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 46 Consolidated Financial Statements of Limoneira Company Consolidated Balance Sheets at October 31, 2022 and 2021 48 Consolidated Statements of Operations for the years ended October 31, 2022, 2021 and 2020 49 Consolidated Statements of Comprehensive Loss for the years ended October 31, 2022, 2021 and 2020 50 Consolidated Statements of Stockholders’ Equity and Temporary Equity for the years ended October 31, 2022, 2021 and 2020 51 Consolidated Statements of Cash Flows for the years ended October 31, 2022, 2021 and 2020 52 Notes to Consolidated Financial Statements 54 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. 45 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, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders' equity and temporary equity, and cash flows, for each of the three years in the period ended October 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2022, 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 6, its equity investment in LLCB of $52,431,000 and $51,416,000 as of October 31, 2022 and 2021, respectively, and its equity earnings in LLCB of $1,015,000, $4,508,000 and $1,386,000 for the years ended October 31, 2022, 2021 and 2020, 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, 2022, 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 December 22, 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 and 6 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 LLCB, for impairment involves an initial assessment of each real estate development to determine whether events or changes 46 in circumstances exist that may indicate that the carrying amount 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 investment in LLCB 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 or equity investment in LLCB. Real estate development assets were $9,706,000, and equity investment in LLCB was $61,154,000 as of October 31, 2022. For the year ended October 31, 2022, no impairment loss has been recognized on the real estate development and no other-than-temporary-impairment has been recognized on the Company’s equity investment in LLCB. We identified management judgments used in the determination of impairment indicators for real estate development as a critical audit matter because of the subjectivity used by management when determining whether events or changes in circumstances have occurred indicating that the carrying amount 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 and equity investment in LLCB 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 or equity investment in LLCB is no longer recoverable, including controls over management’s evaluation of the entitlement process, litigation, changes in zoning, government regulation, geographical demand and market conditions. ▪ We evaluated management’s impairment analysis by: ◦ Searching for adverse asset-specific and/or market conditions by reviewing publicly available information on land values in the surrounding regions of the development, periodicals and news information relating to the Southern California real estate market ◦ 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 property 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 ◦ Obtaining comparable land sales in the area and comparing such data to information used by management with the assistance of our fair value specialists ◦ Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis /s/ Deloitte & Touche LLP Los Angeles, California December 22, 2022 We have served as the Company’s auditor since 2019. 47 LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS ($ in thousands, except share amounts) October 31, 2022 2021 Assets Current assets: Cash $ 857 $ 439 Accounts receivable, net 15,651 17,483 Cultural costs 8,643 7,500 Prepaid expenses and other current assets 8,496 10,709 Receivables/other from related parties 3,888 5,958 Total current assets 37,535 42,089 Property, plant and equipment, net 222,628 242,420 Real estate development 9,706 22,828 Equity in investments 72,855 64,072 Goodwill 1,506 1,527 Intangible assets, net 7,317 8,329 Other assets 16,971 11,011 Total assets $ 368,518 $ 392,276 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 10,663 $ 8,963 Growers and suppliers payable 10,740 10,371 Accrued liabilities 11,279 6,542 Payables to related parties 4,860 6,976 Current portion of long-term debt 1,732 2,472 Total current liabilities 39,274 35,324 Long-term liabilities: Long-term debt, less current portion 104,076 130,353 Deferred income taxes 23,497 22,853 Other long-term liabilities 9,807 4,501 Total liabilities 176,654 193,031 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, 2022 and 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 October 31, 2022 and 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 shares issued or outstanding at October 31, 2022 and 2021) — — Common Stock – $ 0.01 par value ( 39,000,000 shares authorized: 17,935,292 and 17,936,377 shares issued and 17,684,315 and 17,685,400 shares outstanding at October 31, 2022 and 2021, respectively) 177 179 Additional paid-in capital 165,169 163,965 Retained earnings 15,500 21,552 Accumulated other comprehensive loss ( 7,908 ) ( 5,733 ) Treasury stock, at cost, 250,977 shares at October 31, 2022 and 2021 ( 3,493 ) ( 3,493 ) Noncontrolling interest 11,609 11,965 Total stockholders' equity 181,054 188,435 Total liabilities and stockholders' equity $ 368,518 $ 392,276 See Notes to Consolidated Financial Statements. 48 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands, except share amounts) Years Ended October 31, 2022 2021 2020 Net revenues: Agribusiness $ 179,281 $ 161,381 $ 159,937 Other operations 5,324 4,646 4,622 Total net revenues 184,605 166,027 164,559 Costs and expenses: Agribusiness 160,651 148,492 157,281 Other operations 4,438 4,332 4,504 (Gain) loss on disposal of assets ( 4,500 ) 109 502 Selling, general and administrative 21,815 19,427 21,280 Total costs and expenses 182,404 172,360 183,567 Operating income (loss) 2,201 ( 6,333 ) ( 19,008 ) Other (expense) income: Interest income 53 379 362 Interest expense, net of patronage dividends ( 2,291 ) ( 1,501 ) ( 2,048 ) Equity in earnings of investments, net 1,341 3,203 339 Loss on stock in Calavo Growers, Inc. — — ( 6,299 ) Other (expense) income, net ( 955 ) 89 219 Total other (expense) income ( 1,852 ) 2,170 ( 7,427 ) Income (loss) before income tax (provision) benefit 349 ( 4,163 ) ( 26,435 ) Income tax (provision) benefit ( 823 ) 266 8,494 Net loss ( 474 ) ( 3,897 ) ( 17,941 ) Loss attributable to noncontrolling interest 238 456 1,506 Net loss attributable to Limoneira Company ( 236 ) ( 3,441 ) ( 16,435 ) Preferred dividends ( 501 ) ( 501 ) ( 501 ) Net loss applicable to common stock $ ( 737 ) $ ( 3,942 ) $ ( 16,936 ) Basic net loss per common share $ ( 0.04 ) $ ( 0.23 ) $ ( 0.96 ) Diluted net loss per common share $ ( 0.04 ) $ ( 0.23 ) $ ( 0.96 ) Weighted-average common shares outstanding-basic 17,513,000 17,555,000 17,666,000 Weighted-average common shares outstanding-diluted 17,513,000 17,555,000 17,666,000 See Notes to Consolidated Financial Statements. 