Limoneira CO 10-Q

Item 1. Financial Statements LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in thousands, except share amounts) July 31, 2020 October 31, 2019 Assets Current assets: Cash $ 878 $ 616 Accounts receivable, net 21,478 15,114 Cultural costs 6,090 7,223 Prepaid expenses and other current assets 18,309 8,153 Receivables/other from related parties 3,444 2,985 Income taxes receivable 5,827 979 Total current assets 56,026 35,070 Property, plant and equipment, net 242,501 248,114 Real estate development 20,142 17,602 Equity in investments 61,245 58,223 Investment in Calavo Growers, Inc. — 17,346 Goodwill 1,538 1,839 Intangible assets, net 11,609 12,407 Other assets 8,837 9,266 Total assets $ 401,898 $ 399,867 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 10,350 $ 4,974 Growers payable 6,366 14,500 Accrued liabilities 6,171 8,261 Payables to related parties 5,235 906 Current portion of long-term debt 3,426 3,023 Total current liabilities 31,548 31,664 Long-term liabilities: Long-term debt, less current portion 122,159 105,892 Deferred income taxes 23,765 24,346 Other long-term liabilities 6,064 5,467 Total liabilities 183,536 167,369 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 July 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 July 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 July 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 17,815,607 and 17,756,180 shares outstanding at July 31, 2020 and October 31, 2019, respectively) 179 178 Additional paid-in capital 161,655 160,254 Retained earnings 39,695 53,089 Accumulated other comprehensive loss ( 7,261 ) ( 7,255 ) Treasury stock, at cost, 42,100 shares at July 31, 2020 ( 562 ) — Noncontrolling interest 13,846 15,422 Total stockholders’ equity 207,552 221,688 Total liabilities and stockholders’ equity $ 401,898 $ 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 July 31, Nine Months Ended July 31, 2020 2019 2020 2019 Net revenues: Agribusiness $ 52,387 $ 49,631 $ 131,309 $ 131,254 Other operations 1,172 1,238 3,477 3,668 Total net revenues 53,559 50,869 134,786 134,922 Costs and expenses: Agribusiness 46,826 42,747 125,318 118,741 Other operations 1,010 1,043 3,396 3,269 Selling, general and administrative 3,909 4,961 15,557 14,819 Total costs and expenses 51,745 48,751 144,271 136,829 Operating income (loss) 1,814 2,118 ( 9,485 ) ( 1,907 ) Other income (expense): Interest expense, net ( 92 ) ( 774 ) ( 1,089 ) ( 1,313 ) Equity in earnings of investments, net 832 480 341 2,449 Loss on stock in Calavo Growers, Inc. — ( 1,775 ) ( 6,299 ) ( 2,073 ) Other income, net 11 15 246 375 Total other income (expense) 751 ( 2,054 ) ( 6,801 ) ( 562 ) Income (loss) before income tax (provision) benefit 2,565 64 ( 16,286 ) ( 2,469 ) Income tax (provision) benefit ( 765 ) ( 461 ) 5,876 216 Net income (loss) 1,800 ( 397 ) ( 10,410 ) ( 2,253 ) Net loss (income) attributable to noncontrolling interest 509 ( 593 ) 1,409 ( 615 ) Net income (loss) attributable to Limoneira Company 2,309 ( 990 ) ( 9,001 ) ( 2,868 ) Preferred dividends ( 125 ) ( 125 ) ( 376 ) ( 376 ) Net income (loss) attributable to common stock $ 2,184 $ ( 1,115 ) $ ( 9,377 ) $ ( 3,244 ) Basic net income (loss) per common share $ 0.12 $ ( 0.06 ) $ ( 0.54 ) $ ( 0.19 ) Diluted net income (loss) per common share $ 0.12 $ ( 0.06 ) $ ( 0.54 ) $ ( 0.19 ) Weighted-average common shares outstanding-basic 17,623,000 17,554,000 17,607,000 17,527,000 Weighted-average common shares outstanding-diluted 18,497,000 17,554,000 17,607,000 17,527,000 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (In thousands) Three Months Ended July 31, Nine Months Ended July 31, 2020 2019 2020 2019 Net income (loss) $ 1,800 $ ( 397 ) $ ( 10,410 ) $ ( 2,253 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 1,410 ( 559 ) ( 476 ) ( 116 ) Minimum pension liability adjustment, net of tax of $ 50 , $ 28 , $ 150 and $ 83 for the three and nine months ended July 31, 2020 and 2019, respectively. 