Form 10Q
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
[X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the quarterly period ended May 31, 2006
or
[
]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act
of 1934
For
the
transition period from ____ to ____
Commission
File Number: 0-261
Alico,
Inc.
(Exact
name of registrant as specified in its charter)
Florida 59-0906081
(State
or other jurisdiction of (I.R.S.
Employer
incorporation
or organization) Identification
No.)
P.O.
Box 338, LaBelle, FL 33975
(Address
of principal executive offices) (Zip
Code)
Registrant's
telephone number, including area code:
863-675-2966
N/A
(Former
name, former address and former fiscal year, if changed since last report.)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
[X]
Yes
[ ]
No
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 file [ ] Accelerated
filer [X]
Non-accelerated filer [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[
]Yes
[X]
No
There
were 7,371,582 shares of common stock, par value $1.00 per share, outstanding
at
June 19, 2006.
PART
I. FINANCIAL INFORMATION
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ITEM
1. FINANCIAL STATEMENTS
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ALICO,
INC. AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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(unaudited)
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(in
thousands except per share data)
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Three
months ended
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Nine
months ended
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May
31,
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May
31,
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2006
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2005
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2006
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2005
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Revenue:
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Citrus
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$
28,276
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$
10,246
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$
42,250
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$
20,711
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Sugarcane and sod
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2,792
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1,902
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9,922
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9,641
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Cattle
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758
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4,660
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3,408
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8,979
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Plants, vegetables and trees
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2,302
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832
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5,384
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2,413
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Rock & sand royalties
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170
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869
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662
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2,596
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Oil lease & land rentals
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302
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345
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1,095
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1,253
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Retail land sales
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81
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458
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113
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755
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Operating revenue
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34,681
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19,312
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62,834
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46,348
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Cost
of sales:
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Citrus production, harvesting & marketing
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23,886
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6,622
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35,435
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15,431
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Sugarcane and sod production, harvesting & hauling
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1,866
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1,763
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9,327
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9,100
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Cattle
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671
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3,558
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2,700
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7,169
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Plants, vegetables and trees
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2,162
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551
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5,159
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1,950
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Retail land sales
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42
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165
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58
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306
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Casualty loss
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2
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-
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2,768
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408
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Total costs of sales
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28,629
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12,659
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55,447
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34,364
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Gross profit
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6,052
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6,653
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7,387
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11,984
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General
& administrative expenses
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3,109
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2,454
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7,556
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7,905
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Income
(loss) from operations
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2,943
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4,199
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(169
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)
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4,079
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Other
income (expenses):
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Sale of real estate
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-
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31
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5,555
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31
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Cost of real estate sold
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-
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-
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1,162
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-
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Net profit on the sale of real estate
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-
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31
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4,393
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31
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Interest & investment income
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1,651
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169
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8,135
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2,738
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Interest expense
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(1,055
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(694
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(2,839
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)
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(1,762
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Other
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93
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519
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231
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531
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Total other income, net
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689
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25
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9,920
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1,538
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Income before income taxes
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3,632
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4,224
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9,751
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5,617
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Provision for income taxes
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1,092
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1,609
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3,391
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2,048
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Net income
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$
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2,540
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$
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2,615
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$
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6,360
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$
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3,569
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Weighted-average number of shares outstanding
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7,366
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7,327
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7,366
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7,318
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Per
share amounts:
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Basic
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$
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0.34
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$
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0.36
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$
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0.86
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$
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0.49
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Fully diluted
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$
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0.34
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$
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0.36
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$
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0.86
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$
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0.49
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Dividends declared
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$
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0.25
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$
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-
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$
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0.75
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$
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-
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See
accompanying Notes to Condensed Consolidated Financial
Statements.
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ALICO,
INC. AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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(in
thousands)
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May
31,
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2006
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August
31,
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(unaudited)
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2005
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ASSETS
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Current
assets:
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Cash and cash equivalents
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$
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21,055
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$
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13,384
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Marketable securities available for sale
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51,410
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70,824
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Accounts receivable
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15,503
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11,216
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Mortgages and notes receivable, current portion
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51
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2,370
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Inventories
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19,603
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20,902
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Deposits in escrow
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-
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6,812
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Land held for development and sale
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1,261
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1,809
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Prepaid expenses
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439
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1,660
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Total current assets
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109,322
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128,977
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Mortgages
and notes receivable, net of current portion
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10,771
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6,395
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Investments
and deposits
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3,088
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692
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Cash
surrender value of life insurance
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5,766
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5,676
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Property,
buildings and equipment
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177,855
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150,997
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Less:
accumulated depreciation
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(46,510
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)
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(45,043
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)
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Total assets
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$
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260,292
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$
|
247,694
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See
accompanying Notes to Condensed Consolidated Financial
Statements.
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ALICO,
INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(in
thousands)
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|
|
|
|
|
|
|
|
|
|
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May
31,
|
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|
|
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2006
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August
31,
|
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|
|
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|
(unaudited)
|
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2005
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY
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Current
liabilities:
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Accounts payable
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$
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6,262
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$
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2,180
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Current portion of notes payable
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3,312
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|
|
3,309
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Accrued expenses
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|
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3,770
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|
3,588
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Insurance claims payable
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|
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|
-
|
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1,404
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|
Dividend payable
|
|
|
|
|
|
1,842
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|
|
1,842
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Accrued ad valorem taxes
|
|
|
|
|
|
1,301
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|
2,008
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Retirement benefits payable
|
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|
|
|
|
637
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|
432
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|
Deferred income taxes
|
|
|
|
|
|
2,928
|
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|
2,280
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|
Current portion of donation payable
|
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|
|
781
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|
|
776
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|
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|
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Total current liabilities
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|
|
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20,833
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|
17,819
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Notes
payable, net of current portion
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59,845
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48,039
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Deferred
income taxes
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|
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|
12,941
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|
|
13,424
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Deferred
retirement benefits
|
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|
|
|
|
4,162
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|
|
4,376
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Commissions
payable
|
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|
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|
2,833
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|
2,125
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Other
non-current liability
|
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|
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|
16,954
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|
16,954
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Donation
payable
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|
-
|
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|
771
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|
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|
|
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Total liabilities
|
|
|
|
|
|
117,568
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|
|
103,508
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Stockholders'
equity:
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|
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Common
stock
|
|
|
|
|
|
7,376
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|
|
7,369
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|
Additional
paid in capital
|
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|
|
|
|
9,369
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|
|
9,183
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Treasury
stock
|
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|
|
|
(217
|
)
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|
-
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|
Accumulated
other comprehensive income (loss)
|
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|
|
|
|
(112
|
)
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|
2,195
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|
Retained
earnings
|
|
|
|
|
|
126,308
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|
125,439
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|
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|
|
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Total stockholders' equity
|
|
|
|
|
|
142,724
|
|
|
144,186
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|
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|
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|
|
|
Total liabilities and stockholders' equity
|
|
|
|
|
$
|
260,292
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|
$
|
247,694
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|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
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ALICO,
INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(unaudited)
|
(in
thousands)
|
|
|
|
|
|
|
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
8,679
|
|
$
|
6,602
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(31,422
|
)
|
|
(11,633
|
)
|
Proceeds
from sale of real estate
|
|
|
5,122
|
|
|
31
|
|
Proceeds
from sales of property and equipment
|
|
|
685
|
|
|
858
|
|
Purchases
of marketable securities
|
|
|
(113,098
|
)
|
|
(24,815
|
)
|
Proceeds
from sales of marketable securities
|
|
|
130,953
|
|
|
5,996
|
|
Note
receivable collections
|
|
|
494
|
|
|
10,212
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(7,266
|
)
|
|
(19,351
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of bank loan
|
|
|
(45,605
|
)
|
|
(14,829
|
)
|
Proceeds
from bank loan
|
|
|
57,414
|
|
|
14,834
|
|
Proceeds
(used for) provided by stock transactions
|
|
|
(24
|
)
|
|
1,024
|
|
Dividends
paid
|
|
|
(5,527
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
6,258
|
|
|
1,029
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
7,671
|
|
$
|
(11,720
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
At beginning of period
|
|
$
|
13,384
|
|
$
|
24,299
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
21,055
|
|
$
|
12,579
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of amount capitalized
|
|
$
2,009
|
|
$
1,516
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
924
|
|
$
|
2,425
|
|
|
|
|
|
|
|
|
|
Net
cash investing activities:
|
|
|
|
|
|
|
|
Issuance of mortgage notes
|
|
$
|
92
|
|
$
|
580
|
|
Fair value adjustments to securities available for sale
|
|
|
|
|
|
|
|
net of tax effects
|
|
$
|
(2,307
|
)
|
$
|
1,528
|
|
Reclassification of breeding herd to property and
|
|
|
|
|
|
|
|
equipment
|
|
$
|
516
|
|
$
|
562
|
|
|
|
|
|
|
|
|
|
ALICO,
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands except for per share data)
1.
Basis of financial statement presentation:
The
accompanying condensed consolidated financial statements include the accounts
of
Alico, Inc. (“Alico”) and its wholly owned subsidiaries, Saddlebag Lake Resorts,
Inc. (“Saddlebag”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd.,
Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”) (collectively
referred to as the "Company") after elimination of all significant intercompany
balances and transactions.
The
accompanying unaudited condensed consolidated financial statements have been
prepared on a basis consistent with the accounting principles and policies
reflected in the Company's annual report for the year ended August 31, 2005.
In
the opinion of Management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of its consolidated
financial position at May 31, 2006 and August 31, 2005 and the consolidated
results of operations for the three and nine month periods ended May 31, 2006
and 2005, and the consolidated cash flows for the nine month periods ended
May
31, 2006 and 2005.
The
basic
business of the Company is agriculture, which is of a seasonal nature and
subject to the influence of natural phenomena and wide price fluctuations.
Fluctuation in the market prices for citrus fruit has caused the Company to
recognize additional revenue from the prior year's crop totaling $164 thousand
for the quarter ended May 31, 2006, $839 thousand for the nine months ended
May
31, 2006, $326 thousand for the quarter ended May 31, 2005 and $357 thousand
for
the nine months ended May 31, 2005.
