ALCO 10-Q Quarterly Report Dec. 31, 2009

ALICO, INC.

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10-Q 1 c95412e10vq.htm 10-Q 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2009


o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 0-261

Alico, Inc.

(Exact name of registrant as specified in its charter)


Florida		59-0906081

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

P.O. Box 338, LaBelle, FL		33975

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code : 863-675-2966

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer þ	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes þ No

There were 7,370,573 shares of common stock, par value $1.00 per share, outstanding at February 1, 2010.

Index

Alico, Inc.
Form 10-Q
For the quarter ended December 31, 2009



Part I. Financial Information			3

Item 1. Unaudited Financial Statements and Footnotes			3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3. Quantitative and Qualitative Disclosures about Market Risk			22

Item 4. Controls and Procedures			22

Part II. Other Information			23

Item 1. Legal Proceedings			23

Item 1A. Risk Factors			23

Item 2. Unregistered Sales of Equity Securities			23

Item 3. Defaults Upon Senior Securities			23

Item 4. Submission of Matters to a Vote of Security Holders			23

Item 5. Other Information			24

Item 6. Exhibits			24

EX-31.1
EX-31.2
EX-32.1
EX-32.2


Part I. Financial Information


Item 1. Financial Statements

ALICO, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)


	Three months ended
	December 31,
	2009			2008
Operating revenue
Agricultural operations	$	13,472		$	18,088
Non-agricultural operations		646			957
Real estate operations		—			1,249

Total operating revenue		14,118			20,294


Operating expenses
Agricultural operations		13,517			17,457
Non-agricultural operations		266			257
Real estate operations		172			290

Total operating expenses		13,955			18,004


Gross profit		163			2,290
Corporate general and administrative		1,240			3,001

Loss from continuing operations		(1,077	)		(711	)

Other income (expenses):
Profit on sales of bulk real estate, net		—			1,546
Interest and investment (loss) income, net		(58	)		933
Interest expense		(978	)		(2,079	)
Other		172			11


Total other (expense) income net		(864	)		411


Loss before income taxes		(1,941	)		(300	)
Benefit from income taxes		(571	)		(124	)


Net loss	$	(1,370	)	$	(176	)


Weighted-average number of shares outstanding		7,388			7,401


Weighted-average number of shares outstanding assuming dilution		7,388			7,401


Per share amounts- net (loss) income
Basic	$	(0.19	)	$	(0.02	)
Diluted	$	(0.19	)	$	(0.02	)
Dividends	$	—		$	0.28

See accompanying Notes to Condensed Consolidated Financial Statements.

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)


	(Unaudited)
	December 31,			September 30,
	2009			2009
ASSETS

Current assets:
Cash and cash equivalents	$	9,750		$	18,794
Investments		4,527			3,410
Accounts receivable, net		5,940			1,929
Income tax receivable		6,590			5,994
Mortgages and notes receivable		70			72
Inventories		18,755			18,737
Current deferred tax asset		1,437			1,431
Other current assets		720			968


Total current assets		47,789			51,335

Mortgages and notes receivable, net of current portion		7,206			7,221
Investments, deposits and other		7,614			8,984
Deferred tax assets		7,356			7,356
Cash surrender value of life insurance		6,210			6,291
Property, buildings and equipment		181,460			178,736
Less: accumulated depreciation		(60,359	)		(59,688	)


Total assets	$	197,276		$	200,235

(continued)

ALICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(in thousands)


	(Unaudited)
	December 31,			September 30,
	2009			2009
LIABILITIES & STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	3,144		$	1,283
Current portion of notes payable		5,186			5,122
Accrued expenses		2,190			2,252
Dividend payable		—			1,014
Accrued ad valorem taxes		—			1,967
Other current liabilities		964			1,006


Total current liabilities		11,484			12,644

Notes payable, net of current portion		73,490			73,806
Deferred retirement benefits, net of current portion		3,268			3,229
Other liabilities		3,711			3,680


Total liabilities		91,953			93,359


Stockholders’ equity:
Common stock		7,377			7,377
Additional paid in capital		9,558			9,480
Treasury stock		(311	)		(52	)
Accumulated other comprehensive income		1			3
Retained earnings		88,698			90,068


Total stockholders’ equity		105,323			106,876


Total liabilities and stockholders’ equity	$	197,276		$	200,235

See accompanying Notes to Condensed Consolidated Financial Statements.

