delivered to western feedlots require an additional nine months of preparation before they
are ready for sale. More animals were sold during fiscal year 2005 than in fiscal year 2006.
During fiscal year 2006, 7,454 animals were sold at an average price of $0.89 per pound. In fiscal
year 2005, 13,257 animals were sold at an average price of $0.90 per pound. Cattle prices tend to
run in cycles of approximately 15 years. The Company believes that the cattle market may have
peaked in fiscal year 2005.
The eye of Hurricane Wilma, a category 3 hurricane, passed over Alicos cattle ranch on October 24,
2005, generally stressing the cattle herd. In its aftermath, many of the Companys cattle pastures
were underwater for an extended period. Due to the stress of the hurricane and a temporary
reduction in nutrition, the number of calves born in fiscal years 2007 and 2006 were reduced.
Plant World
In fiscal year 2007, Plant World sold 64.2 million vegetable transplants generating gross revenues
of $2.8 million. In fiscal year 2006, Plant World sold 85.8 million vegetable transplants and
generated gross revenues of $3.3 million. Plant Worlds operations generated a profit of $17
thousand in fiscal 2007, a loss of $1.1 million in fiscal year 2006, and a profit of $0.5 million
in fiscal year 2005.
During the spring of 2005, Plant Worlds off season, the Company began to inventory overhead costs
in anticipation of a verbal commitment for a large order. Subsequently, the customer withdrew the
offer, and Plant World was not able to replace the volume during fall growing season of fiscal year
2006. This caused Plant World to reduce its inventory by $1.0 million to its net realizable value
caused by unused capacity within its facility, driving the unit cost of plants higher. A further
complication arose as fuel prices continued to rise. Plant World had made commitments to deliver
at set prices and in some cases, at very low margins. The increased delivery expense reduced
margins to below cost in many cases. Although Plant World was eventually able to exceed its prior
year volume, the additional plants were spring vegetable varieties which traditionally have lower
margins than fall varieties.
Plant World serves as an ancillary operation to Alicos vegetable operations providing transplants.
The Company continues to take measures including customer evaluations, staff reductions and other
cost cutting actions to improve the profitability of this segment.
28
Vegetables
In fiscal year 2006 the Company began growing vegetables. In fiscal year 2007, the Company
harvested 218,063 crates of corn from 809 acres and 124,642 bushels of beans from 878 acres
generating revenues of $3.8 million and gross profits of $0.5 million. During fiscal year 2006,
the Company planted 500 acres of sweet corn and 500 acres of green beans. The corn crop produced
approximately 119,000 crates, and the beans produced approximately 77,000 bushels for total
revenues of $2.4 million and gross profits of $1.0 million. The vegetable market is highly
volatile and prices can vary greatly from crop to crop. While total revenues improved in fiscal
year 2007 when compared with fiscal year 2006, gross profits declined due to decreased sweet corn
prices resulting in lower profit margins.
In December of 2006, the Company entered into a joint venture with J&J Produce, Inc. of
Loxahatchee, Florida, to farm cucumbers, squash, zucchini and other vegetables on Company property.
Under the terms of the venture, Alico and J&J each own 50% of the newly formed Alico-J&J, LLC.
Each member shares equally in the management and profits of the venture. Approximately 140 acres
were harvested by the venture in fiscal year 2007, producing a yield of 56,725 bushels. Alicos
portion of the ventures loss during fiscal year 2007 was $57 thousand and has been included with
the vegetable segment in the consolidated statement of operations.
Sod
The Company had 463, 472 and 472 acres of cultivated sod in production during fiscal years 2007,
2006 and 2005. The company harvested approximately 12.5 million, 12.6 million and 4.8 million
square feet of cultivated sod in fiscal years 2007, 2006 and 2005, respectively, generating
revenues of $1.0 million, $0.8 million and $0.3 million during each fiscal year respectively.
Additionally, the Company harvested 51.9 million, 15.9 million and 1.8 million square feet of
uncultivated sod generating revenues of $1.2 million, $0.7 million and $0.1 million during fiscal
years 2007, 2006 and 2005, respectively.
The Company is currently developing additional cultivated sod.
Native trees and shrubs
The Company sells sabal palms, palm fans, oak trees and other native horticultural commodities.
These products are sold to landscaping companies in Florida. The Company does not incur any of the
harvesting expenses for any of its tree or shrub sales. Gross profits from these operations were
$0.2 million, $0.1 million and $0.2 million during fiscal years 2007, 2006 and 2005, respectively.
Non Agricultural Operations
Land leasing and rentals
Revenues from land rentals were $1.5 million, $1.4 million and $1.9 million during fiscal years
2007, 2006 and 2005, respectively, generating gross profits of $1.1 million, $0.9 million and $1.3
million. The Company is committed to leasing more of its land when water and drainage
infrastructure are available.
Mining royalties
Gross revenues from mining royalties were $1.3 million, $0.9 million and $3.0 million for fiscal
years 2007, 2006 and 2005, respectively. Gross profit from the sale of rock products and sand were
$1.2 million, $0.9 million and $3.0 million during fiscal years 2007, 2006 and 2005, respectively.
29
In May 2006, the Company purchased a 526 acre riverfront mine site for rock and fill in Glades
County, Florida for $10.6 million cash. The Company has allocated approximately 54% of the
purchase price to the rock and sand reserves with the remaining 46% of the purchase price allocated
as residual land value based on the present value of the expected rock royalties over 20 years and
the expected residual value of the property after that time. Rock and sand reserves will be
depleted and charged to cost of goods sold proportionately as the property is mined.
Additionally, the Company is currently seeking a permit for a rock mine on its Hendry County
property. Other properties are currently being evaluated for additional mine sites.
Off Balance Sheet Arrangements
The Company through its wholly owned
subsidiary Bowen, enters into purchase contracts for the
purchase of citrus fruit during the normal course of its business. The obligations under these
purchase agreements totaled $5.6 million at August 31, 2007. All of these purchases were covered
by sales agreements at prices exceeding cost. In addition, Bowen had forward sales contracts
totaling $2.2 million at August 31, 2007, for which a purchaser had not been contracted. Bowen
management currently believes that all committed sales quantities can be purchased below the
committed sales price. All of these contracts will be fulfilled by the end of the fiscal year
2008.
During the second quarter of fiscal year 2007, the Company entered into a joint venture with J&J
Produce and formed a new company. Alico-J&J Farms, LLC is engaged in vegetable farming. The
initial crop covered 140 acres of property. Under the agreement, each member is responsible for
50% of the obligations, capital and expenses of the company and each member is in turn entitled to
50% of any profit or loss of the venture. Alicos share of the loss was $57 thousand in fiscal
year 2007. During the fourth quarter of fiscal year 2007, the members determined the acreage to be
farmed for fiscal year 2008 would be 782. Alicos portion of the estimated expenses of the venture
for fiscal year 2008 is estimated to be $4.6 million. The equipment needed to operate the farm has
been acquired using five year leases. Alicos obligations under the equipment lease, should the
joint venture default, would be $48 thousand annually or $189 thousand in total less the proceeds
received from the disposition plus disposition costs.
Disclosure of Contractual Obligations
The contractual obligations of the Company at August 31, 2007 are set forth in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
1 - 3 |
|
|
3 - 5 |
|
|
5 + |
|
|
|
Total |
|
|
1 year |
|
|
years |
|
|
years |
|
|
years |
|
Contractual obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
136,889 |
|
|
$ |
1,350 |
|
|
$ |
130,992 |
|
|
$ |
2,542 |
|
|
$ |
2,005 |
|
Expected interest on debt |
|
|
28,634 |
|
|
|
9,397 |
|
|
|
18,532 |
|
|
|
522 |
|
|
|
183 |
|
Commissions |
|
|
3,205 |
|
|
|
21 |
|
|
|
747 |
|
|
|
2,149 |
|
|
|
288 |
|
Citrus purchase contracts |
|
|
5,650 |
|
|
|
5,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefits |
|
|
5,433 |
|
|
|
392 |
|
|
|
784 |
|
|
|
784 |
|
|
|
3,473 |
|
Deferred taxes |
|
|
15,089 |
|
|
|
282 |
|
|
|
10,506 |
|
|
|
3,456 |
|
|
|
845 |
|
Building & equipment additions |
|
|
550 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting contracts |
|
|
913 |
|
|
|
727 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
Leases operating |
|
|
831 |
|
|
|
259 |
|
|
|
514 |
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
197,194 |
|
|
$ |
18,628 |
|
|
$ |
162,261 |
|
|
$ |
9,511 |
|
|
$ |
6,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Critical Accounting Policies and Estimates
The preparation of the Companys financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America 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. On an on-going basis,
management evaluates the estimates and assumptions 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.
Net Realizable Value - The Company records 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 and any other relevant factors that may affect the net realizable value.
Revenue Recognition-
Income is recognized at the time the crop is harvested. Based on fruit buyers and
processors advances to growers, cash and futures markets combined with experience in
the industry, management reviews the reasonableness of the citrus revenue accrual. Adjustments are
made throughout the year to these estimates as more current relevant information regarding the
citrus market becomes available.
Income from sugarcane under a pooled agreement is recognized at the time the crop is harvested.
Based on the processors advance payment, past sugarcane prices and its experience in the industry,
management reviews the reasonableness of the sugarcane revenue accrual quarterly. Adjustments are
made as additional relevant information regarding the sugar market becomes available.
For sales made through Bowen, the Company applies the provisions of Emerging Issues Task Force
(EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The
Companys application of EITF 99-19 includes evaluation of the terms of each major customer
contract relative to a number of criteria that management considers in making its determination
with respect to gross versus net reporting of revenue for transactions with its customers.
Managements criteria for making these judgments place particular emphasis on determining the
primary obligor in a transaction and which party bears general inventory risk. Bowen purchases and
resells citrus fruit; in these transactions, Bowen (i) acts as 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. For these transactions, Bowen recognizes revenues based on the
gross amounts due from customers.
In recognizing revenue from land sales, the Company follows the provisions in Financial Accounting
Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 66, Accounting
for Sales of Real Estate, to record these sales. SFAS No. 66 provides specific sales recognition
criteria to determine when land sales revenue can be recorded. For example, SFAS No. 66 requires a
land sale must be consummated with a sufficient down payment of at least 20% to 25% of the sales
price depending upon the type and timeframe for development of the property sold, and that any
receivable from the sale cannot be subject to future subordination. In addition, the seller cannot
retain any material continuing involvement in the property sold.
Capitalized Costs - In accordance with Statement of Position 85-3 Accounting by Agricultural
Producers and Agricultural Cooperatives, the cost of growing crops are capitalized 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 earned.
31
Impairment of Long-Lived Assets - The Company evaluates property, equipment and capitalized
development costs for our sugarcane and citrus groves for impairment when events or changes in
circumstances indicate that the carrying value of assets contained in the Companys financial
statements may not be recoverable. The impairment calculation compares the carrying value of the
asset to the assets estimated future cash flows (undiscounted and without interest charges). If
the estimated future cash flows are less than the carrying value of the asset, the Company
calculates an impairment loss. The Company recognizes an impairment loss if the amount of the
assets carrying value exceeds the assets estimated fair value. If an impairment loss is
recognized, the adjusted carrying amount of the asset will be its new cost basis. For a depreciable
long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life
of that asset. Restoration of a previously recognized impairment loss is prohibited. For further
information concerning the impairment charges please refer to Note 1c to the consolidated financial
statements.
Defined Benefit Retirement Plans - The Company maintains a non-qualified defined benefit deferred
compensation plan, for key employees. Although the general assets of the Company are used to fund
the plan, the Company has purchased life insurance policies on the covered employees to help fund
the plan liabilities. The investments held by these life insurance policies are valued using
market quotations. Pension benefit obligations and the related effects on operations are calculated
using actuarial models. Two critical assumptions discount rate and expected return on assets -
are important elements of plan expense and asset/liability measurement. The Company evaluates these
assumptions at least annually. Other assumptions involving demographic factors such as retirement
age, mortality and turnover are evaluated periodically and are updated to reflect the Companys
experience. Actual results in any given year will often differ from actuarial assumptions because
of economic and other factors. The discount rate enables the Company to state expected future cash
flows at a present value on the measurement date. In determining the discount rate, the Company
utilizes the yield on high-quality, fixed-income investments currently available with maturities
corresponding to the anticipated timing of the benefit payments and rates published by the Pension
Benefit Guaranty Corporation (PBGC). At August 31, 2007, the discount rate used to compute the
Companys defined benefit deferred compensation plan was 5.35%.
Income Taxes - 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. The Company regularly reviews its 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,
however, be adjusted if estimates of future taxable income are adjusted.
The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to
audits of Alico for the tax years 2000 through 2004. In the thirty day letter, the IRS proposed
several alternative theories as a basis for its argument that Alico should have reported additional
taxable income in the years under audit. These theories principally related to the formation and
capitalization of the Companys Agri Insurance subsidiary and its tax exempt status during the
years under audit. The total additional federal taxes, penalties and interest proposed by IRS
exams were in excess of $119.0 million. The Company has been working with IRS appeals to resolve
the case and has reached a tentative agreement for the payment of federal taxes, penalties and
interest of approximately $66.2 million. In order to cease additional interest from accruing on
this liability, the Company has paid $66.2 million to the IRS from its revolving credit line.
Based on the contemplated settlement, the Company estimated additional state taxes and interest of
$10.1 million at August 31, 2007 which will be due and payable when the IRS audit is concluded.
Further details regarding the settlement, including the future of Agri, are in ongoing negotiations
with the IRS and a proposed closing document has been prepared by the Companys tax counsel and
provided to IRS Appeals for review. The Company expects full resolution of this matter by January
2008; however, the Company has executed statute extensions with the IRS for the tax returns
affected until December 31, 2008.
Alico capitalized Agri by contributing real estate located in Lee County Florida. The real estate
was transferred at its historical cost basis. As the Lee County real estate was sold, substantial
gains were generated in Agri, creating permanent book/tax differences.
