Alico, Inc. Annual Report 2005

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FY2005 Annual Report · Alico, Inc.

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Contents

2. Selected Financial Data

3. Letter to Shareholders

4. Business

7. Directors and Ofﬁcers

8. Management’s Discussion and Analysis

of Financial Condition and Results

of Operations

26. Financial Statements

ALICO, INC.

640 South Main Street
Post Office Box 338
La Belle, Florida 33975
Tel: (863) 675-2966
Fax: (863) 675-5799
www.alicoinc.com

ANNUAL MEETING

Friday, January 6, 2006, 10:00 a.m.

Hilton Gardens
12600 University Drive
Fort Myers, Florida 33907

STOCK TRANSFER AGENT

SunTrust Bank, Atlanta
P.O. Box 4625
Atlanta, GA 30302-4625

– 1 –

Selected financial data

2005

Years Ended August 31
(in thousands except per share amounts)
2003

2004

2002

2001

Operating revenue
Operating expenses
Income (loss) from operations
Income (loss) from operations
per weighted average common share
Total Revenue
Total Costs and Expenses
Income Taxes
Net Income
Weighted Average Number of Shares Outstanding
Net Income Per Share
Cash Dividend Declared Per Share
Current Assets
Total Assets
Current Liabilities
Ratio-Current Assets to Current Liabilities
Working Capital
Long-Term Obligations
Total Liabilities
Stockholders’ Equity

Common stock prices

$ 55,525 $ 52,057 $ 48,285 $ 49,185 $ 51,533
45,083
6,450

50,313
(1,128)

43,582
4,703

53,204
2,321

45,390
6,667

0.92
87,779
59,979
9,987

0.32
75,384
66,146
3,148
6,090 $ 17,813 $ 12,659 $
7,331

0.66
66,532
47,448
6,425

7,106

7,219

0.83 $
1.25
128,977
247,694
17,819
7.24:1
111,158
85,689
103,508
144,186

2.47 $
0.60
125,925
238,242
10,136
12.42:1
115,789
82,908
93,044
145,198

1.78 $
0.35
90,204
216,545
10,124
8.91:1
80,080
80,239
90,363
126,182

0.92
(0.16)
69,710
63,545
49,598
53,752
2,258
4,046
7,535 $ 16,066
7,033
7,070
2.29
1.00
61,345
179,134
7,691
7.98:1
53,654
58,818
66,509
112,625

1.07 $
1.00
66,267
191,910
9,543
6.94:1
56,724
69,149
78,692
113,218

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 prices, by ﬁscal quarter, during the years ended August 31, 2005 and 2004 are below:

2005
Bid Price

2004
Bid Price

High

Low

High

Low

First Quarter .........................
Second Quarter .....................
Third Quarter ........................
Fourth Quarter ......................

$55.59
$62.05
$58.01
$56.20

$41.25
$51.25
$46.63
$47.14

$35.99
$39.75
$38.99
$46.20

$26.18
$32.79
$30.50
$34.02

Approximate Number of Holders of Common Stock

As of November 1, 2005, there were approximately 473 holders of record of the Company’s Common Stock as reported by
the Company’s Transfer Agent.

Dividend Information

During the last three fiscal years the dividends were as follows:

Record Date
October 11, 2002
October 17, 2003
June 30, 2005
September 30, 2005

Payment Date
October 25, 2002
October 31, 2003
July 15, 2005
October 15, 2005

Amount Paid Per Share
$0.35
$0.60
$1.00
$0.25

At the Board of Directors meeting held June 10, 2005, the Board declared a dividend of $1.00 per share payable to
stockholders of record as of June 30, 2005 with payment to be made on July 15, 2005. Additionally, the Board changed the
payment of dividends from an annual to a quarterly basis and declared a quarterly dividend of $.25 per share payable to all
stockholders of record as of September 30, 2005, with payment to be made on October 15, 2005. At the Board of Directors
meeting held September 30, 2005, the Board declared a quarterly dividend of $0.25 per share payable to stockholders of
record as of December 31, 2005, with payment expected on or about January 15, 2006. Dividends are paid at the discretion
of the Company’s Board of Directors. The Company foresees no change in its ability to pay 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.

– 2 –

Letter to Shareholders

To Our Shareholders:

November 30, 2005

The 2005 fiscal year was possibly one of the most challenging and demanding our Company has ever faced. Company
properties were hit by multiple hurricanes, citrus canker was found in two groves, the Company had to implement the
provisions of Sarbanes Oxley 404, IRS audits are continuing at Alico and Agri Insurance Ltd. relating to years prior to my
becoming the Chairman, and various personnel changes occurred including the resignation of five of our directors. However,
I am very pleased with the manner our Company has handled each of these challenges. We have an outstanding group of
managers, employees, advisors, suppliers and customers without which the circumstances of the past year could have been
even more problematic.

The Company is being guided by highly qualified, experienced and capable directors. The Board is now working well
together, has initiated a policy of paying quarterly dividends and is in the process of developing a new strategic plan to
guide Management in moving the Company forward, including evaluating the Company’s properties as to their highest and
best use.

The hurricanes which struck south and central Florida during calendar year 2004, together with the direct hit the
Company properties experienced by Hurricane Wilma on October 24, 2005, caused major damage to crops and infra-
structure. The winds from these storms also spread citrus canker to several of our grove properties. However, as a result
of these events, prices for citrus and sugarcane have improved in the short term. We expect that these price increases,
together with indemnities to be received from filed insurance claims, will somewhat compensate for the production losses
from these events.

Despite the many obstacles faced, fiscal 2005 was a profitable year for the Company and in numerous ways was a banner
year. Net income was $6.1 million or $.83 per share for fiscal year 2005 compared with $17.8 million or $2.47 per share
in fiscal 2004. While the net income was lower in fiscal year 2005 compared with the prior year, $46.2 million of revenue
was deferred pending collection on a mortgage note related to a land sale in Lee County, Florida. This sale represented the
single largest transaction the Company has ever completed. Pre-tax income from agricultural operations, the Company’s
primary business, was $9.5 million in fiscal 2005 primarily due to higher prices for citrus and beef products. This
represented the highest level of income from agricultural operations since 1998.

In October 2005, we obtained a $175 million line of credit from Farm Credit of Southwest Florida. This credit facility will
provide the necessary funds as we work to diversify the Company’s agricultural operations and continue to explore real estate
acquisitions and development beyond our holdings.

