Alico 10 8-31-04

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

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

	For the fiscal year ended August 31, 2004
	Or
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934

	For the transition period from			to

	Commission file number 0-261

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

	Florida				59-0906081
	(State or other jurisdiction of				IRS Employer
	incorporation or organization)				identification number

	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:

	None

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

	COMMON CAPITAL STOCK, $1.00 Par value, Non-cumulative
	Title of class

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

		Yes	X	No

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

		Yes	X	No

	Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
	Regulation S-K is not contained herein, and will not be contained, to the best of
	registrant's knowledge, in definitive proxy or information statements incorporated by
	reference in Part III of this Form 10-K or any amendment to this form 10-K.

		Yes		No	X
	As of November 3, 2004 there were 7,319,357 shares of stock outstanding and the
	aggregate market value (based upon the average bid and asked price, as quoted on the
	NASDAQ) of the common stock held by non-affiliates was approximately $193,520,915.


		1

DOCUMENTS INCORPORATED BY REFERENCE

Form 8-K filed June 8, 2004

Form 8-K/A filed June 16, 2004


Index


Alico, Inc.
Form 10-K
For the year ended August 31, 2004

Part I
	Item 1. Business
	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 Stock & Related Stockholder matters
	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 & Disagreements with Accountants on Accounting
		and Financial Disclosure
	Item 9A. Controls and Procedures

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
	Item 13. Certain Relationships and Related Transactions
	Item 14. Principal Accountant's Fees and Services

Part IV
	Item 15. Exhibits, Financial Statement Schedules and Reports on
		Form 8-K.


		2

PART I

Item 1. Business.

Alico, Inc. (the "Company"), was formed February 29, 1960 as a spinoff of the Atlantic Coast Line Railroad Company and is generally recognized as an agribusiness company operating in Central and Southwest Florida. The Company's primary asset is 141,067 acres of land located in Collier, Hendry, Lee and Polk Counties. (See table on Page 9 for location and acreage by current primary use.) The Company is involved in various operations and activities including citrus fruit production, cattle ranching, sugarcane and sod production, and forestry. The Company also leases land for farming, cattle grazing, recreation, and oil exploration.

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

Agricultural operations have combined to produce from 90 to 95 percent of annual operating revenues during the past five years. Citrus groves generate the most gross operating revenue. Sugarcane ranks second in operating revenue production. While the cattle ranching operation utilizes the largest acreage, it ranks third in the production of operating revenue. Approximately 5,602 acres of the Company's property are classified as timberlands, however, the area in which these lands are located is not highly rated for timber production. These lands are also utilized as native range, in the ranching operation, and leased out for recreation and oil exploration.

Diversification of the Company's agricultural base was initiated with the development of a Sugarcane Division at the end of the 1988 fiscal year. The 11,131 acres in production during the 2004 fiscal year consisted of 2,444 acres planted in 2003, 2,685 acres planted in 2002, 2,495 acres planted in 2002 and 3,507 acres planted in 2001.

Leasing of lands for rock mining and oil and mineral exploration, rental of land for grazing, farming, recreation and other uses, while not classified as agricultural operations, are important components of the Company's land utilization and operation. Gross revenue from these activities during the past five years has ranged from 5 to 9 percent of annual operating revenue.

The Company is not in the retail land sales and development business, except through its wholly owned subsidiary, Saddlebag Lake Resorts, Inc. However, it does from time to time sell properties which, in the judgment of management, are surplus to the Company's primary operations. Additionally, the Company’s wholly owned subsidiary, Alico-Agri, Ltd., engages in bulk land sales in connection with the generation of underwriting capital.

For further discussion of the relative importance of the various segments of the Company's operations, including financial information regarding revenues, operating profits (losses) and assets attributable to each major segment of the Company's business, see Note 14 of Notes to Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this document.

Subsidiary Operations

The Company has three wholly owned subsidiaries; Saddlebag Lake Resorts, Inc. ("Saddlebag") Agri-Insurance Company, Ltd. ("Agri") and Alico-Agri, Ltd. (Alico-Agri).

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 and are on the market. While one of the subdivisions has been sold out, approximately 79% of the lots in the second development have been sold.

Agri, formed during fiscal 2000, was created to write crop insurance against catastrophic losses due to weather and disease. Independent third party actuaries compute premiums and coverage amounts for policies issued by Agri. Agri insured catastrophic business interruption coverage for Ben Hill Griffin, Inc. Griffin purchased catastrophic business interruption coverage from Agri during fiscal 2003, 2002 and 2001. The total coverage under the policy was $3.5 million, $3.2 million and $3.2 million for the 2003, 2002 and 2001 calendar years, respectively. Each policy term was one year expiring in December. The premiums charged under this policy were $138 thousand, $110 thousand and $104 thousand for 2003, 2002 and 2001, respectively.

Agri began providing coverage for Tri-County, LLC, a subsidiary of Atlantic Blue Trust, Inc., the holder of approximately 47.7% of the Company’s common stock. The coverage term is from August 2004 to July 2005. Total coverage under the policy is $2.7 million and the premium charged was $45 thousand.

Additionally, Agri directly underwrote catastrophic business interruption coverage for its parent company, Alico, Inc., insuring all but two of Alico’s citrus groves. The coverage term was from August 2002 to August 2003. Total coverage under the policy was $12.7 million and the premium charged was $803 thousand. Alico, Inc., renewed the policy in August 2003, extending the coverage term to August 2004. The coverage under the renewal was $13.6 million and the premium charge was $858 thousand. The policy was renewed again in August 2004, extending the coverage term to August 2005. The coverage under the renewal was $28.5 million and the premium charged was $1.1 million.

Agri underwrote catastrophic business coverage for Alico’s remaining two groves under a policy covering the term from January 2003 to January 2004. Total coverage under the policy was $2.0 million, and the premium charged was $119 thousand. The policy was renewed in January 2004 extending the term to January 2005. The coverage under the policy is $3.7 million and the premium charged was $98 thousand.

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.

Alico-Agri, Ltd. was formed during fiscal 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.

The financial results of the operation of these subsidiaries are consolidated with those of the Company. (See Note 1 of Notes to Consolidated Financial Statements.)

Citrus

Approximately 9,871 acres of citrus were harvested during the 2003/04 season. An additional 1,276 acres of citrus grove was not yet mature enough to produce a crop in fiscal 2004. Since 1983 the Company has maintained a marketing contract covering the majority of the Company's citrus crop with Ben Hill Griffin, Inc., a Florida corporation and major shareholder before February 2004. The agreement provides for modifications to meet changing market conditions and provides that either party may terminate the contract by giving notice prior to the first day of August preceding each fruit season. Under the terms of the contract, the Company's fruit is packed and/or processed and sold along with fruit from other growers, including Ben Hill Griffin, Inc. The proceeds are distributed on a pro rata basis as the finished product is sold. In February 2004, Ben Hill Griffin, Inc. relinquished its stock holdings in the Company pursuant to the "Settlement Agreement" agreed upon with the Four Sisters Protectorate.

During the year ended August 31, 2004, approximately 77% of the Company's fruit crop was marketed under this agreement, as compared to 75% for the year ended August 31, 2003 and 77% for the year ended August 31, 2002. In addition, Ben Hill Griffin, Inc. provides harvesting services to the Company for citrus sold to unrelated processors. These sales accounted for the remaining 23% of total citrus revenue for the year ended August 31, 2004.


		3

Sugarcane

The Company had 11,131 acres, 11,840 acres, and 11,680 acres of sugarcane in production during the 2004, 2003, and 2002 fiscal years, respectively. The 2004, 2003, and 2002 fiscal year crops yielded approximately 346,000, 413,000 and 376,000 gross tons, respectively. An additional 1,952 acres of planted cane was not yet mature for harvest during fiscal 2004.

Ranch

The Company has a cattle operation located in Hendry and Collier Counties, Florida, which is engaged primarily in the production of beef cattle and the raising of replacement heifers. The breeding herd consists of approximately 13,400 cows, bulls and replacement heifers. Approximately 54% of the herd are from one to five years old, while the remaining 46% are six years old or older. The Company primarily sells to packing and processing plants. The Company also sells cattle through local livestock auction markets and to contract cattle buyers. These buyers provide ready markets for the Company's cattle. The loss of any one or a few of these plants and/or buyers would not, in management's view, have a material adverse effect on the Company's cattle operation. Subject to prevailing market conditions, the Company may hedge its beef inventory by entering into cattle futures contracts to reduce exposure to changes in market prices.

Forest Products

Approximately 4% of the Company's properties are classified as timberlands. The principal forest products sold by the Company are sabal palms and other horticultural commodities. These products are sold to various landscaping companies. The Company does not incur any of the harvesting expenses.

Part of the lands, from which the timber was removed, is being converted to semi-improved pasture and other uses.

Mining Operations: Rock and Sand

The Company leases approximately 5,732 acres in Lee County, Florida to CSR America, Inc. of West Palm Beach, Florida for mining and production of rock, aggregate, sand, baserock and other road building and construction materials.

Royalties which the company receives for these products are based on a percentage of the F.O.B. plant sales price.