49 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Years Ended October 31, 2022 2021 2020 Net loss $ ( 474 ) $ ( 3,897 ) $ ( 17,941 ) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 2,430 ) ( 685 ) ( 707 ) Minimum pension liability adjustments, net of tax of $( 71 ), $ 940 and $( 69 ) ( 183 ) 2,500 274 Pension settlement cost, net of tax of $ 169 , $ 0 and $ 0 438 — — Residual state tax effects on sale of equity securities — — 140 Total other comprehensive (loss) income, net of tax ( 2,175 ) 1,815 ( 293 ) Comprehensive loss ( 2,649 ) ( 2,082 ) ( 18,234 ) Comprehensive loss attributable to noncontrolling interest 356 445 1,536 Comprehensive loss attributable to Limoneira Company $ ( 2,293 ) $ ( 1,637 ) $ ( 16,698 ) See Notes to Consolidated Financial Statements. 50 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 (Loss) Income Stock Interest Total Stock Stock Balance at October 31, 2019 17,756,180 $ 178 $ 160,254 $ 53,089 $ ( 7,255 ) $ — $ 15,422 $ 221,688 $ 1,479 $ 9,331 Dividends - common ($ 0.30 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 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 Dividends - common ($ 0.30 per share) — — — ( 5,315 ) — — — ( 5,315 ) — — Dividends - Series B ($ 8.75 per share) — — — ( 129 ) — — — ( 129 ) — — Dividends - Series B-2 ($ 40 per share) — — — ( 372 ) — — — ( 372 ) — — Stock compensation 104,231 1 2,731 — — — — 2,732 — — Exchange of common stock ( 105,316 ) ( 3 ) ( 1,527 ) — — — — ( 1,530 ) — — Net loss — — — ( 236 ) — — ( 238 ) ( 474 ) — — Other comprehensive loss, net of tax — — — — ( 2,175 ) — ( 118 ) ( 2,293 ) — — Balance at October 31, 2022 17,684,315 $ 177 $ 165,169 $ 15,500 $ ( 7,908 ) $ ( 3,493 ) $ 11,609 $ 181,054 $ 1,479 $ 9,331 See Notes to Consolidated Financial Statements 51 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended October 31, 2022 2021 2020 Operating activities Net loss $ ( 474 ) $ ( 3,897 ) $ ( 17,941 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 9,798 9,812 10,097 (Gain) loss on disposal of assets ( 4,500 ) 109 502 Stock compensation expense 2,732 2,582 2,044 Non-cash lease expense 442 520 470 Equity in earnings of investments, net ( 1,341 ) ( 3,203 ) ( 339 ) Cash distributions from equity investments 483 219 — Deferred income taxes 548 ( 189 ) ( 2,133 ) Loss on stock in Calavo Growers, Inc. — — 6,299 Other, net 1,831 335 671 Changes in operating assets and liabilities: Account receivable and receivables/other from related parties 1,845 ( 5,076 ) ( 309 ) Cultural costs ( 1,148 ) ( 639 ) 359 Prepaid expenses and other current assets ( 325 ) ( 1,021 ) ( 44 ) Income taxes receivable — 5,911 ( 4,932 ) Other assets ( 134 ) ( 5 ) 411 Accounts payable and growers and suppliers payable 1,853 5,389 ( 5,545 ) Accrued liabilities and payables to related parties 3,269 ( 730 ) ( 685 ) Other long-term liabilities ( 49 ) ( 512 ) ( 242 ) Net cash provided by (used in) operating activities 14,830 9,605 ( 11,317 ) Investing activities Capital expenditures ( 10,066 ) ( 9,834 ) ( 10,599 ) Net proceeds from sales of assets 19,259 119 6,261 Net proceeds from sales of real estate development assets 7,917 — — Cash distribution from Trapani Fresh 122 — — Net proceeds from sale of stock in Calavo Growers, Inc. — — 11,048 Loan to Limoneira Lewis Community Builders, LLC — — ( 1,800 ) Collection on loan and notes receivable 2,755 25 1,800 Equity investment contributions ( 48 ) — ( 2,800 ) Cash distribution from equity investment — 106 — Investments in mutual water companies and water rights ( 506 ) ( 653 ) ( 64 ) Net cash provided by (used in) investing activities $ 19,433 $ ( 10,237 ) $ 3,846 52 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Years Ended October 31, 2022 2021 2020 Financing activities Borrowings of long-term debt $ 146,941 $ 102,196 $ 121,056 Repayments of long-term debt ( 173,755 ) ( 95,140 ) ( 104,066 ) Proceeds from equipment financings 1,020 — — Principal paid on finance lease and equipment financings ( 377 ) ( 18 ) — Dividends paid - common ( 5,315 ) ( 5,303 ) ( 5,356 ) Dividends paid - preferred ( 501 ) ( 501 ) ( 501 ) Exchange of common stock ( 1,530 ) ( 700 ) ( 213 ) Purchase of treasury stock — — ( 3,493 ) Payments of deferred financing costs — — ( 66 ) Net cash (used in) provided by financing activities ( 33,517 ) 534 7,361 Effect of exchange rate changes on cash ( 328 ) 36 ( 5 ) Net increase (decrease) in cash 418 ( 62 ) ( 115 ) Cash at beginning of year 439 501 616 Cash at end of year $ 857 $ 439 $ 501 Supplemental disclosures of cash flow information Cash paid during the year for interest, net of amounts capitalized $ 2,064 $ 1,503 $ 1,865 Cash paid (received) during the year for income taxes, net $ 83 $ ( 5,911 ) $ ( 1,235 ) Non-cash investing and financing activities: Contribution of real estate development to equity investment $ 7,975 $ — $ — Reduction of net payables to related parties $ 2,392 $ — $ — Reduction of note receivable $ 388 $ — $ — Capital expenditures accrued but not paid at year-end $ 430 $ 657 $ 4,269 See Notes to Consolidated Financial Statements. 53 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 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. 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, 2022 and 2021 the allowances totaled $ 469,000 and $ 444,000 , respectively. For fiscal years 2022, 2021 and 2020, credit losses were insignificant. Concentrations and Geographic Information The Company sells the majority of its avocados, oranges and specialty citrus and other crops to third-party packinghouses and processors. Prior to fiscal year 2022, the Company sold a majority of its avocado production to Calavo. Sales of avocados to Calavo were $ 6,594,000 and $ 8,806,000 in fiscal years 2021 and 2020, respectively. Concentrations of credit risk with respect to revenues and accounts receivable are limited due to a large, diverse customer base. One customer represented 11 % of revenue for the year ended October 31, 2022 and two customers each represented 10 % of revenue for the year ended October 31, 2021. No individual customer represented more than 10% of accounts receivable, net as of October 31, 2022 and 2021. Lemons procured from third-party growers were approximately 52 %, 52 % and 60 % of the Company's lemon supply in fiscal years 2022, 2021 and 2020, respectively. One third-party grower was 21 % and 46 % of growers and suppliers payable at October 31, 2022 and 2021, 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. 54 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Concentrations and Geographic Information (continued) During fiscal years 2022, 2021 and 2020, the Company had approximately $ 3,614,000 , $ 2,976,000 and $ 3,521,000 , respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. (“PDA”) and Agricola San Pablo SpA. ("San Pablo"). During fiscal years 2022, 2021 and 2020, the Company had approximately $ 673,000 , $ 3,633,000 and $ 14,150,000 , respectively, of total sales in Argentina. 