Limoneira CO 10-Q

Item 1. Financial Statements LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in thousands, except share amounts) July 31, 2022 October 31, 2021 Assets Current assets: Cash $ 995 $ 439 Accounts receivable, net 18,457 17,483 Cultural costs 6,326 7,500 Prepaid expenses and other current assets 12,253 10,709 Receivables/other from related parties 4,392 5,958 Total current assets 42,423 42,089 Property, plant and equipment, net 241,069 242,420 Real estate development 23,231 22,828 Equity in investments 64,621 64,072 Goodwill 1,512 1,527 Intangible assets, net 7,582 8,329 Other assets 13,059 11,011 Total assets $ 393,497 $ 392,276 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 7,078 $ 8,963 Growers and suppliers payable 12,018 10,371 Accrued liabilities 7,691 6,542 Payables to related parties 7,719 6,976 Current portion of long-term debt 3,554 2,472 Total current liabilities 38,060 35,324 Long-term liabilities: Long-term debt, less current portion 129,004 130,353 Deferred income taxes 24,282 22,853 Other long-term liabilities 5,656 4,501 Total liabilities 197,002 193,031 Commitments and contingencies (See Note 16) — — Series B Convertible Preferred Stock – $ 100.00 par value ( 50,000 shares authorized: 14,790 shares issued and outstanding at July 31, 2022 and October 31, 2021) ( 8.75 % coupon rate) 1,479 1,479 Series B-2 Convertible Preferred Stock – $ 100.00 par value ( 10,000 shares authorized: 9,300 shares issued and outstanding at July 31, 2022 and October 31, 2021) ( 4 % dividend rate on liquidation value of $ 1,000 per share) 9,331 9,331 Stockholders' Equity: Series A Junior Participating Preferred Stock – $ 0.01 par value ( 20,000 shares authorized: zero issued or outstanding at July 31, 2022 and October 31, 2021) — — Common Stock – $ 0.01 par value ( 39,000,000 shares authorized: 17,972,528 and 17,936,377 shares issued and 17,721,551 and 17,685,400 shares outstanding at July 31, 2022 and October 31, 2021, respectively) 180 179 Additional paid-in capital 164,871 163,965 Retained earnings 19,618 21,552 Accumulated other comprehensive loss ( 7,295 ) ( 5,733 ) Treasury stock, at cost, 250,977 shares at July 31, 2022 and October 31, 2021 ( 3,493 ) ( 3,493 ) Noncontrolling interest 11,804 11,965 Total stockholders' equity 185,685 188,435 Total liabilities and stockholders' equity $ 393,497 $ 392,276 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ in thousands, except share amounts) Three Months Ended July 31, Nine Months Ended July 31, 2022 2021 2022 2021 Net revenues: Agribusiness $ 57,594 $ 47,954 $ 141,046 $ 129,080 Other operations 1,329 1,171 3,901 3,452 Total net revenues 58,923 49,125 144,947 132,532 Costs and expenses: Agribusiness 41,463 40,691 120,306 114,071 Other operations 1,127 1,017 3,294 3,189 Loss on disposal of assets, net 242 — 503 — Selling, general and administrative 5,031 4,043 16,756 15,154 Total costs and expenses 47,863 45,751 140,859 132,414 Operating income 11,060 3,374 4,088 118 Other (expense) income: Interest income 6 211 54 279 Interest expense, net of patronage dividends ( 772 ) ( 574 ) ( 1,253 ) ( 1,062 ) Equity in earnings of investments, net 331 1,462 681 2,471 Other income, net 13 32 106 83 Total other (expense) income ( 422 ) 1,131 ( 412 ) 1,771 Income before income tax provision 10,638 4,505 3,676 1,889 Income tax provision ( 3,313 ) ( 1,335 ) ( 1,385 ) ( 1,122 ) Net income 7,325 3,170 2,291 767 Net loss attributable to noncontrolling interest 52 535 129 663 Net income attributable to Limoneira Company 7,377 3,705 2,420 1,430 Preferred dividends ( 125 ) ( 125 ) ( 376 ) ( 376 ) Net income applicable to common stock $ 7,252 $ 3,580 $ 2,044 $ 1,054 Basic net income per common share $ 0.41 $ 0.20 $ 0.11 $ 0.06 Diluted net income per common share $ 0.40 $ 0.20 $ 0.11 $ 0.06 Weighted-average common shares outstanding-basic 17,529,000 17,461,000 17,481,000 17,439,000 Weighted-average common shares outstanding-diluted 18,334,000 18,243,000 17,481,000 17,439,000 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (In thousands) Three Months Ended July 31, Nine Months Ended July 31, 2022 2021 2022 2021 Net income $ 7,325 $ 3,170 $ 2,291 $ 767 Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 828 ) ( 1,042 ) ( 1,779 ) 330 Minimum pension liability adjustment, net of tax of $ 27 , $ 50 , $ 81 and $ 150 for the three and nine months ended July 31, 2022 and 2021, respectively. 72 135 217 403 Total other comprehensive (loss) income, net of tax ( 756 ) ( 907 ) ( 1,562 ) 733 Comprehensive income 6,569 2,263 729 1,500 Comprehensive loss attributable to noncontrolling interest 80 558 161 630 Comprehensive income attributable to Limoneira Company $ 6,649 $ 2,821 $ 890 $ 2,130 The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND TEMPORARY EQUITY ($ in thousands) Stockholders' Equity Temporary Equity Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Treasury Non- controlling Total Series B Preferred Series B-2 Preferred Shares Amount Capital Earnings Loss Stock Interest Equity Stock Stock 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 Dividends Common ($ 0.075 per share) — — — ( 1,328 ) — — — ( 1,328 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 70,000 1 996 — — — — 997 — — Exchange of common stock ( 55,362 ) — ( 900 ) — — — — ( 900 ) — — Net loss — — — ( 6,518 ) — — ( 88 ) ( 6,606 ) — — Other comprehensive income, net of tax — — — — 127 — 2 129 — — Balance at January 31, 2022 17,700,038 $ 180 $ 164,061 $ 13,581 $ ( 5,606 ) $ ( 3,493 ) $ 11,879 $ 180,602 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,325 ) — — — ( 1,325 ) — — Dividends Series B ($ 2.19 per share) — — — ( 33 ) — — — ( 33 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 34,231 — 378 — — — — 378 — — Exchange of common stock ( 12,718 ) — ( 186 ) — — — — ( 186 ) — — Net income — — — 1,561 — — 11 