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 six months ended February 28, 2003. 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 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No There were 7,109,595 shares of common stock, par value $1.00 per share, outstanding at April 11, 2003.
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 February 28, Six months ended February 28, 2003 2002 2003 2002 _____________ _____________ _____________ ______________ Revenue: Citrus $ 9,773,993 $ 7,688,526 $ 11,394,691 $ 9,194,524 Sugarcane 5,212,007 6,978,177 7,960,223 9,233,440 Ranch 1,145,629 2,012,991 3,263,499 5,602,551 Rock products and sand 562,752 403,757 1,080,230 858,554 Oil lease and land rentals 288,950 169,565 535,265 338,990 Forest products 77,654 37,096 127,612 141,580 Retail land sales 31,953 - 115,850 39,450 ___________ __________ ___________ ___________ Total revenue 17,092,938 17,290,112 24,477,370 25,409,089 ___________ ___________ ____________ ____________ Cost of sales: Citrus production, harvesting and marketing 9,404,744 7,348,174 10,985,165 8,833,231 Sugarcane production and harvesting 4,061,809 5,497,042 6,285,902 7,351,884 Ranch 1,024,790 1,857,346 3,238,569 4,867,789 Retail land sales 30,378 12,884 99,092 46,566 ___________ __________ ___________ ___________ Total cost of sales 14,521,721 14,715,446 20,608,728 21,099,470 ___________ __________ ___________ ___________ Gross Profit 2,571,217 2,574,666 3,868,642 4,309,619 General and administration expenses 1,368,777 5,874,340 2,646,912 7,240,980 ___________ __________ ___________ ___________ Income (loss) from operations 1,202,440 (3,299,674) 1,221,730 (2,931,361) Other income (expense): Profit on sales of real estate 102,271 8,547,447 553,306 11,326,787 Interest and investment income 244,864 336,087 520,927 833,566 Interest expense (483,234) (531,376) (1,024,003) (1,045,619) Other 13,137 (41,801) 156,818 107,925 ___________ ___________ ____________ ____________ Total other income (expense), net (122,962) 8,310,357 207,048 11,222,659 ___________ ___________ ____________ ____________ Income before income taxes 1,079,478 5,010,683 1,428,778 8,291,298 Provision for income taxes 289,883 294,336 380,945 571,299 ___________ ___________ ____________ ____________ Net income $ 789,595 $ 4,716,347 $ 1,047,833 $ 7,719,999 ___________ ___________ ____________ ____________ ___________ ___________ ____________ ____________ Weighted average number of shares outstanding 7,107,852 7,065,440 7,102,217 7,060,686 ___________ ___________ ____________ ____________ ___________ ___________ ____________ ____________ Per share amounts: Basic $ .11 $ .67 $ .15 $ 1.09 Fully diluted $ .11 $ .66 $ .14 $ 1.08 Dividends $ - $ - $ .35 $ 1.00 See accompanying Notes to Condensed Consolidated Financial Statements.
ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (See Accountants' Review Report) February 28, 2003 August 31, 2002 ___(Unaudited)_____________________ ASSETS Current assets: Cash and cash investments $ 12,760,030 $ 10,139,659 Marketable securities 19,985,413 21,417,046 Accounts receivable 9,416,871 9,460,834 Mortgage and notes receivable 2,514,698 2,451,340 Inventories 18,887,122 21,671,964 Other current assets 874,765 1,126,483 ____________ ____________ Total current assets 64,438,899 66,267,326 Notes receivable, non-current 2,652,873 2,693,186 Land held for development and sale 16,606,704 16,786,717 Investments 885,614 908,049 Property, buildings and equipment 144,479,051 142,354,775 Less: Accumulated depreciation (38,426,285) (37,100,353) ____________ ____________ Total assets $190,636,856 $191,909,700 ____________ ____________ ____________ ____________ ALICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (See Accountants' Review Report) (Continued) February 28, 2003 August 31, 2002 LIABILITIES ___(Unaudited)_______________________ Current liabilities: Accounts payable $ 2,286,044 $ 1,437,756 Accrued ad valorem taxes 388,094 1,523,980 Current portion of notes payable 3,318,524 3,318,524 Accrued expenses 1,260,003 1,168,652 Deferred income taxes 706,262 1,038,727 Due to profit sharing - 284,649 Current portion of donation payable 698,430 770,721 ____________ ____________ Total current liabilities 8,657,357 9,543,009 Deferred revenue 123,644 113,532 Notes payable 53,406,692 52,657,508 Deferred income taxes 9,784,843 9,727,889 Deferred retirement benefits 333,974 119,247 Other non-current liability 3,797,797 3,640,593 Donation payable 2,228,623 2,890,423 ____________ ____________ Total liabilities 78,332,930 78,692,201 ____________ ____________ STOCKHOLDERS' EQUITY Common stock $ 7,109,595 $ 7,080,344 Additional paid in capital 2,559,473 1,715,616 Accumulated other comprehensive loss (784,509) (432,577) Retained earnings 103,419,367 104,854,116 ____________ ____________ Total stockholders' equity 112,303,926 113,217,499 ____________ ____________ Total liabilities and stockholders' equity $190,636,856 $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 (loss) _________ __________ ___________ _______ __________ ____________ 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 six months ended February 28, 2003 - - 1,047,833 - - 1,047,833 Unrealized losses on securities, net of taxes and reclassification adjustment - - - (351,932) - (351,932) ___________ Total comprehensive income: 695,901 Dividends paid - - (2,482,582) - - (2,482,582) Stock options exercised 29,251 29,251 - - 424,366 453,617 Stock based compensation - - - - 419,491 419,491 _________ __________ ___________ ________ ___________ Balances, February 28, 2003 (Unaudited) 7,109,595 $7,109,595 $103,419,367 $ (784,509)$2,559,473 $112,303,926 _________ __________ ___________ ________ ___________ _________ __________ ___________ ________ ___________ February 28, August 31, 2003 2002 Disclosure of reclassification amount: _(Unaudited) ___________ Unrealized holding losses arising during the period $(552,756) $(1,774,892) Less: reclassification adjustment for losses included in net income (200,824) (471,238) _________ __________ Net unrealized losses on securities $(351,932) $(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) Six Months Ended February 28, 2003 2002 _______________________________ Cash flows from operating activities: Net income $ 1,047,833 $7,719,999 Adjustments to reconcile net income to cash provided from operating activities: Depreciation and amortization 3,399,991 3,544,473 Net decrease in current assets and liabilities 1,853,703 1,848,383 Deferred income taxes (275,511) 216,124 Gain on sales of real estate (570,064) (11,319,671) Stock options granted below fair market value 419,491 445,428 Other 776,388 738,073 Donation accrual - 3,581,800 __________ __________ Net cash provided from operating activities 6,651,831 6,774,609 __________ __________ Cash flows used for investing activities: Purchases of property and equipment (4,719,689) (15,009,473) Proceeds from sales of real estate 773,235 12,802,198 Proceeds from sales of property and equipment 358,717 367,896 Purchases of marketable securities (1,766,733) (3,540,773) Proceeds from sales of marketable securities 2,625,836 2,553,615 Notes receivable collections (additions) (23,045) (23,054) __________ __________ Net cash used for investing activities (2,751,679) (2,849,591) __________ __________ Cash flows used for financing activities: Repayment of bank loan (16,763,398) (25,690,326) Proceeds from bank loan 17,512,582 31,153,165 Proceeds from exercising stock options 453,617 374,193 Dividends paid (2,482,582) (7,059,039) __________ __________ Net cash used for financing activities (1,279,781) (1,222,007) __________ __________ Net increase in cash and cash investments $2,620,371 $2,703,011 Cash and