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EX-32.2 - EXHIBIT 32.2 - Limoneira COlmnr043020exhibit322.htm
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EX-31.2 - EXHIBIT 31.2 - Limoneira COlmnr043020exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Limoneira COlmnr043020exhibit311.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 APRIL 30, 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 May 31, 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 – April 30, 2020 and October 31, 2019
 
 
Consolidated Statements of Operations – three and six months ended April 30, 2020 and 2019
 
 
Consolidated Statements of Comprehensive Loss – three and six months ended April 30, 2020 and 2019
 
 
Consolidated Statements of Stockholders' Equity and Temporary Equity – three and six months ended April 30, 2020 and 2019
 
 
Consolidated Statements of Cash Flows – six months ended April 30, 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 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;
the impact of foreign exchange rate movements;
negative impacts related to the COVID-19 pandemic and the effectiveness of the Company's responses to the pandemic;
loss of important intellectual property rights; and
other factors disclosed in our public filings with the Securities and Exchange Commission (the "SEC").
These forward-looking statements involve risks and uncertainties that we have identified as having the potential to cause actual results to differ materially from those contemplated herein. We have described in Part II, Item 1A-“Risk Factors” additional factors that could cause our actual results to differ from our projections or estimates, especially relating to the COVID-19 pandemic.

Many of these risks and uncertainties are currently amplified by, and will continue to be amplified by, or in the future may be amplified by, the COVID-19 outbreak. It is not possible to predict or identify all such risks.

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) 
 
April 30,
2020
 
October 31,
2019
Assets
 

 
 

Current assets:
 

 
 

Cash
$
1,264

 
$
616

Accounts receivable, net
20,659

 
15,114

Cultural costs
4,161

 
7,223

Prepaid expenses and other current assets
11,291

 
8,153

Receivables/other from related parties
6,276

 
2,985

Income taxes receivable
5,906

 
979

Total current assets
49,557

 
35,070

 
 
 
 
Property, plant and equipment, net
246,721

 
248,114

Real estate development
19,361

 
17,602

Equity in investments
60,413

 
58,223

Investment in Calavo Growers, Inc.

 
17,346

Goodwill
1,523

 
1,839

Intangible assets, net
11,682

 
12,407

Other assets
9,403

 
9,266

Total assets
$
398,660

 
$
399,867

 
 
 
 
Liabilities and stockholders’ equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
10,451

 
$
4,974

Growers payable
5,629

 
14,500

Accrued liabilities
6,503

 
8,261

Payables to related parties
3,819

 
906

Current portion of long-term debt
3,045

 
3,023

Total current liabilities
29,447

 
31,664

Long-term liabilities:
 

 
 

Long-term debt, less current portion
124,294

 
105,892

Deferred income taxes
22,160

 
24,346

Other long-term liabilities
6,109

 
5,467

Total liabilities
182,010

 
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 April 30, 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 April 30, 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 April 30, 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 April 30, 2020 and October 31, 2019, respectively)
179

 
178

Additional paid-in capital
161,227

 
160,254

Retained earnings
38,850

 
53,089

Accumulated other comprehensive loss
(8,806
)
 
(7,255
)
Noncontrolling interest
14,390

 
15,422

Total stockholders’ equity
205,840

 
221,688

Total liabilities and stockholders’ equity
$
398,660

 
$
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
April 30,
 
Six Months Ended April 30,
 
2020
 
2019
 
2020
 
2019
Net revenues:
 

 
 

 
 
 
 
Agribusiness
$
38,439

 
$
40,823

 
$
78,922

 
$
81,623

Other
1,132

 
1,212

 
2,305

 
2,430

Total net revenues
39,571

 
42,035

 
81,227

 
84,053

Costs and expenses:
 

 
 

 
 
 
 
Agribusiness
35,949

 
37,078

 
78,492

 
75,994

Other operations
1,117

 
1,119

 
2,386

 
2,226

Selling, general and administrative
5,338

 
4,843

 
11,648

 
9,858

Total costs and expenses
42,404

 
43,040

 
92,526

 
88,078

Operating loss
(2,833
)
 