1,572 — — Other comprehensive loss, net of tax — — — — ( 933 ) — ( 6 ) ( 939 ) — — Balance at April 30, 2022 17,721,551 $ 180 $ 164,253 $ 13,691 $ ( 6,539 ) $ ( 3,493 ) $ 11,884 $ 179,976 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,325 ) — — — ( 1,325 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation — — 618 — — — — 618 — — Net income (loss) — — — 7,377 — — ( 52 ) 7,325 — — Other comprehensive loss, net of tax — — — — ( 756 ) — ( 28 ) ( 784 ) — — Balance at July 31, 2022 17,721,551 $ 180 $ 164,871 $ 19,618 $ ( 7,295 ) $ ( 3,493 ) $ 11,804 $ 185,685 $ 1,479 $ 9,331 7 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND TEMPORARY EQUITY (CONTINUED) ($ in thousands) Stockholders' Equity Temporary Equity Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Treasury Non- controlling Total Series B Preferred Series B-2 Preferred Shares Amount Capital Earnings Loss Stock Interest Equity Stock Stock 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 ($ 0.075 per share) — — — ( 1,324 ) — — — ( 1,324 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 $ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 125,190 1 1,066 — — — — 1,067 — — Exchange of common stock ( 46,993 ) ( 1 ) ( 700 ) — — — — ( 701 ) — — Net (loss) income — — — ( 4,208 ) — — 292 ( 3,916 ) — — Other comprehensive income, net of tax — — — — 929 — 39 968 — — Balance at January 31, 2021 17,684,927 $ 179 $ 162,450 $ 25,140 $ ( 6,619 ) $ ( 3,493 ) $ 14,072 $ 191,729 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,327 ) — — — ( 1,327 ) — — Dividends Series B ($ 2.19 per share) — — — ( 33 ) — — — ( 33 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 473 — 570 — — — — 570 — — Net income (loss) — — — 1,933 — — ( 420 ) 1,513 — — Other comprehensive income, net of tax — — — — 711 — 17 728 — — Balance at April 30, 2021 17,685,400 $ 179 $ 163,020 $ 25,620 $ ( 5,908 ) $ ( 3,493 ) $ 13,669 $ 193,087 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,326 ) — — — ( 1,326 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation — — 440 — — — — 440 — — Noncontrolling interest adjustment — — — — — — ( 1,331 ) ( 1,331 ) — — Net income (loss) — — — 3,705 — — ( 535 ) 3,170 — — Other comprehensive loss, net of tax — — — — ( 907 ) — ( 23 ) ( 930 ) — — Balance at July 31, 2021 17,685,400 $ 179 $ 163,460 $ 27,874 $ ( 6,815 ) $ ( 3,493 ) $ 11,780 $ 192,985 $ 1,479 $ 9,331 The accompanying notes are an integral part of these unaudited consolidated financial statements. 8 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Nine Months Ended July 31, 2022 2021 Operating activities Net income $ 2,291 $ 767 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,432 7,490 Loss (gain) on disposal of assets, net 503 ( 20 ) Stock compensation expense 1,993 2,077 Non-cash lease expense 323 346 Equity in earnings of investments, net ( 681 ) ( 2,471 ) Cash distributions from equity investments 132 — Deferred income taxes 1,385 1,122 Other, net 816 193 Changes in operating assets and liabilities: Accounts receivable and receivables/other from related parties ( 1,260 ) ( 2,301 ) Cultural costs 1,168 1,430 Prepaid expenses and other current assets ( 4,181 ) ( 494 ) Income taxes receivable — 5,911 Other assets 3 52 Accounts payable and growers and suppliers payable ( 424 ) 4,731 Accrued liabilities and payables to related parties 1,612 ( 1,612 ) Other long-term liabilities ( 193 ) ( 419 ) Net cash provided by operating activities 10,919 16,802 Investing activities Capital expenditures ( 7,673 ) ( 8,282 ) Net proceeds from sale of assets 110 87 Collection on notes receivable 2,755 25 Cash distribution from equity investment — 106 Investments in mutual water companies and water rights ( 494 ) ( 652 ) Net cash used in investing activities ( 5,302 ) ( 8,716 ) Financing activities Borrowings of long-term debt 119,204 69,682 Repayments of long-term debt ( 119,327 ) ( 72,438 ) Proceeds from equipment financings 1,020 — Principal paid on finance lease and equipment financings ( 271 ) — Dividends paid – common ( 3,978 ) ( 3,977 ) Dividends paid – preferred ( 376 ) ( 376 ) Exchange of common stock ( 1,086 ) ( 700 ) Net cash used in financing activities ( 4,814 ) ( 7,809 ) Effect of exchange rate changes on cash ( 247 ) ( 3 ) Net increase in cash 556 274 Cash at beginning of period 439 501 Cash at end of period $ 995 $ 775 9 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) (In thousands) Nine Months Ended July 31, 2022 2021 Supplemental disclosures of cash flow information Cash paid during the period for interest, net of amounts capitalized $ 1,108 $ 1,340 Cash received during the period for income taxes, net $ — $ 5,942 Non-cash investing and financing activities: Capital expenditures accrued but not paid at period-end $ 359 $ 437 The accompanying notes are an integral part of these unaudited consolidated financial statements. 10 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Basis of Presentation Business Limoneira Company (together with its consolidated subsidiaries, the “Company”) engages primarily in growing citrus and avocados, picking and hauling citrus, and packing, marketing and selling citrus. The Company is also engaged in residential rentals and other rental operations and real estate development activities. The Company markets and sells citrus 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 a portion of its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses. Through fiscal year 2021, the Company sold 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. In February 2022, the Company terminated its Avocado Marketing Agreement and the associated Letter Agreement Regarding Fruit Commitment with Calavo to pursue opportunities with other packing and marketing companies. Basis of Presentation and Preparation The accompanying unaudited interim consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which the Company holds a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company, the unaudited interim consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited interim consolidated financial statements and accompanying notes in conformity with 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. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. Because the consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K. 2. Summary of Significant Accounting Policies Comprehensive Income Comprehensive income 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 and defined benefit pension items. Accumulated other comprehensive loss is reported as a component of the Company's stockholders' equity. The following table summarizes other comprehensive (loss) income by component (in thousands): Three Months Ended July 31, 2022 2021 Pre-tax Amount Tax Expense Net Amount Pre-tax Amount Tax Expense Net Amount Foreign currency translation adjustments $ ( 828 ) $ — $ ( 828 ) $ ( 1,042 ) $ — $ ( 1,042 ) Minimum pension liability adjustments: Other comprehensive gain before reclassifications 99 ( 27 ) 72 185 ( 50 ) 135 Other comprehensive loss $ ( 729 ) $ ( 27 ) $ ( 756 ) $ ( 857 ) $ ( 50 ) $ ( 907 ) 11 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Comprehensive Income (continued) Nine Months Ended July 31, 2022 2021 Pre-tax Amount Tax Expense Net Amount Pre-tax Amount Tax Expense Net Amount Foreign currency translation adjustments $ ( 1,779 ) $ — $ ( 1,779 ) $ 330 $ — $ 330 Minimum pension liability adjustments: Other comprehensive gain before reclassifications 298 ( 81 ) 217 553 ( 150 ) 403 Other comprehensive (loss) income $ ( 1,481 ) $ ( 81 ) $ ( 1,562 ) $ 883 $ ( 150 ) $ 733 The following table summarizes the changes in accumulated other comprehensive loss by component (in thousands): Foreign Currency Translation Loss Defined Benefit Pension Plan Accumulated Other Comprehensive Loss Balance at October 31, 2021 $ ( 3,754 ) $ ( 1,979 ) $ ( 5,733 ) Other comprehensive (loss) income ( 1,779 ) 217 ( 1,562 ) Balance at July 31, 2022 $ ( 5,533 ) $ ( 1,762 ) $ ( 7,295 ) Foreign Currency Translation (Loss) Gain Defined Benefit Pension Plan Accumulated Other Comprehensive Loss Balance at October 31, 2020 $ ( 3,069 ) $ ( 4,479 ) $ ( 7,548 ) Other comprehensive income 330 403 733 Balance at July 31, 2021 $ ( 2,739 ) $ ( 4,076 ) $ ( 6,815 ) 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, all of fiscal year 2021, and the first three quarters of fiscal year 2022. The Company also expects the COVID-19 pandemic to impact 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, and liquidity, including its ability to comply with debt covenants, for fiscal year 2022 and beyond, is driven by estimates that contain uncertainties. Recent Accounting Pronouncements Financial Accounting Standards Board ("FASB") Accounting Standards Update ("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 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 adopted this ASU effective November 1, 2021 and the adoption did not have a material impact on its consolidated financial statements. 12 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. Concentrations and Geographic Information Concentrations of credit risk with respect to revenues and trade receivable are limited due to a large, diverse customer base. One customer represented 11 % of revenue for the nine months ended July 31, 2022. Two customers represented 17 % and 13 % of revenue, respectively, for the nine months ended July 31, 2021. No individual customer represented more than 10% of accounts receivable, net as of July 31, 2022 or October 31, 2021. Lemons procured from third-party growers were 46 % and 57 % of the Company's lemon supply for the three months ended July 31, 2022 and 2021, respectively, and were 51 % and 51 % of the Company's lemon supply for the nine months ended July 31, 2022 and 2021, respectively. One third-party grower was 10 % of the lemon supply for the nine months ended July 31, 2021. During the three months ended July 31, 2022 and 2021, the Company had approximately $ 491,000 and $ 578,000 , respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. ("PDA") and Agricola San Pablo SpA ("San Pablo"). During the nine months ended July 31, 2022 and 2021, the Company had approximately $ 3,202,000 and $ 2,555,000 , respectively, of total sales in Chile by PDA and San Pablo. In March 2022, the Company signed an agreement to lease Finca Santa Clara, its 1,200 -acre lemon ranch in Argentina, to FGF Trapani ("FGF"), its 49 % partner in Trapani Fresh Consorcio de Cooperacion ("Trapani Fresh"). The lease is retroactive beginning November 1, 2021, with a term of 14 months at a fixed sum of $ 400,000 , payable in five equal, monthly installments beginning August 2022 until December 2022. During the three and nine months ended July 31, 2022, the Company had approximately $ 86,000 and $ 257,000 , respectively, of lease income by Trapani Fresh included in other operations revenue. During the three and nine months ended July 31, 2021, the Company had approximately $ 710,000 and $ 3,265,000 , respectively, of total agribusiness sales in Argentina by Trapani Fresh. Aggregate foreign exchange transaction losses realized for our foreign subsidiaries was approximately $ 137,000 and $ 598,000 for the nine months ended July 31, 2022 and 2021, respectively, and were included in selling, general and administrative expenses in the consolidated statements of operations. 4. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): July 31, 2022 October 31, 2021 Prepaid supplies and insurance $ 3,378 $ 2,521 Note receivable and related interest — 2,438 Real estate development held for sale 2,670 2,543 Sales tax receivable 451 909 Lemon supplier advances 3,487 676 Other 2,267 1,622 $ 12,253 $ 10,709 5. Real Estate Development Real estate development assets are comprised primarily of land and land development costs and consist of the following (in thousands): July 31, 2022 October 31, 2021 East Area I - Retained Property $ 13,633 $ 13,335 East Area II 9,598 9,493 $ 23,231 $ 22,828 13 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. 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 LLCB also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, LLCB transferred certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. The balance in Retained Property and East Area II includes estimated costs incurred by and reimbursable to LLCB of $ 5,771,000 at July 31, 2022 and October 31, 2021, 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 Loan had an outstanding balance of $ 2,500,000 as of July 31, 2022. The Loan has a one year extension option through February 22, 2024 subject to terms and conditions as defined in the Loan agreement, with the maximum borrowing amount reduced to $ 35,000,000 during the extension period. In February 2018, the Company and certain principals from Lewis guaranteed the obligations under the Loan. The guarantors are jointly and severally liable for all Loan obligations in the event of default by LLCB. The guarantee continues in effect until all of the Loan obligations are fully paid. 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. 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 LLCB. Through July 31, 2022, LLCB has closed sales of initial residential lots representing 586 residential units. In September 2022, the Company entered into an agreement with LLCB to sell its East Area 1 - Retained Property to potentially develop additional residential units. The Company expects to close the transaction in the fourth quarter of fiscal year 2022, receive approximately $ 8,000,000 in cash proceeds and record an estimated gain of approximately $ 4,700,000 . Other Real Estate Development Projects 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 calendar year 2022. After transaction and other costs, the Company expects to receive cash proceeds of approximately $ 2,670,000 . During the third quarter of fiscal year 2022, the Company incurred additional costs to prepare the asset for sale, of which $ 127,000 were capitalized and $ 153,000 were recorded in loss on disposal of assets. The carrying value of the property at July 31, 2022 and October 31, 2021, was $ 2,670,000 and $ 2,543,000 , respectively, and classified as held for sale and included in prepaid expenses and other current assets. In December 2017, the Company sold its Centennial property with a net book value of $ 2,983,000 for $ 3,250,000 . The Company received cash and a $ 3,000,000 promissory note secured by the property for the balance of the purchase. The promissory note was originally scheduled to mature in December 2019, but was 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. In April 2022, the $ 2,350,000 net carrying value of the promissory note was paid in full and the deferred gain of $ 161,000 was recognized in the second quarter of fiscal year 2022. 14 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. Equity in Investments Equity in investments consist of the following (in thousands): July 31, 2022 October 31, 2021 Limoneira Lewis Community Builders, LLC $ 60,827 $ 60,216 Limco Del Mar, Ltd. 2,106 1,997 Rosales 1,183 1,351 Romney Property Partnership 505 508 $ 64,621 $ 64,072 Net amounts due from Rosales were $ 540,000 and $ 1,570,000 at July 31, 2022 and October 31, 2021, respectively, and are included in receivables/other from related parties and payables to related parties. Unconsolidated Significant Subsidiary In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies to interim reports on Form 10-Q, the Company must determine if its equity method investees are considered “significant subsidiaries." In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment test. Summarized income statement information of an equity method investee is required in an interim report if either of the two tests exceed 20% in the interim periods presented. During the year-to-date interim period for the nine months ended July 31, 2021, this threshold was met for the Company's equity investment in LLCB. The following is unaudited summarized financial information for LLCB (in thousands): Nine Months Ended July 31, 2022 2021 Revenues $ 1,686 $ 36,684 Cost of land sold — 28,062 Operating expenses 569 634 Net income $ 1,117 $ 7,988 Net income attributable to Limoneira Company $ 658 $ 3,944 7. 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, 2021 $ 1,527 Foreign currency translation adjustment ( 15 ) Balance at July 31, 2022 $ 1,512 Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. There have been no impairment charges recorded against goodwill as of July 31, 2022. During the nine months ended July 31, 2021, the Company acquired additional water rights in Chile for $ 186,000 . 15 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 7. Goodwill and Intangible Assets, Net (continued) Intangible assets consisted of the following (in thousands): July 31, 2022 October 31, 2021 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life in Years Trade names and trademarks $ 2,108 ( 826 ) 1,282 8 $ 2,108 $ ( 663 ) $ 1,445 8 Customer relationships 4,037 ( 1,547 ) 2,490 9 4,037 ( 1,209 ) 2,828 9 Non-competition agreement 437 ( 64 ) 373 8 437 ( 22 ) 415 8 Acquired water and mineral rights 3,437 — 3,437 Indefinite 3,641 — 3,641 Indefinite $ 10,019 $ ( 2,437 ) $ 7,582 $ 10,223 $ ( 1,894 ) $ 8,329 Amortization expense totaled $ 182,000 and $ 210,000 for the three months ended July 31, 2022 and 2021, respectively. Amortization expense totaled $ 543,000 and $ 736,000 for the nine months ended July 31, 2022 and 2021, respectively. Estimated future amortization expense of intangible assets as of July 31, 2022 is as follows (in thousands): 2022 (excluding the nine months ended July 31, 2022) $ 180 2023 724 2024 716 2025 711 2026 711 Thereafter 1,103 $ 4,145 8. Other Assets Investments in Mutual Water Companies The Company’s investments in various not-for-profit mutual water companies provide it 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. As of July 31, 2022 and October 31, 2021, $ 6,488,000 and $ 5,994,000 , respectively, were included in other assets. 