ALICO, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Three months ended
	December 31,
	2009			2008

Net cash used for operating activities	$	(3,964	)	$	(5,967	)

Cash flows from investing activities:
Purchases of property and equipment		(4,011	)		(2,325	)
Purchases of other investments		(5	)		(121	)
Proceeds from sales of property and equipment		433			172
Purchases of marketable securities		(9	)		(335	)
Proceeds from sales of marketable securities		150			21,527
Note receivable collections		17			1,792


Net cash (used for) provided by investing activities		(3,425	)		20,710


Cash flows from financing activities:
Principal payments on notes payable		(14,252	)		(4,930	)
Proceeds from notes payable		14,000			16,669
Treasury stock purchases		(389	)		(604	)
Dividends paid		(1,014	)		(2,035	)


Net cash (used for) provided by financing activities		(1,655	)		9,100


Net (decrease) increase in cash and cash equivalents	$	(9,044	)	$	23,843

Cash and cash equivalents:
At beginning of period	$	18,794		$	54,370


At end of period	$	9,750		$	78,213


Supplemental disclosures of cash flow information
Cash paid for interest, net of amount capitalized	$	934		$	2,396

Cash paid for income taxes	$	—		$	285


Supplemental schedule of non-cash investing activities:

Reclassification of breeding herd to property and equipment	$	557		$	552

See accompanying Notes to Condensed Consolidated Financial Statements.

ALICO, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands except for per share data)

1. Basis of financial statement presentation:

The accompanying condensed consolidated financial statements (“Financial Statements”) include the accounts of Alico, Inc. (“Alico”) and its wholly owned subsidiaries, Alico Land Development, Inc. (“ALDI”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”) (collectively referred to as the “Company”) after elimination of all significant intercompany balances and transactions.

The following Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with United States generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading.

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company’s annual report for the year ended September 30, 2009. In the opinion of Management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of its consolidated financial position at December 31, 2009 and September 30, 2009 and the consolidated results of operations and cash flows for the three month periods ended December 31, 2009 and 2008.

The Company is involved in agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2008 have been reclassified to conform to the 2009 presentation. Footnote presentation of dollar values are in thousands.

2. Income taxes:

Alico’s effective tax rate was 29.4% and 41.4% for the quarters ended December 31, 2009 and 2008, respectively. The December 2009 rate differed from the expected combined Federal and State blended rate of 38% primarily due to permanent differences between book and tax income, primarily resulting from an increase in the cash surrender value of life insurance contracts which was recognized as a gain for book purposes, but is not taxable. The December 2008 rate differed from the expected combined Federal and State blended rate of 38% due to a decline in the cash surrender value of life insurance contracts, which was recognized as a loss for book purposes, but is not deductable for tax purposes.

The Company applies a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change.

At December 31, 2009, the Company had $1.1 million of potential tax exposure related to uncertain tax positions which was included as other non current liabilities in the accompanying balance sheets. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and records the interest and penalties in the liability for uncertain tax positions.

The IRS is currently auditing Alico’s amended tax returns for the fiscal years ended August 31, 2007, 2006, and 2005 and the short period return filed for the transition month ended September 30, 2007. Alico has extended the statute of limitations on the originally filed 2005 and 2006 tax returns to December 31, 2010 pursuant to a request by IRS exams. The IRS has proposed several adjustments to the returns as filed at the time of this report, relating to timing of deductions and the treatment of intercompany transactions between Alico and its Agri subsidiary. The Company is in discussions with the IRS concerning these proposed adjustments. As of the filing date of this report, the IRS has not issued a thirty day letter, nor quantified any additional proposed taxes, interest or penalties. The state income tax returns for the years under audit by the IRS have not been audited by the states and are subject to audit for the same tax periods open for federal tax purposes.

3. Indebtedness:

The following table reflects outstanding debt under the Company’s various loan agreements:


	Revolving						Mortgage
	line of						note
	credit			Term note			payable			All other		Total
December 31, 2009
Principal balance outstanding		28,340			44,900			5,383			53		78,676
Remaining available credit		46,660			—			—			—		46,660
Effective interest rate		2.50	%		6.79	%		6.68	%	Various
Scheduled maturity date	Aug 2012			Sep 2018			Mar 2014			Various
Collateral	Real estate			Real estate			Real estate			Various

September 30, 2009
Principal balance outstanding		27,340			45,828			5,700			60		78,928
Remaining available credit		47,660			—			—			—		47,660
Effective interest rate		2.63	%		6.79	%		6.68	%	Various
Scheduled maturity date	Aug 2012			Sep 2018			Mar 2014			Various
Collateral	Real estate			Real estate			Real estate			Various

Alico, Inc. has a Term Note, a Mortgage and a Revolving Line of Credit with Farm Credit of Southwest Florida. All three agreements are cross collateralized by 7,680 acres of real estate in Hendry County used for farm leases, sugarcane and citrus production. The Term Note and Revolving Line of Credit are collateralized by an additional 43,847 acres of real estate in Hendry County used for farm leases and cattle ranching.

