UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2007

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

For the transition period from                      to                     

Alico, Inc.

Florida		59-0906081
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
P.O. Box 338, LaBelle, FL		33975
(Address of principal executive offices)		(Zip Code)

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

N/A

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

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

þ  Yes  o No

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

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

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

o  Yes  þ No

There were 7,373,728 shares of common stock, par value $1.00 per share, outstanding at February 11, 2008.

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)

										One Month ended
		Three months ended December 31,								September 30,
		2007				2006				2007
Operating revenue
Agricultural operations		$	19,009			$	23,411			$	989
Non-agricultural operations			676				670				188
Real estate operations			3,869				2,447				—
Total operating revenue			23,554				26,528				1,177
Operating expenses
Agricultural operations			18,215				20,220				912
Non-agricultural operations			108				113				46
Real estate operations			891				240				59
Total operating expenses			19,214				20,573				1,017
Gross profit			4,340				5,955				160
Corporate general and administrative			3,001				3,167				850
Income (loss) from operations			1,339				2,788				(690	)
Other income (expenses):
Profit on sales of bulk real estate:
Sales			817				1,870				—
Cost of sales			—				578				—
Profit on sales of bulk real estate, net			817				1,292				—
Interest & investment income			4,333				1,626				693
Interest expense			(2,466	)			(1,261	)			(820	)
Other			265				74				(4	)
Total other income, (expense) net			2,949				1,731				(131	)
Income (loss) before income taxes			4,288				4,519				(821	)
Provision for income taxes			1,498				1,939				(141	)
Net income (loss)		$	2,790			$	2,580			$	(680	)
Weighted-average number of shares outstanding			7,361				7,373				7,358
Weighted-average number of shares outstanding assuming dilution			7,375				7,393				7,376
Per share amounts:
Basic		$	0.38			$	0.35			$	(0.09	)
Diluted			0.38				0.35				(0.09	)
Dividends		$	0.00			$	0.25			$	0.28

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

		December 31,				September 30,
		2007				2007				August 31,
		(unaudited)				(unaudited)				2007
ASSETS
Current assets:
Cash and cash equivalents		$	39,811			$	31,599			$	34,825
Marketable securities available for sale			49,275				46,511				46,242
Accounts receivable			17,490				14,848				15,738
Mortgage and notes receivable			3,387				3,832				487
Inventories			28,301				27,232				25,214
Current deferred tax asset			2,716				2,661				2,312
Other current assets			2,242				2,719				2,398
Total current assets			143,222				129,402				127,216
Mortgages and notes receivable, net of current portion			5,063				6,688				9,939
Investments, deposits and other			4,335				3,237				3,262
Deferred tax benefit			3,810				3,805				3,950
Cash surrender value of life insurance, designated			7,542				7,656				7,530
Property, buildings and equipment			180,319				178,968				178,917
Less: accumulated depreciation			(52,160	)			(50,422	)			(49,927	)
Total assets		$	292,131			$	279,334			$	280,887

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

		December 31,				September 30,
		2007				2007				August 31,
		(unaudited)				(unaudited)				2007
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	4,903			$	1,943			$	2,328
Income taxes payable			4,981				3,418				3,335
Current portion of notes payable			1,349				1,350				1,350
Accrued expenses			5,042				4,425				4,330
Dividend payable			2,024				4,048				2,024
Accrued ad valorem taxes			—				2,105				1,876
Other current liabilities			1,563				2,153				2,276
Total current liabilities			19,862				19,442				17,519
Notes payable, net of current portion			144,011				134,534				135,539
Deferred retirement benefits, net of current portion			5,269				5,098				5,041
Commissions and deposits payable			4,358				4,265				3,842
Total liabilities			173,500				163,339				161,941
Stockholders’ equity:
Common stock			7,376				7,376				7,376
Additional paid in capital			9,950				10,199				10,169
Treasury stock			(783	)			(891	)			(1,046	)
Accumulated other comprehensive income			36				49				45
Retained earnings			102,052				99,262				102,402
Total stockholders’ equity			118,631				115,995				118,946
Total liabilities and stockholders’ equity		$	292,131			$	279,334			$	280,887

See accompanying Notes to Condensed Consolidated Financial Statements.

