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EX-32.2 - EXHIBIT 32.2 - Limoneira COlmnr013120exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Limoneira COlmnr013120exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Limoneira COlmnr013120exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Limoneira COlmnr013120exhibit311.htm

LIMONEIRA COMPANY


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2020
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM              TO             
  
Commission File Number: 001-34755
LIMONEIRA COMPANY
(Exact name of Registrant as Specified in its Charter)
Delaware
77-0260692
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
1141 Cummings Road, Santa Paula, CA
93060
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (805) 525-5541
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol (s)
Name of Each Exchange of Which Registered
Common Stock, $0.01 par value
LMNR
The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ý  Yes    ¨  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:  
¨    Large accelerated filer
ý  Accelerated filer
¨  Emerging growth company

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

As of February 29, 2020, there were 17,857,707 shares outstanding of the registrant’s common stock.

1


LIMONEIRA COMPANY
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
 
Consolidated Balance Sheets – January 31, 2020 and October 31, 2019
 
 
Consolidated Statements of Operations – three months ended January 31, 2020 and 2019
 
 
Consolidated Statements of Comprehensive Loss – three months ended January 31, 2020 and 2019
 
 
Consolidated Statements of Stockholders' Equity and Temporary Equity – three months ended January 31, 2020 and 2019
 
 
Consolidated Statements of Cash Flows – three months ended January 31, 2020 and 2019
 
 
Notes to Consolidated Financial Statements
 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
PART II. OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults Upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits
 
 
 
SIGNATURES


2


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

changes in laws, regulations, rules, quotas, tariff, and import laws;
adverse weather conditions, natural disasters and other adverse natural conditions, including freezes, rains, fires and droughts that affect the production, transportation, storage, import and export of fresh produce;
market responses to industry volume pressures;
increased pressure from disease, insects and other pests;
disruption of water supplies or changes in water allocations;
product and raw materials supplies and pricing;
energy supply and pricing;
changes in interest and currency exchange rates;
availability of financing for development activities;
general economic conditions for residential and commercial real estate development;
political changes and economic crises;
international conflict;
acts of terrorism;
labor disruptions, strikes, shortages or work stoppages;
potential negative impacts related to COVID-19;
loss of important intellectual property rights; and
other factors disclosed in our public filings with the Securities and Exchange Commission (the "SEC").

The Company’s actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which the Company is not currently aware or which the Company currently deems immaterial could also cause the Company’s actual results to differ, including those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2019. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
 
The terms the “Company,” “Limoneira”, “we,” “our” and “us” as used throughout this Quarterly Report on Form 10-Q refer to Limoneira Company and its consolidated subsidiaries, unless otherwise indicated.


3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
LIMONEIRA COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
($ in thousands, except share amounts) 
 
January 31,
2020
 
October 31,
2019
Assets
 

 
 

Current assets:
 

 
 

Cash
$
874

 
$
616

Accounts receivable, net
26,524

 
18,099

Cultural costs
3,455

 
7,223

Prepaid expenses and other current assets
11,681

 
8,153

Income taxes receivable
979

 
979

Total current assets
43,513

 
35,070

 
 
 
 
Property, plant and equipment, net
248,193

 
248,114

Real estate development
17,515

 
17,602

Equity in investments
60,785

 
58,223

Investment in Calavo Growers, Inc.
15,322

 
17,346

Goodwill
1,839

 
1,839

Intangible assets, net
12,122

 
12,407

Other assets
9,359

 
9,266

Total assets
$
408,648

 
$
399,867

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
8,193

 
$
4,974

Growers payable
9,400

 
14,500

Accrued liabilities
10,271

 
9,167

Current portion of long-term debt
2,998

 
3,023

Total current liabilities
30,862

 
31,664

Long-term liabilities:
 

 
 

Long-term debt, less current portion
126,604

 
105,892

Deferred income taxes
21,328

 
24,346

Other long-term liabilities
6,227

 
5,467

Total liabilities
185,021

 
167,369

Commitments and contingencies (See Note 18)


 


 
 
 
Series B Convertible Preferred Stock – $100.00 par value (50,000 shares authorized: 14,790 shares issued and outstanding at January 31, 2020 and October 31, 2019) (8.75% coupon rate)
1,479

 
1,479

Series B-2 Convertible Preferred Stock – $100.00 par value (10,000 shares authorized: 9,300 shares issued and outstanding at January 31, 2020 and October 31, 2019) (4% dividend rate on liquidation value of $1,000 per share)
9,331

 
9,331

 
 
 
 
Stockholders’ equity:
 

 
 

Series A Junior Participating Preferred Stock – $0.01 par value (20,000 shares authorized: zero issued or outstanding at January 31, 2020 and October 31, 2019)

 

Common Stock – $0.01 par value (39,000,000 shares authorized: 17,857,707 and 17,756,180 shares issued and outstanding at January 31, 2020 and October 31, 2019, respectively)
179

 
178

Additional paid-in capital
160,869

 
160,254

Retained earnings
45,199

 
53,089

Accumulated other comprehensive loss
(8,387
)
 
(7,255
)
Noncontrolling interest
14,957

 
15,422

Total stockholders’ equity
212,817

 
221,688

Total liabilities and stockholders’ equity
$
408,648

 
$
399,867

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

4


LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
($ in thousands, except share amounts)
 
Three Months Ended
January 31,
 
2020
 
2019
Net revenues:
 

 
 

Agribusiness
$
40,483

 
$
40,800

Other
1,173

 
1,218

Total net revenues
41,656

 
42,018

Costs and expenses:
 

 
 

Agribusiness
42,543

 
38,916

Other operations
1,269

 
1,107

Selling, general and administrative
6,310

 
5,015

Total costs and expenses
50,122

 
45,038

Operating loss
(8,466
)
 
(3,020
)
Other expense:
 

 
 

Interest income, net
55

 
147

Equity in (loss) earnings of investments
(120
)
 
42

Unrealized loss on stock in Calavo Growers, Inc.
(2,024
)
 
(3,910
)
Other income, net
515

 
304

Total other expense
(1,574
)
 
(3,417
)
 
 
 
 
Loss before income tax benefit
(10,040
)
 
(6,437
)
Income tax benefit
3,136

 
1,761

Net loss
(6,904
)
 
(4,676
)
Net loss (income) attributable to noncontrolling interest
477

 
(17
)
Net loss attributable to Limoneira Company
(6,427
)
 
(4,693
)
Preferred dividends
(125
)
 
(125
)
Net loss attributable to common stock
$
(6,552
)
 
$
(4,818
)
 
 
 
 
Basic net loss per common share
$
(0.37
)
 
$
(0.28
)
 
 
 
 
Diluted net loss per common share
$
(0.37
)
 
$
(0.28
)
 
 
 
 
Weighted-average common shares outstanding-basic
17,579,000

 
17,488,000

Weighted-average common shares outstanding-diluted
17,579,000

 
17,488,000

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



5


LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)
(In thousands)
 
Three Months Ended January 31,
 
2020
 
2019
Net loss
$
(6,904
)
 
$
(4,676
)
Other comprehensive (loss) income, net of tax:
 

 
 

Foreign currency translation adjustments
(1,267
)
 
