Limoneira CO 10-K

Item 8. Financial Statements and Supplementary Data Limoneira Company Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firms 60 Consolidated Financial Statements of Limoneira Company Consolidated Balance Sheets at October 31, 2020 and 2019 62 Consolidated Statements of Operations for the years ended October 31, 2020, 2019 and 2018 63 Consolidated Statements of Comprehensive (Loss) Income for the years ended October 31, 2020, 2019 and 2018 64 Consolidated Statements of Stockholders’ Equity and Temporary Equity for the years ended October 31, 2020, 2019 and 2018 65 Consolidated Statements of Cash Flows for the years ended October 31, 2020, 2019 and 2018 66 Notes to Consolidated Financial Statements 68 All schedules are omitted for the reason that they are not applicable or the required information is included in the Consolidated Financial Statements or the notes thereto. 59 Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors of Limoneira Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Limoneira Company and subsidiaries (the "Company") as of October 31, 2020 and October 31, 2019, the related consolidated statements of operations, comprehensive (loss) income, stockholders’ equity and temporary equity, and cash flows, for each of the two years in the period ended October 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2020 and October 31, 2019, and the results of its operations and its cash flows for each of the two years in the period ended October 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We did not audit the financial statements of Limoneira Lewis Community Builders, LLC (“LLCB”), the Company's investment which is accounted for by use of the equity method. The accompanying financial statements of the Company include its equity investment in LLCB of $46,908,000 and $42,722,000 as of October 31, 2020 and 2019, respectively, and its equity earnings in LLCB of $1,386,000 and $4,368,000 000 for the years ended October 31, 2020 and 2019, respectively. The financial statements of LLCB were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for LLCB, is based solely on the report of the other auditors. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31, 2020, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 14, 2021, expressed an adverse opinion on the Company's internal control over financial reporting because of a material weakness. Change in Accounting Principles As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases effective November 1, 2019 due to adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases . Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. /s/ Deloitte & Touche LLP Los Angeles, California January 14, 2021 We have served as the Company’s auditor since 2019. 60 Report of Independent Registered Public Accounting Firm The Stockholders and Board of Directors of Limoneira Company Opinion on the Financial Statements We have audited the accompanying consolidated statements of operations, comprehensive (loss) income, stockholders' equity and temporary equity, and cash flows for the year ended October 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended October 31, 2018, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ Ernst & Young LLP We served as the Company’s auditor from 2006 to 2018. Los Angeles, California January 14, 2019 61 LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS ($ in thousands, except share amounts) October 31, 2020 2019 Assets Current assets: Cash $ 501 $ 616 Accounts receivable, net 16,261 15,114 Cultural costs 6,865 7,223 Prepaid expenses and other current assets 10,688 8,153 Receivables/other from related parties 2,294 2,985 Income taxes receivable 5,911 979 Total current assets 42,520 35,070 Property, plant and equipment, net 242,649 248,114 Real estate development 21,636 17,602 Equity in investments 61,214 58,223 Investment in Calavo Growers, Inc. — 17,346 Goodwill 1,535 1,839 Intangible assets, net 11,309 12,407 Other assets 8,737 9,266 Total assets $ 389,600 $ 399,867 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,838 $ 4,974 Growers payable 8,126 14,500 Accrued liabilities 7,947 8,261 Payables to related parties 6,273 906 Current portion of long-term debt 3,277 3,023 Total current liabilities 31,461 31,664 Long-term liabilities: Long-term debt, less current portion 122,571 105,892 Deferred income taxes 22,430 24,346 Other long-term liabilities 6,568 5,467 Total liabilities 183,030 167,369 Commitments and contingencies — — Series B Convertible Preferred Stock – $ 100.00 par value ( 50,000 shares authorized: 14,790 shares issued and outstanding at October 31, 2020 and 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 October 31, 2020 and 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 October 31, 2020 and 2019) — — Common Stock – $ 0.01 par value ( 39,000,000 shares authorized: 17,857,707 and 17,756,180 shares issued and 17,606,730 and 17,756,180 shares outstanding at October 31, 2020 and 2019, respectively) 179 178 Additional paid-in capital 162,084 160,254 Retained earnings 30,797 53,089 Accumulated other comprehensive loss ( 7,548 ) ( 7,255 ) Treasury stock, at cost, 250,977 shares at October 31, 2020 ( 3,493 ) — Noncontrolling interest 13,741 15,422 Total stockholders' equity 195,760 221,688 Total Liabilities and Stockholders' Equity $ 389,600 $ 399,867 See Notes to Consolidated Financial Statements. 62 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except share amounts) Years Ended October 31, 2020 2019 2018 Net revenues: Agribusiness $ 159,937 $ 166,549 $ 124,344 Other operations 4,622 4,849 5,048 Total net revenues 164,559 171,398 129,392 Costs and expenses: Agribusiness 157,281 152,372 98,083 Other operations 4,504 4,439 4,212 Impairment of real estate development assets — — 1,558 Loss (gain) on sale and disposal of property assets 502 ( 1,069 ) — Selling, general and administrative 21,280 21,170 16,053 Total costs and expenses 183,567 176,912 119,906 Operating (loss) income ( 19,008 ) ( 5,514 ) 9,486 Other (expense) income: Interest income 362 207 201 Interest expense ( 2,048 ) ( 2,341 ) ( 1,323 ) Equity in earnings of investments, net 339 3,073 583 (Loss) gain on stock in Calavo Growers, Inc. ( 6,299 ) ( 2,117 ) 4,223 Other income, net 219 129 313 Total other (expense) income ( 7,427 ) ( 1,049 ) 3,997 (Loss) income before income tax benefit ( 26,435 ) ( 6,563 ) 13,483 Income tax benefit 8,494 1,097 6,729 Net (loss) income ( 17,941 ) ( 5,466 ) 20,212 Loss (income) attributable to noncontrolling interest 1,506 ( 477 ) ( 24 ) Net (loss) income attributable to Limoneira Company ( 16,435 ) ( 5,943 ) 20,188 Preferred dividends ( 501 ) ( 501 ) ( 501 ) Net (loss) income applicable to common stock $ ( 16,936 ) $ ( 6,444 ) $ 19,687 Basic net (loss) income per common share $ ( 0.96 ) $ ( 0.37 ) $ 1.26 Diluted net (loss) income per common share $ ( 0.96 ) $ ( 0.37 ) $ 1.25 Weighted-average common shares outstanding-basic 17,666,000 17,580,000 15,581,000 Weighted-average common shares outstanding-diluted 17,666,000 17,580,000 16,209,000 See Notes to Consolidated Financial Statements. 63 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (In thousands) Years Ended October 31, 2020 2019 2018 Net (loss) income $ ( 17,941 ) $ ( 5,466 ) $ 20,212 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 707 ) ( 1,103 ) ( 1,255 ) Minimum pension liability adjustments, net of tax of $( 69 ), $( 252 ) and $ 415 274 ( 607 ) 1,137 Residual state tax effects on sale of equity securities 140 — — Unrealized holding gains on security available for sale, net of tax of $ 0 , $ 0 and $ 1,956 — — 4,809 Reclassification of unrealized gain on security sold, net of tax of $ 0 , $ 0 and $( 1,160 ) — — ( 2,965 ) Unrealized gains from derivative instruments, net of tax of $ 0 , $ 0 and $ 79 — — 163 Total other comprehensive (loss) income, net of tax ( 293 ) ( 1,710 ) 1,889 Comprehensive (loss) income ( 18,234 ) ( 7,176 ) 22,101 Comprehensive loss (income) attributable to noncontrolling interest 1,536 438 ( 13 ) Comprehensive (loss) income attributable to Limoneira Company $ ( 16,698 ) $ ( 6,738 ) $ 22,088 See Notes to Consolidated Financial Statements. 64 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, 2017 14,405,031 $ 144 $ 94,294 $ 34,692 $ 7,076 $ — $ 587 $ 136,793 $ 1,479 $ 9,331 Dividends - common ($ 0.25 per share) — — — ( 4,025 ) — — — ( 4,025 ) — — Dividends - Series B ($ 8.75 per share) — — — ( 129 ) — — — ( 129 ) — — Dividends - Series B-2 ($ 40 per share) — — — ( 372 ) — — ( 372 ) — — Stock compensation 145,324 1 1,367 — — — — 1,368 — — Exchange of common stock ( 39,582 ) — ( 656 ) — — — — ( 656 ) — — Issuance of common stock 3,136,362 31 64,066 — — — — 64,097 — — Noncontrolling interest — — — — — — ( 37 ) ( 37 ) — — Net income — — — 20,188 — — 24 20,212 — — Other comprehensive income, net of tax — — — — 1,889 — — 1,889 — — Balance at October 31, 2018 17,647,135 176 159,071 50,354 8,965 — 574 219,140 1,479 9,331 Dividends - common ($ 0.30 per share) — — — ( 5,331 ) — — — ( 5,331 ) — — Dividends - Series B ($ 8.75 per share) — — — ( 129 ) — — — ( 129 ) — — Dividends - Series B-2 ($ 40 per share) — — — ( 372 ) — — — ( 372 ) — — Stock compensation 145,737 2 1,789 — — — — 1,791 — — Exchange of common stock ( 36,692 ) — ( 606 ) — — — — ( 606 ) — — Issuance of common stock — — — — — — — — — — Acquired noncontrolling interest — — — — — — 14,410 14,410 — — Net (loss) income — — — ( 5,943 ) — — 477 ( 5,466 ) — — Other comprehensive income, net of tax — — — — ( 1,710 ) — ( 39 ) ( 1,749 ) — — Reclassification of unrealized gain on marketable securities upon adoption of ASU 2016-01 — — — 15,921 ( 15,921 ) — — — — — Reclassification upon adoption of ASU 2018-02 — — — ( 1,411 ) 1,411 — — — — — 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 ($ 0.30 per share) — — — ( 5,356 ) — — — ( 5,356 ) — — Dividends - Series B ($ 8.75 per share) — — — ( 129 ) — — — ( 129 ) — — Dividends - Series B-2 ($ 40 per share) — — — ( 372 ) — — — ( 372 ) — — Stock compensation 112,841 1 2,043 — — — — 2,044 — — Exchange of common stock ( 11,314 ) — ( 213 ) — — — — ( 213 ) — — Noncontrolling interest adjustment — — — — — — ( 145 ) ( 145 ) — — Treasury shares ( 250,977 ) — — — — ( 3,493 ) — ( 3,493 ) — — Net loss — — — ( 16,435 ) — — ( 1,506 ) ( 17,941 ) — — Other comprehensive income, net of tax — — — — ( 293 ) — ( 30 ) ( 323 ) — — Balance at October 31, 2020 17,606,730 $ 179 $ 162,084 $ 30,797 $ ( 7,548 ) $ ( 3,493 ) $ 13,741 $ 195,760 $ 1,479 $ 9,331 See Notes to Consolidated Financial Statements 65 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended October 31, 2020 2019 2018 Operating activities Net (loss) income $ ( 17,941 ) $ ( 5,466 ) $ 20,212 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 10,097 8,633 7,275 Impairment of real estate development assets — — 1,558 Loss (gain) on sale and disposals of property assets 502 ( 1,069 ) 153 Stock compensation expense 2,044 1,791 1,368 Non-cash lease expense 470 — — Equity in earnings of investments ( 339 ) ( 3,073 ) ( 583 ) Cash distributions from equity investments — 351 526 Deferred income taxes ( 2,133 ) ( 773 ) ( 7,307 ) Loss (gain) on stock in Calavo Growers, Inc. 6,299 2,117 ( 4,223 ) Other, net 671 ( 393 ) ( 64 ) Changes in operating assets and liabilities, net of business combinations: Account receivable and receivables/other from related parties ( 309 ) ( 4,012 ) ( 3,235 ) Cultural costs 359 1,447 ( 746 ) Prepaid expenses and other current assets ( 44 ) ( 2,548 ) 99 Income taxes receivable ( 4,932 ) ( 601 ) 192 Other assets 411 ( 7 ) ( 134 ) Accounts payable and growers payable ( 5,545 ) 3,392 707 Accrued liabilities and payables to related parties ( 685 ) 1,459 2,601 Other long-term liabilities ( 242 ) 117 ( 2 ) Net cash (used in) provided by operating activities ( 11,317 ) 1,365 18,397 Investing activities Capital expenditures ( 10,599 ) ( 15,867 ) ( 13,873 ) Purchase of real estate development parcel — — ( 1,444 ) Net proceeds from sales of property assets 6,261 3,978 — Net proceeds from sales of real estate development assets — 2,886 1,543 Agriculture property acquisitions — ( 397 ) ( 13,111 ) Business combinations — ( 15,000 ) ( 25,000 ) Net proceeds from sale of stock in Calavo Growers, Inc. 11,048 4,785 4,721 Loan to Limoneira Lewis Community Builders, LLC ( 1,800 ) — — Collections on loan and note receivable 1,800 150 200 Equity investment contributions ( 2,800 ) ( 4,000 ) ( 3,500 ) Cash distribution from equity investment — 283 — Investments in mutual water companies and water rights ( 64 ) ( 472 ) ( 343 ) Net cash provided by (used in) investing activities $ 3,846 $ ( 23,654 ) $ ( 50,807 ) 66 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Years Ended October 31, 2020 2019 2018 Financing activities Borrowings of long-term debt $ 121,056 $ 122,899 $ 167,356 Repayments of long-term debt ( 104,066 ) ( 93,994 ) ( 193,723 ) Dividends paid - common ( 5,356 ) ( 5,331 ) ( 4,025 ) Dividends paid - preferred ( 501 ) ( 501 ) ( 501 ) Exchange of common stock ( 213 ) ( 605 ) ( 656 ) Purchase of treasury stock ( 3,493 ) — — Issuance of common stock — — 64,097 Payments of deferred financing costs ( 66 ) ( 35 ) — Net cash provided by financing activities 7,361 22,433 32,548 Effect of exchange rate changes on cash ( 5 ) ( 137 ) ( 21 ) Net increase in cash ( 115 ) 7 117 Cash at beginning of year 616 609 492 Cash at end of year $ 501 $ 616 $ 609 Supplemental disclosures of cash flow information Net cash paid during the year for interest, net of amounts capitalized $ 1,865 $ 2,532 $ 1,585 Cash paid during the year for income taxes, net of (refunds received) $ ( 1,235 ) $ 130 $ 210 Non-cash investing and financing activities: Unrealized holding gain on Calavo investment $ — $ — $ ( 6,765 ) Decrease in real estate development and sale-leaseback deferral $ — $ ( 58,330 ) $ 27,934 Increase in equity in investments and other long-term liabilities $ — $ — $ 1,080 Non-cash receipt of note receivable $ — $ — $ 3,000 Non-cash reduction of note receivable $ — $ 89 $ 79 Capital expenditures accrued but not paid at year-end $ 4,269 $ 1,333 $ 399 Non-cash issuance of notes payable $ — $ — $ 1,435 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 lease-back 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 Annual Report on Form 10-K. In February 2013, the Company entered into an option agreement for the purchase of a 7 -acre parcel adjacent to its East Area II real estate development project. In February 2018, the Company exercised its option and purchased the property for $ 3,145,000 , by making a cash payment of $ 1,444,000 and issuing a note payable for $ 1,435,000 . In October 2017, the Company entered an agreement to sell its Centennial Square (“Centennial”) real estate development property for $ 3,250,000 . This transaction closed in December 2017 with the Company receiving net proceeds of $ 179,000 and received a $ 3,000,000 promissory note secured by the property for the balance of the purchase price. See Notes to Consolidated Financial Statements. 67 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. 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. 2. Summary of Significant Accounting Policies Principles of Consolidation The 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. The consolidated financial statements represent the consolidated balance sheets, statements of operations, statements of comprehensive income, statements of stockholders’ equity and temporary equity and statements of cash flows of Limoneira Company and consolidated subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company considers the criteria established under the Financial Accounting Standards Board (“FASB”) – Accounting Standards Code (“ASC”) 810, Consolidations, and the effect of variable interest entities, in its consolidation process. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Accounts Receivable The Company grants credit in the course of its operations to cooperatives, companies and lessees of the Company’s facilities. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides allowances on its receivables as required based on accounts receivable aging and other factors. At October 31, 2020 and 2019 the allowances totaled $ 812,000 and $ 631,000 , respectively. For fiscal years 2020, 2019 and 2018, credit losses were insignificant. Concentrations and Geographic Information The Company sells the majority of its avocado production to Calavo. Sales of avocados to Calavo were $ 8,806,000 , $ 3,080,000 and $ 6,576,000 in fiscal years 2020, 2019 and 2018, respectively. The Company sells the majority of its oranges and specialty citrus to a third-party packinghouse. Concentrations of credit risk with respect to revenues and trade receivable are limited due to a large, diverse customer base. One individual customer represented 10% of revenue for the year ended October 31, 2020. One individual customer represented more than 10% of accounts receivable, net as of October 31, 2020, respectively. Lemons procured from third-party growers were approximately 60 %, 60 % and 45 % of the Company's lemon supply in fiscal years 2020, 2019 and 2018, respectively. One third-party grower was 39 % and 40 % of grower payable at October 31, 2020 and 2019, respectively. The Company maintains its cash in federally insured financial institutions. The account balances at these institutions periodically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of risk related to amounts on deposit in excess of FDIC insurance coverage. 68 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Concentrations and Geographic Information (continued) During fiscal years 2020, 2019 and 2018, the Company had approximately $ 3,521,000 , $ 3,204,000 and $ 2,800,000 , respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. (“PDA”) and Agricola San Pablo SpA. ("San Pablo"). During fiscal years 2020 and 2019, the Company had approximately $ 14,150,000 and $ 14,651,000 , respectively, of total sales in Argentina by Trapani Fresh. The majority of our avocados, oranges and specialty citrus and other crops are sold to packinghouses and processors located in the United States. Most of our long-lived assets are located within the United States. Long-lived assets, net of accumulated depreciation, located in Chile were $ 15,261,000 and $ 15,600,000 as of October 31, 2020 and 2019, respectively, and located in Argentina were $ 18,576,000 and $ 18,700,000 as of October 31, 2020 and 2019, respectively. Cultural Costs Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. Harvest costs are comprised of labor and equipment expenses incurred to harvest and deliver crops to the packinghouses. Certain of the Company's crops have distinct growing periods and distinct harvest and selling periods, each of which lasts approximately four to eight months. During the growing period, cultural costs are capitalized as they are associated with benefiting and preparing the crops for the harvest and selling period. During the harvest and selling period, harvest costs and cultural costs are expensed when incurred and capitalized cultural costs are amortized as components of agribusiness costs and expenses. Due to climate, growing conditions and the types of crops grown, certain of the Company's other crops may be harvested and sold on a year-round basis. Accordingly, the Company does not capitalize cultural costs associated with these crops and therefore such costs, as well as harvest costs associated with these crops, are expensed to operations when incurred as components of agribusiness costs and expenses. Most cultural costs, including amortization of capitalized cultural costs, and harvest costs are associated with and charged to specific crops. Certain other costs, such as property taxes, indirect labor, including farm supervision and management, and irrigation that benefit multiple crops are allocated to crops on a per acre basis. Income Taxes Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Property, Plant and Equipment Property, plant and equipment is stated at original cost, net of accumulated depreciation. Depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the related assets as follows (in years): Land improvements 10 – 30 Buildings and building improvements 10 – 50 Equipment 5 – 20 Orchards and vineyards 20 – 40 Costs of planting and developing orchards are capitalized until the orchards become commercially productive. Planting costs consist primarily of the costs to purchase and plant nursery stock. Orchard development costs consist primarily of maintenance costs of orchards such as cultivation, pruning, irrigation, labor, spraying and fertilization, and interest costs during the development period. The Company ceases the capitalization of costs and commences depreciation when the orchards become commercially productive and orchard maintenance costs are accounted for as cultural costs as described above. 69 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Capitalized Interest Interest is capitalized on real estate development projects and significant construction in progress using the weighted average interest rate during the fiscal year. Interest of $ 921,000 and $ 1,369,000 was capitalized during the years ended October 31, 2020 and 2019, respectively, and is included in property, plant, and equipment and real estate development assets in the Company’s consolidated balance sheets. Real Estate Development Costs The Company capitalizes the planning, entitlement, construction, development costs and interest associated with its various real estate projects. Costs that are not capitalized, which include property maintenance and repairs, general and administrative and marketing expenses, are expensed as incurred. A real estate development project is considered substantially complete upon the cessation of construction and development activities. Once a project is substantially completed, future costs are expensed as incurred. The Company capitalized costs related to its real estate projects of $ 4,034,000 and $ 1,797,000 in fiscal years 2020 and 2019, respectively. Equity in Investments Investments in unconsolidated joint ventures in which the Company has significant influence but less than a controlling interest, or is not the primary beneficiary if the joint venture is determined to be a Variable Interest Entity (“VIE”), are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture. Equity Securities The Company’s equity securities, are stated at fair value with unrealized gains (losses) reported in net income. The Company has no equity securities as of October 31, 2020. At October 31, 2019, equity securities were comprised of the Company’s investment in Calavo. Long-Lived and Intangible Assets Intangible assets consist primarily of customer relationships, trade names and trademarks and a non-competition agreement. The Company’s definite-life intangible assets are being amortized on a straight-line basis over their estimated lives ranging from eight to nine years . Acquired water and mineral rights are indefinite-life assets not subject to amortization. Assets held for sale are carried at the lower of cost or fair value less estimated cost to sell. The Company evaluates long-lived assets, including its definite-life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated fair value or undiscounted future cash flows from the use of an asset are less than the carrying value of that asset, a write-down is recorded to reduce the carrying value of the asset to its fair value. The Company evaluates its indefinite-life intangible assets annually or whenever events or changes in circumstances indicate an impairment of the assets’ value may exist. Goodwill 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. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Goodwill impairment testing involves significant judgment and estimates. The annual assessment of goodwill impairment was performed as of July 31, 2020 with no impairment recorded. Fair Values of Financial Instruments The fair values of financial instruments are based on level-one indicators within the fair value hierarchy or quoted market prices, where available, or are estimated using the present value or other valuation techniques. Estimated fair values are significantly affected by the assumptions used. 70 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Fair Values of Financial Instruments (continued) Accounts receivable, note receivable, accounts payable, growers payable and accrued liabilities reported on the Company’s consolidated balance sheets approximate their fair values due to the short-term nature of the instruments. Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the fair value of long-term debt is approximately equal to its carrying amount as of October 31, 2020 and 2019. Business Combinations and Asset Acquisitions Business combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations . The acquisition method requires identifiable assets acquired and liabilities assumed and any noncontrolling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business combination and are considered a component of the cost of the acquisition in an asset acquisition. Comprehensive (Loss) Income Comprehensive (loss) income represents all changes in a company’s net assets, except changes resulting from transactions with shareholders. Other comprehensive income or loss primarily includes foreign currency translation items, defined benefit pension items and unrealized gains or losses on available for sale securities. Accumulated other comprehensive (loss) income is reported as a component of the Company's stockholders' equity. The following table summarizes the changes in other comprehensive (loss) income by component (in thousands): 2020 2019 2018 Pre-tax Amount Tax (Expense) Benefit Net Amount Pre-tax Amount Tax (Expense) Benefit Net Amount Pre-tax Amount Tax (Expense) Benefit Net Amount Foreign currency translation adjustments $ ( 707 ) $ — $ ( 707 ) $ ( 1,103 ) $ — $ ( 1,103 ) $ ( 1,255 ) $ — $ ( 1,255 ) Minimum pension liability adjustments: Other comprehensive (loss) gain before reclassifications 205 69 274 ( 859 ) 252 ( 607 ) 1,552 ( 415 ) 1,137 Available-for-sale securities: Other comprehensive (loss) gain before reclassifications — — — — — — 6,765 ( 1,956 ) 4,809 Amounts reclassified to earnings included in "Selling, general and administrative" — 140 140 — — — ( 4,125 ) 1,160 ( 2,965 ) Derivative instruments: Other comprehensive gain before reclassifications — — — — — — 242 ( 79 ) 163 Other comprehensive (loss) income $ ( 502 ) $ 209 $ ( 293 ) $ ( 1,962 ) $ 252 $ ( 1,710 ) $ 3,179 $ ( 1,290 ) $ 1,889 71 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Accumulated Other Comprehensive (Loss) Income The following table summarizes the changes in accumulated other comprehensive (loss) income by component (in thousands): Foreign Currency Translation Loss Defined Benefit Pension Plan Available-for-Sale Securities Other Accumulated Other Comprehensive (Loss) Income Balance as of October 31, 2017 $ ( 2 ) $ ( 4,375 ) $ 11,591 $ ( 138 ) $ 7,076 Other comprehensive (loss) income ( 1,255 ) 1,137 1,844 163 1,889 Balance as of October 31, 2018 ( 1,257 ) ( 3,238 ) 13,435 25 8,965 Adoption of ASU 2016-01 — — ( 15,921 ) — ( 15,921 ) Adoption of ASU 2018-02 ( 2 ) ( 908 ) 2,346 ( 25 ) 1,411 Balance as of November 1, 2018 ( 1,259 ) ( 4,146 ) ( 140 ) — ( 5,545 ) Other comprehensive (loss) income ( 1,103 ) ( 607 ) — — ( 1,710 ) Balance as of October 31, 2019 ( 2,362 ) ( 4,753 ) ( 140 ) — ( 7,255 ) Other comprehensive (loss) income ( 707 ) 274 140 — ( 293 ) Balance as of October 31, 2020 $ ( 3,069 ) $ ( 4,479 ) $ — $ — $ ( 7,548 ) Foreign Currency Translation San Pablo and PDA’s functional currency is the Chilean Peso. Their balance sheets are translated to U.S. dollars at exchange rates in effect at the balance sheet date and their income statements are translated at average exchange rates during the reporting period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive (loss) income. Revenue Recognition On November 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) – Accounting Standards Update (“ASU”) ASU 2014-09, Revenue from Contracts with Customers (Topic 606) , that amends the guidance for the recognition of revenue from contracts with customers. The results for the reporting period beginning after November 1, 2018 are presented in accordance with the new standard, which was adopted using the modified-retrospective method, and applied to those contracts that were not completed as of November 1, 2018. There was no net effect of applying the standard and therefore no cumulative adjustment to retained earnings was necessary at the date of initial application. As a result, comparative information has not been restated and the results for the reporting periods before November 1, 2018 continue to be reported under the accounting standards and policies in effect for those periods. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: • Identify the contract(s) with a customer. • Identify the performance obligations in the contract. • Determine the transaction price. • Allocate the transaction price to the performance obligations in the contract. • Recognize revenue when (or as) the entity satisfies a performance obligation. The Company determined the appropriate method by which it recognizes revenue by analyzing the nature of the products or services being provided as well as the terms and conditions of contracts or arrangements entered into with its customers. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A contract's transaction price is allocated to each distinct good or service (i.e., performance obligation) identified in the contract and each performance obligation is valued based on its estimated relative standalone selling price. 72 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) The Company recognizes the majority of its revenue at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as allowances for estimated customer discounts or concessions, where applicable. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. Upon adoption, the Company changed the accounting of certain brokered fruit sales. Under previous guidance, the Company was considered an agent and recorded revenues for certain brokered fruit sales and the costs of such fruit on a net basis in its consolidated statement of operations. Under the new revenue recognition standard, the Company is considered a principal in the transaction and revenues are recorded on a gross basis in the Company’s consolidated statement of operations with the related cost of such fruit included in agribusiness costs and expenses. This change resulted in the recognition of additional agribusiness revenue and agribusiness costs and expenses within the fresh lemons segment of $ 8,827,000 for the year ended October 31, 2019. Had it used the previous revenue recognition guidance, the Company would have recorded insignificant net agribusiness revenue for these transactions for the year ended October 31, 2019. No cumulative adjustment to retained earnings was necessary as there is no net effect to the consolidated statement of operations. Agribusiness revenue - Revenue from lemon sales is generally recognized at a point in time when the customer takes control of the fruit from the Company’s packinghouse, which aligns with the transfer of title to the customer. The Company has elected to treat any shipping and handling costs incurred after control of the goods has been transferred to the customer as agribusiness costs. The Company’s avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. The Company delivers the majority of its avocado production from its orchards to Calavo. These avocados are then packed by Calavo at its packinghouse and sold and distributed under Calavo brands to its customers primarily in the United States and Canada. The Company’s arrangements with other third-party packinghouses related to the remaining avocados and its oranges, specialty citrus and other specialty crops are similar to its arrangement with Calavo. The Company’s arrangements with its third-party packinghouses are such that the Company is the producer and supplier of the product and the third-party packinghouses are the Company’s customers. The revenues the Company recognizes related to the fruits sold to the third-party packinghouses are based on the volume and quality of the fruits delivered, the market price for such fruit, less the packinghouses’ charges to pack and market the fruit. Such packinghouse charges include the grading, sizing, packing, cooling, ripening and marketing of the related fruit. The Company controls the product until it is delivered to the third-party packinghouses at which time control of the product is transferred to the third-party packinghouses and revenue is recognized. Such third-party packinghouse charges are recorded as a reduction of revenue as they are not for distinct services. The identifiable benefit the Company receives from the third-party packinghouses for packaging and marketing services cannot be sufficiently separated from the third-party packinghouses’ purchase of the Company’s products. In addition, the Company is not able to reasonably estimate the fair value of the benefit received from the third-party packinghouses for such services and as such, these costs are characterized as a reduction of revenue in the Company’s consolidated statements of operations. Revenue from the sales of certain of the Company’s agricultural products is recorded based on estimated proceeds provided by certain of the Company’s sales and marketing partners (Calavo and other third-party packinghouses) due to the time between when the product is delivered by the Company and the closing of the pools for such fruits at the end of each month or harvest period. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. The Company estimates the variable consideration using the most likely amount method, with the most likely amount being the quantities actually shipped extended by the prices reported by Calavo and other third-party packinghouses. Revenue is recognized at time of delivery to the packinghouses relating to fruits that are in pools that have not yet closed at month end if: (a) the related fruits have been delivered to and accepted by Calavo and other third-party packinghouses (i.e., Calavo and other third- party packinghouses obtain control) and (b) sales price information has been provided by Calavo and other third-party packinghouses (based on the marketplace activity for the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. In such instances the Company has the present right to payment and Calavo and other third-party packinghouses have the present right to direct the use of, and obtain substantially all of the remaining benefits from, the delivered fruit. The Company does not expect that there is a high likelihood that a significant reversal in the amount of cumulative revenue recognized in the early periods of the pool will occur once the final pool prices have been reported by the 73 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Revenue Recognition (continued) packinghouses. Historically, the revenue that is recorded based on the sales price information provided to the Company by Calavo and other third-party packinghouses at the time of delivery, have not materially differed from the actual amounts that are paid after the monthly or harvest period pools are closed. Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment. The Company recorded agribusiness revenues from crop insurance proceeds of zero , $ 2,311,000 and $ 54,000 in fiscal years 2020, 2019 and 2018, respectively. Rental Operations Revenue - Minimum rental revenues are generally recognized on a straight-line basis over the respective initial lease term. Contingent rental revenues are contractually defined as to the percentage of rent received by the Company and are based on fees collected by the lessee. Such revenues are recognized when actual results, based on collected fees reported by the tenant, are received. The Company's rental arrangements generally require payment on a monthly or quarterly basis. Advertising Expense Advertising costs are expensed as incurred. Advertising costs were $ 239,000 in fiscal year 2020 and were not material in fiscal years 2019 and 2018. 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. 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 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. 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 preferred stock. Diluted net (loss) income per common share is calculated using the weighted-average number of common shares outstanding plus the dilutive effect of conversion of preferred stock. The Series B and Series B-2 convertible preferred shares were anti-dilutive for fiscal years ended October 31, 2020 and 2019 and dilutive for fiscal year ended October 31, 2018. 