Land Rental for Grazing, Agricultural and Other Uses

The Company rents land to others for grazing, farming and recreational uses, on a tenant-at-will basis, for an annual fee. The income is not significant when compared to overall gross income, however, it does help to offset the expense of carrying these properties until they are put to a more profitable use. The Company has developed additional land to lease for farming.

There were no significant changes in the method of rental for these purposes during the past fiscal year.

Leases for Oil and Mineral Exploration

The Company has leased subsurface rights to a portion of its properties for the purpose of oil and mineral exploration. Currently, there is one lease in effect.

Twenty-four wells have been drilled during the years that the Company has been leasing subsurface rights to oil companies. The drilling has resulted in twenty-one dry holes, one marginal producer, which has been abandoned, and two average producers, one of which is still producing.

Competition

As indicated, the Company is primarily engaged in a limited number of agricultural activities, all of which are highly competitive. For instance, citrus is grown in some foreign countries and several states, the most notable of which are: Brazil, Florida, California, and Texas. In addition, sugarcane products are imported from some foreign countries. Beef cattle are produced throughout the United States and domestic beef sales must also compete with sales of imported beef. Additionally, forest and rock products are produced in most parts of the United States. Leasing of land for oil exploration is also widespread.

The Company's share of the market for citrus, sugarcane, cattle and forest products in the United States is insignificant.

Environmental Regulations

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

While compliance with environmental regulations has not had a material economic effect on the Company's operations, executive officers are required to spend a considerable amount of time keeping current on these matters. In addition, there are ongoing costs incurred in complying with the permitting and reporting requirements.

Employees

At the end of August 2004, the Company had a total of 149 full-time employees classified as follows: Citrus 74; Ranch 16; Sugarcane 15; Facilities Maintenance Support 29; General and Administrative 15. There are no employees engaged in the development of new products or research. Management is not aware of any efforts by employees or outside organizers to create any type of labor union arrangement. 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 from October to June. Sugarcane is harvested during the first, second and third quarters. Other segments of the Company's business such as its cattle and sod sales, and its timber, mining and leasing operations, tend to be more recurring than seasonal in nature.

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 SEC filed documents are also available free of charge upon request.


		4

Item 2. Properties.

At August 31, 2004, the Company owned a total of 141,067 acres of land located in four counties in Florida. Acreage in each county and the primary classification with respect to present use of these properties is shown in the following table:

Alico, Inc. & Subsidiaries
Land Use Summary

	Total	Hendry	Polk	Collier	Lee
Citrus:
Producing acres	11,147	3,765	3,253	4,129	-
Support and nonproductive*	5,737	1,890	650	3,197	-

Total Citrus	16,884	5,655	3,903	7,326	-

Sugarcane:
Producing acres	13,083	13,083	-	-	-
Support and nonproductive*	10,796	10,796	-	-	-

Total Sugarcane	23,879	23,879	-	-	-

Ranch:
Improved pasture	22,922	22,627	295	-	-
Semi-improved pasture	21,752	20,038	602	1,112	-
Native pasture	19,513	11,846	5,949	1,718	-
Support and nonproductive*	25,522	23,302	1,540	680	-

Total Ranch	89,709	77,813	8,386	3,510	-

Farming:
Leased acres	2,932	2,802	-	-	130
Support and nonproductive*	1,029	1,008	-	-	21

Total farming	3,961	3,810	-	-	151

Sod:
Producing acres	500	500	-	-	-
Support and nonproductive*	335	335	-	-	-

Total sod	835	835	-	-	-

Rock and Sand Mining	5,573	-	-	-	5,573
Commercial & Residential	226	4	214	-	8

Total	141,067	111,996	12,503	10,836	5,732

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

Of the above lands, the Company utilizes approximately 21,000 acres of improved pasture plus approximately 49,000 acres of native pasture for cattle production and approximately 5,732 acres are leased for rock mining operations. Much of the land is also leased for multi-purpose use such as cattle grazing, oil exploration, agriculture and recreation.

From the inception of the Company's initial development program in 1948, the goal has been to develop the lands for the most profitable use. Prior to implementation of the development program, detailed studies were made of the properties focusing on soil capabilities, topography, transportation, availability of markets and the climatic characteristics of each of the tracts. Based on these and later studies, the use of each tract was determined. It is the opinion of Management that the lands are suitable for agricultural, residential and commercial uses. However, since the Company is primarily engaged in agricultural activities, some of the lands are considered surplus to its needs for this purpose and, as indicated under Item 1 of this report, sales of such surplus real property are made from time to time.

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


		5

Item 3. Legal proceedings

None.

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 over-the-counter on the NASDAQ National Market System under the symbol ALCO. The high and low prices, by fiscal quarter, during the years ended August 31, 2004 and 2003 are presented below:

		2004			2003
		Bid Price			Bid Price
		High	Low		High	Low

First Quarter	$	35.99	26.18	$	28.80	22.25

Second Quarter		39.75	32.79		28.04	21.15

Third Quarter		38.99	30.50		27.30	21.00

Fourth Quarter	$	46.20	34.02	$	28.70	22.72

Approximate Number of Holders of Common Stock

As of November 3, 2004, there were approximately 504 holders of record of the Company’s Common Stock as reported by the Company’s Transfer Agent.

Dividend Information

Only year-end dividends have been paid and during the last three fiscal years the dividends were as follows:

Record Date	Payment Date	Amount Paid Per Share

October 12, 2001	October 26, 2001		$ 1.00
October 11, 2002	October 25, 2002		$ 0.35
October 17, 2003	October 31, 2003		$ 0.60

The Company’s Board of Directors, at its meeting on October 8, 2004, voted to defer its annual dividend until a special committee of the board which has been formed has completed its consideration of any restructuring proposal from Atlantic Blue Trust, Inc., a Florida corporation which in February of 2004 acquired ownership of 3,493,777 shares (the "Shares") of the Company’s common stock from Ben Hill Griffin III, as Trustee of the Ben Hill Griffin, Jr. Irrevocable Trust Dividends are paid at the discretion of the Company's Board of Directors. The Company foresees no change in its ability to pay annual dividends in the immediate future; nevertheless, there is no assurance that dividends will be paid in the future since they are dependent upon earnings, the financial condition of the Company, and other factors.

Equity Compensation Plan Information
					Number of securities
					remaining available
					for future issuance
	Number of securities				under equity
	to be issued upon		Weighted average		compensation plans
	exercise of		exercise price of		(excluding securities
	outstanding options,		outstanding options,		reflected in
Plan category	warrants and rights		warrants and rights		column (a)
	(a)		(b)		(c)
Equity compensation
plans approved by
security holders		75,626		$ 17.29		292,844

Equity compensation
plans not approved
by security holders		-		-		-

Total		75,626		$ 17.29		292,844


		6

Item 6. Selected Financial Data

	Years Ended August 31,
Description	2004		2003		2002			2001		2000
	(In Thousands, Except Per Share Amounts)

Operating revenue	$52,057		$48,285		$49,185			$51,533		$45,207
Operating expenses	45,390		43,582		50,313			45,083		38,258
Income (loss) from continuing operations	6,667		4,703		(1,128)			6,450		6,949
Income (loss) from continuing operations
per weighted average common share		0.92		0.66		(0.16	)		0.92		0.99
Total Revenue		87,779		66,532		63,545			69,710		62,540
Total Costs and Expenses		59,979		47,448		53,752			49,598		41,965
Income Taxes		9,987		6,425		2,258			4,046		6,464
Net Income		17,813		12,659		7,535			16,066		14,111
Average Number of Shares Outstanding		7,219		7,106		7,070			7,033		7,028
Net Income Per Share		2.47		1.78		1.07			2.29		2.01
Cash Dividend Declared Per Share		0.60		0.35		1.00			1.00		0.30
Current Assets		125,925		90,204		66,267			61,345		56,578
Total Assets		238,242		216,545		191,910			179,134		176,876
Current Liabilities		10,136		10,124		9,543			7,691		12,346
Ratio-Current Assets to Current Liabilities		12.42:1		8.91:1		6.94:1			7.98:1		4.58:1
Working Capital		115,789		80,080		56,724			53,654		44,232
Long-Term Obligations		82,908		80,239		69,149			58,818		60,985
Total Liabilities		93,044		90,363		78,692			66,509		73,331
Stockholder's Equity		145,198		126,182		113,218			112,625		103,545


		7

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", "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

The Company had cash and marketable securities of $79.9 million at August 31, 2004, compared with $55.2 million at August 31, 2003. Working capital was $115.8 million and $80.1 million at August 31, 2004 and August 31, 2003 respectively.

Cash outlay for land, equipment, buildings, and other improvements totaled $7.3 million during fiscal 2004, compared to $7.3 million during fiscal 2003 and $9.3 million during fiscal 2002, respectively. Land preparation for citrus re-development and capital maintenance continued, as did expenditures for replacement equipment and raising of breeding cattle.