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

		Three months ended								One Month Ended
		December 31,								September 30,
		2007				2006				2007
Cash flows from operating activities:
Net cash provided by (used for) operating activities		$	3,314			$	(1,035	)		$	(1,753	)
Cash flows from investing activities:
Real estate deposits and accrued commissions			—				1,616				—
Purchases of property and equipment			(2,131	)			(3,229	)			(293	)
Purchases of other investments			(644	)			—				—
Proceeds from sale of real estate			—				600				—
Proceeds from sales of property and equipment			586				1,223				90
Purchases of marketable securities			(15,645	)			(7,539	)			(1,574	)
Proceeds from sales of marketable securities			12,849				14,215				1,309
Note receivable collections			2,873				1,693				—
Other			70				—				—
Net cash provided by (used for) investing activities			(2,042	)			8,579				(468	)
Cash flows from financing activities:
Repayment of loans			(1,824	)			(4,621	)			(2,106	)
Proceeds from loans			11,300				11,124				1,101
Proceeds from stock transactions			16				—				—
Proceeds used for stock transactions			(528	)			—				—
Dividends paid			(2,024	)			(2,028	)			—
Net cash provided by (used for) financing activities			6,940				4,475				(1,005	)
Net increase (decrease) in cash and cash equivalents		$	8,212			$	12,019			$	(3,226	)
Cash and cash equivalents:
At beginning of period		$	31,599			$	25,158			$	34,825
At end of period		$	39,811			$	37,177			$	31,599

		Three months ended								One Month Ended
		December 31,								September 30,
		2007				2006				2007
Supplemental disclosures of cash flow information
Cash paid for interest, net of amount capitalized		$	2,199			$	1,044			$	43
Cash paid for income taxes			—			$	2,075				—
Net non cash investing activities:
Issuance of mortgage notes			—			$	13,341				—
Fair value adjustments to securities available for sale net of tax effects		$	(2	)		$	37			$	27
Reclassification of breeding herd to property and equipment		$	458			$	566				—

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

1. Basis of financial statement presentation:

On September 28, 2007, the Board of Directors of the Company approved a change in the Company’s fiscal year end from August 31 to September 30. The fiscal year change is effective beginning with the Company’s 2008 fiscal year. The Company’s 2008 fiscal year began on October 1, 2007 and will end September 30, 2008, resulting in a one month transition period that began September 1, 2007 and ended September 30, 2007. This Form 10Q includes the unaudited results for the quarter ended December 31, 2007 and 2006, and the unaudited results for the one month ended September 30, 2007. The Company has also included selected unaudited results for the one month ended September 30, 2006 for comparative purposes in Note 14. The audited results for the one month ended September 30, 2007 will be included separately in the Company’s Annual Report on Form 10K for the fiscal year ending September 30, 2008.

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

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

The accompanying unaudited condensed consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies reflected in the Company’s annual report for the year ended August 31, 2007. In the opinion of Management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of its consolidated financial position at December 31, 2007, September 30, 2007 and August 31, 2007 and the consolidated results of operations and cash flows for the quarters ended December 31, 2007 and 2006, and one month ended September 30, 2007.

The Company is involved in 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 adjustments to revenue from the prior year’s crop totaling $53 thousand for the quarter ended December 31, 2007, and $(20) thousand for the quarter ended December 31, 2006.

The results of operations for the stated periods are not necessarily indicative of results to be expected for the full year. Certain items from 2006 have been reclassified to conform to the 2007 presentation.

2. Real Estate:

Real estate sales are recorded under the accrual method of accounting. Under this method, a sale is not recognized until certain criteria are met including whether the profit is determinable, collectibility of the sales price is reasonably assured or the earnings process is complete.

Real estate project costs incurred for the acquisition, development and construction of real estate projects are capitalized. Additionally, costs to market real estate are capitalized if they are reasonably expected to be removed from the sale of the project and have been performed to obtain regulatory approval for the sale. An allowance is provided to reduce capitalized project costs to estimated realizable value.

During the fourth quarter of fiscal year 2006, the Company established a real estate department to manage its real estate assets. Gains or losses resulting from real estate transactions entered into before the establishment of the Company’s real estate department, which have not been substantially modified as defined by GAAP, have been recorded as non-operating items. Gains or losses resulting from contracts substantially modified or initiated by the Company’s real estate department are classified as operating items.

