Alico, Inc. Annual Report 2006

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FY2006 Annual Report · Alico, Inc.

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4 7 T H A N N UA L R E P O RT F O R T H E Y E A R E N D E D AU G U S T 3 1 , 2 0 0 6

Financial Information at a Glance
for Fiscal Years Ended August 31

Operating Revenues
(in thousands)

Earnings per Share

2002 2003 2004 2005 2006

Dividends Declared

$3.00

$2.50

$2.00

$1.50

$1.00

$0.50

$0.00

2002 2003 2004 2005 2006

Ratio Analysis

2002 2003 2004 2005 2006

Current Ratio
Debt/Equity Ratio

2002
6.94
70%

2003
8.91
72%

2004
12.42
64%

2005
7.24
72%

2006
6.14
86%

$90,000

$80,000

$70,000

$60,000

$50,000

$40,000

$30,000

$20,000

$10,000

$1.40

$1.20

$1.00

$0.80

$0.60

$0.40

$0.20

$0.00

Letter to Shareholders

To Our Shareholders:

December 19, 2006

The Company, under the leadership of a dedicated Board of Directors and experienced management team,
has developed a strategic plan that establishes the mission of the Company. This new mission identifies Alico
as a “land management company” rather than an “agribusiness company”. This is a very significant change
for the Company and one which is recognizing the importance of real estate and land development as a sig-
nificant part of the Company’s long term growth strategy. The strategic re-alignment of the Company’s mis-
sion positions Alico to take advantage of future development opportunities expected to have a positive impact
on Company land.

In July 2006 Alico began to implement this new direction by hiring an experienced real estate developer to
head a Real Estate Department. Mike Rosen, with over 20 years experience in residential and commercial
development in southwest Florida, was selected to lead the Company’s real estate efforts.

The designation of Alico as a land management company will not diminish the importance of its agriculture
production and other land-based enterprises. In fact, the Company is focused on finding new, higher-yielding
uses for its land. Vegetables, mining, land leasing and higher-value crops are a part of the Company’s plan
for expanding revenues and gross profits from agriculture and non-agriculture operations.

In reviewing the on-going agriculture businesses of the Company, several major events/dynamics impacted
the Company’s earnings in 2006, including Hurricane Wilma, continued disease problems affecting citrus,
rising fuel and fertilizer costs, and reduced labor availability due to the demand for hurricane clean up and
construction labor in southwest Florida. In spite of these challenges, favorable prices for some farm and
ranch products including citrus and vegetables, along with the increased production of other products and the
receipt of insurance proceeds, helped the Company achieve an increased level of profitability compared with
the previous year.

The pre-tax income from agricultural operations was down only slightly in fiscal year 2006 from fiscal year
2005 which had produced the highest pre-tax income since 1998. Alico’s net income was $6.4 million or
$.88 per share for fiscal year 2006 compared with $6.1 million or $.83 per share in fiscal year 2005.

In 2006, Alico acquired Bowen Bros. Fruit, LLC, a citrus marketing and harvesting company. Bowen Bros.
Fruit will harvest and market Alico fruit as well as fruit for other growers. Additionally, management is execut-
ing a plan to systematically reduce Alico’s cattle herd with land being freed up for other uses that will produce
higher returns per acre.

The events of 2006 demonstrated Alico to be resilient, capable of dealing with adversity and managing
change. We are committed to growing our earnings and asset values through our agriculture, non-agricul-
ture and real estate activities to produce a superior long term return for our shareholders. Thank you for your
interest in and support of Alico.

Sincerely,

John R. Alexander
Chairman and CEO

Dan L. Gunter, PhD
President and COO

Citrus

Florida is the leading citrus producer in the United States and orange juice is the official
beverage of the State of Florida. Central and South Florida, with its warm climate and annual
rainfall, are ideal locations to grow citrus.

Alico began developing citrus groves in the early 1950's and through acquisi-

as the freezes in the eighties and the major hurricanes in the last few years.

tions and development is now the tenth largest producer of citrus in the State

The division has grown from producing approximately one million ninety-

of Florida. The Citrus Division currently has 10,500 acres in production and

pound boxes in the 1970s to averaging over four million boxes during the last

employs over seventy full-time employees. The groves are located in Collier

five years. The majority of Alico's citrus fruit is grown for the juice market with

and Hendry counties and Polk county, which make Alico somewhat unique by

the exception of approximately eight percent of the fruit which is packed for the

having substantial citrus grove holdings in two different growing regions of the

fresh market. The citrus division grows nine different varieties of citrus with

state. The strategic layout of the division's groves has contributed to the cit-

Hamlin (early maturing) and Valencia (late maturing) making up about eighty

rus division traditionally being the largest operating revenue division for Alico

percent of the acres. Alico also grows Red Grapefruit, Honey Tangerines, and

even through the catastrophic events that mother-nature has presented, such

Navel Oranges, which are primarily marketed as fresh fruit.

Bowen Brothers Fruit, LLC

Bowen Brothers Fruit LLC is a major handler
of citrus fruit in the state of Florida. The Alico
subsidiary purchases millions of ninety pound
boxes of citrus per year from Florida growers
and sells the fruit to citrus processors such as
Tropicana, Minute Maid, Southern Gardens
and Cargill, just to name a few.

Bowen Brothers is also heavily involved in the harvesting and transporta-

tion of citrus to the processing plants. Bowen Brothers employs 12 full-

time people year round but utilizes several hundred contract workers dur-

ing the 9 month citrus harvest season.

Bowen Brothers provides the infrastructure required to harvest and trans-

port the millions of boxes of citrus that Alico, Inc grows each year and the

marketing expertise to obtain the highest fruit prices available.

Real Estate

During 2006, the Board of Directors of the Company conducted strategic planning which
resulted in the decision to create a Real Estate Department in order to more fully develop
the Company’s land management capabilities.

The mission of the newly formed Real Estate Department is to develop

To address these goals, land inventories and local markets are being

plans to unlock the value of the Company’s land assets in accordance

analyzed to identify the highest and best value uses for the Company’s

with the Company’s long term strategic goals. This new department is

lands.The next step will be to entitle properties identified for development.

headed by an experienced Real Estate Planner and Development

The Alico Real Estate Department is a key component in the Company’s goal

Professional.

of to becoming a leading land management company.

Cattle

Alico Ranch was started in 1951. The Ranch is spread over more than 70,000 acres of
improved, semi-improved and native pastures. The ranch carries more than 13,000 head of
beef cows that produce over 9,000 calves each year.

Alico retains a portion of the heifer calves each year as needed for beef cow

The ranch is operated with 14 full time employees. Along with cattle oper-

replacements. The remaining calves are sent to feedyards in the

ations, the ranch has a Bahia sod harvesting operation. Sabal palms, oak

midwestern U.S. to be grown out. Alico calves are well known for having

trees and pine timber are also sold from the ranch property. Ranch lands are

high yielding, high quality carcasses.

also leased for recreational purposes such as hunting, camping and fishing.

Sugarcane

Alico has produced sugarcane on 12,000 acres since 1989. Nine varieties are grown for various
agronomic traits such as sucrose concentration, cold tolerance, soil type adaptability, disease and
insect resistance, and favorable growth characteristics.

Planting of cane normally occurs in August

through December of each year. Once cane is

planted, it can be harvested three times over

four years, leaving one year for fallow opera-

tions. Fallow land is commonly leased to

watermelon and peanut growers. The sugar-

cane harvest period is from October through

April of each year. Alico is producing sugar-

cane on 12,000 acres with 10 full time

employees.

Sod

The Company is currently producing 500 acres of St. Augustine sod, a warm season turfgrass
for home lawns.

The sod is utilized mainly for commercial and res-

idential uses in South Florida. An additional 500

acres of St. Augustine is currently in the develop-

ment stage. Harvesting is a 52 weeks a year

endeavor and is sub-contracted to TurfGrass

America, one of the largest sod marketing compa-

nies in the United States. The Sod Operation also

handles sales of bahiagrass which is a pasture

grass produced on the ranch. The Company plans

to harvest approximately 2,000 acres of bahia-

grass per year from the Ranch The Sod Division

has 4 full time employees.

Alico Plant World, LLC

In September of 2004, Alico Plant World, LLC, (APW) a wholly owned subsidiary of Alico, Inc.,
purchased the operations and certain assets of LaBelle Plant World, founded in 1972.

Alico Plant World is dedicated to producing high quality vegetable trans-

throughout the U.S. The addition of the ornamental product line to APW's

plants for farmers. Located in the ideal growing environ-

ment of Southwest Florida, Alico Plant World produces a

variety of transplants such as tomatoes, peppers, water-

melons and other vegetables.

This subsidiary's 51 greenhouses grow an average of 75

million vegetable transplants annually which are deliv-

ered to 12 different states. The client base includes many

of the large agribusinesses that operate nationwide.

vegetable business should result in higher profitability.

APW handles all aspects of these operations from growing to

delivery. The most modern techniques, from steaming every

tray before seeding to using vacuum drum seeders to insure

singular seed placement in every cell of the growing tray, are

utilized. These procedures insure that no unsanitary trays

will return to production. Plants are delivered in the trays,

shipped in tray boxes or pulled and packed into special boxes

depending on the customer’s needs.

Exciting new higher-margin plants for APW are ornamentals and native

plants. Relationships with seasoned marketing groups have been established

The goal of APW is to provide a quality product with excellent customer serv-

to move orchids and other ornamentals into many of the larger chain stores

ice that will meet each customer's needs.

Alico's most recent diversification in agricultural
production is known as the Vegetable Operation.

The Vegetable industry in South Florida is well established and South

Florida is known as the Winter Vegetable Center for the United States.

The mild South Florida winters, the readily available vegetable market

infrastructure and Alico's abundant land in this area make vegetable pro-

duction a natural opportunity for Alico. In its second year of farming, Alico

is poised to produce 1,000 acres of green beans and 1,000 acres of sweet

corn for the winter vegetable market. The production season is continu-

ous from September through April of each year with almost weekly plant-

ings and weekly harvesting to accommodate the needs of the fresh veg-

etable market and consumers. The Vegetable Operation has 7 fulltime

employees and uses contract harvesters.

Vegetables

Mining

In response to expected continued growth in southwest Florida, the Company is in the process
of expanding its mining operations.

In May 2006, the Company purchased an existing 523 acre riverfront mine site in

ated for mine sites. Mining is a non-agricultural land use that provides the Company

Glade County for rock and fill. Additionally, the Company is currently seeking a permit

diversity in its operations as well as a steady stream of revenue. In many instances,

for a rock mine on its Hendry County property. Other properties are also being evalu-

after properties are mined, they are well suited for lakefront residential developments.

Heavy Equipment

The Company utilizes a variety of heavy equipment in its agricultural and non-agricultural operations.
For internal evaluations, the Company treats the Heavy Equipment Division as a separate enterprise.

Annual cost savings to the Company have averaged over $500,000 per year

various operations of the Company, it also allows the Company to more pre-

when compared with the market rates charged by independent third parties

cisely direct the timing and availability of the services, as well as allowing the

for similar equipment and services. By sharing the equipment among the

various divisions’ access to equipment in small intervals as needed.

Board of Directors

John R. Alexander
Chairman and Chief Executive Officer
Alico, Inc.

Robert E. Lee Caswell
Operations Manager
PC Management Company, Inc.

Phillip S. Dingle*
Managing Partner and Founder
Health Edge Investment Partners, LLC

Baxter G. Troutman
Representative District 66
Florida House of Representatives

Chief Executive Officer
Florida Labor Solutions, Inc.

Gregory T. Mutz*
Lead Director
Alico, Inc.

Chairman of the Board
AMLI Residential Properties Trust

Robert J. Viguet, Jr.
Partner
Thompson & Knight LLP

*Independent Directors

Evelyn D’An*
Audit Committee Financial Expert
Alico, Inc.

CPA and President
D’An Financial Services

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

Gordon Walker PhD.*
Chairman, Department of Strategy
& Entrepreneurship
Southern Methodist University

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

Strategy Committee
Dr. Gordon Walker, Chairman
Phillip S. Dingle
Gregory T. Mutz
Charles L. Palmer
Baxter G. Troutman

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

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

Officers

John R. Alexander, Chairman of the Board and Chief Executive Officer
Dan L. Gunter, President and Chief Operating Officer
Patrick W. Murphy, Senior Vice President and Chief Financial Officer
Steven M. Smith, Senior Vice President, Agricultural Operations
Robert M. Bogart, Senior Vice President, Non-Agricultural Operations
Michael D. Rosen, Senior Vice President, Real Estate
Michael R. Talaga, Senior Vice President, Human Resources and Information Technology
A. Denise Plair, Corporate Secretary

ALICO, INC
A Land Management Company

10-K Report
For Year Ended August 31, 2006

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended August 31, 2006

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from

Commission file number 0-261

ALICO, INC.
(Exact name of registrant as specified in its charter)

Florida
(State or other jurisdiction of incorporation
or organization) identification number

IRS Employer

59-0906081

P.O. Box 338, La Belle, Florida 33975
(Address of principal executive offices) Zip code

Registrant’s telephone number including
area code

(863) 675-2966

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Name of each exchange
Title of class:
COMMON CAPITAL STOCK, $1.00 Par value, Non-cumulative

on which registered:

NASDAQ

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as define in Rule 405 of the
Securities Act.

Yes

No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act.

Yes

No X

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 filings requirements for the
past 90 days.

Yes

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange
Act)

Yes

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 or 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.

Yes

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

Large accelerated filer

Accelerated filer X Non-accelerated filer

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

Yes

The aggregate market value of the voting and nonvoting common equity held by non-affiliates based on the
average bid and asked price, as quoted on the NASDAQ as of February 28, 2006 (the last business day of
Alico’s most recently completed second fiscal quarter) was $165,357,190. There were 7,368,612 shares of
stock outstanding at October 31, 2006.

Documents Incorporated by Reference:

Portions of the Proxy Statement of Registrant to be dated on or before December 31, 2006 are incorporated by
reference in Part III of this report.

INDEX

ALICO, INC.
FORM 10-K
For the year ended August 31, 2006

Part I

•
•
•
•
•
•

Item 1, business.
Item 1A, risk factors.
Item 1B, unresolved staff comments.
Item 2, properties.
Item 3, legal proceedings.
Item 4, submission of matters to a vote of security holders.

Part II

•

•
•
•
•
•
•
•

Item 5, market for registrant’s common equity, related stockholder matters and issuer purchases of
equity securities.
Item 6, selected financial data.
Item 7, management’s discussion and analysis of financial condition and results of operations.
Item 7A, quantitative and qualitative disclosure about market risk.
Item 8, financial statements and supplementary data.
Item 9, changes in and disagreements with accountants on accounting and financial disclosure.
Item 9A, control and procedures.
Item 9B, other information.

Part III

•
•
•

•
•

Item 10, directors and executive officers of the registrant.
Item 11, executive compensation.
Item 12, security ownership of certain beneficial owners and management and related stockholder
matters.
Item 13, certain relationships and related transactions.
Item 14, principal accountants’ fees and services.

Part IV

Item 15, exhibits and financial statement schedules.

•
• Signatures.

Item 1. Business.

PART I

Alico, Inc. (the "Company"), which was formed February 29, 1960 as a spin-off of the Atlantic Coast Line
Railroad Company, is a land management company operating in Central and Southwest Florida. The
Company's primary asset is 136,605 acres of land located in Collier, Glades, Hendry, Lee and Polk Counties.
(See Item 2 for location and acreage by current primary use.) The Company is involved in a variety of
agribusiness pursuits in addition to land leasing and rentals, rock and sand mining and real estate sales
activities.

The Company's land is managed for multiple uses wherever possible. For example, cattle ranching, forestry
and land leased for farming, grazing, recreation and oil exploration utilize the same acreage in some instances.

The charts below outline the relative contribution of each operation to the operating revenue, profit and total
assets of the Company during the past three years (all revenues are from external customers within the United
States):

Fiscal years ended August 31,
2005

2004

2006

Revenues

Agriculture:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Native trees and shrubs

Agriculture operations revenue
Real estate activities
Land leasing and rentals
Mining royalties

30,869
22,188
8,926
5,700
3,270
2,389
1,528
142
75,012
113
1,369
940

$
-
26,231
9,323
11,017
2,587
-
402
231
49,791
810
1,933
2,991

$
-
24,549
11,646
9,678
-
-
752
407
47,032
406
1,171
3,448

Total operating revenue

77,434

55,525

52,057

Gross profit (loss):

Agriculture:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Native trees and shrubs

Gross profit from agricultural operations
Real estate activities
Land leasing and rentals
Mining royalties

Net casualty loss (recovery)

Subtotal

Profits from the sale of bulk real estate
Net interest and investment income (expense)
Corporate general and administrative and other

Income before income taxes
Provision for income taxes

Net income

Total Assets:
Agriculture:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod

Subtotal Agriculture
Mining

Other Corporate assets

Total assets

2006

2005

2004

(268)
7,614
360
786
(1,103)
985
688
142
9,204
52
917
940
3,628

14,741
4,369
4,987
(11,413)

12,684
6,215

$
-
6,247
499
2,109
459
-
(78)
231
9,467
482
1,294
2,991
(1,888)

12,346
5,465
2,148
(10,721)

9,238
3,148

$
-
4,142
2,595
1,500
-
-
130
407
8,774
153
784
3,448
(408)

12,751
20,311
694
(5,956)

27,800
9,987

6,469

6,090

17,813

3,096
59,464
47,894
23,919
6,515
1,981
4,191
147,060
10,568
105,125

$
-
49,670
49,863
20,383
7,373
-
1,743
129,032
1,017
117,645

262,753

247,694

The Company is not in the retail land sales and development business, except through its wholly owned
subsidiary, Saddlebag Lake Resorts, Inc. However, the Company has from time to time sold properties which,
in the judgment of Management and the Board of Directors, were surplus to the Company's primary
operations. Additionally, the Company’s wholly owned subsidiary, Alico-Agri, Ltd., has also engaged in bulk
land sales. The Company recently hired a Vice President of Real Estate to work with senior management and
the Board of Directors to enhance the planning and strategic positioning of all Company owned land. This
position will also oversee the entitlement of the Company's land assets in order to preserve rights should the
Company choose to develop property in the future.

Subsidiary Operations

The Company has five wholly owned subsidiaries: Agri-Insurance Company, Ltd. ("Agri"), Alico-Agri, Ltd.
(“Alico-Agri”), Alico Plant World, LLC (“Plant World”), Bowen Brothers Fruit LLC (“Bowen”), and
Saddlebag Lake Resorts, Inc. (“Saddlebag”).

Agri

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.

Agri hires independent actuaries and underwriters to set premiums for indemnities quoted and to establish
underwriting considerations. Premiums vary depending upon the size of the property, its age and revenue-
producing history, and the proximity of the insured property to known disease-prone areas or other insured
hazards.

Agri provided coverage for Tri-County Groves, LLC, a subsidiary of Atlantic Blue Trust, Inc., the holder of
approximately 47.4% of the Company’s common stock at the time the coverage was issued, in fiscal year
2004. The coverage term was from August 2004 to July 2005. Total coverage under the policy was $2.7
million, and the premium collected was $45 thousand during the coverage term.

Additionally, Agri directly underwrote catastrophic business interruption coverage for its parent company,
Alico, Inc., insuring all but two of Alico’s citrus groves during fiscal years 2005 and 2004. The total coverage
under the policy was $34.0 million and $28.5 million for fiscal years 2005 and 2004, respectively. Premiums
charged for the policy were $1.5 million and $1.1 million during fiscal years 2005 and 2004, respectively.
Alico’s remaining two groves were insured by Agri during calendar years 2004. The coverage provided under
this policy was $3.7 million and the premium charged was $98 thousand during calendar year 2004.

