Limoneira CO 10-Q

Item 1. Financial Statements LIMONEIRA COMPANY CONSOLIDATED BALANCE SHEETS (UNAUDITED) ($ in thousands, except share amounts) April 30, 2023 October 31, 2022 Assets Current assets: Cash $ 9,833 $ 857 Accounts receivable, net 17,766 15,651 Cultural costs 2,744 8,643 Prepaid expenses and other current assets 11,749 8,496 Receivables/other from related parties 3,245 3,888 Total current assets 45,337 37,535 Property, plant and equipment, net 163,541 222,628 Real estate development 9,858 9,706 Equity in investments 73,445 72,855 Goodwill 1,529 1,506 Intangible assets, net 7,238 7,317 Other assets 15,378 16,971 Total assets $ 316,326 $ 368,518 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 8,375 $ 10,663 Growers and suppliers payable 8,109 10,740 Accrued liabilities 7,940 11,060 Payables to related parties 5,390 4,860 Income taxes payable 8,108 219 Current portion of long-term debt 446 1,732 Total current liabilities 38,368 39,274 Long-term liabilities: Long-term debt, less current portion 40,837 104,076 Deferred income taxes 21,797 23,497 Other long-term liabilities 6,670 9,807 Total liabilities 107,672 176,654 Commitments and contingencies — — Series B Convertible Preferred Stock – $ 100.00 par value ( 50,000 shares authorized: 14,790 shares issued and outstanding at April 30, 2023 and October 31, 2022) ( 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 April 30, 2023 and October 31, 2022) ( 4 % dividend rate on liquidation value of $ 1,000 per share) 9,331 9,331 Stockholders' Equity: Series A Junior Participating Preferred Stock – $ 0.01 par value ( 20,000 shares authorized: zero issued or outstanding at April 30, 2023 and October 31, 2022) — — Common Stock – $ 0.01 par value ( 39,000,000 shares authorized: 18,229,887 and 17,935,292 shares issued and 17,978,910 and 17,684,315 shares outstanding at April 30, 2023 and October 31, 2022, respectively) 180 177 Additional paid-in capital 167,169 165,169 Retained earnings 26,582 15,500 Accumulated other comprehensive loss ( 4,011 ) ( 7,908 ) Treasury stock, at cost, 250,977 shares at April 30, 2023 and October 31, 2022 ( 3,493 ) ( 3,493 ) Noncontrolling interest 11,417 11,609 Total stockholders' equity 197,844 181,054 Total liabilities and stockholders' equity $ 316,326 $ 368,518 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) ($ in thousands, except share amounts) Three Months Ended April 30, Six Months Ended April 30, 2023 2022 2023 2022 Net revenues: Agribusiness $ 46,676 $ 45,369 $ 83,204 $ 83,452 Other operations 1,394 1,381 2,767 2,572 Total net revenues 48,070 46,750 85,971 86,024 Costs and expenses: Agribusiness 38,189 37,599 79,430 78,843 Other operations 1,009 1,093 2,247 2,167 Loss (gain) on disposal of assets, net 8,998 346 ( 30,744 ) 261 Gain on legal settlement ( 2,269 ) — ( 2,269 ) — Selling, general and administrative 6,005 5,126 15,285 11,725 Total costs and expenses 51,932 44,164 63,949 92,996 Operating (loss) income ( 3,862 ) 2,586 22,022 ( 6,972 ) Other income (expense): Interest income 62 27 70 48 Interest (expense), net of patronage dividends 996 ( 696 ) ( 176 ) ( 481 ) Equity in earnings of investments, net 62 299 315 350 Other income (expense), net 200 78 ( 2,412 ) 93 Total other income (expense) 1,320 ( 292 ) ( 2,203 ) 10 (Loss) income before income tax benefit (provision) ( 2,542 ) 2,294 19,819 ( 6,962 ) Income tax benefit (provision) 912 ( 722 ) ( 5,915 ) 1,928 Net (loss) income ( 1,630 ) 1,572 13,904 ( 5,034 ) Net loss (income) attributable to noncontrolling interest 17 ( 11 ) 114 77 Net (loss) income attributable to Limoneira Company ( 1,613 ) 1,561 14,018 ( 4,957 ) Preferred dividends ( 126 ) ( 126 ) ( 251 ) ( 251 ) Net (loss) income applicable to common stock $ ( 1,739 ) $ 1,435 $ 13,767 $ ( 5,208 ) Basic net (loss) income per common share $ ( 0.10 ) $ 0.08 $ 0.77 $ ( 0.30 ) Diluted net (loss) income per common share $ ( 0.10 ) $ 0.08 $ 0.75 $ ( 0.30 ) Weighted-average common shares outstanding-basic 17,597,000 17,511,000 17,587,000 17,461,000 Weighted-average common shares outstanding-diluted 17,597,000 17,511,000 18,328,000 17,461,000 The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED) (In thousands) Three Months Ended April 30, Six Months Ended April 30, 2023 2022 2023 2022 Net (loss) income $ ( 1,630 ) $ 1,572 $ 13,904 $ ( 5,034 ) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments ( 50 ) ( 1,006 ) 2,173 ( 951 ) Minimum pension liability adjustments, net of tax of $ 0 , $ 27 , $( 135 ) and $ 54 for the three and six months ended April 30, 2023 and 2022, respectively — 73 ( 220 ) 145 Pension settlement cost, net of tax of $ 0 and $ 756 for the three and six months ended April 30, 2023 — — 1,944 — Total other comprehensive (loss) income, net of tax ( 50 ) ( 933 ) 3,897 ( 806 ) Comprehensive (loss) income ( 1,680 ) 639 17,801 ( 5,840 ) Comprehensive loss (income) attributable to noncontrolling interest 17 ( 5 ) 114 81 Comprehensive (loss) income attributable to Limoneira Company $ ( 1,663 ) $ 634 $ 17,915 $ ( 5,759 ) The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND TEMPORARY EQUITY (UNAUDITED) ($ in thousands) Stockholders' Equity Temporary Equity Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Treasury Non- controlling Total Series B Preferred Series B-2 Preferred Shares Amount Capital Earnings (Loss) Income Stock Interest Equity Stock Stock 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 Dividends Common ($ 0.075 per share) — — — ( 1,337 ) — — — ( 1,337 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 146,289 1 1,063 — — — — 1,064 — — Noncontrolling interest adjustment — — — — — — ( 78 ) ( 78 ) — — Net income — — — 15,631 — — ( 97 ) 15,534 — — Other comprehensive income, net of tax — — — — 3,947 — — 3,947 — — Balance at January 31, 2023 17,830,604 $ 178 $ 166,232 $ 29,669 $ ( 3,961 ) $ ( 3,493 ) $ 11,434 $ 200,059 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,348 ) — — — ( 1,348 ) — — Dividends Series B ($ 2.19 per share) — — — ( 33 ) — — — ( 33 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 149,900 2 963 — — — — 965 — — Exchange of common stock ( 1,594 ) — ( 26 ) — — — — ( 26 ) — — Net loss — — — ( 1,613 ) — — ( 17 ) ( 1,630 ) — — Other comprehensive loss, net of tax — — — — ( 50 ) — — ( 50 ) — — Balance at April 30, 2023 17,978,910 $ 180 $ 167,169 $ 26,582 $ ( 4,011 ) $ ( 3,493 ) $ 11,417 $ 197,844 $ 1,479 $ 9,331 Stockholders' Equity Temporary Equity Common Stock Additional Paid-In Retained Accumulated Other Comprehensive Treasury Non- controlling Total Series B Preferred Series B-2 Preferred Shares Amount Capital Earnings (Loss) Income Stock Interest Equity Stock Stock Balance at October 31, 2021 17,685,400 $ 179 $ 163,965 $ 21,552 $ ( 5,733 ) $ ( 3,493 ) $ 11,965 $ 188,435 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,328 ) — — — ( 1,328 ) — — Dividends Series B ($ 2.19 per share) — — — ( 32 ) — — — ( 32 ) — — Dividends Series B-2 $ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 70,000 1 996 — — — — 997 — — Exchange of common stock ( 55,362 ) — ( 900 ) — — — — ( 900 ) — — Net loss — — — ( 6,518 ) — — ( 88 ) ( 6,606 ) — — Other comprehensive income, net of tax — — — — 127 — 2 129 — — Balance at January 31, 2022 17,700,038 $ 180 $ 164,061 $ 13,581 $ ( 5,606 ) $ ( 3,493 ) $ 11,879 $ 180,602 $ 1,479 $ 9,331 Dividends Common ($ 0.075 per share) — — — ( 1,325 ) — — — ( 1,325 ) — — Dividends Series B ($ 2.19 per share) — — — ( 33 ) — — — ( 33 ) — — Dividends Series B-2 ($ 10 per share) — — — ( 93 ) — — — ( 93 ) — — Stock compensation 34,231 — 378 — — — — 378 — — Exchange of common stock ( 12,718 ) — ( 186 ) — — — — ( 186 ) — — Net income — — — 1,561 — — 11 1,572 — — Other comprehensive loss, net of tax — — — — ( 933 ) — ( 6 ) ( 939 ) — — Balance at April 30, 2022 17,721,551 $ 180 $ 164,253 $ 13,691 $ ( 6,539 ) $ ( 3,493 ) $ 11,884 $ 179,976 $ 1,479 $ 9,331 The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands) Six Months Ended April 30, 2023 2022 Operating activities Net income (loss) $ 13,904 $ ( 5,034 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 4,491 4,963 (Gain) loss on disposal of assets, net ( 30,744 ) 261 Gain on legal settlement ( 853 ) — Stock compensation expense 2,029 1,375 Non-cash lease expense 802 207 Equity in earnings of investments, net ( 315 ) ( 350 ) Cash distributions from equity investments — 132 Deferred income taxes 5,915 ( 1,928 ) Other, net 162 360 Changes in operating assets and liabilities: Accounts receivable and receivables/other from related parties ( 1,583 ) ( 3,877 ) Cultural costs 2,051 4,640 Prepaid expenses and other current assets ( 5,105 ) ( 2,392 ) Income taxes payable ( 330 ) — Other assets 21 33 Accounts payable and growers and suppliers payable ( 5,340 ) ( 413 ) Accrued liabilities and payables to related parties ( 2,708 ) 1,030 Other long-term liabilities ( 840 ) ( 167 ) Net cash used in operating activities ( 18,443 ) ( 1,160 ) Investing activities Capital expenditures ( 5,417 ) ( 4,123 ) Net proceeds from sales of assets 98,506 1,121 Net proceeds from sale of real estate development assets 2,577 — Cash distribution from Trapani Fresh 82 — Collection on note receivable — 2,600 Equity investment contributions ( 275 ) — Investments in mutual water companies and water rights ( 51 ) ( 40 ) Net cash provided by (used in) investing activities 95,422 ( 442 ) Financing activities Borrowings of long-term debt 57,940 75,247 Repayments of long-term debt ( 122,775 ) ( 68,762 ) Principal paid on finance lease and equipment financings ( 215 ) ( 169 ) Dividends paid – common ( 2,685 ) ( 2,653 ) Dividends paid – preferred ( 251 ) ( 251 ) Exchange of common stock ( 26 ) ( 1,086 ) Net cash (used in) provided by financing activities ( 68,012 ) 2,326 Effect of exchange rate changes on cash 9 ( 203 ) Net increase in cash 8,976 521 Cash at beginning of period 857 439 Cash at end of period $ 9,833 $ 960 8 LIMONEIRA COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) (In thousands) Six Months Ended April 30, 2023 2022 Supplemental disclosures of cash flow information Cash paid during the period for interest (net of amounts capitalized) $ 397 $ 431 Cash paid during the period for income taxes $ 330 $ — Non-cash investing and financing activities: Capital expenditures accrued but not paid at period-end $ 325 $ 88 Accrued contribution obligation of investment in water company $ 450 $ 450 The accompanying notes are an integral part of these unaudited consolidated financial statements. 9 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Organization and Basis of Presentation Business Limoneira Company (together with its consolidated subsidiaries, the “Company”) engages primarily in growing citrus and avocados, picking and hauling citrus, and packing, marketing and selling citrus. The Company is also engaged in residential rentals and other rental operations and real estate development activities. The Company markets and sells citrus directly to food service, wholesale and retail customers throughout the United States, Canada, Asia, Europe and other international markets. The Company is a member of Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative, and sells a portion of its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses. Basis of Presentation and Preparation The accompanying unaudited interim consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which the Company holds a controlling interest. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company, the unaudited interim consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited interim consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. Because the consolidated financial statements do not include all of the information and notes required by GAAP for a complete set of consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K. 2. Summary of Significant Accounting Policies Comprehensive (Loss) Income Comprehensive (loss) income represents all changes in a company’s net assets, except changes resulting from transactions with stockholders. Other comprehensive income or loss includes foreign currency translation items and defined benefit pension items. Accumulated other comprehensive loss is reported as a component of the Company's stockholders' equity. The following table summarizes other comprehensive (loss) income by component (in thousands): Three Months Ended April 30, 2023 2022 Pre-tax Amount Tax Expense Net Amount Pre-tax Amount Tax Expense Net Amount Foreign currency translation adjustments $ ( 50 ) $ — $ ( 50 ) $ ( 1,006 ) $ — $ ( 1,006 ) Minimum pension liability adjustments: Other comprehensive income before reclassifications — — — 100 ( 27 ) 73 Other comprehensive loss $ ( 50 ) $ — $ ( 50 ) $ ( 906 ) $ ( 27 ) $ ( 933 ) 10 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. Summary of Significant Accounting Policies (continued) Six Months Ended April 30, 2023 2022 Pre-tax Amount Tax Benefit (Expense) Net Amount Pre-tax Amount Tax Expense Net Amount Foreign currency translation adjustments $ 2,173 $ — $ 2,173 $ ( 951 ) $ — $ ( 951 ) Minimum pension liability adjustments: Other comprehensive (loss) income before reclassifications ( 355 ) 135 ( 220 ) 199 ( 54 ) 145 Amounts reclassified to earnings included in "Other income (expense), net" 2,700 ( 756 ) 1,944 — — — Other comprehensive income (loss) $ 4,518 $ ( 621 ) $ 3,897 $ ( 752 ) $ ( 54 ) $ ( 806 ) The following table summarizes the changes in accumulated other comprehensive loss by component (in thousands): Foreign Currency Translation (Loss) Gain Defined Benefit Pension Plan Accumulated Other Comprehensive Loss Balance at October 31, 2022 $ ( 6,184 ) $ ( 1,724 ) $ ( 7,908 ) Other comprehensive income 2,173 1,724 3,897 Balance at April 30, 2023 $ ( 4,011 ) $ — $ ( 4,011 ) Foreign Currency Translation Loss Defined Benefit Pension Plan Accumulated Other Comprehensive Loss Balance at October 31, 2021 $ ( 3,754 ) $ ( 1,979 ) $ ( 5,733 ) Other comprehensive (loss) income ( 951 ) 145 ( 806 ) Balance at April 30, 2022 $ ( 4,705 ) $ ( 1,834 ) $ ( 6,539 ) COVID-19 Pandemic There is continued 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 has negatively impacted the Company's sales and profitability since the beginning of the second quarter of fiscal year 2020. The COVID-19 pandemic may continue to impact the Company's 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. Concentrations Concentrations of credit risk with respect to revenues and accounts receivable are limited due to a large, diverse customer base. One individual customer represented 12 % of revenue for the six months ended April 30, 2023. One individual customer represented 10 % of accounts receivable, net as of April 30, 2023. One individual supplier represented 11 % of accounts payable as of April 30, 2023. Lemons procured from third-party growers were 57 % and 54 % of the Company's lemon supply for the six months ended April 30, 2023 and 2022, respectively. Two third-party growers were 23 % and 19 % of the lemon supply for the six months ended April 30, 2023, respectively. One third-party grower was 13 % of the lemon supply for the six months ended April 30, 2022. 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. 11 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 3. Asset Sales and Disposals Northern Properties In October 2022, the Company entered into a Purchase and Sale Agreement, as amended, (the “Agreement”) with PGIM Real Estate Finance, LLC (“PGIM”) to sell 3,537 acres of land and citrus orchards in Tulare County, California (the “Northern Properties”) for a purchase price of approximately $ 100,405,000 . On January 25, 2023, the Board approved the Agreement creating a binding agreement of the Company to sell the Northern Properties and the transaction closed on January 31, 2023. During the quarter ended April 30, 2023, the purchase price was decreased by $ 397,000 for reimbursement of certain cultural costs and prepaid expenses, resulting in a final purchase price of $ 100,008,000 . The following is a summary of the transaction (in thousands): Net cash proceeds received $ 85,494 Debt directly repaid through the transaction 12,917 Total net proceeds received 98,411 Less: net book value of assets sold Cultural costs 3,853 Prepaid expenses and other current assets 155 Property, plant and equipment, net 53,144 Intangible assets, net 12 Other assets 1,320 Accrued liabilities ( 68 ) 58,416 Gain on disposal of assets $ 39,995 The proceeds were used to pay down all of the Company’s domestic debt except the AgWest Farm Credit $ 40,000,000 non-revolving line of credit. The Northern Properties component, including an allocation of interest expense related to the debt directly repaid through the transaction, had a pretax loss of $ 1,677,000 and $ 1,423,000 for the six months ended April 30, 2023 and 2022, respectively. On January 31, 2023, the Company entered into a Farm Management Agreement (“FMA”) with an affiliate of PGIM to provide farming, management and operations services related to the Northern Properties. The FMA has an initial term expiring March 31, 2024, and thereafter continuing from year to year unless earlier terminated under the terms of the FMA. Further, on January 31, 2023, the Company entered into a Grower Packing and Marketing Agreement to provide packing, marketing and selling services for lemons harvested on the Northern Properties for a minimum five-year term, subject to certain benchmarking standards. Cadiz Ranch In April 2023, the Company determined that citrus farming operations were economically unviable on 670 acres of leased agricultural land at the Cadiz Ranch. As a result, the Company ceased farming operations, disposed of the related property, plant and equipment and recorded a loss on disposal of assets of $ 9,012,000 as of April 30, 2023. 4. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): April 30, 2023 October 31, 2022 Prepaid supplies and insurance $ 2,638 $ 2,958 Real estate development held for sale — 2,670 Sales tax receivable 422 475 Lemon supplier advances 1,434 1,188 Legal settlement receivable 6,109 — Other 1,146 1,205 $ 11,749 $ 8,496 12 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. Real Estate Development Real estate development assets are comprised primarily of land and land development costs for the East Area II property in the amount of $ 9,858,000 and $ 9,706,000 at April 30, 2023 and October 31, 2022, respectively. 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 East Area II includes estimated costs incurred by and reimbursable to LLCB of $ 3,444,000 at April 30, 2023 and October 31, 2022, 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. Effective as of February 22, 2023, the Loan maturity date was extended to February 22, 2024, and the maximum borrowing amount was reduced to $ 35,000,000 . As of February 1, 2023, the interest rate on the Loan transitioned from the London Interbank Offered Rate ("LIBOR") to the Bloomberg Short-Term Bank Yield Index rate ("BSBY") 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 $ 13,100,000 as of April 30, 2023. In February 2018, the Company and certain principals from Lewis guaranteed the obligations under the Loan. The guarantors are jointly and severally liable for all Loan obligations in the event of default by LLCB. The guarantee continues in effect until all of the Loan obligations are fully paid. The $ 1,080,000 estimated value of the guarantee was recorded in the Company’s consolidated balance sheets and is included in other long-term liabilities with a corresponding value in equity in investments. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company, which provides for unpaid liabilities of LLCB to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in LLCB. 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 . The Company recorded a deferred gain of $ 465,000 on the transaction, which is included in other long-term liabilities as of April 30, 2023 and October 31, 2022. 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. The Company made contributions of $ 275,000 to LLCB II during the six months ended April 30, 2023. Through April 30, 2023, LLCB has closed sales of initial residential lots representing 586 residential units. 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 November 2022. After transaction and other costs, the Company received cash proceeds of approximately $ 2,577,000 and recorded an immaterial loss on disposal of assets during the six months ended April 30, 2023. 13 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. Equity in Investments Equity in investments consist of the following (in thousands): April 30, 2023 October 31, 2022 Limoneira Lewis Community Builders, LLC $ 61,409 $ 61,154 LLCB II, LLC 8,297 8,023 Limco Del Mar, Ltd. 2,072 2,024 Rosales 1,162 1,147 Romney Property Partnership 505 507 $ 73,445 $ 72,855 Net amounts due from Rosales were $ 442,000 and $ 270,000 at April 30, 2023 and October 31, 2022, respectively, and are included in receivables/other from related parties and payables to related parties. Unconsolidated Significant Subsidiary In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies to interim reports on Form 10-Q, the Company must determine if its equity method investees are considered “significant subsidiaries." In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment test. Summarized income statement information of an equity method investee is required in an interim report if either of the two tests exceed 20% in the interim periods presented. During the year-to-date interim periods for the six months ended April 30, 2023 and 2022, this threshold was not met for any of the Company's equity investments. 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, 2022 $ 1,506 Foreign currency translation adjustment 23 Balance at April 30, 2023 $ 1,529 Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. There have been no impairment charges recorded against goodwill as of April 30, 2023. Intangible assets consisted of the following (in thousands): April 30, 2023 October 31, 2022 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life in Years Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life in Years Trade names and trademarks $ 2,108 ( 1,002 ) 1,106 8 $ 2,108 $ ( 881 ) $ 1,227 8 Customer relationships 4,037 ( 1,885 ) 2,152 9 4,037 ( 1,660 ) 2,377 9 Non-competition agreement 437 ( 105 ) 332 8 437 ( 76 ) 361 8 Acquired water and mineral rights 3,648 — 3,648 Indefinite 3,352 — 3,352 Indefinite $ 10,230 $ ( 2,992 ) $ 7,238 $ 9,934 $ ( 2,617 ) $ 7,317 7. Goodwill and Intangible Assets, Net (continued) Amortization expense totaled $ 178,000 and $ 180,000 for the three months ended April 30, 2023 and 2022, respectively. Amortization expense totaled $ 375,000 and $ 361,000 for the six months ended April 30, 2023 and 2022 respectively. 14 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Estimated future amortization expense of intangible assets as of April 30, 2023 is as follows (in thousands): 2023 (remaining six months) $ 354 2024 711 2025 711 2026 711 2027 427 Thereafter 676 $ 3,590 8. Other Assets Investments in Mutual Water Companies The Company’s investments in various not-for-profit mutual water companies provide it with the right to receive a proportionate share of water from each of the not-for-profit mutual water companies that have been invested in and do not constitute voting shares and/or rights. In January 2023, the Company sold an investment in a mutual water company with a net book value of $ 1,320,000 as part of the Northern Properties sale described in Note 3 - Asset Sales and Disposals. As of April 30, 2023 and October 31, 2022, $ 5,681,000 and $ 6,500,000 , respectively, were included in other assets. 