74 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Basic and Diluted Net (Loss) Income per Share (continued) Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share using the treasury stock method. The Company’s unvested, restricted stock awards qualify as participating shares. Reclassifications and Adjustments Certain reclassifications have been made to the prior years’ consolidated financial statements to conform to the October 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. The Company reclassified certain components within cash provided by operating activities within the statements of cash flows. Defined Benefit Retirement Plan The Company sponsors a defined benefit retirement plan that was frozen in June 2004, and no future benefits have been accrued to participants subsequent to that time. Ongoing accounting for this plan under FASB ASC 715, Compensation – Retirement Benefits, provides guidance as to, among other things, future estimated pension expense, pension liability and minimum funding requirements. This information is provided to the Company by third-party actuarial consultants. In developing this data, certain estimates and assumptions are used, including among other things, discount rate, long-term rate of return and mortality tables. During 2020, the Society of Actuaries (SOA) released a new mortality improvement scale table, referred to as MP-2020, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year 2020, the assumed discount rate to measure the pension obligation decreased to 2.5 %. The Company used the latest mortality tables released by the SOA through October 2020 to measure its pension obligation as of October 31, 2020 and combined with the assumed discount rate and other demographic assumptions, its pension liability increased by approximately $ 508,000 as of October 31, 2020. Further changes in any of these estimates could materially affect the amounts recorded that are related to our defined benefit retirement plan. 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. 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 75 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) 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 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. The Company will adopt this ASU effective November 1, 2020 and the adoption is not expected 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 postretirement plans. For public business entities, the amendments are effective for fiscal years ending after December 15, 2020. The Company early adopted as of October 31, 2020 and there was no material impact on its consolidated financial statements other than the change in disclosures based on the new requirements. 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. 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. 76 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Recent Accounting Pronouncements (continued) 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 Agriculture Property Acquisition In January 2019, the Company purchased land for use as a citrus orchard for a cash purchase price of $ 397,000 . The acquisition was for 26 acres of agricultural property adjacent to the Company’s orchards in Lindsay, California. This agriculture property acquisition is included in property, plant and equipment on the Company’s consolidated balance sheet. San Pablo On July 18, 2018, the Company completed the acquisition of San Pablo ranch and related assets in La Serena, Chile, for $ 13,000,000 . The San Pablo ranch consists of 3,317 acres on two parcels, including 247 acres producing lemons, 61 acres producing oranges, the opportunity to immediately plant 120 acres for lemon production, as well as the potential for approximately 500 acres of avocado production. This acquisition was accounted for as an asset purchase and is included in property, plant and equipment in the Company’s consolidated balance sheet. In addition, transaction costs of $ 111,000 were capitalized as part of total acquisition costs. Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation (in thousands): Cultural costs $ 579 Land and land improvements 9,114 Buildings and equipment 207 Orchards 2,058 Water rights 1,153 Total assets acquired $ 13,111 The unaudited, pro forma consolidated statement of operations as if San Pablo had been included in the consolidated results of the Company for the year ended October 31, 2018 would have resulted in revenues of $ 130,262,000 and net income of $ 18,785,000 . Business Combinations Trapani Fresh On May 30, 2019, the Company acquired a 51 % interest in a joint venture, Trapani Fresh, formed with FGF Trapani (“FGF”), a multi-generational, family owned citrus operation in Argentina. To consummate the transaction, the Company formed a subsidiary under the name Limoneira Argentina S.A.U. (“Limoneira Argentina”) as the managing partner and acquired a 51 % interest in an Argentine Trust that holds a 75 % interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. Trapani Fresh controls the trust and grows, packs, markets and sells fresh citrus. 77 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Acquisitions (continued) Business Combinations (continued) Trapani Fresh (continued) 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 fiscal year 2019. The Company consolidated Trapani Fresh and accounted for the acquisition of Trapani Fresh as a business combination, resulting in FGF’s 49 % interest in Trapani Fresh being accounted for as a noncontrolling interest. 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 recorded a receivable from FGF, a decrease in noncontrolling 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 updated during the second quarter of fiscal year 2020 (in thousands): Cultural costs $ 3,270 Land and land improvements 9,520 Buildings and building 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, was 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 $ 21,942,055 , respectively. Oxnard Lemon On July 24, 2018, the Company and Oxnard Lemon Associates, Ltd., a California limited partnership (“Seller”), entered into an Asset Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, on July 26, 2018 (the “Initial Closing Date”), the Company acquired certain tangible assets of Seller, including a packinghouse and related land (“Oxnard Lemon”), for a purchase price of $ 24,750,000 (the “Initial Acquisition”). Pursuant to the Purchase Agreement, the closing on the purchase of the intangible assets of Seller, including Seller’s trade names, trademarks and copyrights, took place on October 31, 2018 (the “Final Closing Date”), at which point an additional $ 250,000 in purchase price was paid to Seller by the Company. The aggregate purchase price for the tangible assets and the intangible assets provided in the Purchase Agreement was $ 25,000,000 . Additionally, the Purchase Agreement provided that Seller lease back the tangible assets from the Company until the Final Closing Date, pursuant to a lease executed on the Initial Closing Date. Transaction costs of $ 142,000 were included in selling, general and administrative expense. Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation (in thousands): Land and land improvements $ 7,294 Buildings and equipment 14,866 Customer relationships and trade names 2,270 Goodwill 570 Total assets acquired $ 25,000 78 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Acquisitions (continued) Business Combinations (continued) Oxnard Lemon (continued) The unaudited, pro forma consolidated statement of operations as if Oxnard Lemon had been included in the consolidated results of the Company for the year ended October 31, 2018 would have resulted in revenues of $ 142,253,000 and net income of $ 19,728,000 . 4. Fair Value Measurements Under the FASB ASC 820, Fair Value Measurements and Disclosures , a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3). The following table sets forth the Company’s financial assets and liabilities as of October 31, 2019, which were measured on a recurring basis during the period, segregated by level within the fair value hierarchy (in thousands): 2019 Level 1 Level 2 Level 3 Total Assets at fair value: Equity securities $ 17,346 $ — $ — $ 17,346 Equity securities consist of marketable securities in Calavo common stock. At October 31, 2019, the Company owned 200,000 shares representing approximately 1.1 % of Calavo’s outstanding common stock at a stock price of $ 86.73 per share. These securities were measured at fair value by quoted market prices and changes in fair value are included in the statement of operations. In fiscal year 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 . In fiscal year 2019, the Company sold 50,000 shares of Calavo common stock for a total of $ 4,785,000 recognizing a loss of $ 2,117,000 . In fiscal year 2018, the Company sold 50,000 shares for a total of $ 4,721,000 , recognizing a gain of $ 4,223,000 . 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following at October 31 (in thousands): 2020 2019 Prepaid supplies and insurance $ 2,080 $ 3,199 Note receivable and related interest 2,490 181 Real estate development held for sale 2,543 2,543 Sales tax receivable 1,867 1,061 Lemon supplier advances and other 1,708 1,169 $ 10,688 $ 8,153 79 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Property, Plant and Equipment Property, plant and equipment consists of the following at October 31 (in thousands): 2020 2019 Land $ 96,334 $ 100,503 Land improvements 33,733 31,897 Buildings and building improvements 48,441 48,348 Equipment 60,124 56,709 Orchards 61,098 54,251 Construction in progress 20,469 26,934 320,199 318,642 Less accumulated depreciation ( 77,550 ) ( 70,528 ) $ 242,649 $ 248,114 Depreciation expense was $ 9,098,000 , $ 7,944,000 and $ 7,178,000 for fiscal years 2020, 2019 and 2018, respectively. In August 2020, the Company sold property located in Lindsay, California. The Company received net proceeds of $ 6,011,000 after transaction and other costs, and recorded a loss of approximately $ 424,000 , which is included in loss (gain) on sale and disposal of property assets in the consolidated statements of operations. In September 2019, the Company sold its multi-use Mercantile property consisting of a retail convenience store, gas station, car wash and quick serve restaurant located in Santa Paula, California. The Company received net proceeds of $ 4,000,000 and recognized a gain of approximately $ 586,000 , which is included in loss (gain) on sale and disposal of property assets in the consolidated statement of operations. 7. Real Estate Development Real estate development assets are comprised primarily of land and land development costs and consist of the following at October 31 (in thousands): 2020 2019 Retained property - East Area I $ 13,169 $ 11,943 East Area II 8,467 5,659 $ 21,636 $ 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. In November 2015, 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 (the “LLCB” or “Joint Venture”) as the development entity, contributed its East Area I property to the LLCB and sold a 50 % interest in the LLCB to Lewis for $ 20,000,000 . The Company and the Joint Venture also entered into a Retained Property Development Agreement (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the Joint Venture will transfer certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arrange 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 $ 5,300,000 at October 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. 80 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Real Estate Development (continued) East Areas I and II (continued) 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 %, payable monthly. The Loan contains certain customary default provisions and the Joint Venture may prepay any amounts outstanding under the Loan without penalty. 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 $ 30,368,000 as of October 31, 2020. The $ 1,080,000 estimated value of the guarantee was recorded in the Company’s consolidated balance sheets and is included in other long-term liabilities with a corresponding increase in equity in investments. The extension had no impact on the Company's guarantee value. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company, which provides for unpaid liabilities of the Joint Venture to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in the Joint Venture. In February 2020 the Company and Lewis each loaned $ 1,800,000 to the Joint Venture at an interest rate of 4.6 %, which was repaid in June 2020. In fiscal years 2020 and 2019, the Company announced that its Joint Venture closed the sales of residential lots representing 144 and 210 residential units, respectively. 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 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 October 31, 2020 and 2019, 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 scheduled to mature in December 2019 but was extended to December 2020 and the interest 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. In September 2020, the promissory note was further extended to June 15, 2021 on the same terms and conditions upon making a principal paydown of $ 25,000 on or before December 1, 2020 and an option to further extend the maturity date of the promissory note to December 15, 2021 on the same terms and conditions and upon making an additional principal paydown of $ 25,000 on or before June 1, 2021. At October 31, 2020 the carrying value of the note was $ 2,650,000 and classified in prepaid expenses and other current assets. 