Alico is working to expand its agriculture operations and to diversify its agriculture base. The Company is expanding sod
production by approximately 500 acres to take advantage of the strong demand for sod in the south Florida housing market.
In September 2004, the assets of LaBelle Plant World, a vegetable transplant business, were purchased and during the
2005-06 season, the Company’s wholly-owned subsidiary, Alico Plant World, LLC, is expected to grow and market over 100
million plants. In September 2005, we began planting green beans and sweet corn for the high value fresh vegetable winter
market. We are also considering growing other high value vegetables as the farming enterprise is expanded. Additionally,
Alico is beginning to mine rock and fill from its property to meet strong demand for earth materials for road construction and
land development.

I look forward to the coming year with the knowledge that we have persevered through the adversities of fiscal 2005 and
assure you that we intend to continue to strive to achieve superior results for our Company and for you, its shareholders.
Thank you for your on-going support and encouragement.

Sincerely,

John R. Alexander
Chairman of the Board

– 3 –

Business

Alico, Inc. (the “Company”), which was formed February 29, 1960 as a spinoff of the Atlantic Coast Line Railroad

Company, is an agribusiness company operating in Central and Southwest Florida. The Company’s primary asset is

136,081 acres of land located in Collier, Hendry, Lee and Polk Counties. (See table on Page 10 for location and acreage

by current primary use.) The Company is involved in citrus fruit production, cattle ranching, sugarcane and sod production,

wholesale greenhouse operations, vegetable production and forestry. The Company also leases land for farming, cattle

grazing, recreation, and oil exploration.

Alico citrus grove

The Company’s land is managed for multiple uses wher-

ever possible. For example, cattle ranching, forestry and

land leased for farming, grazing, recreation and oil ex-

ploration utilize the same acreage in some instances.

During the past five years, agricultural operations have

produced between 90 and 95 percent of annual operat-

ing revenues. Within the Company’s agriculture opera-

tions, citrus groves generate the highest gross operating

revenue, the sugarcane and sod division ranks second

in average operating revenue production during the past

five years and the cattle ranching operation, while it

utilizes the largest acreage, ranks third. Approximately

5,602 acres of the Company’s property are classified as

timberlands; however, these lands are not highly rated

for timber production. They are also utilized as native

range in the ranching operation and are leased out for

recreation and oil exploration.

Leasing of lands for rock mining and oil and mineral

exploration, rental of land for grazing, farming, recre-

Harvesting Floratam sod
operations, are important components of the Company’s land utilization and operation. Gross revenue from these activities

ation and other uses, while not classified as agricultural

during the past five years has ranged from 5 to 9 percent of annual operating revenue.

The Company is not in the retail 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 and

the Board of Directors, are surplus to the Company’s primary operations. Additionally, the Company’s wholly owned subsid-

iary, Alico-Agri, Ltd., engages in bulk land sales.

For further discussion of the relative importance of

the various segments of the Company’s operations,

including financial information regarding revenues,

operating profits and assets attributable to each major

segment of the Company’s business, see Note 13 of

Notes to Consolidated Financial Statements and

“Management’s Discussion and Analysis of Financial

Condition and Results of Operations” included else-

where in this document.

Harvesting sugarcane

– 4 –

Subsidiary Operations

The Company has four wholly owned subsidiaries: Saddlebag Lake Resorts, Inc. (“Saddlebag”), Agri-Insurance Company,

Ltd. (“Agri”), Alico-Agri, Ltd. (“Alico-Agri”), and Alico Plant World, LLC (“Plant World”).

Saddlebag has been active in the subdividing, develop-

ment and sale of real estate since its inception in 1971.

Saddlebag has two subdivisions near Frostproof,

Florida, that have been developed and are actively

marketing lots. One of the subdivisions has sold all of its

units, and approximately 95% of the lots in the second

development have been sold.

Agri, formed during fiscal 2000, was created to write

crop insurance against catastrophic losses due to

weather and disease. Independent third party actuaries

compute premiums and coverage amounts for policies

issued by Agri. Premiums for indemnities quoted are set

by independent actuaries/underwriters hired by Agri in

Bermuda based on underwriting considerations estab-

lished by them. Premiums vary depending upon the size

of the property, its age and revenue-producing history,

as well as the proximity of the insured property to known

disease-prone areas or other insured hazards.

Agri provided catastrophic business interruption insur-

ance for Ben Hill Griffin, Inc. (“Griffin”) during fiscal

2003, 2002 and 2001. Agri provided coverage for

Tri-County, LLC, a subsidiary of Atlantic Blue Trust, Inc.,

the holder of approximately 47.4% of the Company’s

Herding cattle to the cowpens

common stock, in fiscal year 2004. Additionally, Agri

Screening material for fill dirt

directly underwrote catastrophic business interruption coverage for its parent company, Alico, Inc., during fiscal 2005,

2004, 2003 and 2002.

Alico-Agri, Ltd. was formed during fiscal 2003 to manage the real estate holdings of Agri. In September 2004, the

Company, through Alico-Agri, purchased the assets of LaBelle Plant World, Inc. a wholesale grower and shipper of vegetable

transplants to commercial farmers. Plant World was purchased for the purpose of diversifying Alico’s agricultural operations

and to leverage Alico’s existing relation-

ships with the farming community.

The financial results of the operation of

these subsidiaries are consolidated with

those of the Company. Intercompany

activities and balances are eliminated in

consolidation.

Inside greenhouse

– 5 –

At August 31, 2005, the Company owned a total of 136,081 acres of land 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:

Alico, Inc. & Subsidiaries Land Use Summary

Lee

Hendry

Polk

Collier

Total

Citrus
Producing acres
Support and nonproductive*

Total Citrus

Sugarcane
Producing acres
Support and nonproductive*

Total Sugarcane

Ranch
Improved pasture
Semi-improved pasture
Native pasture
Support and nonproductive*

Total Ranch

Farming
Leased acres
Support and nonproductive*

Total farming

Sod
Producing acres
Support and nonproductive*

Total sod

Rock and Sand Mining
Commercial & Residential

Totals

–
–
–

–
–
–
–
–

–
–
–

–
–
–
–
900

900

2,901
2,754
5,655

13,069
10,810
23,879

22,627
20,038
11,846
23,296
77,807

2,802
1,008
3,810

500
335
835
–
4

3,114
789
3,903

4,129
3,197
7,326

–
–
–

295
602
5,949
1,540
8,386

–
–
–

–
–
–
–
66

–
–
–

–
1,112
1,718
680
3,510

–
–
–

–
–
–
–
–

10,144
6,740
16,884

13,069
10,810
23,879

22,922
21,752
19,513
25,516
89,703

2,802
1,008
3,810

500
335
835
–
970

111,990

12,355

10,836

136,081

* Includes buildings, roads, water management systems, fallow lands and wetlands.