135 72 330 218 Residual state tax effects on sale of equity securities — — 140 — Total other comprehensive income (loss), net of tax 1,545 ( 487 ) ( 6 ) 102 Comprehensive income (loss) 3,345 ( 884 ) ( 10,416 ) ( 2,151 ) Comprehensive loss attributable to noncontrolling interest 544 575 1,431 576 Comprehensive income (loss) attributable to Limoneira Company $ 3,889 $ ( 309 ) $ ( 8,985 ) $ ( 1,575 ) 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 Treasury Non- controlling Series B Preferred Series B-2 Preferred Shares Amount Capital Earnings Income (Loss) Stock 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 Dividends Common ($ 0.075 per share) — — — ( 1,338 ) — — — ( 1,338 ) — — Dividends Series B ($ 2.19 per share) — — — ( 33 ) — — — ( 33 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation — — 428 — — — — 428 — — Treasury shares ( 42,100 ) — — — — — ( 562 ) — ( 562 ) — — Net income (loss) — — — 2,309 — — ( 509 ) 1,800 — — Other comprehensive income (loss), net of tax — — — — 1,545 — ( 35 ) 1,510 — — Balance at July 31, 2020 17,857,707 $ 179 $ 161,655 $ 39,695 $ ( 7,261 ) $ ( 562 ) $ 13,846 $ 207,552 $ 1,479 $ 9,331 7 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY (CONTINUED) ($ in thousands) Stockholders’ Equity Temporary Equity Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Non- controlling 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 loss, 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 Dividends Common ($ 0.075 per share) — — — ( 1,333 ) — — ( 1,333 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — ( 32 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — ( 93 ) — — Stock compensation — — 208 — — — 208 — — Acquired noncontrolling interest — — — — — 14,410 14,410 — — Net (loss) income — — — ( 990 ) — 593 ( 397 ) — — Other comprehensive loss, net of tax — — — — ( 487 ) ( 18 ) ( 505 ) — — Balance at July 31, 2019 17,772,753 $ 178 $ 160,200 $ 57,309 $ ( 5,130 ) $ 15,560 $ 228,117 $ 1,479 $ 9,331 The accompanying notes are an integral part of these unaudited consolidated financial statements. 8 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended July 31, 2020 2019 Operating activities Net loss $ ( 10,410 ) $ ( 2,253 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 7,555 6,327 Loss (gain) on disposals of assets 519 ( 11 ) Stock compensation expense 1,615 1,436 Non-cash lease expense 349 — Equity in earnings of investments ( 341 ) ( 2,449 ) Cash distributions from equity investments — 458 Deferred income taxes ( 581 ) ( 216 ) Accrued interest on notes receivable ( 19 ) ( 146 ) Loss on stock in Calavo Growers, Inc. 6,299 2,073 Changes in operating assets and liabilities: Accounts receivable ( 6,367 ) ( 10,014 ) Cultural costs 1,118 1,644 Prepaid expenses and other current assets ( 1,811 ) ( 4,692 ) Income taxes receivable ( 4,848 ) — Other assets 108 ( 39 ) Accounts payable and growers payable ( 2,969 ) 15,505 Accrued liabilities ( 1,472 ) ( 3,206 ) Other long-term liabilities ( 139 ) ( 143 ) Net cash (used in) provided by operating activities ( 11,394 ) 4,274 Investing activities Capital expenditures ( 8,189 ) ( 12,613 ) Agriculture property acquisition — ( 397 ) Business combination — ( 15,000 ) Net proceeds from sale of stock in Calavo Growers, Inc. 11,048 952 Loan to Limoneira Lewis Community Builders, LLC ( 1,800 ) — Collections on loan and note receivable 1,800 150 Equity investment contributions ( 2,800 ) ( 4,000 ) Investments in mutual water companies ( 55 ) ( 472 ) Insurance proceeds received 250 — Net cash provided by (used in) investing activities 254 ( 31,380 ) Financing activities Borrowings of long-term debt 94,080 95,321 Repayments of long-term debt ( 77,363 ) ( 63,163 ) Dividends paid – common ( 4,017 ) ( 3,998 ) Dividends paid – preferred ( 376 ) ( 376 ) Exchange of common stock ( 213 ) ( 305 ) Purchase of treasury stock ( 562 ) — Payments of deferred financing costs ( 70 ) — Net cash provided by financing activities 11,479 27,479 Effect of exchange rate changes on cash ( 77 ) ( 39 ) Net increase in cash 262 334 Cash at beginning of period 616 609 Cash at end of period $ 878 $ 943 9 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) (In thousands) Nine Months Ended July 31, 2020 2019 Supplemental