AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 2010
 
REGISTRATION NO.
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10
 
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Limoneira Company
(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, including zip code)
 
(805) 525-5541
 
(Registrant’s telephone number, including area code)
 
Securities to be registered pursuant to Section 12(b) of the Act:
 
TITLE OF EACH CLASS
 
TO BE SO REGISTERED
 
NAME OF EACH EXCHANGE ON WHICH
 
EACH CLASS IS TO BE REGISTERED
     
None
 
None
 
Securities to be registered pursuant to Section 12(g) of the Act:
 
TITLE OF CLASS

Common Stock, $0.01 par value

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
Accelerated filer
¨
           
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting company
¨

 
 

 

TABLE OF CONTENTS

ITEM 1.
BUSINESS
3
     
ITEM 1A.
RISK FACTORS
14
     
ITEM 2.
FINANCIAL INFORMATION
23
     
ITEM 3.
PROPERTIES
38
     
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
39
     
ITEM 5.
DIRECTORS AND EXECUTIVE OFFICERS
40
     
ITEM 6.
EXECUTIVE COMPENSATION
43
     
ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
51
     
ITEM 8.
LEGAL PROCEEDINGS
52
     
ITEM 9.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
52
     
ITEM 10.
RECENT SALES OF UNREGISTERED SECURITIES
56
     
ITEM 11.
DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED
57
     
ITEM 12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
61
     
ITEM 13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
61
     
ITEM 14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
61
     
ITEM 15.
FINANCIAL STATEMENTS AND EXHIBITS
62
 
 
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EXPLANATORY NOTE
 
We are filing this General Form for Registration of Securities on Form 10 to register voluntarily our common stock, par value $0.01 per share, pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act.
 
Once this registration statement is deemed effective, we will be subject to the requirements of Regulation 13A under the Exchange Act, which will require us to file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and we will be required to comply with all other obligations of the Exchange Act applicable to issuers filing registration statements pursuant to Section 12(g) of the Exchange Act.
 
During the pendency of this registration statement and before it is deemed effective, we anticipate that we will submit to our stockholders a proposal by our board of directors that we split our shares on a ten-for-one basis.  Moreover, following the effectiveness of this registration statement and after addressing any comments from the Division of Corporation Finance of the Securities and Exchange Commission, which we refer to as the SEC, we expect that our common stock will be accepted for listing on the NASDAQ Stock Market under the ticker symbol “LMNR.”
 
All references to “we,” “us,” “our,” “our company,” “the company,” or “Limoneira” in this registration statement on Form 10 mean Limoneira Company, a Delaware corporation, and its wholly owned subsidiaries.
 
FORWARD-LOOKING STATEMENTS
 
This registration statement on Form 10 contains statements which, to the extent that they do not recite historical fact, constitute forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts and may include the words "may," "will," could," "should," "would," "believe," "expect," "anticipate," "estimate," "intend," "plan" or other words or expressions of similar meaning.  We have based these forward-looking statements on our current expectations about future events.  The forward-looking statements include statements that reflect management’s beliefs, plans, objectives, goals, expectations, anticipations and intentions with respect to our financial condition, results of operations, future performance and business, including statements relating to our business strategy and our current and future development plans.
 
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 prospectus include:
 
 
·
changes in laws, regulations, rules, quotas, tariffs, and import laws;
 
 
·
weather conditions, including freezes, 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 land development activities;
 
 
·
political changes and economic crises;
 
 
·
international conflict;
 
 
·
acts of terrorism;
 
 
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·
labor disruptions, strikes or work stoppages;
 
 
·
loss of important intellectual property rights; and
 
 
·
other factors disclosed in this registration statement.
 
In addition, this registration statement on Form 10 contains industry data related to our business and the markets in which we operate. This data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results could differ from the projections.
 
We urge you to carefully review this registration statement on Form 10, particularly the section “Risk Factors,” for a complete discussion of the risks of an investment in our common stock.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this registration statement, some of which are beyond our control, will be important in determining our future performance. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this registration statement as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
 
 
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ITEM 1.
BUSINESS
 
Limoneira Company was incorporated in Delaware in 1990 as the successor to several businesses with operations in California since 1893.  Our operations are described below.  For detailed financial information with respect to our business and our operations, see our consolidated financial statements and the related notes to consolidated financial statements, which are included in this registration statement beginning on page F-1.
 
Overview
 
We are an agribusiness and real estate development company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 7300 acres of land, water resources and other assets to maximize long-term stockholder value.  Our current operations consist of fruit production and marketing, real estate development and capital investment activities.
 
We are one of California’s oldest citrus growers and we believe we are the largest grower of lemons and avocados in the United States.  In addition to growing lemons and avocados, we grow oranges and a variety of other specialty citrus and other crops.  We have agricultural plantings throughout Ventura, Santa Barbara and Tulare Counties in California, which plantings consist of approximately 1839 acres of lemons, 1372 acres of avocados, 1062 acres of oranges and 403 acres of specialty citrus and other crops.  We also operate our own packinghouse in Santa Paula, California, where we  process and pack lemons that we grow as well as lemons grown by others.
 
Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own.  Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the unadjudicated Fillmore, Santa Barbara and Paso Robles Basins (aquifers).  We also use ground water and water from local water districts in Tulare County, which is in the San Joaquin Valley.
 
For more than 100 years, we have been making strategic investments in California agricultural and development real estate, and more recently, in Arizona real estate.  As of the date of this registration statement, we have six active real estate development projects in California and two in Arizona.  Our real estate developments range from apartments to luxury single-family homes and in California include approximately 200 completed units and another approximately 2,000 units in various stages of planning and entitlement.  Our real estate developments in Arizona consist of two luxury homes in Paradise Valley, which is adjacent to Phoenix and Scottsdale.
 
Business Segments
 
We have three business segments: agribusiness, rental operations, and real estate development.  The agribusiness segment includes our farming and lemon packing operations.  The rental operations segment includes our housing, organic recycling, commercial and leased land operations.  The real estate development segment includes our real estate projects and development.
 
Agribusiness
 
Our agribusiness segment includes our operations for farming and lemon packing.  The agribusiness segment represented approximately 89%, 93% and 93% of our fiscal 2009, fiscal 2008 and fiscal 2007 consolidated revenues, respectively.
 
Farming
 
We are one of California’s oldest citrus growers and we believe we are the largest grower of lemons and avocados in the United States.  In addition to growing lemons and avocados, we grow oranges and a variety of specialty citrus and other crops.  We have agricultural plantings throughout Ventura, Santa Barbara and Tulare Counties in California, which consist of approximately 1839 acres of lemons, 1372 acres of avocados, 1062 acres of oranges and 403 acres of specialty citrus and other crops.  We also operate our own packinghouse in Santa Paula, California, where we  process and pack lemons we grow as well as lemons grown by others.
 
 
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Lemons.  We believe we are the largest lemon grower in the United States with approximately 1839 acres of lemons planted throughout Ventura County, California and Tulare County in the San Joaquin Valley in Central California.  In California, the lemon growing area stretches from the Coachella Valley to Fresno and Monterey Counties, with the majority of the growing areas being located in the coastal areas from Ventura County to Monterey County.  Ventura County is California’s top lemon producing county.  Approximately 87% of our lemons are grown in Ventura County and approximately 13% are grown in Tulare County in Central California’s San Joaquin Valley.
 
There are over fifty varieties of lemons, with the Lisbon, Eureka and Genoa being the predominant varieties marketed on a worldwide basis.  California grown lemons are available 12 months of the year, with peak production periods occurring from January through August.  Approximately 92% of our lemon plantings are of the Lisbon and Eureka varieties and approximately 8% are of other varieties.  The storage life of fresh lemons is limited and generally ranges from one to 18 weeks, depending upon the maturity of the fruit, the growing methods used and the handling conditions in the distribution chain.
 
With an average annual production of approximately 750,000 tons of lemons, California accounts for approximately 87% of the United States lemon crop, with Arizona producing a vast majority of the rest.  Between 50% and 70% percent of the United States lemon crop is utilized in the fresh market, with the remainder going to the processed market for products such as juice, oils and essences.  Most lemons are consumed as either a cooking ingredient, a garnish, or as juice in lemonade or other carbonated beverages or drinks. Demand for lemons is typically highest in the summer, although California producers through various geographical zones are typically able to harvest lemons year round.
 
Most of our lemons, including our packinghouse branded lemons, are marketed and sold under the Sunkist brand to the food service industry, wholesalers and retail operations throughout North America, Asia and certain other countries primarily through Sunkist Growers, Inc., which we refer to as Sunkist, an agricultural marketing cooperative of which we are a member.  As an agricultural cooperative, Sunkist coordinates the sales and marketing of our lemons and we process orders through our packinghouse for direct shipment to customers worldwide.
 
Avocados.  We believe we are the largest avocado grower in the United States with approximately 1372 acres of avocados planted throughout Ventura and Santa Barbara counties.  In California, the growing area stretches from San Diego County to Monterey County, with the majority of the growing areas located approximately 100 miles north and south of Los Angeles County.
 
Over the last 70 years, the avocado has transitioned from a single specialty fruit to an array of 10 varieties ranging from the green-skinned Zutanos to the black-skinned Hass, which is the predominant avocado variety marketed on a worldwide basis.  California grown avocados are available year round, with peak production periods occurring between February and September.  Other avocado varieties have a more limited picking season and typically command a lower price.  Because of superior eating quality, the Hass avocado has contributed greatly to the avocado’s growing popularity through its retail, restaurant and other food service uses.  Approximately 98% of our avocado plantings are of the Hass variety.  The storage life of fresh avocados is limited and generally ranges from one to four weeks, depending upon the maturity of the fruit, the growing methods used and the handling conditions in the distribution chain.
 
We provide all of our avocado production to Calavo Growers, Inc., which we refer to as Calavo, a packing and marketing company listed on NASDAQ under the symbol CVGW.  Calavo’s customers include many of the largest retail and food service companies in the United States and Canada. Our marketing relationship with Calavo dates back to 2003.  Calavo receives fruit from our orchards at its packinghouse located in Santa Paula.  Calavo’s proximity to our agricultural operations enables us to keep transportation and handling costs to a minimum. Our avocados are packed by Calavo, sold and distributed under its own brands to its customers primarily in the United States and Canada.
 
Primarily due to differing soil conditions, the care of avocado trees is intensive and during our 70 year history of growing avocados, growing techniques have changed dramatically.  The need for more production per acre to compete with foreign sources of supply has required us to take an important lead in the practice of dense planting (typically four times the number of avocado trees per acre versus traditional avocado plantings) and mulching composition to help trees acclimate under conditions that more closely resemble those found in the more natural climate of the tropics.
 
 
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Oranges.  While we are primarily known for our high quality lemons, we also grow oranges.  We have approximately 1062 acres of oranges planted throughout Tulare County in the San Joaquin Valley in Central California.  In California, the growing area stretches from Imperial County to Yolo County.
 
For many decades, the Valencia variety of oranges were grown in Ventura County primarily for export to the Pacific Rim.  Throughout the late 20th century, developing countries began producing the larger, seedless Navel variety of oranges that successfully competed against the smaller Valencia variety of oranges.  California grown Valencia oranges are available March to October, with peak production periods occurring between June and September.  California grown Navel oranges are available October to June, with peak production periods occurring between January and April.  Approximately 19% of our orange plantings are of the Valencia variety and approximately 81% are of the Navel variety.
 
Navel oranges comprise most of California’s orange crop, accounting for approximately 75% over the past three growing seasons. Valencia oranges account for a vast majority of the remainder.  While California produces approximately 24% of the nation’s oranges, its crop accounts for approximately 80% of those going to the fresh market. The share of California’s crop going to fresh market, as opposed to the processed market (i.e. juices, oils and essences) varies by season, depending on the quality of the crop.
 
Sunkist markets and sells our oranges under the Sunkist brand to the food service industry, wholesalers and retail operations throughout the world.  As an agricultural cooperative, Sunkist coordinates the sales and marketing of our oranges and orders are processed by a packinghouse for direct shipment to customers.  We typically partner with outside packers to process and ship our oranges.   Approximately 70% of our oranges are sold to retail outlets and approximately 30% are sold to the food service industry.
 
Specialty Citrus and Other Crops.  A few decades ago in response to an ever changing marketplace, we began growing specialty citrus varieties and other crops that we believed would appeal to changing North American and worldwide demand.  As a result, we currently have approximately 403 acres of specialty citrus and other crops planted such as pummelos, Moro blood oranges, Cara Cara oranges, Satsuma mandarins, sweet Meyer lemons, proprietary seedless lemons, pink variegated lemons, Minneola tangelos, pistachios, cherries and Star Ruby grapefruit.
 
Acreage devoted to specialty citrus and other crops in California has been growing significantly over the past few decades, especially with the popularity of the Clementine, a type of mandarin orange.  We grow Satsumas, a type of mandarin orange similar to Clementine oranges.  All of our specialty citrus is marketed and sold under the Sunkist brand through Sunkist and packed and shipped through arrangements with other packers similar to our oranges.   All of our specialty citrus, other than specialty lemons such as sweet Meyer lemons, pink variegated lemons and proprietary seedless lemons, is marketed and sold by Sunkist to major retail operations in the United States.
 
We market our other specialty crops, such as pistachios and cherries, independently. All of our pistachios are harvested and sold to an independent roaster, packager and marketer of nuts.  All of our cherries are harvested and sold to independent packers and shippers.
 
We have agricultural plantings on 13 properties located throughout Ventura, Santa Barbara and Tulare Counties in California.  The following is a description of each such property.
 
Limoneira/Olivelands Ranch.  The Limoneira/Olivelands Ranch is the original site of the company and consists of approximately 1,744 contiguous acres located just west of Santa Paula, California.  The company’s headquarters, lemon packing operations and storage facilities are located on this property.  There are approximately 1,189 acres of agricultural plantings on this property which consist of approximately 544 acres of lemons, 643 acres of avocados and 2 acres of specialty citrus and other crops.  The company leases approximately 199 acres to third party agricultural tenants who grow a variety of row crops.  The company also leases to Calavo office space located on this property.
 
 
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Orchard Farm Ranch.  The Orchard Farm Ranch consists of approximately 1,119 acres located just west of Santa Paula, California.  There are approximately 805 acres of agricultural plantings on this property which consist of approximately 417 acres of lemons, 29 acres of avocados and 7 acres of specialty citrus and other crops planted by the company and approximately 352 acres leased to third party agricultural tenants who grow a variety of row crops.  The Orchard Farm Ranch is directly adjacent to the Limoneira/Olivelands Ranch, which together comprise nearly 2,900 contiguous acres approximately eight miles from the Pacific Ocean.
 
Teague McKevett Ranch.  The Teague McKevett Ranch consists of approximately 523 acres located just east of Santa Paula, California.  There are approximately 414 acres of agricultural plantings on this property which consist of approximately 213 acres of lemons and 181 acres of avocados planted by the company and  approximately 20 acres leased to third party tenants who grow a variety of row crops.  As described in “Real Estate Development” below, the Teague McKevett Ranch comprises all of East Area 1.
 
La Cuesta Ranch.  The La Cuesta Ranch consists of approximately 222 acres located between Santa Paula, California and Ojai, California.  The company has approximately 126 acres of agricultural plantings on this property which consist of approximately 87 acres of lemons, 27 acres of avocados and 12 acres of specialty citrus and other crops.
 
San Cayetano Ranch.  The San Cayetano Ranch consists of approximately 86 acres located between Santa Paula, California and Fillmore, California.  The company has approximately 74 acres of agricultural plantings on this property which consist of approximately 6 acres of lemons and 68 acres of avocados.
 
Sawyer Ranch.  The Sawyer Ranch consists of approximately 31 acres located between Santa Paula, California and Fillmore, California.  The company leases this property and has approximately 29 acres of agricultural plantings consisting of approximately 12 acres of lemons and 17 acres of avocados.
 
La Campana Ranch.  The La Campana Ranch consists of approximately 324 acres located between Santa Paula, California and Fillmore, California.  The company has approximately 289 acres of agricultural plantings on this property which consists of approximately 107 acres of lemons and 182 acres of avocados.
 
Wilson Ranch.  The Wilson Ranch consists of approximately 52 acres located between Santa Paula, California and Fillmore, California.  The company has approximately 33 acres of avocado plantings on this property.
 
Limco Del Mar Ranch.  The Limco Del Mar Ranch consists of approximately 208 acres located on the east end of Ventura, California.  As described in “Real Estate Development” below, this property is owned by a limited partnership of which the company is the general partner and owns an interest of approximately 23%.  This property has approximately 187 acres of agricultural plantings consisting of 118 acres of lemons and 69 acres of avocados.  The company manages the agricultural operations on this property.
 
Rancho Refugio/Caldwell Ranch.  The Rancho Refugio/Caldwell Ranch consists of approximately 449 acres located north of Santa Barbara on the California Coast.  The company leases this property and has an option to purchase the property at any time prior to the expiration of the lease term in early 2012.  This property is currently for sale and has approximately 209 acres of agricultural plantings consisting of approximately 92 acres of lemons, 115 acres of avocados and 2 acres of specialty citrus and other crops.
 
Porterville Ranch.  The Porterville Ranch consists of approximately 669 acres located about 50 miles north of Bakersfield, California.  The company has approximately 650 acres of agricultural plantings on this property which consist of approximately 145 acres of lemons, 376 acres of Navel oranges, 27 acres of Valencia oranges, and 102 acres of specialty citrus and other crops.
 
Jencks Ranch.  The Jencks Ranch consists of approximately 101 acres located about 50 miles north of Bakersfield, California.  This property is adjacent to our Porterville Ranch.  The company has approximately 60 acres of agricultural plantings on this property which consists of approximately 53 acres of Navel oranges and 7 acres of Valencia oranges.
 
 
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Ducor Ranch.  The Ducor Ranch consists of approximately 1,027 acres located about 50 miles north of Bakersfield, California.  The company has approximately 974 acres of agricultural plantings on this property which consist of approximately 97 acres of lemons, 431 acres of Navel oranges, 168 acres of Valencia oranges and 278 acres of specialty citrus and other crops.
 
Lemon Packing
 
We are the oldest continuous lemon packing operation in North America.  We pack lemons grown by us as well as lemons grown by others.  Lemons delivered to our packinghouse in Santa Paula are graded, sized, packed, and cooled and ripened for delivery to customers.  Our ability to accurately estimate the size, grade, as well as the timing of the delivery of the annual lemon crop has a substantial impact on both our costs and the sales price we receive for the fruit.
 
A significant portion of the costs related to our lemon packing operation are fixed.  Our strategy calls for optimizing fresh utilization and procuring a larger percentage of the California lemon crop.
 
We invest considerable time and research into refining and improving our lemon operations through innovation and are continuously in search of new techniques to refine how premium lemons are delivered to our consumers.
 
Rental Operations
 
Our rental operations segment includes our housing, organic recycling, commercial and leased land operations.  The rental operations segment represented approximately 11%, 7% and 7% of our fiscal 2009, 2008, and 2007 consolidated revenues, respectively.
 
Housing
 
The company owns and maintains approximately 193 residential housing units located in Ventura and Tulare Counties that it leases to employees, former employees and non-employees.  We expect to add approximately 74 new units in Santa Paula, California as a result of recently receiving approval from the Ventura County Planning Commission to build new residential housing units.  These properties generate reliable cash flows which we use to partially fund the operating costs of our business and provide affordable housing for many of our employees and the community.
 
Commercial
 
The company owns several commercial office buildings and a multi-use facility consisting of a retail convenience store, gas station, car wash and a quick-serve restaurant.  As with our housing units, these properties generate reliable cash flows which we use to partially fund the operations of our business.
 