9. Accrued Liabilities Accrued liabilities consist of the following (in thousands): July 31, 2022 October 31, 2021 Compensation $ 2,871 $ 2,112 Property taxes 311 676 Operating expenses 2,319 1,203 Leases 765 604 Other 1,425 1,947 $ 7,691 $ 6,542 16 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 10. Long-Term Debt Long-term debt is comprised of the following (in thousands): July 31, 2022 October 31, 2021 Farm Credit West revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month London Interbank Offered Rate (“LIBOR”), which was 1.65 % at July 31, 2022, 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, is 3.57 % through July 1, 2025 and variable thereafter. Interest is payable monthly and the principal is due in full on July 1, 2026. $ 112,994 $ 111,293 Farm Credit West term loan: The interest rate is fixed at 2.48 %. The loan is payable in quarterly installments through November 2022. 327 809 Farm Credit West term loan: The interest rate is fixed at 3.24 %. The loan is payable in monthly installments through October 2035. 933 974 Farm Credit West term loan: The interest rate is fixed at 3.24 %. The loan is payable in monthly installments through March 2036. 7,673 8,004 Farm Credit West term loan: The interest rate is fixed at 2.77 % until July 1, 2025, becoming variable for the remainder of the loan. The loan is payable in monthly installments through March 2036. 5,640 5,892 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. 2,122 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. 769 1,011 Note Payable: the interest rate ranges from 5.00 % to 7.00 % and was 7.00 % at July 31, 2022. 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 through September 2024. 275 411 Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48 % and 4.26 %. The loans are payable in monthly installments through September 2026. 489 652 Subtotal 132,657 132,956 Less deferred financing costs, net of accumulated amortization 99 131 Total long-term debt, net 132,558 132,825 Less current portion 3,554 2,472 Long-term debt, less current portion $ 129,004 $ 130,353 The Company entered into a Master Loan Agreement (the “MLA”) with Farm Credit West, PCA (the "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 a 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. In March 2020, the Company entered into a revolving equity line of credit promissory note and loan agreement with the Lender 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 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 July 31, 2022, the Company's outstanding borrowings under the Supplements and RELOC were $ 112,994,000 and it had $ 17,006,000 available to borrow. 17 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 10. Long-Term Debt (continued) The interest rate in effect under the Revolving Credit Supplement automatically adjusted commencing on July 1, 2021 and on the first day of each month thereafter. The interest rate for any amount outstanding under the Revolving Credit Supplement is based on the one-month LIBOR rate plus or minus an applicable margin. The applicable margin ranges from 1.75 % to 2.35 % depending on the ratio of current assets, plus the remaining available commitment divided by current liabilities. On each one year anniversary of July 1, 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. 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 was a fixed interest rate of 4.77 % through July 1, 2022 and then converted 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 applicable interest rate group. 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. The interest rate in effect under the RELOC is a variable interest rate established by the Lender corresponding to the applicable interest rate group, which was 4.00 % as of July 31, 2022. The interest rate may be adjusted automatically under the provisions of the Lender's variable interest rate plan. The Company may prepay any amounts outstanding under the RELOC without penalty. 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 the Lender, the 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 specific debt service coverage ratio greater than or equal to 1.25 :1 when measured at October 31, 2022 and annually thereafter. In December 2021, the Lender declared an annual cash patronage dividend of 1.25 % of average eligible loan balances and the Company received the aggregate of $ 1,582,000 in March and April 2022. In December 2020, the Lender declared an annual cash patronage dividend of 1.50 % of average eligible loan balances and the Company received $ 1,170,000 in February 2021. Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $ 235,000 and $ 353,000 during the three months ended July 31, 2022 and 2021, respectively, and $ 235,000 and $ 661,000 during the nine months ended July 31, 2022 and 2021, respectively. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets. 11. 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. 