disclosures of cash flow information Cash paid during the period for interest, net of amounts capitalized $ 1,666 $ 2,018 Cash paid during the period for income taxes, net of (refunds received) $ ( 361 ) $ 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 $ 2,806 $ 199 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. In July 2020, Farm Credit West declared an additional annual cash patronage dividend of $ 600,000 received in August 2020, of which the Company recorded $ 400,000 as a reduction in interest expense and $ 200,000 as a reduction in the Company's real estate development assets as of July 31, 2020. The accompanying notes are an integral part of these unaudited consolidated financial statements. 10 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 . 11 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 Income (Loss) Comprehensive income (loss) 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 July 31, 2020, the components of accumulated other comprehensive loss, net of tax, consist of accumulated foreign currency translation losses of $ 2,838,000 and accumulated pension losses of $ 4,423,000 . 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 July 31, 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 12 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) 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. The adoption of ASU 2016-02 had a material impact on the Company's 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. FASB ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity This amendment simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. 13 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020. The Company is evaluating the effect this ASU may have 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 July 31, 2020 and has recorded a discrete tax benefit of $ 1,950,000 and an income tax refund of $ 5,801,000 due to our ability to carryback and obtain federal tax refund by utilizing net operating losses under the 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. SEC Final Rule Release No. 33-10786, Amendments to Financial Disclosures About Acquired and Disposed Businesses On May 20, 2020, the SEC issued a final rule that amends the financial statement requirements for acquisitions and dispositions of businesses, including real estate operations, and related pro forma financial information. As noted in the final rule, the amendments “are intended to improve for investors the financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure.” Among other changes, the final rule modifies the significance tests and improves the disclosure requirements for (1) acquired or to be acquired businesses, (2) real estate operations, and (3) pro forma financial information. The final rule is applicable for a registrant’s fiscal year beginning after December 31, 2020 with early application permitted. The Company early adopted the final rule effective July 31, 2020 and the adoption did not have a material impact on its consolidated financial statements. 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): 14 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. Acquisitions Business Combination (continued) 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 not 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 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 $ 6,299,000 for the nine months ended July 31, 2020. 5. Concentrations and Geographic Information Lemons procured from third-party growers were 64 % and 59 % of the Company's lemon supply in the three months ended July 31, 2020 and 2019, respectively. Lemons procured from third-party growers were 60 % and 59 % of the Company's lemon supply in the nine months ended July 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 July 31, 2020. Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. 