Leased Land
 
As of October 31, 2009 the company leases approximately 586 acres of its land to third party agricultural tenants who grow a variety of row crops such as strawberries, raspberries, celery and cabbage.  Our leased land business typically provides us with a profitable method to diversify the use of our land.
 
Organic Recycling
 
With the help of Agromin, a manufacturer of premium soil products and green waste recycler located in Oxnard, California, we have created and implemented an organic recycling program.  Agromin provides green waste recycling for approximately 19 cities in Santa Barbara, Los Angeles and Ventura Counties. We worked with Agromin to develop two organic recycling facilities, one on our land in Ventura County and another in Los Angeles County, to receive green materials (lawn clipping, leaves, bark, plant materials) and convert such material into mulch that we spread throughout our agricultural properties to help curb erosion, improve water efficiency, reduce weeds and moderate soil temperatures.  We receive a percentage of the gate fees collected from regional waste haulers and enjoy the benefits of the organic material.
 
 
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Real Estate Development
 
Our real estate development segment includes our real estate development operations.  The real estate devlopment segment represented less than 1% of our consolidated revenues in fiscal 2009 and did not generate any significant revenues during fiscal 2008 and fiscal 2007.
 
For more than 100 years, we have been making strategic real estate investments in California agricultural and developable real estate, and more recently, in Arizona.  Our current real estate developments include developable land parcels, single- and multi- family affordable housing and luxury single-family homes with nearly 2,000 units in various stages of planning and development.  The following is a summary of each of the strategic agricultural and development real estate investment properties in which we own an interest:
 
East Area I - Santa Paula, California.  Santa Paula East Area I consists of 523 acres that we presently use as agricultural land and is located in Santa Paula approximately ten miles from Ventura and the Pacific Ocean.  This property is also known as our Teague McKevett Ranch.  We believe East Area 1 is an ideal location for a master planned community of commercial and residential properties designed to satisfy expected demand in a region that we believe will have few other developments in this coming decade.  In 2008, after completing a process of community planning and environmental review, the citizens of Santa Paula voted to approve the annexation of East Area I into Santa Paula.  This vote was a requirement of the Save Open-Space and Agricultural Resources, or SOAR, ordinance which mandates a public vote of the City of Santa Paula for land use conversion.  We are currently in the process of obtaining final documentation to complete the entitlement and have executed a 30-year development agreement with Santa Paula. We expect to develop this property with financial and development partners, outside consultants and our own internal resources. If current U.S. economic conditions continue to deteriorate, however, we are prepared to continue using this land for agricultural purposes until attractive development opportunities present themselves.
 
East Area II - Santa Paula, California.  We and our design associates are in the process of formulating plans for East Area II, a parcel of approximately 25 acres adjacent to East Area I, also a part of our Teague McKevett Ranch, that we believe is suited to commercial and/or industrial development along the south side of California Highway 126, a heavily traveled corridor that connects Highway 101 at Ventura on the west with Interstate 5 at Santa Clarita on the east.  When completed, we expect that the development will contribute to the economic vitality of the region and allow residents to work and shop within close proximity to their homes.
 
The successful development of East Area II will be partly dependent on the success of East Area I described above.  We expect that East Area II could accommodate large retailers, a medium or even a large employer, a complex of mixed business and retail or some combination of the foregoing. We are actively cultivating prospects to buy or become future tenants in East Area II and expect that development will closely follow the build-out of East Area I.
 
Windfall Farms - Creston, California.  Windfall Farms is an approximately 720-acre former thoroughbred breeding farm and equestrian facility located in Creston, California, near Paso Robles.  The property has paved roads, water wells, irrigation, piping, stables, homes, other out-buildings and a race track.  Presently, parcels of at least 40 acres are available for sale.  However, restrictions imposed by the California Land Conservation Act (also known as the Williamson Act) expire at the end of 2012, at which time 76 parcels as large as ten acres can be subdivided and resold, creating small agricultural parcels with home sites.
 
Santa Maria - Santa Barbara County, California.  In early fiscal 2007, we invested in four entitled development parcels in Santa Barbara County, California, a county that, in our experience, entitles very few parcels.  Located in Santa Maria, each of these parcels offers a residential and/or commercial development opportunity.  A brief description of each parcel follows:
 
 
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·
Centennial Square has been approved for 72 condominiums on 5 acres, is close to medical facilities, shopping and transportation, and includes one acre suitable for commercial development.
 
 
·
The Terraces at Pacific Crest is an approximately eight-acre parcel approved for 112 attached-housing units.
 
 
·
Sevilla is approved for 69 single-family homes adjacent to shopping, transportation, schools, parks, and medical facilities, with a parcel of approximately three-acres zoned for commercial use.
 
 
·
Eastridge is approved for 120 single family homes on approximately 37 acres.  Approximately three acres are zoned for commercial use.  We have recently partnered with a developer to develop this property.
 
Donna Circle and Cactus Wren - Paradise Valley, Arizona.  We have partnered with an Arizona home developer, to construct two luxury homes in Paradise Valley, Arizona. The first home was completed in December 2008 and listed for sale. In June 2009, the company decided not to sell the home and instead executed a two year lease agreement with a third party. The agreement contains an option to extend the lease an additional year and the third-party may purchase the home during the option period. The second home was completed in June 2009 and is listed for sale with a real estate broker.
 
Limco Del Mar Ranch - Ventura, California.  We believe our Limco Del Mar Ranch, which we currently use for agricultural purposes, has long-term development potential.  The Limco Del Mar Ranch is located on the east end of Ventura with southerly views of the Pacific Ocean.  As described above in “Business Segments - Agribusiness - Farming,” this property is owned by a limited partnership of which we are the general partner and own an interest of approximately 23%.  The company manages the agricultural operations on this property.
 
Competitive Strengths

Agribusiness
 
With agricultural operations dating back to 1893, we are one of California’s oldest citrus growers and we believe we are the largest grower of lemons and avocados in the United States.  Consequently, we have developed a body of experience with many crops, most significantly lemons, avocados and oranges.  The following is a brief list of what we believe are our significant competitive strengths with respect to our agribusiness segment.
 
 
·
Our agricultural properties in Ventura County are located near the Pacific ocean, which provides an ideal environment for growing lemons, avocados and other row crops. Our agricultural properties in Tulare County, which is in the San Joaquin Valley in Central California, are also located in areas that are well-suited for growing citrus crops.
 
 
·
Historically, a high percentage of our crops go to the fresh market, which is commonly referred to as fresh utilization, relative to other growers and packers.
 
 
·
We have contiguous and nearby land resources that permit us to efficiently use our agricultural land and resources.
 
 
·
In all but one of our properties, we are not dependent on State or Federal water projects to support our agribusiness or real estate development operations.
 
 
·
We own approximately 90% of our agricultural land and can take a long view on fruit production practices.
 
 
·
We have a well-trained and retentive labor force with many employees remaining with the company for more than 30 years.
 
 
·
Our lemon packing operations allow us to enter into marketing alignments with successful companies in their respective products, such as Sunkist for lemons and other citrus crops and Calavo for avocados.
 
 
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·
We have achieved GLOBALGAP Certification by successfully demonstrating our adherence to specific GLOBALGAP standards.  GLOBALGAP is an internationally recognized set of farm standards dedicated to “Good Agricultural Practices” or GAP.  We believe that GLOBALGAP Certification differentiates us from our competitors and serves as reassurance to consumers and retailers that food reaches acceptable levels of safety and quality, and has been produced sustainably, respecting the health, safety and welfare of workers, the environment, and in consideration of animal welfare issues.
 
 
·
In 2008, we entered into an operating lease agreement and completed the installation of a 5.5 acre, one-megawatt ground-based photovoltaic solar generator.  This system provides us with a majority of the electricity required to operate our packinghouse and cold storage facilities located in Santa Paula, California.  In 2009, we completed the installation of a one-megawatt solar array (which we also lease through an operating lease agreement), which provides us with a majority of the electricity required to operate four deep water well pumps at one of our ranches in Tulare County, which is in the San Joaquin Valley in Central California.  These investments in ground-based solar projects are new and provide us with tangible and intangible non-revenue generating benefits.  In addition to the cost-savings associated with the electricity generated by these investments, they support our sustainable agricultural practices, reduce our dependence on fossil-based electricity generation and lower our carbon footprint.  Moreover, power that we generate and do not use is conveyed seamlessly back to the investor-owned utilities operating in these two markets.  Finally, over time, we expect that our customers and the end consumers of our fruit will value the investments that we have made in renewable energy as a part of our farming and packing operations.  We believe this dynamic may help us differentiate our products from similar commodities.
 
 
·
We have made various other investments in water rights, mutual water companies and cooperative memberships.  We own shares in the following mutual water companies: Thermal Belt Mutual Water Co., Farmers Irrigation Co., Canyon Irrigation Co., San Cayetano Mutual Water Co. and the Middle Road Mutual Water Co.  In 2007, we acquired additional water rights in the adjudicated Santa Paula Basin (aquifer).  We are a member of the Sunkist, Fruit Growers Supply and certain other cooperatives.  We pay Sunkist and certain other cooperatives annual assessments into revolving funds based on sales volume or other criteria, with such funds typically being held by the applicable cooperative for a period of five years at which time they are refunded to us.  We also pay into revolving funds related to fruit that we have packed by outside packing houses, with such funds typically being refunded after a period of five years.
 
Rental Operations
 
With respect to our rental operations segment, we believe our competitive advantages are as follows:
 
 
·
Our housing and land rentals provide a consistent, dependable source of cash flow that helps to counter the volatility typically associated with an agricultural business.
 
 
·
Our housing rental business allows us to offer a unique benefit to our employees, which in turn helps to provide us with a dependable, long-term employee base.
 
 
·
Our organic recycling business provides us with a low cost, environmentally friendly solution to weed and erosion control.
 
 
·
Our leased land business allows us to partner with other producers that can serve as a typically profitable alternative to under-producing tree crop acreage.
 
Real Estate Development
 
With respect to our real estate development segment, we believe our competitive advantages are as follows:
 
 
·
Our real estate development activities are primarily focused in coastal areas north of Los Angeles and south of Santa Barbara, which we believe has a desirable climate for lifestyle families, retirees, and athletic and sports enthusiasts.
 
 
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·
We have entitlements to build approximately 1,500 residential units in our Santa Paula East Area I development.
 
 
·
Several of our agricultural and real estate investment properties are unique and carry longer term development potential. These include Limco Del Mar and Windfall Farms, both as discussed above in “Business Segments - Real Estate Development.”
 
 
·
Our East Area II property has approximately 25 acres of land commercially zoned, which is adjacent to our East Area I property, and our Santa Maria properties have approximately 7 acres zoned for mixed use retail, commercial and light manufacturing.
 
Business Strategy
 
While each of our business segments has a separate business strategy, we are an agribusiness and real estate development company that generates annual cash flows to support investments in agricultural and real estate development activities.  As our agricultural and real estate development investments are monetized we intend to seek to expand our agribusiness into new regions and markets and invest in cash producing residential, commercial and industrial real estate assets.
 
The following describes the key elements of our business strategy for each of our agribusiness, rental operations and real estate development business segments.
 
Agribusiness
 
With respect to our agribusiness segment, key elements of our strategy are:
 
 
·
Expand International Production and Marketing of Lemons.  We estimate that we currently have approximately 5% of the fresh lemon market in the United States and a larger share of the United States lemon export market.  We intend to explore opportunities to expand our international production and marketing of lemons.  We have the ability to supply a wide range of customers and markets and, because we produce high quality lemons, we can export our lemons to international customers which many of our competitors are unable to supply.
 
 
·
Acquire Additional Lemon Producing Properties.  To the extent attractive opportunities arise and our capital availability permits, we intend to consider the acquisition of additional lemon producing properties. In order to be considered, such properties would need to have certain characteristics to provide acceptable returns, such as an adequate source of water, a warm micro-climate and well-drained soils.  We anticipate that the most attractive opportunities to acquire lemon producing properties will be in the San Joaquin Valley near our existing operations in Tulare County.
 
 
·
Increase the Volume of our Lemon Packing Operations.  We regularly monitor our costs for redundancies and opportunities for cost reductions.  In this regard, cost per carton is a function of throughput. We continually seek to acquire additional lemons from outside growers to pack through our plant. Growers are only added if their fruit is of good quality and can be cost effective for both Limoneira and the outside grower. Of most importance is the overall fresh utilization rate for our fruit, which is directly related to quality.
 
 
·
Explore the Construction of a New Lemon Packinghouse.  Over the years new machinery and equipment along with upgrades have been added to our nearly 80 year old packinghouse and cold storage facilities.  This, along with an aggressive and proactive maintenance program has allowed us to operate an efficient, competitive lemon packing operation.  We are currently considering the construction of a new packinghouse that may have the potential to lower our packing costs by reducing labor and handling inputs.
 
 
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·
Opportunistically Expand our Plantings of Avocados.  We intend to opportunistically expand our plantings of avocados primarily because our profitability and cash flow realized from our avocados frequently offsets occasional losses in other crops we grow and helps to diversify our fruit production base.
 
 
·
Maintain and Grow our Relationship with Calavo Our alignment with, and ownership stake in, Calavo comprises our current marketing strategy for avocados.  Calavo has expanded its sourcing into other regions of the world, including Mexico, Chile, and Peru, which allows it to supply avocados to its retail and food service customers on a year-round basis.  California avocados occupy a unique market window in the year-round supply chain and Calavo has experienced a general expansion of volume as consumption has grown. Thus, we intend to continue to have a strong and viable market for our California avocados as well as an equity participation in Calavo’s overall expansion and profitability.
 
 
·
Opportunistically Expand Our Plantings of Oranges, Specialty Citrus and Other Crops.  Our plantings of oranges, specialty citrus and other crops have been profitable and have been pursued to diversify our product line.  Agricultural land that we believe is not suitable for lemons is typically planted with other specialty citrus or other crops.  While we intend to expand our orange, specialty citrus and other crops, we expect to do so on an opportunistic basis in locations that we believe offer a record of historical profitability.
 
Rental Operations
 
With respect to our rental operations segment, key elements of our strategy include:
 
 
·
Secure Additional Rental and Housing Units.  Our housing, commercial and land rental operations provide us with a consistent, dependable source of cash flow that helps to fund our overall activities.  Additionally, we believe our housing rental operation allows us to offer a unique benefit to our employees.  Consequently, we intend to secure additional units through infill projects on existing sites and groupings of units on new sites within our owned acreage.
 
 
·
Opportunistically Lease Land to Third-Party Crop Farmers.  We regularly monitor the profitability of our fruit-producing acreage to ensure acceptable per acre returns.  When we determine that leasing the land to third-party row crop farmers would be more profitable than farming the land, we intend to seek to lease such land.
 
 
·
Opportunistically Expand our Income-Producing Commercial and Industrial Real Estate Assets.  We intend to redeploy our future financial gains to acquire additional income-producing real estate investments and agricultural properties.
 
Real Estate
 
With respect to our real estate segment, key elements of our strategy include:
 
 
·
Selectively and Responsibly Develop Our Agricultural Land.  We recognize that long-term strategies are required for successful real estate development activities. We thus intend to maintain our position as a responsible agricultural land owner and major employer in Ventura County while focusing our real estate development activities on those agricultural land parcels that we believe offer the best opportunities to demonstrate our long term vision for our community.
 
 
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·
Opportunistically Increase Our Real Estate Holdings.  We intend to redeploy our future financial gains to acquire additional income-producing real estate investments and agricultural properties.
 
Customers
 
During the fiscal year ended October 31, 2009, Sunkist marketed and sold nearly all of our lemon production and a majority of our orange production and Calavo marketed and sold all of our avocado production.  We directly sell certain of our specialty citrus and other crops, which for the fiscal year ended October 31, 2009, accounted for less than 1% of our revenues.  Sunkist and Calavo market and sell our fruit to a wide range of retail and food service customers throughout North America, Asia and certain other countries. While we are dependent on the success of Sunkist and Calavo, none of their respective customers to our knowledge account for more than 10% of the sales of either organization.
 
Seasonal Nature of Business
 
As with any agribusiness enterprise, our agribusiness operations are predominantly seasonal in nature.  The harvest and sale of our lemons, avocados, oranges and specialty citrus and other crops occurs in all quarters, but is generally more concentrated during the second and third quarters.  Our lemons are generally grown and marketed throughout the year. Our Navel oranges are sold January through April and our Valencia oranges are sold June through September. Our avocados are sold generally throughout the year with the peak months being March through July.  Our specialty citrus is sold from November through June and our specialty crops, such as cherries, are sold in May and/or June and our pistachios are sold in September and/or October.
 
Competition
 
The lemon, avocado, orange and specialty citrus and other crop markets are intensely competitive but no single producer has any significant market power over any market segments as is consistent with the production of most agricultural commodities. Generally, there are a large number of global producers that sell through joint marketing organizations and cooperatives. Such fruit is also sold to independent packers, both public and private, who then sell to their own customer base. Customers are typically large retail chains, food service companies, industrial manufactures as well as distributors who sell and deliver to smaller customers in local markets throughout the world. In the purest sense, our largest competitors are other citrus and avocado producers in California, Mexico, Chile, Argentina and Florida, a number of which are also members of cooperatives such as Sunkist or have selling relationships with Calavo similar to that of Limoneira. In another sense, we compete with other fruits and vegetables for the share of consumer expenditures devoted to fresh fruit and vegetables: apples, pears, cherries, melons, pineapples and other tropical fruit. Avocado products compete in the supermarket with hummus products and other dips and salsas.  U.S. producers of tree fruits and nuts generate approximately $18 billion of tree fruits and nuts each year, about 10% of which is exported. For our specific crops, the size of the U.S. market is approximately $300 million for lemons, approximately $300 to $400 million for avocados depending on the year, and approximately $1.5 to $2.0 billion for oranges, both fresh and juice. Competition in the various markets in which we operate is affected by reliability of supply, product quality, brand recognition and perception, price and the ability to satisfy changing customer preferences through innovative product offerings.
 
The sale and leasing of residential, commercial and industrial real estate is very competitive, with competition coming from numerous and varied sources throughout California.  The degree of competition has increased due to the current economic climate which has caused an oversupply of comparable real estate available for sale or lease due to the decline in demand as a result of the current downturn in the housing market and/or the credit crisis.  Our greatest direct competition for each of our current real estate development properties in Ventura and Santa Barbara Counties as well as Arizona will come from other residential and commercial developments in nearby areas.  Windfall Farms will compete generally with the second home and life style real estate market which includes golf course communities, marinas, destination resorts and other equestrian facilities located in Southern California, so its competition will range over a greater area and range of consumer options.
 
 
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Employees
 
At October 31, 2009 we had 207 employees, 55 of which were salaried and 152 of which were hourly.  None of our employees are subject to a collective bargaining agreement.  We believe our relations with our employees are good.
 
Research and Development
 
Our research and development programs concentrate on sustaining the productivity of our agricultural lands, product quality, and value-added product development.  Agricultural research is directed toward sustaining and improving product yields and product quality by examining and improving agricultural practices in all phases of production (such as the development of specifically adapted plant varieties, land preparation, fertilization, pest and disease control, post-harvest handling, packing and shipping procedures), and includes on-site technical services and the implementation and monitoring of recommended agricultural practices.  Research efforts are also directed towards integrated pest management.  We conduct agricultural research at field facilities in California.  We also sponsor research related to environmental improvements and the protection of worker and community health.  The aggregate amounts we spent on research and development in each of the last three years have not been material in any of such years.
 
Environmental and Regulatory Matters
 
The California State Department of Food and Agriculture oversees the packing and processing of California lemons and conducts tests for fruit quality and packaging standards.  All of our packages are stamped with the state seal which qualifies our fruit as meeting standards.  Various states have instituted regulations providing differing levels of oversight with respect to weights and measures, as well as quality standards.
 
