UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q __X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For three months ended November 30, 2002. OR _____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to _______________. Commission file number 0-261. ALICO, INC. (Exact name of registrant as specified in its charter) Florida 59-0906081 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) P. O. Box 338, La Belle, FL 33975 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 863/675-2966 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. Yes X No There were 7,064,829 shares of common stock, par value $1.00 per share, outstanding at January 14, 2002.
PART I. FINANCIAL INFORMATION Item 1. Financial Statements ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited - See Accountants' Review Report) Three Months Ended November 30, 2002 2001 _______________________________ Revenue: Citrus $ 1,620,698 $ 1,505,998 Sugarcane 2,748,216 2,255,263 Ranch 2,117,870 3,589,560 Rock products and sand 517,478 454,797 Oil lease and land rentals 246,315 169,425 Forest products 49,958 104,484 Retail land sales 83,897 39,450 ___________ ___________ Total revenue 7,384,432 8,118,977 ___________ ___________ Cost of sales Citrus production, harvesting and marketing 1,580,421 1,485,057 Sugarcane production and harvesting 2,224,093 1,854,842 Ranch 2,213,779 3,010,443 Retail land sales 68,714 33,682 ____________ ___________ Total costs of sales 6,087,007 6,384,024 ____________ ___________ Gross Profit 1,297,425 1,734,953 General and administration expenses 1,278,135 1,366,640 ____________ ___________ Income from operations 19,290 368,313 Other income (expenses): Profit on sales of real estate 451,035 2,779,340 Interest and investment income 276,063 497,479 Interest expense (540,769) (514,243) Other 143,681 149,726 ____________ ___________ Total other income, net 330,010 2,912,302 ____________ ___________ Income before income taxes 349,300 3,280,615 Provision for income taxes 91,062 276,963 ____________ ___________ Net income 258,238 3,003,652 ____________ ___________ ____________ ___________ Weighted average number of shares outstanding 7,096,644 7,055,720 ____________ ___________ ____________ ___________ Per share amounts: Basic $ .04 $ .43 Fully diluted $ .04 $ .43 Dividends $ .35 $ 1.00 See accompanying Notes to Condensed Consolidated Financial Statements.
ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (See Accountants' Review Report) November 30, August 31, 2002 2002 (Unaudited) ____________ __________ ASSETS Current assets: Cash and cash investments $ 12,663,658 $ 10,139,659 Marketable securities 20,295,222 21,417,046 Accounts receivable 7,411,379 9,460,834 Mortgage and notes receivable 2,451,340 2,451,340 Inventories 22,076,982 21,671,964 Other current assets 921,769 1,126,483 ____________ ___________ Total current assets 65,820,350 66,267,326 Notes receivable, non-current 2,688,835 2,693,186 Land held for development and sale 16,601,451 16,786,717 Investments 908,049 908,049 Property, buildings and equipment 145,194,423 142,354,775 Less: Accumulated depreciation (38,700,857) (37,100,353) ____________ ____________ Total assets $192,512,251 $191,909,700 ____________ ____________ ____________ ____________ ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (See Accountants' Review Report) (Continued) November 30, August 31, 2002 2002 LIABILITIES (Unaudited) ____________ ____________ Current liabilities: Accounts payable $ 446,480 $ 1,437,756 Accrued ad valorem taxes 2,086,987 1,523,980 Current portion of notes payable 3,318,524 3,318,524 Accrued expenses 1,277,009 1,168,652 Deferred income taxes 946,176 1,038,727 Due to profit sharing - 284,649 Other current liabilities 777,330 770,721 ____________ ____________ Total current liabilities 8,852,506 9,543,009 Deferred revenue - 113,532 Notes payable 55,101,100 52,657,508 Deferred income taxes 9,847,461 9,727,889 Deferred retirement benefits 209,766 119,247 Other non-current liability 3,785,418 3,640,593 Donation payable 2,917,819 2,890,423 ____________ ____________ Total liabilities 80,714,070 78,692,201 ____________ ____________ STOCKHOLDERS' EQUITY Common stock $ 7,104,906 $ 7,080,344 Additional paid in capital 2,284,539 1,715,616 Accumulated other comprehensive loss (221,036) (432,577) Retained earnings 102,629,772 104,854,116 ____________ ____________ Total stockholders' equity 111,798,181 113,217,499 ____________ ____________ Total liabilities and stockholders' equit $192,512,251 $191,909,700 ____________ ____________ ____________ ____________ See accompanying Notes to Condensed Consolidated Financial Statements.
ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (See Accountants' Review Report) Accumulated Common Stock Other Additional Shares Retained Comprehensive Paid in Issued Amount Earnings Income Capital Total _________ __________ ___________ _______ __________ ____________ Balances, August 31, 2001 7,044,513 $7,044,513 $104,378,151 $ 871,077 $331,617 $112,625,358 _______________ Comprehensive income: Net income for the year ended August 31, 2002 - - 7,535,005 - - 7,535,005 Unrealized losses on securities, net of taxes and reclassification adjustment - - - (1,303,654) - (1,303,654) ___________ Total comprehensive income: 6,231,351 Dividends paid - - (7,059,040) - - (7,059,040) Stock options exercised 35,831 35,831 - - 493,197 529,028 Stock based compensation - - - - 890,802 890,802 _________ __________ ___________ ________ ____________ Balances, August 31, 2002 7,080,344 $7,080,344 $104,854,116 $(432,577) $1,715,616 $113,217,499 _______________ Comprehensive income: Net income for the three months ended November 30, 2002 - - 258,238 - - 258,238 Unrealized gains on securities, net of taxes and reclassification adjustment - - - 211,541 - 211,541 ___________ Total comprehensive income: 469,779 Dividends paid - - (2,482,582) - - (2,482,582) Stock options exercised 24,562 24,562 - - 359,178 383,740 Stock based compensation - - - - 209,745 209,745 _________ __________ ___________ ________ ___________ Balances, November 30, 2002 (Unaudited) 7,104,906 $7,104,906 $102,629,772 $ (221,036)$2,284,539 $111,798,181 _________ __________ ___________ ________ ___________ _________ __________ ___________ ________ ___________ November 30, August 31, 2002 2002 Disclosure of reclassification amount: _(Unaudited) ___________ Unrealized holding gains (losses) arising during the period $ 393,717 $(1,774,892) Less: reclassification adjustment for gains (losses) included in net income 182,176 (471,238) _________ __________ Net unrealized gains (losses) on securities $ 211,541 $(1,303,654) _________ __________ _________ __________ See accompanying Notes to Condensed Consolidated Financial Statements. ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited - See Accountants' Review Report) Three Months Ended November 30, 2002 2001 _______________________________ Cash flows from operating activities: Net income $ 258,238 $3,003,652 Adjustments to reconcile net income to cash provided from (used for) operating activities: Depreciation and amortization 1,685,464 1,770,604 Net decrease in current assets and liabilities 532,442 (1,337,086) Deferred income taxes 27,021 (517,241) Gain on sales of real estate (466,218) (2,785,108) Stock options granted below fair market value 209,745 222,714 Other 119,922 20,076 __________ __________ Net cash provided from operating activities 2,366,614 377,611 __________ __________ Cash flows used for investing activities: Purchases of property and equipment (2,270,444) (2,176,516) Proceeds from sales of real estate 541,027 1,113,702 Proceeds from sales of property and equipment 156,640 185,662 Purchases of marketable securities (814,251) (1,042,966) Proceeds from sales of marketable securities 2,195,312 1,417,338 Notes receivable collections (additions) 4,351 (21,756) __________ __________ Net cash used for investing activities (187,365) (524,536) __________ __________ Cash flows used for financing activities: Repayment of bank loan (6,683,990) (7,271,853) Proceeds from bank loan 9,127,582 16,696,173 Proceeds from exercising stock options 383,740 267,584 Dividends paid (2,482,582) (7,059,040) __________ __________ Net cash provided from financing activities 344,750 2,632,864 __________ __________ Net increase in cash and cash investments $2,523,999 $2,485,939 Cash and cash investments: At the beginning of the period 10,139,659 6,225,088 __________ __________ At the end of the period 12,663,658 8,711,027 __________ __________ __________ __________ Supplemental disclosures of cash flow information: Cash paid for interest, net of amount capitalized $ 337,927 $ 635,971 __________ __________ __________ __________ Cash paid for income taxes $ - $ 605,600 __________ __________ __________ __________ Non-cash investing and financing activities: Mortgage and notes receivable issued in exchange for land, less unamortized discount $ - $ 1,759,459 ___________ __________ ___________ __________ Fair value adjustments to securities available for sale $ 257,741 $ 59,962 __________ __________ __________ __________ Income tax effect related to fair value adjustment $ 46,200 $ 22,563 __________ __________ __________ __________ Reclassification of breeding herd to property & equipment $ 700,347 $ 515,398 __________ __________ __________ __________ See accompanying Notes to Condensed Consolidated Financial Statements.