895

Minimum pension liability adjustment, net of tax of $50 and $27 for the three months ended January 31, 2020 and 2019, respectively.
135

 
74

Total other comprehensive (loss) income, net of tax
(1,132
)
 
969

Comprehensive loss
(8,036
)
 
(3,707
)
Comprehensive loss (income) attributable to noncontrolling interest
465

 
(12
)
Comprehensive loss attributable to Limoneira Company
$
(7,571
)
 
$
(3,719
)
 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
 


6


LIMONEIRA COMPANY


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

 
Stockholders’ Equity
 
 
 
Temporary Equity
 
Common Stock
 
Additional
Paid-In
 
Retained
 
Accumulated
Other
Comprehensive
 
Noncontrolling
 
 
 
Series B
Preferred
 
Series B-2
Preferred
 
Shares
 
Amount
 
Capital
 
Earnings
 
Income (Loss)
 
Interest
 
Total
 
Stock
 
Stock
Balance at October 31, 2019
17,756,180

 
$
178

 
$
160,254

 
$
53,089

 
$
(7,255
)
 
$
15,422

 
$
221,688

 
$
1,479

 
$
9,331

Dividends Common ($0.075 per share)

 

 

 
(1,338
)
 

 

 
(1,338
)
 

 

Dividends Series B ($2.19 per share)

 

 

 
(32
)
 

 

 
(32
)
 

 

Dividends Series B-2 ($10 per share)

 

 

 
(93
)
 

 

 
(93
)
 

 

Stock compensation
112,841

 
1

 
828

 

 

 

 
829

 

 

Exchange of common stock
(11,314
)
 

 
(213
)
 

 

 

 
(213
)
 

 

Net loss

 

 

 
(6,427
)
 

 
(477
)
 
(6,904
)
 

 

Other comprehensive (loss) income, net of tax
 
 
 
 
 
 
 
 
(1,132
)
 
12

 
(1,120
)
 

 

Balance at January 31, 2020
17,857,707

 
$
179

 
$
160,869

 
$
45,199

 
$
(8,387
)
 
$
14,957

 
$
212,817

 
$
1,479

 
$
9,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

 
$
176

 
$
159,071

 
$
50,354

 
$
8,965

 
$
574

 
$
219,140

 
$
1,479

 
$
9,331

Dividends Common ($0.075 per share)

 

 

 
(1,332
)
 

 

 
(1,332
)
 

 

Dividends Series B ($2.19 per share)

 

 

 
(32
)
 

 

 
(32
)
 

 

Dividends Series B-2 ($10 per share)

 

 

 
(93
)
 

 

 
(93
)
 

 

Stock compensation
145,737

 
2

 
787

 

 

 

 
789

 

 

Exchange of common stock
(20,119
)
 

 
(305
)
 

 

 

 
(305
)
 

 

Net (loss) income

 

 

 
(4,693
)
 

 
17

 
(4,676
)
 

 

Other comprehensive income (loss), net of tax

 

 

 

 
969

 
(12
)
 
957

 

 

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

 

 

 
15,921

 
(15,921
)
 

 

 

 

Reclassification upon adoption of ASU 2018-02

 

 

 
(1,724
)
 
1,724

 

 

 

 

Balance at January 31, 2019
17,772,753

 
$
178

 
$
159,553

 
$
58,401

 
$
(4,263
)
 
$
579

 
$
214,448

 
$
1,479

 
$
9,331

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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

7


LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
 
Three Months Ended
January 31,
 
2020
 
2019
Operating activities
 

 
 

Net loss
$
(6,904
)
 
$
(4,676
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation and amortization
2,565

 
2,126

Gain on disposals of assets
(250
)
 
(22
)
Stock compensation expense
829

 
789

Equity in earnings of investments
120

 
(42
)
Deferred income taxes
(3,136
)
 
(1,434
)
Amortization of deferred financing costs
20

 
8

Accrued interest on notes receivable
(6
)
 
(39
)
Unrealized loss on stock in Calavo Growers, Inc.
2,024

 
3,910

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(8,433
)
 
(4,983
)
Cultural costs
3,746

 
2,914

Prepaid expenses and other current assets
(513
)
 
(2,491
)
Income taxes receivable

 
(13
)
Other assets
139

 
90

Accounts payable and growers payable
(2,314
)
 
2,421

Accrued liabilities
(267
)
 
(3,003
)
Other long-term liabilities
171

 
(48
)
Net cash used in operating activities
(12,209
)
 
(4,493
)
Investing activities
 

 
 

Capital expenditures
(3,672
)
 
(5,098
)
Agriculture property acquisitions

 
(397
)
Collections of installments on note receivable

 
150

Equity investment contributions
(2,800
)
 
(4,000
)
Investments in mutual water companies
(43
)
 
(460
)
Net cash used in investing activities
(6,515
)
 
(9,805
)
Financing activities
 

 
 

Borrowings of long-term debt
36,631

 
35,970

Repayments of long-term debt
(15,895
)
 
(19,262
)
Dividends paid – common
(1,338
)
 
(1,332
)
Dividends paid – preferred
(125
)
 
(125
)
Exchange of common stock
(213
)
 
(305
)
Net cash provided by financing activities
19,060

 
14,946

Effect of exchange rate changes on cash
(78
)
 
23

Net increase in cash
258

 
671

Cash at beginning of period
616

 
609

Cash at end of period
$
874

 
$
1,280


8


LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)
 
Three Months Ended
January 31,
 
2020
 
2019
Supplemental disclosures of cash flow information
 

 
 

Cash paid during the period for interest (net of amounts capitalized)
$
1,078

 
$
900

Non-cash investing and financing activities:
 

 
 

Decrease in real estate development and sale-leaseback deferral
$

 
$
(58,330
)
Reclassification from real estate development to equity in investments
$

 
$
(33,353
)
Capital expenditures accrued but not paid at period-end
$
119

 
$
233

Accrued contribution obligation of investment in water company
$
450

 
$
450

Accrued Series B-2 Convertible Preferred Stock dividends
$
31

 
$
31

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

In February 2020, the Company received an annual patronage dividend of $966,000 from Farm Credit West, FLCA ("Farm Credit West"). This dividend was accrued at January 31, 2020, of which $667,000 was recorded as a reduction in interest expense and $299,000 reduced the Company's real estate development assets.

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




9


LIMONEIRA COMPANY


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

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

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

2. Summary of Significant Accounting Policies

Changes in Accounting Policies

On November 1, 2019, the Company adopted Financial Accounting Standards Board ("FASB") - Accounting Standards Update ("ASU") 2016-02, Leases (as amended, "ASU 2016-02" or the "New Lease Standard"). A lease is defined as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company enters into contracts that are, or contain, leases as both a lessee and a lessor. The following accounting policies have been updated as part of the adoption of the New Lease Standard.

Leases

Accounting for Operating Leases as a Lessee In its ordinary course of business, the Company enters into leases as a lessee generally for agricultural land and packinghouse equipment. The Company determines if an arrangement is a lease or contains a lease at inception. Operating leases are included in other assets, accrued liabilities and other long-term liabilities on its consolidated balance sheets. Operating lease right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As none of the Company’s leases provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company has elected to recognize lease expense for these leases on a straight-line basis over the lease term. The Company has material leases with related parties which are further described in Note 15 - Related-Party Transactions.