The Term Note calls for equal payments of principal and interest of $1.7 million per quarter over a ten year term until maturity. The Mortgage note calls for monthly principal payments of $106 thousand plus accrued interest until maturity. At December 31, 2009 Alico was in compliance with all of its covenants under the various loan agreements.

Maturities of the Company’s debt at December 31, 2009 were as follows:


	December 31,
	2009
Due within 1 year	$	5,186
Due between 1 and 2 years		5,458
Due between 2 and 3 years		34,077
Due between 3 and 4 years		6,040
Due between 4 and 5 years		5,421
Due beyond five years		22,494

Total	$	78,676

Interest costs expensed and capitalized to property, buildings and equipment were as follows:


	Three months ended
	December 31,
	2009		2008
Interest expense	$	978	$	2,079
Interest capitalized		29		13


Total interest cost	$	1,007	$	2,092

As an agricultural credit cooperative, Farm Credit of Southwest Florida is owned by the member-borrowers who purchase stock and earn participation certificates in the cooperative. Allocations of patronage are made to members on an annual basis according to the proportionate amount of interest paid by the member. Allocations are made in cash and non-cash participation certificates. The Company reduced its interest expense by $34 thousand and $31 thousand during the three months ended December 31, 2009 and 2008, respectively for patronage allocations.

4. Disclosures about reportable segments:

Alico has six reportable segments: Bowen, Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing. Alico’s operations are located in Florida. Alico accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.

Bowen’s operations include harvesting, hauling and marketing citrus for both Alico and other outside growers in the state of Florida. Bowen’s operations also include the purchase and resale of citrus fruit. Alico’s Citrus Grove operations consist of cultivating citrus trees in order to produce citrus for delivery to the fresh and processed citrus markets in the state of Florida. Alico’s sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. Alico’s cattle operation is engaged primarily in the production of beef cattle, feeding cattle at western feedlots and the raising of replacement heifers.

The goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption.

Alico’s real estate segment, ALDI is engaged in the planning and strategic positioning of all Company owned land. These actions include seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop property in the future. The real estate segment is also responsible for negotiating and renegotiating sales and options contracts. Alico’s leasing segment rents land to others on a tenant-at-will basis for grazing, farming, oil exploration and recreational uses.

The following table summarizes the performance of the Company’s segments for the unaudited three month periods ended December 31, 2009 and 2008, and the related assets and depreciation at December 31, 2009 and September 30, 2009:


	Three months ended
	December 31,
	2009			2008
Revenues (from external customers except as noted)
Bowen	$	5,512		$	6,971
Intersegment sales through Bowen		1,189			1,480
Citrus groves		4,772			5,899
Sugarcane		1,802			3,191
Cattle		198			241
Real estate		—			1,249
Leasing		597			814
Vegetables		1,130			1,653

Revenue from segments		15,200			21,498
Other operations		107			276
Less: intersegment revenues eliminated		(1,189	)		(1,480	)


Total operating revenue	$	14,118		$	20,294


Operating expenses
Bowen		5,769			6,740
Intersegment sales through Bowen		1,189			1,480
Citrus groves		4,091			5,049
Sugarcane		1,937			3,320
Cattle		138			550
Real estate		172			290
Leasing		256			229
Vegetables		1,498			1,553

Segment operating expenses		15,050			19,211
Other operations		94			273
Less: intersegment expenses eliminated		(1,189	)		(1,480	)


Total operating expenses	$	13,955		$	18,004


Gross profit (loss):
Bowen		(257	)		231
Citrus groves		681			850
Sugarcane		(135	)		(129	)
Cattle		60			(309	)
Real estate		(172	)		959
Leasing		341			585
Vegetables		(368	)		100