The Company, through Agri, supplies catastrophic business interruption coverage for Tri-County, LLC a subsidiary of Atlantic Blue Trust, Inc., the holder of approximately 47.7% of the Company’s common stock. Total coverage under the policy is $2.7 million. This represents the only underwriting exposure at August 31, 2004. In August and September 2004, a series of three hurricanes struck southwest Florida. The current estimate of the State’s crop loss is approximately 27%. Due to the extensive damages incurred throughout the state, a final assessment of damages has not yet been completed. The Company does expect a claim to be filed; however, the amount of the claim is not yet determinable. Total potential exposure under the policy for this claim is $900 thousand.

Management believes that the Company will be able to meet its working capital requirements for the foreseeable future with internally generated funds. The sale of a Lee County parcel is expected to close by August 2005. If the contract should close as written, it would provide approximately $13.8 million cash due at closing. The contracts were filed as attachments to the Company’s quarterly report on Form 10-Q/A for the nine months ended May 31, 2004. Also in connection with real estate transactions, the Company received a $10.0 million mortgage note in December 2003. The note matures in December 2004.

Management also expects continued profitability from the Company’s agricultural operations in fiscal 2005. Total earnings from agricultural operations in fiscal 2005 should approximate fiscal 2004. The outlook is for gross profits from citrus operations to potentially increase in fiscal 2005 when compared to fiscal 2004. Florida’s citrus production is expected to decline as a result of crop damages sustained during a series of hurricanes that hit Florida in August and September of 2004. The reduction in the supply of citrus is expected to result in improved market prices. The damage to the Company’s groves was limited to approximately $400 thousand. Provided there are no other catastrophic or unfavorable weather events, citrus earnings could improve.

Management expects gross profits from sugarcane operations to decline, due to government imposed quotas that will limit the amount of raw cane the Company can deliver to processors. Gross profits from the Company’s cattle operations in fiscal 2005 are expected to remain similar to the fiscal 2004 results.

Management expects royalties from rock and sand products to approximate or exceed fiscal 2004 levels in 2005, due to continued increases in production caused by development in Southwest Florida. However, mining royalties will cease upon the final disposition of the Lee County land. The final sale is expected to close within the next two fiscal years.

In August 2004 Atlantic Blue Trust, Inc., the Company’s largest stockholder, requested that the Company consider a restructuring of the Company. While Atlantic Blue Trust did not propose the specific terms of a transaction, Atlantic Blue Trust discussed with the Company’s Board of Directors the advisability of combining Atlantic Blue Trust’s cattle ranch, citrus operations and other acreage with Alico’s business in an effort to both lower costs and improve joint operations with Alico remaining a public company. To facilitate such a possible restructuring, Atlantic Blue Trust urged consideration of (a) paying a special cash dividend to all Alico stockholders; and (b) merging Atlantic Blue Trust with Alico or one of its subsidiaries with shareholders of Atlantic Blue Trust receiving shares of Alico common stock in the merger. The Company has established a special committee comprised of all of the independent directors to analyze the possible restructuring. The special committee has retained outside financial and legal advisors to assist with this analysis. Alico directors affiliated with Atlantic Blue Trust or employed by Alico have not participated and will not participate in the evaluation of a possible restructuring. As of this date no formal proposal has been made by Atlantic Blue Trust.

The Company has credit commitments that provide for revolving credit of up to $54.0 million, of which $10.8 million was available for the Company's general use at August 31, 2004 (see Note 6 of Notes to consolidated financial statements).

Results of Operations

Summary of results (in thousands):		Years Ended August 31,
		2004		2003		2002

Operating revenue	$	52,057	$	48,285	$	49,185
Gross profit		13,138		11,022		9,678
General & administrative expenses		6,471		6,319		10,806
Income (loss) from operations		6,667		4,703		(1,128)
Profit on sale of real estate		20,311		14,994		11,641
Interest and investment income		2,519		1,201		1,471
Interest expense		1,825		2,081		2,421
Other income		128		267		230
Provision for income taxes		9,987		6,425		2,258
Effective income tax rate		35.9%		33.7%		23.1%
Net income	$	17,813	$	12,659	$	7,535


		8

Operating Revenue

Operating revenues for fiscal 2004 increased compared to fiscal 2003. Increases in revenues from rock and sand royalties and from agricultural activities were the most significant factors in the increase.

Operating revenues for fiscal 2003 decreased compared to fiscal 2002. A decrease in revenues from agricultural activities was the most significant factor in the decline.

Income (loss) from Operations

Income from operations was higher in fiscal 2004 than fiscal 2003 ($6,667 in fiscal 2004 vs. $4,703 in fiscal 2003). The increase in income was primarily due to increased royalty income from rock and sand products mined from the Company’s Lee County property. Mining activity has increased due to continued development around southwest Florida.

Income (loss) from operations increased significantly during fiscal 2003 when compared to the prior year ($4,703 in fiscal 2003 vs. ($1,128) in fiscal 2002). The improvement in income from operations was largely impacted by the Company’s fiscal 2002 commitment to donate $5.0 million to Florida Gulf Coast University (the University) in December 2001. The entire donation was accrued and included in general and administrative expenses during fiscal 2002. The remaining increase in income from operations in fiscal 2003 compared to fiscal 2002 was due to an increase in earnings from agricultural activities.

Interest and Investment Income

Interest and investment income is generated principally from investments in marketable equity securities, corporate and municipal bonds, mutual funds, U.S. Treasury securities and mortgages held on real estate sold on the installment basis. Realized investment earnings were reinvested throughout fiscal 2004, 2003 and 2002, increasing investment levels during each year.

Interest and investment income increased in fiscal 2004 when compared to fiscal 2003 ($2.5 million vs. $1.2 million in fiscal 2004 and 2003, respectively). The increase was caused by an increase in investment level in fiscal 2004 when compared to fiscal 2003 ($55.6 million at August 31, 2004 vs. $38.8 million at August 31, 2003), coupled with improved conditions in the financial markets. The investment levels increased due to the reinvestment of realized investment earnings, together with additional invested capital provided by proceeds from the sale of bulk excess real estate in December of 2003.

The decrease in fiscal 2003 and 2002, interest and investment income resulted from unfavorable conditions in the financial markets.

Interest Expense

Interest expense declined during fiscal 2004 when compared to fiscal 2003. The Company was able to pay down principal on higher interest notes using its existing revolving credit facility, effectively lowering its overall interest rate.

Interest expense decreased during fiscal 2003, compared to fiscal 2002. This was due to a decline in interest rates on borrowings.


		9

Individual Operating Divisions

Gross profits for the individual operating divisions, for fiscal 2004, 2003 and 2002, are presented
in the following schedule and are discussed in subsequent sections:

	Years Ended August 31,
	(in thousands)
	2004	2003	2002

CITRUS
Revenues:
Sales	$ 24,549	$ 24,107	$ 25,105

Cost & expenses
Harvesting & marketing	9,533	8,910	9,364
Direct production**	7,677	7,671	8,594
Allocated cost*	3,605	3,525	3,463

Total	20,815	20,106	21,421

Gross profit, citrus	3,734	4,001	3,684

SUGARCANE
Revenues:
Sales	12,398	13,373	11,789

Costs and expenses:
Harvesting and marketing	2,353	2,915	2,239
Direct production	4,164	3,844	3,965
Allocated cost*	3,156	3,429	3,253

Total	9,673	10,188	9,457

Gross profit, sugarcane	2,725	3,185	2,332

RANCH
Revenues:
Sales	$ 9,678	$ 7,175	$ 9,102
Costs and expenses:
Direct production	5,750	4,937	6,087
Allocated cost*	2,428	1,853	2,428

Total	8,178	6,790	8,515

Gross profit, ranch	1,500	385	587

Total gross profit, agriculture	7,959	7,571	6,603

OTHER OPERATIONS
Revenue:
Rock products and sand	3,448	2,154	1,999
Land rentals and oil lease	1,171	973	721
Forest products	407	292	355
Other	128	267	230

Total	5,154	3,686	3,305

Costs and expenses:
Allocated cost*	1,174	882	735
General & administrative, all operations	5,297	5,437	10,071

Total	6,471	6,319	10,806

Gross (loss) income, other operations	(1,317)	(2,633)	(7,501)

Total gross profit (loss)	6,642	4,938	(898)

INTEREST & DIVIDENDS
Revenue	2,519	1,201	1,471
Expense	1,825	2,081	2,421

Interest & dividends, net	$ 694	$ (880)	$ (950)


		10

	Years Ended August 31,
	(in thousands)
	2004	2003	2002
REAL ESTATE
Revenue:
Sale of real estate	33,481	16,990	12,773

Expenses:
Cost of sales	12,987	1,925	1,076
Other costs	30	39	56

Total	13,017	1,964	1,132

Gain on sale of real estate	20,464	15,026	11,641

Income before income taxes	$ 27,800	$ 19,084	$ 9,793

* Allocated cost includes ad valorem and payroll taxes, depreciation and insurance.

** Excludes capitalized maintenance cost of groves less than five years of age consisting of
$2.2 million on 1,276 acres in 2004, $2.3 million on 1,617 acres in 2003, and $2.5 million on
1,326 acres in 2002.

