UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C FORM 10-K

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended August 31, OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to. Commission file number ALICO, INC. (Exact name of registrant as specified in its charter) Florida (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 338, La Belle, Florida (Address of principal executive offices) (Zip Code) (863) Registrant's telephone number, including area code SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Name of each exchange on Title of each class which registered None None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON CAPITAL STOCK, $1.00 Par value, Non-cumulative (Title of Class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that such registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of October 18, 1999 there were 7,027,827 shares of stock outstanding and the aggregate market value (based upon the average bid and asked price, as quoted on NASDAQ) of the common stock held by non-affiliates was approximately $56,154,229. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Annual Report and Proxy Statement dated November 15, 1999 are incorporated by reference in Parts II and III, respectively. PART I Item 1. Business.

2 Alico, Inc. (the "Company") is generally recognized as an agribusiness company operating in Central and Southwest Florida. The Company's primary asset is 145,840 acres of land located in Collier, Hendry, Lee and Polk Counties. (See table on Page 6 for location and acreage by current primary use.) The Company is involved in various operations and activities including citrus fruit production, cattle ranching, sugarcane and sod production, and forestry. The Company also leases land for farming, cattle grazing, recreation, and oil exploration. The Company's land is managed for multiple use wherever possible. Cattle ranching, forestry and land leased for farming, grazing, recreation and oil exploration, in some instances, utilize the same acreage. Agricultural operations have combined to produce from 68 to 91 percent of annual revenues during the past five years. Citrus groves generate the most gross revenue. Sugarcane ranks second in revenue production. While the cattle ranching operation utilizes the largest acreage, it ranks third in the production of revenue. Approximately 9,707 acres of the Company's property are classified as timberlands, however, the area in which these lands are located is not highly rated for timber production. These lands are also utilized as native range, in the ranching operation, and leased out for recreation and oil exploration. Diversification of the Company's agricultural base was initiated with the development of a Sugarcane Division at the end of the 1988 fiscal year. The 5,432 acres in production during the 1999 fiscal year consisted of 188 acres planted in 1993, 535 acres planted in 1994, 1,129 acres planted in 1995, 2,130 acres planted in 1996 and 1,450 acres planted in The Company continued to expand agriculture activities during the 1999 fiscal year, purchasing additional property (approximately 7,600 acres in Hendry County, Florida) to be used as citrus, sugarcane, and pasture land. Leasing of lands for rock mining and oil and mineral exploration, rental of land for grazing, farming, recreation and other uses, while not classified as agricultural operations, are important components of the Company's land utilization and operation. Gross revenue from these activities during the past five years has ranged from 3 to 5 percent of total revenue. The Company is not in the land sales and development business, except through its wholly owned subsidiary, Saddlebag Lake Resorts, Inc.; however, it does from time to time sell properties which, in the judgment of management, are surplus to the Company's primary operations. Gross revenue from land sales during the past five years has ranged from 1 to 24 percent of total revenues. For further discussion of the relative importance of the various segments of the Company's operations, including financial information regarding revenues, operating profits (losses) and assets attributable to each major segment of the Company's business, see Note 11 of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this document. Subsidiary Operations The Company's wholly owned subsidiary, Saddlebag Lake Resorts, Inc. (the "Subsidiary"), is only active in the subdividing, development and sale of real estate. The financial results of the operation of this subsidiary are consolidated with those of the Company. (See Note 1 of Notes to Consolidated Financial Statements.) Contributions by the Subsidiary to the net income of the Company, during the past five years, have ranged from 0 to 1 percent. The Subsidiary has two subdivisions near Frostproof, Florida which have been developed and are on the market. Approximately 74% of the lots have been sold. Citrus Approximately 9,488 acres of citrus were harvested during the 1999 season.

3 Since 1983 the Company has maintained a marketing contract covering the majority of the Company's citrus crop with Ben Hill Griffin, Inc., a Florida corporation and major shareholder. The agreement provides for modifications to meet changing market conditions and provides that either party may terminate the contract by giving notice prior to August 1st, preceding the fruit season immediately following. Under the terms of the contract the Company's fruit is packed and/or processed and sold along with fruit from other growers, including Ben Hill Griffin, Inc. The proceeds are distributed on a pro rata basis as the finished product is sold. During the year ended August 31, 1999, approximately 89% of the Company's fruit crop was marketed under this agreement, as compared to 90% in 1997/98. The Company expects that the majority of the 1999/00 crop will be marketed under the same terms. In addition, Ben Hill Griffin, Inc. provides harvesting services to the Company for citrus sold to unrelated processors. These sales accounted for the remaining 11% of total citrus revenue for the year. Ranch The Company has a cattle operation located in Hendry and Collier Counties, Florida which is engaged primarily in the production of beef cattle and the raising of replacement heifers. The breeding herd consists of approximately 15,000 cows, bulls and replacement heifers. Approximately 54% of the herd are from one to five years old, while the remaining 46% are six and older. The Company primarily sells to packing and processing plants. The Company also sells cattle through local livestock auction markets and to contract cattle buyers. These buyers provide ready markets for the Company's cattle. The loss of any one or a few of these plants and/or buyers would not, in management's view, have a material adverse effect on the Company's cattle operation. Subject to prevailing market conditions, the Company may hedge its beef inventory by entering into cattle futures contracts to reduce exposure to changes in market prices. Sugarcane The Company had 5,432 acres and 5,698 acres of sugarcane in production during the 1998/99 and 1997/98 fiscal years, respectively. The 1998/99 and 1997/98 crops yielded approximately 216,000 and 204,000 gross tons, respectively. Forest Products Approximately 7% of the Company's properties are classified as timberlands. The principal forest products sold by the Company are pulpwood and sabal palms. These products are sold to a paper company and various landscaping companies, respectively. The Company does not incur any of the harvesting expenses. Part of the lands, from which the timber was removed, is being converted to semi-improved pasture and other uses. Land Rental for Grazing, Agricultural and Other Uses The Company rents lands to others for grazing, farming and recreational uses, on a tenant-at-will basis, for an annual fee. The income is not significant when compared to overall gross income, however, it does help to offset the expense of carrying these properties until they are put to a more profitable use. The Company has developed additional land to lease for farming. There were no significant changes in the method of rental for these purposes during the past fiscal year. Leases for Oil and Mineral Exploration The Company has leased subsurface rights to a portion of its properties for the purpose of oil and mineral exploration. Currently, there are two leases in effect.