Gross profit from segments		150			2,287
Other		13			3


Gross Profit	$	163		$	2,290


	Three months ended
	December 31,
	2009		2008
Depreciation, depletion and amortization:
Bowen	$	82	$	89
Citrus groves		512		535
Sugarcane		322		391
Cattle		331		422
Leasing		59		35
Vegetable		60		47

Total segment depreciation and amortization		1,366		1,519
Other depreciation, depletion and amortization		274		422

Total depreciation, depletion and amortization	$	1,640	$	1,941


	December 31,
	2009		2008
Total assets:
Bowen	$	4,208	$	3,798
Citrus groves		48,127		51,895
Sugarcane		42,843		44,394
Cattle		13,505		19,989
Leasing		4,459		4,651
Vegetables		4,704		6,024

Segment assets		117,846		130,751
Other Corporate assets		79,430		150,120

Total assets	$	197,276	$	280,871

5. Treasury Stock:

The Company’s Board of Directors has authorized the repurchase of up to 350,000 shares of the Company’s common stock through November 1, 2013 for the purpose of funding restricted stock grants under its 2008 Incentive Equity Plan in order to provide restricted stock to eligible Directors and Senior Managers and align their interests with those of the Company’s shareholders. Previously Alico provided incentives under its 1998 Plan, and was authorized to purchase up to 650,000 shares prior to the Plan’s expiration in November 2008.

The stock repurchases began in November 2005 and will be made on a quarterly basis until November 1, 2013 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the provisions of SEC Rule 10b-18.

The following table provides information relating to purchases of the Company’s common shares by the Company on the open market pursuant to the aforementioned plans during the quarter ended December 31, 2009:

Total shares

purchased as

Total dollar

part of publicly

value of shares

Total number of

Average price

announced plans

purchased

Month

shares purchased

paid per share

or programs

(thousands)

October

4,000

29.53

4,000

118

December

9,692

27.93

9,692

271

Total

13,692

28.39

13,692

389

In accordance with the approved plan, the Company may purchase an additional 310,808 shares.

6. Fair Value Measurements:

The carrying amounts in the balance sheets for accounts receivable, mortgages and notes receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short term maturity of these items. When stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. Alico carries its investments and securities available for sale at fair value. The carrying amounts reported for Alico’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 rates for comparable loans.

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (i.e. exit price) in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized into one of three different levels depending on the assumptions (i.e. inputs) used in the valuation. Assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following table represents the fair values of Alico’s financial assets and liabilities as of December 31, 2009:


			Quoted prices in
			active markets for		Significant other		Significant
			identical assets		observable inputs		unobservable inputs
Description	Fair Value		(level 1)		(level 2)		(level 3)
Assets:
Available for sale investments	$	7,774	$	3,537	$	3,129	$	1,108
Other investments		4,367		—		1,305		3,062

	$	12,141	$	3,537	$	4,434	$	4,170

The following is a reconciliation of beginning and ending balances for securities using level 3 inputs as defined above for the quarter ended December 31, 2009:


	Available for sale		Other
	investments		investments			Total
Beginning balance	$	1,108	$	3,081		$	4,189
Realized and unrealized gains (losses) included in earnings		—		(19	)		(19	)
Realized and unrealized gains (losses) included in other comprehensive income		—		—			—
Purchases, sales, issuances and settlements		—		—			—
Transfers in or out of level 3		—		—			—

Ending balance	$	1,108	$	3,062		$	4,170


	Interest and
	investment income		Total
Total gains (losses) included in earnings attributable to the change in unrealized gains or losses relating to assets held at December 31, 2009	$	111	$	111

7. Subsequent Events:

During the first two weeks of January 2010, a cold air mass moved into the State of Florida causing temperatures to drop into the mid 20’s for several consecutive nights. These temperatures caused damage to the Company’s vegetable crops, resulting in a loss currently estimated to be $1.2 million. This loss will be recognized during the Company’s fiscal quarter ending March 31, 2010. Damages to the Company’s citrus and sugarcane crops were minimal.

There were no other subsequent events to report during this period. Subsequent events were evaluated through the filing date of this report, February 9, 2010.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Statement

Some of the statements in this document include statements about future expectations. Statements that are not historical facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and Section 27A of the Securities Act. These forward-looking statements, which include references to one or more potential transactions, expectation of results and strategic alternatives under consideration are predictive in nature or depend upon or refer to future events or conditions, are subject to known, as well as unknown risks and uncertainties that may cause actual results to differ materially from Company expectations. There can be no assurance that any future transactions will occur or be structured in the manner suggested or that any such transaction will be completed. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.

