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Squire,
Sanders & Dempsey L.L.P.
221
E. Fourth St., Suite 2900
Cincinnati,
OH 45202
Office: +1.513.361.1200
Fax:
+1.513.361.1201
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Direct
Dial: +1.513.361.1230
smahon@ssd.com
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April 16,
2010
Mr. John
Reynolds
U.S.
Securities and Exchange Commission
Division
of Corporation Finance
Office of
Beverages, Apparel and Health Care Services
100 F
Street, North East
Washington,
D.C. 20549-3561
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Re:
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Limoneira
Company
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Amendment
No. 1 to Registration Statement on Form
10
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Filed
March 31, 2010
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File
No. 0-53885
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Dear Mr.
Reynolds:
Thank you
for your comment letter of April 12, 2010, to Harold Edwards, President of
Limoneira Company, in respect of the above-referenced Amendment No. 1 to
Registration Statement on Form 10. We are counsel to Limoneira
Company (the “Company”) in connection with the Registration Statement and very
much appreciate your comments.
Enclosed
herewith (and being filed simultaneously on EDGAR) is the Company’s Amendment
No. 2 to Registration Statement on Form 10, which incorporates the Company’s
responses to your comments as well as updated information since the filing of
Amendment No. 1 to Registration Statement on Form 10. For your ease
of reference, we have also enclosed a blackline version that is marked to show
all changes and additions. In addition, we have restated in full
below your comments and the Company’s responses. Please be advised
that the information provided herein has been obtained from the
Company.
Directors and Executive
Officers, page 42
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1.
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Please
disclose the specific experience, qualifications, attributes or skills of
each person serving as director. See amended Item 401(e)(1) of
Regulation S-K, effective February 28,
2010.
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We have revised the disclosure as
suggested. (Pages 43-44)
Mr. John
Reynolds
April 16,
2010
Page
2
Executive Compensation, page
45
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2.
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We
note that you have not included any disclosure in response to Item 402(s)
of Regulation S-K. Please advise us of the basis for your
conclusion that disclosure is not necessary and describe the process you
undertook to reach that conclusion.
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The
Company has concluded that its compensation policies and practices do not create
risks that are reasonably likely to have a material adverse effect on the
Company. The Company’s compensation policies and practices in regards to an
employee’s base salary factor in, among other things, industry benchmarking and
job performance as measured against the duties and responsibilities as defined
in the job description for each employee’s particular position. Incentive
compensation is based on the achievement of annual predetermined overall Company
operational benchmarks and the accomplishment of individual goals established at
the beginning of each year. The operational benchmarks for the Company apply
equally across all levels of management and the individual goals are established
by each employee, his or her direct report and senior management.
These individual goals are required to be aligned with the Company operational
benchmarks and be specific, measurable, agreed-upon, realistic and time based.
Additionally, the Company’s compensation committee reviews, on a recurring
schedule, the Company’s compensation policies and practices as well as
performance. If it deems necessary, the compensation committee may,
at anytime, adjust (or suspend or terminate) certain compensation policies and
practices if it determines that such policies and practices are reasonably
likely to have a material adverse effect on the Company. The
Company’s compensation policies have been developed by the Company’s management
and the compensation committee to reward outstanding individual performance
while mitigating unnecessary risk taking behavior that might affect financial
results.
In
reaching the conclusion that its compensation policies and practices do not
create risks that are reasonably likely to have a material adverse effect on the
Company, the Company’s chairman of the board of directors and the chairman of
the Company’s compensation committee reviewed, discussed and considered its
compensation policies and practices as they relate to the disclosure
requirements of Item 402(s) of Regulation S-K and reviewed these policies and
practices with senior management.
Benchmarking, page
46
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3.
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As
previously requested in comment 17 of our March 11, 2010 letter, please
explain how you benchmark against the five companies you have
listed.
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We have
revised the disclose to explain how the company benchmarks against the companies
listed. (Page 46)
Annual Performance
Cash-Based Incentive Bonuses, page 47
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4.
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Your
disclosure indicates that no cash incentive compensation was paid for
2009. Please reconcile with the summary compensation table,
which reflects non-equity incentive plan compensation in
2009.
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Mr. John
Reynolds
April 16,
2010
Page
3
We have
included an additional footnote to the summary compensation table to clarify
that the amounts listed in the “Non-Equity Incentive Plan Compensation” column
reflect annual cash-based incentive bonuses earned for fiscal 2008 but were paid
in fiscal 2009. (Page 50)
Annual Performance
Cash-Based Incentive Bonuses, page 47
Annual Performance
Equity-Based Incentive Bonuses, page 48
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5.
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Please
add the 2009 grants, which are discussed under these headings, to the
grants table.
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We have
revised the grants table as requested. (Page 51)
Summary Compensation Table,
page 50
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6.
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Please
revise the table to comply with Item 402(c)(2)(v) of Regulation S-K and
the related instructions, as amended effective February 28,
2010.
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We have
revised the summary compensation table as requested. (Page
50)
Notes to the Financial
Statements, page F-7
Revenue Recognition, page
F-12
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7.
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We
note from your response to comment 32 of our letter dated March 11, 2010
that you estimate the net proceeds to be received for those sales for
which the pools have not yet closed. Please tell us how these
sales satisfy the criterion within SAB Topic 13:A.1 as having a fixed or
determinable price, as it appears that the final price will be impacted by
the outcome of sales that have yet to occur. In addition,
disclose whether you recognize revenue upon delivery to the third-party
packinghouse or upon sell-through by the third-party packinghouse to the
end-customer, and explain to us how your policy is consistent with SAB
Topic 13.
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The
Company has satisfied SAB Topic 13:A.1 relative to the fixed or determinable
criterion as it is able to estimate with reasonable certainty the consideration
that will be paid to it by the packinghouses for products delivered to the
packinghouses. As for products delivered to third-party
packinghouses, the Company recognizes revenue upon delivery to the third-party
packinghouse.
Based on
the Company’s long-standing historical experience with each of its
packinghouses, the revenues it records, which are based on the sales price
information provided to the Company by the third-party packinghouses at the time
of delivery, have not materially differed from the actual amounts that are paid
after the monthly pools are closed. In establishing its revenue recognition
accounting policy, the Company also refers to guidance noted in FASB ASC
905-605-25-7. FASB ASC 905-605-25-7 provides guidance on
transactions between patrons and marketing cooperatives; specifically, the
timing and method of recognizing revenue on agriculture products delivered to
customers. The guidance notes that if control over the future economic benefits
relating to the product has passed, which ordinarily is evidenced by the
transfer of title, and if a price is available by reference to contemporaneous
transactions in the market, or if the cooperative establishes an assigned
amount, a delivery to the cooperative shall be recorded as a sale by the patron
at that amount on the date of delivery.
Mr. John
Reynolds
April 16,
2010
Page
4
The
Company’s sales and marketing partners (i.e., third-party packinghouses) are
agricultural cooperatives or function in a similar manner as an agricultural
cooperative. As such, the Company also utilizes the revenue recognition guidance
noted above to record revenue at time of delivery relating to fruits that are in
pools that have not yet closed if (a) the related fruits have been delivered to
and accepted by the third-party packinghouses (i.e. title has transferred from
the Company to the third-party packinghouses) and (b) the Company is provided
sales price information from the third-party packinghouses (based on the
marketplace activity for the related fruit) for fruits that have been delivered
by it and accepted by the third-party packinghouses and the Company believes it
can use such sales price information to estimate with reasonable certainty its
selling price.
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8.
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We
note your response to comment 33 of our letter dated March 11,
2010. Please expand your disclosure to describe more fully the
revenue cycle related to sales of products sold through by Calavo and
other third-party packinghouses for which you apply net revenue
recognition treatment. In your response, explain to us the
following:
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Whether
your collection of receivables is contingent upon the third-party
packinghouses' collection from the end-customer;
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Whether
you bear inventory risk for the period of time up to delivery to the
third- party packinghouses;
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Whether
you have the ability to select a different packinghouse through which to
market your products;
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Whether
the packinghouse is obligated to pay you for products delivered to it
regardless of whether it has sold the products to an end-customer;
and
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How
the amount you earn is determined (i.e., a fixed dollar amount per
transaction or a commission versus an amount determined based on the
volume and quality of product delivered) and those factors that impact
your net proceeds received.
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The
disclosure has been expanded as suggested to describe more fully the revenue
cycle related to sales of product sold through by Calavo Growers, Inc.
(“Calavo”) and other third-party packinghouses for which the Company applies net
revenue recognition treatment. The additional disclosure notes that the Company
delivers all of its avocado production for its orchards to Calavo. These
avocados are then packed by Calavo at its own packinghouse, and then sold and
distributed under its own brands to its customers primarily in the United States
and Canada. (Pages 38 and F-12)
The
Company has also expanded its disclosure on pages 38 and F-12 to clarify the
following as it relates to Calavo and other third-party
packinghouses:
Mr. John
Reynolds
April 16,
2010
Page
5
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·
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Credit
risk resides with the third-party packinghouses for the amounts billed to
the end customer. The Company’s collection of receivables is not
contingent upon the third-party packinghouses’ collection from the
end-customer;
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·
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The
Company bears inventory risk prior the fruit being delivered to and
accepted by the third-party packinghouses since the title on the related
fruit has not transferred to the third-party packinghouses prior to
delivery;
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The
Company is paid for the fruit that it delivers to third-party
packinghouses. The third-party packinghouse initiates and
requests what fruit is to be delivered to them based on the order they
have with their end customers;
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The
Company also generally has the ability to select different third-party
packinghouses to sell and market its
fruit; and
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The
revenues the Company earns related to the fruits sold through third-party
packinghouses are based on the volume and quality of the fruits delivered
to the third-party packinghouses, the market price for such fruit, less
the packinghouses charges to pack and market the
fruit.
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9.
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Please
describe the costs that are netted against revenue in arriving at net
revenue. In your response, tell us where you classify on your
income statement the cultural costs related to goods sold under these
arrangements with third-party
packinghouses.
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The
revenues the Company recognizes as it relates to its arrangements with Calavo
and the other third-party packinghouses are net of packinghouse charges that the
Company is required to pay to the third-party packinghouses in conjunction with
third-party packinghouses accepting and selling through the Company’s product to
their respective end customer. Such packinghouse charges include the grading,
sizing, packing, cooling and ripening of the related fruit after the Company has
delivered it but prior to the third-party packinghouse selling through the
related fruit to the end customer.
The
cultural costs related to all of the Company’s agricultural crops are recorded
in Cost and Expenses: Agriculture in our Consolidated Statement of
Operations.
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10.
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Please
tell us how you considered the guidance of FASB ASC 605-40-45-2 (EITF
01-9) in accounting for the arrangements with the
packinghouses. In this regard, tell us whether you receive an
identifiable benefit for the packaging and marketing services performed by
the third-party packinghouses and whether you can reasonably estimate the
fair value of the benefit
identified.
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The
Company considered the guidance noted in FASB ASC 605-50-45-2 (EITF 01-9)
relative to its relationship with Sunkist as it relates to lemon
sales. See response to question 11 below for further details as to
how the Company applies such standard. With regard to other
packinghouses, as noted above the Company applies the guidance of ASC 605-45-45
(EITF 99-19) as a basis for the net reporting of sales and as such for other
packinghouses, it does not apply FASB ASC 605-50-45-2 (EITF 01-9). As
such, these costs are characterized as a reduction of revenue in the Company’s
Consolidated Statement of Operations.
Mr. John
Reynolds
April 16,
2010
Page
6
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11.
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We
note from your response to comment 34 of our letter dated March 11, 2001
that you pay a fixed amount per carton sold to Sunkist for sales and
marketing services. Please clarify that the amount you pay to
Sunkist is a fixed amount per carton sold rather than a fixed amount over
a period of time. In addition, disclose where you classify the
amounts paid to Sunkist for the sales and marketing
services.
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The
Company has revised its disclosure to clarify that the amount it pays to Sunkist
is a fixed amount per carton sold rather than a fixed amount over a period of
time. In addition, the Company has disclosed that the amount paid to
Sunkist for the sales and marketing services it renders are recorded in Cost and
Expenses: Agriculture in our Consolidated Statement of
Operations. (Pages 38 and F-12)
The
Company considered the guidance noted in FASB ASC 605-0-45-2 (EITF 01-9) and
concluded that the identifiable benefit (the sales and marketing services that
it receives from Sunkist in order for the Company to effectively market and sell
its lemons and for which the Company is charged a fixed amount per carton sold
through Sunkist which is based on the Company’s contractual arrangement with
Sunkist) can be sufficiently separable from the purchase of the Company’s
products. The Company believes it could enter into an exchange
transaction with a party other than Sunkist in order to receive the similar
sales and marketing services that Sunkist currently provides the
Company. In addition, the Company is able to reasonably estimate that
the fair value of the sales and marketing services received from Sunkist
approximates the per carton fee charged by Sunkist since Sunkist, an
agricultural marketing cooperative of which the Company is a member, charges
standard per carton fees (such as the fees charged to the Company) to all
members within its cooperative and such fees are based on sales and marketing
expenses incurred by Sunkist for which the Company has an adequate level of
visibility as a cooperative member. As such (as previously noted
above), the costs paid to Sunkist are not recorded as reduction of revenues but
recorded in Cost and Expenses: Agriculture in our Consolidated Statement of
Operations.
Thank you
for your time and attention to Limoneira Company’s Registration Statement on
Form 10. Should you have any questions concerning the responses to
your comments or the amendments to the Registration Statement being filed
herewith, please do not hesitate to contact me at 1.513.361.1230.
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Very
truly yours,
/s/
Stephen C. Mahon
Stephen C. Mahon
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Enclosures
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cc:
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Ms.
Janice McGuirk, Division of Corporate Finance
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Mr.
David Walz, Division of Corporate Finance
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Mr.
Ryan Milne, Division of Corporate
Finance
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