Properties

From the inception of the Company's initial develop-
ment program in 1948, the goal has been to develop
its lands for the most profitable use. Prior to imple-
mentation 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 agricul-
tural, residential and commercial uses. However,
since the Company is primarily engaged in agricul-
tural activities, some of the lands are considered
surplus to its needs for this purpose and sales of such
surplus real property are made from time to time.

Management believes that each of the major operat-
ing segments are adequately supported by agricul-
tural equipment, buildings, fences, irrigation systems
and other amenities required for the operation of
the projects.

JACKSONVILLE

Total Acreage
136,081 ac.

OCALA

DAYTONA BEACH

ORLANDO

TAMPA

LAKELAND

FORT
MYERS

LA BELLE

Polk County
12,355 ac.

Hendry County
111,990 ac.

NAPLES

MIAMI

Lee County
900 ac.

Collier County
10,836 ac.

– 6 –

Directors

John R. Alexander
Chairman of the Board, President and Chief Executive Officer
Alico, Inc.

Robert E. Lee Caswell
Founder and Operations Manager
PC Management Company Inc.

Charles L. Palmer*
President and Chief Executive Officer
North American Company, LLLP

Evelyn D’An *
President
D’An Financial Services, Inc.

Rep. Baxter G. Troutman
Representative
District 66, Florida House of Representatives

Phillip S. Dingle*
Managing Partner
and a Founder
HealthEdge
Investment Partners, LLC

Gregory T. Mutz*
Lead Director
Alico, Inc.

Chairman of the Board and CEO
AMLI Residential Properties Trust

CEO
Florida Labor Solutions, Inc.

Prof. Gordon Walker *
Chairman
Department of Strategy
and Entrepreneurship
Southern Methodist University

* Independent Directors

Audit Committee
Gregory T. Mutz, Chairman
Evelyn D'An
Phillip S. Dingle
Gordon Walker

Compensation Committee
Charles L. Palmer, Chairman
Gregory T. Mutz
Gordon Walker

Nominating and Governance Committee
Gordon Walker, Chairman
Gregory T. Mutz
Charles L. Palmer

Strategic Planning Committee
Gordon Walker, Chairman
Gregory T. Mutz
Charles L. Palmer
Baxter G. Troutman

Officers

John R. Alexander, President and Chief Executive Officer

Patrick W. Murphy, Vice President and Chief Financial Officer

Steven M. Smith, Vice President, Citrus Division

B. Wade Grigsby, Vice President, Ranch Division

Dwight Rockers, Vice President, Sugarcane/Farming/Farm Leases

Robert P. Miley, Vice President, Heavy Equipment Division

Denise Plair, Corporate Secretary

– 7 –

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

Cautionary Statement
Some of the statements in this document include statements about future expectations. Statements that are not historical

facts are “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act and

Section 27A of the Securities Act. These forward-looking statements, which include references to one or more potential

transactions, and strategic alternatives under consideration, are predictive in nature or depend upon or refer to future events

or conditions, are subject to known, as well as, unknown risks and uncertainties that may cause actual results to differ

materially from our expectations. There can be no assurance that any future transactions will occur or be structured in the

manner suggested or that any such transaction will be completed. The Company undertakes no obligation to update publicly

any forward-looking statements, whether as a result of future events, new information or otherwise.

When used in this document, or in the documents incorporated by reference herein, the words anticipate, should, believe,

estimate, may, intend, expect, and other words of similar meaning, are likely to address the Company’s growth strategy,

financial results and/or product development programs. Actual results, performance or achievements could differ materially

from those contemplated, expressed or implied by the forward-looking statements contained herein. The considerations

listed herein represent certain important factors the Company believes could cause such results to differ. These consider-

ations 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.

The following discussion focuses on the results of operations and the financial condition of the Company. 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 $84.2 million at August 31, 2005, compared with $79.9 million at

August 31, 2004. Working capital was $111.2 million at August 31, 2005 and $115.8 million at August 31, 2004.

Management believes that the Company will be able to meet its working capital requirements for the foreseeable future with

internally generated funds.

Cash outlay for land, equipment, buildings, and other improvements totaled $12.9 million during fiscal year 2005,

compared to $7.3 million during fiscal year 2004 and $7.3 million during fiscal year 2003, respectively. Land preparation

for sugarcane and farming re-development and capital maintenance continued in fiscal year 2005, as did expenditures for

replacement equipment and raising breeding cattle. In September 2004, the Company, through Alico-Agri, purchased the

assets of LaBelle Plant World, Inc. a wholesale grower and shipper of commercial vegetable transplants to commercial

farmers. The purchase price was $4.9 million for the land, office building, greenhouses and associated equipment. An

additional $1.1 million was spent to refurbish the property in fiscal year 2005.

The Company, through Agri, supplied catastrophic business interruption coverage for Tri-County Grove, LLC, a subsidiary of

Atlantic Blue Trust, Inc., the holder of approximately 47.4% of the Company’s common stock. Total coverage under the

policy was $2.7 million. This represents the only underwriting exposure at August 31, 2005. Tri-County Grove, LLC

discovered citrus canker in their groves in 2005, requiring the total destruction of the majority of their citrus trees. Agri

accrued a loss reserve in fiscal year 2005 equal to the total potential exposure under the policy for this claim of $1.4 million.

– 8 –

The sale of a Lee County parcel closed in escrow during July 2005. The sales price was $62.9 million consisting of $6.2

million in cash at closing with the balance held as a 2.5% mortgage note receivable of $56.7 million payable in four equal

principal installments together with accrued interest annually for the next four years. Both the cash and mortgage note were

placed in escrow to allow for the possibility of like-kind exchanges. In October 2005, the Company exchanged a portion of

the escrowed funds for a $9.2 million parcel of property in Polk County, Florida. The Company has identified and entered

into agreements to acquire several other parcels as candidates for exchange, and should they close, the escrowed funds will

be used for like-kind exchanges. However, the agreements are subject to various contingencies, and there is no assurance

that they will close. To qualify for like-kind exchange treatment, the identified property acquisitions must occur on or before

January 2006.