18 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 11. Leases (continued) Lessor Arrangements (continued) The Company’s rental operations revenue consists of the following (in thousands): Three Months Ended July 31, Nine Months Ended July 31, 2022 2021 2022 2021 Operating lease revenue $ 1,265 $ 1,086 $ 3,678 $ 3,215 Variable lease revenue 64 85 223 237 Total lease revenue $ 1,329 $ 1,171 $ 3,901 $ 3,452 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 and farming 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 $ 137,000 and $ 128,000 for the three months ended July 31, 2022 and 2021, respectively, and $ 395,000 and $ 406,000 for the nine months ended July 31, 2022 and 2021, respectively, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Finance lease costs were $ 37,000 and zero for the three months ended July 31, 2022 and 2021, respectively, and $ 112,000 and zero for the nine months ended July 31, 2022 and 2021, respectively, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Variable and short term lease costs were immaterial. Supplemental balance sheet information related to leases consists of the following (in thousands): Classification July 31, 2022 October 31, 2021 Assets Operating lease ROU assets Other assets $ 2,058 $ 2,041 Finance lease assets Other assets 1,055 1,142 Total lease assets $ 3,113 $ 3,183 Liabilities and Stockholders' Equity Current operating lease liabilities Accrued liabilities and payables to related parties $ 426 $ 488 Current finance lease liabilities Accrued liabilities 249 249 Non-current operating lease liabilities Other long-term liabilities 1,675 1,648 Non-current finance lease liabilities Other long-term liabilities 723 884 Total lease liabilities $ 3,073 $ 3,269 19 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 11. Leases (continued) Lessee Arrangements (continued) Supplemental cash flow information related to leases consists of the following (in thousands): Nine Months Ended July 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 442 $ 422 Operating cash outflows from finance leases $ 26 $ — Financing cash outflows from finance leases $ 161 $ — ROU assets obtained in exchange for new operating lease liabilities $ 355 $ 271 12. Basic and Diluted Net Income per Share Basic net income per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of conversion of preferred stock. Diluted net income per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of unvested, restricted stock and conversion of preferred stock. The computations for basic and diluted net loss per common share are as follows (in thousands, except per share amounts): Three Months Ended July 31, Nine Months Ended July 31, 2022 2021 2022 2021 Basic net income per common share: Net income applicable to common stock $ 7,252 $ 3,580 $ 2,044 $ 1,054 Less: Earnings allocated to unvested, restricted stock ( 79 ) ( 15 ) ( 42 ) ( 50 ) Numerator: Net income for basic EPS 7,173 3,565 2,002 1,004 Denominator: Weighted average common shares-basic 17,529 17,461 17,481 17,439 Basic net income per common share $ 0.41 $ 0.20 $ 0.11 $ 0.06 Diluted net income per common share: Net income for basic EPS $ 7,173 $ 3,565 $ 2,002 $ 1,004 Effect of dilutive unvested, restricted stock and preferred stock 125 140 — — Numerator: Net income for diluted EPS $ 7,298 $ 3,705 2,002 1,004 Weighted average common shares–basic 17,529 17,461 17,481 17,439 Effect of dilutive unvested, restricted stock and preferred stock 805 782 — — Denominator: Weighted average common shares–diluted 18,334 18,243 17,481 17,439 Diluted net income per common share $ 0.40 $ 0.20 $ 0.11 $ 0.06 Diluted net income per common share is computed using the more dilutive method of either the two-class method or the treasury stock method. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share. The Company’s unvested, restricted stock awards qualify as participating shares. Diluted net income per common share was calculated under the two-class method for the three and nine months ended July 31, 2022. The Company excluded 147,000 , unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted net income per common share for the three months ended July 31, 2021 and 146,000 for the nine months ended July 31, 2021. 20 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 13. Related Party Transactions The Company has transactions with equity method investments and various related parties summarized in Note 6 - Equity in Investments and in the tables below (in thousands): July 31, 2022 October 31, 2021 Balance Sheet Balance Sheet Ref Related Party Receivable/Other from Related Parties Other Assets Payables to Related Parties Other Long-Term Liabilities Receivable/Other from Related Parties Other Assets Payables to Related Parties Other Long-Term Liabilities 2 Mutual water companies $ — $ 494 $ 54 $ — $ — $ 432 $ 40 $ — 3 Cooperative association $ — $ — $ 18 $ — $ — $ — $ 19 $ — 5 Cadiz / Fenner / WAM $ — $ 1,308 $ 572 $ 1,219 $ — $ 1,386 $ 273 $ 1,297 8 FGF $ 3,380 $ 2,653 $ 832 $ — $ 4,598 $ 980 $ 832 $ — 9 LLCB $ — $ — $ 5,771 $ — $ — $ — $ 5,771 $ — 11 Third-party growers $ — $ — $ — $ — $ — $ — $ 41 $ — Three Months Ended July 31, 2022 Three Months Ended July 31, 2021 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 Dividends Paid 1 Employees $ — $ 220 $ — $ — $ — $ 204 $ — $ — 2 Mutual water companies $ — $ — $ 481 $ — $ — $ — $ 274 $ — 3 Cooperative association $ — $ — $ 585 $ — $ — $ — $ 652 $ — 4 Calavo $ — $ — $ — $ — $ 4,036 $ 80 $ 408 $ 126 5 Cadiz / Fenner / WAM $ — $ — $ 895 $ — $ — $ — $ 36 $ — 8 FGF $ 83 $ 86 $ 2 $ — $ 710 $ — $ 1,761 $ — 10 Freska $ — $ — $ — $ — $ 23 $ — $ — $ — 11 Third-party growers $ — $ — $ — $ — $ — $ — $ 16 $ — Nine Months Ended July 31, 2022 Nine Months Ended July 31, 2021 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 Dividends Paid 1 Employees $ — $ 650 $ — $ — $ — $ 608 $ — $ — 2 Mutual water companies $ — $ — $ 975 $ — $ — $ — $ 879 $ — 3 Cooperative association $ — $ — $ 1,369 $ — $ — $ — $ 1,178 $ — 4 Calavo $ — $ 80 $ 2 $ 126 $ 6,589 $ 237 $ 688 $ 377 5 Cadiz / Fenner / WAM $ — $ — $ 2,084 $ — $ — $ — $ 271 $ — 6 Colorado River Growers $ — $ — $ — $ — $ 157 $ — $ 2,772 $ — 7 YMIDD $ — $ — $ 76 $ — $ — $ — $ 62 $ — 8 FGF $ 248 $ 257 $ 2 $ — $ 3,265 $ — $ 2,989 $ — 10 Freska $ — $ — $ — $ — $ 119 $ — $ 142 $ — 11 Third-party growers $ 104 $ — $ 12 $ — $ — $ — $ 132 $ — (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 material rental payments due from employees at July 31, 2022 or October 31, 2021. (2) Mutual water companies - The Company has representation on the boards of directors of the mutual water companies in which the Company has investments, as well as other water districts. Refer to Note 8 - Other Assets. The Company recorded capital contributions, purchased water and water delivery services and had water payments due to the mutual water companies and districts. 