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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2011

or

For the transition period from              to             

Commission File Number: 0-261

Alico, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 239-226-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

There were 7,350,223 shares of common stock, par value $1.00 per share, outstanding as of August 1, 2011.

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Part I. Financial Information

Item 1. Financial Statements

ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands except per share data)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

See accompanying notes to condensed consolidated financial statements (unaudited).

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ALICO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands except for per share data)

Note 1. Description of Business and Basis of Presentation

Description of Business

Alico Inc. (“Alico”) and its wholly owned subsidiaries, (together with Alico, collectively, the “Company”) is a land management company primarily engaged in a variety of agribusiness pursuits in addition to land leasing and rentals, rock and sand mining and real estate sales operating in Central and Southwest Florida.

Basis of Presentation

The accompanying (a) condensed balance sheet as of September 30, 2010, which has been derived from audited financial statements and (b) the unaudited condensed consolidated interim financial statements (the “Financial Statements”) of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”). The Financial Statements include all adjustments, consisting of normal and recurring adjustments, which in the opinion of management were necessary for a fair presentation of financial condition, results of operations and cash flows for such periods presented. The results of the interim period are not necessarily indicative of the results for any other interim periods or an entire year. Footnote presentation of dollar values are in thousands.

The Financial Statements have been presented according to the rules and regulations of the Securities and Exchange Commission (“SEC”), instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information, footnotes and disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The Company believes that the disclosures made are adequate to make the information not misleading. The Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010.

Principles of Consolidation

The Financial Statements include the accounts of Alico, and its wholly owned subsidiaries, Alico Land Development, Inc. (“ALDI”), Agri-Insurance Company, Ltd. (“Agri”), Alico-Agri, Ltd., Alico Plant World, LLC and Bowen Brothers Fruit, LLC (“Bowen”). The Company’s Agri-Insurance subsidiary was liquidated in September 2010. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates based upon future events. The Company periodically evaluates the estimates. The estimates are based on current and expected economic conditions, historical experience, and various other specific assumptions that the Company believes to be reasonable.

Seasonality

The Company is primarily engaged in agriculture, which is of a seasonal nature and subject to the influence of natural phenomena and wide price fluctuations. The results of the reported period herein are not necessarily indicative of the results for any other interim period or entire year.

Reclassifications

Certain amounts in the prior year have been reclassified to conform to the current year presentation.

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Recent Accounting Pronouncements

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The ASU amends the FASB Accounting Standards Codification™ (“ASC”) to allow an entity the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments to the ASC do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. ASU 2011-05 should be applied retrospectively. ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning December 15, 2011.

The adoption of ASU 2011-05 will not have a material impact on the Company’s financial position or results of operations as it only affects financial statement presentation, and the Company does not believe that any other recently issued but not effective accounting standards, if currently adopted, will have a material effect on its financial position, result of operations or cash flows.

Note 2. Inventories

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

Note 3. Investment in Magnolia Fund

In May 2010, Alico invested $12.2 million to obtain a 39% equity interest in Magnolia TC 2, LLC (“Magnolia”) a Florida Limited Liability Company whose primary business activity is acquiring tax certificates issued by various counties in the State of Florida on properties which have property tax delinquencies. In the State of Florida, such certificates are sold at general auction based on a bid interest rate. If the property owner does not redeem such certificate within two years, which requires the payment of delinquent taxes plus the bid interest, a tax deed can be obtained by the winning bidder who can then force an auctioned sale of the property. Tax certificates hold a first priority lien position on these properties.

Magnolia recognizes revenue when the interest obligation under the tax certificates it holds becomes a fixed amount. In order to redeem a tax certificate in Florida, a minimum of 5% of the face amount of the certificate (delinquent taxes) must be paid to the certificate holder regardless of the amount of time the certificate has been outstanding. Magnolia has recognized the minimum 5% earnings on its tax certificate portfolio. Expenses of the fund include an acquisition fee of 1%, interest expense, a monthly management fee and other administrative costs.