15 LIMONEIRA COMPANY 5. Concentrations and Geographic Information (continued) During the three and nine months ended July 31, 2020, the Company had approximately $ 643,000 and $ 2,103,000 , respectively, of lemon and orange sales in Chile by PDA and San Pablo and $ 9,626,000 and $ 12,105,000 , respectively, of lemon and orange sales in Argentina by Trapani Fresh. During the three and nine months ended July 31, 2019, the Company had approximately $ 1,053,000 and $ 2,598,000 , respectively, of lemon and orange sales in Chile by PDA and San Pablo. In addition, during the three and nine months ended July 31, 2019, the Company had approximately $ 11,685,000 of lemon sales in Argentina by Trapani Fresh. 6. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): July 31, 2020 October 31, 2019 Prepaid supplies and insurance $ 2,554 $ 3,199 Note receivable and related interest 2,490 181 Real estate development held for sale 2,543 2,543 Property held for sale 5,982 — Lemon supplier advances and other 4,740 2,230 $ 18,309 $ 8,153 In June 2020, the Company entered into an agreement to sell a property, located in Lindsay, California, for $ 6,000,000 . The transaction closed on August 26, 2020 with the Company receiving net proceeds of $ 6,011,000 . After transaction and other costs, the Company recorded a loss of approximately $ 300,000 and classified the $ 5,982,000 carrying value of the property as held for sale as of July 31, 2020. 7. Real Estate Development Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands): July 31, 2020 October 31, 2019 Retained Property - East Area I $ 13,251 $ 11,943 East Area II 6,891 5,659 $ 20,142 $ 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 balance includes estimated costs incurred by and reimbursable to LLCB of $ 3,675,000 at July 31, 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 16 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 7. Real Estate Development (continued) East Area I, Retained Property and East Area II (continued) 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 July 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 $ 39,404,000 as of July 31, 2020. The Company made contributions to the Joint Venture of $ 2,800,000 and $ 4,000,000 in the nine months ended July 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 % originally due May 31, 2020 and extended to August 31, 2020, which was repaid in June 2020. Other Real Estate Development Projects The remaining real estate development parcel within the Templeton Santa Barbara, LLC project is described as Sevilla. 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 the first quarter of fiscal year 2021. 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 July 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. 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 July 31, 2020, the net carrying value of the note was $ 2,490,000 and classified in prepaid expenses and other current assets. 8. Equity in Investments Equity in investments consist of the following (in thousands): July 31, 2020 October 31, 2019 Limoneira Lewis Community Builders, LLC $ 57,424 $ 54,016 Limco Del Mar, Ltd. 1,968 1,950 Rosales 1,344 1,745 Romney Property Partnership 509 512 $ 61,245 $ 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% in the interim periods presented. During the year-to-date interim period for the nine months ended July 31, 2019, this threshold was met for LLCB and thus summarized income statement information is presented in this Quarterly Report on Form 10-Q. 17 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 8. Equity in Investments (continued) The following is unaudited summarized financial information for LLCB (in thousands): Nine Months Ended July 31, 2020 2019 Revenues $ 25,716 $ 36,551 Cost of land sold 21,614 26,770 Operating expenses 848 445 Net income $ 3,254 $ 9,336 Net income attributable to Limoneira Company $ 1,659 $ 4,021 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 ( 4 ) July 31, 2020 $ 1,538 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 July 31, 2020. Intangible assets consisted of the following as of July 31, 2020 and October 31, 2019 (in thousands): July 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 $ ( 801 ) $ 2,985 10 $ 3,786 $ ( 542 ) $ 3,244 10 Customer relationships 5,010 ( 914 ) 4,096 9 5,010 ( 500 ) 4,510 9 Non-competition agreement 1,040 ( 121 ) 919 10 1,040 ( 42 ) 998 10 Acquired water and mineral rights 3,609 — 3,609 Indefinite 3,655 — 3,655 Indefinite $ 13,445 $ ( 1,836 ) $ 11,609 $ 13,491 $ ( 1,084 ) $ 12,407 Amortization expense totaled $ 262,000 and $ 205,000 for the three months ended July 31, 2020 and 2019, respectively. Amortization expense totaled $ 752,000 and $ 383,000 for the nine months ended July 31, 2020 and 2019, respectively. 18 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 9. Goodwill and Intangible Assets (continued) Estimated future amortization expense of intangible assets as of July 31, 2020 are as follows (in thousands): 2020 (excluding the nine months ended July 31, 2020) $ 285 2021 1,027 2022 976 2023 976 2024 976 Thereafter 3,760 $ 8,000 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 July 31, 2020 and October 31, 2019 were $ 5,554,000 and $ 5,499,000 , respectively. 11. Accrued Liabilities Accrued liabilities consist of the following (in thousands): July 31, 2020 October 31, 2019 Compensation $ 1,787 $ 1,973 Property taxes 442 652 Lemon and orange supplier payables — 899 Operating expenses 2,178 3,191 Other 1,764 1,546 $ 6,171 $ 8,261 19 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 12. Long-Term Debt Long-term debt is comprised of the following (in thousands): July 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 0.18 % at July 31, 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. $ 101,527 $ 82,843 Farm Credit West term loan: Effective July 1, 2020, the interest rate was fixed at 2.48 %. The loan is payable in quarterly installments through November 2022. 1,590 2,035 Farm Credit West term loan: Effective July 1, 2020, the interest rate was fixed at 3.24 %. The loan is payable in monthly installments through October 2035. 1,042 1,078 Farm Credit West term loan: Effective July 1, 2020, the interest rate was fixed at 3.24 %. The loan is payable in monthly installments through March 2036. 8,538 8,823 Farm Credit West term loan: Effective July 1, 2020 the interest rate was fixed at 2.77 % until July 1, 2025, becoming variable for the remainder of the loan. The loan is payable in monthly installments through March 2036. 6,301 6,522 Wells Fargo term loan: the interest rate is fixed at 3.58 %. The loan is payable in monthly installments through January 2023. 3,862 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. 1,478 1,386 Note Payable: the interest rate ranges from 5.00 % to 7.00 % and was 6.00 % at July 31, 2020. The loan includes interest only monthly payments and principal is due in February 2023. 1,435 1,435 Subtotal 125,773 109,077 Less deferred financing costs, net of accumulated amortization 188 162 Total long-term debt, net 125,585 108,915 Less current portion 3,426 3,023 Long-term debt, less current portion $ 122,159 $ 105,892 The Company and Farm Credit West, FLCA (“Farm Credit West”) are parties to that certain Master Loan Agreement (the “Loan Agreement”), dated June 20, 2017, which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (together, the “Supplements”). On June 30, 2020, the Company and Farm Credit West entered into a Conversion Agreement to convert the term loans noted above to fixed interest rates effective July 1, 2020. No changes were made to the outstanding principal balances on the term loans and no cash repayments of principal were made by the Company. The rates are subject to a prepayment restriction period for a portion of the fixed rate term that will expire on January 1, 2021, after which the Company may prepay any amounts without penalty. 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 RELOC 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 July 31, 2020. All indebtedness under the Loan Agreement and RELOC with Farm Credit West, 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. 20 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 12. Long-Term Debt (continued) 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. In July 2020, Farm Credit West declared an additional annual cash patronage dividend of $ 600,000 , which the Company received in August 2020. 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. In August 2020, Farm Credit West modified the covenant to defer measurement at October 31, 2020 and revert to a debt service coverage ratio of 1.25 :1.0 measured as of October 31, 2021. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets. The Company capitalized interest of $ 353,000 and $ 366,000 during the three months ended July 31, 2020 and 2019, respectively, and $ 797,000 and $ 977,000 during the nine months ended July 31, 2020 and 2019, respectively. 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): July 31, 2020 October 31, 2019 Land $ 1,234 $ 1,279 Buildings, equipment and building improvements 18,478 22,841 Less accumulated depreciation ( 5,512 ) ( 7,551 ) Property, plant and equipment, net under operating leases $ 14,200 $ 16,569 Depreciation expense for assets under operating leases was approximately $ 159,000 and $ 485,000 for the three and nine months ended July 31, 2020. The Company’s rental operations revenue consists of the following (in thousands): Three Months Ended July 31, 2020 Nine Months Ended July 31, 2020 Operating lease revenue $ 1,078 $ 3,235 Variable lease revenue 94 242 Total lease revenue $ 1,172 $ 3,477 The future minimum lease payments to be received by the Company related to these operating lease agreements as of July 31, 2020 are as follows (in thousands): 2020 (excluding the nine months ended July 31, 2020) $ 309 2021 701 2022 508 2023 379 2024 42 Thereafter 758 Total $ 2,697 21 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 July 31, 2020, there were no material finance leases for which the Company was a lessee. Operating lease costs were $ 143,000 and $ 417,000 for the three and nine months ended July 31, 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 July 31, 2020 Assets Operating lease ROU assets Other assets $ 2,174 Liabilities and Stockholders' Equity Current operating lease liabilities Accrued liabilities 600 Non-current operating lease liabilities Other long-term liabilities 1,637 Total operating lease liabilities $ 2,237 Weighted-average remaining lease term (in years) 10.8 Weighted-average discount rate 3.8 % Supplemental cash flow information related to leases consists of the following (in thousands): Three Months Ended July 31, 2020 Nine Months Ended July 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 126 $ 432 ROU assets obtained in exchange for new operating lease liabilities $ 108 $ 108 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 nine months ended July 31, 2020) $ 128 2021 509 2022 358 2023 182 2024 151 Thereafter 1,449 Total lease payments 2,777 Less: Imputed interest ( 540 ) Total $ 2,237 22 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 $ 77,000 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 Income (Loss) per Share Basic net income (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 income (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 income (loss) per common share are as follows (in thousands, except per share amounts): Three Months Ended July 31, Nine Months Ended July 31, 2020 2019 2020 2019 Basic net income (loss) per common share: Net income (loss) applicable to common stock $ 2,184 $ ( 1,115 ) $ ( 9,377 ) $ ( 3,244 ) Effect of unvested, restricted stock ( 17 ) ( 16 ) ( 50 ) ( 49 ) Numerator: Net income (loss) for basic EPS 2,167 ( 1,131 ) ( 9,427 ) ( 3,293 ) Denominator: Weighted average common shares-basic 17,623 17,554 17,607 17,527 Basic net income (loss) per common share $ 0.12 $ ( 0.06 ) $ ( 0.54 ) $ ( 0.19 ) Diluted net income (loss) per common share: Numerator: Net income (loss) for diluted EPS $ 2,309 $ ( 1,131 ) $ ( 9,427 ) $ ( 3,293 ) Weighted average common shares–basic 17,623 17,554 17,607 17,527 Effect of dilutive unvested, restricted stock and preferred stock 874 — — — Denominator: Weighted average common shares–diluted 18,497 17,554 17,607 17,527 Diluted net income (loss) per common share $ 0.12 $ ( 0.06 ) $ ( 0.54 ) $ ( 0.19 ) Diluted earnings (losses) 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 225,000 and 149,000 , unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted earnings (losses) per share for the three months ended July 31, 2020 and 2019, respectively, and 187,000 and 135,000 for the nine months ended July 31, 2020 and 2019, respectively. 