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 $ 12,663,000 and $ 14,322,000 as of October 31, 2022 and 2021, respectively, and located in Argentina were $ 19,440,000 and $ 19,700,000 as of October 31, 2022 and 2021, 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 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 55 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Property, Plant and Equipment (continued) 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 $ 637,000 and $ 1,192,000 in fiscal years 2022 and 2021, 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 had no equity securities as of October 31, 2022 and 2021. 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 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 years 2021 and 2022. The COVID-19 pandemic may 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 2023 and beyond, is driven by estimates that contain uncertainties. 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 56 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Goodwill (continued) 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, 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, 2022 and 2021. Comprehensive (Loss) Income Comprehensive income or 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 loss is reported as a component of the Company's stockholders' equity. The following table summarizes the changes in other comprehensive (loss) income by component (in thousands): 2022 2021 2020 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 $ ( 2,430 ) $ — $ ( 2,430 ) $ ( 685 ) $ — $ ( 685 ) $ ( 707 ) $ — $ ( 707 ) Minimum pension liability adjustments: Other comprehensive (loss) income before reclassifications ( 254 ) 71 ( 183 ) 3,440 ( 940 ) 2,500 205 69 274 Amounts reclassified to earnings included in "Other (expense) income, net" 607 ( 169 ) 438 — — — — — — Available-for-sale securities: Amounts reclassified to earnings included in "Selling, general and administrative" — — — — — — — 140 140 Other comprehensive (loss) income $ ( 2,077 ) $ ( 98 ) $ ( 2,175 ) $ 2,755 $ ( 940 ) $ 1,815 $ ( 502 ) $ 209 $ ( 293 ) The following table summarizes the changes in accumulated other comprehensive (loss) income by component (in thousands): Foreign Currency Translation Loss Defined Benefit Pension Plan Available-for-Sale Securities Accumulated Other Comprehensive (Loss) Income 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 ) Other comprehensive (loss) income ( 2,430 ) 255 — ( 2,175 ) Balance as of October 31, 2022 $ ( 6,184 ) $ ( 1,724 ) $ — $ ( 7,908 ) 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 57 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Foreign Currency (continued) period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive (loss) income. Aggregate foreign exchange transaction losses realized for the Company's foreign subsidiaries were approximately $ 204,000 and $ 646,000 for fiscal years 2022 and 2021, respectively, 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. The Company’s avocados, oranges, specialty citrus and other specialty crops are packed and sold by 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. We recorded agribusiness revenues from crop insurance proceeds of $ 449,000 in fiscal year 2022. There were no proceeds received in fiscal years 2021and 2020. Advertising Expense Advertising costs are expensed as incurred. Advertising costs were $ 165,000 , $ 178,000 and $ 239,000 in fiscal years 2022, 2021 and 2020, respectively. 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 facilities and 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 58 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Leases (continued) 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 14 - 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 12 - 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 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. 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. Defined Benefit Retirement Plan The Company sponsors a defined benefit retirement plan (the "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, 2022 and 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 Company used the latest mortality tables released by the Society of Actuaries through October 2022 to measure its pension obligation as of October 31, 2022 and combined with the assumed discount rate and other demographic assumptions, its pension liability increased by approximately $ 1,425,000 as of October 31, 2022. On November 4, 2022, the Company entered into an agreement with Principal Life Insurance Company for the purchase of an annuity contract in connection with the Plan termination. On November 10, 2022, the annuity contract was purchased for $ 12,617,000 , payable with Plan assets and a $ 2,500,000 cash payment from the Company. 59 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. Summary of Significant Accounting Policies (continued) 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. 3. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following at October 31 (in thousands): 2022 2021 Prepaid supplies and insurance $ 2,958 $ 2,521 Note receivable and related interest — 2,438 Real estate development held for sale 2,670 2,543 Sales tax receivable 475 909 Lemon supplier advances 1,188 — Other 1,205 2,298 $ 8,496 $ 10,709 4. Property, Plant and Equipment Property, plant and equipment consists of the following at October 31 (in thousands): 2022 2021 Land $ 87,617 $ 95,868 Land improvements 37,221 35,440 Buildings and building improvements 37,929 48,565 Equipment 61,615 62,598 Orchards and vineyards 60,657 63,454 Construction in progress 28,489 22,477 313,528 328,402 Less accumulated depreciation ( 90,900 ) ( 85,982 ) $ 222,628 $ 242,420 Depreciation expense was $ 9,075,000 , $ 8,883,000 and $ 9,098,000 for fiscal years 2022, 2021 and 2020, 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 (gain) loss on disposal of assets in the consolidated statements of operations. In October 2022, the Company sold the Oxnard Lemon property and packing facility located in Ventura County, California. The Company received net proceeds of $ 19,144,000 and recognized a gain of approximately $ 846,000 , which is included in (gain) loss on disposal of assets in the consolidated statements of operations. Concurrent with the closing of the sale, the 60 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Property, Plant and Equipment (continued) Company entered into a lease agreement to continue use of the property as a lessee for a period of 36 months from the closing date , with extension options for an additional 24 months. 5. 