Limoneira CO 10-K

Item 8. Financial Statements and Supplementary Data Limoneira Company Index to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 44 Consolidated Financial Statements of Limoneira Company Consolidated Balance Sheets at October 31, 2021 and 2020 46 Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019 47 Consolidated Statements of Comprehensive Loss for the years ended October 31, 2021, 2020 and 2019 48 Consolidated Statements of Stockholders’ Equity and Temporary Equity for the years ended October 31, 2021, 2020 and 2019 49 Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019 50 Notes to Consolidated Financial Statements 52 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. 43 Report of Independent Registered Public Accounting Firm To the Stockholders and the 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, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity and temporary equity, and cash flows, for each of the three years in the period ended October 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2021, 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 in which is accounted for by use of the equity method. The accompanying consolidated financial statements of the Company include, before the basis difference and related amortization discussed in Note 8, its equity investment in LLCB of $51,416,000 and $46,908,000 as of October 31, 2021 and 2020, respectively, and its equity earnings in LLCB of $4,508,000, $1,386,000 and $4,368,000 for the years ended October 31, 2021, 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 the Company’s equity investment and equity earnings in LLCB, is based 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, 2021, 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 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Real Estate Development – Impairment Indicators – Refer to Notes 2, 5, 7 and 8 to the financial statements Critical Audit Matter Description The Company’s evaluation of real estate development, as held by the Company or as included specifically within its investment in Limoneira Lewis Community Builders, LLC (“LLCB”) , for impairment involves an initial assessment of each real estate 44 development to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of, or investment in, real estate development are no longer recoverable. Possible indications of impairment may include events or changes in circumstances affecting the entitlement process, zoning, government regulation, geographical demand for new housing or commercial property, and market conditions related to pricing of residential or commercial land lots. When events or changes in circumstances exist, the Company further evaluates the real estate development for impairment by a) comparing undiscounted future cash flows expected to be generated over the life of the real estate development to the respective carrying amount for its own real estate development or b) determining if its equity in investment has incurred an other-than-temporary decline. The Company makes significant judgments in evaluating real estate development for possible indications of impairment. These judgments may relate to the identification of appropriate and comparable market prices, the consideration of changes to legal factors or the business climate, the likelihood of successfully completing the entitlement process, changes in zoning or government regulation, and demand for new housing. Changes in these judgments could have a significant impact on real estate development. Real estate development assets were $22,828,000, and equity in investment in LLCB was $60,216,000 as of October 31, 2021. For the year ended October 31, 2021, no impairment loss has been recognized on any real estate development and no other-than-temporary-impairment has been recognized on the Company’s equity in LLCB. We identified the management judgments used in the determination of impairment indicators for real estate development as a critical audit matter due to their significance and because of the subjectivity used by management when determining whether events or changes in circumstances have occurred indicating that the carrying amounts of, or investment in, real estate development may not be recoverable. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the evaluation of real estate development for possible indications of impairment included the following, among others: • We tested the effectiveness of the controls over management’s identification of possible circumstances that may indicate that real estate development is no longer recoverable, including controls over management’s evaluation of the entitlement process, litigation, changes in zoning, government regulation, geographical demand for new housing or commercial property and market conditions related to pricing of residential or commercial land lots. ▪ We evaluated management’s impairment analysis by: ◦ Searching for adverse asset-specific and/or market conditions by reviewing publicly available information on home values and land values in the surrounding regions of the development, periodicals and news information relating to the Southern California housing market, other independent market data, including considerations of the demand for housing in the market and changes to comparable home prices ◦ Obtaining information from legal counsel and performing inquiries with management in order to evaluate any changes in the status of litigation matters affecting the development properties and the potential impact on the ability to recover the accumulated costs, including any relevant government regulations and/or other matters impacting the entitlement process ◦ With the assistance of our fair value specialists, we evaluated comparable land sales for both commercial and residential lots in the area as well as cost to develop residential lot information and compared it to information used by management ◦ Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis /s/ Deloitte & Touche LLP Los Angeles, California January 10, 2022 We have served as the Company’s auditor since 2019. 45 LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS ($ in thousands, except share amounts) October 31, 2021 2020 Assets Current assets: Cash $ 439 $ 501 Accounts receivable, net 17,483 16,261 Cultural costs 7,500 6,865 Prepaid expenses and other current assets 10,709 10,688 Receivables/other from related parties 5,958 2,294 Income taxes receivable — 5,911 Total current assets 42,089 42,520 Property, plant and equipment, net 242,420 242,649 Real estate development 22,828 21,636 Equity in investments 64,072 61,214 Goodwill 1,527 1,535 Intangible assets, net 8,329 11,309 Other assets 11,011 8,737 Total assets $ 392,276 $ 389,600 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 8,963 $ 5,838 Growers and suppliers payable 10,371 8,126 Accrued liabilities 6,542 7,947 Payables to related parties 6,976 6,273 Current portion of long-term debt 2,472 3,277 Total current liabilities 35,324 31,461 Long-term liabilities: Long-term debt, less current portion 130,353 122,571 Deferred income taxes 22,853 22,430 Other long-term liabilities 4,501 6,568 Total liabilities 193,031 183,030 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, 2021 and 2020) ( 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, 2021 and 2020) ( 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, 2021 and 2020) — — Common Stock – $ 0.01 par value ( 39,000,000 shares authorized: 17,936,377 and 17,857,707 shares issued and 17,685,400 and 17,606,730 shares outstanding at October 31, 2021 and 2020, respectively) 179 179 Additional paid-in capital 163,965 162,084 Retained earnings 21,552 30,797 Accumulated other comprehensive loss ( 5,733 ) ( 7,548 ) Treasury stock, at cost, 250,977 shares at October 31, 2021 and 2020 ( 3,493 ) ( 3,493 ) Noncontrolling interest 11,965 13,741 Total stockholders' equity 188,435 195,760 Total liabilities and stockholders' Equity $ 392,276 $ 389,600 See Notes to Consolidated Financial Statements. 46 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except share amounts) Years Ended October 31, 2021 2020 2019 Net revenues: Agribusiness $ 161,381 $ 159,937 $ 166,549 Other operations 4,646 4,622 4,849 Total net revenues 166,027 164,559 171,398 Costs and expenses: Agribusiness 148,492 157,281 152,372 Other operations 4,332 4,504 4,439 Loss (gain) on disposal of assets 109 502 ( 1,069 ) Selling, general and administrative 19,427 21,280 21,170 Total costs and expenses 172,360 183,567 176,912 Operating loss ( 6,333 ) ( 19,008 ) ( 5,514 ) Other income (expense): Interest income 379 362 207 Interest expense, net of patronage dividends ( 1,501 ) ( 2,048 ) ( 2,341 ) Equity in earnings of investments, net 3,203 339 3,073 Loss on stock in Calavo Growers, Inc. — ( 6,299 ) ( 2,117 ) Other income, net 89 219 129 Total other income (expense) 2,170 ( 7,427 ) ( 1,049 ) Loss before income tax benefit ( 4,163 ) ( 26,435 ) ( 6,563 ) Income tax benefit 266 8,494 1,097 Net loss ( 3,897 ) ( 17,941 ) ( 5,466 ) Loss (income) attributable to noncontrolling interest 456 1,506 ( 477 ) Net loss attributable to Limoneira Company ( 3,441 ) ( 16,435 ) ( 5,943 ) Preferred dividends ( 501 ) ( 501 ) ( 501 ) Net loss applicable to common stock $ ( 3,942 ) $ ( 16,936 ) $ ( 6,444 ) Basic net loss per common share $ ( 0.23 ) $ ( 0.96 ) $ ( 0.37 ) Diluted net loss per common share $ ( 0.23 ) $ ( 0.96 ) $ ( 0.37 ) Weighted-average common shares outstanding-basic 17,555,000 17,666,000 17,580,000 Weighted-average common shares outstanding-diluted 17,555,000 17,666,000 17,580,000 See Notes to Consolidated Financial Statements. 