Citrus

Gross profit was $3.7 million in fiscal 2004, $4.0 million in fiscal 2003, and $3.7 million for fiscal 2002.

Revenue from citrus sales increased 2% during fiscal 2004 compared to fiscal 2003 ($24.5 million in fiscal 2004 vs. $24.1 million in fiscal 2003). Total field boxes of citrus harvested increased to 4.6 million in fiscal 2004 from 4.3 million in fiscal 2003, due to favorable growing conditions, and was the primary cause of the increase. The favorable growing conditions also contributed to industry wide production increases, resulting in a record Florida citrus crop. The increased supply caused citrus prices to decrease as a whole, and the Company experienced a 4% decline in fruit prices. Additionally, during August and September of 2004 a series of three hurricanes struck a portion of the Company’s citrus groves in Polk County Florida. The resulting damage compelled the Company to write its crop inventory down $0.4 million. The amount was charged to fiscal 2004 operations.

Revenue from citrus sales decreased 4% during fiscal 2003, compared to fiscal 2002 ($24.1 million during fiscal 2003 vs. $25.1 million during fiscal 2002). Pounds of fruit solids per box decreased during fiscal 2003, compared to fiscal 2002, and was the primary cause of the decline in sales revenue.

Harvesting and marketing costs increased in fiscal 2004 when compared to fiscal 2003 ($9.5 million in fiscal 2004 vs. $8.9 million in fiscal 2003) due to the increased number of boxes harvested. Direct production and allocated costs were approximately the same for both fiscal 2004 and fiscal 2003 ($11.3 million in fiscal 2004 vs. $11.2 million in fiscal 2003).

Harvesting and marketing costs decreased in fiscal 2003 when compared to fiscal 2002 due to procedural efficiencies that resulted in a decrease in the per box rate during the year. Direct production and allocated costs decreased 7% in fiscal 2003 when compared to fiscal 2002, due to a decrease in the costs of cultivation and irrigation impacted by improved weather conditions.

The final returns from citrus pools are not precisely determinable at year-end. Returns are estimated each year based on the most current information available. Differences between the estimates and the final realization of revenues can be significant, and the differences between estimated and final results can be either positive or negative. Revenues collected in excess of prior year and year end estimates were $728 thousand, $198 thousand, and $568 thousand during fiscal 2004, 2003 and 2002, respectively.

Sugarcane

Gross profit for fiscal 2004 was $2.7 million, compared to $3.2 million in fiscal 2003 and $2.3 million in fiscal 2002. The 2004, 2003, and 2002 fiscal year crops yielded approximately 465,000, 523,000 and 466,000 standard tons, respectively. Yields per acre were 44.25, 45.51, and 41.37 for the 2004, 2003 and 2002 fiscal years, respectively.

Sales revenue from sugarcane decreased to $12.4 million in fiscal 2004 from $13.4 million in the prior fiscal year. Due to normal crop rotation and replanting in the current year, fewer acres were harvested (11,131 in fiscal 2004 vs. 11,840 in fiscal 2003). This was the primary cause of the current year decrease in sales revenue. The reduced acres harvested in fiscal 2004 also resulted in lower harvesting and marketing costs than in the prior year ($2.4 million in fiscal 2004 vs. $2.9 million in fiscal 2003). Direct production and allocated costs were a combined $7.3 million for both fiscal 2004 and 2003.

Sales revenue from sugarcane increased 13% during fiscal 2003, compared to fiscal 2002 ($13.4 million vs. $11.8 million, respectively). The increase was the result of an improvement in the yield per acre brought about by favorable weather conditions during the growing season. Combined direct production and allocated costs were approximately the same in fiscal 2003 as in fiscal 2002 ($7.3 million vs. $7.2 million, respectively).

Ranching

The gross profit from ranch operations for fiscal 2004, 2003 and 2002 was $1.5 million, $0.4 million, and $0.6 million, respectively.

Revenues from cattle sales increased by 35% to $9.7 million in fiscal 2004, compared to $7.2 million in the previous fiscal year. The increase was due to an increase in the number of head sold (10,603 in fiscal 2004 vs. 9,062 in fiscal 2003) coupled with increased prices for beef cattle. More animals of the age and size required by meat packers were available for sale in fiscal 2004 than in fiscal 2003 due to the timing of placements into western feedlots. Prices increased as a result of a decrease in the domestic beef supply.

As a result of the increase in the number of cattle sold in fiscal 2004, direct and allocated costs increased to $8.2 million in fiscal 2004 from $6.8 million in fiscal 2003.

Revenues from cattle sales decreased 21% during fiscal 2003, compared to fiscal 2002 ($7.2 million in fiscal 2003 vs. $9.1 million in fiscal 2002). Direct and allocated production costs decreased by 20% during fiscal 2003, as compared to fiscal 2002 ($6.8 million in fiscal 2003 vs. $8.5 million in fiscal 2002). The decline in revenue and total production costs primarily resulted from a corresponding decrease in the total number of cattle sold during fiscal 2003 when compared to fiscal 2002. Less animals of the age and size required by meat packers were available for sale in fiscal 2003 than in 2002 because of the timing of placements into western feedlots. Total head sold was 9,062 and 12,166 for fiscal 2003 and 2002, respectively.

The Company's cattle marketing activities include retention of calves in western feedlots, contract and auction sales, and risk management contracts.


		11

Other Operations

Returns from rock products and sand were $3.4 million for fiscal 2004, $2.2 million for 2003 and $2.0 million during 2002. Mining activity has continued to increase due to continued development around southwest Florida. Rock and sand supplies are sufficient to meet current demand, and no major price changes have occurred over the past 3 years.

Revenues from land rentals and oil royalties were $1.2 million in fiscal 2004 as compared to $1.0 million in fiscal 2003 and $0.7 million for fiscal 2002. During fiscal 2004, in response to increased demand for Southwest Florida real estate, the Company raised its rental rates for properties. The fiscal 2003 improvement is primarily due to an increase in the amount of land leased for farming.

Profits from the sale of sabal palms and other horticultural items, for landscaping purposes, during fiscal 2004 were $0.4 million compared to $0.3 million and $0.4 million for fiscal years 2003 and 2002, respectively.

Direct and allocated expenses charged to the "Other" operations category included general and administrative and other costs not charged directly to the citrus, ranching or sugarcane divisions. These expenses totaled $6.5 million during fiscal 2004, compared to $6.3 million during fiscal 2003 and to $10.8 million during fiscal 2002. In December 2001, the Company agreed to donate $5.0 million to the Florida Gulf Coast University for a new athletic complex, scholarships and athletic programs. As per the agreement with the University, $1.0 million was paid in fiscal 2002, $800 thousand was paid in fiscal 2003 and fiscal 2004, and $800 thousand will be paid each year over the next three years. The net present value of the total donation was accrued and included in general and administrative expenses in fiscal 2002 and was the primary cause for the increase in general and administrative expenses that year.

Profit on Sale of Real Estate

Profit from retail land sales, made through Saddlebag, were $153 thousand in fiscal 2004, vs. $32 thousand in fiscal 2003 and breakeven during fiscal 2002. Profit from bulk land sales were $20.3 million in fiscal 2004, $15.0 million in fiscal 2003 and $11.6 million in fiscal 2002.

As discussed below, sales contracts are in place for all of the remaining Lee County property with closing dates expected over the next two fiscal years. The total sales price of the contracts is $138.4 million. When or if the contracts do close, they are expected to result in gains in excess of $124.0 million. The Board of Directors has not specified how these funds will be used if received.

General Corporate

The Company is continuing its marketing and permitting activities for its land that surrounds Florida Gulf Coast University in Lee County, Florida. There are sales contracts in place for all this property, totaling $138.4 million. The agreements are at various stages in the due diligence process with closing dates expected over the next two fiscal years. The contracts are subject to various contingencies and there is no assurance that they will close.

The Company formed Agri-Insurance Company, Ltd. (Agri) a wholly owned subsidiary, during July of 2000. The insurance company was initially capitalized by transferring cash and approximately 3,000 acres of the Lee County property. Through Agri, the Company has been able to underwrite previously uninsurable risk related to catastrophic crop and other losses. The coverages currently underwritten by Agri will indemnify its insureds for the loss of the revenue stream resulting from a catastrophic event. To expedite the creation of the capital liquidity necessary to underwrite the Company's exposure to catastrophic losses, another 5,600 acres were transferred during fiscal 2001. Agri underwrote a limited amount of coverage for Ben Hill Griffin, Inc. during fiscal years 2001 - 2004, and in August 2002, Agri began insuring the Alico, Inc., citrus groves. As Agri gains underwriting experience and increases its liquidity, it will be able to increase its insurance programs. Due to Agri's limited operating history, it would be difficult to speculate about the impact that Agri could have on the Company's financial position, results of operations and liquidity in future periods. Since the coverages that have been written, as liquidity has been generated, are primarily for the benefit of Alico, the financial substance of this venture is to insure risk that is inherent in the Company's existing operations.