10


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

2. Summary of Significant Accounting Policies (continued)

Leases (continued)

Certain of the Company’s agricultural land agreements contain variable costs based on a percentage of the operating results of the leased property. Such variable lease costs are expensed as incurred. These land agreements also contain costs for non-lease components, such as water usage, which the Company accounts for separately from the lease components. For all other agreements, the Company generally combines lease and non-lease components in calculating the ROU assets and lease liabilities. See Note 13 - Leases for additional information.

Accounting for Leases as a Lessor - The Company’s leases in which it acts as the lessor includes land, residential and commercial units and are all classified as operating leases. Certain of the Company’s contracts contain variable income based on a percentage of the operating results of the leased asset. Certain of the Company’s contracts contain non-lease components such as water, utilities and common area services. The Company has elected to not separate lease and non-lease components for its lessor arrangements and the combined component is accounted for entirely under Accounting Standards Codification ("ASC") 842, Leases. The underlying asset in an operating lease arrangement is carried at depreciated cost within property, plant, and equipment, net on the consolidated balance sheets. Depreciation is calculated using the straight-line method over the useful life of the underlying asset. The Company recognizes operating lease revenue on a straight-line basis over the lease term.

Comprehensive (Loss) Income

Comprehensive (loss) income represents all changes in a company’s net assets, except changes resulting from transactions with shareholders, and is reported as a component of the Company’s stockholders’ equity. As of January 31, 2020, the components of accumulated other comprehensive loss, net of tax, consist of foreign currency translation items of $3,629,000, pension liability items of $4,618,000 and security available for sale items of $140,000. As of October 31, 2019, accumulated other comprehensive loss consists of foreign currency translation items of $2,362,000, pension liability items of $4,753,000 and security available for sale items of $140,000.
 
Recent Accounting Pronouncements

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

In February 2016, the FASB issued ASU 2016-02, which requires an entity to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11. Among other things, ASU 2018-11 provides administrative relief by allowing entities to implement the lease standard on a modified retrospective basis (the "Optional Transition Method"). Effectively, the Optional Transition Method permits companies to adopt the lease standard through a cumulative effect adjustment to their opening balance sheet on the date of adoption and report under the New Lease Standard on a post-adoption basis.

The Company adopted ASU 2016-02 effective November 1, 2019 using the Optional Transition Method. The Company elected the package of practical expedients permitted under the transition guidance, which allows the Company to carry forward its historical lease classification, its assessment of whether a contract is or contains a lease, and its initial direct costs for any leases that existed prior to adoption of the New Lease Standard. The Company elected the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of ROU assets. The Company did not elect to combine lease and non-lease components for land leases but elected to combine lease and non-lease components for all other asset classes. The Company also elected to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company updated its accounting policies, processes and internal controls in order to meet the New Lease Standard's reporting and disclosure requirements.







11


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


2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

The adoption of ASU 2016-02 had a material impact on its consolidated balance sheets, but did not have a material impact on its consolidated statements of operations or its consolidated statements of cash flows. Upon adoption as of November 1, 2019, the Company recorded ROU assets of $2.4 million and lease liabilities of $2.5 million for operating leases in which the Company is a lessee. The adoption also included an immaterial reclassification of accrued rent liabilities against the ROU asset balance. As of November 1, 2019, there were no material finance leases for which the Company was a lessee. The adoption of ASU 2016-02 did not change the Company’s accounting for its operating leases in which it acts as the lessor. See Note 13 - Leases for additional information about the Company’s leases from a lessor and lessee perspective.

FASB ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and related ASUs

This amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

ASU 2016-13 is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application is permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

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

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

FASB ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes

This amendment removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether certain exceptions apply in a given period. The amendment also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP under certain situations.

ASU 2019-12 is effective for public business entities, for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. An entity that elects early adoption in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption should adopt all the amendments in the same period. The Company early adopted this ASU as of November 1, 2019 and the adoption did not have a material impact on its consolidated financial statements.

3. Acquisitions
Agriculture Property Acquisition

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







12


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

3. Acquisitions

Business Combinations

Trapani Fresh

On May 30, 2019, the Company acquired a 51% interest in a joint venture, Trapani Fresh, formed with FGF Trapani (“FGF”), a multi-generational, family-owned citrus operation in Argentina. To consummate the transaction, the Company formed a subsidiary under the name Limoneira Argentina S.A.U. (“Limoneira Argentina”) as the managing partner and acquired a 51% interest in an Argentine Trust that holds a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. Trapani Fresh controls the trust and grows, packs, markets and sells fresh citrus. Total consideration paid for the Company’s interest in Trapani Fresh was $15,000,000 and transaction costs of approximately $654,000 were included in selling, general and administrative expense during the fiscal year ended October 31, 2019.

Below is a summary of the preliminary fair value of the net assets acquired on the acquisition date based on a third-party valuation, which was updated during the fourth quarter of fiscal year 2019 due to changes in the enacted tax rates in Argentina that increased the customer relationships, trademarks and non-competition agreement and decreased goodwill (in thousands):
Cultural costs
$
3,270

Land and land improvements
9,520

Buildings and improvements
870

Orchards
8,410

Customer relationships, trademarks and non-competition agreement (10-year useful life)
6,920

Goodwill
420

Total assets acquired
29,410

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


Preliminary goodwill of $420,000 relates to synergies of the operations, has been allocated to the fresh lemons segment and is currently not expected to be deductible for tax purposes. Revenue of $14,651,000 and net income of $999,000 of Trapani Fresh were included in the Company’s consolidated statement of operations from the acquisition date to the period ended October 31, 2019. The unaudited, pro forma consolidated statement of operations as if Trapani Fresh had been included in the consolidated results of the Company for the years ended October 31, 2019 and 2018 would have resulted in revenues of $177,625,000 and $153,033,000, respectively, and net (loss) income of $(6,092,000) and $21,942,000, respectively.

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

The following table sets forth the Company’s financial assets and liabilities as of January 31, 2020 and October 31, 2019, which are measured on a recurring basis during the period, segregated by level within the fair value hierarchy (in thousands): 












13


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

4. Fair Value Measurements (continued)
January 31, 2020
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 

 
 

 
 

 
 

Equity securities
$
15,322

 
$

 
$

 
$
15,322

October 31, 2019
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 

 
 

 
 

 
 

Equity securities
$
17,346

 
$

 
$

 
$
17,346


Equity securities consist of marketable securities in Calavo common stock. At January 31, 2020 and October 31, 2019, the Company owned 200,000 shares, respectively, representing approximately 1.1% of Calavo’s outstanding common stock. These securities are measured at fair value by quoted market prices and changes in fair value are included in the statement of operations.

In fiscal year 2019, the Company sold 50,000 shares of Calavo common stock for a total of $4,786,000 recognizing a loss of $63,000. This loss is included in other (expense) income in the consolidated statement of operations.

The Company recorded an unrealized loss of $2,024,000 during the three months ended January 31, 2020, which is included in other expense in the consolidated statements of operations. The Company recorded an unrealized loss of $3,910,000 during the three months ended January 31, 2019, which is included in other expense in the consolidated statements of operations.

Calavo’s stock price at January 31, 2020 and October 31, 2019 was $76.61 and $86.73 per share, respectively.