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): 2022 2021 East Area I - Retained Property $ — $ 13,335 East Area II 9,706 9,493 $ 9,706 $ 22,828 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 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 $ 3,444,000 and $ 5,771,000 at October 31, 2022 and 2021, 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 Loan had an outstanding balance of $ 4,500,000 as of October 31, 2022. 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 December 2022, LLCB exercised the extension option. In February 2018, certain principals from Lewis and by the Company 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. In October 2022, the Company entered into a joint venture with Lewis for the development of the Retained Property. The Company formed LLCB II, LLC ("LLCB II") as the development entity, contributed the Retained Property to the joint venture and sold a 50 % interest to Lewis for $ 7,975,000 . After transaction costs, the Company received net proceeds of $ 7,917,000 and recorded a gain on the transaction of $ 4,652,000 , of which $ 465,000 was deferred and $ 4,187,000 is included in (gain) loss on disposal of assets in the consolidated statements of operations. The joint venture partners will share in the capital contributions to fund project costs until loan proceeds and/or revenues are sufficient to fund the project. In connection with the closing, the Company and Lewis amended LLCB’s Limited Liability Company Agreement to provide that LLCB is to include the processing of final approval for additional residential units to be developed and constructed on the Retained Property. Through October 31, 2022, LLCB has closed sales of the initial residential lots representing 586 residential units. 61 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. Real Estate Development (continued) 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 closed in the first quarter of fiscal year 2023. After transaction and other costs, the Company received cash proceeds of approximately $ 2,577,000 . During 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 (gain) loss on disposal of assets. The carrying value of the property at October 31, 2022 and 2021, was $ 2,670,000 and $ 2,543,000 , respectively, and was 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 fiscal year 2022, the promissory note was paid in full and the deferred gain of $ 161,000 was recorded in (gain) loss on disposal of assets. 6. 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 $ 202,000 , $ 200,000 and $ 210,000 in fiscal years 2022, 2021 and 2020, respectively. Del Mar markets lemons through the Company pursuant to its customary marketing agreements and the amount of lemons procured from Del Mar was $ 1,568,000 , $ 1,681,000 and $ 1,037,000 in fiscal years 2022, 2021 and 2020, respectively. Fruit proceeds due to Del Mar were $ 703,000 and $ 694,000 at October 31, 2022 and 2021, respectively, and are included in growers and suppliers 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 year 2014 and an additional 12 % interest was acquired with the purchase of PDA in fiscal year 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 of investments. Amortization amounted to $ 118,000 , $ 180,000 and $ 180,000 for fiscal years 2022, 2021 and 2020, respectively, and is estimated to be approximately $ 87,000 and $ 76,000 per year for years ending October 31, 2023 and 2024, respectively, and immaterial thereafter. 62 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. Equity in Investments (continued) Rosales (continued) The Company recognized $ 3,615,000 , $ 3,405,000 and $ 3,975,000 of lemon sales to Rosales in fiscal years 2022, 2021 and 2020, respectively. In fiscal years 2022, 2021 and 2020, the aggregate amount of lemons and oranges procured from Rosales was $ 3,821,000 , $ 5,304,000 and $ 3,190,000 , respectively. Amounts due from Rosales were $ 270,000 and $ 1,570,000 at October 31, 2022 and 2021, respectively, and are included in receivables/other from related parties. Limoneira Lewis Community Builders, LLC (“LLCB”) As described in Note 5 – 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 not deemed significant for the years ended October 31, 2022 and 2020 but was significant for the year ended October 31, 2021. Therefore, the audited financial statements of LLCB for the years ended October 31, 2022, 2021 and 2020 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 $ 52,431,000 as of October 31, 2022. The basis difference of $ 8,723,000 at October 31, 2022 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 2022, 2021 and 2020 totaled $ 77,000 , $ 1,434,000 and $ 1,060,000 , respectively. The Company's share of LLCB's net income for fiscal years 2022, 2021 and 2020 prior to basis amortization was $ 1,015,000 , $ 4,508,000 and 1,386,000 , respectively. LLCB II, LLC (“LLCB II”) As described in Note 5 - Real Estate Development, in October 2022, the Company formed a joint venture with Lewis for the residential development of its Retained Property. Control is shared with Lewis, therefore the Company's investment in LLCB II is accounted for using the equity method of accounting. The following is financial information of the equity method investees for fiscal years 2022, 2021 and 2020 (in thousands): 2022 Del Mar Romney Rosales LLCB LLCB II Current assets $ 654 $ — $ 3,478 $ 116,596 $ 16,051 Non-current assets $ 807 $ 612 $ 2,606 $ — $ — Current liabilities $ — $ — $ 3,076 $ 10,531 $ 5 Non-current liabilities $ — $ — $ 1,686 $ — $ — Revenues $ 2,882 $ 6 $ 7,177 $ 2,500 $ — Operating income (loss) $ 1,823 $ ( 1 ) $ 272 $ 1,809 $ — Net income (loss) $ 1,823 $ ( 1 ) $ 26 $ 1,809 $ — 2021 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 Revenues $ 930 $ 20 $ 10,097 $ 25,906 $ — Operating income (loss) $ ( 109 ) $ ( 2 ) $ 1,216 $ 2,615 $ — Net income (loss) $ ( 109 ) $ ( 2 ) $ 476 $ 2,615 $ — 63 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. 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 LLCB II Total 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 Equity earnings (losses) 510 ( 1 ) ( 106 ) 938 — 1,341 Cash distributions ( 483 ) — — — — ( 483 ) Investment contributions — — — — 8,023 8,023 Foreign currency adjustments — — ( 98 ) — — ( 98 ) Investment balance October 31, 2022 $ 2,024 $ 507 $ 1,147 $ 61,154 $ 8,023 $ 72,855 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, 2020 $ 1,535 Foreign currency translation adjustment ( 8 ) Balance at October 31, 2021 1,527 Foreign currency translation adjustment ( 21 ) Balance at October 31, 2022 $ 1,506 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, 2022 with no impairment noted. The Company did no t incur any goodwill impairment losses in fiscal years 2022, 2021 or 2020, as the estimated fair values of its reporting units were in excess of their carrying values. As of October 31, 2022, the Company has allocated goodwill to its reportable segments as follows: Fresh Lemons $ 936,000 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) 7. Goodwill and Intangible Assets, Net (continued) Intangible assets consisted of the following as of October 31 (in thousands): 2022 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 Intangible assets: Trade names and trademarks $ 2,108 $ ( 881 ) $ 1,227 8 $ 2,108 $ ( 663 ) $ 1,445 8 Customer relationships 4,037 ( 1,660 ) 2,377 9 4,037 ( 1,209 ) 2,828 9 Non-competition agreement 437 ( 76 ) 361 8 437 ( 22 ) 415 8 Acquired water and mineral rights 3,352 — 3,352 Indefinite $ 3,641 $ — $ 3,641 Indefinite Intangible assets $ 9,934 $ ( 2,617 ) $ 7,317 $ 10,223 $ ( 1,894 ) $ 8,329 Amortization expense totaled $ 723,000 , $ 929,000 , and $ 999,000 for the years ended October 31, 2022, 2021 and 2020, respectively. Estimated future amortization expense of intangible assets for each of the next five fiscal years and thereafter are as follows (in thousands): 2023 $ 724 2024 716 2025 711 2026 711 2027 427 Thereafter 676 $ 3,965 8. 