cash investments At the beginning of year 10,139,659 6,225,088 __________ __________ At end of period 12,760,030 8,928,099 __________ __________ __________ __________ Supplemental disclosures of cash flow information: Cash paid for interest, net of amount capitalized $ 922,211 $1,202,643 __________ __________ __________ __________ Cash paid for income taxes $ - $ 925,600 __________ __________ __________ __________ Non-cash investing and financing activities: Mortgage and notes receivable issued in exchange for land, less unamortized discount $ 51,080 $ 1,759,459 ___________ __________ ___________ __________ Fair value adjustments to securities available for sale $ (552,756) $ (330,704) __________ __________ __________ __________ Income tax effect related to fair value adjustment $ (200,824) $ 116,329 __________ __________ __________ __________ 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 February 28, 2003 and the consolidated results of operations and cash flows for the three and six month periods ended February 28, 2003 and 2002. 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 $196 in 2003 and $186 in 2002. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2002 have been reclassified to conform to the 2003 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 (in thousands) at February 28, 2003 and August 31, 2002 are as follows:
February 28, August 31, 2003 2002 (Unaudited) ____________ __________ Mortgage notes receivable on retail land sales $ 198 $ 193 Mortgage notes receivable on bulk land sales 4,950 4,926 Other notes receivable 20 25 ____________ __________ Total mortgage notes receivable $ 5,168 $ 5,144 Less current portion 2,515 2,451 ____________ __________ Non-current portion $ 2,653 $ 2,693 ____________ __________ ____________ __________
4. Inventories: A summary of the Company's inventories is shown below:
February 28, August 31, 2003 2002 (Unaudited) ____________ ___________ Unharvested fruit crop on trees $ 7,308 $ 8,599 Unharvested sugarcane 3,276 5,274 Beef cattle 7,827 7,507 Sod 476 292 ____________ ___________ Total inventories $ 18,887 $ 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 are deferred, with the cost of the related cattle being adjusted when the contracts are settled. At February 28, 2003, the Company had 11 contracts with a combined fair market value of $83. 5. Income taxes: The provision for income taxes for the quarters and six months ended February 28, 2003 and February 28, 2002 is summarized as follows:
Three months ended February 28, Six months ended February 28, 2003 2002 2003 2002 _____________ _____________ _____________ ______________ Current: Federal income tax $ 248 $ (389) $ 303 $ 308 State income tax 23 (73) 32 47 _____________ _____________ _____________ ______________ 271 (462) 335 355 _____________ _____________ _____________ ______________ Deferred: Federal income tax 19 622 42 154 State income tax - 134 4 62 _____________ _____________ _____________ ______________ 19 756 46 216 _____________ _____________ _____________ ______________ Total provision for income taxes $ 290 $ 294 $ 381 $ 571 _____________ _____________ _____________ ______________ _____________ _____________ _____________ ______________
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 $42.4 million and $41.0 million at February 28, 2003 and 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 February 28, 2003 and August 31, 2002 was $53.4 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- $37,711; 2005- $3,311; 2006- $3,311; 2007- $1,315; and $7,758 thereafter. Interest cost expensed and capitalized during the six months ended February 28, 2003 and 2002 was as follows: 2003 2002 ________ ________ Interest expensed $ 1,024 $ 1,046 Interest capitalized 123 129 ________ ________ Total interest cost $ 1,147 $ 1,175 ________ ________ ________ ________ 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 six months ended February 28, 2003: ____________________________________________________________ Consolidated Citrus Sugarcane Ranch Other* Total ____________________________________________________________ Revenue $ 11,395 7,960 3,263 3,090 25,708 Costs and expenses 10,985 6,286 3,239 3,770 24,280 Depreciation and amortization 1,179 1,215 766 240 3,400 Segment profit (loss) 410 1,674 24 (680) 1,428 Segment assets 52,676 48,013 24,934 65,014 190,637 The following table presents information for each of the Company's operating segments as of and for the six months ended February 28, 2002: ____________________________________________________________ Consolidated Citrus Sugarcane Ranch Other* Total ____________________________________________________________ Revenue $ 9,195 9,233 5,603 13,646 37,677 Costs and expenses 8,833 7,352 4,868 8,333 29,386 Depreciation and amortization 1,203 1,340 755 246 3,544 Segment profit 362 1,881 735 5,313 8,291 Segment assets 56,168 53,447 21,698 56,331 187,644 *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 49,692 $14.62 6 Granted 51,074 14.62 _______________ Exercised 16,686 14.62 _______________ _______ _________ Balance outstanding, August 31, 2001 84,080 14.62 9 _______________ Granted 69,598 15.68 _______________ Exercised 35,831 14.76 _______ _________ Balance outstanding, August 31, 2002 117,847 15.20 10 _______________ Granted 67,280 15.68 _______________ Exercised 29,251 15.68 _______ _________ Balance outstanding, February 28, 2003 155,876 15.35 _______ _________ _______ _________