81 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Equity in Investments Limco Del Mar, Ltd. The Company has a 1.3 % interest in Limco Del Mar, Ltd. (“Del Mar”) as a general partner and a 26.8 % interest as a limited partner. Based on the terms of the partnership agreement, the Company may be removed as general partner without cause from the partnership upon the vote of the limited partners owning an aggregate of 50 % or more interest in the partnership. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Del Mar is accounted for using the equity method of accounting. The Company provides Del Mar with farm management, orchard land development and accounting services and received expense reimbursements of $ 210,000 , $ 159,000 and $ 163,000 in fiscal years 2020, 2019 and 2018, respectively. Del Mar markets lemons through the Company pursuant to its customary marketing agreements and the amount of lemons procured from Del Mar was $ 1,037,000 , $ 1,674,000 and $ 2,361,000 in fiscal years 2020, 2019 and 2018, respectively. Fruit proceeds due to Del Mar were $ 334,000 and $ 554,000 at October 31, 2020 and 2019, respectively, and are included in grower’s payable in the accompanying consolidated balance sheets. Romney Property Partnership In May 2007, the Company and an individual formed the Romney Property Partnership (“Romney”) for the purpose of owning and leasing an office building and adjacent lot in Santa Paula, California. The Company paid $ 489,000 in 2007 for 75 % interest in Romney. The terms of the partnership agreement affirm the status of the Company as a noncontrolling investor in the partnership since the Company cannot exercise unilateral control over the partnership. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Romney is accounted for using the equity method of accounting. Net profits, losses and cash flows of Romney are shared by the Company, which receives 75 % and the individual, who receives 25 %. Rosales S.A. The Company currently has a 47 % equity interest in Rosales S.A, (“Rosales”) of which 35 % was acquired in fiscal 2014 and an additional 12 % interest was acquired with the purchase of PDA in fiscal 2017. Rosales is a citrus packing, marketing and sales business located in La Serena, Chile. In addition, the Company has the right to acquire the interest of the majority shareholder of Rosales upon death or disability of Rosales’ general manager for the fair value of the interest on the date of the event as defined in the shareholders’ agreement. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Rosales is accounted for using the equity method of accounting. Rosales’ functional currency is the Chilean Peso. The following financial information has been translated to U.S. dollars. In addition, as a result of the Company’s acquisition of its equity interest, basis differences were identified between the historical cost of the net assets of Rosales and the proportionate fair value of the net assets acquired. Such basis differences aggregated to $ 1,683,000 on the acquisition date and are primarily comprised of intangible assets, including $ 343,000 of equity method goodwill. An additional $ 925,000 of basis differences were identified with the February 2017 PDA acquisition, including $ 143,000 of equity method goodwill. The $ 2,122,000 in basis differences exclusive of goodwill is being amortized over the estimated life of the underlying intangible assets as a reduction in the equity investment and an expense included in equity in earnings (losses) of investments. Amortization amounted to $ 180,000 , $ 298,000 and $ 337,000 for fiscal years 2020, 2019 and 2018, respectively, and is estimated to be approximately $ 179,000 , $ 118,000 , $ 87,000 , $ 76,000 and $ 32,000 per year for years ending October 31, 2021 through October 31, 2025, respectively, and $ 43,000 thereafter. The Company recognized $ 3,975,000 , $ 3,741,000 and $ 3,849,000 of lemon sales to Rosales in fiscal years 2020, 2019 and 2018, respectively. In fiscal years 2020, 2019 and 2018, the aggregate amount of lemons and oranges procured from Rosales was $ 3,190,000 , $ 4,315,000 and $ 7,658,000 , respectively. Amounts due (to) from Rosales were $( 954,000 ) and $ 156,000 at October 31, 2020 and 2019, respectively. 82 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Equity in Investments (continued) Limoneira Lewis Community Builders, LLC (the “LLCB” or "Joint Venture") As described in Note 7 – Real Estate Development of the notes to consolidated financial statements included in this Annual Report, on November 10, 2015, the Company entered into a Joint Venture with Lewis for the residential development of its East Area I real estate development project. In addition to the assessment performed by the Company of its investment in LLCB under the requirements of Regulation S-X Rule 4-08(g), the Company also assessed its investment in LLCB under the requirements of Regulation S-X Rule 3-09(b). LLCB was not deemed significant for the year ended October 31, 2020 but was deemed significant for the year ended October 31, 2019. Therefore, the audited financial statements of LLCB for the years ended October 31, 2020, 2019 and 2018 are provided as exhibits to this document to comply with this rule. Additionally, there is a basis difference between the Company’s historical investment in the project and the amount recorded in members’ capital by LLCB of $ 46,908,000 as of October 31, 2020. The basis difference of $ 10,234,000 at October 31, 2020 is primarily comprised of capitalized interest, amounts related to the loan guarantee and certain other costs incurred by Limoneira Company during the development period. This basis difference is being amortized as lots are sold utilizing the relative sales value method and the amount amortized in fiscal years 2020 and 2019 totaled $ 1,060,000 and $ 1,498,000 , respectively. The Company's share of LLCB's net income for fiscal years 2020 and 2019 prior to basis amortization was $ 1,386,000 and $ 4,368,000 , respectively. The following is financial information of the equity method investees for fiscal years 2020, 2019 and 2018 (in thousands): 2020 Del Mar Romney Rosales LLCB Current assets $ 270 $ — $ 4,564 $ 130,171 Non-current assets $ 817 $ 670 $ 2,218 $ — Current liabilities $ — $ — $ 3,540 $ 35,002 Non-current liabilities $ — $ — $ 1,449 $ — Revenues $ 930 $ 20 $ 10,097 $ 25,906 Operating (loss) income $ ( 109 ) $ ( 2 ) $ 1,216 $ 2,615 Net (loss) income $ ( 109 ) $ ( 2 ) $ 476 $ 2,615 2019 Current assets $ 454 $ — $ 3,016 $ 138,170 Non-current assets $ 742 $ 671 $ 1,497 $ — Current liabilities $ — $ — $ 2,803 $ 51,216 Non-current liabilities $ — $ — $ 161 $ — Revenues $ 2,290 $ 15 $ 8,898 $ 37,788 Operating income (loss) $ 1,299 $ ( 5 ) $ 403 $ 10,001 Net income (loss) $ 1,299 $ ( 5 ) $ 288 $ 10,001 2018 Revenues $ 2,893 $ 21 $ 13,630 $ 40 Operating income (loss) $ 1,755 $ ( 4 ) $ 1,745 $ ( 154 ) Net income (loss) $ 1,755 $ ( 4 ) $ 1,243 $ ( 154 ) 83 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Equity in Investments (continued) The Company’s investment and equity in earnings (losses) of the equity method investees are as follows (in thousands): Del Mar Romney Rosales LLCB Total Investment balance October 31, 2017 $ 1,968 $ 515 $ 1,944 $ 9,634 $ 14,061 Equity earnings (losses) 493 ( 3 ) 247 ( 154 ) 583 Cash distributions ( 526 ) — — — ( 526 ) Investment contributions — — — 3,500 3,500 Loan guarantee — — — 1,080 1,080 Investment balance October 31, 2018 1,935 512 2,191 14,060 18,698 Equity earnings (losses) 366 — ( 163 ) 2,870 3,073 Cash distributions ( 351 ) — ( 283 ) — ( 634 ) Investment contributions — — — 4,000 4,000 Capitalized interest adjustment — — — ( 267 ) ( 267 ) Reclassification of sale and leaseback deferral — — — 33,353 33,353 Investment balance October 31, 2019 1,950 512 1,745 54,016 58,223 Equity earnings (losses) ( 30 ) ( 1 ) 44 326 339 Investment contributions — — — 2,800 2,800 Foreign currency adjustments — — ( 148 ) — ( 148 ) Investment balance October 31, 2020 $ 1,920 $ 511 $ 1,641 $ 57,142 $ 61,214 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, 2018 $ 1,431 Acquisition of Trapani Fresh 420 Foreign currency translation adjustment ( 12 ) October 31, 2019 1,839 Trapani Fresh purchase price adjustment ( 297 ) Foreign currency translation adjustment ( 7 ) October 31, 2020 $ 1,535 See Note 3 - Acquisitions - of the notes to consolidated financial statements included in this Annual Report 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. The Company concluded that no potential impairment indicators existed during any interim period and performed its annual assessment of goodwill impairment as of July 31, 2020 with no impairment noted. The Company did no t incur any goodwill impairment losses in fiscal years 2020, 2019 or 2018, as the estimated fair values of its reporting units were in excess of their carrying values. As of October 31, 2020, the Company has allocated goodwill to its reportable segments as follows: Fresh Lemons $ 965,000 and Lemon Packing $ 570,000 . 84 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Goodwill and Intangible Assets (continued) Intangible assets consisted of the following as of October 31, 2020 and 2019 (in thousands): October 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 Intangible assets: Trade names and trademarks $ 3,771 $ ( 947 ) $ 2,824 10 $ 3,786 $ ( 542 ) $ 3,244 10 Customer relationships 5,010 ( 989 ) 4,021 9 5,010 ( 500 ) 4,510 9 Non-competition agreement 1,040 ( 147 ) 893 10 1,040 ( 42 ) 998 10 Acquired water and mineral rights 3,571 — 3,571 Indefinite $ 3,655 $ — $ 3,655 Indefinite Intangible assets $ 13,392 $ ( 2,083 ) $ 11,309 $ 13,491 $ ( 1,084 ) $ 12,407 Amortization expense totaled $ 999,000 , $ 689,000 , and $ 84,000 for the years ended October 31, 2020, 2019 and 2018, respectively. Estimated future amortization expense of intangible assets for each of the next five fiscal years and thereafter are as follows (in thousands): 2021 $ 1,040 2022 989 2023 989 2024 981 2025 976 Thereafter 2,763 $ 7,738 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 October 31, 2020 and 2019 were $ 5,563,000 and $ 5,499,000 , respectively. 11. Accrued Liabilities Accrued liabilities consist of the following at October 31 (in thousands): 2020 2019 Compensation $ 2,275 $ 1,973 Property taxes 683 652 Lemon and orange supplier payables 1,346 899 Operating expenses 938 3,191 Leases 959 129 Other 1,746 1,417 $ 7,947 $ 8,261 85 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Long-Term Debt Long-term debt is comprised of the following at October 31 (in thousands): 2020 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 0.15 % at October 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. $ 102,251 $ 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. 1,438 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. 1,029 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. 8,433 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 though March 2036. 6,220 6,522 Wells Fargo term loan: The interest rate is fixed at 3.58 %. The loan is payable in monthly installments through January 2023. 3,491 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. 1,205 1,386 Note Payable: The interest rate ranges from 5.00 % to 7.00 % and was 6.00 % at October 31, 2020. The loan includes interest-only monthly payments and principal is due in February 2023. 1,435 1,435 Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48 %. The loans are payable in monthly installments beginning February 2021 through September 2024. 522 — Subtotal 126,024 109,077 Less deferred financing costs, net of accumulated amortization 176 162 Total long-term debt, net 125,848 108,915 Less current portion 3,277 3,023 Long-term debt, less current portion $ 122,571 $ 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 rate loans effective July 1, 2020. No changes were made to the outstanding principal balances on the term loans and the Company made no cash repayments of principal. 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. 86 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Long-Term Debt (continued) 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 October 31, 2020, of which $ 27,749,000 was available to borrow. 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. 