5. Concentrations and Geographic Information
Lemons procured from third-party growers were 55% and 59% of the Company's lemon supply in the three months ended January 31, 2020 and 2019, respectively. The Company sells the majority of its avocado production to Calavo and the majority of its oranges and specialty citrus to a third-party packinghouse.

One individual customer represented 11% of accounts receivable, net as of January 31, 2020. Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base.

During the three months ended January 31, 2020, the Company had approximately $539,000 of lemon and orange sales in Chile by PDA and San Pablo and $199,000 of lemon and orange sales in Argentina by Trapani Fresh. During the three months ended January 31, 2019, the Company had approximately $638,000 of lemon and orange sales in Chile by PDA and San Pablo.

6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands): 
 
January 31,
2020
 
October 31, 2019
Prepaid supplies and insurance
$
3,370

 
$
3,199

Note receivable and related interest
2,670

 
181

Real estate development held-for-sale
2,543

 
2,543

Lemon supplier advances and other
3,098

 
2,230

 
$
11,681

 
$
8,153












14


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

7. Real Estate Development

Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands):
 
January 31,
2020
 
October 31,
2019
Retained Property - East Area I
$
11,799

 
$
11,943

East Area II
5,716

 
5,659

 
$
17,515

 
$
17,602


East Area I, Retained Property and East Area II

In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. On November 10, 2015 (the “Transaction Date”), the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (“LLCB” or “Joint Venture”) as the development entity, contributed its East Area I property to LLCB and sold a 50% interest in LLCB to Lewis for $20,000,000.

The Company and the Joint Venture also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the Joint Venture transferred certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. The value as of January 31, 2020 and October 31, 2019 includes $1,200,000, respectively, for estimated costs incurred by and reimbursable to LLCB, which is included in accrued liabilities as of January 31, 2020.

In January 2018, the Joint Venture entered into a $45,000,000 unsecured Line of Credit Loan Agreement and Promissory Note (the “Loan”) with Bank of America, N.A. to fund early development activities. The Loan originally was scheduled to mature in January 2020 and was extended to February 22, 2021 per the terms thereof. The interest rate on the Loan is LIBOR plus 2.85% and is payable monthly. The Loan contains certain customary default provisions and the Joint Venture may prepay any amounts outstanding under the Loan without penalty. The extension had no impact on the Company's loan guarantee $1,080,000 value as of January 31, 2020.

In February 2018, certain principals from Lewis and by the Company guaranteed the obligations under the Loan. The guarantee shall continue in effect until all of the Loan obligations are fully paid and the guarantors are jointly and severally liable for all Loan obligations in the event of default by the Joint Venture. The Joint Venture recorded the Loan balance of $45,000,000 as of January 31, 2020.

The Company made contributions to the Joint Venture of $2,800,000 and $4,000,000 in the three months ended January 31, 2020 and 2019, respectively. Additionally, in February 2020 the Company and Lewis each loaned $1,800,000 to the Joint Venture at an interest rate of 4.6% due May 31, 2020.

Through January 31, 2020, the Joint Venture has closed the sales of the initial residential lots representing 244 residential units.

Other Real Estate Development Projects

The remaining real estate development parcel within the Templeton Santa Barbara, LLCB project is described as Sevilla. The Company's net carrying value of Sevilla was $2,543,000, as of January 31, 2020 and October 31, 2019, respectively, which has been included in prepaid expenses and other current assets. The expenses associated with this property were immaterial.

During December 2017, the Company sold its Centennial property with a net book value of $2,983,000 for $3,250,000. The Company received cash and a $3,000,000 promissory note secured by the property for the balance of the purchase price. The promissory note was originally scheduled to mature in December 2019 but the Company extended the maturity date concurrently and resetting the interest rate to equal to the 6-month LIBOR plus 2.75% on the outstanding principal balance of the note, interest only paid monthly on the first day of each month beginning January 1, 2020. At January 31, 2020, the carrying value of the note was $2,670,000 and classified in prepaid expenses and other current assets.



15


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

7. Real Estate Development (continued)

Other Real Estate Development Projects (continued)

In the first quarter of fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $2,700,000. After transaction and other costs, the Company expects to receive proceeds of approximately $2,550,000 and recognize an insignificant gain upon closing. At January 31, 2020, the $2,543,000 carrying value of the property was classified as held for sale and included in prepaid expenses and other current assets.

8. Equity in Investments
Equity in investments consist of the following (in thousands): 
 
January 31,
2020
 
October 31, 2019
Limoneira Lewis Community Builders, LLC
$
56,872

 
$
54,016

Limco Del Mar, Ltd.
1,966

 
1,950

Rosales
1,435

 
1,745

Romney Property Partnership
512

 
512

 
$
60,785

 
$
58,223


Unconsolidated Significant Subsidiary

In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies to interim reports on Form 10-Q, the Company must determine if its equity method investees are considered, “significant subsidiaries”. In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment test. Summarized income statement information of an equity method investee is required in an interim report if either of the two tests exceed 20%. During the current year-to-date interim period, this threshold was not met for any of the Company's equity investments and thus summarized income statement information is not required in this Quarterly Report on Form 10-Q.

9. Goodwill and Intangible Assets

Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. There have been no impairment charges recorded against goodwill as of January 31, 2020.

Intangible assets consisted of the following as of January 31, 2020 and October 31, 2019 (in thousands):
 
January 31, 2020
 
October 31, 2019
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted Average Useful Life in Years
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Weighted Average Useful Life in Years


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade names and trademarks
$
3,786

 
$
(652
)
 
$
3,134

 
10
 
$
3,786

 
$
(542
)
 
$
3,244

 
10
Customer relationships
5,010

 
(648
)
 
4,362

 
9
 
5,010

 
(500
)
 
4,510

 
9
Non-competition agreement
1,040

 
(69
)
 
971

 
10
 
1,040

 
(42
)
 
998

 
10
Acquired water and mineral rights
3,655

 

 
3,655

 
Indefinite
 
3,655

 

 
3,655

 
Indefinite
Other intangible assets
$
13,491

 
$
(1,369
)
 
$
12,122

 
 
 
$
13,491

 
$
(1,084
)
 
$
12,407

 
 

Amortization expense totaled $285,000 and $89,000 for the three months ended January 31, 2020 and 2019, respectively.

Estimated future amortization expense of intangible assets as of January 31, 2020 are as follows (in thousands):



16


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

9. Goodwill and Intangible Assets (continued)
2020 (excluding the three months ended January 31, 2020)
$
752

2021
1,027

2022
976

2023
976

2024
976

Thereafter
3,760

 
$
8,467


10. Other Assets

Investments in Mutual Water Companies

The Company’s investments in various not-for-profit mutual water companies provide the Company with the right to receive a proportionate share of water from each of the not-for-profit mutual water companies that have been invested in and do not constitute voting shares and/or rights. Amounts included in other assets in the consolidated balance sheets as of January 31, 2020 and October 31, 2019 were $5,992,000 and $5,499,000, respectively. 

11. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):
 
January 31,
2020
 
October 31, 2019
Compensation
$
2,065

 
$
1,973

Property taxes
229

 
652

Lemon and orange supplier payables
2,176

 
899

Allowances and packing and harvest expenses
1,930

 
3,191

Payable to FGF
1,123

 
906

Payable to LLCB
1,200

 

Other
1,548

 
1,546

 
$
10,271

 
$
9,167


17


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

12. Long-Term Debt
Long-term debt is comprised of the following (in thousands):
 
 
January 31,
2020
 
October 31, 2019
Farm Credit West revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month London Interbank Offered Rate (“LIBOR”), which was 1.80% at January 31, 2020, plus 1.85%. The interest rate for the $40.0 million outstanding balance of the non-revolving line of credit was fixed at 4.77%. Interest is payable monthly and the principal is due in full on July 1, 2022.
 
$
104,466

 
$
82,843

Farm Credit West term loan: Effective October 1, 2019, the interest rate was fixed at 3.76%. The loan is payable in quarterly installments through November 2022.
 
1,890

 
2,035

Farm Credit West term loan: Effective October 1, 2019, the interest rate was fixed at 4.14%. The loan is payable in monthly installments through October 2035.
 
1,066

 
1,078

Farm Credit West term loan: Effective October 1, 2019, the interest rate was fixed at 4.17%. The loan is payable in monthly installments through March 2036.
 
8,729

 
8,823

Farm Credit West term loan: the interest rate is fixed at 3.62% until March 2021, becoming variable for the remainder of the loan. The loan is payable in monthly installments though March 2036.
 
6,449

 
6,522

Wells Fargo term loan: the interest rate is fixed at 3.58%. The loan is payable in monthly installments through January 2023.
 
4,594

 
4,955

Banco de Chile term loan: the interest rate is fixed at 6.48%. The loan is payable in annual installments through January 2025.
 
1,115

 
1,386

Note Payable: the interest rate ranges from 5.00% to 7.00% and was 5.50% at January 31, 2020. The loan includes interest only monthly payments and principal is due in February 2023.
 
1,435

 
1,435

Subtotal
 
129,744

 
109,077

Less deferred financing costs, net of accumulated amortization
 
142

 
162

Total long-term debt, net
 
129,602

 
108,915

Less current portion
 
2,998

 
3,023

Long-term debt, less current portion
 
$
126,604

 
$
105,892


In June 2017, the Company entered into a Master Loan Agreement (the “Loan Agreement”) with Farm Credit West that includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the “Supplements”). On January 29, 2018, the Company amended the Revolving Credit Supplement to increase the borrowing capacity from $60,000,000 to $75,000,000. The Supplements provide aggregate borrowing capacity of $115,000,000 comprised of $75,000,000 under the Revolving Credit Supplement and $40,000,000 under the Non-Revolving Credit Supplement. The borrowing capacity based on collateral value was $115,000,000 at January 31, 2020.

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

In December 2019, Farm Credit West declared an annual cash patronage dividend of 1.00% of average eligible loan balances. The Company accrued the $966,000 dividend receivable in prepaid expenses and other current assets at January 31, 2020, which was received in February 2020.

In March 2020, the Company entered into a loan agreement with Farm Credit West for a $15,000,000 revolving line of credit secured by the Windfall Investors, LLC property. The loan matures in 2043 and features a 3-year draw period followed by 20 years of fully amortized loan payments. The interest rate is variable with monthly interest-only payments during the 3-year draw period and monthly principal and interest payments thereafter.




18


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

12. Long-Term Debt (continued)

Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $89,000 and $267,000 during the three months ended January 31, 2020 and 2019, respectively. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets. 
 
13. Leases

Lessor Arrangements

The Company enters into leasing transactions in which it rents certain of its assets and the Company is the lessor. These lease contracts are typically classified as operating leases with remaining terms ranging from one month to 23 years, with various renewal terms available. All of the residential rentals have month to month lease terms.

The following table presents the components of the Company’s operating lease portfolio included in property, plant and equipment, net as of the dates indicated (in thousands):
 
January 31, 2020
 
October 31, 2019
Land
$
1,279

 
$
1,279

Buildings, equipment and building improvements
22,841

 
22,841

Less accumulated depreciation
(7,717
)
 
(7,551
)
Property, plant and equipment, net under operating leases
$
16,403

 
$
16,569

 
Depreciation expense for assets under operating leases was approximately $166,000 for the three months ended January 31, 2020.

The Company’s rental operations revenue consists of the following (in thousands):
 
Three Months Ended
January 31, 2020
Operating lease payments
$
1,096

Variable lease payments
77

Total lease payments
$
1,173


The future minimum lease payments to be received by the Company related to these operating lease agreements as of January 31, 2020 are as follows (in thousands):
2020 (excluding the three months ended January 31, 2020)
$
592

2021
323

2022
133

2023
88

2024
42

Thereafter
758

Total
$
1,936

 
 

Lessee Arrangements

The Company enters into leasing transactions in which the Company is the lessee. These lease contracts are typically classified as operating leases. The Company’s lease contracts are generally for agricultural land and packinghouse equipment with remaining lease terms ranging from one to 18 years, with various term extensions available. The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. As of January 31, 2020, there were no material finance leases for which the Company was a lessee.

19


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

13. Leases (continued)

Operating lease costs were $137,000 for the three months ended January 31, 2020, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Variable and short term lease costs were immaterial.

Supplemental balance sheet information related to leases consists of the following (in thousands):
 
Classification
 
January 31, 2020
Assets
 
 
 
Operating lease ROU assets
Other assets
 
$
2,302

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current operating lease liabilities
Accrued liabilities
 
545

Non-current operating lease liabilities
Other long-term liabilities
 
1,787

Total operating lease liabilities
 
 
$
2,332

 
 
 
 
Weighted-average remaining lease term (in years)
 
 
10.9

Weighted-average discount rate
 
 
3.9
%

Supplemental cash flow information related to leases consists of the following (in thousands):
 
Three Months Ended
January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash outflows from operating leases
$
184

 
 
ROU assets obtained in exchange for new operating lease liabilities
$


Future minimum lease payments under non-cancellable leases for the remainder of fiscal year 2020, each of the subsequent four fiscal years and thereafter are as follows (in thousands):
2020 (excluding the three months ended January 31, 2020)
$
362

2021
481

2022
330

2023
154

2024
134

Thereafter
1,449

Total lease payments
2,910

Less: Imputed interest
(578
)
Total
$
2,332


In addition to operating lease commitments, the Company also has a contract for pollination services which does not meet the definition of a lease, with minimum future payments of $230,000 for the remainder of fiscal year 2020, $307,000 for each of the fiscal years 2021 and 2022 and $51,000 in fiscal year 2023.

