What changed in this filing

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Item 1A. Risk Factors

2023-12-21 compared with 2022-12-22 · 59 added, 45 removed, 324 unchanged (24% of the section changed)

Risks Related to Our Business Approach

We cannot assure you that our evaluation of potential strategic alternatives to enhance value for stockholders will be successful;

and there may be negative impacts on our business and stock price as a result of the process of exploring strategic alternatives.

On December 1, 2023, the Company announced the commencement of a process to explore strategic alternatives, which could include, but not be limited to, a sale of all or parts of the Company, merger or other transaction.

The Board has not set a timetable for the completion of this review process and there can be no assurance that it will result in any transaction or outcome.

Whether the process will result in any additional transactions, our ability to complete any transaction, and if our Board decides to pursue one or more transactions, will depend on numerous factors, some of which are beyond our control.

Such factors include the interest of potential acquirers or strategic partners in a potential transaction, the value potential acquirers or strategic partners attribute to our businesses and their respective prospects, market conditions, interest rates and industry trends.

Our stock price may be adversely affected if the evaluation does not result in additional transactions or if one or more transactions are consummated on terms that investors view as unfavorable to us.

Even if one or more additional transactions are completed, there can be no assurance that any such transactions will be successful or have a positive effect on stockholder value.

Our Board may also determine that no additional transaction is in the best interest of our stockholders.

In addition, our financial results and operations could be adversely affected by the strategic process and by the uncertainty regarding its outcome.

The attention of management and our Board could be diverted from our core business operations.

We have diverted capital and other resources to the process that otherwise could have been used in our business operations, and we will continue to do so until the process is completed.

We could incur substantial expenses associated with identifying and evaluating potential strategic alternatives, including those related to employee retention payments, equity compensation, severance pay and legal, accounting and financial advisor fees.

In addition, the process could lead us to lose or fail to attract, retain and motivate key employees, and to lose or fail to attract customers or business partners.

Furthermore, it could expose us to litigation.

The public announcement of a strategic alternative may also yield a negative impact on operating results if prospective or existing service providers are reluctant to commit to new or renewal contracts or if existing customers decide to move their business to a competitor.

We do not intend to disclose developments or provide updates on the progress or status of the strategic process until our Board deems further disclosure is appropriate or required.

Accordingly, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of the Company could cause our stock price to fluctuate significantly.

Risks Related to Our Agribusiness Operations

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Due to the discovery of ACP in our orchards, we have experienced costs related to the quarantine and treatment of ACP.

To date, HLB has been detected in California, however there has been no HLB detected in our orchards.

There can be no assurance that HLB will not be further detected in the future.

In September 2023, two HLB-positive citrus trees were detected on one residential property in the City of Santa Paula, California.

In October 2023, the California Department of Food and Agriculture declared a mandatory five-mile-radius quarantine area, which includes approximately 1,100 acres of Limoneira-owned lemon orchards.

The quarantine area restricts the movement of citrus fruit, trees and related plant material subject to certain protocols.

Additional costs to spray insecticides on our orchards within the quarantine area are estimated to be $0.3 million to $0.4 million in fiscal year 2024.

There can be no assurance that HLB will not be detected on Limoneira orchards in the future.

The costs to control these diseases and other infestations vary depending on the severity of the damage and the extent of the plantings affected.

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Growing conditions in various parts of the world, particularly weather conditions such as windstorms, floods, droughts and freezes, as well as diseases and pests, are primary factors affecting market prices because of their influence on the supply and quality of product.

The ongoing COVID-19 pandemic has also reduced the demand for our products resulting in excess supply.

The COVID-19 pandemic also reduced the demand for our products resulting in excess supply.

Fresh produce is highly perishable and generally must be brought to market and sold soon after harvest.

Some items, such as avocados, oranges and specialty citrus, must be sold more quickly, while other items, such as lemons, can be held in cold storage for longer periods of time.

Some items, such as avocados and oranges, must be sold more quickly, while other items, such as lemons, can be held in cold storage for longer periods of time.

The selling price received for each type of produce depends on all of these factors, including the availability and quality of the produce item in the market and the availability and quality of competing types of produce.

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Our labor contractors and we are subject to government mandated wage and benefit laws and regulations.