(1,005
)
 
(11,299
)
 
(4,025
)
Other (expense) income:
 

 
 

 
 
 
 
Interest expense, net
(1,052
)
 
(686
)
 
(997
)
 
(539
)
Equity in (loss) earnings of investments
(371
)
 
1,927

 
(491
)
 
1,969

(Loss) gain on stock in Calavo Growers, Inc.
(4,275
)
 
3,612

 
(6,299
)
 
(298
)
Other (expense) income, net
(280
)
 
56

 
235

 
360

Total other (expense) income
(5,978
)
 
4,909

 
(7,552
)
 
1,492

 
 
 
 
 
 
 
 
(Loss) income before income tax benefit (provision)
(8,811
)
 
3,904

 
(18,851
)
 
(2,533
)
Income tax benefit (provision)
3,505

 
(1,084
)
 
6,641

 
677

Net (loss) income
(5,306
)
 
2,820

 
(12,210
)
 
(1,856
)
Net loss (income) attributable to noncontrolling interest
423

 
(5
)
 
900

 
(22
)
Net (loss) income attributable to Limoneira Company
(4,883
)
 
2,815

 
(11,310
)
 
(1,878
)
Preferred dividends
(126
)
 
(126
)
 
(251
)
 
(251
)
Net (loss) income attributable to common stock
$
(5,009
)
 
$
2,689

 
$
(11,561
)
 
$
(2,129
)
 
 
 
 
 
 
 
 
Basic net (loss) income per common share
$
(0.29
)
 
$
0.15

 
$
(0.66
)
 
$
(0.12
)
 
 
 
 
 
 
 
 
Diluted net (loss) income per common share
$
(0.29
)
 
$
0.15

 
$
(0.66
)
 
$
(0.12
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding-basic
17,634,000

 
17,554,000

 
17,602,000

 
17,516,000

Weighted-average common shares outstanding-diluted
17,634,000

 
18,225,000

 
17,602,000

 
17,516,000

  
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 April 30,
 
Six Months Ended April 30,
 
2020
 
2019
 
2020
 
2019
Net (loss) income
$
(5,306
)
 
$
2,820

 
$
(12,210
)
 
$
(1,856
)
Other comprehensive (loss) income, net of tax:
 

 
 

 
 
 
 
Foreign currency translation adjustments
(619
)
 
(452
)
 
(1,886
)
 
443

Minimum pension liability adjustment, net of tax of $50, $28, $100 and $55 for the three and six months ended April 30, 2020 and 2019, respectively.
60

 
72

 
195

 
146

Residual state tax effects on sale of equity securities
140

 

 
140

 

Total other comprehensive (loss) income, net of tax
(419
)
 
(380
)
 
(1,551
)
 
589

Comprehensive (loss) income
(5,725
)
 
2,440

 
(13,761
)
 
(1,267
)
Comprehensive loss attributable to noncontrolling interest
422

 
13

 
887

 
1

Comprehensive (loss) income attributable to Limoneira Company
$
(5,303
)
 
$
2,453

 
$
(12,874
)
 
$
(1,266
)
 
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

Dividends Common ($0.075 per share)

 

 

 
(1,341
)
 

 

 
(1,341
)
 

 

Dividends Series B ($2.19 per share)

 

 

 
(32
)
 

 

 
(32
)
 

 

Dividends Series B-2 ($10 per share)

 

 

 
(93
)
 

 

 
(93
)
 

 

Stock compensation

 

 
358

 

 

 

 
358

 

 

Noncontrolling interest adjustment

 

 

 

 

 
(145
)
 
(145
)
 

 

Net loss

 

 

 
(4,883
)
 

 
(423
)
 
(5,306
)
 

 

Other comprehensive (loss) income, net of tax

 

 

 

 
(419
)
 
1

 
(418
)
 

 

Balance at April 30, 2020
17,857,707

 
$
179

 
$
161,227

 
$
38,850

 
$
(8,806
)
 
$
14,390

 
$
205,840

 
$
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

 
789

 

 

 