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 cash patronage dividend of $ 600,000 , which the Company received in August 2020. In February 2019, the Company received an annual cash patronage dividend of $ 853,000 . The Loan Agreement subjects the Company to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets of the Company's business. The Company is also subject to a covenant that it will maintain a debt service coverage ratio greater than 1.25 :1.0 measured annually at October 31. 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. The Company was not in compliance with the Wells Fargo covenant at October 31, 2020 and the non-compliance was waived. This loan is secured by certain lemon packing equipment. In July and September 2020, PDA and San Pablo entered into term loan agreements for an aggregate amount of approximately $ 522,000 . These small business loans are guaranteed by the Chilean government in response to economic instability caused by the COVID-19 pandemic. The unsecured loans mature in July and September 2024, bear interest at fixed rates of 3.48 % and 2.90 % and are payable in monthly installments beginning February and April 2021, respectively. Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $ 921,000 and $ 1,369,000 during the fiscal years ended 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. The Company incurs certain loan fees and costs associated with its new or amended credit arrangements. Such costs are capitalized as deferred financing costs and amortized as interest expense using the straight-line method over the terms of the credit agreements. The balance of deferred financing costs was $ 176,000 and $ 162,000 , net of amortization at October 31, 2020 and 2019, respectively and was included in long-term debt on the Company’s consolidated balance sheet. Principal payments on the Company’s long-term debt are due as follows (in thousands): 2021 $ 3,277 2022 105,606 2023 3,157 2024 1,162 2025 1,450 Thereafter 11,372 $ 126,024 87 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 22 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): October 31, 2020 October 31, 2019 Land $ 3,522 $ 1,279 Buildings, equipment and building improvements 18,516 22,841 Less: accumulated depreciation ( 5,691 ) ( 7,551 ) Property, plant and equipment, net under operating leases $ 16,347 $ 16,569 Depreciation expense for assets under operating leases was approximately $ 664,000 for fiscal year 2020. The Company’s rental operations revenue consists of the following (in thousands): October 31, 2020 Operating lease payments $ 4,287 Variable lease payments 335 Total lease payments $ 4,622 The future minimum lease payments to be received by the Company related to these operating lease agreements as of October 31, 2020 are as follows (in thousands): 2021 $ 713 2022 517 2023 344 2024 70 2025 70 Thereafter 925 Total $ 2,639 The Company’s rental operations revenue included contingent rental revenue of $ 355,000 and $ 324,000 for fiscal years 2019 and 2018, respectively. 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 17 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 October 31, 2020, there were no material finance leases for which the Company was a lessee. 88 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Leases (continued) Operating lease costs were $ 559,000 for fiscal year 2020, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Variable and short term lease costs were immaterial. Supplemental balance sheet information related to leases consists of the following (in thousands): Classification October 31, 2020 Assets Operating lease ROU assets Other assets $ 2,053 Liabilities and Stockholders' Equity Current operating lease liabilities Accrued liabilities 521 Non-current operating lease liabilities Other long-term liabilities 1,610 Total operating lease liabilities $ 2,131 Weighted-average remaining lease term (in years) 11.0 Weighted-average discount rate 3.8 % Supplemental cash flow information related to leases consists of the following (in thousands): October 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 559 ROU assets obtained in exchange for new operating lease liabilities $ 108 Future minimum lease payments under non-cancellable leases for each of the subsequent five fiscal years and thereafter are as follows (in thousands): 2021 $ 509 2022 358 2023 182 2024 151 2025 134 Thereafter 1,315 Total lease payments 2,649 Less: Imputed interest ( 518 ) Total $ 2,131 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 $ 307,000 for each of the fiscal years 2021 and 2022 and $ 51,000 in fiscal year 2023. 89 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Leases (continued) 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 Total $ 3,141 Total lease expense for fiscal years 2019 and 2018 was $ 733,000 and $ 2,028,000 , respectively, which was included in agribusiness costs and expenses in the Company’s consolidated statements of operations. In October 2018, the Company purchased a 1,000 KW photovoltaic generator for $ 1,125,000 that was previously under a 10-year operating lease agreement with Farm Credit West. In December 2018, the Company purchased another 1,000 KW photovoltaic generator for $ 1,275,000 that was previously under a 10-year operating lease agreement with Farm Credit West. 14. Earnings 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 Series B and Series B-2 convertible preferred shares were anti-dilutive for fiscal years ended October 31, 2020 and 2019 and dilutive for fiscal years ended October 31, 2018. The computations for basic and diluted net (loss) income per common share are as follows (in thousands, except per share amounts): Year ended October 31, 2020 2019 2018 Basic net (loss) income per common share: Net (loss) income applicable to common stock $ ( 16,936 ) $ ( 6,444 ) $ 19,687 Effect of unvested, restricted stock ( 44 ) ( 51 ) ( 34 ) Numerator: Net (loss) income for basic EPS ( 16,980 ) ( 6,495 ) 19,653 Denominator: Weighted average common shares-basic 17,666 17,580 15,581 Basic net (loss) income per common share $ ( 0.96 ) $ ( 0.37 ) $ 1.26 Diluted net (loss) income per common share: Numerator: Net (loss) income for diluted EPS $ ( 16,980 ) $ ( 6,495 ) $ 20,188 Weighted average common shares-basic 17,666 17,580 15,581 Effect of dilutive unvested, restricted stock and preferred stock — — 628 Denominator: Weighted average common shares-diluted 17,666 17,580 16,209 Diluted net (loss) income per common share $ ( 0.96 ) $ ( 0.37 ) $ 1.25 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 164,000 , 119,000 and 70,000 , unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted (losses) earnings per share for the fiscal years ended October 31, 2020, 2019 and 2018, respectively. 90 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Related-Party Transactions The Company has transactions with various related-parties as summarized in the tables below (in thousands): October 31, 2020 October 31, 2019 Balance Sheet Balance Sheet Ref Related-Party Receivables/Other from Related-Parties Other Assets Payables to Related-Parties Other Long-Term Liabilities Receivables/Other from Related-Parties Other Assets Accounts Payable Payables to Related-Parties Other Long-Term Liabilities (2) Mutual water companies $ — $ 64 $ 64 $ — $ — $ 473 $ 11 $ — $ — (3) Cooperative association $ — $ — $ 123 $ — $ — $ — $ 35 $ — $ — (6) Cadiz / Fenner / WAM $ — $ 1,443 $ 182 $ 1,353 $ — $ — $ — $ — $ — (7) Colorado River Growers $ 81 $ — $ — $ — $ 376 $ — $ — $ — $ — (9) FGF $ 2,213 $ — $ 604 $ — $ 2,609 $ — $ — $ 906 $ — (10) LLCB $ — $ — $ 5,300 $ — $ — $ — $ — $ — $ 1,200 Year Ended October 31, 2020 Year Ended October 31, 2019 Consolidated Statement of Operations Consolidated Statement of Operations Ref Related-Party Net Revenue - Agribusiness Net Revenue - Other Operations Agribusiness Expense and Other Other Income, Net Dividends Paid Net Revenue - Agribusiness Net Revenue - Other Operations Agribusiness Expense and Other Other Income, Net Dividends Paid (1) Employees $ — $ 785 $ — $ — $ — $ — $ 744 $ — $ — $ — (2) Mutual water companies $ — $ — $ 894 $ — $ — $ — $ — $ 838 $ — $ — (3) Cooperative association $ — $ — $ 1,849 $ — $ — $ — $ — $ 1,687 $ — $ — (4) Calavo $ 8,806 $ 330 $ 1,223 $ 220 $ 503 $ 3,080 $ 400 $ 1,096 $ 250 $ 506 (5) Third party growers $ — $ — $ — $ — $ — $ — $ — $ 10 $ — $ — (6) Cadiz / Fenner / WAM $ — $ — $ 240 $ — $ — $ — $ — $ 186 $ — $ — (7) Colorado River Growers $ 603 $ — $ 6,613 $ — $ — $ 306 $ — $ 5,476 $ — $ — (8) YMIDD $ — $ — $ 139 $ — $ — $ — $ — $ 150 $ — $ — (9) FGF $ 10,338 $ — $ 13,478 $ — $ — $ 14,471 $ — $ 10,300 $ — $ — Year Ended October 31, 2018 Consolidated Statement of Operations Ref Related-Party Net Revenue - Agribusiness Net Revenue - Rental Operations Agribusiness Expense and Other Other Income, Net Dividends Paid (1) Employees $ — $ 706 $ — $ — $ — (2) Mutual water companies $ — $ — $ 1,102 $ — $ — (3) Cooperative association $ — $ — $ 1,869 $ — $ — (4) Calavo $ 6,576 $ 293 $ 367 $ 285 $ 432 (5) Third party growers $ — $ — $ 2,279 $ — $ — (6) Cadiz / Fenner / WAM $ — $ — $ 178 $ — $ — (7) Colorado River Growers $ 374 $ — $ 3,707 $ — $ — (8) YMIDD $ — $ — $ 213 $ — $ — 91 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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 October 31, 2020 and 2019. (2) Mutual water companies - The Company has representation on the boards of directors of the mutual water companies in which the Company has investments. The Company recorded capital contributions, purchased water and water delivery services and had water payments due to the mutual water companies. Refer to Note 10 - Other Assets. (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 and had representation on the board of directors of the Company through December 2018. The Company recorded dividend income on its investment in Calavo, paid dividends to Calavo and had avocado sales to Calavo. Additionally, the Company leases office space to Calavo, purchases storage services from Calavo and had amounts due to Calavo for those services. (5) Third party growers - A member of the Company’s board of directors markets lemon 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 Limoneira Company 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 that are recorded as an asset until the sales occur and the remaining proceeds become due to FGF. Additionally, FGF provided farming, 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 A reconciliation of income before income taxes for domestic and foreign locations for the years ended October 31, 2020, 2019 and 2018 are as follows (in thousands): 2020 2019 2018 United States $ ( 23,195 ) $ ( 6,285 ) $ 13,099 Foreign ( 3,240 ) ( 278 ) 384 Income before income taxes $ ( 26,435 ) $ ( 6,563 ) $ 13,483 92 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Income Taxes (continued) The components of the provisions for income taxes for fiscal years 2020, 2019 and 2018 are as follows (in thousands): 2020 2019 2018 Current: Federal $ 5,835 $ ( 7 ) $ 35 State 332 563 ( 444 ) Foreign 194 ( 232 ) ( 169 ) Total current benefit (provision) 6,361 324 ( 578 ) Deferred: Federal 640 998 7,393 State 1,177 ( 302 ) ( 212 ) Foreign 316 77 126 Total deferred benefit 2,133 773 7,307 Total income tax benefit $ 8,494 $ 1,097 $ 6,729 Deferred income taxes reflect the net of temporary differences between the carrying amount of the assets and liabilities for financial reporting and income tax purposes. The components of deferred income tax assets at October 31, 2020 and 2019 are as follows (in thousands): 2020 2019 Deferred income tax assets: Reserve and other accruals $ 643 $ 823 Net operating losses 4,983 1,112 Right-of-use asset 578 — Minimum pension liability adjustment 962 820 Amortization 325 295 Interest expense limitation 306 — Stock based compensation 549 554 Total deferred income tax assets 8,346 3,604 Valuation allowance ( 540 ) ( 362 ) Total net deferred income tax assets 7,806 3,242 Deferred income tax liabilities: Property taxes ( 173 ) ( 150 ) Depreciation ( 16,930 ) ( 13,630 ) Land and other indefinite life assets ( 6,905 ) ( 6,887 ) Investment in joint ventures and other basis adjustments ( 4,097 ) ( 2,105 ) Right-of-use asset ( 557 ) — Unrealized net gain on Calavo investment — ( 4,142 ) Other ( 1,241 ) ( 674 ) Total deferred income tax liabilities ( 29,903 ) ( 27,588 ) Net deferred income tax liabilities $ ( 22,097 ) $ ( 24,346 ) Deferred income taxes — noncurrent assets $ 333 $ — Deferred income taxes — noncurrent liabilities $ ( 22,430 ) $ ( 24,346 ) 93 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Income Taxes (continued) The Company periodically evaluates the recoverability of the deferred tax assets. The Company recognized deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company has recorded a valuation allowance of $ 540,000 on two Chilean subsidiaries deferred tax assets as of October 31, 2020 as the Company does not believe it is more likely than not that these deferred tax assets will be realized due to the recent history of cumulative pre-tax book losses and lack of objectively verifiable future source of taxable income. At October 31, 2020, the Company recorded a deferred tax asset of $ 4,983,000 related to its federal, state, and foreign net operating carryforwards. The entire federal net operating loss is subject to the 80 % taxable income limitation. The net operating losses begin to expire as follows (in thousands): Jurisdiction Gross Amount Begin to Expire Federal 12,161 Indefinite State 15,190 10/31/2039 Chile 3,662 Indefinite Argentina 1,684 10/31/2025 At October 31, 2020, the Company had disallowed federal and state interest expense carryforwards of approximately $ 1,442,000 and $ 2,454,000 , respectively, that do not expire. Because of the change of ownership provisions of the Tax Reform Act of 1986, use of a portion of the domestic net operating loss and disallowed interest expense carryforwards may be limited in future periods. Further, a portion of the carryforwards may expire before being applied to reduce future income tax liabilities. 