AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 2010
REGISTRATION
NO. 0-53885
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
No. 4
to
FORM
10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
PURSUANT
TO SECTION 12(b) OR 12(g) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Limoneira
Company
(Name
of registrant as specified in its charter)
|
Delaware
|
77-0260692
|
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
1141
Cummings Road, Santa Paula, CA 93060
(Address
of principal executive offices, including zip code)
(805)
525-5541
(Registrant’s
telephone number, including area code)
Securities
to be registered pursuant to Section 12(b) of the Act:
|
TITLE
OF EACH CLASS
TO
BE SO REGISTERED
|
NAME
OF EACH EXCHANGE ON WHICH
EACH
CLASS IS TO BE REGISTERED
|
|
|
None
|
None
|
Securities
to be registered pursuant to Section 12(g) of the Act:
TITLE
OF CLASS
Common
Stock, $0.01 par value
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
¨
|
Accelerated filer
|
¨
|
|
Non-accelerated filer
|
x (Do not check if a smaller
reporting company)
|
Smaller reporting company
|
¨
|
TABLE
OF CONTENTS
|
ITEM
1.
|
BUSINESS
|
3
|
|
ITEM
1A.
|
RISK
FACTORS
|
14
|
|
ITEM
2.
|
FINANCIAL
INFORMATION
|
23
|
|
ITEM
3.
|
PROPERTIES
|
40
|
|
ITEM
4.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
41
|
|
ITEM
5.
|
DIRECTORS
AND EXECUTIVE OFFICERS
|
42
|
|
ITEM
6.
|
EXECUTIVE
COMPENSATION
|
45
|
|
ITEM
7.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
53
|
|
ITEM
8.
|
LEGAL
PROCEEDINGS
|
54
|
|
ITEM
9.
|
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
|
54
|
|
ITEM
10.
|
RECENT
SALES OF UNREGISTERED SECURITIES
|
58
|
|
ITEM
11.
|
DESCRIPTION
OF REGISTRANT’S SECURITIES TO BE REGISTERED
|
59
|
|
ITEM
12.
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
63
|
|
ITEM
13.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
63
|
|
ITEM
14.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
63
|
|
ITEM
15.
|
FINANCIAL
STATEMENTS AND EXHIBITS
|
64
|
i
EXPLANATORY
NOTE
We are
filing this Amendment No. 4 to Form 10, which we refer to as this
Amendment, to amend the Company’s registration statement on Form 10, as
initially filed with the Securities and Exchange Commission on February 12,
2010, which we refer to as the Original Filing, and as amended by Amendment No.
1 to Form 10 filed with the SEC on March 31, 2010, which we refer to as
Amendment No. 1, Amendment No. 2 to Form 10 filed with the SEC on April 16,
2010, which we refer to as Amendment No. 2 and Amendment No. 3 to Form 10 filed
with the SEC on May 4, 2010, which we refer to as Amendment
No. 3. This Amendment amends the Original Filing, as amended by
Amendments No. 1, No. 2 and No. 3, in its entirety to add additional disclosure
in response to comments received from the staff of the SEC. This
Amendment should be read in conjunction with the Company’s other filings made
with the SEC subsequent to the date of the Original Filing, including any
amendments to those filings.
We are
filing this General Form for Registration of Securities on Form 10 to register
voluntarily our common stock, par value $0.01 per share, pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended, which we refer to as
the Exchange Act.
Once this
registration statement is deemed effective, we will be subject to the
requirements of Regulation 13A under the Exchange Act, which will require us to
file annual reports on Form 10-K, quarterly reports on Form 10-Q, and current
reports on Form 8-K, and we will be required to comply with all other
obligations of the Exchange Act applicable to issuers filing registration
statements pursuant to Section 12(g) of the Exchange Act.
On March
23, 2010, our stockholders approved a proposal that we split our shares on a
ten-for-one basis. Consequently, unless otherwise noted all references to, and
descriptions of, our common stock have been adjusted to reflect the stock split,
which became effective on March 24, 2010. Moreover, following the
effectiveness of this registration statement and after addressing any comments
from the Division of Corporation Finance of the Securities and Exchange
Commission, which we refer to as the SEC, we expect that our common stock will
be accepted for listing on The NASDAQ Stock Market LLC under the ticker symbol
“LMNR.”
All
references to “we,” “us,” “our,” “our company,” “the company,” or “Limoneira” in
this registration statement on Form 10 mean Limoneira Company, a Delaware
corporation, and its wholly owned subsidiaries.
FORWARD-LOOKING
STATEMENTS
This
registration statement on Form 10 contains statements which, to the extent that
they do not recite historical fact, constitute forward-looking statements. These
statements can be identified by the fact that they do not relate strictly to
historical or current facts and may include the words "may," "will," could,"
"should," "would," "believe," "expect," "anticipate," "estimate," "intend,"
"plan" or other words or expressions of similar meaning. We have
based these forward-looking statements on our current expectations about future
events. The forward-looking statements include statements that
reflect management’s beliefs, plans, objectives, goals, expectations,
anticipations and intentions with respect to our financial condition, results of
operations, future performance and business, including statements relating to
our business strategy and our current and future development plans.
The
potential risks and uncertainties that could cause our actual financial
condition, results of operations and future performance to differ materially
from those expressed or implied in this prospectus include:
|
|
·
|
changes
in laws, regulations, rules, quotas, tariffs, and import
laws;
|
|
|
·
|
weather
conditions, including freezes, that affect the production, transportation,
storage, import and export of fresh
produce;
|
|
|
·
|
market
responses to industry volume
pressures;
|
|
|
·
|
increased
pressure from disease, insects and other
pests;
|
|
|
·
|
disruption
of water supplies or changes in water
allocations;
|
|
|
·
|
product
and raw materials supplies and
pricing;
|
|
|
·
|
energy
supply and pricing;
|
|
|
·
|
changes
in interest and currency exchange
rates;
|
|
|
·
|
availability
of financing for land development
activities;
|
|
|
·
|
political
changes and economic crises;
|
|
|
·
|
international
conflict;
|
|
|
·
|
acts
of terrorism;
|
1
|
|
·
|
labor
disruptions, strikes or work
stoppages;
|
|
|
·
|
loss
of important intellectual property rights;
and
|
|
|
·
|
other
factors disclosed in this registration
statement.
|
In
addition, this registration statement on Form 10 contains industry data related
to our business and the markets in which we operate. This data includes
projections that are based on a number of assumptions. If these assumptions turn
out to be incorrect, actual results could differ from the
projections.
We urge
you to carefully review this registration statement on Form 10, particularly the
section “Risk Factors,” for a complete discussion of the risks of an investment
in our common stock.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, level of activity, performance
or achievements. Many factors discussed in this registration statement, some of
which are beyond our control, will be important in determining our future
performance. Consequently, actual results may differ materially from those that
might be anticipated from forward-looking statements. In light of these and
other uncertainties, you should not regard the inclusion of a forward-looking
statement in this registration statement as a representation by us that our
plans and objectives will be achieved, and you should not place undue reliance
on such forward-looking statements. We undertake no obligation to publicly
update any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
2
|
ITEM
1.
|
BUSINESS
|
Limoneira
Company was incorporated in Delaware in 1990 as the successor to several
businesses with operations in California since 1893. Our operations
are described below. For detailed financial information with respect
to our business and our operations, see our consolidated financial statements
and the related notes to consolidated financial statements, which are included
in this registration statement beginning on page F-1. In addition, general
information concerning our Company can be found on our website, the internet
address of which is www.limoneria.com.
Overview
We are an
agribusiness and real estate development company founded and based in Santa
Paula, California, committed to responsibly using and managing our approximately
7300 acres of land, water resources and other assets to maximize long-term
stockholder value. Our current operations consist of fruit production
and marketing, real estate development and capital investment
activities.
We are
one of California’s oldest citrus growers and, according to Sunkist Growers,
Inc., we are one of the largest growers of lemons in the United
States and, according to the California Avocado Commission, the largest
grower of avocados in the United States. In addition to growing
lemons and avocados, we grow oranges and a variety of other specialty citrus and
other crops. We have agricultural plantings throughout Ventura, Santa
Barbara and Tulare Counties in California, which plantings consist of
approximately 1839 acres of lemons, 1372 acres of avocados, 1062 acres of
oranges and 403 acres of specialty citrus and other crops. We also
operate our own packinghouse in Santa Paula, California, where
we process and pack lemons that we grow as well as lemons grown by
others.
Our water
resources include water rights, usage rights and pumping rights to the water in
aquifers under, and canals that run through, the land we own. 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 unadjudicated Fillmore, Santa Barbara and
Paso Robles Basins (aquifers). We also use ground water and water
from local water districts in Tulare County, which is in the San Joaquin
Valley.
For more
than 100 years, we have been making strategic investments in California
agricultural and development real estate, and more recently, in Arizona real
estate. As of the date of this registration statement, we have six
active real estate development projects in California and two in
Arizona. Our real estate developments range from apartments to luxury
single-family homes and in California include approximately 200 completed units
and another approximately 2,000 units in various stages of planning and
entitlement. Our real estate developments in Arizona consist of two
luxury homes in Paradise Valley, which is adjacent to Phoenix and
Scottsdale.
Business
Segments
We have
three business segments: agribusiness, rental operations, and real estate
development. The agribusiness segment includes our farming and lemon
packing operations. The rental operations segment includes our
housing, organic recycling, commercial and leased land
operations. The real estate development segment includes our real
estate projects and development.
Agribusiness
Our
agribusiness segment includes our operations for farming and lemon
packing. The agribusiness segment represented approximately 89%, 93%
and 93% of our fiscal 2009, fiscal 2008 and fiscal 2007 consolidated revenues,
respectively.
Farming
We are
one of California’s oldest citrus growers and one of the largest growers of
lemons and the largest grower of avocados in the United States. In
addition to growing lemons and avocados, we grow oranges and a variety of
specialty citrus and other crops. We have agricultural plantings
throughout Ventura, Santa Barbara and Tulare Counties in California, which
consist of approximately 1839 acres of lemons, 1372 acres of avocados, 1062
acres of oranges and 403 acres of specialty citrus and other
crops. We also operate our own packinghouse in Santa Paula,
California, where we process and pack lemons we grow as well as
lemons grown by others.
3
Lemons. We are one
of the largest lemon growers in the United States with approximately 1839 acres
of lemons planted throughout Ventura County, California and Tulare County in the
San Joaquin Valley in Central California. In California, the lemon
growing area stretches from the Coachella Valley to Fresno and Monterey
Counties, with the majority of the growing areas being located in the coastal
areas from Ventura County to Monterey County. Ventura County is
California’s top lemon producing county. Approximately 87% of our
lemons are grown in Ventura County and approximately 13% are grown in Tulare
County in Central California’s San Joaquin Valley.
There are
over fifty varieties of lemons, with the Lisbon, Eureka and Genoa being the
predominant varieties marketed on a worldwide basis. California grown
lemons are available 12 months of the year, with peak production periods
occurring from January through August. Approximately 92% of our lemon
plantings are of the Lisbon and Eureka varieties and approximately 8% are of
other varieties. The storage life of fresh lemons is limited and
generally ranges from one to 18 weeks, depending upon the maturity of the fruit,
the growing methods used and the handling conditions in the distribution
chain.
With an
average annual production of approximately 750,000 tons of lemons, California
accounts for approximately 87% of the United States lemon crop, with Arizona
producing a vast majority of the rest. Between 50% and 70% percent of
the United States lemon crop is utilized in the fresh market, with the remainder
going to the processed market for products such as juice, oils and
essences. Most lemons are consumed as either a cooking ingredient, a
garnish, or as juice in lemonade or other carbonated beverages or drinks. Demand
for lemons is typically highest in the summer, although California producers
through various geographical zones are typically able to harvest lemons year
round.
Most of
our lemons, including our packinghouse branded lemons, are marketed and sold
under the Sunkist brand to the food service industry, wholesalers and retail
operations throughout North America, Asia and certain other countries primarily
through Sunkist Growers, Inc., which we refer to as Sunkist, an agricultural
marketing cooperative of which we are a member. As an agricultural
cooperative, Sunkist coordinates the sales and marketing of our lemons and we
process orders through our packinghouse for direct shipment to customers
worldwide.
Avocados. We are
the largest avocado grower in the United States with approximately 1372 acres of
avocados planted throughout Ventura and Santa Barbara counties. In
California, the growing area stretches from San Diego County to Monterey County,
with the majority of the growing areas located approximately 100 miles north and
south of Los Angeles County.
Over the
last 70 years, the avocado has transitioned from a single specialty fruit to an
array of 10 varieties ranging from the green-skinned Zutanos to the
black-skinned Hass, which is the predominant avocado variety marketed on a
worldwide basis. California grown avocados are available year round,
with peak production periods occurring between February and
September. Other avocado varieties have a more limited picking season
and typically command a lower price. Because of superior eating
quality, the Hass avocado has contributed greatly to the avocado’s growing
popularity through its retail, restaurant and other food service
uses. Approximately 98% of our avocado plantings are of the Hass
variety. The storage life of fresh avocados is limited and generally
ranges from one to four weeks, depending upon the maturity of the fruit, the
growing methods used and the handling conditions in the distribution
chain.
We
provide all of our avocado production to Calavo Growers, Inc., which we refer to
as Calavo, a packing and marketing company listed on NASDAQ under the symbol
CVGW. Calavo’s customers include many of the largest retail and food
service companies in the United States and Canada. Our marketing relationship
with Calavo dates back to 2003. Calavo receives fruit from our
orchards at its packinghouse located in Santa Paula. Calavo’s
proximity to our agricultural operations enables us to keep transportation and
handling costs to a minimum. Our avocados are packed by Calavo, sold and
distributed under its own brands to its customers primarily in the United States
and Canada.
Primarily
due to differing soil conditions, the care of avocado trees is intensive and
during our 70 year history of growing avocados, growing techniques have changed
dramatically. The need for more production per acre to compete with
foreign sources of supply has required us to take an important lead in the
practice of dense planting (typically four times the number of avocado trees per
acre versus traditional avocado plantings) and mulching composition to help
trees acclimate under conditions that more closely resemble those found in the
more natural climate of the tropics.
4
Oranges. While we
are primarily known for our high quality lemons, we also grow
oranges. We have approximately 1062 acres of oranges planted
throughout Tulare County in the San Joaquin Valley in Central
California. In California, the growing area stretches from Imperial
County to Yolo County.
For many
decades, the Valencia variety of oranges were grown in Ventura County primarily
for export to the Pacific Rim. Throughout the late 20th century,
developing countries began producing the larger, seedless Navel variety of
oranges that successfully competed against the smaller Valencia variety of
oranges. California grown Valencia oranges are available March to
October, with peak production periods occurring between June and
September. California grown Navel oranges are available October to
June, with peak production periods occurring between January and
April. Approximately 19% of our orange plantings are of the Valencia
variety and approximately 81% are of the Navel variety.
Navel
oranges comprise most of California’s orange crop, accounting for approximately
75% over the past three growing seasons. Valencia oranges account for a vast
majority of the remainder. While California produces approximately
24% of the nation’s oranges, its crop accounts for approximately 80% of those
going to the fresh market. The share of California’s crop going to fresh market,
as opposed to the processed market (i.e. juices, oils and essences) varies by
season, depending on the quality of the crop.
Sunkist
markets and sells our oranges under the Sunkist brand to the food service
industry, wholesalers and retail operations throughout the world. As
an agricultural cooperative, Sunkist coordinates the sales and marketing of our
oranges and orders are processed by a packinghouse for direct shipment to
customers. We typically partner with outside packers to process and
ship our oranges. Approximately 70% of our oranges are sold to
retail outlets and approximately 30% are sold to the food service
industry.
Specialty Citrus and Other
Crops. A few decades ago in response to an ever changing
marketplace, we began growing specialty citrus varieties and other crops that we
believed would appeal to changing North American and worldwide
demand. As a result, we currently have approximately 403 acres of
specialty citrus and other crops planted such as pummelos, Moro blood oranges,
Cara Cara oranges, Satsuma mandarins, sweet Meyer lemons, proprietary seedless
lemons, pink variegated lemons, Minneola tangelos, pistachios, cherries and Star
Ruby grapefruit.
Acreage
devoted to specialty citrus and other crops in California has been growing
significantly over the past few decades, especially with the popularity of the
Clementine, a type of mandarin orange. We grow Satsumas, a type of
mandarin orange similar to Clementine oranges. All of our specialty
citrus is marketed and sold under the Sunkist brand through Sunkist and packed
and shipped through arrangements with other packers similar to our
oranges. All of our specialty citrus, other than specialty
lemons such as sweet Meyer lemons, pink variegated lemons and proprietary
seedless lemons, is marketed and sold by Sunkist to major retail operations in
the United States.
We market
our other specialty crops, such as pistachios and cherries, independently. All
of our pistachios are harvested and sold to an independent roaster, packager and
marketer of nuts. All of our cherries are harvested and sold to
independent packers and shippers.
We have
agricultural plantings on 13 properties located throughout Ventura, Santa
Barbara and Tulare Counties in California. The following is a
description of each such property.
Limoneira/Olivelands
Ranch. The Limoneira/Olivelands Ranch is the original site of
the company and consists of approximately 1,744 contiguous acres located just
west of Santa Paula, California. The company’s headquarters, lemon
packing operations and storage facilities are located on this
property. There are approximately 1,189 acres of agricultural
plantings on this property which consist of approximately 544 acres of lemons,
643 acres of avocados and 2 acres of specialty citrus and other
crops. The company leases approximately 199 acres to third party
agricultural tenants who grow a variety of row crops. The company
also leases to Calavo office space located on this property.
5
Orchard Farm
Ranch. The Orchard Farm Ranch consists of approximately 1,119
acres located just west of Santa Paula, California. There are
approximately 805 acres of agricultural plantings on this property which consist
of approximately 417 acres of lemons, 29 acres of avocados and 7 acres of
specialty citrus and other crops planted by the company and approximately 352
acres leased to third party agricultural tenants who grow a variety of row
crops. The Orchard Farm Ranch is directly adjacent to the
Limoneira/Olivelands Ranch, which together comprise nearly 2,900 contiguous
acres approximately eight miles from the Pacific Ocean.
Teague McKevett
Ranch. The Teague McKevett Ranch consists of approximately 523
acres located just east of Santa Paula, California. There are
approximately 414 acres of agricultural plantings on this property which consist
of approximately 213 acres of lemons and 181 acres of avocados planted by the
company and approximately 20 acres leased to third party tenants who
grow a variety of row crops. As described in “Real Estate
Development” below, the Teague McKevett Ranch comprises all of East Area
1.
La Cuesta
Ranch. The La Cuesta Ranch consists of approximately 222 acres
located between Santa Paula, California and Ojai, California. The
company has approximately 126 acres of agricultural plantings on this property
which consist of approximately 87 acres of lemons, 27 acres of avocados and 12
acres of specialty citrus and other crops.
San Cayetano
Ranch. The San Cayetano Ranch consists of approximately 86
acres located between Santa Paula, California and Fillmore,
California. The company has approximately 74 acres of agricultural
plantings on this property which consist of approximately 6 acres of lemons and
68 acres of avocados.
Sawyer Ranch. The
Sawyer Ranch consists of approximately 31 acres located between Santa Paula,
California and Fillmore, California. The company leases this property
and has approximately 29 acres of agricultural plantings consisting of
approximately 12 acres of lemons and 17 acres of avocados.
La Campana
Ranch. The La Campana Ranch consists of approximately 324
acres located between Santa Paula, California and Fillmore,
California. The company has approximately 289 acres of agricultural
plantings on this property which consists of approximately 107 acres of lemons
and 182 acres of avocados.
Wilson Ranch. The
Wilson Ranch consists of approximately 52 acres located between Santa Paula,
California and Fillmore, California. The company has approximately 33
acres of avocado plantings on this property.
Limco Del Mar
Ranch. The Limco Del Mar Ranch consists of approximately 208
acres located on the east end of Ventura, California. As described in
“Real Estate Development” below, this property is owned by a limited partnership
of which the company is the general partner and owns an interest of
approximately 23%. This property has approximately 187 acres of
agricultural plantings consisting of 118 acres of lemons and 69 acres of
avocados. The company manages the agricultural operations on this
property.
Rancho Refugio/Caldwell
Ranch. The Rancho Refugio/Caldwell Ranch consists of
approximately 449 acres located north of Santa Barbara on the California
Coast. The company leases this property and has an option to purchase
the property at any time prior to the expiration of the lease term in early
2012. This property is currently for sale and has approximately 209
acres of agricultural plantings consisting of approximately 92 acres of lemons,
115 acres of avocados and 2 acres of specialty citrus and other
crops.
Porterville
Ranch. The Porterville Ranch consists of approximately 669
acres located about 50 miles north of Bakersfield, California. The
company has approximately 650 acres of agricultural plantings on this property
which consist of approximately 145 acres of lemons, 376 acres of Navel oranges,
27 acres of Valencia oranges, and 102 acres of specialty citrus and other
crops.
Jencks Ranch. The
Jencks Ranch consists of approximately 101 acres located about 50 miles north of
Bakersfield, California. This property is adjacent to our Porterville
Ranch. The company has approximately 60 acres of agricultural
plantings on this property which consists of approximately 53 acres of Navel
oranges and 7 acres of Valencia oranges.
6
Ducor Ranch. The
Ducor Ranch consists of approximately 1,027 acres located about 50 miles north
of Bakersfield, California. The company has approximately 974 acres
of agricultural plantings on this property which consist of approximately 97
acres of lemons, 431 acres of Navel oranges, 168 acres of Valencia oranges and
278 acres of specialty citrus and other crops.
Lemon Packing
We are
the oldest continuous lemon packing operation in North America. We
pack lemons grown by us as well as lemons grown by others. Lemons
delivered to our packinghouse in Santa Paula are graded, sized, packed, and
cooled and ripened for delivery to customers. Our ability to
accurately estimate the size, grade, as well as the timing of the delivery of
the annual lemon crop has a substantial impact on both our costs and the sales
price we receive for the fruit.
A
significant portion of the costs related to our lemon packing operation are
fixed. Our strategy calls for optimizing fresh utilization and
procuring a larger percentage of the California lemon crop.
We invest
considerable time and research into refining and improving our lemon operations
through innovation and are continuously in search of new techniques to refine
how premium lemons are delivered to our consumers.
Rental
Operations
Our
rental operations segment includes our housing, organic recycling, commercial
and leased land operations. The rental operations segment represented
approximately 11%, 7% and 7% of our fiscal 2009, 2008, and 2007 consolidated
revenues, respectively.