Properties are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognized when the carrying amount of a property exceeds its fair value. Such events or changes in circumstances include significant decreases in the market price of such properties; significant adverse changes in legal factors, the business climate or the extent or manner in which the asset is being used; an accumulation of costs significantly in excess of amounts originally expected for the property; continuing operating cash flow losses associated with the property or an expectation that it is more likely than not that the property will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Impairment losses are measured as the amount by which the carrying amount of a property exceeds its fair value.

3. Marketable Securities Available for Sale:

The Company has classified 100% of investments in marketable securities as available for sale and, as such, the securities are carried at estimated fair value. Unrealized gains and losses determined to be temporary are recorded as other comprehensive income, net of related deferred taxes, until realized. Unrealized losses determined to be other than temporary are recognized in the period the determination is made.

The cost and estimated fair value of marketable securities available for sale at December 31, 2007 and August 31, 2007 and September 30, 2007 were as follows:

		December 31, 2007																August 31, 2007
		(Unaudited)
						Gross								Estimated								Gross								Estimated
						Unrealized								Fair								Unrealized								Fair
		Cost				Gains				Losses				Value				Cost				Gains				Losses				Value
Debt securities
Municipal bonds		$	32,800			$	51			$	(1	)		$	32,850			$	28,881			$	6			$	(10	)		$	28,877
Mutual funds			2,000				—				—				2,000				2,000				—				—				2,000
Fixed maturity funds			11,759				16				(4	)			11,771				12,656				55				(4	)			12,707
Corporate bonds			2,659				—				(5	)			2,654				2,673				1				(16	)			2,658
Marketable securities available for sale		$	49,218			$	67			$	(10	)		$	49,275			$	46,210			$	62			$	(30	)		$	46,242

		September 30, 2007
		(Unaudited)
						Gross								Estimated
						Unrealized								Fair
		Cost				Gains				Losses				Value
Debt securities
Municipal bonds		$	29,213			$	23			$	(2	)		$	29,234
Mutual funds			2,000				—				—				2,000
Fixed maturity funds			12,569				49				(2	)			12,616
Corporate bonds			2,670				—				(9	)			2,661
Marketable securities available for sale		$	46,452			$	72			$	(13	)		$	46,511

The aggregate fair value of investments in debt instruments (net of mutual funds of $2,000) as of December 31, 2007 and September 30, 2007 by contractual maturity date consisted of the following:

		Aggregate Fair Value
		December 31,				September 30,
		2007				2007
Due within 1 year		$	37,863			$	31,093
Due between 1 and 2 years			148				4,205
Due between 2 and 3 years			221				219
Due between 3 and 4 years			—				—
Due between 4 and 5 years			1,200				1,512
Due beyond five years			7,843				7,482
Total		$	47,275			$	44,511

The following table shows the gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not deemed to be other than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at:

		December 31, 2007
		Less than 12 months								12 months or greater								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Fixed maturity funds		$	4,919			$	(3	)		$	—			$	—			$	4,919			$	(3	)
Corporate bonds			—				—				2,654				(6	)			2,654				(6	)
Municipal Bonds			1,617				(1	)			—				—				1,617				(1	)
Total		$	6,536			$	(4	)		$	2,654			$	(6	)		$	9,190			$	(10	)

		September 30, 2007
		Less than 12 months								12 months or greater								Total
		Fair				Unrealized				Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses				Value				Losses
Fixed maturity funds		$	3,478			$	(2	)		$	—			$	—			$	3,478			$	(2	)
Corporate bonds			—				—				2,661				(9	)			2,661				(9	)
Municipal Bonds			5,475				(2	)			—				—				5,475				(2	)
Total		$	8,953			$	(4	)		$	2,661			$	(9	)		$	11,614			$	(13	)

Net realized gain on the sale of securities for the three months ended December 31, 2007 and 2006 and one month ended September 30, 2007 were $0, ($35 thousand) and $0, respectively.

Debt instruments and funds. The unrealized losses on fixed maturity funds, corporate bonds and municipal bonds were primarily due to changes in interest rates. At December 31, 2007 the Company held loss positions in 33 debt instruments. Because the decline in market values of these securities is attributable to changes in interest rates and not credit quality and because the Company has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, the Company does not believe any of the unrealized losses represent other than temporary impairment based on the evaluation of available evidence as of December 31, 2007.