32
For property transferred to Agri but not sold during the years under audit, the historical tax
basis will be stepped-up to the fair market value of the property at the time of transfer. The
Company has estimated the amount of basis step-up based on discussions with the IRS and classified
the step-ups resulting from the transfer of property not sold as of August 31, 2004 based on their
estimated tax benefits as a deferred tax asset at August 31, 2007. Should the actual outcome of
the IRS settlement differ from the estimated amounts, the deferred taxes related to the basis
step-ups could change.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Alicos exposure to market rate risk and changes in interest rates relate primarily to its
investment portfolio and revolving credit lines. Investments are placed with high quality issuers
and, by policy, limit the amount of credit exposure to any one issuer. Alico is adverse to
principal loss and provides for the safety and preservation of invested funds by limiting default,
market and reinvestment risk. The Company classifies cash equivalents and short-term investments as
fixed-rate if the rate of return on such instruments remains fixed over their term. These
fixed-rate investments include fixed-rate U.S. government securities, municipal bonds, time
deposits and certificates of deposit. Cash equivalents and short-term investments are classified as
variable-rate if the rate of return on such investments varies based on the change in a
predetermined index or set of indices during their term. These variable-rate investments primarily
include money market accounts, mutual funds and equities held at various securities brokers and
investment banks.
The table below presents the costs and estimated fair value of the investment portfolio at August
31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
Cost |
|
|
Fair Value |
|
Marketable Securities and
Short-term Investments (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate |
|
$ |
37,837 |
|
|
$ |
37,870 |
|
Variable Rate |
|
$ |
8,374 |
|
|
$ |
8,372 |
|
|
|
|
(1) |
|
See definition in Notes 1 and 2 in Notes to Consolidated Financial Statements. |
The aggregate fair value of investments in debt instruments (net of mutual funds of $2,000) as of
August 31, 2007, by contractual maturity date, consisted of the following:
|
|
|
|
|
|
|
Aggregate |
|
|
|
Fair |
|
|
|
Values |
|
Due in one year or less |
|
$ |
30,341 |
|
Due between one and five years |
|
|
6,420 |
|
Due between five and ten years |
|
|
1,500 |
|
Due thereafter |
|
|
5,981 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,242 |
|
|
|
|
|
Fixed rate securities tend to decline with market rate interest increases. Variable rate securities
are generally affected more by general market expectations and conditions. A 1% change in interest
rates on the Companys portfolio would impact the Companys annual interest revenue by
approximately $440 thousand. Additionally, the Company has debt with interest rates that vary with
LIBOR. A 1% increase in this rate would impact the Companys annual interest expense by
approximately $1.3 million based on the Companys outstanding debt under these agreements at August
31, 2007.
33
|
|
|
Item 8. |
|
Financial Statements and Supplementary Data. |
Report of Independent Registered
Certified Public Accounting Firm
To the Board of Directors and
Stockholders
Alico, Inc.
LaBelle, Florida
We have audited the accompanying
consolidated balance sheet of Alico, Inc. and Subsidiaries as of
August 31, 2007, and the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss), and cash flows for
the year then ended. 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 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 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
statements presentation. We believe that our audit provides 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
August 31, 2007, and the results of their operations and their cash flows
for the year then ended in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the effectiveness of Alico, Inc. and Subsidiaries internal control
over financial reporting as of August 31, 2007, based on criteria
established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated November 14, 2007 expressed an
unqualified opinion on management’s assessment of the effectiveness of
Alico, Inc.’s internal control over financial reporting and an
unqualified opinion on the effectiveness of Alico, Inc.’s internal
control over financial reporting.
/s/MCGLADREY & PULLEN, LLP
Orlando, Florida
November 14, 2007
34
Report of Independent
Registered Certified Public Accounting Firm
To the Stockholders and Board of
Directors of Alico, Inc. and Subsidiaries
We have audited the accompanying
consolidated balance sheet of Alico, Inc. and Subsidiaries as of
August 31, 2006, and the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss), and cash flows for
each of the two years in the period ended August 31, 2006. 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 the Company as of August 31, 2006, and
the results of their operations and their cash flows for each of the two years
in the period ended August 31, 2006, in conformity with U.S. generally
accepted accounting principles.
/s/TEDDER, JAMES, WORDEN &
ASSOCIATES, P.A.
Orlando, Florida
November 17, 2006
35
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
34,825 |
|
|
$ |
25,065 |
|
Marketable securities available for sale |
|
|
46,242 |
|
|
|
50,100 |
|
Accounts receivable, net |
|
|
15,738 |
|
|
|
8,679 |
|
Mortgage and notes receivable |
|
|
487 |
|
|
|
47 |
|
Inventories |
|
|
25,214 |
|
|
|
24,545 |
|
Deferred tax asset |
|
|
2,312 |
|
|
|
|
|
Other current assets |
|
|
2,398 |
|
|
|
2,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
127,216 |
|
|
|
110,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and notes receivable, net of current portion |
|
|
9,939 |
|
|
|
10,977 |
|
Investment and deposits |
|
|
3,262 |
|
|
|
2,919 |
|
Deferred tax asset |
|
|
3,950 |
|
|
|
|
|
Cash surrender value of life insurance, designated |
|
|
7,530 |
|
|
|
6,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other assets |
|
|
24,681 |
|
|
|
20,489 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, buildings and equipment |
|
|
178,917 |
|
|
|
179,689 |
|
Less accumulated depreciation |
|
|
(49,927 |
) |
|
|
(48,338 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, buildings and equipment |
|
|
128,990 |
|
|
|
131,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
280,887 |
|
|
$ |
262,753 |
|
|
|
|
|
|
|
|
LIABILITIES & STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,328 |
|
|
$ |
1,966 |
|
Income taxes payable |
|
|
3,335 |
|
|
$ |
1,304 |
|
Current portion of notes payable |
|
|
1,350 |
|
|
|
3,315 |
|
Accrued expenses |
|
|
4,330 |
|
|
|
3,720 |
|
Dividends payable |
|
|
2,024 |
|
|
|
2,027 |
|
Accrued ad valorem taxes |
|
|
1,876 |
|
|
|
2,090 |
|
Deferred income taxes |
|
|
|
|
|
|
282 |
|
Other current liabilities |
|
|
2,276 |
|
|
|
3,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,519 |
|
|
|
18,078 |
|
|
|
|
|
|
|
|
|
|
Notes payable, net of current portion |
|
|
135,539 |
|
|
|
60,687 |
|
Deferred income taxes, net of current portion |
|
|
|
|
|
|
14,807 |
|
Deferred retirement benefits, net of current portion |
|
|
5,041 |
|
|
|
4,952 |
|
Commissions payable, net of current portion, and deposits |
|
|
3,842 |
|
|
|
2,833 |
|
Other non-current liability |
|
|
|
|
|
|
20,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
161,941 |
|
|
|
121,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value. Authorized 1,000 shares;
issued, none |
|
|
|
|
|
|
|
|
Common stock, $1 par value. Authorized 15,000 shares;
issued 7,376 shares; outstanding 7,357 in 2007
and 7,371 in 2006 |
|
|
7,376 |
|
|
|
7,376 |
|
Additional paid in capital |
|
|
10,169 |
|
|
|
9,691 |
|
Treasury stock, at cost |
|
|
(1,046 |
) |
|
|
(287 |
) |
Accumulated other comprehensive (loss) income |
|
|
45 |
|
|
|
(29 |
) |
Retained earnings |
|
|
102,402 |
|
|
|
124,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
118,946 |
|
|
|
141,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
280,887 |
|
|
$ |
262,753 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
36
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Operating revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural operations |
|
$ |
128,673 |
|
|
$ |
75,012 |
|
|
$ |
49,791 |
|
Non-agricultural operations |
|
|
2,835 |
|
|
|
2,309 |
|
|
|
4,924 |
|
Real estate operations |
|
|
3,329 |
|
|
|
113 |
|
|
|
810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
|
134,837 |
|
|
|
77,434 |
|
|
|
55,525 |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural operations |
|
|
101,208 |
|
|
|
65,808 |
|
|
|
40,324 |
|
Non-agricultural operations |
|
|
519 |
|
|
|
452 |
|
|
|
639 |
|
Real estate operations |
|
|
3,408 |
|
|
|
61 |
|
|
|
328 |
|
Net casualty loss (recovery) |
|
|
|
|
|
|
(3,628 |
) |
|
|
1,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
105,135 |
|
|
|
62,693 |
|
|
|
43,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
29,702 |
|
|
|
14,741 |
|
|
|
12,346 |
|
Corporate general and administrative |
|
|
13,474 |
|
|
|
11,759 |
|
|
|
10,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
16,228 |
|
|
|
2,982 |
|
|
|
2,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Profit on sales of bulk real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
|
|
1,434 |
|
|
|
5,761 |
|
|
|
15,416 |
|
Cost of sales |
|
|
(177 |
) |
|
|
(1,392 |
) |
|
|
(9,951 |
) |
|
|
|
|
|
|
|
|
|
|
Profit on sales of bulk real estate, net |
|
|
1,257 |
|
|
|
4,369 |
|
|
|
5,465 |
|
Interest & investment income |
|
|
7,461 |
|
|
|
9,053 |
|
|
|
4,443 |
|
Interest expense |
|
|
(5,742 |
) |
|
|
(4,066 |
) |
|
|
(2,295 |
) |
Other |
|
|
198 |
|
|
|
346 |
|
|
|
(696 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net |
|
|
3,174 |
|
|
|
9,702 |
|
|
|
6,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
19,402 |
|
|
|
12,684 |
|
|
|
9,238 |
|
Provision for income taxes |
|
|
33,246 |
|
|
|
6,215 |
|
|
|
3,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(13,844 |
) |
|
$ |
6,469 |
|
|
$ |
6,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding |
|
|
7,369 |
|
|
|
7,368 |
|
|
|
7,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding
assuming dilution |
|
|
7,377 |
|
|
|
7,379 |
|
|
|
7,347 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share amounts: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.88 |
) |
|
$ |
0.88 |
|
|
$ |
0.83 |
|
Diluted |
|
$ |
(1.88 |
) |
|
$ |
0.88 |
|
|
$ |
0.83 |
|
Dividends |
|
$ |
1.10 |
|
|
$ |
1.03 |
|
|
$ |
1.25 |
|
See accompanying Notes to Consolidated Financial Statements.
37
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Treasury |
|
|
Other |
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
|
Paid in |
|
|
Stock |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
|
Issued |
|
|
Amount |
|
|
Capital |
|
|
at cost |
|
|
Income |
|
|
Earnings |
|
|
Total |
|
Balances, August 31, 2004 |
|
|
7,309 |
|
|
$ |
7,309 |
|
|
$ |
7,800 |
|
|
|
|
|
|
$ |
1,529 |
|
|
$ |
128,560 |
|
|
$ |
145,198 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,090 |
|
|
|
6,090 |
|
Unrealized gains on securities,
net of taxes of $234 and
reclassification adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666 |
|
|
|
|
|
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,756 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,211 |
) |
|
|
(9,211 |
) |
Stock options exercised |
|
|
60 |
|
|
|
60 |
|
|
|
964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,024 |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2005 |
|
|
7,369 |
|
|
|
7,369 |
|
|
|
9,183 |
|
|
|
|
|
|
|
2,195 |
|
|
|
125,439 |
|
|
|
144,186 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,469 |
|
|
|
6,469 |
|
Unrealized gains on securities,
net of taxes of $408 and
reclassification adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,224 |
) |
|
|
|
|
|
|
(2,224 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,245 |
|
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,556 |
) |
|
|
(7,556 |
) |
Treasury Stock Purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(763 |
) |
|
|
|
|
|
|
|
|
|
|
(763 |
) |
Stock based compensation
- Directors |
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
476 |
|
|
|
|
|
|
|
|
|
|
|
528 |
|
Employee: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
7 |
|
|
|
7 |
|
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
134 |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2006 |
|
|
7,376 |
|
|
|
7,376 |
|
|
|
9,691 |
|
|
|
(287 |
) |
|
|
(29 |
) |
|
|
124,352 |
|
|
|
141,103 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,844 |
) |
|
|
(13,844 |
) |
Unrealized gains on securities,
net of taxes of $39 and
reclassification adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,770 |
) |
Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,106 |
) |
|
|
(8,106 |
) |
Treasury Stock Purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,484 |
) |
|
|
|
|
|
|
|
|
|
|
(1,484 |
) |
Stock based compensation
- Directors |
|
|
|
|
|
|
|
|
|
|
37 |
|
|
|
478 |
|
|
|
|
|
|
|
|
|
|
|
515 |
|
Employee: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercised |
|
|
|
|
|
|
|
|
|
|
(39 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
480 |
|
|
|
192 |
|
|
|
|
|
|
|
|
|
|
|
672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, August 31, 2007 |
|
|
7,376 |
|
|
$ |
7,376 |
|
|
$ |
10,169 |
|
|
|
(1,046 |
) |
|
$ |
45 |
|
|
$ |
102,402 |
|
|
$ |
118,946 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Disclosure of reclassification amount: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains
arising during the period |
|
|
62 |
|
|
|
(29 |
) |
|
|
1,064 |
|
Less: reclassification adjustment for realized gain (loss)
included in net income |
|
|
(12 |
) |
|
|
2,195 |
|
|
|
398 |
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized (losses) gains on securities |
|
|
74 |
|
|
|
(2,224 |
) |
|
|
666 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
38
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Increase (Decrease) in Cash and Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(13,844 |
) |
|
$ |
6,469 |
|
|
$ |
6,090 |
|
Adjustments
to reconcile net income (loss) to cash (used for) provided by
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization |
|
|
8,770 |
|
|
|
8,590 |
|
|
|
6,957 |
|
Gain on breeding herd sales |
|
|
(529 |
) |
|
|
(162 |
) |
|
|
(209 |
) |
Deferred income tax expense, net |
|
|
(21,351 |
) |
|
|
680 |
|
|
|
3,209 |
|
Deferred retirement benefits |
|
|
(1,026 |
) |
|
|
556 |
|
|
|
(88 |
) |
Net gain on sale of marketable securities |
|
|
(31 |
) |
|
|
(3,254 |
) |
|
|
(2,083 |
) |
Loss on sale of property and equipment |
|
|
(20 |
) |
|
|
861 |
|
|
|
5,539 |
|
Impairment write down |
|
|
2,028 |
|
|
|
|
|
|
|
|
|
Loss from non consolidated joint venture |
|
|
57 |
|
|
|
|
|
|
|
|
|
Gain on real estate sales |
|
|
(1,257 |
) |
|
|
(4,369 |
) |
|
|
(5,465 |
) |
Stock based compensation |
|
|
1,187 |
|
|
|
857 |
|
|
|
419 |
|
Imputed interest on mortgage note receivable |
|
|
|
|
|
|
(2,891 |
) |
|
|
|
|
Cash provided by (used for) changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(7,059 |
) |
|
|
2,537 |
|
|
|
(2,098 |
) |
Inventories |
|
|
(669 |
) |
|
|
(4,159 |
) |
|
|
(692 |
) |
Other assets |
|
|
(163 |
) |
|
|
(1,585 |
) |
|
|
(765 |
) |
Accounts payable & accrued expenses |
|
|
(756 |
) |
|
|
719 |
|
|
|
2,981 |
|
Income taxes payable |
|
|
2,031 |
|
|
|
1,304 |
|
|
|
(1,741 |
) |
Other non-current liability |
|
|
(20,293 |
) |
|
|
3,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
|
(52,925 |
) |
|
|
9,492 |
|
|
|
12,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Increase in land inventories |
|
|
|
|
|
|
(793 |
) |
|
|
(498 |
) |
Real Estate deposits and accrued commissions |
|
|
1,622 |
|
|
|
6,811 |
|
|
|
(11,106 |
) |
Purchases of property and equipment |
|
|
(9,138 |
) |
|
|
(33,172 |
) |
|
|
(12,877 |
) |
Purchase of other investments |
|
|
(878 |
) |
|
|
|
|
|
|
|
|
Proceeds from disposals of property and equipment |
|
|
1,652 |
|
|
|
1,092 |
|
|
|
1,762 |
|
Proceeds from sale of real estate |
|
|
|
|
|
|
5,555 |
|
|
|
7,507 |
|
Purchases of marketable securities and investments |
|
|
(54,882 |
) |
|
|
(92,583 |
) |
|
|
(28,351 |
) |
Proceeds from sales of marketable securities |
|
|
58,823 |
|
|
|
109,992 |
|
|
|
16,897 |
|
Collection of mortgages and notes receivable |
|
|
2,173 |
|
|
|
632 |
|
|
|
10,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities |
|
$ |
(628 |
) |
|
$ |
(2,466 |
) |
|
$ |
(16,387 |
) |
|
|
|
|
|
|
|
|
|
|
(Continued)
39
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuing stock |
|
$ |
16 |
|
|
$ |
134 |
|
|
$ |
1,024 |
|
Treasury stock purchases |
|
|
(1,484 |
) |
|
|
(763 |
) |
|
|
|
|
Proceeds from bank loans |
|
|
95,959 |
|
|
|
65,814 |
|
|
|
26,933 |
|
Repayment of bank loans |
|
|
(23,072 |
) |
|
|
(53,160 |
) |
|
|
(27,170 |
) |
Dividends paid |
|
|
(8,106 |
) |
|
|
(7,370 |
) |
|
|
(7,369 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
|
63,313 |
|
|
|
4,655 |
|
|
|
(6,582 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
9,760 |
|
|
|
11,681 |
|
|
|
(10,915 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of year |
|
|
25,065 |
|
|
|
13,384 |
|
|
|
24,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year |
|
$ |
34,825 |
|
|
$ |
25,065 |
|
|
$ |
13,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amount capitalized |
|
$ |
5,077 |
|
|
$ |
3,576 |
|
|
$ |
2,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes, including related interest |
|
$ |
72,818 |
|
|
$ |
1,803 |
|
|
$ |
1,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments to securities available for sale |
|
$ |
113 |
|
|
$ |
(45 |
) |
|
$ |
1,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect related to fair value adjustments |
|
$ |
39 |
|
|
$ |
(16 |
) |
|
$ |
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of breeding herd to Property &
Equipment |
|
$ |
594 |
|
|
$ |
516 |
|
|
$ |
562 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 31, 2007, 2006 and 2005
(in thousands except for unit data)
(1) Summary of Significant Accounting Policies
(a) Basis of Consolidated Financial Statement Presentation
The consolidated financial statements include the accounts of Alico, Inc. (Alico) and its wholly
owned subsidiaries, Alico Land Development Company (formerly known as
Saddlebag Lake Resorts, Inc.), Agri-Insurance Company, Ltd. (Agri),
Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (Bowen) (collectively
referred to as the Company), after elimination of all significant intercompany balances and
transactions.