Liquidity and Capital Resources

Dollar amounts listed in thousands:


	December 31,		September 30,
	2009		2009
Cash & liquid investments	$	14,277	$	22,204
Total current assets		47,789		51,335
Current liabilities		11,484		12,644
Working capital		36,305		38,691
Total assets		197,276		200,235
Notes payable	$	78,676	$	78,928
Current ratio		4.16:1		4.06:1

Management believes that Alico will be able to meet its working capital requirements for the foreseeable future with internally generated funds and through its credit commitments. Alico has credit commitments under a revolving line of credit that provides for revolving credit of up to $75.0 million. Of the $75.0 million credit commitment, $46.7 million was available for Alico’s general use at December 31, 2009 (see Note 3 to the Unaudited Condensed Consolidated Financial Statements).

Cash flows from Operations

Cash flows used for operations were $4.0 million and $6.0 million for the fiscal quarters ended December 31, 2009 and 2008, respectively. The Company begins harvesting its crops during the first quarter of its fiscal year, requiring cash outlays to generate accounts receivable. Cash flows from operations are expected to improve in subsequent quarters as these receivables are collected.

Cash flows from Investing

Cash outlays for land, equipment, buildings, and other improvements totaled $4.0 million and $2.3 million during the quarters ended December 31, 2009 and 2008, respectively. The Company expended $2.3 million during the quarter ended December 31, 2009 toward developing 4,500 acres of sugarcane plantings, which should be available for harvest during the Company’s 2011 fiscal year.

During the quarter ended December 31, 2008, Alico began liquidating its Agri subsidiary by selling marketable securities held by Agri which were subsequently utilized as pre-liquidation distributions enabling Alico to pay $50 million on its Revolving Line of Credit in January 2009.

In November 2008, Alico’s subsidiary, Alico-Agri, Ltd., received a principal payment on a note receivable of $1.8 million related to a real estate sale. The purchaser subsequently defaulted on the note in April 2009. Alico-Agri has initiated foreclosure proceedings in order to reclaim the property. When the foreclosure becomes final, the net mortgage note receivable of $7.1 million (consisting of the note balance of $52.2 million less deferred revenue of $45.1 million), plus accrued interest through March 31, 2009 of $0.3 million, reduced by the associated commissions payable account of $2.6 million will be reclassified as basis in the property.

Recent market conditions have depressed Florida real estate markets causing the predictability of real estate sales including timing and market values to be problematic. Alico continues to market parcels of its real estate holdings which are deemed by Management and the Board of Directors to be excess to the immediate needs of Alico’s core operations. The sale of any of these parcels could be material to the future operations and cash flows of Alico.

Cash flows from Financing

Alico’s Board of Directors has authorized the repurchase of up to 350,000 shares of Alico’s common stock through November 1, 2013, for the purpose of funding restricted stock grants under its Incentive Equity Plans in order to provide restricted stock to eligible Directors and Senior Managers to align their interests with those of Alico’s shareholders.

All purchases will be made subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the impact of the purchases upon the market for Alico’s shares. The stock repurchases will be made on a quarterly basis until November 1, 2013 through open market transactions. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. Alico will use internally generated funds and available working capital to make the purchases. In accordance with the approved plans, at December 31, 2009 an additional 310,808 shares were available for acquisition. Alico purchased 13,692 shares in the open market at an average price of $28.39 during the quarter ended December 31, 2009 and 15,733 shares at an average price of $38.37 per share during the quarter ended December 31, 2008.

Alico paid quarterly dividends of $0.275 per share on November 14, 2008, February 15, 2009, May 15, 2009, August 15, 2009 and November 15, 2009. The Board has temporarily suspended dividends until the operating results of the Company improve. The Board will continue to assess financial condition, compliance with debt covenants, and earnings of Alico in determining its dividend policy.

Results from Operations

Unaudited results for the quarters ended December 31, 2009 and 2008 were as follows (in thousands):


	2009			2008

Operating revenue	$	14,118		$	20,294
Gross profit		163			2,290
General & administrative expenses		(1,240	)		(3,001	)
Loss from continuing operations		(1,077	)		(711	)
Profit on sale of real estate		—			1,546
Interest and investment (loss) income		(58	)		933
Interest expense		(978	)		(2,079	)
Other income		172			11
Income tax benefit	$	571		$	124
Effective income tax rate		29.4	%		41.4	%
Net loss	$	(1,370	)	$	(176	)

Alico’s agricultural and real estate operations generally combine to produce the majority of operating revenue, gross profit and income from operations. The decrease in income from continuing operations for the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 was primarily due to reduced profit from real estate activities and agricultural activities.

Profit from the Sale of Real Estate

Beginning in the fiscal year ended August 31, 2006, Alico intensified its efforts toward the planning and strategic positioning of all Company owned land through its Alico Land Development subsidiary. These actions included the hiring of a real estate professional, seeking entitlement of Alico’s land assets in order to preserve rights should Alico choose to develop property in the future. Proceeds from the contracts negotiated or substantially renegotiated subsequent to August 31, 2006 are classified as operating items, while proceeds from sales that originated prior to that time and are not deemed to be substantially modified according to U.S. GAAP, are classified as non-operating.

Real estate sales are recorded under the accrual method of accounting. Gains from commercial or bulk land sales are not recognized until payments received for property to be developed within two years after the sale equal 20%, or property to be developed after two years equal 25% of the contract sales price according to the installment sales method.

Alico’s real estate revenue during the quarter ended December 31, 2008 primarily resulted from three contracts with the Ginn Companies for real estate in Lee County Florida referred to as “East”, “West” and “Crockett”. In October 2008, Ginn elected not to exercise its option on the West property, and relinquished any claim it might have had on the Crockett property.

In connection with the restructure, Alico’s Alico-Agri subsidiary received a principal payment of $1.8 million on the East contract in November of 2008. Alico-Agri recognized a profit of $1.5 million as non-operating revenue under the installment method related to the receipt. Additionally, the Company recognized $1.2 million of operating revenue in October 2008 upon the expiration of the West contract option that had previously been deferred. In April 2009, the buyer defaulted on the third contract. The Company has initiated foreclosure proceedings to reclaim the property.

Interest and Investment Income

Interest and investment income is generated principally from mortgages held on real estate sold on the installment basis, investments in corporate and municipal bonds, mutual funds, and U.S. Treasury securities.

As a result of the mortgage default and the liquidation of investments as discussed earlier, the Company’s earnings from interest and investing declined substantially during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008. Additionally, the Company held auction rate securities with a face value of approximately $5.2 million at December 31, 2009 for which there is not a current liquid market. As a result of the illiquid nature of these investments, the Company recognized an impairment loss of $111 thousand during the quarter ended December 31, 2009 which was charged against interest and investment income.

Interest Expense

Interest expense was lower for the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008, primarily due to decreased outstanding debt. During January 2009, Alico reduced its outstanding debt by $50 million. This action resulted in lower interest expense to the Company during the fiscal quarter ending December 31, 2009 when compared with the quarter ended December 31, 2008.

Provision for Income taxes

Alico’s effective tax rate was 29.4% and 41.4% for the quarters ended December 31, 2009 and 2008, respectively. The December 2009 rate differed from the expected combined Federal and State blended rate of 38% primarily due to an increase in the cash surrender value of life insurance contracts which was recognized as a gain for book purposes, but is not taxable. The December 2008 rate differed from the expected combined Federal and State blended rate of 38% due to a decline in the cash surrender value of life insurance contracts, which was recognized as a loss for book purposes, but is not deductable for tax purposes.

Operating Revenue


	Three months ended
	December 31,
	2009		2008
Revenues
Agriculture:
Bowen	$	5,512	$	6,971
Citrus groves		4,772		5,899
Sugarcane		1,802		3,191
Cattle		198		241
Vegetables		1,130		1,653
Sod		54		133
Native trees and shrubs		4		18

Agriculture operations revenue		13,472		18,106
Real estate activities		—		1,249
Land leasing and rentals		597		814
Mining royalties		49		125


Total operating revenue	$	14,118	$	20,294

Operating revenues declined by 30% during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008, primarily due to reduced revenues from agriculture activities.

Gross Profit


	Three months ended
	December 31,
	2009			2008
Gross profit (loss):
Agriculture:
Bowen	$	(257	)	$	231
Citrus groves		681			850
Sugarcane		(135	)		(129	)
Cattle		60			(309	)
Vegetables		(368	)		100
Sod		(18	)		(112	)
Native trees and shrubs		(8	)		18

Gross profit from agricultural operations		(45	)		649
Real estate activities		(172	)		959
Land leasing and rentals		341			585
Mining royalties		39			97

Gross Profit		163			2,290

Alico measures gross profit from its operations before any allocation of corporate overhead or interest charges. Gross profit is dependent upon the prices received for each of the Company’s products, less harvesting, marketing and delivery costs and the direct costs of producing the products.