4. Mortgages and notes receivable:

The balances of the Company’s mortgages and notes receivable were as follows:

		December 31,				September 30,
		2007				2007				August 31,
		(unaudited)				(unaudited)				2007
Mortgage notes receivable on retail land sales		$	271			$	299			$	311
Mortgage notes receivable on bulk land sales			65,518				65,963				65,963
Total mortgage and notes receivable			65,789				66,262				66,274
Less: Deferred revenue			(57,034	)			(53,253	)			(53,254	)
Discount on notes to impute market interest			(305	)			(2,489	)			(2,594	)
Current portion			(3,387	)			(3,832	)			(487	)
Non-current portion		$	5,063			$	6,688			$	9,939

Mortgage notes receivable related to retail land sales are generated from the sale of lots by the Company’s Alico Land Development subsidiary. Mortgage notes related to bulk land sales were generated by the sale of the Company’s Lee County properties. Real estate sales are recorded under the accrual method of accounting. Gains from commercial or bulk land sales are not recognized until payments received for property to be developed within two years after the sale equal 20% or property to be developed after two years equal 25% of the contract sales price according to the installment sales method.

Profits from commercial real estate sales are discounted to reflect the market rate of interest when the stated rate of the mortgage note is less than the market rate. The recorded imputed interest discounts are realized as the balances due are collected. In the event of early liquidation, interest is recognized on the simple interest method.

In July 2005, the Company’s Alico-Agri subsidiary sold property in Lee County, Florida for $62.9 million. At the time of the sale, the Company received a down payment of $6.2 million and a 2.5% interest bearing mortgage note of $56.6 million in exchange for the land sold. Because the down payment did not meet the thresholds for full gain recognition, a deferred revenue account was established as an offset to the carrying amount of the note. Additionally, because the stated interest rate of the note was below market rates at the date of inception, a note discount was recorded. In December 2006, the Company restructured the contract and received $3.8 million upon execution. The major provisions of the restructuring were the extension of the principal payments and an increase in the interest rate to 4.0% annually, causing readjustment of the note discount.

Under the terms of the renegotiated contract, $3.8 million of the closing proceeds were subtracted from the existing mortgage receivable principal of $56.6 million and accrued interest of $1.7 million was added back to the mortgage receivable as additional principal. Four annual principal plus interest payments of the remaining $54.5 million mortgage were scheduled to commence with a payment of $13.6 million on September 28, 2007.

The Company again restructured the contract in October of 2007. Major provisions of the renegotiation included a reduction of the scheduled principal payments due in September of 2008 and 2009; an increased interest rate based on LIBOR plus a percentage to be applied forward from July 2005; and quarterly interest payments equal to the applicable quarterly interest rate as described above on the outstanding principal balance for the term of the note. Further provisions include increased flexibility of the Company to receive lots in the event of default. The Company received a payment of $6.8 million related to the renegotiated contract consisting of $0.4 million of principal, $6.1 million of interest and the balance as an expense reimbursement. As a result of the changed interest terms from the October 2007 restructure, the note discount was eliminated.

In December 2006, the Company sold property in Lee County, Florida for $12.0 million. The Company recognized revenue of $0.6 million and recorded a mortgage note receivable for $11.4 million and deferred revenue of $10.2 million. The mortgage note receivable, which accrues interest at the rate of 6% annually, was discounted by $0.3 million to adjust for the current market rate of interest. Interest only will be collected annually for the first four years, followed by four equal annual payments of principal and interest.

5. Inventories:

A summary of the Company’s inventories is shown below:

		December 31,				September 30,
		2007				2007				August 31,
		(unaudited)				(unaudited)				2007
Unharvested fruit crop on trees		$	13,866			$	12,982			$	12,177
Unharvested sugarcane			4,401				5,410				4,922
Beef cattle			6,676				5,757				5,429
Unharvested sod			1,540				1,476				1,449
Plants and vegetables			1,746				1,484				1,086
Rock, fill and other			72				123				151
Total inventories		$	28,301			$	27,232			$	25,214

The Company records its inventory at the lower of cost or net realizable value. At December 31, 2007, the Company adjusted its cattle inventory down by $256 thousand due to changing market conditions and reduced its vegetable inventory by $188 thousand due to damage from heavy rains. At December 31, 2006, the Company wrote down sugarcane inventory by $338 thousand and vegetable inventory by $216 thousand. The adjustments were included as costs of sales in the period of adjustment.