4 Twenty-four wells have been drilled during the years that the Company has been leasing subsurface rights to oil companies. The drilling has resulted in twenty-one dry holes, one marginal producer, which has been abandoned, and two average producers, still producing. Mining Operations: Rock and Sand The Company leases 7,927 acres in Lee County, Florida to Florida Rock Industries, Inc. of Jacksonville, Florida for mining and production of rock, aggregate, sand, baserock and other road building and construction materials. Royalties which the company receives for these products are based on a percentage of the F.O.B. plant sales price. Competition As indicated, the Company is primarily engaged in a limited number of agricultural activities, all of which are highly competitive. For instance, citrus is grown in several states, the most notable of which are: Florida, California, Arizona and Texas. In addition, citrus and sugarcane products are imported from some foreign countries. Beef cattle are produced throughout the United States and domestic beef sales must also compete with sales of imported beef. Additionally, forest and rock products are produced in most parts of the United States. Leasing of land for oil exploration is also widespread. The Company's share of the market for citrus, cattle and forest products in the United States is insignificant. Environmental Regulations The Company's operation is subject to various federal, state and local laws regulating the discharge of materials into the environment. The Company is in substantial compliance with all such rules and such compliance has not had a material effect upon capital expenditures, earnings or the competitive position of the Company. While compliance with environmental regulations has not had a material economic effect on the Company's operations, executive officers are required to spend a considerable amount of time keeping current on these matters. In addition, there are ongoing costs incurred in complying with the permitting and reporting requirements. Employees At the end of August 1999 the Company had a total of 146 full-time employees classified as follows: Citrus 56; Ranch 16; Sugarcane 13; Facilities Maintenance Support 27; General and Administrative 34. There are no employees engaged in the development of new products or research. Seasonal Nature of Business As with any agribusiness enterprise, the Company's business operations are predominantly seasonal in nature. The harvest and sale of citrus fruit generally occurs from October to June. Sugarcane is harvested during the first, second and third quarters. Other segments of the Company's business such as its cattle and sod sales, and its timber, mining and leasing operations, tend to be more successive than seasonal in nature. Item 2. Properties. At August 31, 1999, the Company owned a total of 145,840 acres of land

5 located in four counties in Florida. Acreage in each county and the primary classification with respect to present use of these properties is shown in the following table: ACREAGE BY CURRENT PRIMARY USE <S> Timber Native Improved Citrus Sugar- Agri- County Land Pasture Pasture Sod Land cane culture Other Total <C> <C> <C> <C> <C> <C> <C> <C> <C> Polk 251 9, , ,146 Lee 3,731 1, ,460 3,599 9,876 Hendry 3,823 46,417 24, ,025 12,056 16,630 3, ,594 Collier 1,902 1,836 1, , ,333 11,224 Totals 9,707 58,635 26, ,214 12,056 18,090 9, ,840 Of the above lands, the Company utilizes 24,178 acres of improved pasture plus approximately 67,000 acres of native pasture for cattle production and 7,927 acres are leased for rock mining operations. Much of the land is also leased for multi-purpose use such as cattle grazing, oil exploration, agriculture and recreation. In addition to the land shown in the above table, the Company owns full subsurface rights to 1,064 acres and fractional subsurface rights to 18,882 acres. From the inception of the Company's initial development program in 1948, the goal has been to develop the lands for the most profitable use. Prior to implementation of the development program, detailed studies were made of the properties focusing on soil capabilities, topography, transportation, availability of markets and the climatic characteristics of each of the tracts. Based on these and later studies, the use of each tract was determined. It is the opinion of Management that the lands are suitable for agricultural, residential and commercial uses. However, since the Company is primarily engaged in agricultural activities, some of the lands are considered surplus to its needs for this purpose and, as indicated under Item 1 of this report, sales of real property are made from time to time. Management believes that each of the major programs is adequately supported by agricultural equipment, buildings, fences, irrigation systems and other amenities required for the operation of the projects. Item 3. Legal Proceedings. There are no pending legal proceedings involving the Company. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Company Pursuant to General Instruction G of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Stockholders to be held on December 9, 1999.