Another sale in Lee County is expected to close in fiscal year 2007. This contract is for a gross sales price of $75.5 million,

consisting of $7.6 million in cash at closing with the balance payable over four years as a 2.5% mortgage note receivable

of $67.9 million. The Company is exploring its options under the contract, including the possibility of a like-kind exchange.

The agreement is subject to various contingencies and there is no assurance that it will close or that it will close within the

time period stated.

In March 2005, the Company entered into a contract to sell approximately 280 acres of citrus grove land located south of

Labelle, Florida in Hendry County for $5.6 million. The transaction is expected to close in fiscal year 2006. The Company

will retain operating rights to the grove until residential development begins.

Hurricane Wilma, a category three hurricane, swept through southwest Florida on October, 24, 2005, causing extensive

damage to the Company’s crops and infrastructure in Collier and Hendry Counties. Preliminary estimates indicate a loss of

approximately 28% of the Company’s citrus crop, 50% of the Company’s sugarcane crop, and 100% of the Company’s

vegetable crops. Approximately 83% of the Company’s greenhouses sustained varying levels of damage along with numer-

ous other buildings and structures used to support the Company’s agribusiness operations in Collier and Hendry Counties.

Due to the large amount of rainfall in the area, much of the Company’s property remained under water for weeks after the

storm, which may affect the Company’s cattle herd. Insurance proceeds are expected to cover a portion of the losses. The

losses related to hurricane Wilma will be recognized in the first quarter of fiscal year 2006. The Company is still working to

quantify the loss. Management expects continued profitability from the Company’s agricultural operations in fiscal 2006,

but at significantly reduced levels from fiscal year 2005 due to the hurricane.

Gross profits from citrus operations are expected to decrease in fiscal year 2006 when compared to fiscal year 2005. Due

to increased citrus canker discoveries, hurricane damage, and real estate development in Florida, the Florida citrus crop is

forecast to be much smaller than the previous five year average. The smaller crop should cause the price of citrus products

to increase. However, due primarily to the damages sustained during the hurricane, consisting of the crop loss described

above, citrus profits are expected to be significantly less than their fiscal year 2005 levels.

Management expects sugarcane operations to post a loss in fiscal year 2006, due to the damages experienced by Hurricane

Wilma. The Company’s cattle operations in fiscal year 2006 are expected to remain profitable but at lower levels than in

fiscal year 2005. To take advantage of favorable market conditions in fiscal year 2005, the Company elected to sell a portion

of its calves instead of delivering them to feedlots for later sales. This election caused beef cattle inventory to decrease at

August 31, 2005 compared to the prior year and will ultimately result in less units available for sale in fiscal year 2006

compared with fiscal year 2005.

Royalties from rock and sand products will decrease significantly if not cease altogether in fiscal year 2006. The Lee County

property on which the mining operations were located was sold in fiscal year 2005. The Company is currently exploring sites

suitable for rock and sand mining.

– 9 –

At its meeting on June 10, 2005 the Board of Directors authorized the payment of regular quarterly dividends beginning

with the end of the Company’s fourth quarter on August 31, 2005. The first such dividend in the amount of $0.25 was

paid to shareholders of record as of September 30, 2005 on October 15, 2005. Additionally, at its Board of Directors

meeting held on September 30, 2005, the Board declared a quarterly dividend of $0.25 per share payable to stockhold-

ers of record as of December 31, 2005, with payment expected on or about January 15, 2006.

In October 2003 the IRS began an examination of the Company tax returns for the fiscal years ended August 31, 2004,

2003, 2002, 2001 and 2000, and Agri tax returns for calendar years 2003, 2002, 2001 and 2000. Any assessments

resulting from the examinations will be currently due and payable. No assessments have been proposed to date. A revenue

agent issued a report in May 2004 that challenged Agri’s tax exempt status for the years examined; however, the report did

not quantify the adjustment or assessment proposed. Agri responded with a written report that disputes the facts, interpre-

tation of law, and conclusions cited in the Agent’s report. Upon receipt of Agri’s response in July 2004, the Agent has

proposed requesting a Technical Advice Memorandum (TAM) from the national office to assist in settling the differences.

Currently, discussions are ongoing between the agents and Agri as to the technical requirements and the appropriate scope

for the proposed TAM filing. The IRS has not proposed any adjustments to date for Alico. The Company cannot predict what

position the IRS will ultimately take with respect to this matter. The Revenue Agent’s report regarding Alico could be issued

within the current fiscal year.

At August 31, 2005 the Company had credit commitments that provided for revolving credit of up to $44.0 million, of

which $7.7 million was available for the Company’s general use (see Note 6 of Notes to consolidated financial statements).

In October 2005, Alico, Inc. entered into a Credit Facility with a commercial lender. The Credit Facility provides the

Company with a $175 million revolving line of credit until August 1, 2010 to be used for general corporate purposes

including: (i) the normal operating needs of the Company and its operating divisions, (ii) to refinance existing lines of credit

and (iii) to finance the Ginn Receivable (as defined in the Loan Agreement). The terms also allow an annual extension at the

lender’s option.

Under the Credit Facility, revolving borrowings require quarterly interest payments beginning January 1, 2006 at LIBOR

plus a variable rate between 0.8% and 1.5% depending on the Company’s debt ratio. Alico is required to reduce the line

of credit annually by approximately $14 million in August 2006, $31 million in August 2007 and $31 million in August

2008, leaving a remaining balance of $100 million from August 1, 2008 to the note’s maturity at August 1, 2010.

The line of credit is secured by a first mortgage on approximately 7,680 acres of agricultural property in Hendry County,

Florida and any subsequent real estate acquisitions by the Company obtained with advances under the Credit Facility.

Under the Credit Facility it is an event of default if the Company fails to make the payments required of it or otherwise to

fulfill the provisions and covenants applicable to it. In the event of default, the Loan shall bear an increased interest rate of

2% in addition to the then-current rate specified in the Note. Alternatively, in the event of default the lender may, at its

option, terminate its revolving credit commitment and require immediate payment of the entire unpaid principal amount of

the Loan, accrued interest and all other obligations immediately due and payable.

The Credit Facility also contains numerous restrictive covenants including those requiring the Company to maintain mini-

mum levels of net worth, retain certain Debt, Current and Fixed Charge Coverage Ratios, and set limitations on the extension

of loans or additional borrowings by the Company or any subsidiary.

A copy of the Credit Facility is included as Exhibits 10.01 and 10.02 to the Company’s Form 8-K dated October 11, 2005,

and such Exhibits are incorporated by references.