Alico-Agri

Alico-Agri, Ltd. was formed during fiscal year 2003 to manage the real estate holdings of Agri. The
partnership allows Alico to provide management and administrative services so that Agri can focus on
insurance issues. Agri transferred all of its property holdings and the related contracts to Alico-Agri for a 99%
partnership interest. Alico, the managing partner, transferred cash for a 1% interest in the partnership.

Plant World

In September 2004, the Company, through Alico-Agri, purchased the assets of La Belle Plant World, Inc. a
wholesale grower and shipper of vegetable transplants to commercial farmers. The purchase price was $4.9
million for the land, office building, greenhouses and associated equipment. Alico Plant World, LLC was set
up as a wholly owned subsidiary of Alico-Agri, Ltd. The assets of Plant World were purchased for the
purpose of diversifying Alico’s agricultural operations and to leverage Alico’s existing relationships with the
farming community.

Bowen

Alico, through its newly formed subsidiary Bowen Brothers Fruit, LLC (Bowen), purchased the assets of
Bowen Brothers Fruit Co., Inc. for $1.9 million in February 2006. The purchase was made to provide Alico
with additional marketing expertise and the ability to harvest its own fruit crop.

Saddlebag

Saddlebag has been active in the subdividing, development and sale of real estate since its inception in 1971.
Saddlebag has two subdivisions near Frostproof, Florida that have been developed. Both subdivisions are sold
out. The Company recently hired a Vice President of Real Estate, who also serves as President of Saddlebag,
to work with senior management and the Board of Directors to enhance the planning and strategic positioning
of all Company owned land. He will also oversee the entitlement of the Company's land assets in order to
preserve rights should the Company choose to develop property in the future.

The financial results of the operation of these subsidiaries are consolidated with those of the Company.
Intercompany activities and balances are eliminated in consolidation. (See Note 1 of the Notes to the
Consolidated Financial Statements.)

Segments

The Company engages in a variety of agricultural pursuits as well as other land management activities. For
further information concerning segments please refer to Note 11 to the consolidated financial statements.

Agricultural Operations

Bowen Brothers

Bowen’s operations include harvesting, hauling and marketing citrus for both Alico and other outside
growers. Bowen’s operations also include the purchase and resale of citrus fruit. Bowen Brothers was
purchased in February 2006 to provide Alico with additional marketing expertise and the ability to harvest its
own fruit crop. During fiscal year 2006 Bowen harvested approximately 900 thousand boxes of Alico’s fruit
and 2.7 million boxes of fruit from third parties.

Citrus Groves

Alico’s Citrus Grove operations consist of cultivating citrus trees in order to produce citrus for delivery to the
fresh and processed citrus markets. Approximately 10,208 acres of citrus were grown and harvested during
the 2005-06 season. Since 1983 the Company has maintained a marketing contract covering the majority of
the Company's citrus crop with Ben Hill Griffin, Inc. (Griffin), a Florida corporation. Griffin was the
Company’s largest shareholder until February 2004 (See footnote 10 to consolidated financial statements).
The agreement provides for modifications to meet changing market conditions and provides that either party
may terminate the contract by furnishing advance written notice prior to the first day of August before each
fruit season. Notice was served in a timely fashion in fiscal year 2005, and accordingly the fruit marketed
under the terms of this contract is expected to decrease over the next two years. 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, less costs and a profit margin, are distributed on a pro rata basis
as the finished product is sold. In February 2004, Ben Hill Griffin, Inc. transferred all of its stock holdings in
the Company to Atlantic Blue Trust, Inc., pursuant to the "Settlement Agreement" agreed upon regarding a
dispute over a family trust.

During the year ended August 31, 2006, approximately 78% of the Company's fruit crop was marketed under
this agreement, as compared to 76% for the year ended August 31, 2005 and 75% for the year ended August
31, 2004.

Sugarcane

Alico’s sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. The crop is
harvested by a co-op, proportionately owned by sugarcane growers, including Alico. The Company had
10,138 acres, 10,580 acres, and 11,131 acres of sugarcane in production during fiscal years 2006, 2005, and
2004, respectively. The 2006, 2005, and 2004 fiscal year crops yielded approximately 272,000, 319,000 and
346,000 gross tons, respectively. An additional 3,416 acres of planted cane was not yet mature for harvest
during fiscal year 2006. Since the inception of its sugarcane program in 1988, the Company has sold 100% of
its product through a pooling agreement with United States Sugar Corporation, a local Florida sugar mill.
Under the terms of the pooling agreement, the Company’s sugarcane is processed and sold along with
sugarcane from other growers. The proceeds, less costs and a profit margin, are distributed on a pro rata basis
as the finished product is sold.

Cattle

The Company’s cattle operation, located in Hendry and Collier Counties, Florida, is engaged primarily in the
production of beef cattle and the raising of replacement heifers. The breeding herd consists of approximately
13,500 cows, bulls and replacement heifers. Approximately 56% of the herd is from one to five years old,
while the remaining 44% are at least six years old. The Company primarily sells to packing and processing
plants in the United States. The Company also sells cattle through local livestock auction markets and to
contract cattle buyers in the United States. These buyers provide ready markets for the Company's cattle. In
the opinion of Management, the loss of any one or a few of these processing plants and/or buyers would not
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.

Plant World

In September 2004, in order to diversify Alico’s agricultural operations and to leverage Alico’s existing
relationships with the farming community, the Company formed a subsidiary, Alico Plant World and
purchased the assets of a wholesale grower and shipper of commercial vegetable transplants to commercial
farmers. Plant World’s infrastructure covers approximately 50 acres of land. During fiscal years 2006 and
2005, Plant World shipped approximately 85.8 million and 69.9 million vegetable transplants, respectively, to
various farmers in several states. The Company is currently exploring various ornamental varieties of plants
in order to improve margins in its nursery operations.

Vegetables

In fiscal year 2006 the Company began growing vegetables. During the year, the Company planted 500 acres
of sweet corn and 500 acres of green beans. The corn crop produced approximately 119,000 crates, and the
beans produced approximately 77,000 bushels. Yields from both ventures were reduced due to the effects of
hurricane Wilma, a category three hurricane that swept through Southwest Florida in October 2005. The
Company plans to double its corn and bean acreage in fiscal year 2007, and is currently exploring the
cultivation of other vegetable crops.

Sod

The Company is also engaged in the cultivation of sod for landscaping purposes. The Company had 472
acres of sod in production during fiscal years 2006, 2005 and 2004. The Company harvested approximately
12.6 million, 4.8 million and 17.2 million square feet of cultivated sod in fiscal years 2006, 2005 and 2004,
respectively. The Company is currently developing an additional 500 acres of sod. The Company entered into
an agreement in fiscal year 2006 with a United States sod wholesaler to market its crop. Additionally, the
Company began selling uncultivated sod (bahia) to local landscapers from its pastures in fiscal year 2005.
The Company harvested approximately 15.9 million and 1.8 million square feet of uncultivated sod during the
2006 and 2005 fiscal years, respectively.

Native trees and shrubs

A small percentage of the Company's properties are classified as timberlands. Thinning of timber began in
fiscal year 2006 and will be completed during fiscal 2007. Additionally the Company sells sabal palms, palm
fans, oak trees and other horticultural commodities growing naturally on the property. These products are sold
to landscaping companies in Florida. The Company does not incur any of the harvesting expenses for any of
its tree or shrub sales.

Non Agricultural Operations

Mining Operations: Rock and Sand

Prior to July 2005, the Company leased a portion of its property in Lee County, Florida to CSR America, Inc.
of West Palm Beach, Florida for the mining and production of rock, aggregate, sand, base rock and other road
building and construction materials.

Royalties received for these products are based on a percentage of the F.O.B. plant sales price. The Company
sold the majority of the property in Lee County where the mines were located in July 2005, but continues to
receive royalties from the mining operations on the remaining acreage. However, a contract is pending for
the sale of the remaining Lee County property. When the property is sold, the royalties from this location will
cease.

In May 2006, the Company paid $10.6 million to purchase a 523 acre riverfront mine site for rock and fill.
The Company has allocated approximately 54% of the purchase price to the rock and sand reserves, with the
remaining 46% of the purchase price allocated as residual land value based on the present value of the
expected rock royalties over 20 years and the expected residual value of the property after that time. Rock
and sand reserves will be depleted and charged to cost of goods sold proportionately as the property is mined.

Additionally, the Company is currently seeking a permit for a rock mine on its Hendry County property.
Other properties are currently being evaluated for mine sites.

Land Rentals for Grazing, Agricultural, Oil Exploration and Other Uses

The Company rents land to others on a tenant-at-will basis, for grazing, farming, oil and recreational uses.
The Company will continue to develop additional land to lease for farming as strategically advantageous and
profitable. There were no significant changes in the method of rental for these purposes during the past fiscal
year.

Competition

As indicated, the Company is primarily engaged in a variety of agricultural and nonagricultural activities, all
of which are in highly competitive markets. For instance, citrus is grown in foreign countries and several
states, the most notable of which are: Brazil, Florida, California, and Texas. Beef cattle are produced
throughout the United States and domestic beef sales also compete with imported beef. Sugarcane products
compete with products from sugar beets in the United States as well as imported sugar and sugar products
from foreign countries. Sod is produced throughout the United States, as are vegetables and vegetable
transplants. Forest and rock products are produced in most parts of the United States. Leasing of land is also
widespread.

The Company's share of the United States market for citrus, sugarcane, cattle, sod, vegetables, vegetable
transplants, mining and forest products is less than 3%.

Environmental Regulations

The Company's operations are subject to various federal, state and local laws regulating the discharge of
materials into the environment. Management believes the Company is in compliance with all such rules and
such compliance has not had a material effect upon capital expenditures, earnings or the Company’s
competitive position.

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 monitoring these matters.
In addition, there are ongoing costs incurred in complying with permitting and reporting requirements.

Employees

At August 31, 2006, the Company had a total of 215 full-time employees classified as follows: Bowen 12;
Citrus 79; Sugarcane 17; Ranch 19; Plant World 29; Vegetables 2; Sod 1; Real Estate 3; Leasing 1; Facilities
Maintenance Support 31; General and Administrative 21. One of the general and administrative staff is
engaged in the development of new products and research. Management is not aware of any efforts by
employees or outside organizers to create any type of labor union. Management believes that the
employer/employee relationship environment is such that labor organization activities are unlikely to occur.

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 in all quarters. Sugarcane is harvested during the first,
second and third quarters. Vegetable harvest and sales generally occur in the first, second and third quarters.
Vegetable transplant sales occur primarily in 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 recurring than seasonal in nature.

Capital resources and raw materials

Management believes that the Company will be able to meet its working capital requirements for the
foreseeable future with internally generated funds. Additionally, the Company has credit commitments that
provide for revolving credit that is available for the Company's general use. Raw materials needed to
propagate the various crops grown by the Company are readily available from local sources.

Available Information

The Company’s internet address is: http://www.alicoinc.com. The Company files reports with the Securities
Exchange Commission ("SEC") as required by SEC rules and regulations on Form 10-Q, Form 10-K and the
annual proxy statement. These reports are available to the public to read and copy at the SEC’s Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C.

The Company is an electronic filer with the SEC and these reports are available through the SEC internet site
(http:www.sec.gov), and through the Company’s website as soon as reasonably practicable after filing with
the SEC. Copies of documents filed with the SEC are also available free of charge upon request.

Item 1A. Risk Factors

The Company’s operations involve varying degrees of risk and each investor should consider the specific
risks and speculative features inherent in and affecting the business of the Company before investing in the
Company. In considering the following risk and speculative factors, an investor should realize that there is a
possibility of losing their entire investment.

The Company’s financial condition and results of operations could be affected by the risk factors discussed
below. These factors may also cause actual results to differ materially from the results contemplated by the
forward looking statements in Management’s Discussion and Analysis.

The list of risks below is not intended to be all inclusive. A complete listing of risks is beyond the scope of
this document. However, in contemplating the financial position and results of operations of the Company,
investors should carefully consider, among other factors, the following risk factors:

General

The IRS has proposed significant contested audit tax adjustments which could have a material adverse
effect on the Company

The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to ongoing
audits of Alico for the tax years 2000 through 2004. The letter proposes changes to the Company's tax
liabilities for each of these tax years and required the Company either a) to agree with the changes and remit
the specified taxes and penalties, or b) to submit a rebuttal within 30 days. The Company sought and received
an extension of time to submit its rebuttal until October 16, 2006 and timely submitted the rebuttal on October
13, 2006.

In the thirty day letter, the IRS proposed several alternative theories as a basis for its argument that Alico
should have reported additional taxable income in the years under audit. These theories principally relate to
the formation and capitalization of the Company's Agri Insurance subsidiary and its tax exempt status during
the years under audit. Under the theories proposed, the IRS has calculated additional taxes and penalties due
ranging from a minimum of $35.4 million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes. However, using the IRS promulgated monthly rates the Company
estimates that the interest charge on the maximum proposed assessment is $25.0 million as of August 31,
2006. Interest will continue to accrue at the monthly interest rate published by the IRS.

Should the IRS prevail in its primary position, the effect would materially and adversely reduce the liquidity
of the Company and would cause the Company to default on several of its loan covenants.

The Company has a 50.5% stockholder and a limited public float which could adversely affect the price
of its stock and restrict the ability of the minority shareholders to have a voice in corporate governance

Atlantic Blue Group, Inc. (ABG) (formerly Atlantic Blue Trust, Inc.) is the owner of approximately 50.5% of
the Company’s common stock. Accordingly, the Company’s common stock is thinly traded and its market
price may fluctuate significantly more than stocks with a larger public float. Additionally by virtue of its
ownership percentage, ABG is able to elect all the directors and, consequently, is deemed to control the
Company. While ABG has issued a governance letter dated September 29, 2006 reaffirming its commitment
to maintaining a majority of independent directors on Alico’s board, this commitment may be terminated at
any time upon 30 days prior written notice. The Company does not have cumulative voting. Accordingly
stockholders of the Company other than ABG have no effective control over who the management and
directors of the Company are or will be.

The Company manages its properties in an attempt to capture its highest and best use and customarily
does not sell property until it determines that the property is surplus to its agricultural activities by
reason of its potential for industrial, commercial or residential use. The Company has little control
over when this occurs.

The Company’s goal for its land management program is to manage and selectively improve its lands for their
most profitable use. To this end, the Company continually evaluates its properties focusing on soil
capabilities, subsurface composition, topography, transportation, availability of markets and the climatic
characteristics of each of the tracts. While the Company is primarily engaged in agricultural activities, when
land is determined to be better suited to industrial, commercial or residential use, the Company has classified
the property as surplus to its agricultural activities and sold it. The Company’s land management strategy is
thus a long term strategy to acquire, hold and manage land for its best use, selling surplus land at opportune
times and in a manner that would maximize the Company’s profits from such surplus tracts. The timing for
when agricultural lands become best suited for industrial, commercial or residential use depends upon a
number of factors which are beyond the control of the Company such as:

• population migration

(cid:131) national, regional and local economic conditions

(cid:131)

conditions in local real estate markets (e.g., supply of land, reduction in demand)

competition from other available property;

availability of roads and utilities;

availability of governmental entitlements;

(cid:131) government regulation and changes in real estate, zoning, land use, environmental or tax

laws;

(cid:131)

interest rates and the availability of financing; and

(cid:131) potential liability under environmental and other laws.

The Company is not able to predict when properties will become best suited for non agricultural use and has
little ability to influence this process. Additionally changes from time to time in any or a combination of
these factors could result in delays in sales or the Company’s inability to sell tracts which are determined to
be surplus or to its ability to realize optimum pricing from such sales.

The Company carries large receivables from seller financed sales of large tracts of surplus land the
collectibility of which is subject to credit risk relating to debtors.

The Company’s sale of surplus lands often involves buyer financing provided by the Company. In addition to
the cash deposit paid by a buyer of surplus land, the Company at times takes a mortgage for the unpaid
balance of the purchase price of the land sales contract. The collectibility of the amounts owed and the
likelihood that the Company will achieve the profitability promised by any sales contract is dependent on the
creditworthiness of the mortgagees which often depends upon the continued financial success of such entity.
The purchasers of the surplus tracts are often developers, whose success is in turn directly affected by the
multiple factors in the national and local real estate market, including but not limited to interest rates, demand
for housing, competition from other available land and unanticipated costs of construction. A mortgagor’s
default under a material sales contract, or the bankruptcy of any material purchaser of surplus land depending
on the magnitude of its debt to the Company, could have a material adverse effect on the Company.

The Company is subject to environmental liability by virtue of owning significant holdings of real
estate assets.

The Company faces a potential for environmental liability by virtue of its ownership of real property. If
hazardous substances (including herbicides and pesticides used by the Company or by any persons leasing the
Company’s lands) are discovered on or emanating from any of the Company’s lands and the release of such
substances presents a threat of harm to the public health or the environment, the Company may be held
strictly liable for the cost of remediation of these hazardous substances. In addition, environmental laws that
apply to a given site can vary greatly according to the site’s location, its present and former uses, and other
factors such as the presence of wetlands or endangered species on the site. Although the Company purchases
insurance when it is available for environmental liability, these insurance contracts may not be adequate to
cover such costs or damages or may not continue to be available to the Company at prices and terms that
would be satisfactory. It is possible that in some cases the cost of compliance with these environmental laws
could exceed the value of a particular tract of land or be significant enough that it would have a material
adverse effect on the Company.

The Company has two large customers that account for 34% of revenues.

For the fiscal year ended August 31, 2006, the Company’s two largest customers accounted for approximately
34% of operating revenues, with its largest customer accounting for 22% of operating revenue. The
Company’s largest customer is Ben Hill Griffin, Inc. (“Griffin”), with whom the Company has a marketing
agreement which, by its terms, will expire at the end of the 2006-07 citrus season. The balance of the sales
concentration is attributable to the Company’s marketing and allotment contracts with U.S. Sugar, for whom
the Company grows raw sugarcane. These two marketing arrangements involve marketing pools which allow
the contracting party to market the Company’s product in conjunction with others in the pool and pay the
Company a proportionate share of the resulting revenue from the sale of all of the pooled product. While the
Company believes that it can replace these arrangements with other marketing alternatives, it may not be able
to do so quickly and the results or associated costs may not be as favorable as the current contracts.

The Company has Material Weaknesses in its internal accounting controls.

In the 2005 Annual Report on Form 10K, the Company noted that it had identified a Material Weakness in its
internal accounting controls because of insufficient staffing in its accounting department. The Company took
remedial action to correct this weakness, but , as of the date of the 2006 audit, the Company’s Chief
Executive Officer and Chief Financial Officer decided that the Material Weakness had not been remediated
and therefore has continued. The reason for this decision is that during the Company’s annual audit a
significant deficiency arose due to adjustments to the Company’s tax provision that were not detected by the
Company’s accounting staff. . See Item 9A. By definition a Material Weakness means that there is a
significant deficiency that, by itself, or in combination with other significant deficiencies, results in more than
a remote likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected. Additionally, the existence of a Material Weakness precludes management or the
Company’s Auditor from concluding that internal control over financial reporting is effective and requires the
Company’s auditor to issue an adverse attestation opinion on the company’s internal controls.

Agricultural Risks - General

Agricultural operations generate a large portion of the Company’s revenues. Agriculture operations are
subject to a wide variety of risks including product pricing due to variations in supply and demand, weather,
disease, input costs and product liability.