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, 2022 and 2021 were $ 6,500,000 and $ 5,994,000 , respectively. 9. Accrued Liabilities Accrued liabilities consist of the following at October 31 (in thousands): 2022 2021 Compensation $ 3,572 $ 2,112 Property taxes 664 676 Operating expenses 2,341 1,203 Leases 2,026 604 Other 2,676 1,947 $ 11,279 $ 6,542 65 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Long-Term Debt Long-term debt is comprised of the following at October 31 (in thousands): 2022 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 3.12 % at October 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. $ 88,521 $ 111,293 Farm Credit West term loan: The loan was repaid in September 2022. — 809 Farm Credit West term loan: The interest rate is fixed at 3.24 %. The loan is payable in monthly installments through October 2035. 919 974 Farm Credit West term loan: The interest rate is fixed at 3.24 %. The loan is payable in monthly installments through March 2036. 7,562 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. 5,555 5,892 Farm Credit West term loan: The interest rate is fixed at 3.19 %. The loan is payable in monthly installments through September 2026. 2,003 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. 675 1,011 Note Payable: The Note Payable was repaid in October 2022. — 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. 233 411 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. 434 652 Subtotal 105,902 132,956 Less deferred financing costs, net of accumulated amortization 94 131 Total long-term debt, net 105,808 132,825 Less current portion 1,732 2,472 Long-term debt, less current portion $ 104,076 $ 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 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 October 31, 2022, the Company's outstanding borrowings under the revolving and non-revolving lines of credit were $ 88,521,000 and it had $ 41,479,000 available to borrow. The interest rate in effect under the Revolving Credit Supplement 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 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. 66 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. Long-Term Debt (continued) 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 5.50 % as of October 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 :1.0 when measured at October 31, 2022 and annually thereafter. We were in compliance as of October 31, 2022. The Company received annual cash patronage dividends from the Lender of $ 1,582,000 , $ 1,170,000 and $ 1,566,000 in fiscal years 2022, 2021 and 2020, respectively. Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $ 582,000 , $ 1,110,000 and $ 921,000 during the fiscal years ended 2022, 2021 and 2020, 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 $ 94,000 and $ 131,000 , net of amortization at October 31, 2022 and 2021, 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): 2023 $ 1,732 2024 1,758 2025 90,523 2026 1,452 2027 961 Thereafter 9,476 $ 105,902 67 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Other Long-Term Liabilities Other long-term liabilities consist of the following at October 31 (in thousands): 2022 2021 Minimum pension liability $ 2,272 $ 847 Loan guarantee 1,080 1,080 Leases 5,062 2,532 Other 1,393 42 $ 9,807 $ 4,501 12. 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 20 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): 2022 2021 Land and land improvements $ 13,619 $ 3,516 Buildings, equipment and building improvements 19,983 18,712 Orchards 8,410 — Less: accumulated depreciation ( 7,912 ) ( 6,331 ) Property, plant and equipment, net under operating leases $ 34,100 $ 15,897 Depreciation expense for assets under operating leases was approximately $ 934,000 and $ 669,000 for the fiscal years 2022 and 2021, respectively. The Company’s rental operations revenue consists of the following (in thousands): Year ended October 31, 2022 2021 Operating lease revenue $ 4,998 $ 4,329 Variable lease revenue 326 317 Total lease revenue $ 5,324 $ 4,646 The future minimum lease payments to be received by the Company related to these operating lease agreements as of October 31, 2022 are as follows (in thousands): 2023 $ 1,278 2024 964 2025 964 2026 222 2027 74 Thereafter 672 Total $ 4,174 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 facilities and equipment with remaining lease terms ranging from one to 15 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 68 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Leases (continued) Lessee Arrangements (continued) 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 $ 537,000 and $ 606,000 and variable lease costs were $ 242,000 and $ 288,000 , for the fiscal years 2022 and 2021, 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 $ 154,000 and $ 212,000 for fiscal year 2022, respectively, and were immaterial for fiscal year 2021. Supplemental balance sheet information related to leases consists of the following as of October 31 (in thousands): Classification 2022 2021 Assets Operating lease ROU assets Other assets $ 6,190 $ 2,041 Finance lease assets Other assets 1,091 1,142 $ 7,281 $ 3,183 Liabilities Current operating lease liabilities Accrued liabilities and payables to related parties $ 1,892 $ 488 Current finance lease liabilities Accrued liabilities 268 249 Non-current operating lease liabilities Other long-term liabilities 4,347 1,648 Non-current finance lease liabilities Other long-term liabilities 715 884 $ 7,222 $ 3,269 Weighted-average remaining lease term (in years): Operating leases 5.1 10.9 Finance leases 3.9 4.9 Weighted-average discount rate: Operating leases 6.1 % 3.7 % Finance leases 3.5 % 3.3 % Supplemental cash flow information related to leases consists of the following (in thousands): Year ended October 31, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 577 $ 603 Operating cash outflows from finance leases $ 35 $ 3 Financing cash outflows from finance leases $ 219 $ 18 ROU assets obtained in exchange for new operating lease liabilities $ 4,612 $ 271 Leased assets obtained in exchange for new finance lease liabilities $ 68 $ 1,151 69 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. Leases (continued) Lessee Arrangements (continued) 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 $ 470,000 of operating lease payments for leases that have been signed but not commenced: Operating Finance Total 2023 $ 1,891 $ 268 $ 2,159 2024 1,918 268 2,186 2025 1,914 268 2,182 2026 218 246 464 2027 134 — 134 Thereafter 1,046 — 1,046 Total lease payments 7,121 1,050 8,171 Less: Imputed interest ( 882 ) ( 67 ) ( 949 ) Present value of lease liabilities $ 6,239 $ 983 $ 7,222 In addition to operating and finance lease commitments, the Company also has financing transactions and a contract for pollination services, which do not meet the definition of a lease, with minimum future payments of $ 275,000 in fiscal year 2023, $ 224,000 in fiscal years 2024, 2025 and 2026 and $ 37,000 in fiscal year 2027. 