– 10 –

Results of Operations
Summary of results (in thousands)

Operating revenue

Gross profit

General and administrative expenses

Income from operations

Profit on sale of real estate

Interest and investment income

Interest expense

Other income

Provision for income taxes

Effective income tax rate

Net income

Operating Revenue
Operating revenues for fiscal year 2005

increased compared with fiscal year 2004. An

increase in revenues from agricultural activi-

ties (discussed separately below) was the most

significant factor causing the increase.

Operating revenues for fiscal year 2004

increased compared with fiscal year 2003.

Increases in revenues from rock and sand roy-

alties and from agricultural activities were the

most significant factors causing the increase.

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(

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

Years Ended August 31

2005

2004

2003

$55,525

$52,057

$48,285

12,985

10,664

2,321

5,465

4,443

2,295

(696)

3,148

13,138

11,022

6,471

6,667

6,319

4,703

20,311

14,994

2,519

1,825

128

9,987

1,201

2,081

267

6,425

34.1 %

35.9 %

33.7 %

$6,090

$17,813

$12,659

Operating Revenue

2005

2004
Years ended August 31

2003

Income (loss) from Operations
Income from operations was lower in fiscal year 2005 than fiscal year 2004 ($2.3 million in fiscal year 2005 as compared

with $6.7 million in fiscal year 2004). The decreased income was due to several factors, most notably an increase in general

and administrative costs related to the evaluation of a merger possibility ($1.5 million), costs incurred for compliance with

Sarbanes Oxley Section 404 ($0.7 million), consulting ($0.5 million), Director fees ($0.5 million) and continuing costs

related to the IRS audits ($0.5 million) contributed to the increase in general and administrative expenses.

Income from operations was higher in fiscal year 2004 than fiscal year 2003 ($6.7 million in fiscal year 2004 vs. $4.7

million in fiscal year 2003). The increase in income was primarily due to increased royalty income from rock and sand

products mined from the Company’s Lee County property. Mining activity increased due to continued development around

southwest Florida.

– 11 –

Income & Investment Income vs. Expense

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 earn-

ings were reinvested throughout fiscal years

2005, 2004 and 2003, increasing invest-

ment levels during each year.

)
s
d
n
a
s
u
o
h
t
n
i
(

$5,000

$4,000

$3,000

$2,000

$1,000

Interest &
Investment
Income

Interest
Expense

2005

2004
Years ended August 31

2003

Interest and investment income increased in fiscal year 2005 when compared with fiscal year 2004 ($4.4 million vs. $2.5

million in fiscal year 2005 and 2004, respectively). The increase was caused by an increase in investment level in fiscal

year 2005 when compared with fiscal year 2004 ($70.8 million at August 31, 2005 vs. $55.6 million at August 31,

2004), coupled with improved conditions in the financial markets and higher interest rates. The investment levels in-

creased due to the reinvestment of realized investment earnings, together with additional invested capital.

Interest and investment income increased in fiscal year 2004 when compared with fiscal year 2003 ($2.5 million vs. $1.2

million in fiscal year 2004 and 2003, respectively). The increase was caused by an increase in investment level in fiscal

year 2004 when compared with fiscal year 2003 ($55.6 million at August 31, 2004 vs. $38.8 million at August 31,

2003), coupled with improved conditions in the financial markets. The investment levels increased due to the reinvestment

of realized investment earnings, together with additional invested capital provided by proceeds from the sale of bulk excess

real estate in December of 2003.

Interest Expense
Interest expense increased during fiscal year 2005 when compared to fiscal year 2004 due to higher interest rates. The

majority of the Company’s borrowings are based on the London interbank offered rate (LIBOR). The LIBOR increased by

approximately 1% during the year to 3.69%.

Interest expense declined during fiscal year 2004 when compared to fiscal year 2003. The Company was able to pay down

principal on higher interest notes using its existing revolving credit facility, effectively lowering its overall interest rate.

– 12 –

Individual Operating Divisions
Gross profits for the individual operating divisions, for fiscal years 2005, 2004 and 2003, are presented in the following

schedule and are discussed in subsequent sections:

(in thousands)

Citrus
Revenue
Expense

Gross profit, citrus

Sugarcane and Sod
Revenue
Expense

Gross profit, sugarcane and sod

Ranch
Revenue
Expense

Gross profit, ranch

Plants and Trees
Revenue
Expense

Gross profit, plants and trees

Total gross profit, agriculture

Other Operations
Revenue

Rock products and sand
Land rentals
Other revenue

Total revenue, other operations

Costs and expenses

General and administrative, all operations
Other costs and expenses
Casualty loss

Total costs and expenses, other operations
Gross profit (loss), other operations

Interest and Dividends
Revenue
Expense

Interest and dividends, net

Real Estate
Sale of real estate
Expense

Gain on sale of real estate

2005

Years Ended August 31
2004

2003

26,231
19,984
6,247

9,725
9,304
421

11,017
8,908
2,109

2,818
2,128
690

9,467

2,991
1,933
–
4,924

10,664
696
1,888
13,248
(8,324)

4,443
2,295
2,148

16,226
10,279
5,947

24,549
20,407
4,142

12,398
9,673
2,725

9,678
8,178
1,500

407
–
407

8,774

3,448
1,171
128
4,767

6,471
_
408
6,879
(2,132)

2,519
1,825
694

33,481
13,017
20,464

24,107
20,106
4,001

13,373
10,188
3,185

7,175
6,790
385

292
–
292

7,863

2,154
973
267
3,394

6,319
_
–
6,319
(2,925)

1,201
2,081
(880)

16,990
1,964
15,026

Income before income taxes

9,238

27,800

19,084

– 13 –

Citrus Division Gross Profit

Citrus
Gross profit was $6.2 million in fiscal year

2005, $4.1 million in fiscal year 2004, and

$4.0 million for fiscal year 2003.

Revenue from citrus sales increased 7% dur-

ing fiscal year 2005 compared with fiscal year

2004 ($26.2 million in fiscal year 2005 vs.

$24.5 million in fiscal year 2004). Total field

boxes of citrus harvested decreased to 3.9

million in fiscal year 2005 from 4.6 million in

)
s
d
n
a
s
u
o
h
t
n
i
(

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

2005

2004
Years ended August 31

2003

fiscal year 2004. A series of three hurricanes struck Florida during August and September of 2004, which caused damage

to much of Florida’s citrus crop, including the Company’s crops grown in Polk County, Florida.