ALICO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (See Accountants' Review Report) (in thousands except for per share data) 1. Basis of financial statement presentation: The accompanying condensed consolidated financial statements include the accounts of Alico, Inc. and its wholly owned subsidiaries, Saddlebag Lake Resorts, Inc. (Saddlebag) and Agri-Insurance Company, Ltd. (Agri),after elimination of all significant intercompany balances and transactions. The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company's annual report for the year ended August 31, 2002. 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 November 30, 2002 and the consolidated results of operations and cash flows for the three months ended November 30, 2002 and 2001. The basic business of the Company is agriculture which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. Fluctuation in the market prices for citrus fruit has caused the Company to recognize additional revenue from the prior year's crop totaling $193 in 2002 and $186 in 2001. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2001 have been reclassified to conform to the 2002 presentation. 2. Real Estate: Real estate sales are recorded under the accrual method of accounting. Under this method, a sale is not recognized until payment is received, including interest, aggregating 10% of the contract sales price for residential properties and 20% for commercial properties. 3. Mortgage and notes receivable: Mortgage and notes receivable arose from real estate sales. The balances at November 30, 2002 and August 31, 2002 are as follows:
November 30, August 31, 2002 2002 (Unaudited) ________ ________ Mortgage notes receivable on retail land sales $ 194 $ 193 Mortgage notes receivable on bulk land sales 4,926 4,926 Other notes receivable 20 25 ________ ________ Total mortgage notes receivable $ 5,140 $ 5,144 Less current portion 2,451 2,451 ________ ________ Non-current portion $ 2,689 $ 2,693 ________ ________ ________ ________
4. Inventories: A summary of the Company's inventories is shown below:
November 30, August 31, 2002 2002 (Unaudited) ________ _________ Unharvested fruit crop on trees $ 9,856 $ 8,599 Unharvested sugarcane 5,103 5,274 Beef cattle 6,722 7,507 Sod 396 292 ________ _________ Total inventories $ 22,077 $ 21,672 ________ _________ ________ _________
Subject to prevailing market conditions, the Company may hedge a portion of its beef inventory by entering into cattle futures contracts to reduce exposure to changes in market prices. Any gains or losses anticipated under these agreements were deferred, with the cost of the related cattle being adjusted when the contracts are settled. At November 30, 2002, the Company had no open positions. 5. Income taxes: The provision for income taxes for the quarters ended November 30, 2002 and 2001 is summarized as follows:
Three Months Ended November 30, 2002 2001 (Unaudited) (Unaudited) ______________________________ Current: Federal income tax $ 55 $ 698 State income tax 9 119 __________ __________ 64 817 __________ __________ Deferred: Federal income tax 23 (468) State income tax 4 (72) __________ __________ 27 (540) __________ __________ Total provision for income taxes $ 91 $ 277 __________ __________ __________ __________
6. Indebtedness: The Company has financing agreements with commercial banks that permit the Company to borrow up to $54 million. Financing agreements allowing the Company to borrow up to $41 million are due in 2004, and up to $3 million which is due on demand. In December 2001, the Company entered into an additional financing agreement to borrow $10 million to be paid in equal principal installments over five years with interest to be paid quarterly. The outstanding debt under these agreements was $43.8 million and $41.0 million at November 30 and at August 31, 2002 respectively. In March 1999, the Company mortgaged 7,680 acres for $19 million in connection with a $22.5 million acquisition of producing citrus and