 
791

 

 

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

 
$
159,555

 
$
58,401

 
$
(4,263
)
 
$
579

 
$
214,450

 
$
1,479

 
$
9,331

Dividends Common ($0.075 per share)

 

 

 
(1,333
)
 

 

 
(1,333
)
 

 

Dividends Series B ($2.19 per share)

 

 

 
(33
)
 

 

 
(33
)
 

 

Dividends Series B-2 ($10 per share)

 

 

 
(93
)
 

 

 
(93
)
 

 

Stock compensation

 

 
437

 

 

 

 
437

 

 

Net income

 

 

 
2,815

 

 
5

 
2,820

 

 

Other comprehensive income, net of tax

 

 

 

 
(380
)
 
(9
)
 
(389
)
 

 

Balance at April 30, 2019
17,772,753
 
$
178

 
$
159,992

 
$
59,757

 
$
(4,643
)
 
$
575

 
$
215,859

 
$
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)
 
Six Months Ended
April 30,
 
2020
 
2019
Operating activities
 

 
 

Net loss
$
(12,210
)
 
$
(1,856
)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
 

 
 

Depreciation and amortization
4,998

 
4,247

Loss (gain) on disposals of assets
264

 
(11
)
Stock compensation expense
1,187

 
1,228

Non-cash lease expense
228

 

Equity in loss (earnings) of investments
491

 
(1,969
)
Cash distributions from equity investments

 
282

Deferred income taxes
(6,641
)
 
(642
)
Accrued interest on notes receivable
(12
)
 
(92
)
Loss on stock in Calavo Growers, Inc.
6,299

 
298

Changes in operating assets and liabilities:
 

 
 

Accounts receivable
(2,953
)
 
(5,838
)
Cultural costs
3,001

 
2,608

Prepaid expenses and other current assets
(4,620
)
 
(1,409
)
Income taxes receivable

 
378

Other assets
80

 
(130
)
Accounts payable and growers payable
(3,841
)
 
9,947

Accrued liabilities
(2,360
)
 
(2,927
)
Other long-term liabilities
291

 
(96
)
Net cash (used in) provided by operating activities
(15,798
)
 
4,018

Investing activities
 

 
 

Capital expenditures
(5,415
)
 
(8,151
)
Agriculture property acquisition

 
(397
)
Payments to FGF Trapani

 
(4,000
)
Net proceeds from sale of stock in Calavo Growers, Inc.
11,048

 

Collections of installments on note receivable

 
150

Equity investment contributions
(2,800
)
 
(4,000
)
Loan to Limoneira Lewis Community Builders, LLC
(1,800
)
 

Investments in mutual water companies
(51
)
 
(16
)
Insurance proceeds received
250

 

Net cash provided by (used in) investing activities
1,232

 
(16,414
)
Financing activities
 

 
 

Borrowings of long-term debt
71,275

 
58,340

Repayments of long-term debt
(52,771
)
 
(41,844
)
Dividends paid – common
(2,679
)
 
(2,665
)
Dividends paid – preferred
(250
)
 
(251
)
Exchange of common stock
(213
)
 
(305
)
Net cash provided by financing activities
15,362

 
13,275

Effect of exchange rate changes on cash
(148
)
 
3

Net increase in cash
648

 
882

Cash at beginning of period
616

 
609

Cash at end of period
$
1,264

 
$
1,491


8


LIMONEIRA COMPANY


CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)
(In thousands)
 
Six Months Ended
April 30,
 
2020
 
2019
Supplemental disclosures of cash flow information
 

 
 

Cash paid during the period for interest, net of amounts capitalized
$
981

 
$
1,327

Cash paid during the period for income taxes, net of refunds
$

 
$
130

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
$
1,734

 
$
400

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"), 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 - Leases in which the Company acts as the lessor include 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 April 30, 2020, the components of accumulated other comprehensive loss, net of tax, consist of accumulated foreign currency translation losses of $4,248,000 and accumulated pension losses of $4,558,000. As of October 31, 2019, accumulated other comprehensive loss consisted of accumulated foreign currency translation losses of $2,362,000, accumulated pension losses of $4,753,000 and accumulated losses related to available for sale securities of $140,000.
 