Housing
The
company owns and maintains approximately 193 residential housing units located
in Ventura and Tulare Counties that it leases to employees, former employees and
non-employees. We expect to add approximately 74 new units in Santa
Paula, California as a result of recently receiving approval from the Ventura
County Planning Commission to build new residential housing
units. These properties generate reliable cash flows which we use to
partially fund the operating costs of our business and provide affordable
housing for many of our employees and the community.
Commercial
The
company owns several commercial office buildings and a multi-use facility
consisting of a retail convenience store, gas station, car wash and a
quick-serve restaurant. As with our housing units, these properties
generate reliable cash flows which we use to partially fund the operations of
our business.
Leased
Land
As of
October 31, 2009 the company leases approximately 586 acres of its land to third
party agricultural tenants who grow a variety of row crops such as strawberries,
raspberries, celery and cabbage. Our leased land business typically
provides us with a profitable method to diversify the use of our
land.
Organic
Recycling
With the
help of Agromin, a manufacturer of premium soil products and green waste
recycler located in Oxnard, California, we have created and implemented an
organic recycling program. Agromin provides green waste recycling for
approximately 19 cities in Santa Barbara, Los Angeles and Ventura Counties. We
worked with Agromin to develop two organic recycling facilities, one on our land
in Ventura County and another in Los Angeles County, to receive green materials
(lawn clipping, leaves, bark, plant materials) and convert such material into
mulch that we spread throughout our agricultural properties to help curb
erosion, improve water efficiency, reduce weeds and moderate soil
temperatures. We receive a percentage of the gate fees collected from
regional waste haulers and enjoy the benefits of the organic
material.
7
Real
Estate Development
Our real
estate development segment includes our real estate development
operations. The real estate devlopment segment represented less than
1% of our consolidated revenues in fiscal 2009 and did not generate any
significant revenues during fiscal 2008 and fiscal 2007.
For more
than 100 years, we have been making strategic real estate investments in
California agricultural and developable real estate, and more recently, in
Arizona. Our current real estate developments include developable
land parcels, single- and multi- family affordable housing and luxury
single-family homes with nearly 2,000 units in various stages of planning and
development. The following is a summary of each of the strategic
agricultural and development real estate investment properties in which we own
an interest:
East Area I - Santa Paula,
California. Santa Paula East Area I consists of 523 acres that
we presently use as agricultural land and is located in Santa Paula
approximately ten miles from Ventura and the Pacific Ocean. This
property is also known as our Teague McKevett Ranch. We believe East
Area 1 is an ideal location for a master planned community of commercial and
residential properties designed to satisfy expected demand in a region that we
believe will have few other developments in this coming decade. In
2008, after completing a process of community planning and environmental review,
the citizens of Santa Paula voted to approve the annexation of East Area I into
Santa Paula. This vote was a requirement of the Save Open-Space and
Agricultural Resources, or SOAR, ordinance which mandates a public vote of the
City of Santa Paula for land use conversion. We are currently in the
process of obtaining final documentation to complete the entitlement and have
executed a 30-year pre-annexation and development agreement with Santa
Paula. The
development agreement with the City of Santa Paula related to East Area I was
approved by ordinance No. 1191 on March 17, 2008 (which ordinance became
effective by its terms on April 17, 2008) and contemplates a development project
consisting of up to 1,500 residential units and an estimated 810,800 square feet
of office, retail, light industrial and civic facilities, together with schools,
park sites and open spaces. The final discretionary approval required
prior to construction of the project is the annexation of the land into the City
of Santa Paula. The action is taken by the Local Agency Formation
Commission, which we refer to as LAFCO, and is due to be approved through this
agency by the end of summer 2010. The remaining permits are
non-discretionary and include a final tract map, complete “Site Civil
Construction Drawings” and offsite construction drawings. We
anticipate that these permits will be issued by spring 2011. We expect to
develop this property with financial and development partners, outside
consultants and our own internal resources. If current U.S. economic conditions
continue to deteriorate, however, we are prepared to continue using this land
for agricultural purposes until attractive development opportunities present
themselves.
East Area II - Santa Paula,
California. We and our design associates are in the process of
formulating plans for East Area II, a parcel of approximately 25 acres adjacent
to East Area I, also a part of our Teague McKevett Ranch, that we believe is
suited to commercial and/or industrial development along the south side of
California Highway 126, a heavily traveled corridor that connects Highway 101 at
Ventura on the west with Interstate 5 at Santa Clarita on the
east. When completed, we expect that the development will contribute
to the economic vitality of the region and allow residents to work and shop
within close proximity to their homes.
The
successful development of East Area II will be partly dependent on the success
of East Area I described above. We expect that East Area II could
accommodate large retailers, a medium or even a large employer, a complex of
mixed business and retail or some combination of the foregoing. We are actively
cultivating prospects to buy or become future tenants in East Area II and expect
that development will closely follow the build-out of East Area I.
Windfall Farms - Creston,
California. Windfall Farms is an approximately 720-acre former
thoroughbred breeding farm and equestrian facility located in Creston,
California, near Paso Robles. The property has paved roads, water
wells, irrigation, piping, stables, homes, other out-buildings and a race
track. Presently, parcels of at least 40 acres are available for
sale. However, restrictions imposed by the California Land
Conservation Act (also known as the Williamson Act) expire at the end of 2012,
at which time 76 parcels as large as ten acres can be subdivided and resold,
creating small agricultural parcels with home sites.
Santa Maria - Santa Barbara County,
California. In early fiscal 2007, we invested in four entitled
development parcels in Santa Barbara County, California, a county that, in our
experience, entitles very few parcels. Located in Santa Maria, each
of these parcels offers a residential and/or commercial development
opportunity. A brief description of each parcel follows:
8
|
|
·
|
Centennial
Square has been approved for 72 condominiums on 5 acres, is close to
medical facilities, shopping and transportation, and includes one acre
suitable for commercial
development.
|
|
|
·
|
The
Terraces at Pacific Crest is an approximately eight-acre parcel approved
for 112 attached-housing units.
|
|
|
·
|
Sevilla
is approved for 69 single-family homes adjacent to shopping,
transportation, schools, parks, and medical facilities, with a parcel of
approximately three-acres zoned for commercial
use.
|
|
|
·
|
Eastridge
is approved for 120 single family homes on approximately 37
acres. Approximately three acres are zoned for commercial
use. We have recently partnered with a developer to develop
this property.
|
Donna Circle and Cactus Wren -
Paradise Valley, Arizona. We have partnered with an Arizona
home developer, to construct two luxury homes in Paradise Valley, Arizona. The
first home was completed in December 2008 and listed for sale. In June 2009, the
company decided not to sell the home and instead executed a two year lease
agreement with a third party. The agreement contains an option to extend the
lease an additional year and the third-party may purchase the home during the
option period. The second home was completed in June 2009 and is listed for sale
with a real estate broker.
Limco Del Mar Ranch - Ventura,
California. We believe our Limco Del Mar Ranch, which we
currently use for agricultural purposes, has long-term development
potential. The Limco Del Mar Ranch is located on the east end of
Ventura with southerly views of the Pacific Ocean. As described above
in “Business Segments - Agribusiness - Farming,” this property is owned by a
limited partnership of which we are the general partner and own an interest of
approximately 23%. The company manages the agricultural operations on
this property.
Competitive
Strengths
Agribusiness
With
agricultural operations dating back to 1893, we are one of California’s oldest
citrus growers and one of the largest growers of lemons and the
largest grower of avocados in the United States. Consequently, we
have developed a body of experience with many crops, most significantly lemons,
avocados and oranges. The following is a brief list of what we
believe are our significant competitive strengths with respect to our
agribusiness segment.
|
|
·
|
Our
agricultural properties in Ventura County are located near the Pacific
ocean, which provides an ideal environment for growing lemons, avocados
and other row crops. Our agricultural properties in Tulare County, which
is in the San Joaquin Valley in Central California, are also located in
areas that are well-suited for growing citrus
crops.
|
|
|
·
|
Historically,
a high percentage of our crops go to the fresh market, which is commonly
referred to as fresh utilization, relative to other growers and
packers.
|
|
|
·
|
We
have contiguous and nearby land resources that permit us to efficiently
use our agricultural land and
resources.
|
|
|
·
|
In
all but one of our properties, we are not dependent on State or Federal
water projects to support our agribusiness or real estate development
operations.
|
|
|
·
|
We
own approximately 90% of our agricultural land and can take a long view on
fruit production practices.
|
|
|
·
|
We
have a well-trained and retentive labor force with many employees
remaining with the company for more than 30
years.
|
|
|
·
|
Our
lemon packing operations allow us to enter into marketing alignments with
successful companies in their respective products, such as Sunkist for
lemons and other citrus crops and Calavo for
avocados.
|
9
|
|
·
|
We
have achieved GLOBALGAP Certification by successfully demonstrating our
adherence to specific GLOBALGAP standards. GLOBALGAP is an
internationally recognized set of farm standards dedicated to “Good
Agricultural Practices” or GAP. We believe that GLOBALGAP
Certification differentiates us from our competitors and serves as
reassurance to consumers and retailers that food reaches acceptable levels
of safety and quality, and has been produced sustainably, respecting the
health, safety and welfare of workers, the environment, and in
consideration of animal welfare
issues.
|
|
|
·
|
In
2008, we entered into an operating lease agreement and completed the
installation of a 5.5 acre, one-megawatt ground-based photovoltaic solar
generator. This system provides us with a majority of the
electricity required to operate our packinghouse and cold storage
facilities located in Santa Paula, California. In 2009, we
completed the installation of a one-megawatt solar array (which we also
lease through an operating lease agreement), which provides us with a
majority of the electricity required to operate four deep water well pumps
at one of our ranches in Tulare County, which is in the San Joaquin Valley
in Central California. These investments in ground-based solar
projects are new and provide us with tangible and intangible non-revenue
generating benefits. In addition to the cost-savings associated
with the electricity generated by these investments, they support our
sustainable agricultural practices, reduce our dependence on fossil-based
electricity generation and lower our carbon
footprint. Moreover, power that we generate and do not use is
conveyed seamlessly back to the investor-owned utilities operating in
these two markets. Finally, over time, we expect that our
customers and the end consumers of our fruit will value the investments
that we have made in renewable energy as a part of our farming and packing
operations. We believe this dynamic may help us differentiate
our products from similar
commodities.
|
|
|
·
|
We
have made various other investments in water rights, mutual water
companies and cooperative memberships. We own shares in the
following mutual water companies: Thermal Belt Mutual Water Co., Farmers
Irrigation Co., Canyon Irrigation Co., San Cayetano Mutual Water Co. and
the Middle Road Mutual Water Co. In 2007, we acquired
additional water rights in the adjudicated Santa Paula Basin
(aquifer). We are a member of the Sunkist, Fruit Growers Supply
and certain other cooperatives. We pay Sunkist and certain
other cooperatives annual assessments into revolving funds based on sales
volume or other criteria, with such funds typically being held by the
applicable cooperative for a period of five years at which time they are
refunded to us. We also pay into revolving funds related to
fruit that we have packed by outside packing houses, with such funds
typically being refunded after a period of five
years.
|
Rental
Operations
With
respect to our rental operations segment, we believe our competitive advantages
are as follows:
|
|
·
|
Our
housing and land rentals provide a consistent, dependable source of cash
flow that helps to counter the volatility typically associated with an
agricultural business.
|
|
|
·
|
Our
housing rental business allows us to offer a unique benefit to our
employees, which in turn helps to provide us with a dependable, long-term
employee base.
|
|
|
·
|
Our
organic recycling business provides us with a low cost, environmentally
friendly solution to weed and erosion
control.
|
|
|
·
|
Our
leased land business allows us to partner with other producers that can
serve as a typically profitable alternative to under-producing tree crop
acreage.
|
Real
Estate Development
With
respect to our real estate development segment, we believe our competitive
advantages are as follows:
|
|
·
|
Our
real estate development activities are primarily focused in coastal areas
north of Los Angeles and south of Santa Barbara, which we believe has a
desirable climate for lifestyle families, retirees, and athletic and
sports enthusiasts.
|
10
|
|
·
|
We
have entitlements to build approximately 1,500 residential units in our
Santa Paula East Area I
development.
|
|
|
·
|
Several
of our agricultural and real estate investment properties are unique and
carry longer term development potential. These include Limco Del Mar and
Windfall Farms, both as discussed above in “Business Segments - Real
Estate Development.”
|
|
|
·
|
Our
East Area II property has approximately 25 acres of land commercially
zoned, which is adjacent to our East Area I property, and our Santa Maria
properties have approximately 7 acres zoned for mixed use retail,
commercial and light manufacturing.
|
Business
Strategy
While
each of our business segments has a separate business strategy, we are an
agribusiness and real estate development company that generates annual cash
flows to support investments in agricultural and real estate development
activities. As our agricultural and real estate development
investments are monetized we intend to seek to expand our agribusiness into new
regions and markets and invest in cash producing residential, commercial and
industrial real estate assets.
The
following describes the key elements of our business strategy for each of our
agribusiness, rental operations and real estate development business
segments.
Agribusiness
With
respect to our agribusiness segment, key elements of our strategy
are:
|
|
·
|
Expand International
Production and Marketing of Lemons. We estimate that we
currently have approximately 5% of the fresh lemon market in the United
States and a larger share of the United States lemon export
market. We intend to explore opportunities to expand our
international production and marketing of lemons. We have the
ability to supply a wide range of customers and markets and, because we
produce high quality lemons, we can export our lemons to international
customers which many of our competitors are unable to
supply.
|
|
|
·
|
Acquire Additional Lemon
Producing Properties. To the extent attractive
opportunities arise and our capital availability permits, we intend to
consider the acquisition of additional lemon producing properties. In
order to be considered, such properties would need to have certain
characteristics to provide acceptable returns, such as an adequate source
of water, a warm micro-climate and well-drained soils. We
anticipate that the most attractive opportunities to acquire lemon
producing properties will be in the San Joaquin Valley near our existing
operations in Tulare County.
|
|
|
·
|
Increase the Volume of our
Lemon Packing Operations. We regularly monitor our costs
for redundancies and opportunities for cost reductions. In this
regard, cost per carton is a function of throughput. We continually seek
to acquire additional lemons from outside growers to pack through our
plant. Growers are only added if their fruit is of good quality and can be
cost effective for both Limoneira and the outside grower. Of most
importance is the overall fresh utilization rate for our fruit, which is
directly related to quality.
|
|
|
·
|
Explore the Construction of a
New Lemon Packinghouse. Over the years new machinery and
equipment along with upgrades have been added to our nearly 80 year old
packinghouse and cold storage facilities. This, along with an
aggressive and proactive maintenance program has allowed us to operate an
efficient, competitive lemon packing operation. We are
currently considering the construction of a new packinghouse that may have
the potential to lower our packing costs by reducing labor and handling
inputs.
|
11
|
|
·
|
Opportunistically Expand our
Plantings of Avocados. We intend to opportunistically
expand our plantings of avocados primarily because our profitability and
cash flow realized from our avocados frequently offsets occasional losses
in other crops we grow and helps to diversify our fruit production
base.
|
|
|
·
|
Maintain
and Grow our Relationship with Calavo. Our
alignment with, and ownership stake in, Calavo comprises our current
marketing strategy for avocados. Calavo has expanded its
sourcing into other regions of the world, including Mexico, Chile, and
Peru, which allows it to supply avocados to its retail and food service
customers on a year-round basis. California avocados occupy a
unique market window in the year-round supply chain and Calavo has
experienced a general expansion of volume as consumption has grown. Thus,
we intend to continue to have a strong and viable market for our
California avocados as well as an equity participation in Calavo’s overall
expansion and profitability.
|
|
|
·
|
Opportunistically Expand Our
Plantings of Oranges, Specialty Citrus and Other
Crops. Our plantings of oranges, specialty citrus and
other crops have been profitable and have been pursued to diversify our
product line. Agricultural land that we believe is not suitable
for lemons is typically planted with other specialty citrus or other
crops. While we intend to expand our orange, specialty citrus
and other crops, we expect to do so on an opportunistic basis in locations
that we believe offer a record of historical
profitability.
|
Rental
Operations
With
respect to our rental operations segment, key elements of our strategy
include:
|
|
·
|
Secure Additional Rental and
Housing Units. Our housing, commercial and land rental
operations provide us with a consistent, dependable source of cash flow
that helps to fund our overall activities. Additionally, we
believe our housing rental operation allows us to offer a unique benefit
to our employees. Consequently, we intend to secure additional
units through infill projects on existing sites and groupings of units on
new sites within our owned acreage.
|
|
|
·
|
Opportunistically Lease Land
to Third-Party Crop Farmers. We regularly monitor the
profitability of our fruit-producing acreage to ensure acceptable per acre
returns. When we determine that leasing the land to third-party
row crop farmers would be more profitable than farming the land, we intend
to seek to lease such land.
|
|
|
·
|
Opportunistically Expand our
Income-Producing Commercial and Industrial Real Estate
Assets. We intend to redeploy our future financial gains
to acquire additional income-producing real estate investments and
agricultural properties.
|
Real
Estate
With
respect to our real estate segment, key elements of our strategy
include:
|
|
·
|
Selectively and Responsibly
Develop Our Agricultural Land. We recognize that
long-term strategies are required for successful real estate development
activities. We thus intend to maintain our position as a responsible
agricultural land owner and major employer in Ventura County while
focusing our real estate development activities on those agricultural land
parcels that we believe offer the best opportunities to demonstrate our
long term vision for our community.
|
12
|
|
·
|
Opportunistically Increase Our
Real Estate Holdings. We intend to redeploy our future
financial gains to acquire additional income-producing real estate
investments and agricultural
properties.
|
Customers
During
the fiscal year ended October 31, 2009, Sunkist marketed and sold nearly all of
our lemon production and a majority of our orange production and Calavo marketed
and sold through all of our avocado production. Our
lemons are packed in our own packinghouse, our avocados are packed using Calavo
and a majority of our oranges are packed using other third-party,
Sunkist-affiliated packinghouses. We directly sell certain of our
specialty citrus and other crops, which for the fiscal year ended October 31,
2009, accounted for less than 1% of our revenues. Sunkist and Calavo
market and sell our fruit to a wide range of retail and food service customers
throughout North America, Asia and certain other countries. While we are
dependent on the success of Sunkist and Calavo, none of their respective
customers to our knowledge account for more than 10% of the sales of either
organization.
Seasonal
Nature of Business
As with
any agribusiness enterprise, our agribusiness operations are predominantly
seasonal in nature. The harvest and sale of our lemons, avocados,
oranges and specialty citrus and other crops occurs in all quarters, but is
generally more concentrated during the second and third quarters. Our
lemons are generally grown and marketed throughout the year. Our Navel oranges
are sold January through April and our Valencia oranges are sold June through
September. Our avocados are sold generally throughout the year with the peak
months being March through July. Our specialty citrus is sold from
November through June and our specialty crops, such as cherries, are sold in May
and/or June and our pistachios are sold in September and/or
October.
Competition
The
lemon, avocado, orange and specialty citrus and other crop markets are intensely
competitive but no single producer has any significant market power over any
market segments as is consistent with the production of most agricultural
commodities. Generally, there are a large number of global producers that sell
through joint marketing organizations and cooperatives. Such fruit is also sold
to independent packers, both public and private, who then sell to their own
customer base. Customers are typically large retail chains, food service
companies, industrial manufactures as well as distributors who sell and deliver
to smaller customers in local markets throughout the world. In the purest sense,
our largest competitors are other citrus and avocado producers in California,
Mexico, Chile, Argentina and Florida, a number of which are also members of
cooperatives such as Sunkist or have selling relationships with Calavo similar
to that of Limoneira. In another sense, we compete with other fruits and
vegetables for the share of consumer expenditures devoted to fresh fruit and
vegetables: apples, pears, cherries, melons, pineapples and other tropical
fruit. Avocado products compete in the supermarket with hummus products and
other dips and salsas. U.S. producers of tree fruits and nuts
generate approximately $18 billion of tree fruits and nuts each year, about 10%
of which is exported. For our specific crops, the size of the U.S. market is
approximately $300 million for lemons, approximately $300 to $400 million for
avocados depending on the year, and approximately $1.5 to $2.0 billion for
oranges, both fresh and juice. Competition in the various markets in which we
operate is affected by reliability of supply, product quality, brand recognition
and perception, price and the ability to satisfy changing customer preferences
through innovative product offerings.
The sale
and leasing of residential, commercial and industrial real estate is very
competitive, with competition coming from numerous and varied sources throughout
California. The degree of competition has increased due to the
current economic climate which has caused an oversupply of comparable real
estate available for sale or lease due to the decline in demand as a result of
the current downturn in the housing market and/or the credit
crisis. Our greatest direct competition for each of our current real
estate development properties in Ventura and Santa Barbara Counties as well as
Arizona will come from other residential and commercial developments in nearby
areas. Windfall Farms will compete generally with the second home and
life style real estate market which includes golf course communities, marinas,
destination resorts and other equestrian facilities located in Southern
California, so its competition will range over a greater area and range of
consumer options.
13
Employees
At
October 31, 2009 we had 207 employees, 55 of which were salaried and 152 of
which were hourly. None of our employees are subject to a collective
bargaining agreement. We believe our relations with our employees are
good.
Research
and Development
Our
research and development programs concentrate on sustaining the productivity of
our agricultural lands, product quality, and value-added product
development. Agricultural research is directed toward sustaining and
improving product yields and product quality by examining and improving
agricultural practices in all phases of production (such as the development of
specifically adapted plant varieties, land preparation, fertilization, pest and
disease control, post-harvest handling, packing and shipping procedures), and
includes on-site technical services and the implementation and monitoring of
recommended agricultural practices. Research efforts are also
directed towards integrated pest management. We conduct agricultural
research at field facilities in California. We also sponsor research
related to environmental improvements and the protection of worker and community
health. The aggregate amounts we spent on research and development in
each of the last three years have not been material in any of such
years.
Environmental
and Regulatory Matters
The
California State Department of Food and Agriculture oversees the packing and
processing of California lemons and conducts tests for fruit quality and
packaging standards. All of our packages are stamped with the state
seal which qualifies our fruit as meeting standards. Various states
have instituted regulations providing differing levels of oversight with respect
to weights and measures, as well as quality standards.
In
addition, advertising of our products is subject to regulation by the Federal
Trade Commission, and our operations are subject to certain health and safety
regulations, including those issued under the Occupational Safety and Health
Act.