The decline in gross profit during the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 was primarily due to reduced profit from agriculture and real estate activities.

Agricultural Operations

Agricultural operations generate a large portion of Alico’s revenues. Agricultural operations are subject to a wide variety of risks including weather and disease. As a producer of agricultural products, Alico’s ability to control the prices it receives from its products is limited, and prices for agricultural products can be volatile. Operating results are largely dictated by market conditions. Agriculture revenues decreased during the quarter ended December 31, 2009 when compared with the quarter ended December 31, 2008 due to a delay in the timing of the citrus harvest. This decline is expected to reverse during the quarter ending March 31, 2010.

Bowen

Bowen’s operations generated revenues of $5.5 million and $7.0 million for the quarters ended December 31, 2009 and 2008, respectively. Gross (losses) profits were ($257 thousand), and $231 thousand during the quarters ended December 31, 2009 and 2008, respectively. Due to a smaller Florida orange crop and fruit maturity levels taking longer to reach minimum standards, citrus processing plants began accepting fruit for processing later in the 2009-10 season when compared with the 2008-09 season. This delay has created a timing difference in revenue and profit recognition which is expected to reverse itself during the quarter ending March 31, 2010.

Citrus Groves

The Citrus Groves division recorded gross revenues of $4.8 million and $5.9 million and gross profits of $681 thousand and $850 thousand, for the quarters ended December 31, 2009 and 2008, respectively. The decrease in revenue and gross profits for the quarter ended December 31, 2009 compared with December 31, 2008 was due to a decrease in the number of citrus boxes harvested, and is timing related. Due to a smaller Florida orange crop and fruit maturity levels taking longer to reach minimum standards, citrus processing plants began accepting fruit for processing later in the 2009-10 season when compared with the 2008-09 season. This delay has created a timing difference in revenue and profit recognition which is expected to reverse itself during the quarter ending March 31, 2010.

Sugarcane

Alico’s sugarcane operations consist of cultivating raw sugarcane for sale to a sugar processor. Sugarcane revenues were $1.8 million and $3.2 million during the quarters ended December 31, 2009 and 2008, respectively. Sugarcane generated losses of $135 thousand and $129 thousand during the quarters ended December 31, 2009 and 2008, respectively.

To maintain maximum production, sugarcane crops grown on sandy soil such as Alico’s, must be rotated every three years. Sugarcane plantings tend to produce less tonnage per acre with each successive crop. Due to dwindling profit margins, uncertainty surrounding the facility where the Company delivers its product, and an unfavorable price determinant, Alico chose to reduce its sugarcane planting activities during the fiscal years ended September 30, 2008 and August 31, 2007. Since that time, the market outlook for sugar has improved, key input costs such as fuel and fertilizer have declined, more details concerning the future of the facility have become known and the Company was able to successfully negotiate a more favorable pricing arrangement with its sole customer.

The Company has undertaken a program to replant its sugarcane fields in order to achieve prior production levels. However, due to the growing cycle of sugarcane crops, the results from these efforts will not be realized until fiscal year 2011. Accordingly, the Company’s expected sugarcane tonnage for the fiscal year ending September 30, 2010 is expected to be approximately 40% of its fiscal 2009 production.

Cattle

Cattle revenues were $198 thousand and $241 thousand and profits (losses) from cattle operations were $60 thousand and ($309 thousand) for the quarters ended December 31, 2009 and 2008, respectively. The Company has implemented cost cutting measures in its cattle operations and is currently striving to refocus itself as a low cost high quality cattle producer.

Vegetables

Revenues from the sale of vegetables were $1.1 million and $1.7 million for the quarters ended December 31, 2009 and 2008, respectively. Gross (losses) profits from the vegetable division were ($368 thousand) and $100 thousand over the same periods. Prices for sweet corn were lower during the quarter ended December 31, 2009 compared with the quarter ended December 31, 2008 causing both revenue and profits to decline.