Alico,
through its newly formed subsidiary Bowen Brothers Fruit, LLC (Bowen), purchased
the assets of Bowen Brothers Fruit Co., Inc. for $1.9 million in February 2006.
The purchase was made in order to provide Alico with additional marketing
expertise and with the ability to harvest its own fruit crop. Bowen’s operations
generated revenues of $25.5 million and expenses of $25.5 million from the
date
of acquisition to May 31, 2006. Bowen’s operations are seasonal in nature and
the results of operations for the stated periods are not necessarily indicative
of results to be expected for the full year.
The
results of operations for the stated periods are not necessarily indicative
of
results to be expected for the full year. Certain items from 2005 have been
reclassified to conform to the 2006 presentation.
2.
Real Estate:
Real
estate sales are recorded under the accrual method of accounting. Under this
method, a sale is not recognized until certain criteria are met including
whether the profit is determinable, collectibility of the sales price is
reasonably assured and the earnings process is complete.
In
October 2005, the Company through Alico-Agri Ltd., purchased 291 acres of
lake-front property in Polk County, Florida, for $9.2 million.
In
November 2005, the Company sold approximately 280 acres of citrus grove land
located south of LaBelle, Florida in Hendry County for $5.6 million cash in
escrow. The Company will retain operating rights to the grove until residential
development begins. The Company recognized a net profit on the sale of $4.4
million.
In
May
2006, the Company purchased a 523 acre riverfront mine site for rock and fill
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. No depletion expense was recognized during the nine months ended May
31,
2006 or 2005.
A
portion
of the proceeds used to acquire the mine were from escrowed proceeds from the
sale of the 280 acre orange grove which sold in November 2005 in order to
complete a 1031 exchange.
3.
Marketable Securities Available for Sale:
The
Company has classified 100% of investments in marketable securities as available
for sale and, as such, the securities are carried at estimated fair value.
Unrealized gains and losses determined to be temporary are recorded as other
comprehensive income, net of related deferred taxes, until realized. Unrealized
losses determined to be other than temporary are recognized in the period the
determination is made.
The
cost and estimated fair values of marketable securities available
for sale
at May 31, 2006 and August 31, 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31, 2006
|
|
August
31, 2005
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Unrealized
|
|
|
Fair
|
|
Equity
securities:
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stocks
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,363
|
|
$
|
81
|
|
$
|
(17
|
)
|
$
|
1,427
|
|
Common
stocks
|
|
|
69
|
|
|
|
|
|
(4
|
)
|
|
65
|
|
|
6,483
|
|
|
1,066
|
|
|
(218
|
)
|
|
7,331
|
|
Mutual
funds
|
|
|
150
|
|
|
-
|
|
|
-
|
|
|
150
|
|
|
17,029
|
|
|
2,846
|
|
|
(86
|
)
|
|
19,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity securities
|
|
|
219
|
|
|
-
|
|
|
(4
|
)
|
|
215
|
|
|
24,875
|
|
|
3,993
|
|
|
(321
|
)
|
|
28,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
|
19,010
|
|
|
-
|
|
|
(28
|
)
|
|
18,982
|
|
|
20,548
|
|
|
74
|
|
|
-
|
|
|
20,622
|
|
Mutual
funds
|
|
|
220
|
|
|
-
|
|
|
(7
|
)
|
|
213
|
|
|
4,344
|
|
|
155
|
|
|
(76
|
)
|
|
4,423
|
|
Fixed
maturity funds
|
|
|
22,367
|
|
|
73
|
|
|
(61
|
)
|
|
22,379
|
|
|
2,799
|
|
|
-
|
|
|
(41
|
)
|
|
2,758
|
|
Corporate
bonds
|
|
|
9,773
|
|
|
-
|
|
|
(152
|
)
|
|
9,621
|
|
|
14,897
|
|
|
12
|
|
|
(435
|
)
|
|
14,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt securities
|
|
|
51,370
|
|
|
73
|
|
|
(248
|
)
|
|
51,195
|
|
|
42,588
|
|
|
241
|
|
|
(552
|
)
|
|
42,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
$
|
51,589
|
|
$
|
73
|
|
$
|
(252
|
)
|
$
|
51,410
|
|
$
|
67,463
|
|
$
|
4,234
|
|
$
|
(873
|
)
|
$
|
70,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate fair value of investments in debt instruments with a cost basis of
$51,150 (net of mutual funds of $220) as of May 31, 2006 by contractual maturity
date, consisted of the following:
Aggregate
Fair
Value
Due
within 1 year
|
|
$
26,996
|
|
Due
between 1 and 2 years
|
|
6,743
|
|
Due
between 2 and 3 years
|
|
144
|
|
Due
between 3 and 4 years
|
|
261
|
|
Due
between 4 and 5 years
|
|
|
199
|
|
Due
beyond five years
|
|
|
16,639
|
|
Total
|
|
$
|
50,982
|
|
|
|
|
|
|
The
following table shows the gross unrealized losses and fair value of the
Company’s investments with unrealized losses that are not deemed to be other
than temporarily impaired, aggregated by investment category and length of
time
that individual securities have been in a continuous unrealized loss position,
at May 31, 2006.
May
31, 2006 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 12 months
|
|
12
months or greater
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Common
stocks
|
|
$
65
|
|
$
4
|
|
$
-
|
|
$
-
|
|
$
65
|
|
$
4
|
|
Municipal
bonds
|
|
2,882
|
|
28
|
|
-
|
|
-
|
|
2,882
|
|
28
|
|
Debt
mutual funds
|
|
213
|
|
7
|
|
-
|
|
-
|
|
213
|
|
7
|
|
Fixed
maturity funds
|
|
|
12,656
|
|
|
61
|
|
|
-
|
|
|
-
|
|
|
12,656
|
|
|
61
|
|
Corporate
bonds
|
|
|
2,638
|
|
|
41
|
|
|
6,983
|
|
|
111
|
|
|
9,621
|
|
|
152
|
|
Total
|
|
$
|
18,454
|
|
$
|
141
|
|
$
|
6,983
|
|
$
|
111
|
|
$
|
25,437
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized gains on the sale of securities for the nine months ended May 31,
2006
and 2005 were $3.7 million and $0.6 million, respectively.
Equity
securities and funds. During
the first quarter of fiscal 2006, Management sold equity investments and
reinvested in liquid debt securities. As of May 31, 2006, total equity
investments had been reduced to a fair value of $215 thousand.
Debt
instruments and funds. The
unrealized losses on municipal bonds and corporate bonds were primarily due
to
changes in interest rates. At May 31, 2006 the Company held loss positions
in
149 debt instruments. 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
the
evaluation of available evidence as of May 31, 2006.
4.
Mortgages and notes receivable:
Mortgage
and notes receivable arose from real estate sales. The balances
are
|
|
|
|
|
|
as
follows:
|
|
|
|
|
|
|
|
May
31,
|
|
|
|
|
|
2006
|
|
August
31,
|
|
|
|
(unaudited)
|
|
2005
|
|
|
|
|
|
|
|
Mortgage
notes receivable on retail land sales
|
|
$
459
|
|
$
580
|
|
Mortgage
notes receivable on bulk land sales
|
|
|
56,610
|
|
|
56,976
|
|
Other
notes receivable
|
|
|
3
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Total
mortgage and notes receivable
|
|
|
57,072
|
|
|
57,566
|
|
Less:
Deferred revenue
|
|
|
(43,656
|
)
|
|
(46,207
|
)
|
Discount on note to impute market interest
|
|
|
(2,594
|
)
|
|
(2,594
|
)
|
Current portion
|
|
|
(51
|
)
|
|
(2,370
|
)
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
$
|
10,771
|
|
$
|
6,395
|
|
|
|
|
|
|
|
|
|
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. At May 31, 2006 and August 31, 2005, the
Company had deferred revenue of $43.7 million and $46.2 million related to
commercial real estate, which was sold subject to a mortgage note
receivable.
Profits
from commercial real estate sales are discounted to reflect the market rate
of
interest where 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. At May 31, 2006 and August 31, 2005, the Company had
an
imputed interest discount of $2.6 million recorded in mortgages and notes
receivable.
5.
Inventories:
A
summary of the Company's inventories is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May
31,
|
|
|
|
|
|
2006
|
|
August
31,
|
|
|
|
(unaudited)
|
|
2005
|
|
|
|
|
|
|
|
Unharvested
fruit crop on trees
|
|
$
8,201
|
|
$
8,176
|
|
Unharvested
sugarcane
|
|
3,234
|
|
5,691
|
|
Beef
cattle
|
|
7,247
|
|
5,024
|
|
Unharvested
sod
|
|
|
865
|
|
|
831
|
|
Plants
and vegetables
|
|
|
56
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
19,603
|
|
$
|
20,902
|
|
|
|
|
|
|
|
|
|
The
Company's unharvested sugarcane and cattle are partially
uninsured.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hurricane
Wilma, a category three hurricane swept through southwest Florida in October
2005. The hurricane caused extensive damage to the Company’s crops and
infrastructure in Collier and Hendry Counties. During August and September
of
2004 a series of three hurricanes struck a portion of the Company’s citrus
groves in Polk County Florida.
Crop
damages estimated during the first quarter as a result of hurricane Wilma were
replaced by actual results as harvests were completed. The Company recognized
casualty losses resulting from damages to inventory from the hurricanes as
follows: (see
also
note 15)
Inventory
damages
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Unharvested
citrus
|
|
$
40
|
|
$
-
|
|
$
3,629
|
|
$
408
|
|
Unharvested
sugarcane
|
|
|
-
|
|
|
-
|
|
|
313
|
|
|
-
|
|
Unharvested
vegetables
|
|
|
-
|
|
|
-
|
|
|
147
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
40
|
|
$
|
-
|
|
$
|
4,089
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company records its inventory at the lower of cost or net realizable value.
At
May 31, 2006 and May 31, 2005 the cost bases for all inventories were below
estimated net realizable value.
6.