For example, the State of California, where a substantial number of our labor contractors are located, passed regulations that increased minimum wage rates from $14.00 per hour to $15.00 per hour, effective January 1, 2022, and will increase to $15.50 per hour in 2023.

For example, the State of California, where a substantial number of our labor contractors are located, passed regulations that increased minimum wage rates from $15.00 per hour to $15.50 per hour, effective January 1, 2023, and will increase to $16.00 per hour in 2024 due to a cost-of-living increase provision found in the state's minimum wage law.

The State of Arizona wage rates rise each year based on the annual cost of living and increased from $12.80 per hour to $13.85 per hour, effective January 1, 2023, and will increase to $14.35 per hour in 2024.

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The lack of sufficient water would severely impact our ability to produce crops or develop real estate.

The average rainfall in Ventura, Tulare, San Luis Obispo and San Bernardino Counties in California is substantially below amounts required to grow crops and therefore we are dependent on our surface water rights and rights to pump water from underground aquifers.

The average rainfall in Ventura and San Luis Obispo Counties in California is substantially below amounts required to grow crops and therefore we are dependent on our surface water rights and rights to pump water from underground aquifers.

Extended periods of drought in California may put additional pressure on the use and availability of water for agricultural uses, and in some cases, governmental authorities have diverted water to other uses.

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Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the un-adjudicated Fillmore and Paso Robles Basins (aquifers).

We use ground water and water from local water districts in Tulare County and ground water in San Bernardino County.

We use federal project water in Arizona from the Colorado River through the YMIDD.

We also have acquired water rights in Chile.

California has experienced below average precipitation since the 2019 - 2020 rainfall season.

According to the U.S.

Drought Monitor, San Bernardino County was experiencing severe drought conditions, Ventura County was experiencing extreme drought conditions and Tulare County was experiencing exceptional drought conditions as of October 31, 2022.

In October 2021, the California Governor declared a drought state of emergency statewide.

Federal officials who oversee the Central Valley Project, California’s largest water delivery system, allocated 0% of the contracted amount of water to San Joaquin Valley farmers in 2022, compared to 5% in 2021 and 100% in 2017 through 2020.

We are assessing the impact these reductions may have on our California orchards.

In August 2021, the U.S.

Bureau of Reclamation declared a Level 1 Shortage Condition at Lake Mead in the Lower Colorado River Basin for the first time ever, requiring shortage reductions and water savings contributions for states in the southwest.

In January 2022, Arizona experienced water releases from Lake Mead reduced by approximately 18% of the state’s annual apportionment.

California experienced above average precipitation during the 2022 - 2023 rainfall season after experiencing three years of below average precipitation and drought conditions.

The above average precipitation helped to alleviate the drought conditions in California.

As of October 31, 2023, the state was free from moderate drought conditions and Ventura County was free from any drought conditions.

We continue to assess the impact drought conditions may have on our California orchards.

In August 2021, the U.S.

Bureau of Reclamation announced Lake Mead to operate in a Tier 2 shortage, which increases water restrictions for states in the southwest.

In January 2023, Arizona will forfeit approximately 21% of the state's yearly allotment of water from Lake Mead.

In response, we entered into a fallowing agreement and we are assessing the impact these additional reductions may have on our Arizona orchards.

For fiscal year 2022, irrigation costs for our agricultural operations were $1.9 million higher than fiscal year 2021.

Bureau of Reclamation (the “Bureau”) declared a Level 1 shortage condition at Lake Mead in the Lower Colorado River Basin for the first time ever, requiring shortage reductions and water savings contributions for states in the southwest.

In August 2022, the Bureau announced Lake Mead to operate in a Tier 2 shortage, which further increased water restrictions.

As a result, in January 2023, Arizona forfeited approximately 21% of the state's yearly allotment of water from Lake Mead.

In August 2023, the Bureau announced Lake Mead will operate in a Tier 1 shortage in 2024, which requires Arizona to forfeit approximately 18% of the state's yearly allotment of water from Lake Mead.

In response to these water shortages, we entered into fallowing agreements during fiscal years 2023 and 2022 and continue to assess the impact these reductions may have on our Arizona orchards.