In addition, advertising of our products is subject to regulation by the Federal Trade Commission, and our operations are subject to certain health and safety regulations, including those issued under the Occupational Safety and Health Act.
 
As a result of our agricultural and real estate activities, we are subject to numerous environmental laws and regulations. These laws and regulations govern the treatment, handling, storage and disposal of materials and waste and the remediation of contaminated properties.
 
We seek to comply at all times with all such laws and regulations and to obtain any necessary permits and licenses, and we are not aware of any instances of material non-compliance.  We believe our facilities and practices are sufficient to maintain compliance with applicable governmental laws, regulations, permits and licenses.  Nevertheless, there is no guarantee that we will be able to comply with any future laws and regulations for necessary permits and licenses.  Our failure to comply with applicable laws and regulations or obtain any necessary permits and licenses could subject us to civil remedies including fines, injunctions, recalls or seizures, as well as potential criminal sanctions.
 
ITEM 1A.               RISK FACTORS
 
The risks and uncertainties described below are not the only ones we face.  If any of the following risks occurs, our business, financial condition, results of operations or future prospects could be materially adversely affected.
 
Risks Related to Our Agribusiness
 
Adverse weather conditions, natural disasters, crop disease, pests and other natural conditions can impose significant costs and losses on our business.
 
Fresh produce is vulnerable to adverse weather conditions, including windstorms, floods, drought and temperature extremes, which are quite common but difficult to predict. Unfavorable growing conditions can reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in some geographic areas. These factors can increase costs, decrease revenues and lead to additional charges to earnings, which may have a material adverse effect on our business, results of operations and financial condition.
 
 
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Citrus and avocado orchards are subject to damage from frost and freezes and this has happened periodically in the recent past. In some cases, the fruit is simply lost while in the case of extended periods of cold, the trees can also be damaged or killed.
 
Fresh produce is also vulnerable to crop disease and to pests, which may vary in severity and effect, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. For example, the Mediterranean Fruit Fly and the Asian Citrus Psyillid.  The costs to control these diseases and other infestations vary depending on the severity of the damage and the extent of the plantings affected. Moreover, there can be no assurance that available technologies to control such infestations will continue to be effective. These infestations can increase costs, decrease revenues and lead to additional charges to earnings which may have a material adverse effect on our business, results of operations and financial condition.
 
Our business is highly competitive and we cannot assure you that we will maintain our current market share.
 
Many companies compete in our different businesses. However, only a few well-established companies operate on an international, national and regional basis with one or several product lines. We face strong competition from these and other companies in all our product lines.
 
Important factors with respect to our competitors include the following:
 
 
·
Some of our competitors may have greater operating flexibility and, in certain cases, this may permit them to respond better or more quickly to changes in the industry or to introduce new products and packaging more quickly and with greater marketing support.
 
 
·
We cannot predict the pricing or promotional actions of our competitors or whether those actions will have a negative effect on us.
 
There can be no assurance that we will continue to compete effectively with our present and future competitors, and our ability to compete could be materially adversely affected by our debt levels and debt service requirements.
 
Our earnings are sensitive to fluctuations in market prices and demand for our products.
 
Excess supplies often cause severe price competition in our industry. Growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.
 
Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest. Some items, such as avocados, oranges and specialty citrus, must be sold more quickly, while other items can be held in cold storage for longer periods of time. The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market, and the availability and quality of competing types of produce.
 
In addition, general public perceptions regarding the quality, safety or health risks associated with particular food products could reduce demand and prices for some of our products. To the extent that consumer preferences evolve away from products that we produce for health or other reasons, and we are unable to modify our products or to develop products that satisfy new consumer preferences, there will be a decreased demand for our products. However, even if market prices are unfavorable, produce items which are ready to be, or have been harvested must be brought to market promptly. A decrease in the selling price received for our products due to the factors described above could have a material adverse effect on our business, results of operations and financial condition.
 
 
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Our earnings are subject to seasonal variability.
 
Our earnings may be affected by seasonal factors, including:
 
 
·
the seasonality of our supplies and consumer demand;
 
 
·
the ability to process products during critical harvest periods; and
 
 
·
the timing and effects of ripening and perishability.
 
Our lemons are generally grown and marketed throughout the year. Our Navel oranges are sold January through April and our Valencia oranges are sold June through September. Our avocados are sold generally throughout the year with the peak months being March through July.  Our specialty citrus is sold from November through June, our cherries in the May/June time period and our pistachios in the September/October period.
 
Currency exchange fluctuation may impact the results of our operations.
 
We distribute our products both nationally and internationally. Our international sales are transacted in U.S. dollars. Our results of operations are affected by fluctuations in currency exchange rates in both sourcing and selling locations.  In the past, periods of a strong U.S. dollar relative to other currencies has led international customers, particularly in Asia, to find alternative sources of fruit.
 
Increases in commodity or raw product costs, such as fuel, paper, and plastics, could adversely affect our operating results.
 
Many factors may affect the cost and supply of fresh produce, including external conditions, commodity market fluctuations, currency fluctuations, changes in governmental laws and regulations, agricultural programs, severe and prolonged weather conditions and natural disasters. Increased costs for purchased fruit have in the past negatively impacted our operating results, and there can be no assurance that they will not adversely affect our operating results in the future.
 
The price of various commodities can significantly affect our costs. Our fuel costs have increased substantially in recent years, and there can be no assurance that there will not be further increases in the future. In addition, the rising price of oil can have a significant impact on the cost of our herbicides and pesticides.
 
The cost of paper is also significant to us because some of our products are packed in cardboard boxes for shipment. If the price of paper increases and we are not able to effectively pass these price increases along to our customers, then our operating income will decrease. Increased costs for paper have in the past negatively impacted our operating income, and there can be no assurance that these increased costs will not adversely affect our operating results in the future.
 
The lack of sufficient water would severely impact our ability to produce crops or develop real estate.
 
The average rainfall in Ventura County is between 14 and 15 inches per year, with most of it falling in Fall and Winter. These amounts are substantially below amounts required to grow crops and therefore we are dependent on our rights to pump water from underground aquifers. Extended periods of drought in California may put additional pressure on the use and availability of water for agricultural uses and in some cases Governmental authorities have diverted water to other uses. As California has grown, there are increasing and multiple pressures on the use and distribution of water which many view as a finite resource. Lack of available potable water can also limit real estate development.
 
The use of herbicides, pesticides and other potentially hazardous substances in our operations may lead to environmental damage and result in increased costs to us.
 
We use herbicides, pesticides and other potentially hazardous substances in the operation of our business. We may have to pay for the costs or damages associated with the improper application, accidental release or the use or misuse of such substances. Our insurance may not be adequate to cover such costs or damages or may not continue to be available at a price or under terms that are satisfactory to us. In such cases, payment of such costs or damages could have a material adverse effect on our business, results of operations and financial condition.
 
 
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Global capital and credit market issues affect our liquidity, increase our costs of borrowing and disrupt the operations of our suppliers and customers.
 
The global capital and credit markets have experienced increased volatility and disruption over the past year, making it more difficult for companies to access those markets. We depend in part on stable, liquid and well-functioning capital and credit markets to fund our operations. Although we believe that our operating cash flows and existing credit facilities will permit us to meet our financing needs for the foreseeable future, there can be no assurance that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. Our business could also be negatively impacted if our suppliers or customers experience disruptions resulting from tighter capital and credit markets or a slowdown in the general economy.
 
The current global economic downturn may have other impacts on participants in our industry, which cannot be fully predicted.
 
The full impact of the current global economic downturn on customers, vendors and other business partners cannot be anticipated. For example, major customers or vendors may have financial challenges unrelated to us that could result in a decrease in their business with us or, in extreme cases, cause them to file for bankruptcy protection. Similarly, parties to contracts may be forced to breach their obligations under those contracts. Although we exercise prudent oversight of the credit ratings and financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a bank, insurance company, supplier, customer or other financial partner that is unable to meet its contractual commitments to us. Similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors which could have wide ranging impacts on the future of the industry.
 
Terrorism and the uncertainty of war may have a material adverse effect on our operating results.
 
Terrorist attacks, such as the attacks that occurred in New York and Washington, D.C. on September 11, 2001, the subsequent response by the United States in Afghanistan, Iraq and other locations, and other acts of violence or war in the United States or abroad may affect the markets in which we operate and our operations and profitability. Further terrorist attacks against the United States or operators of United States-owned businesses outside the United States may occur, or hostilities could develop based on the current international situation. The potential near-term and long-term effect these attacks may have on our business operations, our customers, the markets for our products, the United States economy and the economies of other places we source or sell our products is uncertain. The consequences of any terrorist attacks, or any armed conflicts, are unpredictable, and we may not be able to foresee events that could have an adverse effect on our markets or our business.
 
We are subject to the risk of product contamination and product liability claims.
 
The sale of food products for human consumption involves the risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals other agents, or residues introduced during the growing, storage, handling or transportation phases. While we are subject to governmental inspection and regulations and believe our facilities comply in all material respects with all applicable laws and regulations, we cannot be sure that consumption of our products will not cause a health-related illness in the future or that we will not be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. We maintain product liability insurance, however, we cannot be sure that we will not incur claims or liabilities for which we are not insured or that exceed the amount of our insurance coverage.
 
 
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We are subject to transportation risks.
 
An extended interruption in our ability to ship our products could have a material adverse effect on our business, financial condition and results of operations. Similarly, any extended disruption in the distribution of our products could have a material adverse effect on our business, financial condition and results of operations. While we believe we are adequately insured and would attempt to transport our products by alternative means if we were to experience an interruption due to strike, natural disasters or otherwise, we cannot be sure that we would be able to do so or be successful in doing so in a timely and cost-effective manner.
 
Events or rumors relating to the LIMONEIRA brand could significantly impact our business.
 
Consumer and institutional recognition of the LIMONEIRA trademarks and related brands and the association of these brands with high quality and safe food products are an integral part of our business. The occurrence of any events or rumors that cause consumers and/or institutions to no longer associate these brands with high quality and safe food products may materially adversely affect the value of the LIMONEIRA brand name and demand for our products.
 
We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects.
 
We currently depend heavily on the services of our key management personnel. The loss of any key personnel could materially and adversely affect our results of operations, financial condition, or our ability to pursue land development. Our success will also depend in part on our ability to attract and retain additional qualified management personnel.
 
Inflation can have a significant adverse effect on our operations.
 
Inflation can have a major impact on our farming operations. The farming operations are most affected by escalating costs and unpredictable revenues (due to an oversupply of certain crops) and very high irrigation water costs. High fixed water costs related to our farm lands will continue to adversely affect earnings. Prices received for many of our products are dependent upon prevailing market conditions and commodity prices. Therefore, it is difficult for us to accurately predict revenue, just as we cannot pass on cost increases caused by general inflation, except to the extent reflected in market conditions and commodity prices.
 
Risks Related to Our Indebtedness
 
We may be unable to generate sufficient cash flow to service our debt obligations.
 
To service our debt, we require a significant amount of cash. Our ability to generate cash, make scheduled payments or refinance our obligations depends on our successful financial and operating performance. Our financial and operating performance, cash flow and capital resources depend upon prevailing economic conditions and various financial, business and other factors, many of which are beyond our control. These factors include among others:
 
 
·
economic and competitive conditions;
 
 
·
changes in laws and regulations;
 
 
·
operating difficulties, increased operating costs or pricing pressures we may experience; and
 
 
·
delays in implementing any strategic projects.
 
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. If we are required to take any actions referred to above, it could have a material adverse effect on our business, financial condition and results of operations. In addition, we cannot assure you that we would be able to take any of these actions on terms acceptable to us, or at all, that these actions would enable us to continue to satisfy our capital requirements or that these actions would be permitted under the terms of our various debt agreements.
 

 
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Restrictive covenants in our debt instruments restrict or prohibit our ability to engage in or enter into a variety of transactions, which could adversely restrict our financial and operating flexibility and subject us to other risks.
 
Our revolving credit and term loan facilities contain various restrictive covenants that limit our and our subsidiaries’ ability to take certain actions.  In particular, these agreements limit our and our subsidiaries’ ability to, among other things:
 
 
·
incur additional indebtedness;
 
 
·
make certain investments or acquisitions;
 
 
·
create certain liens on our assets;
 
 
·
engage in certain types of transactions with affiliates;
 
 
·
merge, consolidate or transfer substantially all our assets; and
 
 
·
transfer and sell assets.
 
Our revolving credit facility with Rabobank contains a financial covenant that requires us to maintain compliance with a specified debt service coverage ratio on an annual basis.  At October 31, 2009, we were not in compliance with such debt service coverage ratio and we may not be able to comply with such covenant in the future.  Although this prior noncompliance with the covenant was waived by Rabobank and the next compliance measurement date of this covenant is October 31, 2010 (which will cover fiscal 2010), our failure to comply with this covenant in the future may result in the declaration of an event of default under our revolving credit facility with Rabobank.
 
Any or all of these covenants could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations.  Any future debt could also contain financial and other covenants more restrictive than those imposed under our revolving credit and term loan facilities.
 
A breach of a covenant or other provision in any credit facility governing our current and future indebtedness could result in a default under that facility and, due to cross-default and cross-acceleration provisions, could result in a default under our other credit facilities.  Upon the occurrence of an event of default under any of our credit facilities, the applicable lender(s) could elect to declare all amounts outstanding to be immediately due and payable and, with respect to our revolving credit facility, terminate all commitments to extend further credit.  If we were unable to repay those amounts, our lenders could proceed against the collateral granted to them to secure the indebtedness.  If the lenders under our current or future indebtedness were to accelerate the payment of the indebtedness, we cannot assure you that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness.
 
Despite our relatively high current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we and our subsidiaries may still incur significant additional indebtedness, including secured indebtedness. Incurring more indebtedness could increase the risks associated with our substantial indebtedness.
 
Subject to the restrictions in our credit facilities, we and our subsidiaries may incur significant additional indebtedness. If new debt is added to our and our subsidiaries' current debt levels, the related risks that we now face could increase.
 
Some of our debt is based on variable rates of interest, which could result in higher interest expenses in the event of an increase in the interest rates.
 
Our revolving credit facilities and a portion of our term loan facilities bear interest at variable rates which will generally change as interest rates change.  We bear the risk that the rates we are charged by our lenders will increase faster than the earnings and cash flow of our business, which could reduce profitability, adversely affect our ability to service our debt, cause us to breach covenants contained in our revolving credit facility, any of which could materially adversely affect our business, financial condition and results of operations.
 
 
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Risks Related to Our Real Estate Development Business
 
We are involved in a cyclical industry and are affected by changes in general and local economic conditions.
 
 The real estate development industry is cyclical and is significantly affected by changes in general and local economic conditions, including:
 
 
·
employment levels;
 
 
·
availability of financing;
 
 
·
interest rates;
 
 
·
consumer confidence;
 
 
·
demand for the developed product, whether residential or industrial; and
 
 
·
supply of similar product, whether residential or industrial.
 
The process of project development and the commitment of financial and other resources occurs long before a real estate project comes to market.  A real estate project could come to market at a time when the real estate market is depressed. It is also possible in a rural area like ours that no market for the project will develop as projected.
 
A prolonged recession in the national economy, or a further downturn in national or regional economic conditions, could continue to adversely impact our real estate development business.
 
The collapse of the housing market together with the crisis in the credit markets, have resulted in a recession in the national economy. At such times, potential home buyer and commercial real estate customers often defer or avoid real estate transactions due the substantial costs involved and uncertainties in the economic environment. Our future real estate sales, revenues, financial condition and results of operations could suffer as a result. Our business is especially sensitive to economic conditions in California and Arizona, where our properties are located.
 
There is no consensus as to when the current recession will end, and California and Arizona, as two of the hardest hit states, could take longer to recover than the rest of the nation. A prolonged recession will continue to have a material adverse effect on our business and results of operations.
 
Higher interest rates and lack of available financing can have significant impacts on the real estate industry.
 
Higher interest rates generally impact the real estate industry by making it harder for buyers to qualify for financing, which can lead to a decrease in the demand for residential, commercial or industrial sites. Any decrease in demand will negatively impact our proposed developments. Lack of available credit to finance real estate purchases can also negatively impact demand. Any downturn in the economy or consumer confidence can also be expected to result in reduced housing demand and slower industrial development, which would negatively impact the demand for land we are developing.
 
We are subject to various land use regulations and require governmental approvals for our developments that could be denied.
 
In planning and developing our land, we are subject to various local, state, and federal statutes, ordinances, rules and regulations concerning zoning, infrastructure design, subdivision of land, and construction. All of our new developments require amending existing general plan and zoning designations, so it is possible that our entitlement applications could be denied. In addition, the zoning that ultimately is approved could include density provisions that would limit the number of homes and other structures that could be built within the boundaries of a particular area, which could adversely impact the financial returns from a given project. In addition, many states, cities and counties (including Ventura County) have in the past approved various “slow growth” or “urban limit line” measures.
 
 
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Third-party litigation could increase the time and cost of our development efforts.
 
The land use approval processes we must follow to ultimately develop our projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third parties the opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate developments provides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation would, by their nature, adversely affect the length of time and the cost required to obtain the necessary approvals. In addition, adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and could adversely affect the design, scope, plans and profitability of a project.
 
We are subject to environmental regulations and opposition from environmental groups that could cause delays and increase the costs of our development efforts or preclude such development entirely.
 
Environmental laws that apply to a given site can vary greatly according to the site’s location and condition, present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species. Environmental laws and conditions may result in delays, cause us to incur additional costs for compliance, where a significant amount of our developable land is located, mitigation and processing land use applications, or preclude development in specific areas. In addition, in California, third parties have the ability to file litigation challenging the approval of a project, which they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project. While we have worked with representatives of various environmental interests and wildlife agencies to minimize and mitigate the impacts of our planned projects, certain groups opposed to development may oppose our projects vigorously, so litigation challenging their approval could occur.  Recent concerns over the impact of development on water availability and global warming increases the breadth of potential obstacles that our developments face.
 
Our developable land is concentrated entirely in California.
 
All of our developable land is in California and our business is especially sensitive to the economic conditions within California. Any adverse change in the economic climate of California, which is currently in a recession, or our region of that state, and any adverse change in the political or regulatory climate of California, or the counties where our land is located could adversely affect our real estate development activities. There is no consensus as to when the recession will end or how long it could take to recover from the recession. Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations.
 
If the downturn in the real estate industry or the instability of the mortgage industry and commercial real estate financing continues, it could have an adverse effect on our real estate business.
 
Our residential housing projects are currently in various stages of planning and entitlement, and therefore they have not been impacted by the current downturn in the housing market or the mortgage lending crisis. However, if the downturn in the housing market or the instability of the mortgage industry continues at the time these projects move into their development and marketing phases, our residential business could be adversely affected. Excess supply of homes available due to foreclosures or the expectation of deflation in house prices could also have a negative impact on our ability to sell our inventory when it becomes available.
 
We may encounter other risks that could impact our ability to develop our land.
 
We may also encounter other difficulties in developing our land, including:
 
 
·
Natural risks, such as geological and soil problems, earthquakes, fire, heavy rains and flooding, and heavy winds;
 
 
·
Shortages of qualified trades people;
 
 
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·
Reliance on local contractors, who may be inadequately capitalized;
 
 
·
Shortages of materials; and
 
 
·
Increases in the cost of certain materials.
 
Risks Relating to Our Common Stock
 
There has been a limited public market for our shares and a more active market may not develop or be maintained, which could limit your ability to sell shares of our common stock.
 