Income taxes:
The
provision for income taxes for the three and nine months ended May 31, 2006
and 2005 is summarized as follows:
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal income tax
|
|
$
529
|
|
$
595
|
|
$
1,417
|
|
$
1,009
|
|
State income tax
|
|
57
|
|
64
|
|
151
|
|
108
|
|
|
|
586
|
|
659
|
|
1,568
|
|
1,117
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Federal income tax
|
|
457
|
|
858
|
|
1,647
|
|
841
|
|
State income tax
|
|
|
49
|
|
|
92
|
|
|
176
|
|
|
90
|
|
|
|
|
506
|
|
|
950
|
|
|
1,823
|
|
|
931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
1,092
|
|
$
|
1,609
|
|
$
|
3,391
|
|
$
|
2,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Internal Revenue Service is examining the Company’s tax returns for the years
ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for
calendar years 2003, 2002, 2001 and 2000. The examinations began in October
2003. Any
assessments resulting from the examinations will be currently due and payable.
A
revenue agent issued a report in May 2004, challenging Agri’s tax exempt status
for the years examined; however, the report did not quantify an adjustment
or
assessment proposed. Agri responded with a written report that disputed the
facts, interpretation of law, and conclusions cited in the Agent’s report. Upon
receipt of Agri’s response in July 2004, the Agent proposed requesting a
Technical Advice Memorandum (TAM) from the national office to assist in settling
the differences. After reviewing the proposed TAM request from the IRS, Agri
responded with a written report that disputed the facts the IRS cited in its
request. Due to the breadth and substantial nature of the dispute, the IRS
has
chosen not to pursue the TAM.
In
June
2006 the IRS issued notices of proposed adjustments that take the position
that
the determination letter issued to Agri should be retroactively revoked, and
the
value of the assets contributed from Alico to Agri should be taxed at their
fair
market value at the date of transfer. Additionally, the notices allege that
Alico expensed certain fees and expenses that should have been capitalized.
Although the proposed adjustments do not quantify the tax, penalty or interest
proposed, the total proposed adjustments would result in additional taxable
income to the Company of $0.3 million, $76.6 million and $42.8 million for
the
fiscal years ended August 31, 2002, 2001 and 2000, respectively. The notices
of
proposed adjustments also contain an alternative IRS position alleging that
even
if the determination letter was valid, that under the Code Section 482, Alico,
Inc. remains liable for tax on the sale of the real estate transferred. This
alternative proposed adjustment does not quantify the tax, penalty or interest
proposed, but the proposed adjustment would result in additional taxable income
to the Company of $19.4 million, $13.4 million, $11.1 million, $1.4 million
and
$10.3 million for the fiscal years ended August 31, 2004, 2003, 2002, 2001
and
2000, respectively. A
third
and fourth alternative position taken by the IRS alleges that Alico acted as
Agri’s agent or that two real estate sales be taxable to Alico under the
assignment of income doctrine. These alternative positions do not quantify
the
adjustment to income, tax, penalty or interest proposed, but the Company
estimates that the adjustment under either of these alternative positions would
result in additional taxable income to the Company of approximately $0.3
million, $1.2 million, and $10.3 million for the fiscal years ended August
31,
2002, 2001, and 2000, respectively.
The Company does not agree with the proposed adjustments and plans to defend
against the challenges vigorously. See
also
footnote 8 to the condensed consolidated financial statements.
Since
January 1, 2004 Agri has been filing as a taxable entity as a result of
changes in the Internal Revenue Code.
7.
Indebtedness:
In
October 2005, Alico, Inc. entered into a Credit Facility with a commercial
lender. The Credit Facility provided the Company with a $175 million revolving
line of credit until August 1, 2010 to be used for general corporate purposes
including: (i) the normal operating needs of the Company and its operating
divisions, (ii) to refinance existing lines of credit and (iii) to finance
the
Ginn Receivable (as defined in the Loan Agreement). The terms also allowed
an
annual extension at the lender’s option.
In
May
2006 the above Credit Facility was amended “Amended Credit Facility” and
restated to modify certain terms. Per the amended Credit Facility the $175
million revolving line of credit, which matures on August 1, 2010, 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 Amended Credit Facility also allows for
an
annual extension at the lender’s option.
Under
the
Amended Credit Facility, revolving borrowings require quarterly interest
payments at LIBOR plus a variable rate between 0.8% and 1.5% depending on the
Company’s 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.
Under
the
Amended 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 Amended Credit Facility
shall bear an increased interest rate of 2% in addition to the then-current
rate
specified in the Amended Credit Facility. In the event of default, the lender
may alternatively at its option, terminate its revolving credit commitment
and
require immediate payment of the entire unpaid principal amount of the Amended
Credit Facility, accrued interest and declare all other obligations immediately
due and payable. The Company is currently in compliance with all of the
covenants and provisions of the Amended Credit Facility.
The
Amended Credit Facility also contains numerous restrictive covenants including
those requiring the Company to maintain minimum levels of net worth, retain
certain debt, current and fixed charge coverage ratios, and sets limitations
on
the extension of loans or additional borrowings by the Company or any
subsidiary.
Outstanding
debts under the Company’s various loan agreements were as follows at May 31,
2006 and August 31, 2005:
May
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Principal
|
|
|
|
Credit
|
|
Interest
|
|
|
|
|
|
Balance
|
|
|
|
Available
|
|
Rate
(h)
|
|
Collateral
|
|
a)
Revolving credit facility
|
|
$
51,089
|
|
|
|
$
123,911
|
|
Libor
+1%
|
|
Real
estate
|
|
b)
Term loan
|
|
2,000
|
|
|
|
-
|
|
5.80%
|
|
Unsecured
|
|
c)
Mortgage note payable
|
|
9,922
|
|
|
|
-
|
|
6.68%
|
|
Real
estate
|
|
d)
Other
|
|
146
|
|
|
|
-
|
|
7.00%
|
|
Real
estate
|
|
Total
|
|
$
63,157
|
|
|
|
$
123,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Principal
|
|
|
|
Credit
|
|
Interest
|
|
|
|
|
|
Balance
|
|
|
|
Available
|
|
Rate
(h)
|
|
Collateral
|
|
b)
Term loan
|
|
$
4,000
|
|
|
|
-
|
|
5.80%
|
|
Unsecured
|
|
c)
Mortgage note payable
|
|
10,872
|
|
|
|
-
|
|
6.68%
|
|
Real
estate
|
|
d)
Other
|
|
|
146
|
|
|
|
|
|
-
|
|
|
7.00%
|
|
|
Real
estate
|
|
e)
Revolving credit line
|
|
|
21,330
|
|
|
|
|
|
4,670
|
|
|
Libor
+1%
|
|
|
Unsecured
|
|
f)
Demand note
|
|
|
-
|
|
|
|
|
|
3,000
|
|
|
Libor
+1%
|
|
|
Unsecured
|
|
g)
Revolving credit line
|
|
|
15,000
|
|
|
|
|
|
-
|
|
|
Libor
+1%
|
|
|
Unsecured
|
|
Total
|
|
$
|
51,348
|
|
|
|
|
$
|
7,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
Terms described above.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b)
5-year fixed rate term loan with commercial lender. $2 million
principal
due annually.
Interest due quarterly.
|
c)
First mortgage on 7,680 acres of cane, citrus, pasture and improvements
in
Hendry County,
Florida with commercial lender. Monthly principal payments of $106
thousand
|
plus accrued interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
d)
First mortgage on a parcel of land in Polk County, Florida with
private
seller. Annual equal
payments of $55 thousand.
|
e)
Line of credit with commerical bank, refinanced in October,
2005
|
f)
Working capital loan with commerical bank, due on demand, refinanced
in
October, 2005
|
g)
Line of credit with commerical lender, refinanced in October,
2005
|
h)
The Libor rate was 5.11% at May 31, 2006 and 3.69% at August 31,
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturities
of the Company's debt at May 31, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
within 1 year
|
|
|
|
|
|
|
|
$
|
3,312
|
|
|
|
|
|
|
|
Due
between 1 and 2 years
|
|
|
|
|
|
|
|
|
1,315
|
|
|
|
|
|
|
|
Due
between 2 and 3 years
|
|
|
|
|
|
|
|
|
1,318
|
|
|
|
|
|
|
|
Due
between 3 and 4 years
|
|
|
|
|
|
|
|
|
1,267
|
|
|
|
|
|
|
|
Due
between 4 and 5 years
|
|
|
|
|
|
|
|
|
52,356
|
|
|
|
|
|
|
|
Due
beyond five years
|
|
|
|
|
|
|
|
|
3,589
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
63,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
costs expensed and capitalized to property, buildings and equipment were as
follows:
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
1,055
|
|
$
694
|
|
$
2,839
|
|
$
1,762
|
|
Interest
capitalized
|
|
|
9
|
|
|
53
|
|
|
57
|
|
|
157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest cost
|
|
$
|
1,064
|
|
$
|
747
|
|
$
|
2,896
|
|
$
|
1,919
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
Other non-current liability:
Alico
formed a wholly owned insurance subsidiary, Agri Insurance Company, Ltd.
(Bermuda) in June of 2000. Agri was formed in response to the lack of insurance
availability, both in the traditional commercial insurance markets and
governmental sponsored insurance programs, suitable to provide coverage for
the
increasing number and potential severity of agricultural events. Such events
include citrus canker, crop diseases, livestock related maladies and weather.
Alico’s goal included not only pre-funding its potential exposures related to
the aforementioned events, but also to attempt to attract new underwriting
capital if it 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.
Since
receiving the favorable IRS determination letter, certain transactions, entered
into by other taxpayers under the same IRS Code Section came under scrutiny
and
criticism by the news media. In response, Management has recorded a contingent
liability of $17.0 million at May 31, 2006 and August 31, 2005 for income taxes
in the event of an IRS challenge. Management’s decision has been influenced by
perceived changes in the regulatory environment. Because Management believes
it
is probable that a challenge will be made and that it may be successful as
to
some of the possible assertions, Management has provided for the
contingency.
The
Internal Revenue Service is examining the Company’s tax returns for the years
ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for
calendar years 2003, 2002, 2001 and 2000. The examinations began in October
2003. Any
assessments resulting from the examinations will be currently due and payable.