Agri wrote an insurance policy for Tri-County, LLC, a subsidiary of Atlantic Blue Trust, Inc., the holder of approximately 47.7% of the Company’s common stock in 2004. The coverage term is from August 2004 to July 2005. Total coverage under the policy is $2.7 million and the premium charged was $45 thousand.

During the third quarter of fiscal 2003, the Company entered into a limited partnership with Agri to manage Agri's real estate holdings. Agri transferred all of the Lee County property and associated sales contracts to the limited partnership, Alico-Agri, Ltd (Alico-Agri) in return for a 99% partnership interest. Alico, Inc. transferred $1.2 million cash for a 1% interest. The creation of the partnership allows Agri to concentrate solely on insurance matters while utilizing Alico's knowledge of real estate management.

During the second quarter of fiscal 2004, the Company, through Alico-Agri, completed the sale of 244 acres in Lee County, Florida. The sales price was $30.9 million and resulted in a gain of $19.7 million. The sale generated $20.9 million cash with the remaining $10.0 million held in the form of a mortgage receivable due in December 2004.

During the fourth quarter of fiscal 2003, the Company sold 358 acres in Hendry County, Florida for $669 thousand. The sale generated a gain of $335 thousand. Additionally, the Company sold 266 acres in Polk County, Florida to the State for $617 thousand, generating a gain of $612 thousand.

In the fourth quarter of fiscal 2003, the Company, through Alico-Agri, completed the sale of 313 acres in Lee County, Florida. The sales price was $9.7 million and resulted in a gain of $8.7 million. Additionally, Alico-Agri completed the sale of 40 acres in Lee County, Florida. The sales price of the property was $5.5 million and generated a gain of $4.7 million.

Recent Events

The Company has received an unsolicited letter from National Land Partners, LLC expressing the desire to discuss a potential acquisition of Alico by National Land. The Company’s Board of Directors has referred the National Land letter to the special committee, which is taking it under consideration.

In September 2004, the Company, through Alico-Agri, purchased the assets of La Belle Plant World, Inc. a wholesale grower and shipper of commercial vegetable transplants to commercial farmers. The purchase price was $4.9 million for the land, office building, greenhouses and associated equipment. Alico Plant World, LLC ("Plant World") was set up as a wholly owned subsidiary of Alico-Agri, Ltd. Plant World was purchased in order to diversify Alico’s agricultural operations and to take advantage of Alico’s existing relationships with the farming community. Due to Plant World's limited operating history, it would be difficult to speculate about the impact that Plant World could have on the Company's financial position, results of operations and liquidity in future periods, but it is not expected to be significant in the next three years.


		12

Off Balance Sheet Arrangements

______________________________

The Company, through Agri, supplies catastrophic business interruption coverage for Tri-County, LLC a subsidiary of Atlantic Blue Trust, Inc., the holder of approximately 47.7% of the Company’s common stock. The coverage term is from August 2004 to July 2005. Total coverage under the policy is $2.7 million and the premium charged was $45 thousand. In August and September 2004, a series of hurricanes struck southwest Florida. Due to the extensive damages incurred throughout the state, an assessment of damages has not yet been completed. The Company expects a claim to be filed, however, the amount of the claim is not yet determinable. Total potential exposure under the policy for this claim is $900 thousand.

Disclosure of Contractual Obligations

_____________________________________

Contractual obligations of the Company are set forth in the table below:

	Payment due by period (from August 31, 2004)
			(in thousands)

		Less than	1-3	3-5	5+
Contractual obligations	Total	1 year	years	years	years

Long-term debt	$ 51,585	$ 3,319	$ 39,875	$ 2,585	$ 5,806
Leases (Operating & capital)	0	0	0	0	0
Purchase obligations (donation)	2,278	764	1,514	0	0
Other long-term liabilities	33,297	434	18,718	1,764	12,381

TOTAL	$ 87,160	$ 4,517	$ 60,107	$ 4,349	$ 18,187

	Payment due by period (from August 31, 2003)
			(in thousands)

		Less than	1-3	3-5	5+
Contractual obligations	Total	1 year	years	years	years

Long-term debt	$ 57,448	$ 3,321	$ 39,576	$ 4,633	$ 9,918
Leases (Operating & capital)	0	0	0	0	0
Purchase obligations (donation)	2,983	754	1,459	770	0
Other long-term liabilities	24,142	350	11,584	1,944	10,264

TOTAL	$ 84,573	$ 4,425	$ 52,619	$ 7,347	$ 20,182

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.

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 affect the net realizable value.

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 prior years’ crop totaling $728 thousand, $198 thousand, and $568 thousand during fiscal 2004, 2003, and 2002, respectively.

In accordance with Statement of Position 85-3 "Accounting by Agricultural Producers and Agricultural Cooperatives", the cost of growing crops (citrus and sugarcane), 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.

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 coverages for the increasing number and potential severity of agricultural related events. Such events include citrus canker, crop diseases, livestock related maladies and weather. Alico’s goal included not only prefunding 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.

Since receiving the favorable IRS determination letter, certain transactions, entered into by other taxpayers under the same IRS Code Section came under scrutiny and criticism by the news media. In reaction, Management has recorded a contingent liability of $17.0 million for income taxes in the event of an IRS challenge. Management’s decision has been influenced by perceived changes in the regulatory environment. The Company believes that it can successfully defend any such challenge, however, because it is probable that a challenge will be made and possible that it may be successful, Management has provided for the contingency.


		13

The IRS is in the process of examining the Company tax returns for the fiscal years ended August 31, 2003, 2002, 2001 and 2000, and Agri tax returns for calendar years 2002, 2001 and 2000. Any adjustments resulting from the examination will be currently due and payable. A Revenue Agent has issued a report challenging Agri’s tax exempt status for the years examined, however, the report did not quantify the adjustment proposed. Quantification of the adjustment is expected when the IRS concludes its audits of Alico. No adjustments have been proposed to date for Alico. The Revenue Agent’s findings regarding Alico could occur within the next fiscal year.

Recent Events

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

Alico’s exposure to market rate risk for changes in interest rates relates primarily to its investment portfolio. At August 31, 2004, derivative financial instruments are limited to 30 open corn futures positions. 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 ensures 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 amounts (in thousands) and related weighted interest/dividend yield rates of the investment portfolio at August 31, 2004:

		Average Interest		Estimated
Marketable Securities and		Rate/Dividend Yield	Cost	Fair Value
Short-term Investments (1)

	Fixed Rate	3.63%	$19,532	$19,517
	Variable Rate	3.34%	$33,866	$36,053

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

The aggregate fair value of investments in debt instruments (net of mutual funds of $3,628) as of

August 31, 2004, by contractual maturity date, consisted of the following:

Aggregate Fair

Values

(in thousands)

Due in one year or less

$ 8,100

Due between one and five years

7,123

Due between five and ten years

1,593

Due thereafter

2,716

$ 19,532

The Company has debt with interest rates that vary with the LIBOR and prime rate. A 1%

increase in these rates would impact the Company's annual interest expense by approximately $182

thousand based on the Company's outstanding debt under these agreements as of August 31, 2004.


		14

Item 8.

Financial Statements and Supplementary Data.

Independent Auditors' Reports

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Alico, Inc.:

We have audited the accompanying consolidated balance sheet of Alico, Inc. and subsidiaries as of August 31, 2004, and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for the year then ended. Our audit also includes the financial statement schedules listed in the accompanying index at Item 15(a) 2 for the year ended August 31, 2004. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alico, Inc. and subsidiaries at August 31, 2004 and the results of their operations and their cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein for the year ended August 31, 2004.

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

Orlando, Florida

October 29, 2004


		15

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of

Directors of Alico, Inc.:

We have audited the consolidated balance sheet of Alico, Inc. and subsidiaries as of August 31, 2003, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for the years ended August 31, 2003 and 2002. In connection with our audits of the related 2003 and 2002 consolidated financial statements, we also have audited the related 2003 and 2002 consolidated financial statement schedules as listed in Item 15(a)(2) herein. These consolidated financial statements and financial statements schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules 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 Alico, Inc. and subsidiaries at August 31, 2003, and the results of their operations and their cash flows for the years ended August 31, 2003 and 2002 in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related 2003 and 2002 consolidated financial statement schedules, when considered in relation to the consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

KPMG, LLP

(Signature)

Orlando, Florida

October 10, 2003


		16

CONSOLIDATED BALANCE SHEETS
(in thousands)

			August 31,
			2004		2003
	ASSETS

Current assets:
Cash, including time deposits and other cash investments of
$24,171 in 2004 and $16,303 in 2003		$	24,299	$	16,352
Marketable securities available for sale, at estimated fair value in
2004 and in 2003 (Note 2)			55,570		38,820
Accounts receivable ($6,470 in 2003 due from affiliate)
(Note 12)			9,118		9,680
Mortgages and note receivable, current portion (Note 3)			9,983		2,534
Land inventories			5,501		-
Inventories (Note 4)			20,772		21,845
Other current assets			682		973

Total current assets			125,925		90,204

Other assets:

Land inventories			-		16,587
Mortgages and note receivable, net of current portion (Note 3)			662		234
Investments			1,069		886
Cash surrender value of life insurance, restricted (Note 10)			4,900		3,797

Total other assets			6,631		21,504

Property, buildings and equipment (Note 5)			147,756		144,578
Less accumulated depreciation			(42,070)		(39,741)

Net property, building and equipment			105,686		104,837

Total assets		$	238,242	$	216,545

See accompanying Notes to Consolidated Financial Statements.