23 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): July 31, 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 $ — $ — $ 79 $ — $ — $ — $ 473 $ 11 $ — $ — 3 Cooperative association $ — $ — $ 48 $ — $ — $ — $ — $ 35 $ — $ — 4 Calavo $ 2,701 $ — $ 1 $ — $ — $ — $ — $ — $ — $ — 5 Third-party growers $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — 6 Cadiz / Fenner / WAM $ — $ 1,461 $ — $ 190 $ 1,372 $ — $ — $ — $ — $ — 7 Colorado River Growers $ 297 $ — $ — $ — $ — $ 376 $ — $ — $ — $ — 8 YMIDD $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — 9 FGF $ 446 $ — $ — $ 1,370 $ — $ 2,609 $ — $ — $ 906 $ — 10 LLCB $ — $ — $ — $ 3,675 $ — $ — $ — $ — $ — $ 1,200 Three Months Ended July 31, 2020 Three Months Ended July 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 $ — $ 195 $ — $ — $ — $ — $ 190 $ — $ — $ — 2 Mutual water companies $ — $ — $ 211 $ — $ — $ — $ — $ 195 $ — $ — 3 Cooperative association $ — $ — $ 353 $ — $ — $ — $ — $ 302 $ — $ — 4 Calavo $ 4,724 $ 84 $ 23 $ — $ 126 $ 2,519 $ 81 $ 261 $ — $ 126 5 Third-party growers $ — $ — $ — $ — $ — $ — $ — $ 6 $ — $ — 6 Cadiz / Fenner / WAM $ — $ — $ 1 $ — $ — $ — $ — $ 42 $ — $ — 7 Colorado River Growers $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — 8 YMIDD $ — $ — $ — $ — $ — $ — $ — $ — $ — $ — 9 FGF $ 9,626 $ — $ 10,508 $ — $ — $ 11,685 $ — $ 8,798 $ — $ — Nine Months Ended July 31, 2020 Nine Months Ended July 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 $ — $ 585 $ — $ — $ — $ — $ 550 $ — $ — $ — 2 Mutual water companies $ — $ — $ 675 $ — $ — $ — $ — $ 593 $ — $ — 3 Cooperative association $ — $ — $ 1,246 $ — $ — $ — $ — $ 1,158 $ — $ — 4 Calavo $ 6,296 $ 249 $ 200 $ 220 $ 377 $ 3,062 $ 240 $ 262 $ 250 $ 381 5 Third-party growers $ — $ — $ — $ — $ — $ — $ — $ 386 $ — $ — 6 Cadiz / Fenner / WAM $ — $ — $ 173 $ — $ — $ — $ — $ 130 $ — $ — 7 Colorado River Growers $ 522 $ — $ 5,337 $ — $ — $ 306 $ — $ 3,841 $ — $ — 8 YMIDD $ — $ — $ 86 $ — $ — $ — $ — $ 85 $ — $ — 9 FGF $ 12,105 $ — $ 12,941 $ — $ — $ 11,685 $ — $ 8,798 $ — $ — 24 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 15. Related-Party Transactions (continued) (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 July 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, refer to Note 10 - Other Assets. 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 had an investment in Calavo through March 2020 and has representation on the board of directors 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, purchased 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. (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. (10) LLCB - Refer to Note 7 - Real Estate Development. 16. Income Taxes The effective tax rate for the nine months ended July 31, 2020 was higher than the federal statutory tax rate of 21% mainly due to a $ 1,950,000 discrete benefit recorded as a result of the carryback of federal net operating losses to previous years when the federal income tax rate was 34 %. The effective tax rate for the nine months ended July 31, 2019 was lower than the federal statutory tax rate of 21.0% primarily due to income attributable to foreign jurisdictions which is taxed at different rates, state taxes, and nondeductible tax items. 25 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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 July 31, 2020 and 2019, respectively. There were funding contributions of zero and $ 450,000 during the nine months ended July 31, 2020 and 2019, respectively. The components of net periodic pension cost for the Plan for the three and nine months ended July 31, 2020 and 2019 were as follows (in thousands): Three Months Ended July 31, Nine Months Ended July 31, 2020 2019 2020 2019 Administrative expenses $ 70 $ 47 $ 209 $ 141 Interest cost 160 207 481 621 Expected return on plan assets ( 248 ) ( 272 ) ( 743 ) ( 816 ) Prior service cost 11 11 33 33 Recognized actuarial loss 184 101 554 302 Net periodic benefit cost $ 177 $ 94 $ 534 $ 281 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 and Treasury Stock 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. 