Before this registration, there has been a limited public market for our shares of common stock. Although we intend to apply to list the common stock on the Nasdaq Stock Market, which we refer to as Nasdaq, a more active public market for our shares may not develop or be sustained after this registration. In particular, we cannot assure you that you will be able to resell our shares at or above the current market price.
 
The value of our common stock could be volatile.
 
The overall market and the price of our common stock may fluctuate greatly. The trading price of our common stock may be significantly affected by various factors, including:
 
 
·
quarterly fluctuations in our operating results;
 
 
·
changes in investors and analysts perception of the business risks and conditions of our business;
 
 
·
our ability to meet the earnings estimates and other performance expectations of financial analysts or investors;
 
 
·
unfavorable commentary or downgrades of our stock by equity research analysts;
 
 
·
fluctuations in the stock prices of our peer companies or in stock markets in general; and
 
 
·
general economic or political conditions.
 
Concentrated ownership of our common stock creates a risk of sudden change in our share price.
 
As of December 31, 2009, directors and members of our executive management team beneficially owned or controlled approximately 16% of our common stock. Investors who purchase our common stock may be subject to certain risks due to the concentrated ownership of our common stock. The sale by any of our large shareholders of a significant portion of that shareholder’s holdings could have a material adverse effect on the market price of our common stock. In addition, the registration of any significant amount of additional shares of our common stock will have the immediate effect of increasing the public float of our common stock and any such increase may cause the market price of our common stock to decline or fluctuate significantly.
 
Our charter documents contain provisions that may delay, defer or prevent a change of control.
 
Provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders. These provisions include the following:
 
 
·
division of our board of directors into three classes, with each class serving a staggered three-year term;
 
 
·
removal of directors by stockholders by a supermajority of two-thirds of the outstanding shares;
 
 
·
ability of the board of directors to authorize the issuance of preferred stock in series without stockholder approval; and
 
 
·
prohibitions on our stockholders that prevent them from acting by written consent and limitations on calling special meetings.
 
 
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We could incur increased costs as a result of being a publicly traded company.
 
As a company with publicly traded securities, we could incur significant legal, accounting and other expenses not presently incurred. In addition, the Sarbanes-Oxley Act of 2002, which we refer to as SOX, as well as rules promulgated by the U.S. Securities and Exchange Commission, which we refer to as the SEC, and Nasdaq, require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations may increase our legal and financial compliance costs.
 
If we do not timely satisfy the requirements of Section 404 of SOX, the trading price of our common stock could be adversely affected.
 
As a voluntary filer with the SEC, we are currently subject to Section 404 of SOX, as a non-accelerated filer. SOX requires us to document and test the effectiveness of our internal control over financial reporting in accordance with an established internal control framework and to report on our conclusion as to the effectiveness of our internal control over financial reporting. Our annual report for the fiscal year ending October 31, 2011 will include management's first report of internal control over financial reporting.  Any delays or difficulty in satisfying the requirements of SOX could, among other things, cause investors to lose confidence in, or otherwise be unable to rely on, the accuracy of our reported financial information, which could adversely affect the trading price of our common stock.
 
ITEM 2.
FINANCIAL INFORMATION
 
Selected Financial Data
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Net operating revenues
  $ 34,838,000     $ 53,512,000     $ 48,267,000     $ 51,619,000     $ 39,394,000  
Loss (income) from continuing operations
  $ (2,865,000 )   $ 3,747,000     $ 2,391,000     $ 3,791,000     $ 2,343,000  
Basic net (loss) income from continuing operations per share of common stock
  $ (2.78 )   $ 3.13     $ 1.92     $ 3.57     $ 2.00  
Total assets
  $ 141,868,000     $ 140,990,000     $ 127,341,000     $ 86,961,000     $ 90,935,000  
Long term debt
  $ 69,716,000     $ 65,582,000     $ 38,475,000     $ 14,515,000     $ 14,929,000  
Redeemable preferred stock
  $ 3,000,000     $ 3,000,000     $ 3,000,000     $ 3,000,000     $ 3,000,000  
Cash dividends declared per share of common stock
  $ 0.625     $ 3.25     $ 2.25     $ 2.25     $ 2.25  

Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis of the company’s financial condition and results of operations should be read in conjunction with the company’s consolidated financial statements and the notes to those statements included elsewhere in this registration statement on Form 10.  The following discussion and analysis contains forward-looking statements.  Forward-looking statements in this registration statement on Form 10 are subject to a number of risks and uncertainties, some of which are beyond the company’s control.  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 sections entitled “Forward-Looking Statements” and “Risk Factors” included elsewhere in this registration statement on Form 10.
 
Summary
 
We have three business segments: agribusiness, rental operations, and real estate development.  Our agribusiness segment generates revenue from our farming and lemon packing operations, our rental operations segment generates revenues from our housing, organic recycling, and commercial and leased land operations, and our real estate development segment has not yet generated any significant revenues to-date.

 
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From a general view, we see the company as a land and farming company that generates annual cash flows to support its progress into diversified real estate development activities.  As real estate developments are monetized our agribusiness will then be able to expand more rapidly into new regions and markets.
 
We believe we are the largest producer of lemons and avocados in the United States and, as a result, our agribusiness segment is the largest of our three segments, representing approximately 89%, 93% and 93% of our fiscal 2009, fiscal 2008 and fiscal 2007 consolidated revenues, respectively.  Our lemons are primarily marketed by Sunkist, with a vast majority of our domestic lemon and specialty citrus orders processed through the Sunkist network.  Approximately 85% of our domestic lemon orders are repeat weekly/monthly customers and approximately 95% of those orders are FOB shipping dock.  Approximately 70% of our lemons are shipped to food service and wholesale customers with the remaining 30% shipped to retail customers.  Our export orders are placed through the Sunkist system with long-standing United States exporters.  All orders placed through the Sunkist network are priced, invoiced and collected by Sunkist with payment to the company guaranteed by Sunkist beginning 24 hours after acceptance of our fruit by the customer.  All commercial lemon by-products, such as juice, oils and essences, are processed by Sunkist with payment to us within approximately 12 to 18 months after the customer’s receipt of the product.
 
The industry average on-tree price for fresh lemons has ranged from a low of $14.90 per 40-pound box in 2004 to a high of $29.00 per 40-pound box in 2008.  Fluctuations in price are a function of global supply and demand with weather conditions, such as unusually low temperatures, typically having the most dramatic effect on the amount of lemons supplied in any individual growing season.
 
We believe we have a competitive advantage by maintaining our own lemon packing operation, and though a significant portion of the costs related to our lemon packing operations are fixed.  As a result, cost per carton is a function of fruit throughput.  While we regularly monitor our costs for redundancies and opportunities for cost reductions, we also supplement the number of lemons we pack in our packinghouse with additional lemons from outside growers.  Because the fresh utilization rate for our lemons, or percentage of lemons we harvest and pack that go to the fresh market, is directly related to the quality of lemons we pack and, consequently, the price we receive per 40-pound box, we only pack lemons from outside growers if we determine their lemons are of good quality.
 
Our avocado producing business is important to us yet nevertheless faces some constraints on growth as there is little additional land that can be cost-effectively acquired to support new avocado orchards in Southern California.  Also, avocado production is cyclical as avocados typically bear fruit on a bi-annual basis with large crops in one year followed by smaller crops the next year.  While our avocado production remains volatile, the profitability and cash flow realized from our avocados frequently offsets occasional losses in other crops we grow and helps to diversify our fruit production base.
 
In addition to growing lemons and avocados, we also grow oranges and specialty citrus and other crops, typically utilizing land not suitable for growing high quality lemons.  We regularly monitor the demand for the fruit we grow in the ever-changing marketplace to identify trends.  For instance, while per capita consumption of oranges in the United States has been decreasing since 2000 primarily as a result of consumers increasing their consumption of mandarin oranges and other specialty citrus, the international market demand for U.S. oranges has increased.  As a result, we have focused our orange production on high quality late season Navel and Valencia oranges primarily for export to Japan, China and Korea, which are typically highly profitable niche markets.  We produce our specialty citrus and other crops in response to consumer trends we identify and believe that we are a leader in the niche production and sale of certain of these high margin fruits.  Because we carefully monitor the respective markets of specialty citrus and other crops, we believe that demand for the types and varieties of specialty citrus and other crops that we grow will continue to increase throughout the world.
 
Our rental operations segment represented approximately 11%, 7% and 7% of our fiscal 2009, fiscal 2008 and fiscal 2007 consolidated revenues, respectively.  Our rental housing units generate reliable cash flows which we use to partially fund the operations of all three of our business segments, and provide affordable housing to many of our employees, including our agribusiness employees, a unique employment benefit that helps us maintain a dependable, long-term employee base.  In addition, our leased land business provides us with a typically profitable diversification.

 
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Our real estate development segment has not yet generated any significant revenues to-date.  We recognize that long-term strategies are required for successful real estate development activities.  We plan to redeploy any financial gains into other income producing real estate as well as additional agricultural properties.
 
Recent Developments
 
Dividend Payment
 
On January 4, 2010, the company paid a $0.3125 per share dividend in the aggregate approximate amount of $0.4 million to stockholders of record on December 15, 2009.
 
Windfall Investors, LLC
 
In September of 2005, the Company, along with Windfall, LLC, formed Windfall Investors, LLC, which we refer to as Windfall Investors, to acquire Windfall Farms, an approximately 720 acre former equestrian breeding and training farm located near Paso Robles, California.  Initially, the company owned 15% of the equity interests in Windfall Investors and Windfall, LLC, the managing partner, held 85% of the equity interests in Windfall Investors.  Windfall Investors purchased Windfall Farms for $12.0 million, which was financed using a $9.8 million secured long-term loan from Farm Credit West, which we refer to as the Windfall term loan, and $2.3 million from an $8.0 million unsecured revolving line of credit also with Farm Credit West, which we refer to as the Windfall revolving line of credit. In 2008, the Windfall revolving line of credit was increased to $10.5 million.  The company and the equity holders of Windfall initially guaranteed, jointly and severally, the indebtedness outstanding under the Windfall term loan and Windfall revolving line of credit.
 
Subsequent to October 31, 2009 the managing partner of Windfall Investors resigned its position and assigned all of its rights and interest in Windfall Investors to the company and the company released Windfall, LLC and its equity holders from certain liabilities associated with Windfall Investors.  Pursuant to its terms, the guarantee will remain in effect for the entire term of the Windfall term loan and Windfall revolving line of credit.  Should Windfall Investors be in default at any time during that term, Farm Credit West could declare the outstanding balance due and payable.  The maximum amount of potential future payment for us due to a default by Windfall Investors under the term of the guarantee is $20.3 million.  Conditions of default include, among other things, failure to make scheduled payments, declaration of bankruptcy, material adverse change in financial condition and breach of any term or representation in the loan agreements.
 
Beginning in fiscal 2010 the results of operations and all of the assets and liabilities of Windfall Investors will be included in the consolidated financial statements of the Company. In addition, the audited financial statements of Windfall Investors for the year ended December 31, 2008 are included in this Form 10 beginning on page F-56.  The outstanding debt on the Windfall Investors balance sheet at October 31, 2009 consisted of approximately $9.2 million under the Windfall term loan, and approximately $10.0 million under the Windfall revolving line of credit. The Windfall term loan has monthly principal and interest payments of $63,000 through October 2011. We expect that in November 2011, the interest rate for the Windfall term loan will be renegotiated and quarterly principal and interest payments will continue through October 2035. The Windfall revolving line of credit has monthly interest only payments and matured in November, 2009 and the maturity date of the Windfall revolving line of credit was subsequently extended by Farm Credit West until March 1, 2010.  The company is in the process of refinancing the Windfall revolving line of credit on a long-term basis through amendment to the Windfall revolving line of credit agreement or alternatively through its existing facility with Rabobank.
 
Results of Operations
 
Selected Results for Fiscal Years 2009, 2008 and 2007
 
Selected results of operations for the fiscal years ended October 31, 2009, 2008 and 2007 were as follows:

 
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Year Ended October 31
 
   
2009
   
2008
   
2007
 
Revenues:
                 
Agriculture
  $ 31,033,000     $ 49,794,000     $ 44,751,000  
Rental
    3,766,000       3,718,000       3,516,000  
Other
    39,000              
Total revenues
    34,838,000       53,512,000       48,267,000  
Costs and expenses:
                       
Agriculture
    27,281,000       34,805,000       32,036,000  
Rental
    2,061,000       2,236,000       2,073,000  
Other
    318,000       991,000       1,160,000  
Selling, general and administrative
    6,469,000       8,292,000       9,627,000  
Asset impairments
    6,203,000       1,341,000        
Loss on sale of assets
    10,000       11,000       56,000  
Total cost and expenses
    42,342,000       47,676,000       44,952,000  
Operating (loss) income
    (7,504,000 )     5,836,000       3,315,000  
Other income (expense):
                       
Gain on sale of stock in Calavo Growers, Inc.
    2,729,000              
Other income (loss), net
    256,000       403,000       (34,000 )
Interest income
    225,000       902,000       2,300,000  
Interest expense
    (692,000 )     (1,419,000 )     (2,102,000 )
Total other income (expense)
    2,518,000       (114,000 )     164,000  
                         
(Loss) income from continuing operations before income taxes and equity (losses) earnings
    (4,986,000 )     5,722,000       3,479,000  
Income tax benefit (provision)
    2,291,000       (2,128,000 )     (1,177,000 )
Equity in (losses) earnings of investments
    (170,000 )     153,000       89,000  
(Loss) income from continuing operations
    (2,865,000 )     3,747,000       2,391,000  
Loss from discontinued operations, net of income taxes
    (12,000 )     (252,000 )     (245,000 )
Net (loss) income
    (2,877,000 )     3,495,000       2,146,000  
Preferred dividends
    (262,000 )     (262,000 )     (262,000 )
Net (loss) income applicable to common stock
  $ (3,139,000 )   $ 3,233,000     $ 1,884,000  
                         
Per common share basic:
                       
Continuing operations
  $ (2.78 )   $ 3.13     $ 1.92  
Discontinued operations
    (0.01 )     (0.23 )     (0.22 )
Basic net (loss) income per share
  $ (2.79 )   $ 2.90     $ 1.70  
                         
Per common share-diluted:
                       
Continuing operations
  $ (2.78 )   $ 3.12     $ 1.92  
Discontinued operations
    (0.01 )     (0.23 )     (0.22 )
Diluted net (loss) income per share
  $ (2.79 )   $ 2.89     $ 1.70  
Dividends per common share
  $ 0.63     $ 3.25     $ 2.25  
Weighted-average shares outstanding-basic
    1,124,000       1,113,000       1,107,000  
Weighted-average shares outstanding-diluted
    1,125,000       1,116,000       1,107,000  
 
 
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Fiscal Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31, 2008
 
Revenues
 
For fiscal 2009 the company had revenues of $34.8 million compared to revenues of $53.5 million in fiscal 2008, a decline of approximately 35%.  The decline in revenues primarily resulted from a decrease in fresh lemon cartons sold in 2009 compared to 2008 and reduced pricing for the lemons sold.  In 2009 we sold approximately 1.3 million fresh cartons at an average price of $15.72 per carton compared to approximately 1.4 million fresh cartons sold in 2008 at an average price of $27.15 per carton.   The decline in the number of cartons sold was primarily attributable to a decline in the food service market for lemons, which we believe was related to decreases in restaurant business because of pressures on consumers’ disposable income due to the recession in the United States.  Current short and long term projections for lemon sales point to increased demand in the food service category which is the dominant category for lemon sales.  The decline in pricing for fresh lemons was primarily attributable to a significant oversupply of product resulting from simultaneous production recoveries in California, Argentina, Chile and Spain from the damaging freezes in 2007. In 2009, we harvested 2.4 million pounds of avocados compared to 3.7 million pounds in 2008, with the decrease attributable to an unseasonable heat event experienced during bloom and set.  Total avocado revenue however was slightly higher in 2009 compared to 2008 primarily because of the estimated crop insurance claim settlement we recorded in 2009 related to the unseasonable heat event experienced during bloom and set in 2008 which adversely impacted our 2009 avocado production. Revenue in our rental and real estate businesses was $3.8 million and $3.7 million in 2009 and 2008, respectively.
 
Costs and Expenses
 
For fiscal 2009 the company had agricultural costs and expenses of $27.3 million compared to expenses of $34.8 million in fiscal 2008.  The $7.5 million decrease was attributable to lower fresh utilization and per carton sales prices for lemons in 2009 compared to 2008 resulting in $3.4 million lower payments to our affiliated growers in 2009 compared to 2008. Electricity costs related to our lemon packing operations were substantially lower in 2009 compared to 2008 as a direct result of the completion in late 2008 of our one-megawatt solar generator used to provide power for our lemon packing operations. Lower oil prices and pesticide costs in 2009 compared to 2008 also contributed to the decrease.  Additionally, we recorded a $1.2 million non-cash write-off in connection with the removal of 133 acres of specialty crops in 2008. Other expenses, which are comprised of the costs related to our rental and real estate development businesses, were $2.4 million in 2009 compared to $3.2 million in 2008. This $0.8 million decrease was attributable to lower expenses in 2009 related to our East Area I project in Santa Paula, California. The majority of the cost for planning and entitlement related to this project were incurred in 2008 and prior years. Expenses related to our rental business decreased by $0.1 million from $2.2 million in 2008 to $2.1 million in 2009 primarily due to higher repair and maintenance costs incurred in 2008 related to our residential housing units. Depreciation expense in our agricultural, rental and real estate development businesses was $1.6 million, $0.4 million and $0.04 million, respectively in 2009 compared to $1.7 million, $0.4 million and $0.0 million, respectively in 2008.
 
Selling, General and Administrative expenses in 2009 were $6.5 million compared to $8.3 million in 2008. This $1.8 million net decrease was primarily the result of lower incentive costs in 2009 related to the Company’s management incentive bonus program, which we refer to as the MIP. In 2008 participants in the MIP were awarded incentive payments of $1.5 million compared to no awards earned in 2009.  Additionally, the company spent $0.5 million less in 2009 compared to 2008 for consulting, travel, promotions and other costs.  Partially offsetting these decreases were $0.2 million of higher legal, audit and compliance costs in 2009 compared to 2008.
 
In 2009 we recorded impairment charges related to certain of our real estate assets totaling $6.2 million compared to $1.3 million in 2008. As a result of the continuing downturn in the overall real estate market during the past year we reduced the basis in our Santa Maria development projects by $4.6 million to their appraised value of $18.8 million. Additionally, in 2009 we reduced the basis in our Paradise Valley luxury home developments by $1.6 million to their appraised value of $6.2 million. In 2008 we recorded an impairment charge of $1.3 million related to our Santa Maria development projects.
 
Other Income, Expense
 
The Company’s other income, expense consists of interest income, interest expense, gain on the sale of securities and other miscellaneous income/expense. Our interest income in 2009 was $0.2 million compared to $0.9 million in 2008. This decrease was the result of $0.7 million of interest income recognized during the first five months of 2008 on loans receivable from Templeton Santa Barbara, LLC, which we refer to as Templeton, prior to the consolidation of Templeton. Our interest expense was $0.7 million in 2009 compared to $1.4 million in 2008. This $0.7 million decrease was primarily the result of a lower cost of borrowing in 2009 as compared to 2008 as well as additional capitalization of interest related to real estate projects. During 2009 the weighted average interest rate on our debt was 3.96% compared to a weighted average interest rate of 5.22% in 2008.  In 2009, other income, expense includes a $2.7 million profit on the sale of 335,000 shares of Calavo common stock that we sold in October, 2009.  These shares were a part of the 1,000,000 shares of Calavo common stock that we purchased in 2005.