As a
result of our agricultural and real estate activities, we are subject to
numerous environmental laws and regulations. These laws and regulations govern
the treatment, handling, storage and disposal of materials and waste and the
remediation of contaminated properties.
We seek
to comply at all times with all such laws and regulations and to obtain any
necessary permits and licenses, and we are not aware of any instances of
material non-compliance. We believe our facilities and practices are
sufficient to maintain compliance with applicable governmental laws,
regulations, permits and licenses. Nevertheless, there is no
guarantee that we will be able to comply with any future laws and regulations
for necessary permits and licenses. Our failure to comply with
applicable laws and regulations or obtain any necessary permits and licenses
could subject us to civil remedies including fines, injunctions, recalls or
seizures, as well as potential criminal sanctions.
Capital
Structure Changes
Effective
March 24, 2010, we amended our certificate of incorporation to increase the
authorized number of shares of common stock and effect a ten-for-one split of
our common stock.
ITEM
1A. RISK
FACTORS
If any of
the following risks occurs, our business, financial condition, results of
operations or future prospects could be materially adversely affected.
Risks
Related to Our Agribusiness
Adverse
weather conditions, natural disasters, crop disease, pests and other natural
conditions can impose significant costs and losses on our business.
Fresh
produce is vulnerable to adverse weather conditions, including windstorms,
floods, drought and temperature extremes, which are quite common but difficult
to predict. Unfavorable growing conditions can reduce both crop size and crop
quality. In extreme cases, entire harvests may be lost in some geographic areas.
These factors can increase costs, decrease revenues and lead to additional
charges to earnings, which may have a material adverse effect on our business,
results of operations and financial condition.
14
Citrus
and avocado orchards are subject to damage from frost and freezes and this has
happened periodically in the recent past. In some cases, the fruit is simply
lost while in the case of extended periods of cold, the trees can also be
damaged or killed.
Fresh
produce is also vulnerable to crop disease and to pests, which may vary in
severity and effect, depending on the stage of production at the time of
infection or infestation, the type of treatment applied and climatic conditions.
For example, the Mediterranean Fruit Fly and the Asian Citrus
Psyillid. The costs to control these diseases and other infestations
vary depending on the severity of the damage and the extent of the plantings
affected. Moreover, there can be no assurance that available technologies to
control such infestations will continue to be effective. These infestations can
increase costs, decrease revenues and lead to additional charges to earnings
which may have a material adverse effect on our business, results of operations
and financial condition.
Our
business is highly competitive and we cannot assure you that we will maintain
our current market share.
Many
companies compete in our different businesses. However, only a few
well-established companies operate on an international, national and regional
basis with one or several product lines. We face strong competition from these
and other companies in all our product lines.
Important
factors with respect to our competitors include the following:
|
|
·
|
Some
of our competitors may have greater operating flexibility and, in certain
cases, this may permit them to respond better or more quickly to changes
in the industry or to introduce new products and packaging more quickly
and with greater marketing support.
|
|
|
·
|
We
cannot predict the pricing or promotional actions of our competitors or
whether those actions will have a negative effect on
us.
|
There can
be no assurance that we will continue to compete effectively with our present
and future competitors, and our ability to compete could be materially adversely
affected by our debt levels and debt service requirements.
Our
earnings are sensitive to fluctuations in market prices and demand for our
products.
Excess
supplies often cause severe price competition in our industry. 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.
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 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.
In
addition, general public perceptions regarding the quality, safety or health
risks associated with particular food products could reduce demand and prices
for some of our products. To the extent that consumer preferences evolve away
from products that we produce for health or other reasons, and we are unable to
modify our products or to develop products that satisfy new consumer
preferences, there will be a decreased demand for our products. However, even if
market prices are unfavorable, produce items which are ready to be, or have been
harvested must be brought to market promptly. A decrease in the selling price
received for our products due to the factors described above could have a
material adverse effect on our business, results of operations and financial
condition.
15
Our
earnings are subject to seasonal variability.
Our
earnings may be affected by seasonal factors, including:
|
|
·
|
the
seasonality of our supplies and consumer
demand;
|
|
|
·
|
the
ability to process products during critical harvest periods;
and
|
|
|
·
|
the
timing and effects of ripening and
perishability.
|
Our
lemons are generally grown and marketed throughout the year. Our Navel oranges
are sold January through April and our Valencia oranges are sold June through
September. Our avocados are sold generally throughout the year with the peak
months being March through July. Our specialty citrus is sold from
November through June, our cherries in the May/June time period and our
pistachios in the September/October period.
Currency
exchange fluctuation may impact the results of our operations.
We
distribute our products both nationally and internationally. Our international
sales are transacted in U.S. dollars. Our results of operations are affected by
fluctuations in currency exchange rates in both sourcing and selling
locations. In the past, periods of a strong U.S. dollar relative to
other currencies has led international customers, particularly in Asia, to find
alternative sources of fruit.
Increases
in commodity or raw product costs, such as fuel, paper, and plastics, could
adversely affect our operating results.
Many
factors may affect the cost and supply of fresh produce, including external
conditions, commodity market fluctuations, currency fluctuations, changes in
governmental laws and regulations, agricultural programs, severe and prolonged
weather conditions and natural disasters. Increased costs for purchased fruit
have in the past negatively impacted our operating results, and there can be no
assurance that they will not adversely affect our operating results in the
future.
The price
of various commodities can significantly affect our costs. Our fuel costs have
increased substantially in recent years, and there can be no assurance that
there will not be further increases in the future. In addition, the rising price
of oil can have a significant impact on the cost of our herbicides and
pesticides.
The cost
of paper is also significant to us because some of our products are packed in
cardboard boxes for shipment. If the price of paper increases and we are not
able to effectively pass these price increases along to our customers, then our
operating income will decrease. Increased costs for paper have in the past
negatively impacted our operating income, and there can be no assurance that
these increased costs will not adversely affect our operating results in the
future.
The
lack of sufficient water would severely impact our ability to produce crops or
develop real estate.
The
average rainfall in Ventura County is between 14 and 15 inches per year, with
most of it falling in Fall and Winter. These amounts are substantially below
amounts required to grow crops and therefore we are dependent on our 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. As California has grown, there are increasing and multiple
pressures on the use and distribution of water which many view as a finite
resource. Lack of available potable water can also limit real estate
development.
The
use of herbicides, pesticides and other potentially hazardous substances in our
operations may lead to environmental damage and result in increased costs to
us.
We use
herbicides, pesticides and other potentially hazardous substances in the
operation of our business. We may have to pay for the costs or damages
associated with the improper application, accidental release or the use or
misuse of such substances. Our insurance may not be adequate to cover such costs
or damages or may not continue to be available at a price or under terms that
are satisfactory to us. In such cases, payment of such costs or damages could
have a material adverse effect on our business, results of operations and
financial condition.
16
Global
capital and credit market issues affect our liquidity, increase our costs of
borrowing and disrupt the operations of our suppliers and
customers.
The
global capital and credit markets have experienced increased volatility and
disruption over the past year, making it more difficult for companies to access
those markets. We depend in part on stable, liquid and well-functioning capital
and credit markets to fund our operations. Although we believe that our
operating cash flows and existing credit facilities will permit us to meet our
financing needs for the foreseeable future, there can be no assurance that
continued or increased volatility and disruption in the capital and credit
markets will not impair our liquidity or increase our costs of borrowing. Our
business could also be negatively impacted if our suppliers or customers
experience disruptions resulting from tighter capital and credit markets or a
slowdown in the general economy.
The
current global economic downturn may have other impacts on participants in our
industry, which cannot be fully predicted.
The full
impact of the current global economic downturn on customers, vendors and other
business partners cannot be anticipated. For example, major customers or vendors
may have financial challenges unrelated to us that could result in a decrease in
their business with us or, in extreme cases, cause them to file for bankruptcy
protection. 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.
Terrorism
and the uncertainty of war may have a material adverse effect on our operating
results.
Terrorist
attacks, such as the attacks that occurred in New York and Washington, D.C. on
September 11, 2001, the subsequent response by the United States in Afghanistan,
Iraq and other locations, and other acts of violence or war in the United States
or abroad may affect the markets in which we operate and our operations and
profitability. Further terrorist attacks against the United States or operators
of United States-owned businesses outside the United States may occur, or
hostilities could develop based on the current international situation. The
potential near-term and long-term effect these attacks may have on our business
operations, our customers, the markets for our products, the United States
economy and the economies of other places we source or sell our products is
uncertain. The consequences of any terrorist attacks, or any armed conflicts,
are unpredictable, and we may not be able to foresee events that could have an
adverse effect on our markets or our business.
We
are subject to the risk of product contamination and product liability
claims.
The sale
of food products for human consumption involves the risk of injury to consumers.
Such injuries may result from tampering by unauthorized third parties, product
contamination or spoilage, including the presence of foreign objects,
substances, chemicals other agents, or residues introduced during the growing,
storage, handling or transportation phases. While we are subject to governmental
inspection and regulations and believe our facilities comply in all material
respects with all applicable laws and regulations, we cannot be sure that
consumption of our products will not cause a health-related illness in the
future or that we will not be subject to claims or lawsuits relating to such
matters. Even if a product liability claim is unsuccessful or is not fully
pursued, the negative publicity surrounding any assertion that our products
caused illness or injury could adversely affect our reputation with existing and
potential customers and our corporate and brand image. Moreover, claims or
liabilities of this sort might not be covered by our insurance or by any rights
of indemnity or contribution that we may have against others. We maintain
product liability insurance, however, we cannot be sure that we will not incur
claims or liabilities for which we are not insured or that exceed the amount of
our insurance coverage.
17
We
are subject to transportation risks.
An
extended interruption in our ability to ship our products could have a material
adverse effect on our business, financial condition and results of operations.
Similarly, any extended disruption in the distribution of our products could
have a material adverse effect on our business, financial condition and results
of operations. While we believe we are adequately insured and would attempt to
transport our products by alternative means if we were to experience an
interruption due to strike, natural disasters or otherwise, we cannot be sure
that we would be able to do so or be successful in doing so in a timely and
cost-effective manner.
Events
or rumors relating to the LIMONEIRA brand could significantly impact our
business.
Consumer
and institutional recognition of the LIMONEIRA trademarks and related brands and
the association of these brands with high quality and safe food products are an
integral part of our business. The occurrence of any events or rumors that cause
consumers and/or institutions to no longer associate these brands with high
quality and safe food products may materially adversely affect the value of the
LIMONEIRA brand name and demand for our products.
We
are dependent on key personnel and the loss of one or more of those key
personnel may materially and adversely affect our prospects.
We
currently depend heavily on the services of our key management personnel. The
loss of any key personnel could materially and adversely affect our results of
operations, financial condition, or our ability to pursue land development. Our
success will also depend in part on our ability to attract and retain additional
qualified management personnel.
Inflation
can have a significant adverse effect on our operations.
Inflation
can have a major impact on our farming 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. High fixed
water costs related to our farm lands will continue to adversely affect
earnings. Prices received for many of our products are dependent upon prevailing
market conditions and commodity prices. Therefore, it is difficult for us to
accurately predict revenue, just as we cannot pass on cost increases caused by
general inflation, except to the extent reflected in market conditions and
commodity prices.
Risks
Related to Our Indebtedness
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. Our ability to
generate cash, make scheduled payments or refinance our obligations depends on
our successful financial and operating performance. Our financial and operating
performance, cash flow and capital resources depend upon prevailing economic
conditions and various financial, business and other factors, many of which are
beyond our control. These factors include among others:
|
|
·
|
economic
and competitive conditions;
|
|
|
·
|
changes
in laws and regulations;
|
|
|
·
|
operating
difficulties, increased operating costs or pricing pressures we may
experience; and
|
|
|
·
|
delays
in implementing any strategic
projects.
|
If our
cash flow and capital resources are insufficient to fund our debt service
obligations, we may be forced to reduce or delay capital expenditures, sell
material assets or operations, obtain additional capital or restructure our
debt. If we are required to take any actions referred to above, it could have a
material adverse effect on our business, financial condition and results of
operations. In addition, we cannot assure you that we would be able to take any
of these actions on terms acceptable to us, or at all, that these actions would
enable us to continue to satisfy our capital requirements or that these actions
would be permitted under the terms of our various debt agreements.
18
Restrictive
covenants in our debt instruments restrict or prohibit our ability to engage in
or enter into a variety of transactions, which could adversely restrict our
financial and operating flexibility and subject us to other risks.
Our
revolving credit and term loan facilities contain various restrictive covenants
that limit our and our subsidiaries’ ability to take certain
actions. In particular, these agreements limit our and our
subsidiaries’ ability to, among other things:
|
|
·
|
incur
additional indebtedness;
|
|
|
·
|
make
certain investments or
acquisitions;
|
|
|
·
|
create
certain liens on our assets;
|
|
|
·
|
engage
in certain types of transactions with
affiliates;
|
|
|
·
|
merge,
consolidate or transfer substantially all our assets;
and
|
|
|
·
|
transfer
and sell assets.
|
Our
revolving credit facility with Rabobank contains a financial covenant that
requires us to maintain compliance with a specified debt service coverage ratio
on an annual basis. At October 31, 2009, we were not in compliance
with such debt service coverage ratio and we may not be able to comply with such
covenant in the future. Although this prior noncompliance with the
covenant was waived by Rabobank and the next compliance measurement date of this
covenant is October 31, 2010 (which will cover fiscal 2010), our failure to
comply with this covenant in the future may result in the declaration of an
event of default under our revolving credit facility with Rabobank.
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. Any future
debt could also contain financial and other covenants more restrictive than
those imposed under our revolving credit and term loan facilities.
A breach
of a covenant or other provision in any credit facility governing our current
and future indebtedness could result in a default under that facility and, due
to cross-default and cross-acceleration provisions, could result in a default
under our other credit facilities. Upon the occurrence of an event of
default under any of our credit facilities, the applicable lender(s) could elect
to declare all amounts outstanding to be immediately due and payable and, with
respect to our revolving credit facility, terminate all commitments to extend
further credit. If we were unable to repay those amounts, our lenders
could proceed against the collateral granted to them to secure the
indebtedness. 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 and our subsidiaries may
still incur significant additional indebtedness, including secured indebtedness.
Incurring more indebtedness could increase the risks associated with our
substantial indebtedness.
Subject
to the restrictions in our credit facilities, we and our subsidiaries may incur
significant additional indebtedness. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we now face could
increase.
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
revolving credit facilities and a portion of our term loan facilities bear
interest at variable rates which will generally change as interest rates
change. We bear the risk that the rates we are charged by our lenders
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 revolving credit facility, any of
which could materially adversely affect our business, financial condition and
results of operations. In
addition, while we have entered into interest rate swaps as hedging instruments
to fix a substantial portion of the variable component of our indebtedness, such
interest rate swaps could also have an adverse impact on the comparative results
of operation of the company if prevailing interest rates remain below fixed
rates established in such instruments.
19
Risks
Related to Our Real Estate Development Business
We
are involved in a cyclical industry and are affected by changes in general and
local economic conditions.
The
real estate development industry is cyclical and is significantly affected by
changes in general and local economic conditions, including:
|
|
·
|
employment
levels;
|
|
|
·
|
availability
of financing;
|
|
|
·
|
interest
rates;
|
|
|
·
|
consumer
confidence;
|
|
|
·
|
demand
for the developed product, whether residential or industrial;
and
|
|
|
·
|
supply
of similar product, whether residential or
industrial.
|
The
process of project development and the commitment of financial and other
resources occurs long before a real estate project comes to market. A
real estate project could come to market at a time when the real estate market
is depressed. It is also possible in a rural area like ours that no market for
the project will develop as projected.
A
prolonged recession in the national economy, or a further downturn in national
or regional economic conditions, could continue to adversely impact our real
estate development business.
The
collapse of the housing market together with the crisis in the credit markets,
have resulted in a recession in the national economy. At such times, potential
home buyer and commercial real estate customers often defer or avoid real estate
transactions due the substantial costs involved and uncertainties in the
economic environment. Our future real estate sales, revenues, financial
condition and results of operations could suffer as a result. Our business is
especially sensitive to economic conditions in California and Arizona, where our
properties are located.
There is
no consensus as to when the current recession will end, and California and
Arizona, as two of the hardest hit states, could take longer to recover than the
rest of the nation. A prolonged recession will continue to have a material
adverse effect on our business and results of operations.
Higher
interest rates and lack of available financing can have significant impacts on
the real estate industry.
Higher
interest rates generally impact the real estate industry by making it harder for
buyers to qualify for financing, which can lead to a decrease in the demand for
residential, commercial or industrial sites. Any decrease in demand will
negatively impact our proposed developments. Lack of available credit to finance
real estate purchases can also negatively impact demand. Any downturn in the
economy or consumer confidence can also be expected to result in reduced housing
demand and slower industrial development, which would negatively impact the
demand for land we are developing.
We
are subject to various land use regulations and require governmental approvals
for our developments that could be denied.
In
planning and developing our land, we are subject to various local, state, and
federal statutes, ordinances, rules and regulations concerning zoning,
infrastructure design, subdivision of land, and construction. All of our new
developments require amending existing general plan and zoning designations, so
it is possible that our entitlement applications could be denied. In addition,
the zoning that ultimately is approved could include density provisions that
would limit the number of homes and other structures that could be built within
the boundaries of a particular area, which could adversely impact the financial
returns from a given project. In addition, many states, cities and counties
(including Ventura County) have in the past approved various “slow growth” or
“urban limit line” measures.
20
Third-party
litigation could increase the time and cost of our development
efforts.
The land
use approval processes we must follow to ultimately develop our projects have
become increasingly complex. Moreover, the statutes, regulations and ordinances
governing the approval processes provide third parties the opportunity to
challenge the proposed plans and approvals. As a result, the prospect of
third-party challenges to planned real estate developments provides additional
uncertainties in real estate development planning and entitlements. Third-party
challenges in the form of litigation would, by their nature, adversely affect
the length of time and the cost required to obtain the necessary approvals. In
addition, adverse decisions arising from any litigation would increase the costs
and length of time to obtain ultimate approval of a project and could adversely
affect the design, scope, plans and profitability of a project.
We
are subject to environmental regulations and opposition from environmental
groups that could cause delays and increase the costs of our development efforts
or preclude such development entirely.
Environmental
laws that apply to a given site can vary greatly according to the site’s
location and condition, 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 result in delays, 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 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. While we have worked with representatives of various
environmental interests and wildlife agencies to minimize and mitigate the
impacts of our planned projects, certain groups opposed to development may
oppose our projects vigorously, so litigation challenging their approval could
occur. Recent concerns over the impact of development on water
availability and global warming increases the breadth of potential obstacles
that our developments face.
Our
developable land is concentrated entirely in California.
All of
our developable land is in California and our business is especially sensitive
to the economic conditions within California. Any adverse change in the economic
climate of California, which is currently in a recession, or our region of that
state, and any adverse change in the political or regulatory climate of
California, or the counties where our land is located could adversely affect our
real estate development activities. There is no consensus as to when the
recession will end or how long it could take to recover from the recession.
Ultimately, our ability to sell or lease lots may decline as a result of weak
economic conditions or restrictive regulations.
If
the downturn in the real estate industry or the instability of the mortgage
industry and commercial real estate financing continues, it could have an
adverse effect on our real estate business.
Our
residential housing projects are currently in various stages of planning and
entitlement, and therefore they have not been impacted by the current downturn
in the housing market or the mortgage lending crisis. However, if the downturn
in the housing market or the instability of the mortgage industry continues at
the time these projects move into their development and marketing phases, our
residential business could be adversely affected. Excess supply of homes
available due to foreclosures or the expectation of deflation in house prices
could also have a negative impact on our ability to sell our inventory when it
becomes available.
We
may encounter other risks that could impact our ability to develop our
land.
We may
also encounter other difficulties in developing our land,
including:
|
|
·
|
Natural
risks, such as geological and soil problems, earthquakes, fire, heavy
rains and flooding, and heavy
winds;
|
|
|
·
|
Shortages
of qualified trades people;
|
21
|
|
·
|
Reliance
on local contractors, who may be inadequately
capitalized;
|
|
|
·
|
Shortages
of materials; and
|
|
|
·
|
Increases
in the cost of certain materials.
|
Risks
Relating to Our Common Stock
There
has been a limited public market for our shares and a more active market may not
develop or be maintained, which could limit your ability to sell shares of our
common stock.
Before
this registration, there has been a limited public market for our shares of
common stock. Although we intend to apply to list the common stock on The Nasdaq
Stock Market LLC, which we refer to as Nasdaq, a more active public market for
our shares may not develop or be sustained after this registration. In
particular, we cannot assure you that you will be able to resell our shares at
or above the current market price.
The
value of our common stock could be volatile.
The
overall market and the price of our common stock may fluctuate greatly. The
trading price of our common stock may be significantly affected by various
factors, including:
|
|
·
|
quarterly
fluctuations in our operating
results;
|
|
|
·
|
changes
in investors and analysts perception of the business risks and conditions
of our business;
|
|
|
·
|
our
ability to meet the earnings estimates and other performance expectations
of financial analysts or investors;
|
|
|
·
|
unfavorable
commentary or downgrades of our stock by equity research
analysts;
|
|
|
·
|
fluctuations
in the stock prices of our peer companies or in stock markets in general;
and
|
|
|
·
|
general
economic or political conditions.
|
Concentrated
ownership of our common stock creates a risk of sudden change in our share
price.
As of
December 31, 2009, directors and members of our executive management team
beneficially owned or controlled approximately 16% of our common stock.
Investors who purchase our common stock may be subject to certain risks due to
the concentrated ownership of our common stock. The sale by any of our large
shareholders of a significant portion of that shareholder’s holdings could have
a material adverse effect on the market price of our common stock. In addition,
the registration of any significant amount of additional shares of our common
stock will have the immediate effect of increasing the public float of our
common stock and any such increase may cause the market price of our common
stock to decline or fluctuate significantly.
Our
charter documents contain provisions that may delay, defer or prevent a change
of control.
Provisions
of our certificate of incorporation and bylaws could make it more difficult for
a third party to acquire control of us, even if the change in control would be
beneficial to stockholders. These provisions include the following:
|
|
·
|
division
of our board of directors into three classes, with each class serving a
staggered three-year term;
|
|
|
·
|
removal
of directors by stockholders by a supermajority of two-thirds of the
outstanding shares;
|
|
|
·
|
ability
of the board of directors to authorize the issuance of preferred stock in
series without stockholder approval;
and
|
|
|
·
|
prohibitions
on our stockholders that prevent them from acting by written consent and
limitations on calling special
meetings.
|
22
We
could incur increased costs as a result of being a publicly traded
company.