9. Accrued Liabilities Accrued liabilities consist of the following (in thousands): April 30, 2023 October 31, 2022 Compensation $ 2,192 $ 3,572 Property taxes — 664 Operating expenses 2,411 2,341 Leases 2,044 2,026 Other 1,293 2,457 $ 7,940 $ 11,060 15 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 10. Long-Term Debt Long-term debt is comprised of the following (in thousands): April 30, 2023 October 31, 2022 AgWest Farm Credit revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month Secured Overnight Financing Rate ("SOFR"), which was 4.80 % at April 30, 2023, plus 1.78 %. The interest rate for the $ 40.0 million outstanding balance of the non-revolving line of credit is fixed at 3.57 % through July 1, 2025 and variable thereafter. Interest is payable monthly and the principal is due in full on July 1, 2026. $ 40,000 $ 88,521 AgWest Farm Credit term loan: The interest rate was fixed at 3.24 %. The loan was repaid in January 2023. — 919 AgWest Farm Credit term loan: The interest rate was fixed at 3.24 %. The loan was repaid in January 2023. — 7,562 AgWest Farm Credit term loan: The interest rate was fixed at 2.77 % until July 1, 2025, becoming variable for the remainder of the loan. The loan was repaid in January 2023. — 5,555 AgWest Farm Credit term loan: The interest rate was fixed at 3.19 %. The loan was repaid in January 2023. — 2,003 Banco de Chile term loan: The interest rate is fixed at 6.48 %. The loan is payable in annual installments through January 2025. 653 675 Banco de Chile COVID-19 loans: The interest rates are fixed at 3.48 %. The loans are payable in monthly installments through September 2024. 200 233 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. 430 434 Subtotal 41,283 105,902 Less deferred financing costs, net of accumulated amortization — 94 Total long-term debt, net 41,283 105,808 Less current portion 446 1,732 Long-term debt, less current portion $ 40,837 $ 104,076 The Company entered into a Master Loan Agreement (the “MLA”) with AgWest Farm Credit, formerly known as Farm Credit West, (the "Lender") dated June 1, 2021, together with a revolving credit facility supplement (the “Revolving Credit Supplement”), a non-revolving credit facility supplement (the “Non-Revolving Credit Supplement,” and together with the Revolving Credit Supplement, the “Supplements”) and an agreement to convert to a fixed interest rate for a period of time as described in the table above ("Fixed Interest Rate Agreement"). The MLA governs the terms of the Supplements. The MLA amends and restates the previous Master Loan Agreement between the Company and the Lender, dated June 19, 2017, and extends the principal repayment to July 1, 2026. In March 2020, the Company entered into a revolving equity line of credit promissory note and loan agreement with the Lender for a $ 15,000,000 Revolving Equity Line of Credit (the "RELOC") secured by a first lien on the Windfall Investors, LLC property. The RELOC featured a 3 -year draw period followed by 20 years of fully amortized loan payments. On March 31, 2023, the draw period expired and the RELOC was closed as there was no balance outstanding. The Supplements provide aggregate borrowing capacity of $ 115,000,000 comprised of $ 75,000,000 under the Revolving Credit Supplement and $ 40,000,000 under the Non-Revolving Credit Supplement. As of April 30, 2023, the Company's outstanding borrowings under the Supplements were $ 40,000,000 and it had $ 75,000,000 available to borrow. In January 2023, the Company used the proceeds from the Northern Properties sale as described in Note 3 - Asset Sales and Disposals to reduce the Company's long-term debt. 16 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 10. Long-Term Debt (continued) The interest rate in effect under the Revolving Credit Supplement automatically adjusts on the first day of each month. The interest rate for any amount outstanding under the Revolving Credit Supplement was based on the one-month LIBOR plus or minus an applicable margin. As of January 1, 2023, the rate transitioned from LIBOR to the Secured Overnight Financing Rate ("SOFR"). The applicable margin ranges from 1.78 % to 2.28 % 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 SOFR-based calculation to a variable interest rate. The Company may prepay any amounts outstanding under the Revolving Credit Supplement without penalty. The interest rate in effect under the Non-Revolving Credit Supplement is 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. All indebtedness under the MLA, 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 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, 2023 and annually thereafter. The Company was in compliance as of October 31, 2022. In February 2023, the Lender declared an annual cash patronage dividend of 1.25 % of average eligible loan balances and the Company received $ 1,413,000 in the second quarter of fiscal year 2023. In December 2021, the Lender declared an annual cash patronage dividend of 1.25 % of average eligible loan balances and the Company received $ 1,582,000 in February 2022. Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of zero during the three months ended April 30, 2023 and 2022, and $ 306,000 and zero during the six months ended April 30, 2023 and 2022, respectively. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets. 11. Other Long-Term Liabilities Other long-term liabilities consist of the following (in thousands): April 30, 2023 October 31, 2022 Minimum pension liability $ — $ 2,272 Loan guarantee 1,080 1,080 Leases 4,318 5,062 Other 1,272 1,393 $ 6,670 $ 9,807 17 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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 Company’s rental operations revenue consists of the following (in thousands): Three Months Ended April 30, Six Months Ended April 30, 2023 2022 2023 2022 Operating lease revenue $ 1,274 $ 1,295 $ 2,564 $ 2,413 Variable lease revenue 120 86 203 159 Total lease revenue $ 1,394 $ 1,381 $ 2,767 $ 2,572 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 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. All lease costs are primarily included in agribusiness costs and expenses in the Company's consolidated statements of operations. Operating lease costs were $ 491,000 and $ 135,000 for the three months ended April 30, 2023 and 2022, respectively, and $ 982,000 and $ 258,000 for the six months ended April 30, 2023 and 2022, respectively. Finance lease costs were immaterial and $ 98,000 for the three months ended April 30, 2023 and 2022, respectively and immaterial and $ 156,000 for the six months ended April 30, 2023 and 2022, respectively. Variable lease costs were immaterial for the three and six months ended April 30, 2023 and 2022. Short term lease costs were $ 175,000 and immaterial for the three months ended April 30, 2023 and 2022, respectively, and $ 338,000 and immaterial for the six months ended April 30, 2023 and 2022, respectively. Supplemental balance sheet information related to leases consists of the following (in thousands): Classification April 30, 2023 October 31, 2022 Assets Operating lease ROU assets Other assets $ 5,522 $ 6,190 Finance lease assets Other assets 1,025 1,091 $ 6,547 $ 7,281 Liabilities and Stockholders' Equity Current operating lease liabilities Accrued liabilities and payables to related parties $ 1,820 $ 1,892 Current finance lease liabilities Accrued liabilities 268 268 Non-current operating lease liabilities Other long-term liabilities 3,722 4,347 Non-current finance lease liabilities Other long-term liabilities 596 715 $ 6,406 $ 7,222 18 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 12. Leases (continued) Supplemental cash flow information related to leases consists of the following (in thousands): Six Months Ended April 30, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash outflows from operating leases $ 961 $ 315 Operating cash outflows from finance leases $ 16 $ 30 Financing cash outflows from finance leases $ 118 $ 169 ROU assets obtained in exchange for new operating lease liabilities $ 114 $ 350 13. Basic and Diluted Net (Loss) Income Per Share Basic net (loss) income per common share is calculated using the weighted-average number of common shares outstanding during the period without consideration of the dilutive effect of conversion of preferred stock. Diluted net (loss) income per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of unvested, restricted stock and conversion of preferred stock. The computations for basic and diluted net (loss) income per common share are as follows (in thousands, except per share amounts): Three Months Ended April 30, Six Months Ended April 30, 2023 2022 2023 2022 Basic net (loss) income per common share: Net (loss) income applicable to common stock $ ( 1,739 ) $ 1,435 $ 13,767 $ ( 5,208 ) Effect of unvested, restricted stock ( 23 ) ( 15 ) ( 188 ) ( 29 ) Numerator: Net (loss) income for basic EPS ( 1,762 ) 1,420 13,579 ( 5,237 ) Denominator: Weighted average common shares-basic 17,597 17,511 17,587 17,461 Basic net (loss) income per common share $ ( 0.10 ) $ 0.08 $ 0.77 $ ( 0.30 ) Diluted net (loss) income per common share: Net (loss) income for basic EPS $ ( 1,762 ) $ 1,420 $ 13,579 $ ( 5,237 ) Effect of dilutive preferred stock — — 251 — Numerator: Net (loss) income for diluted EPS ( 1,762 ) 1,420 13,830 ( 5,237 ) Weighted average common shares–basic 17,597 17,511 17,587 17,461 Effect of dilutive preferred stock — — 741 — Denominator: Weighted average common shares–diluted 17,597 17,511 18,328 17,461 Diluted net (loss) income per common share $ ( 0.10 ) $ 0.08 $ 0.75 $ ( 0.30 ) Diluted net (loss) income per common share is computed using the more dilutive method of either the two-class method or the treasury stock method. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share. The Company’s unvested, restricted stock awards qualify as participating shares. Diluted net (loss) income per common share was calculated under the two-class method for the three and six months ended April 30, 2023 and 2022 . 19 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 14. Related Party Transactions The Company has transactions with equity method investments and various related parties summarized in Note 6 - Equity in Investments and in the tables below (in thousands): April 30, 2023 October 31, 2022 Balance Sheet Balance Sheet Ref Related Party Receivable/Other from Related Parties Other Assets Payables to Related Parties Other Long-Term Liabilities Receivable/Other from Related Parties Other Assets Payables to Related Parties Other Long-Term Liabilities 2 Mutual water companies $ — $ 501 $ 763 $ — $ — $ 506 $ 133 $ — 5 Cadiz / Fenner / WAM $ — $ 1,247 $ 347 $ 1,247 $ — $ 1,288 $ 446 $ 1,198 8 FGF $ 2,738 $ 2,652 $ 837 $ — $ 2,965 $ 2,652 $ 837 $ — 9 LLCB $ 66 $ — $ 3,444 $ — $ 66 $ — $ 3,444 $ — Three Months Ended April 30, 2023 Three Months Ended April 30, 2022 Consolidated Statement of Operations Consolidated Statement of Operations Ref Related Party Net Revenue Agribusiness Net Revenue Other Operations Agribusiness Expense and Other Dividends Paid Net Revenue Agribusiness Net Revenue Other Operations Agribusiness Expense and Other Dividends Paid 1 Employees $ — $ 221 $ — $ — $ — $ 219 $ — $ — 2 Mutual water companies $ — $ — $ 406 $ — $ — $ — $ 355 $ — 3 Cooperative association $ — $ — $ 473 $ — $ — $ — $ 419 $ — 5 Cadiz / Fenner / WAM $ — $ — $ 417 $ — $ — $ — $ 472 $ — 7 YMIDD $ 135 $ — $ 62 $ — $ — $ — $ 62 $ — 8 FGF $ 33 $ 50 $ — $ — $ 83 $ 171 $ — $ — 11 Third-party growers $ — $ — $ — $ — $ 104 $ — $ — $ — 12 Principal owner $ — $ — $ — $ 222 $ — $ — $ — $ — Six Months Ended April 30, 2023 Six Months Ended April 30, 2022 Consolidated Statement