Unassociated Document
AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 2010
REGISTRATION
NO. 0-53885
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
No. 3
to
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
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77-0260692
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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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
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NAME
OF EACH EXCHANGE ON WHICH
EACH
CLASS IS TO BE REGISTERED
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None
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None
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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
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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x (Do not check if a smaller
reporting company)
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Smaller reporting company
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¨
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TABLE
OF CONTENTS
ITEM
1.
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BUSINESS
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3
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ITEM
1A.
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RISK
FACTORS
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14
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ITEM
2.
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FINANCIAL
INFORMATION
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23
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ITEM
3.
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PROPERTIES
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40
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ITEM
4.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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41
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ITEM
5.
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DIRECTORS
AND EXECUTIVE OFFICERS
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42
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ITEM
6.
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EXECUTIVE
COMPENSATION
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45
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ITEM
7.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
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53
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ITEM
8.
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LEGAL
PROCEEDINGS
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54
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ITEM
9.
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MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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54
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ITEM
10.
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RECENT
SALES OF UNREGISTERED SECURITIES
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58
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ITEM
11.
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DESCRIPTION
OF REGISTRANT’S SECURITIES TO BE REGISTERED
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59
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ITEM
12.
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
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63
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ITEM
13.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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63
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ITEM
14.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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63
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ITEM
15.
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FINANCIAL
STATEMENTS AND EXHIBITS
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64
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EXPLANATORY
NOTE
We are
filing this Amendment No. 3 to Form 10, which we refer to as this
Amendment, to amend the Company’s registration statement on Form 10, as
initially filed with the Securities and Exchange Commission on February 12,
2010, which we refer to as the Original Filing, and as amended by Amendment No.
1 to Form 10 filed with the SEC on March 31, 2010, which we refer to as
Amendment No. 1 and Amendment No. 2 to Form 10 filed with the SEC on April 16,
2010, which we refer to as Amendment No. 2. This Amendment amends the
Original Filing, as amended by Amendments No. 1 and No. 2, in its entirety to
add additional disclosure in response to comments received from the staff of the
SEC. This Amendment should be read in conjunction with the Company’s
other filings made with the SEC subsequent to the date of the Original Filing,
including any amendments to those filings.
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.
On March
23, 2010, our stockholders approved a proposal that we split our shares on a
ten-for-one basis. Consequently, unless otherwise noted all references to, and
descriptions of, our common stock have been adjusted to reflect the stock split,
which became effective on March 24, 2010. 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 LLC 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:
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changes
in laws, regulations, rules, quotas, tariffs, and import
laws;
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weather
conditions, including freezes, that affect the production, transportation,
storage, import and export of fresh
produce;
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market
responses to industry volume
pressures;
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increased
pressure from disease, insects and other
pests;
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disruption
of water supplies or changes in water
allocations;
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product
and raw materials supplies and
pricing;
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energy
supply and pricing;
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changes
in interest and currency exchange
rates;
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availability
of financing for land development
activities;
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political
changes and economic crises;
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international
conflict;
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labor
disruptions, strikes or work
stoppages;
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loss
of important intellectual property rights;
and
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other
factors disclosed in this registration
statement.
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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.
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. In addition, general
information concerning our Company can be found on our website, the internet
address of which is www.limoneria.com.
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, according to Sunkist Growers,
Inc., we are one of the largest growers of lemons in the United
States and, according to the California Avocado Commission, the largest
grower of 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 one of the largest growers of
lemons and the largest grower of 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.
Lemons. We are one
of the largest lemon growers 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 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.
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.
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.
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.
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 pre-annexation and development agreement with Santa
Paula. The
development agreement with the City of Santa Paula related to East Area I was
approved by ordinance No. 1191 on March 17, 2008 (which ordinance became
effective by its terms on April 17, 2008) and contemplates a development project
consisting of up to 1,500 residential units and an estimated 810,800 square feet
of office, retail, light industrial and civic facilities, together with schools,
park sites and open spaces. The final discretionary approval required
prior to construction of the project is the annexation of the land into the City
of Santa Paula. The action is taken by the Local Agency Formation
Commission, which we refer to as LAFCO, and is due to be approved through this
agency by the end of summer 2010. The remaining permits are
non-discretionary and include a final tract map, complete “Site Civil
Construction Drawings” and offsite construction drawings. We
anticipate that these permits will be issued by spring 2011. 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.
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The
Terraces at Pacific Crest is an approximately eight-acre parcel approved
for 112 attached-housing units.
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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.
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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.
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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 one of the largest growers of lemons and the
largest grower of 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.
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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.
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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.
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We
have contiguous and nearby land resources that permit us to efficiently
use our agricultural land and
resources.
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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.
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We
own approximately 90% of our agricultural land and can take a long view on
fruit production practices.
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We
have a well-trained and retentive labor force with many employees
remaining with the company for more than 30
years.
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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.
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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.
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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.
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Rental
Operations
With
respect to our rental operations segment, we believe our competitive advantages
are as follows:
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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.
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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.
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Our
organic recycling business provides us with a low cost, environmentally
friendly solution to weed and erosion
control.
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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.
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Real
Estate Development
With
respect to our real estate development segment, we believe our competitive
advantages are as follows:
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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.
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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.”
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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.
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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Rental
Operations
With
respect to our rental operations segment, key elements of our strategy
include:
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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.
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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.
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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.
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Real
Estate
With
respect to our real estate segment, key elements of our strategy
include:
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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.
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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 through all of our avocado production. Our
lemons are packed in our own packinghouse, our avocados are packed using Calavo
and a majority of our oranges are packed using other third-party,
Sunkist-affiliated packinghouses. 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.
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.
Capital
Structure Changes
Effective
March 24, 2010, we amended our certificate of incorporation to increase the
authorized number of shares of common stock and effect a ten-for-one split of
our common stock.
ITEM
1A. RISK
FACTORS
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.
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:
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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.
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We
cannot predict the pricing or promotional actions of our competitors or
whether those actions will have a negative effect on
us.
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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.
Our
earnings are subject to seasonal variability.
Our
earnings may be affected by seasonal factors, including:
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the
seasonality of our supplies and consumer
demand;
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the
ability to process products during critical harvest periods;
and
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the
timing and effects of ripening and
perishability.
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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.
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.
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.
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. In
addition, while we have entered into interest rate swaps as hedging instruments
to fix a substantial portion of the variable component of our indebtedness, such
interest rate swaps could also have an adverse impact on the comparative results
of operation of the company if prevailing interest rates remain below fixed
rates established in such instruments.
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:
|
·
|
availability
of financing;
|
|
·
|
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.