Alico is accounting for its investment in Magnolia in accordance with the equity method of accounting, whereby Alico will record its 39% interest in the reported income or loss of the fund each quarter. Based on the June 30, 2011 unaudited internal financial statements of Magnolia, Alico recorded investment income of $23 thousand and investment loss of $31 thousand for the three and nine months ended June 30, 2011, respectively as compared to investment income of $846 thousand from May 2010, inception, through June 30, 2010. Magnolia made certain distributions during the nine months ended June 30, 2011; the Company’s share of those distributions was approximately $ 2.0 million.

Note 4. Income taxes:

Alico’s effective tax rate was 38.5% and 39.8% for the nine months ended June 30, 2011 and 2010, respectively.

The Company applies a “more likely than not” threshold to the recognition and non-recognition of tax positions. A change in judgment related to prior years’ tax positions is recognized in the quarter of such change. The Company had no reserve for uncertain tax positions as of June 30, 2011. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense and in the liability for uncertain tax positions.

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On June 17, 2011, March 9, 2011, October 28, 2010 and September 9, 2010, the Internal Revenue Service (“IRS”) issued Revenue Agent Reports (“RARs”) pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007 (the “Dispute Period”). These RARs principally challenge (i) Agri-Insurance’s ability to elect to be treated as a United States taxpayer during the years under examination; and (ii) Alico-Agri’s ability to recognize income from real estate sales under the installment method by asserting that Alico-Agri was a dealer in real estate during the years under examination. Based on the positions taken in the RARs, including the Adjusted RAR, as described below, the IRS claims additional taxes and penalties due of $29.8 million consisting of $14.5 million in taxes and $15.3 million in penalties. The RARs did not quantify the interest on the taxes.

The Company maintains that Agri-Insurance was eligible to make the election to be treated as a United States taxpayer and that Alico did not meet the criteria for classification as a dealer in real estate during the years under examination. Alico submitted a rebuttal to IRS Appeals on December 14, 2010 for the September 9, 2010 and October 28, 2010 RARs and on April 6, 2011 for the March 9, 2011 RAR and intends to vigorously defend the tax positions it has taken. The IRS responded to the April 6, 2011 rebuttal with an Adjusted RAR on June 17, 2011 agreeing to remove certain penalties totaling approximately $1.7 million but recalculating and asserting other penalties that also totaled approximately $1.7 million. The Company has an Appeals Conference scheduled with the IRS on August 17, and August 18, 2011. See Note 11 - Subsequent Events.

Classification as a dealer in real estate may preclude the Company’s use of the installment method on two transactions and may require payment of taxes, penalties and interest on the full amount of the related gain including the gain on the deferred portion of the sales price. However, during the fiscal year ended September 30, 2010, the purchasers of the installment sale property defaulted on the deferred payment obligations and Alico-Agri recovered the properties through foreclosure. The Company’s liquidity could be impacted for the period of time between the payment of taxes, penalties and interest on the deferred portion of the sales price and the eventual recovery of taxes due to the Company’s loss on the purchasers’ default. The timing difference that would result from the payment of claimed taxes and the subsequent receipt of refunds or credits realized against future taxes would be presented in the Company’s deferred tax accounts. The Company would record expenses for penalties and interest incurred in the period in which any settlement is reached with the IRS.

If the Company were required to pay a substantial portion of the taxes and penalties calculated by the IRS, and interest thereon, it could materially affect the Company’s liquidity.

Note 5. Indebtedness:

The outstanding debt under the Company’s various loan agreements is presented in the table below:

Alico has a revolving line of credit and term note with Rabo AgriFinance, Inc. (“Rabo”) for $100 million, and a mortgage with Farm Credit of Florida (formerly known as Farm Credit of Southwest Florida) (“Farm Credit”). The line of credit is collateralized by 44,277 acres of farmland, and the term note is collateralized by 12,280 acres of property containing approximately 8,600 acres of producing citrus groves. The mortgage is collateralized by 7,680 acres of real estate in Hendry County used for farm leases, sugarcane and citrus production.

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The Term note requires quarterly payments of interest at a floating rate of LIBOR plus 250 basis points beginning October 1, 2010. Quarterly principal payments of $500 thousand, together with accrued interest, begin on October 1, 2011 and continue until October 1, 2020, when the remaining principal balance and accrued interest will be due and payable. The mortgage note requires monthly principal payments of $106 thousand plus accrued interest until maturity. At June 30, 2011 and September 30, 2010, Alico was in compliance with all of its covenants under the various loan agreements.