6 Election of Executive Officer is held each year at the Annual Meeting of the Board of Directors following the Annual Meeting of the Stockholders. Name Title Age Ben Hill Griffin, III Chairman of the Board (since March 1990), Chief Executive Officer (since January 1988) and Director (since March 1973) 57 W. Bernard Lester President (since December 1997) and Chief Operating Officer (since January 1988) and Director (since 1987), prior to July 1, 1986 was Executive Director of Florida Department of Citrus for over five years 60 L. Craig Simmons Vice President (effective February, 1995), Treasurer and Chief Financial Officer (effective September 1, 1992), prior thereto was Controller (from January 1 to August 31, 1992) and Assistant Comptroller (from January 1 to December 31, 1991), prior to September 1990 was Controller of Farm/Citrus Division, Collier Enterprises, Agribusiness Group 47 Section 16 - Beneficial Ownership Reporting Compliance Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule 16a-3(e) during the 1999 fiscal year and Forms 5 and amendments thereto furnished to the Company during fiscal year 1992 and certain written representations, if any, made to the Company, no officer, director or beneficial owners of 10% or more of the Company's common stock has failed to file on a timely basis any reports required by Section 16(a) of the Exchange Act to be filed during fiscal PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters. Common Stock Prices The common stock of Alico, Inc. is traded over-the-counter on the NASDAQ National Market System under the symbol ALCO. The high and low sales prices, by fiscal quarter, during the years ended August 31, 1999 and 1998 are presented below: Bid Price Bid Price <S> High Low High Low <C> <C> <C> <C> First Quarter 17 3/ /2 23 7/8 Second Quarter 19 1/2 15 7/8 24 1/2 19 1/2 Third Quarter 16 1/2 13 3/ /4 Fourth Quarter 17 3/4 15 1/8 20 3/4 17 5/8 Approximate Number of Holders of Common Stock As of October 18, 1999 there were approximately 794 holders of record of Alico, Inc. Common Stock.

7 Dividend Information Only year-end dividends have been paid, and during the last three fiscal years were as follows: Amount Paid Record Date Payment Date Per Share October 25, 1996 November 8, 1996 $.15 October 20, 1997 November 7, 1997 $.60 October 19, 1998 November 6, 1998 $.50 Dividends are paid at the discretion of the Company's Board of Directors. The Company foresees no change in its ability to pay annual dividends in the immediate future; nevertheless, there is no assurance that dividends will be paid in the future since they are dependent upon earnings, the financial condition of the Company, and other factors. Item 6. Selected Financial Data. <S> Years Ended August 3l, DESCRIPTION (In Thousands, Except Per Share Amounts) <C> <C> <C> <C> <C> Revenues $ 44,947 $ 44,679 $ 47,433 $ 36,089 $ 39,571 Costs and Expenses 37,886 33,654 29,583 29,269 25,105 Income Taxes 2,980 4,249 6,677 2,381 5,525 Net Income 4,081 6,776 11,173 4,439 8,941 Average Number of Shares Outstanding 7,028 7,028 7,028 7,028 7,028 Basic Earnings Per Share Cash Dividend Paid per Share Current Assets 45,182 42,354 37,887 34,877 31,736 Total Assets 156, , , , ,007 Current Liabilities 8,738 5,649 4,988 5,115 5,656 Ratio-Current Assets to Current Liabilities 5.17:1 7.50:1 7.59:1 6.82:1 5.61:1 Working Capital 36,444 36,705 32,899 29,762 26,080 Long-Term Obligations 56,789 34,938 24,582 32,006 27,945 Total Liabilities 65,527 40,587 29,570 37,121 33,601 Stockholders' Equity 91,395 89,967 88,153 77,383 75,406 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion focuses on the results of operations and the financial condition of Alico. This section should be read in conjunction with the consolidated financial statements and notes. Liquidity and Capital Resources The Company had cash and marketable securities of $15.8 million at August 31, 1999 compared with $13.2 million at August 31, Working capital decreased slightly, from $36.7 million at August 31, 1998 to $36.4 million August 31, 1999.