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;
|
|
·
|
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 LLC, 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.
|
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 which will be
required to be audited by an Independent Registered Public Accounting
Firm. 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 for the Respective Years Ended October 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
(0.28
|
)
|
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
0.36
|
|
|
$
|
0.20
|
|
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
|
|
$
|
0.06
|
|
|
$
|
0.33
|
|
|
$
|
0.23
|
|
|
$
|
0.23
|
|
|
$
|
0.23
|
|
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.
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 are
one of the largest growers of lemons and the largest grower of 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.
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 March
23, 2010, the company declared a $0.3125 per share dividend in the aggregate
approximate amount of $0.4 million to stockholders of record on March 23, 2010.
After
adjusting for the stock split approved by our stockholders on March 23, 2010,
the per share dividend is $0.03125.
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 on
November 15, 2009, the results of operations and all of the assets and
liabilities of Windfall Investors are 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-79. 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 originally matured in November, 2009. The maturity date, however, was
extended to March 1, 2010 and subsequently extended by Farm Credit West until
May 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
and for the quarter ended January 31, 2010 and 2009 were as follows:
|
|
Year Ended October 31
|
|
|
Three
Months Ended January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
$
|
31,033,000
|
|
|
$
|
49,794,000
|
|
|
$
|
44,751,000
|
|
|
$
|
5,272,000
|
|
|
$
|
4,005,000
|
|
Rental
|
|
|
3,766,000
|
|
|
|
3,718,000
|
|
|
|
3,516,000
|
|
|
|
955,000
|
|
|
|
911,000
|
|
Other
|
|
|
39,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135,000
|
|
|
|
—
|
|
Total
revenues
|
|
|
34,838,000
|
|
|
|
53,512,000
|
|
|
$
|
48,267,000
|
|
|
|
6,362,000
|
|
|
|
4,916,000
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
|
27,281,000
|
|
|
|
34,805,000
|
|
|
|
32,036,000
|
|
|
|
6,893,000
|
|
|
|
6,639,000
|
|
Rental
|
|
|
2,061,000
|
|
|
|
2,236,000
|
|
|
|
2,073,000
|
|
|
|
507,000
|
|
|
|
580,000
|
|
Other
|
|
|
318,000
|
|
|
|
991,000
|
|
|
|
1,160,000
|
|
|
|
327,000
|
|
|
|
83,000
|
|
Selling,
general and administrative
|
|
|
6,469,000
|
|
|
|
8,292,000
|
|
|
|
9,627,000
|
|
|
|
3,416,000
|
|
|
|
1,478,000
|
|
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
|
|
|
|
11,143,000
|
|
|
|
8,780,000
|
|
Operating
(loss) income
|
|
|
(7,504,000
|
)
|
|
|
5,836,000
|
|
|
|
3,315,000
|
|
|
|
(4,781,000
|
)
|
|
|
(3,864,000
|
)
|
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
|
)
|
|
|
363,000
|
|
|
|
336,000
|
|
Interest
income
|
|
|
225,000
|
|
|
|
902,000
|
|
|
|
2,300,000
|
|
|
|
29,000
|
|
|
|
37,000
|
|
Interest
expense
|
|
|
(692,000
|
)
|
|
|
(1,419,000
|
)
|
|
|
(2,102,000
|
)
|
|
|
(428,000
|
)
|
|
|
(213,000
|
)
|
Total
other income (expense)
|
|
|
2,518,000
|
|
|
|
(114,000
|
)
|
|
|
164,000
|
|
|
|
(36,000
|
)
|
|
|
160,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
and equity (losses) earnings
|
|
|
(4,986,000
|
)
|
|
|
5,722,000
|
|
|
|
3,479,000
|
|
|
|
(4,817,000
|
)
|
|
|
(3,704,000
|
)
|
Income
tax benefit (provision)
|
|
|
2,291,000
|
|
|
|
(2,128,000
|
)
|
|
|
(1,177,000
|
)
|
|
|
1,709,000
|
|
|
|
1,652,000
|
|
Equity
in (losses) earnings of investments
|
|
|
(170,000
|
)
|
|
|
153,000
|
|
|
|
89,000
|
|
|
|
(16,000
|
)
|
|
|
(24,000
|
)
|
(Loss)
income from continuing operations
|
|
|
(2,865,000
|
)
|
|
|
3,747,000
|
|
|
|
2,391,000
|
|
|
|
(3,124,000
|
)
|
|
|
(2,076,000
|
)
|
Loss
from discontinued operations, net of income taxes
|
|
|
(12,000
|
)
|
|
|
(252,000
|
)
|
|
|
(245,000
|
)
|
|
|
(8,000
|
)
|
|
|
(1,000
|
)
|
Net
(loss) income
|
|
|
(2,877,000
|
)
|
|
|
3,495,000
|
|
|
|
2,146,000
|
|
|
|
(3,132,000
|
)
|
|
|
(2,077,000
|
)
|
Preferred
dividends
|
|
|
(262,000
|
)
|
|
|
(262,000
|
)
|
|
|
(262,000
|
)
|
|
|
(66,000
|
)
|
|
|
(66,000
|
)
|
Net
(loss) income applicable to common stock
|
|
$
|
(3,139,000
|
)
|
|
$
|
3,233,000
|
|
|
$
|
1,884,000
|
|
|
$
|
(3,198,000
|
)
|
|
$
|
(2,143,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
common share-basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.28
|
)
|
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
Discontinued
operations
|
|
|
(0.00
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
Basic
net (loss) income per share
|
|
$
|
(0.28
|
)
|
|
$
|
0.29
|
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
common share-diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(0.28
|
)
|
|
$
|
0.31
|
|
|
$
|
0.19
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
Discontinued
operations
|
|
|
(0.00
|
)
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
Diluted
net (loss) income per share
|
|
$
|
(0.28
|
)
|
|
$
|
0.29
|
|
|
$
|
0.17
|
|
|
$
|
(0.28
|
)
|
|
$
|
(0.19
|
)
|
Dividends
per common share
|
|
$
|
0.06
|
|
|
$
|
0.33
|
|
|
$
|
0.23
|
|
|
$
|
0.03
|
|
|
$
|
0.03
|
|
Weighted-average
shares outstanding-basic
|
|
|
11,242,000
|
|
|
|
11,128,000
|
|
|
|
11,068,000
|
|
|
|
11,246,000
|
|
|
|
11,195,000
|
|
Weighted-average
shares outstanding-diluted
|
|
|
11,254,000
|
|
|
|
11,158,000
|
|
|
|
11,068,000
|
|
|
|
11,246,000
|
|
|
|
11,234,000
|
|
See
Notes to Consolidated Financial Statements. All shares and per share amounts
have been adjusted to reflect the capital structure changes effective as of
March 24, 2010.