Maturities of the Company’s debt at June 30, 2011 were as follows:

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

As an agricultural credit cooperative, Farm Credit is owned by the member-borrowers who purchase stock and earn participation certificates which represent each members-borrowers respective share of the allocated surplus in the cooperative. Allocations of the surplus are made to members on an annual basis according to the proportionate amount of interest paid by each member. Allocations are made in cash and non-cash participation certificates.

During the second quarter of 2011, the Company wrote-off $1.7 million in allocated surplus it had recorded, based on its patronage allocation with Farm Credit. Farm Credit did not make any distributions of allocated surplus during 2010 and subsequently announced in 2011 the indefinite suspension of any future distributions of members’ allocated surplus; therefore, the Company determined that the entire amount was uncollectible as no future revolvement plan has been established. The write-off of the $1.7 million is included in interest and investment income, net, in the accompanying Condensed Consolidated Statements of Operations (Unaudited).

Note 6. Disclosures about reportable segments:

Alico has six reportable segments: Bowen, Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing. All of the Company’s operations are located in Florida. Intersegment sales and transfers are accounted by the Company as if the sales or transfers were to third parties at current market prices.

Bowen’s operations include harvesting, hauling and marketing citrus for both Alico and other outside growers in the State of Florida. Bowen’s operations also include the purchase and resale of citrus fruit. Alico’s citrus grove operations consist of cultivating citrus trees in order to produce citrus for delivery to the fresh and processed citrus markets in the State of Florida. Alico’s sugarcane operations consist of cultivating sugarcane for sale to a sugar processor. Alico’s cattle operation is engaged primarily in the production of beef cattle and the raising of replacement heifers. 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 real estate segment, operated on behalf of Alico by Alico Land Development Inc., is engaged in the planning and strategic positioning of all Company owned land, which includes seeking entitlement of the land assets in order to preserve rights to develop the property in the future and negotiating and/or renegotiating sales contracts. Alico’s leasing segment leases land to others on a tenant-at-will basis for grazing, farming, oil and mineral exploration and recreational uses.

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The following table summarizes the performance of the Company’s segments and the related depreciation for the three and nine month periods ended June 30, 2011 and 2010, and the related assets as of June 30, 2011 and September 30, 2010:

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Note 7. Treasury Stock

The Company’s Board of Directors has authorized the repurchase of up to 350,000 shares of the Company’s common stock through November 1, 2013 for the purpose of funding restricted stock grants under its 2008 Incentive Equity Plan to provide restricted stock to eligible Directors and Senior Managers in order to align their interests with those of the Company’s shareholders.

The stock repurchases began in November 2005 and will be made on a quarterly basis until November 1, 2013 through open market transactions, at times and in such amounts as the Company’s broker determines subject to the provisions of SEC Rule 10b-18. The Company purchased 768 and 40,570 shares in the open market at an average price of $27.82 and $25.80 during the three and nine months ended June 30, 2011, respectively.

The following table provides the Company’s treasury stock transactions during the nine months ended June 30, 2011:

In accordance with the approved plan, the Company may purchase an additional 280,464 shares.

Note 8. Fair Value Measurements

The Company accounts for financial instruments according to the provisions of ASC 820 Fair Value Measurements and Disclosure Topic for its financial and non-financial assets and liabilities. ASC 820, among other things, defines fair value, establishes a framework for measuring fair value and expands disclosure for each major asset and liability category measures at fair value on either a recurring or nonrecurring basis. The majority of the carrying amounts of the Company’s financial assets and liabilities including cash, accounts receivable, accounts payable and accrued expenses at June 30, 2011 and September 30, 2010, approximate fair value because of the immediate or short term maturity of these items. Alico carries its investments available for sale at fair value. In the event that stated interest rates are below market, Alico discounts mortgage notes receivable to reflect their estimated fair value. The carrying amounts reported for Alico’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 rates for comparable loans.

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ASC 820 clarifies that fair value is an exit price representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1- Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2- Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly; and

Level 3- Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the assets and liabilities at the measurement date.