13. 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, 2022, 2021 and 2020. The computations for basic and diluted net loss per common share are as follows (in thousands, except per share amounts): Year ended October 31, 2022 2021 2020 Basic net loss per common share: Net loss applicable to common stock $ ( 737 ) $ ( 3,942 ) $ ( 16,936 ) Effect of unvested, restricted stock ( 50 ) ( 35 ) ( 44 ) Numerator: Net loss for basic EPS ( 787 ) ( 3,977 ) ( 16,980 ) Denominator: Weighted average common shares-basic 17,513 17,555 17,666 Basic net loss per common share $ ( 0.04 ) $ ( 0.23 ) $ ( 0.96 ) Diluted net loss per common share: Numerator: Net loss for diluted EPS $ ( 787 ) $ ( 3,977 ) $ ( 16,980 ) Weighted average common shares-basic 17,513 17,555 17,666 Effect of dilutive unvested, restricted stock and preferred stock — — — Denominator: Weighted average common shares-diluted 17,513 17,555 17,666 Diluted net loss per common share $ ( 0.04 ) $ ( 0.23 ) $ ( 0.96 ) 70 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. Earnings Per Share (continued) 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. Diluted net loss per common share was calculated under the two-class method for the fiscal year ended October 31, 2022. The Company excluded 117,000 and 164,000 , unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted net losses per share for the fiscal years ended October 31, 2021 and 2020, respectively. 14. Related-Party Transactions The Company has transactions with equity method investments and various related-parties summarized in Note 5 - Real Estate Development, Note 6 - Equity in Investments and in the tables below (in thousands): October 31, 2022 October 31, 2021 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 $ — $ 506 $ 133 $ — $ — $ 432 $ 40 $ — 5 Cadiz / Fenner / WAM $ — $ 1,288 $ 446 $ 1,198 $ — $ 1,386 $ 273 $ 1,297 8 FGF $ 2,965 $ 2,652 $ 837 $ — $ 4,598 $ 980 $ 832 $ — 9 LLCB $ 66 $ — $ 3,444 $ — $ — $ — $ 5,771 $ — Year Ended October 31, 2022 Year Ended October 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 $ — $ 869 $ — $ — $ — $ 814 $ — $ — 2 Mutual water companies $ — $ — $ 1,454 $ — $ — $ — $ 1,160 $ — 3 Cooperative association $ — $ — $ 1,834 $ — $ — $ — $ 1,750 $ — 4 Calavo $ — $ 80 $ 2 $ 126 $ 6,594 $ 320 $ 721 $ 503 5 Cadiz / Fenner / WAM $ — $ — $ 1,467 $ — $ — $ — $ 338 $ — 6 Colorado River Growers $ — $ — $ — $ — $ 157 $ — $ 2,772 $ — 7 YMIDD $ 225 $ — $ 142 $ — $ — $ — $ 123 $ — 8 FGF $ 673 $ 343 $ 25 $ — $ 4,129 $ — $ 2,884 $ — 10 Freska $ — $ — $ — $ — $ 128 $ — $ 150 $ — 11 Third-party growers $ — $ — $ — $ — $ — $ — $ 147 $ — 12 Principal owner $ — $ — $ — $ 593 $ — $ — $ — $ — Year Ended October 31, 2020 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 $ — $ 785 $ — $ — $ — 2 Mutual water companies $ — $ — $ 894 $ — $ — 3 Cooperative association $ — $ — $ 1,849 $ — $ — 4 Calavo $ 8,806 $ 330 $ 1,223 $ 220 $ 503 5 Cadiz / Fenner / WAM $ — $ — $ 240 $ — $ — 6 Colorado River Growers $ 603 $ — $ 6,613 $ — $ — 7 YMIDD $ — $ — $ 139 $ — $ — 8 FGF $ 10,338 $ — $ 13,478 $ — $ — 71 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. Related-Party Transactions (continued) (1) Employees - The Company rents certain of its residential housing assets to employees on a month-to-month basis and recorded rental income from employees. There were no material rental payments due from employees at October 31, 2022 and 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. (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 no payments due to the cooperative association. (4) Calavo - Through January 2022, the Company had representation on the board of directors of Calavo. Calavo owned common stock of the Company and the Company paid 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 Limoneira Company 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 no amounts payable to them for such purchases. Additionally, the Compnay received fallowing revenue from YMIDD. (8) FGF - 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 operated the 1,200 -acre Santa Clara ranch and sold the lemons it grew to FGF, who packed, marketed, and sold the fruit to its export customers. As a result of this transaction, Trapani Fresh recognized lemon revenues at the market price less packinghouse charges to harvest, pack and market the fruit. Effective November 1, 2021, the Company leases Finca Santa Clara to FGF and records rental revenue related to the leased land. 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. (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 marketed lemons through the Company. The former board member resigned effective June 14, 2022 and is no longer a related-party. 72 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. Related-Party Transactions (continued) (12) Principal owner - The Company has one principal owner with ownership shares over 10% and paid dividends to such owner. 15. Income Taxes A reconciliation of income (loss) before income taxes for domestic and foreign locations for the years ended October 31, 2022, 2021 and 2020 are as follows (in thousands): 2022 2021 2020 United States $ 1,911 $ ( 1,459 ) $ ( 23,195 ) Foreign ( 1,562 ) ( 2,704 ) ( 3,240 ) Income (loss) before income taxes $ 349 $ ( 4,163 ) $ ( 26,435 ) The components of the provisions for income taxes for fiscal years 2022, 2021 and 2020 are as follows (in thousands): 2022 2021 2020 Current: Federal $ ( 178 ) $ 37 $ 5,835 State ( 93 ) 40 332 Foreign ( 4 ) — 194 Total current (provision) benefit ( 275 ) 77 6,361 Deferred: Federal ( 477 ) ( 17 ) 640 State ( 127 ) 127 1,177 Foreign 56 79 316 Total deferred (provision) benefit ( 548 ) 189 2,133 Total income tax (provision) benefit $ ( 823 ) $ 266 $ 8,494 73 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Income Taxes (continued) 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, 2022 and 2021 are as follows (in thousands): 2022 2021 Deferred income tax assets: Reserve and other accruals $ 752 $ 646 Net operating losses 5,917 6,312 Right-of-use asset 1,672 