47 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Years Ended October 31, 2021 2020 2019 Net loss $ ( 3,897 ) $ ( 17,941 ) $ ( 5,466 ) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments ( 685 ) ( 707 ) ( 1,103 ) Minimum pension liability adjustments, net of tax of $ 940 , $( 69 ) and $( 252 ) 2,500 274 ( 607 ) Residual state tax effects on sale of equity securities — 140 — Total other comprehensive income (loss), net of tax 1,815 ( 293 ) ( 1,710 ) Comprehensive loss ( 2,082 ) ( 18,234 ) ( 7,176 ) Comprehensive loss attributable to noncontrolling interest 445 1,536 438 Comprehensive loss attributable to Limoneira Company $ ( 1,637 ) $ ( 16,698 ) $ ( 6,738 ) See Notes to Consolidated Financial Statements. 48 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, 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 ) — — Acquired noncontrolling interest — — — — — — 14,410 14,410 — — Net (loss) income — — — ( 5,943 ) — — 477 ( 5,466 ) — — Other comprehensive loss, 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 loss, 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 Dividends - common ($ 0.30 per share) — — — ( 5,303 ) — — — ( 5,303 ) — — Dividends - Series B ($ 8.75 per share) — — — ( 129 ) — — — ( 129 ) — — Dividends - Series B-2 ($ 40 per share) — — — ( 372 ) — — — ( 372 ) — — Stock compensation 125,663 1 2,581 — — — — 2,582 — — Exchange of common stock ( 46,993 ) ( 1 ) ( 700 ) — — — — ( 701 ) — — Noncontrolling interest adjustment — — — — — — ( 1,331 ) ( 1,331 ) — — Net loss — — — ( 3,441 ) — — ( 456 ) ( 3,897 ) — — Other comprehensive (loss) income, net of tax — — — — 1,815 — 11 1,826 — — Balance at October 31, 2021 17,685,400 $ 179 $ 163,965 $ 21,552 $ ( 5,733 ) $ ( 3,493 ) $ 11,965 $ 188,435 $ 1,479 $ 9,331 See Notes to Consolidated Financial Statements 49 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended October 31, 2021 2020 2019 Operating activities Net loss $ ( 3,897 ) $ ( 17,941 ) $ ( 5,466 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 9,812 10,097 8,633 Loss (gain) on disposal of assets 109 502 ( 1,069 ) Stock compensation expense 2,582 2,044 1,791 Non-cash lease expense 520 470 — Equity in earnings of investments, net ( 3,203 ) ( 339 ) ( 3,073 ) Cash distributions from equity investments 219 — 351 Deferred income taxes ( 189 ) ( 2,133 ) ( 773 ) Loss on stock in Calavo Growers, Inc. — 6,299 2,117 Other, net 335 671 ( 393 ) Changes in operating assets and liabilities, net of business combinations: Account receivable and receivables/other from related parties ( 5,076 ) ( 309 ) ( 4,012 ) Cultural costs ( 639 ) 359 1,447 Prepaid expenses and other current assets ( 1,021 ) ( 44 ) ( 2,548 ) Income taxes receivable 5,911 ( 4,932 ) ( 601 ) Other assets ( 5 ) 411 ( 7 ) Accounts payable and growers and suppliers payable 5,389 ( 5,545 ) 3,392 Accrued liabilities and payables to related parties ( 730 ) ( 685 ) 1,459 Other long-term liabilities ( 512 ) ( 242 ) 117 Net cash provided by (used in) operating activities 9,605 ( 11,317 ) 1,365 Investing activities Capital expenditures ( 9,834 ) ( 10,599 ) ( 15,867 ) Net proceeds from sales of assets 119 6,261 3,978 Net proceeds from sales of real estate development assets — — 2,886 Agriculture property acquisition — — ( 397 ) Business combination — — ( 15,000 ) Net proceeds from sale of stock in Calavo Growers, Inc. — 11,048 4,785 Loan to Limoneira Lewis Community Builders, LLC — ( 1,800 ) — Collection on loan and note receivable 25 1,800 150 Equity investment contributions — ( 2,800 ) ( 4,000 ) Cash distribution from equity investment 106 — 283 Investments in mutual water companies and water rights ( 653 ) ( 64 ) ( 472 ) Net cash (used in) provided by investing activities $ ( 10,237 ) $ 3,846 $ ( 23,654 ) 50 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Years Ended October 31, 2021 2020 2019 Financing activities Borrowings of long-term debt $ 102,196 $ 121,056 $ 122,899 Repayments of long-term debt ( 95,140 ) ( 104,066 ) ( 93,994 ) Principal paid on finance lease ( 18 ) — — Dividends paid - common ( 5,303 ) ( 5,356 ) ( 5,331 ) Dividends paid - preferred ( 501 ) ( 501 ) ( 501 ) Exchange of common stock ( 700 ) ( 213 ) ( 605 ) Purchase of treasury stock — ( 3,493 ) — Payments of deferred financing costs — ( 66 ) ( 35 ) Net cash provided by financing activities 534 7,361 22,433 Effect of exchange rate changes on cash 36 ( 5 ) ( 137 ) Net (decrease) increase in cash ( 62 ) ( 115 ) 7 Cash at beginning of year 501 616 609 Cash at end of year $ 439 $ 501 $ 616 Supplemental disclosures of cash flow information Cash paid during the year for interest, net of amounts capitalized $ 1,503 $ 1,865 $ 2,532 Cash (received) paid during the year for income taxes, net $ ( 5,911 ) $ ( 1,235 ) $ 130 Non-cash investing and financing activities: Decrease in real estate development and sale-leaseback deferral $ — $ — $ ( 58,330 ) Non-cash reduction of note receivable $ — $ — $ 89 Capital expenditures accrued but not paid at year-end $ 657 $ 4,269 $ 1,333 In December 2018, the Company terminated its lease agreement with LLCB (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. See Notes to Consolidated Financial Statements. 51 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 loss, statements of stockholders’ equity and temporary equity and statements of cash flows of Limoneira Company and consolidated subsidiaries. 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, 2021 and 2020 the allowances totaled $ 444,000 and $ 812,000 , respectively. For fiscal years 2021, 2020 and 2019, 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 $ 6,594,000 , $ 8,806,000 and $ 3,080,000 in fiscal years 2021, 2020 and 2019, 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. Two customers each represented 10 % of revenue for the year ended October 31, 2021 and one customer represented 10 % of revenue for the year ended October 31, 2020. No individual customer represented more than 10% of accounts receivable, net as of October 31, 2021 and one customer represented more than 10% of accounts receivable, net as of October 31, 2020. Lemons procured from third-party growers were approximately 52 %, 60 % and 60 % of the Company's lemon supply in fiscal years 2021, 2020 and 2019, respectively. One third-party grower was 46 % and 39 % of grower payable at October 31, 2021 and 2020, 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. 52 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Concentrations and Geographic Information (continued) During fiscal years 2021, 2020 and 2019, the Company had approximately $ 2,976,000 , $ 3,521,000 and $ 3,204,000 , respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. (“PDA”) and Agricola San Pablo SpA. ("San Pablo"). During fiscal years 2021, 2020 and 2019, the Company had approximately $ 3,633,000 , $ 14,150,000 and $ 14,651,000 , respectively, of total sales in Argentina by Trapani Fresh. The majority of the Company's avocados, oranges and specialty citrus and other crops are sold to packinghouses and processors located in the United States. Most of its long-lived assets are located within the United States. Long-lived assets, net of accumulated depreciation, located in Chile were $ 14,322,000 and $ 15,261,000 as of October 31, 2021 and 2020, respectively, and located in Argentina were $ 19,700,000 and $ 18,576,000 as of October 31, 2021 and 2020, 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 bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. 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 53 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Property, Plant and Equipment (continued) 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, pest control 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. 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. Capitalized interest 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 $ 1,192,000 and $ 4,034,000 in fiscal years 2021 and 2020, 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 had no equity securities as of October 31, 2021 and 2020. 