2020 2019 2018 Amount % Amount % Amount % Provision at statutory rates $ 5,551 ( 21.0 ) % $ 1,351 ( 21.0 ) % $ ( 3,125 ) ( 23.3 ) % State income tax, net of federal benefit 1,431 ( 5.4 ) % 316 ( 4.9 ) % ( 768 ) ( 5.7 ) % Dividend exclusion 27 ( 0.1 ) % 28 ( 0.4 ) % 49 0.4 % Meals and entertainment ( 18 ) 0.1 % ( 90 ) 1.4 % — — Transaction costs — — ( 137 ) 2.1 % — — Tax law change 1,948 ( 7.4 ) % — — 10,295 76.4 % State rate adjustment ( 82 ) 0.3 % ( 109 ) 1.7 % — — Valuation allowance ( 168 ) 0.6 % ( 393 ) 6.1 % — — Noncontrolling interest ( 305 ) 1.1 % 116 ( 1.8 ) % — — Other permanent items 110 ( 0.4 ) % 15 ( 0.3 ) % 278 2.1 % Total income tax benefit $ 8,494 ( 32.2 ) % $ 1,097 ( 17.1 ) % $ 6,729 49.9 % At October 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company files income tax returns in the U.S., California, Arizona, Chile, Argentina and Holland. The Company is no longer subject to significant U.S., state and Chilean income tax examinations for years prior to the statutory periods of three years for federal, four years for state and three years for Chilean tax jurisdictions. The Company recognizes interest expense and penalties related to income tax matters as a component of income tax expense. There was no accrued interest or penalties associated with uncertain tax positions as of October 31, 2020. 94 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Income Taxes (continued) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act includes 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 evaluated the impact of the CARES Act and has recorded a tax benefit of $ 1,948,000 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, of which $ 841,000 and $ 4,960,000 were received in October 2020 and December 2020, respectively. On December 22, 2017, the Tax Cuts and Jobs Act (the "TCJA") was enacted into law. The TCJA made significant changes to U.S. tax laws, including, but not limited to, the following: (a) reducing the federal corporate income tax rate from 35% to a flat 21%, effective January 1, 2018, (b) including two new U.S. tax base erosion provisions and the global intangible low-taxed income ("GILTI") provisions and (c) expanding the number of individuals whose compensation is subject to a $1,000,000 cap on deductibility under Section 162(m) and includes performance-based compensation such as stock options and stock appreciation rights in the calculation. As a result of the rate reduction, the Company recorded an income tax benefit of $ 10,295,000 related to the remeasurement of the Company's deferred tax balance as of October 31, 2018. 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 administered by Wells Fargo Bank and Mercer Human Resource Consulting. The Plan is funded consistent with the funding requirements of federal law and regulations. There were funding contributions of zero and $ 600,000 for fiscal years 2020 and 2019, respectively. Plan assets are invested in a group trust consisting primarily of pooled funds, mutual funds, short-term investment funds and cash. The investment policy and strategy has been established to provide a total investment return that will, over time, maintain purchasing power parity for the Plan’s variable benefits and keep the Plan funding at a reasonable level. The long-term target asset allocations are Domestic Equity 30 %, International Equity 10 % and Fixed Income 60 %. The following tables set forth the Plan’s net periodic cost, changes in benefit obligation and Plan assets, funded status, amounts recognized in the Company’s consolidated balance sheets, additional year-end information and assumptions used in determining the benefit obligations and net periodic benefit cost. The components of net periodic benefit cost for the Plan for fiscal years 2020 and 2019 were as follows (in thousands): 2020 2019 Administrative expenses $ 278 $ 188 Interest cost 641 828 Expected return on plan assets ( 990 ) ( 1,088 ) Prior service cost 45 45 Amortization of net loss 739 402 Net periodic benefit cost $ 713 $ 375 95 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Retirement Plans (continued) Following is a summary of the Plan’s funded status as of October 31 (in thousands): 2020 2019 Change in benefit obligation: Benefit obligation at beginning of year $ 22,267 $ 19,641 Administrative expenses 278 188 Interest cost 641 828 Benefits paid ( 1,524 ) ( 1,453 ) Actuarial loss 1,236 3,063 Benefit obligation at end of year $ 22,898 $ 22,267 Change in plan assets: Fair value of plan assets at beginning of year $ 19,229 $ 17,237 Actual return on plan assets 1,647 2,845 Employer contributions — 600 Benefits paid ( 1,524 ) ( 1,453 ) Fair value of plan assets at end of year $ 19,352 $ 19,229 Reconciliation of funded status: Fair value of plan assets $ 19,352 $ 19,229 Benefit obligations 22,898 22,267 Net plan obligations $ ( 3,546 ) $ ( 3,038 ) Amounts recognized in statements of financial position: Noncurrent assets $ — $ — Current liabilities — — Noncurrent liabilities ( 3,546 ) ( 3,038 ) Net obligation recognized in statements of financial position $ ( 3,546 ) $ ( 3,038 ) Reconciliation of amounts recognized in statements of financial position: Prior service cost $ ( 144 ) $ ( 189 ) Net loss ( 6,162 ) ( 6,322 ) Accumulated other comprehensive loss ( 6,306 ) ( 6,511 ) Accumulated contributions in excess of net periodic benefit cost 2,760 3,473 Net deficit recognized in statements of financial position $ ( 3,546 ) $ ( 3,038 ) Presented below are changes in accumulated other comprehensive income, before tax, in the Plan as of October 31, (in thousands): 2020 2019 Changes recognized in other comprehensive income: Net loss arising during the year $ 579 $ 1,306 Amortization of prior service cost ( 45 ) ( 45 ) Amortization of net loss ( 739 ) ( 402 ) Total recognized in other comprehensive income $ ( 205 ) $ 859 Total recognized in net periodic benefit and other comprehensive income $ 508 $ 1,234 96 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Retirement Plans (continued) The following assumptions, as of October 31, were used in determining benefit obligations and net periodic benefit cost ($ in thousands): 2020 2019 Weighted-average assumptions used to determine benefit obligations: Discount rate 2.50 % 3.00 % Assumptions used to determine net periodic benefit cost: Discount rate 3.00 % 4.40 % Expected return on plan assets 5.66 % 6.31 % Additional year-end information: Projected benefit obligation $ 22,898 $ 22,267 Accumulated benefit obligation $ 22,898 $ 22,267 Fair value of plan assets $ 19,352 $ 19,229 Benefit payments are expected to be paid over the next 10 fiscal years as follows (in thousands): 2021 $ 1,295 2022 1,317 2023 1,362 2024 1,374 2025 1,368 Next five years 6,569 $ 13,285 The following table sets forth the Plan’s assets as of October 31, 2020, segregated by level using the hierarchy established by FASB ASC 820, Fair Value Measurements and Disclosures (in thousands): Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 157 $ — $ — $ 157 Mutual funds 1,152 — — 1,152 Pooled funds — 18,043 — 18,043 $ 1,309 $ 18,043 $ — $ 19,352 The Company has a 401(k) plan in which it contributes an amount equal to 4 % of an eligible employee’s annual earnings beginning after one year of employment. Employees may elect to defer up to 100 % of their annual earnings subject to Internal Revenue Code limits. The Company makes an additional matching contribution on these deferrals up to 4 % of the employee’s annual earnings. Employees are 100% vested in the Company’s contribution after six years of employment. Participants vest in any matching contribution at a rate of 20 % per year beginning after one year of employment. During fiscal years 2020, 2019 and 2018, the Company contributed to the plan and recognized expenses of $ 1,107,000 , $ 927,000 and $ 823,000 , respectively. 18. Commitments and Contingencies Litigation and Legal Proceedings 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. 97 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Series B and Series B-2 Preferred Stock Series B Convertible Preferred Stock In 1997, in connection with the acquisition of Ronald Michaelis Ranches, Inc., the Company issued 30,000 shares of Series B Convertible Preferred Stock at $ 100.00 par value (the “Series B Stock”). Dividends: The holders of shares of Series B Stock are entitled to receive cumulative cash dividends at an annual rate of 8.75 % of par value. Such dividends are payable quarterly on the first day of January, April, July and October in each year. Voting Rights: Each holder of Series B Stock is entitled to ten votes on all matters submitted to a vote of the stockholders of the Company. Redemption: The Company, at the option of the Board of Directors, may redeem the Series B Stock, as a whole or in part, at any time or from time to time on or after August 1, 2017 and before July 31, 2027, at a redemption price equal to the par value thereof, plus accrued and unpaid dividends thereon to the date fixed for redemption. Redemption by the Company of a portion of the Series B Stock totaling 14,790 shares is subject to certain conditions agreed upon between the Company and the holders of this portion of the Series B Stock. Conversion: The holders of Series B Stock have the right, at their option, to convert such shares into shares of Common Stock of the Company at any time prior to redemption. The conversion price is $ 8.00 per share of Common Stock. Pursuant to the terms of the Certificate of Designation, Preferences and Rights of the Series B Stock, the conversion price shall be adjusted to reflect any dividends paid in Common Stock of the Company, the subdivision of the Common Stock of the Company into a greater number of shares of Common Stock of the Company or upon the advice of legal counsel. Put: The holders of Series B Stock may at any time after July 1, 2017 and before June 31, 2027 cause the Company to repurchase such shares at a repurchase price equal to the par value thereof, plus accrued and unpaid dividends thereon to the date fixed for repurchase. The put features of a portion of the Series B Stock totaling 14,790 shares are subject to certain conditions agreed upon between the Company and the holders of this portion of the Series B Stock. Because the Series B Stock may be redeemed by holders of the shares at their discretion beginning July 1, 2017, the redemption is outside the control of the Company and accordingly, the Series B Stock has been classified as temporary equity. In fiscal year 2017, a total of 14,210 shares of Series B preferred stock were converted into 177,624 shares of common stock. In fiscal year 2016, 500 shares of Series B preferred stock were converted into 6,250 shares of common stock. In fiscal year 2015, 500 shares of Series B preferred stock were converted into 6,250 shares of common stock. Series B-2 Convertible Preferred Stock During March and April of 2014, pursuant to a Series B-2 Stock Purchase Agreement dated March 21, 2014, the Company issued an aggregate of 9,300 shares of Series B-2, 4 % voting preferred stock with a par value of $ 100.00 per share (“Series B-2 Preferred Stock”) to WPI-ACP Holdings, LLC (“WPI”), an entity affiliated with WAM for total proceeds of $ 9,300,000 . The transactions were exempt from the registration requirements of the Securities Act of 1933, as amended. The Series B-2 Preferred Stock has the following rights, preferences, privileges, and restrictions: Conversion: Each share of the Series B-2 Preferred Stock is convertible into common stock at a conversion price equal to the greater of (a) the then-market price of the Company’s common stock based upon the closing price of the Company’s common stock on The NASDAQ Stock Market, LLC or on such other principal market on which the Company’s common stock may then be trading and (b) $ 15.00 per share of common stock. Shares of the Series B-2 Preferred Stock may be converted into common stock (i) at any time prior to the redemption thereof, or (ii) in the event the Option Agreement (as defined below) is terminated without all of the shares of Series B-2 Preferred Stock having been redeemed, within 30 calendar days following such termination. Dividends: The holder of shares of the Series B-2 Preferred Stock is entitled to receive cumulative cash dividends at an annual rate of 4 % of the liquidation value of $ 1,000 per share. Such dividends are payable quarterly on the first day of January, April, July and October in each year. Liquidation Rights: In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of shares of the Series B-2 Preferred Stock is entitled to be paid out of the assets available for distribution, before any payment is made to the holders of the Company’s common stock or any other series or class of the Company’s shares ranking junior to the Series B-2 Preferred Stock, an amount equal to the liquidation value of $ 1,000 per share, plus an amount equal to all accrued and unpaid dividends. 