The crop damages created by the hurricanes caused a reduction in the supply of Florida citrus (150 million boxes in fiscal

year 2005 from 242 million boxes in fiscal year 2004), resulting in improved citrus prices ($6.56 average per box in fiscal

year 2005 vs. $5.36 average per box in fiscal year 2004). The improvement in revenue per box is the primary cause of the

profitability increase in the Citrus division.

Total citrus expenses declined during fiscal year 2005 ($20.0 million compared with $20.4 million in fiscal years 2005

and 2004, respectively). The decline in expense was primarily due to the decreased number of field boxes harvested in

fiscal year 2005 compared with fiscal year 2004 as discussed above.

Citrus canker was discovered in several of the Company’s groves in Hendry and Polk Counties during fiscal year 2005. Citrus

canker is a highly contagious bacterial disease of citrus that causes premature leaf and fruit drop. Citrus canker causes no

threat to humans, animals or plant life other than citrus. In an effort to eradicate the disease, Florida law requires infected

and exposed trees within 1900 feet of the canker find to be removed and destroyed. As a result of the canker discoveries,

approximately 940 acres of citrus trees were destroyed. In accordance with the Florida Canker Eradication Program, citrus

may not be replanted on the property until it has been determined that the property has been canker-free for two years.

Accordingly, the Company is evaluating the properties for their best future use.

Revenue from citrus sales increased 2% during fiscal year 2004, compared with fiscal year 2003 ($24.5 million during

fiscal year 2004 vs. $24.1 million during fiscal year 2003). Total field boxes of citrus harvested increased to 4.6 million in

fiscal year 2004 from 4.3 million in fiscal year 2003, due to favorable growing conditions. The greater harvest was the

primary cause of the increase in revenue.

Total citrus expenses increased during fiscal year 2004 ($20.4 million compared with $20.1 million in fiscal year 2004

and 2003, respectively). The increased expense was primarily due to the increased number of field boxes harvested in fiscal

year 2004 compared with fiscal year 2003.

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. Differences between the estimates and the final realization of revenues can be signifi-

cant, and the differences between estimated and final results can be either positive or negative. Revenues collected in

excess of prior year and year end estimates were $357 thousand, $728 thousand, and $198 thousand during fiscal years

2005, 2004 and 2003, respectively.

– 14 –

Sugarcane and Sod
Gross profit for fiscal year 2005 was $0.4

million, compared with $2.7 million in fiscal

year 2004 and $3.2 million in fiscal year

2003. The 2005, 2004, and 2003 fiscal year

crops yielded approximately 407,000,

465,000 and 523,000 standard tons, respec-

tively. The total number of tons that can be

harvested is limited by government imposed

quotas. Yields per acre were 40.71, 44.25,

and 45.51 for the 2005, 2004 and 2003

fiscal years, respectively.

Sugarcane and Sod Division Gross Profit

)
s
d
n
a
s
u
o
h
t
n
i
(

$4,000

$3,000

$2,000

$1,000

2005

2004
Years ended August 31

2003

Sales revenue from sugarcane and sod decreased to $9.7 million in fiscal year 2005 from $12.4 million in the prior fiscal

year. The decrease was primarily due to two factors, the reduced number of tons harvested due to quotas as outlined above,

and reduced prices ($22.91 per ton average in fiscal year 2005 compared with $25.02 per ton average in fiscal year

2004). The decrease in revenue was the primary reason for the gross profit decrease in fiscal year 2005 when compared

with fiscal year 2004.

Due to the decreased number of tons harvested, total expenses in fiscal year 2005 were below fiscal year 2004 total

expenses ($9.3 million compared with $9.7 million in fiscal year 2005 and 2004, respectively).

Sales revenue from sugarcane and sod decreased to $12.4 million in fiscal year 2004 from $13.4 million in fiscal year

2003. Due to normal crop rotation and replanting in fiscal year 2004, fewer acres were harvested (11,131 in fiscal year

2004 compared with 11,840 in fiscal year 2003). This was the primary cause of the decrease in sales revenue for fiscal

year 2004. The reduced acres harvested in fiscal year 2004 also resulted in lower total expenses than in the prior year ($9.7

million in fiscal year 2004 vs. $10.2 million in fiscal year 2003).

Ranch
The gross profit from ranch operations for fiscal

years 2005, 2004 and 2003 was $2.1 million,

$1.5 million, and $0.4 million, respectively.

Revenues from cattle sales increased by 14%

to $11.0 million in fiscal year 2005, com-

pared to $9.7 million in the previous fiscal

year. The increase in revenue was due to an

increase in the number of cattle sold (13,257

in fiscal year 2005 compared with 10,603 in

fiscal year 2004) coupled with increased

Ranch Division Gross Profit

)
s
d
n
a
s
u
o
h
t
n
i
(

$2,500

$2,000

$1,500

$1,000

$500

2005

2004
Years ended August 31

2003

prices for beef cattle ($0.90 per pound average in fiscal year 2005 compared with $0.82 per pound average in fiscal year

2004). Prices increased as a result of a decrease in the domestic beef supply. In order to take advantage of a favorable

marketing opportunity, the Company sold 3,480 calves in lieu of placing the calves into the feedlot. This resulted in the

Company selling more cattle in fiscal year 2005 than in the previous year. As a result of the increase in the number of cattle

sold in fiscal year 2005, total expenses likewise increased to $8.9 million in fiscal year 2005 from $8.2 million in fiscal

year 2004.

– 15 –

Revenues from cattle sales increased by 35% to $9.7 million in fiscal year 2004, compared to $7.2 million in the previous

fiscal year. The increase was due to an increase in the number of cattle sold (10,603 in fiscal year 2004 compared with

9,062 in fiscal year 2003), coupled with increased prices for beef cattle. More animals of the age and size required by meat

packers were available for sale in fiscal year 2004 than in fiscal year 2003 due to the timing of placements into western

feedlots. Prices increased as a result of a decrease in the domestic beef supply. As a result of the increase in the number

of cattle sold in fiscal year 2004, costs increased to $8.2 million in fiscal year 2004 from $6.8 million in fiscal year 2003.

The Company’s cattle marketing activities include retention of calves in western feedlots, contract and auction sales, and

risk management contracts.

