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LIMONEIRA COMPANY


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2019
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: 001-34755
LIMONEIRA COMPANY
(Exact name of Registrant as Specified in its Charter)
Delaware
77-0260692
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1141 Cummings Road, Santa Paula, CA
93060
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (805) 525-5541
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol (s)
Name of Each Exchange of Which Registered
Common Stock, $0.01 par value
LMNR
The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:  
¨    Large accelerated filer
ý  Accelerated filer
¨  Emerging growth company

¨    Non-accelerated filer
¨  Smaller reporting company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    ý  No

As of August 31, 2019, there were 17,772,753 shares outstanding of the registrant’s common stock.

1

LIMONEIRA COMPANY
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
 
Consolidated Balance Sheets – July 31, 2019 and October 31, 2018
 
 
Consolidated Statements of Operations – three and nine months ended July 31, 2019 and 2018
 
 
Consolidated Statements of Comprehensive (Loss) Income – three and nine months ended July 31, 2019 and 2018
 
 
Consolidated Statements of Stockholders' Equity and Temporary Equity–three and nine months ended July 31, 2019 and 2018
 
 
Consolidated Statements of Cash Flows – nine months ended July 31, 2019 and 2018
 
 
Notes to Consolidated Financial Statements
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES


2

Cautionary Note on Forward-Looking Statements.
 
This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond the Company’s control. The potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ materially from those expressed or implied include:

•
changes in laws, regulations, rules, quotas, tariff, and import laws;
•
adverse weather conditions, natural disasters and other adverse natural conditions, including freezes, rains, fires and droughts that affect the production, transportation, storage, import and export of fresh produce;
•
market responses to industry volume pressures;
•
increased pressure from disease, insects and other pests;
•
disruption of water supplies or changes in water allocations;
•
product and raw materials supplies and pricing;
•
energy supply and pricing;
•
changes in interest and currency exchange rates;
•
availability of financing for development activities;
•
general economic conditions for residential and commercial real estate development;
•
political changes and economic crisis;
•
international conflict;
•
acts of terrorism;
•
labor disruptions, strikes, shortages or work stoppages;
•
loss of important intellectual property rights; and
•
other factors disclosed in our public filings with the Securities and Exchange Commission (the "SEC").

The Company’s actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which the Company is not currently aware or which the Company currently deems immaterial could also cause the Company’s actual results to differ, including those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2018. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
 
The terms the “Company,” “Limoneira”, “we,” “our” and “us” as used throughout this Quarterly Report on Form 10-Q refer to Limoneira Company and its consolidated subsidiaries, unless otherwise indicated.


3

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
LIMONEIRA COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($ in thousands, except share amounts) 
 
July 31,
2019
October 31,
2018
Assets
 

 

Current assets:
 

 

Cash
$
943

$
609

Accounts receivable, net
24,127

14,116

Cultural costs
7,034

5,413

Prepaid expenses and other current assets
18,483

10,528

Income taxes receivable
—

378

Total current assets
50,587

31,044

 
 
 
Property, plant and equipment, net
247,619

225,681

Real estate development
16,378

107,162

Equity in investments
57,775

18,698

Investment in Calavo Growers, Inc.
21,226

24,250

Other assets
22,104

14,504

Total assets
$
415,689

$
421,339

 
 
 
Liabilities and stockholders’ equity
 

 

Current liabilities:
 

 

Accounts payable
$
16,174

$
6,134

Growers payable
15,752

10,089

Accrued liabilities
4,273

7,724

Current portion of long-term debt
3,024

3,127

Total current liabilities
39,223

27,074

Long-term liabilities:
 

 

Long-term debt, less current portion
109,253

76,966

Deferred income taxes
25,090

25,372

Other long-term liabilities
3,196

3,647

Sale-leaseback deferral
—

58,330

Total liabilities
176,762

191,389

Commitments and contingencies (See Note 16)




 
 
Series B Convertible Preferred Stock – $100.00 par value (50,000 shares authorized: 14,790 shares issued and outstanding at July 31, 2019 and October 31, 2018) (8.75% coupon rate)
1,479

1,479

Series B-2 Convertible Preferred Stock – $100.00 par value (10,000 shares authorized: 9,300 shares issued and outstanding at July 31, 2019 and October 31, 2018) (4% dividend rate on liquidation value of $1,000 per share)
9,331

9,331

 
 
 
Stockholders’ equity:
 

 

Series A Junior Participating Preferred Stock – $0.01 par value (20,000 shares authorized: zero issued or outstanding at July 31, 2019 and October 31, 2018)
—

—

Common Stock – $0.01 par value (39,000,000 shares authorized: 17,772,753 and 17,647,135 shares issued and outstanding at July 31, 2019 and October 31, 2018, respectively)
178

176

Additional paid-in capital
160,200

159,071

Retained earnings
57,309

50,354

Accumulated other comprehensive (loss) income
(5,130
)
8,965

Noncontrolling interest
15,560

574

Total stockholders’ equity
228,117

219,140

Total liabilities and stockholders’ equity
$
415,689

$
421,339

The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except share amounts)
 
Three Months Ended
July 31,
 
Nine Months Ended
July 31,
 
2019
 
2018
 
2019
 
2018
Net revenues:
 

 
 

 
 
 
 
Agribusiness
$
49,631

 
$
38,677

 
$
131,254

 
$
110,875

Rental operations
1,238

 
1,273

 
3,668

 
3,803

Real estate development
—

 
—

 
—

 
—

Total net revenues
50,869

 
39,950

 
134,922

 
114,678

Costs and expenses:
 

 
 

 
 
 
 
Agribusiness
42,747

 
23,983

 
118,741

 
80,943

Rental operations
993

 
1,004

 
3,167

 
3,045

Real estate development
50

 
25

 
102

 
94

Selling, general and administrative
4,961

 
3,513

 
14,819

 
11,529

Total costs and expenses
48,751

 
28,525

 
136,829

 
95,611

Operating income (loss)
2,118

 
11,425

 
(1,907
)
 
19,067

Other (expense) income:
 

 
 

 
 
 
 
Interest expense
(774
)
 
(260
)
 
(1,313
)
 
(1,054
)
Equity in earnings of investments
480

 
123

 
2,449

 
40

Loss on sale of stock in Calavo Growers, Inc.
(6
)
 
—

 
(6
)
 
—

Unrealized loss on stock in Calavo Growers, Inc.
(1,769
)
 
—

 
(2,067
)
 
—

Other income, net
15

 
26

 
375

 
283

Total other (expense) income
(2,054
)
 
(111
)
 
(562
)
 
(731
)
 
 
 
 
 
 
 
 
Income (loss) before income tax (provision) benefit
64

 
11,314

 
(2,469
)
 
18,336

Income tax (provision) benefit
(461
)
 
(3,114
)
 
216

 
5,093

Net (loss) income
(397
)
 
8,200

 
(2,253
)
 
23,429

Net (income) loss attributable to noncontrolling interest
(593
)
 
1

 
(615
)
 
(4
)
Net (loss) income attributable to Limoneira Company
(990
)
 
8,201

 
(2,868
)
 
23,425

Preferred dividends
(125
)
 
(125
)
 
(376
)
 
(376
)
Net (loss) income attributable to common stock
$
(1,115
)
 
$
8,076

 
$
(3,244
)
 
$
23,049

 
 
 
 
 
 
 
 
Basic net (loss) income per common share
$
(0.06
)
 
$
0.51

 
$
(0.19
)
 
$
1.54

 
 
 
 
 
 
 
 
Diluted net (loss) income per common share
$
(0.06
)
 
$
0.50

 
$
(0.19
)
 
$
1.50

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding-basic
17,554,000

 
15,947,000

 
17,527,000

 
14,979,000

Weighted-average common shares outstanding-diluted
17,554,000

 
16,551,000

 
17,527,000

 
15,578,000

  
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 



5

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
(In thousands)
 
Three Months Ended July 31,
 
Nine Months Ended
July 31,
 
2019
 
2018
 
2019
 
2018
Net (loss) income
$
(397
)
 
$
8,200

 
$
(2,253
)
 
$
23,429

Other comprehensive (loss) income, net of tax:
 

 
 

 
 
 
 
Foreign currency translation adjustments
(559
)
 
(75
)
 
(116
)
 
218

Minimum pension liability adjustment, net of tax of $28, $51, $83 and $154 for the three and nine months ended July 31, 2019 and 2018, respectively.
72

 
125

 
218

 
372

Unrealized holding gains on available-for-sale securities, net of tax of $0, $105, $0 and $1,653 for the three and nine months ended July 31, 2019 and 2018, respectively.
—

 
(255
)
 
—

 
3,987

Unrealized gains from derivative instrument, net of tax of $0, $12, $0 and $79 for the three and nine months ended July 31, 2019 and 2018, respectively.
—

 
2

 
—

 
163

Total other comprehensive (loss) income, net of tax
(487
)
 
(203
)
 
102

 
4,740

Comprehensive (loss) income
(884
)
 
7,997

 
(2,151
)
 
28,169

Comprehensive loss (income) attributable to noncontrolling interest
575

 
(30
)
 
576

 
6

Comprehensive (loss) income attributable to Limoneira Company
$
(309
)
 
$
7,967

 
$
(1,575
)
 
$
28,175

 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 


6

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY
($ in thousands)

 
Stockholders’ Equity
 
 
 
Temporary Equity
 
Common Stock
 
Additional
Paid-In
 
Retained
 
Accumulated
Other
Comprehensive
 
Noncontrolling
 
 
 
Series B
Preferred
 
Series B-2
Preferred
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Interest
 
Total
 
Stock
 
Stock
Balance at October 31, 2018
17,647,135

 
$
176

 
$
159,071

 
$
50,354

 
$
8,965

 
$
574

 
$
219,140

 
$
1,479

 
$
9,331

Dividends Common ($0.075 per share)
—

 
—

 
—

 
(1,332
)
 
—

 
—

 
(1,332
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(32
)
 
—

 
—

 
(32
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
145,737

 
2

 
789

 
—

 
—

 
—

 
791

 
—

 
—

Exchange of common stock
(20,119
)
 
—

 
(305
)
 
—

 
—

 
—

 
(305
)
 
—

 
—

Net (loss) income
—

 
—

 
—

 
(4,693
)
 
—

 
17

 
(4,676
)
 
—

 
—

Other comprehensive income, net of tax
 
 
 
 
 
 
 
 
969

 
(12
)
 
957

 
—

 
—

Reclassification of unrealized gain on marketable securities upon adoption of ASU 2016-01
—

 
—

 
—

 
15,921

 
(15,921
)
 
—

 
—

 
—

 
—

Reclassification upon adoption of ASU 2018-02
—

 
—

 
—

 
(1,724
)
 
1,724

 
—

 
—

 
—

 
—

Balance at January 31, 2019
17,772,753
 
178

 
159,555

 
58,401

 
(4,263
)
 
579

 
214,450

 
1,479

 
9,331

Dividends Common ($0.075 per share)
—

 
—

 
—

 
(1,333
)
 
—

 
—

 
(1,333
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(33
)
 
—

 
—

 
(33
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
—

 
—

 
437

 
—

 
—

 
—

 
437

 
—

 
—

Net income
—

 
—

 
—

 
2,815

 
—

 
5

 
2,820

 
—

 
—

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
(380
)
 
(9
)
 
(389
)
 
—

 
—

Balance at April 30, 2019
17,772,753
 
178

 
159,992

 
59,757

 
(4,643
)
 
575

 
215,859

 
1,479

 
9,331

Dividends Common ($0.075 per share)
—

 
—

 
—

 
(1,333
)
 
—

 
—

 
(1,333
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(32
)
 
—

 
—

 
(32
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
—

 
—

 
208

 
—

 
—

 
—

 
208

 
—

 
—

Acquired noncontrolling interest
—

 
—

 
—

 
—

 
—

 
14,410

 
14,410

 
—

 
—

Net (loss) income
—

 
—

 
—

 
(990
)
 
—

 
593

 
(397
)
 
—

 
—

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
(487
)
 
(18
)
 
(505
)
 
—

 
—

Balance at July 31, 2019
17,772,753
 
$
178

 
$
160,200

 
$
57,309

 
$
(5,130
)
 
$
15,560

 
$
228,117

 
$
1,479

 
$
9,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


7

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY (Continued)
($ in thousands)
 
Stockholders’ Equity
 
 
 
Temporary Equity
 
Common Stock
 
Additional
Paid-In
 
Retained
 
Accumulated
Other
Comprehensive
 
Noncontrolling
 
 
 
Series B
Preferred
 
Series B-2
Preferred
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Interest
 
Total
 
Stock
 
Stock
Balance at October 31, 2017
14,405,031

 
$
144

 
$
94,294

 
$
34,692

 
$
7,076

 
$
587

 
$
136,793

 
$
1,479

 
$
9,331

Dividends Common Stock ($0.0625 per share)
—

 
—

 
—

 
(908
)
 
—

 
—

 
(908
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(32
)
 
—

 
—

 
(32
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
145,441

 
1

 
708

 
—

 
—

 
—

 
709

 
—

 
—

Exchange of common stock
(17,520
)
 
—

 
(401
)
 
—

 
—

 
—

 
(401
)
 
—

 
—

Net income (loss)
—

 
—

 
—

 
8,625

 
—

 
(2
)
 
8,623

 
—

 
—

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
3,291

 
25

 
3,316

 
—

 
—

Balance at January 31, 2018
14,532,952

 
145

 
94,601

 
42,284

 
10,367

 
610

 
148,007

 
1,479

 
9,331

Dividends Common Stock ($0.0625 per share)
—

 
—

 
—

 
(908
)
 
—

 
—

 
(908
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(33
)
 
—

 
—

 
(33
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
—

 
—

 
230

 
—

 
—

 
—

 
230

 
—

 
—

Net income (loss)
—

 
—

 
—

 
6,599

 
—

 
7

 
6,606

 
—

 
—

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
1,652

 
6

 
1,658

 
—

 
—

Balance at April 30, 2018
14,532,952
 
145

 
94,831

 
47,849

 
12,019

 
623

 
155,467

 
1,479

 
9,331

Dividends Common Stock ($0.0625 per share)
—

 
—

 
—

 
(1,101
)
 
—

 
—

 
(1,101
)
 
—

 
—

Dividends Series B ($2.19 per share)
—

 
—

 
—

 
(32
)
 
—

 
—

 
(32
)
 
—

 
—

Dividends Series B-2 ($10 per share)
—

 
—

 
—

 
(93
)
 
—

 
—

 
(93
)
 
—

 
—

Stock compensation
—

 
—

 
277

 
—

 
—

 
—

 
277

 
—

 
—

Issuance of common stock
3,136,362

 
32

 
64,065

 
—

 
—

 
—

 
64,097

 
—

 
—

Net income (loss)
—

 
—

 
—

 
8,201

 
—

 
(1
)
 
8,200

 
—

 
—

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
(202
)
 
(29
)
 
(231
)
 
—

 
—

Balance at July 31, 2018
17,669,314
 
$
177

 
$
159,173

 
$
54,824

 
$
11,817

 
$
593

 
$
226,584

 
$
1,479

—

$
9,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

The accompanying notes are an integral part of these unaudited consolidated financial statements.

8

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Nine Months Ended
July 31,
 
2019
 
2018
Operating activities
 

 
 

Net (loss) income
$
(2,253
)
 
$
23,429

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
6,327

 
5,210

(Gain) loss on disposals of assets
(11
)
 
188

Gain on sales of real estate development assets
—

 
(25
)
Stock compensation expense
1,436

 
1,216

Equity in earnings of investments
(2,449
)
 
(40
)
Cash distributions from equity investments
458

 
175

Deferred income taxes
(216
)
 
(5,519
)
Accrued interest on notes receivable
(146
)
 
(136
)
Loss on sale of stock in Calavo Growers, Inc.
6

 
—

Unrealized loss on stock in Calavo Growers, Inc.
2,067

 
—

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(10,014
)
 
(4,031
)
Cultural costs
1,644

 
(246
)
Prepaid expenses and other current assets
(4,692
)
 
(954
)
Income taxes receivable
—

 
250

Other assets
(39
)
 
26

Accounts payable and growers payable
15,505

 
3,927

Accrued liabilities
(3,206
)
 
(314
)
Other long-term liabilities
(143
)
 
47

Net cash provided by operating activities
4,274

 
23,203

Investing activities
 

 
 

Capital expenditures
(12,613
)
 
(9,003
)
Purchase of real estate development parcel
—

 
(1,444
)
Net proceeds from sales of real estate development assets
—

 
1,543

Agriculture property acquisitions
(397
)
 
(13,111
)
Business combinations
(15,000
)
 
(25,000
)
Net proceeds from sale of stock in Calavo Growers, Inc.
952

 
—

Collections of installments on note receivable
150

 
—

Equity investment contributions
(4,000
)
 
(3,500
)
Investments in mutual water companies
(472
)
 
(337
)
Net cash used in investing activities
(31,380
)
 
(50,852
)
Financing activities
 

 
 

Borrowings of long-term debt
95,321

 
135,127

Repayments of long-term debt
(63,163
)
 
(167,881
)
Dividends paid – common
(3,998
)
 
(2,920
)
Dividends paid – preferred
(376
)
 
(376
)
Exchange of common stock
(305
)
 
(401
)
Issuance of common stock
—

 
64,097

Net cash provided by financing activities
27,479

 
27,646

Effect of exchange rate changes on cash
(39
)
 
16

Net increase in cash
334

 
13

Cash at beginning of period
609

 
492

Cash at end of period
$
943

 
$
505


9

LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)
 
Nine Months Ended
July 31,
 
2019
 
2018
Supplemental disclosures of cash flow information
 

 
 

Cash paid during the period for interest (net of amounts capitalized)
$
2,018

 
$
1,547

Cash paid during the period for income taxes, net of (refunds)
$
130

 
$
210

Non-cash investing and financing activities:
 

 
 

Unrealized holding gain on Calavo investment
$
—

 
$
(5,640
)
(Decrease) increase in real estate development and sale-leaseback deferral
$
(58,330
)
 
$
13,731

Reclassification from real estate development to equity in investments
$
(33,353
)
 
$
—

Increase in equity in investments and other long-term liabilities
$
—

 
$
1,080

Non-cash issuance of note receivable
$
—

 
$
3,000

Non-cash reduction of note receivable
$
—

 
$
79

Capital expenditures accrued but not paid at period-end
$
199

 
$
331

Accrued Series B-2 Convertible Preferred Stock dividends
$
31

 
$
31

Non-cash issuance of note payable
$
—

 
$
1,435

 
In December 2018, the Company terminated its lease agreement with the Joint Venture (as defined herein) that is developing the East Area I real estate development project. As a result, the Company reduced its sale lease-back deferral and corresponding real estate development by $58,330,000 and reclassified $33,353,000 of the Company’s basis in the Joint Venture from real estate development to equity in investments as further described in Note 7 - Real Estate Development and Note 8 - Equity Investments of the notes to consolidated financial statements included in this Quarterly Report on Form 10-Q.

In February 2013, the Company entered into an option agreement for the purchase of a 7-acre parcel adjacent to its East Area II real estate development project. In February 2018, the Company exercised its option and purchased the property for $3,145,000, by making a cash payment of $1,444,000 and issuing a note payable for $1,435,000.

In November 2017, the holder of the note receivable from a 2004 sale of property completed the drilling of a water well at the Company’s La Campana Ranch. The fair value of the well drilling services was $79,000 and the Company recorded a non-cash reduction of the note receivable.

In December 2017, the Company sold its Centennial Square (“Centennial”) real estate development property for $3,250,000. The Company received net proceeds of $179,000 and received a $3,000,000 promissory note secured by the property for the balance of the purchase price. 

The accompanying notes are an integral part of these unaudited consolidated financial statements.




10

LIMONEIRA COMPANY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization and Basis of Presentation
Business
Limoneira Company (together with its consolidated subsidiaries, the “Company”) engages primarily in growing citrus and avocados, picking and hauling citrus, and packing, marketing and selling lemons. The Company is also engaged in residential rentals and other rental operations and real estate development activities.

The Company markets and sells lemons directly to food service, wholesale and retail customers throughout the United States, Canada, Asia, Europe and other international markets. The Company is a member of Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative, and sells its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.

The Company sells all of its avocado production to Calavo Growers, Inc. (“Calavo”), a packing and marketing company listed on the NASDAQ Global Select Market under the symbol CVGW. Calavo’s customers include many of the largest retail and food service companies in the United States and Canada. The Company’s avocados are packed by Calavo, which are then sold and distributed under Calavo brands to its customers.

Basis of Presentation and Preparation
The accompanying unaudited interim consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which a controlling interest is held by the Company. Intercompany accounts and transactions have been eliminated. In the opinion of the Company, the unaudited interim consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited interim consolidated financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. Because the consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K.

2. Summary of Significant Accounting Policies

Revenue Recognition

On November 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) – Accounting Standards Update (“ASU”) ASU 2014-09, Revenue from Contracts with Customers (Topic 606), that amends the guidance for the recognition of revenue from contracts with customers. The results for the reporting period beginning after November 1, 2018 are presented in accordance with the new standard which was adopted using the modified-retrospective method and applied to those contracts that were not completed as of November 1, 2018. There was no net effect of applying the standard and therefore no cumulative adjustment to retained earnings was necessary at the date of initial application.

As a result comparative information has not been restated and the results for the reporting periods before November 1, 2018 continue to be reported under the accounting standards and policies in effect for those periods.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

•
Identify the contract(s) with a customer.
•
Identify the performance obligations in the contract.
•
Determine the transaction price.
•
Allocate the transaction price to the performance obligations in the contract.
•
Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company determined the appropriate method by which it recognizes revenue by analyzing the nature of the products or services being provided as well as the terms and conditions of contracts or arrangements entered into with its customers. The Company accounts


11

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A contract's transaction price is allocated to each distinct good or service (i.e., performance obligation) identified in the contract and each performance obligation is valued based on its estimated relative standalone selling price. 

The Company recognizes the majority of its revenue at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as allowances for estimated customer discounts or concessions, where applicable. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

Upon adoption, the Company changed the accounting of certain brokered fruit sales. Under previous guidance, the Company was considered an agent and recorded revenues for certain brokered fruit sales and the costs of such fruit on a net basis in its consolidated statement of operations. Under the new revenue recognition standard, the Company is considered a principal in the transaction and revenues are recorded on a gross basis in the Company’s consolidated statement of operations with the related cost of such fruit included in agribusiness costs and expenses. This change resulted in the recognition of additional agribusiness revenue and agribusiness costs and expenses of $1,781,000, respectively, during the three months ended July 31, 2019 and $2,201,000, respectively, during the nine months ended July 31, 2019. Had it used the previous revenue recognition guidance, the Company would have recorded insignificant net agribusiness revenue for the three and nine months ended July 31, 2019. No cumulative adjustment to retained earnings was necessary as there is no net effect of applying the standard.

Agribusiness revenue - Revenue from lemon sales is generally recognized at a point in time when the customer takes control of the fruit from the Company’s packinghouse, which aligns with the transfer of title to the customer. The Company has elected to treat any shipping and handling costs incurred after control of the goods has been transferred to the customer as agribusiness costs.

The Company’s avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. The Company delivers all of its avocado production from its orchards to Calavo. These avocados are then packed by Calavo at its packinghouse and sold and distributed under Calavo brands to its customers primarily in the United States and Canada. The Company’s arrangements with other third-party packinghouses related to its oranges, specialty citrus and other specialty crops are similar to its arrangement with Calavo. The Company’s arrangements with its third-party packinghouses are such that the Company is the producer and supplier of the product and the third-party packinghouses are the Company’s customers. 

The revenues the Company recognizes related to the fruits sold to the third-party packinghouses are based on the volume and quality of the fruits delivered, the market price for such fruit, less the packinghouses’ charges to pack and market the fruit. Such packinghouse charges include the grading, sizing, packing, cooling, ripening and marketing of the related fruit. The Company controls the product until it is delivered to the third-party packinghouses at which time control of the product is transferred to the third-party packinghouses and revenue is recognized. Such third-party packinghouse charges are recorded as a reduction of revenue as they are not for distinct services. The identifiable benefit the Company receives from the third-party packinghouses for packaging and marketing services cannot be sufficiently separated from the third-party packinghouses’ purchase of the Company’s products. In addition, the Company is not able to reasonably estimate the fair value of the benefit received from the third-party packinghouses for such services and as such, these costs are characterized as a reduction of revenue in the Company’s consolidated statements of operations.

Revenue from the sales of certain of the Company’s agricultural products is recorded based on estimated proceeds provided by certain of the Company’s sales and marketing partners (Calavo and other third-party packinghouses) due to the time between when the product is delivered by the Company and the closing of the pools for such fruits at the end of each month or harvest period. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. The Company
estimates the variable consideration using the most likely amount method, with the most likely amount being the quantities actually shipped extended by the prices reported by Calavo and other third-party packinghouses. Revenue is recognized at time of delivery to
the packinghouses relating to fruits that are in pools that have not yet closed at month end if: (a) the related fruits have been delivered
to and accepted by Calavo and other third-party packinghouses (i.e., Calavo and other third-party packinghouses obtain control) and
(b) sales price information has been provided by Calavo and other third-party packinghouses (based on the marketplace activity for


12

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. In such instances the Company has the present right to payment and Calavo and other third-party packinghouses have the present right to direct the use of, and obtain substantially all of the remaining benefits from, the delivered fruit. The Company does not expect that there is a high likelihood that a significant reversal in the amount of cumulative revenue recognized in the early periods of the pool will occur once the final pool prices have been reported by the packinghouses. Historically, the revenue that is recorded based on the sales price information provided to the Company by Calavo and other third-party packinghouses at the time of delivery, have not materially differed from the actual amounts that are paid after the monthly or harvest period pools are closed.

The Company has entered into brokerage arrangements with third-party international packinghouses. In certain of these arrangements, the Company has the exclusive ability to direct the use of and obtains substantially all of the remaining benefits from the fruit, and therefore is acting as a principal. As such, the Company records the related revenue and costs of the fruit gross in the consolidated statement of operations.

Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment.
 
Rental Revenue - Minimum rental revenues are generally recognized on a straight-line basis over the respective initial lease term. Contingent rental revenues are contractually defined as to the percentage of rent received by the Company and are based on fees collected by the lessee. Such revenues are recognized when actual results, based on collected fees reported by the tenant, are received. The Company's rental arrangements generally require payment on a monthly or quarterly basis.
 
Real Estate Development Revenue - The Company recognizes revenue on real estate development projects with customers at a point in time (i.e., the closing) when the Company satisfies the single performance obligation and transfers control of such real estate to a buyer. The transaction price, which is the amount of consideration the Company receives upon delivery of the completed real estate to the buyer, is allocated to this single obligation and is received at closing. Real estate development projects with non-customers are accounted for in accordance with Accounting Standards Code (“ASC”) 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets.
 
Recent Accounting Pronouncements

FASB ASU 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

The amendments in ASU 2016-01, among other things, require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e., securities or loans and receivables). Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost.

ASU 2016-01 is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company’s adoption of this ASU on November 1, 2018 resulted in a cumulative-effect adjustment to the statement of financial position, with the Company reclassifying unrealized holding gains of $15,921,000, net of taxes, in Calavo common stock to retained earnings from accumulated other comprehensive income ("AOCI") at the date of adoption. In addition, the change in the fair value of Calavo common stock has been disclosed as a separate line item in the statement of operations subsequent to the adoption of ASU 2016-01.

FASB ASU 2016-02, Leases (Topic 842) and related ASUs, including ASU 2018-11, Leases (Topic 842): Targeted Improvements

Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:


13

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

•
A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and
•
A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. ASU 2018-11 provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company plans to use the optional transition method when it adopts the ASUs beginning in the first quarter of its fiscal year ending October 31, 2020. The Company is evaluating the effect these ASUs may have on its consolidated financial statements, however it expects to apply the practical expedients provided in the ASUs. Note 20 – Commitments and Contingencies of the notes to consolidated financial statements included in the Company's 2018 Annual Report on Form 10-K describes its operating lease arrangements as of October 31, 2018.

FASB ASU No. 2017-04 -Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

This amendment eliminates Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.

ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted.  The Company early adopted the standard as of May 1, 2019 and followed this guidance during its annual impairment testing performed during the third quarter.  The adoption did not have an impact on its financial position, results of operations, or cash flows.

FASB ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

The amendment is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The Company’s adoption of this ASU during the first quarter of fiscal year 2019 had no material impact on its consolidated financial statements.

FASB ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income




14

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

This amendment provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the "2017 Act") (or portion thereof) is recorded.

The amendment is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed amendment either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the 2017 Act is recognized. The Company early adopted this ASU on November 1, 2018, and as a result recorded a cumulative-effect reclassification in the statement of financial position to retained earnings from AOCI at the date of adoption of $1,724,000 related to the investment in Calavo and pension liability.

FASB ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

This amendment adds, removes and clarifies the disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. For public business entities, the amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is evaluating the effect this ASU may have on its consolidated financial statements. 

SEC Amendments to Certain Disclosure Requirements
 
In August 2018, the SEC adopted amendments to certain disclosure requirements for a number of SEC rules, including Rule 3-04 of Regulation S-X. Rule 3-04 requires that a public registrant’s Form 10-Q include a reconciliation of changes in stockholders’ equity for each period for which a statement of comprehensive income is required to be filed. These amendments are effective for interim periods beginning after November 5, 2018, therefore the Company has included a separate statement of stockholders’ equity and temporary equity in this Quarterly Report on Form 10-Q.

3. Acquisitions
Agriculture Property Acquisition

In January 2019, the Company purchased land for use as a citrus orchard for a cash purchase price of $397,000. The acquisition was for 26 acres of agricultural property adjacent to the Company’s orchards in Lindsay, California. This agriculture property acquisition is included in property, plant and equipment on the Company’s consolidated balance sheet.

San Pablo
 
On July 18, 2018, the Company completed the acquisition of Agricola San Pablo S.A. (“San Pablo”) ranch and related assets in La Serena, Chile, for $13,000,000. The San Pablo ranch consists of 3,317 acres on two parcels, including 247 acres producing lemons, 61 acres producing oranges, the opportunity to immediately plant 120 acres for lemon production, as well as the potential for approximately 500 acres of avocado production. This acquisition was accounted for as an asset purchase and is included in property, plant and equipment in the Company’s consolidated balance sheet. In addition, transaction costs of $111,000 were capitalized as part of total acquisition costs.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation (in thousands):
Cultural costs
$
579

Land and land improvements
9,114

Buildings and equipment
207

Orchards
2,058

Water rights
1,153

Total assets acquired
$
13,111



15

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. Acquisitions (continued)

Agriculture Property Acquisition (continued)

The unaudited, pro forma consolidated statement of operations as if San Pablo had been included in the consolidated results of the Company for the year ended October 31, 2018 would have resulted in revenues of $130,262,000 and net income of $18,785,000.

Business Combinations

Trapani Fresh

On May 30, 2019, the Company acquired a 51% interest in a joint venture, Trapani Fresh, formed with FGF Trapani (“FGF”), a multi-generational, family owned citrus operation in Argentina. To consummate the transaction, the Company formed a subsidiary under the name Limoneira Argentina S.A.U. (“Limoneira Argentina”) as the managing partner and acquired a 51% interest in an Argentine Trust that holds a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. Trapani Fresh controls the trust and grows, packs, markets and sells fresh citrus.

Total consideration paid for the Company’s interest in Trapani Fresh was $15,000,000 of which $7,500,000 was paid to FGF on May 30, 2019. The remaining $7,500,000 was advanced to FGF, $4,000,000 in February 2019 and $3,500,000 in May 2019, as prepayments for the 25% interest in Santa Clara retained by FGF. Transaction costs of approximately $548,000 were included in selling, general and administrative expense. The Company has consolidated Trapani Fresh and has accounted for the acquisition of Trapani Fresh as a business combination, resulting in FGF’s 49% interest in Trapani Fresh being accounted for as a non-controlling interest.

Below is a summary of the preliminary fair value of the net assets acquired on the acquisition date based on a third-party valuation (in thousands):
Cultural costs
$
3,270

Land and land improvements
9,520

Buildings and improvements
870

Orchards
8,410

Customer relationships, trademarks and non-competition agreement (10 year useful life)
6,380

Goodwill
960

Total assets acquired
29,410

Noncontrolling interest
(14,410
)
Net cash paid
$
15,000


Preliminary goodwill of $960,000 relates to synergies of the operations, has been allocated to the fresh lemons segment and is currently not expected to be deductible for tax purposes. Revenue of $11,685,000 and net income of $1,203,000 of Trapani Fresh are included in the Company’s consolidated statement of operations from the acquisition date to the period ended July 31, 2019. The unaudited, pro forma consolidated statement of operations as if Trapani Fresh had been included in the consolidated results of the Company for the entire nine months ended July 31, 2019 would have resulted in revenues of $141,149,000 and net loss of $2,705,000.

Oxnard Lemon
 
On July 24, 2018, the Company and Oxnard Lemon Associates, Ltd., a California limited partnership (“Seller”), entered into an Asset Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, on July 26, 2018 (the “Initial Closing Date”), the Company acquired certain tangible assets of Seller, including a packinghouse and related land (“Oxnard Lemon”), for a purchase price of $24,750,000 (the “Initial Acquisition”). Pursuant to the Purchase Agreement, the closing on the purchase and sale of the intangible assets of Seller, including Seller’s trade names, trademarks and copyrights, took place on October 31, 2018 (the “Final Closing Date”), at which point an additional $250,000 in purchase price was paid to Seller by the Company. The aggregate purchase price for the tangible assets and the intangible assets provided in the Purchase Agreement was $25,000,000. Additionally, the Purchase





16

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. Acquisitions (continued)

Business Combinations (continued)

Agreement provided that Seller lease back the tangible assets from the Company until the Final Closing Date, pursuant to a lease executed on the Initial Closing Date. Transaction costs of $142,000 were included in selling, general and administrative expense.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation (in thousands):
Land and land improvements
$
7,294

Buildings and equipment
14,866

Customer relationships and trade names
2,270

Goodwill
570

Total assets acquired
$
25,000

The unaudited, pro forma consolidated statement of operations as if Oxnard Lemon had been included in the consolidated results of the Company for the year ended October 31, 2018 would have resulted in revenues of $142,253,000 and net income of $19,728,000.

4. Fair Value Measurements
Under the FASB ASC 820, Fair Value Measurement and Disclosures, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).

The following table sets forth the Company’s financial assets and liabilities as of July 31, 2019 and October 31, 2018, which are measured on a recurring basis during the period, segregated by level within the fair value hierarchy (in thousands): 
July 31, 2019
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 

 
 

 
 

 
 

Equity securities
$
21,226

 
$
—

 
$
—

 
$
21,226

October 31, 2018
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 

 
 

 
 

 
 

Equity securities
$
24,250

 
$
—

 
$
—

 
$
24,250


Equity securities consist of marketable securities in Calavo common stock. At July 31, 2019 and October 31, 2018, the Company owned 240,000 and 250,000 shares, respectively, representing approximately 1.4% of Calavo’s outstanding common stock. These securities are measured at fair value by quoted market prices and changes in fair value are included in the statement of operations subsequent to the adoption of ASU 2016-01.

In July 2019, the Company sold 10,000 shares of Calavo common stock for a total of $952,000 recognizing a loss of $6,000. This loss is included in other (expense) income in the consolidated statement of operations. With the adoption of FASB ASU 2016-01 on November 1, 2018, changes in the fair value of the marketable securities result in gains or losses recognized in net income. The Company recorded an unrealized (loss)/gain of $(1,769,000) and $(2,067,000) during the three and nine months ended July 31, 2019, respectively, which is included in other (expense) income in the consolidated statements of operations. The Company recorded unrealized holding (losses)/gains of $(360,000) (($255,000) net of tax) and $5,640,000 ($3,987,000 net of tax), during the three and nine months ended July 31, 2018, which were included in AOCI in the consolidated balance sheet.

Calavo’s stock price at July 31, 2019 and October 31, 2018 was $88.44 and $97.00 per share, respectively. Prior to the adoption of ASU 2016-01, these equity securities were classified as available-for-sale securities and changes in fair value were recorded in AOCI net of tax.



17

LIMONEIRA COMPANY


5. Concentrations
Lemons procured from third-party growers were 59% and 35% of the Company's lemon supply in the three months ended July 31, 2019 and 2018, respectively. Lemons procured from third-party growers were 59% and 44% of the Company's lemon supply in the nine months ended July 31, 2019 and 2018, respectively. The Company sells all of its avocado production to Calavo and the majority of its oranges and specialty citrus to a third-party packinghouse.  

6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands): 
 
July 31,
2019
 
October 31, 2018
Prepaid insurance
$
515

 
$
647

Prepaid supplies
2,093

 
1,196

Lemon supplier advances
3,438

 
170

Note receivable, net
2,599

 
2,797

Real estate development held for sale
5,024

 
5,024

Commercial property held for sale
3,295

 
—

Water assessment fees and other
1,519

 
694

 
$
18,483

 
$
10,528


In the third quarter of fiscal year 2019, the Company entered into an agreement to sell a commercial property, located in Santa Paula, California, to one of its rental tenants for $4,000,000. The transaction closed on August 30, 2019 with the Company receiving net proceeds of $3,978,000. After transaction and other costs, the sale resulted in a gain of $586,000. At July 31, 2019, the $3,295,000 carrying value of the property was classified as held for sale.

7. Real Estate Development
Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands):
 
July 31,
2019
 
October 31,
2018
East Area I
$
—

 
$
91,357

Retained Property - East Area I
10,777

 
10,408

East Area II
5,601

 
5,397

 
$
16,378

 
$
107,162


East Area I, Retained Property and East Area II

In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. On November 10, 2015 (the “Transaction Date”), the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (the “LLC” or “Joint Venture”) as the development entity, contributed its East Area I property to the LLC and sold a 50% interest in the LLC to Lewis for $20,000,000.
 
The Company and the Joint Venture also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the Joint Venture transferred certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. In August 2018, the Retained Property, was transferred back to the Company. The net carrying value of the Retained Property as of July 31, 2019 and October 31, 2018 was $10,777,000 and $10,408,000, respectively, and classified as real estate development. Further, on the Transaction Date, the Joint Venture and the Company entered into a Lease Agreement (the "Lease Agreement"), pursuant to which the Joint Venture would lease certain of the contributed East Area I property back to the Company for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture required the property for development. In December 2018, the Company terminated the Lease Agreement pursuant to the terms therein.

18

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. Real Estate Development (continued)

East Area I, Retained Property and East Area II (continued)

The Company’s sale of an interest in the LLC in which the Company’s contributed property comprises the LLC’s primary asset, combined with the Lease Agreement was considered a sale-leaseback transaction under FASB ASC 840, Leases, because of the Company’s continuing involvement in the property in the form of its agricultural operations. Accordingly, the property was carried on the consolidated balance sheet as real estate development, rather than being classified as an equity investment and a sale-leaseback deferral had been recorded for the $20,000,000 payment made by Lewis for the purchase of the LLC interest. Lease expense associated with the Lease Agreement was not required under sale-leaseback accounting since the Company was treated as though it continued to own the property. During the three and nine months ended July 31, 2018, the Company recorded $5,306,000 and $13,731,000, respectively, of real estate development costs and corresponding increases in the sale-leaseback deferral to recognize real estate development costs capitalized by the LLC. There were no repayment requirements for the sale-leaseback deferral. When the Lease Agreement was terminated in December 2018 control of the property transferred to the Joint Venture and therefore, the Company reduced the sale leaseback deferral and corresponding real estate development by $58,330,000 and reclassified $33,353,000 to equity in investments upon derecognition of the real estate development. As the fair value of the Company’s ownership interest in the Joint Venture approximated the Company’s historical basis in the real estate development at the inception of the Joint Venture, no gain or loss was recorded.

The Company made contributions to the Joint Venture of $4,000,000 and $3,500,000 in the nine months ended July 31, 2019 and 2018, respectively. Additionally, the Company recorded equity income, net of amortization of basis differences, of $2,573,000 for the nine months ended July 31, 2019.

In fiscal year 2019, the Company announced that its Joint Venture closed the sales of the initial residential lots representing 210 residential units.

Templeton Santa Barbara, LLC

The real estate development parcels within the Templeton Santa Barbara, LLC project are described as The Terraces at Pacific Crest (“Pacific Crest”), and Sevilla. The net carrying values of Pacific Crest and Sevilla were $2,481,000 and $2,543,000, respectively, as of July 31, 2019 and October 31, 2018. These projects were idle during the nine months ended July 31, 2019 and 2018 and, as such, no costs were capitalized and expenses were insignificant.

In October 2018, the Company began negotiations to sell its Pacific Crest and Sevilla properties for a combined total price of $5,200,000. As a result, the Company recorded impairment charges on Pacific Crest and Sevilla of $769,000 and $789,000, respectively, in October 2018. These negotiations have not resulted in a sale and the Company is actively marketing these properties. At July 31, 2019 and October 31, 2018, the $2,481,000 carrying value of Pacific Crest and the $2,543,000 carrying value of Sevilla were classified as held for sale and included in prepaid expenses and other current assets.

8. Equity Investments
Equity investments consist of the following (in thousands): 
 
July 31,
2019
 
October 31, 2018
Limoneira Lewis Community Builders, LLC
$
53,719

 
$
14,060

Limco Del Mar, Ltd.
1,955

 
1,935

Rosales
1,591

 
2,191

Romney Property Partnership
510

 
512

 
$
57,775

 
$
18,698


The Rosales S.A. ("Rosales") equity investment includes the Company’s 35% interest acquired in fiscal year 2014 and an additional 12% interest acquired with the purchase of Fruticola Pan de Azucar S.A. (“PDA”) in fiscal year 2017. The Company’s investment in Rosales is accounted for using the equity method of accounting based on the sum of its direct and indirect ownership.

The Limoneira Lewis Community Builders, LLC investment balance includes the value of the Company's ownership interest in the Joint Venture as described in Note 7 - Real Estate Development.

19

LIMONEIRA COMPANY


8. Equity Investments (continued)

Unconsolidated Significant Subsidiary

The LLC investment balance includes the value of the Company's ownership interest in the LLC. In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies for interim reports on Form 10-Q, the Company must determine if its equity method investees are considered, “significant subsidiaries”. In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment test. Summarized income statement information of an equity method investee is required in an interim report if either of the two tests exceed 20%. During the current year-to-date interim period, this threshold was met for the LLC and thus requires summarized income statement information in this Quarterly Report on Form 10-Q.

The following is unaudited summarized financial information for the LLC (in thousands):
 
Nine Months Ended July 31,
 
2019
 
2018
Revenues
$
36,551

 
$
—

Cost of land sold
26,770

 
—

Operating expenses
444

 
233

Net income (loss)
$
9,336

 
$
(233
)
Net income attributable to Limoneira Company
$
4,021

 
$
—


9. Other Assets
Other assets consist of the following (in thousands):
 
July 31,
2019
 
October 31, 2018
Investments in mutual water companies
$
5,498

 
$
5,026

Acquired water and mineral rights
3,784

 
3,783

Deposit for land purchase
589

 
593

Deferred lease assets and other
323

 
396

Notes receivable
821

 
566

Revolving funds and memberships
240

 
267

Intangibles, net of accumulated amortization
8,458

 
2,442

Goodwill
2,391

 
1,431

 
$
22,104

 
$
14,504

 
10. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 
July 31,
2019
 
October 31, 2018
Compensation
$
2,109

 
$
2,784

Property taxes
205

 
785

Interest
403

 
297

Deferred rental income and deposits
473

 
497

Lease expense
92

 
378

Lemon supplier payables
—

 
1,214

Other
991

 
1,769

 
$
4,273

 
$
7,724


20

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

11. Long-Term Debt
Long-term debt is comprised of the following (in thousands):
 
 
July 31,
2019
 
October 31, 2018
Farm Credit West revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month London Interbank Offered Rate (“LIBOR”), which was 2.40% at July 31, 2019, plus 1.85%. Effective July 1, 2018, the interest rate for the $40,000,000 outstanding balance of the non-revolving line of credit was fixed at 4.77%. Interest is payable monthly and the principal is due in full on July 1, 2022.
 
$
85,378

 
$
50,888

Farm Credit West term loan: the interest rate is variable and was 4.95% at July 31, 2019. The loan is payable in quarterly installments through November 2022.
 
2,179

 
2,602

Farm Credit West term loan: the interest rate is variable and was 4.95% at July 31, 2019. The loan is payable in monthly installments through October 2035.
 
1,090

 
1,122

Farm Credit West term loan: the interest rate is fixed at 4.70%. The loan is payable in monthly installments though March 2036.
 
8,912

 
9,172

Farm Credit West term loan: the interest rate is fixed at 3.62% until March 2021, becoming variable for the remainder of the loan. The loan is payable in monthly installments though March 2036.
 
6,594

 
6,808

Wells Fargo term loan: the interest rate is fixed at 3.58%. The loan is payable in monthly installments through January 2023.
 
5,312

 
6,367

Banco de Chile term loan: the interest rate is fixed at 6.48%. The loan is payable in annual installments through January 2025.
 
1,512

 
1,857

Note Payable: the interest rate ranges from 5.00% to 7.00% and was 5.50% at July 31, 2019. The loan includes interest-only monthly payments and principal is due in February 2023.
 
1,435

 
1,435

Subtotal
 
112,412

 
80,251

Less deferred financing costs, net of accumulated amortization
 
135

 
158

Total long-term debt, net
 
112,277

 
80,093

Less current portion
 
3,024

 
3,127

Long-term debt, less current portion
 
$
109,253

 
$
76,966


On June 20, 2017, the Company entered into a Master Loan Agreement (the “Loan Agreement”) with Farm Credit West, FLCA (“Farm Credit West”) that includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the “Supplements”). Proceeds from the Supplements were used to pay down all the remaining outstanding indebtedness under the revolving credit facility the Company had with Rabobank, N.A. On January 29, 2018, the Company amended the Revolving Credit Supplement to increase the borrowing capacity from $60,000,000 to $75,000,000. The Supplements provide aggregate borrowing capacity of $115,000,000 comprised of $75,000,000 under the Revolving Credit Supplement and $40,000,000 under the Non-Revolving Credit Supplement. The borrowing capacity based on collateral value was $115,000,000 at July 31, 2019.

All indebtedness under the Loan Agreements, including any indebtedness under the Supplements, is secured by a first lien on certain of the Company’s agricultural properties in Tulare and Ventura counties in California and certain of the Company’s building fixtures and improvements and investments in mutual water companies associated with the pledged agricultural properties. The Loan Agreement includes customary default provisions that provide should an event of default occur, Farm Credit West, at its option, may declare all or any portion of the indebtedness under the Loan Agreement to be immediately due and payable without demand, notice of non-payment, protest or prior recourse to collateral, and terminate or suspend the Company’s right to draw or request funds on any loan or line of credit.

Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $366,000 and $688,000 during the three months ended July 31, 2019 and 2018, respectively, and $977,000 and $1,637,000 during the nine months ended July 31, 2019 and 2018, respectively. Capitalized interest is included in property, plant and equipment and real estate development in the Company’s consolidated balance sheets. 
 






21

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

12. Basic and Diluted Net (Loss) Income per Share

Basic net (loss) income per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of conversion of preferred stock. Diluted net (loss) income per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of conversion of unvested, restricted stock and preferred stock. The computations for basic and diluted net (loss) income per common share are as follows (in thousands, except per share amounts):
 
Three Months Ended July 31,
 
Nine Months Ended July 31,
 
2019
 
2018
 
2019
 
2018
Basic net (loss) income per common share:
 

 
 

 
 
 
 
Net (loss) income applicable to common stock
$
(1,115
)
 
$
8,076

 
$
(3,244
)
 
$
23,049

Effect of unvested, restricted stock
(16
)
 
(10
)
 
(49
)
 
(29
)
Numerator: Net (loss) income for basic EPS
(1,131
)
 
8,066

 
(3,293
)
 
23,020

Denominator: Weighted average common shares-basic
17,554

 
15,947

 
17,527

 
14,979

Basic net (loss) income per common share
$
(0.06
)
 
$
0.51

 
$
(0.19
)
 
$
1.54

Diluted net (loss) income per common share:
 

 
 

 
 
 
 
Numerator: Net (loss) income for diluted EPS
$
(1,131
)
 
$
8,201

 
$
(3,293
)
 
$
23,425

Weighted average common shares–basic
17,554

 
15,947

 
17,527

 
14,979

Effect of dilutive unvested, restricted stock and preferred stock
—

 
604

 
—

 
599

Denominator: Weighted average common shares–diluted
17,554

 
16,551

 
17,527

 
15,578

Diluted net (loss) income per common share
$
(0.06
)
 
$
0.50

 
$
(0.19
)
 
$
1.50


Diluted (losses) earnings per common share are computed using the more dilutive method of either the two-class method or the treasury stock method. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share. The Company’s unvested, restricted stock awards qualify as participating shares. The Company excluded 149,000 and 76,000, unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted (losses) earnings per share for the three months ended July 31, 2019 and 2018, respectively, and 135,000 and 81,000 for the nine months ended July 31, 2019 and 2018, respectively.

13. Related-Party Transactions
The Company rents certain of its residential housing assets to employees on a month-to-month basis. The Company recorded $550,000 and $530,000 of rental revenue from employees in the nine months ended July 31, 2019 and 2018, respectively. There were no rental payments due from employees at July 31, 2019 or October 31, 2018.
 
The Company has representation on the boards of directors of the mutual water companies in which the Company has investments. The Company recorded capital contributions and purchased water and water delivery services from such mutual water companies, in aggregate, of $207,000 and $211,000 in the three months ended July 31, 2019 and 2018, respectively, and $1,065,000 and $1,097,000 in the nine months ended July 31, 2019 and 2018, respectively. Capital contributions are included in other assets in the Company’s consolidated balance sheets and purchases of water and water delivery services are included in agribusiness expense in the Company’s consolidated statements of operations. Water payments due to the mutual water companies were, in aggregate, insignificant at July 31, 2019 and October 31, 2018, respectively.

The Company has representation on the board of directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies of $302,000 and $396,000 from the association in the three months ended July 31, 2019 and 2018, respectively, and $1,158,000 and $1,211,000 in the nine months ended July 31, 2019 and 2018, respectively, which are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to the cooperative were insignificant at July 31, 2019 and October 31, 2018.




22

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. Related-Party Transactions (continued)

The Company has an investment in and representation on the board of directors of Calavo and Calavo has an investment in and had representation on the board of directors of the Company through December 2018. The Company recorded dividend income of $250,000 and $285,000 in the nine months ended July 31, 2019 and 2018, respectively, on its investment in Calavo, which is included in other income (expense), net in the Company’s consolidated statements of operations. The Company paid $381,000 and $324,000 of dividends to Calavo for the nine months ended July 31, 2019 and 2018, respectively. The Company had $2,519,000 and $5,643,000 in avocado sales to Calavo for the three months ended July 31, 2019 and 2018, respectively, and $3,062,000 and $6,578,000 for the nine months ended July 31, 2019 and 2018, respectively. which are included in agribusiness revenues in the Company's consolidated statements of operations. There was $729,000 and zero receivable from Calavo at July 31, 2019 and October 31, 2018, respectively. The Company leases office space to Calavo and received rental income of $240,000 and $219,000 in the nine months ended July 31, 2019 and 2018, respectively, which is included in rental operations revenues in the Company’s consolidated statements of operations. The Company purchased $261,000 and $57,000 of storage services from Calavo in the three months ended July 31, 2019 and 2018, respectively. The Company purchased $262,000 and $61,000 of storage services from Calavo in the nine months ended July 31, 2019 and 2018, respectively. Amounts due for these services were $260,000 and $3,000 at July 31, 2019 and October 31, 2018, respectively.

Certain members of the Company’s board of directors market lemons through the Company. The aggregate amount of lemons procured from entities owned or controlled by members of the board of directors was insignificant and $329,000 in the three months ended July 31, 2019 and 2018, respectively, and $386,000 and $1,715,000 in the nine months ended July 31, 2019 and 2018, respectively, which are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to these board members were insignificant and $487,000 at July 31, 2019 and October 31, 2018, respectively. Additionally, the Company leases approximately 31 acres of orchards from entities affiliated with a member on the board of directors and incurred insignificant lease expense related to these leases in the nine months ended July 31, 2019 and 2018.
 
On July 1, 2013, the Company and Cadiz Real Estate LLC (“Cadiz”), a wholly-owned subsidiary of Cadiz Inc., entered into a long-term lease agreement (the “Lease”) for a minimum of 320 acres, with options to lease up to an additional 960 acres, located within 9,600 zoned agricultural acres owned by Cadiz in eastern San Bernardino County, California. The initial term of the Lease runs for 20 years and the annual base rental rate is equal to the sum of $200 per planted acre and 20% of gross revenues from the sale of harvested lemons (less operating expenses) not to exceed $1,200 per acre per year. A member of the Company’s board of directors serves as the CEO, President and a member of the board of directors of Cadiz Inc. Additionally, this board member is an attorney with a law firm that provided services of insignificant amounts to the Company during the nine months ended July 31, 2019 and 2018. Payments due to the law firm were insignificant at July 31, 2019 and October 31, 2018, respectively. The Company incurred insignificant lease and farming expenses in the nine months ended July 31, 2019 and 2018, which are recorded in agribusiness expense in the Company’s consolidated statements of operations.
 
In February 2016, Cadiz assigned this lease to Fenner Valley Farms, LLC (“Fenner”), a subsidiary of Water Asset Management, LLC (“WAM”). An entity affiliated with WAM is the holder of 9,300 shares of Limoneira Company Series B-2 convertible preferred stock. Amounts due to Fenner were insignificant at July 31, 2019 and October 31, 2018.

The Company has representation on the board of directors of Colorado River Growers, Inc. (“CRG”), a non-profit cooperative association of fruit growers engaged in the agricultural harvesting business in Yuma County, Arizona. The Company paid harvest costs to CRG of $3,841,000 and $2,451,000 in the nine months ended July 31, 2019 and 2018, respectively, which are included in agribusiness expense in the Company’s consolidated statements of operations. Our Associated Citrus Packers, Inc. ("Associated") provided harvest management and administrative services to CRG in the amounts of $306,000 and $218,000 during the nine months ended July 31, 2019 and 2018, respectively, which are included in agribusiness revenues in the Company’s consolidated statements of operations. There was zero and $232,000 due to Associated from CRG at July 31, 2019 and October 31, 2018, respectively, which is included in accounts receivable, net in the Company’s consolidated balance sheets.

The Company has representation on the board of directors of Yuma Mesa Irrigation and Drainage District (“YMIDD”). The Company purchased insignificant amounts of water from YMIDD during the nine months ended July 31, 2019 and 2018, respectively, which are included in agribusiness expenses in the Company’s consolidated statements of operations. There were no amounts due to YMIDD at July 31, 2019 or October 31, 2018.

The Company has a 1.3% interest in Limco Del Mar, Ltd. (“Del Mar”) as a general partner and a 26.8% interest as a limited partner. The Company provides Del Mar with farm management, orchard land development and accounting services and received expense reimbursements of insignificant amounts during the nine months ended July 31, 2019 and 2018. The Company procures lemons from Del Mar and fruit proceeds payable to Del Mar were $645,000 and $709,000 at July 31, 2019 and October 31, 2018,

23

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. Related-Party Transactions (continued)

respectively, and are included in grower’s payable in the Company’s consolidated balance sheets. The Company received insignificant cash distributions and recorded equity in earnings of this investment of $195,000 and $308,000 in the nine months ended July 31, 2019 and 2018, respectively.

On August 14, 2014, the Company’s wholly owned subsidiary, Limoneira Chile SpA, invested approximately $1,750,000 for a 35% interest in Rosales, a citrus packing, marketing and sales business located in La Serena, Chile. The Company purchased an additional 12% interest in Rosales with the February 2017 acquisition of PDA. The Company recognized $537,000 and $1,009,000 of lemon sales to Rosales in the nine months ended July 31, 2019 and 2018, respectively. Additionally, San Pablo recognized aggregate lemon and orange sales of $1,391,000 and $5,000 to Rosales for the nine months ended July 31, 2019 and 2018, respectively. PDA recognized aggregate lemon and orange sales of $442,000 and $451,000 to Rosales in the three months ended July 31, 2019 and 2018, respectively, and $1,207,000 and $1,154,000 in the nine months ended July 31, 2019 and 2018, respectively, which are recorded in agribusiness revenues in the Company’s consolidated statements of operations. The aggregate amount of lemons and oranges procured from Rosales were $1,900,000 and $1,009,000 in the three months ended July 31, 2019 and 2018, respectively and $2,259,000 and $1,009,000 in the nine months ended July 31, 2019 and 2018, respectively. Amounts payable to Rosales were zero at July 31, 2019 and insignificant at October 31, 2018. The Company recorded insignificant equity in losses and insignificant equity earnings from this equity investment in the nine months ended July 31, 2019 and 2018, respectively, and amortization of fair value basis differences of $253,000 in the nine months ended July 31, 2019 and 2018. The Company received $283,000 and zero cash distributions from this equity investment in the nine months ended July 31, 2019 and 2018, respectively.

As discussed in Note 3, on May 30, 2019, the Company acquired a 51% interest in Trapani Fresh. The Company advanced $907,000 to FGF for fruit purchases and FGF provided farming, packing and administrative services to Trapani Fresh of approximately $4,048,000 from acquisition to July 31, 2019, which are included in agribusiness expense in the Company's consolidated statement of operations. There was $2,907,000 due to FGF from Trapani Fresh at July 31, 2019, which is included in accounts payable in the Company's consolidated balance sheets.

14. Income Taxes

The income tax benefit recorded for the nine months ended July 31, 2019 differs from the income taxes expected at the U.S. federal statutory tax rate of 21.0% due primarily to income attributable to foreign jurisdictions which is taxed at different rates, state taxes, and nondeductible tax items.

The Company has no material uncertain tax positions as of July 31, 2019. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not accrued any interest and penalties associated with uncertain tax positions as of July 31, 2019.

The Company applied the guidance in Staff Accounting Bulletin No. 118 (“SAB 118”) when accounting for the enactment-date effects of the 2017 Act throughout fiscal year 2018. At January 31, 2019, the Company completed its evaluation for all of the enactment-date income tax effects of the 2017 Act and no material adjustments noted are to be made on the provisional amounts recorded at January 31, 2018.
 
15. Retirement Plans

The Limoneira Company Retirement Plan (the “Plan”) is a noncontributory, defined benefit, single employer pension plan, which provides retirement benefits for all eligible employees. Benefits paid by the Plan are calculated based on years of service, highest five-year average earnings, primary Social Security benefit and retirement age. Effective June 2004, the Company froze the Plan and no additional benefits accrued to participants subsequent to that date.



24

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. Retirement Plans (continued)

The Plan is funded consistent with the funding requirements of federal law and regulations. There were funding contributions of $150,000 during both three months ended July 31, 2019 and 2018, respectively, and $450,000 during both nine months ended July 31, 2019 and 2018, respectively. 

The components of net periodic pension cost for the Plan for the three and nine months ended July 31, 2019 and 2018 were as follows (in thousands):
 
Three Months Ended
July 31,
 
Nine Months Ended
July 31,
 
2019
 
2018
 
2019
 
2018
Administrative expenses
$
47

 
$
64

 
$
141

 
$
190

Interest cost
207

 
192

 
621

 
577

Expected return on plan assets
(272
)
 
(267
)
 
(816
)
 
(803
)
Prior service cost
11

 
11

 
33

 
33

Recognized actuarial loss
101

 
176

 
302

 
526

Net periodic benefit cost
$
94

 
$
176

 
$
281

 
$
523

 
16. Commitments and Contingencies

The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation against it that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.
 
17. Stock-based Compensation

The Company has a stock-based compensation plan (the “Stock Plan”) that allows for the grant of common stock of the Company to members of management based on achievement of certain annual financial performance and other criteria. The number of shares granted is based on a percentage of the employee’s base salary divided by the stock price on the grant date. Shares granted under the Stock Plan vest over two to five-year periods.

In December 2018, 40,094 shares of common stock with a per share value of $18.74 were granted to management under the Stock Plan for fiscal year 2018 performance, resulting in total compensation expense of approximately $751,000, with $343,000 recognized in the year ended October 31, 2018 and the balance to be recognized over the next two years as the shares vest. In addition, 90,000 shares of common stock with a per share value of $19.84 were granted to key executives under the Stock Plan, resulting in a total compensation expense of approximately $1,786,000, to be recognized equally over the next three years as the shares vest.

During January 2019 and 2018, 15,642 and 14,033 shares, respectively, of common stock were granted to the Company’s non-employee directors under the Company’s stock-based compensation plans. The Company recognized $339,000 and $309,000 of stock-based compensation to non-employee directors during the nine months ended July 31, 2019 and 2018, respectively.

18. Segment Information

The Company operates in six reportable operating segments: fresh lemons, lemon packing, avocados, other agribusiness, rental operations and real estate development. The reportable operating segments of the Company are strategic business units with different products and services, distribution processes and customer bases. The fresh lemons segment includes sales, farming and harvesting expenses and third-party grower costs relative to fresh lemons. The lemon packing segment includes packing revenues and shipping and handling revenues relative to lemon packing. The lemon packing segment expenses are comprised of lemon packing costs. The lemon packing segment revenues include intersegment revenues between fresh lemons and lemon packing. The intersegment revenues are included gross in the segment note and a separate line item is shown as an elimination. The avocados segment includes sales, farming and harvest costs. The other agribusiness segment includes sales, farming and harvesting of oranges, specialty citrus and other crops. The rental operations segment includes housing and commercial rental operations, leased land and organic recycling. The real estate development segment includes real estate development operations.

25

LIMONEIRA COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

18. Segment Information (continued)
 
The Company does not separately allocate depreciation and amortization to its fresh lemons, lemon packing, avocados and other agribusiness segments. No asset information is provided for reportable operating segments, as these specified amounts are not included in the measure of segment profit or loss reviewed by the Company’s chief operating decision maker. The Company measures operating performance, including revenues and operating income, of its operating segments and allocates resources based on its evaluation. The Company does not allocate selling, general and administrative expense, other income, interest expense and income taxes, or specifically identify them to its operating segments. The Company earns packing revenue for packing lemons grown on its orchards and lemons procured from third-party growers. Intersegment revenues represent packing revenues related to lemons grown on the Company’s orchards.

Segment information for the three months ended July 31, 2019 (in thousands):
 
Fresh
Lemons(1)
Lemon
Packing
Eliminations
 
Avocados
Other
Agribusiness
Total
Agribusiness
Rental
Operations
Real Estate
Development
Corporate
and Other
Total
Revenues from external customers
$
41,169

$
5,232

$
—

$
2,519

$
711

$
49,631

$
1,238

$
—

$
—

$
50,869

Intersegment revenue
—

10,263

(10,263
)
—