98 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Series B and Series B-2 Preferred Stock (continued) Series B-2 Convertible Preferred Stock (continued) Voting Rights: Each share of Series B-2 Preferred Stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders. Redemption: The Company may redeem shares of Series B-2 Preferred Stock only (i) from WPI or its designee and (ii) upon, and to the extent of, an election to exercise the option pursuant to the Option Agreement, described below, at a redemption price equal to the liquidation value of $ 1,000 per share plus accrued and unpaid dividends. Because the Series B-2 Preferred Stock may be redeemed by WPI at its discretion with the exercise of the Option Agreement, the redemption is outside the control of the Company and accordingly, the Series B-2 Preferred Stock has been classified as temporary equity. In connection with the sale of the Series B-2 Preferred Stock, Associated Citrus Packers, Inc. (“Associated”) and another affiliate of WAM (“WPI-ACP”), entered into a series of agreements related to the future ownership and disposition of farmland with associated Colorado River water rights and other real estate that is held by Associated in Yuma, Arizona. The agreements allow the parties to explore strategies that will make the highest and best use of those assets, including but not limited to the sale or lease of assets or the expansion of a fallowing and water savings program in which a portion of Associated’s property is currently enrolled. The net proceeds of any monetization event would be shared equally by the parties. The agreements entered into include a Water Development Agreement and an Option Agreement. Pursuant to the Water Development Agreement, Associated granted WPI-ACP exclusive rights to develop water assets attributable to the real estate owned by Associated for the mutual benefit of Associated and WAM. Pursuant to the Option Agreement, Associated granted WPI-ACP an option to purchase an undivided interest of up to one-half of the real estate owned by Associated in Yuma County, Arizona (the “Property”) and the water rights associated therewith until January 1, 2026. The purchase price for the Property subject to the Option Agreement will be paid via the redemption by the Company of a proportionate percentage of the Series B-2 Preferred Stock. Unless and until a definitive agreement or definitive agreements with respect to Associated’s real estate and water rights is entered into that would cause the cessation of farming operations, Associated expects to continue farming the Property and recognize all results of operations and retain all proceeds from such operations. 20. Stockholders’ Equity Series A Junior Participating Preferred Stock The Company has 20,000 shares of preferred stock authorized as Series A Junior Participating Preferred Stock at $ 0.01 par value (the “Series A Stock”). No shares are issued or outstanding. 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. The Stock Plan has 281,225 remaining shares available to be issued as of October 31, 2020. 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. During December 2020 and 2019, there were no Performance Awards of restricted stock granted for fiscal year 2020 or 2019 performance because the financial performance and other criteria were not met. 99 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Stockholders’ Equity (continued) Stock-based compensation (continued) 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 2020, subsequent to fiscal year 2020, the Company granted 95,000 shares of common stock with a per share price of $ 15.26 to key executives under the Stock Plan. The related compensation expense of approximately $ 1,450,000 will be recognized equally over the next three years as the shares vest. Director Awards The Company issues shares of common stock to non-employee directors under the Stock Plan on an annual basis that vest upon grant (“Director Awards”). A summary of the Performance, Executive, and Director awards granted under the Stock Plan during fiscal years 2020, 2019 and 2018, and the weighted average grant price is as follows: Year Ended October 31, 2020 2019 2018 Number of Shares Weighted-Average Grant Price Number of Shares Weighted-Average Grant Price Number of Shares Weighted-Average Grant Price Performance Awards — $ — 40,095 $ 18.74 41,291 $ 22.86 Executive Awards 95,000 $ 18.87 90,000 $ 19.84 90,000 $ 22.19 Director Awards 17,841 $ 20.05 15,642 $ 21.65 14,033 $ 22.00 Total 112,841 $ 19.06 145,737 $ 19.73 145,324 $ 22.36 The Company recognized $ 2,044,000 , $ 1,791,000 and $ 1,368,000 of stock-based compensation in fiscal years 2020, 2019 and 2018, respectively, of which substantially all of the expense has been included in selling, general and administrative expenses for all years presented. Forfeitures are accounted for in the period that the forfeiture occurs. The income tax benefit recognized in the income statement for stock-based compensation arrangements was $ 400,000 , $ 324,000 and $ 328,000 for fiscal years 2020, 2019 and 2018, respectively. The total fair value of shares vested during the years ended October 31, 2020, 2019 and 2018 was $ 2,365,000 , $ 1,788,000 and $ 1,238,000 respectively. The Company has unrecognized stock-based compensation expense of $ 2,589,000 as of October 31, 2020, which is expected to be recognized over the next three years as the shares vest. All unvested shares are expected to vest. During fiscal years 2020, 2019 and 2018, respectively, members of management exchanged 11,314 , 36,627 and 24,252 shares of common stock with fair values of $ 213,000 , $ 606,000 and $ 570,000 , at the dates of the exchanges, for the payment of payroll taxes associated with the vesting of shares under the Company’s stock-based compensation programs. Additionally, in fiscal year 2018, the Company repurchased 15,330 shares from a retired member of management for $ 86,000 per the terms of a discontinued stock plan. A summary of the status of the Company’s nonvested shares as of October 31, 2020, and changes during the year ended October 31, 2020, is presented below. Number of Shares Weighted-Average Grant Price Nonvested at October 31, 2019 171,106 $ 20.64 Vested ( 117,646 ) $ 20.20 Granted 95,000 $ 18.87 Nonvested at October 31, 2020 148,460 $ 19.85 100 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Stockholders’ Equity (continued) 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. During fiscal year 2020, the Company repurchased 250,977 shares under the share repurchase program for approximately $ 3,493,000 . As of October 31, 2020, the remaining authorization under this program is approximately $ 6,507,000 . Dividend On December 15, 2020, the Company declared a $ 0.075 per share dividend payable on January 15, 2021, in the aggregate amount of $ 1,324,000 to common shareholders of record as of December 28, 2020. 21. Fruit Growers Supply Cooperative The Company is a member of Fruit Growers Supply (“FGS”), a cooperative supply corporation. FGS is the manufacturing and supply affiliate of Sunkist. FGS allocates after-tax earnings derived from non-member business to members. The allocations may then be disbursed to members as dividends no less than five years after allocation. The declaration of dividends is subject to approval by the FGS Board of Directors and members may receive amounts less than those originally allocated. The Company records allocations disbursed by FGS as reductions of agribusiness expenses. As of October 31, 2020 and 2019, the Company had been allocated $ 729,000 , of which the Company received dividends of $ 513,000 in fiscal year 2020, leaving an ending allocation of $ 216,000 as of October 31, 2020. The Company received no dividends in fiscal years 2019 or 2018. During September 2011, the Company settled a claim with Sunkist in which Sunkist requested a refund of $ 586,000 of fiscal year 2010 lemon by-products revenue. The Company assigned 50 % of future dividends it receives from FGS up to the amount of claim in the unconditional settlement of the claim. The balance of the claim as of October 31, 2019 was $ 251,000 and the claim was paid in full in fiscal year 2020. 22. 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.” 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 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. 101 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. Segment Information (continued) Segment information for fiscal year 2020 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 124,150 $ 13,413 $ — $ 8,806 $ 13,568 $ 159,937 $ 4,622 $ 164,559 Intersegment revenue — 36,820 ( 36,820 ) — — — — — Total net revenues 124,150 50,233 ( 36,820 ) 8,806 13,568 159,937 4,622 164,559 Costs and expenses 125,305 42,563 ( 36,820 ) 5,168 12,122 148,338 25,132 173,470 Depreciation and amortization — — — — — 8,943 1,154 10,097 Operating (loss) income $ ( 1,155 ) $ 7,670 $ — $ 3,638 $ 1,446 $ 2,656 $ ( 21,664 ) $ ( 19,008 ) Segment information for fiscal year 2019 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 134,342 $ 15,629 $ — $ 5,391 $ 11,187 $ 166,549 $ 4,849 $ 171,398 Intersegment revenue — 30,073 ( 30,073 ) — — — — — Total net revenues 134,342 45,702 ( 30,073 ) 5,391 11,187 166,549 4,849 171,398 Costs and expenses 120,998 37,639 ( 30,073 ) 3,150 13,035 144,749 23,530 168,279 Depreciation and amortization — — — — — 7,623 1,010 8,633 Operating income (loss) $ 13,344 $ 8,063 $ — $ 2,241 $ ( 1,848 ) $ 14,177 $ ( 19,691 ) $ ( 5,514 ) Segment information for fiscal year 2018 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 94,840 $ 8,990 $ — $ 6,576 $ 13,938 $ 124,344 $ 5,048 $ 129,392 Intersegment revenue — 19,971 ( 19,971 ) — — — — — Total net revenues 94,840 28,961 ( 19,971 ) 6,576 13,938 124,344 5,048 129,392 Costs and expenses 74,809 23,071 ( 19,971 ) 4,399 9,531 91,839 20,792 112,631 Depreciation and amortization — — — — — 6,244 1,031 7,275 Operating income (loss) $ 20,031 $ 5,890 $ — $ 2,177 $ 4,407 $ 26,261 $ ( 16,775 ) $ 9,486 The following is a detail of other agribusiness revenues for fiscal years 2020, 2019 and 2018 (in thousands): Year Ended October 31, 2020 2019 2018 Oranges $ 7,722 $ 6,022 $ 8,884 Specialty citrus and other crops 5,846 5,165 5,054 Other agribusiness revenues $ 13,568 $ 11,187 $ 13,938 23. Subsequent Events The Company has evaluated events subsequent to October 31, 2020 through the date of this filing, to assess the need for potential recognition or disclosure in this Annual Report. Based upon this evaluation, except as disclosed in the notes to consolidated financial statements, it was determined that no other subsequent events occurred that require recognition or disclosure in the consolidated financial statements. 102 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.