First
Quarter Fiscal 2010 Compared to First Quarter Fiscal 2009
Revenues
Total
revenue for the first quarter of fiscal 2010 was $6.4 million compared to $4.9
million for the first quarter of fiscal 2009. The $1.5 million increase was
primarily the result of a $1.3 million increase in our agriculture revenue. With
lower volume of fruit available for sale in the first quarter of
fiscal 2010 compared to the first quarter of fiscal 2009, our average per carton
sales price for our lemons was substantially higher in our 2010 first fiscal
quarter resulting in a $0.2 increase in lemon revenue for the first three months
of fiscal 2010 compared to the first three months of fiscal 2009. An
unseasonable heat event in 2008 had an adverse impact on our 2009 Navel and
Valencia orange, Avocado and specialty citrus crops resulting in significantly
less production in these crops in the first quarter of fiscal 2009 compared to
the first quarter of fiscal 2010. Revenue in the first quarter of fiscal 2010
for our Navel and Valencia oranges, our avocados and our specialty citrus was
$0.7 million, $0.2 and $0.9 million, respectively compared to the first quarter
of fiscal 2009 revenues of $0.4 million, $0.0 million and $0.3 million for our
Navel and Valencia, Avocado and specialty citrus crops, respectively.
Costs
and Expenses
Our total
costs and expenses for the first quarter of fiscal 2010 were $11.1 million
compared to $8.8 million for the first quarter of fiscal 2009. A $0.3 million
increase in our agricultural expenses in the first fiscal quarter of 2010 over
the first fiscal quarter of 2009 was the result of higher payments to our
affiliated growers in the 2010 period compared to the 2009 period resulting from
higher per carton sales prices in 2010 compared to 2009 and the timing of
certain of our cultural costs in 2010 compared to when those costs were incurred
in 2009. Partially offsetting these increases were less inventoried cultural
costs being expensed in the first quarter of fiscal 2010 compared to the first
quarter of fiscal 2009. See footnote 2 to our consolidated financial statements
for the three months ended and as of January 31, 2010 for an explanation of the
accounting treatment of certain of our cultural costs.
Costs for
our rental business were $0.5 million in the first quarter of fiscal 2010
compared to $0.6 million in the first quarter of fiscal 2009 the result of lower
repair costs for our residential housing business in 2010 compared to 2009.
Other costs amounted to $0.3 million in the first quarter of fiscal 2010 and
$0.1 million in the first quarter of fiscal 2009. This increase was attributable
to costs associated to Windfall Farms which we assumed control of in November
2009.
Selling,
general and administrative costs for the three months ended January 31, 2010
were $3.4 million compared to $1.5 million for the three months ended January
31, 2009. This $1.9 million increase was primarily attributable to a $1.3
million non-cash charge related to our stock grant performance bonus plan. At
October 31, 2009 we had notes receivable from our three senior executive
officers totaling $1.7 million. These notes were issued in connection with loans
issued to these officers to allow them to pay the taxes associated with the
compensation to the officers for the shares issued to them in prior years under
this bonus plan. During the first quarter of fiscal 2010 the outstanding
balances for these loans were repaid by the officers by returning 6,758 of the
shares issued to them with a current market value on the date they were returned
of $150.98 per share and loan forgiveness by Limoneira totaling $0.7 million.
The loan forgiveness resulted in additional compensation to the
officers and Limoneira paid on their behalf $0.6 million in taxes
associated with this compensation. This $1.3 million non-cash charge is included
in selling, general and administrative expenses in the first quarter of fiscal
2010. Costs in the first quarter of 2010 in connection
with the preparation of our fiscal 2009 audited financial statements and the
filing of our Form 10 with the Securities and Exchange
Commission totaled $0.6 million. Costs in the first quarter of 2009
in connection with the preparation of our fiscal 2008 audited financial
statements were $0.1 million. Additionally, the 2010 first quarter also includes
$0.1 million of employee incentive accruals. There were no employee incentive
accruals recorded during the first quarter of fiscal 2009.
Other
Income/Expense
Our other
income (expense) consists of interest income, interest expense and other
miscellaneous income/expense. For the first quarter of fiscal 2010 our other
income (expense), net totaled $0.04 million and included $0.03 million of
interest income, ($0.43) million of interest expense and $0.36 million of other
miscellaneous income. This compares to interest income of $0.04 million,
interest expense of ($0.21) and $0.34 million of other miscellaneous income for
the first quarter of fiscal 2009. The $0.22 million increase in interest expense
in 2010 is the result of our assumption of debt as part of the Windfall
Investors, LLC acquisition in November 2009.
Income
Taxes
The
company recorded an estimated income tax benefit of $1.7 million in the first
quarter of fiscal 2010 on pre-tax losses from continuing operations of $4.8
million compared to an estimated income tax benefit of $1.6 million on pre-tax
losses from continuing operations of $3.7 million in the first quarter of fiscal
2009. Our estimated effective tax rate was 35.3% for the first quarter of 2010
compared to an estimated rate of 44.3% for the first quarter of 2009. The
primary reason for this decrease in our estimated effective tax rate was a 50%
increase in the allowable domestic production deduction in 2010 over the 2009
allowable deduction.
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.
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.