As a
company with publicly traded securities, we could incur significant legal,
accounting and other expenses not presently incurred. In addition, the
Sarbanes-Oxley Act of 2002, which we refer to as SOX, as well as rules
promulgated by the U.S. Securities and Exchange Commission, which we refer to as
the SEC, and Nasdaq, require us to adopt corporate governance practices
applicable to U.S. public companies. These rules and regulations may increase
our legal and financial compliance costs.
If
we do not timely satisfy the requirements of Section 404 of SOX, the trading
price of our common stock could be adversely affected.
As a
voluntary filer with the SEC, we are currently subject to Section 404 of SOX, as
a non-accelerated filer. SOX requires us to document and test the effectiveness
of our internal control over financial reporting in accordance with an
established internal control framework and to report on our conclusion as to the
effectiveness of our internal control over financial reporting. Our annual
report for the fiscal year ending October 31, 2011 will include management's
first report of internal control over financial reporting which will be
required to be audited by an Independent Registered Public Accounting
Firm. Any delays or difficulty in satisfying the requirements of SOX could,
among other things, cause investors to lose confidence in, or otherwise be
unable to rely on, the accuracy of our reported financial information, which
could adversely affect the trading price of our common stock.
|
ITEM
2.
|
FINANCIAL
INFORMATION
|
Selected
Financial Data for the Respective Years Ended October 31
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Net
operating revenues
|
$ | 34,838,000 | $ | 53,512,000 | $ | 48,267,000 | $ | 51,619,000 | $ | 39,394,000 | ||||||||||
|
Loss
(income) from continuing operations
|
$ | (2,865,000 | ) | $ | 3,747,000 | $ | 2,391,000 | $ | 3,791,000 | $ | 2,343,000 | |||||||||
|
Basic
net (loss) income from continuing operations
per share of common stock
|
$ | (0.28 | ) | $ | 0.31 | $ | 0.19 | $ | 0.36 | $ | 0.20 | |||||||||
|
Total
assets
|
$ | 141,868,000 | $ | 140,990,000 | $ | 127,341,000 | $ | 86,961,000 | $ | 90,935,000 | ||||||||||
|
Long
term debt
|
$ | 69,716,000 | $ | 65,582,000 | $ | 38,475,000 | $ | 14,515,000 | $ | 14,929,000 | ||||||||||
|
Redeemable
preferred stock
|
$ | 3,000,000 | $ | 3,000,000 | $ | 3,000,000 | $ | 3,000,000 | $ | 3,000,000 | ||||||||||
|
Cash
dividends declared per share of common stock
|
$ | 0.06 | $ | 0.33 | $ | 0.23 | $ | 0.23 | $ | 0.23 | ||||||||||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and
analysis of the company’s financial condition and results of operations should
be read in conjunction with the company’s consolidated financial statements and
the notes to those statements included elsewhere in this registration statement
on Form 10. The following discussion and analysis contains
forward-looking statements. Forward-looking statements in this
registration statement on Form 10 are subject to a number of risks and
uncertainties, some of which are beyond the company’s control. The
company’s actual results, performance, prospects or opportunities could differ
materially from those expressed in or implied by the forward-looking
statements. Additional risks of which the company is not currently
aware or which the company currently deems immaterial could also cause the
company’s actual results to differ, including those discussed in the sections
entitled “Forward-Looking Statements” and “Risk Factors” included elsewhere in
this registration statement on Form 10.
Summary
We have
three business segments: agribusiness, rental operations, and real estate
development. Our agribusiness segment generates revenue from our
farming and lemon packing operations, our rental operations segment generates
revenues from our housing, organic recycling, and commercial and leased land
operations, and our real estate development segment has not yet generated any
significant revenues to-date.
23
From a
general view, we see the company as a land and farming company that generates
annual cash flows to support its progress into diversified real estate
development activities. As real estate developments are monetized our
agribusiness will then be able to expand more rapidly into new regions and
markets.
We are
one of the largest growers of lemons and the largest grower of avocados in
the United States and, as a result, our agribusiness segment is the largest of
our three segments, representing approximately 89%, 93% and 93% of our fiscal
2009, fiscal 2008 and fiscal 2007 consolidated revenues,
respectively. Our lemons are primarily marketed by Sunkist, with a
vast majority of our domestic lemon and specialty citrus orders processed
through the Sunkist network. Approximately 85% of our domestic lemon
orders are repeat weekly/monthly customers and approximately 95% of those orders
are FOB shipping dock. Approximately 70% of our lemons are shipped to
food service and wholesale customers with the remaining 30% shipped to retail
customers. Our export orders are placed through the Sunkist system
with long-standing United States exporters. All orders placed through
the Sunkist network are priced, invoiced and collected by Sunkist with payment
to the company guaranteed by Sunkist beginning 24 hours after acceptance of our
fruit by the customer. All commercial lemon by-products, such as
juice, oils and essences, are processed by Sunkist with payment to us within
approximately 12 to 18 months after the customer’s receipt of the product.
The
industry average on-tree price for fresh lemons has ranged from a low of $14.90
per 40-pound box in 2004 to a high of $29.00 per 40-pound box in
2008. Fluctuations in price are a function of global supply and
demand with weather conditions, such as unusually low temperatures, typically
having the most dramatic effect on the amount of lemons supplied in any
individual growing season.
We
believe we have a competitive advantage by maintaining our own lemon packing
operation, and though a significant portion of the costs related to our lemon
packing operations are fixed. As a result, cost per carton is a
function of fruit throughput. While we regularly monitor our costs
for redundancies and opportunities for cost reductions, we also supplement the
number of lemons we pack in our packinghouse with additional lemons from outside
growers. Because the fresh utilization rate for our lemons, or
percentage of lemons we harvest and pack that go to the fresh market, is
directly related to the quality of lemons we pack and, consequently, the price
we receive per 40-pound box, we only pack lemons from outside growers if we
determine their lemons are of good quality.
Our
avocado producing business is important to us yet nevertheless faces some
constraints on growth as there is little additional land that can be
cost-effectively acquired to support new avocado orchards in Southern
California. Also, avocado production is cyclical as avocados
typically bear fruit on a bi-annual basis with large crops in one year followed
by smaller crops the next year. While our avocado production remains
volatile, the profitability and cash flow realized from our avocados frequently
offsets occasional losses in other crops we grow and helps to diversify our
fruit production base.
In
addition to growing lemons and avocados, we also grow oranges and specialty
citrus and other crops, typically utilizing land not suitable for growing high
quality lemons. We regularly monitor the demand for the fruit we grow
in the ever-changing marketplace to identify trends. For instance,
while per capita consumption of oranges in the United States has been decreasing
since 2000 primarily as a result of consumers increasing their consumption of
mandarin oranges and other specialty citrus, the international market
demand for U.S. oranges has increased. As a result, we have
focused our orange production on high quality late season Navel and Valencia
oranges primarily for export to Japan, China and Korea, which are typically
highly profitable niche markets. We produce our specialty citrus and
other crops in response to consumer trends we identify and believe that we are a
leader in the niche production and sale of certain of these high margin
fruits. Because we carefully monitor the respective markets of
specialty citrus and other crops, we believe that demand for the types and
varieties of specialty citrus and other crops that we grow will continue to
increase throughout the world.
Our
rental operations segment represented approximately 11%, 7% and 7% of our fiscal
2009, fiscal 2008 and fiscal 2007 consolidated revenues,
respectively. Our rental housing units generate reliable cash flows
which we use to partially fund the operations of all three of our business
segments, and provide affordable housing to many of our employees, including our
agribusiness employees, a unique employment benefit that helps us maintain a
dependable, long-term employee base. In addition, our leased land
business provides us with a typically profitable
diversification.
24
Our real
estate development segment has not yet generated any significant revenues
to-date. We recognize that long-term strategies are required for
successful real estate development activities. We plan to redeploy
any financial gains into other income producing real estate as well as
additional agricultural properties.
Recent
Developments
Dividend
Payment
On March
23, 2010, the company declared a $0.3125 per share dividend in the aggregate
approximate amount of $0.4 million to stockholders of record on March 23, 2010.
After
adjusting for the stock split approved by our stockholders on March 23, 2010,
the per share dividend is $0.03125.
Windfall
Investors, LLC
In
September of 2005, the Company, along with Windfall, LLC, formed Windfall
Investors, LLC, which we refer to as Windfall Investors, to acquire Windfall
Farms, an approximately 720 acre former equestrian breeding and training farm
located near Paso Robles, California. Initially, the company owned
15% of the equity interests in Windfall Investors and Windfall, LLC, the
managing partner, held 85% of the equity interests in Windfall
Investors. Windfall Investors purchased Windfall Farms for $12.0
million, which was financed using a $9.8 million secured long-term loan from
Farm Credit West, which we refer to as the Windfall term loan, and $2.3 million
from an $8.0 million unsecured revolving line of credit also with Farm Credit
West, which we refer to as the Windfall revolving line of credit. In 2008, the
Windfall revolving line of credit was increased to $10.5 million. The
company and the equity holders of Windfall initially guaranteed, jointly and
severally, the indebtedness outstanding under the Windfall term loan and
Windfall revolving line of credit.
Subsequent
to October 31, 2009 the managing partner of Windfall Investors resigned its
position and assigned all of its rights and interest in Windfall Investors to
the company and the company released Windfall, LLC and its equity holders from
certain liabilities associated with Windfall Investors. Pursuant to
its terms, the guarantee will remain in effect for the entire term of the
Windfall term loan and Windfall revolving line of credit. Should
Windfall Investors be in default at any time during that term, Farm Credit West
could declare the outstanding balance due and payable. The maximum
amount of potential future payment for us due to a default by Windfall Investors
under the term of the guarantee is $20.3 million. Conditions of
default include, among other things, failure to make scheduled payments,
declaration of bankruptcy, material adverse change in financial condition and
breach of any term or representation in the loan agreements.
Beginning on
November 15, 2009, the results of operations and all of the assets and
liabilities of Windfall Investors are included in the consolidated financial
statements of the company. In addition, the audited financial statements of
Windfall Investors for the year ended December 31, 2008 are included in this
Form 10 beginning on page F-79. The outstanding debt on the Windfall
Investors balance sheet at October 31, 2009 consisted of approximately $9.2
million under the Windfall term loan, and approximately $10.0 million under the
Windfall revolving line of credit. The Windfall term loan has monthly principal
and interest payments of $63,000 through October 2011. We expect that in
November 2011, the interest rate for the Windfall term loan will be renegotiated
and quarterly principal and interest payments will continue through October
2035. The Windfall revolving line of credit has monthly interest only payments
and originally matured in November, 2009. The maturity date, however, was
extended to March 1, 2010 and subsequently extended by Farm Credit West until
May 1, 2010. The company is in the process of refinancing the
Windfall revolving line of credit on a long-term basis through amendment to the
Windfall revolving line of credit agreement or alternatively through its
existing facility with Rabobank.
Results
of Operations
Selected
Results for Fiscal Years 2009, 2008 and 2007
Selected
results of operations for the fiscal years ended October 31, 2009, 2008 and 2007
and for the quarter ended January 31, 2010 and 2009 were as follows:
25
|
Year Ended October 31
|
Three
Months Ended January 31,
|
|||||||||||||||||||
|
2009
|
2008
|
2007
|
2010
|
2009
|
||||||||||||||||
|
Revenues:
|
||||||||||||||||||||
|
Agriculture
|
$ | 31,033,000 | $ | 49,794,000 | $ | 44,751,000 | $ | 5,272,000 | $ | 4,005,000 | ||||||||||
|
Rental
|
3,766,000 | 3,718,000 | 3,516,000 | 955,000 | 911,000 | |||||||||||||||
|
Other
|
39,000 | - | - | 135,000 | — | |||||||||||||||
|
Total
revenues
|
34,838,000 | 53,512,000 | $ | 48,267,000 | 6,362,000 | 4,916,000 | ||||||||||||||
|
Costs
and expenses:
|
||||||||||||||||||||
|
Agriculture
|
27,281,000 | 34,805,000 | 32,036,000 | 6,893,000 | 6,639,000 | |||||||||||||||
|
Rental
|
2,061,000 | 2,236,000 | 2,073,000 | 507,000 | 580,000 | |||||||||||||||
|
Other
|
318,000 | 991,000 | 1,160,000 | 327,000 | 83,000 | |||||||||||||||
|
Selling,
general and administrative
|
6,469,000 | 8,292,000 | 9,627,000 | 3,416,000 | 1,478,000 | |||||||||||||||
|
Asset
impairments
|
6,203,000 | 1,341,000 | - | — | — | |||||||||||||||
|
Loss
on sale of assets
|
10,000 | 11,000 | 56,000 | — | — | |||||||||||||||
|
Total
cost and expenses
|
42,342,000 | 47,676,000 | 44,952,000 | 11,143,000 | 8,780,000 | |||||||||||||||
|
Operating
(loss) income
|
(7,504,000 | ) | 5,836,000 | 3,315,000 | (4,781,000 | ) | (3,864,000 | ) | ||||||||||||
|
Other
income (expense):
|
||||||||||||||||||||
|
Gain
on sale of stock in Calavo Growers, Inc.
|
2,729,000 | - | - | — | — | |||||||||||||||
|
Other
income (loss), net
|
256,000 | 403,000 | (34,000 | ) | 363,000 | 336,000 | ||||||||||||||
|
Interest
income
|
225,000 | 902,000 | 2,300,000 | 29,000 | 37,000 | |||||||||||||||
|
Interest
expense
|
(692,000 | ) | (1,419,000 | ) | (2,102,000 | ) | (428,000 | ) | (213,000 | ) | ||||||||||
|
Total
other income (expense)
|
2,518,000 | (114,000 | ) | 164,000 | (36,000 | ) | 160,000 | |||||||||||||
|
(Loss)
income from continuing operations before income
|
||||||||||||||||||||
|
taxes
and equity (losses) earnings
|
(4,986,000 | ) | 5,722,000 | 3,479,000 | (4,817,000 | ) | (3,704,000 | ) | ||||||||||||
|
Income
tax benefit (provision)
|
2,291,000 | (2,128,000 | ) | (1,177,000 | ) | 1,709,000 | 1,652,000 | |||||||||||||
|
Equity
in (losses) earnings of investments
|
(170,000 | ) | 153,000 | 89,000 | (16,000 | ) | (24,000 | ) | ||||||||||||
|
(Loss)
income from continuing operations
|
(2,865,000 | ) | 3,747,000 | 2,391,000 | (3,124,000 | ) | (2,076,000 | ) | ||||||||||||
|
Loss
from discontinued operations, net of income taxes
|
(12,000 | ) | (252,000 | ) | (245,000 | ) | (8,000 | ) | (1,000 | ) | ||||||||||
|
Net
(loss) income
|
(2,877,000 | ) | 3,495,000 | 2,146,000 | (3,132,000 | ) | (2,077,000 | ) | ||||||||||||
|
Preferred
dividends
|
(262,000 | ) | (262,000 | ) | (262,000 | ) | (66,000 | ) | (66,000 | ) | ||||||||||
|
Net
(loss) income applicable to common stock
|
$ | (3,139,000 | ) | $ | 3,233,000 | $ | 1,884,000 | $ | (3,198,000 | ) | $ | (2,143,000 | ) | |||||||
|
Per
common share-basic:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | 0.31 | $ | 0.19 | $ | (0.28 | ) | $ | (0.19 | ) | |||||||
|
Discontinued
operations
|
(0.00 | ) | (0.02 | ) | (0.02 | ) | — | — | ||||||||||||
|
Basic
net (loss) income per share
|
$ | (0.28 | ) | $ | 0.29 | $ | 0.17 | $ | (0.28 | ) | $ | (0.19 | ) | |||||||
|
|
||||||||||||||||||||
|
Per
common share-diluted:
|
||||||||||||||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | 0.31 | $ | 0.19 | $ | (0.28 | ) | $ | (0.19 | ) | |||||||
|
Discontinued
operations
|
(0.00 | ) | (0.02 | ) | (0.02 | ) | — | — | ||||||||||||
|
Diluted
net (loss) income per share
|
$ | (0.28 | ) | $ | 0.29 | $ | 0.17 | $ | (0.28 | ) | $ | (0.19 | ) | |||||||
|
Dividends
per common share
|
$ | 0.06 | $ | 0.33 | $ | 0.23 | $ | 0.03 | $ | 0.03 | ||||||||||
|
Weighted-average
shares outstanding-basic
|
11,242,000 | 11,128,000 | 11,068,000 | 11,246,000 | 11,195,000 | |||||||||||||||
|
Weighted-average
shares outstanding-diluted
|
11,254,000 | 11,158,000 | 11,068,000 | 11,246,000 | 11,234,000 | |||||||||||||||
See
Notes to Consolidated Financial Statements. All shares and per share amounts
have been adjusted to reflect the capital structure changes effective as of
March 24, 2010.
26
First
Quarter Fiscal 2010 Compared to First Quarter Fiscal 2009
Revenues
Total
revenue for the first quarter of fiscal 2010 was $6.4 million compared to $4.9
million for the first quarter of fiscal 2009. The $1.5 million increase was
primarily the result of a $1.3 million increase in our agriculture revenue. With
lower volume of fruit available for sale in the first quarter of
fiscal 2010 compared to the first quarter of fiscal 2009, our average per carton
sales price for our lemons was substantially higher in our 2010 first fiscal
quarter resulting in a $0.2 increase in lemon revenue for the first three months
of fiscal 2010 compared to the first three months of fiscal 2009. An
unseasonable heat event in 2008 had an adverse impact on our 2009 Navel and
Valencia orange, Avocado and specialty citrus crops resulting in significantly
less production in these crops in the first quarter of fiscal 2009 compared to
the first quarter of fiscal 2010. Revenue in the first quarter of fiscal 2010
for our Navel and Valencia oranges, our avocados and our specialty citrus was
$0.7 million, $0.2 and $0.9 million, respectively compared to the first quarter
of fiscal 2009 revenues of $0.4 million, $0.0 million and $0.3 million for our
Navel and Valencia, Avocado and specialty citrus crops, respectively.
Costs
and Expenses
Our total
costs and expenses for the first quarter of fiscal 2010 were $11.1 million
compared to $8.8 million for the first quarter of fiscal 2009. A $0.3 million
increase in our agricultural expenses in the first fiscal quarter of 2010 over
the first fiscal quarter of 2009 was the result of higher payments to our
affiliated growers in the 2010 period compared to the 2009 period resulting from
higher per carton sales prices in 2010 compared to 2009 and the timing of
certain of our cultural costs in 2010 compared to when those costs were incurred
in 2009. Partially offsetting these increases were less inventoried cultural
costs being expensed in the first quarter of fiscal 2010 compared to the first
quarter of fiscal 2009. See footnote 2 to our consolidated financial statements
for the three months ended and as of January 31, 2010 for an explanation of the
accounting treatment of certain of our cultural costs.
Costs for
our rental business were $0.5 million in the first quarter of fiscal 2010
compared to $0.6 million in the first quarter of fiscal 2009 the result of lower
repair costs for our residential housing business in 2010 compared to 2009.
Other costs amounted to $0.3 million in the first quarter of fiscal 2010 and
$0.1 million in the first quarter of fiscal 2009. This increase was attributable
to costs associated to Windfall Farms which we assumed control of in November
2009.
Selling,
general and administrative costs for the three months ended January 31, 2010
were $3.4 million compared to $1.5 million for the three months ended January
31, 2009. This $1.9 million increase was primarily attributable to a $1.3
million non-cash charge related to our stock grant performance bonus plan. At
October 31, 2009 we had notes receivable from our three senior executive
officers totaling $1.7 million. These notes were issued in connection with loans
issued to these officers to allow them to pay the taxes associated with the
compensation to the officers for the shares issued to them in prior years under
this bonus plan. During the first quarter of fiscal 2010 the outstanding
balances for these loans were repaid by the officers by returning 6,758 of the
shares issued to them with a current market value on the date they were returned
of $150.98 per share and loan forgiveness by Limoneira totaling $0.7 million.
The loan forgiveness resulted in additional compensation to the
officers and Limoneira paid on their behalf $0.6 million in taxes
associated with this compensation. This $1.3 million non-cash charge is included
in selling, general and administrative expenses in the first quarter of fiscal
2010. Costs in the first quarter of 2010 in connection
with the preparation of our fiscal 2009 audited financial statements and the
filing of our Form 10 with the Securities and Exchange
Commission totaled $0.6 million. Costs in the first quarter of 2009
in connection with the preparation of our fiscal 2008 audited financial
statements were $0.1 million. Additionally, the 2010 first quarter also includes
$0.1 million of employee incentive accruals. There were no employee incentive
accruals recorded during the first quarter of fiscal 2009.
Other
Income/Expense
Our other
income (expense) consists of interest income, interest expense and other
miscellaneous income/expense. For the first quarter of fiscal 2010 our other
income (expense), net totaled $0.04 million and included $0.03 million of
interest income, ($0.43) million of interest expense and $0.36 million of other
miscellaneous income. This compares to interest income of $0.04 million,
interest expense of ($0.21) and $0.34 million of other miscellaneous income for
the first quarter of fiscal 2009. The $0.22 million increase in interest expense
in 2010 is the result of our assumption of debt as part of the Windfall
Investors, LLC acquisition in November 2009.
Income
Taxes
The
company recorded an estimated income tax benefit of $1.7 million in the first
quarter of fiscal 2010 on pre-tax losses from continuing operations of $4.8
million compared to an estimated income tax benefit of $1.6 million on pre-tax
losses from continuing operations of $3.7 million in the first quarter of fiscal
2009. Our estimated effective tax rate was 35.3% for the first quarter of 2010
compared to an estimated rate of 44.3% for the first quarter of 2009. The
primary reason for this decrease in our estimated effective tax rate was a 50%
increase in the allowable domestic production deduction in 2010 over the 2009
allowable deduction.