		17

			August 31,
			2004		2003
	LIABILITIES & STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable		$	1,743	$	2,110
Due to profit sharing plan (Note 10)			434		350
Accrued ad valorem taxes			1,678		1,519
Current portion of notes payable (Note 6)			3,319		3,321
Accrued expenses			1,068		390
Income taxes payable			753		-
Deferred income taxes (Note 11)			376		1,680
Donation payable			765		754

Total current liabilities			10,136		10,124

Deferred revenue			266		91
Notes payable (Note 6)			48,266		54,127
Deferred income taxes (Note 11)			11,445		9,668
Deferred retirement benefits (Note 10)			4,464		4,515
Other non-current liability (Note 8)			16,954		9,609
Donation payable			1,513		2,229

Total liabilities			93,044		90,363

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 7,309 in 2004 and 7,116 in 2003			7,309		7,116
Additional paid in capital			7,800		3,074
Accumulated other comprehensive income (loss)			1,529		961
Retained earnings			128,560		115,031

Total stockholders; equity			145,198		126,182

Total liabilities and stockholders' equity		$	238,242	$	216,545
See accompanying Notes to Consolidated Financial Statements.


		18

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

	Years Ended August 31,
	2004	2003	2002

Revenue:
Citrus (including revenues from affiliate) (Note 12)	$ 24,549	$ 24,107	$ 25,105
Sugarcane	12,398	13,373	11,789
Ranch	9,678	7,175	9,102
Rock & sand royalties	3,448	2,154	1,999
Land rentals & oil lease	1,171	973	721
Forest products	407	292	355
Retail land sales	406	211	114

Operating revenue	52,057	48,285	49,185

Cost of sales:
Citrus production, harvesting & marketing
(including charges from affiliate) (Note 12)	20,815	20,106	21,421
Sugarcane production, harvesting and hauling	9,673	10,188	9,457
Ranch	8,178	6,790	8,515
Retail land sales	253	179	114

Total costs of sales	38,919	37,263	39,507

Gross profit	13,138	11,022	9,678

General & administrative expenses	6,471	6,319	10,806

Income (loss) from operations	6,667	4,703	(1,128)

Other income (expenses):

Profit on sales of real estate:
Sales	33,075	16,779	12,659
Cost of sales	12,764	1,785	1,018
Profit on sales of real estate, net	20,311	14,994	11,641
Interest & investment income	2,519	1,201	1,471
Interest expense (Note 6)	(1,825)	(2,081)	(2,421)
Other	128	267	230

Total other income, net	21,133	14,381	10,921

Income before income taxes	27,800	19,084	9,793
Provision for income taxes (Note 10)	9,987	6,425	2,258

Net income	$ 17,813	$ 12,659	$ 7,535

Weighted-average number of shares outstanding	7,219	7,106	7,070

Weighted-average number of shares outstanding
assuming dilution	7,295	7,256	7,188

Per share amounts:
Basic	$ 2.47	$ 1.78	$ 1.07
Diluted	2.44	1.74	1.05
Dividends	$ 0.60	$ 0.35	$ 1.00

See accompanying Notes to Consolidated Financial Statements.


		19

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME

				Accumulated
	Common Stock		Additional	Other
	Shares		Paid in	Comprehensive	Retained
	Issued	Amount	Capital	Income	Earnings	Total
Balances, August 31, 2001	7,045	$ 7,045	$ 331	$ 871	$104,378	$112,625

Comprehensive income:
Net income for the year ended
August 31, 2002	-	-	-	-	7,535	7,535

Unrealized losses on securities,
net of taxes of $(622) and
reclassification adjustment	-	-	-	(1,303)	-	(1,303)

Total comprehensive income						6,232
Dividends paid	-	-	-	-	(7,059)	(7,059)
Stock options exercised	35	35	494	-	-	529
Stock based compensation	-	-	891	-	-	891

Balances, August 31, 2002	7,080	7,080	1,716	(432)	104,854	113,218

Comprehensive income:
Net income for the year ended
August 31, 2003	-	-	-	-	12,659	12,659

Unrealized gains on securities,
net of taxes of $552 and
reclassification adjustment	-	-	-	1,393	-	1,393

Total comprehensive income						14,052
Dividends paid	-	-	-	-	(2,482)	(2,482)
Stock options exercised	36	36	519	-	-	555
Stock based compensation	-	-	839	-	-	839

Balances, August 31, 2003	7,116	7,116	3,074	961	115,031	126,182

Comprehensive income
Net income for the year ended
August 31, 2004	-	-	-	-	17,813	17,813

Unrealized gains on securities,
net of taxes of $ 234 and
reclassification adjustment	-	-	-	568	-	568

Total comprehensive income						18,381
Dividends paid	-	-	-	-	(4,284)	(4,284)
Stock options exercised	193	193	2,963	-	-	3,156
Stock based compensation	-	-	1,763	-	-	1,763

Balances, August 31, 2004	7,309	$ 7,309	$ 7,800	$ 1,529	$128,560	$ 145,198



Disclosure of reclassification amount:			2004	2003	2002

Unrealized holding gains (losses)
arising during the period			$ 787	$ 2,651	$ (1,774)

Less: reclassification adjustment for gains
(losses) included in net income			219	1,258	(471)

Net unrealized gains (losses) on securities			$ 568	$ 1,393	$ (1,303)

See accompanying Notes to Consolidated Financial Statements.


		20

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		Years Ended August 31,
		2004		2003		2002

Increase (Decrease) in Cash and Cash Investments:
Cash flows from operating activities:
Net income		$ 17,813		$ 12,659		$ 7,535
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation		6,509		6,723		6,982
(Gain) loss on breeding herd sales		(108)		(16)		(84)
Deferred income tax expense, net		472		582		1,263
Deferred retirement benefits		(1,154)		1		(31)
Net (gain) loss on sale of marketable securities		(723)		(691)		381
(Gain) Loss on sale of property and equipment		-		606		(150)
Gain on real estate sales		(20,311)		(15,026)		(11,758)
Stock options granted below fair market value		1,763		839		891
Cash provided by (used for) changes in:
Accounts receivable		561		(218)		692
Inventories		474		(173)		1,059
Other assets		291		111		57
Accounts payable & accrued expenses		7,194		5,840		2,944
Income taxes payable		753		42		(294)
Deferred revenues		176		(23)		48

Net cash provided by operating activities		13,710		11,256		9,535

Cash flows from investing activities:
Increase in land inventories		(423)		(684)		(9,785)
Purchases of property and equipment		(7,280)		(7,325)		(9,270)
Proceeds from disposals of property and equipment		738		431		1,257
Proceeds from sale of real estate		21,356		15,911		12,789
Purchases of investments		(320)		-		(126)
Purchases of marketable securities		(21,072)		(20,257)		(8,047)
Proceeds from sales of marketable securities		5,643		4,958		3,673
Collection of mortgages and notes receivable		2,586		2,377		2,449

Net cash used for investing activities		1,228		(4,589)		(7,060)

Cash flows from financing activities:
Proceeds from exercising stock options		3,156		555		529
Proceeds from bank loans		23,922		33,169		43,597
Repayment of bank loans		(29,785)		(31,697)		(35,627)
Dividends paid		(4,284)		(2,482)		(7,059)

Net cash provided by (used for) financing activities		(6,991)		(455)		1,440

Net increase (decrease) in cash and cash investments		7,947		6,212		3,915

Cash and cash investments:
At beginning of year		16,352		10,140		6,225

At end of year	$	24,299	$	$16,352	$	10,140

Supplemental disclosures of cash flow information:

Cash paid in interest, net of amount capitalized	$	1,518	$	1,767	$	2,124


Cash paid for income taxes, including related interest	$	1,370	$	1,060	$	943

Non-cash investing activities:

Fair value adjustments to securities available for sale	$	802	$	1,945	$	(1,925)

Income tax effect related to fair value adjustments	$	234	$	552	$	(622)


Reclassification of breeding herd to Property & Equipment	$	599	$	700	$	515

See accompanying Notes to Consolidated Financial Statements.


		21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended August 31, 2004, 2003 and 2002

(1) Summary of Significant Accounting Policies

(a) Basis of Consolidated Financial Statement Presentation

The consolidated financial statements include the accounts of Alico, Inc. (the Company) and its wholly owned subsidiaries, Saddlebag Lake Resorts, Inc. (Saddlebag), Agri-Insurance Company, Ltd. (Agri), and Alico-Agri, Ltd. after elimination of all significant inter-company 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 prior years’ crop totaling $728 thousand, $198 thousand, and $568 thousand during fiscal 2004, 2003, and 2002, 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 increases to the sugar pool have caused the Company to recognize additional revenue from the prior year’s crop totaling $325 thousand, $356 thousand and $318 thousand during the fiscal year’s 2004, 2003, and 2002, respectively.