6. Income taxes:

The provision for income taxes for the three months ended December 31, 2007 and 2006 and one month ended September 30, 2007 is summarized as follows:

		Three months ended December 31,								One month ended
		(unaudited)								September 30,
		2007				2006				2007
Current:
Federal income tax		$	1,202			$	993			$	16
State income tax			257				170				12
			1,459				1,163				28
Deferred:
Federal income tax			(24	)			701				(194	)
State income tax			63				75				25
			39				776				(169	)
Total provision for income taxes		$	1,498			$	1,939			$	(141	)

The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to audits of Alico for the tax years 2000 through 2004. In the thirty day letter, the IRS proposed several alternative theories as a basis for its argument that Alico should have reported additional taxable income in the years under audit. These theories principally related to the formation and capitalization of the Company’s Agri Insurance subsidiary and its tax exempt status during the years under audit. The Company has been working with IRS appeals to resolve the case and has reached a tentative agreement for the payment of federal taxes, penalties and interest of approximately $66.2 million. In order to cease additional interest from accruing on this liability, the Company has paid $66.2 million to the IRS from its revolving credit line. Based on the contemplated settlement, the Company estimated additional state taxes and interest of approximately $10.3 million at December 31, 2007 which will be due and payable when the IRS audit is concluded. Further details regarding the settlement, including the future of Agri, are in ongoing negotiations with the IRS and a proposed closing document has been prepared by the Company’s tax counsel and provided to IRS Appeals for review. The Company expects full resolution of this matter by the end of March 2008; however, the Company has executed statute extensions with the IRS for the tax returns affected until December 31, 2008.

Alico capitalized Agri by contributing real estate located in Lee County Florida. The real estate was transferred at its historical cost basis. As the Lee County real estate was sold, substantial gains were generated in Agri, creating differences between amounts recorded on Agri’s books and the related tax returns. For property transferred to Agri but not sold during the years under audit, the historical tax basis will be stepped-up to the fair market value of the property at the time of transfer. The Company has estimated the amount of basis step-up based on discussions with the IRS and classified the step ups resulting from the transfer of property not sold as of August 31, 2004 based on their estimated tax benefits as a deferred tax asset at August 31, 2007. Should the actual outcome of the IRS settlement differ from the estimated amounts, the deferred taxes related to the basis step-ups could fluctuate from the amounts recorded.

Since January 1, 2004 Agri has been filing as a taxable entity. This change in tax status resulted from changes in the Internal Revenue Code.

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“Interpretation No. 48”), on October 1, 2007. Among other things, FIN 48 requires application of a “more likely than not” threshold to the recognition and derecognition of tax positions. It further requires that a change in judgment related to prior years’ tax positions be recognized in the quarter of such change.

At October 1, 2007, the Company had $441,000 of potential tax exposure related to uncertain tax positions, which was recorded as a one time adjustment to retained earnings. All of this amount would, if recognized, affect the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and classifies such interest and penalties in the liability for uncertain tax positions. Interest and penalties accrued as of the date of adoption are approximately $57,000. As of December 31, 2007, the Company had approximately $73,000 accrued for the payment of interest and penalties related to uncertain tax positions.

The U.S. Internal Revenue Agency is currently examining the returns of Alico and related entities for tax years 2000 through 2004. The statute of limitations for those years has been extended as part of that examination. Additionally, the tax years ended August 31, 2005 and August 31, 2006 remain open to examination. The state income tax returns have not been audited and are subject to audit for the same tax periods open for federal tax purposes. We believe that the unrecognized tax liabilities currently recorded will change significantly within 12 months of the report date due to the filing of amended returns. The unrecognized tax liabilities could decrease by $450,000 (due to payment) within the next 12 months.

Pursuant to recent Securities Exchange Commission guidance, the Company has not provided the tabular reconciliation disclosures required by FIN 48. The Company will provide all required FIN 48 disclosures in its 2008 Annual Report on Form 10-K.

7. Indebtedness:

Alico, Inc. has a Credit Facility with Farm Credit of Southwest Florida that provides a $175.0 million revolving line of credit which matures on August 1, 2010. Funds from the Credit Facility may be used for general corporate purposes including: (i) the normal operating needs of the Company and its operating divisions, (ii) the purchase of capital assets and (iii) the payment of dividends. The Credit Facility also allows for an annual extension at the lender’s option.

The Credit Facility contains numerous restrictive covenants described more fully in the Company’s annual report on Form 10-K. In the opinion of Management, the Company was in compliance with all of the covenants and provisions of the amended Credit Facility at December 31, 2007.