8 Also, the Company purchased approximately 7,680 acres of citrus, sugarcane and range lands in Hendry County, Florida, for $22.5 million in March Cash outlay for land, equipment, building, and other improvements totaled $27.9 million, during fiscal 1999, compared to $12.2 million during August 31, 1998 and $5.8 million in 1997, respectively. The most significant expenditure was the land purchase referred to above. Land excavation for sugarcane farming development and capital maintenance continued, as did expenditures for replacement equipment and raising of breeding cattle. Capital projects for the upcoming year are expected to include development of additional sugarcane acreage. 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 provided for revolving credit of up to $44 million of which $15.9 million was available for the Company's general use at August 31, 1999 (see note 5 of consolidated financial statements). Year 2000 Compliance The Company recognizes that year 2000 issues could result in system failures or miscalculations causing disruptions of operations, including, among others, a temporary inability to process transactions, send invoices or engage in similar normal business activities. The Company has been engaged in an evaluation of its year 2000 readiness in connection with various aspects of its business. Specifically, the Company has focused on its information technology and non-information technology systems. In addition, the Company has analyzed its production processes and products. The Company has also attempted to analyze year 2000 issues relating to third parties with whom the Company has a business relationship. The current status of the Company's efforts is as follows: Internal Systems, Processes and Products Information Technology Systems: The Company's accounting software provider and operating system provider have advised the Company that such software is year 2000 compliant. Non-Information Technology Systems: The Company does not believe that non-information technology systems are material to its business; however, the Company has reviewed and testing such systems. The Company does not believe that it will incur any material costs in connection with the review and testing of such systems. Products: The Company's products are not date sensitive. Therefore, the Company does not believe it has any material exposure with regard to its products as a result of the year 2000 issue. Year 2000 Issues Relating to Third Parties Suppliers: Certain products purchased by the Company are obtained from a limited group of suppliers. The Company surveyed such suppliers in 1999 regarding their year 2000 status. Absent widespread difficulties affecting several major vendors, the Company does not anticipate that vendors' year 2000 issues would have a material adverse effect on the Company, because the Company believes alternative sources of supply are available for all required components. The Company is not currently aware of the year 2000 readiness of certain outside services companies. Any adverse effect caused by the failure of these providers to be year 2000 compliant is not currently susceptible to quantification. Customers:

9 Because the Company intends to distribute the majority of its agricultural products through third party distribution and marketing agreements, and because the customer base is expected to change from year to year, the Company is unable to predict the identity of most of its major customers in the year 2000 and thereafter. Accordingly, the Company is unable to make an inquiry as to whether the customers' computer driven payment or purchasing processes are year 2000 compliant. A customer's year 2000 issues could cause a delay in receipt of purchase orders or in payment. If year 2000 issues are widespread among the Company's customers, the Company's sales and cash flow could be materially affected. Cautionary Statement Readers should note, in particular, that this document 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" statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. The considerations listed herein represent certain important factors the Company believes could cause such results to differ. These considerations are not intended to represent a complete list of the general or specific risks that may affect the Company. It should be recognized that other risks, including general economic factors and expansion strategies, may be significant, presently or in the future, and the risks set forth herein may affect the Company to a greater extent than indicated. Results of Operations Summary of results (in thousands): Years Ended August 31, <S> <C> <C> <C> Operating revenue $39,346 $41,618 $34,543 Gross profit 3,997 9,532 5,886 Profit on sale of real estate 3, ,271 Interest and investment income 1,302 1,734 1,137 Interest expense 2,085 1, Provision for income taxes 2,980 4,249 6,677 Effective income tax rate 42.2% 38.5% 37.4% Net income 4,081 6,776 11,173 Operating Revenue Operating revenues for fiscal 1999 decreased, compared to fiscal A decline in revenues from agricultural operations was the primary factor in the decrease. Operating revenues for fiscal 1998 increased when compared to those of fiscal Revenues from agricultural operations were higher than in the prior year. Gross Profit Gross profit from operations decreased 58% during fiscal 1999, when compared to the prior year. Reduced citrus yields combined with lower market prices for beef as the primary factors in the decline.

10 Gross profit from operations during fiscal 1998 increased by 62% over fiscal The increase was primarily due to larger harvest volume for sugarcane, combined with improved market prices for citrus products. Profit on Sale of Real Estate Profit from the sale of real estate increased from $875 thousand during fiscal 1998 to $3.8 million during fiscal Sales during the current year included ongoing residential lot sales in Polk County and a $4.2 million pre-tax gain on the sale of 7,142 acres in Hendry County to the South Florida Water Management District. Profit from the sale of real estate was $875 thousand during fiscal 1998, as compared to $11.27 million during fiscal Sales during 1998 included residential lot sales in Polk County, sales in Lee County and additional proceeds resulting from a final survey of the large fiscal 1997 land sale in Hendry County. During fiscal 1997 revenues included the sale of approximately 21,700 acres of land in Hendry and Collier Counties, Florida, to the State of Florida for $11.5 million, the pre-tax gain from which was $11.1 million, and several smaller sales in Lee, Collier and Polk Counties. Interest and Investment Income Interest and investment income is generated principally from investments in marketable equity securities, corporate and municipal bonds, mutual funds, U.S. Treasury securities and mortgages held on real estate sold on the installment basis. Realized investment earnings were reinvested throughout fiscal 1999, 1998 and 1997, increasing investment levels during each year. The rise in fiscal interest and realized and unrealized investment income for the years presented resulted from reinvested income and favorable market conditions during each of the years. As a result of the market downturn of August 1998, the Company experienced unrealized declines in its portfolio which have been reflected in stockholders' equity. Interest Expense Interest expense increased during fiscal 1999, compared to fiscal 1998, primarily due to increased borrowings related to the acquisition of 7,680 acres of sugarcane, citrus and range land, and borrowings related to the development of the 8,444 acres purchased during fiscal Total interest cost increased 53%, which included capitalized interest and is discussed in Note 5. Interest expense increased during fiscal 1998, compared to fiscal 1997, primarily due to increased borrowings used to acquire property and interest associated with settling the 8/31/93 and 8/31/94 income tax audits. Total interest cost, which includes capitalized interest and is discussed in Note 5 to the Consolidated Financial Statements, increased 38%. Provision for Income Taxes The effective tax rate increased to 42.2% during fiscal year 1999, up from 38.5% during fiscal year 1998, and 37.4% during fiscal year Higher taxable income levels, combined with the impact of decreased tax exempt investment income and payments related to the settlement of Internal Revenue Service examinations, raised the effective rate. Individual Operating Divisions Gross profit for the individual operating divisions, for fiscal 1999, 1998 and 1997, is presented in the following schedule and is discussed in subsequent sections:

11 Years Ended August 31, (in thousands) <S> <C> <C> <C> CITRUS Revenues: Sales $23,518 $26,622 $22,287 Less harvesting & marketing 7,902 8,421 8,210 Net Sales 15,616 18,201 14,077 Cost and Expenses: Direct production** 10,198 6,908 6,875 Allocated cost* 2,977 2,616 2,352 Total 13,175 9,524 9,227 Gross profit, citrus 2,441 8,677 4,850 SUGARCANE Revenues: Sales 7,120 6,123 4,967 Less harvesting & hauling 1,341 1,400 1,120 Net Sales 5,779 4,723 3,847 Costs and expenses: Direct production 1,886 1,926 1,826 Allocated cost* 1,257 1,189 1,190 Total 3,143 3,115 3,016 Gross profit, sugarcane 2,636 1, RANCH Revenues: Sales 6,271 6,883 4,876 Costs and expenses: Direct production 4,507 4,715 3,165 Allocated cost* 1,772 1, Total 6,279 6,267 4,111 Gross profit (loss), ranch (8) Total gross profit, agriculture 5,069 10,901 6,446 OTHER OPERATIONS Revenues: Rock products and sand 1,350 1,203 1,258 Oil leases and land rentals Forest products Other Total 2,437 1,991 2,413 Costs and expenses: Allocated Cost* General and administrative, all operations 2,742 2,789 2,492

12 Total 3,509 3,359 2,973 Gross loss, other operations (1,072) (1,368) (560) Total gross profit 3,997 9,533 5,886 INTEREST & DIVIDENDS Revenue 1,302 1,734 1,137 Expense 2,085 1, Interest & dividends, net (783) REAL ESTATE Revenue: Sale of real estate 4,299 1,327 11,753 Expenses: Cost of sales Other Costs Total Gain on sale of real estate 3, ,271 Income before income taxes $ 7,061 $11,025 $17,850 * Allocated expense includes ad valorem and payroll taxes, depreciation and insurance. ** Excludes capitalized maintenance cost of groves less than five years of age consisting of $434 dollars on 134 acres in 1999, $236 thousand on 620 acres in 1998, and $875 thousand on 1,130 acres in Citrus Gross profit was $ 2.4 million in fiscal 1999, $8.7 million in fiscal 1998, and $4.9 million for fiscal Revenue from citrus sales decreased 11.7% during fiscal 1999, compared to fiscal 1998 ($23.5 million during fiscal 1999 vs. $26.6 million during fiscal 1998). Production declined for the year, while the average market price for citrus increased. However, this improvement did not offset the decrease in yields. Harvesting and marketing costs decreased from the prior year, due to fewer number of boxes that were harvested during the year. Direct production and allocated costs also increased (38%), due to inflation and increased cultivation costs related to young groves recently placed in service. Revenue from citrus sales increased 19% during fiscal 1998, compared to fiscal 1997 ($26.6 million during fiscal 1998 vs. $22.3 million during fiscal 1997). The increase primarily resulted from higher prices for citrus products. Production remained steady for the year, while average market prices per box increased.

13 Harvesting and marketing costs rose slightly from the prior year, due to competing demands for labor ($8.4 million in fiscal 1998 vs. $8.2 million in fiscal 1997). Direct production and allocated costs also increased slightly (3%), largely due to inflation. ACREAGE BY VARIETY AND AGE <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> VARIETY Acres Early: Parson Brown Oranges Hamlin Oranges ,574 3,559 Red Grapefruit White Grapefruit Tangelos Navel Oranges Mid Season: Pineapple Oranges Queen Oranges Honey Tangerines Midsweet Oranges Late: Valencia Oranges 1, , ,390 5,274 Totals: 1, ,067 2, ,143 11,214 The final returns from citrus pools are not precisely determinable at year end. Returns are estimated each year based on the most current information available, conservatively applied. Differences between the estimates and the final realization of revenues can be significant. Revenues collected in excess of prior year and year end estimates were $160 thousand, $2.7 million, and $1.0 million during fiscal 1999, 1998 and 1997, respectively. Sugarcane Gross profit for fiscal 1999 was $2.6 million compared to $1.6 million in fiscal 1998 and $831 thousand in fiscal Sales revenues from sugarcane increased 16% during fiscal 1999, compared to fiscal 1998 ($7.1 million vs. $6.1 million, respectively). During the same period, direct production and allocated costs remained the same ($3.1 million in fiscal 1998 and 1999). The rise in earnings was primarily due to improved sugar yield per acre. While the gross tons harvested during fiscal 1999 approximated fiscal 1998, this year's crop yielded a higher sugar content, generating the rise in earnings for this division. Sales revenues from sugarcane increased 23% during fiscal 1998, compared to fiscal 1997 ($6.1 million vs. $4.9 million, respectively). During the same period, direct production and allocated costs increased by 3% ($3.1 million in fiscal 1998 vs. $3.0 million in fiscal 1997). The revenue improvement during the year was largely due to increases in acres harvested and gross tons yielded per acre. The total gross tons harvested during fiscal 1998 was 29% higher than the previous year. Poor weather conditions caused decreased yields during the prior year.