Non Agricultural Operations

Land leasing and rentals

Alico rents land to others on a tenant-at-will basis, for grazing, farming, oil exploration and recreational uses. Revenues from land rentals were $597 thousand and $814 thousand for the quarters ended December 31, 2009 and December 31, 2008, respectively, generating gross profits of $341 thousand and $585 thousand, respectively. Several farming leases were not renewed during the current season. The Company is actively pursuing alternative tenants to fill these vacancies and plans to increase its leasing activities as opportunity allows.

Off Balance Sheet Arrangements

Alico through its wholly owned subsidiary Bowen, enters into purchase contracts for the purchase of citrus fruit during the normal course of its business. The remaining obligations under these purchase agreements totaled $11.2 million at December 31, 2009. All of these purchase obligations except for $0.6 million were covered by sales agreements at prices exceeding cost. In addition, Bowen had sales contracts totaling $0.9 million at December 31, 2009 for which purchases had not been contracted. Bowen’s management currently believes that all committed purchase quantities can be sold at a profit and all committed sales quantities can be purchased below the committed sales price.

Disclosure of Contractual Obligations

There were no material changes from the Contractual Obligations schedule included in the Company’s filing on Form 10-K outside of those occurring during the ordinary course of the Company’s business during the interim period.

Critical Accounting Policies and Estimates

There have been no substantial changes in the Company’s policies regarding critical accounting issues or estimates since the Company’s last annual report on form 10-K.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Reference is made to the discussion under Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” in the company’s 2009 Annual Report on Form 10-K for the fiscal year ended September 30, 2009. There have been no material changes in this item since the Company’s disclosure of in its last annual report on Form 10-K.

ITEM 4. Controls and Procedures

The Company’s management, including the Principal Executive Officer and Chief Financial Officer, have evaluated the effectiveness of disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective. There were no changes in the internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

FORM 10-Q

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings.

On October 29, 2008 Alico was served with a shareholder derivative action complaint filed by Baxter Troutman against JD Alexander and John R. Alexander which names Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlanticblue, a (51%) shareholder of Alico. From February 26, 2004 until January 18, 2008 Mr. Troutman was a director of Alico. The complaint alleges that JD Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants JD Alexander and John R. Alexander and improperly included a proposed special dividend; and that the Alexanders’ sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005. As a result the complaint is seeking damages to be paid to Alico by the Alexanders’ in excess of $1,000,000. The complaint concedes that Mr. Troutman has not previously made demand upon Alico to take action for the alleged wrongdoing as required by Florida law alleging that he believed such a demand would be futile. A copy of the Complaint may be obtained from the Clerk of the Circuit Court in Polk County, Florida.

On June 3, 2009 a Special Committee of Alico’s Board of Directors comprised entirely of Independent Directors and which was constituted to investigate the shareholder derivative action filed by Mr. Troutman, completed its investigation with the assistance of independent legal counsel, and determined that it would not be in Alico’s best interest to pursue such litigation. Alico has filed a motion to dismiss the litigation based upon the findings of the Special Committee. A copy of the report was filed with the Court and it and the other pleadings in the case are available from the Clerk of Circuit Court in Polk County, Florida by reference to the matter of Baxter G. Troutman, Plaintiff vs. John R. Alexander, John D. Alexander, Defendants and Alico, Inc. Nominal Defendant, Case No. 08-CA-10178 Circuit Court, 10th Judicial Circuit, Polk County, Florida.

There are no additional items to report during this interim period.

ITEM 1A. Risk Factors.

There were no significant changes regarding risk factors from those disclosed in the Company’s annual report on Form 10-K.

ITEM 2. Unregistered Sales of Equity Securities.

There are no items to report during this interim period.

ITEM 3. Defaults Upon Senior Securities.

There are no items to report during this interim period.

ITEM 4. Submission of Matters to a Vote of Security Holders.

There are no items to report during this interim period.

ITEM 5. Other Information.

There are no items to report during this interim period.

ITEM 6. Exhibits.


Exhibit 31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.

Exhibit 32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALICO, INC.
(Registrant)

February 9, 2010
Steven M. Smith
President & Principal Executive Officer
(Signature)

February 9, 2010
Patrick W. Murphy
Chief Financial Officer
(Signature)

February 9, 2010
Jerald R. Koesters
Controller
(Signature)

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities Item 3. Defaults Upon Senior Securities Item 4. Submission Of Matters To A Vote Of Security Holders Item 5. Other Information Item 6. Exhibits

Exhibits

EX-31.1 EX-31.2 EX-32.1 EX-32.2

ALCO 10-Q Quarter ended Dec. 31, 2009

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Exhibits