26 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 19. Stock-based Compensation and Treasury Stock (continued) 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 nine months ended July 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. Treasury Stock Share Repurchase Program On March 12, 2020, the Board of Directors of the Company approved a share repurchase program authorizing the Company to repurchase up to $ 10,000,000 of its outstanding shares of common stock through March 2021. Under the share repurchase program, purchases of shares of common stock may be made from time to time in the open market or in privately negotiated transactions. The share repurchase program may be modified, suspended or discontinued at any time and does not commit the Company to repurchase shares of its common stock. See Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” in this Quarterly Report on Form 10-Q for additional information on the share repurchase program. 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 for the three and nine months ended July 31, 2020, consists of oranges of $ 2,232,000 and $ 7,171,000 , respectively, and specialty citrus and other crops of $ 788,000 and $ 3,832,000 , respectively. Other agribusiness revenues for the three and nine months ended July 31, 2019, consists of oranges of $ 711,000 and $ 3,794,000 , respectively, and specialty citrus and other crops of zero and $ 3,019,000 , respectively. 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. 27 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 20. Segment Information (continued) Segment information for the three months ended July 31, 2020 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 39,459 $ 3,775 $ — $ 6,133 $ 3,020 $ 52,387 $ 1,172 $ 53,559 Intersegment revenue — 16,330 ( 16,330 ) — — — — — Total net revenues 39,459 20,105 ( 16,330 ) 6,133 3,020 52,387 1,172 53,559 Costs and expenses 39,694 15,988 ( 16,330 ) 2,537 2,666 44,555 4,633 49,188 Depreciation and amortization — — — — — 2,271 286 2,557 Operating (loss) income $ ( 235 ) $ 4,117 $ — $ 3,596 $ 354 $ 5,561 $ ( 3,747 ) $ 1,814 Segment information for the three months ended July 31, 2019 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 41,169 $ 5,232 $ — $ 2,519 $ 711 $ 49,631 $ 1,238 $ 50,869 Intersegment revenue — 10,263 ( 10,263 ) — — — — — Total net revenues 41,169 15,495 ( 10,263 ) 2,519 711 49,631 1,238 50,869 Costs and expenses 35,653 13,524 ( 10,263 ) 1,185 825 40,924 5,747 46,671 Depreciation and amortization — — — — — 1,823 257 2,080 Operating income (loss) $ 5,516 $ 1,971 $ — $ 1,334 $ ( 114 ) $ 6,884 $ ( 4,766 ) $ 2,118 Segment information for the nine months ended July 31, 2020 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 100,231 $ 11,752 $ — $ 8,323 $ 11,003 $ 131,309 $ 3,477 $ 134,786 Intersegment revenue — 31,889 ( 31,889 ) — — — — — Total net revenues 100,231 43,641 ( 31,889 ) 8,323 11,003 131,309 3,477 134,786 Costs and expenses 101,006 34,925 ( 31,889 ) 4,571 9,990 118,603 18,113 136,716 Depreciation and amortization — — — — — 6,715 840 7,555 Operating (loss) income $ ( 775 ) $ 8,716 $ — $ 3,752 $ 1,013 $ 5,991 $ ( 15,476 ) $ ( 9,485 ) Segment information for the nine months ended July 31, 2019 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 108,090 $ 13,289 $ — $ 3,062 $ 6,813 $ 131,254 $ 3,668 $ 134,922 Intersegment revenue — 25,464 ( 25,464 ) — — — — — Total net revenues 108,090 38,753 ( 25,464 ) 3,062 6,813 131,254 3,668 134,922 Costs and expenses 95,650 32,972 ( 25,464 ) 2,822 7,210 113,190 17,312 130,502 Depreciation and amortization — — — — — 5,551 776 6,327 Operating income (loss) $ 12,440 $ 5,781 $ — $ 240 $ ( 397 ) $ 12,513 $ ( 14,420 ) $ ( 1,907 ) 21. Subsequent Events The Company has evaluated events subsequent to July 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. 28