A summary of the Company’s future minimum payments for obligations under non-cancellable operating leases as of October 31, 2019 was as follows (in thousands):





20


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

13. Leases (continued)
2020
$
688

2021
492

2022
291

2023
154

2024
134

Thereafter
1,382

 
$
3,141


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

Basic net loss per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of conversion of preferred stock. Diluted net loss per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of conversion of unvested, restricted stock and preferred stock. The computations for basic and diluted net (loss) income per common share are as follows (in thousands, except per share amounts):
 
Three Months Ended January 31,
 
2020
 
2019
Basic net loss per common share:
 

 
 

Net loss applicable to common stock
$
(6,552
)
 
$
(4,818
)
Effect of unvested, restricted stock
(17
)
 
(16
)
Numerator: Net loss for basic EPS
(6,569
)
 
(4,834
)
Denominator: Weighted average common shares-basic
17,579

 
17,488

Basic net loss per common share
$
(0.37
)
 
$
(0.28
)
Diluted net loss per common share:
 

 
 

Numerator: Net loss for diluted EPS
$
(6,569
)
 
$
(4,834
)
Weighted average common shares–basic
17,579

 
17,488

Effect of dilutive unvested, restricted stock and preferred stock

 

Denominator: Weighted average common shares–diluted
17,579

 
17,488

Diluted net loss per common share
$
(0.37
)
 
$
(0.28
)

Diluted (losses) earnings per common share are computed using the more dilutive method of either the two-class method or the treasury stock method. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share. The Company’s unvested, restricted stock awards qualify as participating shares. The Company excluded 114,000 and 162,000, unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted (losses) earnings per share for the three months ended January 31, 2020 and 2019, respectively.






21


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

15. Related-Party Transactions
The Company has transactions with various related-parties as summarized in the tables below (in thousands):
 
 
 
 
January 31, 2020
 
October 31, 2019
 
 
 
 
Balance Sheet
 
Balance Sheet
Ref
 
Related Party
 
Accounts Receivable
 
Other Assets
 
Accounts Payable
 
Accrued Liabilities
 
Other Long-Term Liabilities
 
Accounts Receivable
 
Other Assets
 
Accounts Payable
 
Accrued Liabilities
1

 
Employees
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

2

 
Mutual water companies
 

 
457

 
2

 

 

 

 
473

 
11

 

3

 
Cooperative association
 

 

 
31

 

 

 

 

 
35

 

4

 
Calavo
 
32

 

 
1

 

 

 

 

 

 

5

 
Third-party growers
 

 

 

 

 

 

 

 

 

6

 
Cadiz / Fenner / WAM
 

 
1,498

 

 
134

 
1,408

 

 

 

 

7

 
Colorado River Growers
 
521

 

 

 

 

 
376

 

 

 

8

 
YMIDD
 

 

 

 

 

 

 

 

 

9

 
FGF
 
2,808

 

 

 
1,123

 

 
2,609

 

 

 
906

 
 
 
 
Three Months Ended January 31, 2020
 
Three Months Ended January 31, 2019
 
 
 
 
Consolidated Statement of Operations
 
 
 
Consolidated Statement of Operations
 
 
Ref
 
Related Party
 
Net Revenue Agribusiness
 
Net Revenue Rental Operations
 
Agribusiness Expense and Other
 
Other Income, Net
 
Dividends Paid
 
Net Revenue Agribusiness
 
Net Revenue Rental Operations
 
Agribusiness Expense and Other
 
Other Income, Net
 
Dividends Paid
1

 
Employees
 
$

 
$
197

 
$

 
$

 
$

 
$

 
$
178

 
$

 
$

 
$

2

 
Mutual water companies
 

 

 
348

 

 

 

 

 
321

 

 

3

 
Cooperative association
 

 

 
446

 

 

 

 

 
316

 

 

4

 
Calavo
 
32

 
81

 
118

 
220

 
126

 
3

 
79

 
1

 
250

 
129

5

 
Third-party growers
 

 

 

 

 

 

 

 
377

 

 

6

 
Cadiz / Fenner / WAM
 

 

 
102

 

 

 

 

 
66

 

 

7

 
Colorado River Growers
 
521

 

 
5,001

 

 

 
306

 

 
3,841

 

 

8

 
YMIDD
 

 

 
34

 

 

 

 

 
32

 

 

9

 
FGF
 
199

 

 
163

 

 

 

 

 

 

 

(1) Employees - The Company rents certain of its residential housing assets to employees on a month-to-month basis and recorded rental income from employees. There were no rental payments due from employees at January 31, 2020 and October 31, 2019.

(2) Mutual water companies - The Company has representation on the boards of directors of the mutual water companies in which the Company has investments. The Company recorded capital contributions, purchased water and water delivery services and had water payments due to the mutual water companies.

(3) Cooperative association - The Company has representation on the board of directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies from and had payments due to the cooperative association.

(4) Calavo - The Company has an investment in and representation on the board of directors of Calavo and Calavo has an investment in the Company. Calavo had representation on the board of directors of the Company through December 2018. The Company recorded dividend income on its investment in Calavo, paid dividends to Calavo and had avocado sales to Calavo. Additionally, the Company leases office space to Calavo, purchases storage services from Calavo and had amounts due to Calavo for those services.

(5) Third party growers - A member of the Company’s board of directors markets lemons through the Company.






22


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

15. Related-Party Transactions (continued)

(6) Cadiz / Fenner / WAM - A member of the Company’s board of directors serves as the CEO, President and a member of the board of directors of Cadiz, Inc. In 2013, the Company entered a long-term lease agreement (the “Lease”) with Cadiz Real Estate, LLC (“Cadiz”), a wholly owned subsidiary of Cadiz, Inc., and currently leases 670 acres located in eastern San Bernardino County, California. The annual base rental is equal to the sum of $200 per planted acre and 20% of gross revenues from the sale of harvested lemons (less operating expenses), not to exceed $1,200 per acre per year. In 2016, Cadiz assigned this lease to Fenner Valley Farms, LLC (“Fenner”), a subsidiary of Water Asset Management, LLC (“WAM”). An entity affiliated with WAM is the holder of 9,300 shares of the Company's Series B-2 convertible preferred stock. Upon the adoption of ASC 842, the Company recorded a ROU asset and corresponding lease liability.

(7) Colorado River Growers, Inc. (“CRG”) - The Company has representation on the board of directors of CRG, a non-profit cooperative association of fruit growers engaged in the agricultural harvesting business in Yuma County, Arizona. The Company paid harvest expense to CRG, provided harvest management and administrative services to CRG and had a receivable due from CRG for such services.

(8) Yuma Mesa Irrigation and Drainage District (“YMIDD”) - The Company has representation on the board of directors of YMIDD. The Company purchased water from YMIDD and had amounts payable to them for such purchases.

(9) FGF - The Company advances funds to FGF for fruit purchases which are recorded as an asset until the sales occur and the remaining proceeds become due to FGF. Additionally, FGF provided farming, packing, by-product processing and administrative services to Trapani Fresh. The Company had a payable due to FGF for such fruit purchases and services.

16. Income Taxes

The Company’s estimated annual effective blended tax rate for fiscal year 2020 is approximately 32.3%. As such, a 31.3% estimated effective blended tax rate, after discrete items, was utilized by the Company in the three months ended January 31, 2020 to calculate its income tax provision.

The Company has no material uncertain tax positions as of January 31, 2020. The Company recognizes interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest or penalties associated with uncertain tax positions as of January 31, 2020.
 
17. Retirement Plans

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

The Plan is funded consistent with the funding requirements of federal law and regulations. There were funding contributions of zero and $150,000 during the three months ended January 31, 2020 and 2019, respectively. 