21 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 13. Related Party Transactions (continued) (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 - Through January 2022, the Company had representation on the board of directors of Calavo. Calavo owns common stock of the Company and the Company pays dividends on such common stock to Calavo. Additionally, the Company leases office space to Calavo. As of February 2022, Calavo is no longer a related party. (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 affiliate of WAM is the holder of 9,300 shares of the Company's Series B-2 convertible preferred stock. Upon the adoption of ASC 842, the Company recorded a right-of-use, or ROU, asset and corresponding lease liability. (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 immaterial 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. The Company records revenue related to the licensing of intangible assets to FGF. Effective November 1, 2021, the Company leases Finca Santa Clara to FGF and records rental revenue related to the leased land. (9) LLCB - Refer to Note 5 - Real Estate Development. (10) Freska - A former 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 and corresponding receivables for such sales. The former board member resigned effective June 14, 2022 and Freska is no longer a related party. (11) Third-party growers - A former member of the Company's board of directors markets lemons through the Company. The Company had payments due to the member for such lemon procurement. The former board member resigned effective June 14, 2022. 14. Income Taxes The effective tax rate for the nine months ended July 31, 2022 was higher than the federal statutory tax rate of 21% mainly due to foreign jurisdictions that are taxed at different rates, state taxes, tax impact of stock-based compensation, and nondeductible tax items. The Company has no material uncertain tax positions as of July 31, 2022. 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 July 31, 2022. 15. Retirement Plans The Limoneira Company Retirement Plan (the “Plan”) is a noncontributory, defined benefit, single employer pension plan, that 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 terminated the Plan effective December 31, 2021. 22 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 15. Retirement Plans (continued) The Plan was funded consistent with the funding requirements of federal law and regulations. There were no funding contributions during the nine months ended July 31, 2022 and 2021. Plan assets are invested in a group trust consisting primarily of pooled funds, mutual funds, cash and cash equivalents. The components of net periodic pension cost for the Plan for the three and nine months ended July 31, 2022 and 2021 were as follows (in thousands): Three Months Ended July 31, Nine Months Ended July 31, 2022 2021 2022 2021 Administrative expenses $ 180 $ 70 $ 539 $ 208 Interest cost 130 137 390 412 Expected return on plan assets ( 128 ) ( 236 ) ( 383 ) ( 708 ) Prior service cost 12 11 34 33 Recognized actuarial loss 99 185 298 553 Net periodic benefit cost $ 293 $ 167 $ 878 $ 498 16. Commitments and Contingencies The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation against it that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings. The Company is party to a lawsuit, initiated on March 27, 2018, against Southern California Edison in Superior Court of the State of California, County of Los Angeles whereby the Company is claiming unspecified damages, attorneys' fees and other costs, as a result from the Thomas Fire in fiscal year 2018. While the outcome of this lawsuit is uncertain, the Company believes its claim for damages is valid. 17. Stock-based Compensation and Treasury Stock Stock-based Compensation The Company has a stock-based compensation plan (the “Stock Plan”) that allows for the grant of restricted 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 common stock on the date of grant and all are classified as equity awards. Performance Awards Certain restricted stock grants are made to management each December under the Stock Plan based on the achievement of certain annual financial performance and other criteria achieved during the previous fiscal year (“Performance Awards”). The Performance Awards are based on a percentage of the employee’s base salary divided by the stock price on the grant date once the performance criteria has been met, and generally vest over a two-year period as service is provided. There were no Performance Awards granted for fiscal year 2021 because the financial performance and other criteria were not met. Executive Awards Certain restricted stock grants are made to key executives under the Stock Plan (“Executive Awards”). Executive awards generally vest over a three to five-year period as service is provided. During December 2021, the Company granted 70,000 shares of restricted stock with a per share price of $ 14.96 to key executives under the Stock Plan, of which 15,000 shares were forfeited on February 1, 2022 pursuant to a key executive's severance agreement. The related compensation expense