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 ten 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 property and equipment, real estate development projects and 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 estimated 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. COVID-19 Pandemic There is uncertainty around the breadth and duration of the Company's business disruptions related to the COVID-19 pandemic. The decline in demand for the Company's products beginning the second quarter of fiscal year 2020, which it believes was due to the COVID-19 pandemic, negatively impacted its sales and profitability for the last three quarters of fiscal year 2020 and all of fiscal year 2021. The Company also expects COVID-19 to have some impact to its sales and profitability in future periods. The duration of these trends and the magnitude of such impacts are uncertain and therefore cannot be estimated at this time, as they are influenced by a number of factors, many of which are outside management’s control. The full impact of the COVID-19 pandemic on the Company's results of operations, financial condition, or liquidity, including its ability to comply with debt covenants, for fiscal year 2022 and beyond, is driven by estimates that contain uncertainties. 54 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) 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. Fair Values of Financial Instruments Accounts receivable, note receivable, accounts payable, growers and suppliers 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, 2021 and 2020. Business Combination and Asset Acquisition 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. An asset acquisition is 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 Comprehensive loss represents all changes in a company’s net assets, except changes resulting from transactions with stockholders. 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 income (loss) is reported as a component of the Company's stockholders' equity. The following table summarizes the changes in other comprehensive income (loss) by component (in thousands): 2021 2020 2019 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 $ ( 685 ) $ — $ ( 685 ) $ ( 707 ) $ — $ ( 707 ) $ ( 1,103 ) $ — $ ( 1,103 ) Minimum pension liability adjustments: Other comprehensive gain (loss) before reclassifications 3,440 ( 940 ) 2,500 205 69 274 ( 859 ) 252 ( 607 ) Available-for-sale securities: Amounts reclassified to earnings included in "Selling, general and administrative" — — — — 140 140 — — — Other comprehensive income (loss) $ 2,755 $ ( 940 ) $ 1,815 $ ( 502 ) $ 209 $ ( 293 ) $ ( 1,962 ) $ 252 $ ( 1,710 ) 55 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands): Foreign Currency Translation Loss Defined Benefit Pension Plan Available-for-Sale Securities Other Accumulated Other Comprehensive Income (Loss) 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 ( 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 ) Other comprehensive (loss) income ( 685 ) 2,500 — — 1,815 Balance as of October 31, 2021 $ ( 3,754 ) $ ( 1,979 ) $ — $ — $ ( 5,733 ) Foreign Currency 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 income (loss). Aggregate foreign exchange transaction losses realized for the Company's foreign subsidiaries was approximately $ 646,000 for fiscal year 2021 and are included in selling, general and administrative expenses in the consolidated statements of operations. Revenue Recognition The Company recognizes revenue in accordance with ASC 606, Revenue from contracts with customers , and recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies 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 determines 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. 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. 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. 56 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) The Company’s avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. 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 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. 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 $ 2,311,000 in fiscal year 2019. No proceeds were received in fiscal years 2021 and 2020. Advertising Expense Advertising costs are expensed as incurred. Advertising costs were $ 178,000 and $ 239,000 in fiscal years 2021 and 2020, respectively, and were not material in fiscal year 2019. Leases Accounting for 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 and finance leases are included in other assets, accrued liabilities and other long-term liabilities on its consolidated balance sheets. 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. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses either its incremental borrowing rate based on the information available at commencement date, or the rate implicit in the lease, if known, in determining the present value of future payments. Operating 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 per Share Basic net loss per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of preferred stock. Diluted net loss per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of conversion of unvested, restricted stock and preferred stock. The Series B and Series B-2 convertible preferred shares were anti-dilutive for fiscal years ended October 31, 2021, 2020 and 2019. Diluted net loss per common share is calculated 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 using the treasury stock method. The Company’s unvested, restricted stock awards qualify as participating shares. 57 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) 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. In fiscal year 2021, the Company decided to terminate the Plan effective December 31, 2021. The liabilities disclosed as of October 31, 2021, reflect an estimate of the additional cost to pay lump sums to a portion of the active and vested terminated participants and purchase annuities for all remaining participants from an insurance company. During 2021, the Society of Actuaries (SOA) released a new mortality improvement scale table, referred to as MP-2021, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year 2021, the assumed discount rate to measure the pension obligation decreased to 2.6 %. The Company used the latest mortality tables released by the SOA through October 2021 to measure its pension obligation as of October 31, 2021 and combined with the assumed discount rate and other demographic assumptions, its pension liability decreased by approximately $ 2,699,000 as of October 31, 2021. Further changes in any of these estimates could materially affect the amounts recorded that are related to the Company's defined benefit retirement plan. Recent Accounting Pronouncements FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs This amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. ASU 2016-13 is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this ASU effective November 1, 2020 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 currently 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. 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. 58 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. Acquisitions (continued) Trapani Fresh Business Combination 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 held 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 fresh citrus. Total consideration paid for the Company’s interest in Trapani Fresh was $ 15,000,000 and transaction costs of approximately $ 654,000 were included in selling, general and administrative expense during 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 was 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 year ended October 31, 2019 would have resulted in revenues of $ 177,625,000 and net loss of $ 6,092,000 . In June 2021, the Company entered into an agreement, effective March 1, 2021, to sell and license certain assets of Trapani Fresh to FGF. These assets consist of packing supplies and certain intangible assets related to the packing, marketing, and selling business of Trapani Fresh. The total consideration to be received is approximately $ 3,900,000 over an 8-year term in 16 equal installments. Payments to be received are secured by FGF’s interest in land parcels at the Santa Clara ranch and consist of a $ 1,200,000 note receivable and $ 2,700,000 of royalty payments. There was no material gain or loss recognized on the transaction. In August 2021, the Company entered into several additional agreements whereby the additional 25 % interest in Santa Clara was transferred into the trust resulting in the trust now holding a 100 % interest in Santa Clara. Trapani Fresh owns and operates the 1,200 -acre Santa Clara ranch and now sells the lemons it grows to FGF, who packs, markets, and sells the fruit to its export customers. As a result of this transaction, Trapani Fresh now recognizes lemon revenues at the market price less packinghouse charges to harvest, pack and market the fruit. 