The components of net periodic pension cost for the Plan for the three months ended January 31, 2020 and 2019 were as follows (in thousands):
 
Three Months Ended
January 31,
 
2020
 
2019
Administrative expenses
$
70

 
$
47

Interest cost
160

 
207

Expected return on plan assets
(248
)
 
(272
)
Prior service cost
11

 
11

Recognized actuarial loss
185

 
101

Net periodic benefit cost
$
178

 
$
94

 

23


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

18. Commitments and Contingencies

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

The Company has a stock-based compensation plan (the “Stock Plan”) that allows for the grant of common stock of the Company to members of management, key executives and non-employee directors. The fair value of such awards is based on the fair value of the Company’s stock on the date of grant and all are classified as equity awards.

Performance Awards

Certain restricted stock grants are made to management each December under the Stock Plan based on the achievement of certain annual financial performance and other criteria achieved during the previous fiscal year (“Performance Awards”). The performance grants are based on a percentage of the employee’s base salary divided by the stock price on the grant date once the performance criteria has been met, and generally vest over a two-year period as service is provided. There were no shares of common stock granted to management under the Stock Plan for fiscal year 2019 performance because the financial performance and other criteria were not met.

Executive Awards

Certain restricted stock grants are made to key executives under the Stock Plan (“Executive Awards”). These grants generally vest over a three to five-year period as service is provided. During December 2019, the Company granted 95,000 shares of common stock with a per share price of $18.87 to key executives under the Stock Plan. The related compensation expense of approximately $1,793,000 will be recognized equally over the next three years as the shares vest.

Director Awards

The Company issues shares of common stock to non-employee directors under the Stock Plan on an annual basis that vest upon grant (“Director Awards”). During January 2020 and 2019, 17,841 and 15,642 shares, respectively, of common stock were granted as Director Awards. The Company recognized $358,000 and $339,000 of stock-based compensation to non-employee directors during the three months ended January 31, 2020 and 2019, respectively.

During the three months ended January 31, 2020 and 2019, members of management exchanged 11,314 and 20,119 shares, respectively, of common stock with fair values of $213,000 and $305,000, respectively, at the date of the exchanges, for the payment of payroll taxes associated with the vesting of shares under the Company’s stock-based compensation programs.

20. Segment Information

The Company operates in four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness. The Company’s operating segments of rental operations and real estate development are no longer disclosed as separate reportable operating segments and are included in the “Corporate and Other” category in the tables below as they do not meet the quantitative threshold and from a qualitative perspective are not a core focus of the Company's main agribusiness activities. Prior years’ information has been restated to conform to the current year’s presentation. The reportable operating segments of the Company are strategic business units with different products and services, distribution processes and customer bases. The fresh lemons segment includes sales, farming and harvesting expenses and third-party grower costs relative to fresh lemons. The lemon packing segment includes packing revenues and shipping and handling revenues relative to lemon packing. The lemon packing segment expenses are comprised of lemon packing costs. The lemon packing segment revenues include intersegment revenues between fresh lemons and lemon packing. The intersegment revenues are included gross in the segment note and a separate line item is shown as an elimination. The avocados segment includes sales, farming and harvest costs. The other agribusiness segment includes sales, farming and harvest costs of oranges, specialty citrus and other crops. Revenues related to rental operations are included in “Corporate and Other”. Other agribusiness revenues consist of oranges of $2,272,000 and specialty citrus and other crops of $1,892,000 for the three months ended January 31, 2020 and oranges of $946,000 and specialty citrus and other crops of $1,255,000 for the three months ended January 31, 2019.


24


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

20. Segment Information (continued)

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

Segment information for the three months ended January 31, 2020 (in thousands):
 
Fresh
Lemons
Lemon
Packing
Eliminations
 
Avocados
Other
Agribusiness
Total
Agribusiness
Corporate
and Other
Total
Revenues from external customers
$
32,057

$
4,094

$

$
168

$
4,164

$
40,483

$
1,173

$
41,656

Intersegment revenue

7,105

(7,105
)





Total net revenues
32,057

11,199

(7,105
)
168

4,164

40,483

1,173

41,656

Costs and expenses
34,351

8,609

(7,105
)
473

3,931

40,259

7,298

47,557

Depreciation and amortization





2,284

281

2,565

Operating income (loss)
$
(2,294
)
$
2,590

$

$
(305
)
$
233

$
(2,060
)
$
(6,406
)
$
(8,466
)

Segment information for the three months ended January 31, 2019 (in thousands):
 
Fresh
Lemons
Lemon
Packing
Eliminations
 
Avocados
Other
Agribusiness
Total
Agribusiness
Corporate
and Other
Total
Revenues from external customers
$
34,493

$
4,103

$

$
3

$
2,201

$
40,800

$
1,218

$
42,018

Intersegment revenue

7,044

(7,044
)





Total net revenues
34,493

11,147

(7,044
)
3

2,201

40,800

1,218

42,018

Costs and expenses
32,082

8,784

(7,044
)
716

2,510

37,048

5,864

42,912

Depreciation and amortization





1,868

258

2,126

Operating income (loss)
$
2,411

$
2,363

$

$
(713
)
$
(309
)
$
1,884

$
(4,904
)
$
(3,020
)
 
21. Subsequent Events
The Company has evaluated events subsequent to January 31, 2020 through the date of this filing, to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except as described in the notes to the interim consolidated financial statements, it was determined that no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements.

25


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
Limoneira Company was incorporated in Delaware in 1990 as the successor to several businesses with operations in California since 1893. We are primarily an agribusiness company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 15,700 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, rental operations, real estate and capital investment activities.
  
We are one of California’s oldest citrus growers. According to Sunkist Growers, Inc. (“Sunkist”), we are one of the largest growers of lemons in the United States and, according to the California Avocado Commission, one of the largest growers 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, Tulare, San Luis Obispo and San Bernardino Counties in California, Yuma County in Arizona, La Serena, Chile and Jujuy, Argentina, which collectively consist of approximately 6,200 acres of lemons, 900 acres of avocados, 1,600 acres of oranges and 1,000 acres of specialty citrus and other crops. We also operate our own packinghouses in Santa Paula and Oxnard, California and Yuma, Arizona, where we process, pack and sell lemons that we grow, as well as lemons grown by others. We have a 47% interest in Rosales S.A. (“Rosales”), a citrus packing, marketing and sales business, a 90% interest in Fruticola Pan de Azucar S.A. (“PDA”), a lemon and orange orchard and 100% interest in Agricola San Pablo, SpA ("San Pablo"), a lemon and orange orchard, all of which are located near La Serena, Chile. We have a 51% interest in a joint venture, Trapani Fresh Consorcio de Cooperacion ("Trapani Fresh"), a lemon growing, packing, marketing and selling business in Argentina.
 
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 un-adjudicated Fillmore and Paso Robles Basins (aquifers). We use ground water from the San Joaquin Valley Basin and water from local water and irrigation districts in Tulare County, which is in California’s San Joaquin Valley. We also use ground water from the Cadiz Valley Basin in California's San Bernardino County and surface water in Arizona from the Colorado River through the Yuma Mesa Irrigation and Drainage District (“YMIDD”). We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in Chile and our Trapani Fresh farming operations in Argentina.
  
For more than 100 years, we have been making strategic investments in California agriculture and real estate. We currently have an interest in three real estate development projects in California. These projects include multi-family housing and single-family homes comprising approximately 260 completed rental units and another approximately 1,500 units in various stages of planning and development.
 