The Company’s Chief Executive Officer, John R. Alexander, is a member of the Board of Directors of the Company’s primary lender, Farm Credit of Southwest Florida. Mr. Alexander abstains from voting on matters that directly affect the Company.

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

		Principal Balance
		December 31,				September 30,				August 31,				Interest
		2007				2007				2007				Rate				Collateral
a) Revolving Credit Facility		$	137,319			$	127,519			$	128,419			Libor +1.50		%		Real estate
b) Mortgage note payable			7,917				8,234				8,339				6.68	%		Real estate
c) Mortgage note payable			52				52				52				7.00	%		Real estate
d) Vehicle financing			72				79				79				0%-2.90	%		3 Vehicles
Total		$	145,360			$	135,884			$	136,889

a)		Terms described above; Additional credit available at December 31, 2007 was $37,681.
b)		First mortgage on 7,680 acres of cane, citrus, pasture and improvements in Hendry County, Florida with commercial lender. Monthly principal payments of $106 thousand plus accrued interest.
c)		First mortgage on a parcel of land in Polk County, Florida with private seller. Annual equal payments of $55 thousand.
d)		3-5 year term loans. Monthly principal payments plus interest.
e)		The LIBOR rate was 4.88%, 5.50% and 5.63% at December 31, 2007, September 30, 2007 and August 31, 2007, respectively.

Maturities of the Company’s debt at December 31, 2007, September 30, 2007, and August 31, were as follows:

		December 31,				September 30,				August 31,
		2007				2007				2007
Due within 1 year		$	1,349			$	1,350				1,350
Due between 1 and 2 years			1,293				1,297				1,298
Due between 2 and 3 years			138,592				128,794				129,695
Due between 3 and 4 years			1,274				1,273				1,273
Due between 4 and 5 years			1,269				1,270				1,269
Due beyond five years			1,583				1,900				2,004
Total		$	145,360			$	135,884			$	136,889

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

		Three months ended								One month ended
		December 31,								September 30,
		2007				2006				2007
		(unaudited)				(unaudited)				(unaudited)
Interest expense		$	2,466			$	1,261			$	820
Interest capitalized			12				13				5
Total interest cost		$	2,478			$	1,274			$	825

As an agricultural credit cooperative, Farm Credit of Southwest Florida is owned by the member-borrowers who purchase stock/participation certificates in the cooperative. Allocations of patronage are made to members on an annual basis according to the proportionate amount of interest paid by the member. Allocations are made in cash and non cash participation certificates. The Company has recorded the cash allocations as received as a reduction of interest expense. Non cash patronage receivables of $854 thousand have been included as other income in the accompanying condensed consolidated statements of operations for the three months ended December 31, 2007. Such amounts relate to cumulative non cash allocations which are considered by management to have both a qualitatively and quantitatively immaterial effect on any prior period.

8. Dividends:

At its meeting on September 28, 2007 the Board of Directors declared a quarterly dividend of $0.275 per share payable to stockholders of record as of December 29, 2007 that was paid on January 15, 2008. At its meeting on January 18, 2008, the Board of Directors declared a quarterly dividend of $0.275 per share payable to stockholders of record as of April 30, 2008 with payment expected on or around May 16, 2008.

9. Disclosures about reportable segments:

The Company has four reportable segments: Bowen, Citrus Groves, Sugarcane and Cattle. Bowen provides harvesting and marketing services for citrus producers including Alico’s Citrus Grove division. Additionally, Bowen purchases citrus fruit and resells the fruit to citrus processors and fresh packing facilities. The Citrus Groves segment produces citrus fruit for sale to citrus processors and fresh packing facilities. The Sugarcane segment produces sugarcane for delivery to the sugar mill and refinery. The Cattle division raises beef cattle for sale to western feedlots and meat packing facilities. The goods and services produced by these segments are sold to wholesalers and processors in the United States who prepare the products for consumption. The Company’s operations are located in Florida.

Although the Company’s Real Estate, Plant World, Vegetable and Sod segments do not meet the quantitative thresholds to be considered as reportable segments, information about these segments has been included in the schedules below. For a description of the business activities of the Plant World, Vegetables and Sod segments please refer to Item 1 of the Company’s annual report on Form 10-K for the year ended August 31, 2007.