For fiscal year 2023, irrigation costs for our agricultural operations were higher than fiscal year 2022.

Costs may increase as we pump more water than our historical averages and federal, state and local water delivery infrastructure costs may increase to access these limited water supplies.

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Similarly, parties to contracts may be forced to breach their obligations under those contracts.

Although we exercise prudent oversight of the credit ratings and financial strength of our major business partners and seek to diversify our risk to any single business partner, there can be no assurance that there will not be a bank, insurance company, supplier, customer or other financial

partner that is unable to meet its contractual commitments to us.

Similarly, stresses and pressures in the industry may result in impacts on our business partners and competitors, which could have wide-ranging impacts on the future of the industry.

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In addition, the modification of existing laws or regulations or the introduction of new laws or regulations could require us to make material expenditures or otherwise adversely affect the way that we have historically operated our business.

Our strategy to expand international production and marketing may not be successful and may subject us to risks associated with doing business in corrupt environments.

While we intend to expand our lemon supply sources to international markets and explore opportunities to expand our international production and marketing of lemons, we may not be successful in implementing this strategy.

Our strategy to expand international supply and marketing may not be successful and may subject us to risks associated with doing business in corrupt environments.

While we intend to expand our lemon supply sources to international markets and explore opportunities to expand our marketing of lemons, we may not be successful in implementing this strategy.

Additionally, in many countries outside of the United States, particularly in those with developing economies, it may be common for others to engage in business practices prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act or similar local anti-bribery laws.

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We may be unable to generate sufficient cash flow to service our debt obligations.

To service our debt, we require a significant amount of cash.

To service our debt, we require a certain amount of cash.

Our ability to generate cash, make scheduled payments or refinance our obligations depends on our successful financial and operating performance.

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• transfer and sell assets.

Our revolving and non-revolving credit facility with the Farm Credit West Credit Facility contain a financial covenant that requires us to maintain compliance with a specified debt service coverage ratio greater than or equal to 1:25:1.0 on an annual basis.

At October 31, 2022, we were in compliance with such debt service coverage ratio.

Our failure to comply with this covenant in the future may result in the declaration of an event of default under our Farm Credit West Credit Facility.

Our revolving and non-revolving credit facility with the AgWest Farm Credit Facility contain a financial covenant that requires us to maintain compliance with a specific debt service coverage ratio on an annual basis.

In September 2023, Farm Credit West, PCA (the “Lender”) modified the covenant to defer measurement as of October 31, 2023 and resume a debt service coverage ratio of 1.25:1.0 measured as of October 31, 2024.

Our failure to comply with this covenant in the future may result in the declaration of an event of default under our AgWest Farm Credit Facility.

Any or all of these covenants could have a material adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities and to fund our operations.

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If the lenders under our current or future indebtedness were to accelerate the payment of the indebtedness, we cannot assure you that our assets or cash flow would be sufficient to repay in full our outstanding indebtedness.

Despite our relatively high current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we may still incur significant additional indebtedness, including secured and guaranteed indebtedness.

Incurring more indebtedness could increase the risks associated with our substantial indebtedness.

Despite our current indebtedness levels and the restrictive covenants set forth in agreements governing our indebtedness, we may still incur significant additional indebtedness, including secured and guaranteed indebtedness.

Incurring more indebtedness could increase the risks associated with our overall indebtedness.

Subject to the restrictions in our credit facilities, we may incur significant additional indebtedness.

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to fund early development activities.

The Loan, as modified and extended, matures February 22, 2023 and 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 $35.0 million during the extension period.

In December 2022, LLCB exercised the extension option.

Effective as of February 22, 2023, the Loan maturity date was extended to February 22, 2024, and the maximum borrowing amount was reduced to $35.0 million.

The Loan contains certain customary default provisions and LLCB may prepay any amounts outstanding under the Loan without penalty.

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Some of our debt is based on variable rates of interest, which could result in higher interest expenses in the event of an increase in the interest rates.

Our Farm Credit West Credit Facility currently bears interest at a variable rate, which will generally change as interest rates change.

We bear the risk that the rates we are charged by our lender will increase faster than the earnings and cash flow of our business, which could reduce profitability, adversely affect our ability to service our debt, cause us to breach covenants contained in our Farm Credit West Credit Facility, which could materially adversely affect our business, financial condition and results of operations.