A
revenue agent issued a report in May 2004, challenging Agri’s tax exempt status
for the years examined; however, the report did not quantify the adjustment
or
assessment proposed. Agri responded with a written report that disputed the
facts, interpretation of law, and conclusions cited in the Agent’s report. Upon
receipt of Agri’s response in July 2004, the Agent proposed requesting a
Technical Advice Memorandum (TAM) from the national office to assist in settling
the differences. After reviewing the proposed TAM request from the IRS, Agri
responded with a written report that disputed the facts the IRS cited in its
request. Due to the breadth and substantial nature of the dispute, the IRS
has
chosen not to pursue the TAM.
In
June
2006 the IRS issued notices of proposed adjustments that take the position
that
the determination letter issued to Agri should be retroactively revoked, and
the
value of the assets contributed from Alico to Agri should be taxed at their
fair
market value at the date of transfer. Additionally, the notices allege that
Alico expensed certain fees and expenses that should have been capitalized.
Although the proposed adjustments do not quantify the tax, penalty or interest
proposed, the total proposed adjustments would result in additional taxable
income to the Company of $0.3 million, $76.6 million and $42.8 million for
the
fiscal years ended August 31, 2002, 2001 and 2000, respectively. The notices
of
proposed adjustments also contain an alternative IRS position alleging that
even
if the determination letter was valid, that under the Code Section 482, Alico,
Inc. remains liable for tax on the sale of the real estate transferred. This
alternative proposed adjustment does not quantify the tax, penalty or interest
proposed, but the proposed adjustment would result in additional taxable income
to the Company of $19.4 million, $13.4 million, $11.1 million, $1.4 million
and
$10.3 million for the fiscal years ended August 31, 2004, 2003, 2002, 2001
and
2000, respectively. A third and fourth alternative position taken by the IRS
alleges that Alico acted as Agri’s agent or that two real estate sales be
taxable to Alico under the assignment of income doctrine. These alternative
positions do not quantify the adjustment to income, tax, penalty or interest
proposed, but the Company estimates that the adjustment under either of these
alternative positions would result in additional taxable income to the Company
of approximately $0.3 million, $1.2 million, and $10.3 million for the fiscal
years ended August 31, 2002, 2001, and 2000, respectively. The Company
does not agree with the proposed adjustments and plans to defend against the
challenges vigorously.
Since
January 1, 2004 Agri has been filing as a taxable entity as a result of changes
in the Internal Revenue Code.
9.
Dividends:
Quarterly
dividends of $0.25 per share were paid on October 15, 2005, January 15, 2006
and
April 15, 2006 to stockholders of record as of September 30, 2005, December
31,
2005 and March 31, 2006, respectively. At its meeting on March 31, 2006 the
Board of Directors declared a quarterly dividend of $0.25 per share payable
to
stockholders of record as of June 30, 2006, with payment expected on or around
July 15, 2006. At its meeting on June 30, 2006 the Board of Directors declared
a
quarterly dividend of $0.275 per share payable to stockholders of record as
of
September 30, 2006 with payment expected on or around October 15,
2006.
10.
Disclosures about reportable segments:
Alico
has
four reportable segments: Citrus groves, Citrus purchasing,
harvesting and marketing (Bowen Brothers Fruit, LLC),
Sugarcane and Sod and Cattle. Citrus groves and Citrus purchasing, harvesting
and marketing are consolidated under the caption “citrus” on the Company’s
Statement of Operations. The goods
and
services
produced
by these segments are sold to wholesalers and processors who prepare the
products for consumption. The Company's operations are located in
Florida.
Alico,
through its newly formed subsidiary Bowen Brothers Fruit, LLC (Bowen), purchased
the assets of Bowen Brothers Fruit Co., Inc. for $1.9 million in February 2006.
The purchase was made in order to provide Alico with additional marketing
expertise and with the ability to harvest its own fruit crop. Bowen is a citrus
company that is a purchaser, harvester and marketer of citrus fruit. The revenue
and expenses for Bowen are consolidated with the Company's citrus groves on
the
Statement of Operations.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in the Company's annual report on
Form 10K filed for the fiscal year ended August 31, 2005. Alico, Inc. evaluates
performance based on profit or loss from operations before income taxes. Alico,
Inc.'s reportable segments are strategic business units that offer different
products and
services.
They
are managed separately because each segment requires different management
techniques, knowledge and skills.
The
following table presents information (unaudited) for each of the Company's
operating segments:
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Citrus
|
|
|
|
|
|
|
|
|
|
Alico
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
11,986
|
|
$
10,246
|
|
$
20,238
|
|
$
20,711
|
|
Costs
and expenses
|
|
7,549
|
|
6,622
|
|
13,378
|
|
15,431
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
4,437
|
|
3,624
|
|
6,860
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$ 632
|
|
$
611
|
|
$
1,906
|
|
$
1,826
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
$
49,860
|
|
$
55,212
|
|
|
|
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
19,751
|
|
$
-
|
|
$ 25,473
|
|
$
-
|
|
Costs
and expenses
|
|
|
19,806
|
|
|
-
|
|
|
25,526
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
(55
|
)
|
|
-
|
|
|
(53
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depr
& Amortization
|
|
$
|
340
|
|
$
|
-
|
|
$
|
638
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
$
|
5,251
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Citrus
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
31,737
|
|
$
|
10,246
|
|
$
|
45,711
|
|
$
|
20,711
|
|
Less
intersegment revenue
|
|
|
(3,461
|
)
|
|
-
|
|
|
(3,461
|
)
|
|
-
|
|
Consolidated
revenue
|
|
|
28,276
|
|
|
10,246
|
|
|
42,250
|
|
|
20,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
27,355
|
|
|
6,622
|
|
|
38,904
|
|
|
15,431
|
|
Less
intersegment costs
|
|
|
(3,469
|
)
|
|
-
|
|
|
(3,469
|
)
|
|
-
|
|
Consolidated
costs
|
|
|
23,886
|
|
|
6,622
|
|
|
35,435
|
|
|
15,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
4,390
|
|
|
3,624
|
|
|
6,815
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depr
& Amortization
|
|
$
|
972
|
|
$
|
611
|
|
$
|
2,544
|
|
$
|
1,826
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
$
|
55,111
|
|
$
|
55,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
|
|
Nine
months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane
and sod
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
2,792
|
|
$
1,902
|
|
$
9,922
|
|
$
9,641
|
|
Costs
and expenses
|
|
1,866
|
|
1,763
|
|
9,327
|
|
9,100
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
926
|
|
139
|
|
595
|
|
541
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
526
|
|
$
499
|
|
$
1,474
|
|
$
1,576
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
$
49,010
|
|
$
50,191
|
|
|
|
|
|
|
|
|
|
|
|
Cattle
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ 758
|
|
$
4,660
|
|
$
3,408
|
|
$
8,979
|
|
Costs
and expenses
|
|
|
671
|
|
|
3,558
|
|
|
2,700
|
|
|
7,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit
|
|
|
87
|
|
|
1,102
|
|
|
708
|
|
|
1,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
422
|
|
$
|
375
|
|
$
|
1,246
|
|
$
|
1,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
$
|
23,908
|
|
$
|
20,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,599
|
|
$
|
3,223
|
|
$
|
21,175
|
|
$
|
10,317
|
|
Costs
and expenses
|
|
|
6,370
|
|
|
3,864
|
|
|
19,542
|
|
|
12,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss)
|
|
|
(1,771
|
)
|
|
(641
|
)
|
|
1,633
|
|
|
(2,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
329
|
|
$
|
250
|
|
$
|
896
|
|
$
|
676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
$
|
132,263
|
|
$
|
118,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36,425
|
|
$
|
20,031
|
|
$
|
76,755
|
|
$
|
49,648
|
|
Costs
and expenses
|
|
|
32,793
|
|
|
15,807
|
|
|
67,004
|
|
|
44,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit (loss)
|
|
|
3,632
|
|
|
4,224
|
|
|
9,751
|
|
|
5,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depr
& Amortization
|
|
$
|
2,249
|
|
$
|
1,735
|
|
$
|
6,160
|
|
$
|
5,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
assets
|
|
|
|
|
|
|
|
$
|
260,292
|
|
$
|
245,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
Stock Compensation Plans:
On
November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan
("the Incentive Plan") pursuant to which the Board of Directors of the Company
may grant options, stock appreciation rights, and/or restricted stock to certain
directors and employees. The Incentive Plan authorizes grants of shares or
options to purchase up to 650,000 shares of authorized but unissued common
stock. Stock options granted have a strike price and vesting schedules, which
are at the discretion of the Board of Directors
and
determined on the effective date of the grant. The strike price cannot be less
than 55% of the market price. No stock options were issued during the nine
months ended May 31, 2006 and 2005.
In
April
2006 the Company granted 20,000 restricted shares which vest 25% per year
beginning in April 2010. The total fair market value of the 20,000 shares on
the
date of grant was $908 thousand. Employee compensation expense will be
recognized over the seven year period during which the employee is required
to
provide service. Compensation expense recorded during the three months ended
May
31, 2006 was $21 thousand.
At
May
31, 2006 and August 31, 2005, there were 9,158 and 16,371 stock options,
respectively, fully vested and exercisable and 272,844 and 292,844 shares,
respectively, available for grant.
12.
Other Comprehensive Income:
Other
comprehensive income, arising from market fluctuations in the Company's
securities portfolio, was as follows:
ALICO,
INC.
|
Schedule
of Other Comprehensive Income
|
(unaudited)
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the three months ended
|
|
For
the nine months ended
|
|
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Accumulated
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
(loss)
at beginning of period
|
|
$
|
(73
|
)
|
$
|
3,252
|
|
$
|
2,195
|
|
$
|
1,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Security gains (losses)
|
|
|
(68
|
)
|
|
(1,187
|
)
|
|
(2,374
|
)
|
|
1,548
|
|
Taxes
provided for unrealized (gains) losses
|
|
|
29
|
|
|
439
|
|
|
67
|
|
|
(573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in Other Comprehensive Income
|
|
|
(39
|
)
|
|
(748
|
)
|
|
(2,307
|
)
|
|
975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income at end of period
|
|
$
|
(112
|
)
|
$
|
2,504
|
|
$
|
(112
|
)
|
$
|
2,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
New Accounting Pronouncements:
In
May
2005 the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 154, “Accounting Changes and Error
Corrections”. SFAS 154 replaces APB No. 20, “Accounting Changes”, and SFAS No.
3, “Reporting Changes in Interim Financial Statements”. SFAS No. 154 changes the
accounting for, and reporting of, a change in accounting principle. SFAS No.
154
requires retrospective application to the prior period’s financial statements of
voluntary changes in accounting principle and changes required by new accounting
standards when the standard does not include specific transition provisions,
unless it is impractical to do so. SFAS No. 154 is effective for accounting
changes and corrections of errors in fiscal years beginning after December
15,
2005. Currently, the Company is not aware of any financial impact that the
adoption of this statement will have on its consolidated financial
statements.
In
February 2006, the FASB issued SFAS No. 155 “Accounting for Certain Hybrid
Financial Instruments - an amendment of FASB Statements 133 and 140”. This
Statement amends FASB Statements 133, Accounting
for Derivative Instruments and Hedging Activities,
and 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
This
Statement resolves issues addressed in Statement 133 Implementation Issue No.
D1, “Application of Statement 133 to Beneficial Interests in Securitized
Financial Assets.” The Statement permits fair value remeasurement for any hybrid
financial instrument that contains an embedded derivative that otherwise would
require bifurcation, clarifies which interest-only strips and principal-only
strips are not subject to the requirements of Statement 133, establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation, clarifies
that concentrations of credit risk in the form of subordination are not embedded
derivatives and amends Statement 140 to eliminate the prohibition on a
qualifying special-purpose entity from holding a derivative financial instrument
that pertains to a beneficial interest other than another derivative financial
instrument. SFAS 155 is effective for an entity’s first fiscal year beginning
after September 15, 2006. Currently, the Company is not aware of any financial
impact that the adoption of this statement will have on its consolidated
financial statements.
In
March
2006, the FASB issued SFAS No. 156 “Accounting for Servicing of Financial Assets
- an amendment of FASB Statement 140”. This Statement amends FASB Statement No.
140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities,
with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. This Statement requires an entity to recognize a
servicing asset or servicing liability each time it undertakes an obligation
to
service a financial asset by entering into a servicing contract in certain
situations, requires all separately recognized servicing assets and servicing
liabilities to be initially measured at fair value, if practicable, and permits
an entity to choose from the Amortization method or the Fair value measurement
method for each class of separately recognized servicing assets and servicing
liabilities. At its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights, without calling into question the treatment of other
available-for-sale securities under Statement 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entity’s exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value. SFAS
also requires separate presentation of servicing assets and servicing
liabilities subsequently measured at fair value in the statement of financial
position and additional disclosures for all separately recognized servicing
assets and servicing liabilities. SFAS 156 is effective for an entity’s first
fiscal year beginning after September 15, 2006. Currently, the Company is not
aware of any financial impact that the adoption of this statement will have
on
its consolidated financial statements.
14.
Treasury Stock
The
following table provides information relating to purchases of the Company’s
common shares by the Company on the open market pursuant to the Director
Compensation Plan approved by the Company’s shareholders on June 10, 2005 for
the first nine months of fiscal 2006:
|
|
|
|
|
|
Total
Shares
|
|
|
|
Date
|
|
Total
Number of Shares Purchased
|
|
Average
price paid per share
|
|
Purchased
as Part of Publicly Announced Plans or Programs(1)
|
|
Total
Dollar value of shares purchased
|
|
|
|
|
|
|
|
|
|
|
|
11/28/2005
|
|
|
10,000
|
|
$
|
43.30
|
|
|
10,000
|
|
$
|
433,000
|
|
5/9/2006
|
|
|
3,000
|
|
$
|
54.46
|
|
|
13,000
|
|
$
|
163,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The
Company may purchase an additional 17,000 shares pursuant to the approved
Director Compensation Plan.
15.
Casualty Losses:
Hurricane
Wilma caused extensive damage to the Company’s crops and infrastructure in
Collier and Hendry Counties during the first quarter of fiscal year 2006.
Additionally, in fiscal year 2006, canker was confirmed in three groves totaling
420 acres. During August and September of 2004 a series of three hurricanes
struck a portion of the Company’s citrus groves in Polk County Florida. The
Company recognized losses resulting from damages caused by the hurricanes and
canker as follows:
Three months ended
Nine months ended
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
May
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Inventoried
costs
|
|
$
|
40
|
|
$
|
-
|
|
$
|
4,089
|
|
$
|
408
|
|
Basis
of property and equipment
|
|
|
-
|
|
|
-
|
|
$
|
875
|
|
|
-
|
|
Insurance
proceeds received
|
|
|
(38
|
)
|
|
-
|
|
$
|
(2,196
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
casualty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
losses
to inventories
|
|
$
|
2
|
|
$
|
-
|
|
$
|
2,768
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crop
damages estimates during the three months ended November 30, 2005 as a result
of
hurricane Wilma were replaced by actual results as harvests were completed.
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
Company’s 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.
16.
Subsequent Event:
At
its
meeting on June 30, 2006, the Board declared a regular quarterly dividend of
$0.275 per share payable to shareholders of record as of September 30, 2006
with
payment expected on or about October 15, 2006.
ITEM
2.
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
Cautionary
Statement
____________________
Some
of
the statements in this document include statements about future expectations.
Statements that are not historical facts are "forward-looking statements" for
the purpose of the safe harbor provided by Section 21E of the Exchange Act
and
Section 27A of the Securities Act. These forward-looking statements, which
include references to one or more potential transactions, and strategic
alternatives under consideration, are predictive in nature or depend upon or
refer to future events or conditions, are subject to known, as well as, unknown
risks and uncertainties that may cause actual results to differ materially
from
Company expectations. There can be no assurance that any future transactions
will occur or be structured in the manner suggested or that any such transaction
will be completed. The Company undertakes no obligation to update publicly
any
forward-looking statements, whether as a result of future events, new
information or otherwise.
When
used
in this document, or in the documents incorporated by reference herein, the
words "anticipate", "believe", "estimate", "may", "intend", "expect", "should",
"could" and other words of similar meaning, are likely to address the Company's
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 or lesser extent than indicated.
LIQUIDITY
AND CAPITAL RESOURCES:
Working
capital decreased to $88.5
million
at May 31, 2006, from $111.2 million at August 31, 2005. As of May 31, 2006,
the
Company had cash and cash equivalents of $21.1 million compared to $13.4 million
at August 31, 2005. Marketable securities decreased to $51.4 million from $70.8
million during the same period. The ratio of current assets to current
liabilities decreased to 5.25
to 1 at
May 31, 2006 from 7.24 to 1 at August 31, 2005. Total assets increased by
$12.6
million
to $260.3
million
at May 31, 2006, compared to $247.7 million at August 31, 2005.
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
increased its credit commitments to provide for revolving credit of up to $175.0
million compared with credit commitments of $44.0 million in fiscal year 2005.
Of the $175.0 million credit commitment, $123.9 million was available for the
Company's general use at May 31, 2006 (see Note 7 to condensed consolidated
financial statements).
Hurricane
Wilma, a category three hurricane, swept through southwest Florida in October
2005, causing extensive damage to the Company’s crops and infrastructure in
Collier and Hendry Counties. The Company has recorded an estimated casualty
loss
of $2.8 million of damages to crop inventories and property and equipment
resulting from the hurricane.
Management
expects continued profitability from the Company’s agricultural operations.
Citrus operations are expected to remain profitable in fiscal year 2006. A
smaller crop resulting from hurricanes, citrus
canker and land development has caused the unit price of citrus products to
increase and thus profits from the citrus division are expected to exceed those
of the prior year.
Sugarcane
and sod operations are expected to approximate prior year levels. The Company’s
cattle operations in fiscal year 2006 are expected to remain profitable but
at
lower levels than in fiscal year 2005. To take advantage of favorable market
conditions in fiscal year 2005, the Company elected to sell a portion of its
calves instead of delivering them to feedlots for later sale. This decision
resulted in a decrease of beef cattle inventory at August 31, 2005 and in fewer
cattle available for sale in fiscal year 2006 compared with fiscal year
2005.
Cash
outlays for land, equipment, buildings, and other improvements totaled
$31.4
million during the nine months ended May 31, 2006, compared to $11.6 million
during the nine months ended May 31, 2005. In May 2006, Alico purchased 523
acres of riverfront mining property in Hendry County, Florida for $10.6 million.
In February 2006, Alico, through its newly formed subsidiary Bowen Brothers
Fruit, LLC, 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. 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.
In
accordance with guidelines established by the Company’s Board of Directors, the
Company restructured its investment portfolio during the first quarter of fiscal
2006, focusing on high quality fixed income securities with original maturities
of less than 12 months. As a result of staggered maturity dates, a greater
portion of the Company’s portfolio is classified as cash equivalents than under
previous investment policies.
The
sale
of a Lee County parcel closed in escrow during July 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 payable in four equal
principal installments together with accrued interest annually for the next
four
years after a final development order for the property is issued. The first
principal and interest installment under the contract will not be due until
12
months after the order is issued. The development order has not yet been issued;
however, in any event the first installment is due and payable in July 2008,
if
not paid before that date.
Another
sale in Lee County is expected to close in fiscal year 2007. This contract
is
for a gross sales price of $75.5 million, consisting of $7.6 million in cash
at
closing with the balance payable as a 2.5% mortgage note receivable of $67.9
million. The agreement is subject to various contingencies and there is no
assurance that it will close or that it will close within the time period
stated.
In
November 2005, the Company sold approximately 280 acres of citrus grove land
located south of LaBelle, Florida in Hendry County for $5.6 million cash placed
in escrow. The Company will retain operating rights to the grove until
residential development begins. The Company used the proceeds from the sale
as
part of a section 1031 like kind exchange for the mining property acquired
in
May 2006.
The
Company paid regular quarterly dividends of $0.25 per share on October 15,
2005,
January 15, 2006 and April 15, 2006. At its March Board meeting, the
Board
declared a regular quarterly dividend of $0.25 per share payable to shareholders
of record as of June 30, 2006 with payment expected on or about July 15, 2006.
At its June Board meeting, the Board declared a regular quarterly dividend
of
$0.275 per share payable to shareholders of record as of September 30, 2006
with
payment expected on or about October 15, 2006.
The
Internal Revenue Service is examining the Company’s tax returns for the years
ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for
calendar years 2003, 2002, 2001 and 2000. The examinations began in October
2003. Any
assessments resulting from the examinations will be currently due and payable.
A
revenue agent issued a report in May 2004, challenging Agri’s tax exempt status
for the years examined; however, the report did not quantify the adjustment
or
assessment proposed. Agri responded with a written report
that
disputed the facts, interpretation of law, and conclusions cited in the Agent’s
report. Upon receipt of Agri’s response in July 2004, the Agent proposed
requesting a Technical Advice Memorandum (TAM) from the national office to
assist in settling the differences. After reviewing the proposed TAM request
from the IRS, Agri responded with a written report that disputed the facts
the
IRS cited in its request. Due to the breadth and substantial nature of the
dispute, the IRS has chosen not to pursue the TAM.
In
June
2006 the IRS issued notices of proposed adjustments that take the position
that
the determination letter issued to Agri should be retroactively revoked, and
the
value of the assets contributed from Alico to Agri should be taxed at their
fair
market value at the date of transfer. Additionally, the notices allege that
Alico expensed certain fees and expenses that should have been capitalized.
Although the proposed adjustments do not quantify the tax, penalty or interest
proposed, the total proposed adjustments would result in additional taxable
income to the Company of $0.3 million, $76.6 million and $42.8 million for
the
fiscal years ended August 31, 2002, 2001 and 2000, respectively. The notices
of
proposed adjustments also contain an alternative IRS position alleging that
even
if the determination letter was valid, that under the Code Section 482, Alico,
Inc. remains liable for tax on the sale of the real estate transferred. This
alternative proposed adjustment does not quantify the tax, penalty or interest
proposed, but the proposed adjustment would result in additional taxable income
to the Company of $19.4 million, $13.4 million, $11.1 million, $1.4 million
and
$10.3 million for the fiscal years ended August 31, 2004, 2003, 2002, 2001
and
2000, respectively. A third and fourth alternative position taken by the IRS
alleges that Alico acted as Agri’s agent or that two real estate sales be
taxable to Alico under the assignment of income doctrine. These alternative
positions do not quantify the adjustment to income, tax, penalty or interest
proposed, but the Company estimates that the adjustment under either of these
alternative positions would result in additional taxable income to the Company
of approximately $0.3 million, $1.2 million, and $10.3 million for the fiscal
years ended August 31, 2002, 2001, and 2000, respectively. The Company
does not agree with the proposed adjustments and plans to defend against the
challenges vigorously.
See also
footnote 8 to the condensed consolidated financial statements.
RESULTS
OF OPERATIONS:
The
basic
business of the Company is agriculture, which is of a seasonal nature and is
subject to the influence of natural phenomena and wide price fluctuations.
The
results of operations for the stated periods are not necessarily indicative
of
results to be expected for the full year.
Net
income for the three and nine months ended May 31, 2006 was $2.5 million and
$6.4 million respectively compared with net income of $2.6 million and $3.6
million for the three and nine months ended May 31, 2005,
respectively. Increased
earnings from bulk real estate sales ($4.4 million compared with $0.0 million
for the nine months ended May 31, 2006 and May 31, 2005, respectively) and
interest and investment income ($8.1 million for the nine months ended May
31,
2006 compared with $2.7 million for the nine months ended May 31, 2005) offset
the casualty loss of $2.8 million for the nine months ended May 31, 2006. The
Company accrued interest on a mortgage note receivable of $56.6 million during
the nine months ended May 31, 2006 from the Lee County land sale in July 2005.
This accrual combined with higher interest rates for investments and realized
gains from the sale of equities, caused interest and investment income to exceed
prior year results for the three and nine months ended.
Pretax
income from operations was $2.9 million for the quarter ended May 31, 2006
compared with $4.2 million for the quarter ended May 31, 2005. The decrease
was
primarily due to lower pretax income from rock and sand royalties ($0.2 million
compared with $0.9 million for the quarters ended May 31, 2006 and 2005,
respectively) and increased general and administrative expenses ($3.1 million
compared with $2.5 million for the quarter ended May 31, 2006 and 2005).
Operations
reported a pretax loss of $0.2 million for the nine months ended May 31, 2006,
compared with a pretax profit of $4.1 million for the nine months ended May
31,
2005. A casualty loss related to citrus canker and Hurricane damages of $2.8
million coupled with decreased rock and sand royalties ($0.7 million compared
with $2.6 million for the nine months
ended
May
31, 2006 and 2005, respectively) caused the decrease. The
property where a large rock mine was located was sold in July 2005. The Company
has begun limited mining operations on a new site and recently purchased a
523
acre riverfront mine site suitable for mining operations.
Pretax
income from agricultural operations (excluding casualty losses) were $5.5
million compared with $5.1 million for the quarters ended May 31, 2006 and
2005,
respectively, and $8.3 million compared with $8.1 million for the nine months
ended May 31, 2006 and 2005, respectively. The factors causing the increase
in
pretax income from agricultural operations excluding casualty losses are
discussed in detail below.
Citrus
The
Citrus division recorded pretax profits of $4.4 million and $6.8 million for
the
quarter and nine months ended May 31, 2006, respectively, compared with $3.6
million and $5.3 million for the quarter and nine months ended May 31, 2005.
Hurricanes, citrus canker finds and increased real estate development in the
central and southern portions of Florida where the majority of citrus is
produced have combined to reduce the supply of citrus for the past two years,
resulting in price increases for citrus products across the industry. During
the
first nine months of fiscal year 2006 the Company has averaged $7.20 per box
for
its citrus products as compared with $6.41 per box for the same period in the
prior fiscal year, causing the current year profit to increase.
The
price
increase described above has served to more than offset the damages caused
by
hurricane Wilma. The hurricane caused extensive damage to the Company’s crops
and infrastructure in Collier and Hendry Counties. Due primarily to the damages
caused by hurricane Wilma, the Company estimates its total citrus harvest for
fiscal year 2006 at 3.2 million boxes, compared with 4.0 million for fiscal
year
2005.
Alico,
through its newly formed subsidiary Bowen Brothers Fruit, LLC (Bowen), purchased
the assets of Bowen Brothers Fruit Co., Inc. for $1.9 million in February,
2006.
The purchase was made in order to provide Alico with additional marketing
expertise and with the ability to harvest its own fruit crop. Bowen’s operations
generated revenues of $19.8 million and expenses of $19.8 million for the
quarter ended May 31, 2006 and revenues of $25.5 million and expenses of $25.5
million for the period from the date of acquisition to May 31, 2006. A portion
of the purchase price was allocated to intangible assets and generated an
amortization cost of $0.3 million and $0.6 million for the quarter ended May
31,
2006 and the period from the date of acquisition to May 31, 2006, respectively,
which was included in the total expenses reported for each respective period.
Bowen’s operations are seasonal in nature and the results of operations for the
stated periods are not necessarily indicative of results to be expected for
the
full year. Due to the amortization discussed above, Management estimates that
Bowen will breakeven during fiscal 2006.
Sugarcane
and Sod
Sugarcane
and sod generated a pretax profit of $0.9 million for the three months ended
May
31, 2006 compared with earnings of $0.1 million for the three months ended
May
31, 2005. For the nine months ended May 31, 2006 and 2005, the sugarcane and
sod
division generated pretax profits of $0.6 million and a profit of $0.5 million,
respectively. Recent price increases in the price of raw sugar improved
sugarcane profitability during the quarter ended May 31, 2006, and returned
the
division to its prior year profitability levels.
Cattle
Pretax
profits from the sale of cattle were $0.1 million and $0.7 million for the
three
and nine months ended May 31, 2006, respectively, compared with $1.1 million
and
$1.8 million for the three and nine months ended May 31, 2005. The number of
cattle sold was less during the first nine months of fiscal year 2006 than
for
the same period in the prior fiscal year (4,133 for the first nine months of
fiscal year 2006 compared with 9,995 for the first nine months of fiscal year
2005). 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. Due
to
the sale of the calves in the prior fiscal year as described above, fewer
animals were available for sale in the current fiscal year.
Other
Agricultural Operations
The
Company also sells vegetable transplants through its subsidiary, Alico Plant
World, LLC, as well as native plants from its ranch location, and grows and
sells corn and beans. Pretax income from these operations totaled $0.1 million
and $0.2 million for the three and nine months ended May 31, 2006, respectively.
Income from plants, vegetables and trees was $0.3 million and $0.5 million
for
the three and nine month periods ended May 31, 2005, respectively.
General
Corporate
In
May
2006, the Company purchased a 523 acre riverfront mine site for rock and fill.
The purchase price was $10.6 million. The property was purchased in order to
partially replace the revenue stream from the Lee County rock mine which was
sold in fiscal year 2005. A portion of the purchase price was designated as
like
kind exchange property resulting from the sale of the citrus grove described
below.
In
November 2005, the Company sold approximately 280 acres of citrus grove land
located south of Labelle, Florida in Hendry County for $5.6 million cash placed
in escrow and used as proceeds for a like kind exchange to acquire the mine
site. The Company will retain operating rights to the grove until residential
development begins.
The
Company through Alico-Agri Ltd., purchased approximately 291 acres in Polk
County, Florida in October 2005 for $9.2 million. The property contains 2,100
feet of road frontage on U.S. 27 and 2,600 feet of road frontage on County
road
640. The property also includes approximately 2,640 feet of lakefront along
Crooked Lake, a 6,000 acre lake. The Company identified the property as an
exchange property under section 1031 of the Internal Revenue Code and was able
to defer tax on $9.2 million of proceeds from the sale of a Lee County parcel
that closed in escrow in July 2005 and is described below.
The
sale
of a Lee County parcel closed in escrow during July 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 payable in four equal
principal installments together with accrued interest annually for the next
four
years after a final development order for the property is issued. The first
principal and interest installment under the contract will not be due until
12
months after the order is issued. The development order has not yet been issued;
however, in any event the first installment is due and payable in July 2008,
if
not paid before that date.
An
agreement to sell the remaining property in Lee County is expected to close
in
fiscal year 2007. This contract is for a gross sales price of $75.5 million,
consisting of $7.6 million in cash at closing with the balance payable as a
2.5%
mortgage note receivable of $67.9 million. The Company is exploring its options
under the contract, including the possibility of a like-kind exchange. The
agreement is subject to various contingencies and there is no assurance that
it
will close or that it will close within the time period stated.
Agri-Insurance,
Co. Ltd., a wholly owned subsidiary of Alico, Inc., wrote an insurance policy
in
2004 for Tri-County Grove, LLC, a subsidiary of Atlantic Blue Trust, Inc.,
the
holder of approximately 51% of the Company’s common stock. The coverage term was
from August 2004 to July 2005. Total coverage under the policy was $2.7 million
and Agri charged a premium of $45 thousand. Tri-County Grove LLC discovered
citrus canker in their groves in 2005, requiring the total destruction of the
majority of its citrus trees. Agri accrued a loss reserve in fiscal year 2005
equal to the total potential exposure under the policy for this claim of $1.4
million. The claim was paid in full in March of 2006.
Premiums
for coverages quoted are set by independent actuaries and underwriters hired
by
Agri based on underwriting considerations established by them. Premiums vary
depending upon the size of the property, its age and revenue-producing history,
as well as the proximity of the insured property to known disease-prone areas
or
other insured hazards.
In
September 2004, the Company, through Alico-Agri Ltd., purchased the assets
of La
Belle Plant World, Inc., a wholesale grower and shipper of commercial 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 ("Plant World") was set up as a wholly owned subsidiary of Alico-Agri,
Ltd
to operate these assets.
Off
Balance Sheet Arrangements
______________________________
The
Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC enters
into forward purchase contracts for the purchase of citrus products during
the
normal course of its business. Typically, these purchases are covered by forward
sales contracts. The total forward purchase contracts under these agreements
totaled $1.7 million at May 31, 2006. All of these purchases were covered by
forward sales agreements. None of these agreements were in a net loss position
as of May 31, 2006. All of these contracts will be fulfilled by the end of
the
fiscal year 2006. Additionally, the Company hedges its fuel requirements through
the purchase of fuel stocks at fixed prices for future deliveries. The net
obligations under these arrangement totaled $480 thousand at May 31, 2006.
Deliveries under these contracts will occur before October 31,
2006.
Disclosure
of Contractual Obligations
_____________________________________
The
contractual obligations of the Company at May 31, 2006 are set forth in the
table below:
May
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than
|
|
1
-
3
|
|
3-5
|
|
5
+
|
|
Contractual
obligations
|
|
Total
|
|
1
year
|
|
years
|
|
years
|
|
years
|
|
Long-term
debt
|
|
$
|
63,157
|
|
$
|
3,312
|
|
$
|
2,633
|
|
$
|
53,623
|
|
$
|
3,589
|
|
Expected
interest on debt
|
|
|
17,187
|
|
$
|
3,918
|
|
$
|
7,341
|
|
$
|
5,688
|
|
$
|
240
|
|
Commissions
|
|
|
2,833
|
|
|
-
|
|
|
1,417
|
|
|
1,416
|
|
|
-
|
|
Citrus
purchase contracts
|
|
|
1,692
|
|
|
1,692
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Retirement
benefits
|
|
|
4,799
|
|
|
637
|
|
|
688
|
|
|
688
|
|
|
2,786
|
|
Deferred
taxes
|
|
|
15,869
|
|
|
2,928
|
|
|
3,800
|
|
|
3,800
|
|
|
5,341
|
|
Other
non-current liability (a)
|
|
|
16,954
|
|
|
-
|
|
|
16,954
|
|
|
-
|
|
|
-
|
|
Building
& equipment additions
|
|
|
1,634
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
Real
Estate contract obligations
|
|
|
726
|
|
|
726
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations (donation)
|
|
|
781
|
|
|
781
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Fuel
purchase contract
|
|
|
480
|
|
|
480
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Sugarcane
harvesting obligation
|
|
|
136
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
Leases
(operating & capital)
|
|
|
37
|
|
|
25
|
|
|
12
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126,285
|
|
$
|
16,269
|
|
$
|
32,845
|
|
$
|
65,215
|
|
$
|
11,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical
Accounting Policies and Estimates
__________________________________________
The
preparation of the Company's 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 critical accounting policies that affect the more
significant judgments and estimates used in the preparation of our consolidated
financial statements are discussed below.
Alico
records inventory at the lower of cost or market. Management regularly assesses
estimated inventory valuations based on current and forecasted usage of the
related commodity and any other relevant factors that affect the net realizable
value.
Based
on
fruit buyers' and processors' advances to growers, stated cash and futures
markets, together with combined 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. Fluctuation in the market prices for citrus
fruit has caused the Company to recognize additional revenue from the prior
year's crop totaling $839 thousand for the nine months ended May 31, 2006,
and
$357 thousand for the nine months ended May 31, 2005.
In
accordance with Statement of Position 85-3 "Accounting by Agricultural Producers
and Agricultural Cooperatives", the cost of growing crops (citrus and sugarcane)
are capitalized into inventory until the time of harvest. Once a given crop
is
harvested, the related inventoried costs are recognized as cost of sales to
provide an appropriate matching of costs incurred with the related revenue
earned. The inventoried cost of each crop is then compared with the estimated
net realizable value (NRV) of the crop and any costs in excess of the NRV are
immediately recognized as cost of sales.
Hurricane
Wilma caused extensive damage to the Company’s crops and infrastructure in
Collier and Hendry Counties. In calculating the estimated amount of loss
resulting from the hurricane, Management estimated the amount of crop loss
and
property damage. The estimates were based on information obtained from
observation, provided by insurance claims adjusters, and discussions with other
industry experts. These estimates will continue to be revised as actual losses
are confirmed.
In
June
of 2000, Alico formed a wholly owned insurance subsidiary, Agri Insurance
Company, Ltd. (Bermuda), in response to the lack of available insurance, both
in
the traditional commercial insurance markets and governmental sponsored
insurance programs, suitable to provide coverages for the increasing number
and
potential severity of agricultural related events. Such events typically include
citrus canker, crop diseases, livestock related maladies and weather. By forming
Agri, Alico hoped to prefund its potential exposures related to the referenced
events, and also attract new underwriting capital to the extent that Agri
is successful in profitably underwriting both its own potential risks, and
those
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 have remained below the stated annual level. As the Lee
county real estate was sold, substantial gains were generated in Agri, creating
permanent book and tax differences.
Since
receiving the favorable IRS determination letter, certain transactions, entered
into by other taxpayers under the same IRS Code Section came under scrutiny
and
criticism by the news media. In reaction, Management has recorded a contingent
liability of $17.0 million at May 31, 2006 and August 31, 2005 for income taxes
in the event of an IRS challenge. Management’s decision has been influenced by
perceived changes in the regulatory environment. Because Management believes
it
is probable that a challenge will be made and that it may be successful as
to
some of the possible assertions, Management has provided for this
contingency.
The
Internal Revenue Service is examining the Company’s tax returns for the years
ended August 31, 2004, 2003, 2002, 2001 and 2000, and Agri tax returns for
calendar years 2003, 2002, 2001 and 2000. The examinations began in October
2003. Any
assessments resulting from the examinations will be currently due and payable.
A
revenue agent issued a report in May 2004, challenging Agri’s tax exempt status
for the years examined; however, the report did not quantify the adjustment
or
assessment proposed. Agri responded with a written report that disputed the
facts, interpretation of law, and conclusions cited in the Agent’s report. Upon
receipt of Agri’s response in July 2004, the Agent proposed requesting a
Technical Advice Memorandum (TAM) from the national office to assist in settling
the differences. After reviewing the proposed TAM request from the IRS, Agri
responded with a written report that disputed the facts the IRS cited in its
request. Due to the breadth and substantial nature of the dispute, the IRS
has
chosen not to pursue the TAM.
In
June
2006 the IRS issued notices of proposed adjustments that take the position
that
the determination letter issued to Agri should be retroactively revoked, and
the
value of the assets contributed from Alico to Agri should be taxed at their
fair
market value at the date of transfer. Additionally, the notices allege that
Alico expensed certain fees and expenses that should have been capitalized.
Although the proposed adjustments do not quantify the tax, penalty or interest
proposed, the total proposed adjustments would result in additional taxable
income to the Company of $0.3 million, $76.6 million and $42.8 million for
the
fiscal years ended August 31, 2002, 2001 and 2000, respectively. The notices
of
proposed adjustments also contain an alternative IRS position alleging that
even
if the determination letter was valid, that under the Code Section 482, Alico,
Inc. remains liable for tax on the sale of the real estate transferred. This
alternative proposed adjustment does not quantify the tax, penalty or interest
proposed, but the proposed adjustment would result in additional taxable income
to the Company of $19.4 million, $13.4 million, $11.1 million, $1.4 million
and
$10.3 million for the fiscal years ended August 31, 2004, 2003, 2002, 2001
and
2000, respectively. A third and fourth alternative position taken by the IRS
alleges that Alico acted as Agri’s agent or that two real estate sales be
taxable to Alico under the assignment of income doctrine. These alternative
positions do not quantify the adjustment to income, tax, penalty or interest
proposed, but the Company estimates that the adjustment under either of these
alternative positions would result in additional taxable income to the Company
of approximately $0.3 million, $1.2 million, and $10.3 million for the fiscal
years ended August 31, 2002, 2001, and 2000, respectively. The Company
does not agree with the proposed adjustments and plans to defend against the
challenges vigorously.
See also
footnote 8 to the condensed consolidated financial statements.
Since
January 1, 2004 Agri has been filing as a taxable entity as a result of changes
in the Internal Revenue Code.
ITEM
3. Quantitative and Qualitative Disclosures about Market
Risk
The
table
below provides information about the Company's investment in marketable debt
securities and its loan obligations that are sensitive to changes in interest
rates. The table also provides information about the Company's purchase and
sales contracts that are sensitive to changes in the citrus juice
prices.
Investments
are placed with high quality issuers and, by policy, limit the amount of credit
exposure to any one issuer. Alico is averse 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 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 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 debt instruments held at various
securities brokers and investment banks.
Fixed
rate securities tend to decline with market rate interest increases. Variable
rate securities are generally affected more by general market expectations
and
conditions. Additionally, the Company has debt with interest rates that vary
with the LIBOR. A 1% increase in this rate would impact the Company's annual
interest expense by approximately $511 thousand based on the Company's
outstanding debt under these agreements at May 31, 2006.
The
Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC, purchases
citrus from growers and resells the fruit to various processing plants. Both
the
purchase and sales prices may be fixed or variable. At May 31, 2006 all variable
purchase contracts had been settled. The table below shows the total commitment
for variable sales price contracts calculated using the base contract price.
These variable price contracts were closed out in June for an additional $108
thousand in revenue.
|
|
Expected
Maturity Date
|
|
|
|
|
Year
1
|
|
Year
2
|
|
Year
3
|
|
Year
4
|
|
Year
5
|
|
Thereafter
|
|
Total
|
|
Fair
Value
|
|
Interest
Rate Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable Debt Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Securities
|
|
$
|
19,238
|
|
|
4,042
|
|
|
143
|
|
|
261
|
|
|
199
|
|
|
3,260
|
|
|
|
|
|
27,143
|
|
Average Interest Rate
|
|
|
4.66
|
%
|
|
6.14
|
%
|
|
5.03
|
%
|
|
5.32
|
%
|
|
5.03
|
%
|
|
4.96
|
%
|
|
|
|
|
4.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Securities
|
|
$
|
7,759
|
|
|
2,700
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
13,380
|
|
|
|
|
|
23,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes Payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate Notes
|
|
$
|
3,312
|
|
|
1,315
|
|
|
1,318
|
|
|
1,267
|
|
|
1,267
|
|
|
3,589
|
|
|
12,068
|
|
|
|
|
Average Interest Rate
|
|
|
6.16
|
%
|
|
6.69
|
%
|
|
6.69
|
%
|
|
6.68
|
%
|
|
6.68
|
%
|
|
6.68
|
%
|
|
6.54
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Rate Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,089
|
|
|
|
|
|
51,089
|
|
|
|
|
Average Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.63
|
%
|
|
|
|
|
5.63
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Price Sensitivity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable Pricing Contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fruit Purchase Commitments
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fruit Sales Commitments
|
|
$
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,064
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM
4. Controls and Procedures
Evaluation
of disclosure controls and procedures
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the Company's reports under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded,
processed, summarized and reported within the time periods
specified
in
the
SEC's rules and forms and that such information is accumulated and communicated
to management, including the Company's Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company periodically reviews the design and effectiveness of
its
disclosure controls and internal control over financial reporting. The Company
makes modifications to improve the design and effectiveness of its disclosure
controls and internal control structure, and may take other corrective action
if
its reviews identify a need for such modifications or actions.
A
control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances
of
fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or mistake. Additionally, controls
could be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions. Additionally, the degree of compliance with the
policies or procedures may deteriorate over time. Because of the inherent
limitations in a cost-effective control system, misstatements due to error
or
fraud may occur and not be detected.
In
connection with the preparation of the Company's Annual Report on Form 10-K,
as
of August 31, 2005, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) and 15d-15(e) under the Exchange Act). The Company concluded
that
control deficiencies in its internal control over financial reporting as of
August 31, 2005 constituted a material weakness within the meaning of the Public
Company Accounting Oversight Board's Auditing Standard No. 2, An Audit of
Internal Control Over Financial Reporting Performed in Conjunction with an
Audit
of Financial Statements.
The
material weakness identified by the Company was disclosed in its Annual Report
on Form 10-K, which was filed with the SEC on November 23, 2005. Based on that
and subsequent evaluations, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of May 31, 2006, the Company's disclosure
controls and procedures are not effective, for the reasons described above
(relating to the previously-identified material weakness in internal control
over financial reporting).
Changes
in internal control over financial reporting
Management,
with oversight from the Audit Committee of the Board of Directors, has been
addressing the material weakness disclosed in its Form 10-K and is committed
to
effectively remediating known weaknesses as expeditiously as possible. Although
the Company's remediation efforts are well underway, control weaknesses will
not
be considered remediated until new internal controls over financial reporting
are implemented and operational for a sufficient period of time to allow for
effective testing and are tested, and management and its independent registered
certified public accounting firm conclude that these controls are operating
effectively. Management has therefore concluded that there have been no changes
made in the Company's internal controls over financial reporting in connection
with its third quarter evaluation that would materially affect, or are
reasonably likely to materially affect, its internal control over financial
reporting.
The
current status of the Company's remediation efforts to address the material
weakness in internal control over financial reporting identified in its Annual
Report for the year ended August 31, 2005 is as follows:
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of August 31, 2005. 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 upon this
assessment and as more fully explained below, management identified a material
weakness in Alico’s internal control over financial reporting as of August 31,
2005. A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Management identified the following material weakness as of August
31, 2005:
A
lack of
qualified financial reporting personnel with sufficient depth, skills, and
experience to apply generally accepted accounting principles to the Company's
transactions and to prepare financial statements that comply with generally
accepted accounting principles. Specifically, monitoring controls to ensure
journal entries are posted accurately and in a timely fashion were ineffective
during the fiscal 2005 closing process. This resulted in a missed elimination
entry to inter-company accounts and an incorrect entry to deferred income taxes
and other comprehensive income. Although the missed or incorrect entries were
not prevented or detected by the Company's existing system of internal controls,
the entries were identified by the Company’s independent registered certified
public accounting firm, and were corrected and properly reflected in the fiscal
2005 year end financial statements.
Although
the Company does not believe that the material weakness identified impacted
any
previously filed financial statements, the existence of a material weakness
or
weaknesses is an indication that there is more than a remote likelihood that
a
material misstatement of the Company's financial statements will not be
prevented or detected in a future period.
The
Company has substantially completed implementation of the changes it believes
are required to remediate the previously reported material weaknesses in
internal control over financial reporting related to maintaining an effective
control environment by: (i) adding a certified public accountant, a qualified
and experienced financial reporting manager, to the Company's Accounting
Department to ensure that the Company has sufficient depth, skills and
experience within the department to prepare the Company's financial statements
and disclosures in accordance with generally accepted accounting principles
in
the United States of America; (ii) hiring an assistant controller to process
transactions and allowing the controller more time to perform in depth reviews
of financial accounting information; (iii) enhancing and strengthening its
written accounting and reporting policies pertaining to the elimination of
inter-company balances and training employees with respect to the new policies;
and (iv) purchasing accounting software specifically designed to handle
consolidating entries, schedules and issues. All these changes have taken place
subsequent to the year ended August 31, 2005. Management will continue to
evaluate the progress and abilities of accounting personnel in order to assess
whether weakness has been effectively remediated. While the remediation measures
are expected to improve the design and effectiveness of the Company's internal
control over financial reporting, certain of the corrective processes,
procedures and controls have not been tested. In general, the controls have
not
yet operated effectively for a sufficient period of time to demonstrate
operating effectiveness. Accordingly, the CEO and CFO have concluded that the
Company's disclosure controls and procedures were not effective as of August
31,
2005 and May 31, 2006. Management is committed to correcting this material
weakness.
As
a
result of the material weakness and factors identified above, we have concluded
that as of August 31, 2005, and May 31, 2006, the Company did not maintain
effective internal control over financial reporting.
FORM
10-Q
PART
II. OTHER INFORMATION
ITEM
1.Has been omitted as there are no items to report during this interim
period.
ITEM
2.
Unregistered sales of Equity Securities
On
November 30, 2005 pursuant to the Director Compensation Plan approved by the
Company’s shareholders on June 10, 2005, the Company issued 6,447 of its common
stock as restricted shares privately placed in reliance on rule 144 to the
independent directors as follows:
Evelyn
D’An
725 shares
Phillip
S. Dingle 896
shares
Gregory
T. Mutz 2,809
shares
Charles
L. Palmer 923
shares
Gordon
Walker 1,094
shares
The
Directors received the shares in lieu of cash Director fees as provided under
the Director Compensation Plan. The Company did not receive any cash for these
transactions.
The
following table provides information relating to purchases by Alico, Inc. of
Alico, Inc. common shares on the open market pursuant to the Director
Compensation Plan approved by the Company’s shareholders on June 10, 2005 for
the first nine months of fiscal 2006:
Date
|
|
Total
Number of Shares Purchased
|
|
Average
price paid per share
|
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans
or
Programs(1)
|
|
Approximate
Dollar Value of Shares that May Yet Be Purchased Under Publicly
Announced
Plans or Programs
|
|
|
|
|
|
|
|
|
|
|
|
11/28/2005
|
|
10,000
|
|
$
43.30
|
|
10,000
|
|
$
902,600
|
|
5/9/2006
|
|
|
3,000
|
|
$
|
54.46
|
|
|
13,000
|
|
$
|
925,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM
3.
has been omitted as there are no items to report during this interim
period.
ITEM
4.
has been omitted as there are no items to report during this interim
period.
ITEM
5
has been omitted as there are no items to report during this interim
period.
ITEM
6.
Exhibits
Exhibit
3.1 Restated Certificate of Incorporation, dated February 17, 1971, as amended
(incorporated by reference to the Company’s Registration Statement on form S-1,
File No. 2-43156).
Exhibit
3.2 Bylaws of the Company, as amended (incorporated by reference to the
Company’s Registration Statement on form S-8, File No. 333-130575).
Exhibit
10.1 Loan Agreement, dated October 11, 2005 (incorporated by reference to
Exhibit 10.01 of the Company’s Current Report on Form 8-K filed October 17,
2005).
Exhibit
10.2 Amended and Restated Loan Agreement, dated May 26, 2006 (incorporated
by
reference to
Exhibit
10.01 of the Company’s Current Report on Form 8-K filed June 1,
2006).
Exhibit
11 Computation of Earnings per share May 31, 2006.
Exhibit
31.1 Rule 13a-14(a) certification.
Exhibit
31.2 Rule 13a-14(a) certification.
Exhibit
32.1 Section 1350 certification.
Exhibit
32.2 Section 1350 certification.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ALICO,
INC.
(Registrant)
July
10,
2006
John
R.
Alexander
Chairman
Chief
Executive Officer
(Signature)
July
10,
2006
Patrick
W. Murphy
Vice
President
Chief
Financial Officer
(Signature)
July
10,
2006
Jerald
R.
Koesters
Controller
(Signature)