There were no gains or losses included in earnings attributable to changes in non-realized gains or losses relating to assets held at June 30, 2011 and September 30, 2010.

Note 9 – Contingencies

Shareholder Derivative Actions

On October 29, 2008, Alico was served with a shareholder derivative action complaint filed by Baxter Troutman against JD Alexander and John R. Alexander which names Alico as a nominal defendant. Mr. Troutman is the cousin and nephew of the two defendants, respectively, and is a shareholder in Atlantic Blue Group, Inc. (formerly Atlantic Blue Trust, Inc.) (“Atlanticblue”), a 51% shareholder of Alico. From February 26, 2004 until January 18, 2008 Mr. Troutman was a director of Alico. The complaint alleges that JD Alexander and John R. Alexander committed breaches of fiduciary duty in connection with a proposed merger of Atlanticblue into Alico which was proposed in 2004 and withdrawn by Atlanticblue in 2005. The suit also alleges, among other things, that the merger proposal was wrongly requested by defendants JD Alexander and John R. Alexander and improperly included a proposed special dividend; and that the Alexanders’ sought to circumvent the Board’s nominating process to ensure that they constituted a substantial part of Alico’s senior management team and these actions were contrary to the position of Alico’s independent directors at the time causing a waste of Alico’s funds and the resignations of the independent directors in 2005. As a result, the complaint is seeking damages to be paid to Alico by the Alexanders’ in excess of $1.0 million. The complaint concedes that Mr. Troutman has not previously made demand upon Alico to take action for the alleged wrongdoing as required by Florida law alleging that he believed such a demand would be futile. A copy of the Complaint may be obtained from the Clerk of the Circuit Court in Polk County, Florida.

On June 3, 2009, a Special Committee of Independent Directors from Alico’s Board of Directors, the (“Committee”) was created to investigate the shareholder derivative action filed by Mr. Troutman. The Committee completed its investigation with the assistance of independent legal counsel and determined that it would not be in the Company’s best interest to pursue such litigation. Alico filed a motion to dismiss the litigation based upon the findings of the Special Committee; a hearing on this motion was held on December 7, 2010. The Court issued an order denying the motion to dismiss the shareholder derivative suit on May 24, 2011. A copy of the report, the order of denial and other pleadings in the case are available from the Clerk of Circuit Court in Polk County, Florida by reference to the matter of Baxter G. Troutman, Plaintiff vs. John R. Alexander, John D. Alexander, Defendants and Alico, Inc., Nominal Defendant, Case No. 08-CA-10178 Circuit Court, 10th Judicial Circuit, Polk County, Florida.

The Company is also involved from time to time in routine legal matters incidental to its business. When appropriate, the Company establishes estimated accruals for litigation matters which meet the requirements of ASC 450— Contingencies. Based upon available information, the Company believes that the resolution of such matters will not have a material adverse effect on its financial position or results of operations.

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Note 10. Related Party Transaction

Atlantic Blue Group, Inc.

Atlanticblue owns approximately 51% of Alico’s common stock. By virtue of its ownership percentage, Atlanticblue is able to elect all of the directors and, consequently, control Alico. Directors which also serve on Atlanticblue’s board are referred to as “affiliated directors”. Atlanticblue issued a letter dated December 3, 2009 reaffirming its commitment to maintain a majority of independent directors (which may include affiliated directors) on Alico’s board. A director is considered independent if the Board makes an affirmative determination that (i) the director has no relationship which would interfere with the exercise of independent judgment in carrying out the responsibilities as a director and (ii) the director has no prohibited relationships with the registered company or its Executive Officers during the preceding thirty-six months from the determination.

John R. Alexander, a major shareholder in Atlanticblue, serves as Chairman on the Company’s Board of Directors. Mr. Alexander’s son, JD Alexander, serves as President and Chief Executive Officer of Atlanticblue and in February 2010 was appointed as Alico’s President and Chief Executive Officer and serves on Alico’s Board of Directors. Robert E. Lee Caswell, Mr. John R. Alexander’s son-in-law, serves on the Alico Board of Directors, as does Robert J. Viguet, Jr., who is also a Director of Atlanticblue (the “Affiliated Directors”).