(b) Revenue Recognition
Income from the sale of citrus is recognized at the time the crop is harvested. Based on fruit
buyers and processors advances to growers, cash and futures markets combined with
experience in the industry, management reviews the reasonableness of the citrus revenue accrual.
Adjustments are made throughout the year to these estimates as relevant information regarding the
citrus market becomes available. Differences between the estimates and the final realization of
revenues can be significant, and the differences between estimated and final results can be either
positive or negative. Fluctuation in the market prices for citrus fruit has caused the Company to
recognize additional revenue from the prior years crops totaling $537 thousand, $838 thousand, and
$357 thousand during fiscal years 2007, 2006, and 2005, respectively.
Income from sugarcane under a pooled agreement is recognized at the time the crop is harvested.
Based on the processors advance payment, past sugarcane prices, and its experience in the
industry, management reviews the reasonableness of the sugarcane revenue accrual. Adjustments are
made as additional relevant information regarding the sugar market becomes available. Market price
changes to the sugar pool have caused the Company to adjust revenue from the prior years crops by
$4 thousand, $169 thousand, and ($198 thousand) during fiscal years 2007, 2006, and 2005,
respectively.
The Company recognizes revenue from cattle sales at the time the cattle are sold. The Company
recognizes revenue from the sale of vegetables and sod at the time of harvest. Revenue from the
sale of plants is recognized when the plants are shipped from the greenhouse.
For sales made through Bowen, the Company applies the provisions of Emerging Issues Task Force
(EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The
Companys application of EITF 99-19 includes evaluation of the terms of each major customer
contract relative to a number of criteria that management considers in making its determination
with respect to gross versus net reporting of revenue for transactions with its customers.
Managements criteria for making these judgments place particular emphasis on determining the
primary obligor in a transaction and which party bears general inventory risk. Bowen purchases and
resells citrus fruit; in these transactions, Bowen (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. Due to the aforementioned factors, Bowen recognizes revenue based
on the gross amounts due from customers.
(c) Real Estate
Real estate sales are recorded under the accrual method of accounting. Residential retail land
sales made through Alico Land Development, Inc. are not recognized until the buyers initial
investment or cumulative payments of principal and interest equal or exceed 10% of the contract
sales price.
Gains from commercial or bulk land sales are not recognized until payments received for property to
be developed within two years after the sale equal 20%, or property to be developed after two years
equal 25% of the contract sales price according to the installment sales method.
41
Real estate costs incurred for the acquisition, development and construction of real estate
projects are capitalized. Additionally, costs to market real estate are capitalized if they are
reasonably expected to be recovered from the sale of the project.
Properties are tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Impairment losses are recognized when the carrying amount
of a property exceeds its fair value. Such events or changes in circumstances include significant
decreases in the market price of such properties; significant adverse changes in legal factors, the
business climate or the extent or manner in which the asset is being used; an accumulation of costs
significantly in excess of amounts originally expected for the property; continuing operating cash
flow losses associated with the property or an expectation that it is more likely than not that the
property will be sold or otherwise disposed of significantly before the end of its previously
estimated useful life. Impairment losses are measured as the amount by which the carrying amount
of a property exceeds its fair value.
Due to changes in the market price of Florida real estate, the Company evaluated several of its
properties for impairment at August 31, 2007. In conducting its evaluation, the Company reviewed
the estimated non discounted cash flows from each of the properties and obtained independent third
party appraisals from a qualified real estate appraiser. Based on this information, the Company
determined that a 291 acre lakefront property in Polk County, Florida was impaired by approximately
$1.9 million. The impairment loss was included as a charge to real estate operating expenses
during the fourth quarter of fiscal year 2007.
(d) Marketable Securities Available for Sale
Marketable securities available for sale are carried at their fair value. Net unrealized investment
gains and losses are recorded net of related deferred taxes in accumulated other comprehensive
income within stockholders equity until realized. Unrealized losses determined to be other than
temporary are recognized in the statement of operations in the period the determination is made.
Fair value for debt and equity investments is based on quoted market prices at the reporting date.
The cost of all marketable securities available for sale is determined on the specific
identification method.
(e) Inventories
The costs of growing crops are capitalized 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 expenses with the related revenue earned.
The Company states its inventories at the lower of cost or net realizable value. The cost for
unharvested crops is based on accumulated production costs incurred during the eight-month period
from January 1 through August 31. The cost of the beef cattle inventory is based on the
accumulated cost of developing such animals for sale. The cost of greenhouse plants is based on
the actual costs of production for such plants.
(f) Mortgages and notes receivable
Mortgages and notes receivable arise from real estate sales. Mortgages and notes receivable are
carried at their estimated net realizable value. In circumstances where the stated interest rate is
below the prevailing market rate, the note is discounted to yield the market rate of interest. The
discount offsets the carrying amount of the mortgages and notes receivable.
Under the installment method of accounting, gains from commercial or bulk land sales are not
recognized until payments received for property equal or exceed 20% of the contract sales price for
property to be developed within two years after the sale or 25% of the contract sales price for
property to be developed after two years. Such gains are recorded as deferred revenue and offset
the carrying amount of the mortgages and notes receivable.
42
(g) Accounts receivable
Accounts receivable are generated from the sale of citrus, sugarcane, sod, cattle, vegetables,
plants and other transactions. The Company provides an allowance for doubtful trade receivables
equal to the estimated uncollectible amounts. That estimate is based on historical collection
experience, current economic and market conditions, and a review of the current status of each
customers account.
(h) Property, Buildings and Equipment
Property, buildings and equipment are stated at cost. Properties acquired from the Companys
predecessor corporation in exchange for common stock issued in 1960, at the inception of the
Company, are stated on the basis of cost to the predecessor corporation. Property acquired as part
of a land exchange trust, is valued at the carrying value of the property transferred to the trust.
All costs related to the development of citrus groves, through planting, are capitalized. Such
costs include land clearing, excavation and construction of ditches, dikes, roads, and reservoirs,
etc. After the planting, caretaking costs or pre-productive maintenance costs are capitalized for
four years. After four years, a grove is considered to have reached maturity and the accumulated
costs, except for land excavation, become the depreciable basis of a grove and depreciated over 25
years.
Development costs for sugarcane are capitalized the same as citrus. However, sugarcane matures in
one year and the Company is able to harvest an average of 3 crops (1 per year) from one planting.
As a result, cultivation/caretaking costs are expensed as the crop is harvested, while the
appropriate development and planting costs are depreciated over 3 years.
The breeding herd consists of purchased animals and animals raised on the ranch. Purchased animals
are stated at cost. The cost of animals raised on the ranch is based on the accumulated cost of
developing such animals for productive use.
Depreciation for financial reporting purposes is computed on straight-line or accelerated methods
over the estimated useful lives of the various classes of depreciable assets. See Note 5 to the
consolidated financial statements.
The Company accounts for long-lived
assets in accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement requires
long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such are considered to
be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
(i) Land Inventories
Land inventories are carried at cost and consist of property located in Lee County, Florida owned
by Alico-Agri, Ltd. The Lee County property is held for sale as commercial real estate. Land
inventory is considered a current asset if sales contracts for the property are expected to close
within one year of the balance sheet date. Land inventory is grouped under the caption other
current assets.
(j) Investment
and Deposits
Investments primarily include stock
owned in agricultural cooperatives and loan origination
fees. Investments and deposits are carried at cost except for loan origination fees that are being
amortized over the life of the loan. The Company uses cooperatives to process and sell sugarcane
and citrus. Cooperatives typically require members to acquire stock ownership as a condition for
the use of its services.
43
During fiscal year 2006, the Company entered into and later amended a Credit Facility with a
commercial bank for a $175.0 million line of credit which matures on August 1, 2010. Loan
origination and other related fees included as investments and
deposits were $551 thousand and $740
thousand at August 31, 2007 and 2006, respectively and are being amortized over the life of the
Credit Facility. The amortization expense was $189 thousand and $124 thousand for fiscal years
2007 and 2006, respectively.
(k) Income Taxes
The Company accounts for income taxes under the asset and liability method. Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment date. The Company
includes interest and penalties from taxing authorities as a component of income tax expense.
(l) Net Earnings Per Share
Outstanding stock options and restricted stock shares represent the only dilutive effects reflected
in the computation of weighted average shares outstanding assuming dilution. There were no stock
options issued that could potentially dilute basic earnings per share in the future that were not
included in the computation of earnings per share, assuming dilution.
(m) Cash Flows
For purposes of the cash flows, cash and cash equivalents include cash on hand and investments with
an original maturity of less than three months.
At
various times throughout the year, and at August 31, 2007, some
deposits held at financial institutions were in excess of federally
insured limits. However, the Company places its cash deposits with
high quality financial institutions and believes it is not exposed to
significant credit risk on these accounts.
(n) Use of Estimates
In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual results could differ
significantly from those estimates. Although some variability is inherent in these estimates,
management believes that the amounts provided are adequate. The valuation of the Companys
inventories, the estimated tax contingency and the recognition of citrus and sugarcane revenues are
some of the more significant estimates made by Management.
(o) Fair
Value of Financial Instruments and Accruals
The carrying amounts in the consolidated balance sheets for accounts receivable, mortgages and
notes receivable, accounts payable and accrued expenses approximate fair value because of the
immediate or short term maturity of these items. Where stated interest rates are below market, the
Company has discounted mortgage notes receivable to reflect their
estimated fair market value. The Company carries its marketable
securities available for sale at fair value. The
carrying amounts reported for the Companys long-term debt approximates fair value because they are
transactions with commercial lenders at interest rates that vary with market conditions and fixed
rates that approximate market.
(p) Accumulated Other Comprehensive Income (Loss)
Comprehensive
income (loss) is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. It includes both net
income and other comprehensive income or loss. Items included in other comprehensive income or
losses are classified based on their nature. The total of other comprehensive income or loss for a
period has been transferred to an equity account and displayed as accumulated other comprehensive
income (loss).
44
(q) Stock-Based Compensation
Prior to the 2006 fiscal year, the Company accounted for its stock-based compensation under the
recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees and related interpretations (APB 25). Under APB 25, stock-based
compensation cost was reflected in net income for grants of stock options based on the difference
between the exercise price and the fair market value of the stock on the date of issue.
Effective September 1, 2005, the Company adopted Statement of Financial Accounting Standards No.
123 (Revised 2004) Share-Based Payment (SFAS 123R), which requires the measurement and
recognition of compensation cost at fair value for all share-based payments, including stock
options and restricted share awards. Stock-based compensation recognized for fiscal years 2007
and 2006 was approximately $672 thousand and $329 thousand, and was included in general and
administrative expenses in the consolidated statements of operations. This expense includes
compensation expense, recognized over the applicable vesting periods, for new share-based awards
and for share-based awards granted prior to, but not yet vested, as of August 31, 2007. For
further information concerning stock based compensation, please see Note 8 to the consolidated
financial statements.