of Operations Consolidated Statement of Operations Ref Related Party Net Revenue Agribusiness Net Revenue Other Operations Agribusiness Expense and Other Dividends Paid Net Revenue Agribusiness Net Revenue Other Operations Agribusiness Expense and Other Dividends Paid 1 Employees $ — $ 444 $ — $ — $ — $ 430 $ — $ — 2 Mutual water companies $ — $ — $ 778 $ — $ — $ — $ 494 $ — 3 Cooperative association $ — $ — $ 866 $ — $ — $ — $ 784 $ — 4 Calavo $ — $ — $ — $ — $ — $ 80 $ 2 $ 126 5 Cadiz / Fenner / WAM $ — $ — $ 1,555 $ — $ — $ — $ 1,189 $ — 7 YMIDD $ 270 $ — $ 72 $ — $ — $ — $ 76 $ — 8 FGF $ 116 $ 124 $ — $ — $ 165 $ 171 $ — $ — 11 Third-party growers $ — $ — $ — $ — $ 104 $ — $ 12 $ — 12 Principal owner $ — $ — $ — $ 431 $ — $ — $ — $ — (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 April 30, 2023 or October 31, 2022. (2) Mutual water companies - The Company has representation on the boards of directors of the mutual water companies in which the Company has investments, as well as other water districts. Refer to Note 8 - Other Assets. The Company recorded capital contributions, purchased water and water delivery services and had water payments due to the mutual water companies and districts. (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 immaterial payments due to the cooperative association. 20 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 14. Related Party Transactions (continued) (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 leased 670 acres located in eastern San Bernardino County, California. In 2016, Cadiz assigned this lease to Fenner Valley Farms, LLC (“Fenner”), a subsidiary of Water Asset Management, LLC (“WAM”). As of the date of this lease assignment, the Company no longer has any related party transactions with Cadiz. An affiliate of WAM is the holder of 9,300 shares of the Company's Series B-2 convertible preferred stock. The annual base rent 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. Upon the adoption of ASC 842, the Company recorded a right-of-use, or ROU, asset and corresponding lease liability. (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 Company received fallowing revenue from YMIDD. (8) FGF - The Company advances funds to FGF for fruit purchases, which are recorded as an asset until the sales occur and the remaining proceeds become due to FGF. The Company has 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. The Company leases the Santa Clara ranch to FGF and records rental revenue related to the leased land. (9) LLCB - Refer to Note 5 - Real Estate Development. (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. (12) Principal owner - The Company has one principal owner with ownership shares over 10% and paid dividends to such owner. 15. Income Taxes The effective tax rate for the six months ended April 30, 2023 was higher than the federal statutory tax rate of 21% mainly due to foreign jurisdictions that are taxed at different rates, state taxes, tax impact of executive compensation, and nondeductible tax items. The Company has no material uncertain tax positions as of April 30, 2023. 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 April 30, 2023. 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. During the three months ended January 31, 2023, the Company made funding contributions of $ 2,550,000 to fully fund and settle the plan obligations. Lump sum payments were made to a portion of the active and vested terminated participants and annuities were purchased for all remaining participants from an insurance company. There are no remaining benefit obligations or plan assets and the remaining accumulated other comprehensive loss was fully recognized. The Plan was funded consistent with the funding requirements of federal law and regulations. There were no funding contributions during the six months ended April 30, 2022. Plan assets were invested in a group trust consisting primarily of pooled funds, mutual funds, cash and cash equivalents. 21 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 16. Retirement Plans (continued) The components of net periodic pension cost for the Plan for the three and six months ended April 30, 2023 and 2022 were as follows (in thousands): Three Months Ended April 30, Six Months Ended April 30, 2023 2022 2023 2022 Administrative expenses $ — $ 179 $ 20 $ 359 Interest cost — 130 34 260 Expected return on plan assets — ( 128 ) ( 17 ) ( 255 ) Prior service cost — 11 4 22 Recognized actuarial loss — 100 — 199 Settlement loss recognized — — 2,700 — Net periodic benefit cost $ — $ 292 $ 2,741 $ 585 17. Commitments and Contingencies The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation against it that it expects will have a material adverse effect on its business, financial condition, liquidity, or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings. The Company was 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 claimed unspecified damages, attorneys’ fees and other costs, as a result of the Thomas Fire in fiscal year 2018. On April 18, 2023, the Company entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”) with Southern California Edison Company and Edison International to formally resolve any and all claims related to the fire. Under the terms of the Settlement Agreement, the Company was awarded a total settlement of $ 9,000,000 . On May 19, 2023, the Company received $ 6,109,000 , net of legal and related costs, of which $ 3,840,000 is recorded in agribusiness revenues and $ 2,269,000 is recorded in gain on legal settlement as of April 30, 2023. 