Effective June 30, 2008 the Company’s Board of Directors approved an unaccountable expense allowance of $5 thousand per month to Scenic Highlands Enterprises LLC. The Company’s former Chief Executive Officer and current Chairman of the Board, John R. Alexander, is the owner and Chief Executive Officer of Scenic Highlands Enterprises, LLC. Per the Board’s Action by Written Consent, payments are to be used for office space, an administrative assistant’s salary, and utilities. Alico paid Scenic Highlands Enterprises, LLC $15 thousand and $45 thousand for each of the three and nine months ended June 30, 2011 and 2010, respectively, pursuant to this agreement. The agreement ended June 30, 2011.

Effective June 30, 2008 the Board approved a transition, consulting, severance and non-compete agreement with John R. Alexander providing for total payments of $600 thousand over a three year period. Alico paid $38 thousand and $113 thousand to Mr. Alexander during the three and nine months ended June 30, 2011, respectively, pursuant to this agreement and $50 thousand and $150 thousand during the comparable period of 2010. The payments ended June 30, 2011, pursuant to the agreement.

Former director Baxter Troutman has filed suit against John R. and JD Alexander. The Company is reimbursing Messrs.’ Alexander for legal fees to defend themselves against the suit in accordance with the Board’s indemnification agreement. All reimbursements are being approved by the Special Committee of the Board comprised of an independent director. Reimbursements pursuant to the litigation were $0 thousand and $68 thousand on behalf of John R. Alexander and, $0 thousand and $48 thousand on behalf of JD Alexander during the three and nine months ended June 30, 2011, respectively. For the three and nine months ended June 30, 2010, reimbursements made on behalf of John R. Alexander were $0 thousand and $45 thousand and JD Alexander were $9 thousand and $37 thousand, respectively.

During the three and nine months ended June 30, 2011, Bowen marketed 742 and 2,196 boxes of fruit from Alexander Properties, Inc. for approximately $13 thousand and $30 thousand, respectively. During the three and nine months ended June 30, 2010, Bowen marketed 969 and 2,670 boxes of fruit for Alexander Properties, Inc. totaling approximately $12 thousand and $23 thousand, respectively. Alexander Properties, Inc. is a company owned by Mr. John R. Alexander and his family.

Bowen is currently marketing citrus fruit from Tri County Groves, LLC, a wholly owned subsidiary of Atlanticblue. During the three and nine months ended June 30, 2011, Bowen marketed 75,116 and 222,856 boxes of fruit, respectively, totaling approximately $0.7 million and $2.1 million, respectively. During the three and nine months ended June 30, 2010, Bowen marketed 90,535 and 265,586 boxes of fruit, respectively, totaling approximately $0.8 million and $2.4 million, respectively.

Ben Hill Griffin, Inc.

Citrus revenues of $0.2 million and $1.1 million were recognized for a portion of citrus crops sold under a marketing agreement with Ben Hill Griffin, Inc. (“Griffin”) for the three and nine months ended June 30, 2011, respectively. For the three and nine months ended June 30, 2010, citrus revenues for Ben Hill Griffin under the marketing agreement were $0.1 million and $0.4 million, respectively. Griffin and its subsidiaries are controlled by Ben Hill Griffin, III, the brother-in-law of John R. Alexander, Alico’s Chairman and former Chief Executive Officer. Accounts receivable include amounts due from Griffin of $638 thousand and $90 thousand at June 30, 2011 and September 30, 2010, respectively. These amounts represent estimated revenues to be received periodically under pooling agreements as the sale of pooled products is completed.

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Harvesting, marketing and processing costs for fruit sold through Griffin totaled $60 thousand and $288 thousand for the three and nine months ended June 30, 2011 and $31 thousand and $171 thousand for the comparable periods in 2010. Alico purchases fertilizer and other miscellaneous supplies, and services, and operating equipment from Griffin, on a competitive bid basis, for use in its cattle, sugarcane, sod and citrus operations. Such purchases totaled $1.5 million and $2.3 million for the three and nine months ended June 30, 2011, respectively, and $0.5 million and $1.3 million for the three and nine months ended June 30, 2010, respectively. The accompanying Condensed Consolidated Balance Sheets include accounts payable to Griffin for fertilizer and other crop supplies totaling $5 thousand and $44 thousand at June 30, 2011 and September 30, 2010, respectively.