(r) Reclassifications
Certain amounts from 2006 and 2005
have been reclassified to conform to the 2007 presentation. These
reclassifications had no impact on net income or stockholders
equity as previously reported.
(s) Major customers
Alico is a producer of agricultural commodities. Due to the limited number of processors of its raw
products, geographic limitations and historic success, the Companys citrus and sugarcane sales are
concentrated to a few customers. For 2007, the Companys largest customer is United States Sugar Corporation
(USSC), for whom the Company grows raw sugar cane, and its wholly owned subsidiary, Southern Gardens, which purchases citrus from the Company. The balance of the sales concentration is
attributable to citrus contracts with Tropicana Products, Inc. (Tropicana, a subsidiary of
PepsiCo) and Ben Hill Griffin, Inc. (Griffin). These marketing arrangements involve marketing
pools which allow the contracting party to market the Companys product in conjunction with
products from other entities in the pool and pay the Company a proportionate share of the resulting
revenue from the sale of all of the pooled product. While the Company believes that it can replace
these arrangements with other marketing alternatives, it may not be able to do so quickly and the
results or associated costs may not be as favorable as the current contracts. Details concerning
the sales and receivables from these customers are as follows as of
and for the years ended August 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
Revenues |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citrus: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Griffin |
|
$ |
4,765 |
|
|
$ |
4,435 |
|
|
$ |
5,811 |
|
|
$ |
14,748 |
|
|
$ |
17,203 |
|
|
$ |
19,810 |
|
Tropicana |
|
|
|
|
|
|
|
|
|
|
116 |
|
|
|
18,342 |
|
|
|
9,656 |
|
|
|
3,720 |
|
Southern Gardens |
|
|
4,294 |
|
|
|
83 |
|
|
|
|
|
|
|
19,517 |
|
|
|
2,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar cane: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USSC |
|
$ |
1,872 |
|
|
$ |
1,740 |
|
|
$ |
2,466 |
|
|
$ |
9,432 |
|
|
$ |
8,926 |
|
|
$ |
9,323 |
|
Sales made through the citrus fruit marketers represented approximately 52%, 56% and 90% of the
Companys revenues from citrus sales during fiscal years 2007, 2006 and 2005, respectively, and
approximately 39%, 37% and 42% of total operating revenues during fiscal years 2007, 2006 and 2005,
respectively.
Sales made through the sugarcane processor represented 100% of the Companys sugarcane revenues
during fiscal years 2007, 2006 and 2005 and 7%, 12% and 17% of total operating revenues during
fiscal years 2007, 2006 and 2005, respectively.
45
2) Marketable Securities Available for Sale
The Company has classified 100% of its investments in marketable securities as available for sale
and, as such, the securities are carried at fair value. Any unrealized gains and losses, net of
related deferred taxes, are recorded as a net amount in a separate component of stockholders
equity until realized. In accordance with the provisions of EITF Issue No. 03-1, which became
effective for reporting periods beginning after June 15, 2004, the Company identified those
investments at August 31, 2005 which were deemed to be other than temporarily impaired and included
the losses in the statement of operations for fiscal year 2005. No investments at August 31, 2007
or 2006 were deemed to be other than temporarily impaired.
The cost and estimated fair values of marketable securities available for sale at August 31, 2007
and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Gross |
|
|
Estimated |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
$ |
28,881 |
|
|
$ |
6 |
|
|
$ |
(10 |
) |
|
$ |
28,877 |
|
|
$ |
21,169 |
|
|
$ |
19 |
|
|
$ |
(2 |
) |
|
$ |
21,186 |
|
Mutual funds |
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
370 |
|
|
|
|
|
|
|
(6 |
) |
|
|
364 |
|
Fixed maturity funds |
|
|
12,656 |
|
|
|
55 |
|
|
|
(4 |
) |
|
|
12,707 |
|
|
|
19,686 |
|
|
|
44 |
|
|
|
(18 |
) |
|
|
19,712 |
|
Corporate bonds |
|
|
2,673 |
|
|
|
1 |
|
|
|
(16 |
) |
|
|
2,658 |
|
|
|
8,920 |
|
|
|
|
|
|
|
(82 |
) |
|
|
8,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
securities |
|
|
46,210 |
|
|
|
62 |
|
|
|
(30 |
) |
|
|
46,242 |
|
|
|
50,145 |
|
|
|
63 |
|
|
|
(108 |
) |
|
|
50,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
available for sale |
|
$ |
46,210 |
|
|
$ |
62 |
|
|
$ |
(30 |
) |
|
$ |
46,242 |
|
|
$ |
50,145 |
|
|
$ |
63 |
|
|
$ |
(108 |
) |
|
$ |
50,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate fair value of investments in debt securities (net of mutual funds of $2,000) as of
August 31, 2007 by contractual maturity date, consisted of the following:
|
|
|
|
|
|
|
Aggregate |
|
|
|
Fair Value |
|
|
|
|
|
|
Due in one year or less |
|
$ |
30,341 |
|
Due between one and five years |
|
|
6,420 |
|
Due between five and ten years |
|
|
1,500 |
|
Due thereafter |
|
|
5,981 |
|
|
|
|
|
Total |
|
$ |
44,242 |
|
|
|
|
|
Realized gains and losses on the disposition of securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
71 |
|
|
$ |
4,962 |
|
|
$ |
2,606 |
|
Realized losses |
|
|
(40 |
) |
|
|
(1,708 |
) |
|
|
(523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
$ |
31 |
|
|
$ |
3,254 |
|
|
$ |
2,083 |
|
|
|
|
|
|
|
|
|
|
|
46
In evaluating whether a security was other than temporarily impaired, the Company considered the
severity and length of time impaired for each security in a loss position. Other qualitative data
was also considered including recent developments specific to the organization issuing the
security. The following table shows the gross unrealized losses and fair value of the Companys
investments with unrealized losses that are not deemed to be other than temporarily impaired,
aggregated by investment category and length of time that individual securities have been in a
continuous unrealized loss position, at August 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months |
|
|
12 months or greater |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
$ |
14,336 |
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
14,336 |
|
|
$ |
10 |
|
Fixed maturity funds |
|
|
3,075 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
3,075 |
|
|
|
4 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
2,658 |
|
|
|
16 |
|
|
|
2,658 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
17,411 |
|
|
$ |
14 |
|
|
$ |
2,658 |
|
|
$ |
16 |
|
|
$ |
20,069 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt instruments and funds. The unrealized losses on municipal bonds, fixed maturity funds and
corporate bonds were primarily due to changes in interest rates. At August 31, 2007 the Company
held loss positions in 40 government backed bonds, 29 fixed maturity funds, consisting mostly of
certificates of deposit, and 2 corporate bond positions. Because the decline in market values of
these securities is attributable to changes in interest rates and not credit quality and because
the Company has the ability and intent to hold these investments until a recovery of fair value,
which may be maturity, the Company does not believe any of the unrealized losses represent other
than temporary impairment based on evaluations of available evidence as of August 31, 2007.
47
(3) Mortgages and Notes Receivable
Mortgage and notes receivable arose from real estate sales. The balances are as follows:
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Mortgage notes receivable on retail land sales |
|
$ |
311 |
|
|
$ |
427 |
|
Mortgage notes receivable on bulk land sales |
|
|
65,963 |
|
|
|
56,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgages and notes receivable |
|
|
66,274 |
|
|
|
57,037 |
|
Less: Deferred revenue |
|
|
(53,254 |
) |
|
|
(43,230 |
) |
Discount on note to impute market interest |
|
|
(2,594 |
) |
|
|
(2,783 |
) |
Current portion |
|
|
(487 |
) |
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current portion |
|
$ |
9,939 |
|
|
$ |
10,977 |
|
|
|
|
|
|
|
|
Maturities of the mortgages and notes receivable are as follows:
|
|
|
|
|
Due within 1 year |
|
$ |
487 |
|
Due between 1 and 2 years |
|
|
3,550 |
|
Due between 2 and 3 years |
|
|
12,046 |
|
Due between 3 and 4 years |
|
|
14,896 |
|
Due between 4 and 5 years |
|
|
29,496 |
|
Due beyond five years |
|
|
5,799 |
|
|
|
|
|
Total mortgages and notes receivable |
|
|
66,274 |
|
Less: Deferred Revenue |
|
|
(53,254 |
) |
Discount on note to impute market interest |
|
|
(2,594 |
) |
|
|
|
|
|
Net mortgages and notes receivable |
|
$ |
10,426 |
|
|
|
|
|
Real estate sales are recorded under the accrual method of accounting. Gains from commercial or
bulk land sales are not recognized until payments received for property to be developed within two
years after the sale equal 20% or property to be developed after two years equal 25% of the
contract sales price according to the installment sales method.
Profits from commercial real estate sales are discounted to reflect the market rate of interest
when the stated rate of the mortgage note is less than the market rate. The recorded imputed
interest discounts are realized as the balances due are collected. In the event of early
liquidation, interest is recognized on the simple interest method.
In July 2005, Alico-Agri sold property in Lee County, Florida for $62.9 million. At the time of
the sale, the Company received a down payment of $6.2 million and a 2.5% interest bearing mortgage
note of $56.6 million in exchange for the land sold. In December 2006, the Company restructured
this contract. The Company received $3.8 million upon execution of the restructured agreement.
48
Under the terms of the renegotiated contract, $3.8 million of the closing proceeds were subtracted
from the existing mortgage receivable principal of $56.6 million and accrued interest of $1.7
million was added back to the mortgage receivable as additional principal. Four annual principal
plus interest payments of the remaining $54.5 million mortgage were scheduled to commence with a
payment of $13.6 million on September 28, 2007. The interest rate was renegotiated from 2.5%
annually up to 4.0% annually. The note was further discounted to reflect the market rate of
interest based on the Companys incremental borrowing rate of 6.625% annually. This was recognized
as a reduction of the sales proceeds during the second quarter of fiscal year 2007. The Company
again restructured the contract in September of 2007. Please see Note 16 for the details
concerning the second restructuring.
In December 2006, the Company sold property in Lee County, Florida for $12.0 million. The Company
recognized revenue of $0.6 million and recorded a mortgage note receivable for $11.4 million and
deferred revenue of $10.2 million. The mortgage note receivable, which accrues interest at the
rate of 6% annually, was discounted by $0.3 million to adjust for the current market rate of
interest. Interest only will be collected annually for the first four years, followed by four
equal annual payments of principal and interest.
(4) Inventories
A summary of the Companys inventories at August 31, 2007 and 2006 is shown below:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Unharvested fruit crop on trees |
|
$ |
12,177 |
|
|
$ |
10,709 |
|
Unharvested sugarcane |
|
|
4,922 |
|
|
|
5,168 |
|
Beef cattle |
|
|
5,429 |
|
|
|
7,063 |
|
Plants and vegetables |
|
|
1,086 |
|
|
|
588 |
|
Sod |
|
|
1,449 |
|
|
|
1,017 |
|
Other |
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
25,214 |
|
|
$ |
24,545 |
|
|
|
|
|
|
|
|
The Company records its inventory at the lower of cost or net realizable value. At August 31,
2007, the Company wrote down cattle inventory by $11 thousand and sod by $158 thousand. At August
31, 2006, the Company wrote down cattle inventory by $35 thousand.
Hurricane Wilma, a category three hurricane, swept through southwest Florida during the first
quarter of fiscal year 2006. The hurricane caused extensive damage to the Companys crops and
infrastructure in Collier and Hendry Counties. Additionally, hurricanes in fiscal years 2005 and
2004 also caused damages to citrus crops, primarily in Polk County.
In fiscal year 2005, citrus canker was discovered in three of the Companys citrus grove locations.
Citrus canker is a highly contagious bacterial disease of citrus that causes premature leaf and
fruit drop. Citrus canker causes no threat to humans, animals or plant life other than citrus. In
2005, Florida law required that infected and exposed trees within 1900 feet of the canker find be
removed and destroyed. The Companys traditional policy has been to recognize a loss estimate for
the total destruction of all trees within 1,900 feet of the canker find as soon as canker was
confirmed. This estimate of loss damage preceded the actual destruction of the trees. During the
second quarter of fiscal year 2006, the USDA determined that due to the potential spread of canker
from hurricanes they did not believe that canker eradication was feasible. Due to this
determination, the rule requiring the destruction of citrus groves testing positive for canker was
suspended. Upon suspension of the rule requiring the destruction of citrus groves, those portions
of inventory that were previously estimated as lost but had not yet been destroyed were
reestablished, reducing the casualty loss accrued.
49
As a result of the hurricane and canker discoveries, the Company recognized casualty losses related
to inventoried costs as follows:
Inventory Damage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Unharvested citrus |
|
$ |
|
|
|
$ |
3,198 |
|
|
$ |
786 |
|
Unharvested sugarcane |
|
|
|
|
|
|
395 |
|
|
|
|
|
Unharvested vegetables |
|
|
|
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
3,740 |
|
|
$ |
786 |
|
|
|
|
|
|
|
|
|
|
|
For further information regarding the casualty losses, please refer to Note 12 of the
consolidated financial statements.
(5) Property, Buildings and Equipment
A summary of the Companys property, buildings and equipment at August 31, 2007 and 2006 is shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
2007 |
|
|
2006 |
|
|
Useful Lives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Breeding herd |
|
$ |
13,643 |
|
|
$ |
15,038 |
|
|
5-7 years |
Buildings |
|
|
9,948 |
|
|
|
8,434 |
|
|
5-40 years |
Citrus trees |
|
|
31,466 |
|
|
|
31,466 |
|
|
22-40 years |
Sugarcane |
|
|
5,508 |
|
|
|
8,382 |
|
|
4-15 years |
Equipment and other facilities |
|
|
37,908 |
|
|
|
35,130 |
|
|
3-40 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciable properties |
|
|
98,473 |
|
|
|
98,450 |
|
|
|
|
|
Less accumulated depreciation |
|
|
49,927 |
|
|
|
48,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net depreciable properties |
|
|
48,546 |
|
|
|
50,112 |
|
|
|
|
|
Land and land improvements |
|
|
80,444 |
|
|
|
81,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property, buildings and equipment |
|
$ |
128,990 |
|
|
$ |
131,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In fiscal year 2005, citrus canker was discovered in three of the Companys citrus grove locations.
Citrus canker is a highly contagious bacterial disease of citrus that causes premature leaf and
fruit drop. Citrus canker causes no threat to humans, animals or plant life other than citrus. In
2005, Florida law required that infected and exposed trees within 1900 feet of the canker find be
removed and destroyed. In 2005, the Company wrote off the remaining basis of the trees, totaling
$4.4 million as a result of these discoveries. The remaining basis and inventoried costs, net of
expected insurance recoveries were charged to fiscal year 2005 operations as a casualty loss.