Several of our Company’s debt agreements use LIBOR as a reference rate, which will be converted to the Secure Overnight Financing Rate ("SOFR") on January 1, 2023.

Our AgWest Farm Credit Facility is subject to variable rates, which generally change as interest rates change.

We bear the risk that the rates we are charged by our lender will increase faster than the earnings and cash flow of our business, which could reduce profitability, adversely affect our ability to service our debt, cause us to breach covenants contained in our AgWest Farm Credit Facility, which could materially adversely affect our business, financial condition and results of operations.

Our Company’s debt agreement with AgWest Farm Credit used LIBOR as a reference rate, which was converted to the Secure Overnight Financing Rate (“SOFR”) on January 1, 2023.

Global capital and credit market issues affect our liquidity, increase our borrowing costs and may affect the operations of our suppliers and customers.

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Any decrease in demand will negatively impact our proposed developments.

In 2022, the Board of Governors of the Federal Reserve System took actions in tightening the monetary policy that resulted in higher interest rates prevailing in the marketplace.

In 2023 and 2022, the Board of Governors of the Federal Reserve System took actions in tightening the monetary policy that resulted in higher interest rates prevailing in the marketplace.

Market interest rates may continue to increase in the future and the increase may materially and negatively affect us.

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Environmental laws that apply to a given site can vary greatly according to the site’s location and condition, the present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species.

Environmental laws and conditions may (i) result in delays, (ii) cause us to incur additional costs for compliance, where a significant amount of our developable land is located, mitigation and processing land use applications, or (iii) preclude development in specific areas.

Environmental laws and conditions may (i) result in delays, (ii) cause us to incur additional costs for compliance, mitigation and processing land use applications, or (iii) preclude development in specific areas.

In addition, in California, third parties have the ability to file litigation challenging the approval of a project, which they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project.

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All of our real estate development projects are located in California, and our business is especially sensitive to the economic conditions within California.

Any adverse change in the economic climate of California, and any adverse change in the political or

regulatory climate of California or Ventura County, could adversely affect our real estate development activities.

Any adverse change in the economic climate of California, and any adverse change in the political or regulatory climate of California or Ventura County, could adversely affect our real estate development activities.

Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations.

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We rely on contractual arrangements with third-party advisors to assist us in carrying out our real estate development projects and are subject to risks associated with such arrangements.

We utilize third-party contractor and consultant arrangements to assist us in operating our real estate development segment.

These contractual arrangements may not be as effective in providing direct control over this business segment.

We utilize third-party contractor and consultant arrangements to assist us in operating our real estate development division.

These contractual arrangements may not be as effective in providing direct control over this business division.

For example, our third-party advisors could fail to take actions required for our real estate development businesses despite their contractual obligation to do so.

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Delays or failures to obtain these entitlements may have a material adverse effect on our financial results.

We could experience a reduction in revenues or reduced cash flows if we are unable to obtain reasonably priced financing to support our real estate development projects and land development activities.

We could experience a reduction in net income or reduced cash flows if we are unable to obtain reasonably priced financing to support our real estate development projects and land development activities.

The real estate development industry is capital intensive, and development requires significant up-front expenditures to develop land and begin real estate construction.

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Although we believe that internally generated funds and current and available borrowing capacity will be sufficient to fund our capital and other expenditures, including additional land acquisition, development and construction activities, and the amounts available from such sources, may not be adequate to meet our needs.

If such sources

were insufficient, we would seek additional capital in the form of debt from a variety of potential sources, including bank financing.

If such sources were insufficient, we would seek additional capital in the form of debt from a variety of potential sources, including bank financing.

The availability of borrowed funds to be used for additional land acquisition, development and construction may be greatly reduced, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with new loans.

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Inflation can have a major impact on our agribusiness operations.

The farming operations are most affected by escalating costs and unpredictable revenues (due to an oversupply of certain crops) and very high irrigation water costs.

The farming operations are most affected by escalating costs, unpredictable revenues (due to an oversupply of certain crops) and very high irrigation water costs.

High fixed water costs related to our farm lands will continue to adversely affect earnings.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors