Shell Company
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
X ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended August 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
incorporation
IRS
Employer
or
organization)
identification number
P.O.
Box 338, La Belle,
Florida
33975
(Address
of principal executive
offices)
Zip code
Registrant’s
telephone number including
(863)
675-2966
area
code
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of
class:
Name of each exchange on which registered:
COMMON
CAPITAL STOCK, $1.00 Par value,
Non-cumulative
NASDAQ
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as define
in
Rule 405 of the Securities Act.
Yes No
X
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes No X
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that such registrant was
required to file such reports), and (2) has been subject to such filings
requirements for the past 90 days.
Yes X No
Indicate
by check mark whether the registrant is an accelerated filer (as defined in
rule
12b-2 of the Exchange Act)
Yes X No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 or
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
form 10-K.
Yes No X
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act ((Check
one):
Large
accelerated filer
Accelerated filer X
Non-accelerated filer
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b
of the Exchange Act.)
Yes No
X
The
aggregate market value of the voting and nonvoting common equity held by
non-affiliates based on the average bid and asked price, as quoted on the NASDAQ
as of February 28, 2006 (the last business day of Alico’s most recently
completed second fiscal quarter) was $165,357,190. There were 7,368,612 shares
of stock outstanding at October 31, 2006.
Documents
Incorporated by Reference:
Portions
of the Proxy Statement of Registrant to be dated on or before December 31,
2006
are incorporated by reference in Part III of this report.
INDEX
ALICO,
INC.
FORM
10-K
For
the year ended August 31, 2006
Part
I
· |
Item
1B, unresolved staff comments.
|
· |
Item
3, legal proceedings.
|
· |
Item
4, submission of matters to a vote of security
holders.
|
Part
II
· |
Item
5, market for registrant’s common equity, related stockholder matters and
issuer purchases of equity
securities.
|
· |
Item
6, selected financial data.
|
· |
Item
7, management’s discussion and analysis of financial condition and results
of operations.
|
· |
Item
7A, quantitative and qualitative disclosure about market
risk.
|
· |
Item
8, financial statements and supplementary
data.
|
· |
Item
9, changes in and disagreements with accountants on accounting and
financial disclosure.
|
· |
Item
9A, control and procedures.
|
· |
Item
9B, other information.
|
Part
III
· |
Item
10, directors and executive officers of the
registrant.
|
· |
Item
11, executive compensation.
|
· |
Item
12, security ownership of certain beneficial owners and management
and
related stockholder matters.
|
· |
Item
13, certain relationships and related
transactions.
|
· |
Item
14, principal accountants’ fees and
services.
|
Part
IV
· |
Item
15, exhibits and financial statement
schedules.
|
PART
I
Item
1. Business.
Alico,
Inc. (the "Company"), which was formed February 29, 1960 as a spin-off of the
Atlantic Coast Line Railroad Company, is a land management company operating
in
Central and Southwest Florida. The Company's primary asset is 136,605 acres
of land located in Collier, Glades, Hendry, Lee and Polk Counties. (See Item
2
for location and acreage by current primary use.) The Company is involved in
a
variety of agribusiness pursuits in addition to land leasing and rentals, rock
and sand mining and real estate sales activities.
The
Company's land is managed for multiple uses wherever possible. For example,
cattle ranching, forestry and land leased for farming, grazing, recreation
and
oil exploration utilize the same acreage in some instances.
The
charts below outline the relative contribution of each operation to the
operating revenue, profit and total assets of the Company during the past three
years (all revenues are from external customers within the United
States):
|
|
Fiscal
years ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
Agriculture:
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
30,869
|
|
$
|
-
|
|
$
|
-
|
|
Citrus
groves
|
|
|
22,188
|
|
|
26,231
|
|
|
24,549
|
|
Sugarcane
|
|
|
8,926
|
|
|
9,323
|
|
|
11,646
|
|
Cattle
|
|
|
5,700
|
|
|
11,017
|
|
|
9,678
|
|
Alico
Plant World
|
|
|
3,270
|
|
|
2,587
|
|
|
-
|
|
Vegetables
|
|
|
2,389
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
1,528
|
|
|
402
|
|
|
752
|
|
Native
trees and shrubs
|
|
|
142
|
|
|
231
|
|
|
407
|
|
Agriculture
operations revenue
|
|
|
75,012
|
|
|
49,791
|
|
|
47,032
|
|
Real
estate activities
|
|
|
113
|
|
|
810
|
|
|
406
|
|
Land
leasing and rentals
|
|
|
1,369
|
|
|
1,933
|
|
|
1,171
|
|
Mining
royalties
|
|
|
940
|
|
|
2,991
|
|
|
3,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
$
|
77,434
|
|
$
|
55,525
|
|
$
|
52,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
years ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Gross
profit (loss):
|
|
|
|
|
|
|
|
Agriculture:
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
(268
|
)
|
$
|
-
|
|
$
|
-
|
|
Citrus
groves
|
|
|
7,614
|
|
|
6,247
|
|
|
4,142
|
|
Sugarcane
|
|
|
360
|
|
|
499
|
|
|
2,595
|
|
Cattle
|
|
|
786
|
|
|
2,109
|
|
|
1,500
|
|
Alico
Plant World
|
|
|
(1,103
|
)
|
|
459
|
|
|
-
|
|
Vegetables
|
|
|
985
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
688
|
|
|
(78
|
)
|
|
130
|
|
Native
trees and shrubs
|
|
|
142
|
|
|
231
|
|
|
407
|
|
Gross
profit from agricultural operations
|
|
|
9,204
|
|
|
9,467
|
|
|
8,774
|
|
Real
estate activities
|
|
|
52
|
|
|
482
|
|
|
153
|
|
Land
leasing and rentals
|
|
|
917
|
|
|
1,294
|
|
|
784
|
|
Mining
royalties
|
|
|
940
|
|
|
2,991
|
|
|
3,448
|
|
Net
casualty loss (recovery)
|
|
|
3,628
|
|
|
(1,888
|
)
|
|
(408
|
)
|
Subtotal
|
|
|
14,741
|
|
|
12,346
|
|
|
12,751
|
|
Profits
from the sale of bulk real estate
|
|
|
4,369
|
|
|
5,465
|
|
|
20,311
|
|
Net
interest and investment income (expense)
|
|
|
4,987
|
|
|
2,148
|
|
|
694
|
|
Corporate
general and administrative and other
|
|
|
(11,413
|
)
|
|
(10,721
|
)
|
|
(5,956
|
)
|
Income
before income taxes
|
|
|
12,684
|
|
|
9,238
|
|
|
27,800
|
|
Provision
for income taxes
|
|
|
6,215
|
|
|
3,148
|
|
|
9,987
|
|
Net
income
|
|
$
|
6,469
|
|
$
|
6,090
|
|
$
|
17,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
|
|
Agriculture:
|
|
|
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
3,096
|
|
$
|
-
|
|
|
|
|
Citrus
groves
|
|
|
59,464
|
|
|
49,670
|
|
|
|
|
Sugarcane
|
|
|
47,894
|
|
|
49,863
|
|
|
|
|
Cattle
|
|
|
23,919
|
|
|
20,383
|
|
|
|
|
Alico
Plant World
|
|
|
6,515
|
|
|
7,373
|
|
|
|
|
Vegetables
|
|
|
1,981
|
|
|
-
|
|
|
|
|
Sod
|
|
|
4,191
|
|
|
1,743
|
|
|
|
|
Subtotal
Agriculture
|
|
|
147,060
|
|
|
129,032
|
|
|
|
|
Mining
|
|
|
10,568
|
|
|
1,017
|
|
|
|
|
Other
Corporate assets
|
|
|
105,125
|
|
|
117,645
|
|
|
|
|
Total
assets
|
|
$
|
262,753
|
|
$
|
247,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company is not in the retail land sales and development business, except through
its wholly owned subsidiary, Saddlebag Lake Resorts, Inc. However, the Company
has from time to time sold properties which, in the judgment of Management
and
the Board of Directors, were
surplus
to the Company's primary operations. Additionally, the Company’s wholly owned
subsidiary, Alico-Agri, Ltd., has also engaged in bulk land sales. The Company
recently hired a Vice President of Real Estate to work with senior management
and the Board of Directors to enhance the planning and strategic positioning
of
all Company owned land. This position will also oversee the entitlement of
the
Company's land assets in order to preserve rights should the Company choose
to
develop property in the future.
Subsidiary
Operations
The
Company has five wholly owned subsidiaries: Agri-Insurance Company, Ltd.
("Agri"), Alico-Agri, Ltd. (“Alico-Agri”), Alico Plant World, LLC (“Plant
World”), Bowen Brothers Fruit LLC (“Bowen”), and Saddlebag Lake Resorts, Inc.
(“Saddlebag”).
Agri
Agri,
formed during fiscal 2000, was created to write crop insurance against
catastrophic losses due to weather and disease. Independent third party
actuaries compute premiums and coverage amounts for policies issued by Agri.
Agri
hires independent actuaries and underwriters to set premiums for indemnities
quoted and to establish underwriting considerations. Premiums vary depending
upon the size of the property, its age and revenue-producing history, and the
proximity of the insured property to known disease-prone areas or other insured
hazards.
Agri
provided coverage for Tri-County Groves, LLC, a subsidiary of Atlantic Blue
Trust, Inc., the holder of approximately 47.4% of the Company’s common stock at
the time the coverage was issued, in fiscal year 2004. The coverage term was
from August 2004 to July 2005. Total coverage under the policy was $2.7 million,
and the premium collected was $45 thousand during the coverage
term.
Additionally,
Agri directly underwrote catastrophic business interruption coverage for its
parent company, Alico, Inc., insuring all but two of Alico’s citrus groves
during fiscal years 2005 and 2004. The total coverage under the policy was
$34.0
million and $28.5 million for fiscal years 2005 and 2004, respectively. Premiums
charged for the policy were $1.5 million and $1.1 million during fiscal years
2005 and 2004, respectively. Alico’s remaining two groves were insured by Agri
during calendar years 2004. The coverage provided under this policy was $3.7
million and the premium charged was $98 thousand during calendar year
2004.
Alico-Agri
Alico-Agri,
Ltd. was formed during fiscal year 2003 to manage the real estate holdings
of
Agri. The partnership allows Alico to provide management and administrative
services so that Agri can focus on insurance issues. Agri transferred all of
its
property holdings and the related contracts to Alico-Agri for a 99% partnership
interest. Alico, the managing partner, transferred cash for a 1% interest in
the
partnership.
Plant
World
In
September 2004, the Company, through Alico-Agri, purchased the assets of La
Belle Plant World, Inc. a wholesale grower and shipper of vegetable transplants
to commercial farmers. The purchase price was $4.9 million for the land, office
building, greenhouses and associated equipment. Alico Plant World, LLC was
set
up as a wholly owned subsidiary of Alico-Agri, Ltd. The assets of Plant World
were purchased for the purpose of diversifying Alico’s agricultural operations
and to leverage Alico’s existing relationships with the farming
community.
Bowen
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 to provide Alico with additional marketing expertise
and
the ability to harvest its own fruit crop.
Saddlebag
Saddlebag
has been active in the subdividing, development and sale of real estate since
its inception in 1971. Saddlebag has two subdivisions near Frostproof, Florida
that have been developed. Both subdivisions are sold out. The Company recently
hired a Vice President of Real Estate, who also serves as President of
Saddlebag, to work with senior management and the Board of Directors to enhance
the planning and strategic positioning of all Company owned land. He will also
oversee the entitlement of the Company's land assets in order to preserve rights
should the Company choose to develop property in the future.
The
financial results of the operation of these subsidiaries are consolidated with
those of the Company. Intercompany activities and balances are eliminated in
consolidation. (See Note 1 of the Notes to the Consolidated Financial
Statements.)
Segments
The
Company engages in a variety of agricultural pursuits as well as other land
management activities. For further information concerning segments please refer
to Note 11 to the consolidated financial statements.
Agricultural
Operations
Bowen
Brothers
Bowen’s
operations include harvesting, hauling and marketing citrus for both Alico
and
other outside growers. Bowen’s operations also include the purchase and resale
of citrus fruit. Bowen Brothers was purchased in February 2006 to provide Alico
with additional marketing expertise and the ability to harvest its own fruit
crop. During fiscal year 2006 Bowen harvested approximately 900 thousand boxes
of Alico’s fruit and 2.7 million boxes of fruit from third
parties.
Citrus
Groves
Alico’s
Citrus Grove operations consist of cultivating citrus trees in order to produce
citrus for delivery to the fresh and processed citrus markets. Approximately
10,208 acres of citrus were grown and harvested during the 2005-06 season.
Since
1983 the Company has maintained a marketing contract covering the majority
of
the Company's citrus crop with Ben Hill Griffin, Inc. (Griffin), a Florida
corporation. Griffin was the Company’s largest shareholder until February 2004
(See footnote 10 to consolidated financial statements). The agreement provides
for modifications to meet changing market conditions and provides that either
party may terminate the contract by furnishing advance written notice prior
to
the first day of August before each fruit season. Notice was served in a timely
fashion in fiscal year 2005, and accordingly the fruit marketed under the terms
of this contract is expected to decrease over the next two years. Under the
terms of the contract, the Company's fruit is packed and/or processed and sold
along with fruit from other growers, including Ben Hill Griffin, Inc. The
proceeds, less costs and a profit margin, are distributed on a pro rata basis
as
the finished product is sold. In February 2004, Ben Hill Griffin, Inc.
transferred all of its stock holdings in the Company to Atlantic Blue Trust,
Inc., pursuant to the "Settlement Agreement" agreed upon regarding a dispute
over a family trust.
During
the year ended August 31, 2006, approximately 78% of the Company's fruit crop
was marketed under this agreement, as compared to 76% for the year ended August
31, 2005 and 75% for the year ended August 31, 2004.
Sugarcane
Alico’s
sugarcane operations consist of cultivating sugarcane for sale to a sugar
processor. The crop is harvested by a co-op, proportionately owned by sugarcane
growers, including Alico. The Company had 10,138 acres, 10,580 acres, and 11,131
acres of sugarcane in production during fiscal years 2006, 2005, and 2004,
respectively. The 2006, 2005, and 2004 fiscal year crops yielded approximately
272,000, 319,000 and 346,000 gross tons, respectively. An additional 3,416
acres
of planted cane was not yet mature for harvest during fiscal year 2006. Since
the inception of its sugarcane program in 1988, the Company has sold
100%
of its
product through a pooling agreement with United
States Sugar Corporation,
a local
Florida sugar mill. Under the terms of the pooling agreement, the Company’s
sugarcane is processed and sold along with sugarcane from other growers. The
proceeds, less costs and a profit margin, are distributed on a pro rata basis
as
the finished product is sold.
Cattle
The
Company’s cattle operation, located in Hendry and Collier Counties, Florida, is
engaged primarily in the production of beef cattle and the raising of
replacement heifers. The breeding herd consists of approximately 13,500 cows,
bulls and replacement heifers. Approximately 56% of the herd is from one to
five
years old, while the remaining 44% are at least six years old. The Company
primarily sells to packing and processing plants in the United States. The
Company also sells cattle through local livestock auction markets and to
contract cattle buyers in the United States. These buyers provide ready markets
for the Company's cattle. In the opinion of Management, the loss of any one
or a
few of these processing plants and/or buyers would not have a material adverse
effect on the Company's cattle operation. Subject to prevailing market
conditions, the Company may hedge its beef inventory by entering into cattle
futures contracts to reduce exposure to changes in market prices.
Plant
World
In
September 2004, in order to diversify Alico’s agricultural operations and to
leverage Alico’s existing relationships with the farming community, the Company
formed a subsidiary, Alico Plant World and purchased the assets of a wholesale
grower and shipper of commercial vegetable transplants to commercial farmers.
Plant World’s infrastructure covers approximately 50 acres of land. During
fiscal years 2006 and 2005, Plant World shipped approximately 85.8 million
and
69.9 million vegetable transplants, respectively, to various farmers in several
states. The Company is currently exploring various ornamental varieties of
plants in order to improve margins in its nursery operations.
Vegetables
In
fiscal
year 2006 the Company began growing vegetables. During the year, the Company
planted 500 acres of sweet corn and 500 acres of green beans. The corn crop
produced approximately 119,000 crates, and the beans produced approximately
77,000 bushels. Yields from both ventures were reduced due to the effects of
hurricane Wilma, a category three hurricane that swept through Southwest Florida
in October 2005. The Company plans to double its corn and bean acreage in fiscal
year 2007, and is currently exploring the cultivation of other vegetable
crops.
Sod
The
Company is also engaged in the cultivation of sod for landscaping purposes.
The
Company had 472 acres of sod in production during fiscal years 2006, 2005 and
2004. The Company harvested approximately 12.6 million, 4.8 million and 17.2
million square feet of cultivated sod in fiscal years 2006, 2005 and 2004,
respectively. The Company is currently developing an additional 500 acres of
sod. The Company entered into an agreement in fiscal year 2006 with a United
States sod wholesaler to market its crop. Additionally, the Company began
selling uncultivated sod (bahia) to local landscapers from its pastures in
fiscal year 2005. The Company harvested approximately 15.9 million and 1.8
million square feet of uncultivated sod during the 2006 and 2005 fiscal years,
respectively.
Native
trees and shrubs
A
small
percentage of the Company's properties are classified as timberlands. Thinning
of timber began in fiscal year 2006 and will be completed during fiscal 2007.
Additionally the Company sells sabal palms, palm fans, oak trees and other
horticultural commodities growing naturally on the property. These products
are
sold to landscaping companies in Florida. The Company does not incur any of
the
harvesting expenses for any of its tree or shrub sales.
Non
Agricultural Operations
Mining
Operations: Rock and Sand
Prior
to
July 2005, the Company leased a portion of its property in Lee County, Florida
to CSR America, Inc. of West Palm Beach, Florida for the mining and production
of rock, aggregate, sand, baserock and other road building and construction
materials.
Royalties
received for these products are based on a percentage of the F.O.B. plant sales
price. The Company sold the majority of the property in Lee County where the
mines were located in July 2005, but continues to receive royalties from the
mining operations on the remaining acreage. However, a contract is pending
for
the sale of the remaining Lee County property. When the property is sold, the
royalties from this location will cease.
In
May
2006, the Company paid $10.6 million to purchase a 523 acre riverfront mine
site for rock and fill. The Company has allocated approximately 54% of the
purchase price to the rock and sand reserves, with the remaining 46% of the
purchase price allocated as residual land value based on the present value
of
the expected rock royalties over 20 years and the expected residual value of
the
property after that time. Rock and sand reserves will be depleted and charged
to
cost of goods sold proportionately as the property is mined.
Additionally,
the Company is currently seeking a permit for a rock mine on its
Hendry County property. Other properties are currently being evaluated
for mine sites.
Land
Rentals for Grazing, Agricultural, Oil Exploration and Other
Uses
The
Company rents land to others on a tenant-at-will basis, for grazing, farming
and
recreational uses. The Company will continue to develop additional land to
lease
for farming as strategically advantageous and profitable. There were no
significant changes in the method of rental for these purposes during the past
fiscal year.
Competition
As
indicated, the Company is primarily engaged in a variety of agricultural and
nonagricultural activities, all of which are in highly competitive markets.
For
instance, citrus is grown in foreign countries and several states, the most
notable of which are: Brazil, Florida, California, and Texas. Beef cattle are
produced throughout the United States and domestic beef sales also compete
with
imported beef. Sugarcane products compete with products from sugar beets in
the
United States as well as imported sugar and sugar products from foreign
countries. Sod is produced throughout the United States, as are vegetables
and
vegetable transplants. Forest and rock products are produced in most parts
of
the United States. Leasing of land is also widespread.
The
Company's share of the United States market for citrus, sugarcane, cattle,
sod,
vegetables, vegetable transplants, mining and forest products is less than
3%.
Environmental
Regulations
The
Company's operations are subject to various federal, state and local laws
regulating the discharge of materials into the environment. Management believes
the Company is in compliance with all such rules and such compliance has not
had
a material effect upon capital expenditures, earnings or the Company’s
competitive position.
While
compliance with environmental regulations has not had a material economic effect
on the Company's operations, executive officers are required to spend a
considerable amount of time monitoring these matters. In addition, there are
ongoing costs incurred in complying with permitting and reporting
requirements.
Employees
At
August
31, 2006, the Company had a total of 215 full-time employees classified as
follows: Bowen 12; Citrus 79; Sugarcane 17; Ranch 19; Plant World 29; Vegetables
2; Sod 1; Real Estate 3; Leasing 1; Facilities Maintenance Support 31; General
and Administrative 21. One of the general and administrative staff is
engaged in the development of new products and research. Management is not
aware
of any efforts by employees or outside organizers to create any type of labor
union. Management believes that the employer/employee relationship environment
is such that labor organization activities are unlikely to occur.
Seasonal
Nature of Business
As
with
any agribusiness enterprise, the Company's business operations are predominantly
seasonal in nature. The harvest and sale of citrus fruit generally occurs in
all
quarters. Sugarcane is harvested during the first, second and third quarters.
Vegetable harvest and sales generally occur in the first, second and third
quarters. Vegetable transplant sales occur primarily in the first, second and
third quarters. Other segments of the Company's business such as its cattle
and
sod sales, and its timber, mining and leasing operations, tend to be more
recurring than seasonal in nature.
Capital
resources and raw materials
Management
believes that the Company will be able to meet its working capital requirements
for the foreseeable future with internally generated funds. Additionally, the
Company has credit commitments that provide for revolving credit that is
available for the Company's general use. Raw materials needed to propagate
the
various crops grown by the Company are readily available from local sources.
Available
Information
The
Company’s internet address is: http://www.alicoinc.com.
The
Company files reports with the Securities Exchange Commission ("SEC") as
required by SEC rules and regulations on Form 10-Q, Form 10-K and the annual
proxy statement. These reports are available to the public to read and copy
at
the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C.
The
Company is an electronic filer with the SEC and these reports are available
through the SEC internet site (http:www.sec.gov), and through the Company’s
website as soon as reasonably practicable after filing with the SEC. Copies
of
documents filed with the SEC are also available free of charge upon
request.
Item
1A. Risk Factors
The
Company’s operations involve varying degrees of risk and each investor should
consider the specific risks and speculative features inherent in and affecting
the business of the Company before investing in the Company. In considering
the
following risk and speculative factors, an investor should realize that there
is
a possibility of losing their entire investment.
The
Company’s financial condition and results of operations could be affected by the
risk factors discussed below. These factors may also cause actual results to
differ materially from the results contemplated by the forward looking
statements in Management’s Discussion and Analysis.
The
list
of risks below is not intended to be all inclusive. A complete listing of risks
is beyond the scope of this document. However, in contemplating the financial
position and results of operations of the Company, investors should carefully
consider, among other factors, the following risk factors:
General
The
IRS has proposed significant contested audit tax adjustments which could have
a
material adverse effect on the Company
The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties, or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit its rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13,
2006.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes. However, using the IRS promulgated
monthly rates the Company estimates that the interest charge on the maximum
proposed assessment is $25.0 million as of August 31, 2006. Interest will
continue to accrue at the monthly interest rate published by the
IRS.
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter. The Company has accrued a liability of $20.3 million
for the contingency.
Should
the IRS prevail in its primary position, the effect would materially and
adversely reduce the liquidity of the Company and would cause the Company to
default on several of its loan covenants.
The
Company has a 50.5% stockholder and a limited public float which could
adversely affect the price of its stock and restrict the ability of the
minority shareholders to have a voice in corporate
governance
Atlantic
Blue Group, Inc. (ABG) (formerly Atlantic Blue Trust, Inc.) is the owner of
approximately 50.5% of the Company’s common stock. Accordingly, the Company’s
common stock is thinly traded and its market price may fluctuate significantly
more than stocks with a larger public float. Additionally by virtue of its
ownership percentage, ABG is able to elect all the directors and, consequently,
is deemed to control the Company. While ABG has issued a governance letter
dated
September 29, 2006 reaffirming its commitment to maintaining a majority of
independent directors on Alico’s board, this commitment may be terminated at any
time upon 30 days prior written notice. The Company does not have cumulative
voting. Accordingly stockholders of the Company other than ABG have no effective
control over who the management and directors of the Company are or will
be.
The
Company manages its properties in an attempt to capture its highest and best
use
and customarily does not sell property until it determines that the property
is
surplus to its agricultural activities by reason of its potential for
industrial, commercial or residential use. The Company has little control over
when this occurs.
The
Company’s goal for its land management program is to manage and selectively
improve its lands for their most profitable use. To this end, the Company
continually evaluates its properties focusing on soil capabilities, subsurface
composition, topography, transportation, availability of markets and the
climatic characteristics of each of the tracts. While the Company is primarily
engaged in agricultural activities, when land is determined to be better suited
to industrial, commercial or residential use, the Company has classified the
property as surplus to its agricultural activities and sold it. The Company’s
land management strategy is thus a long term strategy to acquire, hold and
manage land for its best use, selling surplus land at opportune times and in
manner that would maximize the Company’s profits from such surplus tracts. The
timing for when agricultural lands become best suited for industrial, commercial
or residential use depends upon a number of factors which are beyond the control
of the Company such as:
§ |
national,
regional and local economic
conditions
|
§ |
conditions
in local real estate markets (e.g., supply of land, reduction in
demand)
|
§ |
competition
from other available property;
|
§ |
availability
of roads and utilities;
|
§ |
availability
of governmental entitlements;
|
§ |
government
regulation and changes in real estate, zoning, land use, environmental
or
tax laws;
|
§ |
interest
rates and the availability of financing;
and
|
§ |
potential
liability under environmental and other
laws.
|
The
Company is not able to predict when properties will become best suited for
non
agricultural use and has little ability to influence this process. Additionally
changes from time to time in any or a combination of these factors could result
in delays in sales or the Company’s inability to sell tracts which are
determined to be surplus or to its ability to realize optimum pricing from
such
sales.
The
Company carries large receivables from seller financed sales of large tracts
of
surplus land the collectibility of which is subject to credit risk relating
to
debtors.
The
Company’s sale of surplus lands often involves buyer financing provided by the
Company. In addition to the cash deposit paid by a buyer of surplus land, the
Company at times takes a mortgage for the unpaid balance of the purchase price
of the land sales contract. The collectibility of the amounts owed and the
likelihood that the Company will achieve the profitability promised by any
sales
contract is dependent on the creditworthiness of the mortgagees which often
depends upon the continued financial success of such entity. The purchasers
of
the surplus tracts are often developers, whose success is in turn directly
affected by the multiple factors in the national and local real estate market,
including but not limited to interest rates, demand for housing, competition
from other available land and unanticipated costs of construction. A mortgagor’s
default under a material sales contract, or the bankruptcy of any material
purchaser of surplus land depending on the magnitude of its debt to the Company,
could have a material adverse effect on the Company.
The
Company is subject to environmental liability by virtue of owning significant
holdings of real estate assets.
The
Company faces a potential for environmental liability by virtue of its ownership
of real property. If hazardous substances (including herbicides and pesticides
used by the Company or by any persons leasing the Company’s lands) are
discovered on or emanating from any of the Company’s lands and the release of
such substances presents a threat of harm to the public health or the
environment, the Company may be held strictly liable for the cost of remediation
of these hazardous substances. In addition, environmental laws that apply to
a
given site can vary greatly according to the site’s location, its present and
former uses, and other factors such as the presence of wetlands or endangered
species on the site. Although the Company purchases insurance when it is
available for environmental liability, these insurance contracts may not be
adequate to cover such costs or damages or may not continue to be available
to
the Company at prices and terms that would be satisfactory. It is possible
that
in some cases the cost of compliance with these environmental laws could exceed
the value of a particular tract of land or be significant enough that it would
have a material adverse effect on the Company.
The
Company has two large customers that account for 34% of
revenues.
For
the
fiscal year ended August 31, 2006, the Company’s two largest customers accounted
for approximately 34% of operating revenues, with its largest customer
accounting for 22% of operating revenue. The Company’s largest customer is Ben
Hill Griffin, Inc. (“Griffin”), with whom the Company has a marketing agreement
which, by its terms, will expire at the end of the 2006-07 citrus season. The
balance of the sales concentration is attributable to the Company’s marketing
and allotment contracts with U.S. Sugar, for whom the Company grows raw
sugarcane. These two marketing arrangements involve marketing pools which allow
the contracting party to market the Company’s product in conjunction with others
in the pool and pay the Company a proportionate share of the resulting revenue
from the sale of all of the pooled product, less operating expenses and an
agreed upon profit margin. While the Company believes that it can replace these
arrangements with other marketing alternatives, it may not be able to do so
quickly and the results or associated costs may not be as favorable as the
current contracts.
The
Company has Material Weaknesses in its internal accounting
controls.
In
the
2005 Annual Report on Form 10K, the Company noted that it had identified
a
Material Weakness in its internal accounting controls because of insufficient
staffing in its accounting department. The Company took remedial action to
correct this weakness, but , as of the date of the 2006 audit, the Company’s
Chief Executive Officer and Chief Financial Officer decided that the Material
Weakness had not been remediated and therefore has continued. The reason
for
this decision is that during the Company’s annual audit a significant deficiency
arose due to adjustments to the Company’s tax provision that were not detected
by the Company’s accounting staff. . See Item 9A. By definition a Material
Weakness means that there is a significant deficiency that, by itself, or
in
combination with other significant deficiencies, results in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Additionally, the existence
of a
Material Weakness precludes management or the Company’s Auditor from concluding
that internal control over financial reporting is effective and
requires the Company's auditors to issue an adverse attestation
opinion on the company’s internal controls.
Agricultural
Risks - General
Agricultural
operations generate a large portion of the Company’s revenues. Agriculture
operations are subject to a wide variety of risks including product pricing
due
to variations in supply and demand, weather, disease, input costs and product
liability.
Agricultural
products are subject to supply and demand pricing which is not
predictable
Because
the Company’s agricultural products are commodities, the Company is not able to
predict with certainty what price it will receive for its products; however,
its
costs are relatively fixed. Additionally, the growth cycle of such products
in
many instances dictates when such products must be marketed which may or may
not
be advantageous to obtaining the best price. Excessive supplies tend to cause
severe price competition and lower prices throughout the industry affected.
Conversely, shortages may cause higher prices. Shortages
often result from adverse growing conditions which can reduce available product
of growers in affected growing areas while not affecting others in non affected
growing areas. Since multiple variables which affect
pricing
and costs are incurred before pricing and supply is known, the Company cannot
accurately predict or control from year to year what its profits or losses
from
agricultural operations will be.
The
Company’s agricultural assets are concentrated and the effects of adverse
weather conditions such as hurricanes can be exaggerated.
The
Company’s agricultural operations are concentrated in south Florida counties
with more than 80% of its agricultural lands located at Alico Ranch in Hendry
County. All of these areas are subject to occasional periods of drought, excess
rain, flooding, freeze, and hurricane risk. Crops require water in different
quantities at different times during the growth cycle. Accordingly too much
or
too little water at any given point can adversely impact production. While
the
Company attempts to mitigate controllable weather risks through water management
and crop selection, its ability to do so is limited. The Company’s operations
are in south and central Florida which are areas subject to the risk of
hurricanes. Hurricanes have the potential to destroy crops and impact citrus
production through the loss of fruit and destruction of trees either as a result
of high winds or through the spread of wind blown disease. The Company was
impacted by hurricanes during fiscal years 2006, 2005 and 2004
and sustained losses relating to the storms during all three fiscal years.
The Company seeks to minimize hurricane risk by the purchase of insurance
contracts, but a portion of the Company’s crops remain uninsured. Because the
Company’s agricultural properties are located in relative close proximity to
each other, the impact of adverse weather conditions is magnified in the
Company’s results of operations.
Water
use regulation restricts the Company’s access to water for agricultural
use
The
Company’s agricultural operations are dependent upon the availability of
adequate surface and underground water needed to produce its crops. The
availability of water for use in irrigation is regulated by the State of
Florida
through water management districts which have jurisdiction over various
geographic regions in which the Company’s lands are located. Currently the
Company has permits for the use of underground and surface water which are
adequate for its agricultural needs. Surface water in Hendry County, where
much
of the Company’s agricultural land is located, comes from Lake Okeechobee via
the Caloosahatchee River and the system of canals used to irrigate such land.
Since the Army Corps of Engineers controls the level of Lake Okeechobee,
this
organization ultimately determines the availability of surface water even
though
the use of water has been permitted by the State of Florida through the water
management district. Recently
the Army Corps of Engineers decided to lower the permissible level of Lake
Okeechobee in response to concerns about the ability of the levees surrounding
the lake to restrain rising waters which could result from hurricanes. Changes
in permitting for underground or surface water use during times of drought
because of lower lake levels may result in shortages of water for agricultural
use by the Company and could have a material adverse effect upon the Company’s
agricultural operations and financial results.
The
Company’s citrus groves are subject to damage and loss from disease including
but not limited to citrus canker and citrus greening
diseases
The
Company’s citrus groves are subject to damage and loss from diseases such as
Citrus Canker and Citrus Greening. Each of these diseases is widespread
in
Florida and the Company has found instances of Citrus Canker and/or Citrus
Greening in several of its groves. Both diseases are present in areas where
Company groves are located. There is no known cure for Citrus Canker at
the
present time although some pesticides inhibit the development of the disease.
The disease is spread by contact with infected fruit or trees or by wind
blown
transmission. The Company’s policy is to destroy trees which become infected
with this disease or with Citrus Greening disease and the Company maintains
an
inspection program to discover infestations early. Citrus Greening destroys
infected trees. The disease is spread by psyllids and the Company carries
on a
pesticide program to eliminate these hosts. There is no known pesticide
or other
treatment for Citrus Greening at the present time. Both of these diseases
pose a
significant threat to the Florida Citrus industry and to the Company’s citrus
groves. Wide spread dissemination of these diseases in the Company’s groves
could cause a material adverse effect to the Company’s operating results and
citrus grove assets.
Pesticide
and herbicide use by the Company or its lessees could create liability for
the
Company
The
Company and some of the parties to whom the Company leases land for agricultural
purposes, use herbicides, pesticides and other hazardous substances in the
operation of their business. All pesticides and herbicides used by the Company
have been approved for use by the proper governmental agencies with the hazards
attributable to each substance appropriately labeled and described. The Company
applies such chemicals strictly in accordance with the labeling. However, the
Company does not have any knowledge or control over the chemicals used by third
parties who lease the Company’s lands for cultivation. It is possible that some
of these herbicides and pesticides could be harmful to humans if used
improperly, or that there may be unknown hazards associated with such chemicals
despite any contrary government or manufacturer labels. The Company might have
to pay the costs or damages associated with the improper application, accidental
release or the use or misuse of such substances.
Changes
in immigration laws or enforcement of such laws could impact the ability of
the
Company to harvest its crops
The
Company engages third parties to provide personnel for its harvesting
operations. The personnel engaged by such companies typically come from pools
composed of immigrant labor. The availability and number of such workers is
subject to decrease if there are changes in the U.S. immigration laws or
stricter enforcement of such laws. The scarcity of available personnel to
harvest the Company’s agricultural products could cause the Company’s harvesting
costs to increase or could lead to the loss of product that is not timely
harvested which could have a material adverse effect upon the
Company.
Changing
public perceptions regarding the quality, safety or health risks of our
agricultural products can affect demand and pricing of such
products.
The
general public’s perception regarding the quality, safety or health risks
associated with particular food crops the Company grows and sells could reduce
demand and prices for some of the Company’s products. To the extent that
consumer preferences evolve away from products the Company produces for health
or other reasons, and the Company is unable to modify its products or to develop
products that satisfy new customer preferences, there could be decreased
demand for the Company's products. Even if market prices are
unfavorable, produce items which are ready to be or have been harvested must
be
brought to market. Additionally, the Company has significant investments in
its
citrus groves and cannot easily shift to alternative products for this land.
A
decrease in the selling price received for the Company’s products due to the
factors described above could have a material adverse effect on the
Company.
The
Company faces significant competition in its agricultural
operations.
The
Company faces significant competition in its agricultural operations both
from
domestic and foreign producers and does not have any branded products. Foreign
growers generally have lower cost of production, less environmental regulation
and in some instances greater resources and market flexibility than the
Company. Because
foreign growers have great flexibility as to when they enter the U. S. market,
the Company cannot always predict the impact these competitors will have
on its
business and results of operations. The competition the Company faces from
foreign suppliers of sugar and orange juice is mitigated by quota restriction
on
sugar imports imposed by the U. S. government and by a governmentally imposed
tariff on U. S. orange imports. A change in the government’s sugar policy
allowing more imports or a reduction in the U.S. orange juice tariff would
adversely impact the Company and negatively impact the Company’s results of
operations.
Item
1B. Unresolved Staff Comments
None.
Item
2. Properties.
At
August
31, 2006, the Company owned a total of 136,605 acres of land located in five
counties in Florida. Acreage in each county and the primary classification
with
respect to the present use of these properties is shown in the following
table:
Alico,
Inc. & Subsidiaries
|
|
Land
Use Summary
|
|
August
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Hendry
|
|
Polk
|
|
Collier
|
|
Glades
|
|
Lee
|
|
Citrus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing
acres
|
|
|
10,208
|
|
|
2,674
|
|
|
3,405
|
|
|
4,129
|
|
|
-
|
|
|
-
|
|
Support
and nonproductive*
|
|
|
6,677
|
|
|
2,691
|
|
|
789
|
|
|
3,197
|
|
|
-
|
|
|
-
|
|
Total
Citrus
|
|
|
16,885
|
|
|
5,365
|
|
|
4,194
|
|
|
7,326
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugarcane:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing
acres
|
|
|
13,554
|
|
|
13,554
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Support
and nonproductive*
|
|
|
8,241
|
|
|
8,241
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
Sugarcane
|
|
|
21,795
|
|
|
21,795
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranch:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Improved
pasture
|
|
|
22,922
|
|
|
22,627
|
|
|
295
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Semi-improved
pasture
|
|
|
21,752
|
|
|
20,038
|
|
|
602
|
|
|
1,112
|
|
|
-
|
|
|
-
|
|
Native
pasture
|
|
|
19,513
|
|
|
11,846
|
|
|
5,949
|
|
|
1,718
|
|
|
-
|
|
|
-
|
|
Support
and nonproductive*
|
|
|
25,516
|
|
|
23,296
|
|
|
1,540
|
|
|
680
|
|
|
-
|
|
|
-
|
|
Total
Ranch
|
|
|
89,703
|
|
|
77,807
|
|
|
8,386
|
|
|
3,510
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Farming:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased
acres
|
|
|
4,886
|
|
|
4,886
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Support
and nonproductive*
|
|
|
1,008
|
|
|
1,008
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
farming
|
|
|
5,894
|
|
|
5,894
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sod:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Producing
acres
|
|
|
472
|
|
|
472
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Support
and nonproductive*
|
|
|
363
|
|
|
363
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Total
sod
|
|
|
835
|
|
|
835
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rock
and Sand Mining
|
|
|
523
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
523
|
|
|
-
|
|
Commercial
& Residential
|
|
|
970
|
|
|
4
|
|
|
66
|
|
|
-
|
|
|
-
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
136,605
|
|
|
111,700
|
|
|
12,646
|
|
|
10,836
|
|
|
523
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Includes buildings, roads, water management systems, fallow lands
and
wetlands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Of
the
above lands, the Company utilizes approximately 22,000 acres of improved pasture
plus approximately 49,000 acres of semi-improved and native pasture for cattle
production. Much of the land is also leased for multi-purpose use such as oil
exploration, farming and recreation.
From
the
inception of the Company's initial development program in 1948, the goal has
been to develop the lands for their most profitable use. Prior to implementation
of the development program, detailed studies were made of the properties
focusing on soil capabilities, topography, transportation, availability of
markets and the climatic characteristics of each of the tracts. Based on these
and later studies, the use of each tract was determined. Management believes
that the lands are suitable for agricultural, residential and commercial uses.
The Company is primarily engaged in agricultural activities. In the past some
of
the land was considered surplus to the agricultural needs of the Company and,
as
indicated under Item 1 of this report, sales of such surplus property were
made
from time to time.
The
Company has recently hired a Vice President of Real Estate, who also serves
as
President of Saddlebag Lake Resorts, Inc., to work with senior management and
the Board of Directors to enhance the planning and strategic positioning of
all
Company owned land. He will also oversee the entitlement of the Company’s land
assets in order to preserve rights should the Company choose to develop the
property in the future.
Management
believes that each of the major agricultural programs is adequately supported
by
equipment, buildings, fences, irrigation systems and other amenities required
for the operation of the projects.
Item
3. Legal proceedings
The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties, or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit a rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13, 2006. The
rebuttal letter will be reviewed by the Southwest Florida IRS office, then
forwarded to IRS Appeals for further action.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes.
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter.
Item
4. Submission of Matters to a Vote of Security Holders.
None.
PART
II
Item
5. Market for the Registrant's Common Stock and Related Stockholder Matters.
Common
Stock Prices
The
common stock of Alico, Inc. is traded on the NASDAQ Stock Market, LLC (“NASDAQ”)
under the symbol ALCO. The high and low prices as reported by NASDAQ, by fiscal
quarter, during the years ended August 31, 2006 and 2005 are presented
below:
|
|
2006
|
|
2005
|
|
|
|
Bid
Price
|
|
Bid
Price
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
51.95
|
|
$
|
42.06
|
|
$
|
55.59
|
|
$
|
41.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
Quarter
|
|
$
|
47.50
|
|
$
|
42.47
|
|
$
|
62.05
|
|
$
|
51.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter
|
|
$
|
58.76
|
|
$
|
42.04
|
|
$
|
58.01
|
|
$
|
46.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
59.35
|
|
$
|
48.40
|
|
$
|
56.20
|
|
$
|
47.14
|
|
The
price
presented does not reflect prices in actual transactions. They are bid prices,
which represent prices between broker-dealers. Theses prices do not include
retail mark-ups and mark-downs or any commission to the
broker-dealer.
Approximate
Number of Holders of Common Stock
As
of
October 31, 2006, there were approximately 449 holders of record of the
Company’s Common Stock as reported by the Company’s transfer agent.
Dividend
Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared during the last two fiscal years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Record
Date
|
|
Payment
Date
|
|
Amount
Paid Per Share
|
|
|
|
|
|
|
|
|
|
June
30, 2005
|
|
July
15, 2005
|
|
|
|
|
$
|
1.000
|
|
September
30, 2005
|
|
October
15, 2005
|
|
|
|
|
$
|
0.250
|
|
December
31, 2005
|
|
January
15, 2006
|
|
|
|
|
$
|
0.250
|
|
March
31, 2006
|
|
April
15, 2006
|
|
|
|
|
$
|
0.250
|
|
June
30, 2006
|
|
July
15, 2006
|
|
|
|
|
$
|
0.250
|
|
September
30, 2006
|
|
October
15, 2006
|
|
|
|
|
$
|
0.275
|
|
|
|
|
|
|
|
|
|
|
|
At
a
Board of Directors meeting held on September 28, 2006, the Board declared a
quarterly dividend of $0.275 per share payable to stockholders of record as
of
December 29, 2006, with payment expected on or about January 15,
2007.
The
Company’s ability to pay dividends in the immediate future is dependent on a
variety of factors including earnings and the financial condition of the
Company. See Item 7, Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
Issuer
Purchases of Equity Securities
The
following table presents information with respect to purchases of common stock
of the Company made during the three months ended August 31, 2006 by the Company
or any “affiliated purchaser” of the Company as defined in rule 10B-18(a)(3)
under the Exchange Act.
Period
|
|
Total
number of shares purchased
|
|
Average
price paid per share
|
|
Number
of Shares purchased as part of publicly announced plans or programs
(1)
|
|
Maximum
number of shares that can yet be purchased under the plan or
programs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
06/01/06
- 06/30/06
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,000
|
|
07/01/06
- 07/31/06
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
18,000
|
|
08/01/06
- 08/31/06
|
|
|
3,000
|
|
|
55.62
|
|
|
3,000
|
|
|
15,000
|
|
Fourth
quarter 2006
|
|
|
3,000
|
|
$
|
55.62
|
|
|
3,000
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
On
November 17, 2005 the Company publicly announced that its Board of Directors
had
authorized a plan to purchase up to 31,000 shares of the Company's common stock
through August 31, 2007 for the purpose of funding its Director Stock
Compensation Plan. This column discloses the number of shares purchased pursuant
to the Director Stock Compensation Plan during the indicated time
periods.
Equity
Compensation Arrangements
On
November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan
(The Plan) pursuant to which the Board of Directors of the Company may grant
options, stock appreciation rights, and/or restricted stock to certain directors
and employees. The Plan authorized grants of shares or options to purchase
up to
650,000 shares of authorized but unissued common stock.
On
April
17, 2006 the Company hired a President and Chief Operating Officer. As a portion
of the total compensation package, the Board awarded 20,000 shares of restricted
stock. Under the terms of the agreement, the shares will vest 25% on April
17,
2010 and continue to vest 25% per year until they are fully vested. The fair
value per share was $45.25 on the date of the award.
On
July
17, 2006 the Company hired a Vice President of Real Estate. As a portion of
the
total compensation package, the Board awarded 13,000 shares of restricted stock.
Under the terms of the agreement, the shares will vest 25% on July 17, 2010
and
continue to vest 25% per year until they are fully vested. The fair value per
share was $53.13 on the date of the award.
On
October 27, 2006, the Board awarded 20,000 shares of restricted stock to the
Chief Executive Officer as additional compensation. Under the terms of the
agreement, 4,000 shares vested effective August 31, 2006 and the remaining
shares will vest 25% per year annually thereafter until they are fully vested.
The fair value per share was $61.96 on the date of the award.
The
following schedules detail the various transactions outlined above:
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of securities
|
|
|
|
|
|
|
|
remaining
available
|
|
|
|
|
|
|
|
for
future issuance
|
|
|
|
Number
of securities
|
|
|
|
under
equity
|
|
|
|
to
be issued upon
|
|
Weighted
average
|
|
compensation
plans
|
|
|
|
exercise
of
|
|
exercise
price of
|
|
(excluding
securities
|
|
|
|
outstanding
options,
|
|
outstanding
options,
|
|
reflected
in
|
|
Plan
category
|
|
warrants
and rights
|
|
warrants
and rights
|
|
column
(a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation
|
|
|
|
|
|
|
|
plans
approved by
|
|
|
|
|
|
|
|
security
holders
|
|
|
9,158
|
|
$
|
17.66
|
|
|
292,844
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
|
|
|
|
|
|
|
|
plans
not approved
|
|
|
|
|
|
|
|
|
|
|
by
security holders
|
|
|
53,000
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
62,158
|
|
$
|
17.66
|
|
|
292,844
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended August 31,
|
|
Description
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
|
|
(In
Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
77,434
|
|
$
|
55,525
|
|
$
|
52,057
|
|
$
|
48,285
|
|
$
|
49,185
|
|
Operating
expenses
|
|
|
62,693
|
|
|
43,179
|
|
|
39,306
|
|
|
43,582
|
|
|
50,313
|
|
Income
(loss) from continuing operations
|
|
|
2,982
|
|
|
2,321
|
|
|
6,667
|
|
|
4,703
|
|
|
(1,128
|
)
|
Income
(loss) from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per
weighted average common share
|
|
$
|
0.40
|
|
$
|
0.32
|
|
$
|
0.92
|
|
$
|
0.66
|
|
$
|
(0.16
|
)
|
Total
Revenue
|
|
|
92,594
|
|
|
75,384
|
|
|
87,779
|
|
|
66,532
|
|
|
63,545
|
|
Total
Costs and Expenses
|
|
|
79,910
|
|
|
66,146
|
|
|
59,979
|
|
|
47,448
|
|
|
53,752
|
|
Income
Taxes
|
|
|
6,215
|
|
|
3,148
|
|
|
9,987
|
|
|
6,425
|
|
|
2,258
|
|
Net
Income
|
|
|
6,469
|
|
|
6,090
|
|
|
17,813
|
|
|
12,659
|
|
|
7,535
|
|
Average
Number of Shares Outstanding
|
|
|
7,368
|
|
|
7,331
|
|
|
7,219
|
|
|
7,106
|
|
|
7,070
|
|
Net
Income Per Share
|
|
|
0.88
|
|
|
0.83
|
|
|
2.47
|
|
|
1.78
|
|
|
1.07
|
|
Cash
Dividend Declared Per Share
|
|
|
1.03
|
|
|
1.25
|
|
|
0.60
|
|
|
0.35
|
|
|
1.00
|
|
Current
Assets
|
|
|
110,913
|
|
|
128,977
|
|
|
125,925
|
|
|
90,204
|
|
|
66,267
|
|
Total
Assets
|
|
|
262,753
|
|
|
247,694
|
|
|
238,242
|
|
|
216,545
|
|
|
191,910
|
|
Current
Liabilities
|
|
|
18,078
|
|
|
17,819
|
|
|
10,136
|
|
|
10,124
|
|
|
9,543
|
|
Ratio-Current
Assets to Current Liabilities
|
|
|
6:14:1
|
|
|
7.24:1
|
|
|
12.42:1
|
|
|
8.91:1
|
|
|
6.94:1
|
|
Working
Capital
|
|
|
92,835
|
|
|
111,158
|
|
|
115,789
|
|
|
80,080
|
|
|
56,724
|
|
Long-Term
Obligations
|
|
|
103,572
|
|
|
85,689
|
|
|
82,908
|
|
|
80,239
|
|
|
69,149
|
|
Total
Liabilities
|
|
|
121,650
|
|
|
103,508
|
|
|
93,044
|
|
|
90,363
|
|
|
78,692
|
|
Stockholder's
Equity
|
|
$ |
141,103
|
|
$ |
144,186
|
|
$ |
145,198
|
|
$ |
126,182
|
|
$ |
113,218
|
|
Item
7. 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
our expectations. There can be no assurance that any future transactions will
occur or be structured in the manner suggested or that any such transaction
will
be completed. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of future events, new
information or otherwise.
When
used
in this document, or in the documents incorporated by reference herein, the
words anticipate, should, believe, estimate, may, intend, expect, and other
words of similar meaning, are likely to address the 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
extent than indicated.
The
following discussion focuses on the results of operations and the financial
condition of the Company. This section should be read in conjunction with the
consolidated financial statements and notes.
Liquidity
and Capital Resources
Working
capital decreased to $92.8 million at August 31, 2006, from $111.2 million
at
August 31, 2005. As of August 31, 2006, the Company had cash and cash
equivalents of $25.1 million compared to $13.4 million at August 31, 2005.
Marketable securities decreased to $50.1 million from $70.8 million during
the
same period. The ratio of current assets to current liabilities decreased to
6.14 to 1 at August 31, 2006 from 7.24 to 1 at August 31, 2005. Total assets
increased by $15.1 million to $262.8 million at August 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, $122.7 million was available for the Company's
general use at August 31, 2006 (see Note 6 to condensed consolidated financial
statements).
The
Company’s operations and financial condition have been impacted in various ways
by a series of four hurricanes that made landfall in Florida over the past
two
fiscal years. High winds and large amounts of rainfall damaged crops and
infrastructure. Furthermore, the winds helped spread citrus canker. 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. During the second quarter of fiscal year 2006, the USDA determined
that due to the likely spread of canker by 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.
During the fourth quarter of fiscal 2006, the USDA reimbursed Alico for trees
that were removed in accordance with Florida law. The reimbursement included
payment for trees destroyed in fiscal year 2006 as well as fiscal year 2005.
The
reimbursements totaled $2.9 million. No accrual for the reimbursement was made
in fiscal 2005. The Company additionally received $4.6 million of insurance
proceeds for wind damages incurred to crops and infrastructure during
fiscal year 2006 and $3.3 million of insurance proceeds for hurricane damages
sustained during fiscal year 2005.
Management
expects continued profitability from the Company’s agricultural operations.
Citrus operations are expected to remain profitable in fiscal year 2007. 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.
The
Company has implemented cost cutting measures in addition to improved crop
rotation measures in its sugarcane division; however, a large sugar beet crop
is
expected to result in lower prices for finished sugar in fiscal year 2007.
The
Company’s cattle operations in fiscal year 2007 are expected to remain
profitable but at lower levels than in fiscal year 2006. Rains generated by
Hurricane Wilma kept many of the pastures overly wet and the conception rate
of
the cattle has been affected. This will result in fewer calves for the Company
to sell in fiscal year 2007 compared to fiscal year 2006.
The
operations of Plant World also suffered from the hurricane and costs per unit
in
excess of contracted sales prices. Beginning in fiscal year 2007, Plant World
is
expanding into several ornamental varieties with higher profit margins per
unit.
As a result, Plant World’s results are expected to improve in fiscal year 2007
and beyond as it begins to fully scale up production of the new varieties.
Sod profits are also expected to increase slightly in fiscal year 2007. The
Company plans to double its vegetable acreage in fiscal year 2007. Despite
expected lower prices in fiscal year 2007 compared to fiscal year 2006, profits
from vegetable operations are nevertheless expected to exceed prior year
levels.
Cash
outlays for land, equipment, buildings, and other improvements totaled $33.2
million during the year ended August 31, 2006, compared to $12.9 million during
fiscal year 2005, and $7.3 million in fiscal year 2004. In May 2006, Alico
purchased 523 acres of riverfront mining property in Glades 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. Due to damages incurred in the hurricane in fiscal year 2006, the
Company had to replace 9 large barns, cattle feed structures, several employee
houses and numerous greenhouses. Additionally, the Company incurred the normal
costs of capital maintenance of its sugarcane plantings, raising replacement
heifers for the cattle herd and replacing equipment. In September 2004, the
Company, through Alico-Agri Ltd., purchased the assets of La Belle Plant World,
Inc. The purchase price was $4.9 million for the land, office building,
greenhouses and associated equipment.
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 development order is issued by Lee County. 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 scheduled 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. The agreement is currently being renegotiated.
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, April 15, 2006 and July 15, 2006. At its June 2006 Board
meeting, the Board declared a regular quarterly dividend of $0.275 per share
payable to shareholders of record as of September 30, 2006. The dividend was
paid on October 15, 2006. At its September 2006 Board meeting, the Board
declared a regular quarterly dividend of $0.275 per share payable to
shareholders of record as of December 29, 2006 with payment expected on or
about
January 15, 2007.
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.
The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit its rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13,
2006.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes; however based on Company estimates,
as of August 31, 2006 the interest on the additional taxes and penalties ranges
from $7.5 million to $25.0 million on the proposed adjustments..
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter. See also footnote 7 to the condensed consolidated
financial statements. Should the IRS prevail in its primary position, the effect
would be to significantly reduce the liquidity of the Company, and could cause
the Company to default on several of its loan covenants.
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary
of results (in thousands):
|
|
Fiscal
years ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
$
|
77,434
|
|
$
|
55,525
|
|
$
|
52,057
|
|
Gross
profit
|
|
|
14,741
|
|
|
12,346
|
|
|
12,751
|
|
General
& administrative expenses
|
|
|
11,759
|
|
|
10,025
|
|
|
6,084
|
|
Income
from operations
|
|
|
2,982
|
|
|
2,321
|
|
|
6,667
|
|
Profit
on sale of real estate
|
|
|
4,369
|
|
|
5,465
|
|
|
20,311
|
|
Interest
and investment income
|
|
|
9,053
|
|
|
4,443
|
|
|
2,519
|
|
Interest
expense
|
|
|
4,066
|
|
|
2,295
|
|
|
1,825
|
|
Other
income (expense)
|
|
|
346
|
|
|
(696
|
)
|
|
128
|
|
Provision
for income taxes
|
|
$
|
6,215
|
|
$
|
3,148
|
|
$
|
9,987
|
|
Effective
income tax rate
|
|
|
49.0
|
%
|
|
34.1
|
%
|
|
35.9
|
%
|
Net
income
|
|
$
|
6,469
|
|
$
|
6,090
|
|
$
|
17,813
|
|
Overall,
income from operations improved in fiscal year 2006 compared with fiscal year
2005, contributing to the overall net income increase over the prior year.
Operations by segment are discussed separately below.
General
and Administrative
General
and administrative expenses increased by 17.3% to $11.8 million in fiscal year
2006 compared with $10.0 million in fiscal year 2005. Due to changing market
conditions, the Company reassessed the discount rate used to value its defined
benefit deferred compensation plan and adjusted the rate from 6.25% used to
compute the accumulated benefit obligation in fiscal year 2005 to 5.25% in
fiscal year 2006. This change resulted in additional pension expense during
the
year of $0.5 million. Additionally, normal retirement benefits began during
fiscal year 2006 which caused the pension expense to increase an additional
$0.2
million when compared with fiscal year 2005. The increased pension expense
was
the single largest component of the fiscal year 2006 increase in general and
administrative expenses. The acquisitions of Bowen and Plant World further
contributed $0.7 million to the rise in general and administrative expenses.
Additionally the Company recorded increased consulting fees during fiscal year
2006 in connection with the ongoing IRS audits compared with the prior fiscal
year.
General
and administrative costs were higher in fiscal year 2005 than in fiscal year
2004 due to increased expenses related to the evaluation of a merger
possibility, costs incurred for compliance with Sarbanes Oxley Section 404,
increased consulting expenses, increased Director fees and continuing costs
related to the IRS audits.
Profit
from the Sale of Real Estate
In
the
first quarter of fiscal year 2006, the Company sold approximately a 280
acres citrus grove located south of Labelle, Florida in Hendry County
for $5.6 million cash, a net gain of $4.4 million. The Company has
retained operating rights to the grove until residential development begins.
The
sale
of a Lee County parcel closed in escrow during the fourth quarter of fiscal
year
2005. The sales price was $62.9 million consisting of $6.2 million in cash
at
closing with the balance held as a 2.5% mortgage note receivable of $56.7
million. At the time of the sale, a gain of $5.3 million was recognized. The
remainder of the gain will be recognized when principal collections from the
sale exceed 20% of the purchase price of the property.
During
the second quarter of fiscal year 2004, the Company sold approximately 244
acres
in Lee County Florida for a sales price of $30.9 million, generating a gain
of
$19.7 million.
Provision
for Income taxes
The
effective tax rate in fiscal year 2006 was 49.0% compared with 34.1% in fiscal
year 2005 and 35.9% in fiscal year 2004. The fiscal year 2006 increase was
due
to an adjustment of the tax contingency previously accrued (see Note 7 to the
consolidated financial statements). The Company recognized an additional accrual
of $3.3 million in fiscal year 2006 related to the contingency. The tax affected
accrual was recognized in the fiscal year 2006 income tax
provision.
Interest
and Investment Income
Interest
and investment income is generated principally from investments in corporate
and
municipal bonds, mutual funds, U.S. Treasury securities, and mortgages held
on
real estate sold on the installment basis.
In
accordance with guidelines established by the Company’s Board of Directors, the
Company restructured its investment portfolio during the first quarter of fiscal
year 2006, focusing on high quality fixed income securities with original
maturities of less than 12 months. These sales resulted in a net realized gain
of $3.3 million in fiscal year 2006. Additionally, the Company recognized
interest income in connection with an installment sale of approximately $2.5
million in fiscal year 2006. This interest, in conjunction with the realized
gains mentioned above, was the primary reason that interest and investment
income increased by $4.7 million when compared to the prior year ($9.1 million
in fiscal 2006 compared with $4.4 million in fiscal 2005).
Interest
and investment income increased in fiscal year 2005 when compared with fiscal
year 2004 ($4.4 million vs. $2.5 million in fiscal year 2005 and 2004,
respectively). The increase was caused by an increase in investment level in
fiscal year 2005 when compared with fiscal year 2004 ($70.8 million at August
31, 2005 vs. $55.6 million at August 31, 2004), coupled with improved conditions
in the financial markets. The investment levels increased due to the
reinvestment of realized investment earnings, together with additional invested
capital provided by proceeds from the sale of bulk excess real estate in
December of 2003.
Interest
Expense
Interest
expense increased during fiscal year 2006 when compared to fiscal year 2005
due
to higher interest rates and debt levels. The majority of the Company’s
borrowings are based on the London interbank offered rate (LIBOR). The LIBOR
increased by approximately 1.64% during the year to 5.33%.
Interest
expense increased during fiscal year 2005 when compared to fiscal year 2004
due
to higher interest rates. The majority of the Company’s borrowings are based on
the London interbank offered rate (LIBOR). The LIBOR increased by approximately
1% during the year to 3.69%.
|
|
Fiscal
years ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
|
|
|
|
|
|
|
|
Agriculture:
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
30,869
|
|
$
|
-
|
|
$
|
-
|
|
Citrus
groves
|
|
|
22,188
|
|
|
26,231
|
|
|
24,549
|
|
Sugarcane
|
|
|
8,926
|
|
|
9,323
|
|
|
11,646
|
|
Cattle
|
|
|
5,700
|
|
|
11,017
|
|
|
9,678
|
|
Alico
Plant World
|
|
|
3,270
|
|
|
2,587
|
|
|
-
|
|
Vegetables
|
|
|
2,389
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
1,528
|
|
|
402
|
|
|
752
|
|
Native
trees and shrubs
|
|
|
142
|
|
|
231
|
|
|
407
|
|
Agriculture
operations revenue
|
|
|
75,012
|
|
|
49,791
|
|
|
47,032
|
|
Real
estate activities
|
|
|
113
|
|
|
810
|
|
|
406
|
|
Land
leasing and rentals
|
|
|
1,369
|
|
|
1,933
|
|
|
1,171
|
|
Mining
royalties
|
|
|
940
|
|
|
2,991
|
|
|
3,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
$ |
77,434
|
|
$ |
55,525
|
|
$ |
52,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
revenues increased by 39% to $77.4 million in fiscal year 2006 compared with
$55.5 million in fiscal year 2005. The increase was primarily due to the
Company’s purchase of Bowen during the second quarter of fiscal 2006. Bowen’s
operations generated revenues of $30.9 million from the date of acquisition
to
August 31, 2006.
Operating
revenues increased 7% during fiscal year 2005 when compared with fiscal year
2004. The increase was primarily due to increased revenues from agricultural
operations and land leasing and rentals.
|
|
Fiscal
years ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Gross
profit (loss):
|
|
|
|
|
|
|
|
Agriculture:
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$ |
(268
|
)
|
$ |
-
|
|
$ |
-
|
|
Citrus
groves
|
|
|
7,614
|
|
|
6,247
|
|
|
4,142
|
|
Sugarcane
|
|
|
360
|
|
|
499
|
|
|
2,595
|
|
Cattle
|
|
|
786
|
|
|
2,109
|
|
|
1,500
|
|
Alico
Plant World
|
|
|
(1,103
|
)
|
|
459
|
|
|
-
|
|
Vegetables
|
|
|
985
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
688
|
|
|
(78
|
)
|
|
130
|
|
Native
trees and shrubs
|
|
|
142
|
|
|
231
|
|
|
407
|
|
Gross
profit from agricultural operations
|
|
|
9,204
|
|
|
9,467
|
|
|
8,774
|
|
Real
estate activities
|
|
|
52
|
|
|
482
|
|
|
153
|
|
Land
leasing and rentals
|
|
|
917
|
|
|
1,294
|
|
|
784
|
|
Mining
royalties
|
|
|
940
|
|
|
2,991
|
|
|
3,448
|
|
Net casualty loss (recovery)
|
|
|
3,628
|
|
|
(1,888
|
)
|
|
(408
|
)
|
Gross
profit
|
|
|
14,741
|
|
|
12,346
|
|
|
12,751
|
|
Profits
from the sale of bulk real estate
|
|
|
4,369
|
|
|
5,465
|
|
|
20,311
|
|
Net
interest and investment income
|
|
|
4,987
|
|
|
2,148
|
|
|
694
|
|
Corporate
general and administrative and other
|
|
|
(11,413
|
)
|
|
(10,721
|
)
|
|
(5,956
|
)
|
Income
before income taxes
|
|
$ |
12,684
|
|
$ |
9,238
|
|
$ |
27,800
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit increased to $14.7 million for fiscal year 2006 compared with $12.3
million for fiscal 2005. During fiscal 2006 the Company received reimbursements
from the USDA in connection with citrus canker eradication efforts totaling
$2.9
million. Excluding the canker reimbursement, gross profit from agricultural
operations was $9.2 million in fiscal year 2006, down slightly from the prior
year results of $9.5 million. Due to the cyclical nature of agriculture, the
Company is working to diversify its agricultural ventures, with the goal of
producing an even earnings stream. Fiscal year 2006 is a good example of the
effectiveness of this diversification strategy. During the 2006 fiscal year,
the
Company initiated a vegetable farming operation. In its first year, the
vegetable operation generated a gross profit of $1.0 million. Citrus grove
operations also posted an increased gross profit during fiscal year 2006
compared with fiscal year 2005 as did the Company’s sod operations, while gross
profits from the sugarcane, cattle, greenhouse and native plant operations
declined. The increased gross profit was the reason that income from operations
in fiscal year 2006 exceeded income from operations in fiscal year
2005.
Gross
profits decreased to $12.3 million for fiscal year 2005 compared with $12.8
million for fiscal 2004 due to reduced mining revenues and casualty losses
caused by hurricanes and citrus canker.
Gross
profit from agricultural operations was $9.5 million in fiscal year 2005,
improved from the prior year results of $8.8 million. Citrus grove operations
posted an increased gross profit during fiscal year 2005 compared with fiscal
year 2004 due to higher prices for citrus products. Additionally, the Company’s
cattle and greenhouse operations performed better in fiscal year 2005 than
fiscal year 2004, while the gross profits from the Company’s sugarcane, sod and
native plant operations were below fiscal year 2004 levels. Despite the
increased gross profit in fiscal year 2004, net income from operations was
lower
in fiscal year 2005 than in fiscal year 2004 due to increased general and
administrative costs as previously discussed.
Agricultural
Operations
Agricultural
operations generate a large portion of the Company’s revenues. Agricultural
operations are subject to a wide variety of risks including weather and disease.
Additionally, it is not unusual for agricultural commodities to experience
wide
variations in prices from year to year or from season to season.
Bowen
Bowen’s
operations generated revenues of $30.9 million and expenses of $31.1 million
for
the period from the date of acquisition to August 31, 2006. A portion of the
purchase price was allocated to intangible assets and generated an amortization
cost of $0.7 million for the period from the date of acquisition to August
31,
2006. By utilizing Bowen to harvest the Company’s fruit during fiscal year 2006,
the Company was also able to reduce citrus harvesting costs from traditional
market rates. The normal profit margin on intercompany harvesting was eliminated
from Bowen’s results, and the cost savings was reflected in the Company’s Citrus
Grove segment.
Citrus
Groves
The
Citrus Groves division recorded gross profits of $7.6 million, $6.2 million
and
$4.1 million, and gross revenues of $22.2 million, $26.2 million and $24.5
million for the fiscal years ended August 31, 2006, 2005 and 2004, respectively.
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 per unit price increases for citrus products across the industry.
Revenue per box was $7.22, $6.56 and $5.36 in fiscal years 2006, 2005 and 2004,
respectively.
The
Company has experienced reduced crops due to hurricanes and canker during the
past two fiscal years, harvesting 3.3 million, 3.9 million and 4.6 million
90
pound equivalent boxes of citrus in fiscal years 2006, 2005 and 2004
respectively. The Company estimates that its fiscal year 2007 crop will be
approximately 3.5 million boxes.
The
fiscal year 2007 crop forecast by the USDA indicates that the supply of Florida
oranges will be further reduced, which should allow for continued strong prices.
The USDA forecast is for 135.0 million boxes for fiscal year 2007 compared
with
production of 147.9 million boxes in fiscal year 2006, 149.8 million boxes
in
fiscal year 2005 and 242.0 million boxes in fiscal year 2004.
Sugarcane
Sugarcane
generated gross profits of $0.4 million, $0.5 million and $2.6 million during
fiscal years 2006, 2005 and 2004, respectively. Sugarcane revenues were $8.9
million, $9.3 million and $11.6 million during fiscal years 2006, 2005 and
2004,
respectively. The decline in sugarcane revenue is a major factor in the
decreased gross profits of the division. Beginning in fiscal year 2004, the
USDA
imposed quotas on the amount of sugarcane that can be harvested. During fiscal
years 2006, 2005 and 2004, approximately 342,000, 407,000, and 465,000 standard
tons of sugarcane were harvested. The Company experienced higher prices for
sugarcane in fiscal year 2006 when compared to the previous two fiscal years
($26.02, $22.91 and $25.02 average price per standard ton during fiscal years
2006, 2005 and 2004, respectively), however, reduced yields (36.73, 40.71 and
44.25 standard tons per acre in fiscal 2006, 2005 and 2004, respectively),
coupled with the rising input costs of fuel and fertilizer, caused margins
to
decrease. A large sugar beet crop is expected to result in lower prices for
finished sugar during fiscal year 2007.
During
fiscal year 2006, the Company performed an extensive analysis of yields based
on
the age of planted cane, the variety and the historical production of each
sugarcane plot. Based on this analysis, the Company determined on a plot by
plot
basis, the extent of caretaking each plot would receive. In some instances,
a
decision was made to place plots on a reduced care program until the plot could
be harvested and replanted. The expected result of this analysis is that the
Company’s sugarcane crop will be further reduced in fiscal year 2007; however,
it is also expected that the unit cost per ton will also be reduced, and that
per acre yields will gradually improve to prior historical levels beginning
in
fiscal year 2008. The Company is committed to
producing
the maximum return per acre on the acreage currently being used for sugarcane
production and will continue to explore alternatives in order to meet this
goal.
Cattle
Gross
profits from the sale of cattle were $0.8 million, $2.1 million and $1.5 million
for the fiscal years ended August 31, 2006, 2005 and 2004, respectively. Cattle
revenues were $5.7 million, $11.0 million and $9.7 million over the same
periods. 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, more animals were sold during fiscal year 2005 than in the subsequent
or
prior fiscal year. During fiscal year 2006, 7,454 animals were sold at an
average price of $0.89 per pound. In fiscal year 2005, 13,257 animals were
sold
at an average price of $0.90 per pound, and in fiscal year 2004, 10,603 animals
were sold at an average price of $0.82 per pound. Cattle prices tend to run
in
cycles of 10 years. The Company believes that the cattle market may have peaked
in fiscal year 2005.
The
eye
of Hurricane Wilma, a category 3 hurricane, passed over Alico’s cattle ranch on
October 24, 2005, generally stressing the cattle herd. In its aftermath, many
of
the Company’s cattle pastures were underwater for an extended period. Due to the
stress of the hurricane and a temporary reduction in nutrition, the number
of
calves born in fiscal 2006 was reduced approximately 5% from the previous year.
Furthermore, early estimates are that the fiscal year 2007 calf crop may be
reduced by up to 10% of the fiscal 2006 level. In an effort to improve
conception and general nutrition, the Company is reducing its cattle herd.
Plant
World
In
fiscal
year 2006, Plant World sold 85.8 million vegetable transplants generating gross
revenues of $3.3 million. In fiscal year 2005, Plant World sold 69.9 million
vegetable transplants and generated gross revenues of $2.6 million. Plant
World’s operations generated a loss of $1.1 million in fiscal year 2006 compared
with a profit of $0.5 million in fiscal year 2005. During the spring of 2005,
Plant World’s off season, the Company began to inventory overhead costs in
anticipation of a verbal commitment for a large order. Subsequently, the
customer withdrew the offer, and Plant World was not able to replace the volume
during its fall growing season. This caused Plant World to reduce its inventory
by $1.0 million to its net realizable value and experience unused capacity
within its facility, driving the unit costs of plants higher. A further
complication arose as fuel prices continued to rise. Plant World had made
commitments to deliver at set prices and in some cases, at very low margins.
The
increased delivery costs reduced margins to below cost in many cases. Although
Plant World was eventually able to exceed its prior year volume, the additional
plants were spring vegetable varieties which traditionally have lower margins
than fall varieties.
The
operations of Plant World also suffered from uninsurable hurricane damage and
pricing below cost per unit. Beginning in fiscal year 2007, Plant World is
expanding into several ornamental varieties with higher profit margins per
unit.
As a result, Plant World’s results are expected to improve in fiscal year 2007
and beyond as it begins to fully scale up production of the new varieties.
In
the meantime, Plant World has also changed its pricing policies, particularly
with regards to delivered prices for vegetable transplants.
Vegetables
Alico
began farming sweet corn and green beans in fiscal year 2006. The Company
planted 250 acres of corn and 250 acres of green beans in the fall of both
2005
and 2006. The first crops were totally devastated by hurricane Wilma in October
2005 and had to be replanted. The Company harvested a total of 77 thousand
boxes
of green beans at an average price of $13.73 per box and 119 thousand crates
of
corn at an average price of $11.18 per crate. In its initial year of operations,
the vegetable segment generated revenue of $2.4 million and a gross profit
of
$1.0 million.
For
fiscal year 2007, the Company plans to double the acreage of corn and green
beans, growing 500 acres of each in the fall of 2006 and the spring of 2007.
As
in any agricultural operation, past results of the vegetable segment are not
necessarily indicative of future performance.
Sod
The
Company had 472 acres of cultivated sod in production during fiscal years 2006,
2005 and 2004. The company harvested approximately 12.6 million, 4.8 million
and
17.2 million square feet of cultivated sod in fiscal years 2006, 2005 and 2004,
respectively, generating revenues of $0.8 million, $0.3 million and $0.8 million
during each fiscal year respectively. Additionally, the Company harvested 15.9
million and 1.8 million square feet of uncultivated sod generating revenue
of
$0.7 million and $0.1 million during fiscal years 2006 and 2005,
respectively.
The
Company is currently developing an additional 500 acres of cultivated sod.
The
Company entered into an agreement in fiscal year 2006 with a United States
sod
wholesaler to market its crop. Additionally, the Company began selling
additional native uncultivated sod (bahia) to local landscapers from its
pastures in fiscal year 2006.
Native
trees and shrubs
The
Company sells sabal palms, palm fans, oak trees and other native horticultural
commodities. These products are sold to landscaping companies in Florida. The
Company does not incur any of the harvesting expenses for any of its tree or
shrub sales. Gross profits from these operations were $0.1 million, $0.2 million
and $0.4 million during fiscal years 2006, 2005 and 2004,
respectively.
Non
Agricultural Operations
Saddlebag
During
fiscal year 2006, Saddlebag sold the last of its developed lots. Gross profits
from the sale of lots during fiscal years 2006, 2005 and 2004 were $0.1 million,
$0.5 million and $0.2 million respectively.
Land
leasing and rentals
Revenues
from land rentals were $1.4 million, $1.9 million and $1.2 million during fiscal
years 2006, 2005 and 2004, respectively, generating gross profits of $0.9
million, $1.3 million and $0.8 million. The Company is committed to leasing
more
of its land when overall profitability can be enhanced.
Mining
royalties
Gross
profit from the sale of rock products and sand were $0.9 million, $3.0 million
and $3.4 million during fiscal years 2006, 2005 and 2004, respectively. The
Lee
County property on which a major portion of the mining operations was located,
was sold in fiscal year 2005.
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.
Additionally,
the Company is currently seeking a permit for a rock mine on its
Hendry County property. Other properties are currently being evaluated for
additional mine sites.
Off
Balance Sheet Arrangements
______________________________
The
Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC enters
into purchase contracts for the purchase of citrus products during the normal
course of its business. Typically, these purchases are covered by sales
contracts. The purchase obligations under these purchase agreements totaled
$7.4
million at August 31, 2006. All of these purchases were covered by sales
agreements. None of these agreements were in a net loss position as of August
31, 2006. All of these contracts will be fulfilled by the end of the fiscal
year
2007. Additionally, the Company hedges a portion of its fuel requirements
through the purchase of fuel stocks at fixed prices for future deliveries.
The
net obligations under these arrangement totaled $192 thousand at August 31,
2006. Deliveries under these contracts will occur before October 31,
2006.
Disclosure
of Contractual Obligations
_____________________________________
The
contractual obligations of the Company at August 31, 2006 are set forth in
the
table below:
|
|
|
|
Less
than
|
|
1
-
3
|
|
3-5
|
|
5
+
|
|
Contractual
obligations
|
|
Total
|
|
1
year
|
|
years
|
|
years
|
|
years
|
|
Long-term
debt
|
|
$
|
64,002
|
|
$
|
3,315
|
|
$
|
2,585
|
|
$
|
54,830
|
|
$
|
3,272
|
|
Expected
interest on debt
|
|
|
16,354
|
|
|
4,127
|
|
|
7,864
|
|
|
4,147
|
|
|
216
|
|
Commissions
|
|
|
2,833
|
|
|
-
|
|
|
1,417
|
|
|
1,416
|
|
|
-
|
|
Citrus
purchase contracts
|
|
|
7,389
|
|
|
7,389
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Retirement
benefits
|
|
|
5,755
|
|
|
803
|
|
|
678
|
|
|
678
|
|
|
3,596
|
|
Deferred
taxes
|
|
|
15,089
|
|
|
282
|
|
|
10,506
|
|
|
3,456
|
|
|
845
|
|
Other
non-current liability (a)
|
|
|
20,293
|
|
|
-
|
|
|
20,293
|
|
|
-
|
|
|
-
|
|
Building
& equipment additions
|
|
|
649
|
|
|
649
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Real
Estate contract obligations
|
|
|
605
|
|
|
605
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Purchase
obligations (donation)
|
|
|
788
|
|
|
788
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Fuel
purchase contract
|
|
|
192
|
|
|
192
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Leases
- operating
|
|
|
950
|
|
|
218
|
|
|
475
|
|
|
257
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
134,899
|
|
$
|
18,368
|
|
$
|
43,818
|
|
$
|
64,784
|
|
$
|
7,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
This
obligation represents a contingency accrual related to income taxes. See
Note 7 to the consolidated financial statements.
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 following critical accounting policies have been
identified that affect the more significant judgments and estimates used in
the
preparation of the consolidated financial statements.
Net
Realizable Value
- The
Company records inventory at the lower of cost or net realizable value.
Management regularly assesses estimated inventory valuations based on current
and forecasted usage of the related commodity and any other relevant factors
that may affect the net realizable value.
Revenue
Recognition-
Based
on fruit buyers' and processors' advances to growers, stated cash and futures
markets combined with experience in the industry, management reviews the
reasonableness of the citrus revenue accrual. Adjustments are made throughout
the year to these estimates as more current relevant information regarding
the
citrus market becomes available. Differences between the estimates and the
final
realization of revenues can be significant, and the differences between
estimated and final results can be either positive or negative. Fluctuation
in
the market prices for citrus fruit has caused the Company to recognize
additional revenue from prior years’ crop totaling $838 thousand, $357 thousand,
and $728 thousand during fiscal year 2006, 2005, and 2004, respectively.
Income
from sugarcane under a pooled agreement is recognized at the time the crop
is
harvested. Based on the processor’s advance payment, past sugarcane prices and
its experience in the industry, management reviews the reasonableness of the
sugarcane revenue accrual. Adjustments are made as additional relevant
information regarding the sugar market becomes available. Market price changes
to the sugar pool have caused the Company to adjust revenue from the prior
year’s crop by $169 thousand, ($198 thousand), and $325 thousand during the
fiscal year 2006, 2005, and 2004, respectively.
For
sales
made through Bowen, the Company applies the provisions of Emerging Issues Task
Force (“EITF”) Issue No. 99-19, “ Reporting Revenue Gross as a Principal versus
Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of
the terms of each major customer contract relative to a number of criteria
that
management considers in making its determination with respect to gross versus
net reporting of revenue for transactions with its customers. Management’s
criteria for making these judgments place particular emphasis on determining
the
primary obligor in a transaction and which party bears general inventory risk.
Bowen purchases and resells citrus fruit, in these transactions, Bowen (i)
acts
as principal; (ii) takes title to the products; and (iii) has the risks and
rewards of ownership, including the risk of loss for collection, delivery or
returns. For these transactions, Bowen recognizes revenues based on the gross
amounts due from customers.
In
recognizing revenue from land sales, the Company follows the provisions in
Financial Accounting Standards Board, or FASB, Statement of Financial Accounting
Standards, or SFAS, No. 66, “Accounting for Sales of Real Estate,” to
record these sales. SFAS No. 66 provides specific sales recognition
criteria to determine when land sales revenue can be recorded. For example,
SFAS
No. 66 requires a land sale must be consummated with a sufficient down
payment of at least 20% to 25% of the sales price depending upon the type and
timeframe for development of the property sold, and that any receivable from
the
sale cannot be subject to future subordination. In addition, the seller cannot
retain any material continuing involvement in the property sold.
Capitalized
Costs
- In
accordance with Statement of Position 85-3 "Accounting by Agricultural Producers
and Agricultural Cooperatives", the cost of growing crops are capitalized into
inventory until the time of harvest. Once a given crop is harvested, the related
inventoried costs are recognized as a cost of sale to provide an appropriate
matching of costs incurred with the related revenue earned.
Impairment
of Long-Lived Assets
-
The
Company evaluates property and equipment and capitalized development costs
for
our sugarcane and citrus groves for impairment when events or changes in
circumstances indicate that the carrying value of assets contained in the
Company’s financial statements may not be recoverable. The impairment
calculation compares the carrying value of the asset to the asset’s estimated
future cash flows (undiscounted and without interest charges). If the estimated
future cash flows are less than the carrying value of the asset, the Company
calculates an impairment loss. The impairment loss calculation compares the
carrying value of the asset to the asset’s estimated fair value, which may be
based on estimated future cash flows (discounted and with interest charges).
The
Company recognizes an impairment loss if the amount of the asset’s carrying
value exceeds the asset’s estimated fair value. If an impairment loss is
recognized, the adjusted carrying amount of the asset will be its new cost
basis. For a depreciable long-lived asset, the new cost basis will be
depreciated (amortized) over the remaining useful life of that asset.
Restoration of a previously recognized impairment loss is prohibited. The
Company operates in several segments and there have been no indicators of
impairment.
Defined
Benefit Retirement Plans
-
The
Company has a defined benefit deferred compensation plan, whose plan assets
consist primarily of marketable equity and debt instruments, and are valued
using market quotations. Pension benefit obligations and the related effects
on
operations are calculated using actuarial models. Two critical assumptions
-
discount rate and expected return on assets - are important elements of plan
expense and asset/liability measurement. The Company evaluates these critical
assumptions at least annually. Other assumptions involving demographic factors
such as retirement age, mortality and turnover are evaluated periodically and
are updated to reflect the Company’s experience. Actual results in any given
year will often differ from actuarial assumptions because of economic and other
factors. The discount rate enables the Company to state expected future cash
flows at a present value on the measurement date. In determining the discount
rate, the Company utilizes the yield on high-quality, fixed-income investments
currently available with maturities corresponding to the anticipated timing
of
the benefit payments. At August 31, 2006, the discount rate used to
compute the Company’s defined benefit deferred compensation plan was
5.25%.
Income
Taxes
-
Deferred
income taxes are recognized for the income tax effect of temporary differences
between financial statement carrying amounts and the income tax bases of assets
and liabilities. The Company regularly reviews its deferred income tax assets
to
determine whether future taxable income will be sufficient to realize the
benefits of these assets. A valuation allowance is provided for deferred income
tax assets for which it is deemed more likely than not that future taxable
income will not be sufficient to realize the related income tax benefits from
these assets. The amount of the net deferred income tax asset that is considered
realizable could, however, be adjusted if estimates of future taxable income
are
adjusted.
The
Company believes its tax positions comply with the applicable tax laws and
that
it is adequately provided for all tax related matters. The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties, or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit its rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13,
2006.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes.
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable
that the challenge may be successful as to some of the possible
assertions, Management has provided for the contingency. The
Company has accrued a liability of $20.3 million and $17.0 million for the
contingency in fiscal years 2006 and 2005, respectively .
Should
the IRS prevail in its primary position, the effect would be to significantly
reduce the liquidity of the Company, and could cause the Company to default
on
several of its loan covenants.
Item
7A. Quantitative and Qualitative Disclosure About Market
Risk
Alico’s
exposure to market rate risk and changes in interest rates relate primarily
to
its investment portfolio and revolving credit lines. Investments are placed
with
high quality issuers and, by policy, limit the amount of credit exposure to
any
one issuer. Alico is adverse to principal loss and provides for the safety
and
preservation of invested funds by limiting default, market and reinvestment
risk. The Company classifies cash equivalents and short-term investments as
fixed-rate if the rate of return on such instruments remains fixed over their
term. These fixed-rate investments include fixed-rate U.S. government
securities, municipal bonds, time deposits and certificates of deposit. Cash
equivalents and short-term investments are classified as variable-rate if the
rate of return on such investments varies based on the change in a predetermined
index or set of indices during their term. These variable-rate investments
primarily include money market accounts, mutual funds and equities held at
various securities brokers and investment banks.
The
table
below presents the costs and estimated fair value of the investment portfolio
at
August 31, 2006:
|
|
|
|
Estimated
|
|
Marketable
Securities and
|
|
Cost
|
|
Fair
Value
|
|
Short-term
Investments (1)
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
$ |
39,745
|
|
$ |
39,703
|
|
Variable
Rate
|
|
$ |
10,400
|
|
$ |
10,397
|
|
|
|
|
|
|
|
|
|
(1)
See definition in Notes 1 and 2 in Notes to Consolidated Financial
Statements.
|
|
|
|
|
|
|
|
|
The
aggregate fair value of investments in debt instruments (net
of mutual
funds of $364) as of
|
|
August
31, 2006, by contractual maturity date, consisted of the
following:
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
Fair
|
|
|
|
Values
|
|
|
|
|
|
Due
in one year or less
|
|
$
|
23,540
|
|
Due
between one and five years
|
|
|
7,196
|
|
Due
between five and ten years
|
|
|
5,520
|
|
Due
thereafter
|
|
|
13,480
|
|
|
|
|
|
|
Total
|
|
$ |
49,736
|
|
|
|
|
|
|
Fixed
rate securities tend to decline with market rate interest increases. Variable
rate securities are generally affected more by general market expectations
and
conditions. A 1% change in interest rates on the Company’s portfolio would
impact the Company’s annual interest revenue by approximately $500 thousand.
Additionally, the Company has debt with interest rates that vary with LIBOR.
A
1% increase in this rate would impact the Company’s annual interest expense by
approximately $523 thousand based on the Company’s outstanding debt under these
agreements at August 31, 2006.
Item
8.
Financial Statements and Supplementary Data.
Report
of Independent Registered Certified Public Accounting
Firm
To
the
Stockholders and Board of Directors of
Alico,
Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of Alico, Inc. and
Subsidiaries as of August 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended August 31,
2006.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of the Company as of August
31,
2006 and 2005, and the results of their operations and their cash flows for
each
of the three years in the period ended August 31, 2006, in conformity with
U.S.
generally accepted accounting principles.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Alico, Inc. and
Subsidiaries internal control over financial reporting as of August 31, 2006,
based on criteria established in Internal Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated November 17, 2006, expressed an unqualified opinion
on
management's assessment of the effectiveness of Alico, Inc.'s internal control
over financial reporting and an opinion that Alico, Inc. had not maintained
effective internal control over financial reporting as of August 31, 2006,
based
on criteria established in Internal Control - Integrated Framework issued
by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
/s/TEDDER,
JAMES, WORDEN & ASSOCIATES, P.A.
Orlando,
Florida
November
17, 2006
CONSOLIDATED
BALANCE SHEETS
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
25,065
|
|
$
|
13,384
|
|
Marketable
securities available for sale
|
|
50,100
|
|
|
70,824
|
|
Accounts
receivable
|
|
8,679
|
|
|
11,216
|
|
Inventories
|
|
24,545
|
|
|
20,902
|
|
Other
current assets
|
|
2,524
|
|
|
12,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
110,913
|
|
|
128,977
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
and notes receivable, net of current portion
|
|
10,977
|
|
|
6,395
|
|
Investment
and deposits
|
|
2,919
|
|
|
692
|
|
Cash
surrender value of life insurance, designated
|
|
6,593
|
|
|
5,676
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
20,489
|
|
|
12,763
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
buildings and equipment
|
|
179,689
|
|
|
150,997
|
|
Less
accumulated depreciation
|
|
(48,338
|
)
|
|
(45,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
property, buildings and equipment
|
|
131,351
|
|
|
105,954
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
$
|
262,753
|
|
$
|
247,694
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,
|
|
|
|
|
|
2006
|
|
2005
|
|
LIABILITIES
& STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
$
|
1,966
|
|
$
|
2,180
|
|
Current
portion of notes payable
|
|
3,315
|
|
|
3,309
|
|
Accrued
expenses
|
|
3,720
|
|
|
2,809
|
|
Dividends
payable
|
|
2,027
|
|
|
1,842
|
|
Accrued
ad valorem taxes
|
|
2,090
|
|
|
2,008
|
|
Deferred
income taxes
|
|
282
|
|
|
2,280
|
|
Other
current liabilities
|
|
4,678
|
|
|
3,391
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
18,078
|
|
|
17,819
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable, net of current portion
|
|
60,687
|
|
|
48,039
|
|
Deferred
income taxes, net of current portion
|
|
14,807
|
|
|
13,424
|
|
Deferred
retirement benefits, net of current portion
|
|
4,952
|
|
|
4,376
|
|
Commissions
payable, net of current portion
|
|
2,833
|
|
|
2,125
|
|
Other
non-current liability
|
|
20,293
|
|
|
16,954
|
|
Donation
payable, net of current portion
|
|
-
|
|
|
771
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
121,650
|
|
|
103,508
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
Preferred
stock, no par value. Authorized 1,000 shares;
|
|
|
|
|
|
|
issued,
none
|
|
-
|
|
|
-
|
|
Common
stock, $1 par value. Authorized 15,000 shares;
|
|
|
|
|
|
|
issued
and outstanding 7,371 in 2006 and 7,369 in 2005
|
|
7,376
|
|
|
7,369
|
|
Additional
paid in capital
|
|
9,691
|
|
|
9,183
|
|
Treasury
stock at cost
|
|
(287
|
)
|
|
-
|
|
Accumulated
other comprehensive (loss) income
|
|
(29
|
)
|
|
2,195
|
|
Retained
earnings
|
|
124,352
|
|
|
125,439
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
141,103
|
|
|
144,186
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
$
|
262,753
|
|
$
|
247,694
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
(in
thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Operating
revenue
|
|
|
|
|
|
|
|
Agricultural
operations
|
|
$
|
75,012
|
|
$
|
49,791
|
|
$
|
47,032
|
|
Non-agricultural
operations
|
|
|
2,422
|
|
|
5,734
|
|
|
5,025
|
|
Total
operating revenue
|
|
|
77,434
|
|
|
55,525
|
|
|
52,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Agricultural
operations
|
|
|
65,808
|
|
|
40,324
|
|
|
38,258
|
|
Non-agricultural
operations
|
|
|
513
|
|
|
967
|
|
|
640
|
|
Net
casualty loss (recovery)
|
|
|
(3,628
|
)
|
|
1,888
|
|
|
408
|
|
Total
operating expenses
|
|
|
62,693
|
|
|
43,179
|
|
|
39,306
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
14,741
|
|
|
12,346
|
|
|
12,751
|
|
Corporate
general and administrative
|
|
|
11,759
|
|
|
10,025
|
|
|
6,084
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
2,982
|
|
|
2,321
|
|
|
6,667
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
Profit
on sales of bulk real estate:
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
5,761
|
|
|
15,416
|
|
|
33,075
|
|
Cost
of sales
|
|
|
(1,392
|
)
|
|
(9,951
|
)
|
|
(12,764
|
)
|
Profit
on sales of bulk real estate, net
|
|
|
4,369
|
|
|
5,465
|
|
|
20,311
|
|
Interest
& investment income
|
|
|
9,053
|
|
|
4,443
|
|
|
2,519
|
|
Interest
expense
|
|
|
(4,066
|
)
|
|
(2,295
|
)
|
|
(1,825
|
)
|
Other
|
|
|
346
|
|
|
(696
|
)
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income, net
|
|
|
9,702
|
|
|
6,917
|
|
|
21,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
12,684
|
|
|
9,238
|
|
|
27,800
|
|
Provision
for income taxes
|
|
|
6,215
|
|
|
3,148
|
|
|
9,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,469
|
|
$
|
6,090
|
|
$
|
17,813
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding
|
|
|
7,368
|
|
|
7,331
|
|
|
7,219
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares outstanding
|
|
|
|
|
|
|
|
|
|
|
assuming
dilution
|
|
|
7,379
|
|
|
7,347
|
|
|
7,295
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share amounts:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.88
|
|
$
|
0.83
|
|
$
|
2.47
|
|
Diluted
|
|
$
|
0.88
|
|
$
|
0.83
|
|
$
|
2.44
|
|
Dividends
|
|
$
|
1.03
|
|
$
|
1.25
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Common
Stock
|
|
Additional
|
|
Treasury
|
|
Other
|
|
|
|
|
|
|
|
Shares
|
|
|
|
Paid
in
|
|
Stock
|
|
Comprehensive
|
|
Retained
|
|
|
|
|
|
Issued
|
|
Amount
|
|
Capital
|
|
at
cost
|
|
Income
|
|
Earnings
|
|
Total
|
|
Balances,
August 31, 2003
|
|
|
7,116
|
|
|
7,116
|
|
|
3,074
|
|
|
|
|
|
961
|
|
|
115,031
|
|
|
126,182
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
17,813
|
|
|
17,813
|
|
Unrealized
gains on securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $ 234 and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
568
|
|
|
-
|
|
|
568
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,381
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(4,284
|
)
|
|
(4,284
|
)
|
Stock
options exercised
|
|
|
193
|
|
|
193
|
|
|
2,963
|
|
|
|
|
|
-
|
|
|
-
|
|
|
3,156
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
1,763
|
|
|
|
|
|
-
|
|
|
-
|
|
|
1,763
|
|
Balances,
August 31, 2004
|
|
|
7,309
|
|
|
7,309
|
|
|
7,800
|
|
|
|
|
|
1,529
|
|
|
128,560
|
|
|
145,198
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
6,090
|
|
|
6,090
|
|
Unrealized
gains on securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $ 408 and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
666
|
|
|
-
|
|
|
666
|
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,756
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(9,211
|
)
|
|
(9,211
|
)
|
Stock
options exercised
|
|
|
60
|
|
|
60
|
|
|
964
|
|
|
|
|
|
-
|
|
|
-
|
|
|
1,024
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
419
|
|
|
|
|
|
-
|
|
|
-
|
|
|
419
|
|
Balances,
August 31, 2005
|
|
|
7,369
|
|
|
7,369
|
|
|
9,183
|
|
|
|
|
|
2,195
|
|
|
125,439
|
|
|
144,186
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
6,469
|
|
|
6,469
|
|
Unrealized
losses on securities,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net
of taxes of $(17) and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reclassification
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(2,224
|
)
|
|
-
|
|
|
(2,224
|
)
|
Total
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,245
|
|
Dividends
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(7,556
|
)
|
|
(7,556
|
)
|
Treasury
Stock Purchased
|
|
|
|
|
|
|
|
|
|
|
|
(763
|
)
|
|
|
|
|
|
|
|
(763
|
)
|
Stock
based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Directors
|
|
|
|
|
|
|
|
|
52
|
|
|
476
|
|
|
|
|
|
|
|
|
528
|
|
Treasury
Stock Held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options exercised
|
|
|
7
|
|
|
7
|
|
|
127
|
|
|
|
|
|
-
|
|
|
-
|
|
|
134
|
|
Stock
based compensation
|
|
|
-
|
|
|
-
|
|
|
329
|
|
|
|
|
|
-
|
|
|
-
|
|
|
329
|
|
Balances,
August 31, 2006
|
|
|
7,376
|
|
$
|
7,376
|
|
$
|
9,691
|
|
$
|
(287
|
) |
$
|
(29
|
)
|
$
|
124,352
|
|
$
|
141,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disclosure
of reclassification amount:
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
|
Unrealized
holding (losses) gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
arising
during the period
|
|
|
|
|
|
|
|
$ |
(29
|
)
|
$ |
1,064
|
|
$ |
787
|
|
|
|
|
|
|
|
Less:
reclassification adjustment for realized gains
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
included
in net income
|
|
|
|
|
|
|
|
|
2,195
|
|
|
398
|
|
|
219
|
|
|
|
|
|
|
|
Net
unrealized (losses) gains on securities
|
|
|
|
$ |
(2,224
|
)
|
$ |
666
|
|
$ |
568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash equivalents:
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
6,469
|
|
$
|
6,090
|
|
$
|
17,813
|
|
Adjustments
to reconcile net income to cash provided by
|
|
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
8,590
|
|
|
6,957
|
|
|
6,509
|
|
Gain
on breeding herd sales
|
|
|
(162
|
)
|
|
(209
|
)
|
|
(108
|
)
|
Deferred
income tax expense, net
|
|
|
680
|
|
|
3,209
|
|
|
472
|
|
Deferred
retirement benefits
|
|
|
556
|
|
|
(88
|
)
|
|
(1,154
|
)
|
Net
gain on sale of marketable securities
|
|
|
(3,254
|
)
|
|
(2,083
|
)
|
|
(723
|
)
|
Loss
on sale of property and equipment
|
|
|
861
|
|
|
5,539
|
|
|
-
|
|
Gain
on real estate sales
|
|
|
(4,369
|
)
|
|
(5,465
|
)
|
|
(20,311
|
)
|
Stock
based compensation
|
|
|
857
|
|
|
419
|
|
|
1,763
|
|
Imputed
interest on mortgage note receivable
|
|
|
(2,891
|
)
|
|
-
|
|
|
-
|
|
Cash
provided by (used for) changes in:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,537
|
|
|
(2,098
|
)
|
|
561
|
|
Inventories
|
|
|
(4,159
|
)
|
|
(692
|
)
|
|
474
|
|
Other
assets
|
|
|
(1,585
|
)
|
|
(765
|
)
|
|
291
|
|
Accounts
payable & accrued expenses
|
|
|
719
|
|
|
2,981
|
|
|
7,370
|
|
Income
taxes payable
|
|
|
1,304
|
|
|
(1,741
|
)
|
|
753
|
|
Other
non-current liability
|
|
|
3,339
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
9,492
|
|
|
12,054
|
|
|
13,710
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Increase
in land inventories
|
|
|
(793
|
)
|
|
(498
|
)
|
|
(423
|
)
|
Real
Estate deposits and accrued commissions
|
|
|
6,811
|
|
|
(11,106
|
)
|
|
-
|
|
Purchases
of property and equipment
|
|
|
(33,172
|
)
|
|
(12,877
|
)
|
|
(7,280
|
)
|
Proceeds
from disposals of property and equipment
|
|
|
1,092
|
|
|
1,762
|
|
|
738
|
|
Proceeds
from sale of real estate
|
|
|
5,555
|
|
|
7,507
|
|
|
21,356
|
|
Purchases
of marketable securities and investments
|
|
|
(92,583
|
)
|
|
(28,351
|
)
|
|
(21,392
|
)
|
Proceeds
from sales of marketable securities
|
|
|
109,992
|
|
|
16,897
|
|
|
5,643
|
|
Collection
of mortgages and notes receivable
|
|
|
632
|
|
|
10,279
|
|
|
2,586
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used for) provided by investing activities
|
|
$
|
(2,466
|
)
|
$
|
(16,387
|
)
|
$
|
1,228
|
|
|
|
Years
Ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuing stock
|
|
$
|
134
|
|
$
|
1,024
|
|
$
|
3,156
|
|
Treasury
stock purchases
|
|
|
(763
|
)
|
|
-
|
|
|
-
|
|
Proceeds
from bank loans
|
|
|
65,814
|
|
|
26,933
|
|
|
23,922
|
|
Repayment
of bank loans
|
|
|
(53,160
|
)
|
|
(27,170
|
)
|
|
(29,785
|
)
|
Dividends
paid
|
|
|
(7,370
|
)
|
|
(7,369
|
)
|
|
(4,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by (used for) financing activities
|
|
|
4,655
|
|
|
(6,582
|
)
|
|
(6,991
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
11,681
|
|
|
(10,915
|
)
|
|
7,947
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year
|
|
|
13,384
|
|
|
24,299
|
|
|
16,352
|
|
|
|
|
|
|
|
|
|
|
|
|
At
end of year
|
|
$
|
25,065
|
|
$
|
13,384
|
|
$
|
24,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid in interest, net of amount capitalized
|
|
$
|
3,576
|
|
$
|
2,074
|
|
$
|
1,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes, including related interest
|
|
$
|
1,803
|
|
$
|
1,600
|
|
$
|
1,370
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value adjustments to securities available for sale
|
|
$
|
(45
|
)
|
$
|
1,074
|
|
$
|
802
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax effect related to fair value adjustments
|
|
$
|
(16
|
)
|
$
|
408
|
|
$
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of breeding herd to Property & Equipment
|
|
$
|
516
|
|
$
|
562
|
|
$
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended August 31, 2006, 2005 and 2004
(in
thousands except for unit data)
(1)
Summary of Significant Accounting Policies
(a)
Basis of Consolidated Financial Statement Presentation
The
consolidated financial statements include the accounts of Alico, Inc. (Alico)
and its wholly owned subsidiaries, 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.
(b)
Revenue Recognition
Income
from the sale of citrus is recognized at the time the crop is harvested. Based
on fruit buyers' and processors' advances to growers, stated cash and futures
markets combined with experience in the industry, management reviews the
reasonableness of the citrus revenue accrual. Adjustments are made throughout
the year to these estimates as relevant information regarding the citrus market
becomes available. Differences between the estimates and the final realization
of revenues can be significant, and the differences between estimated and final
results can be either positive or negative. Fluctuation in the market prices
for
citrus fruit has caused the Company to recognize additional revenue from the
prior years’ crops totaling $838 thousand, $357 thousand, and $728 thousand
during fiscal years’ 2006, 2005, and 2004, respectively.
Income
from sugarcane under a pooled agreement is recognized at the time the crop
is
harvested. Based on the processor’s advance payment, past sugarcane prices and
its experience in the industry, management reviews the reasonableness of the
sugarcane revenue accrual. Adjustments are made as additional relevant
information regarding the sugar market becomes available. Market price changes
to the sugar pool have caused the Company to adjust revenue from the prior
years’ crops by $169 thousand, ($198 thousand), and $325 thousand during fiscal
years 2006, 2005, and 2004, respectively.
The
Company recognizes revenue from cattle sales at the time the cattle are sold
at
auction. The Company recognizes revenue from the sale of vegetables and sod
at
the time of harvest. Revenues from the sale of plants is recognized when the
plants are shipped from the greenhouse.
For
sales
made through Bowen, the Company applies the provisions of Emerging Issues Task
Force (“EITF”) Issue No. 99-19, “ Reporting Revenue Gross as a Principal versus
Net as an Agent.” The Company’s application of EITF 99-19 includes evaluation of
the terms of each major customer contract relative to a number of criteria
that
management considers in making its determination with respect to gross versus
net reporting of revenue for transactions with its customers. Management’s
criteria for making these judgments place particular emphasis on determining
the
primary obligor in a transaction and which party bears general inventory risk.
Bowen purchases and resells citrus fruit, in these transactions, Bowen (i)
acts
as principal; (ii) takes title to the products; and (iii) has the risks and
rewards of ownership, including the risk of loss for collection, delivery or
returns. For these transactions, Bowen recognizes revenues based on the gross
amounts due from customers.
(c)
Real Estate
Real
estate sales are recorded under the accrual method of accounting. Residential
retail land sales made through Saddlebag are not recognized until the buyer’s
initial investment or cumulative payments of principal and interest equal or
exceed 10% of the contract sales price.
Gains
from commercial or bulk land sales, made mostly through Alico-Agri, Ltd., 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.
Tangible
assets that are purchased during the period to aid in the sale of the project
as
well as costs for services performed to obtain regulatory approval of the sales
are capitalized as land and land improvements to the extent they are estimated
to be recoverable from the sale of the property. Land and land improvement
costs
are allocated to individual parcels on a per lot basis using the relative sales
value method.
The
costs
incurred to obtain the necessary regulatory approvals are capitalized into
land
costs when paid. These costs will be expensed as cost of sales when the
underlying real estate is sold.
(d)
Marketable Securities Available for Sale
Marketable
securities available for sale are carried at their fair value. Net unrealized
investment gains and losses are recorded net of related deferred taxes in
accumulated other comprehensive income within stockholders' equity until
realized. Unrealized losses determined to be other than temporary are recognized
in the statment of operations in the period the determination is
made.
Fair
value for debt and equity investments is based on quoted market prices at the
reporting date for those or similar investments. The cost of all marketable
securities available for sale is determined on the specific identification
method.
(e)
Inventories
The
costs
of growing crops are capitalized into inventory until the time of harvest.
Once
a given crop is harvested, the related inventoried costs are recognized as
a
cost of sale to provide an appropriate matching of costs incurred with the
related revenue earned.
The
Company states its inventories at the lower of cost or net realizable value.
The
cost for unharvested crops is based on accumulated production costs incurred
during the eight-month period from January 1 through August 31. The cost of
the
beef cattle inventory is based on the accumulated cost of developing such
animals for sale. The cost of greenhouse plants is based on the actual costs
of
production for such plants.
(f)
Mortgages and notes receivable
Mortgages
and notes receivable arise from real estate sales. Mortgages and notes
receivable are carried at their estimated net realizable value. In circumstances
where the stated interest rate is below the prevailing market rate, the note
is
discounted to yield the market rate of interest. The discount offsets the
carrying amount of the mortgages and notes receivable.
Under
the
installment method of accounting, gains from commercial or bulk land sales
are
not recognized until payments received for property equal or exceed 20% of
the
contract sales price. Such gains are recorded as deferred revenue and offset
the
carrying amount of the mortgages and notes receivable.
(g)
Accounts receivable
Accounts
receivable are generated from the sale of citrus, sugarcane, sod, cattle,
vegetables, plants and other transactions. The Company provides an allowance
for
doubtful trade receivables equal to the estimated uncollectible amounts. That
estimate is based on historical collection experience, current economic and
market conditions, and a review of the current status of each customer’s trade
accounts receivable.
(h)
Property, Buildings and Equipment
Property,
buildings and equipment are stated at cost. Properties acquired from the
Company's predecessor corporation in exchange for common stock issued in 1960,
at the inception of the Company, are stated on the basis of cost to the
predecessor corporation. Property acquired as part of a land exchange trust,
is
valued at the carrying value of the property transferred to the
trust.
All
costs
related to the development of citrus groves, through planting, are capitalized.
Such costs include land clearing, excavation and construction of ditches, dikes,
roads, and reservoirs, etc. After the planting, caretaking costs or
pre-productive maintenance costs are capitalized for four years. After four
years, a grove is considered to have reached maturity and the accumulated costs,
except for land excavation, become the depreciable basis of a grove and
depreciated over 25 years.
Development
costs for sugarcane are capitalized the same as citrus. However, sugarcane
matures in one year and the Company is able to harvest an average of 3 crops
(1
per year) from one planting. As a result, cultivation/caretaking costs are
expensed as the crop is harvested, while the appropriate development and
planting costs are depreciated over 3 years.
The
breeding herd consists of purchased animals and animals raised on the ranch.
Purchased animals are stated at cost. The cost of animals raised on the ranch
is
based on the accumulated cost of developing such animals for productive use.
Depreciation
for financial reporting purposes is computed on straight-line or accelerated
methods over the estimated useful lives of the various classes of depreciable
assets. See Note 5 to the consolidated financial statements.
The
Company accounts for long-lived assets in accordance with the provisions of
SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
This
Statement requires long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability
of
assets to be held and used is measured by a comparison of the carrying amount
of
an asset to future net cash flows expected to be generated by the asset. If
such
are considered to be impaired, the impairment to be recognized is measured
by
the amount by which the carrying amount of the assets exceeds the fair value
of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Land
inventories are carried at cost and consist of property located in Lee County,
Florida owned by Alico-Agri, Ltd. The Lee County property is held for sale
as
commercial real estate. Land inventory is considered a current asset if sales
contracts for the property are expected to close within one year of the balance
sheet date. Land inventory is grouped under the caption other current
assets.
(j)
Other Investments
Other
investments are carried at cost. These primarily include stock owned in
agricultural cooperatives and loan origination fees. The Company uses
cooperatives to process and sell sugarcane and citrus. Cooperatives typically
require members to acquire stock ownership as a condition for the of use of
its
services.
During
fiscal year 2006, the Company entered into and later amended a Credit Facility
with a commercial bank for a $175.0 million line of credit which matures on
August 1, 2010. Loan origination and other related fees totaling $750 thousand
were included in the August 31, 2006 balance sheet as other investments and
are
being amortized over the life of the Credit Facility. The amortization expense
was $124 thousand for fiscal year 2006.
(k)
Income Taxes
The
Company accounts for income taxes under the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in income in
the
period that includes the enactment date.
(l)
Net Earnings Per Share
Outstanding
stock options and restricted stock shares represent the only dilutive effects
reflected in the computation of weighted average shares outstanding assuming
dilution. There were no stock options issued that could potentially dilute
basic
earnings per share in the future that were not included in the computation
of
earnings per share assuming dilution.
(m)
Cash Flows
For
purposes of the cash flows, cash and cash equivalents include cash on hand
and
investments with an original maturity of less than three months.
(n)
Use of Estimates
In
preparing the consolidated financial statements, management is required to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities. Actual results could differ significantly from those estimates.
Although some variability is inherent in these estimates, management believes
that the amounts provided are adequate. The valuation of the Company’s
inventories, the estimated tax contingency and the recognition of citrus and
sugarcane revenues are some of the more significant estimates made by
Management.
(o)
Financial Instruments and Accruals
The
carrying amounts in the consolidated balance sheets for accounts receivable,
mortgages and notes receivable, accounts payable and accrued expenses
approximate fair value because of the immediate or short term maturity of these
items. Where stated interest rates are below market, the Company has discounted
mortgage notes receivable to reflect their estimated fair market value. The
carrying amounts reported for the Company's long-term debt approximates fair
value because they are transactions with commercial lenders at interest rates
that vary with market conditions and fixed rates that approximate market.
(p)
Derivative and Hedging Instruments
The
Company, from time to time, engages in cattle futures trading activities for
the
purpose of economically hedging against price fluctuations. The Company records
gains and losses related to these cattle hedges in costs of goods sold. At
August 31, 2006 and 2005, the Company had no open positions in cattle futures.
The Company also purchases, from time to time, corn futures in order to lock
in
the cost of raising feeder cattle over the feeding term. At August 31, 2006
and
2005, the Company had no open positions in corn futures. The Company, through
its investment portfolio, also may hedge using options or short sales. These
transactions are recorded as interest and investment income.
(q)
Accumulated Other Comprehensive Income (Loss)
Comprehensive
income is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner
sources. It includes both net income and other comprehensive income or loss.
Items included in other comprehensive income or losses are classified based
on
their nature. The total of other comprehensive income or loss for a period
has
been transferred to an equity account and displayed as "accumulated other
comprehensive income (loss)”.
(r)
Stock-Based Compensation
Prior
to
the 2006 fiscal year, the Company accounted for its stock-based compensation
under the recognition and measurement principles of Accounting Principles Board
Opinion No. 25,“Accounting
for Stock Issued to Employees and related interpretations (“APB 25”).
Under APB 25, stock-based compensation cost was reflected in net income for
grants of stock options based on the difference between the exercise price
and
the fair market value of the stock on the date of issue.
Effective
September 1, 2005, the Company adopted the modified prospective transition
method under Statement of Financial Accounting Standards No. 123 (Revised 2004)
“Share-Based Payment” (“SFAS 123R”), which requires the measurement and
recognition of compensation cost at fair value for all share-based payments,
including stock options and restricted share awards. Stock-based
compensation recognized for fiscal year 2006 was approximately $329 thousand
and
is included in general and administrative expenses in the consolidated statement
of operations. This expense includes compensation expense, recognized over
the applicable vesting periods, for new share-based awards and for share-based
awards granted prior to, but not yet vested, as of August 31, 2006. See
Note 8 “Stock-Based
Compensation” in the notes to the consolidated financial statements.
The
following table illustrates the effect on net income and earnings per share
of
the Company had the Company applied the fair value recognition provisions of
FASB Statement No. 123, “Accounting
for Stock-Based Compensation” , relating to stock-based employee compensation
for the years ended August 31, 2005 and 2004:
No
stock
options were granted during fiscal years 2006 and 2005. The fair value of stock
options granted was $1.7 million in 2004 on the date of the grant using the
Black Scholes option-pricing model with the following weighted average
assumptions:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
|
|
|
-
|
|
|
8.28
|
%
|
Dividend
paid
|
|
|
|
|
|
-
|
|
|
1.87
|
%
|
Risk-free
interest rate
|
|
|
|
|
|
-
|
|
|
2.26
|
%
|
Expected
life in years
|
|
|
|
|
|
-
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimates
of volatility, dividends and the expected life of the options were based on
the
experience of the Company. The risk free interest rate was based on rates
published by the Department of the Treasury for bonds with expected lives
similar to the expected option life.
|
|
Year
ended August 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
6,090
|
|
$
|
17,813
|
|
|
|
|
|
|
|
|
|
Add:
Total stock-based employee compensation expense
|
|
|
|
|
|
|
|
included
in reported net income,
|
|
|
|
|
|
|
|
net
of related tax effects
|
|
|
-
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
Deduct:
Total stock-based employee compensation expense
|
|
|
|
|
|
|
|
determined
under the fair value based method for all
|
|
|
|
|
|
|
|
awards,
net of related tax effects
|
|
|
-
|
|
|
(1,063
|
)
|
|
|
|
|
|
|
|
|
Pro
forma net income
|
|
$
|
6,090
|
|
$
|
17,850
|
|
|
|
|
|
|
|
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
0.83
|
|
$
|
2.47
|
|
|
|
|
|
|
|
|
|
Basic
- pro forma
|
|
$
|
0.83
|
|
$
|
2.47
|
|
|
|
|
|
|
|
|
|
Diluted
- as reported
|
|
$
|
0.83
|
|
$
|
2.44
|
|
|
|
|
|
|
|
|
|
Diluted
- pro forma
|
|
$
|
0.83
|
|
$
|
2.45
|
|
(s)
Reclassifications
Certain
amounts from 2005 and 2004 have been reclassified to conform to the 2006
presentation.
(t)
Major customers
Alico
is
a producer of agricultural commodities. Due to the limited number of processors
of its raw products, geographic limitations and historic success, the Company’s
citrus and sugarcane sales are concentrated to a few customers. Details
concerning the sales and receivables from these customers are as follows for
the
years ended August 31:
|
|
Accounts
receivable
|
|
Revenues
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citrus
fruit marketer - Griffin
|
|
$
|
4,435
|
|
$
|
5,811
|
|
$
|
5,437
|
|
$
|
17,203
|
|
$
|
19,810
|
|
$
|
18,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sugar
cane processor - United States Sugar Corporation
|
|
$
|
1,740
|
|
$
|
2,466
|
|
$
|
2,887
|
|
$
|
8,926
|
|
$
|
9,323
|
|
$
|
11,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
made through the citrus fruit marketer represented approximately 78%, 76% and
75% of the Company’s citrus grove revenues during fiscal years 2006, 2005 and
2004, respectively, and approximately 22%, 36% and 35% of total operating
revenues during fiscal years 2006, 2005 and 2004, respectively.
Sales
made through the sugarcane processor represented 100% of the Company’s sugarcane
revenues during fiscal years 2006, 2005 and 2004 and 12%, 17% and 22% of total
operating revenues during fiscal years 2006, 2005 and 2004,
respectively.
2)
Marketable Securities Available for Sale
The
Company has classified 100% of its investments in marketable securities as
available for sale and, as such, the securities are carried at estimated fair
value. Any unrealized gains and losses, net of related deferred taxes, are
recorded as a net amount in a separate component of stockholders' equity until
realized. In accordance with the provisions of EITF Issue No. 03-1, which became
effective for reporting periods beginning after June 15, 2004, the Company
identified those investments at August 31, 2005 which were deemed to be other
than temporarily impaired and included the losses in the statement of operations
for fiscal year 2005. No investments at August 31, 2006 were deemed to be other
than temporarily impaired.
The
cost and estimated fair values of marketable securities available
for sale
at August 31, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,483
|
|
|
1,066
|
|
|
(218
|
)
|
|
|
|
7,331
|
|
Mutual
funds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
17,029
|
|
|
2,846
|
|
|
(86
|
)
|
|
|
|
19,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
equity securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
24,875
|
|
|
3,993
|
|
|
(321
|
)
|
|
|
|
28,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
|
21,169
|
|
|
19
|
|
|
(2
|
)
|
|
21,186
|
|
|
20,548
|
|
|
74
|
|
|
-
|
|
|
|
|
20,622
|
|
Mutual
funds
|
|
|
370
|
|
|
-
|
|
|
(6
|
)
|
|
364
|
|
|
4,344
|
|
|
155
|
|
|
(76
|
)
|
|
|
|
4,423
|
|
Fixed
maturity funds
|
|
|
19,686
|
|
|
44
|
|
|
(18
|
)
|
|
19,712
|
|
|
2,799
|
|
|
-
|
|
|
(41
|
)
|
|
|
|
2,758
|
|
Corporate
bonds
|
|
|
8,920
|
|
|
-
|
|
|
(82
|
)
|
|
8,838
|
|
|
14,897
|
|
|
12
|
|
|
(435
|
)
|
|
|
|
14,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt securities
|
|
|
50,145
|
|
|
63
|
|
|
(108
|
)
|
|
50,100
|
|
|
42,588
|
|
|
241
|
|
|
(552
|
)
|
|
|
|
42,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
$
|
50,145
|
|
$
|
63
|
|
$
|
(108
|
)
|
$
|
50,100
|
|
$
|
67,463
|
|
$
|
4,234
|
|
$
|
(873
|
)
|
|
|
$
|
70,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
aggregate fair value of investments in debt securities (net of
mutual
funds of $364) as of August 31, 2006 by contractual
maturity date, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
in one year or less
|
|
|
|
|
|
|
$
|
23,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
between one and five years
|
|
|
|
|
|
|
|
7,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
between five and ten years
|
|
|
|
|
|
|
|
5,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
thereafter
|
|
|
|
|
|
|
|
|
|
|
|
13,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
49,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
gains and losses on the disposition of securities were as follows:
|
|
Year
ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Realized
gains
|
|
$
|
4,962
|
|
$
|
2,606
|
|
$
|
815
|
|
Realized
losses
|
|
|
(1,708
|
)
|
|
(523
|
)
|
|
(92
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
3,254
|
|
$
|
2,083
|
|
$
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
In
evaluating whether a security was other than temporarily impaired, the Company
considered the severity and length of time impaired for each security in a
loss
position. Other qualitative data was also considered including recent
developments specific to the organization issuing the security. The following
table shows the gross unrealized losses and fair value of the 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
August 31, 2006:
|
|
Less
than 12 months
|
|
12
months or greater
|
|
Total
|
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
720
|
|
$
|
2
|
|
|
-
|
|
|
- |
|
$
|
720
|
|
$
|
2
|
|
Debt
mutual funds
|
|
|
217
|
|
|
3
|
|
|
147
|
|
|
3
|
|
|
364
|
|
|
6
|
|
Fixed
maturity funds
|
|
|
8,377
|
|
|
18
|
|
|
- |
|
|
- |
|
|
8,377
|
|
|
18
|
|
Corporate
bonds
|
|
|
2,832
|
|
|
25
|
|
|
6,006
|
|
|
57
|
|
|
8,838
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,146
|
|
$
|
48
|
|
$
|
6,153
|
|
$
|
60
|
|
$
|
18,299
|
|
$
|
108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities and funds.
At
August 31, 2006, the Company held no positions in equity
securities.
During
the year ended August 31, 2005, equity investments with a combined cost basis
of
$1.7 million were determined to be other than temporarily impaired. An
adjustment of $399 thousand was made to reduce the cost basis of the securities
and was recognized as a reduction in interest and investment
income.
Debt
instruments and funds.
The
unrealized losses on municipal bonds, debt mutual funds, fixed maturity funds
and corporate bonds were primarily due to changes in interest rates. At August
31, 2006 the Company held loss positions in 15 government backed bonds, 2 debt
based mutual funds, 66 fixed maturity funds, consisting mostly of certificates
of deposit, and 14 corporate bond positions. Because the decline in market
values of these securities is attributable to changes in interest rates and
not
credit quality and because the Company has the ability and intent to hold these
investments until a recovery of fair value, which may be maturity, the Company
does not believe any of the unrealized losses represent other than temporary
impairment based on evaluations of available evidence as of August 31,
2006.
(3)
Mortgages and Notes Receivable
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
and notes receivable arose from real estate sales. The balances
are
|
|
as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Mortgage
notes receivable on retail land sales
|
|
$
|
427
|
|
$
|
580
|
|
Mortgage
notes receivable on bulk land sales
|
|
|
56,610
|
|
|
56,976
|
|
Other
notes receivable
|
|
|
-
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Total
mortgages and notes receivable
|
|
|
57,037
|
|
|
57,566
|
|
Less:
Deferred revenue
|
|
|
(43,230
|
)
|
|
(46,207
|
)
|
Discount
on note to impute market interest
|
|
|
(2,783
|
)
|
|
(2,594
|
)
|
Current
portion
|
|
|
(47
|
)
|
|
(2,370
|
)
|
|
|
|
|
|
|
|
|
Non-current
portion
|
|
$
|
10,977
|
|
$
|
6,395
|
|
|
|
|
|
|
|
|
|
Maturities
of the mortgages and notes receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Due
within 1 year
|
|
$
|
47
|
|
Due
between 1 and 2 years
|
|
|
14,204
|
|
Due
between 2 and 3 years
|
|
|
14,205
|
|
Due
between 3 and 4 years
|
|
|
14,207
|
|
Due
between 4 and 5 years
|
|
|
14,208
|
|
Due
beyond five years
|
|
|
166
|
|
Total
mortgages and notes receivable
|
|
|
57,037
|
|
Less:
Deferred Revenue
|
|
|
(43,230
|
)
|
Discount
on note to impute market interest
|
|
|
(2,783
|
)
|
Net
mortgages and notes receivable
|
|
$
|
11,024
|
|
|
|
|
|
|
In
July
2005, Alico-Agri sold property in Lee County, Florida for $62.9 million. At
the
time of sale, the Company received a down payment of $6.2 million in cash and
a
2.5% interest bearing mortgage note of $56.6 million in exchange for the land
sold. Under the terms of the note, equal annual principal payments of $14.2
million are receivable, together with related interest over a four year period
following approval of the development order. The first payment is to be received
no later than three years after the date of sale. Interest under the note does
not begin to accrue until a development order is received for the property
sold.
The note has been discounted by $2.8 million to reflect the prevailing market
rate of interest. The Company has also deferred $43.2 million of gain related
to
the sale, until aggregate receipts under the contract total at least 20% of
the
sales price. The current portion of the mortgages and notes receivable is
included with “Other current assets” in the accompanying consolidated balance
sheets.
(4)
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of the Company's inventories at August 31, 2006 and 2005
is shown
below:
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Unharvested
fruit crop on trees
|
|
$
|
10,709
|
|
$
|
8,176
|
|
Unharvested
sugarcane
|
|
|
5,168
|
|
|
5,691
|
|
Beef
cattle
|
|
|
7,063
|
|
|
5,024
|
|
Plants
and vegetables
|
|
|
588
|
|
|
1,180
|
|
Sod
|
|
|
1,017
|
|
|
831
|
|
|
|
|
|
|
|
|
|
Total
inventories
|
|
$
|
24,545
|
|
$
|
20,902
|
|
|
|
|
|
|
|
|
|
The
Company's unharvested sugarcane and cattle are partially
uninsured.
|
|
|
|
|
|
|
|
|
The
Company records its inventory at the lower of cost or net realizable value.
At
August 31, 2006, the Company wrote down cattle inventory by $35 thousand. At
August 31, 2005, the cost basis for all inventories was below estimated net
realizable value.
Hurricane
Wilma, a category three hurricane, swept through southwest Florida during the
first quarter of fiscal year 2006. The hurricane caused extensive damage to
the
Company’s crops and infrastructure in Collier and Hendry Counties. Additionally,
hurricanes in fiscal years 2005 and 2004 also caused damages to citrus crops,
primarily in Polk County.
In
fiscal
year 2005, citrus canker was discovered in three of the Company’s citrus grove
locations. Citrus canker is a highly contagious bacterial disease of citrus
that
causes premature leaf and fruit drop. Citrus canker causes no threat to humans,
animals or plant life other than citrus. In 2005, Florida law required that
infected and exposed trees within 1900 feet of the canker find be removed and
destroyed. The 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 inventory that were previously
estimated as lost but had not yet been destroyed were reestablished, reducing
the casualty loss accrued.
As
a
result of the hurricane and canker discoveries, the Company recognized casualty
losses related to inventoried costs as follows:
Inventory
Damage
|
|
2006
|
|
2005
|
|
2004
|
|
Unharvested
citrus
|
|
$
|
3,198
|
|
$
|
786
|
|
$
|
408
|
|
Unharvested
sugarcane
|
|
|
395
|
|
|
-
|
|
|
-
|
|
Unharvested
vegetables
|
|
|
147
|
|
|
-
|
|
|
-
|
|
|
|
$
|
3,740
|
|
$
|
786
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
For
further information regarding the casualty losses, please refer to Note 12
of
the consolidated financial statements.
(5)
Property, Buildings and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
summary of the Company's property, buildings and equipment at
August 31,
2006 and 2005 is shown below:
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
2006
|
|
2005
|
|
Useful
Lives
|
|
|
|
|
|
|
|
|
|
Breeding
herd
|
|
$
|
15,038
|
|
$
|
13,688
|
|
|
5-7
years
|
|
Buildings
|
|
|
8,434
|
|
|
7,037
|
|
|
5-40
years
|
|
Citrus
trees
|
|
|
31,466
|
|
|
30,058
|
|
|
22-40
years
|
|
Sugarcane
|
|
|
8,382
|
|
|
8,344
|
|
|
4-15
years
|
|
Equipment
and other facilities
|
|
|
35,130
|
|
|
30,934
|
|
|
3-40
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
depreciable properties
|
|
|
98,450
|
|
|
90,061
|
|
|
|
|
Less
accumulated depreciation
|
|
|
48,338
|
|
|
45,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
depreciable properties
|
|
|
50,112
|
|
|
45,018
|
|
|
|
|
Land
and land improvements
|
|
|
81,239
|
|
|
60,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
property, buildings and equipment
|
|
$
|
131,351
|
|
$
|
105,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
fiscal
year 2005, citrus canker was discovered in three of the Company’s citrus grove
locations. Citrus canker is a highly contagious bacterial disease of citrus
that
causes premature leaf and fruit drop. Citrus canker causes no threat to
humans,
animals or plant life other than citrus. In 2005, Florida law required
that
infected and exposed trees within 1900 feet of the canker find be removed
and
destroyed. In 2005, the Company wrote off the remaining basis of the trees,
totaling $4.4 million as a result of these discoveries. The remaining basis
and
inventoried costs, net of expected insurance recoveries were charged to
fiscal
year 2005 operations as a casualty loss.
During
the second quarter of fiscal year 2006, the USDA suspended the rule requiring
the destruction of canker. As a result, some of the trees that were scheduled
for removal and had been written off as a casualty loss in 2005, were
reestablished during fiscal year 2006. Trees with a basis of $1.3 million
previously recognized as a casualty loss in fiscal year 2005 were added back
to
fixed assets and credited to fiscal year 2006 operations as a casualty recovery
(see Note 12 to the consolidated financial statements).
In
November 2005, the Company sold approximately 280 acres of citrus grove land
located south of La Belle, Florida in Hendry County for $5.6 million cash.
The
Company will retain operating rights to the grove until residential development
begins. The Company recognized a net profit on the sale of $4.4
million.
In
October 2005, the Company, through Alico-Agri, Ltd., purchased 291 acres of
lakefront property in Polk County, Florida, for $9.2 million cash.
In
May
2006, the Company purchased a 523 acre riverfront mine site for rock and fill
in
Glades County, Florida, for $10.6 million cash. The Company has allocated
approximately 54% of the purchase price to the rock and sand reserve with the
remaining 46% of the purchase price allocated as residual land value based
on
the present value of the expected rock royalties to be received over 20 years
and the expected value of the property after that time. Rock and sand reserves
are being charged to cost of goods sold proportionately as the property is
mined.
(6)
Indebtedness
In
October 2005, Alico, Inc. entered into a Credit Facility with a commercial
lender. The Credit Facility provided the Company with a $175.0 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 $175.0
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 related provisions
and covenants. In the event of default, the Amended Credit Facility shall bear
interest at a rate of 2% greater than 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 set 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 August 31,
2006 and 2005:
August
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
Principal
|
|
Credit
|
|
Interest
|
|
|
|
|
|
Balance
|
|
Available
|
|
Rate
|
|
Collateral
|
|
a)
Revolving credit facility
|
|
$
|
52,296
|
|
$
|
122,704
|
|
|
Libor
+1
|
%
|
|
Real
Estate
|
|
b)
Term loan
|
|
|
2,000
|
|
|
-
|
|
|
5.80
|
%
|
|
Unsecured
|
|
c)
Mortgage note payable
|
|
|
9,606
|
|
|
-
|
|
|
6.68
|
%
|
|
Real
estate
|
|
d)
Other
|
|
|
100
|
|
|
-
|
|
|
7.00
|
%
|
|
Real
estate
|
|
Total
|
|
$
|
64,002
|
|
$
|
122,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Credit
|
|
|
Interest
|
|
|
|
|
|
|
|
Balance
|
|
|
Available
|
|
|
Rate
|
|
|
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
+.8
|
%
|
|
Unsecured
|
|
Total
|
|
$
|
51,348
|
|
$
|
7,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
Terms described above
|
|
b)
5-year fixed rate term loan with commercial lender. $2 million
principal
due annually. Interest
due quarterly.
|
|
c)
First mortgage on 7,680 acres of cane, citrus, pasture and improvements
in
Hendry County,
Florida with commercial lender. Monthly principal payments of
$106
thousand plus
accrued interest.
|
|
d)
First mortgage on a parcel of land in Polk County, Florida with
private
seller. Annual equal
payments of $55 thousand.
|
|
e)
Line of credit with commercial bank, refinanced in October,
2005.
|
|
f)
Working capital loan with commercial bank due on demand. Refinanced
in
October, 2005.
|
|
g)
Line of credit with commercial bank, refinanced in October,
2005.
|
|
LIBOR
was
5.33% and 3.69% at August 31, 2006 and 2005, respectively. The Company’s
variable interest rates, based on LIBOR at August 31, 2006 and 2005 were
approximately 6.33% and 4.69%, respectively.
The
Company's debt agreements contain covenants that require that the Company
maintain certain financial ratios and minimum net worth levels. The
covenants also restrict the Company's activities regarding investments, liens,
borrowing and leasing. At August 31, 2006, the Company was in compliance
with all financial and other covenants.
Maturities
of the Company's debt are as follows:
|
|
|
|
|
|
August
31,
|
|
|
|
2006
|
|
Due
within 1 year
|
|
$
|
3,315
|
|
Due
between 1 and 2 years
|
|
|
1,318
|
|
Due
between 2 and 3 years
|
|
|
1,267
|
|
Due
between 3 and 4 years
|
|
|
53,563
|
|
Due
between 4 and 5 years
|
|
|
1,267
|
|
Due
beyond five years
|
|
|
3,272
|
|
Total
|
|
$
|
64,002
|
|
|
|
|
|
|
Interest
costs expensed and capitalized during the three years ended
|
|
|
|
August
31, 2006, 2005 and 2004 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
$
|
4,066
|
|
$
|
2,295
|
|
$
|
1,825
|
|
Interest
capitalized
|
|
|
77
|
|
|
235
|
|
|
275
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
interest cost
|
|
$
|
4,143
|
|
$
|
2,530
|
|
$
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
(7)
Other non-current liability
Alico
formed a wholly owned insurance subsidiary, Agri Insurance Company, Ltd.
(Bermuda) ("Agri") in June of 2000. Agri was formed in response to the lack
of
insurance availability, both in the traditional commercial insurance markets
and
governmental sponsored insurance programs, suitable to provide coverage for
the
increasing number and potential severity of agricultural events. Such events
include citrus canker, crop diseases, livestock related maladies and weather.
Alico’s goal included not only pre-funding its potential exposures related to
the aforementioned events, but also to attempt to attract new underwriting
capital if it is successful in profitably underwriting its own potential risks
as well as similar risks of its historic business partners.
Alico
capitalized Agri by contributing real estate located in Lee County Florida.
The
real estate was transferred at its historical cost basis. Agri received a
determination letter from the Internal Revenue Service (IRS) stating that Agri
was exempt from taxation provided that net premium levels, consisting only
of
premiums with third parties, were below an annual stated level ($350 thousand).
Third party premiums have remained below the stated annual level. As the Lee
County real estate was sold, substantial gains were generated in Agri, creating
permanent book/tax differences.
The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties, or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit its rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13,
2006.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes.
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable
that the challenge may be successful as to some of the possible
assertions, Management has provided for the contingency. The
Company has accrued a liability of $20.3 million and $17.0 million as of
August 31, 2006 and 2005, respectively, for the contingency.
(8)
Stock Based Compensation
On
November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan
(The Plan) pursuant to which the Board of Directors of the Company may grant
options, stock appreciation rights, and/or restricted stock to certain directors
and employees. The Plan authorized grants of shares or options to purchase
up to
650,000 shares of authorized but unissued common stock. Stock options granted
have a strike price and vesting schedules that are at the discretion of the
Board of Directors and are determined on the effective date of the grant. The
strike price cannot be less than 55% of the market price. No stock options
were granted during fiscal years 2006 and 2005.
The
Company applied APB
Opinion 25 for
options issued to directors and employees in accounting for its Plan prior
to
fiscal year 2006. All stock options were granted to directors or employees
with
an exercise price equal to at least 55% of the fair value of the common stock
at
the date of grant and had a vesting period of one year.
For
fiscal year 2006, the Company adopted SFAS 123R, which revised Statement of
Financial Accounting Standard No. 123 “Share-Based Payment”. SFAS 123R requires
companies to measure the cost of employee services received in exchange for
an
award of equity instruments based on the grant-date fair value of the award.
The
cost is to be recognized over the period during which an employee is required
to
provide service in exchange for the award (usually the vesting period). The
grant date fair value of employee share options and similar instruments will
be
estimated using option-pricing models adjusted for the unique characteristics
of
those instruments (unless observable market prices for the same or similar
instruments are available). If an equity award is modified after the grant
date,
incremental compensation cost will be recognized in an amount equal to the
excess of the fair value of the modified award over the fair value of the
original award immediately before the modification.
A
summary
of option activity under the Plan is as follows:
|
|
|
|
|
|
Weighted
average
|
|
Aggregate
|
|
|
|
Shares
Under
|
|
Weighted
average
|
|
remaining
contractual
|
|
Intrinsic
|
|
|
|
Option
|
|
exercise
price
|
|
life
(in years)
|
|
Value
|
|
Options
outstanding,
|
|
|
|
|
|
|
|
|
|
August
31,2003
|
|
|
149,401
|
|
$
|
15.34
|
|
|
|
|
|
|
|
Granted
|
|
|
119,462
|
|
|
18.18
|
|
|
|
|
|
|
|
Exercised
|
|
|
193,237
|
|
|
16.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,2004
|
|
|
75,626
|
|
$
|
17.29
|
|
|
9
|
|
|
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
59,255
|
|
|
17.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,2005
|
|
|
16,371
|
|
$
|
18.05
|
|
|
8
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
7,213
|
|
|
18.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August
31,2006
|
|
|
9,158
|
|
$
|
17.66
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
August
31, 2006 and August 31, 2005, there were 9,158 and 16,371 stock options,
respectively, fully vested and exercisable and 292,844 and 292,844 shares,
respectively, available for grant. The 9,158 options outstanding as of August
31, 2006 had a fair value of $382 thousand. There was no unrecognized
compensation expense related to outstanding stock option grants at August
31,
2006.
In
fiscal
year 2006, 7,213 options were exercised having a total fair value of $259
thousand. In fiscal year 2005, 59,255 options were exercised having a total
fair
value of $1.9 million. In fiscal year 2004, 190,537 options were exercised
having a total fair value of $3.7 million. Compensation expense recognized
for
the options granted in fiscal year 2004 was $942 thousand based on the
difference between the exercise price and fair market value at the date of
grant
as prescribed under APB 25. In fiscal year 2004, 119,462 options were granted
at
a weighted average grant date fair value of $14.76.
In
fiscal
year 2006, the Company began granting restricted shares to certain key employees
as long term incentives. The restricted shares vest in four equal annual
installments. The payment of each installment is subject to continued employment
with the Company. In fiscal year 2006, there were 4,000 restricted shares vested
in accordance with these grants.
The
table
below summarizes the Company’s restricted share awards granted to
date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
|
|
|
|
|
|
|
|
Fair
Market Value
|
|
Expense
|
|
|
|
Grant
Date
|
|
Shares
Granted
|
|
on
Date of Grant
|
|
Recognized
in 2006
|
|
|
|
April
2006
|
|
|
20,000
|
|
$
|
908
|
|
$
|
65
|
|
|
|
|
July
2006
|
|
|
13,000
|
|
|
694
|
|
|
16
|
|
|
|
|
October
2006
|
|
|
20,000
|
|
|
1,239
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
53,000
|
|
$
|
2,841
|
|
$
|
329
|
|
$
|
53.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
shares granted in April 2006 vest 25% in April 2010 and 25% annually thereafter
until fully vested. The shares granted in July 2006 vest 25% in July 2010 and
25% annually thereafter until fully vested. Four thousand of the shares granted
in October 2006 related to past service and were immediately vested.
The shares granted in October 2006 vested 25% effective August 31, 2006 and
25% annually thereafter until fully vested. Following the guidelines established
in FAS 123R, the Company is recognizing compensation cost equal to the fair
market value of the stock at the grant dates prorated over the vesting period
of
each award. The fair value of the unvested restricted stock awards at August
31,
2006 was $2.9 million and will be recognized over a weighted average period
of 6
years.
(9)
Income Taxes
The
provision for income taxes for the fiscal years ended August 31, 2006, 2005
and
2004 is summarized as follows:
|
|
Year
ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
Federal
income tax
|
|
$
|
2,640
|
|
$
|
1,121
|
|
$
|
8,733
|
|
State
income tax
|
|
|
282
|
|
|
120
|
|
|
933
|
|
|
|
|
2,922
|
|
|
1,241
|
|
|
9,666
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
income tax
|
|
|
2,975
|
|
|
1,725
|
|
|
290
|
|
State
income tax
|
|
|
318
|
|
|
182
|
|
|
31
|
|
|
|
|
3,293
|
|
|
1,907
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
6,215
|
|
$
|
3,148
|
|
$
|
9,987
|
|
|
|
|
|
|
|
|
|
|
|
|
Following
is a reconciliation of the expected income tax expense computed at the U.S.
Federal statutory rate of 34% and the actual income tax provision for the years
ended August 31, 2006, 2005 and 2004:
|
|
Year
ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Provision
for income tax at statutory rate
|
|
$
|
4,313
|
|
$
|
3,141
|
|
$
|
9,452
|
|
Increase
(decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit
|
|
|
396
|
|
|
198
|
|
|
636
|
|
Nontaxable
interest and dividends
|
|
|
(352
|
)
|
|
(89
|
)
|
|
(93
|
)
|
Stock
options exercised
|
|
|
-
|
|
|
(648
|
)
|
|
(675
|
)
|
Contingent
liability increase
|
|
|
2,204
|
|
|
-
|
|
|
-
|
|
Other
reconciling items, net
|
|
|
(346
|
) |
|
546
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
6,215
|
|
$
|
3,148
|
|
$
|
9,987
|
|
Some
items of revenue and expense included in the statement of operations may
not be
currently taxable or deductible on the income tax returns. Therefore, income
tax
assets and liabilities are divided into a current portion, which is the amount
attributable to the current year’s tax return, and a deferred portion, which is
the amount attributable to another year’s tax return. The revenue and expense
items not currently taxable or deductible are called temporary
differences.
The
tax
effects of temporary differences that give rise to significant portions of
the
deferred tax
assets and deferred tax liabilities are presented below:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Deferred
Tax Assets:
|
|
|
|
|
|
Contribution
carry forward
|
|
$
|
1,052
|
|
$
|
1,469
|
|
Deferred
retirement benefits
|
|
|
1,299
|
|
|
1,032
|
|
Prepaid
sales comissions
|
|
|
412
|
|
|
412
|
|
Land
inventories
|
|
|
488
|
|
|
488
|
|
Stock
options appreciation
|
|
|
278
|
|
|
195
|
|
IRS
adjustments
|
|
|
802
|
|
|
786
|
|
Contingency
accrual
|
|
|
1,257
|
|
|
-
|
|
Other
|
|
|
662
|
|
|
618
|
|
|
|
|
|
|
|
|
|
Total
gross deferred tax assets
|
|
$
|
6,250
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
Deferred
Tax Liabilities:
|
|
|
|
|
|
|
|
Revenue
recognized from citrus and sugarcane
|
|
$
|
471
|
|
$
|
491
|
|
Property
and equipment (principally due to depreciation and
|
|
|
|
|
|
|
|
soil
and water deductions)
|
|
|
15,743
|
|
|
12,874
|
|
Inventories
|
|
|
322
|
|
|
1,353
|
|
Deferred
real estate gains
|
|
|
4,792
|
|
|
3,540
|
|
Unrealized
security gains
|
|
|
-
|
|
|
1,208
|
|
Other
|
|
|
11
|
|
|
1,238
|
|
|
|
|
|
|
|
|
|
Total
gross deferred tax liabilities
|
|
$
|
21,339
|
|
$
|
20,704
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax liabilities
|
|
$
|
15,089
|
|
$
|
15,704
|
|
|
|
|
|
|
|
|
|
Based
on the Company's history of taxable earnings and its expectations
for the
future, management
has determined that its taxable income will more likely than not
be
sufficient to fully recognize all deferred tax
assets.
|
Agri
Insurance Company, Ltd. (Agri), a wholly owned insurance company subsidiary
of
Alico, is treated as a U.S. taxpayer, pursuant to an election under Internal
Revenue Code Section 953(d), for all purposes except for consolidating an
operating loss by virtue of the dual consolidated loss rules. (Dual consolidated
losses prevent operating losses [not capital losses] from occurring in insurance
companies domiciled outside of the United States from offsetting operating
income irrespective of the fact that the insurance company is a member of the
consolidated return group).
Agri
was
established to provide agricultural insurance that falls outside of the Federal
Crop Insurance Program, for catastrophic perils. Agri was domiciled in Bermuda
because it offers easy access to reinsurance markets.
Agri
issued its initial policy in August 2000 to a third party. Agri's ability
to
underwrite insurance risks is limited by its operational liquidity, by the
Registrar of Companies in Bermuda. For Federal income tax purposes, only
premiums received by Agri from policies of insurance issued to parties other
than its parent, Alico, are considered insurance premiums. The preceding
limiting factors resulted in Agri not incurring a tax liability on underwriting
profits or investment income. Agri's tax status resulted in it filing its
Federal tax return on a stand alone basis for the calendar year periods ended
December 31, 2003, 2002, 2001 and 2000.
The
Internal Revenue Service (IRS) issued a thirty day letter dated August 14,
2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004.
The
letter proposes changes to the Company's tax liabilities for each of these
tax
years and required the Company either a) to agree with the changes and remit
the
specified taxes and penalties, or b) to submit a rebuttal within 30 days. The
Company sought and received an extension of time to submit its rebuttal until
October 16, 2006 and timely submitted the rebuttal on October 13,
2006.
In
the
thirty day letter, the IRS proposed several alternative theories as a basis
for
its argument that Alico should have reported additional taxable income in the
years under audit. These theories principally relate to the formation and
capitalization of the Company's Agri Insurance subsidiary and its tax exempt
status during the years under audit. Under the theories proposed, the IRS has
calculated additional taxes and penalties due ranging from a minimum of $35.4
million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes.
The
Company does not accept the IRS position and intends to continue to oppose
vigorously any attempt by the IRS to impose such assessment in connection with
the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable
that the challenge may be successful as to some of the possible
assertions, Management has provided for the contingency. During fiscal year
2006, the Company adjusted its liability accrual by $3.3 million. The adjustment
was charged to the Company’s fiscal year 2006 tax provision. The
Company has accrued a total liability of $20.3 million and $17.0 million at
August 31, 2006 and 2005, respectively, for the contingency.
Since
January 1, 2004 Agri has been filing as a taxable entity. This change in tax
status is a direct result of changes in the Internal Revenue Code increasing
premium and other annual income levels. Due to these changes, Agri no longer
qualifies as a tax-exempt entity.
(10)
Related Party Transactions
Citrus
Citrus
revenues of $17.2 million, $19.8 million and $18.4 million were recognized
for a
portion of citrus crops sold under a marketing agreement with Ben Hill Griffin,
Inc. (Griffin) for the years ended August 31, 2006, 2005 and 2004, respectively.
Griffin and its subsidiaries are controlled by Ben Hill Griffin, III, the
brother-in-law of John R. Alexander, the Company’s Chief Executive Officer, and
was the owner of approximately 49.85 percent of the Company's common stock
until
February 26, 2004. Accounts receivable, resulting from citrus sales, include
amounts due from Griffin totaling $4.4 million at August 31, 2006 and $5.8
million at August 31, 2005. These amounts represent estimated revenues to be
received periodically under pooling agreements as sale of pooled products is
completed.
Harvesting,
marketing, and processing costs, for fruit sold through Griffin, totaled $5.5
million, $6.6 million, and $7.2 million for the years ended August 31, 2006,
2005 and 2004, respectively. In addition, Griffin provided the harvesting
services for citrus sold to unrelated processors in 2005 and 2004. The aggregate
cost of these services was $2.5 million and $2.1 million, respectively. The
accompanying consolidated balance sheets include accounts payable to Griffin
for
citrus production, harvesting and processing costs totaling $219 thousand and
$211 thousand at August 31, 2006 and 2005, respectively.
Other
Transactions
In
fiscal
year 2004, Agri began providing coverage for Tri-County Grove, LLC, a subsidiary
of Atlantic Blue Trust, Inc., the holder of approximately 47.4% of the Company’s
common stock when the policy was issued. The coverage term was from August
2004
to July 2005. Total coverage under the policy was $2.7 million and the premium
charged was $45 thousand during the coverage term.
Premiums
for coverages quoted are set by independent actuaries/underwriters hired by
Agri
in Bermuda 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.
The
Company purchased fertilizer and other miscellaneous supplies, services, and
operating equipment from Griffin, on a competitive bid basis, for use in its
cattle, sugarcane, sod and citrus operations. Such purchases totaled $3.3
million, $4.2 million and $5.3 million during the years ended August 31, 2006,
2005 and 2004, respectively.
During
fiscal year 2006, Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust,
Inc.)
(ABG) increased its holdings to approximately 50.5% of the Company’s common
stock. By virtue of their ownership percentage, ABG is able to elect all the
directors and, consequently, to control the Company. ABG has issued a letter
dated September 29, 2006 reaffirming its commitment to maintaining a majority
of
independent directors on Alico’s board.
(11)
Reportable Segment Information
The
Company has four reportable segments: Bowen, Citrus Groves, Sugarcane and
Cattle. Bowen provides harvesting and marketing services for citrus producers
including Alico’s Citrus Grove division. Additionally, Bowen purchases citrus
fruit and resells the fruit to citrus processors and fresh packing facilities.
The Citrus Groves segment produces citrus fruit for sale to citrus processors
and fresh packing facilities. The Sugarcane segment produces sugarcane for
delivery to the sugar mill and refinery. The Cattle division raises beef
cattle
for sale to western feedlots and meat packing facilities. The goods and services
produced by these segments are sold to wholesalers and processors in the
United
States who prepare the products for consumption. The Company's operations
are
located in Florida.
Although
the Company’s Plant World, Vegetable and Sod segments do not meet the
quantitative thresholds to be considered as reportable segments, information
about these segments may be useful and has been included in the schedules
below.
For a description of the business activities of the Plant World, Vegetables
and
Sod segments please refer to Item 1 of this report.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes not including
nonrecurring gains and losses.
The
Company accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current market prices.
The
Company’s reportable segments are strategic business units that offer different
products. They are managed separately because each business requires different
knowledge, skills and marketing strategies.
Information
concerning the various segments of the Company for the years ended August
31,
2006, 2005 and 2004 is summarized as follows:
|
|
Year
ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Revenues
(from external customers except as noted)
|
|
|
|
|
|
|
|
Bowen
|
|
$
|
30,869
|
|
$
|
-
|
|
$
|
-
|
|
Intersegment
fruit sales through Bowen
|
|
|
1,723
|
|
|
-
|
|
|
-
|
|
Citrus
groves
|
|
|
22,188
|
|
|
26,231
|
|
|
24,549
|
|
Sugarcane
|
|
|
8,926
|
|
|
9,323
|
|
|
11,646
|
|
Cattle
|
|
|
5,700
|
|
|
11,017
|
|
|
9,678
|
|
Alico
Plant World
|
|
|
3,270
|
|
|
2,587
|
|
|
-
|
|
Vegetables
|
|
|
2,389
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
1,528
|
|
|
402
|
|
|
752
|
|
Revenue
from segments
|
|
|
76,593
|
|
|
49,560
|
|
|
46,625
|
|
Other
operations
|
|
|
2,564
|
|
|
5,965
|
|
|
5,432
|
|
Less:
intersegment revenues eliminated
|
|
|
(1,723
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating revenue
|
|
$
|
77,434
|
|
$
|
55,525
|
|
$
|
52,057
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Bowen
|
|
$
|
31,137
|
|
$
|
-
|
|
$
|
-
|
|
Intersegment
fruit sold through Bowen
|
|
|
1,723
|
|
|
- |
|
|
- |
|
Citrus
groves
|
|
|
14,574
|
|
|
19,984
|
|
|
20,407
|
|
Sugarcane
|
|
|
8,566
|
|
|
8,824
|
|
|
9,051
|
|
Cattle
|
|
|
4,914
|
|
|
8,908
|
|
|
8,178
|
|
Alico
Plant World
|
|
|
4,373
|
|
|
2,128
|
|
|
-
|
|
Vegetables
|
|
|
1,404
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
840
|
|
|
480
|
|
|
622
|
|
Segment
operating expenses
|
|
|
67,531
|
|
|
40,324
|
|
|
38,258
|
|
Other
operations
|
|
|
513
|
|
|
967
|
|
|
640
|
|
Less:
intersegment expenses eliminated
|
|
|
(1,723
|
)
|
|
-
|
|
|
-
|
|
Net
casualty loss (recovery)
|
|
|
(3,628
|
)
|
|
1,888
|
|
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
$
|
62,693
|
|
$
|
43,179
|
|
$
|
39,306
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss):
|
|
|
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$ |
(268
|
)
|
$ |
-
|
|
$ |
-
|
|
Citrus
groves
|
|
|
7,614
|
|
|
6,247
|
|
|
4,142
|
|
Sugarcane
|
|
|
360
|
|
|
499
|
|
|
2,595
|
|
Cattle
|
|
|
786
|
|
|
2,109
|
|
|
1,500
|
|
Alico
Plant World
|
|
|
(1,103
|
)
|
|
459
|
|
|
-
|
|
Vegetables
|
|
|
985
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
688
|
|
|
(78
|
)
|
|
130
|
|
Gross
profit from segments
|
|
|
9,062
|
|
|
9,236
|
|
|
8,367
|
|
Other
|
|
|
3,622
|
|
|
2
|
|
|
19,433
|
|
Income
before income taxes
|
|
$ |
12,684
|
|
$ |
9,238
|
|
$ |
27,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended August 31,
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
1,536
|
|
$
|
-
|
|
$
|
-
|
|
Citrus
Groves
|
|
|
9,929
|
|
|
2,086
|
|
|
2,872
|
|
Sugarcane
|
|
|
3,065
|
|
|
1,891
|
|
|
1,804
|
|
Cattle
|
|
|
3,490
|
|
|
2,711
|
|
|
2,218
|
|
Alico
Plant World
|
|
|
957
|
|
|
5,990
|
|
|
-
|
|
Vegetables
|
|
|
325
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
1,103
|
|
|
-
|
|
|
-
|
|
Segment
capital expenditures
|
|
|
20,405
|
|
|
12,678
|
|
|
6,894
|
|
Other
capital expenditures
|
|
|
12,767
|
|
|
199
|
|
|
386
|
|
Total
consolidated capital expenditures
|
|
$
|
33,172
|
|
$
|
12,877
|
|
$
|
7,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation,
depletion and amortization:
|
|
|
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
913
|
|
$
|
-
|
|
$
|
-
|
|
Citrus
Groves
|
|
|
2,540
|
|
|
2,454
|
|
|
2,361
|
|
Sugarcane
|
|
|
1,918
|
|
|
2,072
|
|
|
2,220
|
|
Cattle
|
|
|
1,817
|
|
|
1,484
|
|
|
1,429
|
|
Alico
Plant World
|
|
|
578
|
|
|
431
|
|
|
-
|
|
Vegetables
|
|
|
17
|
|
|
-
|
|
|
-
|
|
Sod
|
|
|
143
|
|
|
-
|
|
|
-
|
|
Total
segment depreciation and amortization
|
|
|
7,926
|
|
|
6,441
|
|
|
6,010
|
|
Other
depreciation, depletion and amortization
|
|
|
664
|
|
|
516
|
|
|
499
|
|
Total
depreciation, depletion and amortizations
|
|
$
|
8,590
|
|
$
|
6,957
|
|
$
|
6,509
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets:
|
|
|
|
|
|
|
|
|
|
|
Bowen
Brothers Fruit
|
|
$
|
3,096
|
|
$
|
-
|
|
|
|
|
Citrus
groves
|
|
|
59,464
|
|
|
49,670
|
|
|
|
|
Sugarcane
|
|
|
47,894
|
|
|
49,863
|
|
|
|
|
Cattle
|
|
|
23,919
|
|
|
20,383
|
|
|
|
|
Alico
Plant World
|
|
|
6,515
|
|
|
7,373
|
|
|
|
|
Vegetables
|
|
|
1,981
|
|
|
-
|
|
|
|
|
Sod
|
|
|
4,191
|
|
|
1,743
|
|
|
|
|
Segment
assets
|
|
|
147,060
|
|
|
129,032
|
|
|
|
|
Other
Corporate assets
|
|
|
115,693
|
|
|
118,662
|
|
|
|
|
Total
assets
|
|
$
|
262,753
|
|
$
|
247,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identifiable
assets represent assets on hand at year-end that are allocable
to a
particular segment either
by their direct use or by allocations when used jointly by two
or more
segments. Other assets consist principally of
cash,
|
temporary
investments, mortgage notes receivable, bulk land inventories
and
property and equipment used in general corporate
business.
|
|
|
|
|
|
|
|
|
|
|
|
(12)
Casualty (Recoveries) 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. Also,
canker was confirmed in several groves in 2006 and 2005. Additionally, during
August and September 2004, a series of three hurricanes struck a portion of
the
Company’s citrus groves in Polk County, Florida.
Citrus
canker is a highly contagious bacterial disease of citrus that causes premature
leaf and fruit drop. Citrus canker causes no threat to humans, animals or plant
life other than citrus. Prior to January 10, 2006, Florida law required infected
and exposed trees within 1,900 feet of the canker find to be removed and
destroyed. The
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.
The
Company recognized (recoveries) and losses resulting from the hurricanes and
canker as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
Inventoried
costs
|
|
$
|
3,740
|
|
$
|
786
|
|
$
|
408
|
|
Basis
of property and equipment
|
|
|
1,410
|
|
|
4,426
|
|
|
-
|
|
Re-established
groves
|
|
|
(1,268
|
)
|
|
-
|
|
|
-
|
|
Payments
for business interruption
|
|
|
(2,900
|
)
|
|
-
|
|
|
-
|
|
Insurance
proceeds received
|
|
|
(4,004
|
)
|
|
(1,062
|
)
|
|
-
|
|
Insurance
reimbursements receivable
|
|
|
(606
|
)
|
|
(2,262
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
casualty (recovery) loss
|
|
$
|
(3,628
|
)
|
$
|
1,888
|
|
$
|
408
|
|
|
|
|
|
|
|
|
|
|
|
|
(13)
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
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
|
|
8/2/2006
|
|
|
3,000
|
|
$
|
55.62
|
|
|
16,000
|
|
$
|
166,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The
Company may purchase an additional 15,000 shares pursuant to the approved
Director Compensation Plan.
(14)
Off Balance Sheet Arrangements
The
Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC enters
into purchase contracts for the purchase of citrus products during the normal
course of its business. Typically, these purchases are covered by sales
contracts. The total purchase contracts under these agreements totaled $7.4
million at August 31, 2006. All of these purchases were covered by sales
agreements. None of these agreements were in a net loss position as of August
31, 2006. All of these contracts will be fulfilled by the end of the fiscal
year
2007. 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 $192 thousand at August 31, 2006.
Deliveries under these contracts will occur before October 31,
2006.
(15)
New Accounting Pronouncements
In
June
2006, the FASB issued FASB Interpretation Number 48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.” The
interpretation contains a two step approach to recognizing and measuring
uncertain tax positions accounted for in accordance with SFAS No. 109. The
first
step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates it is more likely than not that the
position will be sustained on audit, including resolution of related appeals
or
litigation processes, if any. The second step is to measure the tax benefit
as
the largest amount which is more than 50% likely of being realized upon ultimate
settlement. The Company is required to adopt FIN 48 at the beginning of fiscal
year 2008. The Company is evaluating the impact this statement will have on
its
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS
No. 157 defines fair value, establishes a framework for measuring fair value
in
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements. The Company is required to
adopt
SFAS No. 157 effective at the beginning of fiscal year 2009. The Company is
evaluating the impact this statement will have on its consolidated financial
statements.
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158 requires
an employer to recognize the overfunded or underfunded status of a defined
benefit postretirement plan (other than a multiemployer plan) as an asset or
liability in its statement of financial position and to recognize changes in
that funded status in the year in which the changes occur through comprehensive
income. SFAS No. 158 also requires an employer to measure the funded status
of a
plan as of the date of its year-end statement of financial position, with
limited exceptions. SFAS No. 158 will be effective for the Company’s fiscal year
2007. The Company is evaluating the impact this statement will have on its
consolidated financial statements.
(16)
Subsequent events
At
a
Board of Directors meeting held on September 28, 2006, the Board declared a
quarterly dividend of $0.275 per share payable to stockholders of record as
of
December 29, 2006, with payment expected on or about January 15,
2007.
17)
Selected Quarterly Financial Data (Unaudited)
SELECTED
QUARTERLY FINANCIAL DATA
|
|
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized
quarterly financial data (in thousands except for per share amounts)
for
the years ended August
31, 2006 and August 31, 2005, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters
Ended
|
|
|
|
November
30,
|
|
February
28,
|
|
May
31,
|
|
August
31,
|
|
|
|
2005
|
|
2004
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citrus
|
|
$ |
1,208
|
|
$ |
879
|
|
$ |
12,766
|
|
$ |
9,586
|
|
$ |
28,276
|
|
$ |
10,246
|
|
$ |
10,807
|
|
$ |
5,520
|
|
Sugarcane
and sod
|
|
|
1,986
|
|
|
2,453
|
|
|
5,144
|
|
|
5,286
|
|
|
2,792
|
|
|
1,902
|
|
|
532
|
|
|
84
|
|
Ranch
|
|
|
2,224
|
|
|
2,135
|
|
|
426
|
|
|
2,184
|
|
|
758
|
|
|
4,660
|
|
|
2,292
|
|
|
2,038
|
|
Property
sales
|
|
|
5,580
|
|
|
187
|
|
|
7
|
|
|
110
|
|
|
81
|
|
|
489
|
|
|
206
|
|
|
15,440
|
|
Interest
|
|
|
4,985
|
|
|
1,264
|
|
|
1,499
|
|
|
1,305
|
|
|
1,651
|
|
|
169
|
|
|
918
|
|
|
1,705
|
|
Other
revenue
|
|
|
1,308
|
|
|
1,952
|
|
|
3,197
|
|
|
2,276
|
|
|
2,867
|
|
|
2,565
|
|
|
1,084
|
|
|
949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
17,291
|
|
|
8,870
|
|
|
23,039
|
|
|
20,747
|
|
|
36,425
|
|
|
20,031
|
|
|
15,839
|
|
|
25,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citrus
|
|
|
588
|
|
|
483
|
|
|
10,961
|
|
|
8,734
|
|
|
23,886
|
|
|
6,622
|
|
|
10,276
|
|
|
4,145
|
|
Sugarcane
and sod
|
|
|
2,623
|
|
|
2,079
|
|
|
4,838
|
|
|
5,258
|
|
|
1,866
|
|
|
1,763
|
|
|
79
|
|
|
204
|
|
Ranch
|
|
|
1,711
|
|
|
1,902
|
|
|
318
|
|
|
1,709
|
|
|
671
|
|
|
3,558
|
|
|
2,214
|
|
|
1,739
|
|
Interest
|
|
|
991
|
|
|
508
|
|
|
793
|
|
|
560
|
|
|
1,055
|
|
|
694
|
|
|
1,227
|
|
|
533
|
|
Other
|
|
|
9,579
|
|
|
2,391
|
|
|
1,809
|
|
|
4,600
|
|
|
5,315
|
|
|
3,170
|
|
|
(890
|
)
|
|
15,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
15,492
|
|
|
7,363
|
|
|
18,719
|
|
|
20,861
|
|
|
32,793
|
|
|
15,807
|
|
|
12,906
|
|
|
22,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
|
1,799
|
|
|
1,507
|
|
|
4,320
|
|
|
(114
|
)
|
|
3,632
|
|
|
4,224
|
|
|
2,933
|
|
|
3,621
|
|
Provision
for income taxes
|
|
|
646
|
|
|
542
|
|
|
1,653
|
|
|
(103
|
)
|
|
1,092
|
|
|
1,609
|
|
|
2,824
|
|
|
1,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
1,153
|
|
$ |
965
|
|
$ |
2,667
|
|
$ |
(11
|
)
|
$ |
2,540
|
|
$ |
2,615
|
|
$ |
109
|
|
$ |
2,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
$
|
0.16
|
|
$
|
0.13
|
|
$
|
0.36
|
|
$
|
(0.00
|
)
|
$
|
0.34
|
|
$
|
0.36
|
|
$
|
0.02
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
9. Changes
in & Disagreements with Accountants on Accounting and Financial
Disclosure.
Information
called for by Item 9 and required by Item 304(a) of Regulation S-K is
incorporated by reference to reports filed on Form 8-K June 8, 2004 and amended
June 16, 2004.
There
were no disagreements with accountants on accounting and financial disclosure
matters.
Item
9A. Controls and Procedures
Attached
as exhibits to this Form 10-K are certifications of our Chief Executive Officer
and Chief Financial Officer, which are required in accordance with Rule 13a-14
of the Securities Exchange Act. This "Controls and Procedures" section includes
information concerning the controls and controls evaluation referred to in
the
certifications.
Evaluation
of Disclosure Controls and Procedures
The
Company maintains disclosure controls and procedures, as defined in
Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
referenced herein as the Exchange Act. These disclosure controls and procedures
are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified in
the
SEC's rules and forms, and that such information is accumulated and communicated
to Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Company carried out, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, an evaluation
of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures performed pursuant to Rule 13a-15 under the Securities
Exchange Act of 1934 as amended. For the fiscal year ended August 31, 2005,
the
Company’s Chief Executive Officer and its Chief Financial Officer
determined that that a material weakness existed by reason of inadequate
staffing in the Company’s accounting department. The Company took various steps
to correct this weakness during the 2006 fiscal year but based on their
evaluation at the end of 2006, the Company's Chief Executive Officer and
its
Chief Financial Officer concluded that, as of August 31, 2006, the Company's
disclosure controls and procedures continued to be not
effective.
Material
Weakness Related to Tax Accounting
Management
assessed the effectiveness of the Company's internal control over financial
reporting as of August 31, 2006. In making the assessment, Management used
the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission ("COSO") in Internal Control - Integrated Framework. Based on
this
assessment, the Management of Alico, Inc. concluded that a material
weakness
continued to exist in the Company's internal control over financial reporting
as
of August 31, 2006 as a result of a significant deficiency discovered in
connection with the preparation of the year end financial statements. Although
the amount of the adjustments made to the Company’s accounts would ordinarily
have resulted in a significant deficiency the Company concluded that a material
weakness continues to exist in the internal controls over financial reporting,
because the remedial actions taken during fiscal 2006 were not effective
at
August 31, 2006 to prevent the significant deficiency, which in this context
amounted to a material weakness. 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.
Although
improvements were made to the internal controls over financial reporting
during
fiscal 2006, a significant deficiency existed in the following
area:
Adjustments
to the Company’s income tax provision and deferred taxes were identified by the
Company’s auditors based on the results of the annual financial statement audit
for the fiscal year 2006. The adjustments resulted from a deficiency in the
operation of internal controls around the deferred tax roll forward,
specifically related to the contribution carry-forward, property, plant and
equipment, and the income tax provision calculation.
The
entries to correct and properly reflect the income tax balances were made
and
incorporated into the fiscal 2006 year end financial statements and Management
does not believe that there are any misstatements in the financial statements.
Although
the Company does not believe that the significant deficiency identified impacted
any previously filed financial statements, the Chief Executive Officer and
the
Chief Financial Officer believe that the existence of the deficiency or
deficiencies of the magnitude reported following the determination that a
material weakness existed in the previous year means that the material weakness
identified in 2005 is continuing and is an indication that there continues
to be
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.
In
conducting Alico’s evaluation of the effectiveness of its internal control over
financial reporting, Alico excluded
the
acquisition
of Bowen
Brothers, which was completed by Alico during fiscal 2006. Bowen Brothers
represented approximately 1% of Alico’s total assets as of August 31, 2006 and
approximately 33%, of Alico’s total revenues for the year then ended. Companies
are allowed to exclude
acquisitions
from
their assessment of internal control over financial reporting during the
first
year of an acquisition
while
integrating the acquired company under guidelines established by the Securities
and Exchange Commission.
Remediation
of Prior Year’s Material Weakness
Subsequent
to the year ended August 31, 2005, the Company added a qualified and experienced
financial reporting manager in the Accounting Department to improve the depth,
skills, and experience within the department to prepare its financial statements
and disclosures in accordance with generally accepted accounting principles.
In
addition, management improved the documentation of and training on accounting
policies and procedures to further improve internal controls over financial
reporting. These changes however, were not sufficient to prevent the occurrence
of the deficiency noted above and indicate that the material weakness is
continuing. Subsequent to August 31, 2006, Management will continue to evaluate
the depth, progress and abilities of accounting personnel in order to address
the material weaknesses in its accounting staff. Management also intends
to hire
additional accounting personnel to provide more support in this department.
Management is committed to correcting this material weakness.
Management's
Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control
over
financial reporting. Internal control over financial reporting is defined
in
Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process
designed by, or under the supervision of, the Company's principal executive
and
principal financial officers and implemented by the Company's board of
directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted
accounting principles and includes those polices and procedures
that:
Management's
assessment of the effectiveness of internal control over financial reporting
as
of August 31, 2006 has been audited by Tedder, James, Worden & Associates,
P.A., an independent registered certified public accounting firm, as stated
in
their report which is included below in Item 9A of this Form
10-K.
Report
of Independent Registered Certified Public Accounting
Firm
To
the
Stockholders and Board of Directors of
Alico,
Inc. and Subsidiaries
We
have
audited management's assessment, included in the accompanying Management's
Annual Report on Internal Control Over Financial Reporting, that Alico, Inc.
and
Subsidiaries did not maintain effective internal control over financial
reporting as of August 31, 2006, because of the effect of lack of a sufficient
number 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
accounting principles generally accepted in the United States of America,
based
on criteria established in Internal Control - Integrated Framework issued
by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Alico,
Inc.'s management is responsible for maintaining effective internal control
over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed
to
proved reasonable assurance regarding the reliability of financial reporting
and
the preparation of financial statements for external purposes in accordance
with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
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. The following material weakness has been identified and included
in
management's assessment. The material weakness resulted from a lack of a
sufficient number 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 accounting principles generally accepted in the United States of America.
Specifically, internal controls around the deferred tax roll forward did
not
operate effectively, resulting in adjustments to the Company’s income tax
provision and deferred taxes that were not detected by the Company’s accounting
staff. This material weakness was considered in determining the nature, timing,
and extent of audit tests applied in our audit of the 2006 financial statements,
and this report does not affect our report dated November 17, 2006 on the
financial statements.
In
our
opinion, management's assessment that Alico, Inc. and Subsidiaries did not
maintain effective internal control over financial reporting as of August
31,
2006, is fairly stated, in all material respects, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, because
of the effect of the material weakness described above on the achievement
of the
objectives of the control criteria, Alico, Inc. and Subsidiaries has not
maintained effective internal control over financial reporting as of August
31,
2006, based on criteria established in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Alico,
Inc.
and Subsidiaries as of August 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss),
and cash flows for each of the three years in the period ended August 31,
2006,
and our report dated November 17, 2006, expressed an unqualified opinion
thereon.
/s/TEDDER,
JAMES, WORDEN & ASSOCIATES, P.A.
Orlando,
Florida
November
17, 2006
Item
9B. Other Information.
None.
PART
III
Items
10
- 14 of Part three are incorporated by reference to the Company’s proxy expected
to be filed on or before December 31, 2006.
PART
IV
Item
15. Exhibits,
Financial Statement Schedules and Reports on Form 8-K.
(a)
1. Financial Statements:
Included
in Part II, Item 8 of this Report
Reports
of Registered Independent Certified Public Accounting Firm
August
31, 2006, 2005 & 2004
Consolidated
Balance Sheets - August 31, 2006 and 2005
Consolidated
Statements of Operations - For the Years Ended August 31, 2006, 2005 and
2004
Consolidated
Statements of Stockholders' Equity and Comprehensive Income (loss) - For the
Years Ended August 31, 2006, 2005 and 2004
Consolidated
Statements of Cash Flows - For the Years Ended August 31, 2006, 2005 and
2004
(b)
2. Financial Statement Schedules:
Selected
Quarterly Financial Data - For the Years Ended August 31, 2006 and 2005 -
Included in Part II, Item 8
All
other
schedules not listed above are not submitted because they are not applicable
or
not required or because the required information is included in the financial
statements or notes thereto.
(c)
3. Exhibits:
3(i)
Articles of Incorporation:
3(i)1
Restated Certificate of Incorporation, Dated February 17, 1972 (incorporated
by
reference to the Company’s Registration Statement on Form S-1 dated February 24,
1972, Registration No. 2-43156).
-3(i)2
Certificate of Amendment to Certificate of Incorporation, Dated January 14,
1974
(incorporated by reference to the Company’s Registration Statement on Form S-8,
dated December 21, 2005, Registration No. 333-130575)
3(i)3
Amendment to Articles of Incorporation, Dated January 14, 1987 (incorporated
by
reference to the Company’s Registration Statement on Form S-8, dated December
21, 2005, Registration No. 333-130575)
3(i)4
Amendment to Articles of Incorporation, Dated December 27, 1988 (incorporated
by
reference to the Company’s Registration Statement on Form S-8, dated December
21, 2005, Registration No. 333-130575)
3(ii)
Bylaws
3(ii)(1)
By-Laws of Alico, Inc., Amended to March 31, 2006
(10)
Material Contracts - Citrus Processing and Marketing Agreement with Ben Hill
Griffin, Inc., dated November 2, 1983, a Continuing Contract.
(11)
Statement - Computation of Weighted Average Shares Outstanding and Per Share
Earnings.
(12)
Statement - Computation of Ratios
(14.1)
Code of Ethics
(14.2)
Whistleblower Policy
(21)
Subsidiaries of the Registrant - Saddlebag Lake Resorts, Inc. (a Florida
corporation incorporated in 1971);Agri-Insurance Company, Ltd. (a company
formed
under the laws of the country of Bermuda incorporated in 2000), Alico-Agri,
Ltd
(a Florida limited partnership formed in 2003), Alico Plant World, LLC (a
Florida limited liability company organized in 2004), Bowen Brothers Fruit,
LLC
(a Florida limited liability company organized in 2005).
(31.1)
Rule 13a-14(a) certification
(31.2)
Rule 13a-14(a) certification
(32.1)
Section 1350 certification
(32.2)
Section 1350 certification
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ALICO,
INC.
(Registrant)
November 28,
2006
|
|
John
R. Alexander
|
Date
|
|
Chairman
& Chief
Executive Officer
|
|
|
/s/
John R. Alexander
|
|
|
|
|
|
|
November
28, 2006
|
|
Patrick
W. Murphy
|
Date
|
|
Senior
Vice President & Chief
Financial Officer
|
|
|
/s/
Patrick W. Murphy
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the date indicated:
John
R.
Alexander
Robert E. Lee Caswell
Chairman
Director
/s/
John
R.
Alexander
/s/ Robert E. Lee Caswell
Evelyn
D’An
Phillip Dingle
Director
Director
/s/
Evelyn
D’An
/s/ Phillip Dingle
Gregory
Mutz
Charles Palmer
Director
Director
/s/
Gregory
Mutz
/s/ Charles Palmer
Baxter
G.
Troutman
Gordon Walker
Director
Director
/s/
Baxter G.
Troutman
/s/ Gordon Walker
Robert
J.
Viguet
Director
/s/
Robert J. Viguet
November
28, 2006
Date