SEC Filing - Limoneira Company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

lmnr-20230131

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2023


☐			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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	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. ☒ 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). ☒ 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

☒

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 ☒ No

As of February 28, 2023, there were 17,830,604 shares outstanding of the registrant’s common stock.

LIMONEIRA COMPANY

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements (Unaudited)	4

Consolidated Balance Sheets – January 31, 2023 and October 31, 2022		4

Consolidated Statements of Operations – three months ended January 31, 2023 and 2022		5

Consolidated Statements of Comprehensive Income (Loss) – three months ended January 31, 2023 and 2022		6

Consolidated Statements of Stockholders' Equity and Temporary Equity – three months ended January 31, 2023 and 2022		7

Consolidated Statements of Cash Flows – three months ended January 31, 2023 and 2022		8

Notes to Consolidated Financial Statements		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36

Item 4.	Controls and Procedures	36

PART II. OTHER INFORMATION		37

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits	38

SIGNATURES		40

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 in this quarterly report include:

•success in executing the Company's business plans and strategies and managing the risks involved in the foregoing;

•negative impacts related to the COVID-19 pandemic and our Company's responses to the pandemic;

•changes in laws, regulations, rules, quotas, tariffs, and import laws;

•adverse weather conditions, natural disasters and other adverse natural conditions, including freezes, rains, fires, winds 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;

•disruption in the global supply chain;

•product and raw materials supplies and pricing;

•energy supply and pricing;

•changes in interest rates and the impact of inflation;

•availability of financing for development activities;

•general economic conditions for residential and commercial real estate development;

•political changes and economic crises;

•international conflict;

•acts of terrorism;

•labor disruptions, strikes, shortages or work stoppages;

•the impact of foreign exchange rate movements;

•ability to maintain compliance with covenants under our loan agreements;

•loss of important intellectual property rights; and

•other factors disclosed in our public filings with the Securities and Exchange Commission (the "SEC").

These forward-looking statements involve risks and uncertainties that we have identified as having the potential to cause actual results to differ materially from those contemplated herein. We have described in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022 additional factors that could cause our actual results to differ from our projections or estimates.

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 in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. 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.

All references to “we,” "us," “our,” “our Company,” "the Company" or "Limoneira" in this Quarterly Report on Form 10-Q mean Limoneira Company, a Delaware corporation, and its consolidated subsidiaries.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LIMONEIRA COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

($ in thousands, except share amounts)


	January 31, 2023		October 31, 2022
Assets
Current assets:
Cash	$	12,464	$	857
Accounts receivable, net	17,703		15,651
Cultural costs	2,901		8,643
Prepaid expenses and other current assets	5,434		8,496
Receivables/other from related parties	3,392		3,888

Total current assets	41,894		37,535
Property, plant and equipment, net	171,682		222,628
Real estate development	9,849		9,706
Equity in investments	73,383		72,855
Goodwill	1,529		1,506
Intangible assets, net	7,424		7,317
Other assets	15,367		16,971
Total assets	$	321,128	$	368,518
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,850	$	10,663
Growers and suppliers payable	4,240		10,740
Accrued liabilities	11,333		11,060
Payables to related parties	5,226		4,860
Income taxes payable	7,619		219
Current portion of long-term debt	448		1,732
Total current liabilities	38,716		39,274
Long-term liabilities:
Long-term debt, less current portion	40,919		104,076
Deferred income taxes	23,523		23,497
Other long-term liabilities	7,101		9,807
Total liabilities	110,259		176,654
Commitments and contingencies	—		—
Series B Convertible Preferred Stock – $100.00 par value (50,000 shares authorized: 14,790 shares issued and outstanding at January 31, 2023 and October 31, 2022) (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 January 31, 2023 and October 31, 2022) (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 January 31, 2023 and October 31, 2022)	—		—
Common Stock – $0.01 par value (39,000,000 shares authorized: 18,081,581 and 17,935,292 shares issued and 17,830,604 and 17,684,315 shares outstanding at January 31, 2023 and October 31, 2022, respectively)	178		177
Additional paid-in capital	166,232		165,169
Retained earnings	29,669		15,500
Accumulated other comprehensive loss	(3,961)		(7,908)
Treasury stock, at cost, 250,977 shares at January 31, 2023 and October 31, 2022	(3,493)		(3,493)
Noncontrolling interest	11,434		11,609
Total stockholders' equity	200,059		181,054
Total liabilities and stockholders' equity	$	321,128	$	368,518

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except share amounts)


	Three Months Ended January 31,
		2023		2022
Net revenues:
Agribusiness		$	36,528	$	38,083
Other operations		1,373		1,191

Total net revenues		37,901		39,274
Costs and expenses:
Agribusiness		41,241		41,244
Other operations		1,238		1,074

Gain on disposal of assets, net		(39,742)		(85)
Selling, general and administrative		9,280		6,599
Total costs and expenses		12,017		48,832
Operating income (loss)		25,884		(9,558)
Other (expense) income:
Interest income		8		21
Interest (expense), net of patronage dividends		(1,172)		215
Equity in earnings of investments, net		253		51


Other (expense) income, net		(2,612)		15
Total other (expense) income		(3,523)		302

Income (loss) before income tax (provision) benefit		22,361		(9,256)
Income tax (provision) benefit		(6,827)		2,650
Net income (loss)		15,534		(6,606)
Net loss attributable to noncontrolling interest		97		88
Net income (loss) attributable to Limoneira Company		15,631		(6,518)
Preferred dividends		(125)		(125)
Net income (loss) applicable to common stock		$	15,506	$	(6,643)

Basic net income (loss) per common share		$	0.87	$	(0.38)

Diluted net income (loss) per common share		$	0.84	$	(0.38)

Weighted-average common shares outstanding-basic		17,573,000		17,448,000
Weighted-average common shares outstanding-diluted		18,378,000		17,448,000

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands)


	Three Months Ended January 31,
		2023		2022
Net income (loss)		$	15,534	$	(6,606)
Other comprehensive income, net of tax:
Foreign currency translation adjustments		2,223		55
Minimum pension liability adjustment, net of tax of $(135) and $27 for the three months ended January 31, 2023 and 2022, respectively.		(220)		72
Pension settlement, net of tax of $756 and $0 for the three months ended January 31, 2023 and 2022, respectively.		1,944		—

Total other comprehensive income, net of tax		3,947		127
Comprehensive income (loss)		19,481		(6,479)
Comprehensive loss attributable to noncontrolling interest		97		86
Comprehensive income (loss) attributable to Limoneira Company		$	19,578	$	(6,393)

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

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		Treasury		Non- controlling		Total		Series B Preferred		Series B-2 Preferred
	Shares	Amount		Capital		Earnings		(Loss) Income		Stock		Interest		Equity		Stock		Stock
Balance at October 31, 2022	17,684,315	$	177	$	165,169	$	15,500	$	(7,908)	$	(3,493)	$	11,609	$	181,054	$	1,479	$	9,331
Dividends Common ($0.075 per share)	—	—		—		(1,337)		—		—		—		(1,337)		—		—
Dividends Series B ($2.19 per share)	—	—		—		(32)		—		—		—		(32)		—		—
Dividends Series B-2 ($10 per share)	—	—		—		(93)		—		—		—		(93)		—		—
Stock compensation	146,289	1		1,063		—		—		—		—		1,064		—		—


Noncontrolling interest adjustment	—	—		—		—		—		—		(78)		(78)		—		—
Net income	—	—		—		15,631		—		—		(97)		15,534		—		—
Other comprehensive income, net of tax	—	—		—		—		3,947		—		—		3,947		—		—
Balance at January 31, 2023	17,830,604	$	178	$	166,232	$	29,669	$	(3,961)	$	(3,493)	$	11,434	$	200,059	$	1,479	$	9,331


	Stockholders' Equity													Temporary Equity
	Common Stock			Additional Paid-In		Retained		Accumulated Other Comprehensive		Treasury		Non- controlling		Total		Series B Preferred		Series B-2 Preferred
	Shares	Amount		Capital		Earnings		(Loss) Income		Stock		Interest		Equity		Stock		Stock
Balance at October 31, 2021	17,685,400	$	179	$	163,965	$	21,552	$	(5,733)	$	(3,493)	$	11,965	$	188,435	$	1,479	$	9,331
Dividends Common ($0.075 per share)	—	—		—		(1,328)		—		—		—		(1,328)		—		—
Dividends Series B ($2.19 per share)	—	—		—		(32)		—		—		—		(32)		—		—
Dividends Series B-2 $10 per share)	—	—		—		(93)		—		—		—		(93)		—		—
Stock compensation	70,000	1		996		—		—		—		—		997		—		—
Exchange of common stock	(55,362)	—		(900)		—		—		—		—		(900)		—		—


Net loss	—	—		—		(6,518)		—		—		(88)		(6,606)		—		—
Other comprehensive income, net of tax	—	—		—		—		127		—		2		129		—		—
Balance at January 31, 2022	17,700,038	$	180	$	164,061	$	13,581	$	(5,606)	$	(3,493)	$	11,879	$	180,602	$	1,479	$	9,331

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)


	Three Months Ended January 31,
	2023		2022
Operating activities
Net income (loss)	$	15,534	$	(6,606)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	2,447		2,480

Gain on disposal of assets, net	(39,742)		(85)

Stock compensation expense	1,064		997
Non-cash lease expense	389		152
Equity in earnings of investments, net	(253)		(51)

Deferred income taxes	6,827		(2,650)


Other, net	171		213
Changes in operating assets and liabilities:
Accounts receivable and receivables/other from related parties	(1,676)		(2,188)
Cultural costs	1,343		2,654
Prepaid expenses and other current assets	529		(1,676)

Other assets	(10)		29
Accounts payable and growers and suppliers payable	(7,838)		(2,666)
Accrued liabilities and payables to related parties	455		1,347
Other long-term liabilities	(430)		(112)
Net cash used in operating activities	(21,190)		(8,162)
Investing activities
Capital expenditures	(2,151)		(2,080)

Net proceeds from sales of assets	98,888		1,090
Net proceeds from sale of real estate development assets	2,577		—


Cash distribution from Trapani Fresh	82		—


Collection on notes receivable	—		250
Equity investment contributions	(275)		—

Investments in mutual water companies and water rights	(11)		—

Net cash provided by (used in) investing activities	99,110		(740)
Financing activities
Borrowings of long-term debt	57,940		44,439
Repayments of long-term debt	(122,692)		(32,731)

Principal paid on finance lease and equipment financings	(107)		(69)
Dividends paid – common	(1,337)		(1,328)
Dividends paid – preferred	(125)		(125)
Exchange of common stock	—		(900)



Net cash (used in) provided by financing activities	(66,321)		9,286
Effect of exchange rate changes on cash	8		(7)
Net increase in cash	11,607		377
Cash at beginning of period	857		439
Cash at end of period	$	12,464	$	816

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Three Months Ended January 31,
	2023		2022
Supplemental disclosures of cash flow information
Cash paid during the period for interest (net of amounts capitalized)	$	1,006	$	618

Non-cash investing and financing activities:





Capital expenditures accrued but not paid at period-end	$	818	$	25

Accrued contribution obligation of investment in water company	$	—	$	450

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

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 citrus. The Company is also engaged in residential rentals and other rental operations and real estate development activities.

The Company markets and sells citrus 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 a portion of its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.

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 the Company holds a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. 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 U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ 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

Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in a company’s net assets, except changes resulting from transactions with stockholders. Other comprehensive income includes foreign currency translation items and defined benefit pension items. Accumulated other comprehensive loss is reported as a component of the Company's stockholders' equity.