14 Ranching The gross profit (loss) from ranch operations for fiscal 1999, 1998 and 1997 was $(8) thousand, $616 thousand, and $765 thousand, respectively. Revenues from cattle sales decreased 9% during fiscal 1999, compared to fiscal 1998 ($6.3 million in fiscal 1999 vs. $6.9 million in fiscal 1998). The number of animals sold during the year decreased 13% under the prior year due to decreased sales of feeder cattle during the year. Direct and allocated costs remained unchanged from their year ago levels ($6.3 million in fiscal 1999 and 1998). The Company's cattle marketing activities include retention of calves in western feedlots, contract and auction sales, and risk management contracts. Revenues from cattle sales increased 41% during fiscal 1998, compared to fiscal 1997 ($6.9 million in fiscal 1998 vs. $4.9 million in fiscal 1997). The number of animals sold during the year increased 17% over the prior year Due to increased sales of feeder cattle inventories during the year. Direct and allocated costs increased from their year ago levels ($6.3 million in fiscal 1998 vs. $4.1 million in fiscal 1997). The costs increased as a result of the increase in the number of animals sold, and the type of animals sold. During the prior year, the Company sold a larger number of fully brood cows, resulting in a lower cost basis and a higher profit margin per unit. Other Operations Revenues from oil royalties and land rentals were $711 thousand for fiscal 1999 compared to $505 thousand for fiscal 1998 and $831 thousand for fiscal Returns from rock products and sand were $1.3 million for fiscal 1999, $1.2 for 1998 and 1.3 million during Rock and sand supplies are sufficient to meet current demand, and no major price changes have occurred over the past 3 years. Profits from the sale of sabal palms, for landscaping purposes, during fiscal 1998 were $136 thousand compared to $161 thousand and $224 thousand for fiscal years 1998 and 1997, respectively. Direct and allocated expenses charged to the "Other" operations category included general and administrative and other costs not charged directly to citrus, ranching, sugarcane divisions. These expenses totaled $3.5 million during fiscal 1999 compared to $3.4 million during fiscal 1998 and to $3.0 million during fiscal General Corporate The Company is continuing its marketing and permitting activities for its land which surrounds the Florida Gulf Coast University site. The Company announced an option agreement with REJ Group, Inc., of Cleveland, Ohio, during May The option agreement permits the acquisition of a minimum 150 acres and a maximum of 400 acres within the 2,300 acres University Village. The potential pre-tax gain to Alico, if the option is exercised, would vary from $8.5 million to $24.5 million, depending on the time at which the option is exercised, and the total number of acres selected. In February 1999, the South Florida Water Management District acquired Approximately 12,728 acres of land in Hendry and Collier Counties, Florida, from Alico, Inc. for $8.8 million. Upon completion of the sale, the Company recognized a pre-tax gain of approximately $4.2 million on 7,142 of the acres. The remaining 5,586 acres were used in a like-kind exchange, as part of a $22.5 million acquisition of approximately 7,680 acres in Hendry County, Florida that was completed during March of The acquisition included producing citrus and sugarcane operations. The transaction included like-kind exchanges totaling $6.1 million and debt restructuring that resulted in a $19 million

15 mortgage. (See Note 5 under Notes to Consolidated Financial Statements.) In July of 1999, the Company entered into a contract to sell 402 acres near the University to Thomas B. Garlick, a Trustee of Florida Land Trust 996 for approximately $15.5 million. The sale is scheduled to close during fiscal If the sale is consummated, it is expected to generate a pre-tax gain of approximately $13.5 million. Additionally, the Company has agreed to sell 190 acres, also near the University, for approximately $6.6 million to South west Florida Equities Corporation. The sale is expected to close during fiscal 2001 and could potentially generate a $5.8 million pre-tax gain. During September of 1999, the Company announced a sale to Miromar Development, Inc. of Montreal, Canada, of 1,230 acres of land surrounding the University site in Lee County for $16.5 million. The contract called for 25 percent of the purchase price to be paid at closing, with the balance payable over the next four years. The sale is expected to generate a pretax gain of approximately $14 million. Item 7(a). Quantitative and Qualitative Disclosure About Market Risk Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We do not have derivative financial instruments in our investment portfolio. We place our investments with high quality issuers and, by policy, limit the amount of credit exposure to any one issuer. We are adverse to principal loss and ensure the safety and preservation of our invested funds by limiting default, market and reinvestment risk. We classify our cash equivalents and short-term investments as fixed-rate if the rate of return on such instruments remains fixed over their term. These fixed-rate investments include fixed-rate U.S. government securities, municipal bonds, time deposits and certificates of deposit. We classify our cash equivalents and short-term investments as variable-rate if the rate of return on such investments varies based on the change in a predetermined index or set of indices during their term. These variable-rate investments primarily include money market accounts, mutual funds and equities held at various securities brokers and investment banks. The table below presents the amounts (in thousands) and related weighted interest rates of our investment portfolio at August 31, 1999: Average Marketable Interest Estimated Securities and Rate Cost Fair Value Short-term Investments (1) Fixed Rate 5.10% $ 2,980 $ 2,887 Variable Rate 5.24% $ 10,778 $ 12,520 (1) See definition in Notes 1 and 2 to our Consolidated Financial Statements. The aggregate fair value of our investment in debt instruments (net of mutual funds of $1,791) as of August 31, 1999, by contractual maturity date, consisted of the following: Aggregate Fair Values (in thousands) Due in one year or less $ 365 Due between one and five years 166 Due between five and ten years 194 Due thereafter 371 $ 1,096