Business Division Summary
 
We have three business divisions: agribusiness, rental operations and real estate development. The agribusiness division is comprised of four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, and includes our core operations of farming, harvesting, lemon packing and lemon sales operations. The rental operations division includes our residential and commercial rentals, leased land operations and organic recycling. The real estate development division includes our investments in real estate development projects. Financial information and discussion of our four reportable segments are contained in the notes to the accompanying consolidated financial statements of this Quarterly Report on Form 10-Q.
 
Agribusiness Division
 
The agribusiness division is comprised of four of our reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, which represented approximately 97%, 96% and 96% of our fiscal year 2019, 2018 and 2017 consolidated revenues, respectively, of which fresh lemons and lemon packing combined represented 87%, 80% and 78% of our fiscal year 2019, 2018 and 2017 consolidated revenues, respectively.
 
Our lemon farming is included in our “fresh lemons” and “lemon packing” reportable operating segments within our financial statements. We are one of the largest growers of lemons and avocados in the United States. We market and sell lemons directly to our food service, wholesale and retail customers throughout the United States, Canada, Asia, Australia and certain other international markets. During the three months ended January 31, 2020, lemon sales were comprised of approximately 71% in domestic and Canadian sales, 25% in sales to domestic exporters and 4% in international sales. Additionally, we had approximately $0.5 million of lemon and orange sales in Chile by PDA and San Pablo and $0.2 million of lemon and orange sales in Argentina by Trapani Fresh in the three months ended

26


January 31, 2020. We sell our oranges and specialty citrus to Sunkist-licensed and other third-party packinghouses. We sell our pistachios to a roaster, packager and marketer of nuts, and our wine grapes are sold to various wine producers.
 
Historically, our agribusiness operations have been seasonal in nature with quarterly revenue fluctuating depending on the timing and variety of crops being harvested. Cultural costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue.
 
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 operations, even though a significant portion of the costs related to these 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 procured from other growers. Because the fresh utilization rate for our lemons, or percentage of lemons we harvest and pack that are sold 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 other growers if we determine their lemons are of good quality.
 
Our avocado producing business is important to us, yet it faces 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 can be volatile, the profitability and cash flow realized from our avocados helps to diversify our fruit production base.
 
In addition to growing lemons and avocados, we grow oranges, 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 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 identified consumer trends and believe that we are a leader in the niche production and sale of certain of these high margin fruits. We carefully monitor the respective markets of specialty citrus and other crops and 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.
 
Other Divisions
 
Our rental operations division includes our residential and commercial rentals, leased land operations and organic recycling. Our rental operations division represented approximately 3%, 4% and 4% of our consolidated revenues in fiscal years 2019, 2018 and 2017, respectively. Our residential rental units generate reliable cash flows, which we use to partially fund the operations of all three of our business divisions 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. Revenue from rental operations is generally level throughout the year.
 
Our real estate development division includes our real estate development investments. The real estate development division had no revenue in fiscal years 2019, 2018 or 2017. We recognize that long-term strategies are required for successful real estate development activities. Our goal is to redeploy real estate earnings and cash flow into the expansion of our agribusiness and other income producing real estate. For real estate development projects and joint ventures, it is not unusual for the timing and amounts of revenues and costs, partner contributions and distributions, project loans and other financing assumptions and project cash flows to be impacted by government approvals, project revenue and cost estimates and assumptions, economic conditions, financing sources and product demand as well as other factors. Such factors could affect our results of operations, cash flows and liquidity. 
 

27


Water Resources
 
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 located in Ventura County, California is sourced from the existing water resources associated with our land, which includes approximately 8,600-acre feet of adjudicated water rights in the Santa Paula Basin (aquifer) and the un-adjudicated Fillmore Basin. We use a combination of ground water provided by wells that derive water from the San Joaquin Valley Basin and water from various water districts and irrigation districts in Tulare County, California, which is in the agriculturally productive San Joaquin Valley. We use ground water provided by wells which derive water from the Cadiz Valley Basin at the Cadiz Ranch in San Bernardino County, California. Our Windfall Farms property located in San Luis Obispo County, California obtains water from wells that derive water from the Paso Robles Basin. Our Associated Citrus Packers, Inc. ("Associated") farming operations in Yuma, Arizona source water from the Colorado River through the YMIDD, where we have access to approximately 11,700-acre feet of Class 3 Colorado River water rights. We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in La Serena, Chile and our Trapani Fresh farming operations in Argentina.

California has historically experienced periods of below average precipitation. Precipitation in 2019 brought relief to California’s drought conditions, although the few years prior to 2019 were among the most severe droughts on record. Rainfall, snow levels and water content of snow pack were significantly below historical averages. These conditions resulted in reduced water levels in streams, rivers, lakes, aquifers and reservoirs. Federal officials oversee the Central Valley Project, California’s largest water delivery system and 100% of the contracted amount of water was provided to San Joaquin Valley farmers in 2019, 2018 and 2017 compared to 75% in 2016 and zero for 2015 and 2014.

Recent Developments  
  
We are equal partners in a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of our East Area I real estate development project. To consummate the transaction, we formed Limoneira Lewis Community Builders, LLC (the "LLCB" or "Joint Venture") as the development entity. The first phase of the project broke ground to commence mass grading in November 2017. The Joint Venture has closed on lots sales representing 244 units through January 31, 2020. For further information see Note 7 – Real Estate Development of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

On May 30, 2019, we acquired a 51% interest in a joint venture, Trapani Fresh, formed with FGF Trapani (“FGF”), a multi-generational, family owned citrus operation in Argentina. To consummate the transaction, we formed a subsidiary under the name Limoneira Argentina S.A.U. (“Limoneira Argentina”) as the managing partner and acquired a 51% interest in an Argentine Trust that holds a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. Trapani Fresh controls the trust and grows, packs, markets and sells fresh citrus. Total consideration paid for our interest in Trapani Fresh was $15,000,000.

In the first quarter of fiscal year 2020, we entered into an agreement to sell our Sevilla property for $2,700,000. After transaction and other costs, we expect to receive proceeds of approximately $2,550,000 and recognize an insignificant gain. At January 31, 2020, the $2,543,000 carrying value of the property was classified as held for sale and included in prepaid expenses and other current assets.

For fiscal year 2019, we declared cash dividends to our stockholders totaling $0.25 per common share in the aggregate amount of $4.0 million compared to a total of $0.21 per common share in the aggregate amount of $3.7 million for fiscal year 2018. On December 17, 2019, we declared a cash dividend $0.075 per common share, which was paid on January 15, 2020, in the aggregate amount of $1.3 million to common stockholders of record as of December 30, 2019.

We believe the outbreak of COVID-19 poses increasing risks and may potentially have accounting implications for us with exposure to a broader economic downturn and decline in financial markets.  We anticipate a decrease in demand for our fresh citrus in Asian countries which would result in supply chain disruptions and reduced exports to areas affected by the virus. 



28


Results of Operations
 
The following table shows the results of operations (in thousands):
 
Three Months Ended January 31,
 
2020
 
2019
Revenues:
 

 
 

Agribusiness
$
40,483

 
$
40,800

Other
1,173

 
1,218

Total net revenues
41,656

 
42,018

Costs and expenses:
 
 
 
Agribusiness
42,543

 
38,916

Other operations
1,269