The following table summarizes other comprehensive income by component (in thousands):


	Three Months Ended January 31,
	2023						2022
	Pre-tax Amount		Tax Benefit (Expense)		Net Amount		Pre-tax Amount		Tax Expense		Net Amount
Foreign currency translation adjustments	$	2,223	$	—	$	2,223	$	55	$	—	$	55
Minimum pension liability adjustments:
Other comprehensive (loss) income before reclassifications	(355)		135		(220)		99		(27)		72
Amounts reclassified to earnings included in "Other (expense) income, net"	2,700		(756)		1,944		—		—		—
Other comprehensive income	$	4,568	$	(621)	$	3,947	$	154	$	(27)	$	127

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

The following table summarizes the changes in accumulated other comprehensive loss by component (in thousands):


	Foreign Currency Translation (Loss) Gain		Defined Benefit Pension Plan		Accumulated Other Comprehensive Loss (Income)
Balance at October 31, 2022	$	(6,184)	$	(1,724)	$	(7,908)
Other comprehensive income	2,223		1,724		3,947
Balance at January 31, 2023	$	(3,961)	$	—	$	(3,961)


	Foreign Currency Translation (Loss) Gain		Defined Benefit Pension Plan		Accumulated Other Comprehensive Loss (Income)
Balance at October 31, 2021	$	(3,754)	$	(1,979)	$	(5,733)
Other comprehensive income	55		72		127
Balance at January 31, 2022	$	(3,699)	$	(1,907)	$	(5,606)

COVID-19 Pandemic

There is continued uncertainty around the breadth and duration of the Company's business disruptions related to the COVID-19 pandemic. The decline in demand for the Company's products beginning the second quarter of fiscal year 2020, has negatively impacted its sales and profitability for the last three years. The COVID-19 pandemic may impact its sales and profitability in future periods. The duration of these trends and the magnitude of such impacts are uncertain and therefore cannot be estimated at this time, as they are influenced by a number of factors, many of which are outside management’s control. The full impact of the COVID-19 pandemic on the Company's results of operations, financial condition, and liquidity, including its ability to comply with debt covenants, for fiscal year 2023 and beyond, is driven by estimates that contain uncertainties.

Concentrations and Geographic Information

Concentrations of credit risk with respect to revenues and accounts receivable are limited due to a large, diverse customer base. One customer represented 13% of revenue for the three months ended January 31, 2023. Two individual customers represented 15% and 12% of revenue, respectively, for the three months ended January 31, 2022. One individual customer represented 11% of accounts receivable, net as of January 31, 2023. No individual customer represented more than 10% of accounts receivable, net as of October 31, 2022.

One individual supplier represented 13% of accounts payable as of January 31, 2023. No individual supplier represented more than 10% of accounts payable as of October 31, 2022.

Lemons procured from third-party growers were 66% and 57% of the Company's lemon supply for the three months ended January 31, 2023 and 2022, respectively. One third-party grower was 17% and 20% of the lemon supply for the three months ended January 31, 2023 and 2022, respectively.

The Company maintains its cash in federally insured financial institutions. The account balances at these institutions periodically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of risk related to amounts on deposit in excess of FDIC insurance coverage.

During the three months ended January 31, 2023 and 2022, the Company had approximately $252,000 and $208,000, respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. ("PDA") and Agricola San Pablo SpA ("San Pablo") and approximately $74,000 and $147,000, respectively, of total sales in Argentina by Trapani Fresh Consorcio de Cooperacion ("Trapani Fresh").

Aggregate foreign exchange transaction losses realized for our foreign subsidiaries was approximately $58,000 for the three months ended January 31, 2023 and was included in selling, general and administrative expenses in the consolidated statements of operations.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. Asset Sale

In October 2022, the Company entered into a Purchase and Sale Agreement, as amended, (the “Agreement”) with PGIM Real Estate Finance, LLC (“PGIM”) to sell 3,537 acres of land and citrus orchards in Tulare County, California (the “Northern Properties”) for a purchase price of approximately $100,405,000. On January 25, 2023, the Board approved the Agreement creating a binding agreement of the Company to sell the Northern Properties and the transaction closed on January 31, 2023. The following is a summary of the transaction (in thousands):


	January 31, 2023
Net cash proceeds received	$	85,891
Debt directly repaid through the transaction	12,917
Total net proceeds received	98,808
Less: net book value of assets sold
Cultural costs	4,405
Property, plant and equipment, net	53,144
Intangible assets, net	12
Other assets	1,320
Accrued liabilities	(68)
	58,813
Gain on disposal of assets	$	39,995

The proceeds were used to pay down all of the Company’s domestic debt except the AgWest Farm Credit $40,000,000 non-revolving line of credit. The Northern Properties component, including an allocation of interest expense related to the debt directly repaid through the transaction, had a pretax loss of $1,667,000 and $2,720,000 for the three months ended January 31, 2023 and 2022, respectively.

On January 31, 2023, the Company entered into a Farm Management Agreement (“FMA”) with an affiliate of PGIM to provide farming, management and operations services related to the Northern Properties. The FMA has an initial term expiring March 31, 2024, and thereafter continuing from year to year unless earlier terminated under the terms of the FMA. Further, on January 31, 2023, the Company entered into a Grower Packing and Marketing Agreement to provide packing, marketing and selling services for lemons harvested on the Northern Properties for a minimum five-year term, subject to certain benchmarking standards.

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	January 31, 2023		October 31, 2022
Prepaid supplies and insurance	$	3,315	$	2,958
Real estate development held for sale	—		2,670
Sales tax receivable	752		475
Lemon supplier advances	1,019		1,188
Other	348		1,205
	$	5,434	$	8,496

5. Real Estate Development

Real estate development assets are comprised primarily of land and land development costs for the East Area II property in the amount of $9,849,000 and $9,706,000 at January 31, 2023 and October 31, 2022, respectively.

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. In November 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 (“LLCB”) as the development entity, contributed its East Area I property to LLCB and sold a 50% interest to Lewis for $20,000,000.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

5. Real Estate Development (continued)

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

The Company and LLCB also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, LLCB 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. The balance in East Area II includes estimated costs incurred by and reimbursable to LLCB of $3,444,000 at January 31, 2023 and October 31, 2022, which is included in payables to related parties.

In January 2018, LLCB entered into a $45,000,000 unsecured Line of Credit Loan Agreement and Promissory Note (the “Loan”) with Bank of America, N.A. to fund early development activities. Effective as of February 22, 2023, the Loan maturity date was extended to February 22, 2024 and the maximum borrowing amount was reduced to $35,000,000. As of February 1, 2023, the interest rate on the Loan transitioned from the London Interbank Offered Rate ("LIBOR") to the Bloomberg Short-Term Bank Yield Index rate ("BSBY") plus 2.85% and is payable monthly. The Loan contains certain customary default provisions and LLCB may prepay any amounts outstanding under the Loan without penalty. The Loan had an outstanding balance of $9,800,000 as of January 31, 2023.

In February 2018, the Company and certain principals from Lewis guaranteed the obligations under the Loan. The guarantors are jointly and severally liable for all Loan obligations in the event of default by LLCB. The guarantee continues in effect until all of the Loan obligations are fully paid. The $1,080,000 estimated value of the guarantee was recorded in the Company’s consolidated balance sheets and is included in other long-term liabilities with a corresponding value in equity in investments. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company, which provides for unpaid liabilities of LLCB to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in LLCB.

In October 2022, the Company entered into a joint venture with Lewis for the development of the Retained Property. The Company formed LLCB II, LLC ("LLCB II") as the development entity, contributed the Retained Property to the joint venture and sold a 50% interest to Lewis for $7,975,000. The Company recorded a deferred gain of $465,000 on the transaction which is included in other long-term liabilities as of January 31, 2023 and October 31, 2022. The joint venture partners will share in the capital contributions to fund project costs until loan proceeds and/or revenues are sufficient to fund the project. The Company made contributions of $275,000 to LLCB II during the three months ended January 31, 2023.

Through January 31, 2023, LLCB has closed sales of initial residential lots representing 586 residential units.

Other Real Estate Development Projects

In fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $2,700,000, which closed in November 2022. After transaction and other costs, the Company received cash proceeds of approximately $2,577,000 and recorded an immaterial loss on disposal of assets during the three months ended January 31, 2023.

6. Equity in Investments

Equity in investments consist of the following (in thousands):


	January 31, 2023		October 31, 2022
Limoneira Lewis Community Builders, LLC	$	61,250	$	61,154
LLCB II, LLC	8,297		8,023
Limco Del Mar, Ltd.	2,176		2,024
Rosales	1,155		1,147
Romney Property Partnership	505		507
	$	73,383	$	72,855

Net amounts due from Rosales were $430,000 and $270,000 at January 31, 2023 and October 31, 2022, respectively, and are included in receivables/other from related parties and payables to related parties.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

6. Equity in Investments (continued)

Unconsolidated Significant Subsidiary

In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies to 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% in the interim periods presented. During the year-to-date interim periods for the three months ended January 31, 2023 and 2022, this threshold was not met for any of the Company's equity investments.

7. Goodwill and Intangible Assets, Net

A summary of the change in the carrying amount of goodwill is as follows (in thousands):


	Goodwill Carrying Amount
Balance at October 31, 2022	$	1,506

Foreign currency translation adjustment	23
Balance at January 31, 2023	$	1,529

Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. There have been no impairment charges recorded against goodwill as of January 31, 2023.

Intangible assets consisted of the following (in thousands):


	January 31, 2023							October 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life in Years	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life in Years
Trade names and trademarks	$	2,108	(951)		1,157		8	$	2,108	$	(881)	$	1,227	8
Customer relationships	4,037		(1,772)		2,265		9	4,037		(1,660)		2,377		9
Non-competition agreement	437		(91)		346		8	437		(76)		361		8
Acquired water and mineral rights	3,656		—		3,656		Indefinite	3,352		—		3,352		Indefinite
	$	10,238	$	(2,814)	$	7,424		$	9,934	$	(2,617)	$	7,317

Amortization expense totaled $197,000 and $181,000 for the three months ended January 31, 2023 and 2022, respectively.

Estimated future amortization expense of intangible assets as of January 31, 2023 is as follows (in thousands):


2023 (excluding the three months ended January 31, 2023)	$	532
2024	711
2025	711
2026	711
2027	427
Thereafter	676
	$	3,768

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

8. Other Assets

Investments in Mutual Water Companies

The Company’s investments in various not-for-profit mutual water companies provide it with the right to receive a proportionate share of water from each of the not-for-profit mutual water companies that have been invested in and do not constitute voting shares and/or rights. In January 2023, the Company sold an investment in a mutual water company with a net book value of $1,320,000 as part of the Northern Properties sale described in Note 3. As of January 31, 2023 and October 31, 2022, $5,191,000 and $6,500,000, respectively, were included in other assets.

9. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


	January 31, 2023		October 31, 2022
Compensation	$	3,609	$	3,572
Property taxes	361		664

Operating expenses	3,512		2,341
Leases	2,072		2,026
Other	1,779		2,457

	$	11,333	$	11,060

10. Long-Term Debt

Long-term debt is comprised of the following (in thousands):


	January 31, 2023		October 31, 2022
AgWest Farm Credit revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month Secured Overnight Financing Rate ("SOFR"), which was 4.33% at January 31, 2023, plus 1.85%. The interest rate for the $40.0 million outstanding balance of the non-revolving line of credit is fixed at 3.57% through July 1, 2025 and variable thereafter. Interest is payable monthly and the principal is due in full on July 1, 2026.	$	40,000	$	88,521

AgWest Farm Credit term loan: The interest rate was fixed at 3.24%. The loan was repaid in January 2023.	—		919
AgWest Farm Credit term loan: The interest rate was fixed at 3.24%. The loan was repaid in January 2023.	—		7,562
AgWest Farm Credit term loan: The interest rate was fixed at 2.77% until July 1, 2025, becoming variable for the remainder of the loan. The loan was repaid in January 2023.	—		5,555
AgWest Farm Credit term loan: The interest rate was fixed at 3.19%. The loan was repaid in January 2023.	—		2,003
Banco de Chile term loan: The interest rate is fixed at 6.48%. The loan is payable in annual installments through January 2025.	656		675
Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48%. The loans are payable in monthly installments through September 2024.	237		233
Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48% and 4.26%. The loans are payable in monthly installments through September 2026.	474		434
Subtotal	41,367		105,902
Less deferred financing costs, net of accumulated amortization	—		94
Total long-term debt, net	41,367		105,808
Less current portion