On February 28, 2003, there were 155,876 shares exercisable and 412,356 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. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." Interpretation No. 45 supercedes Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of Others," and provides guidance on the recognition and disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees. The initial recognition and measurements provisions of Interpretation No. 45 are effective for guarantees issued or modified after December 31, 2002, and are to be applied prospectively. The disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. Interpretation No. 45 was adopted in December of fiscal 2002. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure requirements of SFAS No. 123 to require more prominent and frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for financial statements issued for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. The adoption of these statements are 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 decreased to $55.8 million at February 28, 2003, down from $56.7 million at August 31, 2002. As of February 28, 2003, the Company had cash and cash investments of $12.8 million compared to $10.1 million at August 31, 2002. Marketable securities decreased to $20.0 million from $21.4 million during the same period. The ratio of current assets to current liabilities increased to 7.44 to 1 at February 28, 2003 up from 6.94 to 1 at August 31, 2002. Total assets decreased by $1.3 million to $190.6 million at February 28, 2003, 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 $11.6 million was available for the Company's general use at February 28, 2003 (see Note 6 to condensed consolidated financial statements). RESULTS OF OPERATIONS: The basic business of the Company is agriculture, which is of a seasonal nature and is subject to the influence of natural phenomena and wide price fluctuations. The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Net income for the six months ending February 28, 2003 decreased by $6.7 million when compared to the first six months of the prior year. This was primarily due to a decrease in earnings from real estate sales for the six months ended February 28, 2003 when compared to the six months ended February 28, 2002 ($0.6 million vs. $11.3 million during the first six months of fiscal 2003 and 2002, respectively). Income from operations increased to $1.2 million for the first six months of fiscal 2003, compared to a $2.9 million loss for the first six months of fiscal 2002. The increase was largely due to a decrease in general and administrative expenses as a donation of $5.0 million was accrued at its net present value and charged against earnings in the second quarter of the prior fiscal year. Earnings from agricultural activities decreased from the prior year ($1.6 million vs. $2.0 million for the second quarter, and $2.1 million vs. $3.0 million during the first six months of fiscal 2003 and 2002, respectively). Citrus ______ Citrus earnings were $369 thousand and $340 thousand for the second quarter, and $410 thousand and $362 thousand for the first six months of fiscal 2003 and fiscal 2002, respectively. 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 incurred in prior years. Sugarcane _________ Sugarcane earnings were $1.2 and $1.5 million for the second quarter of fiscal 2003, and fiscal 2002, respectively. Sugarcane earnings were $1.7 million vs. $1.9 million for the first six months of fiscal 2003 and fiscal 2002, respectively. Less acres were harvested during the first six months of fiscal 2003 than fiscal 2002. This difference is largely due to the timing of the harvest. Ranching ________ Ranch earnings were $121 thousand and $156 thousand during the second quarter of 2003 and 2002, respectively. Ranch earnings were $25 thousand vs. $735 thousand for the six months ended February 28, 2003 and 2002, respectively. The number of cattle sold decreased by 38% during the first six months 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 February 28, 2003, there were sales contracts for all of the Lee County, Florida property (approximately 6,200 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 $197.5 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 from the Company to Agri. 