Reclassifications and Adjustments

Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the April 30, 2020 presentation. The Company reclassified receivables/other from related parties and payables to related parties of $2,985,000 and $906,000, respectively, as of October 31, 2019, from accounts receivable, net, and accrued liabilities, respectively.

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 which, among other things, 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 $2,400,000 and lease liabilities of $2,500,000 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.

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 does not expect this ASU to have a material impact 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.

Coronavirus Aid, Relief, and Economic Security Act ("CARES Act")

On March 27, 2020, the CARES Act was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company has evaluated the impact on its consolidated financial statements at April 30, 2020 and has estimated the impact of approximately $1,380,000 of income tax benefit and $4,924,000 federal tax refund utilizing net operating loss provisions of the CARES Act. The Company anticipates it will benefit from the utilization of net operating losses, the technical correction for qualified leasehold improvements eligible for 100% tax bonus depreciation and potentially other provisions within the CARES Act.




12


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

3. Acquisitions

Business Combination

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.

In February 2020, FGF agreed to a decrease in the purchase consideration of $152,000 to reflect profits that Limoneira Argentina would have received had the transaction been consummated at the beginning of the 2019 lemon export season. The Company has recorded a receivable from FGF, a decrease in non-controlling interest and a decrease in goodwill.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation, which was finalized during the second quarter of fiscal year 2020 (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
123

Total assets acquired
29,113

Noncontrolling interest
(14,265
)
Net cash paid
$
14,848


Goodwill of $123,000 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 as of October 31, 2019, which were measured on a recurring basis during the period, segregated by level within the fair value hierarchy (in thousands): 
October 31, 2019
Level 1
 
Level 2
 
Level 3
 
Total
Assets at fair value:
 

 
 

 
 

 
 

Equity securities
$
17,346

 
$

 
$

 
$
17,346





13


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

4. Fair Value Measurements (continued)

Equity securities consisted of marketable securities in Calavo common stock. At October 31, 2019, the Company owned 200,000 shares which represented approximately 1.1% of Calavo’s outstanding common stock at a stock price of $97.00 per share. These securities were measured at fair value by quoted market prices and changes in fair value were included in the statement of operations.

In March 2020, the Company sold all 200,000 shares of Calavo common stock for a total of $11,048,000, recognizing a loss of $4,275,000 and $6,299,000, for the three and six months ended April 30, 2020, respectively, which is included in other (expense) income in the consolidated 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, which was included in other (expense) income in the consolidated statement of operations.

5. Concentrations and Geographic Information
Lemons procured from third-party growers were 60% and 59% of the Company's lemon supply in the three months ended April 30, 2020 and 2019, respectively. Lemons procured from third-party growers were 58% and 59% of the Company's lemon supply in the six months ended April 30, 2020 and 2019, respectively, of which one third-party grower was 12% of lemon supply as of April 30, 2020. 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.

Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base.

During the three and six months ended April 30, 2020, the Company had approximately $921,000 and $1,460,000 of lemon and orange sales in Chile by PDA and San Pablo, respectively, and $2,280,000 and $2,479,000 of lemon and orange sales in Argentina by Trapani Fresh, respectively. During the three and six months ended April 30, 2019, the Company had approximately $907,000, and $1,545,000 of lemon and orange sales in Chile by PDA and San Pablo, respectively.

6. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following (in thousands): 
 
April 30,
2020
 
October 31, 2019
Prepaid supplies and insurance
$
4,329

 
$
3,199

Note receivable and related interest
2,489

 
181

Real estate development held-for-sale
2,543

 
2,543

Lemon supplier advances and other
1,930

 
2,230

 
$
11,291

 
$
8,153


7. Real Estate Development

Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands):
 
April 30,
2020
 
October 31,
2019
Retained Property - East Area I
$
12,845

 
$
11,943

East Area II
6,516

 
5,659

 
$
19,361

 
$
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.