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 and the quarters ended January 31, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three
months ended January 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2010
|
|
|
2009
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agribusiness
|
|
$
|
31,033,000
|
|
|
$
|
49,794,000
|
|
|
$
|
44,751,000
|
|
|
$
|
5,272,000
|
|
|
$
|
4,005,000
|
|
Rental
operations
|
|
|
3,766,000
|
|
|
|
3,718,000
|
|
|
|
3,516,000
|
|
|
|
955,000
|
|
|
|
911,000
|
|
Real
estate development
|
|
|
39,000 |
|
|
|
— |
|
|
|
— |
|
|
|
135,000 |
|
|
|
— |
|
Total
revenues
|
|
|
34,838,000
|
|
|
|
53,512,000
|
|
|
|
48,267,000
|
|
|
|
6,362,000
|
|
|
|
4,916,000
|
|
Costs
and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agribusiness
|
|
|
27,281,000
|
|
|
|
34,805,000
|
|
|
|
32,036,000
|
|
|
|
6,893,000
|
|
|
|
6,639,000
|
|
Rental
operations
|
|
|
2,061,000
|
|
|
|
2,236,000
|
|
|
|
2,073,000
|
|
|
|
507,000
|
|
|
|
580,000
|
|
Real
estate development
|
|
|
318,000
|
|
|
|
991,000
|
|
|
|
1,160,000
|
|
|
|
327,000
|
|
|
|
83,000
|
|
Corporate
and other
|
|
|
6,469,000
|
|
|
|
8,292,000
|
|
|
|
9,627.000
|
|
|
|
3,416,000
|
|
|
|
1,478.000
|
|
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
|
|
|
|
11,143,000
|
|
|
|
8,780,000
|
|
Operating
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agribusiness
|
|
|
3,752,000
|
|
|
|
14,989,000
|
|
|
|
12,715,000
|
|
|
|
(1,621,000
|
)
|
|
|
(2,634,000
|
)
|
Rental
operations
|
|
|
1,705,000
|
|
|
|
1,482,000
|
|
|
|
1,443,000
|
|
|
|
448,000
|
|
|
|
331,000
|
|
Real
estate development
|
|
|
(6,482,000
|
)
|
|
|
(2,332,000
|
)
|
|
|
(1,160,000
|
)
|
|
|
(192,000
|
)
|
|
|
(83,000
|
)
|
Corporate
and other
|
|
|
(6,479,000 |
)
|
|
|
(8,303,000 |
)
|
|
|
(9,683,000 |
)
|
|
|
(3,416,000 |
)
|
|
|
(1,478,000 |
)
|
Total
operating income (loss)
|
|
$
|
(7,504,000
|
)
|
|
$
|
5,836,000
|
|
|
$
|
3,315,000
|
|
|
$
|
(4,781,000 |
)
|
|
$
|
(3,864,000 |
)
|
First
Quarter of Fiscal 2010 Compared to the First Quarter of Fiscal 2009
Agribusiness
For the
first three months of 2010 our agribusiness segment revenue was $5.3 million
compared to $4.0 million for the first three months of 2009. The $1.3 million
increase reflected higher revenue in all varieties of our crops for the fiscal
2010 first quarter compared to the fiscal 2009 first quarter. Revenue from lemon
sales increased by $0.2 million, from $3.2 million in the first quarter of
fiscal 2009 to $3.4 million in the first quarter of fiscal 2010. This increase
resulted from substantially higher per carton sales prices in 2010 compared to
2009 partially offset by lower volume in 2010 compared to 2009. In the first
quarter of fiscal 2010 we sold approximately 187,000 fresh lemon cartons at an
average per carton sales price of $18.07 compared to 205,000 fresh cartons at an
average per carton price of $14.74 in the first quarter of fiscal 2009. This
22.6% increase in the average sales price was attributable to lower industry
volume of available fruit in the 2010 first quarter compared to the 2009 first
quarter which allowed us to maintain higher prices in 2010. Our avocado revenue
was $0.2 million in the first quarter of fiscal 2010 compared to zero in the
first quarter of fiscal 2009. The absence of avocado revenue in the first
quarter of 2009 reflected our efforts to manage our very small 2009 avocado crop
by delaying the harvest to capture higher prices later in the year. The small
2009 avocado crop was the result of unseasonable heat in the Spring of 2008 that
adversely impacted the bloom and set of the 2009 crop. Our Navel and Valencia
orange revenue was $0.7 million for the first quarter of 2010 compared to $0.4
million for the first quarter of 2009. This $0.3 million increase was
attributable to our navel orange crop which produced approximately 100,000
cartons in the first quarter of 2010 compared to approximately 54,000 cartons in
the first quarter of 2009. As with our avocados, the lower production in 2009
resulted from the unseasonable heat event in the Spring of 2008 adversely
impacting the 2009 crop. Our specialty citrus revenue was $0.9 million for the
first quarter of 2010 compared to $0.3 million for the first quarter of 2009 on
lower volume in 2009 compared to 2010 caused by the 2008 heat event.
For the
first three months of 2010 our agribusiness costs and expenses were $6.9 million
compared to $6.6 million for the first three months of 2009. The $0.3 increase
was attributable to higher per carton sales prices for lemons in 2010 which
resulted in a $0.5 million increase in payments to our affiliated growers in the
first quarter of fiscal 2010 compared to the first quarter of fiscal 2009. Our
cultural costs for the first quarter of 2010 were $2.6 million compared to $2.0
million for the first quarter of 2009. This $0.6 increase was attributable to
the timing of certain fertilization, pest control and other tree care costs in
2010 compared to when those costs were incurred in 2009. Additionally, weather
related incidents caused higher frost protection costs in the first quarter of
2010 compared to the first quarter of 2009. Partially offsetting these increases
were lower costs associated with our lemon packing operations. In the first
quarter of 2010 we had $0.1 million lower electricity costs for our packinghouse
compared to the first quarter of 2009 as a result of our solar energy production
and the associated rebate payments received under the California Solar
Initiative. First quarter 2010 labor and benefit costs in our packinghouse were
$0.3 million lower than the first quarter of 2009 because of excess labor costs
in the first quarter of 2009 related to our custom pack program. We also
received payments under a pallet expense reimbursement program with Sunkist
Growers. During the first quarter of 2010 we received payments totaling $0.2
million compared to $0.1 million in the first quarter of 2009. Additionally,
with approximately 18,000 fewer fresh cartons sold in the first quarter of 2010
compared to the first quarter of 2009 our combined carton expense and selling
and advertising costs, both of which are carton volume driven, our first quarter
2010 costs were $0.1 million lower than the first quarter of 2009. Depreciation
expense in our agribusiness amounted to $0.4 million in the first quarter of
2010 and 2009.
Rental
Operations
Our
rental operations had revenue of $0.95 million in the first quarter of 2010
compared to $0.91 million in the first quarter of 2009. All three areas of this
segment, housing and commercial, leased land and organic recycling, had small
increases in revenues in the 2010 first quarter compared to the 2009 first
quarter. Our occupancy rate in our residential housing business was slightly
better in the first quarter of 2010 compared to the first quarter of 2009
however, because of the downturn in the economy we chose not to institute any
rent increases in the first quarter of 2010 and all of 2009. Revenue from the
housing and commercial component of this segment was $0.53 million for the first
quarter of 2010 compared to $0.51 million for the first quarter of 2009. The
revenue from the leased land component of this segment was $0.38 million for the
first quarter of 2010 compared to $0.36 million for the first quarter of 2009.
This slight increase was the result of scheduled rent increases on four of our
leases.
Total
expenses in our rental operations segment were $0.5 million in the first quarter
of 2010 compared to $0.6 million in the first quarter of 2009 reflecting lower
costs for repairs in our residential business. Depreciation expense in our
rental operations segment was $0.1 million in the first quarter of 2010 and
2009.
Real
Estate Development
Our real
estate development segment had revenue of $0.1 million in the first quarter of
2010 and no revenue in the first quarter of 2009. The 2010 revenue represented
lease income from some of the facilities at Windfall Farms and from one of our
Paradise Valley, Arizona real estate properties. As a means of offsetting some
of the costs at our Windfall Farms development project during its development
stage we are leasing some of the equestrian facilities to independent horse
trainers and some of the acreage to alfalfa growers. In June 2009 we
entered into a lease for one of our Paradise Valley homes. The lease has an
initial term of two years with an option for a third year. The lessee has an
option to purchase the property during the option period.