sugarcane operations. The total amount of long-term debt at November 30, 2002 and August 31, 2002 was $55.1 million and $52.7 million respectively. Maturities of the indebtedness of the Company over the next five years are as follows : 2003- $3,319; 2004- $37,085; 2005- $3,315; 2006- $3,312; 2007- $3,315; and $8,074 there- after. Interest cost expensed and capitalized during the three months ended November 30, 2002 and 2001 was as follows: 2002 2001 ________ ________ Interest expensed $ 541 $ 514 Interest capitalized 60 51 ________ ________ Total interest cost $ 601 $ 565 ________ ________ ________ ________ 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 coverages for the increasing number and potential severity of agricultural related events. Such events include citrus canker, crop diseases, livestock related maladies and weather. Alico's goal included not only prefunding 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 primarily utilized its inventory of land and additional contributed capital to bolster the underwriting capacity of Agri. As Agri has converted certain of the assets contributed by Alico to cash, book and tax differences have arisen resulting from differing viewpoints related to the tax treatment of insurance companies for both federal and state tax purposes. Due to the historic nature of the primary assets contributed as capital to Agri and the timing of the sales of certain of those assets by Agri, management has decided to record a contingent liability, providing for potential differences in the tax treatment of sales of Agri's assets. Management's decision has been influenced by perceived changes in the regulatory environment. 8. Dividends: On October 11, 2002 the Company declared a year-end dividend of $.35 per share, which was paid on October 25, 2002. 9. Disclosures about reportable segments: Alico, Inc. has three reportable segments: citrus, sugarcane, and ranching. The commodities produced by these segments are sold to wholesalers and processors who prepare the products for consumption. The Company's operations are located in Florida. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Alico, Inc. evaluates performance based on profit or loss from operations before income taxes. Alico, Inc.'s reportable segments are strategic business units that offer different products. They are managed separately because each segment requires different management techniques, knowledge and skills. The following table presents information for each of the Company's operating segments as of and for the three months ended November 30, 2002: ________________________________________________ Consol Citrus Sugarcane Ranch Other* Total ________________________________________________ Revenue $ 1,621 2,748 2,118 1,768 8,255 Costs and expenses 1,581 2,224 2,214 1,887 7,906 Depreciation and amortization 593 592 364 136 1,685 Segment profit (loss) 40 524 (96) (119) 349 Segment assets 53,388 50,461 24,169 64,494 192,512 The following table presents information for each of the Company's operating segments as of and for the three months ended November 30, 2001: ________________________________________________ Consol Citrus Sugarcane Ranch Other* Total ________________________________________________ Revenue $ 1,506 2,255 3,590 4,198 11,549 Costs and expenses 1,485 1,855 3,011 1,917 8,268 Depreciation and amortization 604 660 381 126 1,771 Segment profit 21 400 579 2,281 3,281 Segment assets 54,749 53,042 20,372 54,096 182,259 *Consists of rents, investments, real estate activities and other such items of a general corporate nature. 10. Stock Option Plan 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 authorizes grants of shares or options to purchase up to 650,000 shares of authorized but unissued common stock. Stock options granted have a strike price and vesting schedules which are at the discretion of the Board of Directors and determined on the effective date of the grant. The strike price cannot be less than 55% of the market price.