27
Fiscal
Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31,
2008
Revenues
For
fiscal 2009 the company had revenues of $34.8 million compared to revenues of
$53.5 million in fiscal 2008, a decline of approximately 35%. The
decline in revenues primarily resulted from a decrease in fresh lemon cartons
sold in 2009 compared to 2008 and reduced pricing for the lemons
sold. In 2009 we sold approximately 1.3 million fresh cartons at an
average price of $15.72 per carton compared to approximately 1.4 million fresh
cartons sold in 2008 at an average price of $27.15 per
carton. The decline in the number of cartons sold was primarily
attributable to a decline in the food service market for lemons, which we
believe was related to decreases in restaurant business because of pressures on
consumers’ disposable income due to the recession in the United
States. Current short and long term projections for lemon sales point
to increased demand in the food service category which is the dominant category
for lemon sales. The decline in pricing for fresh lemons was
primarily attributable to a significant oversupply of product resulting from
simultaneous production recoveries in California, Argentina, Chile and Spain
from the damaging freezes in 2007. In 2009, we harvested 2.4 million pounds of
avocados compared to 3.7 million pounds in 2008, with the decrease attributable
to an unseasonable heat event experienced during bloom and set. Total
avocado revenue however was slightly higher in 2009 compared to 2008 primarily
because of the estimated crop insurance claim settlement we recorded in 2009
related to the unseasonable heat event experienced during bloom and set in 2008
which adversely impacted our 2009 avocado production. Revenue in our rental and
real estate businesses was $3.8 million and $3.7 million in 2009 and 2008,
respectively.
Costs
and Expenses
For
fiscal 2009 the company had agricultural costs and expenses of $27.3 million
compared to expenses of $34.8 million in fiscal 2008. The $7.5
million decrease was attributable to lower fresh utilization and per carton
sales prices for lemons in 2009 compared to 2008 resulting in $3.4 million lower
payments to our affiliated growers in 2009 compared to 2008. Electricity costs
related to our lemon packing operations were substantially lower in 2009
compared to 2008 as a direct result of the completion in late 2008 of our
one-megawatt solar generator used to provide power for our lemon packing
operations. Lower oil prices and pesticide costs in 2009 compared to 2008 also
contributed to the decrease. Additionally, we recorded a $1.2 million
non-cash write-off in connection with the removal of 133 acres of specialty
crops in 2008. Other expenses, which are comprised of the costs related to our
rental and real estate development businesses, were $2.4 million in 2009
compared to $3.2 million in 2008. This $0.8 million decrease was attributable to
lower expenses in 2009 related to our East Area I project in Santa Paula,
California. The majority of the cost for planning and entitlement related to
this project were incurred in 2008 and prior years. Expenses related to our
rental business decreased by $0.1 million from $2.2 million in 2008 to $2.1
million in 2009 primarily due to higher repair and maintenance costs incurred in
2008 related to our residential housing units. Depreciation expense in our
agricultural, rental and real estate development businesses was $1.6 million,
$0.4 million and $0.04 million, respectively in 2009 compared to $1.7 million,
$0.4 million and $0.0 million, respectively in 2008.
Selling,
general and administrative expenses in 2009 were $6.5 million compared to $8.3
million in 2008. This $1.8 million net decrease was primarily the result of
lower incentive costs in 2009 related to the company’s management incentive
bonus program, which we refer to as the MIP. In 2008 participants in the MIP
were awarded incentive payments of $1.5 million compared to no awards earned in
2009. Additionally, the company spent $0.5 million less in 2009
compared to 2008 for consulting, travel, promotions and other
costs. Partially offsetting these decreases were $0.2 million of
higher legal, audit and compliance costs in 2009 compared to 2008.
In 2009
we recorded impairment charges related to certain of our real estate assets
totaling $6.2 million compared to $1.3 million in 2008. As a result of the
continuing downturn in the overall real estate market during the past year we
reduced the basis in our Santa Maria development projects by $4.6 million to
their appraised value of $18.8 million. Additionally, in 2009 we reduced the
basis in our Paradise Valley luxury home developments by $1.6 million to their
appraised value of $6.2 million. In 2008 we recorded an impairment charge of
$1.3 million related to our Santa Maria development projects.
Other
Income, Expense
The
company’s other income, expense consists of interest income, interest expense,
gain on the sale of securities and other miscellaneous income/expense. Our
interest income in 2009 was $0.2 million compared to $0.9 million in 2008. This
decrease was the result of $0.7 million of interest income recognized during the
first five months of 2008 on loans receivable from Templeton Santa Barbara, LLC,
which we refer to as Templeton, prior to the consolidation of Templeton. Our
interest expense was $0.7 million in 2009 compared to $1.4 million in 2008. This
$0.7 million decrease was primarily the result of a lower cost of borrowing in
2009 as compared to 2008 as well as additional capitalization of interest
related to real estate projects. During 2009 the weighted average interest rate
on our debt was 3.96% compared to a weighted average interest rate of 5.22% in
2008. In 2009, other income, expense includes a $2.7 million profit
on the sale of 335,000 shares of Calavo common stock that we sold in October,
2009. These shares were a part of the 1,000,000 shares of Calavo
common stock that we purchased in 2005.
28
Income
Taxes
The
company recorded an income tax benefit of $2.3 million in 2009 on pre-tax losses
from continuing operations of $5.0 million compared to an income tax provision
of $2.1 million on pre-tax income from continuing operations of $5.7 million in
2008. Our effective tax rate for 2009 was 44.3% compared to 36.1% for 2008. The
change in the effective tax rate from 2008 to 2009 was attributable to a change
in the domestic production deduction related to our sales through the Sunkist
cooperative and a change in certain unrecognized income tax benefits. Deferred
income taxes result principally from differences between the financial and tax
reporting expense items such as depreciation, state income taxes, vacation
accruals and mark-to-market adjustments. Long term deferred tax
liabilities net of long term deferred tax assets at October 31, 2009 were $8.8
million compared to $11.5 million at October 31, 2008. This decrease was
primarily attributable to the deferred tax assets recorded in connection with
the impairment charges related to our real estate projects mark-to-market
adjustments related to available-for-sale securities and the minimum pension
liability adjustment recorded in 2009.
Fiscal
Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31,
2007
Revenues
For
fiscal 2008 the company had revenues of $53.5 million compared to revenues of
$48.3 million in fiscal 2007, an increase of approximately 11%. The
increase in revenues resulted from the company experiencing minimal impact from
global climate conditions in 2007 that dramatically reduced lemon production in
California, Argentina, Chile and Europe. This circumstance enabled
the company to achieve over 70% fresh utilization at record sales prices for
lemons in fiscal 2008. These same conditions, however, had the opposite effect
on our avocado crops in both fiscal 2008 and fiscal 2007 with production falling
to under 4 million pounds in fiscal 2008 and fiscal 2007 from a record 17.7
million pounds in fiscal 2006. Production of both Navel and Valencia
orange varieties also declined in fiscal 2008 compared to fiscal 2007 resulting
in a decrease in revenue for these varieties of $0.9 million. Specialty crop
revenue increased nearly $0.7 million in fiscal 2008 compared to fiscal 2007.
This increase was attributable to more production of Cara Cara Navel oranges,
pluots, minneolas and Meyer lemons, and resulted from a larger number of planted
acres becoming full bearing in 2008. Revenue for our rental and real estate
development businesses was $3.7 million and $3.5 million in 2008 and 2007,
respectively.
Costs
and Expenses
For
fiscal 2008 the company’s agricultural costs were $34.8 million compared to
$32.0 million in 2007. This $2.8 million increase was attributable to a $1.2
million non-cash write-off in 2008 in connection with tree removals.
Additionally, higher oil prices in fiscal 2008 directly impacted our cost of
certain of the pesticides and herbicides used in our farming operations. Other
expense consists of the costs and expenses related to our rental and real estate
development businesses and were $3.2 million in 2008 and 2007.
Our
selling, general and administrative costs in 2008 were $8.3 million compared to
$9.6 million in 2007. This $1.3 million decrease was attributable to lower costs
related to our stock compensation program in 2008. In 2008. The Company recorded
compensation expense of $0.6 million related to its stock grant performance
bonus program compared to $3.2 million of compensation expense related to this
program in 2007. Partially offsetting this decrease in expense were increases in
our legal and professional fees, primarily related to audit and tax work and
consulting fees primarily related to company structure analysis
work.
In 2008
we recorded a $1.3 million impairment charge to write down the carrying value of
our Santa Maria development project to its then appraised value. This appraised
value reflected the downturn in the economy in general and the housing market in
particular.
29
Other
income and expenses include interest income, interest expense and other
miscellaneous income and expenses. Interest income for 2008 was $0.9 million
compared to $2.3 million in 2007. The 2007 interest income included $1.9 million
of interest income on loans to Templeton which represents a full year as
compared to five months of interest income in 2008 prior to the consolidation of
Templeton. Interest expense for 2008 was $1.4 million compared to $2.1 million
in 2007. This reduction was primarily attributable to lower overall borrowing
costs in 2008 compared to 2007. During 2008 our weighted average interest rate
on our debt was 5.22% compared to a weighted average interest rate of 6.54% in
2007. Additionally, because of the changing nature of one of our real estate
development projects, a greater portion of the interest cost associated with the
debt incurred for that project was capitalized in 2008 as compared to
2007.
Income
Taxes
The
company recorded an income tax provision of $2.1 million in 2008 on pre-tax
income from continuing operations of $5.7 million compared to a $1.2 million
provision on pre-tax earnings from continuing operations of $3.5 million in
2007. Our effective tax rate for 2008 was 36.1% compared to 32.9% for
2007. The change in the effective tax rate from 2007 to 2008 was
attributable to a change in the domestic production deduction related to our
sales through Sunkist, dividend income exclusions and changes in certain
unrecognized income tax benefits. Deferred income taxes result
principally from differences between the financial and tax reporting expense
items such as depreciation, state income taxes, vacation accruals and
mark-to-market adjustments. Long term deferred tax liabilities net of
long term deferred tax assets at October 31. 2008 were $11.5 million compared to
$16.7 million at October 31, 2007. This decrease was primarily
attributable to mark-to-market adjustments related to available-for-sale
securities.
Segment
Results of Operations
We
evaluate the performance of our agribusiness, rental operations, and real estate
development segments separately to monitor the different factors affecting
financial results and each segment is subject to review and evaluation as we
monitor current market conditions, market opportunities, and available
resources.
Selected
segment results of operations for the fiscal years ended October 31, 2009, 2008
and 2007 and the quarters ended January 31, 2010 and 2009 were as follows:
|
Three
months ended January 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2010
|
2009
|
||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Agribusiness
|
$ | 31,033,000 | $ | 49,794,000 | $ | 44,751,000 | $ | 5,272,000 | $ | 4,005,000 | ||||||||||
|
Rental
operations
|
3,766,000 | 3,718,000 | 3,516,000 | 955,000 | 911,000 | |||||||||||||||
|
Real
estate development
|
39,000 | — | — | 135,000 | — | |||||||||||||||
|
Total
revenues
|
34,838,000 | 53,512,000 | 48,267,000 | 6,362,000 | 4,916,000 | |||||||||||||||
|
Costs
and expenses
|
||||||||||||||||||||
|
Agribusiness
|
27,281,000 | 34,805,000 | 32,036,000 | 6,893,000 | 6,639,000 | |||||||||||||||
|
Rental
operations
|
2,061,000 | 2,236,000 | 2,073,000 | 507,000 | 580,000 | |||||||||||||||
|
Real
estate development
|
318,000 | 991,000 | 1,160,000 | 327,000 | 83,000 | |||||||||||||||
|
Corporate
and other
|
6,469,000 | 8,292,000 | 9,627.000 | 3,416,000 | 1,478.000 | |||||||||||||||
|
Impairment
charges
|
||||||||||||||||||||
|
Real
estate development
|
6,203,000 | 1,341,000 | — | — | — | |||||||||||||||
|
Loss
on sale of assets
|
||||||||||||||||||||
|
Corporate
and other
|
10,000 | 11,000 | 56,000 | — | — | |||||||||||||||
|
Total
costs and expenses
|
42,342,000 | 47,676,000 | 44,952,000 | 11,143,000 | 8,780,000 | |||||||||||||||
|
Operating
income (loss)
|
||||||||||||||||||||
|
Agribusiness
|
3,752,000 | 14,989,000 | 12,715,000 | (1,621,000 | ) | (2,634,000 | ) | |||||||||||||
|
Rental
operations
|
1,705,000 | 1,482,000 | 1,443,000 | 448,000 | 331,000 | |||||||||||||||
|
Real
estate development
|
(6,482,000 | ) | (2,332,000 | ) | (1,160,000 | ) | (192,000 | ) | (83,000 | ) | ||||||||||
|
Corporate
and other
|
(6,479,000 | ) | (8,303,000 | ) | (9,683,000 | ) | (3,416,000 | ) | (1,478,000 | ) | ||||||||||
|
Total
operating income (loss)
|
$ | (7,504,000 | ) | $ | 5,836,000 | $ | 3,315,000 | $ | (4,781,000 | ) | $ | (3,864,000 | ) | |||||||
30
First
Quarter of Fiscal 2010 Compared to the First Quarter of Fiscal 2009
Agribusiness
For the
first three months of 2010 our agribusiness segment revenue was $5.3 million
compared to $4.0 million for the first three months of 2009. The $1.3 million
increase reflected higher revenue in all varieties of our crops for the fiscal
2010 first quarter compared to the fiscal 2009 first quarter. Revenue from lemon
sales increased by $0.2 million, from $3.2 million in the first quarter of
fiscal 2009 to $3.4 million in the first quarter of fiscal 2010. This increase
resulted from substantially higher per carton sales prices in 2010 compared to
2009 partially offset by lower volume in 2010 compared to 2009. In the first
quarter of fiscal 2010 we sold approximately 187,000 fresh lemon cartons at an
average per carton sales price of $18.07 compared to 205,000 fresh cartons at an
average per carton price of $14.74 in the first quarter of fiscal 2009. This
22.6% increase in the average sales price was attributable to lower industry
volume of available fruit in the 2010 first quarter compared to the 2009 first
quarter which allowed us to maintain higher prices in 2010. Our avocado revenue
was $0.2 million in the first quarter of fiscal 2010 compared to zero in the
first quarter of fiscal 2009. The absence of avocado revenue in the first
quarter of 2009 reflected our efforts to manage our very small 2009 avocado crop
by delaying the harvest to capture higher prices later in the year. The small
2009 avocado crop was the result of unseasonable heat in the Spring of 2008 that
adversely impacted the bloom and set of the 2009 crop. Our Navel and Valencia
orange revenue was $0.7 million for the first quarter of 2010 compared to $0.4
million for the first quarter of 2009. This $0.3 million increase was
attributable to our navel orange crop which produced approximately 100,000
cartons in the first quarter of 2010 compared to approximately 54,000 cartons in
the first quarter of 2009. As with our avocados, the lower production in 2009
resulted from the unseasonable heat event in the Spring of 2008 adversely
impacting the 2009 crop. Our specialty citrus revenue was $0.9 million for the
first quarter of 2010 compared to $0.3 million for the first quarter of 2009 on
lower volume in 2009 compared to 2010 caused by the 2008 heat event.
For the
first three months of 2010 our agribusiness costs and expenses were $6.9 million
compared to $6.6 million for the first three months of 2009. The $0.3 increase
was attributable to higher per carton sales prices for lemons in 2010 which
resulted in a $0.5 million increase in payments to our affiliated growers in the
first quarter of fiscal 2010 compared to the first quarter of fiscal 2009. Our
cultural costs for the first quarter of 2010 were $2.6 million compared to $2.0
million for the first quarter of 2009. This $0.6 increase was attributable to
the timing of certain fertilization, pest control and other tree care costs in
2010 compared to when those costs were incurred in 2009. Additionally, weather
related incidents caused higher frost protection costs in the first quarter of
2010 compared to the first quarter of 2009. Partially offsetting these increases
were lower costs associated with our lemon packing operations. In the first
quarter of 2010 we had $0.1 million lower electricity costs for our packinghouse
compared to the first quarter of 2009 as a result of our solar energy production
and the associated rebate payments received under the California Solar
Initiative. First quarter 2010 labor and benefit costs in our packinghouse were
$0.3 million lower than the first quarter of 2009 because of excess labor costs
in the first quarter of 2009 related to our custom pack program. We also
received payments under a pallet expense reimbursement program with Sunkist
Growers. During the first quarter of 2010 we received payments totaling $0.2
million compared to $0.1 million in the first quarter of 2009. Additionally,
with approximately 18,000 fewer fresh cartons sold in the first quarter of 2010
compared to the first quarter of 2009 our combined carton expense and selling
and advertising costs, both of which are carton volume driven, our first quarter
2010 costs were $0.1 million lower than the first quarter of 2009. Depreciation
expense in our agribusiness amounted to $0.4 million in the first quarter of
2010 and 2009.
Rental
Operations
Our
rental operations had revenue of $0.95 million in the first quarter of 2010
compared to $0.91 million in the first quarter of 2009. All three areas of this
segment, housing and commercial, leased land and organic recycling, had small
increases in revenues in the 2010 first quarter compared to the 2009 first
quarter. Our occupancy rate in our residential housing business was slightly
better in the first quarter of 2010 compared to the first quarter of 2009
however, because of the downturn in the economy we chose not to institute any
rent increases in the first quarter of 2010 and all of 2009. Revenue from the
housing and commercial component of this segment was $0.53 million for the first
quarter of 2010 compared to $0.51 million for the first quarter of 2009. The
revenue from the leased land component of this segment was $0.38 million for the
first quarter of 2010 compared to $0.36 million for the first quarter of 2009.
This slight increase was the result of scheduled rent increases on four of our
leases.
Total
expenses in our rental operations segment were $0.5 million in the first quarter
of 2010 compared to $0.6 million in the first quarter of 2009 reflecting lower
costs for repairs in our residential business. Depreciation expense in our
rental operations segment was $0.1 million in the first quarter of 2010 and
2009.
Real
Estate Development
Our real
estate development segment had revenue of $0.1 million in the first quarter of
2010 and no revenue in the first quarter of 2009. The 2010 revenue represented
lease income from some of the facilities at Windfall Farms and from one of our
Paradise Valley, Arizona real estate properties. As a means of offsetting some
of the costs at our Windfall Farms development project during its development
stage we are leasing some of the equestrian facilities to independent horse
trainers and some of the acreage to alfalfa growers. In June 2009 we
entered into a lease for one of our Paradise Valley homes. The lease has an
initial term of two years with an option for a third year. The lessee has an
option to purchase the property during the option period.
Costs and
expenses in our real estate development segment were $0.3 million in the first
quarter of 2010 compared to $0.1 million in the first quarter of 2009. The 2010
costs are primarily maintenance costs, property taxes and utility costs incurred
at our Windfall Farms project and to a lesser extent, costs for our East Area 1
project that are not capitalized. The 2009 costs consist entirely of costs at
our East Area 1 project that are not capitalized.
Corporate
and Other
Corporate
costs and expenses include selling, general and administrative costs and other
costs not allocated to the operating segments. For the first quarter of 2010
corporate and other costs were $3.4 million compared to $1.5 million for the
first quarter of 2009. The $1.9 million increase was attributable to a $1.3
million non-cash charge related to our stock grant performance bonus program. At
October 31, 2009 we had notes receivable from our three senior executive
officers totaling $1.7 million. These notes were issued in connection with loans
issued to these officers to allow them to pay the taxes associated with the
compensation to the officers for the shares issued to them in prior years under
this bonus plan. During the first quarter of 2010 the outstanding balances of
these loans were repaid by the officers by returning 6,758 of the shares issued
to them valued at $150.98 per share which was the current market value on the
date they were returned and loan forgiveness by Limoneira totaling $0.7 million.
The loan forgiveness resulted in additional compensation to the officers and
Limoneira paid on their behalf $0.6 million in taxes associated with this
compensation. The $1.3 million non-cash charge is included in selling, general
and administrative expense for the first quarter of 2010. Costs in the first
quarter of 2010 in connection with the preparation of our fiscal 2009 audited
financial statements and the filing of our Form 10 with the Securities and
Exchange Commission in February 2010 totaled $0.6 million. Costs in the first
quarter of 2009 in connection with the preparation of our 2008 audited financial
statements were $0.1 million. Additionally, the first quarter of 2010 also
includes $0.1 million in employee incentive accruals. There were no employee
incentive accruals recorded during the first quarter of fiscal 2009.
31
Fiscal
Year Ended October 31, 2009 Compared to Fiscal Year Ended October 31,
2008
Agribusiness
For
fiscal 2009 agribusiness revenues were $31.0 million compared to agribusiness
revenues of $49.8 million in fiscal 2008, a decline of approximately
38%. The decline in agribusiness revenues resulted primarily from
lower lemon revenue. In 2009 we had $22.3 million of lemon revenue
compared to $40.3 million in 2008. In 2009 we sold 1.3 million fresh
cartons of lemons at an average selling price of $15.72 per carton compared to
1.4 million fresh cartons at an average price of $27.15 per carton in
2008. Somewhat offsetting this reduction in fresh lemon sales were
substantially higher prices for lemon juice products. In 2009 our
total lemon revenue includes sales of juice products at approximately $70 per
ton compared to approximately $40 per ton in 2008.
For
fiscal 2009 agribusiness operating expenses were $27.3 million compared to $34.8
million in fiscal 2008. The decrease was primarily due to lower fresh
utilization and per carton sales prices in 2009 resulting in lower payments to
our affiliated growers. Additionally, lower oil prices in 2009 resulting lower
pesticide costs; lower electricity costs in 2009 for our lemon packinghouse
attributable to the completion in late 2008 of our one-megawatt solar generator
and a $1.2 million write-off in 2008 related to tree removals contributed the
balance of the decrease. Depreciation expense related to our agribusiness
segment was $1.6 million in 2009 compared to $1.7 million in 2008.
Rental
Operations
For
fiscal 2009 rental operations revenues were $3.8 million compared to rental
operations revenues of $3.7 million in fiscal 2008. Revenues for our housing and
commercial units were $2.1 for 2009 and 2008, which accounted for
approximately 57% and 58% of this segments revenue, respectively, with our land
leases accounting for the majority of the balance in each year. Costs for our
rental segment in 2009 were $2.1 million compared to $2.2 million in 2008 and
were primarily incurred in connection with repairs and maintenance of the 193
housing units. Depreciation expense in our rental segment was $0.4 million in
2009 and 2008.
Real
Estate Development
For
fiscal 2009 real estate revenues were $0.04 million of lease income related to
certain of our other real estate investments. Our real estate development
revenue in 2008 was $0.0 million.
Real
estate development costs and expenses in 2009 were $0.3 million compared to $1.0
million in 2008. This reduction was primarily attributable to lower costs
associated with our East Area 1 development project. The majority of the costs
for planning and entitlement for this project were incurred in 2008 and prior
years. Depreciation expense in our real estate development segment was $0.04
million in 2009 and $0 in 2008. Additionally, in 2009 we recorded a $6.2 million
non-cash impairment charge to write down the carrying costs of our Santa Maria
and Paradise Valley real estate projects to their appraised values reflecting
the continuing economic downturn in 2009. In 2008 we recorded a $1.3 million
non-cash impairment charge to write down the carrying cost of our Santa Maria
real estate project to its then appraised values.
Corporate
Corporate
operating expense includes selling, general and administrative and other costs
not allocated to the operating segments. Corporate operating expenses
in fiscal 2009 were $6.5 million compared to $8.3 million in 2008. This $1.8
million decrease was primarily attributable to lower employee incentive costs in
2009 and to a lesser extent, lower overall legal and professional costs in 2009
compared to 2008 primarily related to work done in 2008 related to Company
organizational matters.
32
Fiscal
Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31,
2007
Agribusiness
For
fiscal 2008 agribusiness revenues were $49.8 million compared to agribusiness
revenues of $44.8 million in fiscal 2007, an increase of approximately
11%. The increase in agribusiness revenues resulted from a perfect
storm of events that produced favorable results for the company’s agribusiness
segment, particularly the company’s lemon operations. In 2007,
devastating freezes destroyed lemon crops in California, Argentina, Chile and
Europe, dramatically reducing global supplies. Our lemon operations
were largely unaffected by the freeze which enabled us to generate operating
profits in 2008 of approximately $14 million through sales of approximately 1.4
million cartons of fresh lemons at an average price of $27.15 per
carton. In comparison, in 2007, the company’s previous best lemon
year, the company generated operating profits of approximately $10 million
through the sale of 1.5 million cartons of fresh lemons at an average price of
$23.45 per carton.
In
contrast, the perfect storm that benefited our lemon operations had a
devastating affect on our avocado operations with the freeze destroying much of
our avocado crop in 2007 and 2008. In 2008, we generated operating
profits of $0.2 million on 3.7 million pounds of avocados, while in 2007 we
generated operating profits of $0.1 million on approximately 4 million pounds of
avocados.
In 2008,
despite industry-wide surplus and resulting low prices, we enjoyed relatively
favorable Valencia and Navel orange results. Our well-honed strategy
of anticipating, and then targeting, undersupplied markets allowed us to
maximize the price for our Navel varieties. Even so, operating profit
of $0.9 million in 2008 for our orange operations was down considerably from our
operating profit of $2.1 million in 2007.
Our
specialty citrus operations enjoyed another year of solid growth in 2008 with
improvements in all varieties yielding operating profit of $1.4 million before a
$1.2 million non-cash write-off recorded in connection with the removal of
approximately 166 acres of underperforming cherries and pluots and representing
a 58% increase in operating profit over 2007.
For
fiscal 2008 agribusiness operating expenses were $34.8 million compared to
agribusiness operating expenses of $32.0 million in fiscal 2007. The
change was primarily due to the company’s removal of 133 acres of cherries and
pluots and replanting the acreage with lemons and oranges. Our
non-cash orchard write-off in 2008 was $1.2 million.
Rental
Operations
For
fiscal 2008 our rental operations revenues were relatively flat compared to
fiscal 2007. The 2008 revenues consisted of $2.1 million of housing
and commercial revenue, $1.4 million of leased land revenue and $0.2 million of
organic recycling revenue. For 2007 the revenues from housing and
commercial, leased land and organic recycling were $2.1 million, $1.3 million
and $0.1 million, respectively. Higher maintenance costs in 2008
compared to 2007 for our housing units resulted in an approximately $0.1 million
decline in operating profit in our housing and commercial operations which was
offset by an increase in leased land revenue in 2008 compared to
2007. During 2007 we increased our leased land acreage to 586
acres. Our organic recycling operations contributed a consistent,
reliable revenue stream in both fiscal 2008 and fiscal 2007.
For
fiscal 2008 housing and commercial operating expenses were $2.2 million compared
to housing and commercial operating expenses of $2.1 million in fiscal
2007. The change was primarily due to an increase in maintenance
expenses for our rental properties. During 2007 we increased the number of acres
we lease to third party agricultural tenants from 509 in 2006 to 586 in 2007.
Because of enjoying a full year of revenue on this increased acreage in 2008,
our leased land operating profit was $1.4 million in 2008 compared to $1.2
million in 2007.
33
Real
Estate Development
For
fiscal 2008 and 2007 the real estate development segment had no revenue. Costs
and expenses were $1.0 million in 2008 compared to $1.2 million in 2007. The
costs in both years were attributable to the planning and entitlement
costs associated with our East Area 1 development project. Additionally, during
2008 and 2007, we incurred costs of $1.8 million and $2.1 million, respectively
that were capitalized into the carrying value of this project. In 2008, as a
result of the down turn in the overall housing market we recorded a $1.3 million
non-cash impairment charge to write down the carrying value of our real estate
project in Santa Maria, California to its appraised value.
Corporate
Corporate
operating expense includes selling, general and administrative costs not
allocated to the operating segments. Corporate operating expense in fiscal 2008
were $8.3 million compared to $9.6 million in fiscal 2007. This $1.3
million decrease was primarily attributable to lower costs associated with our
stock grant performance bonus program in 2008 partially offset by higher
employee incentive costs and legal and consulting costs in 2008 compared to
2007. In 2008, we incurred costs of $0.6 million related to our stock grant
performance bonus plan compared to costs of $3.2 million in 2007.
Liquidity
and Capital Resources
Overview
Our
liquidity and capital position fluctuates during the year depending on seasonal
production cycles, weather events, and final demand for our products. Typically,
our first and last fiscal quarters coincide with the fall and winter months
during which we are growing crops that are harvested and sold in the spring and
summer, our second and third quarters. To meet working capital demand, we
utilize our revolving credit facility to fund agricultural inputs and farm
management practices until sufficient returns from crops allow us to pay down
amounts borrowed. Raw materials needed to propagate the various crops grown by
us consist primarily of fertilizer, herbicides, insecticides, fuel and water and
are readily available from local sources.
Accordingly,
we have established well-defined priorities for our available cash, including
investing in core business segments to achieve profitable future growth. To
enhance shareholder value, we will continue to make investments in our real
estate segments to secure land entitlement approvals, build infrastructure for
our developments, ensure adequate future water supplies, and provide funds for
general land development activities. Within our farming segment, we will make
investments as needed to improve efficiency and add capacity to its operations
when it is profitable to do so.
Cash
Flows from Operating Activities
For the
first three months of fiscal 2010 cash used in our operating
activities totaled $5.5 million compared to using $7.2 million in the first
three months of fiscal 2009. Our net loss for the first quarter of 2010 was $3.1
million compared to a net loss of $2.1 million in the first quarter of 2009.
Included in the net loss for the first quarter of 2010 was a $1.5 million
non-cash charge related to our stock grant performance bonus and Director
compensation programs. This compares to a non-cash charge of $0.2 million for
these programs in the first quarter of 2009. Operating cash flow impacts
resulting from changes in accounts payable and growers payable
balances provided $0.5 of operating cash flows in the first
quarter of 2010 compared to using $1.2 million of cash in the first quarter of
2009. Significant costs related to our lemon packing and Southern farming
operations that were included in accounts payable at October 31, 2008 were paid
in the first quarter of 2009. Operating cash flow impacts resulting from
changes in accrued liabilities balances used $0.05 million in operating
cash flows in the first quarter of 2010 compared to using $1.7 million in the
first quarter of 2009. Accrued bonuses of $1.3 million for fiscal 2008 were
included in accrued liabilities at October 31, 2008 and paid in the first
quarter of 2009. There were no accrued bonuses at October 31, 2009 for fiscal
2009. Operating cash flow impacts resulting from changes in accounts and
notes receivable balances used $2.9 million in operating cash flows in the
first quarter of 2010 compared to using $1.4 million in operating cash flows in
the first quarter of 2009. This increase was primarily the result of an increase
in accounts receivable in the first quarter of 2010 of $2.8 million compared to
an increase of $1.4 million in the first quarter of 2009. Higher agricultural
revenues in the first quarter of 2010 compared to the first quarter of 2009 was
the primary reason for this increase.
For
fiscal 2009, the company’s operating activities used approximately $1.0 million
compared to providing approximately $6.8 million in fiscal 2008. The
decrease in cash provided by operating activities in 2009 was primarily due to
lower net income in 2009 compared to 2008. Additionally, certain decreases in
our net long term deferred tax liabilities in 2009 resulted in a reduction in
cash provided by operating activities of $2.2 million compared to an increase in
cash from operating activities of $0.4 million in 2008. The primary causes for
the decrease in our net long term deferred tax liabilities were long term
deferred tax assets generated from the non-cash impairment charges recorded in
2009 related to certain of our real estate development projects, mark-to-market
adjustments related to available-for-sale securities and adjustments recorded
related to our pension plan. Significant non-cash charges reflected
in fiscal 2009 operating cash flow include: (i) depreciation and amortization
charges totaling $2.3 million, (ii) impairment of real estate development
projects totaling $6.2 million, and (iii) stock compensation expense totaling
$0.8 million.
Cash
Flows from Investing Activities
For the
first three months of 2010 cash used in investing activities was $1.4 million
compared to $2.8 million used in investing activities in the first three months
of 2009. Capital expenditures in the first quarter of 2010 were $1.3 million
compared to $2.4 million in the first quarter of 2009. Included in the 2010
first quarter expenditures were $0.8 million for our real estate development
projects and included $0.5 million for entitlement costs on our East Area 1
development project, $0.2 million for entitlement costs on our Santa Maria
development project and $0.1 million on improvements at our Windfall Farms
project. In the first quarter of 2009 we spent $1.8 million on these real estate
development projects which included $0.5 million for our East Area 1 project,
$0.4 million for our Santa Maria project and $0.9 million for the completion of
our Paradise Valley development projects.
Cash
flows used in investing activities were approximately $1.5 million for fiscal
2009, compared to cash flows used in investing activities of $29.1 million for
fiscal 2008. The change was primarily due to capital expenditures of
$7.2 million for 2009 compared to $29.2 million for 2008. Our 2008 capital
expenditures include the approximately $22 million cost to purchase
approximately 63 acres of land that will be a part of our East Area 1
development project. Our cash flows from investing activities in fiscal 2009
include proceeds of $6.1 million from our sale of 335,000 shares of
the 1,000,000 shares of Calavo common stock that we purchased in 2005.
34
We expect
capital expenditures in 2010 to be approximately $3.7 million. As
noted above, we are evaluating the construction within the next five years of a
new packinghouse that has the potential to reduce our packing costs by reducing
labor and handling inputs.
Cash
Flows from Financing Activities
Cash
provided by financing activities in the first three months of 2010 was $6.3
million in the first three months of 2010 compared to $9.9 million provided by
financing activities in the first three months of 2009. The decrease in cash
provided from financing activities in the first quarter of 2010 compared to the
first quarter of 2009 was primarily the result of lower borrowings under our
Rabobank revolving credit facility in the first quarter of 2010 compared to the
first quarter of 2009. During the first quarter of 2010 we borrowed $8.1 million
under our Rabobank revolving credit facility to fund operating and other costs.
This compares to $11.5 million borrowed in the first quarter of 2009.
Additionally $0.4 million was borrowed under the Windfall Investors revolving
line of credit in the first quarter of 2010. Partially offsetting the these
borrowings were repayments of debt. In the first quarter of 2010 we repaid $1.7
million of debt compared to $1.1 million in the first quarter of 2009.
Cash
flows provided by financing activities were approximately $3.0 million for
fiscal 2009, compared to cash flows provided by financing activities of
approximately $22.0 million for fiscal 2008. Net cash provided from the issuance
and payments of debt was $4.1 million and $27.1 million in 2009 and 2008,
respectively. The 2008 net cash provided from the issuance and payments of debt
includes the $22 million of debt used to purchase the approximately 63 acres
that will be a part of our East Area 1 development project. In addition, we used
cash of $1.0 million and $3.9 million in fiscal 2009 and fiscal 2008,
respectively, for dividends to holders of our common and preferred stock.
Transactions
Affecting Liquidity and Capital Resources
We have a
revolving credit facility with Rabobank, NA, which we refer to as Rabobank, that
permits us to borrow up to $80.0 million and two term loans with Farm Credit
West, FLCA, as successor by merger to Central Coast Federal Land Bank, which we
refer to as Farm Credit, for an aggregate amount of approximately $10.0
million.
As
of January 31, 2010, we had $95.8 million of long-term debt under
credit facilities of which $11.0 million is payable in fiscal
2010. In addition, beginning on November 15, 2009 we are
consolidating Windfall Investors which resulted in an additional $19.2
million of debt being recorded by the company, of which $10.1 is payable in
fiscal 2010. We anticipate being able to extend on a long-term basis
with Farm Credit West, $10.0 million of Windfall Investors revolving line of
credit debt that currently matures on May 1, 2010. In addition, as
of January 31, 2010 our borrowing capacity under our existing credit
facility with Rabobank was approximately $11.8 million.
We
believe that the cash flows from operations and available borrow capacity from
our existing credit facilities will be sufficient to satisfy our future capital
expenditures, debt service, working capital needs and of other contractual
obligations for fiscal 2010. In addition we have the ability to
control the timing of our investing cash flows to the extent necessary based on
our liquidity demands.
Rabobank
Revolving Credit Facility
As of
January 31, 2010 we had $68.2 million outstanding under our Rabobank revolving
credit facility and we had $11.8 million of availability under the facility. The
interest rates on our borrowings under the Rabobank revolving credit facility
were not materially different at January 31, 2010 than at October 31, 2009.
As
of October 31, 2009, we had $61.7 million outstanding under our Rabobank
revolving credit facility, $22.5 million of which bears interest at a variable
rate equal to the one month London Interbank Offer Rate, or LIBOR, plus a spread
of 1.5%. At December 31, 2009 the interest rate on $22.5 million outstanding
balance was 1.73%. The variable interest rate resets on the first of
each month. At October 31, 2009 we had $8.3 million of availability under this
facility.
Under the
Rabobank revolving credit facility, the company has the option of fixing the
interest rate on any portion of outstanding borrowings using interest rate
swaps. The fixed interest rate is calculated using the two, three or
five year LIBOR rates plus a spread of 1.5%. The Company has utilized
interest rate swaps to fix interest rates on three separate outstanding balances
under the Rabobank revolving credit facility, one for $22.0 million at 5.75% for
a five year term, one for $10.0 million at 4.7% for a two year term
and one for $10.0 million at 3.86% for a two year term. The
five year interest rate swap matures in June 2013 and the two year interest rate
swaps mature in November and December 2010. Interest is payable monthly and all
outstanding principal is due in full in June 2013.
The
Rabobank revolving credit facility is secured by certain of our agricultural
properties and all of our equity interest in the San Cayetano Mutual Water
Company, and subjects us 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. We also are subject to covenant that the company maintain a
debt service coverage ratio (as defined in the Rabobank revolving credit
facility) of less than 1.25 to 1.0 measured annually. We were unable
to comply with the debt service coverage ratio for fiscal 2009 and in December
2009 received a waiver of such non-compliance from Rabobank for fiscal
2009. Under the terms of our agreement with Rabobank, the debt
service coverage ratio is measured annually and as such the next compliance
measurement date of this covenant is October 31, 2010 which will cover fiscal
2010. Based upon our results of operations for the first quarter of
fiscal 2010 and our anticipated debt service coverage for the full year,
combined with other performance estimates available to management in our
agricultural and rental operations, we currently anticipate to be in compliance
with all covenants under our agreement with Rabobank for fiscal 2010.
Under the
terms of the Rabobank revolving credit facility, no “Event of Default” occurred
as a result of the failure of the Company to meet the debt service coverage
ratio, as Rabobank never elected to provide the notice contemplated by Section
12.01(j) thereof, which would have created a ten (10) day grace period for
compliance. Instead, during the period contemplated by Section 9.02,
Rabobank provided the waiver filed herewith. The Farm Credit term
loan documentation provides that the company would be in default only if
declared to be in default or in breach of a loan with another
lender. The Rabobank revolving credit facility was not declared to be
in default by Rabobank and, as a result of the waiver, the company is not in
breach of any term thereof. Finally, the Windfall revolving line of
credit has been extended through May 1, 2010 and a copy of the
extension has been filed herewith.
35
Unless
waived, our breach of any of these covenants would be an event of default under
the Rabobank revolving credit facility, among other customary events of
default. Upon the occurrence of an event of default, Rabobank would
have the right to accelerate the maturity of any debt outstanding under the
revolving credit facility and we would be subject to additional restrictions,
prohibitions and limitations.
We have
the ability to voluntarily prepay any amounts outstanding under the Rabobank
revolving credit facility without penalty.
Farm
Credit Term Loans
As of
January 31, 2010 we had $7.9 million outstanding under our terms loans with Farm
Credit. We had $7.0 million outstanding under the first loan from Farm Credit
and $0.9 million outstanding under the second loan from Farm Credit. The
interest rates on our borrowings under both of the Farm Credit term loans were
not materially different at January 31, 2010 than at October 31, 2009.
As of
October 31, 2009, we had $8.1 million outstanding under our term loans with Farm
Credit. We had $7.1 million outstanding under the first loan with Farm
Credit which is a term loan in an original principal amount of approximately $9
million and bears interest at a variable rate currently at to
3.25%. Quarterly principal and interest payments are due through
November 2022, when the note matures. This term loan is secured by
certain of our agricultural properties and includes certain affirmative
covenants including, among other customary covenants, financial reporting
requirements and restrictions on the sale of assets.
The
second loan with Farm Credit is a term loan in an original principal amount of
$1.0 million and bears interest at a variable rate currently at
3.25%. Monthly principal and interest payments are due through May
2032, when the note matures. This term loan is secured by the same
agricultural properties that are securing the first Farm Credit term loan and
includes certain affirmative and restrictive covenants including, among other
customary covenants, financial reporting requirements, restrictions on the sale
of assets, and prohibitions on the incurrence of additional debt.
Windfall
Invstors, LLC Revolving Line of Credit and Term Loan
As
described in “Recent Developments - Windfall Investors, LLC” above and
“Off-Balance Sheet Arrangements” below, we guaranteed, jointly and severally,
with Windfall, all amounts outstanding under the Windfall revolving line of
credit and the Windfall term loan. Beginning on November 15,
2009 the results of operations and all of the assets and liabilities of
Windfall Investors are included in the consolidated financial statements of the
company.
The
outstanding debt on the Windfall Investors balance sheet at January 31, 2010
consisted of approximately $10.4 million under the Windfall term loan and
approximately $9.2 million under the Windfall revolving line of credit. The
interest rates on our borrowings under both the Windfall term loan and Windfall
revolving line of credit were not materially different at January 31, 2010 than
at October 31, 2009.
The
outstanding debt on the Windfall Investors balance sheet at October 31, 2009
consisted of approximately $9.2 million under the Windfall term loan and
approximately $10.0 million under the Windfall revolving line of
credit. The Windfall term loan has monthly principal and interest
payments of $63,000 with interest fixed at 6.73% until October 31,
2011. On November 1, 2011 we have the option of continuing with a
fixed rate until the maturity date of the Windfall term loan on October 1, 2035
or switching to a variable rate for the remaining term of the
loan. The Windfall revolving line of credit has monthly interest only
payments and at October 31, 2009 approximately $5.0 million was at a fixed
interest rate of 6.67% and approximately $5.0 million was at a variable interest
rate of 3.25%. On November 1, 2009 the outstanding balance of the
Windfall revolving line of credit that was at the fixed interest rate was
switched to a variable interest rate which at November 1, 2009 was
3.50%. The variable interest rate on borrowings from Farm Credit is
an internally calculated rate based on their internal monthly operations and
their cost of funds and generally follows the changes in the 90-day treasury
rates in increments divisible by 0.25%. The Windfall revolving line
of credit matured on November 1, 2009 and was extended to March 1, 2010 and then
subsequently extended to May 1, 2010. We are in the process of refinancing the
Windfall revolving line of credit on a long-term basis through an amendment to
the Windfall revolving line of credit agreement.
In
addition, the audited financial statements of Windfall Investors for the year
ended December 31, 2008 are included in this Form 10 beginning on page F-79.
Interest
Rate Swaps
We enter
into interest rate swaps (derivatives) to minimize the risks and costs
associated with our financing activities. Our interest rate swaps
(derivatives) qualify for hedge accounting. Therefore, the fair value
adjustments to the underlying debt are deferred and included in accumulated
other comprehensive income (loss) in the consolidated balance sheets at October
31, 2009 and 2008. See Note 12 in the notes to the consolidated
financial statements for the year ended October 31, 2009 included elsewhere in
this registration statement for more information about our interest rate swaps
(derivatives).
36
Contractual
Obligations
The
following table presents the company’s total contractual obligations at October
31, 2009 for which cash flows are fixed or determinable:
|
Payments
due by Period
|
||||||||||||||||||||
|
Contractual Obligations:
|
Total
|
<
1 year
|
1-3
years
|
3-5
years
|
5+
years
|
|||||||||||||||
|
Fixed
rate debt (principal)
|
$ | 42,000,000 | — | — | $ | 42,000,000 | — | |||||||||||||
|
Variable
rate debt (principal)
|
$ | 27,716,000 | $ | 465,000 | $ | 976,000 | $ | 20,712,000 | $ | 5,563,000 | ||||||||||
|
Operating
lease obligations
|
$ | 10,176,000 | $ | 1,620,000 | 3,023,000 | $ | 2,192,000 | $ | 3,341,000 | |||||||||||
|
Total
contractual obligations
|
$ | 79,892,000 | $ | 2,085,000 | $ | 3,999,000 | $ | 64,904,000 | $ | 8,904,000 | ||||||||||
|
Interest
payments on fixed and variable
rate debt
|
$ | 12,727,000 | $ | 2,725,000 | $ | 5,449,000 | $ | 2,165,000 | $ | 2,388,000 | ||||||||||
Fixed
Rate and Variable Rate Debt
Details
of amounts included in long-term debt can be found above and in Note 11 in the
notes to the consolidated financial statements for the year ended October 31,
2009 included elsewhere in this registration statement. The above
table assumes that long-term debt is held to maturity.
Subsequent
to October 31, 2009, as described above in “Recent Developments - Windfall
Investors, LLC,” the company acquired all rights and interests in Windfall
Investors and the results of operations and all of the assets and liabilities of
Windfall Investors are included in our consolidated financial statements
beginning on November 15, 2009. Our total contractual obligations,
including those of Windfall Investors as of October 31, 2009, would be $13.3
million for less than one year, $5.5 million for one to three years, $66.4
million for three to five years and $24.8 million for over five
years. Interest payments on fixed and variable debt would be $3.5 for
one year or less, $6.7 for one to three years, $3.3 for three to five year and
$9.8 over five years.