Agricultural products are subject to supply and demand pricing which is not predictable

Because the Company’s agricultural products are commodities, the Company is not able to predict with
certainty what price it will receive for its products; however, its costs are relatively fixed. Additionally, the
growth cycle of such products in many instances dictates when such products must be marketed which may or
may not be advantageous to obtaining the best price. Excessive supplies tend to cause severe price
competition and lower prices throughout the industry affected. Conversely, shortages may cause higher
prices. Shortages often result from adverse growing conditions which can reduce available product of
growers in affected growing areas while not affecting others in non affected growing areas. Since multiple
variables which affect pricing and costs are incurred before pricing and supply is known, the Company cannot
accurately predict or control from year to year what its profits or losses from agricultural operations will be.

The Company’s agricultural assets are concentrated and the effects of adverse weather conditions such
as hurricanes can be exaggerated.

The Company’s agricultural operations are concentrated in south Florida counties with more than 80% of its
agricultural lands located at Alico Ranch in Hendry County. All of these areas are subject to occasional
periods of drought, excess rain, flooding, freeze, and hurricane risk. Crops require water in different
quantities at different times during the growth cycle. Accordingly too much or too little water at any given
point can adversely impact production. While the Company attempts to mitigate controllable weather risks
through water management and crop selection, its ability to do so is limited. The Company’s operations are
in south and central Florida which are areas subject to the risk of hurricanes. Hurricanes have the potential to
destroy crops and impact citrus production through the loss of fruit and destruction of trees either as a result
of high winds or through the spread of wind blown disease. The Company was impacted by hurricanes
during fiscal years 2006, 2005 and 2004 and sustained losses relating to the storms during all three fiscal
years. The Company seeks to minimize hurricane risk by the purchase of insurance contracts, but a portion of
the Company’s crops remain uninsured. Because the Company’s agricultural properties are located in relative
close proximity to each other, the impact of adverse weather conditions is magnified in the Company’s results
of operations.

Water Use Regulation Restricts the Company’s Access to Water for Agricultural Use

The Company’s agricultural operations are dependent upon the availability of adequate surface and
underground water needed to produce its crops. The availability of water for use in irrigation is regulated by
the State of Florida through water management districts which have jurisdiction over various geographic
regions in which the Company’s lands are located. Currently the Company has permits for the use of
underground and surface water which are adequate for its agricultural needs. Surface water in Hendry
County, where much of the Company’s agricultural land is located, comes from Lake Okeechobee via the
Caloosahatchee River and the system of canals used to irrigate such land. Since the Army Corps of Engineers
controls the level of Lake Okeechobee, this organization ultimately determines the availability of surface
water even though the use of water has been permitted by the State of Florida through the water management
district. Recently the Army Corps of Engineers decided to lower the permissible level of Lake Okeechobee
in response to concerns about the ability of the levees surrounding the lake to restrain rising waters which
could result from hurricanes. Changes in permitting for underground or surface water use during times of
drought because of lower Lake levels may result in shortages of water for agricultural use by the Company
and could have a material adverse effect upon the Company’s agricultural operations and financial results.

The Company’s citrus groves are subject to damage and loss from disease including but not limited to
citrus canker and citrus greening diseases

The Company’s citrus groves are subject to damage and loss from diseases such as Citrus Canker and Citrus
Greening. Each of these diseases is widespread in Florida and the Company has found instances of Citrus
Canker and/or Citrus Greening in several of its groves. Both diseases are present in areas where Company
groves are located. There is no known cure for Citrus Canker at the present time although some pesticides
inhibit the development of the disease. The disease is spread by contact with infected fruit or trees or by wind
blown transmission. The Company’s policy is to destroy trees which become infected with this disease or
with Citrus Greening disease and the Company maintains an inspection program to discover infestations
early. Citrus Greening destroys infected trees. The disease is spread by psyllids and the Company carries on
a pesticide program to eliminate these hosts. There is no known pesticide or other treatment for Citrus
Greening at the present time. Both of these diseases pose a significant threat to the Florida Citrus industry
and to the Company’s citrus groves. Wide spread dissemination of these diseases in the Company’s groves
could cause a material adverse effect to the Company’s operating results and citrus grove assets.

Pesticide and herbicide use by the Company or its lessees could create liability for the Company

The Company and some of the parties to whom the Company leases land for agricultural purposes, use
herbicides, pesticides and other hazardous substances in the operation of their business. All pesticides and
herbicides used by the Company have been approved for use by the proper governmental agencies with the
hazards attributable to each substance appropriately labeled and described. The Company applies such
chemicals strictly in accordance with the labeling. However, the Company does not have any knowledge or
control over the chemicals used by third parties who lease the Company’s lands for cultivation. It is possible
that some of these herbicides and pesticides could be harmful to humans if used improperly, or that there may
be unknown hazards associated with such chemicals despite any contrary government or manufacturer labels.
The Company might have to pay the costs or damages associated with the improper application, accidental
release or the use or misuse of such substances.

Changes in immigration laws or enforcement of such laws could impact the ability of the Company to
harvest its crops

The Company engages third parties to provide personnel for its harvesting operations. The personnel engaged
by such companies typically come from pools composed of immigrant labor. The availability and number of
such workers is subject to decrease if there are changes in the U.S. immigration laws or stricter enforcement
of such laws. The scarcity of available personnel to harvest the Company’s agricultural products could cause
the Company’s harvesting costs to increase or could lead to the loss of product that is not timely harvested
which could have a material adverse effect upon the Company.

Changing public perceptions regarding the quality, safety or health risks of our agricultural products
can affect demand and pricing of such products.

The general public’s perception regarding the quality, safety or health risks associated with particular food
crops the Company grows and sells could reduce demand and prices for some of the Company’s products. To
the extent that consumer preferences evolve away from products the Company produces for health or other
reasons, and the Company is unable to modify its products or to develop products that satisfy new customer
preferences, there could be decreased demand for the Company’s products. Even if market prices are
unfavorable, produce items which are ready to be or have been harvested must be brought to market.
Additionally, the Company has significant investments in its citrus groves and cannot easily shift to
alternative products for this land. A decrease in the selling price received for the Company’s products due to
the factors described above could have a material adverse effect on the Company.

The Company faces significant competition in its agricultural operations.

The Company faces significant competition in its agricultural operations both from domestic and foreign
producers and does not have any branded products. Foreign growers generally have lower cost of
production, less environmental regulation and in some instances greater resources and market flexibility than
the Company. Because foreign growers have great flexibility as to when they enter the U. S. market, the
Company cannot always predict the impact these competitors will have on its business and results of
operations. The competition the Company faces from foreign suppliers of sugar and orange juice is mitigated
by quota restriction on sugar imports imposed by the U. S. government and by a governmentally imposed
tariff on U. S. orange imports. A change in the government’s sugar policy allowing more imports or a
reduction in the U.S. orange juice tariff would adversely impact the Company and negatively impact the
Company’s results of operations.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties.

At August 31, 2006, the Company owned a total of 136,605 acres of land located in five counties in Florida.
Acreage in each county and the primary classification with respect to the present use of these properties is
shown in the following table:

Alico, Inc. & Subsidiaries
Land Use Summary
August 31, 2006

Total

Hendry

Polk

Collier

Glades

Lee

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

10,208
6,677

16,885

13,554
8,241

21,795

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

89,703

4,886
1,008

5,894

472
363

835

523
970

2,674
2,691

5,365

13,554
8,241

21,795

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

77,807

4,886
1,008

5,894

472
363

835

3,405
789

4,194

4,129
3,197

7,326

-
-

295
602
5,949
1,540

8,386

-
-

-
66

-
-

-
1,112
1,718
680

3,510

-
-

Total

136,605

111,700

12,646

10,836

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

-
-

-
-
-
-

-
-

-
-
-
-

-
-

523
-

523

-
900

900

Of the above lands, the Company utilizes approximately 22,000 acres of improved pasture plus approximately
49,000 acres of semi-improved and native pasture for cattle production. Much of the land is also leased for
multi-purpose use such as oil exploration, farming and recreation.

From the inception of the Company's initial development program in 1948, the goal has been to develop the
lands for their 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. Management believes that the lands are suitable for agricultural, residential and commercial uses.
The Company is primarily engaged in agricultural activities. In the past some of the land was considered
surplus to the agricultural needs of the Company and, as indicated under Item 1 of this report, sales of such
surplus property were made from time to time.

The Company has recently hired a Vice President of Real Estate, who also serves as President of Saddlebag
Lake Resorts, Inc., to work with senior management and the Board of Directors to enhance the planning and
strategic positioning of all Company owned land. He will also oversee the entitlement of the Company’s land
assets in order to preserve rights should the Company choose to develop the property in the future.

Management believes that each of the major agricultural programs is adequately supported by equipment,
buildings, fences, irrigation systems and other amenities required for the operation of the projects.

Item 3. Legal proceedings

The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to ongoing
audits of Alico for the tax years 2000 through 2004. The letter proposes changes to the Company's tax
liabilities for each of these tax years and required the Company either a) to agree with the changes and remit
the specified taxes and penalties, or b) to submit a rebuttal within 30 days. The Company sought and received
an extension of time to submit a rebuttal until October 16, 2006 and timely submitted the rebuttal on October
13, 2006. The rebuttal letter will be reviewed by the Southwest Florida IRS office, then forwarded to IRS
Appeals for further action.

The Company does not accept the IRS position and intends to continue to oppose vigorously any attempt by
the IRS to impose such assessment in connection with the Agri Insurance matter.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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 on the NASDAQ Stock Market, LLC (“NASDAQ”) under the
symbol ALCO. The high and low prices as reported by NASDAQ, by fiscal quarter, during the years ended
August 31, 2006 and 2005 are presented below:

2006
Bid Price

High

Low

First Quarter

$51.95

$42.06

Second Quarter

$47.50

$42.47

Third Quarter

Fourth Quarter

$58.76

$42.04

$59.35

$48.40

2005
Bid Price

High

Low

$55.59

$41.25

$62.05

$51.25

$58.01

$46.63

$56.20

$47.14

The price presented does not reflect prices in actual transactions. They are bid prices, which represent prices
between broker-dealers. Theses prices do not include retail mark-ups and mark-downs or any commission to
the broker-dealer.

Approximate Number of Holders of Common Stock

As of October 31, 2006, there were approximately 449 holders of record of the Company’s Common Stock as
reported by the Company’s transfer agent.

Dividend Information

Dividends declared during the last two fiscal years were as follows:

Record Date

Payment Date

Amount Paid Per Share

June 30, 2005
September 30, 2005
December 31, 2005
March 31, 2006
June 30, 2006

July 15, 2005
October 15, 2005
January 15, 2006
April 15, 2006
July 15, 2006

$1.000
$0.250
$0.250
$0.250
$0.250

At a Board of Directors meeting held on September 28, 2006, the Board declared a quarterly dividend of
$0.275 per share payable to stockholders of record as of December 29, 2006, with payment expected on or
about January 15, 2007.

The Company’s ability to pay dividends in the immediate future is dependent on a variety of factors including
earnings and the financial condition of the Company. See Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations.

Issuer Purchases of Equity Securities

The following table presents information with respect to purchases of common stock of the Company made
during the three months ended August 31, 2006 by the Company or any “affiliated purchaser” of the
Company as defined in rule 10B-18(a)(3) under the Exchange Act.

Period

06/01/06 - 06/30/06
07/01/06 - 07/31/06
08/01/06 - 08/31/06
Fourth quarter 2006

Total
number of
shares
purchased

-
-
3,000
3,000

Average
price paid
per share

-
-
55.62
55.62

Number of Shares
purchased as part
of publicly
announced plans
or programs (1)

Maximum number
of shares that can
yet be purchased
under the plan or
programs

-
-
3,000
3,000

18,000
18,000
15,000
15,000

(1) On November 17, 2005 the Company publicly announced that its Board of Directors had authorized a plan
to purchase up to 31,000 shares of the Company's common stock through August 31, 2007 for the purpose of
funding its Director Stock Compensation Plan. This column discloses the number of shares purchased
pursuant to the Director Stock Compensation Plan during the indicated time periods.

Equity Compensation Arrangements

On April 17, 2006 the Company hired a President and Chief Operating Officer. As a portion of the total
compensation package, the Board awarded 20,000 shares of restricted stock. Under the terms of the
agreement, the shares will vest 25% on April 17, 2010 and continue to vest 25% per year until they are fully
vested. The fair value per share was $45.25 on the date of the award.

On July 17, 2006 the Company hired a Vice President of Real Estate. As a portion of the total compensation
package, the Board awarded 13,000 shares of restricted stock. Under the terms of the agreement, the shares
will vest 25% on July 17, 2010 and continue to vest 25% per year until they are fully vested. The fair value
per share was $53.13 on the date of the award.

On October 27, 2006, the Board awarded 20,000 shares of restricted stock to the Chief Executive Officer as
additional compensation. Under the terms of the agreement, 4,000 shares vested effective August 31, 2006
and the remaining shares will vest 25% per year annually thereafter until they are fully vested. The fair value
per share was $61.96 on the date of the award.

The following schedules detail the various transactions outlined above:

Equity Compensation Plan Information

Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)

Weighted average
exercise price of
outstanding options,
warrants and rights
(b)

Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a)
(c)

9,158

17.66

292,844

53,000

62,158

17.66

292,844

Plan category

Equity compensation
plans approved by
security holders

Equity compensation
plans not approved
by security holders

Total

Item 6. Selected Financial Data

Description

2006

Years Ended August 31,
2004
(In Thousands, Except Per Share Amounts)

2003

2005

2002

Operating revenue
Operating expenses
Income (loss) from continuing operations
Income (loss) from continuing operations
per weighted average common share

Total Revenue
Total Costs and Expenses
Income Taxes
Net Income
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
Stockholder's Equity

77,434
62,693
2,982

0.40
92,594
79,910
6,215
6,469
7,368
0.88
1.03
110,913
262,753
18,078
6:14:1
92,835
103,572
121,650
141,103

55,525
43,179
2,321

0.32
75,384
66,146
3,148
6,090
7,331
0.83
1.25
128,977
247,694
17,819
7.24:1
111,158
85,689
103,508
144,186

52,057
39,306
6,667

0.92
87,779
59,979
9,987
17,813
7,219
2.47
0.60
125,925
238,242
10,136
12.42:1
115,789
82,908
93,044
145,198

48,285
43,582
4,703

0.66
66,532
47,448
6,425
12,659
7,106
1.78
0.35
90,204
216,545
10,124
8.91:1
80,080
80,239
90,363
126,182

49,185
50,313
(1,128)

(0.16)
63,545
53,752
2,258
7,535
7,070
1.07
1.00
66,267
191,910
9,543
6.94:1
56,724
69,149
78,692
113,218

Item 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 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.

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

Working capital decreased to $92.8 million at August 31, 2006, from $111.2 million at August 31, 2005. As
of August 31, 2006, the Company had cash and cash equivalents of $25.1 million compared to $13.4 million
at August 31, 2005. Marketable securities decreased to $50.1 million from $70.8 million during the same
period. The ratio of current assets to current liabilities decreased to 6.14 to 1 at August 31, 2006 from 7.24 to
1 at August 31, 2005. Total assets increased by $15.1 million to $262.8 million at August 31, 2006, compared
to $247.7 million at August 31, 2005.

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 entered into a credit facility in
fiscal year 2006 which increased its credit commitments to provide for revolving credit of up to $175.0
million compared with credit commitments of $44.0 million in fiscal year 2005. Of the $175.0 million credit
commitment, $122.7 million was available for the Company's general use at August 31, 2006 (see Note 6 to
condensed consolidated financial statements).

The Company’s operations and financial condition have been impacted in various ways by a series of four
hurricanes that made landfall in Florida over the past two fiscal years. High winds and large amounts of
rainfall damaged crops and infrastructure. Furthermore, the winds helped spread citrus canker. 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. Prior to January 10, 2006, Florida law
required infected and exposed trees within 1,900 feet of the canker find to be removed and destroyed. During
the second quarter of fiscal year 2006, the USDA determined that due to the likely spread of canker by
hurricanes they did not believe that canker eradication was feasible. Due to this determination, the rule
requiring the destruction of citrus groves testing positive for canker was suspended. During the fourth
quarter of fiscal 2006, the USDA reimbursed Alico for trees that were removed in accordance with Florida
law. The reimbursement included payment for trees destroyed in fiscal year 2006 as well as fiscal year 2005.
The reimbursements totaled $2.9 million. No accrual for the reimbursement was made in fiscal 2005. The
Company additionally received $4.6 million of insurance proceeds for wind damages incurred to its crops and

infrastructure during fiscal year 2006 and $3.3 million of insurance proceeds for hurricane damages sustained
during fiscal year 2005.

Management expects continued profitability from the Company’s agricultural operations. Citrus operations
are expected to remain profitable in fiscal year 2007. A smaller crop resulting from hurricanes, citrus canker
and land development has caused the unit price of citrus products to increase and thus profits from the citrus
division are expected to exceed those of the prior year.

The Company has implemented cost cutting measures in addition to improved crop rotation measures in its
sugarcane division; however, a large sugar beet crop is expected to result in lower prices for finished sugar in
fiscal year 2007. The Company’s cattle operations in fiscal year 2007 are expected to remain profitable but at
lower levels than in fiscal year 2006. Rains generated by Hurricane Wilma kept many of the pastures overly
wet and the conception rate of the cattle has been affected. This will result in fewer calves for the Company
to sell in fiscal year 2007 compared to fiscal year 2006.

The operations of Plant World also suffered from the hurricane and costs per unit in excess of contracted sales
prices. Beginning in fiscal year 2007, Plant World is expanding into several ornamental varieties with higher
profit margins per unit. As a result, Plant World’s results are expected to improve in fiscal year 2007 and
beyond as it begins to fully scale up production of the new varieties. Sod profits are also expected to increase
slightly in fiscal year 2007. The Company plans to double its vegetable acreage in fiscal year 2007. Despite
expected lower prices in fiscal year 2007 compared to fiscal year 2006, profits from vegetable operations are
nevertheless expected to exceed prior year levels.

Cash outlays for land, equipment, buildings, and other improvements totaled $33.2 million during the year
ended August 31, 2006, compared to $12.9 million during fiscal year 2005, and $7.3 million in fiscal year
2004. In May 2006, Alico purchased 523 acres of riverfront mining property in Glades County, Florida for
$10.6 million. In February 2006, Alico, through its newly formed subsidiary Bowen Brothers Fruit, LLC,
purchased the assets of Bowen Brothers Fruit Co., Inc. for $1.9 million. In October 2005, the Company
through Alico-Agri, purchased 291 acres of lake-front property in Polk County, Florida, for $9.2 million.
Due to damages incurred in the hurricane in fiscal year 2006, the Company had to replace 9 large barns, cattle
feed structures, several employee houses and numerous greenhouses. Additionally, the Company incurred the
normal costs of capital maintenance of its sugarcane plantings, raising replacement heifers for the cattle herd
and replacing equipment. In September 2004, the Company, through Alico-Agri Ltd., purchased the assets of
La Belle Plant World, Inc. The purchase price was $4.9 million for the land, office building, greenhouses and
associated equipment.

In accordance with guidelines established by the Company’s Board of Directors, the Company restructured its
investment portfolio during the first quarter of fiscal 2006, focusing on high quality fixed income securities
with original maturities of less than 12 months. As a result of staggered maturity dates, a greater portion of
the Company’s portfolio is classified as cash equivalents than under previous investment policies.

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 after a final development order for the property is issued. The first principal and interest
installment under the contract will not be due until 12 months after the development order is issued by Lee
County. The development order has not yet been issued; however, in any event the first installment is due
and payable in July 2008, if not paid before that date.

Another sale in Lee County is scheduled 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 as a 2.5% mortgage note
receivable of $67.9 million. 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. The agreement is currently being renegotiated.

In November 2005, the Company sold approximately 280 acres of citrus grove land located south of LaBelle,
Florida in Hendry County for $5.6 million cash placed in escrow. The Company will retain operating rights to

the grove until residential development begins. The Company used the proceeds from the sale as part of a
section 1031 like kind exchange for the mining property acquired in May 2006.

The Company paid regular quarterly dividends of $0.25 per share on October 15, 2005, January 15, 2006,
April 15, 2006 and July 15, 2006. At its June 2006 Board meeting, the Board declared a regular quarterly
dividend of $0.275 per share payable to shareholders of record as of September 30, 2006. The dividend was
paid on October 15, 2006. At its September 2006 Board meeting, the Board declared a regular quarterly
dividend of $0.275 per share payable to shareholders of record as of December 29, 2006 with payment
expected on or about January 15, 2007.

The Internal Revenue Service is examining the Company’s tax returns for the years ended August 31, 2004,
2003, 2002, 2001 and 2000, and Agri tax returns for calendar years 2003, 2002, 2001 and 2000. The
examinations began in October 2003. Any assessments resulting from the examinations will be currently due
and payable.

The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006 pertaining to ongoing
audits of Alico for the tax years 2000 through 2004. The letter proposes changes to the Company's tax
liabilities for each of these tax years and required the Company either a) to agree with the changes and remit
the specified taxes and penalties or b) to submit a rebuttal within 30 days. The Company sought and received
an extension of time to submit its rebuttal until October 16, 2006 and timely submitted the rebuttal on October
13, 2006.

In the thirty day letter, the IRS proposed several alternative theories as a basis for its argument that Alico
should have reported additional taxable income in the years under audit. These theories principally relate to
the formation and capitalization of the Company's Agri Insurance subsidiary and its tax exempt status during
the years under audit. Under the theories proposed, the IRS has calculated additional taxes and penalties due
ranging from a minimum of $35.4 million dollars to a maximum of $86.4 million dollars. The letter does not
quantify the interest on the proposed taxes; however based on Company estimates, as of August 31, 2006 the
interest on the additional taxes and penalties ranges from $7.5 million to $25.0 million on the proposed
adjustments..

The Company does not accept the IRS position and intends to continue to oppose vigorously any attempt by
the IRS to impose such assessment in connection with the Agri Insurance matter. See also footnote 7 to the
condensed consolidated financial statements. Should the IRS prevail in its primary position, the effect would
be to significantly reduce the liquidity of the Company, and could cause the Company to default on several of
its loan covenants.

Results of Operations

Summary of results (in thousands):

Operating revenue
Gross profit
General & administrative expenses
Income from operations
Profit on sale of real estate
Interest and investment income
Interest expense
Other income (expense)
Provision for income taxes
Effective income tax rate
Net income

Fiscal years ended August 31,
2004
2005

2006

$77,434
14,741
11,759
2,982
4,369
9,053
4,066
346
$6,215
49.0%
$6,469

$55,525
12,346
10,025
2,321
5,465
4,443
2,295
(696)
$3,148
34.1%
$6,090

$52,057
12,751
6,084
6,667
20,311
2,519
1,825
128
$9,987
35.9%
$17,813

Overall, income from operations improved in fiscal year 2006 compared with fiscal year 2005, contributing to
the overall net income increase over the prior year. Operations by segment are discussed separately below.

General and Administrative

General and administrative expenses increased by 17.3% to $11.8 million in fiscal year 2006 compared with
$10.0 million in fiscal year 2005. Due to changing market conditions, the Company reassessed the discount
rate used to value its defined benefit deferred compensation plan and adjusted the rate from 6.25% used to
compute the accumulated benefit obligation in fiscal year 2005 to 5.25% in fiscal year 2006. This change
resulted in additional pension expense during the year of $0.5 million. Additionally, normal retirement
benefits began during fiscal year 2006 which caused the pension expense to increase an additional $0.2
million when compared with fiscal year 2005. The increased pension expense was the single largest
component of the fiscal year 2006 increase in general and administrative expenses. The acquisitions of
Bowen and Plant World further contributed $0.7 million to the rise in general and administrative expenses.
Additionally the Company recorded increased consulting fees during fiscal year 2006 in connection with the
ongoing IRS audits compared with the prior fiscal year.

General and administrative costs were higher in fiscal year 2005 than in fiscal year 2004 due to increased
expenses related to the evaluation of a merger possibility, costs incurred for compliance with Sarbanes Oxley
Section 404, increased consulting expenses, increased Director fees and continuing costs related to the IRS
audits.

Profit from the Sale of Real Estate

In the first quarter of fiscal year 2006, the Company sold approximately a 280 acre citrus grove located south
of LaBelle, Florida in Hendry County for $5.6 million cash for a net gain of $4.4 million. The Company has
retained operating rights to the grove until residential development begins.

The sale of a Lee County parcel closed in escrow during the fourth quarter of fiscal year 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. At the time of the sale, a gain of $5.3 million was recognized. The remainder of
the gain will be recognized when principal collections from the sale exceed 20% of the purchase price of the
property.

During the second quarter of fiscal year 2004, the Company sold approximately 244 acres in Lee County
Florida for a sales price of $30.9 million, generating a gain of $19.7 million.

Provision for Income taxes

The effective tax rate in fiscal year 2006 was 49.0% compared with 34.1% in fiscal year 2005 and 35.9% in
fiscal year 2004. The fiscal year 2006 increase was due to an adjustment of the tax contingency previously
accrued (see Note 7 to the consolidated financial statements). The Company recognized an additional accrual
of $3.3 million in fiscal year 2006 related to the contingency. The tax affected accrual was recognized in the
fiscal year 2006 income tax provision.

Interest and Investment Income

Interest and investment income is generated principally from investments in corporate and municipal bonds,
mutual funds, U.S. Treasury securities, and mortgages held on real estate sold on the installment basis.

In accordance with guidelines established by the Company’s Board of Directors, the Company restructured its
investment portfolio during the first quarter of fiscal year 2006, focusing on high quality fixed income
securities with original maturities of less than 12 months. These sales resulted in a net realized gain of $3.3
million in fiscal year 2006. Additionally, the Company recognized interest income in connection with an
installment sale of approximately $2.5 million in fiscal year 2006. This interest, in conjunction with the

realized gains mentioned above, was the primary reason that interest and investment income increased by $4.7
million when compared to the prior year ($9.1 million in fiscal 2006 compared with $4.4 million in fiscal
2005).

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. 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 2006 when compared to fiscal year 2005 due to higher interest
rates and debt levels. The majority of the Company’s borrowings are based on the London interbank offered
rate (LIBOR). The LIBOR increased by approximately 1.64% during the year to 5.33%.

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%.

Fiscal years ended August 31,
2005

2004

2006

Revenues

Agriculture:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Native trees and shrubs

Agriculture operations revenue
Real estate activities
Land leasing and rentals
Mining royalties

30,869
22,188
8,926
5,700
3,270
2,389
1,528
142
75,012
113
1,369
940

$
-
26,231
9,323
11,017
2,587
-
402
231
49,791
810
1,933
2,991

$
-
24,549
11,646
9,678
-
-
752
407
47,032
406
1,171
3,448

Total operating revenue

77,434

55,525

52,057

Operating revenues increased by 39% to $77.4 million in fiscal year 2006 compared with $55.5 million in
fiscal year 2005. The increase was primarily due to the Company’s purchase of Bowen during the second
quarter of fiscal 2006. Bowen’s operations generated revenues of $30.9 million from the date of acquisition
to August 31, 2006.

Operating revenues increased 7% during fiscal year 2005 when compared with fiscal year 2004. The increase
was primarily due to increased revenues from agricultural operations and land leasing and rentals.

Fiscal years ended August 31,
2005

2004

2006

Gross profit (loss):

Agriculture:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Native trees and shrubs

Gross profit from agricultural operations
Real estate activities
Land leasing and rentals
Mining royalties

Net casualty loss (recovery)

Gross profit

Profits from the sale of bulk real estate
Net interest and investment income
Corporate general and administrative and other

Income before income taxes

(268)
7,614
360
786
(1,103)
985
688
142
9,204
52
917
940
3,628

14,741
4,369
4,987
(11,413)

12,684

-
6,247
499
2,109
459
-
(78)
231
9,467
482
1,294
2,991
(1,888)

12,346
5,465
2,148
(10,721)

9,238

-
4,142
2,595
1,500
-
-
130
407
8,774
153
784
3,448
(408)

12,751
20,311
694
(5,956)

27,800

Gross profit increased to $14.7 million for fiscal year 2006 compared with $12.3 million for fiscal 2005.
During fiscal 2006 the Company received reimbursements from the USDA in connection with citrus canker
eradication efforts totaling $2.9 million. Excluding the canker reimbursement, gross profit from agricultural
operations was $9.2 million in fiscal year 2006, down slightly from the prior year results of $9.5 million. Due
to the cyclical nature of agriculture, the Company is working to diversify its agricultural ventures, with the
goal of producing an even earnings stream. Fiscal year 2006 is a good example of the effectiveness of this
diversification strategy. During the 2006 fiscal year, the Company initiated a vegetable farming operation. In
its first year, the vegetable operation generated a gross profit of $1.0 million. Citrus grove operations also
posted an increased gross profit during fiscal year 2006 compared with fiscal year 2005 as did the Company’s
sod operations, while gross profits from the sugarcane, cattle, greenhouse and native plant operations
declined. The increased gross profit was the reason that income from operations in fiscal year 2006 exceeded
income from operations in fiscal year 2005.

Gross profits decreased to $12.3 million for fiscal year 2005 compared with $12.8 million for fiscal 2004 due
to reduced mining revenues and casualty losses caused by hurricanes and citrus canker. Gross profit from
agricultural operations was $9.5 million in fiscal year 2005, improved from the prior year results of $8.8
million. Citrus grove operations posted an increased gross profit during fiscal year 2005 compared with fiscal
year 2004 due to higher prices for citrus products. Additionally, the Company’s cattle and greenhouse
operations performed better in fiscal year 2005 than fiscal year 2004, while the gross profits from the
Company’s sugarcane, sod and native plant operations were below fiscal year 2004 levels. Despite the
increased gross profit in fiscal year 2004, net income from operations was lower in fiscal year 2005 than in
fiscal year 2004 due to increased general and administrative costs as previously discussed.

Agricultural Operations

Agricultural operations generate a large portion of the Company’s revenues. Agricultural operations are
subject to a wide variety of risks including weather and disease. Additionally, it is not unusual for
agricultural commodities to experience wide variations in prices from year to year or from season to season.

Bowen

Bowen’s operations generated revenues of $30.9 million and expenses of $31.1 million for the period from
the date of acquisition to August 31, 2006. A portion of the purchase price was allocated to intangible assets
and generated an amortization cost of $0.7 million for the period from the date of acquisition to August 31,
2006. By utilizing Bowen harvest the Company’s fruit during fiscal year 2006, the Company was also able to
reduce citrus harvesting costs from traditional market rates. The normal profit margin on intercompany
harvesting was eliminated from Bowen’s results, and the cost savings was reflected in the Company’s Citrus
Grove segment.

Citrus Groves

The Citrus Groves division recorded gross profits of $7.6 million, $6.2 million and $4.1 million, and gross
revenues of $22.2 million, $26.2 million and $24.5 million for the fiscal years ended August 31, 2006, 2005
and 2004, respectively. Hurricanes, citrus canker finds and increased real estate development in the central
and southern portions of Florida, where the majority of citrus is produced, have combined to reduce the
supply of citrus for the past two years, resulting in per unit price increases for citrus products across the
industry. Revenue per box was $7.22, $6.56 and $5.36 in fiscal years 2006, 2005 and 2004, respectively.

The Company has experienced reduced crops due to hurricanes and canker during the past two fiscal years,
harvesting 3.3 million, 3.9 million and 4.6 million 90 pound equivalent boxes of citrus in fiscal years 2006,
2005 and 2004 respectively. The Company estimates that its fiscal year 2007 crop will be approximately 3.5
million boxes.

The fiscal year 2007 crop forecast by the USDA indicates that the supply of Florida oranges will be further
reduced, which should allow for continued strong prices. The USDA forecast is for 135.0 million boxes for
fiscal year 2007 compared with production of 147.9 million boxes in fiscal year 2006, 149.8 million boxes in
fiscal year 2005 and 242.0 million boxes in fiscal year 2004.

Sugarcane

Sugarcane generated gross profits of $0.4 million, $0.5 million and $2.6 million during fiscal years 2006,
2005 and 2004, respectively. Sugarcane revenues were $8.9 million, $9.3 million and $11.6 million during
fiscal years 2006, 2005 and 2004, respectively. The decline in sugarcane revenue is a major factor in the
decreased gross profits of the division. Beginning in fiscal year 2004, the USDA imposed quotas on the
amount of sugarcane that can be harvested. During fiscal years 2006, 2005 and 2004, approximately 342,000,
407,000, and 465,000 standard tons of sugarcane were harvested. The Company experienced higher prices
for sugarcane in fiscal year 2006 when compared to the previous two fiscal years ($26.02, $22.91 and $25.02
average price per standard ton during fiscal years 2006, 2005 and 2004, respectively), however, reduced
yields (36.73, 40.71 and 44.25 standard tons per acre in fiscal 2006, 2005 and 2004, respectively), coupled
with the rising input costs of fuel and fertilizer, caused margins to decrease. A large sugar beet crop is
expected to result in lower prices for finished sugar during fiscal year 2007.

During fiscal year 2006, the Company performed an extensive analysis of yields based on the age of planted
cane, the variety and the historical production of each sugarcane plot. Based on this analysis, the Company
determined on a plot by plot basis, the extent of caretaking each plot would receive. In some instances, a
decision was made to place plots on a reduced care program until the plot could be harvested and replanted.
The expected result of this analysis is that the Company’s sugarcane crop will be further reduced in fiscal year
2007; however, it is also expected that the unit cost per ton will also be reduced, and that per acre yields will
gradually improve to prior historical levels beginning in fiscal year 2008. The Company is committed to

producing the maximum return per acre on the acreage currently being used for sugarcane production and will
continue to explore alternatives in order to meet this goal.

Cattle

Gross profits from the sale of cattle were $0.8 million, $2.1 million and $1.5 million for the fiscal years ended
August 31, 2006, 2005 and 2004, respectively. Cattle revenues were $5.7 million, $11.0 million and $9.7
million over the same periods. During fiscal year 2005, in order to take advantage of record high prices for
calves, the Company sold a portion of its calf crop that would have normally been delivered to western
feedlots. Calves delivered to western feedlots require an additional nine months of preparation before they
are ready for sale. Due to the sale of the calves in the prior fiscal year as described above, more animals were
sold during fiscal year 2005 than in the subsequent or prior fiscal year. During fiscal year 2006, 7,454
animals were sold at an average price of $0.89 per pound. In fiscal year 2005, 13,257 animals were sold at an
average price of $0.90 per pound, and in fiscal year 2004, 10,603 animals were sold at an average price of
$0.82 per pound. Cattle prices tend to run in cycles of 10 years. The Company believes that the cattle market
may have peaked in fiscal year 2005.

The eye of Hurricane Wilma, a category 3 hurricane, passed over Alico’s cattle ranch on October 24, 2005,
generally stressing the cattle herd. In its aftermath, many of the Company’s cattle pastures were underwater
for an extended period. Due to the stress of the hurricane and a temporary reduction in nutrition, the number
of calves born in fiscal 2006 was reduced approximately 5% from the previous year. Furthermore, early
estimates are that the fiscal year 2007 calf crop may be reduced by up to 10% of the fiscal 2006 level. In an
effort to improve conception and general nutrition, the Company is reducing its cattle herd.

Plant World

In fiscal year 2006, Plant World sold 85.8 million vegetable transplants generating gross revenues of $3.3
million. In fiscal year 2005, Plant World sold 69.9 million vegetable transplants and generated gross
revenues of $2.6 million. Plant World’s operations generated a loss of $1.1 million in fiscal year 2006
compared with a profit of $0.5 million in fiscal year 2005. During the spring of 2005, Plant World’s off
season, the Company began to inventory overhead costs in anticipation of a verbal commitment for a large
order. Subsequently, the customer withdrew the offer, and Plant World was not able to replace the volume
during its fall growing season. This caused Plant World to reduce its inventory by $1.0 million to its net
realizable value and experience unused capacity within its facility, driving the unit costs of plants higher. A
further complication arose as fuel prices continued to rise. Plant World had made commitments to deliver at
set prices and in some cases, at very low margins. The increased delivery costs reduced margins to below
cost in many cases. Although Plant World was eventually able to exceed its prior year volume, the additional
plants were spring vegetable varieties which traditionally have lower margins than fall varieties.

The operations of Plant World also suffered from uninsurable hurricane damage and pricing below cost per
unit. Beginning in fiscal year 2007, Plant World is expanding into several ornamental varieties with higher
profit margins per unit. As a result, Plant World’s results are expected to improve in fiscal year 2007 and
beyond as it begins to fully scale up production of the new varieties. In the meantime, Plant World has also
changed its pricing policies, particularly with regards to delivered prices for vegetable transplants.

Vegetables

Alico began farming sweet corn and green beans in fiscal year 2006. The Company planted 250 acres of corn
and 250 acres of green beans in the fall of both 2005 and 2006. The first crops were totally devastated by
hurricane Wilma in October 2005 and had to be replanted. The Company harvested a total of 77 thousand
boxes of green beans at an average price of $13.73 per box and 119 thousand crates of corn at an average
price of $11.18 per crate. In its initial year of operations, the vegetable segment generated revenue of $2.4
million and a gross profit of $1.0 million.

For fiscal year 2007, the Company plans to double the acreage of corn and green beans, growing 500 acres of
each in the fall of 2006 and the spring of 2007. As in any agricultural operation, past results of the vegetable
segment are not necessarily indicative of future performance.

Sod

The Company had 472 acres of cultivated sod in production during fiscal years 2006, 2005 and 2004. The
company harvested approximately 12.6 million, 4.8 million and 17.2 million square feet of cultivated sod in
fiscal years 2006, 2005 and 2004, respectively, generating revenues of $0.8 million, $0.3 million and $0.8
million during each fiscal year respectively. Additionally, the Company harvested 15.9 million and 1.8
million square feet of uncultivated sod generating revenue of $0.7 million and $0.1 million during fiscal years
2006 and 2005, respectively.

The Company is currently developing an additional 500 acres of cultivated sod. The Company entered into an
agreement in fiscal year 2006 with a United States sod wholesaler to market its crop. Additionally, the
Company began selling additional native uncultivated sod (bahia) to local landscapers from its pastures in
fiscal year 2006.

Native trees and shrubs

The Company sells sabal palms, palm fans, oak trees and other native horticultural commodities. These
products are sold to landscaping companies in Florida. The Company does not incur any of the harvesting
expenses for any of its tree or shrub sales. Gross profits from these operations were $0.1 million, $0.2 million
and $0.4 million during fiscal years 2006, 2005 and 2004, respectively.

Non Agricultural Operations

Saddlebag

During fiscal year 2006, Saddlebag sold the last of its developed lots. Gross profits from the sale of lots
during fiscal years 2006, 2005 and 2004 were $0.1 million, $0.5 million and $0.2 million respectively.