 
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Income Taxes
 
The company recorded an income tax benefit of $2.3 million in 2009 on pre-tax losses from continuing operations of $5.0 million compared to an income tax provision of $2.1 million on pre-tax income from continuing operations of $5.7 million in 2008. Our effective tax rate for 2009 was 44.3% compared to 36.1% for 2008. The change in the effective tax rate from 2008 to 2009 was attributable to a change in the domestic production deduction related to our sales through the Sunkist cooperative and a change in certain unrecognized income tax benefits. Deferred income taxes result principally from differences between the financial and tax reporting expense items such as depreciation, state income taxes, vacation accruals and mark-to-market adjustments.  Long term deferred tax liabilities net of long term deferred tax assets at October 31, 2009 were $8.8 million compared to $11.5 million at October 31, 2008. This decrease was primarily attributable to the deferred tax assets recorded in connection with the impairment charges related to our real estate projects mark-to-market adjustments related to available-for-sale securities and the minimum pension liability adjustment recorded in 2009.
 
Fiscal Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31, 2007
 
Revenues
 
For fiscal 2008 the company had revenues of $53.5 million compared to revenues of $48.3 million in fiscal 2007, an increase of approximately 11%.  The increase in revenues resulted from the company experiencing minimal impact from global climate conditions in 2007 that dramatically reduced lemon production in California, Argentina, Chile and Europe.  This circumstance enabled the company to achieve over 70% fresh utilization at record sales prices for lemons in fiscal 2008. These same conditions, however, had the opposite effect on our avocado crops in both fiscal 2008 and fiscal 2007 with production falling to under 4 million pounds in fiscal 2008 and fiscal 2007 from a record 17.7 million pounds in fiscal 2006.  Production of both Navel and Valencia orange varieties also declined in fiscal 2008 compared to fiscal 2007 resulting in a decrease in revenue for these varieties of $0.9 million. Specialty crop revenue increased nearly $0.7 million in fiscal 2008 compared to fiscal 2007. This increase was attributable to more production of Cara Cara Navel oranges, pluots, minneolas and Meyer lemons, and resulted from a larger number of planted acres becoming full bearing in 2008. Revenue for our rental and real estate development businesses was $3.7 million and $3.5 million in 2008 and 2007, respectively.
 
Costs and Expenses
 
For fiscal 2008 the company’s agricultural costs were $34.8 million compared to $32.0 million in 2007. This $2.8 million increase was attributable to a $1.2 million non-cash write-off in 2008 in connection with tree removals. Additionally, higher oil prices in fiscal 2008 directly impacted our cost of certain of the pesticides and herbicides used in our farming operations. Other expense consists of the costs and expenses related to our rental and real estate development businesses and were $3.2 million in 2008 and 2007.
 
Our selling, general and administrative costs in 2008 were $8.3 million compared to $9.6 million in 2007. This $1.3 million decrease was attributable to lower costs related to our stock compensation program in 2008. In 2008. The Company recorded compensation expense of $0.6 million related to its stock grant performance bonus program compared to $3.2 million of compensation expense related to this program in 2007. Partially offsetting this decrease in expense were increases in our legal and professional fees, primarily related to audit and tax work and consulting fees primarily related to company structure analysis work.
 
In 2008 we recorded a $1.3 million impairment charge to write down the carrying value of our Santa Maria development project to its then appraised value. This appraised value reflected the downturn in the economy in general and the housing market in particular.

 
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Other income and expenses include interest income, interest expense and other miscellaneous income and expenses. Interest income for 2008 was $0.9 million compared to $2.3 million in 2007. The 2007 interest income included $1.9 million of interest income on loans to Templeton which represents a full year as compared to five months of interest income in 2008 prior to the consolidation of Templeton. Interest expense for 2008 was $1.4 million compared to $2.1 million in 2007. This reduction was primarily attributable to lower overall borrowing costs in 2008 compared to 2007. During 2008 our weighted average interest rate on our debt was 5.22% compared to a weighted average interest rate of 6.54% in 2007. Additionally, because of the changing nature of one of our real estate development projects, a greater portion of the interest cost associated with the debt incurred for that project was capitalized in 2008 as compared to 2007.
 
Income Taxes
 
The company recorded an income tax provision of $2.1 million in 2008 on pre-tax income from continuing operations of $5.7 million compared to a $1.2 million provision on pre-tax earnings from continuing operations of $3.5 million in 2007.  Our effective tax rate for 2008 was 36.1% compared to 32.9% for 2007.  The change in the effective tax rate from 2007 to 2008 was attributable to a change in the domestic production deduction related to our sales through Sunkist, dividend income exclusions and changes in certain unrecognized income tax benefits.  Deferred income taxes result principally from differences between the financial and tax reporting expense items such as depreciation, state income taxes, vacation accruals and mark-to-market adjustments.  Long term deferred tax liabilities net of long term deferred tax assets at October 31. 2008 were $11.5 million compared to $16.7 million at October 31, 2007.  This decrease was primarily attributable to mark-to-market adjustments related to available-for-sale securities.
 
Segment Results of Operations
 
We evaluate the performance of our agribusiness, rental operations, and real estate development segments separately to monitor the different factors affecting financial results and each segment is subject to review and evaluation as we monitor current market conditions, market opportunities, and available resources.
 
Selected segment results of operations for the fiscal years ended October 31, 2009, 2008 and 2007 were as follows:
 
   
2009
   
2008
   
2007
 
Revenues
                 
Agribusiness
  $ 31,033,000     $ 49,794,000     $ 44,751,000  
Rental operations
    3,766,000       3,718,000       3,516,000  
Real estate development
    39,000              
Total revenues
    34,838,000       53,512,000       48,267,000  
Costs and expenses
                       
Agribusiness
    27,281,000       34,805,000       32,036,000  
Rental operations
    2,061,000       2,236,000       2,073,000  
Real estate development
    318,000       991,000       1,160,000  
Corporate and other
    6,469,000       8,292,000       9,627.000  
Impairment charges
                       
Real estate development
    6,203,000       1,341,000        
Loss on sale of assets
                       
Corporate and other
    10,000       11,000       56,000  
Total costs and expenses
    42,342,000       47,676,000       44,952,000  
Operating income (loss)
                       
Agribusiness
    3,752,000       14,989,000       12,715,000  
Rental operations
    1,705,000       1,482,000       1,443,000  
Real estate development
    (6,482,000 )     (2,332,000 )     (1,160,000 )
Corporate and other
    (6,479,000 )     (8,303,000 )     (9,683,000 )
Total operating income (loss)
  $ (7,504,000 )   $ 5,836,000     $ 3,315,000  
 
 
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Fiscal Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31, 2008
 
Agribusiness
 
For fiscal 2009 agribusiness revenues were $31.0 million compared to agribusiness revenues of $49.8 million in fiscal 2008, a decline of approximately 38%.  The decline in agribusiness revenues resulted primarily from lower lemon revenue.  In 2009 we had $22.3 million of lemon revenue compared to $40.3 million in 2008.  In 2009 we sold 1.3 million fresh cartons of lemons at an average selling price of $15.72 per carton compared to 1.4 million fresh cartons at an average price of $27.15 per carton in 2008.  Somewhat offsetting this reduction in fresh lemon sales were substantially higher prices for lemon juice products.  In 2009 our total lemon revenue includes sales of juice products at approximately $70 per ton compared to approximately $40 per ton in 2008.
 
For fiscal 2009 agribusiness operating expenses were $27.3 million compared to $34.8 million in fiscal 2008.  The decrease was primarily due to lower fresh utilization and per carton sales prices in 2009 resulting in lower payments to our affiliated growers. Additionally, lower oil prices in 2009 resulting lower pesticide costs; lower electricity costs in 2009 for our lemon packinghouse attributable to the completion in late 2008 of our one-megawatt solar generator and a $1.2 million write-off in 2008 related to tree removals contributed the balance of the decrease. Depreciation expense related to our agribusiness segment was $1.6 million in 2009 compared to $1.7 million in 2008.
 
Rental Operations
 
For fiscal 2009 rental operations revenues were $3.8 million compared to rental operations revenues of $3.7 million in fiscal 2008. Revenues for our housing and commercial units were $2.1 for 2009 and 2008, which  accounted for approximately 57% and 58% of this segments revenue, respectively, with our land leases accounting for the majority of the balance in each year. Costs for our rental segment in 2009 were $2.1 million compared to $2.2 million in 2008 and were primarily incurred in connection with repairs and maintenance of the 193 housing units. Depreciation expense in our rental segment was $0.4 million in 2009 and 2008.
 
Real Estate Development
 
For fiscal 2009 real estate revenues were $0.04 million of lease income related to certain of our other real estate investments. Our real estate development revenue in 2008 was $0.0 million.
 
Real estate development costs and expenses in 2009 were $0.3 million compared to $1.0 million in 2008. This reduction was primarily attributable to lower costs associated with our East Area 1 development project. The majority of the costs for planning and entitlement for this project were incurred in 2008 and prior years. Depreciation expense in our real estate development segment was $0.04 million in 2009 and $0 in 2008. Additionally, in 2009 we recorded a $6.2 million non-cash impairment charge to write down the carrying costs of our Santa Maria and Paradise Valley real estate projects to their appraised values reflecting the continuing economic downturn in 2009. In 2008 we recorded a $1.3 million non-cash impairment charge to write down the carrying cost of our Santa Maria real estate project to its then appraised values.
 
Corporate
 
Corporate operating expense includes selling, general and administrative and other costs not allocated to the operating segments.  Corporate operating expenses in fiscal 2009 were $6.5 million compared to $8.3 million in 2008. This $1.8 million decrease was primarily attributable to lower employee incentive costs in 2009 and to a lesser extent, lower overall legal and professional costs in 2009 compared to 2008 primarily related to work done in 2008 related to Company organizational matters.

 
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Fiscal Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31, 2007
 
Agribusiness
 
For fiscal 2008 agribusiness revenues were $49.8 million compared to agribusiness revenues of $44.8 million in fiscal 2007, an increase of approximately 11%.  The increase in agribusiness revenues resulted from a perfect storm of events that produced favorable results for the company’s agribusiness segment, particularly the company’s lemon operations.  In 2007, devastating freezes destroyed lemon crops in California, Argentina, Chile and Europe, dramatically reducing global supplies.  Our lemon operations were largely unaffected by the freeze which enabled us to generate operating profits in 2008 of approximately $14 million through sales of approximately 1.4 million cartons of fresh lemons at an average price of $27.15 per carton.  In comparison, in 2007, the company’s previous best lemon year, the company generated operating profits of approximately $10 million through the sale of 1.5 million cartons of fresh lemons at an average price of $23.45 per carton.
 
In contrast, the perfect storm that benefited our lemon operations had a devastating affect on our avocado operations with the freeze destroying much of our avocado crop in 2007 and 2008.  In 2008, we generated operating profits of $0.2 million on 3.7 million pounds of avocados, while in 2007 we generated operating profits of $0.1 million on approximately 4 million pounds of avocados.
 
In 2008, despite industry-wide surplus and resulting low prices, we enjoyed relatively favorable Valencia and Navel orange results.  Our well-honed strategy of anticipating, and then targeting, undersupplied markets allowed us to maximize the price for our Navel varieties.  Even so, operating profit of $0.9 million in 2008 for our orange operations was down considerably from our operating profit of $2.1 million in 2007.
 
Our specialty citrus operations enjoyed another year of solid growth in 2008 with improvements in all varieties yielding operating profit of $1.4 million before a $1.2 million non-cash write-off recorded in connection with the removal of approximately 166 acres of underperforming cherries and pluots and representing a 58% increase in operating profit over 2007.
 
For fiscal 2008 agribusiness operating expenses were $34.8 million compared to agribusiness operating expenses of $32.0 million in fiscal 2007.  The change was primarily due to the company’s removal of 133 acres of cherries and pluots and replanting the acreage with lemons and oranges.  Our non-cash orchard write-off in 2008 was $1.2 million.
 
Rental Operations
 
For fiscal 2008 our rental operations revenues were relatively flat compared to fiscal 2007.  The 2008 revenues consisted of $2.1 million of housing and commercial revenue, $1.4 million of leased land revenue and $0.2 million of organic recycling revenue.  For 2007 the revenues from housing and commercial, leased land and organic recycling were $2.1 million, $1.3 million and $0.1 million, respectively.  Higher maintenance costs in 2008 compared to 2007 for our housing units resulted in an approximately $0.1 million decline in operating profit in our housing and commercial operations which was offset by an increase in leased land revenue in 2008 compared to 2007.  During 2007 we increased our leased land acreage to 586 acres.  Our organic recycling operations contributed a consistent, reliable revenue stream in both fiscal 2008 and fiscal 2007.
 
For fiscal 2008 housing and commercial operating expenses were $2.2 million compared to housing and commercial operating expenses of $2.1 million in fiscal 2007.  The change was primarily due to an increase in maintenance expenses for our rental properties. During 2007 we increased the number of acres we lease to third party agricultural tenants from 509 in 2006 to 586 in 2007. Because of enjoying a full year of revenue on this increased acreage in 2008, our leased land operating profit was $1.4 million in 2008 compared to $1.2 million in 2007.

 
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Real Estate Development
 
For fiscal 2008 and 2007 the real estate development segment had no revenue. Costs and expenses were $1.0 million in 2008 compared to $1.2 million in 2007. The costs in both years were  attributable to the planning and entitlement costs associated with our East Area 1 development project. Additionally, during 2008 and 2007, we incurred costs of $1.8 million and $2.1 million, respectively that were capitalized into the carrying value of this project. In 2008, as a result of the down turn in the overall housing market we recorded a $1.3 million non-cash impairment charge to write down the carrying value of our real estate project in Santa Maria, California to its appraised value.
 
Corporate
 
Corporate operating expense includes selling, general and administrative costs not allocated to the operating segments. Corporate operating expense in fiscal 2008 were $8.3 million compared to $9.6 million in fiscal 2007.  This $1.3 million decrease was primarily attributable to lower costs associated with our stock grant performance bonus program in 2008 partially offset by higher employee incentive costs and legal and consulting costs in 2008 compared to 2007. In 2008, we incurred costs of $0.6 million related to our stock grant performance bonus plan compared to costs of $3.2 million in 2007.
 
Liquidity and Capital Resources
 
Overview
 
Our liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events, and final demand for our products. Typically, our first and last fiscal quarters coincide with the fall and winter months during which we are growing crops that are harvested and sold in the spring and summer, our second and third quarters. To meet working capital demand, we utilize our revolving credit facility to fund agricultural inputs and farm management practices until sufficient returns from crops allow us to pay down amounts borrowed. Raw materials needed to propagate the various crops grown by us consist primarily of fertilizer, herbicides, insecticides, fuel and water and are readily available from local sources.
 
Accordingly, we have established well-defined priorities for our available cash, including investing in core business segments to achieve profitable future growth. To enhance shareholder value, we will continue to make investments in our real estate segments to secure land entitlement approvals, build infrastructure for our developments, ensure adequate future water supplies, and provide funds for general land development activities. Within our farming segment, we will make investments as needed to improve efficiency and add capacity to its operations when it is profitable to do so.
 
Cash Flows from Operating Activities
 
For fiscal 2009, the company’s operating activities used approximately $1.0 million compared to providing approximately $6.9 million in fiscal 2008.  The decrease in cash provided by operating activities in 2009 was primarily due to lower income from continuing operations in 2009 compared to 2008. Additionally, certain decreases in our net long term deferred tax liabilities in 2009 resulted in a reduction in cash provided by operating activities of $2.2 million compared to an increase in cash from operating activities of $0.4 million in 2008. The primary causes for the decrease in our net long term deferred tax liabilities were long term deferred tax assets generated from the non-cash impairment charges recorded in 2009 related to certain of our real estate development projects, mark-to-market adjustments related to available-for-sale securities and adjustments recorded related to our pension plan.  Significant non-cash charges reflected in fiscal 2009 operating cash flow include: (i) depreciation and amortization charges totaling $2.3 million, (ii) impairment of real estate development projects totaling $6.2 million, and (iii) stock compensation expense totaling $0.8 million.
 
Cash Flows from Investing Activities
 
Cash flows used in investing activities were approximately $1.5 million for fiscal 2009, compared to cash flows used in investing activities of $29.4 million for fiscal 2008.  The change was primarily due to capital expenditures of $7.2 million for 2009 compared to $29.2 million for 2008. Our 2008 capital expenditures include the approximately $22 million cost to purchase approximately 63 acres of land that will be a part of our East Area 1 development project. Our cash flows from investing activities in fiscal 2009 include proceeds of $6.1 million from our sale of  335,000 shares of the 1,000,000 shares of Calavo common stock that we purchased in 2005.

 
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We expect capital expenditures in 2010 to be approximately $3.7 million.  As noted above, we are evaluating the construction within the next five years of a new packinghouse that has the potential to reduce our packing costs by reducing labor and handling inputs.
 
Cash Flows from Financing Activities
 
Cash flows provided by financing activities were approximately $3.0 million for fiscal 2009, compared to cash flows provided by financing activities of approximately $22.1 million for fiscal 2008. Net cash provided from the issuance and payments of debt was $4.1 million and $27.1 million in 2009 and 2008, respectively. The 2008 net cash provided from the issuance and payments of debt includes the $22 million of debt used to purchase the approximately 63 acres that will be a part of our East Area 1 development project. In addition, we used cash of $1.0 million and $3.9 million in fiscal 2009 and fiscal 2008, respectively, for dividends to holders of our common and preferred stock.
 
Transactions Affecting Liquidity and Capital Resources
 
We have a revolving credit facility with Rabobank, NA, which we refer to as Rabobank, that permits us to borrow up to $80.0 million and two term loans with Farm Credit West, FLCA, as successor by merger to Central Coast Federal Land Bank, which we refer to as Farm Credit, for an aggregate amount of approximately $10.0 million.
 
As of October 31, 2009, we had $69.7 million of long-term debt under credit facilities of which $0.5 million is payable in fiscal 2010.  In addition, beginning in fiscal 2010 we will consolidate Windfall Investors which will result in an additional $19.2 million of debt being recorded by the company, of which $10.1 is payable in fiscal 2010.  We anticipate being able to extend on a long-term basis with Farm Credit West, $10.0 million of Windfall Investors revolving line of credit debt that currently matures on March 1, 2010.  In addition, as of October 31, 2009 our borrowing capacity under our existing credit facility with Rabobank was approximately $17.9 million.
 
We believe that the cash flows from operations and available borrow capacity from our existing credit facilities will be sufficient to satisfy our future capital expenditures, debt service, working capital needs and of other contractual obligations for fiscal 2010.  In addition we have the ability to control the timing of our investing cash flows to the extent necessary based on our liquidity demands.
 
Rabobank Revolving Credit Facility
 
As of December 31, 2009, we had $61.7 million outstanding under our Rabobank revolving credit facility, $22.5 million of which bears interest at a variable rate equal to the one month London Interbank Offer Rate, or LIBOR, plus a spread of 1.5%. At December 31, 2009 the interest rate on $22.5 million outstanding balance was 1.73%.  The variable interest rate resets on the first of each month.
 
Under the Rabobank revolving credit facility, the company has the option of fixing the interest rate on any portion of outstanding borrowings using interest rate swaps.  The fixed interest rate is calculated using the two, three or five year LIBOR rates plus a spread of 1.5%.  The Company has utilized interest rate swaps to fix interest rates on three separate outstanding balances under the Rabobank revolving credit facility, one for $22.0 million at 5.75% for a five year term, one for $10.0  million at 4.7% for a two year term and one for $10.0 million at 3.86% for a two year term.   The five year interest rate swap matures in June 2013 and the two year interest rate swaps mature in November and December 2010. Interest is payable monthly and all outstanding principal is due in full in June 2013.
 
The Rabobank revolving credit facility is secured by certain of our agricultural properties and all of our equity interest in the San Cayetano Mutual Water Company, and subjects us to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt, and restrictions on the purchase or sale of major assets.  We also are subject to covenant that the company maintain a debt service coverage ratio (as defined in the Rabobank revolving credit facility) of less than 1.25 to 1.0 measured annually.  We were unable to comply with the debt service coverage ratio for fiscal 2009 and in December 2009 received a waiver of such non-compliance from Rabobank for fiscal 2009.  Under the terms of our agreement with Rabobank, the debt service coverage ratio is measured annually and as such the next compliance measurement date of this covenant is October 31, 2010 which will cover fiscal 2010.  We currently anticipate to be in compliance with all covenants under our agreement with Rabobank for fiscal 2010.

 
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Unless waived, our breach of any of these covenants would be an event of default under the Rabobank revolving credit facility, among other customary events of default.  Upon the occurrence of an event of default, Rabobank would have the right to accelerate the maturity of any debt outstanding under the revolving credit facility and we would be subject to additional restrictions, prohibitions and limitations.
 
We have the ability to voluntarily prepay any amounts outstanding under the Rabobank revolving credit facility without penalty.
 
Farm Credit Term Loans
 
As of December 31, 2009, we had $7.1 million outstanding under our term loans with Farm Credit.  The first loan with Farm Credit is a term loan in an original principal amount of approximately $9 million and bears interest at a variable rate currently at to 3.25%.  Quarterly principal and interest payments are due through November 2022, when the note matures.  This term loan is secured by certain of our agricultural properties and includes certain affirmative covenants including, among other customary covenants, financial reporting requirements and restrictions on the sale of assets.
 
The second loan with Farm Credit is a term loan in an original principal amount of $1.0 million and bears interest at a variable rate currently at 3.25%.  Monthly principal and interest payments are due through May 2032, when the note matures.  This term loan is secured by the same agricultural properties that are securing the first Farm Credit term loan and includes certain affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, restrictions on the sale of assets, and prohibitions on the incurrence of additional debt.
 
Windfall Invstors, LLC Revolving Line of Credit and Term Loan
 
As described in “Recent Developments - Windfall Investors, LLC” above and “Off-Balance Sheet Arrangements” below, we guaranteed, jointly and severally, with Windfall, all amounts outstanding under the Windfall revolving line of credit and the Windfall term loan.  Beginning in fiscal 2010 the results of operations and all of the assets and liabilities of Windfall Investors will be included in the consolidated financial statements of the company.
 
The outstanding debt on the Windfall Investors balance sheet at October 31, 2009 consisted of approximately $9.2 million under the Windfall term loan, and approximately $10.0 million under the Windfall revolving line of credit. The Windfall term loan has monthly principal and interest payments of $63,000 through October 2011. We expect that in November 2011, the interest rate for the Windfall term loan will be renegotiated and quarterly principal and interest payments will continue through October 2035. The Windfall revolving line of credit has monthly interest only payments and matured in November, 2009 and the maturity date of the Windfall revolving line of credit was subsequently extended by Farm Credit West until March 1, 2010 and is currently being renegotiated.
 
In addition, the audited financial statements of Windfall Investors for the year ended December 31, 2008 are included in this Form 10 beginning on page F-56.
 
Interest Rate Swaps
 
We enter into interest rate swaps (derivatives) to minimize the risks and costs associated with our financing activities.  Our interest rate swaps (derivatives) qualify for hedge accounting.  Therefore, the fair value adjustments to the underlying debt are deferred and included in accumulated other comprehensive income (loss) in the consolidated balance sheets at October 31, 2009 and 2008.  See Note 12 in the notes to the consolidated financial statements for the year ended October 31, 2009 included elsewhere in this registration statement for more information about our interest rate swaps (derivatives).

 
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Contractual Obligations
 
The following table presents the company’s total contractual obligations at October 31, 2009 for which cash flows are fixed or determinable:
 
   
Payments due by Period
 
                               
Contractual Obligations:
 
Total
   
< 1 year
   
1-3 years
   
3-5 years
   
5+ years
 
Fixed rate debt (principal)
  $ 42,000,000                 $ 42,000,000        
Variable rate debt (principal)
  $ 27,716,000     $ 465,000     $ 976,000     $ 20,712,000     $ 5,563,000  
Operating lease obligations
  $ 10,176,000     $ 1,620,000       3,023,000     $ 2,192,000     $ 3,341,000  
Total contractual obligations
  $ 79,892,000     $ 2,085,000     $ 3,999,000     $ 64,904,000     $ 8,904,000  
Interest payments on fixed and variable rate debt
  $ 12,727,000     $ 2,725,000     $ 5,449,000     $ 2,165,000     $ 2,388,000  
 
Fixed Rate and Variable Rate Debt
 
Details of amounts included in long-term debt can be found above and in Note 11 in the notes to the consolidated financial statements for the year ended October 31, 2009 included elsewhere in this registration statement.  The above table assumes that long-term debt is held to maturity.
 
Subsequent to October 31, 2009, as described above in “Recent Developments - Windfall Investors, LLC,” the company acquired all rights and interests in Windfall Investors and the results of operations and all of the assets and liabilities of Windfall Investors will be included in our consolidated financial statements beginning in fiscal 2010.  Our total contractual obligations, including those of Windfall Investors as of October 31, 2009, would be $13.3 million for less than one year, $5.5 million for one to three years, $66.4 million for three to five years and $24.8 million for over five years.  Interest payments on fixed and variable debt would be $3.5 for one year or less, $6.7 for one to three years, $3.3 for three to five year and $9.8 over five years.
 
Operating Lease Obligations
 
The company has numerous operating lease commitments with remaining terms ranging from less than one year to ten years. The company has installed a one mega-watt photovoltaic solar array on one of its agricultural properties located in Ventura County that produces the majority of the power to run its lemon packinghouse. The construction of this array was financed by Farm Credit Leasing and the company has a long term lease with Farm Credit Leasing for this array.  Annual payments for this lease are $0.5 million, and at the end of ten years the company has an option to purchase the array for $1.1 million.  The company entered into a similar transaction with Farm Credit Leasing for a second photovoltaic array at one of its agricultural properties located in the San Joaquin Valley to supply the majority of the power to operate four deep water well pumps located on company property.  Annual lease payments for this facility range from $0.3 million to $0.8 million, and at the end of ten years the company has the option to purchase the array for $1.3 million.  The company leases pollination equipment under a lease through 2013 with annual payments of $0.1 million. The company also leases machinery and equipment for its packing operations and land for its growing operations under leases with annual lease commitments that are individually immaterial.

 
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Interest Payments on Fixed and Variable Debt
 
The above table assumes that our fixed rate and long term debt is held to maturity and the interest rates on our variable rate debt remains unchanged for the remaining life of the debt from those in effect at October 31, 2009.
 
Other Obligations and Commitments
 
As described in “Recent Developments - Windfall Investors LLC” above and “Off-Balance Sheet Arrangements” below, we guaranteed, jointly and severally, with Windfall, all amounts outstanding under the Windfall revolving line of credit and the Windfall term loan.
 
Off-Balance Sheet Arrangements
 
For fiscal 2009 and each prior applicable period, the results and operations and all of the assets and liabilities of Windfall Investors has been treated as an Off-Balance Sheet Arrangement.  As described in “Recent Developments - Windfall Investors, LLC” above, beginning in fiscal 2010 the results of operations and all of the assets and liabilities of Windfall Investors will be included in the consolidated financial statements of the Company.  In addition, the audited financial statements of Windfall Investors for the year ended December 31, 2008 are included in this Form 10 beginning on page F-56.
 
Critical Accounting Policies and Estimates
 
The preparation of our financial statements in accordance with generally accepted accounting principles requires us to develop critical accounting policies and make certain estimates and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses.  We base our estimates and judgments on historical experience, available relevant data and other information that we believe to be reasonable under the circumstances.  Actual results may materially differ from these estimates under different assumptions or conditions as new or additional information become available in future periods.  We believe the following critical accounting policies reflect our more significant estimates and judgments used in the preparation of our consolidated financial statements.
 
Revenue Recognition - Sales of products and related costs are recognized when persuasive evidence of an arrangement exists, delivery has occurred, selling price can reasonably be determined, and collectability is reasonably assured.  We accrue monthly revenue from the sales of certain of our agricultural products based on estimated proceeds provided by our sales and marketing partners.  Historically, these estimates have not differed materially from actual results.
 
For citrus products processed through our packinghouse and sold by Sunkist on our behalf, we (i) have the general and physical inventory risk, (ii) have the discretion in supplier selection, and (iii) are involved in the determination of the product that is ultimately sold to the customer. In addition, Sunkist earns a fixed amount for its sales and marketing services. We record the revenues related to these citrus sales on a gross basis.
 
For avocados, oranges, specialty citrus and other specialty crops packed and sold by Calavo and other third-party packinghouses, Calavo and the other third-party packinghouses are the primary obligor in the arrangement; as such, we record the revenues related to these sales made by Calavo and other third-party packinghouses on a net basis.
 
For rental revenues, minimum rent 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 to be received and are tied to fees collected by our lessee. Our contingent rental arrangements generally require payment on a monthly basis with the payment based on the previous month’s activity. We accrue contingent rental revenues based upon estimates and adjust to actual as we receive payments. Organic recycling percentage rents range from 5% to 10%.
 
Capitalization of Costs - We capitalize the planning, entitlement and certain development costs associated with our various real estate development projects.  Costs that are not properly capitalized are expensed as incurred.  Based on potential changes in the nature of these projects, future costs incurred could not be properly capitalized and would be expensed as incurred.  For fiscal 2009, we capitalized approximately $3.3 million of costs related to our real estate projects and expensed approximately $0.3 million of costs.
 
Income Taxes – Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.
 
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

 
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Derivative Financial Instruments – We use derivative financial instruments for purposes other than trading to manage our exposure to interest rates as well as to maintain an appropriate mix of fixed and floating-rate debt. Contract terms of our hedge instruments closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the instrument will be either offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings. Instruments that do not meet the criteria for hedge accounting, or contracts for which we have not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of change.
 
Impairment of Long-Lived Assets - We evaluate our long lived assets including our real estate development projects for impairment when events or changes in circumstances indicate the carrying value of these assets may not be recoverable.  As a result of the economic downturn in recent years we recorded impairment charges of $6.2 million and $1.3 million in 2009 and 2008, respectively.  These charges were based on independent, third-party appraisals provided to us and were developed using various facts, assumption and estimates.  Future changes in these facts, assumptions and estimates could result in additional changes.
 
Defined Benefit Retirement Plan - As discussed in Note 15 to our consolidated financial statements, we sponsor a defined benefit retirement plan that was frozen in June, 2004, and no future benefits accrued to participants subsequent to that time.  Ongoing accounting for this plan under FASB ASC 715 provides guidance as to, among other things, future estimated pension expense, minimum pension liability and future minimum funding requirements.  This information is provided to us by third party actuarial consultants.  In developing this data, certain estimates and assumptions are used  including, among other things, discount rate, long term rates of return, and mortality tables.  Changes in any of these estimates could materially affect the amounts recorded that are related to our defined benefit retirement plan.
 
Qualitative and Quantitative Disclosures about Market Risk
 
Interest Rate Risk

Borrowings under each of our Rabobank revolving credit facility and Farm Credit term loans are subject to variable interest rates.  These variable interest rates subject us to the risk of increased interest costs associated with any upward movements in interest rates.  Under each of our Rabobank revolving credit facility and Farm Credit term loans, our borrowing interest rate is a LIBOR-based rate plus a spread.  At October 31, 2009 our total debt outstanding under the Robobank revolving credit facility and the Farm Credit term loans was approximately $61.7 million, $7.1 million and $1 million, respectively.

We manage our exposure to interest rate movements by utilizing interest rate swaps (derivatives).  We fixed $42 million of our outstanding borrowings with three “fixed-to-floating” interest rate swaps as described in the following table:

   
Notional Amount
   
Fair Value Net Liability
 
   
2009
   
2008
   
2009
   
2008
 
Pay fixed-rate, receive floating-rate interest rate swap designated as cash flow hedge, maturing 2013
  $ 22,000,000     $ 22,000,000     $ 1,678,000     $ 541,000  
                                 
Pay fixed-rate, receive floating-rate interest rate swap designated as cash flow hedge, maturing 2010
    10,000,000       10,000,000       287,000       96,000  
                                 
Pay fixed-rate, receive floating-rate interest rate swap designated as cash flow hedge, maturing 2010
    10,000,000             206,000        
                                 
Total
  $ 42,000,000     $ 32,000,000     $ 2,171,000     $ 637,000  
 
 
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Based on our level of borrowings at October 31, 2009, after taking into consideration the effects of our interest rate swaps (derivatives), a 1% increase in interest rates would increase our interest expense annually by $0.28 million for fiscal 2010 and decrease our interest expense an average of $0.1 million for the three subsequent fiscal years and decrease our net income by $0.17 million for fiscal 2010 and increase our net income an average of $0.06 million for the three subsequent fiscal years.

Subsequent to October 31, 2009, the managing partner of Windfall Investors resigned its position and assigned all of its rights and interest in Windfall Investors to the Company.  Therefore, beginning in fiscal 2010 the results of operations and all of the assets and liabilities of Windfall Investors will be included in the consolidated financial statements of the company.  Consequently, with respect to fiscal 2010 and based on the level of borrowings of both the company and Windfall Investors, after taking into consideration the effects of our interest rate swaps (derivatives), a 1% increase in interest rates would increase our interest expense annually by $0.38 million for fiscal 2010 and an average of $0.001 million for the three subsequent fiscal years and decrease our net income by $0.23 million for fiscal 2010 and an average of less than $0.001 million for the three subsequent fiscal years.

Commodity Sales Price Risk

Commodity pricing exposures include the potential impacts of weather phenomena and their effect on industry volumes, prices, product quality and costs.  We manage our exposure to commodity price risk primarily through our regular operating activities, however, significant commodity price fluctuations, particularly for lemons, avocados and oranges could have a material impact on our results of operations.

ITEM 3.
PROPERTIES
 
Real Estate
 
We own our corporate headquarters in Santa Paula, California.  We own approximately 5,867 acres of land in California with approximately 4,070 acres located in Ventura County and approximately 1797 acres located in Tulare County, which is in the San Joaquin Valley.  We lease approximately 31 acres of land located in Ventura County and approximately 449 acres of land located in Santa Barbara County.  We also have an interest in a partnership that owns approximately 208 acres of land in Ventura County.  Our agricultural plantings consist of approximately 1839 acres of lemons, approximately 1372 acres of avocados, approximately 1062 acres of oranges and approximately 403 acres of specialty citrus and other crops.

We own our packing facility located in Santa Paula, California, where we process and pack our lemons as well as lemons for other growers.  In 2008, we entered into an operating lease agreement and completed the installation of a 5.5 acre, one-megawatt ground-based photovoltaic solar generator, which provides the majority of the power to operate our packing facility.  In 2009 we completed the installation of a one-megawatt solar array (which we also lease through an operating lease agreement), which provides us with a majority of the electricity required to operate four deep water well pumps at one of our ranches in the San Joaquin Valley.
 
Additionally, we own 193 residential units that we lease to our employees, former employees and outside tenants as well as several commercial office buildings and properties that are leased to various tenants.
 
Water Rights
 
Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own.  Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the unadjudicated Fillmore, Santa Barbara and Paso Robles Basins (aquifers).  We also use ground water and water from local water districts the San Joaquin Valley.  We believe our water resources are adequate for our current farming operations.

 
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We believe water is a natural resource that is critical to economic growth in the Western United States and firm, reliable water rights are essential to the company’s sustainable business practices.  Consequently, we have long been a private steward and advocate of prudent and efficient water management.  We have made substantial investments in securing water and water rights in quantities that are sufficient to support and, we believe will exceed, our long-term business objectives.  We strive to follow best management practices for the diversion, conveyance, distribution and use of water.  In the future, we intend to continue to provide leadership in the area of, and seek innovation opportunities that promote, increased water use efficiency and the development of new sources of supply for our neighboring communities.
 
ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth the beneficial ownership of our common stock as of December 31, 2009 by (i) each person who is known to us to be the beneficial owner of more than five percent of the outstanding shares of our common stock, (ii) each director and nominee for director, (iii) our chief executive officer and our other executive officers, which we collectively refer to as the named executive officers, and (iv) all of our directors and named executive officers as a group.  The applicable percentage ownership is based on 1,126,288 shares of common stock outstanding as of December 31, 2009, plus, in the case of Mr. Michaelis, the number of shares of common stock to be issued upon the conversion of Series B Convertible Preferred Stock.  All holders of shares of common stock are entitled to one vote per share on all matters submitted to a vote of holders of share of common stock.
 
The number of shares beneficially owned by each entity or individual is determined pursuant to Rule 13d-3 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose.  Under Rule 13d-3 of the Exchange Act, “beneficial ownership” includes any shares as to which the entity or individual has sole or shared voting power or investment power and also any shares that the entity or individual has the right to acquire within 60 days through the exercise of any stock option or other right.  Unless otherwise indicated, each person has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table.
 
   
Common Stock
Beneficially Owned(2)
 
Name and Address of Beneficial Owner(1)
 
Number
   
Percentage
 
5% Beneficial Owners
           
  Calavo Growers, Inc.
    172,857       15.3 %
Directors and Officers
               
John W. Blanchard(3)
    13,639       1.2 %
Lecil E. Cole(4)
    415       *  
Don P. Delmatoff(5)
    4,536       *  
Peter W. Dinkler
    4,163       *  
Harold S. Edwards(6)
    11,241       1.0 %
Gordon E. Kimball
    1,103       *  
John W.H. Merriman
    111       *  
Ronald L. Michaelis (7)
    57,236       5.0 %
Allan M. Pinkerton(8)
    62,349       5.5 %
Keith W. Renken(9)
    200       *  
Robert M. Sawyer(10)
    3,588       *  
Alan M. Teague(11)
    17,671       1.6 %
Alex M. Teague(12)
    6,803       *  
                 
Limoneira Company Officers and Directors as a Group (13 persons)(13)
    183,055       15.7 %
 

  
*
Less than 1%.
  
(1)
Except as set forth in the footnotes to this table, the business address of each director and executive officer listed is c/o Limoneira Company, 1141 Cummings Road, Santa Paula, California 93060.

 
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(2)
The information provided in this table is based on the company’s records and information supplied by officers and directors.
  
(3)
Shares are owned beneficially by Mr. Blanchard as a beneficiary of two trusts. Mr. Blanchard shares voting and investment power over these shares.
  
(4)
Mr. Cole disclaims beneficial ownership of any shares of our common stock that are owned by Calavo Growers, Inc.
  
(5)
Includes 1,524 restricted shares of which 762 vest in 2010 and 762 vest in 2011. Mr. Delmatoff has voting and regular dividend rights with respect to the restricted shares, but no right to dispose of such shares.
  
(6)
Includes 3,189 restricted shares of which 1,595 vest in 2010 and 1,594 vest in 2011. Mr. Edwards has voting and regular dividend rights with respect to the restricted shares, but no right to dispose of such shares. All shares are owned beneficially by Mr. Edwards as a beneficiary of a trust. Mr. Edwards shares voting and investment power over these shares.
  
(7)
Number of shares includes 18,488 shares issuable upon conversion of Series B Convertible Preferred Stock. Shares are owned beneficially by Mr. Michaelis as a beneficiary of a trust. Mr. Michaelis shares voting and investment power over these shares.
  