Costs and
expenses in our real estate development segment were $0.3 million in the first
quarter of 2010 compared to $0.1 million in the first quarter of 2009. The 2010
costs are primarily maintenance costs, property taxes and utility costs incurred
at our Windfall Farms project and to a lesser extent, costs for our East Area 1
project that are not capitalized. The 2009 costs consist entirely of costs at
our East Area 1 project that are not capitalized.
Corporate
and Other
Corporate
costs and expenses include selling, general and administrative costs and other
costs not allocated to the operating segments. For the first quarter of 2010
corporate and other costs were $3.4 million compared to $1.5 million for the
first quarter of 2009. The $1.9 million increase was attributable to a $1.3
million non-cash charge related to our stock grant performance bonus program. At
October 31, 2009 we had notes receivable from our three senior executive
officers totaling $1.7 million. These notes were issued in connection with loans
issued to these officers to allow them to pay the taxes associated with the
compensation to the officers for the shares issued to them in prior years under
this bonus plan. During the first quarter of 2010 the outstanding balances of
these loans were repaid by the officers by returning 6,758 of the shares issued
to them valued at $150.98 per share which was the current market value on the
date they were returned and loan forgiveness by Limoneira totaling $0.7 million.
The loan forgiveness resulted in additional compensation to the officers and
Limoneira paid on their behalf $0.6 million in taxes associated with this
compensation. The $1.3 million non-cash charge is included in selling, general
and administrative expense for the first quarter of 2010. Costs in the first
quarter of 2010 in connection with the preparation of our fiscal 2009 audited
financial statements and the filing of our Form 10 with the Securities and
Exchange Commission in February 2010 totaled $0.6 million. Costs in the first
quarter of 2009 in connection with the preparation of our 2008 audited financial
statements were $0.1 million. Additionally, the first quarter of 2010 also
includes $0.1 million in employee incentive accruals. There were no employee
incentive accruals recorded during the first quarter of fiscal 2009.
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.
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.
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 the
first three months of fiscal 2010 cash used in our operating
activities totaled $5.5 million compared to using $7.2 million in the first
three months of fiscal 2009. Our net loss for the first quarter of 2010 was $3.1
million compared to a net loss of $2.1 million in the first quarter of 2009.
Included in the net loss for the first quarter of 2010 was a $1.5 million
non-cash charge related to our stock grant performance bonus and Director
compensation programs. This compares to a non-cash charge of $0.2 million for
these programs in the first quarter of 2009. Operating cash flow impacts
resulting from changes in accounts payable and growers payable
balances provided $0.5 of operating cash flows in the first
quarter of 2010 compared to using $1.2 million of cash in the first quarter of
2009. Significant costs related to our lemon packing and Southern farming
operations that were included in accounts payable at October 31, 2008 were paid
in the first quarter of 2009. Operating cash flow impacts resulting from
changes in accrued liabilities balances used $0.05 million in operating
cash flows in the first quarter of 2010 compared to using $1.7 million in the
first quarter of 2009. Accrued bonuses of $1.3 million for fiscal 2008 were
included in accrued liabilities at October 31, 2008 and paid in the first
quarter of 2009. There were no accrued bonuses at October 31, 2009 for fiscal
2009. Operating cash flow impacts resulting from changes in accounts and
notes receivable balances used $2.9 million in operating cash flows in the
first quarter of 2010 compared to using $1.4 million in operating cash flows in
the first quarter of 2009. This increase was primarily the result of an increase
in accounts receivable in the first quarter of 2010 of $2.8 million compared to
an increase of $1.4 million in the first quarter of 2009. Higher agricultural
revenues in the first quarter of 2010 compared to the first quarter of 2009 was
the primary reason for this increase.
For
fiscal 2009, the company’s operating activities used approximately $1.0 million
compared to providing approximately $6.8 million in fiscal 2008. The
decrease in cash provided by operating activities in 2009 was primarily due to
lower net income 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
For the
first three months of 2010 cash used in investing activities was $1.4 million
compared to $2.8 million used in investing activities in the first three months
of 2009. Capital expenditures in the first quarter of 2010 were $1.3 million
compared to $2.4 million in the first quarter of 2009. Included in the 2010
first quarter expenditures were $0.8 million for our real estate development
projects and included $0.5 million for entitlement costs on our East Area 1
development project, $0.2 million for entitlement costs on our Santa Maria
development project and $0.1 million on improvements at our Windfall Farms
project. In the first quarter of 2009 we spent $1.8 million on these real estate
development projects which included $0.5 million for our East Area 1 project,
$0.4 million for our Santa Maria project and $0.9 million for the completion of
our Paradise Valley development projects.
Cash
flows used in investing activities were approximately $1.5 million for fiscal
2009, compared to cash flows used in investing activities of $29.1 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.
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
provided by financing activities in the first three months of 2010 was $6.3
million in the first three months of 2010 compared to $9.9 million provided by
financing activities in the first three months of 2009. The decrease in cash
provided from financing activities in the first quarter of 2010 compared to the
first quarter of 2009 was primarily the result of lower borrowings under our
Rabobank revolving credit facility in the first quarter of 2010 compared to the
first quarter of 2009. During the first quarter of 2010 we borrowed $8.1 million
under our Rabobank revolving credit facility to fund operating and other costs.
This compares to $11.5 million borrowed in the first quarter of 2009.
Additionally $0.4 million was borrowed under the Windfall Investors revolving
line of credit in the first quarter of 2010. Partially offsetting the these
borrowings were repayments of debt. In the first quarter of 2010 we repaid $1.7
million of debt compared to $1.1 million in the first quarter of 2009.
Cash
flows provided by financing activities were approximately $3.0 million for
fiscal 2009, compared to cash flows provided by financing activities of
approximately $22.0 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 January 31, 2010, we had $95.8 million of long-term debt under
credit facilities of which $11.0 million is payable in fiscal
2010. In addition, beginning on November 15, 2009 we are
consolidating Windfall Investors which resulted 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 May 1, 2010. In addition, as
of January 31, 2010 our borrowing capacity under our existing credit
facility with Rabobank was approximately $11.8 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
January 31, 2010 we had $68.2 million outstanding under our Rabobank revolving
credit facility and we had $11.8 million of availability under the facility. The
interest rates on our borrowings under the Rabobank revolving credit facility
were not materially different at January 31, 2010 than at October 31, 2009.
As
of October 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. At October 31, 2009 we had $8.3 million of availability under this
facility.
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. Based upon our results of operations for the first quarter of
fiscal 2010 and our anticipated debt service coverage for the full year,
combined with other performance estimates available to management in our
agricultural and rental operations, we currently anticipate to be in compliance
with all covenants under our agreement with Rabobank for fiscal 2010.