Land leasing and rentals

Revenues from land rentals were $1.4 million, $1.9 million and $1.2 million during fiscal years 2006, 2005
and 2004, respectively, generating gross profits of $0.9 million, $1.3 million and $0.8 million. The Company
is committed to leasing more of its land when overall profitability can be enhanced.

Mining royalties

Gross profit from the sale of rock products and sand were $0.9 million, $3.0 million and $3.4 million during
fiscal years 2006, 2005 and 2004, respectively. The Lee County property on which a major portion of the
mining operations was located was sold in fiscal year 2005.

In May 2006, the Company purchased a 523 acre riverfront mine site for rock and fill for $10.6 million cash.
The Company has allocated approximately 54% of the purchase price to the rock and sand reserves with the
remaining 46% of the purchase price allocated as residual land value based on the present value of the
expected rock royalties over 20 years and the expected residual value of the property after that time. Rock
and sand reserves will be depleted and charged to cost of goods sold proportionately as the property is mined.

Additionally, the Company is currently seeking a permit for a rock mine on its Hendry County property.
Other properties are currently being evaluated for additional mine sites.

Off Balance Sheet Arrangements
______________________________

The Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC enters into purchase contracts
for the purchase of citrus products during the normal course of its business. Typically, these purchases are
covered by sales contracts. The purchase obligations under these purchase agreements totaled $7.4 million at
August 31, 2006. All of these purchases were covered by sales agreements. None of these agreements were
in a net loss position as of August 31, 2006. All of these contracts will be fulfilled by the end of the fiscal
year 2007. Additionally, the Company hedges a portion of its fuel requirements through the purchase of fuel
stocks at fixed prices for future deliveries. The net obligations under these arrangement totaled $192
thousand at August 31, 2006. Deliveries under these contracts will occur before October 31, 2006.

Disclosure of Contractual Obligations
_____________________________________

The contractual obligations of the Company at August 31, 2006 are set forth in the table below:

Contractual obligations
Long-term debt
Expected interest on debt
Commissions
Citrus purchase contracts
Retirement benefits
Deferred taxes
Other non-current liability (a)
Building & equipment additions
Real Estate contract obligations
Purchase obligations (donation)
Fuel purchase contract
Leases - operating

Total

Less than
1 year

1 - 3
years

3-5
years

5 +
years

64,002
16,354
2,833
7,389
5,755
15,089
20,293
649
605
788
192
950

3,315
4,127
-
7,389
803
282
-
649
605
788
192
218

2,585
7,864
1,417
-
678
10,506
20,293
-
-
-
-
475

54,830
4,147
1,416
-
678
3,456
-
-
-
-
-
257

3,272
216
-
-
3,596
845
-
-
-
-
-
-

Total

134,899

18,368

43,818

64,784

7,929

(a) This obligation represents a contingency accrual related to income taxes. See Note 7 to the consolidated
financial statements.

Critical Accounting Policies and Estimates

The preparation of the Company’s financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going basis, management evaluates the estimates and
assumptions based upon historical experience and various other factors and circumstances. Management
believes that the estimates and assumptions are reasonable in the circumstances; however, actual results may
vary from these estimates and assumptions under different future circumstances. The following critical
accounting policies have been identified that affect the more significant judgments and estimates used in the
preparation of the consolidated financial statements.

Net Realizable Value - The Company records inventory at the lower of cost or net realizable value.
Management regularly assesses estimated inventory valuations based on current and forecasted usage of the
related commodity and any other relevant factors that may affect the net realizable value.

Revenue Recognition- Based on fruit buyers' and processors' advances to growers, stated cash and futures
markets combined with experience in the industry, management reviews the reasonableness of the citrus
revenue accrual. Adjustments are made throughout the year to these estimates as more current relevant
information regarding the citrus market becomes available. Differences between the estimates and the final
realization of revenues can be significant, and the differences between estimated and final results can be either
positive or negative. Fluctuation in the market prices for citrus fruit has caused the Company to recognize
additional revenue from prior years’ crop totaling $838 thousand, $357 thousand, and $728 thousand during
fiscal year 2006, 2005, and 2004, respectively.

Income from sugarcane under a pooled agreement is recognized at the time the crop is harvested. Based on
the processor’s advance payment, past sugarcane prices and its experience in the industry, management
reviews the reasonableness of the sugarcane revenue accrual. Adjustments are made as additional relevant
information regarding the sugar market becomes available. Market price changes to the sugar pool have
caused the Company to adjust revenue from the prior year’s crop by $169 thousand, ($198 thousand), and
$325 thousand during the fiscal year 2006, 2005, and 2004, respectively.

For sales made through Bowen, the Company applies the provisions of Emerging Issues Task Force (“EITF”)
Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” The Company’s
application of EITF 99-19 includes evaluation of the terms of each major customer contract relative to a
number of criteria that management considers in making its determination with respect to gross versus net
reporting of revenue for transactions with its customers. Management’s criteria for making these judgments
place particular emphasis on determining the primary obligor in a transaction and which party bears general
inventory risk. Bowen purchases and resells citrus fruit, in these transactions, Bowen (i) acts as principal; (ii)
takes title to the products; and (iii) has the risks and rewards of ownership, including the risk of loss for
collection, delivery or returns. For these transactions, Bowen recognizes revenues based on the gross amounts
due from customers.

In recognizing revenue from land sales, the Company follows the provisions in Financial Accounting
Standards Board, or FASB, Statement of Financial Accounting Standards, or SFAS, No. 66, “Accounting for
Sales of Real Estate,” to record these sales. SFAS No. 66 provides specific sales recognition criteria to
determine when land sales revenue can be recorded. For example, SFAS No. 66 requires a land sale must be
consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the
type and timeframe for development of the property sold, and that any receivable from the sale cannot be
subject to future subordination. In addition, the seller cannot retain any material continuing involvement in
the property sold.

Capitalized Costs - In accordance with Statement of Position 85-3 "Accounting by Agricultural Producers and
Agricultural Cooperatives", the cost of growing crops are capitalized into inventory until the time of harvest.
Once a given crop is harvested, the related inventoried costs are recognized as a cost of sale to provide an
appropriate matching of costs incurred with the related revenue earned.

Impairment of Long-Lived Assets – The Company evaluates property and equipment and capitalized
development costs for our sugarcane and citrus groves for impairment when events or changes in
circumstances indicate that the carrying value of assets contained in the Company’s financial statements may
not be recoverable. The impairment calculation compares the carrying value of the asset to the asset’s
estimated future cash flows (undiscounted and without interest charges). If the estimated future cash flows are
less than the carrying value of the asset, the Company calculates an impairment loss. The impairment loss
calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on
estimated future cash flows (discounted and with interest charges). The Company recognizes an impairment
loss if the amount of the asset’s carrying value exceeds the asset’s estimated fair value. If an impairment loss
is recognized, the adjusted carrying amount of the asset will be its new cost basis. For a depreciable long-
lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset.
Restoration of a previously recognized impairment loss is prohibited. The Company operates in several
segments and there have been no indicators of impairment.

Defined Benefit Retirement Plans – The Company has a defined benefit deferred compensation plan, whose
plan assets consist primarily of marketable equity and debt instruments, and are valued using market
quotations. Pension benefit obligations and the related effects on operations are calculated using actuarial
models. Two critical assumptions – discount rate and expected return on assets – are important elements of
plan expense and asset/liability measurement. The Company evaluates these critical assumptions at least
annually. Other assumptions involving demographic factors such as retirement age, mortality and turnover are
evaluated periodically and are updated to reflect the Company’s experience. Actual results in any given year
will often differ from actuarial assumptions because of economic and other factors. The discount rate enables
the Company to state expected future cash flows at a present value on the measurement date. In determining
the discount rate, the Company utilizes the yield on high-quality, fixed-income investments currently
available with maturities corresponding to the anticipated timing of the benefit payments. At August 31, 2006,
the discount rate used to compute the Company’s defined benefit deferred compensation plan was 5.25%.

Income Taxes - Deferred income taxes are recognized for the income tax effect of temporary differences
between financial statement carrying amounts and the income tax bases of assets and liabilities. The Company
regularly reviews its deferred income tax assets to determine whether future taxable income will be sufficient
to realize the benefits of these assets. A valuation allowance is provided for deferred income tax assets for
which it is deemed more likely than not that future taxable income will not be sufficient to realize the related
income tax benefits from these assets. The amount of the net deferred income tax asset that is considered
realizable could, however, be adjusted if estimates of future taxable income are adjusted.

The Company believes its tax positions comply with the applicable tax laws and that it is adequately provided
for all tax related matters. The Internal Revenue Service (IRS) issued a thirty day letter dated August 14, 2006
pertaining to ongoing audits of Alico for the tax years 2000 through 2004. The letter proposes changes to the
Company's tax liabilities for each of these tax years and required the Company either a) to agree with the
changes and remit the specified taxes and penalties, or b) to submit a rebuttal within 30 days. The Company
sought and received an extension of time to submit its rebuttal until October 16, 2006 and timely submitted
the rebuttal on October 13, 2006.

The Company does not accept the IRS position and intends to continue to oppose vigorously any attempt by
the IRS to impose such assessment in connection with the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable that the challenge may be
successful as to some of the possible assertions, Management has provided for the contingency. The
Company has accrued a liability of $20.3 million and $17.0 million for the contingency in fiscal years 2006
and 2005, respectively .

Should the IRS prevail in its primary position, the effect would be to significantly reduce the liquidity of the
Company, and could cause the Company to default on several of its loan covenants.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Alico’s exposure to market rate risk and changes in interest rates relate primarily to its investment portfolio
and revolving credit lines. Investments are placed with high quality issuers and, by policy, limit the amount of
credit exposure to any one issuer. Alico is adverse to principal loss and provides for the safety and
preservation of invested funds by limiting default, market and reinvestment risk. The Company classifies 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. Cash equivalents and short-term investments are classified 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 costs and estimated fair value of the investment portfolio at August 31, 2006:

Marketable Securities and
Short-term Investments (1)

Cost

Estimated
Fair Value

Fixed Rate
Variable Rate

39,745
10,400

39,703
10,397

(1) See definition in Notes 1 and 2 in Notes to Consolidated Financial Statements.

The aggregate fair value of investments in debt instruments (net of mutual funds of $364) as of
August 31, 2006, by contractual maturity date, consisted of the following:

Due in one year or less
Due between one and five years
Due between five and ten years
Due thereafter

Total

Aggregate
Fair
Values

23,540
7,196
5,520
13,480

49,736

Fixed rate securities tend to decline with market rate interest increases. Variable rate securities are generally
affected more by general market expectations and conditions. A 1% change in interest rates on the Company’s
portfolio would impact the Company’s annual interest revenue by approximately $500 thousand.
Additionally, the Company has debt with interest rates that vary with LIBOR. A 1% increase in this rate
would impact the Company’s annual interest expense by approximately $523 thousand based on the
Company’s outstanding debt under these agreements at August 31, 2006.

Item 8.

Financial Statements and Supplementary Data.

Report of Independent Registered Certified Public Accounting Firm

To the Stockholders and Board of Directors of
Alico, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Alico, Inc. and Subsidiaries as of August
31, 2006 and 2005, and the related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the three years in the period ended August 31, 2006.
These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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 the Company as of August 31, 2006 and 2005, and the results of their operations and
their cash flows for each of the three years in the period ended August 31, 2006, in conformity with U.S.
generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of Alico, Inc. and Subsidiaries internal control over financial reporting as of
August 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
November 17, 2006, expressed an unqualified opinion on management's assessment of the effectiveness of
Alico, Inc.'s internal control over financial reporting and an opinion that Alico, Inc. had not maintained
effective internal control over financial reporting as of August 31, 2006, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).

/s/TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.

Orlando, Florida
November 17, 2006

CONSOLIDATED BALANCE SHEETS
(in thousands)

ASSETS

Current assets:
Cash and cash equivalents
Marketable securities available for sale
Accounts receivable
Inventories
Other current assets

Total current assets

Other assets:

Mortgages and notes receivable, net of current portion
Investment and deposits
Cash surrender value of life insurance, designated

Total other assets

Property, buildings and equipment
Less accumulated depreciation

August 31,

2006

2005

25,065
50,100
8,679
24,545
2,524

13,384
70,824
11,216
20,902
12,651

110,913

128,977

10,977
2,919
6,593

20,489

6,395
692
5,676

12,763

179,689
(48,338)

150,997
(45,043)

Net property, buildings and equipment

131,351

105,954

Total assets

$ 262,753

$ 247,694

See accompanying Notes to Consolidated Financial Statements.

LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable
Current portion of notes payable
Accrued expenses
Dividends payable
Accrued ad valorem taxes
Deferred income taxes
Other current liabilities

Total current liabilities

Notes payable, net of current portion
Deferred income taxes, net of current portion
Deferred retirement benefits, net of current portion
Commissions payable, net of current portion
Other non-current liability
Donation payable, net of current portion

August 31,

2006

2005

1,966
3,315
3,720
2,027
2,090
282
4,678

2,180
3,309
2,809
1,842
2,008
2,280
3,391

18,078

60,687
14,807
4,952
2,833
20,293
-

17,819

48,039
13,424
4,376
2,125
16,954
771

Total liabilities

121,650

103,508

Stockholders' equity:
Preferred stock, no par value. Authorized 1,000 shares;

issued, none

Common stock, $1 par value. Authorized 15,000 shares;

issued and outstanding 7,371 in 2006 and 7,369 in 2005

Additional paid in capital
Treasury stock at cost
Accumulated other comprehensive (loss) income
Retained earnings

Total stockholders' equity

7,376
9,691
(287)
(29)
124,352

141,103

7,369
9,183
-
2,195
125,439

144,186

Total liabilities and stockholders' equity

262,753

247,694

See accompanying Notes to Consolidated Financial Statements.

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

Operating revenue

Agricultural operations
Non-agricultural operations

Total operating revenue

Operating expenses

Agricultural operations
Non-agricultural operations
Net casualty loss (recovery)

Total operating expenses

Gross profit
Corporate general and administrative

Years Ended August 31,
2005

2006

2004

75,012
2,422

49,791
5,734

47,032
5,025

77,434

55,525

52,057

65,808
513
(3,628)

62,693

14,741
11,759

40,324
967
1,888

43,179

12,346
10,025

38,258
640
408

39,306

12,751
6,084

Income from operations

2,982

2,321

6,667

Other income (expenses):

Profit on sales of bulk real estate:

Sales
Cost of sales

Profit on sales of bulk real estate, net
Interest & investment income
Interest expense
Other

Total other income, net

Income before income taxes
Provision for income taxes

Net income

5,761
(1,392)
4,369
9,053
(4,066)
346

9,702

12,684
6,215

15,416
(9,951)
5,465
4,443
(2,295)
(696)

6,917

9,238
3,148

33,075
(12,764)
20,311
2,519
(1,825)
128

21,133

27,800
9,987

6,469

6,090

17,813

Weighted-average number of shares outstanding

7,368

7,331

7,219

Weighted-average number of shares outstanding

assuming dilution

7,379

7,347

7,295

Per share amounts:
Basic
Diluted
Dividends

$
$
$

0.88
0.88
1.03

$
$
$

0.83
0.83
1.25

$
$
$

2.47
2.44
0.60

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)

Common Stock

Shares
Issued
7,116

Amount
7,116

Additional
Paid in
Capital
3,074

-
193
-
7,309

-
60
-
7,369

-
193
-
7,309

-
60
-
7,369

-
2,963
1,763
7,800

-
964
419
9,183

Treasury
Stock
at cost

Accumulated
Other
Comprehensive
Income

961

568

-
-
-
1,529

Retained
Earnings
115,031

Total
126,182

17,813

(4,284)
-
-
128,560

568
18,381
(4,284)
3,156
1,763
145,198

6,090

666

-
-
-
2,195

(9,211)
-
-
125,439

666
6,756
(9,211)
1,024
419
144,186

6,469

(2,224)

(7,556)

(2,224)
4,245
(7,556)
(763)

528

(763)

476

Balances, August 31, 2003
Comprehensive income:

Net income
Unrealized gains on securities,
net of taxes of $ 234 and
reclassification adjustment
Total comprehensive income:
Dividends
Stock options exercised
Stock based compensation
Balances, August 31, 2004
Comprehensive income:

Net income
Unrealized gains on securities,
net of taxes of $ 408 and
reclassification adjustment
Total comprehensive income:
Dividends
Stock options exercised
Stock based compensation
Balances, August 31, 2005
Comprehensive income:

Net income
Unrealized losses on securities,
net of taxes of $(17) and
reclassification adjustment
Total comprehensive income:
Dividends
Treasury Stock Purchased
Stock based compensation
- Directors
Treasury Stock Held
Employee:
Stock options exercised
Stock based compensation
Balances, August 31, 2006

-
7,376

127
329
9,691

287

-
-
(29)

-
-
124,352

134
329
141,103

Disclosure of reclassification amount:
Unrealized holding (losses) gains
arising during the period

Less: reclassification adjustment for realized gains

included in net income

Net unrealized (losses) gains on securities

2006

2005

2004

(29)

1,064

2,195

(2,224)

398

666

787

219

568

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Increase (Decrease) in Cash and Cash equivalents:
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation & amortization
Gain on breeding herd sales
Deferred income tax expense, net
Deferred retirement benefits
Net gain on sale of marketable securities
Loss on sale of property and equipment
Gain on real estate sales
Stock based compensation
Imputed interest on mortgage note receivable
Cash provided by (used for) changes in:
Accounts receivable
Inventories
Other assets
Accounts payable & accrued expenses
Income taxes payable
Other non-current liability

Years Ended August 31,
2005

2006

2004

6,469

6,090

17,813

8,590
(162)
680
556
(3,254)
861
(4,369)
857
(2,891)

2,537
(4,159)
(1,585)
719
1,304
3,339

6,957
(209)
3,209
(88)
(2,083)
5,539
(5,465)
419
-

(2,098)
(692)
(765)
2,981
(1,741)
-

6,509
(108)
472
(1,154)
(723)
-
(20,311)
1,763
-

561
474
291
7,370
753
-

Net cash provided by operating activities

9,492

12,054

13,710

Cash flows from investing activities:
Increase in land inventories
Real Estate deposits and accrued commissions
Purchases of property and equipment
Proceeds from disposals of property and equipment
Proceeds from sale of real estate
Purchases of marketable securities and investments
Proceeds from sales of marketable securities
Collection of mortgages and notes receivable

(793)
6,811
(33,172)
1,092
5,555
(92,583)
109,992
632

(498)
(11,106)
(12,877)
1,762
7,507
(28,351)
16,897
10,279

(423)
-
(7,280)
738
21,356
(21,392)
5,643
2,586

Net cash (used for) provided by investing activities

(2,466)

(16,387)

1,228

Cash flows from financing activities:
Proceeds from issuing stock
Treasury stock purchases
Proceeds from bank loans
Repayment of bank loans
Dividends paid

Years Ended August 31,
2005

2004

2006

134
(763)
65,814
(53,160)
(7,370)

1,024
-
26,933
(27,170)
(7,369)

3,156
-
23,922
(29,785)
(4,284)

Net cash provided by (used for) financing activities

4,655

(6,582)

(6,991)

Net increase (decrease) in cash and cash equivalents

11,681

(10,915)

7,947

Cash and cash equivalents:
At beginning of year

At end of year

Supplemental disclosures of cash flow information:

13,384

24,299

16,352

25,065

13,384

24,299

Cash paid in interest, net of amount capitalized

3,576

2,074

1,518

Cash paid for income taxes, including related interest

1,803

1,600

1,370

Non-cash investing activities:

Fair value adjustments to securities available for sale

(45)

1,074

802

Income tax effect related to fair value adjustments

(16)

408

234

Reclassification of breeding herd to Property & Equipment

516

562

599

See accompanying Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended August 31, 2006, 2005 and 2004
(in thousands except for unit data)

(1) Summary of Significant Accounting Policies

(a) Basis of Consolidated Financial Statement Presentation

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

(b) Revenue Recognition

Income from the sale of citrus is recognized at the time the crop is harvested. Based on fruit buyers' and
processors' advances to growers, stated cash and futures markets combined with experience in the industry,
management reviews the reasonableness of the citrus revenue accrual. Adjustments are made throughout the
year to these estimates as relevant information regarding the citrus market becomes available. Differences
between the estimates and the final realization of revenues can be significant, and the differences between
estimated and final results can be either positive or negative. Fluctuation in the market prices for citrus fruit
has caused the Company to recognize additional revenue from the prior years’ crops totaling $838 thousand,
$357 thousand, and $728 thousand during fiscal years’ 2006, 2005, and 2004, respectively.