The Company recognizes revenue from cattle sales at the time the cattle are sold at auction.

(c) Real Estate

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 percent of the contract sales price.

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.

Profits from commercial real estate sales are discounted to reflect the market rate of interest where the stated rate is less than the market rate. The recorded valuation discounts are realized as the balances due are collected.

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 Company has entered into an agreement with a real estate consultant to assist in obtaining the necessary regulatory approvals for the development and marketing of a tract of raw land. The marketing costs under this agreement are being expensed as incurred. 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 estimated 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.

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.

Beef cattle inventories are stated at the lower of cost or net realizable value. The cost of the beef cattle inventory is based on the accumulated cost of developing such animals for sale.

Unharvested crops are stated 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.

(f) 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 are written off 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.


		22

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.

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.

(g) Land Inventories

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

(h) Other Investments

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

In September 2004, the Company purchased the assets of La Belle Plant World, Inc. a wholesale grower and shipper of commercial fruit and vegetable transplants. Prior to the closing, the Company paid refundable costs in connection with the purchase. These costs have been included in the balance sheet as other investments.

(i) 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.

(j) Net Earnings Per Share

Outstanding stock options issued by the Company represent the only dilutive effect reflected in the computation of weighted average shares outstanding assuming dilution. Options do not impact the numerator of the earnings per share computation.

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.

(k) Cash Flows

For purposes of the cash flows, cash and cash investments include cash on hand and amounts due from financial institutions with an original maturity of less than three months.

(l) 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 and the recognition of citrus and sugarcane revenues are two of the more significant estimates made by Management.

(m) Financial Instruments and Accruals

The carrying amounts in the consolidated balance sheets for accounts receivable, mortgage and notes receivable, accounts payable and accrued expenses approximate fair value, because of the immediate or short term maturity of these items. The carrying amounts reported for the Company's long-term debts approximate fair value because they are transactions with commercial lenders at interest rates that vary with market conditions and fixed rates that approximate market.

(n) Derivative and Hedging Instruments

The Company 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, 2004 and 2003, the Company had no open positions in cattle futures. The Company also purchases corn futures in order to lock in the cost of raising feeder cattle over the feeding term. The Company had open positions in 30 corn futures contracts at August 31, 2004. The Company, through its investment portfolio, also may hedge using options or short sales. These transactions are recorded as interest and investment revenue.

(o) Accumulated Other Comprehensive Income

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. Items included in other comprehensive income are classified based on their nature. The total of other comprehensive income for a period has been transferred to an equity account and displayed as "accumulated other comprehensive income".

(p) Stock-Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) for stock options and other stock-based awards while disclosing pro forma net income and net income per share as if the fair value method had been applied in accordance with Statement of Financial Accounting Standards No. 123,"Accounting for Stock-based Compensation" (SFAS 123) and amended by Statement of Financial Accounting Standards No. 148 (SFAS 148) "Accounting for Stock-Based Compensation - Transition and Disclosure".

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:


		23

	Year ended August 31,
	2004	2003	2002

Net income as reported	$ 17,813	$ 12,659	$ 7,535

Add: Total stock-based employee compensation expense
determined under the intrinsic value based method for all
awards, net of related tax effects	1,100	523	556

Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all
awards, net of related tax effects	(1,063)	(529)	(484)

Pro forma net income	$ 17,850	$ 12,653	$ 7,607

Earnings per share:

Basic - as reported	$ 2.47	$ 1.78	$ 1.07

Basic - pro forma	$ 2.47	$ 1.78	$ 1.08

Diluted - as reported	$ 2.44	$ 1.74	$ 1.05

Diluted - pro forma	$ 2.45	$ 1.74	$ 1.06

(q) Reportable Segments

The Company has three reportable segments: citrus, sugarcane, and ranch. The citrus segment produces fruit for both the fresh fruit and processed juice markets. The sugarcane segment produces sugarcane for processing. The ranch segment raises beef cattle to be sold in the wholesale market. The Company’s reportable segments are strategic business units that offer different products. They are managed separately because each business requires different operating strategies.

(r) Reclassifications

Certain amounts from 2003 and 2002 have been reclassified to conform to the 2004 presentation.

(s) Major customers

Alico is a producer of agricultural commodities. Due to the limited number of processors of its raw product, 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						Revenues
	2004		2003		2002		2004		2003		2002

Citrus fruit marketer	$ 5,437	$	6,470	$	6,457	$	18,385	$	17,656	$	19,103

Sugar cane processor	$ 2,887	$	2,404	$	2,083	$	12,398	$	13,373	$	11,789

(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.

The cost and estimated fair values of marketable securities available for sale at August 31, 2004
and 2003(in thousands) were as follows:
		2004								2003
				Gross				Estimated				Gross				Estimated
				Unrealized				Fair				Unrealized				Fair
Equity securities:		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

Preferred stocks	$	1,513	$	82	$	(3)	$	1,592	$	2,504	$	85	$	(65)	$	2,524
Common stocks		6,307		494		(535)		6,266		1,893		221		(306)		1,808
Mutual funds*		22,418		2,579		(434)		24,563		10,181		1,801		-		11,982

Total equity securities		30,238		3,155		(972)		32,421		14,578		2,107		(371)		16,314

Debt securities

Municipal bonds		3,225		74		(10)		3,289		515		28		-		543
Mutual funds		3,628		81		(78)		3,631		8,435		421		(609)		8,247
Fixed maturity funds		2,581		-		(29)		2,552		11,146		-		(31)		11,115
Corporate bonds		13,726		30		(79)		13,677		2,762		22		(183)		2,601

Total debt securities		23,160		185		(196)		23,149		22,858		471		(823)		22,506

Marketable securities
available for sale		$ 53,398	$	3,340	$	(1,168)	$	55,570	$	37,436	$	2,578	$	(1,194)	$	38,820

*Includes shares held by regulated investment companies as well as a limited partnership hedge fund primarily
investing in marketable equity securities.


		24

The aggregate fair value of investments in debt instruments (net of mutual funds of $3,628) as of
August 31, 2004, by contractual maturity date, consisted of the following:

	Aggregate Fair
	Values
	(in thousands)

Due in one year or less		$ 8,100
Due between one and five years		7,123
Due between five and ten years		1,593
Due thereafter		2,716

		$ 19,532

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

		Year ended August 31,
		2004		2003		2002

Realized gains	$	815	$	834	$	345
Realized losses		(92)		(143)		(726)

Net	$	723	$	691	$	(381)

(3) Mortgage and Notes Receivable

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

		August 31,
		2004		2003

Mortgage notes receivable on retail land sales	$	265	$	235
Mortgage notes receivable on bulk land sales		10,290		2,420
Other notes receivable		90		113

Total mortgage and notes receivable		10,645		2,768
Less current portion		9,983		2,534

Non-current portion	$	662	$	234

Maturities of the notes receivable are as follows:


Due within 1 year	$ 9,983
Due between 1 and 2 years	87
Due between 2 and 3 years	400
Due between 3 and 4 years	31
Due between 4 and 5 years	31
Due beyond five years	113
Total	$10,645

In December 2003, Alico-Agri received a non-interest bearing mortgage note in exchange for land sold. The note totaled $10.0 million and is due in full in December 2004. The note was discounted by $244 thousand to reflect the prevailing market rate of interest. The unamortized portion of the discount totaled $81 thousand at August 31, 2004.

(4) Inventories

A summary of the Company's inventories (in thousands) at August 31, 2004 and 2003 is shown below:

	2004	2003

Unharvested fruit crop on trees	$ 7,712	$ 8,135
Unharvested sugarcane	5,124	5,159
Beef cattle	7,172	7,892
Sod	764	659

Total inventories	$ 20,772	$ 21,845

The Company’s unharvested sugarcane and cattle are partially uninsured. During August and September of 2004 a series of three hurricanes struck a portion of the Company’s citrus groves in Polk County Florida. The resulting damage compelled the Company to write its crop inventory down $0.4 million. The amount was charged to fiscal 2004 operations.