Plants and Trees
In September 2004, in order to diversify Alico’s agricultural operations and leverage its existing relationships within the

farming community, the Company formed a subsidiary, Alico Plant World, LLC and purchased the assets of a wholesale

grower and shipper of vegetable transplants to commercial farmers. During fiscal year 2005, Plant World shipped approxi-

mately 69.9 million transplants to various farmers in several states. Plant World generated revenue of $2.6 million, incurred

costs and expenses of $2.1 million and recorded a net profit before taxes of $0.5 million.

Profits from the sale of sabal palms and other horticultural items utilized for landscaping purposes, during fiscal year 2005

were $0.2 million compared with $0.4 million and $0.3 million for fiscal years 2004 and 2003, respectively.

Other Operations
Returns from rock products and sand were $3.0 million for fiscal year 2005, $3.4 million for fiscal year 2004 and $2.2

million during fiscal year 2003. Royalties from rock and sand products will decrease significantly if not cease altogether in

fiscal year 2006. The Lee County property on which the mining operations were located was sold in fiscal year 2005. The

Company is currently exploring sites suitable for rock and sand mining.

Revenues from land rentals were $1.9 million in fiscal year 2005, as compared with $1.2 million in fiscal year 2004 and

$1.0 million for fiscal year 2003. During fiscal years 2005 and 2004, in response to increased prices and demand for

Southwest Florida real estate, the Company raised its rental rates for properties. The fiscal year 2004 improvement is

primarily due to an increase in the amount of land leased for farming.

Direct and allocated expenses charged to the “Other” operations category included general and administrative and other

costs not charged directly to the citrus, ranching or sugarcane divisions. These expenses totaled $10.7 million during fiscal

year 2005, compared with $6.5 million during fiscal year 2004 and $6.3 million during fiscal year 2003. The increase in

general and administrative costs largely related to the evaluation of a merger possibility ($1.5 million), costs incurred for

compliance with Sarbanes Oxley section 404 ($0.7 million), consulting ($0.5 million), Director fees ($0.5 million) and

continuing costs related to the IRS audits ($0.5 million).

Casualty Loss
A series of three hurricanes struck Florida during August and September of 2004, which caused damage to the Company’s

citrus crops grown in Polk County, Florida and the Company’s sugarcane crop grown in Hendry County, Florida. Additionally,

citrus canker was discovered in several of the Company’s groves in Hendry and Polk Counties during fiscal year 2005. As

a result of the canker discoveries, approximately 940 acres of citrus trees were destroyed. The resulting loss of $1.9 million,

consisting of inventoried costs and the basis of trees and crops destroyed net of insurance proceeds expected, was recorded

in fiscal year 2005.

– 16 –

Profit on Sale of Real Estate
Profit from retail land sales made through

Saddlebag were $482 thousand in fiscal year

2005, $153 thousand in fiscal year 2004 and

$32 thousand during fiscal year 2003. Profit

from bulk land sales were $5.5 million in fiscal

year 2005, $20.3 million in fiscal year 2004

and $15.0 million in fiscal year 2003.

As discussed below, a sales contract is in place

for all of the remaining Lee County property

with the closing expected within the next two

fiscal years. The total sales price of the

Gains from Real Estate Sales

)
s
d
n
a
s
u
o
h
t
n
i
(

$25,000

$20,000

$15,000

$10,000

$5,000

2005

2004
Years ended August 31

2003

contract is $75.5 million. The Board of Directors has not decided how these funds will be used if received.

General Corporate
The Company is continuing its marketing and permitting activities for its land that surrounds Florida Gulf Coast University

in Lee County, Florida. There is a sales contract in place for all this property, totaling $75.5 million. The agreement is

in the due diligence stage with the closing date expected within the next two fiscal years. The contract is subject to various

contingencies and there is no assurance that it will close or that it will close within the time period stated..

The Company formed Agri-Insurance Company, Ltd. (Agri) a wholly owned subsidiary, during July of 2000. The insurance

company was initially capitalized by transferring cash and approximately 3,000 acres of the Lee County property. Through

Agri, the Company has been able to underwrite previously uninsurable risk related to catastrophic crop and other losses.

The coverages currently underwritten by Agri will indemnify its insureds for the loss of the revenue stream resulting from

a catastrophic event.

Premiums for quoted coverages are set by independent actuaries/underwriters hired by Agri in Bermuda based on

underwriting considerations established by them. Premiums vary depending upon the size of the property, its age and

revenue-producing history as well as the proximity of the insured property to known disease-prone areas or other insured

hazards.

Agri underwrote a limited amount of coverage for Ben Hill Griffin, Inc. during fiscal years 2001 – 2004. Since August

2002, Agri has insured the Alico, Inc. citrus groves. Due to Agri’s limited operating history, it would be difficult to speculate

about the impact that Agri could have on the Company’s financial position, results of operations and liquidity in future

periods.

In 2004, Agri wrote an insurance policy for Tri-County Grove, LLC, a subsidiary of Atlantic Blue Trust, Inc., the holder

of approximately 47.4% of the Company’s common stock. The coverage term was from August 2004 to July 2005. Total

coverage under the policy was $2.7 million and the premium charged was $45 thousand. Tri-County Grove, LLC

discovered citrus canker in their groves in 2005, requiring the total destruction of the majority of their citrus trees. Agri

accrued a loss reserve in fiscal year 2005, equal to the total potential exposure under the policy for this claim of $1.4

million.

During the third quarter of fiscal year 2003, the Company entered into a limited partnership with Agri to manage Agri’s

real estate holdings. Agri transferred all of the Lee County property and associated sales contracts to the limited

partnership, Alico-Agri, Ltd. (Alico-Agri), in return for a 99% partnership interest. Alico, Inc. transferred $1.2 million cash

– 17 –

for a 1% interest. The creation of the partnership allows Agri to concentrate solely on insurance matters while utilizing

Alico’s knowledge of real estate management.

The sale of a Lee County parcel closed in escrow during July 2005. The sales price was $62.9 million consisting of $6.2

million in cash at closing with the balance held as a 2.5% mortgage note receivable of $56.7 million payable in four equal

principal installments together with accrued interest annually for the next four years. Both the cash and mortgage note were

placed in escrow to allow for the possibility of like-kind exchanges. In October 2005, the Company exchanged a portion of

the escrowed funds for a $9.2 million parcel of property in Polk County, Florida. The Company has identified and entered

into agreements to acquire several other parcels as candidates for exchange, and should they close, the escrowed funds will

be used exclusively for like-kind exchanges. However, the agreements are subject to various contingencies, and there is no

assurance that they will close. To qualify for like-kind exchange treatment, the identified property acquisitions must occur

on or before January 2006.