Income from sugarcane under a pooled agreement is recognized at the time the crop is harvested. Based on
the processor’s advance payment, past sugarcane prices and its experience in the industry, management
reviews the reasonableness of the sugarcane revenue accrual. Adjustments are made as additional relevant
information regarding the sugar market becomes available. Market price changes to the sugar pool have
caused the Company to adjust revenue from the prior years’ crops by $169 thousand, ($198 thousand), and
$325 thousand during fiscal years 2006, 2005, and 2004, respectively.

The Company recognizes revenue from cattle sales at the time the cattle are sold at auction. The Company
recognizes revenue from the sale of vegetables and sod at the time of harvest. Revenues from the sale of
plants is recognized when the plants are shipped from the greenhouse.

Real estate sales are recorded under the accrual method of accounting. Residential retail land sales made
through Saddlebag are not recognized until the buyer’s initial investment or cumulative payments of principal
and interest equal or exceed 10% of the contract sales price.

Gains from commercial or bulk land sales, made mostly through Alico-Agri, Ltd., are not recognized until
payments received for property to be developed within two years after the sale equal 20%, or property to be
developed after two years equal 25% of the contract sales price according to the installment sales method.

Tangible assets that are purchased during the period to aid in the sale of the project as well as costs for
services performed to obtain regulatory approval of the sales are capitalized as land and land improvements to
the extent they are estimated to be recoverable from the sale of the property. Land and land improvement
costs are allocated to individual parcels on a per lot basis using the relative sales value method.

The costs incurred to obtain the necessary regulatory approvals are capitalized into land costs when paid.
These costs will be expensed as cost of sales when the underlying real estate is sold.

(d) Marketable Securities Available for Sale

Marketable securities available for sale are carried at their fair value. Net unrealized investment gains and
losses are recorded net of related deferred taxes in accumulated other comprehensive income within
stockholders' equity until realized. Unrealized losses determined to be other than temporary are recognized in
the statement of operations in the period the determination is made.

Fair value for debt and equity investments is based on quoted market prices at the reporting date for those or
similar investments. The cost of all marketable securities available for sale is determined on the specific
identification method.

(e) Inventories

The costs of growing crops are capitalized into inventory until the time of harvest. Once a given crop is
harvested, the related inventoried costs are recognized as a cost of sale to provide an appropriate matching of
costs incurred with the related revenue earned.

The Company states its inventories at the lower of cost or net realizable value. The cost for unharvested crops
is based on accumulated production costs incurred during the eight-month period from January 1 through
August 31. The cost of the beef cattle inventory is based on the accumulated cost of developing such animals
for sale. The cost of greenhouse plants is based on the actual costs of production for such plants.

(f) Mortgages and notes receivable

Mortgages and notes receivable arise from real estate sales. Mortgages and notes receivable are carried at
their estimated net realizable value. In circumstances where the stated interest rate is below the prevailing
market rate, the note is discounted to yield the market rate of interest. The discount offsets the carrying
amount of the mortgages and notes receivable.

Under the installment method of accounting, gains from commercial or bulk land sales are not recognized
until payments received for property equal or exceed 20% of the contract sales price. Such gains are recorded
as deferred revenue and offset the carrying amount of the mortgages and notes receivable.

(g) Accounts receivable

Accounts receivable are generated from the sale of citrus, sugarcane, sod, cattle, vegetables, plants and other
transactions. The Company provides an allowance for doubtful trade receivables equal to the estimated
uncollectible amounts. That estimate is based on historical collection experience, current economic and
market conditions, and a review of the current status of each customer’s trade accounts receivable.

(h) Property, Buildings and Equipment

Property, buildings and equipment are stated at cost. Properties acquired from the Company's predecessor
corporation in exchange for common stock issued in 1960, at the inception of the Company, are stated on the
basis of cost to the predecessor corporation. Property acquired as part of a land exchange trust, is valued at the
carrying value of the property transferred to the trust.

All costs related to the development of citrus groves, through planting, are capitalized. Such costs include
land clearing, excavation and construction of ditches, dikes, roads, and reservoirs, etc. After the planting,
caretaking costs or pre-productive maintenance costs are capitalized for four years. After four years, a grove
is considered to have reached maturity and the accumulated costs, except for land excavation, become the
depreciable basis of a grove and depreciated over 25 years.

Development costs for sugarcane are capitalized the same as citrus. However, sugarcane matures in one year
and the Company is able to harvest an average of 3 crops (1 per year) from one planting. As a result,
cultivation/caretaking costs are expensed as the crop is harvested, while the appropriate development and
planting costs are depreciated over 3 years.

The breeding herd consists of purchased animals and animals raised on the ranch. Purchased animals are
stated at cost. The cost of animals raised on the ranch is based on the accumulated cost of developing such
animals for productive use.

Depreciation for financial reporting purposes is computed on straight-line or accelerated methods over the
estimated useful lives of the various classes of depreciable assets. See Note 5 to the consolidated financial
statements.

The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets". This Statement requires long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and
used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

(i) Land Inventories

Land inventories are carried at cost and consist of property located in Lee County, Florida owned by Alico-
Agri, Ltd. The Lee County property is held for sale as commercial real estate. Land inventory is considered a
current asset if sales contracts for the property are expected to close within one year of the balance sheet date.
Land inventory is grouped under the caption other current assets.

(j) Other Investments

Other investments are carried at cost. These primarily include stock owned in agricultural cooperatives and
loan origination fees. The Company uses cooperatives to process and sell sugarcane and citrus. Cooperatives
typically require members to acquire stock ownership as a condition for the of use of its services.

During fiscal year 2006, the Company entered into and later amended a Credit Facility with a commercial
bank for a $175.0 million line of credit which matures on August 1, 2010. Loan origination and other related
fees totaling $750 thousand were included in the August 31, 2006 balance sheet as other investments and are
being amortized over the life of the Credit Facility. The amortization expense was $124 thousand for fiscal
year 2006.

(k) Income Taxes

The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(l) Net Earnings Per Share

Outstanding stock options and restricted stock shares represent the only dilutive effects reflected in the
computation of weighted average shares outstanding assuming dilution. There were no stock options issued
that could potentially dilute basic earnings per share in the future that were not included in the computation of
earnings per share assuming dilution.

(m) Cash Flows

For purposes of the cash flows, cash and cash equivalents include cash on hand and investments with an
original maturity of less than three months.

(n) Use of Estimates

In preparing the consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual results could differ significantly
from those estimates. Although some variability is inherent in these estimates, management believes that the
amounts provided are adequate. The valuation of the Company’s inventories, the estimated tax contingency
and the recognition of citrus and sugarcane revenues are some of the more significant estimates made by
Management.

(o) Financial Instruments and Accruals

The carrying amounts in the consolidated balance sheets for accounts receivable, mortgages and notes
receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short
term maturity of these items. Where stated interest rates are below market, the Company has discounted
mortgage notes receivable to reflect their estimated fair market value. The carrying amounts reported for the
Company's long-term debt approximates fair value because they are transactions with commercial lenders at
interest rates that vary with market conditions and fixed rates that approximate market.

(p) Derivative and Hedging Instruments

The Company, from time to time, engages in cattle futures trading activities for the purpose of economically
hedging against price fluctuations. The Company records gains and losses related to these cattle hedges in
costs of goods sold. At August 31, 2006 and 2005, the Company had no open positions in cattle futures. The
Company also purchases, from time to time, corn futures in order to lock in the cost of raising feeder cattle
over the feeding term. At August 31, 2006 and 2005, the Company had no open positions in corn futures. The
Company, through its investment portfolio, also may hedge using options or short sales. These transactions
are recorded as interest and investment income.

(q) Accumulated Other Comprehensive Income (Loss)

Comprehensive income is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources. It includes both net income and
other comprehensive income or loss. Items included in other comprehensive income or losses are classified
based on their nature. The total of other comprehensive income or loss for a period has been transferred to an
equity account and displayed as "accumulated other comprehensive income (loss)”.

(r) Stock-Based Compensation

Prior to the 2006 fiscal year, the Company accounted for its stock-based compensation under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees and related interpretations (“APB 25”). Under APB 25, stock-based compensation cost was
reflected in net income for grants of stock options based on the difference between the exercise price and the
fair market value of the stock on the date of issue.

Effective September 1, 2005, the Company adopted the modified prospective transition method under
Statement of Financial Accounting Standards No. 123 (Revised 2004) “Share-Based Payment” (“SFAS
123R”), which requires the measurement and recognition of compensation cost at fair value for all share-
based payments, including stock options and restricted share awards. Stock-based compensation recognized
for fiscal year 2006 was approximately $329 thousand and is included in general and administrative expenses
in the consolidated statement of operations. This expense includes compensation expense, recognized over
the applicable vesting periods, for new share-based awards and for share-based awards granted prior to, but
not yet vested, as of August 31, 2006. See Note 8 “Stock-Based Compensation” in the notes to the
consolidated financial statements.

The following table illustrates the effect on net income and earnings per share of the Company had the
Company applied the fair value recognition provisions of FASB Statement No. 123, “Accounting for Stock-
Based Compensation” , relating to stock-based employee compensation for the years ended August 31, 2005
and 2004:

No stock options were granted during fiscal years 2006 and 2005. The fair value of stock options granted was
$1.7 million in 2004 on the date of the grant using the Black Scholes option-pricing model with the following
weighted average assumptions:

Volatility
Dividend paid
Risk-free interest rate
Expected life in years

2005

2004

-
-
-
-

8.28%
1.87%
2.26%
1

Estimates of volatility, dividends and the expected life of the options were based on the experience of the
Company. The risk free interest rate was based on rates published by the Department of the Treasury for
bonds with expected lives similar to the expected option life.

Net income as reported

6,090

17,813

Year ended August 31,
2004

2005

Add: Total stock-based employee compensation expense

included in reported net income,
net of related tax effects

Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects

Pro forma net income

Earnings per share:

Basic - as reported

Basic - pro forma

Diluted - as reported

Diluted - pro forma

(s) Reclassifications

1,100

(1,063)

6,090

17,850

0.83
#REF!
0.83

2.47
#REF!
2.47

#REF!

0.83

#REF!

2.44

0.83

2.45

Certain amounts from 2005 and 2004 have been reclassified to conform to the 2006 presentation.

(t) Major customers

Alico is a producer of agricultural commodities. Due to the limited number of processors of its raw products,
geographic limitations and historic success, the Company’s citrus and sugarcane sales are concentrated to a
few customers. Details concerning the sales and receivables from these customers are as follows for the years
ended August 31:

Accounts receivable

2006

2005

2004

2006

Revenues
2005

2004

4,435

5,811

5,437

17,203

19,810

18,385

1,740

2,466

2,887

8,926

9,323

11,646

Citrus fruit marketer -
Griffin

Sugar cane processor -
United States Sugar
Corporation

Sales made through the citrus fruit marketer represented approximately 78%, 76% and 75% of the Company’s
citrus grove revenues during fiscal years 2006, 2005 and 2004, respectively, and approximately 22%, 36%
and 35% of total operating revenues during fiscal years 2006, 2005 and 2004, respectively.

Sales made through the sugarcane processor represented 100% of the Company’s sugarcane revenues during
fiscal years 2006, 2005 and 2004 and 12%, 17% and 22% of total operating revenues during fiscal years
2006, 2005 and 2004, respectively.

2) Marketable Securities Available for Sale

The Company has classified 100% of its investments in marketable securities as available for sale and, as
such, the securities are carried at estimated fair value. Any unrealized gains and losses, net of related deferred
taxes, are recorded as a net amount in a separate component of stockholders' equity until realized. In
accordance with the provisions of EITF Issue No. 03-1, which became effective for reporting periods
beginning after June 15, 2004, the Company identified those investments at August 31, 2005 which were
deemed to be other than temporarily impaired and included the losses in the statement of operations for fiscal
year 2005. No investments at August 31, 2006 were deemed to be other than temporarily impaired.

The cost and estimated fair values of marketable securities available for sale at August 31, 2006 and 2005
were as follows:

2006

Gross
Unrealized

Equity securities:

Cost

Gains

Losses

Preferred stocks
Common stocks
Mutual funds

$
-
-
-

-$
-
-

$
-
-
-

2005

Estimated
Fair
Value

$
-
-
-

Gross
Unrealized
Gains

Losses

Estimated
Fair
Value

Cost

1,363
6,483
17,029

81
1,066
2,846

(17)
(218)
(86)

1,427
7,331
19,789

Total equity securities

24,875

3,993

(321)

28,547

Debt securities

Municipal bonds
Mutual funds
Fixed maturity funds
Corporate bonds

21,169
370
19,686
8,920

Total debt securities

50,145

19
-
44
-

(2)
(6)
(18)
(82)

21,186
364
19,712
8,838

(108)

50,100

20,548
4,344
2,799
14,897

42,588

74
155
-
12

241

-
(76)
(41)
(435)

20,622
4,423
2,758
14,474

(552)

42,277

Marketable securities
available for sale

50,145

(108)

50,100

67,463

4,234

(873)

70,824

The aggregate fair value of investments in debt securities (net of mutual funds of $364) as of August 31, 2006 by
contractual maturity date, consisted of the following:

Aggregate
Fair Value

Due in one year or less
Due between one and five years
Due between five and ten years
Due thereafter
Total

23,540
7,196
5,520
13,480
49,736

Realized gains and losses on the disposition of securities were as follows:

Year ended August 31,

2006

2005

2004

Realized gains
Realized losses

4,962
(1,708)

2,606
(523)

815
(92)

Net

3,254

2,083

723

In evaluating whether a security was other than temporarily impaired, the Company considered the severity
and length of time impaired for each security in a loss position. Other qualitative data was also considered
including recent developments specific to the organization issuing the security. The following table shows the
gross unrealized losses and fair value of the Company’s investments with unrealized losses that are not
deemed to be other than temporarily impaired, aggregated by investment category and length of time that
individual securities have been in a continuous unrealized loss position, at August 31, 2006:

Less than 12 months
Fair
Value

Unrealized
Losses

12 months or greater
Fair
Value

Unrealized
Losses

Total

Fair
Value

Unrealized
Losses

Municipal bonds
Debt mutual funds
Fixed maturity funds
Corporate bonds

720
217
8,377
2,832

2
$
3
18
25

147

6,006

720
364
8,377
8,838

2
$
6
18
82

Total

12,146

6,153

18,299

108

Equity securities and funds. At August 31, 2006, the Company held no positions in equity securities.

During the year ended August 31, 2005, equity investments with a combined cost basis of $1.7 million were
determined to be other than temporarily impaired. An adjustment of $399 thousand was made to reduce the
cost basis of the securities and was recognized as a reduction in interest and investment income.

Debt instruments and funds. The unrealized losses on municipal bonds, debt mutual funds, fixed maturity
funds and corporate bonds were primarily due to changes in interest rates. At August 31, 2006 the Company
held loss positions in 15 government backed bonds, 2 debt based mutual funds, 66 fixed maturity funds,
consisting mostly of certificates of deposit, and 14 corporate bond positions. Because the decline in market
values of these securities is attributable to changes in interest rates and not credit quality and because the
Company has the ability and intent to hold these investments until a recovery of fair value, which may be
maturity, the Company does not believe any of the unrealized losses represent other than temporary
impairment based on evaluations of available evidence as of August 31, 2006.

(3) Mortgages and Notes Receivable

Mortgage and notes receivable arose from real estate sales. The balances are
as follows:

Mortgage notes receivable on retail land sales
Mortgage notes receivable on bulk land sales
Other notes receivable

Total mortgages and notes receivable
Less: Deferred revenue
Discount on note to impute market interest
Current portion

August 31,

2006

2005

427
56,610
-

580
56,976
10

57,037
(43,230)
(2,783)
(47)

57,566
(46,207)
(2,594)
(2,370)

Non-current portion

10,977

6,395

Maturities of the mortgages and notes receivable are as follows:

Due within 1 year
Due between 1 and 2 years
Due between 2 and 3 years
Due between 3 and 4 years
Due between 4 and 5 years
Due beyond five years

Total mortgages and notes receivable

Less: Deferred Revenue
Discount on note to impute market interest

Net mortgages and notes receivable

47
14,204
14,205
14,207
14,208
166
57,037
(43,230)
(2,783)

11,024

In July 2005, Alico-Agri sold property in Lee County, Florida for $62.9 million. At the time of sale, the
Company received a down payment of $6.2 million in cash and a 2.5% interest bearing mortgage note of
$56.6 million in exchange for the land sold. Under the terms of the note, equal annual principal payments of
$14.2 million are receivable, together with related interest over a four year period following approval of the
development order. The first payment is to be received no later than three years after the date of sale. Interest
under the note does not begin to accrue until a development order is received for the property sold. The note
has been discounted by $2.8 million to reflect the prevailing market rate of interest. The Company has also
deferred $43.2 million of gain related to the sale, until aggregate receipts under the contract total at least 20%
of the sales price. The current portion of the mortgages and notes receivable is included with “Other current
assets” in the accompanying consolidated balance sheets.

(4) Inventories

A summary of the Company's inventories at August 31, 2006 and 2005 is shown below:

Unharvested fruit crop on trees
Unharvested sugarcane
Beef cattle
Plants and vegetables
Sod

2006

2005

10,709
5,168
7,063
588
1,017

8,176
5,691
5,024
1,180
831

Total inventories

24,545

20,902

The Company's unharvested sugarcane and cattle are partially uninsured.

The Company records its inventory at the lower of cost or net realizable value. At August 31, 2006, the
Company wrote down cattle inventory by $35 thousand. At August 31, 2005, the cost basis for all inventories
was below estimated net realizable value.

Hurricane Wilma, a category three hurricane, swept through southwest Florida during the first quarter of
fiscal year 2006. The hurricane caused extensive damage to the Company’s crops and infrastructure in
Collier and Hendry Counties. Additionally, hurricanes in fiscal years 2005 and 2004 also caused damages to
citrus crops, primarily in Polk County.

In fiscal year 2005, citrus canker was discovered in three of the Company’s citrus grove locations. 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 2005, Florida law required that
infected and exposed trees within 1900 feet of the canker find be removed and destroyed. The Company’s
traditional policy has been to recognize a loss estimate for the total destruction of all trees within 1,900 feet of
the canker find as soon as canker was confirmed. This estimate of loss damage preceded the actual
destruction of the trees. During the second quarter of fiscal year 2006, the USDA determined that due to the
potential spread of canker from hurricanes they did not believe that canker eradication was feasible. Due to
this determination, the rule requiring the destruction of citrus groves testing positive for canker was
suspended. Upon suspension of the rule requiring the destruction of citrus groves, those portions of inventory
that were previously estimated as lost but had not yet been destroyed were reestablished, reducing the casualty
loss accrued.

As a result of the hurricane and canker discoveries, the Company recognized casualty losses related to
inventoried costs as follows:

Inventory Damage

Unharvested citrus
Unharvested sugarcane
Unharvested vegetables

2006
3,198
395
147
3,740

2005
$

786

2004
$

408

-
-

786

408

For further information regarding the casualty losses, please refer to Note 12 of the consolidated financial
statements.

(5) Property, Buildings and Equipment

A summary of the Company's property, buildings and equipment at August 31, 2006 and
2005 is shown below:

Breeding herd
Buildings
Citrus trees
Sugarcane
Equipment and other facilities

Total depreciable properties
Less accumulated depreciation

Net depreciable properties
Land and land improvements

Estimated
Useful Lives

5-7 years
5-40 years
22-40 years
4-15 years
3-40 years

2006

2005

15,038
8,434
31,466
8,382
35,130

98,450
48,338

50,112
81,239

13,688
7,037
30,058
8,344
30,934

90,061
45,043

45,018
60,936

Net property, buildings and equipment

131,351

105,954

During the second quarter of fiscal year 2006, the USDA suspended the rule requiring the destruction of
canker. As a result, some of the trees that were scheduled for removal and had been written off as a casualty
loss in 2005, were reestablished during fiscal year 2006. Trees with a basis of $1.3 million previously
recognized as a casualty loss in fiscal year 2005 were added back to fixed assets and credited to fiscal year
2006 operations as a casualty recovery (see Note 12 to the consolidated financial statements).

In November 2005, the Company sold approximately 280 acres of citrus grove land located south of La Belle,
Florida in Hendry County for $5.6 million cash. The Company will retain operating rights to the grove until
residential development begins. The Company recognized a net profit on the sale of $4.4 million.

In October 2005, the Company, through Alico-Agri, Ltd., purchased 291 acres of lakefront property in Polk
County, Florida, for $9.2 million cash.

In May 2006, the Company purchased a 523 acre riverfront mine site for rock and fill in Glades County,
Florida, for $10.6 million cash. The Company has allocated approximately 54% of the purchase price to the
rock and sand reserve with the remaining 46% of the purchase price allocated as residual land value based on
the present value of the expected rock royalties to be received over 20 years and the expected value of the
property after that time. Rock and sand reserves are being charged to cost of goods sold proportionately as
the property is mined.

(6) Indebtedness

In October 2005, Alico, Inc. entered into a Credit Facility with a commercial lender. The Credit Facility
provided the Company with a $175.0 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 allowed an annual extension at the lender’s option.

In May 2006 the above Credit Facility was amended “Amended Credit Facility” and restated to modify
certain terms. Per the Amended Credit Facility, the $175.0 million revolving line of credit, which matures on
August 1, 2010, may be used for general corporate purposes including: (i) the normal operating needs of the
Company and its operating divisions, (ii) the purchase of capital assets and (iii) the payment of dividends.
The Amended Credit Facility also allows for an annual extension at the lender’s option.

Under the Amended Credit Facility, revolving borrowings require quarterly interest payments at LIBOR plus
a variable rate between 0.8% and 1.5% depending on the Company’s debt ratio. The Amended Credit Facility
is partially collateralized by mortgages on two parcels of agricultural property located in Hendry County,
Florida consisting of 7,672 acres and 33,700 acres.

Under the Amended Credit Facility an event of default occurs if the Company fails to make the payments
required of it or otherwise fails to fulfill the related provisions and covenants. In the event of default, the
Amended Credit Facility shall bear interest at a rate of 2% greater than the then-current rate specified in the
Amended Credit Facility. In the event of default, the lender may, alternatively at its option, terminate its
revolving credit commitment and require immediate payment of the entire unpaid principal amount of the
Amended Credit Facility, accrued interest and declare all other obligations immediately due and payable. The
Company is currently in compliance with all of the covenants and provisions of the Amended Credit Facility.

The Amended Credit Facility also contains numerous restrictive covenants including those requiring the
Company to maintain minimum 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.

Outstanding debts under the Company’s various loan agreements were as follows at August 31, 2006 and
2005:

August 31, 2006

a) Revolving credit facility
b) Term loan
c) Mortgage note payable
d) Other

Principal
Balance

52,296
2,000
9,606
100

Additional
Credit
Available
122,704
-
-
-

Interest
Rate

Collateral
Libor +1% Real Estate
5.80% Unsecured
6.68% Real estate
7.00% Real estate

Total

64,002

122,704

August 31, 2005

b) Term loan
c) Mortgage note payable
d) Other
e) Revolving credit line
f) Demand note
g) Revolving credit line

Principal
Balance

4,000
10,872
146
21,330
-
15,000

Additional
Credit
Available
-
$
-
-
4,670
3,000
-

Interest
Rate

Collateral
5.80% Unsecured
6.68% Real estate
7.00% Real estate
Libor +1% Unsecured
Libor +1% Unsecured
Libor +.8% Unsecured

Total

51,348

7,670

a) Terms described above
b) 5-year fixed rate term loan with commercial lender. $2 million principal due annually.

Interest due quarterly.

c) First mortgage on 7,680 acres of cane, citrus, pasture and improvements in Hendry

County, Florida with commercial lender. Monthly principal payments of $106 thousand
plus accrued interest.

d) First mortgage on a parcel of land in Polk County, Florida with private seller. Annual

equal payments of $55 thousand.

e) Line of credit with commercial bank, refinanced in October, 2005.
f) Working capital loan with commercial bank due on demand. Refinanced in October, 2005.

LIBOR was 5.33% and 3.69% at August 31, 2006 and 2005, respectively. The Company’s variable interest
rates, based on LIBOR at August 31, 2006 and 2005 were approximately 6.33% and 4.69%, respectively.

The Company's debt agreements contain covenants that require that the Company maintain certain financial
ratios and minimum net worth levels. The covenants also restrict the Company's activities regarding
investments, liens, borrowing and leasing. At August 31, 2006, the Company was in compliance with all
financial and other covenants.

Maturities of the Company's debt are as follows:

Due within 1 year
Due between 1 and 2 years
Due between 2 and 3 years
Due between 3 and 4 years
Due between 4 and 5 years
Due beyond five years

Total

August 31,
2006

3,315
1,318
1,267
53,563
1,267
3,272

64,002

Interest costs expensed and capitalized during the three years ended
August 31, 2006, 2005 and 2004 was as follows:

2006

2005

2004

Interest expense
Interest capitalized

4,066
77

2,295
235

1,825
275

Total interest cost

4,143

2,530

2,100

(7) Other non-current liability

Alico formed a wholly owned insurance subsidiary, Agri Insurance Company, Ltd. (Bermuda) ("Agri") in
June of 2000. Agri was formed in response to the lack of insurance availability, both in the traditional
commercial insurance markets and governmental sponsored insurance programs, suitable to provide coverage
for the increasing number and potential severity of agricultural events. Such events include citrus canker, crop
diseases, livestock related maladies and weather. Alico’s goal included not only pre-funding its potential
exposures related to the aforementioned events, but also to attempt to attract new underwriting capital if it is
successful in profitably underwriting its own potential risks as well as similar risks of its historic business
partners.

Alico capitalized Agri by contributing real estate located in Lee County Florida. The real estate was
transferred at its historical cost basis. Agri received a determination letter from the Internal Revenue Service
(IRS) stating that Agri was exempt from taxation provided that net premium levels, consisting only of
premiums with third parties, were below an annual stated level ($350 thousand). Third party premiums have
remained below the stated annual level. As the Lee County real estate was sold, substantial gains were
generated in Agri, creating permanent book/tax differences.

The Company does not accept the IRS position and intends to continue to oppose vigorously any attempt by
the IRS to impose such assessment in connection with the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable that the challenge may be
successful as to some of the possible assertions, Management has provided for the contingency. The
Company has accrued a liability of $20.3 million and $17.0 million as of August 31, 2006 and 2005,
respectively, for the contingency.

(8) Stock Based Compensation

On November 3, 1998, the Company adopted the Alico, Inc., Incentive Equity Plan (The Plan) pursuant to
which the Board of Directors of the Company may grant options, stock appreciation rights, and/or restricted
stock to certain directors and employees. The Plan authorized grants of shares or options to purchase up to
650,000 shares of authorized but unissued common stock. Stock options granted have a strike price and
vesting schedules that are at the discretion of the Board of Directors and are determined on the effective date
of the grant. The strike price cannot be less than 55% of the market price. No stock options were granted
during fiscal years 2006 and 2005.

The Company applied APB Opinion 25 for options issued to directors and employees in accounting for its
Plan prior to fiscal year 2006. All stock options were granted to directors or employees with an exercise price
equal to at least 55% of the fair value of the common stock at the date of grant and had a vesting period of one
year.

For fiscal year 2006, the Company adopted SFAS 123R, which revised Statement of Financial Accounting
Standard No. 123 “Share-Based Payment”. SFAS 123R requires companies to measure the cost of employee
services received in exchange for an award of equity instruments based on the grant-date fair value of the
award. The cost is to be recognized over the period during which an employee is required to provide service
in exchange for the award (usually the vesting period). The grant date fair value of employee share options
and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics
of those instruments (unless observable market prices for the same or similar instruments are available). If an
equity award is modified after the grant date, incremental compensation cost will be recognized in an amount
equal to the excess of the fair value of the modified award over the fair value of the original award
immediately before the modification.

A summary of option activity under the Plan is as follows:

Shares Under
Option

Weighted average
exercise price

Weighted average
remaining contractual
life (in years)

Aggregate
Intrinsic
Value

Options outstanding,
August 31,2003
Granted
Exercised

Options outstanding,
August 31,2004
Granted
Exercised

Options outstanding,
August 31,2005
Granted
Exercised

Options outstanding,
August 31,2006

149,401
119,462
193,237

15.34
18.18
16.33

75,626
-
59,255

16,371
-
7,213

17.29
-
17.08

18.05

18.55

9,158

17.66

August 31, 2006 and August 31, 2005, there were 9,158 and 16,371 stock options, respectively, fully vested
and exercisable and 292,844 and 292,844 shares, respectively, available for grant. The 9,158 options
outstanding as of August 31, 2006 had a fair value of $382 thousand. There was no unrecognized
compensation expense related to outstanding stock option grants at August 31, 2006.

In fiscal year 2006, 7,213 options were exercised having a total fair value of $259 thousand. In fiscal year
2005, 59,255 options were exercised having a total fair value of $1.9 million. In fiscal year 2004, 190,537
options were exercised having a total fair value of $3.7 million. Compensation expense recognized for the
options granted in fiscal year 2004 was $942 thousand based on the difference between the exercise price and
fair market value at the date of grant as prescribed under APB 25. In fiscal year 2004, 119,462 options were
granted at a weighted average grant date fair value of $14.76.

In fiscal year 2006, the Company began granting restricted shares to certain key employees as long term
incentives. The restricted shares vest in four equal annual installments. The payment of each installment is
subject to continued employment with the Company. In fiscal year 2006, there were 4,000 restricted shares
vested in accordance with these grants.

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

Grant Date
April 2006
July 2006
October 2006

Shares Granted
20,000
13,000
20,000

Fair Market Value
on Date of Grant
908
$
694
1,239

Compensation
Expense
Recognized in 2006
$

65
16
248

Weighted
Average
Grant date
Fair value
Per share

Total

53,000

2,841

329

53.60

The shares granted in April 2006 vest 25% in April 2010 and 25% annually thereafter until fully vested. The
shares granted in July 2006 vest 25% in July 2010 and 25% annually thereafter until fully vested. Four
thousand of the shares granted in October 2006 related to past service and were immediately vested. The
shares granted in October 2006 vested 25% effective August 31, 2006 and 25% annually thereafter until fully
vested. Following the guidelines established in FAS 123R, the Company is recognizing compensation cost
equal to the fair market value of the stock at the grant dates prorated over the vesting period of each award.
The fair value of the unvested restricted stock awards at August 31, 2006 was $2.9 million and will be
recognized over a weighted average period of 6 years.

(9) Income Taxes

The provision for income taxes for the fiscal years ended August 31, 2006, 2005 and 2004 is summarized as
follows:

Current:
Federal income tax
State income tax

Deferred:
Federal income tax
State income tax

Year ended August 31,
2005

2004

2006

2,640
282
2,922

1,121
120
1,241

8,733
933
9,666

2,975
318
3,293

1,725
182
1,907

290
31
321

Total provision for income taxes

6,215

3,148

9,987

Following is a reconciliation of the expected income tax expense computed at the U.S. Federal statutory rate
of 34% and the actual income tax provision for the years ended August 31, 2006, 2005 and 2004:

Provision for income tax at statutory rate
Increase (decrease) resulting from:
State income taxes, net of federal benefit
Nontaxable interest and dividends
Stock options exercised
Contingent liability increase
Other reconciling items, net

Year ended August 31,
2005

2006

2004

4,313

3,141

9,452

396
(352)
-
2,204
(346)

198
(89)
(648)
-
546

#REF!

(93)
(675)
-
667

Total provision for income taxes

6,215

3,148

#REF!

Some items of revenue and expense included in the statement of operations may not be currently taxable or
deductible on the income tax returns. Therefore, income tax assets and liabilities are divided into a current
portion, which is the amount attributable to the current year’s tax return, and a deferred portion, which is the
amount attributable to another year’s tax return. The revenue and expense items not currently taxable or
deductible are called temporary differences.

The tax effects of temporary differences that give rise to significant portions of the deferred
tax assets and deferred tax liabilities are presented below:

Deferred Tax Assets:
Contribution carry forward
Deferred retirement benefits
Prepaid sales comissions
Land inventories
Stock options appreciation
IRS adjustments
Contingency accrual
Other

2006

2005

1,052
1,299
412
488
278
802
1,257
662

1,469
1,032
412
488
195
786
-
618

Total gross deferred tax assets

6,250

5,000

Deferred Tax Liabilities:
Revenue recognized from citrus and sugarcane
Property and equipment (principally due to depreciation and
soil and water deductions)
Inventories
Deferred real estate gains
Unrealized security gains
Other

471

491

15,743
322
4,792
-
11

12,874
1,353
3,540
1,208
1,238

Total gross deferred tax liabilities

21,339

20,704

Net deferred income tax liabilities

15,089

15,704

Based on the Company's history of taxable earnings and its expectations for the future,
management has determined that its taxable income will more likely than not be
sufficient to fully recognize all deferred tax assets.

Agri Insurance Company, Ltd. (Agri), a wholly owned insurance company subsidiary of Alico, is treated as a
U.S. taxpayer, pursuant to an election under Internal Revenue Code Section 953(d), for all purposes except
for consolidating an operating loss by virtue of the dual consolidated loss rules. (Dual consolidated losses
prevent operating losses [not capital losses] from occurring in insurance companies domiciled outside of the
United States from offsetting operating income irrespective of the fact that the insurance company is a
member of the consolidated return group).

Agri was established to provide agricultural insurance that falls outside of the Federal Crop Insurance
Program, for catastrophic perils. Agri was domiciled in Bermuda because it offers easy access to reinsurance
markets.

Agri issued its initial policy in August 2000 to a third party. Agri's ability to underwrite insurance risks is
limited by its operational liquidity, by the Registrar of Companies in Bermuda. For Federal income tax
purposes, only premiums received by Agri from policies of insurance issued to parties other than its parent,

Alico, are considered insurance premiums. The preceding limiting factors resulted in Agri not incurring a tax
liability on underwriting profits or investment income. Agri's tax status resulted in it filing its Federal tax
return on a stand alone basis for the calendar year periods ended December 31, 2003, 2002, 2001 and 2000.

The Company does not accept the IRS position and intends to continue to oppose vigorously any attempt by
the IRS to impose such assessment in connection with the Agri Insurance matter. However, because
Management believes it is probable that a challenge will be made and probable that the challenge may be
successful as to some of the possible assertions, Management has provided for the contingency. During fiscal
year 2006, the Company adjusted its liability accrual by $3.3 million. The adjustment was charged to the
Company’s fiscal year 2006 tax provision. The Company has accrued a total liability of $20.3 million and
$17.0 million at August 31, 2006 and 2005, respectively, for the contingency.

Since January 1, 2004 Agri has been filing as a taxable entity. This change in tax status is a direct result of
changes in the Internal Revenue Code increasing premium and other annual income levels. Due to these
changes, Agri no longer qualifies as a tax-exempt entity.

(10) Related Party Transactions

Citrus

Citrus revenues of $17.2 million, $19.8 million and $18.4 million were recognized for a portion of citrus
crops sold under a marketing agreement with Ben Hill Griffin, Inc. (Griffin) for the years ended August 31,
2006, 2005 and 2004, respectively. Griffin and its subsidiaries are controlled by Ben Hill Griffin, III, the
brother-in-law of John R. Alexander, the Company’s Chief Executive Officer, and was the owner of
approximately 49.85 percent of the Company's common stock until February 26, 2004. Accounts receivable,
resulting from citrus sales, include amounts due from Griffin totaling $4.4 million at August 31, 2006 and
$5.8 million at August 31, 2005. These amounts represent estimated revenues to be received periodically
under pooling agreements as sale of pooled products is completed.

Harvesting, marketing, and processing costs, for fruit sold through Griffin, totaled $5.5 million, $6.6 million,
and $7.2 million for the years ended August 31, 2006, 2005 and 2004, respectively. In addition, Griffin
provided the harvesting services for citrus sold to unrelated processors in 2005 and 2004. The aggregate cost
of these services was $2.5 million and $2.1 million, respectively. The accompanying consolidated balance
sheets include accounts payable to Griffin for citrus production, harvesting and processing costs totaling $219
thousand and $211 thousand at August 31, 2006 and 2005, respectively.

Other Transactions

In fiscal year 2004, Agri began providing 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 when the policy was issued.
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 during the coverage term.

Premiums for coverages quoted 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.

The Company purchased fertilizer and other miscellaneous supplies, services, and operating equipment from
Griffin, on a competitive bid basis, for use in its cattle, sugarcane, sod and citrus operations. Such purchases
totaled $3.3 million, $4.2 million and $5.3 million during the years ended August 31, 2006, 2005 and 2004,
respectively.

During fiscal year 2006, Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust, Inc.) (ABG) increased its
holdings to approximately 50.5% of the Company’s common stock. By virtue of their ownership percentage,
ABG is able to elect all the directors and, consequently, to control the Company. ABG has issued a letter
dated September 29, 2006 reaffirming its commitment to maintaining a majority of independent directors on
Alico’s board.

(11) Reportable Segment Information

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

Although the Company’s Plant World, Vegetable and Sod segments do not meet the quantitative thresholds to
be considered as reportable segments, information about these segments may be useful and has been included
in the schedules below. For a description of the business activities of the Plant World, Vegetables and Sod
segments please refer to Item 1 of this report.

The accounting policies of the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on profit or loss from operations before
income taxes not including nonrecurring gains and losses.