Weighted Weighted average average remaining exercise contractual Options price Life (in years) _______ _________ _______________ Balance outstanding, August 31, 2000 49,742 $14.62 8 Granted 51,074 14.62 _______________ Exercised 16,686 14.62 _______________ _______ _________ Balance outstanding, August 31, 2001 84,130 14.62 9 _______________ Granted 69,598 15.68 _______________ Exercised 35,831 14.76 _______ _________ Balance outstanding, August 31, 2002 117,897 15.20 8 _______________ Granted 67,280 15.68 _______________ Exercised 24,562 15.62 _______ _________ Balance outstanding, November 30, 2002 160,615 15.34 _______ _________ _______ _________
On November 30, 2002, there were 160,615 shares exercisable and 412,306 shares available for grant. 11. Future Application of Accounting Standards In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The statement requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value when the liability is incurred rather than at the plan commitment date. An exit or disposal activity is defined as including the sale or termination of a line of business, the closure of a business in a particular location, the relocation of a business, change in management structure or a fundamental reorganization that affects the nature and focus of operations. The Statement is effective for any exit or disposal activities that are initiated after December 31, 2002. The adoption of this statement is not expected to have any impact on the financial position or results of operations of the Company. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. LIQUIDITY AND CAPITAL RESOURCES: Working capital increased to $56.9 million at November 30, 2002, up from $56.7 million at August 31, 2002. As of November 30, 2002, the Company had cash and cash investments of $12.7 million compared to $10.1 million at August 31, 2002. Marketable securities decreased to $20.3 million from $21.4 million during the same period. The ratio of current assets to current liabilities increased to 7.44 to 1 at November 30, 2002 up from 6.94 to 1 at August 31, 2002. Total assets increased by $600 thousand to $192.5 million at November 30, 2002, compared to $191.9 million at August 31, 2002. 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 has credit commitments which provide for revolving credit of up to $54.0 million, of which $10.2 million was available for the Company's general use at November 30, 2002 (see Note 6 to consolidated financial statements). RESULTS OF OPERATIONS: The basic business of the Company is agriculture, which is of a seasonal nature and is subject to the influence of natural phenomena and wide price fluctuations. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Net income for the three months ending November 30, 2002 decreased by $2.7 million when compared to the first quarter of the prior year. This was primarily due to a decrease in earnings from land sales for the quarter ended November 30, 2002 when compared to the quarter ended November 30, 2001 ($450 thousand vs. $2.8 million during the first three months of fiscal 2003 and 2002, respectively). Income from operations decreased to $19 thousand for the first quarter of fiscal 2003 from $368 thousand for the first quarter of fiscal 2002. The decline was primarily due to a decrease in earnings from agricultural operations. Specifically, ranch earnings are down compared to the same period a year ago. Citrus ______ Citrus earnings were $40 thousand for the first quarter of fiscal 2003 as compared to $21 thousand during the first quarter of fiscal 2002. Recognition of revenue from the prior year's crop totaled $193 thousand in fiscal 2003 vs. $186 thousand in the first quarter of fiscal 2002 (see Note 1 to Condensed Consolidated Financial Statements). While it is too early in the harvest cycle to evaluate current year financial results for this division, citrus yields are expected to be lower in fiscal 2003, when compared to fiscal 2002. The anticipated production decline is primarily the result of disease damage in prior years. Sugarcane _________ Sugarcane earnings were $524 thousand for the first quarter of fiscal 2003, an increase of $124 thousand over the $400 thousand earnings during the first quarter of fiscal 2002. More acres were harvested during the first quarter of fiscal 2003 than fiscal 2002. This difference is largely due to the timing of the harvest. Ranching ________ Ranch earnings decreased during the first quarter of 2003 when compared to the same period a year ago (($96 thousand) vs. $579 thousand for the three months ended November 30, 2002 and 2001, respectively). The number of cattle sold decreased by 40% during the first quarter of fiscal 2003 compared to the same period in 2002. Additionally, costs per head increased over the prior year due to increased costs of ad valorem taxes, depreciation, pasture cultivation and feed costs. General Corporate _________________ The Company is continuing its marketing and permitting activities for its land which surrounds the Florida Gulf Coast University site. At November 30, 2002, there were sales contracts for over 5,230 acres at various stages in the due diligence process with potential closing dates varying from a few months to two years. Potential revenues from the contracts, if closed, total $147.5 million with terms varying from cash at closing to ten year mortgage terms. In Polk County, real estate activities include an option for the sale of 267 acres for $618 thousand. In Hendry County, sales contracts for 514 acres total $669 thousand. In July 2000, the Company formed Agri-Insurance Company, Ltd. (Agri)a wholly owned subsidiary. The insurance company was initially capitalized by transferring cash and approximately 3,000 