Note 11. Subsequent Events

On July 6, 2011, the Internal Revenue Service (“IRS”) issued an additional RAR pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007. The RAR asserts claims to certain other penalties totaling $1.3 million. Based on the positions taken in the RARs, (for further discussion, see Footnote 4. Income Taxes) including the RAR issued subsequent to June 30, 2011, the IRS claims taxes and penalties due of $31.1 million consisting of $14.5 million in taxes and $16.6 million in penalties. The RARs did not quantify the interest on the taxes. See Note 4 - Income Taxes.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

We make forward-looking statements in this Quarterly Report, particularly in this Management’s Discussion and Analysis, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any statements in this Quarterly Report that are not historical facts are forward-looking statements. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks factors described in our Annual Report on Form 10-K for the year ended September 30, 2010 and our Quarterly Reports on Form 10-Q.

Overview

We are a land management company operating in Central and Southwest Florida. Our primary asset is 139,607 acres of land located in Collier, Glades, Hendry, Lee and Polk Counties. We are involved in a variety of agribusiness pursuits including citrus groves, sugarcane production, cattle ranching, forestry, land leasing and rentals, rock and sand mining and real estate sales activities.

We have six reportable segments: Bowen Brothers Fruit (“Bowen”), Citrus Groves, Sugarcane, Cattle, Real Estate and Leasing.

We relocated our principal offices from LaBelle, FL to Fort Myers, FL during the third quarter of fiscal 2011.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical experience, available current market information and on various other assumptions that management believes are reasonable under the circumstances. Additionally we evaluate the results of these estimates on an on-going basis. Management’s estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to the disclosures set forth in Part II, Item 7 in our Form 10-K for the fiscal year ended September 30, 2010 during this reporting period.

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Recently Issued Accounting Standards

See Note 1- Description of Business and Basis of Presentation in the Notes to Condensed Consolidated Financial Statements Unaudited included in this report for recently issued accounting standards.

Results of Operations

Consolidated Results

The following table sets forth a comparison of results of operations for the three and nine months ended June 30, 2011 and 2010:

The increase in operating revenue of $10.9 million or 38.3% and $18.2 million or 24.5% for the three and nine months ended June 30, 2011, respectively, as compared to three and nine months ended June 30, 2010, is due primarily to favorable market pricing in our citrus and sugarcane operations and, to a lesser extent, the increase in sugarcane production due to the additional planting of approximately 4,000 acres. Revenues from our citrus operations increased by $12.2 million quarter-over-quarter and by $17.7 million for the nine months ended June 30, 2011 as compared to the same period in 2010 due to favorable market pricing and an increase in our crop yield. Revenues from our sugarcane operations increased by $0.2 million for the three months ended June 30, 2011 as compared to three months ended June 30, 2010 and $3.8 million for the nine months ended June 30, 2011 as compared to the same period in 2010. See Segment Results below for further discussion of our revenues from agricultural and nonagricultural operations.

Gross profit increased as a result of the favorable market pricing for our agricultural products and the discontinuation of our vegetable operations in June 2010 by 119.9% and 127.3% for the three and nine months ended June 30, 2011, respectively, as compared to gross profits for the three and nine months ended June 30, 2010. See Segment Results below for further discussion of our revenues and expenses from agricultural and nonagricultural operations.

General and administrative expenses increased by $0.2 million or 10.1%, quarter-over-quarter, primarily due to an increase in legal and accounting fees. The increase in general and administrative expenses of $0.5 million or 11.3% for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010 is due to an increase in salaries of $0.4 million resulting from the additions to the management team, and an increase in legal and accounting fees of $0.2 million partially offset with a decrease of other certain costs of $0.1 million.

Interest and Investment Income

Interest and investment income is generated principally from mortgages held on real estate sold on the installment basis, our investment in the Magnolia Fund and interest bearing bank accounts. See Note 3 – Investment in Magnolia Fund in the Notes to Condensed Consolidated Financial Statements Unaudited.