14


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

7. Real Estate Development (continued)

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

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 balance includes estimated costs incurred by and reimbursable to LLCB of $2,850,000 at April 30, 2020, which is included in payables to related parties and $1,200,000 at October 31, 2019, which was included in other long-term liabilities.

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 April 30, 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 April 30, 2020.

The Company made contributions to the Joint Venture of $2,800,000 and $4,000,000 in the six months ended April 30, 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% originally due May 31, 2020 and extended to August 31, 2020.

Other Real Estate Development Projects

The remaining real estate development parcel within the Templeton Santa Barbara, LLC project is described as Sevilla. The Company's net carrying value of Sevilla was $2,543,000, as of April 30, 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. The promissory note was originally scheduled to mature in December 2019 but was extended to December 15, 2020 and the interest rate was reset 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 April 30, 2020, the net carrying value of the note was $2,489,000 and classified in prepaid expenses and other current assets.

In the first quarter of fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $2,700,000, which is expected to close in fiscal year 2020. After transaction and other costs, the Company expects to receive cash proceeds of approximately $2,550,000 and recognize an immaterial gain upon closing. At April 30, 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): 
 
April 30,
2020
 
October 31, 2019
Limoneira Lewis Community Builders, LLC
$
56,755

 
$
54,016

Limco Del Mar, Ltd.
1,928

 
1,950

Rosales
1,218

 
1,745

Romney Property Partnership
512

 
512

 
$
60,413

 
$
58,223





15


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

8. Equity in Investments (continued)

Unconsolidated Significant Subsidiary

In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies to interim reports on Form 10-Q, the Company must determine if its equity method investees are considered “significant subsidiaries”. In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment test. Summarized income statement information of an equity method investee is required in an interim report if either of the two tests exceed 20% in the interim periods presented. During the year-to-date interim period for the six months ended April 30, 2019, this threshold was met for the LLCB and thus summarized income statement information is presented in this Quarterly Report on Form 10-Q.

The following is unaudited summarized financial information for LLCB (in thousands):
 
Six Months Ended April 30,
 
2020
 
2019
Revenues
$
4,768

 
$
30,354

Cost of land sold
3,975

 
22,005

Operating expenses
649

 
107

Net income
$
144

 
$
8,242

Net income attributable to Limoneira Company
$
132

 
$
3,481


9. Goodwill and Intangible Assets

A summary of the change in the carrying amount of goodwill is as follows (in thousands):
 
Goodwill Net Carrying Amount
October 31, 2019
$
1,839

Trapani Fresh purchase price adjustment
(297
)
Foreign currency translation adjustment
(19
)
April 30, 2020
$
1,523

See Note 3 - Acquisitions for additional information regarding the acquisition of Trapani Fresh.

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 April 30, 2020.

Intangible assets consisted of the following as of April 30, 2020 and October 31, 2019 (in thousands):
 
April 30, 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

 
$
(698
)
 
$
3,088

 
10
 
$
3,786

 
$
(542
)
 
$
3,244

 
10
Customer relationships
5,010

 
(781
)
 
4,229

 
9
 
5,010

 
(500
)
 
4,510

 
9
Non-competition agreement
1,040

 
(95
)
 
945

 
10
 
1,040

 
(42
)
 
998

 
10
Acquired water and mineral rights
3,420

 

 
3,420

 
Indefinite
 
3,655

 

 
3,655

 
Indefinite
 
$
13,256

 
$
(1,574
)
 
$
11,682

 
 
 
$
13,491

 
$
(1,084
)
 
$
12,407

 
 


16


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

9. Goodwill and Intangible Assets (continued)

Amortization expense totaled $205,000 and $89,000 for the three months ended April 30, 2020 and 2019, respectively. Amortization expense totaled $490,000 and $178,000 for the six months ended April 30, 2020 and 2019, respectively.

Estimated future amortization expense of intangible assets as of April 30, 2020 are as follows (in thousands):
2020 (excluding the six months ended April 30, 2020)
$
547

2021
1,027

2022
976

2023
976

2024
976

Thereafter
3,760

 
$
8,262


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 April 30, 2020 and October 31, 2019 were $6,000,000 and $5,499,000, respectively. 

11. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):
 
April 30,
2020
 
October 31, 2019
Compensation
$
1,386

 
$
1,973

Property taxes

 
652

Lemon and orange supplier payables
78

 
899

Allowances and packing and harvest expenses
2,190

 
3,191

Other
2,849

 
1,546

 
$
6,503

 
$
8,261


17


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

12. Long-Term Debt
Long-term debt is comprised of the following (in thousands):
 
 
April 30,
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 0.94% at April 30, 2020, plus 1.60%. 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.
 
$
102,908

 
$
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.
 
1,741

 
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.
 
1,054

 
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.
 
8,634

 
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.
 
6,375

 
6,522

Wells Fargo term loan: the interest rate is fixed at 3.58%. The loan is payable in monthly installments through January 2023.
 
4,229

 
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.
 
1,094

 
1,386

Note Payable: the interest rate ranges from 5.00% to 7.00% and was 6.00% at April 30, 2020. The loan includes interest only monthly payments and principal is due in February 2023.
 
1,435

 
1,435

Subtotal
 
127,470

 
109,077

Less deferred financing costs, net of accumulated amortization
 
131

 
162

Total long-term debt, net
 
127,339

 
108,915

Less current portion
 
3,045

 
3,023

Long-term debt, less current portion
 
$
124,294

 
$
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”). In January 2018, the Company amended the Revolving Credit Supplement to increase the borrowing capacity from $60,000,000 to $75,000,000.

In March 2020, the Company entered into a revolving equity line of credit promissory note and loan agreement with Farm Credit West for a $15,000,000 Revolving Equity Line of Credit (the "RELOC") secured by a first lien on 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.

The Supplements and RELOC provide aggregate borrowing capacity of $130,000,000 comprised of $75,000,000 under the Revolving Credit Supplement, $40,000,000 under the Non-Revolving Credit Supplement and $15,000,000 under the RELOC. The borrowing capacity based on collateral value was $130,000,000 at April 30, 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 received $966,000 in February 2020.




18


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

12. Long-Term Debt (continued)

Under the Loan Agreement the Company is required to comply with a minimum debt service coverage ratio (as calculated in accordance with the Loan Agreement) of 1.25:1.0 measured as of October 31 each year. On May 29, 2020, the Loan Agreement was amended to adjust the debt service ratio to 1.00:1.0 for October 31, 2020.

Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $355,000 and $344,000 during the three months ended April 30, 2020 and 2019, respectively, and $444,000 and $611,000 during the six months ended April 30, 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):
 
April 30, 2020
 
October 31, 2019
Land
$
1,279

 
$
1,279

Buildings, equipment and building improvements
22,841

 
22,841

Less accumulated depreciation
(7,877
)
 
(7,551
)
Property, plant and equipment, net under operating leases
$
16,243

 
$
16,569

 
Depreciation expense for assets under operating leases was approximately $160,000 and $326,000 for the three and six months ended April 30, 2020.

The Company’s rental operations revenue consists of the following (in thousands):
 
Three Months Ended
April 30, 2020
 
Six Months Ended
April 30, 2020
Operating lease revenue
$
1,061

 
$
2,157

Variable lease revenue
71

 
148

Total lease revenue
$
1,132

 
$
2,305


The future minimum lease payments to be received by the Company related to these operating lease agreements as of April 30, 2020 are as follows (in thousands):
2020 (excluding the six months ended April 30, 2020)
$
563

2021
659

2022
469

2023
339

2024
42

Thereafter
758

Total
$
2,830







19


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

13. Leases (continued)

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 April 30, 2020, there were no material finance leases for which the Company was a lessee.