acres of the Lee County property. Through Agri, the Company has been able to underwrite previously uninsurable risk related to catastrophic crop and other losses. Additionally, the insurance company will have access to reinsurance markets, otherwise inaccessible. The Federal Crop Insurance Program provides coverage for certain perils e.g. freeze damage, windstorm, disease, etc. However, the current Federal Crop Insurance Program does not provide business interruption coverage. The coverages currently underwritten by Agri will indemnify the insured for a loss of their revenue stream resulting from a catastrophic event that would cause a grove to be replanted. The insurance market is bifurcated into insurers and reinsurers. Reinsurers provide wholesale insurance coverage to the industry. Some specialized reinsurers will only deal with insurance companies. As a result, the only way to access the wholesale insurance market is through the formation of a captive insurance company. Reinsurers provide greater insurance coverage flexibility than can be found in the primary insurance market. Agri is in a relatively early stage of financial development. Therefore, it would be difficult, if not impossible, to speculate about the impact it could have on our financial position, results of operations and liquidity in future periods. Since future coverages that will be written, as liquidity is generated, will be primarily for the benefit of Alico, the financial substance of this venture is to insure risk that is inherent in the Company's existing operations. To expedite the creation of the capital liquidity necessary to underwrite the Company's exposure to catastrophic losses, another 5,600 acres were transferred during fiscal 2001. Agri underwrote a limited amount of coverage for Ben Hill Griffin, Inc. during Fiscal 2001, 2002 and 2003. In August 2002, Agri began insuring all of Alico, Inc., citrus groves. As Agri gains underwriting experience and increases its liquidity, it will be able to increase its insurance programs. As discussed above and in Note 7 to the Condensed Consolidated Financial Statements, Alico primarily utilized its inventory of land and additional contributed capital to bolster the underwriting capacity of Agri. As Agri has converted certain of the assets contributed by Alico to cash, book and tax differences have arisen resulting from differing viewpoints related to the tax treatment of insurance companies for both federal and state tax purposes. Due to the historic nature of the primary assets contributed as capital to Agri and the subsequent sales of those assets by Agri, management has decided to record a contingent liability, providing for potential differences in the tax treatment of certain sales of Agri's assets. Management's decision has been influenced by perceived changes in the regulatory environment. During November 2001, Agri began to close on a 2,500 acres, $30 .0 million sale, of which 40 acres were transferred in November 2001 and 1,744 acres were transferred by the end of December 2001. However, upon mutual consent, 323 acres, representing $9.6 million were released from the contract and retained by Agri for sale at a future date. The remaining 393 acres are expected to be transferred by the end of fiscal 2003. The profits from portions of this transaction, that have closed, are included in the fiscal 2002 statement of operations under profit on sales of real estate. During January 2002, Agri acquired 40 acres of Lee County, Florida property for $9.5 million. The property is located near one of the interstate highway access ramps to Florida Gulf Coast University and the Southwest Florida International Airport. In December 2001, the Company agreed to donate $5.0 million to Florida Gulf Coast University for a new athletic complex, scholarships and athletic programs. The agreement called for $1.0 million to be donated in fiscal 2002, and $800 thousand to be donated each year over the next five years. The entire donation was accrued and included in general and administrative expenses in the fiscal 2002 statement of operations. 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 that affect the more significant judgments and estimates used in the preparation of the consolidated financial statements are discussed below. Alico records inventory at the lower of cost or market. Management regularly assesses estimated inventory valuations based on current and forecasted usage of the related commodity and any other relevant factors that affect the net realizable value. Based on fruit buyers' and processors' advances to growers, stated cash and futures markets combined experience in the industry, management reviews the reasonableness of the citrus revenue accrual. Adjustments are made throughout the year to these estimates as relevant information regarding the citrus market becomes available. Fluctuation in the market prices for citrus fruit has caused the Company to recognize additional revenue from the prior year's crop totaling $193 thousand during fiscal 2003 and $185 thousand in 2002. In accordance with Statement of Position 85-3 "Accounting by Agricultural Producers and Agricultural Cooperatives", the cost of growing crops (citrus and sugarcane) are capitalized into inventory until the time of harvest. Once a given crop is harvested, the related inventoried costs are recognized as cost of sales to provide an appropriate matching of costs incurred with the related revenue earned. Cautionary Statement ____________________ Readers should note, in particular, that this Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that involve substantial risks and uncertainties. When used in this document, or in the documents incorporated by reference herein, the words "anticipate", "believe","estimate", "may", "intend" 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 effect 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. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk No changes ITEM 4. Controls and Procedures Evaluation of disclosure controls and procedures The Company maintains controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the Chief Executive and Chief Financial officers of the Company concluded that the Company's disclosure controls and procedures were adequate. Changes in internal controls The Company made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial officers. FORM 10-Q PART II. OTHER INFORMATION ITEMS 1-5 have been emitted as there are no items to report during this interim period. ITEM 6. Exhibits and reports on Form 8-K. (a) Exhibits: Exhibit 11. Computation of Weighted Average Shares Outstanding at November 30, 2002. Exhibit 99. Accountant's Report. Exhibit 99.1 Certifications. (b) Reports on Form 8-K. December 6, 2002 December 9, 2002 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) January 14, 2003 W. Bernard Lester Date President Chief Operating Officer (Signature) January 14, 2003 L. Craig Simmons Date Vice President Chief Financial Officer (Signature) January 14, 2003 Patrick W. Murphy Date Controller (Signature) EXHIBIT 11 ALICO, INC. Computation of Weighted Average Shares Outstanding and basic earnings per share as of November 30, 2002: Outstanding Total Date Days Shares (days X shares) 09/01/02 2 7,080,344 14,160,688 09/03/02 1 7,083,592 7,083,592 09/04/02 1 7,089,392 7,089,392 09/05/02 1 7,089,562 7,089,562 09/06/02 3 7,090,492 21,271,476 09/09/02 46 7,093,092 326,282,232 10/25/02 4 7,095,092 28,380,368 10/29/02 2 7,100,406 14,200,812 10/31/02 4 7,101,706 28,406,824 11/04/02 1 7,102,106 7,102,106 11/05/02 26 7,104,906 184,727,556 _____ ___________ Total 91 645,794,608 _____ ___________ _____ ___________ Average outstanding shares (Total weight / days) 7,096,644 ___________ ___________ Net income for the three months ended November 30, 2002 $ 258,238 ___________ ___________ Earnings per share (Net income / Average outstanding shares) $.04 ___________ ___________ EXHIBIT 99 INDEPENDENT ACCOUNTANT'S REVIEW REPORT ______________________________________ The Stockholders and Board of Directors Alico, Inc.: We have reviewed the condensed consolidated balance sheet of Alico, Inc. and subsidiaries as of November 30, 2002, and the related condensed consolidated statements of operations for the three month periods ended November 30, 2002 and 2001, the con- densed consolidated statements of stockholders' equity for the three month period ended November 30, 2002,and the condensed consolidated statements of cash flows for the three month periods ended November 30, 2002 and 2001. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards establi- shed by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and making inquiries of persons responsible for financial and ac- counting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modi- fications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Alico, Inc. and subsidiaries as of August 31, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated October 8, 2002 we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of August 31, 2002, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ KPMG LLP Orlando, Florida January 4, 2003 CERTIFICATION I, Ben Hill Griffin, III certify that; 1. I have reviewed this quarterly report on Form 10-Q of Alico, Inc. (Alico), 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Alico as of, and for, the periods presented in this quarterly report; 4. Alico's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Alico and we have: a) designed such disclosure controls and procedures to ensure that material information relating to Alico, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of Alico's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Alico's other certifying officer and I have disclosed, based on our most recent evaluation to Alico's auditors and audit committee of Alico's Board of Directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect Alico's ability to record, process, summarize and report financial data and have identified for Alico's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Alico's internal controls; and 6. Alico's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: ________________ /S/ BEN HILL GRIFFIN, III Ben Hill Griffin, III Chairman and Chief Executive Officer CERTIFICATION I, L. Craig Simmons certify that; 1. I have reviewed this quarterly report on Form 10-Q of Alico, Inc. (Alico), 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Alico as of, and for, the periods presented in this quarterly report; 4. Alico's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Alico and we have: a) designed such disclosure controls and procedures to ensure that material information relating to Alico, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of Alico's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. Alico's other certifying officer and I have disclosed, based on our most recent evaluation to Alico's auditors and audit committee of Alico's Board of Directors: a) all significant deficiencies in the design or operation of internal controls which could adversely affect Alico's ability to record, process, summarize and report financial data and have identified for Alico's auditors any material weakness in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in Alico's internal controls; and 6. Alico's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: ________________ /S/ L. CRAIG SIMMONS L. Craig Simmons Vice President and Chief Financial Office