(8)
Shares are owned beneficially by Mr. Pinkerton as a beneficiary of a trust. Mr. Pinkerton shares voting and investment power over these shares.
  
(9)
Shares are owned beneficially by Mr. Renken as a beneficiary of a trust. Mr. Renken shares voting and investment power over these shares.
  
(10)
Shares are owned beneficially by Mr. Sawyer as a beneficiary of a trust. Mr. Sawyer shares voting and investment power over these shares.
  
(11)
Shares are owned beneficially by Mr. Teague through his interest in a limited partnership.
  
(12)
Includes 1,772 restricted shares of which 886 vest in 2010 and 886 vest in 2011. Mr. Teague has voting and regular dividend rights with respect to the restricted shares, but no right to dispose of such shares.
  
(13)
Amount of outstanding shares used to determine the percentage ownership includes 37,500 shares issuable upon conversion of Series B Convertible Preferred Stock.
 
There are no arrangements currently known to the Company, the operation of which may at a subsequent date result in a change of control.
 
ITEM 5.
DIRECTORS AND EXECUTIVE OFFICERS
 
Our board of directors is grouped into three classes: (1) Class I Directors, who will serve until the 2012 Annual Meeting, (2) Class II Directors, who will serve until the 2010 Annual Meeting, and (3) Class III Directors, who will serve until the 2011 Annual Meeting.  Our board of directors currently consists of ten directors.
 
The name and age of each director and executive officer and the positions held by each of them as of October 31, 2009 are as follows:
 
Name
 
Age
 
Class
 
Position
Harold S. Edwards
 
44
 
Class I
 
Director, President and Chief Executive Officer
Don P. Delmatoff
 
61
 
 
Vice President of Finance & Administration, Chief Financial Officer and Secretary
Alex M. Teague
 
45
 
 
Senior Vice President
Peter Dinkler
 
64
 
 
Vice President of Lemon Packing
John W. Blanchard
 
66
 
Class I
 
Director
Lecil E. Cole
 
69
 
Class II
 
Director
Gordon E. Kimball
 
57
 
Class II
 
Director
John W.H. Merriman
 
57
 
Class I
 
Director
Ronald Michaelis
 
71
 
Class I
 
Director
Allan Pinkerton
 
66
 
Class III
 
Director
Keith W. Renken
 
75
 
Class II
 
Director
Robert M. Sawyer
 
60
 
Class III
 
Director
Alan M. Teague
 
71
 
Class III
 
Chairman, Director
 
 
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John W. Blanchard.  Mr. Blanchard has served as a director of the company since 1990.  Mr. Blanchard retired in 2009 as the president and chief executive officer of Santa Paula Chamber of Commerce, which position he has held since 2007.  Prior to that, he was employed as a realtor at Prudential California Realty in Camarillo, California from 2002 to 2007.  Mr. Blanchard is also a director of Ventura County Fruit Exchange and is a trustee of Limoneira Foundation.  He also serves on the boards of directors for several non-profit organizations.  Mr. Blanchard attended Stanford University and graduated from the University of Southern California, where he earned his Bachelor of Arts degree in finance, and his Master of Business Administration degree.
 
Lecil E. Cole.  Mr. Cole has served as a director of the company since 2006.  Mr. Cole is currently chairman of the board of directors, chief executive officer and president of Calavo Growers, Inc., a NASDAQ listed company.  He has held that position since February 1999.  Mr. Cole has also been the president of Hawaiian Sweet Inc. since 1996.  Prior to that, Mr. Cole was an executive of Safeway Stores from 1986 to 1996.  Mr. Cole farms a total of 4,430 acres in California and Hawaii on which avocados, papayas and cattle are produced and raised.
 
Don P. Delmatoff.  Mr. Delmatoff has served as vice president of finance & administration, chief financial officer and secretary of the company since 2004.  Mr. Delmatoff previously served the Company as corporate controller, from 2000 to 2004.  Mr. Delmatoff is a graduate of California State University at Long Beach, where he earned a Bachelor of Arts degree in Accounting.
 
Harold S. Edwards.  Mr. Edwards has served as a director of the company since 2009.  Mr. Edwards has been the president and chief executive officer of the company since November 2004.  Previously, Mr. Edwards was the president of Puritan Medical Products, a division of Airgas Inc.  Prior to that, Mr. Edwards held management positions with Fisher Scientific International, Inc., Cargill, Inc., Agribrands International and the Ralston Purina Company.  Mr. Edwards is currently a member of the board of directors of Compass Group Diversified Holdings LLC, a NASDAQ listed company and Calavo Growers, Inc., also a NASDAQ listed company.  Mr. Edwards is a graduate of Lewis and Clark College and The American Graduate School of International Management (Thunderbird) where he earned a Masters of Business Administration.
 
Gordon E. Kimball.  Mr. Kimball has served as a director of the company since 1995.  Mr. Kimball has been president of Kimball Engineering, Inc., which provides race car design and production services, since 1992.  He is also managing partner of Kimball Ranches, a 110 acre avocado ranch near Santa Paula, California.  Prior to that, Mr. Kimball designed Formula One race cars in England and Italy for McLaren International, Ferrari and Benetton Racing, from 1984 to 1991.  Prior to that, he designed Indianapolis race cars for Parnelli Jones, Chaparral and Patrick Racing teams, from 1976 to 1983.  Mr. Kimball is a director of Rincon Investment Company.  Mr. Kimball graduated from Stanford University where he earned his Bachelor of Science and Master of Science degrees in mechanical engineering.
 
John W.H. Merriman.  Mr. Merriman has served as a director of the company since 1991.  Mr. Merriman currently serves as an SAS consultant at Wells Fargo Bank Risk Management, San Francisco, manager of Blanchard Equity, LLC., and president of Spyglass Ridge Association.  Mr. Merriman served as a SAS consultant for Macys.com from 2006 to 2009 and Wells Fargo Bank Risk Management from 1996 to 2005.  Mr. Merriman is a Vietnam War Veteran where he served in the United States Marine Corps as an IBM systems programmer.  Mr. Merriman graduated from Computer Science School, Quantico, Virginia, in 1973.  He majored in viticulture at Santa Rosa Junior College in 1978, and studied enology at Edmeades Vineyards in 1979.

 
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Ronald Michaelis.  Mr. Michaelis has served as a director of the company since 1997.  Mr. Michaelis farmed for 40 years, and managed the last 20 years, the family citrus properties, growing from 20 to 1,500 acres.  He owned and managed Michaelis Citrus Nursery, Inc., growing up to 300,000 trees annually.  Mr. Michaelis’ past positions included director and president of Tulare County Lemon Association and Tulare County Fruit Exchange, director of Grand View Heights Association, Tulare-Kern County Citrus Exchange, Tulare County Farm Bureau and president of Tulare County Farm Bureau, president of Ronald Michaelis Ranches, Inc., Martin Michaelis Groves, Inc. and Michaelis Citrus Nursery, Inc., director and vice president of Teapot Dome Water district, and director and president of Strathmore Packing House.  Mr. Michaelis currently is a director of Ventura County Fruit Exchange, and trustee of Limoneira Foundation.  He is also active on many boards at Grand Avenue United Methodist Church.  Mr. Michaelis attended Porterville College and California State Polytechnic University Pomona majoring in fruit production.
 
Allan M. Pinkerton.  Mr. Pinkerton has served as a director of the company since 1990.  Mr. Pinkerton is the owner and manager of Pinkerton Ranches, which engages in citrus and avocado production.  He is currently a director of Saticoy Lemon Association, Ventura County Fruit Exchange, Alta Mutual Water Company and Farmers Irrigation Company.  Mr. Pinkerton was formerly a director and the vice chairman of Sunkist Growers, Inc. and Fruit Growers Supply Company.  Mr. Pinkerton graduated from California State Polytechnic University at Pomona, earning a Bachelor of Science degree in agricultural business management in 1966.
 
Keith W. Renken.  Mr. Renken has served as a director of the Company since 2009.  Mr. Renken retired in 1992 as a Senior Partner and Chairman, Executive Committee of Southern California, for the public accounting firm of Deloitte & Touche.  He currently is an adjunct professor in the Marshall School of Business at the University of Southern California.  He serves as a director of the boards of two public companies, East West Bancorp, Inc. since 2000 and the Willdan Group Inc. since 2006.  Previously, Mr. Renken served as a director of 21st Century Insurance Group.  Mr. Renken is a Certified Public Accountant in the states of Arizona and California, as well as a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants.  He received a B.S. in Business Administration in 1957 from the University of Arizona and a M.S. in Business Administration from the University of Arizona in 1959.
 
Robert M. Sawyer.  Mr. Sawyer has served as a director of the company since 1990.  Mr. Sawyer is an attorney specializing in real estate, land use, environmental and water law, and currently of counsel to the Sacramento, California office of Best Best & Krieger LLP.  He is a member of Ventura County Bar Association, the Sacramento County Bar Association and the Groundwater Resources Association of California.  Mr. Sawyer was previously the corporate secretary of The Samuel Edwards Associates, from 1977 to 1981 and a director of The Samuel Edwards Associates, from 1981-1985.  He is also a director of Ventura County Fruit Exchange, and a trustee of Limoneira Foundation, since 1985.  Mr. Sawyer graduated from the University of California at Santa Cruz where he earned a Bachelor of Arts degree in 1972, and graduated from Northwestern School of Law of Lewis & Clark College where he earned his Juris Doctor degree in 1975.
 
Alan M. Teague.  Mr. Teague has served as a director of the company since 1990.  Mr. Teague has been the chairman of the board of directors of the company since 2004, and was previously chairman of the board of directors of the Company from 1988 to 1996.  He is currently president of California Orchard Co.  Mr. Teague was employed by Teague-McKevett Company and the McKevett Corporation since 1961, holding various position, and president of both firms since 1984 until the merger with the Company in 1995.  Mr. Teague has been active in many political and civic organizations including the Santa Paula City Council from 1966 to 1974, and Mayor of the City of Santa Paula from 1970 to 1974.  He is the founding chairman of Santa Clara Valley Agriculture Development Corp., Ventura County Community Foundation and Santa Paula Community Fund.  Mr. Teague was formerly the president of Rancheros Visitadores, and former chairman of Ventura County Medical Resource Foundation.  He is currently a director of Ventura County Fruit Exchange and Salinas Land Company, and trustee of the Limoneira Foundation.  Mr. Teague attended the University of Arizona where he studied business administration.
 
Alex M. Teague.  Mr. Teague has served as senior vice president of the company since 2004.  Mr. Teague previously served the Company as vice president of agribusiness, from 2004 to 2005.  Mr. Teague is currently a member of the board of directors of Ventura County Workforce Investment Board, Ventura County Community Foundation, Farm Worker Housing, Salinas Land Company and California Orchard Company.  Mr. Teague is a graduate of University of Pacific, where he earned a Bachelor of Science degree in Administration.

 
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Pete Dinkler.  Mr. Dinkler has served as vice president, lemon packing since 1983.  Mr. Dinkler is a graduate of California State University, Pomona, where he earned a Bachelor of Science degree in Agriculture and the UCLA Graduate School of Management.
 
Alex Teague is the son of Alan Teague.  Otherwise there is no lineal family relationship between any other officer or director of the company.
 
Compensation Committee Interlocks and Insider Participation
 
During Fiscal 2009, Directors Merriman, Kimball, Michealis and Sawyer comprised the compensation committee.  No member of our compensation committee during fiscal 2009 served as an officer, former officer or employee of the company.  During fiscal 2009, none of our executive officers served as a member of the compensation committee of any other entity, one of whose executive officers served as a member of our board of directors or compensation committee, and none of our executive officers served as a member of the board of directors of any other entity, one of whose executive officers served as a member of our compensation committee.  Information with respect to the related party transactions involving the members of our compensation committee is set forth below under “Item 7.  Certain Relationships and Related Transactions, and Director Independence - Contracted Arrangements with Related Parties.”
 
ITEM 6.
EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
The following Compensation Discussion and Analysis should be read in conjunction with the “Summary Compensation Table” and related tables that are presented elsewhere in this registration statement on Form 10.
 
Compensation Overview.  Compensation for our executives and key employees is designed to attract and retain people who share our vision and values and who can consistently perform in such a manner that enables the company to achieve its strategic goals.  The compensation committee believes that the total compensation package for each of the named executive officers is competitive with the market, thereby allowing us to retain executive talent capable of leveraging the skills of our employees and our unique assets in order to increase shareholder value.
 
In connection with becoming a public company, certain aspects of our compensation mix will likely change, primarily in connection with our adoption of the Limoneira Company 2010 Omnibus Incentive Plan, which we refer to as the 2010 Omnibus Incentive Plan, pursuant to which we intend to continue to award cash-based incentive bonuses and equity-based incentive bonuses but may do so in different forms, such as stock options.  See “Item 9.  Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholders matters - Securities Authorized for Issuance under Equity Compensation Plans - Limoneira Company 2010 Omnibus Incentive Plan” for more information about the 2010 Omnibus Incentive Plan.
 
The Compensation Committee.  Our compensation committee is currently composed of Directors Merriman, Renken, Michaelis and Sawyer.  Our common stock is not currently listed on any national exchange, or quoted on any inter-dealer quotation service, that imposes independence requirements on our board of directors or any committee thereof.  Our board of directors has evaluated the independence of the members of our compensation committee and determined that all of the members of our compensation committee qualify as “independent directors” within the meaning of NASDAQ Stock Market Marketplace Rule 4200(a)(15).
 
The Company’s “named executive officers” refers to those executive officers identified in the “Summary Compensation Table” below.  Our named executive officers for 2009 were:  Harold Edwards, President and Chief Executive Officer; Don Delmatoff, Vice President of Finance & Administration, Chief Financial Officer and Secretary; Alex Teague, Senior Vice President; and Peter Dinkler, Vice President of Lemon Packing.

 
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General Objectives of the Compensation Plan.  The compensation program for our named executive officers is designed to align management’s incentives with the interests of our stockholders and to be competitive with comparable employers.  Our compensation philosophy recognizes the value of rewarding our named executive officers for their past performance and motivating them to continue to excel in the future.  The compensation committee has developed and maintains a compensation program that rewards superior performance and seeks to encourage actions that drive our business strategy.  Our compensation strategy is to provide a competitive opportunity for senior executives taking into account their total compensation packages, which include a combination of base salary, an annual cash-based incentive bonus, an annual equity-based incentive bonus and certain perquisites.  At the named executive officer level, our incentive compensation arrangements are designed to reward the achievement of year-to-year operating performance goals.
 
The Role of Executives in Setting Compensation.  During fiscal 2009, our compensation committee had the authority to determine our compensation philosophy and our board of directors had the primary authority to determine the compensation for our executive officers.  Compensation recommendations regarding our executive officers (other than our President and Chief Executive Officer) were generally provided to the board of directors by our President and Chief Executive Officer and approved by the board of directors.  Our President and Chief Executive Officer’s total compensation was recommended by the compensation committee and approved by our board of directors. In connection with the adoption of a compensation committee charter by our board of directors in January, 2010, the compensation committee will have the authority to determine the compensation of our executive officers in light of individual and corporate achievements.
 
Each named executive officer and other senior executive management team members participate in an annual performance review with our Chief Executive Officer to provide input about his contributions to our success for the period being assessed.   During the first quarter of the fiscal year, the compensation committee establishes performance goals for non-equity and equity-based incentive compensation for each of the named executive officers and, at the end of that fiscal year, determines the level of attainment of those established goals.
 
Overall Compensation Plan Design.  The compensation policies developed by the compensation committee are based on the philosophy that compensation should reflect both company performance, financially and operationally, and the individual performance of the executive.  The compensation committee’s objectives when setting compensation for our named executive officers include:
 
 
·
Setting compensation levels that are sufficiently competitive such that they will motivate and reward the highest quality individuals to contribute to our goals, objectives and overall financial success.
 
 
·
Retaining executives and encouraging their continued quality service, thereby encouraging and maintaining continuity of the management team.
 
 
·
Incentivizing executives to appropriately manage risks while attempting to improve our financial results, performance and condition.
 
 
·
Aligning executive and stockholder interest.  The compensation committee believes that the use of equity compensation as a key component of executive compensation is a valuable tool for aligning the interest of our named executive officers with those of our stockholders.
 
 
·
Obtaining tax deductibility whenever appropriate.  The compensation committee believes that tax-deductibility for the Company is generally a favorable feature for an executive compensation program, from the perspectives of both the Company and the stockholders.
 
Benchmarking.  In determining compensation levels for our executive officers and for purposes of determining any potential payments under our annual cash-based incentive bonus program, the compensation committee annually reviews available salary information of similar companies in our industry. Additionally, whenever available, the compensation committee compares other compensation and perquisites offered to our executive officers to those offered to equivalent officers with similar companies in our industry.
 
Elements of Compensation.  The material elements of the compensation program for our named executive officers include: (i) base salary; (ii) annual cash-based incentive bonuses; (iii) annual equity-based incentive bonuses; and (iv) other compensation consisting of retirement and other benefits.

 
44

 
 
Base Salaries.  We provide our named executive officers with a base salary to compensate them for services rendered during the fiscal year.  The purpose of the base salary is to reflect job responsibilities, value to us and competitiveness of the market.  Salaries for our named executive officers are determined by the compensation committee based on the following factors:  nature and responsibility of the position and, to the extent available, salary norms for comparable positions; the expertise of the individual executive; the competitiveness of the market for the executive’s services; and the recommendations of our President and Chief Executive Officer.
 
Consistent with these objectives and this strategy, but recognizing that the company would, in each of its agribusiness, rental operations and real estate development business segments, be operating in a very challenging economic environment during fiscal 2009, no increases were awarded to the named executive officers other than the President and Chief Executive officer who was given a 7% salary increase.  For fiscal 2010, the compensation committee will be reviewing the base salary of each of our named executive officers.  The compensation committee believes that the base salary of each of the named executive officers is, particularly in light of each of their total compensation packages, competitive with the market.
 
Annual Performance Cash-Based Incentive Bonuses.  Our practice is to award annual cash-based  incentive bonuses based upon the achievement of performance objectives established at the beginning of each year.  The President and Chief Executive Officer and the other named executive officers recommend to the compensation committee performance objectives that will best move the Company forward to achieve our short-term and long-term strategic goals and maximize stockholder value.
 
Per the terms of the Management Incentive Plan, cash bonuses are awarded to participants based on the achievement of both pre-determined operating results and individual participant goals.  Payments that may be made under the program are based on a graduated scale beginning at 5% of a participant’s annual salary.  Any bonuses earned under the program in respect of a fiscal year are paid in the following fiscal year.  Incentive bonuses paid in 2009 for 2008 were based on achieving pre-tax earnings and cash provided from operations greater than 110% of the average for the preceding four years, which accounted for 60% of the bonus earned, and achievement of individual goals, which accounted for 40% of the bonus earned.  Bonuses paid in 2009 to members of management, including our named executive officers ranged from 42% to 45% of their respective salaries.
 
Annual Performance Equity-Based Incentive Bonuses.  It is our objective to have a substantial portion of each named executive officer’s compensation contingent upon overall corporate and segment performance as well as upon his own level of performance and contribution towards such corporate performance.  Our compensation committee believes that stock-based annual incentives for the achievement of defined objectives create value for the company and aligns the executive’s compensation with the interests of our shareholders.  Per the terms of the Limoneira Company Stock Grant Performance Bonus Plan, which we refer to as the Stock Grant Performance Bonus Plan, the compensation committee establishes the overall corporate and segment performance goals with a view towards establishing such goals that are challenging to achieve, and, at the end of that year, determines the level of attainment of those established goals and the contribution of each executive towards achieving them, with each executive’s contribution to the segment performance goals for the segment for which he has primary responsibility being of particular relevance.  Based on such level of attainment and contribution, each of Messrs. Edwards, Teague and Delmatoff are eligible to receive a number of shares of our common stock not to exceed an aggregate fair market value of 133% of their then current base salary and Mr. Dinkler is eligible to receive a number of shares of our common stock not to exceed an aggregate fair market value of 25% of his then current base salary.   In the event that such overall corporate and/or segment performance goals are not attained, the compensation committee, in its sole discretion, may nevertheless grant such shares for special achievements that fall outside of the established performance goals.  See “Item 9.  Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters - Securities Authorized for Issuance Under Equity Compensation Plans - Limoneira Company Stock Grant Performance Bonus Plan” for more information about the Stock Grant Performance Bonus Plan.