During the second quarter of fiscal year 2006, the USDA suspended the rule requiring the
destruction of canker. As a result, some of the trees that were scheduled for removal and had been
written off as a casualty loss in 2005 were reestablished during fiscal year 2006. Trees with a
basis of $1.3 million previously recognized as a casualty loss in fiscal year 2005 were added back
to fixed assets and credited to fiscal year 2006 operations as a casualty recovery (see Note 12 to
the consolidated financial statements).
In December 2006, the Company sold approximately 80 acres located in Lee County for $12.0 million.
Upon signing of the contract, the Company received a down payment of $600 thousand and a purchase
money mortgage for $11.4 million.
50
In December 2006, the Company also negotiated an option agreement for the sale of an additional 900
acres in Lee County for $63.5 million. Upon signing the agreement, the Company received a non
refundable option payment of $3.1 million. The option to purchase can be extended annually for
four years at an annual cost of 6% of the remaining unexercised sales price.
In November 2005, the Company sold approximately 280 acres of citrus grove land located south of La
Belle, Florida in Hendry County for $5.6 million cash. The Company will retain operating rights to
the grove until residential development begins. The Company recognized a net profit on the sale of
$4.4 million.
In October 2005, the Company, through Alico-Agri purchased 291 acres of lakefront property in Polk
County, Florida, for $9.2 million cash. Due to changes in the market price of Florida real estate,
the Company evaluated several of its properties for impairment at August 31, 2007. In conducting
its evaluation, the Company reviewed the estimated non discounted cash flows from each of the
properties and obtained independent third party appraisals from a qualified real estate appraiser.
Based on this information, the Company determined that the 291 acre lakefront property in Polk
County, Florida was impaired by approximately $1.9 million. The impairment loss was included as a
charge to real estate operating expenses during the fourth quarter of fiscal year 2007.
In May 2006, the Company purchased a 526 acre riverfront mine site for rock and fill in Glades
County, Florida, for $10.6 million cash. The Company has allocated approximately 54% of the
purchase price to the rock and sand reserve with the remaining 46% of the purchase price allocated
as residual land value based on the present value of the expected rock royalties to be received
over 20 years and the expected value of the property after that time. Rock and sand reserves are
being charged to cost of goods sold proportionately as the property is mined.
51
(6) Indebtedness
Alico, Inc. has a Credit Facility
with Farm Credit of Southwest Florida that provides a $175.0 million revolving
line of credit which matures on August 1, 2010. Funds from the Credit Facility may be used for
general corporate purposes including: (i) the normal operating needs of the Company and its
operating divisions, (ii) the purchase of capital assets and (iii) the payment of dividends. The
Credit Facility also allows for an annual extension at the lenders option.
Under the Credit Facility, revolving borrowings require quarterly interest payments at LIBOR plus a
variable rate between 0.8% and 1.5% depending on the Companys debt ratio. The Amended Credit
Facility is partially collateralized by mortgages on two parcels of agricultural property located
in Hendry County, Florida consisting of 7,672 acres and 33,700 acres.
The Credit Facility contains numerous restrictive covenants including those requiring the Company
to maintain minimum levels of net worth, retain certain debt, current and fixed charge coverage
ratios, and sets limitations on the extension of loans or additional borrowings by the Company or
any subsidiary. The covenants also restrict the Companys activities regarding investments, liens,
borrowing and leasing.
Under the Credit Facility, an event of default occurs if the Company fails to make the payments
required of it or otherwise fails to fulfill the provisions and covenants applicable to it. In the
event of default, the Credit Facility shall bear an increased interest rate of 2% in addition to
the then-current rate specified in the Credit Facility; the lender may alternatively at its option,
terminate its revolving credit commitment and require immediate payment of the entire unpaid
principal amount of the Credit Facility, accrued interest and declare all other obligations
immediately due and payable. As a result of the increase in the income tax contingency accrual
(see Note 7), at May 31, 2007, the Company was not in compliance with the current ratio and the net
worth financial covenants of the Credit Facility. The Company obtained a waiver from the lender
regarding the non-compliance at May 31, 2007 with these financial covenants and has negotiated an
amendment of the Credit Facility to adjust the financial covenants on
a prospective basis. In the opinion of Management, the
Company was in compliance with all of the covenants and provisions of the amended Credit Facility
at August 31, 2007.
In July and August of 2007, with the consent of the Companys lender, the Company borrowed $66.2
million from its revolving line of credit. These funds were deposited with the U. S. Treasury in
order to mitigate the potential interest on the income tax contingency.
The Companys Chief Executive Officer, John R. Alexander, is a member of the Board of Directors of
the Companys primary lender, Farm Credit of Southwest Florida. Mr. Alexander abstains from voting
on matters that directly affect the Company.
Outstanding debts under the Companys various loan agreements were as follows at August 31, 2007
and 2006:
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Principal |
|
|
Credit |
|
|
Interest |
|
|
|
|
August 31, 2007 |
|
Balance |
|
|
Available |
|
|
Rate (f) |
|
|
Collateral |
|
a) Revolving Credit Facility |
|
$ |
128,419 |
|
|
$ |
46,581 |
|
|
LIBOR +1.50% |
|
Real estate |
c) Mortgage note payable |
|
|
8,339 |
|
|
|
|
|
|
|
6.68 |
% |
|
Real estate |
d) Mortgage note payable |
|
|
52 |
|
|
|
|
|
|
|
7.00 |
% |
|
Real estate |
e) Vehicle financing |
|
|
79 |
|
|
|
|
|
|
|
0%-2.90 |
% |
|
3 Vehicles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
136,889 |
|
|
$ |
46,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Principal |
|
|
Credit |
|
|
Interest |
|
|
|
|
August 31, 2006 |
|
Balance |
|
|
Available |
|
|
Rate (f) |
|
|
Collateral |
|
a) Revolving Credit Facility |
|
$ |
52,296 |
|
|
|
122,704 |
|
|
LIBOR +1% |
|
Real estate |
b) Term loan |
|
|
2,000 |
|
|
|
|
|
|
|
5.80 |
% |
|
Unsecured |
c) Mortgage note payable |
|
|
9,606 |
|
|
|
|
|
|
|
6.68 |
% |
|
Real estate |
d) Mortgage note payable |
|
|
100 |
|
|
|
|
|
|
|
7.00 |
% |
|
Real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,002 |
|
|
$ |
122,704 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a) |
|
Terms described above. |
|
b) |
|
5-year fixed rate term loan with commercial lender. $2 million principal due annually. Interest
due quarterly. The note was paid in full during the second quarter of fiscal year 2007. |
|
c) |
|
First mortgage on 7,680 acres of cane, citrus, pasture and improvements in Hendry County,
Florida with commercial lender. Monthly principal payments of $106 thousand
plus accrued interest. |
|
d) |
|
First mortgage on a parcel of land in Polk County, Florida with private seller. Annual
equal payments of $55 thousand. |
|
e) |
|
3-5 year term loans. Monthly principal payments plus interest. |
|
f) |
|
The LIBOR rate was 5.38% at August 31, 2007 and 5.33% at August 31, 2006. The Companys
variable interest rates, based on LIBOR at August 31, 2007 and 2006 were approximately 6.88% and
6.33% respectively. |
53
Maturities of the Companys debt are as follows:
|
|
|
|
|
|
|
August 31, |
|
|
|
2007 |
|
Due within 1 year |
|
$ |
1,350 |
|
Due between 1 and 2 years |
|
|
1,298 |
|
Due between 2 and 3 years |
|
|
129,695 |
|
Due between 3 and 4 years |
|
|
1,273 |
|
Due between 4 and 5 years |
|
|
1,269 |
|
Due beyond five years |
|
|
2,004 |
|
|
|
|
|
|
Total |
|
$ |
136,889 |
|
|
|
|
|
Interest costs expensed and capitalized during the three years ended August 31, 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
$ |
5,742 |
|
|
$ |
4,066 |
|
|
$ |
2,295 |
|
Interest capitalized |
|
|
43 |
|
|
|
77 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest cost |
|
$ |
5,785 |
|
|
$ |
4,143 |
|
|
$ |
2,530 |
|
|
|
|
|
|
|
|
|
|
|
(7) Other non-current liability
Alico formed a wholly owned insurance subsidiary, Agri in June of 2000. Agri was formed in response
to the lack of insurance availability, both in the traditional commercial insurance markets and
governmental sponsored insurance programs, suitable to provide coverage for the increasing number
and potential severity of agricultural events. Alicos goal included not only pre-funding its
potential exposures but also to attempt to attract new underwriting capital if it was successful in
profitably underwriting its own potential risks as well as similar risks of its historic business
partners.
Alico capitalized Agri by contributing real estate located in Lee County, Florida. The real estate
was transferred at its historical cost basis. Agri received a determination letter from the
Internal Revenue Service (IRS) stating that Agri was exempt from taxation provided that net premium
levels, consisting only of premiums with third parties, were below an annual stated level ($350
thousand). Third party premiums remained below the stated annual level. As the Lee County real
estate was sold, substantial gains were generated in Agri, creating
book/tax differences which were treated as permanent differences.
The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to
audits of Alico for the tax years 2000 through 2004. In the thirty day letter, the IRS proposed
several alternative theories as a basis for its argument that Alico should have reported additional
taxable income in the years under audit. These theories principally related to the formation and
capitalization of the Companys Agri Insurance subsidiary and its tax exempt status during the
years under audit. The total additional federal taxes, penalties and interest proposed by IRS
exams were in excess of $119.0 million. The Company has been working with IRS Appeals to resolve
the case and has reached a tentative agreement for the payment of federal taxes, penalties and
interest of approximately $66.2 million. In order to cease additional interest from accruing on
this liability, the Company has paid $66.2 million to the IRS from its revolving credit line.
Based on the contemplated settlement, the Company estimated additional state taxes and interest of
approximately $10.1 million at August 31, 2007 which will be payable when the IRS audit is
concluded. Further details regarding the settlement, including the future of Agri, are in ongoing
negotiations with the IRS and a proposed closing document has been prepared by the Companys tax
counsel and provided to IRS Appeals for review. The Company expects full resolution of this matter
by January 2008. However, the Company has executed statute extensions with the IRS for the tax
returns affected until December 31, 2008.
54
The Company accrued a liability as a
contingency under the guidelines of Financial Accounting
Standard (FAS) 5 of $20.3 million as of August 31,
2006 for the contingency. The estimated total settlement at
August 31, 2007 was $76.3 million, representing
$41.4 million of additional federal taxes, $20.7 million of
federal interest, $4.1 million of federal penalties,
$6.6 million of state taxes and $3.5 million of state
interest. Of the additional $56.0 million accrual recognized in fiscal year
2007, approximately $26.2 million was recognized as additional
income tax expense, with the remaining $29.8 million recognized
as current and deferred tax benefits. The estimated state taxes
payable were netted with the estimated federal tax refunds and
recorded as a current liability at August 31, 2007.
(8) Stock Based Compensation
On November 3, 1998, the Company adopted the Alico, Inc. Incentive Equity Plan (The Plan) pursuant
to which the Board of Directors of the Company may grant options, stock appreciation rights, and/or
restricted stock to certain directors and employees. The Plan authorized grants of shares or
options to purchase up to 650,000 shares of authorized but unissued common stock. Stock options
granted have a strike price and vesting schedules that are at the discretion of the Board of
Directors and are determined on the effective date of the grant. The strike price cannot be less
than 55% of the market price. No stock options were granted during fiscal years 2007, 2006 or
2005.
The Company measures the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The cost is recognized over the
period during which an employee is required to provide service in exchange for the award (usually
the vesting period). The grant date fair value of employee share options and similar instruments
are estimated using option-pricing models adjusted for the unique characteristics of those
instruments (unless observable market prices for the same or similar instruments are available).
If an equity award is modified after the grant date, incremental compensation cost will be
recognized in an amount equal to the excess of the fair value of the modified award over the fair
value of the original award immediately before the modification.
A summary of option activity under the Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average |
|
|
Aggregate |
|
|
|
Shares Under |
|
|
Weighted average |
|
|
remaining contractual |
|
|
Intrinsic |
|
|
|
Option |
|
|
exercise price |
|
|
life (in years) |
|
|
Value |
|
Options outstanding, August 31, 2004 |
|
|
75,626 |
|
|
$ |
17.29 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
59,255 |
|
|
|
17.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, August 31, 2005 |
|
|
16,371 |
|
|
$ |
18.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
7,213 |
|
|
|
18.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, August 31, 2006 |
|
|
9,158 |
|
|
$ |
17.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
1,000 |
|
|
|
15.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, August 31, 2007 |
|
|
8,158 |
|
|
$ |
17.90 |
|
|
|
6 |
|
|
|
271,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At August 31, 2007 and August 31, 2006, there were 8,158 and 9,158 stock options, respectively,
fully vested and exercisable and 273,815 and 292,844 shares, respectively, available for grant.
The 8,158 options outstanding as of August 31, 2007 had an
intrinsic value of $271 thousand. There was
no unrecognized compensation expense related to outstanding stock option grants at August 31, 2007.
In fiscal year 2007, 1,000 options
were exercised having a total intrinsic value of $33 thousand. In
fiscal year 2006, 7,213 options were exercised having a total intrinsic value of $259 thousand. In
fiscal year 2005, 59,255 options were exercised having a total intrinsic value of $1.9 million.
In fiscal year 2006, the Company began granting restricted shares to certain key employees as long
term incentives. The restricted shares vest in four equal annual installments. The payment of
each installment is subject to continued employment with the Company. In fiscal years 2007 and
2006, there were 4,000 and 4,000 restricted shares, respectively, vested in accordance with these
grants.