Under the
terms of the Rabobank revolving credit facility, no “Event of Default” occurred
as a result of the failure of the Company to meet the debt service coverage
ratio, as Rabobank never elected to provide the notice contemplated by Section
12.01(j) thereof, which would have created a ten (10) day grace period for
compliance. Instead, during the period contemplated by Section 9.02,
Rabobank provided the waiver filed herewith. The Farm Credit term
loan documentation provides that the company would be in default only if
declared to be in default or in breach of a loan with another
lender. The Rabobank revolving credit facility was not declared to be
in default by Rabobank and, as a result of the waiver, the company is not in
breach of any term thereof. Finally, the Windfall revolving line of
credit has been extended through May 1, 2010 and a copy of the
extension has been filed herewith.
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
January 31, 2010 we had $7.9 million outstanding under our terms loans with Farm
Credit. We had $7.0 million outstanding under the first loan from Farm Credit
and $0.9 million outstanding under the second loan from Farm Credit. The
interest rates on our borrowings under both of the Farm Credit term loans were
not materially different at January 31, 2010 than at October 31, 2009.
As of
October 31, 2009, we had $8.1 million outstanding under our term loans with Farm
Credit. We had $7.1 million outstanding under the first loan with Farm
Credit which 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 on November 15,
2009 the results of operations and all of the assets and liabilities of
Windfall Investors are included in the consolidated financial statements of the
company.
The
outstanding debt on the Windfall Investors balance sheet at January 31, 2010
consisted of approximately $10.4 million under the Windfall term loan and
approximately $9.2 million under the Windfall revolving line of credit. The
interest rates on our borrowings under both the Windfall term loan and Windfall
revolving line of credit were not materially different at January 31, 2010 than
at October 31, 2009.
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 with interest fixed at 6.73% until October 31,
2011. On November 1, 2011 we have the option of continuing with a
fixed rate until the maturity date of the Windfall term loan on October 1, 2035
or switching to a variable rate for the remaining term of the
loan. The Windfall revolving line of credit has monthly interest only
payments and at October 31, 2009 approximately $5.0 million was at a fixed
interest rate of 6.67% and approximately $5.0 million was at a variable interest
rate of 3.25%. On November 1, 2009 the outstanding balance of the
Windfall revolving line of credit that was at the fixed interest rate was
switched to a variable interest rate which at November 1, 2009 was
3.50%. The variable interest rate on borrowings from Farm Credit is
an internally calculated rate based on their internal monthly operations and
their cost of funds and generally follows the changes in the 90-day treasury
rates in increments divisible by 0.25%. The Windfall revolving line
of credit matured on November 1, 2009 and was extended to March 1, 2010 and then
subsequently extended to May 1, 2010. We are in the process of refinancing the
Windfall revolving line of credit on a long-term basis through an amendment to
the Windfall revolving line of credit agreement.
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-79.
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).
Contractual
Obligations
The
following table presents the company’s total contractual obligations at October
31, 2009 for which cash flows are fixed or determinable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 are included in our consolidated financial statements
beginning on November 15, 2009. 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.
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.
Real
Estate Development Activities and Related Capital Resources
As noted
above under “Transactions Affecting Liquidity and Capital Resources,” we have
the ability to control the timing of our investing cash flows to the extent
necessary based upon our liquidity demands. In order for our real
estate development operations to reach their maximum potential benefit to the
company, however, we will need to be successful over time in identifying other
third party sources of capital to partner with us to move those development
project forward. While we are in discussions with several external
sources of capital in respect of all of our development projects (other than our
Arizona projects, which are both complete single family luxury homes with one
under lease), current market conditions for California real estate projects,
while improving, continue to be challenging and make it difficult to predict the
timing and amounts of future capital that will be required to complete the
development of our projects.
Defined
Benefit Plan Contributions
As more
fully described below in Note 15 to our consolidated financial statements for
the year ended October 31, 2009, the company’s Defined Benefit Pension Plan was
frozen as of June 30, 2004. During the first quarter of 2010, the
company made a $300,000 contribution to such plan and expects to make similar
contributions to such plan for the second, third and fourth quarters of fiscal
2010.
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 on November 15, 2009 the
results of operations and all of the assets and liabilities of Windfall
Investors are 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-79.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated 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 of products are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) selling
price is fixed or determinable, and (iv) collectability is reasonably
assured.
Revenue from the sales of
certain of our agricultural products is recorded based on estimated proceeds
provided by certain of our sales and marketing partners (Calavo and other
third-party packinghouses) due to the timing differences between when the
product is delivered by us and the closing of the pools for such fruits at the
end of each month. Calavo and other third-party packinghouses are
agricultural cooperatives or function in a similar manner as an
agricultural cooperative. As such, we apply specific authoritative agriculture
revenue recognition guidance related to transactions between patrons and
marketing cooperatives to record revenue at time of delivery to the
packinghouses relating to fruits that are in pools that have not yet closed at
month end if (a) the related fruits have been delivered to and accepted by
Calavo and other third-party packinghouses (i.e. title has transferred to Calavo
and other third-party packinghouses) and (b) sales price information has been
provided by Calavo and other third-party packinghouses (based on the marketplace
activity for the related fruit) to estimate with reasonable certainty the final
selling price for the fruit upon the closing of the pools. Historically, the
revenue that is recorded based on the sales price information provided to us by
Calavo and other third-party packinghouses at the time of delivery, have not
materially differed from the actual amounts that are paid after the monthly
pools are closed.
For citrus products
processed through our packinghouse and sold by Sunkist on our behalf, we have
(i) the general and physical inventory risk, (ii) 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 per
carton sold for its sales and marketing services. The sales and marketing
services received from Sunkist are an identifiable benefit to us as it
enables us to effectively market and sell its citrus product (for which we are
charged a fixed amount per carton sold through by Sunkist) and can be
sufficiently separable from the purchase of the citrus products by the
end-customer. In addition, we have the ability to enter into an
exchange transaction with a party other than Sunkist in order to receive the
similar sales and marketing services that Sunkist currently provides to us.
Lastly, we are able to reasonably estimate that the fair value of the sales and
marketing services received from Sunkist approximates the per carton fee charged
by Sunkist since Sunkist, an agricultural marketing cooperative of which we are
a member, charges standard per carton fees to all members within its cooperative
and such fees are based on sales and marketing expenses incurred by Sunkist for
which we have an adequate level of visibility as a cooperative
member. As such, we record the revenues
related to these citrus sales on a gross basis with the amounts paid to
Sunkist for the sales and marketing services it renders being recorded in
agriculture
cost and expenses in our consolidated statement of
operations.
Our avocados, oranges,
specialty citrus and other specialty crops are packed and sold through by Calavo
and other third-party packinghouses. Specifically, we deliver all of our
avocado production from our orchards to Calavo. These avocados are then packed
by Calavo at its own packinghouse, and then sold and distributed under its own
brands to its customers primarily in the United States and Canada. Our
arrangements with other third-party packinghouses as it relates to our oranges,
specialty citrus and other specialty crops are similar to our arrangement with
Calavo.