Operating
Lease Obligations
The
company has numerous operating lease commitments with remaining terms ranging
from less than one year to ten years. The company has installed a one mega-watt
photovoltaic solar array on one of its agricultural properties located in
Ventura County that produces the majority of the power to run its lemon
packinghouse. The construction of this array was financed by Farm Credit Leasing
and the company has a long term lease with Farm Credit Leasing for this
array. Annual payments for this lease are $0.5 million, and at the
end of ten years the company has an option to purchase the array for $1.1
million. The company entered into a similar transaction with Farm
Credit Leasing for a second photovoltaic array at one of its agricultural
properties located in the San Joaquin Valley to supply the majority of the power
to operate four deep water well pumps located on company
property. Annual lease payments for this facility range from $0.3
million to $0.8 million, and at the end of ten years the company has the option
to purchase the array for $1.3 million. The company leases
pollination equipment under a lease through 2013 with annual payments of $0.1
million. The company also leases machinery and equipment for its packing
operations and land for its growing operations under leases with annual lease
commitments that are individually immaterial.
37
Interest
Payments on Fixed and Variable Debt
The above
table assumes that our fixed rate and long term debt is held to maturity and the
interest rates on our variable rate debt remains unchanged for the remaining
life of the debt from those in effect at October 31, 2009.
Real
Estate Development Activities and Related Capital Resources
As noted
above under “Transactions Affecting Liquidity and Capital Resources,” we have
the ability to control the timing of our investing cash flows to the extent
necessary based upon our liquidity demands. In order for our real
estate development operations to reach their maximum potential benefit to the
company, however, we will need to be successful over time in identifying other
third party sources of capital to partner with us to move those development
project forward. While we are in discussions with several external
sources of capital in respect of all of our development projects (other than our
Arizona projects, which are both complete single family luxury homes with one
under lease), current market conditions for California real estate projects,
while improving, continue to be challenging and make it difficult to predict the
timing and amounts of future capital that will be required to complete the
development of our projects.
Defined
Benefit Plan Contributions
As more
fully described below in Note 15 to our consolidated financial statements for
the year ended October 31, 2009, the company’s Defined Benefit Pension Plan was
frozen as of June 30, 2004. During the first quarter of 2010, the
company made a $300,000 contribution to such plan and expects to make similar
contributions to such plan for the second, third and fourth quarters of fiscal
2010.
Other
Obligations and Commitments
As
described in “Recent Developments - Windfall Investors LLC” above and
“Off-Balance Sheet Arrangements” below, we guaranteed, jointly and severally,
with Windfall, all amounts outstanding under the Windfall revolving line of
credit and the Windfall term loan.
Off-Balance
Sheet Arrangements
For
fiscal 2009 and each prior applicable period, the results and operations and all
of the assets and liabilities of Windfall Investors has been treated as an
Off-Balance Sheet Arrangement. As described in “Recent Developments -
Windfall Investors, LLC” above, beginning on November 15, 2009 the
results of operations and all of the assets and liabilities of Windfall
Investors are included in the consolidated financial statements of the
Company. In addition, the audited financial statements of Windfall
Investors for the year ended December 31, 2008 are included in this Form 10
beginning on page F-79.
Critical
Accounting Policies and Estimates
The
preparation of our consolidated financial statements in accordance with
generally accepted accounting principles requires us to develop critical
accounting policies and make certain estimates and judgments that may affect the
reported amounts of assets, liabilities, revenues and expenses. We
base our estimates and judgments on historical experience, available relevant
data and other information that we believe to be reasonable under the
circumstances. Actual results may materially differ from these
estimates under different assumptions or conditions as new or additional
information become available in future periods. We believe the
following critical accounting policies reflect our more significant estimates
and judgments used in the preparation of our consolidated financial statements.
Revenue
Recognition
Sales of
products and related costs of products are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) selling
price is fixed or determinable, and (iv) collectability is reasonably
assured.
Revenue from the sales of
certain of our agricultural products is recorded based on estimated proceeds
provided by certain of our sales and marketing partners (Calavo and other
third-party packinghouses) due to the timing differences between when the
product is delivered by us and the closing of the pools for such fruits at the
end of each month. Calavo and other third-party packinghouses are
agricultural cooperatives or function in a similar manner as an
agricultural cooperative. As such, we apply specific authoritative agriculture
revenue recognition guidance related to transactions between patrons and
marketing cooperatives to record revenue at time of delivery to the
packinghouses relating to fruits that are in pools that have not yet closed at
month end if (a) the related fruits have been delivered to and accepted by
Calavo and other third-party packinghouses (i.e. title has transferred to Calavo
and other third-party packinghouses) and (b) sales price information has been
provided by Calavo and other third-party packinghouses (based on the marketplace
activity for the related fruit) to estimate with reasonable certainty the final
selling price for the fruit upon the closing of the pools. Historically, the
revenue that is recorded based on the sales price information provided to us by
Calavo and other third-party packinghouses at the time of delivery, have not
materially differed from the actual amounts that are paid after the monthly
pools are closed.
For citrus products
processed through our packinghouse and sold by Sunkist on our behalf, we have
(i) the general and physical inventory risk, (ii) the discretion in supplier
selection, and (iii) are involved in the determination of the product that is
ultimately sold to the customer. In addition, Sunkist earns a fixed amount per
carton sold for its sales and marketing services. The sales and marketing
services received from Sunkist are an identifiable benefit to us as it
enables us to effectively market and sell its citrus product (for which we are
charged a fixed amount per carton sold through by Sunkist) and can be
sufficiently separable from the purchase of the citrus products by the
end-customer. In addition, we have the ability to enter into an
exchange transaction with a party other than Sunkist in order to receive the
similar sales and marketing services that Sunkist currently provides to us.
Lastly, we are able to reasonably estimate that the fair value of the sales and
marketing services received from Sunkist approximates the per carton fee charged
by Sunkist since Sunkist, an agricultural marketing cooperative of which we are
a member, charges standard per carton fees to all members within its cooperative
and such fees are based on sales and marketing expenses incurred by Sunkist for
which we have an adequate level of visibility as a cooperative
member. As such, we record the revenues
related to these citrus sales on a gross basis with the amounts paid to
Sunkist for the sales and marketing services it renders being recorded in
agriculture
cost and expenses in our consolidated statement of
operations.
Our avocados, oranges,
specialty citrus and other specialty crops are packed and sold through by Calavo
and other third-party packinghouses. Specifically, we deliver all of our
avocado production from our orchards to Calavo. These avocados are then packed
by Calavo at its own packinghouse, and then sold and distributed under its own
brands to its customers primarily in the United States and Canada. Our
arrangements with other third-party packinghouses as it relates to our oranges,
specialty citrus and other specialty crops are similar to our arrangement with
Calavo.
Our
arrangements with third-party packinghouses are such that we are the producer
and supplier of the product and the third-party packinghouses are our
customers. The revenues we recognize related to the fruits sold to
the third-party packinghouses are based on the volume and quality of the fruits
delivered, the market price for such fruit, less the packinghouses’ charges to
pack and market the fruit. Such packinghouse charges include the grading,
sizing, packing, cooling, ripening and marketing of the related
fruit. We bear inventory risk until product is delivered to the
third-party packinghouses at which time title to the product is transferred to
the third-party packinghouses and revenue is recognized. The
third-party packinghouses are (a) the primary obligor in the arrangements with
their end customers, (b) have general inventory risk once we deliver the product
to the packinghouse and (c) bear the credit risk related to sales to their
end-customer. We are charged by the third-party packinghouse for
packaging and marketing services and record revenues net of such charges. Such
third-party packinghouse charges are recorded as a reduction of revenue based on
the application of specific authoritative revenue recognition guidance related
to a “Vendor’s Income Statement Characterization of Consideration Given to a
Customer”. The identifiable benefit we receive from the third-party
packinghouses for packaging and marketing services cannot be sufficiently
separated from the third-party packinghouses’ purchase of our
products. In addition, we are not able to reasonably estimate the
fair value of the benefit received from the third-party packinghouses for such
services and as such, these costs are characterized as a reduction of revenue in
our consolidated statement of operations.
For
rental revenue, minimum rent revenues are generally recognized on a
straight-line basis over the respective initial lease term. Contingent rental
revenues are contractually defined as to the percentage of rent to be received
by us and are tied to fees collected by the lessee. Our contingent rental
arrangements generally require payment on a monthly basis with the payment based
on the previous month’s activity. We accrue contingent rental revenues based
upon estimates and adjust to actuals as we receive payments. Organic recycling
percentage rents range from 5% to 10%.
Capitalization of Costs - We
capitalize the planning, entitlement and certain development costs associated
with our various real estate development projects. Costs that are not
properly capitalized are expensed as incurred. Based on potential
changes in the nature of these projects, future costs incurred could not be
properly capitalized and would be expensed as incurred. For fiscal
2009, we capitalized approximately $3.3 million of costs related to our real
estate projects and expensed approximately $0.3 million of costs.
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.
38
Derivative Financial
Instruments – We use derivative financial instruments for purposes
other than trading to manage our exposure to interest rates as well as to
maintain an appropriate mix of fixed and floating-rate debt. Contract terms
of our hedge instruments closely mirror those of the hedged item, providing
a high degree of risk reduction and correlation. Contracts that are effective at
meeting the risk reduction and correlation criteria are recorded using hedge
accounting. If a derivative instrument is a hedge, depending on the nature of
the hedge, changes in the fair value of the instrument will be either offset
against the change in the fair value of the hedged assets, liabilities or firm
commitments through earnings or be recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of an
instrument’s change in fair value will be immediately recognized in earnings.
Instruments that do not meet the criteria for hedge accounting, or contracts for
which we have not elected hedge accounting, are valued at fair value
with unrealized gains or losses reported in earnings during the period of
change.
Impairment of Long-Lived
Assets - We evaluate our long lived assets including our real estate
development projects for impairment when events or changes in circumstances
indicate the carrying value of these assets may not be
recoverable. As a result of the economic downturn in recent years we
recorded impairment charges of $6.2 million and $1.3 million in 2009 and 2008,
respectively. These charges were based on independent, third-party
appraisals provided to us and were developed using various facts, assumption and
estimates. Future changes in these facts, assumptions and estimates
could result in additional changes.
Defined Benefit Retirement
Plan - As discussed in Note 15 to our consolidated financial statements,
we sponsor a defined benefit retirement plan that was frozen in June, 2004, and
no future benefits accrued to participants subsequent to that
time. Ongoing accounting for this plan under FASB ASC 715 provides
guidance as to, among other things, future estimated pension expense, minimum
pension liability and future minimum funding requirements. This
information is provided to us by third party actuarial
consultants. In developing this data, certain estimates and
assumptions are used including, among other things, discount rate,
long term rates of return, and mortality tables. Changes in any of
these estimates could materially affect the amounts recorded that are related to
our defined benefit retirement plan.
Qualitative
and Quantitative Disclosures about Market Risk
Interest
Rate Risk
Borrowings
under each of our Rabobank revolving credit facility, Farm Credit term loans and
Windfall revolving line of credit are subject to variable interest
rates. These variable interest rates subject us to the risk of
increased interest costs associated with any upward movements in interest
rates. Under each of our Rabobank revolving credit facility and Farm
Credit term loans, our borrowing interest rate is a LIBOR-based rate plus a
spread. Under the
Windfall revolving line of credit, our borrowing interest rate is an internally
calculated rate based on Farm Credit’s internal monthly
operations and their cost of funds and generally follows the changes
in the 90-day treasury rates in increments divisible by 0.25%. At January 31,
2010 our total debt outstanding under the Robobank revolving credit facility and
the Farm Credit term loans was approximately $68.2 million, $6.9 million and
$0.9 million, respectively. At January 31, 2010 our total debt outstanding under
the Windfall term loan and the Windfall revolving line of credit was $9.2
million and $10.4 million, respectively. At October 31, 2009 our total
debt outstanding under the Robobank revolving credit facility and the Farm
Credit term loans was approximately $61.7 million, $7.1 million and $1 million,
respectively.
We manage
our exposure to interest rate movements by utilizing interest rate swaps
(derivatives). We fixed $42 million of our outstanding borrowings
with three “fixed-to-floating” interest rate swaps as described in the following
table:
|
Notional Amount
|
Fair Value Net Liability
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing 2013
|
$ | 22,000,000 | $ | 22,000,000 | $ | 1,678,000 | $ | 541,000 | ||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing 2010
|
10,000,000 | 10,000,000 | 287,000 | 96,000 | ||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing 2010
|
10,000,000 | — | 206,000 | — | ||||||||||||
|
Total
|
$ | 42,000,000 | $ | 32,000,000 | $ | 2,171,000 | $ | 637,000 | ||||||||
39
Based on
our level of borrowings at October 31, 2009, after taking into consideration the
effects of our interest rate swaps (derivatives), a 1% increase in interest
rates would increase our interest expense annually by $0.28 million for fiscal
2010 and decrease our interest expense an average of $0.1 million for the three
subsequent fiscal years and decrease our net income by $0.17 million for fiscal
2010 and increase our net income an average of $0.06 million for the three
subsequent fiscal years.
Subsequent
to October 31, 2009, the managing partner of Windfall Investors resigned its
position and assigned all of its rights and interest in Windfall Investors to
the Company. Therefore, on November 15, 2009 the results of
operations and all of the assets and liabilities of Windfall Investors are
included in the consolidated financial statements of the
company. Consequently, with respect to fiscal 2010 and based on the
level of borrowings of both the company and Windfall Investors, after taking
into consideration the effects of our interest rate swaps (derivatives), a 1%
increase in interest rates would increase our interest expense annually by $0.38
million for fiscal 2010 and an average of $0.001 million for the three
subsequent fiscal years and decrease our net income by $0.23 million for fiscal
2010 and an average of less than $0.001 million for the three subsequent fiscal
years.
Commodity
Sales Price Risk
Commodity
pricing exposures include the potential impacts of weather phenomena and their
effect on industry volumes, prices, product quality and costs. We
manage our exposure to commodity price risk primarily through our regular
operating activities, however, significant commodity price fluctuations,
particularly for lemons, avocados and oranges could have a material impact on
our results of operations.
|
ITEM
3.
|
PROPERTIES
|
Real
Estate
We own
our corporate headquarters in Santa Paula, California. We own
approximately 5,867 acres of land in California with approximately 4,070 acres
located in Ventura County and approximately 1797 acres located in Tulare County,
which is in the San Joaquin Valley. We lease approximately 31 acres
of land located in Ventura County and approximately 449 acres of land located in
Santa Barbara County. We also have an interest in a partnership that
owns approximately 208 acres of land in Ventura County. Our
agricultural plantings consist of approximately 1839 acres of lemons,
approximately 1372 acres of avocados, approximately 1062 acres of oranges and
approximately 403 acres of specialty citrus and other crops.
We own
our packing facility located in Santa Paula, California, where we process and
pack our lemons as well as lemons for other growers. In 2008, we
entered into an operating lease agreement and completed the installation of a
5.5 acre, one-megawatt ground-based photovoltaic solar generator, which provides
the majority of the power to operate our packing facility. In 2009 we
completed the installation of a one-megawatt solar array (which we also lease
through an operating lease agreement), which provides us with a majority of the
electricity required to operate four deep water well pumps at one of our ranches
in the San Joaquin Valley.
Additionally,
we own 193 residential units that we lease to our employees, former employees
and outside tenants as well as several commercial office buildings and
properties that are leased to various tenants.
Water
Rights
Our water
resources include water rights, usage rights and pumping rights to the water in
aquifers under, and canals that run through, the land we own. 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 unadjudicated Fillmore, Santa Barbara and
Paso Robles Basins (aquifers). We also use ground water and water
from local water districts the San Joaquin Valley. We believe our
water resources are adequate for our current farming operations.
Our
rights to extract groundwater from the Santa Paula Basin ("Basin") are governed
by the Santa Paula Basin Judgment, which we refer to as the
Judgment. The Judgment was entered in 1996 by stipulation among the
United Water Conservation District, the City of Ventura, and various members of
the Santa Paula Basin Pumpers Association, which we refer to as the
Association. The Association is not-for-profit, mutual benefit
corporation, which represents the interests of all overlying landowners with
rights to extract groundwater from the Santa Paula Basin and the City of Santa
Paula. We are a member of the Association. Membership in
the Association is governed by the Association's Bylaws.
The
Judgment adjudicated and allocated water rights in the Basin among the
Association's members and the City of Ventura. The water rights are
established and governed by a seven-year moving average (i.e., production can
rise of fall in any particular year so long as the seven year average is not
exceeded). Under California law the water rights are considered
"property." A perpetual right to water, such as evidenced by the
Judgment, can be exchanged for interests in real property under IRS Code Section
1031 and if condemned by a public agency, just compensation must be paid to the
rightful owner. Our rights under the Judgment are perpetual and
considered very firm and reliable which reflects favorably upon their fair
market value.
For ease
of administration, the Association is appointed by the Judgment as the trustee
of its members water rights, and is responsible for coordinating and promoting
the interests of its members. The Judgment includes provisions for
staged reductions in production rights should shortage conditions
develop. It also allows the adjudicated water rights to be leased or
sold among the parties. The Judgment established a Technical Advisory
Committee composed of the United Water Conservation District, the City of
Ventura and the Association to assist the Superior Court of the State of
California, Ventura County, which we refer to as the Court, with the technical
aspects of Santa Paula Basin management. Finally, the Judgment
reserves continuing jurisdiction to the Court to hear motions for enforcement or
modification of the Judgment as necessary.
40
We
believe water is a natural resource that is critical to economic growth in the
Western United States and firm, reliable water rights are essential to the
company’s sustainable business practices. Consequently, we have long
been a private steward and advocate of prudent and efficient water
management. We have made substantial investments in securing water
and water rights in quantities that are sufficient to support and, we believe
will exceed, our long-term business objectives. We strive to follow
best management practices for the diversion, conveyance, distribution and use of
water. In the future, we intend to continue to provide leadership in
the area of, and seek innovation opportunities that promote, increased water use
efficiency and the development of new sources of supply for our neighboring
communities.
|
ITEM
4.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
following table sets forth the beneficial ownership of our common stock as of
April 15, 2010, as
adjusted to reflect the stock split approved by our stockholders on March 23,
2010, by (i) each person who is known to us to be the beneficial owner of
more than five percent of the outstanding shares of our common stock, (ii) each
director and nominee for director, (iii) our chief executive officer and our
other executive officers, which we collectively refer to as the named executive
officers, and (iv) all of our directors and named executive officers as a
group. The applicable percentage ownership is based on 11,194,460
shares of common stock outstanding as of December 31, 2009, plus, in the case of
Mr. Michaelis, the number of shares of common stock to be issued upon the
conversion of Series B Convertible Preferred Stock. All holders of
shares of common stock are entitled to one vote per share on all matters
submitted to a vote of holders of share of common stock.
The
number of shares beneficially owned by each entity or individual is determined
pursuant to Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other
purpose. Under Rule 13d-3 of the Exchange Act, “beneficial ownership”
includes any shares as to which the entity or individual has sole or shared
voting power or investment power and also any shares that the entity or
individual has the right to acquire within 60 days through the exercise of any
stock option or other right. Unless otherwise indicated, each person
has sole voting and investment power (or shares such powers with his or her
spouse) with respect to the shares set forth in the following table. We also
note that all the share amounts in the following table have been adjusted to
reflect the ten-for-one stock split effective as of March 24, 2010.
|
Common Stock
Beneficially Owned(2)
|
||||||||
|
Name
and Address of Beneficial Owner(1)
|
Number
|
Percentage
|
||||||
|
5%
Beneficial Owners
|
||||||||
|
Calavo Growers, Inc.
|
1,728,570 | 15.4 | % | |||||
|
Directors
and Officers
|
||||||||
|
John W.
Blanchard(3)
|
137,850 | 1.2 | % | |||||
|
Lecil E.
Cole(4)
|
5,610 | * | ||||||
|
Don P.
Delmatoff(5)
|
27,220 | * | ||||||
|
Peter W.
Dinkler
|
41,630 | * | ||||||
|
Harold S.
Edwards(6)
|
71,600 | * | ||||||
|
Gordon E.
Kimball
|
12,490 | * | ||||||
|
John W.H.
Merriman
|
2,570 | * | ||||||
|
Ronald L. Michaelis
(7)
|
573,820 | 4.95 | % | |||||
|
Allan M.
Pinkerton(8)
|
624,950 | 5.5 | % | |||||
|
Keith W.
Renken(9)
|
3,460 | * | ||||||
|
Robert M.
Sawyer(10)
|
37,340 | * | ||||||
|
Alan M.
Teague(11)
|
178,170 | 1.6 | % | |||||
|
Alex M.
Teague(12)
|
45,420 | * | ||||||
|
Limoneira
Company Officers and Directors as a Group (13 persons)(13)
|
1,720,500 | 14.9 | % | |||||
|
*
|
Less
than 1%.
|
|
(1)
|
Except
as set forth in the footnotes to this table, the business address of each
director and executive officer listed is c/o Limoneira Company, 1141
Cummings Road, Santa Paula, California
93060.
|
41
|
(2)
|
The
information provided in this table is based on the company’s records and
information supplied by officers and
directors.
|
|
(3)
|
Shares
are owned beneficially by Mr. Blanchard as a beneficiary of two trusts.
Mr. Blanchard shares voting and investment power over these
shares.
|
|
(4)
|
Mr.
Cole disclaims beneficial ownership of any shares of our common stock that
are owned by Calavo Growers, Inc.
|
|
(5)
|
Includes 15,240
restricted shares of which 7,620 vest in 2010 and 7,620 vest in
2011. Mr. Delmatoff has voting and regular dividend rights with respect to
the restricted shares, but no right to dispose of such shares.
|
|
(6)
|
Includes
31,890 restricted shares of which 15,950 vest in 2010 and 15,940 vest in
2011. Mr. Edwards has voting and regular dividend rights with respect to
the restricted shares, but no right to dispose of such shares. All shares
are owned beneficially by Mr. Edwards as a beneficiary of a trust. Mr.
Edwards shares voting and investment power over these shares.
|
|
(7)
|
Number
of shares includes 184,880 shares issuable upon conversion of Series B
Convertible Preferred Stock. Shares are owned beneficially by Mr.
Michaelis as a beneficiary of a trust. Mr. Michaelis shares voting and
investment power over these shares.
|
|
(8)
|
Shares
are owned beneficially by Mr. Pinkerton as a beneficiary of a trust. Mr.
Pinkerton shares voting and investment power over these
shares.
|
|
(9)
|
Shares
are owned beneficially by Mr. Renken as a beneficiary of a trust. Mr.