Operating lease costs were $137,000 and $274,000 for the three and six months ended April 30, 2020, respectively, 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
 
April 30, 2020
Assets
 
 
 
Operating lease ROU assets
Other assets
 
$
2,187

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Current operating lease liabilities
Accrued liabilities
 
540

Non-current operating lease liabilities
Other long-term liabilities
 
1,693

Total operating lease liabilities
 
 
$
2,233

 
 
 
 
Weighted-average remaining lease term (in years)
 
 
11.0

Weighted-average discount rate
 
 
3.9
%

Supplemental cash flow information related to leases consists of the following (in thousands):
 
Three Months Ended
April 30, 2020
 
Six Months Ended
April 30, 2020
Cash paid for amounts included in the measurement of lease liabilities:
 
 
 
Operating cash outflows from operating leases
$
122

 
$
306

 
 
 
 
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 six months ended April 30, 2020)
$
240

2021
481

2022
330

2023
154

2024
134

Thereafter
1,450

Total lease payments
2,789

Less: Imputed interest
(556
)
Total
$
2,233



20


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

13. Leases (continued)

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 $153,000 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):

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) income 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) income 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
April 30,
 
Six Months Ended
April 30,
 
2020
 
2019
 
2020
 
2019
Basic net (loss) income per common share:
 

 
 

 
 
 
 
Net (loss) income applicable to common stock
$
(5,009
)
 
$
2,689

 
$
(11,561
)
 
$
(2,129
)
Effect of unvested, restricted stock
(17
)
 
(16
)
 
(34
)
 
(33
)
Numerator: Net (loss) income for basic EPS
(5,026
)
 
2,673

 
(11,595
)
 
(2,162
)
Denominator: Weighted average common shares-basic
17,634

 
17,554

 
17,602

 
17,516

Basic net (loss) income per common share
$
(0.29
)
 
$
0.15

 
$
(0.66
)
 
$
(0.12
)
Diluted net (loss) income per common share:
 

 
 

 
 
 
 
Numerator: Net (loss) income for diluted EPS
$
(5,026
)
 
$
2,815

 
$
(11,595
)
 
$
(2,162
)
Weighted average common shares–basic
17,634

 
17,554

 
17,602

 
17,516

Effect of dilutive unvested, restricted stock and preferred stock

 
671

 

 

Denominator: Weighted average common shares–diluted
17,634

 
18,225

 
17,602

 
17,516

Diluted net (loss) income per common share
$
(0.29
)
 
$
0.15

 
$
(0.66
)
 
$
(0.12
)

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 220,000 and 140,000, unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted (losses) earnings per share for the three months ended April 30, 2020 and 2019, respectively, and 196,000 and 219,000 for the six months ended April 30, 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):
 
 
 
 
April 30, 2020
 
October 31, 2019
 
 
 
 
Balance Sheet
 
Balance Sheet
Ref
 
Related Party
 
Receivable/Other from Related Parties
 
Other Assets
 
Accounts Payable
 
Payables to Related Parties
 
Other Long-Term Liabilities
 
Receivable/Other from Related Parties
 
Other Assets
 
Accounts Payable
 
Payables to Related Parties
 
Other Long-Term Liabilities
1

 
Employees
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

2

 
Mutual water companies
 
$

 
$
501

 
$
38

 
$

 
$

 
$

 
$
473

 
$
11

 
$

 
$

3

 
Cooperative association
 
$

 
$

 
$
103

 
$

 
$

 
$

 
$

 
$
35

 
$

 
$

4

 
Calavo
 
$
403

 
$

 
$
1

 
$

 
$

 
$

 
$

 
$

 
$

 
$

5

 
Third-party growers
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

6

 
Cadiz / Fenner / WAM
 
$

 
$
1,480

 
$

 
$
134

 
$
1,390

 
$

 
$

 
$

 
$

 
$

7

 
Colorado River Growers
 
$
297

 
$

 
$

 
$

 
$

 
$
376

 
$

 
$

 
$

 
$

8

 
YMIDD
 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

 
$

9

 
FGF
 
$
3,776

 
$

 
$

 
$
835

 
$

 
$
2,609

 
$

 
$

 
$
906

 
$

10

 
LLCB
 
$
1,800

 
$

 
$

 
$
2,850

 
$

 
$

 
$

 
$

 
$

 
$
1,200

 
 
 
 
Three Months Ended April 30, 2020
 
Three Months Ended April 30, 2019