In March 2005, the Company entered into a contract to sell approximately 280 acres of citrus grove land located south of

Labelle, Florida in Hendry County for $5.6 million. The transaction is expected to close in fiscal year 2006. The Company

will retain operating rights to the grove until development begins.

During the second quarter of fiscal year 2004, the Company, through Alico-Agri, completed the sale of 244 acres in Lee

County, Florida. The sales price was $30.9 million and resulted in a gain of $19.7 million. The sale generated $20.9 million

cash with the remaining $10.0 million held in the form of a mortgage note receivable, which was collected in December

2004.

During the fourth quarter of fiscal year 2003, the Company sold 358 acres in Hendry County, Florida for $669 thousand.

The sale generated a gain of $335 thousand. Additionally, the Company sold 266 acres in Polk County, Florida to the State

of Florida for $617 thousand, generating a gain of $612 thousand.

In the fourth quarter of fiscal year 2003, the Company, through Alico-Agri, completed the sale of 313 acres in Lee County,

Florida. The sales price was $9.7 million and resulted in a gain of $8.7 million. Additionally, Alico-Agri completed the sale

of 40 acres in Lee County, Florida. The sales price of the property was $5.5 million and generated a gain of $4.7 million.

John R. Alexander, Robert E. Lee Caswell, Evelyn D’An, Phillip S. Dingle, Gregory T. Mutz, Charles Palmer, Baxter G.

Troutman, and Dr. Gordon Walker were elected by the stockholders to serve as directors of the Corporation at its annual

stockholders meeting held June 10, 2005. Additionally, the stockholders approved the Alico, Inc. Director Stock Compen-

sation Plan.

At the annual meeting of the Board of Directors following the Stockholders meeting, the Board re-elected Mr. Alexander as

Chairman, President and Chief Executive Officer and Mr. Gregory T. Mutz as Lead Director. Mr. Alexander had been

appointed by the Board to serve as Acting Chief Executive Officer beginning March 1, 2005, following the retirement of W.

Bernard Lester on February 28, 2005. Mr. Alexander previously held the office of Chief Executive Officer of the Company

between February and June of 2004 when he voluntarily relinquished that position and nominated Mr. Lester to replace

him. The Board also re-elected Patrick W. Murphy as Chief Financial Officer. Mr. Murphy has served as Chief Financial

Officer since April 15, 2005, following the resignation of L. Craig Simmons.

On February 1, 2005, directors Richard C. Ackert, William L. Barton, Larry A. Carter, Stephen M. Mulready and Thomas E.

Oakley (the “Independent Directors”) resigned as directors of the board of Alico and stated that they would not run for re-

election at the Company’s next annual meeting of stockholders. The resignations caused the Company to be out of

compliance with the independent director, compensation committee, nomination committee and audit committee require-

ments for continued listing on The Nasdaq Stock Market under Marketplace Rules 4350(c)(1), 4350(c)(3), 4350(c)(4)(A)

– 18 –

and 4350(d)(2), respectively, and was so notified by the Nasdaq Listing Qualifications Department in writing.

The Company responded with a written plan for compliance and began to solicit and consider qualified Director Nominees.

On February 24, 2005, Gregory T. Mutz and Robert E. Lee Caswell were elected to the Company’s Board of Directors.

On April 1, 2005, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market

indicating that unless appealed and their determination reversed, Alico’s securities would be delisted from the Nasdaq

Stock Market. On April 7, 2005, the Company filed a notice of appeal and requested a hearing before a Nasdaq Listing

Qualifications Panel to review the Staff’s determination. On April 4, 2005, the Company’s Directors elected Dr. Gordon

Walker to the Board of Directors of Alico as an Independent Director. Also on April 4, 2005, the Company accepted the

resignation of Mr. J. D. Alexander as a director of the Company.

On April 6, 2005, the Company’s Directors elected Messrs. Charles Palmer and Phillip S. Dingle to the Board of Directors.

On April 25, 2005, the Company announced the election of Evelyn D’An to its Board of Directors. Mr. Mutz, Dr. Walker, Mr.

Palmer, Mr. Dingle and Ms. D’An have been determined to be Independent Directors.

As a result of the election of these new Independent Directors, the Company was able to reconstitute its Audit Committee

and its various other committees requiring the participation of Independent Directors. As a result of such compliance, the

Nasdaq Listing Qualifications Panel determined that the delisting notice was moot. The Company’s stock was never

delisted, and the Company is now in compliance with all applicable marketplace rules.

The Company has issued press releases and filed periodic reports on Form 8-K relating to the foregoing events.

In August 2004 Atlantic Blue Trust, Inc., the Company’s largest stockholder, requested that the Company consider a

restructuring of the Company. On January 31, 2005, Atlantic Blue Trust, Inc. withdrew its request.

The Company received an unsolicited letter from National Land Partners, LLC expressing the desire to discuss a potential

acquisition of Alico by National Land. The Company’s Board of Directors referred the National Land letter to a Special

Committee. On December 16, 2004, the special committee along with representatives of Atlantic Blue Trust met with

representatives of National Land Partners, LLC. At the conclusion of that meeting, such representatives of Atlantic Blue

Trust and its stockholders advised National Land Partners and the Special Committee that neither Atlantic Blue Trust nor

any of the holders of Atlantic Blue Trust’s stock would be interested in selling the Alico shares held by Atlantic Blue Trust

or supporting a sale transaction at the price offered by National Land Partners or even at a substantially higher price.

National Land Partners acknowledged that it will not proceed with a transaction to acquire Alico without the support of

Atlantic Blue Trust and its stockholders.

Recent events
Hurricane Wilma, a category three hurricane, swept through southwest Florida in October, 2005, causing extensive damage

to the Company’s crops and infrastructure in Collier and Hendry Counties. Preliminary estimates indicate a loss of approxi-

mately 28% of the Company’s total citrus crop, 50% of the Company’s sugarcane crop, and 100% of the Company’s

vegetable crops. Approximately 83% of the Company’s greenhouses sustained varying levels of damage along with numer-

ous other buildings and structures used to support the Company’s various agribusiness operations in Collier and Hendry

Counties. Due to the large amount of rainfall in the area, much of the Company’s property remained under water for weeks

after the storm, which may affect the Company’s cattle herd. Insurance proceeds are expected to cover a portion of the

losses. The loss related to hurricane Wilma will be recognized in the first quarter of fiscal year 2006. The Company is still

working to quantify the loss.

– 19 –