55
The table below summarizes the Companys restricted share awards granted to date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Compensation |
|
|
Grant date |
|
|
|
|
|
|
|
Fair Market Value |
|
|
Expense |
|
|
Expense |
|
|
Fair value |
|
Grant Date |
|
Shares Granted |
|
|
on Date of Grant |
|
|
Recognized in 2007 |
|
|
Recognized in 2006 |
|
|
Per share |
|
April 2006 |
|
|
20,000 |
|
|
$ |
908 |
|
|
$ |
172 |
|
|
|
65 |
|
|
|
|
|
July 2006 |
|
|
13,000 |
|
|
|
694 |
|
|
|
(16 |
) |
|
|
16 |
|
|
|
|
|
October 2006 |
|
|
20,000 |
|
|
|
1,239 |
|
|
|
517 |
|
|
|
248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
53,000 |
|
|
$ |
2,841 |
|
|
$ |
673 |
|
|
$ |
329 |
|
|
$ |
53.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The shares granted in April 2006 vest 25% in April 2010 and 25% annually thereafter until fully
vested. The shares granted in July 2006 were forfeited in fiscal 2007. Four thousand of the
shares granted in October 2006 related to past service and were immediately vested and an
additional 4,000 shares vested August 31, 2007. The remaining shares granted in October 2006 vest
33% effective August 31, 2008 and 33% annually thereafter until fully vested. Following the
guidelines established in FAS 123R, the Company is recognizing compensation cost equal to the fair
market value of the stock at the grant dates prorated over the vesting period of each award. The
fair value of the unvested restricted stock awards at August 31, 2007 was $1.6 million and will be
recognized over a weighted average period of 6 years.
(9) Income Taxes
The provision for income taxes for the fiscal years ended August 31, 2007, 2006 and 2005 is
summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax |
|
$ |
46,097 |
|
|
$ |
2,640 |
|
|
$ |
1,121 |
|
State income tax |
|
|
8,507 |
|
|
|
282 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,604 |
|
|
|
2,922 |
|
|
|
1,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax |
|
|
(18,578 |
) |
|
|
2,975 |
|
|
|
1,725 |
|
State income tax |
|
|
(2,780 |
) |
|
|
318 |
|
|
|
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21,358 |
) |
|
|
3,293 |
|
|
|
1,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
33,246 |
|
|
$ |
6,215 |
|
|
$ |
3,148 |
|
|
|
|
|
|
|
|
|
|
|
56
Following is a reconciliation of the expected income tax expense computed at the U.S. Federal
statutory rate of 35% and the actual income tax provision for the years ended August 31, 2007, 2006
and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax |
|
$ |
6,791 |
|
|
$ |
4,313 |
|
|
$ |
3,141 |
|
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit |
|
|
3,723 |
|
|
|
396 |
|
|
|
198 |
|
Nontaxable interest and dividends |
|
|
(708 |
) |
|
|
(352 |
) |
|
|
(89 |
) |
Federal and state impacts from IRS exam |
|
|
22,272 |
|
|
|
2,204 |
|
|
|
|
|
Deferred rate adjustment |
|
|
397 |
|
|
|
|
|
|
|
|
|
Other reconciling items, net |
|
|
771 |
|
|
|
(346 |
) |
|
|
(102 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
33,246 |
|
|
$ |
6,215 |
|
|
$ |
3,148 |
|
|
|
|
|
|
|
|
|
|
|
Some items of revenue and expense included in the statement of operations may not be currently
taxable or deductible on the income tax returns. Therefore, income tax assets and liabilities are
divided into a current portion, which is the amount attributable to the current years tax return,
and a deferred portion, which is the amount attributable to another years tax return. The revenue
and expense items not currently taxable or deductible are called temporary differences.
57
The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are presented below:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Contribution carry forward |
|
$ |
1,082 |
|
|
$ |
1,052 |
|
Deferred retirement benefits |
|
|
2,095 |
|
|
|
1,299 |
|
Federal benefit of state tax reserve |
|
|
2,229 |
|
|
|
|
|
Prepaid sales commissions |
|
|
|
|
|
|
412 |
|
Land inventories |
|
|
|
|
|
|
488 |
|
Stock options appreciation |
|
|
239 |
|
|
|
278 |
|
Land basis step up |
|
|
21,820 |
|
|
|
802 |
|
Interest on taxes accrued for State amended
returns |
|
|
1,413 |
|
|
|
1,257 |
|
Other |
|
|
1,040 |
|
|
|
662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets |
|
$ |
29,918 |
|
|
$ |
6,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Revenue recognized from citrus and sugarcane |
|
$ |
1,739 |
|
|
$ |
471 |
|
Property and equipment (principally due to
depreciation and
soil and water deductions) |
|
|
19,730 |
|
|
|
15,743 |
|
Inventories |
|
|
476 |
|
|
|
322 |
|
Deferred real estate gains |
|
|
|
|
|
|
4,792 |
|
Other |
|
|
1,717 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities |
|
$ |
23,662 |
|
|
$ |
21,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred income tax (benefit) liabilities |
|
$ |
(6,256 |
) |
|
$ |
15,089 |
|
|
|
|
|
|
|
|
Based on the Companys history of taxable earnings and its expectations for the future, Management
has determined that its taxable income will more likely than not be sufficient to fully recognize
all deferred tax assets.
Agri, a wholly owned insurance company subsidiary of Alico, is treated as a U.S. taxpayer, pursuant
to an election under Internal Revenue Code Section 953(d), for all purposes except for
consolidating an operating loss by virtue of the dual consolidated loss rules. (Dual consolidated
losses prevent operating losses [not capital losses] from occurring in insurance companies
domiciled outside of the United States from offsetting operating income irrespective of the fact
that the insurance company is a member of the consolidated return group).
58
The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to
audits of Alico for the tax years 2000 through 2004. In the thirty day letter, the IRS proposed
several alternative theories as a basis for its argument that Alico should have reported additional
taxable income in the years under audit. These theories principally related to the formation and
capitalization of the Companys Agri Insurance subsidiary and its tax exempt status during the
years under audit. The total additional federal taxes, penalties and interest proposed by IRS
exams were in excess of $119.0 million. The Company has been working with IRS appeals to resolve
the case and has reached a tentative agreement for the payment of federal taxes, penalties and
interest of approximately $66.2 million. In order to cease additional interest from accruing on
this liability, the Company has paid $66.2 million to the IRS from its revolving credit line.
Based on the contemplated settlement, the Company estimated additional state taxes and interest of
approximately $10.1 million at August 31, 2007 which will be due and payable when the IRS audit is
concluded. Further details regarding the settlement, including the future of Agri, are in ongoing
negotiations with the IRS and a proposed closing document has been prepared by the Companys tax
counsel and provided to IRS Appeals for review. The Company expects full resolution of this matter
by January 2008; however, the Company has executed statute extensions with the IRS for the tax
returns affected until December 31, 2008.
The Company accrued a liability
as a contingency under the guidelines of Financial Accounting
Standard (FAS) 5 of $20.3 million as of August 31,
2006 for the contingency (see Note 7 to the Consolidated Financial
Statements). The estimated state taxes payable were netted with the
estimated federal tax refunds and recorded as a current liability at
August 31, 2007.
Alico capitalized Agri by contributing
real estate located in Lee County, Florida. The real estate
was transferred at its historical cost basis. As the Lee County real estate was sold, substantial
gains were generated in Agri, creating permanent book/tax differences.
For property transferred to Agri but not sold during the years under audit, the historical tax
basis will be stepped-up to the fair market value of the property at
the time of transfer. The
Company has estimated the amount of basis step-up based on discussions with the IRS and classified
the step ups resulting from the transfer of property not sold as of August 31, 2004 based on their
estimated tax benefits as a deferred tax asset at August 31, 2007. Should the actual outcome of
the IRS settlement differ from the estimated amounts, the deferred taxes related to the basis
step-ups could change.
Since January 1, 2004 Agri has been filing as a taxable entity. This change in tax status is a
direct result of changes in the Internal Revenue Code increasing premium and other annual income
levels. Due to these changes, Agri no longer qualifies as a tax-exempt entity.
(10) Related Party Transactions
Citrus
Citrus revenues of $14.7 million, $17.2 million and $19.8 million were recognized for a portion of
citrus crops sold under a marketing agreement with Ben Hill Griffin, Inc. (Griffin) for the years
ended August 31, 2007, 2006 and 2005, respectively. Griffin and its subsidiaries are controlled by
Ben Hill Griffin, III, the brother-in-law of John R. Alexander, the Companys Chief Executive
Officer, and was the owner of approximately 49.85 percent of the Companys common stock until
February 26, 2004. Accounts receivable, resulting from citrus sales, include amounts due from
Griffin totaling $4.8 million at August 31, 2007 and $4.4 million at August 31, 2006. These amounts
represent estimated revenues to be received periodically under pooling agreements as sale of pooled
products is completed.
Harvesting, marketing, and processing costs, for fruit sold through Griffin, totaled $2.7 million,
$5.5 million, and $6.6 million for the years ended August 31, 2007, 2006 and 2005, respectively. In
addition, Griffin provided the harvesting services for citrus sold to unrelated processors in 2005.
The aggregate cost of these services was $2.5 million. The accompanying consolidated balance sheets
include accounts payable to Griffin for citrus production, harvesting and processing costs totaling
$102 thousand and $219 thousand at August 31, 2007 and 2006, respectively.
59
Other Transactions
The Company purchased fertilizer and other miscellaneous supplies, services, and operating
equipment from Griffin, on a competitive bid basis, for use in its cattle, sugarcane, sod and
citrus operations. Such purchases totaled $2.0 million, $3.3 million and $4.2 million during the
years ended August 31, 2007, 2006 and 2005, respectively.
During
fiscal year 2006, Atlanticblue (formerly Atlantic Blue Trust, Inc.) increased its holdings to approximately 50.5% of the
Companys common stock. By virtue of their ownership percentage, Atlanticblue is able to elect all
the directors and, consequently, to control the Company. Atlanticblue has issued a letter dated
September 29, 2006 reaffirming its commitment to maintaining a majority of independent directors on
Alicos board.
(11) Reportable Segment Information
The Company has four reportable segments: Bowen, Citrus Groves, Sugarcane and Cattle. Bowen
provides harvesting and marketing services for citrus producers including Alicos Citrus Grove
division. Additionally, Bowen purchases citrus fruit and resells the fruit to citrus processors
and fresh packing facilities. The Citrus Groves segment produces citrus fruit for sale to citrus
processors and fresh packing facilities. The Sugarcane segment produces sugarcane for delivery to
the sugar mill and refinery. The Cattle division raises beef cattle for sale to western feedlots
and meat packing facilities. The goods and services produced by these segments are sold to
wholesalers and processors in the United States who prepare the products for consumption. The
Companys operations are located in Florida.
Although the Companys Plant World, Vegetable and Sod segments do not meet the quantitative
thresholds to be considered as reportable segments, information about these segments may be useful
and has been included in the schedules below. For a description of the business activities of the
Plant World, Vegetables and Sod segments please refer to Item 1 of this report.
The accounting policies of the segments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based on direct margins from
operations before general and administrative costs and income taxes not including nonrecurring
gains and losses.
The Company accounts for intersegment sales and transfers as if the sales or transfers were to
third parties, that is, at current market prices.
The Companys reportable segments are strategic business units that offer different products. They
are managed separately because each business requires different knowledge, skills and marketing
strategies.
Information concerning the various segments of the Company for the years ended August 31, 2007,
2006 and 2005 is summarized as follows:
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Revenues (from external customers except as noted) |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen |
|
$ |
52,716 |
|
|
$ |
30,869 |
|
|
$ |
|
|
Intersegment fruit sales through Bowen |
|
|
5,383 |
|
|
|
1,723 |
|
|
|
|
|
Citrus groves |
|
|
47,484 |
|
|
|
22,188 |
|
|
|
26,231 |
|
Sugarcane |
|
|
9,432 |
|
|
|
8,926 |
|
|
|
9,323 |
|
Cattle |
|
|
9,977 |
|
|
|
5,700 |
|
|
|
11,017 |
|
Real Estate |
|
|
3,329 |
|
|
|
113 |
|
|
|
810 |
|
Alico Plant World |
|
|
2,832 |
|
|
|
3,270 |
|
|
|
2,587 |
|
Vegetables |
|
|
3,803 |
|
|
|
2,389 |
|
|
|
|
|
Sod |
|
|
2,180 |
|
|
|
1,528 |
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
Revenue from segments |
|
|
137,136 |
|
|
|
76,706 |
|
|
|
50,370 |
|
Other operations |
|
|
3,084 |
|
|
|
2,451 |
|
|
|
5,155 |
|
Less: intersegment revenues eliminated |
|
|
(5,383 |
) |
|
|
(1,723 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenue |
|
$ |
134,837 |
|
|
$ |
77,434 |
|
|
$ |
55,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen |
|
$ |
51,786 |
|
|
$ |
31,137 |
|
|
$ |
|
|
Intersegment fruit sold through Bowen |
|
|
5,383 |
|
|
|
1,723 |
|
|
|
|
|
Citrus groves |
|
|
23,427 |
|
|
|
14,574 |
|
|
|
19,984 |
|
Sugarcane |
|
|
8,833 |
|
|
|
8,566 |
|
|
|
8,824 |
|
Cattle |
|
|
9,722 |
|
|
|
4,914 |
|
|
|
8,908 |
|
Real Estate |
|
|
3,408 |
|
|
|
61 |
|
|
|
328 |
|
Alico Plant World |
|
|
2,815 |
|
|
|
4,373 |
|
|
|
2,128 |
|
Vegetables |
|
|
3,307 |
|
|
|
1,404 |
|
|
|
|
|
Sod |
|
|
1,318 |
|
|
|
840 |
|
|
|
480 |
|
|
|
|
|
|
|
|
|
|
|
Segment operating expenses |
|
|
109,999 |
|
|
|
67,592 |
|
|
|
40,652 |
|
Other operations |
|
|
519 |
|
|
|
452 |
|
|
|
639 |
|
Less: intersegment expenses eliminated |
|
|
(5,383 |
) |
|
|
(1,723 |
) |
|
|
|
|
Net casualty loss (recovery) |
|
|
|
|
|
|
(3,628 |
) |
|
|
1,888 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
105,135 |
|
|
$ |
62,693 |
|
|
$ |
43,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
930 |
|
|
$ |
(268 |
) |
|
$ |
|
|
Citrus groves |
|
|
24,057 |
|
|
|
7,614 |
|
|
|
6,247 |
|
Sugarcane |
|
|
599 |
|
|
|
360 |
|
|
|
499 |
|
Cattle |
|
|
255 |
|
|
|
786 |
|
|
|
2,109 |
|
Real Estate |
|
|
(79 |
) |
|
|
52 |
|
|
|
482 |
|
Alico Plant World |
|
|
17 |
|
|
|
(1,103 |
) |
|
|
459 |
|
Vegetables |
|
|
496 |
|
|
|
985 |
|
|
|
|
|
Sod |
|
|
862 |
|
|
|
688 |
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
Gross profit from segments |
|
|
27,137 |
|
|
|
9,114 |
|
|
|
9,718 |
|
Other |
|
|
(7,735 |
) |
|
|
3,570 |
|
|
|
(480 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
19,402 |
|
|
$ |
12,684 |
|
|
$ |
9,238 |
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended August 31, |
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
554 |
|
|
$ |
1,536 |
|
|
$ |
|
|
Citrus Groves |
|
|
1,231 |
|
|
|
9,929 |
|
|
|
2,086 |
|
Sugarcane |
|
|
1,288 |
|
|
|
3,065 |
|
|
|
1,891 |
|
Cattle |
|
|
1,893 |
|
|
|
3,490 |
|
|
|
2,711 |
|
Alico Plant World |
|
|
321 |
|
|
|
957 |
|
|
|
5,990 |
|
Vegetables |
|
|
473 |
|
|
|
325 |
|
|
|
|
|
Sod |
|
|
908 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment capital expenditures |
|
|
6,668 |
|
|
|
20,405 |
|
|
|
12,678 |
|
Other capital expenditures |
|
|
2,470 |
|
|
|
12,767 |
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital expenditures |
|
$ |
9,138 |
|
|
$ |
33,172 |
|
|
$ |
12,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
344 |
|
|
$ |
913 |
|
|
$ |
|
|
Citrus Groves |
|
|
2,381 |
|
|
|
2,540 |
|
|
|
2,454 |
|
Sugarcane |
|
|
2,083 |
|
|
|
1,918 |
|
|
|
2,072 |
|
Cattle |
|
|
1,887 |
|
|
|
1,817 |
|
|
|
1,484 |
|
Alico Plant World |
|
|
640 |
|
|
|
578 |
|
|
|
431 |
|
Vegetables |
|
|
68 |
|
|
|
17 |
|
|
|
|
|
Sod |
|
|
220 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization |
|
|
7,623 |
|
|
|
7,926 |
|
|
|
6,441 |
|
Other depreciation, depletion and amortization |
|
|
1,147 |
|
|
|
664 |
|
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation, depletion and amortizations |
|
$ |
8,770 |
|
|
$ |
8,590 |
|
|
$ |
6,957 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Bowen Brothers Fruit |
|
$ |
3,042 |
|
|
$ |
3,096 |
|
|
|
|
|
Citrus groves |
|
|
54,558 |
|
|
|
59,464 |
|
|
|
|
|
Sugarcane |
|
|
46,053 |
|
|
|
47,894 |
|
|
|
|
|
Cattle |
|
|
20,813 |
|
|
|
23,919 |
|
|
|
|
|
Alico Plant World |
|
|
6,711 |
|
|
|
6,515 |
|
|
|
|
|
Vegetables |
|
|
2,766 |
|
|
|
1,981 |
|
|
|
|
|
Sod |
|
|
5,362 |
|
|
|
4,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets |
|
|
139,305 |
|
|
|
147,060 |
|
|
|
|
|
Other Corporate assets |
|
|
141,582 |
|
|
|
115,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
280,887 |
|
|
$ |
262,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable assets represent assets on hand at year-end that are allocable to a particular segment
either by their direct use or by allocations when used jointly by two or more segments. Other
assets consist principally of cash, temporary investments, mortgage notes receivable, bulk land
inventories and property and equipment used in general corporate business.