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

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

Information concerning the various segments of the Company for the years ended August 31, 2006, 2005 and
2004 is summarized as follows:

Revenues (from external customers except as noted)

Bowen
Intersegment fruit sales through Bowen
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod

Revenue from segments
Other operations
Less: intersegment revenues eliminated

Year ended August 31,

2006

2005

2004

30,869
1,723
22,188
8,926
5,700
3,270
2,389
1,528
76,593
2,564
(1,723)

-
$
-
26,231
9,323
11,017
2,587
-
402
49,560
5,965
-

-
$
-
24,549
11,646
9,678
-
-
752
46,625
5,432
-

Total operating revenue

77,434

55,525

52,057

Operating expenses
Bowen
Intersegment fruit sold through Bowen
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod

Segment operating expenses
Other operations
Less: intersegment expenses eliminated

Net casualty loss (recovery)

31,137
1,723
14,574
8,566
4,914
4,373
1,404
840
67,531
513
(1,723)
(3,628)

-
$
-
19,984
8,824
8,908
2,128
-
480
40,324
967
-
1,888

-
$
-
20,407
9,051
8,178
-
-
622
38,258
640
-
408

Total operating expenses

62,693

43,179

39,306

Gross profit (loss):

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod

Gross profit from segments
Other

Income before income taxes

(268)
7,614
360
786
(1,103)
985
688
9,062
3,622

12,684

-
6,247
499
2,109
459
-
(78)
9,236
2

9,238

-
4,142
2,595
1,500
-
-
130
8,367
19,433

27,800

Capital expenditures:
Bowen Brothers Fruit
Citrus Groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Segment capital expenditures
Other capital expenditures

2006

Year ended August 31,
2005

2004

1,536
9,929
3,065
3,490
957
325
1,103
20,405
12,767

-
$
2,086
1,891
2,711
5,990
-
-
12,678
199

-
$
2,872
1,804
2,218
-
-
-
6,894
386

Total consolidated capital expenditures

33,172

12,877

7,280

Depreciation, depletion and amortization:
Bowen Brothers Fruit
Citrus Groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Total segment depreciation and amortization
Other depreciation, depletion and amortization

913
2,540
1,918
1,817
578
17
143
7,926
664

$
-
2,454
2,072
1,484
431
-
-
6,441
516

$
-
2,361
2,220
1,429
-
-
-
6,010
499

Total depreciation, depletion and amortizations

8,590

6,957

6,509

Total Assets:

Bowen Brothers Fruit
Citrus groves
Sugarcane
Cattle
Alico Plant World
Vegetables
Sod
Segment assets

Other Corporate assets

3,096
59,464
47,894
23,919
6,515
1,981
4,191
147,060
115,693

-
$
49,670
49,863
20,383
7,373
-
1,743
129,032
118,662

Total assets

262,753

247,694

Identifiable assets represent assets on hand at year-end that are allocable to a particular segment
either by their direct use or by allocations when used jointly by two or more segments. Other assets
consist principally of cash, temporary investments, mortgage notes receivable, bulk land inventories
and property and equipment used in general corporate business.

(12) Casualty (Recoveries) Losses

Hurricane Wilma caused extensive damage to the Company’s crops and infrastructure in Collier and Hendry
Counties during the first quarter of fiscal year 2006. Also, canker was confirmed in several groves in 2006
and 2005. Additionally, during August and September 2004, a series of three hurricanes struck a portion of
the Company’s citrus groves in Polk County, Florida.

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. Prior to January 10, 2006, Florida
law required infected and exposed trees within 1,900 feet of the canker find to be removed and destroyed.
The Company’s traditional policy has been to recognize a loss estimate for the total destruction of all trees
within 1,900 feet of the canker find as soon as canker was confirmed. This estimate of loss damage preceded
the actual destruction of the trees. During the second quarter of fiscal year 2006, the USDA determined that
due to the potential spread of canker from hurricanes they did not believe that canker eradication was feasible.
Due to this determination, the rule requiring the destruction of citrus groves testing positive for canker was
suspended. Upon suspension of the rule requiring the destruction of citrus groves, those portions of grove that
were previously estimated as lost but had not yet been destroyed were reestablished, reducing the casualty
loss accrued.

The Company recognized (recoveries) and losses resulting from the hurricanes and canker as follows:

Inventoried costs
Basis of property and equipment
Re-established groves
Payments for business interruption
Insurance proceeds received
Insurance reimbursements receivable

2006
3,740
1,410
(1,268)
(2,900)
(4,004)
(606)

2005

786
4,426
-
-
(1,062)
(2,262)

2004

408
-
-
-
-
-

Net casualty (recovery) loss

(3,628)

1,888

408

(13) Treasury Stock

The following table provides information relating to purchases of the Company’s common shares by the
Company on the open market pursuant to the Director Compensation Plan approved by the Company’s
shareholders on June 10, 2005 for fiscal 2006:

Date

Total Number of
Shares Purchased

Average price
paid per share

Total Shares

Purchased as Part of
Publicly Announced
Plans or Programs(1)

Total Dollar value of shares
purchased

11/28/2005
5/9/2006
8/2/2006

10,000
3,000
3,000

$
$
$

43.30
54.46
55.62

10,000
13,000
16,000

$
$
$

433,000
163,380
166,867

(1) The Company may purchase an additional 15,000 shares pursuant to the approved Director Compensation
Plan.

(14) Off Balance Sheet Arrangements

The Company through its wholly owned subsidiary Bowen Brothers Fruit, LLC enters into purchase contracts
for the purchase of citrus products during the normal course of its business. Typically, these purchases are
covered by sales contracts. The total purchase contracts under these agreements totaled $7.4 million at
August 31, 2006. All of these purchases were covered by sales agreements. None of these agreements were
in a net loss position as of August 31, 2006. All of these contracts will be fulfilled by the end of the fiscal
year 2007. Additionally, the Company hedges its fuel requirements through the purchase of fuel stocks at
fixed prices for future deliveries. The net obligations under these arrangement totaled $192 thousand at
August 31, 2006. Deliveries under these contracts will occur before October 31, 2006.

(15) New Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation Number 48 (“FIN 48”), “Accounting for Uncertainty in
Income Taxes—an interpretation of FASB Statement No. 109.” The interpretation contains a two step
approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No.
109. The first step is to evaluate the tax position for recognition by determining if the weight of available
evidence indicates it is more likely than not that the position will be sustained on audit, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest
amount which is more than 50% likely of being realized upon ultimate settlement. The Company is required
to adopt FIN 48 at the beginning of fiscal year 2008. The Company is evaluating the impact this statement
will have on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles and
expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements. The Company is required to adopt SFAS
No. 157 effective at the beginning of fiscal year 2009. The Company is evaluating the impact this statement
will have on its consolidated financial statements.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS No. 158
requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement
plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to
recognize changes in that funded status in the year in which the changes occur through comprehensive
income. SFAS No. 158 also requires an employer to measure the funded status of a plan as of the date of its
year-end statement of financial position, with limited exceptions. SFAS No. 158 will be effective for the
Company’s fiscal year 2007. The Company is evaluating the impact this statement will have on its
consolidated financial statements.

(16) Subsequent events

(17) Selected Quarterly Financial Data (Unaudited)

SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)

Summarized quarterly financial data (in thousands except for per share amounts) for the years ended
August 31, 2006 and August 31, 2005, is as follows:

Revenue:
Citrus
Sugarcane and sod
Ranch
Property sales
Interest
Other revenue

November 30,
2005
2004

February 28,
2006
2005

May 31,

August 31,

2006

2005

2006

2005

Quarters Ended

1,208
1,986
2,224
5,580
4,985
1,308

879
2,453
2,135
187
1,264
1,952

12,766
5,144
426
7
1,499
3,197

9,586
5,286
2,184
110
1,305
2,276

28,276 10,246
1,902
2,792
4,660
758
489
81
169
1,651
2,565
2,867

10,807
532
2,292
206
918
1,084

5,520
84
2,038
15,440
1,705
949

Total revenue

17,291

8,870

23,039

20,747

36,425 20,031

15,839

25,736

Costs and expenses:
Citrus
Sugarcane and sod
Ranch
Interest
Other

588
2,623
1,711
991
9,579

483
2,079
1,902
508
2,391

10,961
4,838
318
793
1,809

8,734
5,258
1,709
560
4,600

23,886
1,866
671
1,055
5,315

6,622
1,763
3,558
694
3,170

10,276
79
2,214
1,227
(890)

4,145
204
1,739
533
15,494

Total costs and expenses

15,492

7,363

18,719

20,861

32,793 15,807

12,906

22,115

Income (loss) before income

taxes

Provision for income taxes

1,799
646

1,507
542

4,320
1,653

(114)
(103)

3,632
1,092

4,224
1,609

2,933
2,824

3,621
1,100

Net income (loss)

1,153

965

2,667

(11)

2,540

2,615

109

2,521

Basic earnings (loss) per shar

0.16

0.13

0.36

(0.00)

0.34

0.36

0.02

0.34

Item 9.

Changes in & Disagreements with Accountants on Accounting and Financial Disclosure.

Information called for by Item 9 and required by Item 304(a) of Regulation S-K is incorporated by reference
to reports filed on Form 8-K June 8, 2004 and amended June 16, 2004.

There were no disagreements with accountants on accounting and financial disclosure matters.

Item 9A. Controls and Procedures

Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief Financial
Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act. This "Controls
and Procedures" section includes information concerning the controls and controls evaluation referred to in
the certifications.

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, referenced herein as the Exchange Act. These
disclosure controls and procedures are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized,
and reported within the time periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to Company's management, including its Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company
carried out, under the supervision and with the participation of the Company's management, including the
Company's Chief Executive Officer and the Company's Chief Financial Officer, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls and procedures performed
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as amended. For the fiscal year ended
August 31, 2005, the Company’s Chief Executive Officer and its Chief Executive Officer determined that that
a material weakness existed by reason of inadequate staffing in the Company’s accounting department. The
Company took various steps to correct this weakness during the 2006 fiscal year but based on their evaluation
at the end of 2006, the Company's Chief Executive Officer and its Chief Financial Officer concluded that, as
of August 31, 2006, the Company's disclosure controls and procedures continued to be not effective.

Material Weakness Related to Tax Accounting

Management assessed the effectiveness of the Company's internal control over financial reporting as of
August 31, 2006. In making the assessment, Management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated
Framework. Based on this assessment, the Management of Alico, Inc. concluded that a material weakness
continued to exist in the Company's internal control over financial reporting as of August 31, 2006 as a result
of a significant deficiency discovered in connection with the preparation of the year end financial statements.
Although the amount of the adjustments made to the Company’s accounts would ordinarily have resulted in a
significant deficiency the Company concluded that a material weakness continues to exist in the internal
controls over financial reporting, because the remedial actions taken during fiscal 2006 were not effective at
August 31, 2006 to prevent the significant deficiency, which in this context amounted to a material weakness.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a
remote likelihood that a material misstatement of the annual or interim financial statements will not be
prevented or detected.

Although improvements were made to the internal controls over financial reporting during fiscal 2006, a
significant deficiency existed in the following area:

Adjustments to the Company’s income tax provision and deferred taxes were identified by the Company’s
auditors based on the results of the annual financial statement audit for the fiscal year 2006. The adjustments
resulted from a deficiency in the operation of internal controls around the deferred tax roll forward,
specifically related to the contribution carry-forward, property, plant and equipment, and the income tax
provision calculation.

The entries to correct and properly reflect the income tax balances were made and incorporated into the fiscal
2006 year end financial statements and Management does not believe that there are any misstatements in the
financial statements.

Although the Company does not believe that the significant deficiency identified impacted any previously
filed financial statements, the Chief Executive Officer and the Chief Financial Officer believe that the
existence of the deficiency or deficiencies of the magnitude reported following the determination that a
material weakness existed in the previous year means that the material weakness identified in 2005 is
continuing and is an indication that there continues to be more than a remote likelihood that a material
misstatement of the Company's financial statements will not be prevented or detected in a future period.

In conducting Alico’s evaluation of the effectiveness of its internal control over financial reporting, Alico
excluded the acquisition of Bowen Brothers, which was completed by Alico during fiscal 2006. Bowen
Brothers represented approximately 1% of Alico’s total assets as of August 31, 2006 and approximately 33%,
of Alico’s total revenues for the year then ended. Companies are allowed to exclude acquisitions from their
assessment of internal control over financial reporting during the first year of an acquisition while integrating
the acquired company under guidelines established by the Securities and Exchange Commission.

Remediation of Prior Year’s Material Weakness

Subsequent to the year ended August 31, 2005, the Company added a qualified and experienced financial
reporting manager in the Accounting Department to improve the depth, skills, and experience within the
department to prepare its financial statements and disclosures in accordance with generally accepted
accounting principles. In addition, management improved the documentation of and training on accounting
policies and procedures to further improve internal controls over financial reporting. These changes however,
were not sufficient to prevent the occurrence of the deficiency noted above and indicate that the material
weakness is continuing. Subsequent to August 31, 2006, Management will continue to evaluate the depth,
progress and abilities of accounting personnel in order to address the material weaknesses in its accounting
staff. Management also intends to hire additional accounting personnel to provide more support in this
department. Management is committed to correcting this material weakness.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of, the Company's principal
executive and principal financial officers and implemented by the Company's board of directors, management
and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting
principles and includes those polices and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with Generally Accepted Accounting Principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the
company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.

As a result of the continuation of the material weakness described above, we have concluded that as of August
31, 2006, the Company did not maintain effective internal control over financial reporting.

Management's assessment of the effectiveness of internal control over financial reporting as of August 31,
2006 has been audited by Tedder, James, Worden & Associates, P.A., an independent registered certified
public accounting firm, as stated in their report which is included below in Item 9A of this Form 10-K.

Report of Independent Registered Certified Public Accounting Firm

To the Stockholders and Board of Directors of
Alico, Inc. and Subsidiaries

We have audited management's assessment, included in the accompanying Management's Annual Report on
Internal Control Over Financial Reporting, that Alico, Inc. and Subsidiaries did not maintain effective internal
control over financial reporting as of August 31, 2006, because of the effect of lack of a sufficient number of
qualified financial reporting personnel with sufficient depth, skills, and experience to apply generally
accepted accounting principles to the Company's transactions and to prepare financial statements that comply
with accounting principles generally accepted in the United States of America, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Alico, Inc.'s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the
effectiveness of the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to proved reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in
more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The following material weakness has been
identified and included in management's assessment. The material weakness resulted from a lack
of a sufficient number of qualified financial reporting personnel with sufficient depth, skills, and
experience to apply generally accepted accounting principles to the Company's transactions and
to prepare financial statements that comply with accounting principles generally accepted in the
United States of America. Specifically, internal controls around the deferred tax roll forward did
not operate effectively, resulting in adjustments to the Company’s income tax provision and
deferred taxes that were not detected by the Company’s accounting staff. This material weakness
was considered in determining the nature, timing, and extent of audit tests applied in our audit of
the 2006 financial statements, and this report does not affect our report dated November 17, 2006
on the financial statements.

In our opinion, management's assessment that Alico, Inc. and Subsidiaries did not maintain
effective internal control over financial reporting as of August 31, 2006, is fairly stated, in all
material respects, based on criteria established in Internal Control – Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in
our opinion, because of the effect of the material weakness described above on the achievement
of the objectives of the control criteria, Alico, Inc. and Subsidiaries has not maintained effective
internal control over financial reporting as of August 31, 2006, based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Alico, Inc. and Subsidiaries
as of August 31, 2006 and 2005, and the related consolidated statements of operations,
stockholders' equity and comprehensive income (loss), and cash flows for each of the three years
in the period ended August 31, 2006, and our report dated November 17, 2006, expressed an
unqualified opinion thereon.

/s/TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.

Orlando, Florida
November 17, 2006

Item 9B. Other Information.

None

Items 10 - 14 of Part three are incorporated by reference to the Company’s proxy expected to be
filed on or before December 31, 2006.

PART III

Item 15.

Exhibits, Financial Statement Schedules and Reports on Form 8-K.

PART IV

(a) 1. Financial Statements:

Included in Part II, Item 8 of this Report

Reports of Registered Independent Certified Public Accounting Firm
August 31, 2006, 2005 & 2004

Consolidated Balance Sheets - August 31, 2006 and 2005

Consolidated Statements of Operations - For the Years Ended August 31, 2006, 2005 and 2004

Consolidated Statements of Stockholders' Equity and Comprehensive Income (loss) - For the
Years Ended August 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows - For the Years Ended August 31, 2006, 2005 and 2004

(b) 2. Financial Statement Schedules:

Selected Quarterly Financial Data - For the Years Ended August 31, 2006 and 2005 - Included in
Part II, Item 8

All other schedules not listed above are not submitted because they are not applicable or not
required or because the required information is included in the financial statements or notes
thereto.

3(i) Articles of Incorporation:
3(i)1 Restated Certificate of Incorporation, Dated February 17, 1972 (incorporated by reference
to the Company’s Registration Statement on Form S-1 dated February 24, 1972, Registration No.
2-43156).

–3(i)2 Certificate of Amendment to Certificate of Incorporation, Dated January 14, 1974
(incorporated by reference to the Company’s Registration Statement on Form S-8, dated
December 21, 2005, Registration No. 333-130575)

3(i)3 Amendment to Articles of Incorporation, Dated January 14, 1987 (incorporated by reference
to the Company’s Registration Statement on Form S-8, dated December 21, 2005, Registration
No. 333-130575)

3(i)4 Amendment to Articles of Incorporation, Dated December 27, 1988 (incorporated by
reference to the Company’s Registration Statement on Form S-8, dated December 21, 2005,
Registration No. 333-130575)

3(ii) Bylaws

3(ii)(1) By-Laws of Alico, Inc., Amended to March 31, 2006

(10) Material Contracts - Citrus Processing and Marketing Agreement with Ben Hill Griffin, Inc.,
dated November 2, 1983, a Continuing Contract.

(11) Statement - Computation of Weighted Average Shares Outstanding and Per Share Earnings.

(12) Statement - Computation of Ratios

(14.1) Code of Ethics

(14.2) Whistleblower Policy

(21) Subsidiaries of the Registrant - Saddlebag Lake Resorts, Inc. (a Florida corporation
incorporated in 1971);Agri-Insurance Company, Ltd. (a company formed under the laws of the
country of Bermuda incorporated in 2000), Alico-Agri, Ltd (a Florida limited partnership formed
in 2003), Alico Plant World, LLC (a Florida limited liability company organized in 2004), Bowen
Brothers Fruit, LLC (a Florida limited liability company organized in 2005).

(31.1) Rule 13a-14(a) certification

(31.2) Rule 13a-14(a) certification

(32.1) Section 1350 certification

(32.2) Section 1350 certification

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

ALICO, INC.
(Registrant)

November 28, 2006
Date

John R. Alexander
Chairman, President &
Chief Executive Officer
/s/ John R. Alexander

Patrick W. Murphy
Senior Vice President and
Chief Financial Officer
/s/ Patrick W. Murphy

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date
indicated:

John R. Alexander Robert E. Lee Caswell
Chairman Director

/s/ John R. Alexander /s/ Robert E. Lee Caswell

Evelyn D’An Phillip Dingle

Director Director

/s/ Evelyn D’An /s/ Phillip Dingle

Gregory Mutz Charles Palmer
Director Director

/s/ Gregory Mutz /s/ Charles Palmer

Baxter G. Troutman Gordon Walker
Director Director

/s/ Baxter G. Troutman /s/ Gordon Walker

Robert J. Viguet
Director

/s/ Robert J. Viguet

November 28, 2006
Date

Photography by Scott Hutchinson

Alico, Inc.
Post Office Box 338 • LaBelle, Florida 33975 • (863) 675-2966 • www.alicoinc.com