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). 59 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Fair Value Measurements (continued) At October 31, 2019, the Company owned equity securities consisting of marketable securities in Calavo common stock of 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 were 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 . 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following at October 31 (in thousands): 2021 2020 Prepaid supplies and insurance $ 2,521 $ 2,080 Note receivable and related interest 2,438 2,490 Real estate development held for sale 2,543 2,543 Sales tax receivable 909 1,867 Lemon supplier advances and other 2,298 1,708 $ 10,709 $ 10,688 6. Property, Plant and Equipment Property, plant and equipment consists of the following at October 31 (in thousands): 2021 2020 Land $ 95,868 $ 96,334 Land improvements 35,440 33,733 Buildings and building improvements 48,565 48,441 Equipment 62,598 60,124 Orchards 63,454 61,098 Construction in progress 22,477 20,469 328,402 320,199 Less accumulated depreciation ( 85,982 ) ( 77,550 ) $ 242,420 $ 242,649 Depreciation expense was $ 8,883,000 , $ 9,098,000 and $ 7,944,000 for fiscal years 2021, 2020 and 2019, 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 disposal of 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 disposal of 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): 2021 2020 East Area I - Retained property $ 13,335 $ 13,169 East Area II 9,493 8,467 $ 22,828 $ 21,636 60 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Real Estate Development (continued) 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 "Transaction Date"), the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (“LLCB”) as the development entity, contributed its East Area I property to LLCB and sold a 50 % interest in LLCB to Lewis for $ 20,000,000 . The Company and the joint venture also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the joint venture will transfer certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. The balance in Retained Property and East Area II includes estimated costs incurred by and reimbursable to LLCB of $ 5,771,000 and $ 5,300,000 at October 31, 2021 and 2020, respectively, which is included in payables to related parties. In January 2018, LLCB 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, as modified and extended, matures February 22, 2023. The interest rate on the Loan is LIBOR plus 2.85 %, and is payable monthly. The Loan contains certain customary default provisions and LLCB may prepay any amounts outstanding under the Loan without penalty. The joint venture had an outstanding balance of zero as of October 31, 2021. The Loan has a one year extension option through February 22, 2024 subject to terms and conditions as defined in the agreement, with the maximum borrowing amount reduced to $ 35,000,000 during the extension period. 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 LLCB. 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 value 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 LLCB 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 LLCB at an interest rate of 4.6 %, which was repaid in June 2020. Through October 31, 2021, the joint venture has closed sales of the initial residential lots representing 586 residential units. Other Real Estate Development Projects The remaining real estate development parcel within the Templeton Santa Barbara, LLC project is described as Sevilla. In fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $ 2,700,000 , which is expected to close in the second quarter of fiscal year 2022. 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, 2021 and 2020, the $ 2,543,000 carrying value of the property was classified as held for sale and included in prepaid expenses and other current assets. During December 2017, the Company sold its Centennial property with a net book value of $ 2,983,000 for $ 3,250,000 . The Company received cash and a $ 3,000,000 promissory note secured by the property for the balance of the purchase. The promissory note was originally scheduled to mature in December 2019 but has been periodically extended with principal payments totaling $ 400,000 received through October 31, 2021. In November 2021, the promissory note was further extended to June 30, 2022 upon making a principal paydown of $ 250,000 , which was paid in November 2021, and revising the interest rate to 4.00 % per annum, with an option to further extend the maturity date of the promissory note to September 30, 2022 upon making an additional principal paydown of $ 250,000 . At October 31, 2021, the net carrying value of the note was $ 2,600,000 and classified in prepaid expenses and other current assets. 61 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 $ 200,000 , $ 210,000 and $ 159,000 in fiscal years 2021, 2020 and 2019, respectively. Del Mar markets lemons through the Company pursuant to its customary marketing agreements and the amount of lemons procured from Del Mar was $ 1,681,000 , $ 1,037,000 and $ 1,674,000 in fiscal years 2021, 2020 and 2019, respectively. Fruit proceeds due to Del Mar were $ 694,000 and $ 334,000 at October 31, 2021 and 2020, 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 , $ 180,000 and $ 298,000 for fiscal years 2021, 2020 and 2019, respectively, and is estimated to be approximately $ 118,000 $ 87,000 and $ 76,000 per year for years ending October 31, 2022 through October 31, 2024, respectively, and immaterial thereafter. The Company recognized $ 3,405,000 , $ 3,975,000 and $ 3,741,000 of lemon sales to Rosales in fiscal years 2021, 2020 and 2019, respectively. In fiscal years 2021, 2020 and 2019, the aggregate amount of lemons and oranges procured from Rosales was $ 5,304,000 , $ 3,190,000 and $ 4,315,000 , respectively. Amounts due from (to) Rosales were $ 1,570,000 and $( 954,000 ) at October 31, 2021 and 2020, respectively, and are included in receivables/other from related parties and payables to related parties, respectively. 62 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. Equity in Investments (continued) Limoneira Lewis Community Builders, LLC (“LLCB”) As described in Note 7 – Real Estate Development, the Company has 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 deemed significant for the years ended October 31, 2021 and 2019 but was not deemed significant for the year ended October 31, 2020. Therefore, the audited financial statements of LLCB for the years ended October 31, 2021, 2020 and 2019 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 $ 51,416,000 as of October 31, 2021. The basis difference of $ 8,801,000 at October 31, 2021 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 2021, 2020 and 2019 totaled $ 1,434,000 , $ 1,060,000 and $ 1,498,000 , respectively. The Company's share of LLCB's net income for fiscal years 2021, 2020 and 2019 prior to basis amortization was $ 4,508,000 , $ 1,386,000 and $ 4,368,000 , respectively. The following is financial information of the equity method investees for fiscal years 2021, 2020 and 2019 (in thousands): 2021 Del Mar Romney Rosales LLCB Current assets $ 492 $ — $ 3,544 $ 108,964 Non-current assets $ 865 $ 617 $ 2,406 $ — Current liabilities $ — $ — $ 2,362 $ 4,708 Non-current liabilities $ — $ — $ 2,083 $ — Revenues $ 2,059 $ 17 $ 9,862 $ 42,853 Operating income (loss) $ 1,052 $ ( 4 ) $ 438 $ 9,087 Net income (loss) $ 1,052 $ ( 4 ) $ 35 $ 9,087 2020 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 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 63 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, 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 Equity earnings (losses) 296 ( 3 ) ( 164 ) 3,074 3,203 Cash distributions ( 219 ) — ( 106 ) — ( 325 ) Foreign currency adjustments — — ( 20 ) — ( 20 ) Investment balance October 31, 2021 $ 1,997 $ 508 $ 1,351 $ 60,216 $ 64,072 9. Goodwill and Intangible Assets, Net A summary of the change in the carrying amount of goodwill is as follows (in thousands): Goodwill Carrying Amount Balance at October 31, 2019 $ 1,839 Trapani Fresh purchase price adjustment ( 297 ) Foreign currency translation adjustment ( 7 ) Balance at October 31, 2020 1,535 Foreign currency translation adjustment ( 8 ) Balance at October 31, 2021 $ 1,527 See Note 3 - Acquisitions for additional information regarding the Trapani Fresh purchase price adjustment. 