after forfeiture of approximately $ 823,000 will be recognized equally over the next three years as the shares vest. 23 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 17. Stock-based Compensation and Treasury Stock (continued) Stock-based Compensation (continued) Director Awards On an annual basis, the Company generally issues shares of common stock to non-employee directors under the Stock Plan (“Director Awards”). During March 2022, 46,279 shares of restricted stock were granted as Director Awards, which vest after a one-year period from date of grant. The related stock-based compensation of approximately $ 627,000 will be recognized equally over the next year as the shares vest. During January 2021, 27,815 shares of restricted stock were granted as Director Awards that vested upon grant. The related stock-based compensation of $ 469,000 was recognized during the first quarter of fiscal year 2021. During the nine months ended July 31, 2022 and 2021, members of management exchanged 68,080 and 46,993 shares of common stock with fair values totaling $ 1,086,000 and $ 701,000 , respectively, at the dates of the exchanges, for the payment of payroll taxes associated with the vesting of shares under the Stock Plan. Treasury Stock Share Repurchase Program In fiscal year 2021, the Company's Board of Directors approved a share repurchase program authorizing the Company 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. 18. 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, intersegment packing revenues and shipping and handling revenues relative to lemon packing. The lemon packing segment expenses are comprised of lemon packing costs. The lemon packing segment revenues include intersegment revenues between fresh lemons and lemon packing. The intersegment revenues are included gross in the segment note and a separate line item is shown as an elimination. The avocados segment includes sales, farming and harvest costs. The other agribusiness segment includes sales, farming and harvest costs of oranges, specialty citrus and other crops. Revenues related to rental operations are included in “Corporate and Other.” Other agribusiness revenues consisted of oranges of $ 3,736,000 and $ 7,226,000 and specialty citrus and other crops of $ 1,120,000 and $ 3,437,000 for the three and nine months ended July 31, 2022, respectively. Other agribusiness revenues consisted of oranges of $ 1,981,000 and $ 4,476,000 and specialty citrus and other crops of $ 1,065,000 and $ 4,089,000 for the three and nine months ended July 31, 2021, respectively. The Company does not separately allocate depreciation and amortization to its fresh lemons, lemon packing, avocados and other agribusiness segments. No asset information is provided for reportable operating segments, as these specified amounts are not included in the measure of segment profit or loss reviewed by the Company’s chief operating decision maker. The Company measures operating performance, including revenues and operating income, of its operating segments and allocates resources based on its evaluation. The Company does not allocate selling, general and administrative expense, 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. Intersegment revenues represent packing revenues related to lemons grown on the Company’s orchards. 24 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 18. Segment Information (continued) Segment information for the three months ended July 31, 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 33,823 $ 6,337 $ — $ 12,578 $ 4,856 $ 57,594 $ 1,329 $ 58,923 Intersegment revenue — 9,696 ( 9,696 ) — — — — — Total net revenues 33,823 16,033 ( 9,696 ) 12,578 4,856 57,594 1,329 58,923 Costs and expenses 32,600 11,953 ( 9,696 ) 3,154 1,280 39,291 6,103 45,394 Depreciation and amortization — — — — — 2,172 297 2,469 Operating income (loss) $ 1,223 $ 4,080 $ — $ 9,424 $ 3,576 $ 16,131 $ ( 5,071 ) $ 11,060 Segment information for the three months ended July 31, 2021 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 36,295 $ 4,540 $ — $ 4,073 $ 3,046 $ 47,954 $ 1,171 $ 49,125 Intersegment revenue — 7,192 ( 7,192 ) — — — — — Total net revenues 36,295 11,732 ( 7,192 ) 4,073 3,046 47,954 1,171 49,125 Costs and expenses 31,846 9,279 ( 7,192 ) 2,708 1,956 38,597 4,717 43,314 Depreciation and amortization — — — — — 2,094 343 2,437 Operating income (loss) $ 4,449 $ 2,453 $ — $ 1,365 $ 1,090 $ 7,263 $ ( 3,889 ) $ 3,374 Segment information for the nine months ended July 31, 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 94,415 $ 19,048 $ — $ 16,920 $ 10,663 $ 141,046 $ 3,901 $ 144,947 Intersegment revenue — 25,658 ( 25,658 ) — — — — — Total net revenues 94,415 44,706 ( 25,658 ) 16,920 10,663 141,046 3,901 144,947 Costs and expenses 91,983 34,171 ( 25,658 ) 5,548 7,718 113,762 19,665 133,427 Depreciation and amortization — — — — — 6,544 888 7,432 Operating income (loss) $ 2,432 $ 10,535 $ — $ 11,372 $ 2,945 $ 20,740 $ ( 16,652 ) $ 4,088 Segment information for the nine months ended July 31, 2021 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 98,195 $ 15,540 $ — $ 6,780 $ 8,565 $ 129,080 $ 3,452 $ 132,532 Intersegment revenue — 23,159 ( 23,159 ) — — — — — Total net revenues 98,195 38,699 ( 23,159 ) 6,780 8,565 129,080 3,452 132,532 Costs and expenses 89,982 29,684 ( 23,159 ) 4,141 6,832 107,480 17,444 124,924 Depreciation and amortization — — — — — 6,591 899 7,490 Operating income (loss) $ 8,213 $ 9,015 $ — $ 2,639 $ 1,733 $ 15,009 $ ( 14,891 ) $ 118 19. Subsequent Events The Company evaluated events subsequent to July 31, 2022 through the date of this filing, to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except as described in the notes to the interim consolidated financial statements, it was determined that no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements. 25