18. Stock-based Compensation The Company has a stock-based compensation plan (the "Stock Plan") that allows for the grant of restricted stock of the Company to members of management, key executives and non-employee directors. The fair value of such awards is based on the fair value of the Company’s common stock on the date of grant and all are classified as equity awards. Performance Awards Certain restricted stock grants are made to management each December under the Stock Plan based on the achievement of certain annual financial performance and other criteria achieved during the previous fiscal year (“Performance Awards”). The Performance Awards are based on a percentage of the employee’s base salary divided by the stock price on the grant date once the performance criteria have been met, and generally vest over a two-year period as service is provided. During December 2022, 79,972 shares of restricted 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 will be recognized over the next two years as the shares vest. Executive Awards Certain restricted stock grants are made to key executives under the Stock Plan (“Executive Awards”). Executive Awards generally vest over a three-year period as service is provided. During December 2022, the Company granted 55,000 shares of restricted 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. 22 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 18. Stock-based Compensation (continued) 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, the Company granted 11,317 shares of restricted 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 $ 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. During March 2023, the Company granted 127,064 shares of restricted stock with a per share price of $ 15.74 to key executives related to the Retention Bonus Agreements. The related compensation expense of approximately $ 2,000,000 will be recognized over the next year as the shares vest. Director Awards The Company issues shares of restricted stock to non-employee directors under the Stock Plan on an annual basis that generally vest over a one-year period (“Director Awards”). During March 2023, 22,836 shares of restricted stock were granted with a per share price of $ 16.26 as Director Awards, which vest over a one-year period from date of grant. The related compensation expense of approximately $ 371,000 will be recognized equally over the next year as the shares vest. Exchange of Common Stock During the six months ended April 30, 2023 and 2022, members of management exchanged 1,594 and 68,080 shares of common stock with fair values totaling $ 26,000 and $ 1,086,000 , respectively, at the dates of the exchanges, for the payment of payroll taxes associated with the vesting of shares under the Stock Plan. 19. 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, farm management, 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.” Other agribusiness revenues consisted of oranges of $ 1,383,000 and $ 2,535,000 and specialty citrus and other of $ 2,420,000 and $ 3,667,000 for the three and six months ended April 30, 2023. Other agribusiness revenues consisted of oranges of $ 2,617,000 and $ 3,490,000 and specialty citrus and other of $ 1,441,000 and $ 2,317,000 for the three and six months ended April 30, 2022. 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, gain on disposal of assets, gain on legal settlement, total other income (expense) and income taxes, or specifically identify them to its operating segments. The lemon packing segment 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. 23 LIMONEIRA COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 19. Segment Information (continued) Segment information for the three months ended April 30, 2023 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 32,847 $ 6,423 $ — $ 3,603 $ 3,803 $ 46,676 $ 1,394 $ 48,070 Intersegment revenue — 10,309 ( 10,309 ) — — — — — Total net revenues 32,847 16,732 ( 10,309 ) 3,603 3,803 46,676 1,394 48,070 Costs and expenses 29,977 12,075 ( 10,309 ) 1,023 3,683 36,449 13,439 49,888 Depreciation and amortization — — — — — 1,740 304 2,044 Operating income (loss) $ 2,870 $ 4,657 $ — $ 2,580 $ 120 $ 8,487 $ ( 12,349 ) $ ( 3,862 ) Segment information for the three months ended April 30, 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 30,992 $ 6,743 $ — $ 3,576 $ 4,058 $ 45,369 $ 1,381 $ 46,750 Intersegment revenue — 9,373 ( 9,373 ) — — — — — Total net revenues 30,992 16,116 ( 9,373 ) 3,576 4,058 45,369 1,381 46,750 Costs and expenses 27,222 11,662 ( 9,373 ) 2,073 3,828 35,412 6,269 41,681 Depreciation and amortization — — — — — 2,187 296 2,483 Operating income (loss) $ 3,770 $ 4,454 $ — $ 1,503 $ 230 $ 7,770 $ ( 5,184 ) $ 2,586 Segment information for the six months ended April 30, 2023 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 61,328 $ 12,071 $ — $ 3,603 $ 6,202 $ 83,204 $ 2,767 $ 85,971 Intersegment revenue — 17,672 ( 17,672 ) — — — — — Total net revenues 61,328 29,743 ( 17,672 ) 3,603 6,202 83,204 2,767 85,971 Costs and expenses (gains) 63,277 23,428 ( 17,672 ) 1,023 5,499 75,555 ( 16,097 ) 59,458 Depreciation and amortization — — — — — 3,875 616 4,491 Operating income (loss) $ ( 1,949 ) $ 6,315 $ — $ 2,580 $ 703 $ 3,774 $ 18,248 $ 22,022 Segment information for the six months ended April 30, 2022 (in thousands): Fresh Lemons Lemon Packing Eliminations Avocados Other Agribusiness Total Agribusiness Corporate and Other Total Revenues from external customers $ 60,592 $ 12,711 $ — $ 4,342 $ 5,807 $ 83,452 $ 2,572 $ 86,024 Intersegment revenue — 15,962 ( 15,962 ) — — — — — Total net revenues 60,592 28,673 ( 15,962 ) 4,342 5,807 83,452 2,572 86,024 Costs and expenses 59,383 22,218 ( 15,962 ) 2,394 6,438 74,471 13,562 88,033 Depreciation and amortization — — — — — 4,372 591 4,963 Operating income (loss) $ 1,209 $ 6,455 $ — $ 1,948 $ ( 631 ) $ 4,609 $ ( 11,581 ) $ ( 6,972 ) 20. Subsequent Events The Company evaluated events subsequent to April 30, 2023 through the date of this filing, to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except as described in the notes to the interim consolidated financial statements, it was determined that no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements. 24