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, 2021 with no impairment noted. The Company did no t incur any goodwill impairment losses in fiscal years 2021, 2020 or 2019, as the estimated fair values of its reporting units were in excess of their carrying values. As of October 31, 2021, the Company has allocated goodwill to its reportable segments as follows: Fresh Lemons $ 957,000 and Lemon Packing $ 570,000 . During the fiscal year ended October 31, 2021, the Company acquired additional water rights in Chile for $ 186,000 . 64 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Goodwill and Intangible Assets, Net (continued) Intangible assets consisted of the following as of October 31, 2021 and 2020 (in thousands): October 31, 2021 October 31, 2020 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 $ 2,108 $ ( 663 ) $ 1,445 8 $ 3,771 $ ( 947 ) $ 2,824 10 Customer relationships 4,037 ( 1,209 ) 2,828 9 5,010 ( 989 ) 4,021 9 Non-competition agreement 437 ( 22 ) 415 8 1,040 ( 147 ) 893 10 Acquired water and mineral rights 3,641 — 3,641 Indefinite $ 3,571 $ — $ 3,571 Indefinite Intangible assets $ 10,223 $ ( 1,894 ) $ 8,329 $ 13,392 $ ( 2,083 ) $ 11,309 Amortization expense totaled $ 929,000 , $ 999,000 , and $ 689,000 for the years ended October 31, 2021, 2020 and 2019, respectively. Estimated future amortization expense of intangible assets for each of the next five fiscal years and thereafter are as follows (in thousands): 2022 $ 724 2023 724 2024 716 2025 711 2026 711 Thereafter 1,102 $ 4,688 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, 2021 and 2020 were $ 5,994,000 and $ 5,563,000 , respectively. 11. Accrued Liabilities Accrued liabilities consist of the following at October 31 (in thousands): 2021 2020 Compensation $ 2,112 $ 2,275 Property taxes 676 683 Lemon and orange supplier payables — 1,346 Operating expenses 1,203 938 Leases 604 959 Other 1,947 1,746 $ 6,542 $ 7,947 65 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): 2021 2020 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 0.09 % at October 31, 2021, plus 1.85 %. The interest rate for the $ 40.0 million outstanding balance of the non-revolving line of credit was fixed at 4.77 % through July 1, 2022, 3.57 % through July 1, 2025 and variable interest thereafter. Interest is payable monthly and the principal is due in full on July 1, 2026. $ 111,293 $ 102,251 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. 809 1,438 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. 974 1,029 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. 8,004 8,433 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. 5,892 6,220 Wells Fargo term loan: The loan was repaid in August 2021 with proceeds from the Farm Credit West term loan. — 3,491 Farm Credit West term loan: Effective August 2, 2021, the interest rate was fixed at 3.19 %. The loan is payable in monthly installments through September 2026. 2,475 — Banco de Chile term loan: The interest rate is fixed at 6.48 %. The loan is payable in annual installments through January 2025. 1,011 1,205 Note Payable: The interest rate ranges from 5.00 % to 7.00 % and was 6.50 % at October 31, 2021. 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. 411 522 Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48 % and 4.26 %. The loans are payable in monthly installments beginning September 2021 through September 2026. 652 — Subtotal 132,956 126,024 Less deferred financing costs, net of accumulated amortization 131 176 Total long-term debt, net 132,825 125,848 Less current portion 2,472 3,277 Long-term debt, less current portion $ 130,353 $ 122,571 In August 2021, the Company entered into an equipment finance agreement (the "FCW term loan") with Farm Credit West, PCA (the “Lender”) and used the proceeds to pay off the Wells Fargo term loan. The FCW term loan has a fixed interest rate of 3.19 % and is payable in monthly installments through September 2026. There were no unamortized debt financing costs related to the Wells Fargo term loan and no capitalized financing costs related to the FCW term loan. In June 2021, the Company entered into a Master Loan Agreement (the “MLA”) with Lender dated June 1, 2021, together with a revolving credit facility supplement (the “Revolving Credit Supplement”), a non-revolving credit facility supplement (the “Non-Revolving Credit Supplement,” and together with the Revolving Credit Supplement, the “Supplements”) and an agreement to convert to fixed interest rate for a period of time as described in the table above ("Fixed Interest Rate Agreement"). The MLA governs the terms of the Supplements. The MLA amends and restates the previous Master Loan Agreement between the Company and the Lender, dated June 19, 2017 and extends the principal repayment to July 1, 2026. Debt financing costs related to the MLA agreement were immaterial. 66 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Long-Term Debt (continued) In June 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 were subject to a prepayment restriction period for a portion of the fixed rate term that expired on January 1, 2021. The Company may prepay any amounts without penalty. In March 2020, the Company entered into a revolving equity line of credit promissory note and loan agreement with Farm Credit West for a $ 15,000,000 Revolving Equity Line of Credit (the "RELOC") secured by a first lien on the Windfall Investors, LLC property. The RELOC matures in 2043 and features a 3 -year draw period followed by 20 years of fully amortized loan payments. The interest rate is variable with monthly interest-only payments during the 3 -year draw period and monthly principal and interest payments thereafter. The Supplements and RELOC provide aggregate borrowing capacity of $ 130,000,000 comprised of $ 75,000,000 under the Revolving Credit Supplement, $ 40,000,000 under the Non-Revolving Credit Supplement and $ 15,000,000 under the RELOC. As of October 31, 2021, the Company's outstanding borrowings under the revolving and non-revolving lines of credit were $ 111,293,000 and it had $ 18,707,000 of availability. For amounts outstanding under both Supplements, interest will begin to be charged on the date the Lender disburses principal and will continue until the outstanding indebtedness under the Supplements is paid in full with interest. The initial interest rate in effect under the Revolving Credit Supplement was 1.69 % per annum, and was automatically adjusted commencing July 1, 2021 and on the first day of each month thereafter. The interest rate for any amount outstanding under the Revolving Credit Supplement will be based on the one-month LIBOR rate plus or minus an applicable margin. The applicable margin will range from 1.75 % to 2.35 % depending on the ratio of current assets, plus the remaining available commitment divided by current liabilities. On July 1, 2022, and on each one-year anniversary thereafter, the Company has the option to convert the interest rate in use under the Revolving Credit Supplement from the preceding LIBOR-based calculation to a variable interest rate. Any amounts outstanding under the Revolving Credit Supplement will be due and payable in full on July 1, 2026. The Company may prepay any amounts outstanding under the Revolving Credit Supplement without penalty. The initial interest rate in effect under the Non-Revolving Credit Supplement is a fixed interest rate of 4.77 % through July 1, 2022 and then will convert to a fixed interest rate of 3.57 % per year until July 1, 2025 (the “Fixed Rate Term”). Thereafter, the interest rate will convert to a variable interest rate established by the Lender corresponding to the corresponding interest rate group. Any amount outstanding under the Non-Revolving Credit Supplement is due and payable in full on July 1, 2026. The Company may not prepay any amounts under the outstanding Non-Revolving Credit Supplement during the Fixed Rate Term. Thereafter, the Company may prepay any amounts outstanding under the Non-Revolving Credit Supplement, provided that a fee equal to 0.50 % of the amount prepaid and any other cost or loss suffered by the Lender must be paid with any prepayment. All indebtedness under the MLA and RELOC, including any indebtedness under the Supplements, is secured by a first lien on Company-owned stock or participation certificates, Company funds maintained with Lender, Lender’s unallocated surplus, and certain of the Company’s agricultural properties in Tulare and Ventura 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 MLA includes customary default provisions that provide should an event of default occur, the Lender, at its option, may declare all or any portion of the indebtedness under the MLA to be immediately due and payable without demand, notice of nonpayment, 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. The MLA 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 financial covenant that requires it to maintain compliance with a specified debt service coverage ratio on an annual basis. In December 2021, the Lender modified the covenant to defer measurement at October 31, 2021 and revert to a debt service coverage ratio of 1.25 :1.0 measured as of October 31, 2022. The Company received annual cash patronage dividends from Farm Credit West of $ 1,170,000 , $ 1,566,000 and $ 853,000 in fiscal years 2021, 2020 and 2019, respectively. In August 2021, PDA and San Pablo entered into term loan agreements for an aggregate amount of approximately $ 652,000 . 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 August 2025 and September 2026, bear interest at fixed rates of 3.48 % and 4.26 %, respectively, and are payable in monthly installments beginning September 2021. 67 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Long-Term Debt (continued) 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 2024 and September 2024, bear interest at fixed rates of 3.48 % and are payable in monthly installments beginning February 2021 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 $ 1,110,000 , $ 921,000 and $ 1,369,000 during the fiscal years ended 2021, 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 $ 131,000 and $ 176,000 , net of amortization at October 31, 2021 and 2020, 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): 2022 $ 2,472 2023 3,385 2024 1,815 2025 2,092 2026 112,749 Thereafter 10,443 $ 132,956 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 21 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 October 31 (in thousands): 2021 2020 Land $ 3,516 $ 3,522 Buildings, equipment and building improvements 18,712 18,516 Less: accumulated depreciation ( 6,331 ) ( 5,691 ) Property, plant and equipment, net under operating leases $ 15,897 $ 16,347 Depreciation expense for assets under operating leases was approximately $ 669,000 and $ 664,000 for the fiscal years 2021 and 2020, respectively. The Company’s rental operations revenue consists of the following (in thousands): Year ended October 31, 2021 2020 Operating lease revenue $ 4,329 $ 4,287 Variable lease revenue 317 335 Total lease revenue $ 4,646 $ 4,622 68 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Leases (continued) Lessor Arrangements (continued) The future minimum lease payments to be received by the Company related to these operating lease agreements as of October 31, 2021 are as follows (in thousands): 2022 $ 1,274 2023 1,100 2024 822 2025 823 2026 167 Thereafter 675 Total $ 4,861 The Company’s rental operations revenue included contingent rental revenue of $ 355,000 for fiscal year 2019. Lessee Arrangements The Company enters into leasing transactions in which the Company is the lessee. These lease contracts are classified as either operating or finance leases. The Company’s lease contracts are generally for agricultural land and packinghouse equipment with remaining lease terms ranging from one to 16 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. Operating lease costs were $ 606,000 and $ 559,000 and variable lease costs were $ 288,000 and immaterial, for the fiscal years 2021 and 2020, respectively, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Finance lease costs and short term lease costs were immaterial for both years. Supplemental balance sheet information related to leases consists of the following as of October 31 (in thousands): Classification 2021 2020 Assets Operating lease ROU assets Other assets $ 2,041 $ 2,053 Finance lease assets Other assets 1,142 — $ 3,183 $ 2,053 Liabilities Current operating lease liabilities Accrued liabilities and payables to related parties $ 488 $ 521 Current finance lease liabilities Accrued liabilities 249 — Non-current operating lease liabilities Other long-term liabilities 1,648 1,610 Non-current finance lease liabilities Other long-term liabilities 884 — Total operating lease liabilities $ 3,269 $ 2,131 Weighted-average remaining lease term (in years) Operating leases 10.9 11.0 Finance leases 4.9 — Weighted-average discount rate Operating leases 3.7 % 3.8 % Finance leases 3.3 % — 69 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Leases (continued) Lessee Arrangements (continued) Supplemental cash flow information related to leases consists of the following (in thousands): Year ended October 31, 2021 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 603 $ 559 Operating cash outflows from finance leases $ 3 $ — Financing cash outflows from finance leases $ 18 $ — ROU assets obtained in exchange for new operating lease liabilities $ 271 $ 108 Leased assets obtained in exchange for new finance lease liabilities $ 1,151 $ — Future minimum lease payments under non-cancellable leases for each of the subsequent five fiscal years and thereafter are as follows (in thousands), which excludes $ 448,000 of operating lease payments for leases that have been signed but not commenced: Operating Finance Total 2022 $ 488 $ 249 $ 737 2023 312 249 561 2024 281 249 530 2025 210 249 459 2026 134 229 363 Thereafter 1,192 — 1,192 Total lease payments 2,617 1,225 3,842 Less: Imputed interest ( 481 ) ( 92 ) ( 573 ) Present value of lease liabilities $ 2,136 $ 1,133 $ 3,269 In addition to operating and finance 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 and $ 51,000 in fiscal years 2022 and 2023, respectively. Total lease expense for fiscal year 2019 was $ 733,000 , which was included in agribusiness costs and expenses in the Company’s consolidated statements of operations. 14. Earnings Per Share Basic net loss per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of conversion of preferred stock. Diluted net loss per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of conversion of unvested, restricted stock and preferred stock. The Series B and Series B-2 convertible preferred shares were anti-dilutive for fiscal years ended October 31, 2021, 2020 and 2019. The computations for basic and diluted net loss per common share are as follows (in thousands, except per share amounts): 70 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. Earnings Per Share (continued) Year ended October 31, 2021 2020 2019 Basic net loss per common share: Net loss applicable to common stock $ ( 3,942 ) $ ( 16,936 ) $ ( 6,444 ) Effect of unvested, restricted stock ( 35 ) ( 44 ) ( 51 ) Numerator: Net loss for basic EPS ( 3,977 ) ( 16,980 ) ( 6,495 ) Denominator: Weighted average common shares-basic 17,555 17,666 17,580 Basic net loss per common share $ ( 0.23 ) $ ( 0.96 ) $ ( 0.37 ) Diluted net loss per common share: Numerator: Net loss for diluted EPS $ ( 3,977 ) $ ( 16,980 ) $ ( 6,495 ) Weighted average common shares-basic 17,555 17,666 17,580 Effect of dilutive unvested, restricted stock and preferred stock — — — Denominator: Weighted average common shares-diluted 17,555 17,666 17,580 Diluted net loss per common share $ ( 0.23 ) $ ( 0.96 ) $ ( 0.37 ) Diluted net loss per common share is calculated 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 117,000 , 164,000 and 119,000 , unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted losses per share for the fiscal years ended October 31, 2021, 2020 and 2019, respectively. 15. Related-Party Transactions The Company has transactions with equity method investments and various related-parties summarized in Note 8 - Equity in Investments and in the tables below (in thousands): October 31, 2021 October 31, 2020 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 Payables to Related Parties Other Long-Term Liabilities 2 Mutual water companies $ — $ 432 $ 40 $ — $ — $ 64 $ 64 $ — 3 Cooperative association $ — $ — $ 19 $ — $ — $ — $ 123 $ — 5 Cadiz / Fenner / WAM $ — $ 1,386 $ 273 $ 1,297 $ — $ 1,443 $ 182 $ 1,353 6 Colorado River Growers $ — $ — $ — $ — $ 81 $ — $ — $ — 8 FGF $ 4,598 $ 980 $ 832 $ — $ 2,213 $ — $ 604 $ — 9 LLCB $ — $ — $ 5,771 $ — $ — $ — $ 5,300 $ — 11 Third party growers $ — $ — $ 41 $ — $ — $ — $ — $ — 71 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Related-Party Transactions (continued) Year Ended October 31, 2021 Year Ended October 31, 2020 Consolidated Statement of Operations Consolidated Statement of Operations Ref Related-Party Net Revenue Agribusiness Net Revenue Rental Operations Agribusiness Expense and Other Dividends Paid Net Revenue Agribusiness Net Revenue Rental Operations Agribusiness Expense and Other Other Income, Net Dividends Paid 1 Employees $ — $ 814 $ — $ — $ — $ 785 $ — $ — $ — 2 Mutual water companies $ — $ — $ 1,160 $ — $ — $ — $ 894 $ — $ — 3 Cooperative association $ — $ — $ 1,750 $ — $ — $ — $ 1,849 $ — $ — 4 Calavo $ 6,594 $ 320 $ 721 $ 503 $ 8,806 $ 330 $ 1,223 $ 220 $ 503 5 Cadiz / Fenner / WAM $ — $ — $ 338 $ — $ — $ — $ 240 $ — $ — 6 Colorado River Growers $ 157 $ — $ 2,772 $ — $ 603 $ — $ 6,613 $ — $ — 7 YMIDD $ — $ — $ 123 $ — $ — $ — $ 139 $ — $ — 8 FGF $ 4,129 $ — $ 2,884 $ — $ 10,338 $ — $ 13,478 $ — $ — 10 Freska $ 128 $ — $ 150 $ — $ — $ — $ — $ — $ — 11 Third party growers $ — $ — $ 147 $ — $ — $ — $ — $ — $ — Year Ended October 31, 2019 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 $ — $ 744 $ — $ — $ — 2 Mutual water companies $ — $ — $ 838 $ — $ — 3 Cooperative association $ — $ — $ 1,687 $ — $ — 4 Calavo $ 3,080 $ 400 $ 1,096 $ 250 $ 506 5 Cadiz / Fenner / WAM $ — $ — $ 186 $ — $ — 6 Colorado River Growers $ 306 $ — $ 5,476 $ — $ — 7 YMIDD $ — $ — $ 150 $ — $ — 8 FGF $ 14,471 $ — $ 10,300 $ — $ — 11 Third party growers $ — $ — $ 10 $ — $ — (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, 2021 and 2020. (2) Mutual water companies - The Company has representation on the boards of directors of the mutual water companies in which the Company has investments, refer to Note 10 - Other Assets. The Company recorded capital contributions, purchased water and water delivery services and had water payments due to the mutual water companies. (3) Cooperative association - The Company has representation on the board of directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies from and had payments due to the cooperative association. (4) Calavo - The Company had an investment in Calavo through March 2020 and has representation on the board of directors and Calavo has an investment in the Company. 