Our
arrangements with third-party packinghouses are such that we are the producer
and supplier of the product and the third-party packinghouses are our
customers. The revenues we recognize related to the fruits sold to
the third-party packinghouses are based on the volume and quality of the fruits
delivered, the market price for such fruit, less the packinghouses’ charges to
pack and market the fruit. Such packinghouse charges include the grading,
sizing, packing, cooling, ripening and marketing of the related
fruit. We bear inventory risk until product is delivered to the
third-party packinghouses at which time title to the product is transferred to
the third-party packinghouses and revenue is recognized. The
third-party packinghouses are (a) the primary obligor in the arrangements with
their end customers, (b) have general inventory risk once we deliver the product
to the packinghouse and (c) bear the credit risk related to sales to their
end-customer. We are charged by the third-party packinghouse for
packaging and marketing services and record revenues net of such charges. Such
third-party packinghouse charges are recorded as a reduction of revenue based on
the application of specific authoritative revenue recognition guidance related
to a “Vendor’s Income Statement Characterization of Consideration Given to a
Customer”. The identifiable benefit we receive from the third-party
packinghouses for packaging and marketing services cannot be sufficiently
separated from the third-party packinghouses’ purchase of our
products. In addition, we are not able to reasonably estimate the
fair value of the benefit received from the third-party packinghouses for such
services and as such, these costs are characterized as a reduction of revenue in
our consolidated statement of operations.
For
rental revenue, 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
by us and are tied to fees collected by the 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 actuals 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.
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, Farm Credit term loans and
Windfall revolving line of credit 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. Under the
Windfall revolving line of credit, our borrowing interest rate is an internally
calculated rate based on Farm Credit’s internal monthly
operations and their cost of funds and generally follows the changes
in the 90-day treasury rates in increments divisible by 0.25%. At January 31,
2010 our total debt outstanding under the Robobank revolving credit facility and
the Farm Credit term loans was approximately $68.2 million, $6.9 million and
$0.9 million, respectively. At January 31, 2010 our total debt outstanding under
the Windfall term loan and the Windfall revolving line of credit was $9.2
million and $10.4 million, respectively. 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 |
|
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, on November 15, 2009 the results of
operations and all of the assets and liabilities of Windfall Investors are
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.
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.
Our
rights to extract groundwater from the Santa Paula Basin ("Basin") are governed
by the Santa Paula Basin Judgment, which we refer to as the
Judgment. The Judgment was entered in 1996 by stipulation among the
United Water Conservation District, the City of Ventura, and various members of
the Santa Paula Basin Pumpers Association, which we refer to as the
Association. The Association is not-for-profit, mutual benefit
corporation, which represents the interests of all overlying landowners with
rights to extract groundwater from the Santa Paula Basin and the City of Santa
Paula. We are a member of the Association. Membership in
the Association is governed by the Association's Bylaws.
The
Judgment adjudicated and allocated water rights in the Basin among the
Association's members and the City of Ventura. The water rights are
established and governed by a seven-year moving average (i.e., production can
rise of fall in any particular year so long as the seven year average is not
exceeded). Under California law the water rights are considered
"property." A perpetual right to water, such as evidenced by the
Judgment, can be exchanged for interests in real property under IRS Code Section
1031 and if condemned by a public agency, just compensation must be paid to the
rightful owner. Our rights under the Judgment are perpetual and
considered very firm and reliable which reflects favorably upon their fair
market value.
For ease
of administration, the Association is appointed by the Judgment as the trustee
of its members water rights, and is responsible for coordinating and promoting
the interests of its members. The Judgment includes provisions for
staged reductions in production rights should shortage conditions
develop. It also allows the adjudicated water rights to be leased or
sold among the parties. The Judgment established a Technical Advisory
Committee composed of the United Water Conservation District, the City of
Ventura and the Association to assist the Superior Court of the State of
California, Ventura County, which we refer to as the Court, with the technical
aspects of Santa Paula Basin management. Finally, the Judgment
reserves continuing jurisdiction to the Court to hear motions for enforcement or
modification of the Judgment as necessary.
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
April 15, 2010, as
adjusted to reflect the stock split approved by our stockholders on March 23,
2010, 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 11,194,460
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. We also
note that all the share amounts in the following table have been adjusted to
reflect the ten-for-one stock split effective as of March 24, 2010.
|
|
Common Stock
Beneficially Owned(2)
|
|
Name
and Address of Beneficial Owner(1)
|
|
Number
|
|
|
Percentage
|
|
5%
Beneficial Owners
|
|
|
|
|
|
|
Calavo Growers, Inc.
|
|
|
1,728,570
|
|
|
|
15.4
|
%
|
Directors
and Officers
|
|
|
|
|
|
|
|
|
John W.
Blanchard(3)
|
|
|
137,850
|
|
|
|
1.2
|
%
|
Lecil E.
Cole(4)
|
|
|
5,610
|
|
|
|
*
|
|
Don P.
Delmatoff(5)
|
|
|
27,220
|
|
|
|
*
|
|
Peter W.
Dinkler
|
|
|
41,630
|
|
|
|
*
|
|
Harold S.
Edwards(6)
|
|
|
71,600
|
|
|
|
* |
|
Gordon E.
Kimball
|
|
|
12,490
|
|
|
|
*
|
|
John W.H.
Merriman
|
|
|
2,570
|
|
|
|
*
|
|
Ronald L. Michaelis
(7)
|
|
|
573,820
|
|
|
|
4.95
|
%
|
Allan M.
Pinkerton(8)
|
|
|
624,950
|
|
|
|
5.5
|
%
|
Keith W.
Renken(9)
|
|
|
3,460
|
|
|
|
*
|
|
Robert M.
Sawyer(10)
|
|
|
37,340
|
|
|
|
*
|
|
Alan M.
Teague(11)
|
|
|
178,170
|
|
|
|
1.6
|
%
|
Alex M.
Teague(12)
|
|
|
45,420
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Limoneira
Company Officers and Directors as a Group (13 persons)(13)
|
|
|
1,720,500
|
|
|
|
14.9
|
%
|
|
(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.
|
|
(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 15,240
restricted shares of which 7,620 vest in 2010 and 7,620 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
31,890 restricted shares of which 15,950 vest in 2010 and 15,940 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 184,880 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
17,720 restricted shares of which 8,860 vest in 2010 and 8,860 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
375,000 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 2013 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
|
|
72
|
|
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
|
Directors
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.
Mr.
Blanchard’s extensive experience in, and knowledge of, the Santa Paula community
provides our board of directors with an important perspective in the areas of
community relations and responsible use of the company’s land and water
resources.
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.
As
president and chief executive officer of Calavo Growers, Inc., a company listed
on NASDAQ and the packer of all of our avocado production, Mr. Cole brings to
our board an intimate understanding of our industry, and provides our board of
directors with valuable insight on the governance practices of public
companies.
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.
As the
president and chief executive officer of the company, Mr. Edwards brings to our
board an intimate understanding of our business and operations. Mr.
Edwards provides our board of directors with company-specific experience and
expertise, in addition to his substantial experience as a chief executive
officer and senior executive across a variety of industries.
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.
Mr.
Kimball’s experience as an entrepreneur and producer of avocados provides our
board of directors with focused and insightful operational experience and
leadership.
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.
Mr.
Merriman brings to our board of directors a deep understanding of our
compensation policies and practices and our industry and provides valuable
leadership and insight in such areas.
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.
Mr.
Michaelis brings to our board of directors an extensive knowledge of the citrus
industry and through his multiple leadership roles as an executive and director
of various farming companies provides our board of directors with a deep
understanding and better appreciation of the day to day operational
complexities that confront the company and its management.
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.
Mr.
Pinkerton is an experienced business leader with vast operating experience in
our industry, and his substantial leadership experience on boards of several
other companies provides our board of directors valuable insight to the
operational complexities of our business, and knowledge of governance practices
and risk management.
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. From 1992 through 1996 he was an
adjunct professor (executive in residence) 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 (inactive) and California,
(inactive). 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.
Mr.
Renken’s experience in a leadership role with Deloitte & Touche providing
audit and advisory services to a number of significant companies, and his
experience on boards of other public companies provides our board of directors
with substantial knowledge of complex accounting and reporting issues, SEC
periodic reporting requirements and corporate transactions.
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.
Mr.
Sawyer’s extensive knowledge of California real estate, land use, environmental
and water laws provides our board with an important perspective in these areas
and makes him particularly well-suited to serve as a
director.
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.
Mr.
Teague’s vast understanding of the role and strategic priorities of the board of
directors, as well as our business, history and organization, and his many
experiences as an executive and board member of various companies provides our
board of directors with the leadership experience needed to transition the
company from a private to a public company. Mr. Teague’s extensive
political and civic experiences in the Santa Paula community positions him well
to serve as our chairman of the board of directors.
Executive Officers who are not
Directors
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.
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.
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.
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. When
making compensation-related decisions, the compensation committee believes it is
important to be informed as to the current practices of similarly situated
companies in our industry and to set compensation levels for our executive
officers that are sufficiently competitive with such companies. As a
result, in determining compensation levels for our executive officers and for
purposes of determining any potential payments to our executive officers under
our annual cash-based and equity-based incentive bonus programs, the
compensation committee annually reviews and compares available salary and
incentive bonus information of similarly situated companies. As a
part of such review and comparison, the compensation committee uses internally
prepared surveys and other publicly and privately available information to
compare each component of the company’s compensation program to the compensation
paid to equivalent executive officers at such companies, with a goal of setting
sufficiently competitive compensation levels for each of our executive officers.
The company considers the following companies to be similarly
situated:
|
·
|
Newhall
Land and Farming Company;
|
|
·
|
Saticoy
Lemon Association; and
|
|
·
|
Sun
World International, LLC.
|
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.
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.
Mr.
Edwards is eligible to receive an annual discretionary cash-based incentive
bonus as determined by our compensation committee. In determining the
amount of such cash-based incentive bonus to award to Mr. Edwards, if any, our
compensation committee considers pre-determined objective criteria typically
based upon our overall financial performance and also considers achievements
outside the scope of such pre-determined objective criteria. Our
compensation committee establishes the pre-determined objective criteria at the
beginning of each fiscal year. Any bonus earned in respect of a
fiscal year is paid in the following fiscal year. The pre-determined
objective criteria considered by our compensation committee in determining the
amount of cash bonus to award to Mr. Edwards, if any, for fiscal 2009 included
the Company’s achievement of pre-tax earnings and cash provided from operations
greater than 110% of the average of the preceding four years. Based
on our overall financial performance in fiscal 2009, our compensation committee
did not award a cash bonus to Mr. Edwards for fiscal 2009.
Per the
terms of the Management Incentive Plan, Messrs. Teague, Delmatoff and Dinkler
are eligible to receive an annual cash-based incentive bonus in an amount up to
a target percentage of his base salary based on the achievement of both
pre-determined operating results and individual goals, subject to the discretion
of our compensation committee. The target percentage is based on a
graduated scale beginning at 5% of a participant’s annual
salary. Sixty percent of the annual cash-based incentive bonus is
based upon the achievement of pre-determined operating results and 40% is based
upon the achievement of individual goals recommended by the President and Chief
Executive Officer and approved by our compensation committee.
Any
bonuses earned under the program in respect of a fiscal year are paid in the
following fiscal year. For fiscal 2009, Messrs. Teague, Delmatoff and
Dinkler were eligible to receive a cash-based incentive bonus in an amount up to
5% of their respective base salaries if the Company achieved pre-tax earnings of
at least $4 million and their respective individual goals were
achieved. The maximum amount of the cash-based incentive
bonus for fiscal 2009 increased by 2.5% for each additional increment
of pre-tax earnings over $4 million, with each of Messrs. Teague, Delmatoff and
Dinkler each being eligible to receive a cash bonus in an amount up to 100% of
their respective base salaries if the company achieved pre-tax earnings equal to
$13.5 million and their respective individual goals were
achieved. Based on our overall financial performance in fiscal 2009,
our compensation committee did not award a cash bonus to any of Messrs. Teague,
Delmatoff and Dinkler for fiscal 2009.
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 equity-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 has
established 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. 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 if we
achieve pre-tax earnings and cash provided from operations greater than 110% of
the average for the preceding four years. Seventy percent of the
equity-based incentive bonus is based upon increasing our pre-tax earnings to an
amount greater than 110% of the average for the preceding four years and 30% is
based upon increasing cash provided from operations to an amount greater than
110% of the average for the preceding four years. 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. Based upon our overall financial performance in fiscal 2009,
our compensation committee did not award an equity-based incentive bonus to any
of Messrs. Edwards, Teague, Delmatoff and Dinkler. 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.
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. The amounts of the loan forgiveness were recorded by
the company as compensation expense in the first quarter of 2010.
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.
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.
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
($)(1)
|
|
|
Non-Equity
Incentive
Plan
Compensation(2)
|
|
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
|
|
|
All
Other
Compensation
($)(4)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harold
Edwards,
President
and
Chief
Executive
Officer(4)
|
|
2009
|
|
$ |
449,423 |
|
|
$ |
598,478 |
|
|
$ |
0 |
|
|
$ |
1,771 |
|
|
$ |
19,928 |
|
|
$ |
1,069,600 |
|
|
|
|
|
|
|
|
|
|
|