62
(12) Casualty (Recoveries) Losses
Hurricane Wilma caused extensive damage to the Companys crops and infrastructure in Collier and
Hendry Counties during the first quarter of fiscal year 2006. Also, canker was confirmed in
several groves in 2006 and 2005. Additionally, during August and September 2004, a series of three
hurricanes struck a portion of the Companys citrus groves in Polk County, Florida.
Citrus canker is a highly contagious bacterial disease of citrus that causes premature leaf and
fruit drop. Citrus canker causes no threat to humans, animals or plant life other than citrus.
Prior to January 10, 2006, Florida law required infected and exposed trees within 1,900 feet of the
canker find to be removed and destroyed. The Companys traditional policy has been to recognize a
loss estimate for the total destruction of all trees within 1,900 feet of the canker find as soon
as canker was confirmed. This estimate of loss damage preceded the actual destruction of the
trees. During the second quarter of fiscal year 2006, the USDA determined that due to the
potential spread of canker from hurricanes they did not believe that canker eradication was
feasible. Due to this determination, the rule requiring the destruction of citrus groves testing
positive for canker was suspended. Upon suspension of the rule requiring the destruction of citrus
groves, those portions of grove that were previously estimated as lost but had not yet been
destroyed were reestablished, reducing the casualty loss accrued.
The Company recognized (recoveries) and losses resulting from the hurricanes and canker as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
Inventoried costs |
|
$ |
|
|
|
$ |
3,740 |
|
|
$ |
786 |
|
Basis of property and equipment |
|
|
|
|
|
|
1,410 |
|
|
|
4,426 |
|
Re-established groves |
|
|
|
|
|
|
(1,268 |
) |
|
|
|
|
Payments for business interruption |
|
|
|
|
|
|
(2,900 |
) |
|
|
|
|
Insurance proceeds received |
|
|
|
|
|
|
(4,004 |
) |
|
|
(1,062 |
) |
Insurance reimbursements receivable |
|
|
|
|
|
|
(606 |
) |
|
|
(2,262 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net casualty (recovery) loss |
|
$ |
|
|
|
$ |
(3,628 |
) |
|
$ |
1,888 |
|
|
|
|
|
|
|
|
|
|
|
(13) Treasury Stock
The following table provides information relating to purchases of the Companys common shares by
the Company on the open market pursuant to the Director Compensation Plan approved by the Companys
shareholders on June 10, 2005 for fiscal 2006 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares |
|
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part of |
|
|
|
|
Total Number of |
|
Average price |
|
Publicly Announced |
|
Total Dollar value of |
Date |
|
Shares Purchased |
|
paid per share |
|
Plans or Programs(1) |
|
shares purchased |
|
11/28/2005 |
|
|
10,000 |
|
|
$ |
43.30 |
|
|
|
10,000 |
|
|
$ |
433,000 |
|
5/9/2006 |
|
|
3,000 |
|
|
$ |
54.46 |
|
|
|
13,000 |
|
|
$ |
163,380 |
|
8/2/2006 |
|
|
3,000 |
|
|
$ |
55.62 |
|
|
|
16,000 |
|
|
$ |
166,867 |
|
1/16/2007 |
|
|
2,106 |
|
|
$ |
47.93 |
|
|
|
18,106 |
|
|
$ |
100,931 |
|
1/17/2007 |
|
|
5,628 |
|
|
$ |
48.30 |
|
|
|
23,734 |
|
|
$ |
271,836 |
|
1/19/2007 |
|
|
2,193 |
|
|
$ |
50.54 |
|
|
|
25,927 |
|
|
$ |
110,830 |
|
3/8/2007 |
|
|
843 |
|
|
$ |
47.69 |
|
|
|
26,770 |
|
|
$ |
40,199 |
|
5/7/2007 |
|
|
10,000 |
|
|
$ |
59.67 |
|
|
|
36,770 |
|
|
$ |
596,654 |
|
8/20/2007 |
|
|
7,000 |
|
|
$ |
51.98 |
|
|
|
43,770 |
|
|
$ |
363,841 |
|
|
|
|
1) |
|
The Company may purchase an additional 87,230 shares pursuant to the approved repurchase
agreement. |
63
(14) Off Balance Sheet Arrangements
The Company through its wholly owned subsidiary Bowen enters into purchase contracts for the
purchase of citrus products during the normal course of its business. Typically, these purchases
are covered by sales contracts. The purchase obligations under these purchase agreements totaled
$5.6 million at August 31, 2007. All of these purchases were covered by sales agreements at prices
exceeding cost. In addition, Bowen had forward sales contracts totaling $2.2 million at August 31,
2007 for which a purchaser had not been contracted. Bowen management currently believes that all
committed sales quantities can be purchased below the committed sales price. All of these
contracts will be fulfilled by the end of the fiscal year 2008.
During the second quarter of fiscal year 2007, Alico formed a joint venture. Alico-J&J Farms, LLC
is engaged in vegetable farming. The initial crop covered 140 acres of property. Under the
agreement, each member is responsible for 50% of the obligations, capital and expenses of the
company and each member is in turn entitled to 50% of any profit or loss of the venture. Alicos
share of the loss was $57 thousand in fiscal year 2007. During the fourth quarter of fiscal year
2007, the members determined the acreage to be farmed for fiscal year 2008 would be 782. Alicos
portions of the estimated expenses of the venture for fiscal year 2008 are estimated to be $4.6
million. The equipment needed to operate the farm has been acquired using five year leases.
Alicos obligations under the lease should the joint venture default would be $48 thousand annually
or $189 thousand in total less the proceeds received from the disposition plus disposition costs.
(15) New Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation Number 48 (FIN 48), Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109. The interpretation contains a two
step approach to recognizing and measuring uncertain tax positions accounted for in accordance with
SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The
second step is to measure the tax benefit as the largest amount which is more than 50% likely of
being realized upon ultimate settlement. The Company is required to adopt FIN 48 at the beginning
of fiscal year 2008. The Company is evaluating the impact this statement will have on its
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines
fair value, establishes a framework for measuring fair value in generally accepted accounting
principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other
accounting pronouncements that require or permit fair value measurements. The Company is required
to adopt SFAS No. 157 effective at the beginning of fiscal year 2009. The Company is evaluating
the impact this statement will have on its consolidated financial statements.
64
(16) Subsequent events
At a Board of Directors meeting held on September 28, 2007, the Board declared a quarterly dividend
of $0.275 per share payable to stockholders of record as of December 29, 2007, with payment
expected on or about January 15, 2008.
At its Board of Directors meeting held on September 28, 2007, the Board elected to change the
fiscal year of the Company from August 31 to September 30 effective as of October 1, 2007. In
connection with the change, the Company will include the transition period of September 1 through
September 30, 2007 with the Companys first quarter 10-Q for fiscal year 2008, covering the fiscal
quarter from October 1, 2007 through December 31, 2007 and in subsequent filings, including the
annual report on Form 10-K.
In October 2007, the Company finalized the renegotiation of a sales contract and mortgage related
to a parcel of land in Lee County, Florida that closed in July 2005. Major provisions of the
renegotiation included a reduction of the scheduled principal payments due in September of 2008 and
2009; an increased interest rate based on LIBOR plus a percentage; and quarterly interest payments
equal to the applicable quarterly interest rate as described above on the outstanding principal
balance for the term of the note. Further provisions include increased flexibility of the Company
to receive lots in the event of default. In October 2007, the Company
received a payment of $6.8 million related to the renegotiated
contract. This payment consisted of $0.4 million of principal,
$6.1 million of interest and the balance as an expense
reimbursement. Additionally, the Company received payment of
$3.6 million for a one year extension on an option contract, and
a payment of $0.7 million for interest due on a third sales
contract, for total receipts of $11.1 million.
65
(17) Selected Quarterly Financial Data (Unaudited)
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Summarized quarterly financial data (in thousands except for per share amounts) for the years ended
August 31, 2007 and August 31, 2006, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|
|
November 30, |
|
|
February 28, |
|
|
May 31, |
|
|
August 31, |
|
|
|
2006 |
|
|
2005 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowen |
|
|
804 |
|
|
|
|
|
|
|
19,943 |
|
|
|
5,722 |
|
|
|
31,017 |
|
|
|
16,290 |
|
|
|
952 |
|
|
|
8,857 |
|
Citrus |
|
|
1,637 |
|
|
|
1,208 |
|
|
|
20,265 |
|
|
|
7,044 |
|
|
|
21,772 |
|
|
|
11,986 |
|
|
|
3,810 |
|
|
|
1,950 |
|
Sugarcane |
|
|
1,696 |
|
|
|
1,428 |
|
|
|
5,478 |
|
|
|
4,992 |
|
|
|
2,040 |
|
|
|
2,507 |
|
|
|
218 |
|
|
|
(1 |
) |
Cattle |
|
|
4,074 |
|
|
|
2,224 |
|
|
|
909 |
|
|
|
426 |
|
|
|
3,842 |
|
|
|
758 |
|
|
|
1,152 |
|
|
|
2,292 |
|
Vegetables, plants & trees |
|
|
999 |
|
|
|
521 |
|
|
|
2,850 |
|
|
|
2,515 |
|
|
|
2,176 |
|
|
|
2,262 |
|
|
|
859 |
|
|
|
503 |
|
Sod |
|
|
399 |
|
|
|
558 |
|
|
|
531 |
|
|
|
152 |
|
|
|
647 |
|
|
|
285 |
|
|
|
603 |
|
|
|
533 |
|
Real estate |
|
|
|
|
|
|
5,580 |
|
|
|
4,175 |
|
|
|
7 |
|
|
|
(15 |
) |
|
|
81 |
|
|
|
603 |
|
|
|
206 |
|
Interest |
|
|
1,397 |
|
|
|
4,985 |
|
|
|
1,973 |
|
|
|
1,499 |
|
|
|
2,120 |
|
|
|
1,651 |
|
|
|
1,971 |
|
|
|
918 |
|
Other revenue |
|
|
881 |
|
|
|
787 |
|
|
|
837 |
|
|
|
682 |
|
|
|
690 |
|
|
|
605 |
|
|
|
625 |
|
|
|
581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
11,887 |
|
|
|
17,291 |
|
|
|
56,961 |
|
|
|
23,039 |
|
|
|
64,289 |
|
|
|
36,425 |
|
|
|
10,793 |
|
|
|
15,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bowen |
|
|
1,049 |
|
|
|
|
|
|
|
18,695 |
|
|
|
5,720 |
|
|
|
30,922 |
|
|
|
16,479 |
|
|
|
1,120 |
|
|
|
8,938 |
|
Citrus |
|
|
918 |
|
|
|
588 |
|
|
|
10,772 |
|
|
|
5,241 |
|
|
|
10,489 |
|
|
|
7,407 |
|
|
|
1,248 |
|
|
|
1,338 |
|
Sugarcane |
|
|
2,140 |
|
|
|
2,174 |
|
|
|
4,921 |
|
|
|
4,763 |
|
|
|
1,747 |
|
|
|
1,738 |
|
|
|
25 |
|
|
|
(109 |
) |
Cattle |
|
|
3,596 |
|
|
|
1,711 |
|
|
|
850 |
|
|
|
318 |
|
|
|
3,672 |
|
|
|
671 |
|
|
|
1,604 |
|
|
|
2,214 |
|
Vegetables, plants & trees |
|
|
1,156 |
|
|
|
875 |
|
|
|
2,120 |
|
|
|
2,122 |
|
|
|
2,232 |
|
|
|
2,162 |
|
|
|
614 |
|
|
|
618 |
|
Sod |
|
|
242 |
|
|
|
449 |
|
|
|
246 |
|
|
|
75 |
|
|
|
201 |
|
|
|
128 |
|
|
|
629 |
|
|
|
188 |
|
Real estate |
|
|
220 |
|
|
|
1,171 |
|
|
|
1,064 |
|
|
|
5 |
|
|
|
(23 |
) |
|
|
42 |
|
|
|
2,324 |
|
|
|
235 |
|
Interest |
|
|
1,183 |
|
|
|
991 |
|
|
|
1,302 |
|
|
|
793 |
|
|
|
1,321 |
|
|
|
1,055 |
|
|
|
1,936 |
|
|
|
1,227 |
|
Other |
|
|
3,237 |
|
|
|
7,533 |
|
|
|
3,347 |
|
|
|
(318 |
) |
|
|
3,592 |
|
|
|
3,111 |
|
|
|
3,817 |
|
|
|
(1,743 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
13,741 |
|
|
|
15,492 |
|
|
|
43,317 |
|
|
|
18,719 |
|
|
|
54,153 |
|
|
|
32,793 |
|
|
|
13,317 |
|
|
|
12,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income
taxes |
|
|
(1,854 |
) |
|
|
1,799 |
|
|
|
13,644 |
|
|
|
4,320 |
|
|
|
10,136 |
|
|
|
3,632 |
|
|
|
(2,524 |
) |
|
|
2,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(883 |
) |
|
|
646 |
|
|
|
5,940 |
|
|
|
1,653 |
|
|
|
23,285 |
|
|
|
1,092 |
|
|
|
4,904 |
|
|
|
2,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(971 |
) |
|
|
1,153 |
|
|
|
7,704 |
|
|
|
2,667 |
|
|
|
(13,149 |
) |
|
|
2,540 |
|
|
|
(7,428 |
) |
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per
share |
|
$ |
(0.13 |
) |
|
$ |
0.16 |
|
|
$ |
1.05 |
|
|
$ |
0.36 |
|
|
$ |
(1.78 |
) |
|
$ |
0.34 |
|
|
$ |
(1.02 |
) |
|
$ |
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Item 9. Changes in & Disagreements with Accountants on Accounting and Financial Disclosure.