The accounting policies of all of the segments are the same as those described in the summary of significant accounting policies in the Company’s annual report on Form 10-K for the year ended August 31, 2007. The Company evaluates performance based on direct margins from operations before general and administrative costs and income taxes not including nonrecurring gains and losses.

The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties; that is, at the then current market prices.

The Company’s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different knowledge, skills and marketing strategies.

Information concerning the various segments of the Company as of and for the three months ended December 31, 2007 and 2006 and one month ended September 30, 2007 are summarized on the following page:

		Three months ended								One month ended
		December 31,								September 30,
		2007				2006				2007
Revenues (from external customers except as noted)
Bowen		$	7,815			$	7,633			$	143
Intersegment fruit sales through Bowen			1,264				804				—
Citrus groves			4,665				6,172				5
Sugarcane			3,221				3,738				—
Cattle			486				3,653				330
Real Estate			3,869				2,447				—
Alico Plant World			902				749				419
Vegetables			1,724				1,117				—
Sod			196				349				92
Revenue from segments			24,142				26,662				989
Other operations			676				670				188
Less: intersegment revenues eliminated			(1,264	)			(804	)			—
Total operating revenue		$	23,554			$	26,528			$	1,177
Operating expenses
Bowen		$	7,712			$	7,424			$	222
Intersegment fruit sold through Bowen			1,264				804				—
Citrus groves			3,845				3,708				3
Sugarcane			3,251				4,144				—
Cattle			858				3,035				289
Real Estate			891				240				59
Alico Plant World			833				491				190
Vegetables			1,400				1,216				—
Sod			316				202				208
Segment operating expenses			20,370				21,264				971
Other operations			108				113				46
Less: intersegment expenses eliminated			(1,264	)			(804	)			—
Total operating expenses		$	19,214			$	20,573			$	1,017
Gross profit (loss):
Bowen Brothers Fruit		$	103			$	209			$	(79	)
Citrus groves			820				2,464				2
Sugarcane			(30	)			(406	)			—
Cattle			(372	)			618				41
Real Estate			2,978				2,207				(59	)
Alico Plant World			69				258				229
Vegetables			324				(99	)			—
Sod			(120	)			147				(116	)
Gross profit from segments			3,772				5,398				18
Other			568				557				142
Gross profit		$	4,340			$	5,955			$	160

		Three months ended								One month ended
		December 31,								September 30,
		2007				2006				2007
Depreciation, depletion and amortization:
Bowen Brothers Fruit		$	62			$	68			$	21
Citrus Groves			556				606				188
Sugarcane			518				517				171
Cattle			398				487				134
Alico Plant World			162				163				53
Vegetables			30				13				12
Sod			54				48				18
Total segment depreciation and amortization			1,780				1,902				597
Other depreciation, depletion and amortization			241				214				78
Total depreciation, depletion and amortization		$	2,021			$	2,116			$	675

		December 31,				September 30,
		2007				2007				August 31,
		(unaudited)				(unaudited)				2007
Total Assets:
Bowen Brothers Fruit		$	6,171			$	2,891			$	3,042
Citrus groves			55,641				53,339				54,558
Sugarcane			43,728				45,128				46,053
Cattle			21,756				20,837				20,813
Alico Plant World			7,525				6,862				6,711
Vegetables			4,574				3,238				2,766
Sod			5,432				5,400				5,362
Segment assets			144,827				137,695				139,305
Other Corporate assets			147,304				141,639				141,582
Total assets		$	292,131			$	279,334			$	280,887

10. Stock Compensation Plans:

The Board of Directors of the Company may grant options, stock appreciation rights, and/or restricted stock to certain directors and employees. No stock options were granted during fiscal year 2007, the three months ended December 31, 2007, or the one month ended September 30, 2007.

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

At December 31, 2007, September 30, 2007 and August 31, 2007, there were 7,158, 8,158 and 8,158, options respectively, fully vested and exercisable and 273,815 shares available for grant. The options outstanding had a fair value of $133 thousand, $208 thousand, and $271 thousand at December 31, 2007, September 30, 2007 and August 31, 2007, respectively. There was no unrecognized compensation expense related to outstanding stock option grants at August 31, 2007, September 30, 2007 or December 31, 2007.

In fiscal year 2006, the Company began granting restricted shares to certain key employees as long term incentives. The restricted shares vest in accordance with the table and description outlined below. The payment of each installment is subject to continued employment with the Company. At December 31, 2007, September 30, 2007 and August 31, 2007 there were 8,000 restricted shares vested in accordance with these grants.