		25

(5) Property, Buildings and Equipment

A summary of the Company's property, building and equipment (in thousands) at August 31, 2004 and 2003 is shown below:

Estimated

2004

2003

Useful Lives

Breeding herd
$
13,242
$
12,711

5-7 years

Buildings

3,930

3,875

5-40 years

Citrus trees

33,572

31,109

22-40 years

Sugarcane

8,371

8,350

4-15 years

Equipment and other facilities

29,410

29,526

3-40 years

Total depreciable properties

88,525

85,571

Less accumulated depreciation

42,070

39,741

Net depreciable properties

46,455

45,830

Land and land improvements

59,231

59,007

Net property, building and equipment
$
105,686
$
104,837

(6) Indebtedness

A summary of the Company's notes payable is provided in the following table:

August 31, 2004
		Additional
	Principal	Credit	Interest
	Balance	Available	Rate*	Collateral
a) Revolving credit line	$ 18,248	$ 7,752	Libor +1%	Unsecured
b) Revolving credit line	15,000	-	Libor +.8%	Unsecured
c) Demand note	-	3,000	Libor +1%	Unsecured
d) Credit line	6,000	-	5.80%	Unsecured
e) Mortgage note payable	12,139	-	6.68%	Real estate
Other	198	-	7.00%	Real estate

Total	$ 51,585	$ 10,752

August 31, 2003
		Additional
	Principal	Credit	Interest
	Balance	Available	Rate*	Collateral
a) Revolving credit line	$ 20,791	$ 5,209	Libor +1%	Unsecured
b) Revolving credit line	15,000	-	Libor +.8%	Unsecured
c) Demand note	-	3,000	Libor +1%	Unsecured
d) Credit line	8,000	-	5.80%	Unsecured
e) Mortgage note payable	13,406	-	6.68%	Real estate
Other	251	-	7.00%	Secured

Total	$ 57,448	$ 8,209

a) Line of credit with commercial bank, due in full January 2006. Interest due quarterly
b) Line of credit with commercial lender, renews annually. Subject to review June 2005.
Interest due quarterly.
c) Working capital loan with commercial bank due on demand. Interest due quarterly.
d) 5-year fixed rate term loan with commercial lender. $2 million principal due
annually. Interest due quarterly.
e) 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.

Maturities of the Company's debt is as follows:
			August 31,
		2004		2003
Due within 1 year		$ 3,319		$ 3,321
Due between 1 and 2 years		36,560		36,264
Due between 2 and 3 years		3,315		3,312
Due between 3 and 4 years		1,318		3,315
Due between 4 and 5 years		1,267		1,318
Due beyond five years		5,806		9,918

Total		$ 51,585		$ 57,448

LIBOR was 1.79% and 1.14% at August 31, 2004 and 2003, respectively. The Company’s variable interest rates, based on LIBOR at August 31, 2004 and 2003 was 2.79%, 2.59% and 2.14%, respectively.


		26

Interest costs expensed and capitalized (in thousands) during the three years ended
August 31, 2004, 2003 and 2002 was as follows:

		2004		2003		2002

Interest expense	$	1,825	$	2,081	$	2,421
Interest capitalized		275		267		322

Total interest cost	$	2,100	$	2,348	$	2,743

The Company renewed its $26 million line of credit in accordance with the "evergreen" provision in the original loan agreement during November 2004, which extends the due date from January 31, 2005 to January 31, 2006. Accordingly, the Company has classified obligations under this agreement as non-current. Since the inception of the original note, Management and the bank, as a matter of routine, have agreed to exercise this provision.

(7) Commitments and Contingencies

The Company is involved in various claims and legal actions arising in the ordinary course of business. Additionally, the Company, through Agri, supplies catastrophic business interruption coverage for Tri-County, LLC a subsidiary of Atlantic Blue Trust, Inc., the holder of approximately 47.7% of the Company’s common stock. Total coverage under the policy is $2.7 million. This represents the only underwriting exposure at August 31, 2004. In August and September 2004, a series of three hurricanes struck southwest Florida. The current estimate of the State’s crop loss is approximately 27%. Due to the extensive damages incurred throughout the state, a final assessment of damages has not yet been completed. The Company does expect a claim to be filed; however, the amount of the claim is not yet determinable. Total potential exposure under the policy for this claim is $900 thousand.

Agri is required to maintain liquidity equal to its outside underwriting risk. As of August 31, 2004, Agri’s liquidity was sufficient to cover its underwriting risk. Notwithstanding the undetermined hurricane loss discussed above, in the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operation or liquidity.

(8) Other non-current liability

Since receiving the favorable IRS determination letter, certain transactions, entered into by other taxpayers under the same IRS Code Section came under scrutiny and criticism by the news media. In reaction, Management has recorded a contingent liability of $17.0 million at August 31, 2004 and $9.6 million at August 31, 2003 for income taxes in the event of an IRS challenge. Management’s decision has been influenced by perceived changes in the regulatory environment. The Company believes that it can successfully defend any such challenge, however, because it is probable that a challenge will be made and possible that it may be successful, Management has provided for the contingency.


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(9) Stock Option Plan

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 authorizes 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 determined on the effective date of the grant. The strike price cannot be less than 55% of the market price.

The Company applies APB Opinion No. 25 for issuances to directors and employees in accounting for its plan. All stock options have been 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 a vesting period of one year.

					Weighted average
			Weighted average		remaining contractual
	Shares Under Option		exercise price		Life (in years)
Balance outstanding,
August 31, 2001		84,080	$	14.62		7

Granted		69,598		15.68

Exercised		35,831		14.76

Balance outstanding,
August 31, 2002		117,847		15.20		7

Granted		67,280		15.68

Exercised		35,726		15.53

Balance outstanding,
August 31, 2003		149,401		15.34		9

Granted		119,462		18.18

Exercised		193,237		16.33

Balance outstanding,
August 31, 2004		75,626	$	17.29		9


On August 31, 2004 and 2003, there were 292,844 and 412,356 shares available for grant,
respectively.

All stock options outstanding were exercisable at August 31, 2004.

Stock options granted and compensation recognized were as follows:

			Market	Compensation
			Price	recognized
	Options	Exercise	at time of	under APB 25
Grant date	Granted	Price	grant	(thousands)

April 6, 1999	34,750	$ 14.62	$ 14.83	$ 7
September 9, 1999	14,992	14.62	15.81	18
September 12, 2000	51,074	14.62	16.31	86
September 11, 2001	69,598	15.68	28.48	891
September 10, 2002	67,280	15.68	28.15	839
September 9, 2003	65,081	15.68	28.30	821
February 3, 2004	54,381	$ 21.17	$ 38.49	$ 942

The fair value of stock options granted was $1.7 million in 2004, $.8 million in 2003 and $.8 million in 2002 on the date of the grant using the Black Scholes option-pricing model with the following weighted average assumptions:

	2004		2003		2002

Volatility		8.28%		8.39%		8.39%
Dividend paid		1.87%		2.23%		6.38%
Risk-free interest rate		2.26%		4.75%		4.75%
Expected life in years		1		1		1


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(10) Employee Benefit Plans

The Company has a profit sharing plan covering substantially all employees. The plan was established under Internal Revenue Code Section 401(k). Contributions made to the profit sharing plan (in thousands) were $434, $350 and $285 for the years ended August 31, 2004, 2003 and 2002, respectively.

Additionally, the Company has a nonqualified defined benefit retirement plan covering the officers and other key management personnel of the Company. Details concerning this plan are as follows:

		2004		2003

Beginning benefit obligation	$	4,515	$	3,785
Service cost		135		626
Interest cost		150		234
Benefits paid		(338)		(132)
Actuarial losses		-		-
Other		2		2

Ending benefit obligation		4,464		4,515

Changes in plan assets

Beginning plan assets		3,797		3,666
Return on plan assets		126		109
Employer contributions		1,200		39
Plan participant contributions		115		115
Benefit paid		(338)		(132)

Ending plan assets		4,900		3,797

Net pension liability (asset)	$	(436)	$	718

Components of net pension cost

	Years ended August 31,
	2004	2003	2002
Service cost, net of participant contributions	20	511	301
Interest cost	275	234	185
Expected return on plan assets	(334)	-	-
Prior service cost amortization	2	2	2

Net pension cost for defined benefit plan	$ (37)	$ 747	$ 488

The net benefit obligation was computed using a discount rate of 6.25%.

(11) Income Taxes

The provision for income taxes (in thousands) for the years ended August 31, 2004, 2003
and 2002 is summarized as follows:

	2004	2003	2002

Current:
Federal income tax	$ 8,733	$ 5,872	$ 3,713
State income tax	933	628	396
	9,666	6,500	4,109

Deferred:
Federal income tax	290	(68)	(1,673)
State income tax	31	(7)	(178)
	321	(75)	(1,851)

Total provision for income taxes	$ 9,987	$ 6,425	$ 2,258


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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 (in thousands) for the years ended August 31, 2004, 2003 and 2002:

	2004	2003	2002

Expected income tax	$ 9,452	$ 6,489	$ 3,330
Increase (decrease) resulting from:
State income taxes, net of federal benefit	636	410	144
Nontaxable interest and dividends	(93)	(97)	(102)
Internal Revenue Service examinations	11	14	11
Income from Agri-Insurance Company, Ltd.	-	(752)	(1,156)
Stock options exercised	(675)	30	27

(5) Property, Buildings and Equipment

A summary of the Company's property, building and equipment (in thousands) at August 31, 2004 and 2003 is shown below:

					Estimated
		2004		2003	Useful Lives

Breeding herd	$	13,242	$	12,711	5-7 years
Buildings		3,930		3,875	5-40 years
Citrus trees		33,572		31,109	22-40 years
Sugarcane		8,371		8,350	4-15 years
Equipment and other facilities		29,410		29,526	3-40 years

Total depreciable properties		88,525		85,571
Less accumulated depreciation		42,070		39,741

Net depreciable properties		46,455		45,830
Land and land improvements		59,231		59,007

Net property, building and equipment	$	105,686	$	104,837