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 otherwise inaccessible reinsurance markets. 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.'s 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. 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. 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. 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 our consolidated financial statements are discussed below. Alico records inventory at the lower of cost or market. Management regularly assesses estimated inventory valuations based on current and forecasted usage of the related commodity and any other relevant factors that affect the net realizable value. Based on fruit buyers' and processors' advances to growers, stated cash and futures markets 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 11.1 Computation of Weighted Average Shares Outstanding at February 28, 2003. Exhibit 99.1 Accountant's Report. Exhibit 99.2 Certifications pursuant to 18 U.S.C. 1350 (b) Reports on Form 8-K. December 6, 2002 Press release of annual meeting highlights December 9, 2002 Press release announcing land sale in Lee County, FL February 24, 2003 Announcement of enforceability of settlement agreement March 10, 2003 Press release announcing land sale in Lee County, FL March 25, 2003 Press release announcing land sale in Lee County, FL April 8, 2003 Settlement agreement update 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) April 14, 2003 W. Bernard Lester Date President Chief Operating Officer (Signature) April 14, 2003 L. Craig Simmons Date Vice President Chief Financial Officer (Signature) April 14, 2003 Patrick W. Murphy Date Controller (Signature) 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: April 11, 2003 /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: d) 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; e) 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 f) 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: c) 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 d) 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: April 11, 2003 /S/ L. CRAIG SIMMONS L. Craig Simmons Vice President and Chief Financial Officer Exhibit Index Exhibit No. Description ___________ ___________ 11.1 Computation of Weighted Average shares Outstanding at February 28, 2003 99.1 Accountant's Report dated April 2, 2003 99.2 Certifications pursuant to 18 U.S.C 1350 EXHIBIT 11.1 ALICO, INC. Outstanding Date Days Shares Total (days X shares) 12/01/02 22 7,104,906 156,307,932 12/23/02 43 7,108,345 305,658,835 02/04/03 25 7,109,595 177,739,875 _____ _____________ Total 90 639,706,642 _____ _____________ _____ _____________ Average outstanding shares (Total weight / days) 7,107,852 ___________ ___________ Net income for the three months ended February 28, 2003 $ 789,595 ___________ ___________ Earnings per share (Net income/Average outstanding shares $ .11 ___________ ___________ Computation of Weighted Average Shares Outstanding as of February 28, 2003: Outstanding Date Days Shares Total (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 48 7,104,906 341,035,488 12/23/02 43 7,108,345 305,658,835 02/04/03 25 7,109,595 177,739,875 _____ _____________ Total 181 1,285,501,250 _____ _____________ _____ _____________ Average outstanding shares (Total weight / days) 7,102,217 ___________ ___________ Net income for the six months ended February 28, 2003 $ 1,047,833 ___________ ___________ Earnings per share (Net income / Average outstanding shares) $.15 ___________ ___________ EXHIBIT 99.1 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 February 28, 2003, and the related condensed consolidated statements of operations for the three and six month periods ended February 28, 2003 and 2002, the condensed consolidated statements of stockholders' equity for the six month period ended February 28, 2003, and the condensed consolidated statements of cash flows for the six month periods ended February 28, 2003 and 2002. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established 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 accounting 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 modifications 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 April 2, 2003 EXHIBIT 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Alico, Inc. (the "Company") on Form 10-Q for the six months ended February 28, 2003 as filed with the Securities and Exchange Commission on April 11, 2003 (the "Form 10-Q"), I, Ben Hill Griffin, III, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: April 11, 2003 Ben Hill Griffin, III Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Alico, Inc. (the "Company") on Form 10-Q for the six months ended February 28, 2003 as filed with the Securities and Exchange Commission on April 11, 2003 (the "Form 10-Q"), I, L. Craig Simmons, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: April 11, 2003 L. Craig Simmons Chief Financial Officer