16 Item 8. Financial Statements and Supplementary Data. Independent Auditors' Report The Stockholders and Board of Directors Alico, Inc.: We have audited the consolidated balance sheets of Alico, Inc. and subsidiary as of August 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended August 31, In connection with our audits of the consolidated financial statements, we also have audited the related consolidated financial statement schedules as listed in Item 14(a)(2) herein. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alico, Inc. and subsidiary at August 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related consolidated financial statement schedules, when considered in relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. Orlando, Florida October 13, 1999 KPMG LLP (Signature) CONSOLIDATED BALANCE SHEETS August 31, <S> ASSETS <C> <C> Current assets: Cash, including time deposits and other cash investments of $ 335,532 in 1999 and $ 849,905 in 1998 $ 740,829 $ 908,268 Marketable equity securities available for sale, at estimated fair value in 1999 and in 1998 (note 2) 15,043,713 12,291,767 Accounts receivable ($6,084,064 in 1999 and $8,332,514 in 1998 due from affiliate) (note 9) 8,030,863 11,093,835 Mortgages and notes receivable, current portion 73,589 99,673 Inventories (note 3) 20,547,215 17,625,923

17 Refundable income taxes 549,586 0 Other current assets 195, ,577 Total current assets 45,181,699 42,354,043 Other assets: Land inventories 9,429,295 8,837,957 Mortgages and notes receivable, net of current portion 394, ,796 Investments 946, ,230 Total other assets 10,769,643 10,317,983 Property, buildings and equipment (note 4) 132,372, ,064,751 Less accumulated depreciation (31,402,071) (29,182,416) Net property, buildings and equipment 100,970,768 77,882,335 Total assets $156,922,110 $130,554,361 <FN> See accompanying notes to consolidated financial statements. August 31, <S> <C> <C> LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,571,579 $ 1,464,159 Due to profit sharing plan (note 7) 269, ,368 Accrued ad valorem taxes 1,997,834 1,329,136 Current portion of notes payable (note 5) 1,322,033 28,145 Accrued expenses 683, ,897 Income taxes payable 0 623,128 Deferred income taxes (note 8) 1,893,360 1,023,886 Deferred revenue 0 345,763 Total current liabilities 8,737,831 5,649,482 Notes payable (note 5) 45,630,912 23,210,723 Deferred income taxes (note 8) 10,780,521 11,723,895 Deferred retirement benefits (note 7) 377,487 3,320 Total liabilities 65,526,751 40,587,420 Stockholders' equity: Preferred stock, no par value. Authorized 1,000,000 shares; issued, none - - Common stock, $1 par value. Authorized 15,000,000 shares; issued and outstanding 7,027,827 in 1999 and ,027,827 7,027,827 Accumulated other Comprehensive Income (note 2) 1,029, ,345

18 Retained earnings 83,337,579 82,770,769 Total stockholders' equity 91,395,359 89,966,941 Total liabilities and stockholders' equity $156,922,110 $130,554,361 <FN> See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended August 31, <S> <C> <C> <C> Revenue: Citrus (including charges from affiliate (note 9 ) $23,518,082 $26,621,714 $22,287,006 Sugarcane 7,119,976 6,122,822 4,966,837 Ranch 6,270,988 6,882,149 4,875,826 Forest products 136, , ,090 Rock and sand royalties 1,349,856 1,203,160 1,257,665 Oil lease and land rentals 710, , ,254 Profit on sales of real estate 4,299,434 1,326,624 11,753,199 Interest and investment income 1,301,991 1,734,023 1,136,928 Other income 239, ,509 99,872 Total revenue 44,947,296 44,678,736 47,432,677 Costs and expenses: Citrus production, harvesting and Marketing (including charges from Affiliate (note 9) 21,077,169 17,945,016 17,436,648 Sugarcane production, harvesting and hauling 4,483,250 4,514,424 4,136,302 Ranch 6,280,000 6,266,688 4,110,969 Real estate 452, , ,870 Interest (note 5) 2,085,065 1,116, ,217 Other, general and administrative expenses 3,508,845 3,359,392 2,972,863 Total costs and expenses 37,886,358 33,654,120 29,582,869 Income before income taxes 7,060,938 11,024,616 17,849,808 Provision for income taxes (note 8) 2,980,214 4,248,810 6,677,116 Net Income 4,080,724 $ 6,775,806 $11,172,692 Weighted average number of shares outstanding 7,027,827 7,027,827 7,027,827