531 Minimum pension liability adjustment 621 231 Other assets 151 240 Interest expense limitation — 2 Stock-based compensation 604 493 Total deferred income tax assets 9,717 8,455 Valuation allowance ( 1,536 ) ( 1,324 ) Total net deferred income tax assets 8,181 7,131 Deferred income tax liabilities: Property taxes ( 135 ) ( 161 ) Depreciation ( 18,343 ) ( 18,665 ) Amortization ( 175 ) ( 242 ) Land and other indefinite life assets ( 6,592 ) ( 6,581 ) Investment in joint ventures and other basis adjustments ( 4,449 ) ( 3,510 ) Right-of-use asset ( 1,660 ) ( 510 ) Prepaids and receivables ( 298 ) ( 260 ) Other ( 26 ) ( 55 ) Total deferred income tax liabilities ( 31,678 ) ( 29,984 ) Net deferred income tax liabilities $ ( 23,497 ) $ ( 22,853 ) Deferred income taxes — noncurrent assets $ — $ — Deferred income taxes — noncurrent liabilities $ ( 23,497 ) $ ( 22,853 ) 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 $ 1,536,000 on the net deferred tax assets of its subsidiaries in Argentina and Chile as of October 31, 2022 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. 74 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. Income Taxes (continued) At October 31, 2022, the Company has recorded a deferred tax asset of $ 5,917,000 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 14,959 Indefinite State 23,027 10/31/2039 Chile 2,874 Indefinite Holland 108 10/31/2025 Argentina 1,670 10/31/2025 The provision for income taxes differs from the amount of income tax determined by applying U.S. statutory federal income tax rate to pretax income as a result of the following differences (in thousands): 2022 2021 2020 Amount % Amount % Amount % Provision at statutory rates $ ( 73 ) ( 21.0 ) % $ 874 ( 21.0 ) % $ 5,551 ( 21.0 ) % State income tax, net of federal benefit ( 74 ) ( 21.1 ) % 224 ( 5.4 ) % 1,431 ( 5.4 ) % Dividend exclusion — — % — — % 27 ( 0.1 ) % Meals and entertainment — — % — — % ( 18 ) 0.1 % Shared-based compensation ( 110 ) ( 31.2 ) % ( 217 ) 5.2 % — — % Executive compensation ( 98 ) ( 27.9 ) % ( 45 ) 1.1 % — — % Tax law change — — % 57 ( 1.4 ) % 1,948 ( 7.4 ) % State rate adjustment ( 59 ) ( 16.9 ) % ( 78 ) 1.9 % ( 82 ) 0.3 % Valuation allowance ( 357 ) ( 101.8 ) % ( 831 ) 20.0 % ( 168 ) 0.6 % Foreign rate differential 74 21.1 % 130 ( 3.1 ) % — — % Noncontrolling interest ( 41 ) ( 11.8 ) % ( 83 ) 2.0 % ( 305 ) 1.1 % Other permanent items ( 12 ) ( 3.5 ) % 235 ( 5.7 ) % 110 ( 0.4 ) % Tax credit and others ( 73 ) ( 20.7 ) % — — % — — % Total income tax (provision) benefit $ ( 823 ) ( 234.8 ) % $ 266 ( 6.4 ) % $ 8,494 ( 32.2 ) % At October 31, 2022 and 2021, 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, 2022. 75 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. 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 Principal Bank and Mercer Human Resource Consulting. In fiscal year 2021, the Company terminated the Plan effective December 31, 2021. The liabilities disclosed as of October 31, 2022 and 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 was funded consistent with the funding requirements of federal law and regulations. There were no funding contributions during fiscal years 2022 or 2021. Plan assets are invested in a group trust consisting primarily of cash. The investment policy and strategy has been established to provide a total investment return that will, over time, maintain purchasing power parity for the Plan’s variable benefits and keep the Plan funding at a reasonable level. The target asset allocation is 100 % cash. 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 2022 and 2021 were as follows (in thousands): 2022 2021 Administrative expenses $ 718 $ 277 Interest cost 520 550 Expected return on plan assets ( 511 ) ( 867 ) Prior service cost 45 45 Amortization of net loss 398 737 Settlement loss recognized 607 $ — Net periodic benefit cost $ 1,777 $ 742 76 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Retirement Plans (continued) Following is a summary of the Plan’s funded status as of October 31 (in thousands): 2022 2021 Change in benefit obligation: Benefit obligation at beginning of year $ 21,417 $ 22,898 Administrative expenses 718 277 Plan settlements ( 3,604 ) — Interest cost 520 550 Benefits paid ( 1,327 ) ( 1,210 ) Expenses paid ( 643 ) ( 240 ) Actuarial gain ( 2,474 ) ( 858 ) Benefit obligation at end of year $ 14,607 $ 21,417 Change in plan assets: Fair value of plan assets at beginning of year $ 20,570 $ 19,352 Actual return on plan assets ( 2,661 ) 2,668 Plan settlements ( 3,604 ) — Benefits paid ( 1,327 ) ( 1,210 ) Expenses paid ( 643 ) ( 240 ) Fair value of plan assets at end of year $ 12,335 $ 20,570 Reconciliation of funded status: Fair value of plan assets $ 12,335 $ 20,570 Benefit obligations 14,607 21,417 Net plan obligations $ ( 2,272 ) $ ( 847 ) Amounts recognized in statements of financial position: Noncurrent liabilities $ ( 2,272 ) $ ( 847 ) Net obligation recognized in statements of financial position $ ( 2,272 ) $ ( 847 ) Reconciliation of amounts recognized in statements of financial position: Prior service cost $ ( 54 ) $ ( 99 ) Net loss ( 2,459 ) ( 2,766 ) Accumulated other comprehensive loss ( 2,513 ) ( 2,865 ) Accumulated contributions in excess of net periodic benefit cost 241 2,018 Net deficit recognized in statements of financial position $ ( 2,272 ) $ ( 847 ) Presented below are changes in accumulated other comprehensive income, before tax, in the Plan as of October 31, (in thousands): 2022 2021 Changes recognized in other comprehensive income: Net loss (gain) arising during the year $ 697 $ ( 2,658 ) Amortization of prior service cost ( 45 ) ( 45 ) Amortization of net loss ( 1,005 ) ( 737 ) Total recognized in other comprehensive income $ ( 353 ) $ ( 3,440 ) Total recognized in net periodic benefit and other comprehensive loss (income) $ 1,424 $ ( 2,699 ) 77 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. Retirement Plans (continued) The following assumptions, as of October 31, were used in determining benefit obligations and net periodic benefit cost ($ in thousands): 2022 2021 Weighted-average assumptions used to determine benefit obligations: Discount rate NA 2.58 % Assumptions used to determine net periodic benefit cost: Discount rate 2.58 % 2.50 % Expected return on plan assets 2.98 % 5.05 % Additional year-end information: Projected benefit obligation $ 14,607 $ 21,417 Accumulated benefit obligation $ 14,607 $ 21,417 Fair value of plan assets $ 12,335 $ 20,570 Employer contributions of $ 2,500,000 and benefit payments of $ 14,607,000 are expected to be paid in fiscal year 2023. The following table sets forth the Plan’s assets as of October 31, 2022, 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 $ 12,302 $ — $ — $ 12,302 Accrued income — 33 — 33 $ 12,302 $ 33 $ — $ 12,335 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 2022, 2021 and 2020, the Company contributed to the plan and recognized expenses of $ 445,000 , $ 546,000 and $ 1,107,000 , respectively. 