 
45

 

Pursuant to a recommendation by the compensation committee and approval of the board of directors in fiscal 2008 and 2009, the company made loans to each of Mr. Edwards, Mr. Teague and Mr. Delmatoff in amounts sufficient to enable them to pay their income tax liabilities associated with grants of stock pursuant to our equity-based incentive bonus program.  The company made three loans to each of Mr. Edwards, Mr. Teague and Mr. Delmatoff, each in connection with grants of stock for fiscal 2007 and 2008, in an aggregate principal amount of approximately $796,070 to Mr. Edwards, approximately $446,873 to Mr. Teague, and approximately $341,495 to Mr. Delmatoff.  Each loan was  evidenced by a promissory note that bore interest at the mid-term Applicable Federal Rate then in effect and all principal and interest was due and payable 24 months from the date of the applicable promissory note.  Each promissory note was secured by a number of shares of our common stock having a value equal to 120% of the amount of the applicable loan on the day it was made.   Based on the recommendation of our compensation committee, on December 15, 2009 the board of directors approved the forgiveness of approximately $341,174 of principal and accrued interest on the loans made to Mr. Edwards, approximately $199,823 of principal and accrued interest on the loans made to Mr. Teague, and approximately $145,745 of principal and accrued interest on the loans made to Mr. Delmatoff.  Additionally, each of Mr. Edwards, Mr. Teague and Mr. Delmatoff received a payment of approximately $299,528, $175,431, and $127,955, respectively, relating to their federal, state and payroll taxes attributable to such loan forgiveness..  The unpaid principal and accrued balance of each loan made to Messrs. Edwards, Teague and Delmatoff that was not forgiven was satisfied by the delivery of a number of shares of our common stock with a value equal to each applicable unpaid balance, based upon a fair market value of $150.98 per share.
 
Retirement Plans.  The compensation committee believes that retirement programs are important to the company as they contribute to the company’s ability to be competitive with its peers and reward our executive officers based on long-term performance of the company and, therefore, are an important piece of the overall compensation package for the named executive officers.  For most of our employees, including our named executive officers, we provide a 401(k) plan; others are participants in our defined benefit pension plan.
 
Until April 28, 2004, our employees and executive officers were eligible to participate in a traditional defined benefit pension plan that was maintained by the company.  At that time, plan participation and benefits payable under that plan were frozen and, since that time, no new participants have been added to that plan.  The only named executive officers who are participants in our defined benefit pension plan are Harold Edwards, Don Delmatoff and Peter Dinkler.  At normal retirement age, Harold Edwards’s anticipated monthly payment under this plan would be $81, Don Delmatoff’s anticipated monthly payment under this plan would be $450 and Peter Dinkler’s anticipated monthly payments would be $4,450.
 
The company sponsors a defined contribution retirement plan maintained under section 401(k) of the Internal Revenue Code.  Under the terms of such plan, eligible employees may elect to defer, beginning after one month of employment, up to that amount of their annual earnings permitted to be deferred under the applicable provisions of the Internal Revenue Code.  In addition to any deferral contributions made by our employees, the company contributes to the account of each eligible employee with at least one year of qualifying service a matching contribution of up to 4% such employee’s annual compensation plus such employee’s allocable share of any discretionary employer profit-sharing contribution.  Participant deferral contributions and employer matching contributions are 100% vested at the time of contribution, and employer discretionary profit-sharing contributions vest at a rate of 20% per year of service beginning after two years of service, becoming 100% vested upon completion of six years of service.  During 2009, there were no changes made to our defined contribution plan related to company contributions, contribution limitations, vesting schedules or eligibility requirements.
 
Nonqualified Deferred Compensation.  None of our named executive officers participate in or have account balances in nonqualified defined contribution or other deferred compensation plans maintained by the company.
 
Change in Control Benefits.  None of our named executive officers are covered by any plan or arrangement or have any agreement with us pursuant to which they would receive payments upon a change in control.
 
Separation or Severance Benefits.  None of our named executive officers are covered by any plan or arrangement or have any agreement with us pursuant to which they would receive payments upon their separation of service or termination from employment with the company.
 
Perquisites and Other Personal Benefits.  The compensation committee reviews annually the perquisites that named executive officers receive.  The primary personal benefits for our named executive officers are health and welfare benefits, including, medical, dental, vision and life insurance, in which the named executive officers participate on the same terms as other company employees.  In addition, company vehicles are provided to the named executive officers, as well as to other members of management.

 
46

 
 
Employment Agreements.  As of the end of our 2009 fiscal year, the company was not party to any employment agreements with any of our named executive officers.

 
47

 
 
Summary Compensation Table
 
The following table sets forth information regarding the total compensation received or earned by our named executive officers during fiscal 2009.  This table should be read in conjunction with the Compensation Discussion and Analysis, which sets forth the objectives and other information regarding our executive compensation program.
 
Name and
Principal
Position
 
Year
 
Salary
($)
   
Stock
Awards
($)(1)
   
Non-Equity
Incentive Plan
Compensation
   
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(2)
   
All Other
Compensation
($)(3)
   
Total ($)
 
                                                     
Harold Edwards,
President and
Chief Executive
Officer(4)
 
2009
  $ 449,423     $ 199,535     $ 150,159     $ 1,771     $ 19,928     $ 819,045  
                                                     
Don Delmatoff,
Vice President of
Finance &
Administration,
Chief Financial
Officer and
Secretary
 
2009
  $ 215,000     $ 95,327     $ 95,976     $ 15,756     $ 20,137     $ 442,196  
                                                     
Alex Teague,
Senior Vice
President
 
2009
  $ 258,654     $ 110,839     $ 112,500    
    $ 20,099     $ 502,092  
                                                   
Peter Dinkler,
Vice President of
Lemon Packing
 
2009
  $ 110,742     $ 9,257     $ 47,841     $ 161,778     $ 9,607     $ 339,225  
 

 
(1)
The value of stock awards is the compensation expense recognized in our financial statements attributable to performance stock grants under our equity-based performance bonus program, calculated in accordance with SFAS 123(R).  Shares granted during 2009 vested, in part, in 2009, with the remainder to vest, in part, in each of 2010 and 2011.

(2)
The change in pension value is based upon the change in the present value of the accrued benefit from 2008 to 2009.  This change can be impacted by, among other things, changes in the assumptions used for the discount rate, long-term rate of return and mortality tables used.

(3)
All Other Compensation consists of, for each of our named executive officers, profit sharing and matching contributions under our 401(k) plan and personal usage of company vehicles.

(4)
Mr. Edwards does not receive any additional compensation for being a director of the Company.
 
Grants of Plan-Based Awards in Fiscal Year 2009
 
The following table provides information about grants of equity and non-equity plan-based awards to the named executive officers in the fiscal year ended October 31, 2009:

 
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Name
 
Year
 
Grant
Date
 
All Other
Stock Awards:
Number of
Shares of Stock
(#) (1) (2)
   
Grant Date Fair
Value of Stock
and Option
Awards ($)
 
                     
Harold Edwards
 
2009
 
12/24/08
    4,784     $ 598,478  
                         
Don Delmatoff
 
2009
 
12/24/08
    2,286     $ 285,979  
                         
Alex Teague
 
2009
 
12/24/08
    2,658     $ 332,516  
                         
Peter Dinkler
 
2009
 
12/24/08
    221     $ 27,647  
 


(1)
On December 24, 2008, we granted our named executive officers, 4,784, 2,286, 2,658 and 221 shares, respectively, of restricted shares of our Common Stock at a grant date fair value per share of $125.10.  The restricted stock vests, ratably, one-third on the date of grant, one-third on the first anniversary of the date of grant and one-third on the second anniversary of the date of grant.  Upon termination of employment of any named executive officer, any unvested shares of such terminated officer on the date of his termination revert to the company.

(2)
All such shares, whether vested or unvested, are considered issued and outstanding on the date of grant, and our named executive officers have voting right with respect to, and receive any dividends on, such shares granted to them.  Upon termination of employment, any dividends received by the terminated named executive officer on unvested shares are for the benefit of, and are to be repaid by such named executive officer, to the company.

Outstanding Equity Awards at 2009 Fiscal Year End
 
The following table summarizes the total outstanding equity awards as of October 31, 2009 for each named executive officer.
 
Name
 
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
   
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)(1)
 
             
Harold Edwards(2)
    3,189     $ 446,460  
                 
Don Delmatoff(3)
    1,524     $ 213,360  
                 
Alex Teague(4)
    1,772     $ 248,080  
                 
Peter Dinkler(5)
    147     $ 20,580  
 


(1)
Based on a fair market value of our Common Stock on October 31, 2009, the last day of our fiscal 2009 year, of $140.00 per share.

(2)
On 12/24/08, we granted to Mr. Edwards 4,784 shares of restricted stock, 1/3 of which shares vested on the date of grant and 1/3 or which vest on each of 2/1/10 and 2/1/11.

(3)
On 12/24/08, we granted to Mr. Delmatoff 2,286 shares of restricted stock, 1/3 of which shares vested on the date of grant and 1/3 or which vest on each of 2/1/10 and 2/1/11.

(4)
On 12/24/08, we granted to Mr. Teague 2,658 shares of restricted stock, 1/3 of which shares vested on the date of grant and 1/3 or which vest on each of 2/1/10 and 2/1/11.

(5)
On 12/24/08, we granted to Mr. Dinkler 221 shares of restricted stock, 1/3 of which shares vested on the date of grant and 1/3 or which vest on each of 2/1/10 and 2/1/11.

Option Exercises and Stock Vested in 2009
 
The following table sets forth information about the exercise of stock options and vesting of restricted stock held by our named executive officers during 2009.

 
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Stock Awards
 
Name
 
Number of
Shares
Acquired on
Vesting (#)
   
Value Realized
on Vesting
($)(1)
 
             
Harold Edwards
    1,595     $ 199,534  
                 
Don Delmatoff
    762     $ 95,326  
                 
Alex Teague
    886     $ 110,839  
                 
Peter Dinkler     74     $ 9,257  
 

 
(1)
Based on a fair market value of our Common Stock on December 24, 2008, the date of vesting, of $125.10 per share.

Pension Benefits in Fiscal Year 2009
 
The company’s defined benefit pension plan is a tax-qualified retirement plan that covers eligible employees of the company.  Effective April 28, 2004, participation in such plan was frozen so that anyone who was hired by the company on or after April 29, 2004 is ineligible to participate in such plan.  Under the plan, age 65 is considered normal retirement age.  Participating employees may retire with benefits as early as age 55 provided they then have at least five years of qualifying service.  Normal retirement benefits for a participant are calculated based on such participant’s highest average pay over any five consecutive calendar years of employment.  The maximum benefit is payable to employees who retire at age 65 with 30 or more years of service and is equal to 65% of such highest average pay less 60% of the applicable participant’s estimated annual Social Security benefit.  For participating employees who retire at age 65 with less than 30 years of service, their retirement benefit is equal to such maximum benefit amount multiplied by a fraction the numerator of which is total years of qualifying service and the denominator of which is 30.  For participating employees who elect to retire prior to age 65, the benefits under the company’s defined benefit pension plan that would otherwise be payable to them at age 65 are actuarially reduced to account for the longer period they are expected to be receiving payments.
 
Benefits are paid in the form of a life annuity, with married employees having the option to elect to receive benefit payments in the form of a 50% joint and survivor annuity.  Additionally,  participating retiring employees may elect a 10-year certain and life optional form of payment, a contingent annuity with a 10-year certain and life optional form of payment or a 100%, 75% or 50% joint and survivor optional form of payment naming someone other than his or her spouse as joint annuitant.

Name
 
Plan Name
 
Number of Years
Credited Service
(#)
   
Present
Value of Accumulated
Benefit
($)(1)
   
Payments
During
Last
Fiscal Year
($)
 
                       
Harold Edwards
 
Limoneira Company Retirement Plan (2)
    0.5     $ 3,295        
                             
Don Delmatoff
 
Limoneira Company Retirement Plan (2)
    4.33     $ 49,898        
                             
Peter Dinkler
 
Limoneira Company Retirement Plan (2)
    35.24     $ 640,960        

 
50

 
 

 
(1)
Liabilities shown in this column are computed using the projected unit credit method reflecting average salary and service as of the fiscal year end.  The material assumptions used to determine these liabilities can be found in the fiscal year end FAS Disclosures Actuarial Valuation Report, except we assumed no pre-retirement decrements and that retirement occurs at the plan’s earliest unreduced retirement age.

(2)
The plan’s benefit formula is integrated with Social Security and is based on the participant’s years of service for the Company and “Final Average Compensation.”  Compensation is limited to the applicable Internal Revenue Code section 401(a)(17) limit.  The plan benefit is limited to the applicable Internal Revenue Code section 415(b) limit.  Only employees hired before June 30, 2004 are eligible to participate in the plan.  In addition, eligibility for the plan occurs no later than the completion of 500 Hours of Service in the first 12 months of employment.  Effective June 30, 2004, the plan was frozen.  Additional Benefit Service cannot be earned after June 30, 2004.  Early retirement age is the first day of any month after age 55, provided the participant ha earned five years of vesting service at the time of retirement.
 
Director Compensation Table
 
The following table summarizes the compensation paid by us to directors who are not named executive officers for the fiscal year ended October 31, 2009:
 
Name
 
Fees Earned or
Paid in Cash ($)
   
Stock
Awards ($)
   
Total ($)
 
                   
John W. Blanchard
  $ 23,000     $ 20,000     $ 43,000  
                         
Lecil E. Cole
  $ 26,000     $ 20,000     $ 46,000  
                         
Gordon E. Kimball
  $ 22,400     $ 20,000     $ 42,400  
                         
John W.H. Merriman
  $ 24,800     $ 20,000     $ 44,800  
                         
Ronald Michaelis
  $ 22,400     $ 20,000     $ 42,400  
                         
Allan M. Pinkerton
  $ 21,800     $ 20,000     $ 41,800  
                         
Robert M. Sawyer
  $ 21,800     $ 20,000     $ 41,800  
                         
Alan M. Teague
  $ 50,000     $ 20,000     $ 70,000  

All of the members of the compensation committee are independent directors under the listing standards of the NASDAQ Stock Market and under the company’s corporate governance requirements.  Other than our investment in Charlie Kimball Racing as described below and in “Item 7.  Certain Relationships and Related Transactions, and Director Independence - Contractual Arrangements with Related Parties,” no member of the compensation committee has had any relationship with the company requiring the disclosure under Item 404 of Regulation S-K under the Exchange Act.
 
ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Policy for Approval of Related Person Transactions
 
Any transaction required to be disclosed pursuant to Item 404 of Regulation S-K, which we refer to as related party transactions, must be reviewed and approved for potential conflict of interest by our audit and finance committee, which is comprised entirely of independent directors.  The company may not enter into or engage in any related party transaction with a related party without such approval.  Details of related party transactions will be publicly disclosed as required by applicable law.
 
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Contractual Arrangements with Related Parties
 
Calavo Growers, Inc. Office Lease
 
Since 2007, we have leased office space to Calavo and have received annual rental income from Calavo in the amount of $0.22 million for each of 2009, 2008 and 2007.   Calavo is the beneficial owner of approximately 15.1% of our issued and outstanding common stock.
 
Calavo Growers, Inc. Marketing Agreement
 
We market our avocados through Calavo, which owns approximately 15.3% of our outstanding common stock and is an affiliate of our director Lecil E. Cole, pursuant to a marketing agreement.  During the fiscal year ended October 31, 2009, Calavo paid us approximately $2.7 million with respect to avocados we marketed through Calavo.
 
Investment in  Charlie Kimball Racing
 
Since 2007, we have made three investments of $100,000, for a total of $300,000, in Charlie Kimball Racing.  Charlie Kimball is a formula car driver and the son of Gordon Kimball, one of our directors.  Pursuant to the terms of the investments, each investment is to be used by Charlie Kimball to further his career goal of becoming a Formula One driver and winning the Formula One World Championship.  The terms of the investments provide that each $100,000 investment will be repaid upon the first to occur of any of the following: (a) Charlie Kimball enters university as a full time student, which we refer to as the student trigger; (b) Charlie Kimball reaches the position of a full time salaried driver in the Formula One World Championship, which we refer to as the F1 trigger; and (c) we exercise the option to have our investment repaid, which may not occur prior to January 23, 2010, which we refer to as the investor trigger.  For each $100,000 investment, we will be repaid the following amounts: (x) in the event of the student trigger, we will be repaid the amount of our investment; (y) in the event of the F1 trigger, we will be repaid twice our investment in three equal annual installments beginning 120 days following the day the F1 trigger occurs; and (z) in the event of the investor trigger, we will be repaid the amount of our investment within one year after the investor trigger is exercised with an additional $25,000 payment if Charlie Kimball is a professional (salaried) racing driver on the day the investor trigger is exercised.
 
Director Independence
 
Our common stock is not currently listed on any national exchange, or quoted on any inter-dealer quotation service, that imposes independence requirements on our board of directors or any committee thereof.  Following the effectiveness of this registration statement and after addressing any comments from the Division of Corporation Finance of the SEC, we expect that our common stock will be accepted for listing on the NASDAQ Stock Market under the ticker symbol “LMNR.” The Rules of the NASDAQ Stock Market require that a majority of our board of directors be independent.  Our board of directors has reviewed the materiality of any relationship that each of our directors has with the company, either directly or indirectly.  Based on this review, our board of directors has determined that the following directors are “independent directors” within the meaning of NASDAQ Stock Market Marketplace Rule 4200(a)(15):  John W. Blanchard, Gordon E. Kimball, John W. H. Merriman, Ronald L. Michaelis, Allan M. Pinkerton, Keith W. Renken and Robert M. Sawyer.
 
ITEM 8.
LEGAL PROCEEDINGS
 
We are from time to time involved in legal proceedings arising in the normal course of business.  Other than proceedings incidental to our business, we are not a party to, nor is any of our property the subject of, any material pending legal proceedings and no such proceedings are, to our knowledge, threatened against us.
 
ITEM 9.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
Market Information

Our common stock is currently quoted under the symbol “LMNR.PK” on the PinkSheets, a centralized quotation service that collects and publishes market maker quotes for over-the-counter securities.  There is no assurance that our common stock will continue to be traded on the PinkSheets or that any liquidity exists for our stockholders.

 
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Market Price

The following table shows the high and low per share price quotations of our common stock as reported by the PinkSheets for the periods presented.  These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions.  The PinkSheets market is extremely limited and the prices quoted by brokers are not a reliable indication of the value of our common stock.  Furthermore, since limited or no public information was available about our business, operating results or financial condition during the time the trades occurred, the trading prices set forth below might not reflect the historical value of our company on a per share basis, nor be an accurate indication of the prices at which shares may be traded in the future.  On December 31, 2009, the last sale price of our common stock as reported by the Pink Sheets was $145.00 per share.

   
High
   
Low
 
2010
           
First quarter ended January 31, 2010
  $ 154.95     $ 135.00  
                 
2009
               
Fourth quarter ended October 31, 2009