During the second quarter of fiscal 2011, we wrote off $1.7 million in allocated surplus which was recorded in other assets on our Condensed Consolidated Balance Sheets, and which was based on the patronage allocation from our participation with Farm Credit of Florida (formerly known Farm Credit of Southwest Florida) (“Farm Credit”). Because Farm Credit had not made any distributions during 2010, and subsequently announced in 2011 the indefinite suspension of any future distributions of member’s allocated surplus, we determined that the asset was uncollectible and future collections of the allocated surplus were indeterminable. See Note 5 – Indebtedness in the Notes to Condensed Consolidated Financial Statements Unaudited.

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In May 2010, we invested $12.2 million to obtain a 39% equity interest in the Magnolia Fund. Alico is accounting for the investment in the fund in accordance with the equity method of accounting in which we record our 39% interest in the reported income or loss of the fund each quarter. For the three and nine months ended June 30, 2011, we recorded income of $23 thousand and a loss of $31 thousand, respectively, as compared to income of $846 thousand recognized during the quarter ended June 30, 2010. See Note 3- Investment in Magnolia Fund in the Notes to Condensed Consolidated Financial Statements Unaudited.

Interest Expense

Interest expense decreased by $0.4 million or 45.8% and $1.1 million or 40.7% for the three and nine months ended June 30, 2011 as compared with the three and nine months ended June 30, 2010, respectively. The decrease in interest expense is primarily due to lower interest rates obtained through the refinancing of our credit facility with Rabo Agri-Finance in September 2010, and to a lesser extent, the reduction of outstanding debt. Average interest rates for the three and nine months ended June 30, 2011 were 2.69% as compared to 6.79% for the three and nine months ended June 30, 2010. See Note 5 - Indebtedness in the Notes to Condensed Consolidated Financial Statements Unaudited.

Provision for Income taxes

Our effective tax rate is impacted by IRS adjustments including penalties and interest, state income taxes, including penalties and interest for expenses reported for financial statement purposes but not deductible under current statutes, which includes lobbying expenses and non-qualified retirement plans, and the expiration of otherwise allowable deductions that do not meet recognition thresholds such as expired net operating losses and contribution carry forwards.

On July 6, 2011, June 17, 2011, March 9, 2011, October 28, 2010 and September 9, 2010, the Internal Revenue Service (“IRS”) issued Revenue Agent Reports (“RARs”) pursuant to its examinations of Alico, Agri-Insurance and Alico-Agri for the tax years 2005 through 2007 (the “Dispute Period”). These RARs principally challenge (i) Agri-Insurance’s ability to elect to be treated as a United States taxpayer during the years under examination; and (ii) Alico-Agri’s ability to recognize income from real estate sales under the installment method by asserting that Alico-Agri was a dealer in real estate during the years under examination. Based on the positions taken in the RARs, including the Adjusted RAR, as described below, the IRS claims additional taxes and penalties due of $31.1 million consisting of $14.5 million in taxes and $16.6 million in penalties. The RARs did not quantify the interest on the taxes.

We maintain that Agri-Insurance was eligible to make the election to be treated as a United States taxpayer and that Alico did not meet the criteria for classification as a dealer in real estate during the years under examination. We submitted a rebuttal to IRS Appeals on December 14, 2010 for the September 9, 2010 and October 28, 2010 RARs and on April 6, 2011 for the March 9, 2011 RAR and intend to vigorously defend the tax positions we have taken. The IRS responded to the April 6, 2011 rebuttal with an Adjusted RAR on June 17, 2011 agreeing to remove certain penalties totaling approximately $1.7 million but recalculating and asserting other penalties that also totaled approximately $1.7 million. We have an Appeals Conference scheduled with the IRS on August 17, and August 18, 2011. See Note 4 - Income Taxes and Note 11 - Subsequent Events in the Notes to Condensed Consolidated Financial Statements Unaudited.

Alico’s effective tax rate was 38.7% and 38.5% for the three and nine months ended June, 2011, respectively and 39.7% and 39.8% for the three and nine months ended June 30, 2010, respectively.

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Segment Results

Operating Revenue