17. 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. 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. 18. 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. 78 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. Series B and Series B-2 Preferred Stock (continued) Series B Convertible Preferred Stock (continued) 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. 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. 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. 79 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. Series B and Series B-2 Preferred Stock (continued) Series B-2 Convertible Preferred Stock (continued) 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. 19. 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 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. In fiscal year 2022, the 2010 Stock Plan terminated and was replaced by the 2022 Stock Plan (both plans collectively the “Stock Plans”) with 500,000 authorized shares. The Stock Plan has 450,769 remaining shares available to be issued as of October 31, 2022. Performance Awards Certain restricted stock grants are made to management each December under the Stock Plans 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 2022, 79,972 shares of common stock with a per share price of $ 13.19 were granted to management under the Stock Plan for fiscal year 2022 performance, resulting in total compensation expense of approximately $ 1,055,000 , with $ 365,000 recognized in the fiscal year ended October 31, 2022 and the balance to be recognized over the next two years as the shares vest. During December 2021 and 2020, there were no Performance Awards of restricted stock granted for fiscal year 2021 or 2020 performance because the financial performance and other criteria were not met. Executive Awards Certain restricted stock grants are made to key executives under the Stock Plan (“Executive Awards”). These grants generally vest over a three to five-year period as service is provided. During December 2022, subsequent to fiscal year 2022, the Company granted 55,000 shares of common stock with a per share price of $ 13.19 to key executives under the Stock Plan. The related compensation expense of approximately $ 725,000 will be recognized equally over the next three years as the shares vest. In fiscal year 2022, the Company entered into Retention Bonus Agreements with key executives (collectively, the “Retention Bonus Agreements”) whereby the executives will be eligible to receive cash and restricted stock grants. During December 2022, subsequent to fiscal year 2022, the Company granted 11,317 shares of common stock with a per share price of $ 13.19 to key executives related to the Retention Bonus Agreements. The related compensation expense of approximately $ 149,000 had 80 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Stockholders’ Equity (continued) Stock-based compensation (continued) $ 122,000 recognized in the fiscal year ended October 31, 2022 and the balance will be recognized over the next year 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 generally vest upon grant or over a one-year period (“Director Awards”). Summary of Awards A summary of the Performance, Executive, and Director awards granted under the Stock Plan during fiscal years 2022, 2021 and 2020, and the weighted average grant price is as follows: Year Ended October 31, 2022 2021 2020 Number of Shares Weighted-Average Grant Price Number of Shares Weighted-Average Grant Price Number of Shares Weighted-Average Grant Price Performance awards — $ — — $ — — $ — Executive awards 70,000 $ 14.96 95,000 $ 15.26 95,000 $ 18.87 Director awards 49,231 $ 13.55 30,663 $ 16.85 17,841 $ 20.05 Total 119,231 $ 14.38 125,663 $ 15.65 112,841 $ 19.06 The Company recognized $ 2,732,000 , $ 2,582,000 and $ 2,044,000 of stock-based compensation in fiscal years 2022, 2021 and 2020, 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 $ 604,000 , $ 476,000 and $ 400,000 for fiscal years 2022, 2021 and 2020, respectively. The total fair value of shares vested during the years ended October 31, 2022, 2021 and 2020 was $ 1,856,000 , $ 2,951,000 and $ 2,365,000 respectively. The Company has unrecognized stock-based compensation expense of $ 1,208,000 as of October 31, 2022, which is expected to be recognized over the next one to two years as the shares vest. All unvested shares are expected to vest. During fiscal years 2022, 2021 and 2020, respectively, members of management exchanged 105,316 , 46,993 and 11,314 shares of common stock with fair values of $ 1,530,000 , $ 701,000 and $ 213,000 , 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, 2022, and changes during the fiscal year ended October 31, 2022, is presented below: Number of Shares Weighted-Average Grant Price Nonvested at October 31, 2021 113,000 $ 17.38 Granted 119,231 $ 14.38 Vested ( 106,334 ) $ 17.46 Forfeited ( 15,000 ) $ 14.96 Nonvested at October 31, 2022 110,897 $ 14.40 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 were 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. 81 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. Stockholders’ Equity (continued) Dividend On December 20, 2022, the Company declared a $ 0.075 per share dividend payable on January 13, 2023, in the aggregate amount of $ 1,326,000 to common stockholders of record as of January 3, 2023. 20. 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 harvest costs 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 and brokered fruit 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. Intersegment revenues represent packing revenues related to lemons grown on the Company’s orchards. Segment information for fiscal year 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 120,885 $ 22,176 $ — $ 17,331 $ 18,889 $ 179,281 $ 5,324 $ 184,605 Intersegment revenue — 29,817 ( 29,817 ) — — — — — Total net revenues 120,885 51,993 ( 29,817 ) 17,331 18,889 179,281 5,324 184,605 Costs and expenses 115,119 43,017 ( 29,817 ) 5,524 18,204 152,047 20,559 172,606 Depreciation and amortization — — — — — 8,604 1,194 9,798 Operating income (loss) $ 5,766 $ 8,976 $ — $ 11,807 $ 685 $ 18,630 $ ( 16,429 ) $ 2,201 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 (loss) income $ 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 ) 82 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. Segment Information (continued) The following is a detail of other agribusiness revenues for fiscal years 2022, 2021 and 2020 (in thousands): Year Ended October 31, 2022 2021 2020 Oranges $ 9,911 $ 4,382 $ 7,722 Specialty citrus and other crops 8,978 7,253 5,846 Other agribusiness revenues $ 18,889 $ 11,635 $ 13,568 21. Subsequent Events The Company evaluated events subsequent to October 31, 2022 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 described 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. 83 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.