The table below summarizes the Company’s restricted share awards granted to date:

										Compensation				Compensation				Weighted
										Expense Recognized				Expense Recognized				Average
										for the				for the				Grant date
						Fair Market Value				three months ended				one month ended				Fair value
Grant Date		Shares Granted				on Date of Grant				December 31, 2007				September 30, 2007				Per share
April 2006			20,000			$	908			$	43				14
October 2006			20,000				1,239				67				22
Total			40,000			$	2,147			$	110			$	36			$	53.68

The shares granted in April 2006 vest 25% in April 2010 and 25% annually thereafter until fully vested. Four thousand of the shares granted in October 2006 related to past service and were immediately vested and an additional 4,000 shares vested August 31, 2007. The remaining shares granted in October 2006 vest 33% effective August 31, 2008 and 33% annually thereafter until fully vested. The Company is recognizing compensation cost equal to the fair market value of the stock at the grant dates prorated over the vesting period of each award. The fair value of the unvested restricted stock awards at December 31, 2007 was $1.2 million and will be recognized over a weighted average period of 6 years.

During November 2007, the CEO and COO elected to receive a portion of their annual incentive bonus in Company stock. The CEO chose to receive 4,000 shares at a value of $177 thousand, while the COO chose to receive 500 shares at a value of $22 thousand. These shares do not contain any restrictions, but were issued under the Company’s Incentive Equity Plan. Compensation expense for these awards was accrued and recognized during the fourth quarter of the Company’s fiscal 2007 year.

11. Other Comprehensive Income:

Other comprehensive income, arising from market fluctuations in the Company’s securities portfolio, was as follows:

		For the three months ended								For the one month ended
		December 31,								September 30,
		2007				2006				2007
Accumulated Other Comprehensive Income (loss) at beginning of period		$	49			$	(29	)		$	45
Change resulting from market fluctuations, net of tax, and realized gains and losses			(13	)			40				4
Accumulated Other Comprehensive Income		$	36			$	11			$	49

12. New Accounting Pronouncements:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. The Company is required to adopt SFAS No. 157 effective at the beginning of fiscal year 2009. The Company does not expect the adoption of SFAS 157 to have a material impact on its financial statements.

In February 2007, the FASB issued FASB Statement No. 159 (FAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115,” which provides companies the irrevocable option to measure many financial assets and liabilities at fair value with the changes in fair value recognized in earnings. SFAS No. 159 will be effective for fiscal year 2009. The Company does not expect the adoption of SFAS 159 to have a material impact on its financial statements.

13. Treasury Stock

The Company’s Board of Directors has authorized the repurchase of up to 131,000 shares of the Company’s common stock through August 31, 2010, for the purpose of funding restricted stock grants under its 1998 Incentive Equity Plan in order to provide restricted stock to eligible Directors and Senior Managers and align their interests with those of the Company’s shareholders.

The stock repurchases began in November 2005 and will be made on a quarterly basis until August 31, 2010 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the provisions of a 10b5-1 Plan which the Company has adopted for such purchases. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. All purchases will be made subject to restrictions of Rule 10b-18 relating to volume, price and timing so as to minimize the impact of the purchases upon the market for the Company’s shares. The Company does not anticipate that any purchases under the Plan will be made from any officer, director or control person. There are currently no arrangements with any person for the purchase of the shares. In accordance with the approved plans, the Company may purchase an additional 75,230 shares. The Company purchased 12,000 shares in the open market during the first quarter of fiscal year 2008 at an average price of $43.98 per share.

The following table provides information relating to purchases of the Company’s common shares by the Company on the open market pursuant to the aforementioned plans for the quarter ended December 31, 2007 (no treasury purchases occurred during the month ended September 30, 2007):

										Total shares
										purchased as
										part of publicly				Total dollar value
		Total number of				Average price				announced plans				of shares purchased
Date		shares purchased				paid per share				or programs				(thousands)
11/20/2007			2,500			$	44.23				2,500			$	112
11/21/2007			2,500				43.64				2,500				110
11/26/2007			2,500				42.92				2,500				108
11/27/2007			2,000				42.52				2,000				86
11/28/2007			2,500				44.29				2,500				112
Total			12,000			$	43.98				12,000			$	528