There were no disagreements with accountants on accounting and financial disclosure matters.
Item 9A. Controls and Procedures
Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief
Financial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange
Act. This Controls and Procedures section includes information concerning the controls and
controls evaluation referred to in the certifications.
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, referenced herein as the Exchange
Act. These disclosure controls and procedures are designed to ensure that information required to
be disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified in the SECs rules
and forms, and that such information is accumulated and communicated to Companys management,
including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure. The Company carried out, under the supervision and with
the participation of the Companys management, including the Companys Chief Executive Officer and
the Companys Chief Financial Officer, an evaluation of the effectiveness of the design and
operation of the Companys disclosure controls and procedures performed pursuant to Rule 13a-15
under the Securities Exchange Act of 1934 as amended. Based on their evaluation at the end of
fiscal year 2007, the Companys Chief Executive Officer and its Chief Financial Officer concluded
that, as of August 31, 2007, the Companys disclosure controls and procedures were effective.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of August 31, 2007. In making the assessment, Management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. Based on this assessment, the Management of Alico, Inc. concluded that as of
August 31, 2007, the Companys disclosure controls and procedures were effective.
Managements Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f)
promulgated under the Exchange Act as a process designed by, or under the supervision of, the
Companys principal executive and principal financial officers and implemented by the Companys
Board of Directors, management and other personnel, 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 and includes those polices and
procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of the assets of the company;
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
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of the companys assets that could have a material effect on the financial
statements.
67
Based on our evaluations of the internal controls, we have concluded that as of August 31, 2007,
the Company maintained effective internal control over financial reporting.
Managements assessment of the effectiveness of internal control over financial reporting as of
August 31, 2007 has been audited by McGladrey & Pullen, LLP, an independent registered certified
public accounting firm, as stated in their report which is included below in Item 9A of this Form
10-K.
Remediation of Prior Years Material Weakness
The Company had previously reported a material weakness in its internal controls for the years
ended August 31, 2005 and 2006. The material weakness related to a lack of qualified accounting
resources to properly account for complex transactions, specifically income taxes. Subsequent to
the year ended August 31, 2006, the Company added several qualified and experienced staff members
in its accounting department which allowed the controller and CFO additional time to evaluate
complex accounting transactions. Additionally, the Company engaged a national accounting firm to
review its tax calculations and provide accounting advice as needed. Managements internal control
testing for the 2007 fiscal year indicates these changes were sufficient to remediate the prior
years reported weakness and to prevent the current period occurrence of the deficiency noted
above.
68
Report of Independent Registered
Certified Public Accounting Firm
To the Board of Directors and
Stockholders
Alico, Inc.
LaBelle, Florida
We have audited management’s
assessment, included in the accompanying Management’s Annual Report on
Internal Control Over Financial Reporting, that Alico, Inc. and Subsidiaries
maintained effective internal control over financial reporting as of
August 31, 2007, based on criteria established in Internal Control –
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Alico, Inc.’s management is responsible for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on management’s assessment
and an opinion on the effectiveness of 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, evaluating
management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and 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
(1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) 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 (3) 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, management’s assessment that
Alico, Inc. and Subsidiaries maintained effective internal control over
financial reporting as of August 31, 2007, is fairly stated, in all
material respects, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Also, in our opinion, Alico, Inc. and Subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of August 31, 2007, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
69
We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements of Alico, Inc. and Subsidiaries
as of and for the year ended August 31, 2007, and our report dated
November 14, 2007 expressed an unqualified opinion.
/s/MCGLADREY & PULLEN, LLP
Orlando, Florida
November 14, 2007
Item 9B. Other Information.
None
70
PART III
Items 10 14 of Part three are incorporated by reference to the Companys proxy expected to be filed on or before December 31, 2007.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements:
Included in Part II, Item 8 of this Report
Reports of Independent Registered
Certified Public Accounting Firms August 31, 2007, 2006 & 2005
Consolidated Balance Sheets August 31, 2007 and 2006
Consolidated Statements of Operations For the Years Ended August 31, 2007, 2006 and 2005
Consolidated Statements of Stockholders Equity and Comprehensive Income (loss) For the Years
Ended August 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows For the Years Ended August 31, 2007, 2006 and 2005
(b) 2. Financial Statement Schedules:
Selected Quarterly Financial Data For the Years Ended August 31, 2007 and 2006 Included in Part
II, Item 8
All other schedules not listed above are not submitted because they are not applicable or not
required or because the required information is included in the financial statements or notes
thereto.
71
(c) 3. Exhibits:
3(i)
Articles of Incorporation:
3(i)1 Restated Certificate of
Incorporation, Dated February 17, 1972 (incorporated by reference to the Companys
Registration Statement on Form S-1 dated February 24, 1972, Registration No. 2-43156).
3(i)2 Certificate of Amendment
to Certificate of Incorporation, Dated January 14, 1974 (incorporated by reference to the
Companys Registration Statement on Form S-8, dated December 21, 2005, Registration
No. 333-130575)
3(i)3 Amendment to Articles of
Incorporation, Dated January 14, 1987 (incorporated by reference to the Companys
Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3(i)4 Amendment to Articles of
Incorporation, Dated December 27, 1988 (incorporated by reference to the Companys
Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3(ii)
Bylaws:
3(ii)(1)
By-Laws of Alico, Inc., amended and restated
(incorporated by reference to the Companys filing on Form 8-K
dated October 4, 2007)
(10)
Material Contracts:
(10.1)
Citrus Processing and Marketing Agreement with Ben Hill
Griffin, Inc. dated November 2, 1983, a Continuing Contract
(incorporated by reference to the Companys filing on Form 10-K
dated November 28, 2006)
(10.2)
Cash Purchase Orange Agreement with Tropicana
(10.3)
Fruit Purchase Agreement with Southern Gardens Citrus
Processing Corporation
(10.4)
Real Estate Sale Agreement with Ginn Development
Corporation (incorporated by reference to the Companys filing
on Form 10-Q/A dated January 6, 2005)
(10.5)
First Amendment to Real Estate Sales Agreement with Ginn
Development Corporation (incorporated by reference to the
Companys filing on Form 8-K dated December 27, 2006)
(10.6)
Second Amended and Restated Renewal Promissory Note
(incorporated by reference to the Companys filing on Form 8-K
dated October 25, 2007)
(10.7)
Second Amendment to Mortgage Deed (incorporated by
reference to the Companys filing on Form 8-K dated
October 25, 2007)
(10.8)
Revolving Line of Credit Agreement (incorporated by
reference to the Companys filing on Form 8-K dated
October 17, 2005)
(10.9)
Amendment to Line of Credit Agreement (incorporated by
reference to the Companys filing on Form 8-K dated June 1,
2006)
(10.10)
Amendment to Line of Credit Agreement
(11) Statement
Computation of Weighted Average Shares Outstanding and Per Share Earnings.
(12) Statement
Computation of Ratios
(14.1)
Code of Ethics amended September 28, 2007.
(14.2)
Whistleblower Policy amended September 28, 2007
(21) Subsidiaries of the
Registrant Alico Land Development Company, Inc. (formerly Saddlebag Lake
Resorts, Inc. (a Florida corporation incorporated in 1971));Agri-Insurance Company,
Ltd. (a company formed under the laws of the country of Bermuda incorporated in 2000),
Alico-Agri, Ltd (a Florida limited partnership formed in 2003), Alico Plant World, LLC
(a Florida limited liability company organized in 2004), Bowen Brothers Fruit, LLC
(a Florida limited liability company organized in 2005)(incorporated
by reference to the Companys filing on Form 10-K dated November
28, 2006).
(31.1) Rule 13a-14(a) certification
(31.2) Rule 13a-14(a) certification
(32.1)
Section 1350 Certifications
72
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ALICO, INC.
(Registrant)
|
|
|
November 14, 2007
|
|
John R. Alexander |
Date
|
|
Chairman, President & |
|
|
Chief Executive Officer |
|
|
/s/ John R. Alexander |
|
|
|
November 14, 2007
|
|
Patrick W. Murphy |
Date
|
|
Senior Vice President and |
|
|
Chief Financial Officer |
|
|
/s/ Patrick W. Murphy |
73
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:
|
|
|
John R. Alexander
|
|
Robert E. Lee Caswell |
Chairman
|
|
Director |
|
|
|
/s/ John R. Alexander
|
|
/s/ Robert E. Lee Caswell |
|
|
|
Evelyn DAn
|
|
Phillip Dingle |
Director
|
|
Director |
|
|
|
/s/ Evelyn DAn
|
|
/s/ Phillip Dingle |
|
Gregory Mutz
|
|
Charles Palmer |
Director
|
|
Director |
|
|
|
/s/ Gregory Mutz
|
|
/s/ Charles Palmer |
|
|
|
Baxter G. Troutman
|
|
Gordon Walker |
Director
|
|
Director |
|
|
|
/s/ Baxter G. Troutman
|
|
/s/ Gordon Walker |
|
|
|
Robert J. Viguet |
|
|
Director |
|
|
|
|
|
/s/ Robert J. Viguet |
|
|
|
|
|
November 14, 2007 |
|
|
Date |
|
|
74
EXHIBIT INDEX
3(i)
Articles of Incorporation:
3(i)1 Restated Certificate of
Incorporation, Dated February 17, 1972 (incorporated by reference to the Companys
Registration Statement on Form S-1 dated February 24, 1972, Registration No. 2-43156).
3(i)2 Certificate of Amendment
to Certificate of Incorporation, Dated January 14, 1974 (incorporated by reference to the
Companys Registration Statement on Form S-8, dated December 21, 2005, Registration
No. 333-130575)
3(i)3 Amendment to Articles of
Incorporation, Dated January 14, 1987 (incorporated by reference to the Companys
Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3(i)4 Amendment to Articles of
Incorporation, Dated December 27, 1988 (incorporated by reference to the Companys
Registration Statement on Form S-8, dated December 21, 2005, Registration No. 333-130575)
3(ii) Bylaws:
3(ii)(1)
By-Laws of Alico, Inc., amended and restated
(incorporated by reference to the Companys filing on Form 8-K
dated October 4, 2007)
(10) Material Contracts:
(10.1)
Citrus Processing and Marketing Agreement with Ben Hill
Griffin, Inc. dated November 2, 1983, a Continuing Contract
(incorporated by reference to the Companys filing on Form 10-K
dated November 28, 2006)
(10.2)
Cash Purchase Orange Agreement with Tropicana
(10.3)
Fruit Purchase Agreement with Southern Gardens Citrus
Processing Corporation
(10.4)
Real Estate Sale Agreement with Ginn Development
Corporation (incorporated by reference to the Companys filing
on Form 10-Q/A dated January 6, 2005)
(10.5)
First Amendment to Real Estate Sales Agreement with Ginn
Development Corporation (incorporated by reference to the
Companys filing on Form 8-K dated December 27, 2006)
(10.6)
Second Amended and Restated Renewal Promissory Note
(incorporated by reference to the Companys filing on Form 8-K
dated October 25, 2007)
(10.7)
Second Amendment to Mortgage Deed (incorporated by
reference to the Companys filing on Form 8-K dated
October 25, 2007)
(10.8)
Revolving Line of Credit Agreement (incorporated by
reference to the Companys filing on Form 8-K dated
October 17, 2005)
(10.9)
Amendment to Line of Credit Agreement (incorporated by
reference to the Companys filing on Form 8-K dated June 1,
2006)
(10.10)
Amendment to Line of Credit Agreement
(11) Statement
Computation of Weighted Average Shares Outstanding and Per Share Earnings.
(12) Statement
Computation of Ratios
(14.1)
Code of Ethics amended September 28, 2007.
(14.2)
Whistleblower Policy amended September 28, 2007
(21) Subsidiaries of the
Registrant Alico Land Development Company, Inc. (formerly Saddlebag Lake
Resorts, Inc. (a Florida corporation incorporated in 1971));Agri-Insurance Company,
Ltd. (a company formed under the laws of the country of Bermuda incorporated in 2000),
Alico-Agri, Ltd (a Florida limited partnership formed in 2003), Alico Plant World, LLC
(a Florida limited liability company organized in 2004), Bowen Brothers Fruit, LLC
(a Florida limited liability company organized in 2005) (incorporated
by reference to the Companys filing on Form 10-K dated November
28, 2006).
(31.1) Rule 13a-14(a) certification
(31.2) Rule 13a-14(a) certification
(32.1)
Section 1350 Certifications
75