19 Per share amounts: Basic earnings $.58 $.96 $ 1.59 Dividends.50 $.60 $.15 <FN> See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Accumulated Stock Other Shares Retained Comprehensive Issued Amount Earnings Income Total <S> <C> <C> <C> <C> <C> Balances, August 31, ,027,827 $7,027,827 $70,093,141 $261,686 $77,382,654 Comprehensive income: Net income for the year ended August 31, ,172,692-11,172,692 Unrealized gains on Securities, net of taxes , ,373 and reclassification adjustment (see disclosure) Total Comprehensive income: 11,824,065 Dividends paid - - (1,054,174) - (1,054,174) Balances, August 31, ,027,827 $7,027,827 $80,211,659 $913,059 $88,152,545 Comprehensive income: Net income for the year ended August 31, ,775,806-6,775,806 Unrealized losses on Securities, net of taxes (744,714) (744,714) and reclassification adjustment (see disclosure) Total Comprehensive income: 6,031,092 Dividends paid - - (4,216,696) - (4,216,696) Balances, August 31, ,027,827 $7,027,827 $82,770,769 $168,345 $89,966,941 Comprehensive income: Net income for the year ended August 31, ,080,724-4,080,724 Unrealized gains on Securities, net of taxes , ,608 and reclassification adjustment (see disclosure) Total Comprehensive income: 4,942,332 Dividends paid - - (3,513,914) - (3,513,914)

20 Balances, August 31, ,027,827 $7,027,827 $83,337,579 $1,029,953 $91,395,359 Disclosure of reclassification amount: Unrealized holding gains (losses) arising during the period $824,144 $(86,587) $845,326 Less: reclassification adjustment for gains (losses) included in net income (37,464) 658, ,953 Net unrealized gains (losses) on securities $861,608 $(744,714) $651,373 <FN> See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended August 31, Increase (Decrease) in Cash and Cash Investments: Cash flows from operating activities: Net Income $ 4,080,724 $ 6,775,806 $11,172,692 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,355,450 4,717,219 4,240,117 Gain on breeding herd sales (316,700) (465,482) (526,266) Deferred income tax expense, net (631,748) 714,257 (259,533) Deferred retirement benefits 374,167 (9,939) (63,465) Net gain on sale of marketable securities (11,736) (850,446) (414,669) (Gain) loss on sale of property and equipment 33,934 (14,678) 424,915 Gain on real estate sales (4,299,434) (1,239,031) (11,957,753) Increase in land inventories (591,338) (492,841) (567,174) Cash provided by (used for) changes in: Accounts receivable 3,062,972 (3,636,898) 1,975,901 Inventories (3,824,055) (1,924,894) (2,845,384) Refundable income taxes (549,586) - - Other assets 138,673 (65,114) (31,425) Accounts payable and accrued expenses 1,893, ,862 (590,994) Income taxes payable (623,128) (311,767) 744,256 Deferred revenues (345,763) 345,763 - Net cash provided by operating activities 3,746,310 4,021,817 1,301,218 Cash flows from investing activities: Purchases of property and equipment (27,883,421) (12,186,976) (5,752,072) Proceeds from disposals of property and equipment 457, , ,658 Proceeds from sale of real estate 4,466,917 1,393,170 12,060,060 Purchases of other assets (39,165) (51,446) (100,896) Proceeds from the sale of other assets 58,250 41, ,643 Purchases of marketable securities (3,461,686) (5,255,681) (4,694,859)

21 Proceeds from sales of marketable securities 2,140,932 3,933,517 4,367,008 Collection of mortgages and notes receivable 146, , ,120 Net cash provided by (used for) investing activities (24,113,912) (10,739,486) 7,558,662 Years Ended August 31, <S> <C> <C> <C> Cash flows from financing activities: Proceeds of bank loans 59,952,000 31,573,868 18,749,000 Repayment of loans (36,237,923) (21,191,000) (26,523,000) Dividends paid (3,513,914) (4,216,696) (1,054,174) Net cash provided by (used for) financing activities 20,200,163 6,166,172 (8,828,174) Net increase (decrease) in cash and cash investments (167,439) (551,497) 31,706 Cash and cash investments: At beginning of year 908,268 1,459,765 1,428,059 At end of year $ 740,829 $ 908,268 $ 1,459,765 Supplemental disclosures of cash flow information: Cash paid for interest, net of amount capitalized $ 2,186,855 $ 765,210 $ 396,988 Cash paid for income taxes, $ 3,142,286 $ 3,800,198 $ 6,183,310 including related interest (note 8) Non-cash investing activities: <FN> Fair value adjustments to securities available for sale $ 1,482,456 $(1,194,026) $ 1,044,369 Income tax effect related to fair value adjustments $ 557,848 $ (449,312) $ 392,996 See accompanying notes to consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended August 31, 1999, 1998 and 1997 (1) Summary of Significant Accounting Policies (a) Basis of Consolidated Financial Statement Presentation