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 and purchases storage services from Calavo. (5) 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. 72 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Related-Party Transactions (continued) (6) Colorado River Growers, Inc. (“CRG”) - The Company had 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. CRG was dissolved in August 2021. The Company paid harvest expense to CRG and provided harvest management and administrative services to CRG. (7) 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. (8) FGF - The Company advances funds to FGF for fruit purchases, which are recorded as an asset until the sales occur and the remaining proceeds become due to FGF. Additionally, FGF provided farming, packing, by-product processing and administrative services to Trapani Fresh. The Company had a receivable from FGF for lemon sales and the sale of packing supplies and a payable due to FGF for fruit purchases and services. Effective March 1, 2021, Trapani Fresh sells the lemons it grows to FGF, who packs, markets, and sells the fruit to its customers. The Company also records revenue related to the licensing of intangible assets to FGF. (9) LLCB - Refer to Note 7 - Real Estate Development. (10) Freska - A member of the Company's board of directors is a majority shareholder of Freska Produce International, LLC ("Freska"). The Company had avocado sales to Freska. (11) Third party growers - A member of the Company’s board of directors markets lemons through the Company and the Company had payments due to the member of such lemon procurement. 16. Income Taxes A reconciliation of income before income taxes for domestic and foreign locations for the years ended October 31, 2021, 2020 and 2019 are as follows (in thousands): 2021 2020 2019 United States $ ( 1,459 ) $ ( 23,195 ) $ ( 6,285 ) Foreign ( 2,704 ) ( 3,240 ) ( 278 ) Income before income taxes $ ( 4,163 ) $ ( 26,435 ) $ ( 6,563 ) The components of the provisions for income taxes for fiscal years 2021, 2020 and 2019 are as follows (in thousands): 2021 2020 2019 Current: Federal $ 37 $ 5,835 $ ( 7 ) State 40 332 563 Foreign — 194 ( 232 ) Total current benefit (provision) 77 6,361 324 Deferred: Federal ( 17 ) 640 998 State 127 1,177 ( 302 ) Foreign 79 316 77 Total deferred benefit 189 2,133 773 Total income tax benefit $ 266 $ 8,494 $ 1,097 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, 2021 and 2020 are as follows (in thousands): 73 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Income Taxes (continued) 2021 2020 Deferred income tax assets: Reserve and other accruals $ 646 $ 643 Net operating losses 6,312 4,983 Right-of-use asset 531 578 Minimum pension liability adjustment 231 962 Amortization — 325 Other assets 240 — Interest expense limitation 2 306 Stock based compensation 493 549 Total deferred income tax assets 8,455 8,346 Valuation allowance ( 1,324 ) ( 540 ) Total net deferred income tax assets 7,131 7,806 Deferred income tax liabilities: Property taxes ( 161 ) ( 173 ) Depreciation ( 18,665 ) ( 16,930 ) Amortization ( 242 ) — Land and other indefinite life assets ( 6,581 ) ( 6,905 ) Investment in joint ventures and other basis adjustments ( 3,510 ) ( 4,097 ) Right-of-use asset ( 510 ) ( 557 ) Prepaids and receivables ( 260 ) — Other ( 55 ) ( 1,241 ) Total deferred income tax liabilities ( 29,984 ) ( 29,903 ) Net deferred income tax liabilities $ ( 22,853 ) $ ( 22,097 ) Deferred income taxes — noncurrent assets $ — $ 333 Deferred income taxes — noncurrent liabilities $ ( 22,853 ) $ ( 22,430 ) 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 $ 1,324,000 on the net deferred tax assets of its subsidiaries in Argentina and Chile as of October 31, 2021 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, 2021, the Company has recorded a deferred tax asset of $ 6,312,000 related to its federal, state, and foreign net operating loss 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 17,443 Indefinite State 21,277 10/31/2039 Chile 2,248 Indefinite Holland 66 10/31/2025 Argentina 2,390 10/31/2025 74 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Income Taxes (continued) At October 31, 2021, the Company had disallowed federal and state interest expense carryforwards of approximately zero and $ 2,065,000 , 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. 2021 2020 2019 Amount % Amount % Amount % Provision at statutory rates $ 874 ( 21.0 ) % $ 5,551 ( 21.0 ) % $ 1,351 ( 21.0 ) % State income tax, net of federal benefit 224 ( 5.4 ) % 1,431 ( 5.4 ) % 316 ( 4.9 ) % Dividend exclusion — — 27 ( 0.1 ) % 28 ( 0.4 ) % Meals and entertainment — — ( 18 ) 0.1 % ( 90 ) 1.4 % Transaction costs — — — — ( 137 ) 2.1 % Shared-based compensation ( 217 ) 5.2 % — — — — Executive compensation ( 45 ) 1.1 % — — % — — % Tax law change 57 ( 1.4 ) % 1,948 ( 7.4 ) % — — State rate adjustment ( 78 ) 1.9 % ( 82 ) 0.3 % ( 109 ) 1.7 % Valuation allowance ( 831 ) 20.0 % ( 168 ) 0.6 % ( 393 ) 6.1 % Foreign rate differential 130 ( 3.1 ) % — — — — Noncontrolling interest ( 83 ) 2.0 % ( 305 ) 1.1 % 116 ( 1.8 ) % Other permanent items 235 ( 5.7 ) % 110 ( 0.4 ) % 15 ( 0.3 ) % Total income tax benefit $ 266 ( 6.4 ) % $ 8,494 ( 32.2 ) % $ 1,097 ( 17.1 ) % At October 31, 2021 and 2020, 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, 2021. 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 recorded a tax benefit of $ 1,948,000 and an income tax refund of $ 5,801,000 due to its ability to carryback and obtain federal tax refund by utilizing net operating losses under the provisions of the CARES Act at October 31, 2021, of which $ 841,000 and $ 4,960,000 were received in October 2020 and December 2020, respectively. An additional $ 948,000 of California state refunds were received in the third quarter of fiscal year 2021. 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. In fiscal year 2021, the Company decided to terminate the Plan effective December 31, 2021. The liabilities disclosed as of October 31, 2021, reflect an estimate of the additional cost to pay lump sums to a portion of the active and vested terminated participants and purchase annuities for all remaining participants from an insurance company. The Plan is funded consistent with the funding requirements of federal law and regulations. There were no funding contributions during fiscal years 2021 or 2020. Plan assets are invested in a group trust consisting primarily of pooled funds, mutual funds, short-term investment funds and cash. 75 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Retirement Plans (continued) 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 Cash 1 % and Fixed Income 99 %. 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 2021 and 2020 were as follows (in thousands): 2021 2020 Administrative expenses $ 277 $ 278 Interest cost 550 641 Expected return on plan assets ( 867 ) ( 990 ) Prior service cost 45 45 Amortization of net loss 737 739 Net periodic benefit cost $ 742 $ 713 Following is a summary of the Plan’s funded status as of October 31 (in thousands): 2021 2020 Change in benefit obligation: Benefit obligation at beginning of year $ 22,898 $ 22,267 Administrative expenses 277 278 Interest cost 550 641 Benefits paid ( 1,450 ) ( 1,524 ) Actuarial (gain) loss ( 858 ) 1,236 Benefit obligation at end of year $ 21,417 $ 22,898 Change in plan assets: Fair value of plan assets at beginning of year $ 19,352 $ 19,229 Actual return on plan assets 2,668 1,647 Benefits paid ( 1,450 ) ( 1,524 ) Fair value of plan assets at end of year $ 20,570 $ 19,352 Reconciliation of funded status: Fair value of plan assets $ 20,570 $ 19,352 Benefit obligations 21,417 22,898 Net plan obligations $ ( 847 ) $ ( 3,546 ) Amounts recognized in statements of financial position: Noncurrent liabilities $ ( 847 ) $ ( 3,546 ) Net obligation recognized in statements of financial position $ ( 847 ) $ ( 3,546 ) Reconciliation of amounts recognized in statements of financial position: Prior service cost $ ( 99 ) $ ( 144 ) Net loss ( 2,766 ) ( 6,162 ) Accumulated other comprehensive loss ( 2,865 ) ( 6,306 ) Accumulated contributions in excess of net periodic benefit cost 2,018 2,760 Net deficit recognized in statements of financial position $ ( 847 ) $ ( 3,546 ) 76 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. Retirement Plans (continued) Presented below are changes in accumulated other comprehensive income, before tax, in the Plan as of October 31, (in thousands): 2021 2020 Changes recognized in other comprehensive income: Net (gain) loss arising during the year $ ( 2,658 ) $ 579 Amortization of prior service cost ( 45 ) ( 45 ) Amortization of net loss ( 737 ) ( 739 ) Total recognized in other comprehensive income $ ( 3,440 ) $ ( 205 ) Total recognized in net periodic benefit and other comprehensive income $ ( 2,699 ) $ 508 The following assumptions, as of October 31, were used in determining benefit obligations and net periodic benefit cost ($ in thousands): 2021 2020 Weighted-average assumptions used to determine benefit obligations: Discount rate 2.58 % 2.50 % Assumptions used to determine net periodic benefit cost: Discount rate 2.50 % 3.00 % Expected return on plan assets 5.05 % 5.66 % Additional year-end information: Projected benefit obligation $ 21,417 $ 22,898 Accumulated benefit obligation $ 21,417 $ 22,898 Fair value of plan assets $ 20,570 $ 19,352 Benefit payments are expected to be paid over the next 10 fiscal years as follows (in thousands): 2022 $ 1,120 2023 20,835 2024 - 2026 — Next five years — $ 21,955 The following table sets forth the Plan’s assets as of October 31, 2021, 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 $ 250 $ — $ — $ 250 Pooled funds — 20,320 — 20,320 $ 250 $ 20,320 $ — $ 20,570 The Company has a 401(k) plan in which an employee can participate 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 a matching contribution on these deferrals up to 4 % of the employee’s annual earnings. Participants vest in any matching contribution at a rate of 20 % per year beginning after one year of employment. During fiscal years 2021, 2020 and 2019, the Company contributed to the plan and recognized expenses of $ 546,000 , $ 1,107,000 and $ 927,000 , respectively. 77 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. 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 30, 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. During fiscal years 2015 thru 2017, a total of 15,210 shares of Series B preferred stock were converted into 190,124 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 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 be trading or (b) $ 15.00 per share of common stock. Shares of 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. 78 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Series B and Series B-2 Preferred Stock (continued) Series B-2 Convertible Preferred Stock 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. 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 156,036 remaining shares available to be issued as of October 31, 2021. 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 2021, 2020 and 2019, there were no Performance Awards of restricted stock granted for fiscal year 2021, 2020 or 2019 performance because the financial performance and other criteria were not met. 79 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Stockholders’ Equity (continued) Stock-based compensation 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 2021, subsequent to fiscal year 2021, the Company granted 70,000 shares of common stock with a per share price of $ 14.96 to key executives under the Stock Plan. The related compensation expense of approximately $ 1,047,000 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 2021, 2020 and 2019, and the weighted average grant price is as follows: Year Ended October 31, 2021 2020 2019 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 Executive Awards 95,000 $ 15.26 95,000 $ 18.87 90,000 $ 19.84 Director Awards 30,663 $ 16.85 17,841 $ 20.05 15,642 $ 21.65 Total 125,663 $ 15.65 112,841 $ 19.06 145,737 $ 19.73 The Company recognized $ 2,582,000 , $ 2,044,000 and $ 1,791,000 of stock-based compensation in fiscal years 2021, 2020 and 2019, 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 $ 476,000 , $ 400,000 and $ 324,000 for fiscal years 2021, 2020 and 2019, respectively. The total fair value of shares vested during the years ended October 31, 2021, 2020 and 2019 was $ 2,951,000 , $ 2,365,000 and $ 1,788,000 respectively. The Company has unrecognized stock-based compensation expense of $ 1,963,000 as of October 31, 2021, which is expected to be recognized over the next two years as the shares vest. All unvested shares are expected to vest. During fiscal years 2021, 2020 and 2019, respectively, members of management exchanged 46,993 , 11,314 and 36,627 shares of common stock with fair values of $ 701,000 , $ 213,000 and $ 606,000 , 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. A summary of the status of the Company’s nonvested shares as of October 31, 2021, and changes during the year ended October 31, 2021, is presented below: Number of Shares Weighted-Average Grant Price Nonvested at October 31, 2020 148,460 $ 19.85 Granted 125,663 $ 15.65 Vested ( 161,123 ) $ 18.31 Nonvested at October 31, 2021 113,000 $ 17.38 Treasury Stock Share Repurchase Program In fiscal year 2021, the Company's Board of Directors approved a share repurchase program authorizing it to repurchase up to $ 10,000,000 of its outstanding shares of common stock through September 2022; no shares have been repurchased under this program. In fiscal year 2020, the Company repurchased 250,977 shares for $ 3,493,000 under a program which expired in March 2021. 80 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Stockholders’ Equity (continued) Dividend On December 14, 2021, the Company declared a $ 0.075 per share dividend payable on January 14, 2022, in the aggregate amount of $ 1,328,000 to common shareholders of record as of December 27, 2021. 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 and allocates after-tax earnings derived from non-member business to members. The Company records allocations disbursed by FGS as reductions of agribusiness expenses. The Company had been allocated $ 729,000 , of which the Company received dividends of $ 216,000 , $ 513,000 and zero in fiscal years 2021, 2020 and 2019, respectively, and there are no remaining allocations outstanding as of October 31, 2021. 22. Segment Information The Company operates in four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness. 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 and supplier 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 operating segments, as these specified amounts are not included in the measure of segment profit or loss reviewed by the Company’s chief operating decision maker. The Company measures operating performance, including revenues and operating income, of its operating segments and allocates resources based on its evaluation. The Company does not allocate selling, general and administrative expense, total other income (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 and suppliers. Intersegment revenues represent packing revenues related to lemons grown on the Company’s orchards. Segment information for fiscal year 2021 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 125,448 $ 17,514 $ — $ 6,784 $ 11,635 $ 161,381 $ 4,646 $ 166,027 Intersegment revenue — 25,637 ( 25,637 ) — — — — — Total net revenues 125,448 43,151 ( 25,637 ) 6,784 11,635 161,381 4,646 166,027 Costs and expenses 116,117 36,018 ( 25,637 ) 4,211 9,157 139,866 22,682 162,548 Depreciation and amortization — — — — — 8,626 1,186 9,812 Operating income (loss) $ 9,331 $ 7,133 $ — $ 2,573 $ 2,478 $ 12,889 $ ( 19,222 ) $ ( 6,333 ) 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 ) 81 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. Segment Information (continued) 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 ) The following is a detail of other agribusiness revenues for fiscal years 2021, 2020 and 2019 (in thousands): Year Ended October 31, 2021 2020 2019 Oranges $ 4,382 $ 7,722 $ 6,022 Specialty citrus and other crops 7,253 5,846 5,165 Other agribusiness revenues $ 11,635 $ 13,568 $ 11,187 23. Subsequent Events The Company has evaluated events subsequent to October 31, 2021 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. 82 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.