Renken shares voting and investment power over these
shares.
|
|
(10)
|
Shares
are owned beneficially by Mr. Sawyer as a beneficiary of a trust. Mr.
Sawyer shares voting and investment power over these
shares.
|
|
(11)
|
Shares
are owned beneficially by Mr. Teague through his interest in a limited
partnership.
|
|
(12)
|
Includes
17,720 restricted shares of which 8,860 vest in 2010 and 8,860 vest in
2011. Mr. Teague has voting and regular dividend rights with respect to
the restricted shares, but no right to dispose of such shares.
|
|
(13)
|
Amount
of outstanding shares used to determine the percentage ownership includes
375,000 shares issuable upon conversion of Series B Convertible Preferred
Stock.
|
There are
no arrangements currently known to the Company, the operation of which may at a
subsequent date result in a change of control.
|
ITEM
5.
|
DIRECTORS
AND EXECUTIVE OFFICERS
|
Our board
of directors is grouped into three classes: (1) Class I Directors, who will
serve until the 2012 Annual Meeting, (2) Class II Directors, who will serve
until the 2013 Annual Meeting, and (3) Class III Directors, who will serve until
the 2011 Annual Meeting. Our board of directors currently consists of
ten directors.
The name
and age of each director and executive officer and the positions held by each of
them as of October 31, 2009 are as follows:
|
Name
|
Age
|
Class
|
Position
|
|||
|
Harold
S. Edwards
|
44
|
Class
I
|
Director,
President and Chief Executive Officer
|
|||
|
Don
P. Delmatoff
|
61
|
—
|
Vice
President of Finance & Administration, Chief Financial Officer and
Secretary
|
|||
|
Alex
M. Teague
|
45
|
|
—
|
Senior
Vice President
|
||
|
Peter
Dinkler
|
64
|
—
|
Vice
President of Lemon Packing
|
|||
|
John
W. Blanchard
|
66
|
Class
I
|
Director
|
|||
|
Lecil
E. Cole
|
69
|
Class
II
|
Director
|
|||
|
Gordon
E. Kimball
|
57
|
Class
II
|
Director
|
|||
|
John
W.H. Merriman
|
57
|
Class
I
|
Director
|
|||
|
Ronald
Michaelis
|
72
|
Class
I
|
Director
|
|||
|
Allan
Pinkerton
|
66
|
Class
III
|
Director
|
|||
|
Keith
W. Renken
|
75
|
Class
II
|
Director
|
|||
|
Robert
M. Sawyer
|
60
|
Class
III
|
Director
|
|||
|
Alan
M. Teague
|
71
|
Class
III
|
Chairman,
Director
|
42
Directors
John W.
Blanchard. Mr. Blanchard has served as a director of the
company since 1990. Mr. Blanchard retired in 2009 as the president
and chief executive officer of Santa Paula Chamber of Commerce, which position
he has held since 2007. Prior to that, he was employed as a realtor
at Prudential California Realty in Camarillo, California from 2002 to
2007. Mr. Blanchard is also a director of Ventura County Fruit
Exchange and is a trustee of Limoneira Foundation. He also serves on
the boards of directors for several non-profit organizations. Mr.
Blanchard attended Stanford University and graduated from the University of
Southern California, where he earned his Bachelor of Arts degree in finance, and
his Master of Business Administration degree.
Mr.
Blanchard’s extensive experience in, and knowledge of, the Santa Paula community
provides our board of directors with an important perspective in the areas of
community relations and responsible use of the company’s land and water
resources.
Lecil E.
Cole. Mr. Cole has served as a director of the company since
2006. Mr. Cole is currently chairman of the board of directors, chief
executive officer and president of Calavo Growers, Inc., a NASDAQ listed
company. He has held that position since February
1999. Mr. Cole has also been the president of Hawaiian Sweet Inc.
since 1996. Prior to that, Mr. Cole was an executive of Safeway
Stores from 1986 to 1996. Mr. Cole farms a total of 4,430 acres in
California and Hawaii on which avocados, papayas and cattle are produced and
raised.
As
president and chief executive officer of Calavo Growers, Inc., a company listed
on NASDAQ and the packer of all of our avocado production, Mr. Cole brings to
our board an intimate understanding of our industry, and provides our board of
directors with valuable insight on the governance practices of public
companies.
Harold S.
Edwards. Mr. Edwards has served as a director of the company
since 2009. Mr. Edwards has been the president and chief executive
officer of the company since November 2004. Previously, Mr. Edwards
was the president of Puritan Medical Products, a division of Airgas
Inc. Prior to that, Mr. Edwards held management positions with Fisher
Scientific International, Inc., Cargill, Inc., Agribrands International and the
Ralston Purina Company. Mr. Edwards is currently a member of the
board of directors of Compass Group Diversified Holdings LLC, a NASDAQ listed
company and Calavo Growers, Inc., also a NASDAQ listed company. Mr.
Edwards is a graduate of Lewis and Clark College and The American Graduate
School of International Management (Thunderbird) where he earned a Masters of
Business Administration.
As the
president and chief executive officer of the company, Mr. Edwards brings to our
board an intimate understanding of our business and operations. Mr.
Edwards provides our board of directors with company-specific experience and
expertise, in addition to his substantial experience as a chief executive
officer and senior executive across a variety of industries.
Gordon E.
Kimball. Mr. Kimball has served as a director of the company
since 1995. Mr. Kimball has been president of Kimball Engineering,
Inc., which provides race car design and production services, since
1992. He is also managing partner of Kimball Ranches, a 110 acre
avocado ranch near Santa Paula, California. Prior to that, Mr.
Kimball designed Formula One race cars in England and Italy for McLaren
International, Ferrari and Benetton Racing, from 1984 to 1991. Prior
to that, he designed Indianapolis race cars for Parnelli Jones, Chaparral and
Patrick Racing teams, from 1976 to 1983. Mr. Kimball is a director of
Rincon Investment Company. Mr. Kimball graduated from Stanford
University where he earned his Bachelor of Science and Master of Science degrees
in mechanical engineering.
Mr.
Kimball’s experience as an entrepreneur and producer of avocados provides our
board of directors with focused and insightful operational experience and
leadership.
John W.H.
Merriman. Mr. Merriman has served as a director of the company
since 1991. Mr. Merriman currently serves as an SAS consultant at
Wells Fargo Bank Risk Management, San Francisco, manager of Blanchard Equity,
LLC., and president of Spyglass Ridge Association. Mr. Merriman
served as a SAS consultant for Macys.com from 2006 to 2009 and Wells Fargo Bank
Risk Management from 1996 to 2005. Mr. Merriman is a Vietnam War
Veteran where he served in the United States Marine Corps as an IBM systems
programmer. Mr. Merriman graduated from Computer Science School,
Quantico, Virginia, in 1973. He majored in viticulture at Santa Rosa
Junior College in 1978, and studied enology at Edmeades Vineyards in
1979.
Mr.
Merriman brings to our board of directors a deep understanding of our
compensation policies and practices and our industry and provides valuable
leadership and insight in such areas.
43
Ronald
Michaelis. Mr. Michaelis has served as a director of the
company since 1997. Mr. Michaelis farmed for 40 years, and managed
the last 20 years, the family citrus properties, growing from 20 to 1,500
acres. He owned and managed Michaelis Citrus Nursery, Inc., growing
up to 300,000 trees annually. Mr. Michaelis’ past positions included
director and president of Tulare County Lemon Association and Tulare County
Fruit Exchange, director of Grand View Heights Association, Tulare-Kern County
Citrus Exchange, Tulare County Farm Bureau and president of Tulare County Farm
Bureau, president of Ronald Michaelis Ranches, Inc., Martin Michaelis Groves,
Inc. and Michaelis Citrus Nursery, Inc., director and vice president of Teapot
Dome Water district, and director and president of Strathmore Packing
House. Mr. Michaelis currently is a director of Ventura County Fruit
Exchange, and trustee of Limoneira Foundation. He is also active on
many boards at Grand Avenue United Methodist Church. Mr. Michaelis
attended Porterville College and California State Polytechnic University Pomona
majoring in fruit production.
Mr.
Michaelis brings to our board of directors an extensive knowledge of the citrus
industry and through his multiple leadership roles as an executive and director
of various farming companies provides our board of directors with a deep
understanding and better appreciation of the day to day operational
complexities that confront the company and its management.
Allan M.
Pinkerton. Mr. Pinkerton has served as a director of the
company since 1990. Mr. Pinkerton is the owner and manager of
Pinkerton Ranches, which engages in citrus and avocado production. He
is currently a director of Saticoy Lemon Association, Ventura County Fruit
Exchange, Alta Mutual Water Company and Farmers Irrigation
Company. Mr. Pinkerton was formerly a director and the vice chairman
of Sunkist Growers, Inc. and Fruit Growers Supply Company. Mr.
Pinkerton graduated from California State Polytechnic University at Pomona,
earning a Bachelor of Science degree in agricultural business management in
1966.
Mr.
Pinkerton is an experienced business leader with vast operating experience in
our industry, and his substantial leadership experience on boards of several
other companies provides our board of directors valuable insight to the
operational complexities of our business, and knowledge of governance practices
and risk management.
Keith W.
Renken. Mr. Renken has served as a director of the Company
since 2009. Mr. Renken retired in 1992 as a Senior Partner and
Chairman, Executive Committee of Southern California, for the public accounting
firm of Deloitte & Touche. From 1992 through 1996 he was an
adjunct professor (executive in residence) in the Marshall School of Business at
the University of Southern California. He serves as a director of the
boards of two public companies, East West Bancorp, Inc. since 2000 and the
Willdan Group Inc. since 2006. Previously, Mr. Renken served as a
director of 21st Century Insurance Group. Mr. Renken is a Certified
Public Accountant in the states of Arizona (inactive) and California,
(inactive). He received a B.S. in Business Administration in 1957 from the
University of Arizona and a M.S. in Business Administration from the University
of Arizona in 1959.
Mr.
Renken’s experience in a leadership role with Deloitte & Touche providing
audit and advisory services to a number of significant companies, and his
experience on boards of other public companies provides our board of directors
with substantial knowledge of complex accounting and reporting issues, SEC
periodic reporting requirements and corporate transactions.
Robert M.
Sawyer. Mr. Sawyer has served as a director of the company
since 1990. Mr. Sawyer is an attorney specializing in real estate,
land use, environmental and water law, and currently of counsel to the
Sacramento, California office of Best Best & Krieger LLP. He is a
member of Ventura County Bar Association, the Sacramento County Bar Association
and the Groundwater Resources Association of California. Mr. Sawyer
was previously the corporate secretary of The Samuel Edwards Associates, from
1977 to 1981 and a director of The Samuel Edwards Associates, from
1981-1985. He is also a director of Ventura County Fruit Exchange,
and a trustee of Limoneira Foundation, since 1985. Mr. Sawyer
graduated from the University of California at Santa Cruz where he earned a
Bachelor of Arts degree in 1972, and graduated from Northwestern School of Law
of Lewis & Clark College where he earned his Juris Doctor degree in
1975.
Mr.
Sawyer’s extensive knowledge of California real estate, land use, environmental
and water laws provides our board with an important perspective in these areas
and makes him particularly well-suited to serve as a
director.
Alan M.
Teague. Mr. Teague has served as a director of the company
since 1990. Mr. Teague has been the chairman of the board of
directors of the company since 2004, and was previously chairman of the board of
directors of the Company from 1988 to 1996. He is currently president
of California Orchard Co. Mr. Teague was employed by Teague-McKevett
Company and the McKevett Corporation since 1961, holding various position, and
president of both firms since 1984 until the merger with the Company in
1995. Mr. Teague has been active in many political and civic
organizations including the Santa Paula City Council from 1966 to 1974, and
Mayor of the City of Santa Paula from 1970 to 1974. He is the
founding chairman of Santa Clara Valley Agriculture Development Corp., Ventura
County Community Foundation and Santa Paula Community Fund. Mr.
Teague was formerly the president of Rancheros Visitadores, and former chairman
of Ventura County Medical Resource Foundation. He is currently a
director of Ventura County Fruit Exchange and Salinas Land Company, and trustee
of the Limoneira Foundation. Mr. Teague attended the University of
Arizona where he studied business administration.
Mr.
Teague’s vast understanding of the role and strategic priorities of the board of
directors, as well as our business, history and organization, and his many
experiences as an executive and board member of various companies provides our
board of directors with the leadership experience needed to transition the
company from a private to a public company. Mr. Teague’s extensive
political and civic experiences in the Santa Paula community positions him well
to serve as our chairman of the board of directors.
Executive Officers who are not
Directors
Alex M.
Teague. Mr. Teague has served as senior vice president of the
company since 2004. Mr. Teague previously served the Company as vice
president of agribusiness, from 2004 to 2005. Mr. Teague is currently
a member of the board of directors of Ventura County Workforce Investment Board,
Ventura County Community Foundation, Farm Worker Housing, Salinas Land Company
and California Orchard Company. Mr. Teague is a graduate of
University of Pacific, where he earned a Bachelor of Science degree in
Administration.
Don P.
Delmatoff. Mr. Delmatoff has served as vice president of
finance & administration, chief financial officer and secretary of the
company since 2004. Mr. Delmatoff previously served the Company as
corporate controller, from 2000 to 2004. Mr. Delmatoff is a graduate
of California State University at Long Beach, where he earned a Bachelor of Arts
degree in Accounting.
44
Pete
Dinkler. Mr. Dinkler has served as vice president, lemon
packing since 1983. Mr. Dinkler is a graduate of California State
University, Pomona, where he earned a Bachelor of Science degree in Agriculture
and the UCLA Graduate School of Management.
Alex
Teague is the son of Alan Teague. Otherwise there is no lineal family
relationship between any other officer or director of the company.
Compensation
Committee Interlocks and Insider Participation
During
Fiscal 2009, Directors Merriman, Kimball, Michealis and Sawyer comprised the
compensation committee. No member of our compensation committee
during fiscal 2009 served as an officer, former officer or employee of the
company. During fiscal 2009, none of our executive officers served as
a member of the compensation committee of any other entity, one of whose
executive officers served as a member of our board of directors or compensation
committee, and none of our executive officers served as a member of the board of
directors of any other entity, one of whose executive officers served as a
member of our compensation committee. Information with respect to the
related party transactions involving the members of our compensation committee
is set forth below under “Item 7. Certain Relationships and Related
Transactions, and Director Independence - Contracted Arrangements with Related
Parties.”
|
ITEM
6.
|
EXECUTIVE
COMPENSATION
|
Compensation
Discussion and Analysis
The
following Compensation Discussion and Analysis should be read in conjunction
with the “Summary Compensation Table” and related tables that are presented
elsewhere in this registration statement on Form 10.
Compensation
Overview. Compensation for our executives and key employees is
designed to attract and retain people who share our vision and values and who
can consistently perform in such a manner that enables the company to achieve
its strategic goals. The compensation committee believes that the
total compensation package for each of the named executive officers is
competitive with the market, thereby allowing us to retain executive talent
capable of leveraging the skills of our employees and our unique assets in order
to increase shareholder value.
In
connection with becoming a public company, certain aspects of our compensation
mix will likely change, primarily in connection with our adoption of the
Limoneira Company 2010 Omnibus Incentive Plan, which we refer to as the 2010
Omnibus Incentive Plan, pursuant to which we intend to continue to award
cash-based incentive bonuses and equity-based incentive bonuses but may do so in
different forms, such as stock options. See “Item
9. Market Price of and Dividends on the Registrant’s Common Equity
and Related Stockholders matters - Securities Authorized for Issuance under
Equity Compensation Plans - Limoneira Company 2010 Omnibus Incentive Plan” for
more information about the 2010 Omnibus Incentive Plan.
The Compensation
Committee. Our compensation committee is currently composed of
Directors Merriman, Renken, Michaelis and Sawyer. Our common stock is
not currently listed on any national exchange, or quoted on any inter-dealer
quotation service, that imposes independence requirements on our board of
directors or any committee thereof. Our board of directors has
evaluated the independence of the members of our compensation committee and
determined that all of the members of our compensation committee qualify as
“independent directors” within the meaning of NASDAQ Stock Market Marketplace
Rule 4200(a)(15).
The
Company’s “named executive officers” refers to those executive officers
identified in the “Summary Compensation Table” below. Our named
executive officers for 2009 were: Harold Edwards, President and Chief
Executive Officer; Don Delmatoff, Vice President of Finance &
Administration, Chief Financial Officer and Secretary; Alex Teague, Senior Vice
President; and Peter Dinkler, Vice President of Lemon
Packing.
45
General Objectives of the
Compensation Plan. The compensation program for our named
executive officers is designed to align management’s incentives with the
interests of our stockholders and to be competitive with comparable
employers. Our compensation philosophy recognizes the value of
rewarding our named executive officers for their past performance and motivating
them to continue to excel in the future. The compensation committee
has developed and maintains a compensation program that rewards superior
performance and seeks to encourage actions that drive our business
strategy. Our compensation strategy is to provide a competitive
opportunity for senior executives taking into account their total compensation
packages, which include a combination of base salary, an annual cash-based
incentive bonus, an annual equity-based incentive bonus and certain
perquisites. At the named executive officer level, our incentive
compensation arrangements are designed to reward the achievement of year-to-year
operating performance goals.
The Role of Executives in Setting
Compensation. During fiscal 2009, our compensation committee
had the authority to determine our compensation philosophy and our board of
directors had the primary authority to determine the compensation for our
executive officers. Compensation recommendations regarding our
executive officers (other than our President and Chief Executive Officer) were
generally provided to the board of directors by our President and Chief
Executive Officer and approved by the board of directors. Our
President and Chief Executive Officer’s total compensation was recommended by
the compensation committee and approved by our board of directors. In connection
with the adoption of a compensation committee charter by our board of directors
in January, 2010, the compensation committee will have the authority to
determine the compensation of our executive officers in light of individual and
corporate achievements.
Each
named executive officer and other senior executive management team members
participate in an annual performance review with our Chief Executive Officer to
provide input about his contributions to our success for the period being
assessed. During the first quarter of the fiscal year, the
compensation committee establishes performance goals for non-equity and
equity-based incentive compensation for each of the named executive officers
and, at the end of that fiscal year, determines the level of attainment of those
established goals.
Overall Compensation Plan
Design. The compensation policies developed by the
compensation committee are based on the philosophy that compensation should
reflect both company performance, financially and operationally, and the
individual performance of the executive. The compensation committee’s
objectives when setting compensation for our named executive officers
include:
|
|
·
|
Setting
compensation levels that are sufficiently competitive such that they will
motivate and reward the highest quality individuals to contribute to our
goals, objectives and overall financial
success.
|
|
|
·
|
Retaining
executives and encouraging their continued quality service, thereby
encouraging and maintaining continuity of the management
team.
|
|
|
·
|
Incentivizing
executives to appropriately manage risks while attempting to improve our
financial results, performance and
condition.
|
|
|
·
|
Aligning
executive and stockholder interest. The compensation committee
believes that the use of equity compensation as a key component of
executive compensation is a valuable tool for aligning the interest of our
named executive officers with those of our
stockholders.
|
|
|
·
|
Obtaining
tax deductibility whenever appropriate. The compensation
committee believes that tax-deductibility for the Company is generally a
favorable feature for an executive compensation program, from the
perspectives of both the Company and the
stockholders.
|
Benchmarking. When
making compensation-related decisions, the compensation committee believes it is
important to be informed as to the current practices of similarly situated
companies in our industry and to set compensation levels for our executive
officers that are sufficiently competitive with such companies. As a
result, in determining compensation levels for our executive officers and for
purposes of determining any potential payments to our executive officers under
our annual cash-based and equity-based incentive bonus programs, the
compensation committee annually reviews and compares available salary and
incentive bonus information of similarly situated companies. As a
part of such review and comparison, the compensation committee uses internally
prepared surveys and other publicly and privately available information to
compare each component of the company’s compensation program to the compensation
paid to equivalent executive officers at such companies, with a goal of setting
sufficiently competitive compensation levels for each of our executive officers.
The company considers the following companies to be similarly
situated:
|
|
·
|
Calavo
Growers, Inc.;
|
|
|
·
|
Newhall
Land and Farming Company;
|
|
|
·
|
J.G.
Boswell Company;
|
|
|
·
|
Saticoy
Lemon Association; and
|
|
|
·
|
Sun
World International, LLC.
|
Elements of
Compensation. The material elements of the compensation
program for our named executive officers include: (i) base salary; (ii) annual
cash-based incentive bonuses; (iii) annual equity-based incentive bonuses; and
(iv) other compensation consisting of retirement and other
benefits.
46
Base Salaries. We
provide our named executive officers with a base salary to compensate them for
services rendered during the fiscal year. The purpose of the base
salary is to reflect job responsibilities, value to us and competitiveness of
the market. Salaries for our named executive officers are determined
by the compensation committee based on the following factors: nature
and responsibility of the position and, to the extent available, salary norms
for comparable positions; the expertise of the individual executive; the
competitiveness of the market for the executive’s services; and the
recommendations of our President and Chief Executive Officer.
Consistent
with these objectives and this strategy, but recognizing that the company would,
in each of its agribusiness, rental operations and real estate development
business segments, be operating in a very challenging economic environment
during fiscal 2009, no increases were awarded to the named executive officers
other than the President and Chief Executive officer who was given a 7% salary
increase. For fiscal 2010, the compensation committee will be
reviewing the base salary of each of our named executive
officers. The compensation committee believes that the base salary of
each of the named executive officers is, particularly in light of each of their
total compensation packages, competitive with the market.
Annual Performance Cash-Based
Incentive Bonuses. Our practice is to award annual
cash-based incentive bonuses based upon the achievement of
performance objectives established at the beginning of each year. The
President and Chief Executive Officer and the other named executive officers
recommend to the compensation committee performance objectives that will best
move the Company forward to achieve our short-term and long-term strategic goals
and maximize stockholder value.
Pursuant
to the terms of the Management Incentive Plan, after the end of each fiscal year
our compensation committee may award Mr. Edwards an annual discretionary
cash-based incentive bonus for performance in such fiscal
year. Whether a cash-based incentive bonus is awarded, as well as the
amount of any such bonus, is entirely within the discretion of our compensation
committee. Moreover, as a result of such annual cash-based incentive
bonus being discretionary, there is no minimum (threshold), target or maximum
range for the amount of such bonus, and the bonus is not contingent upon the
company or Mr. Edwards achieving any pre-determined objective and/or subjective
criteria. In determining whether to award to Mr. Edwards a cash-based
incentive bonus, and if so, the amount of such bonus, our compensation committee
may consider pre-determined objective criteria typically based upon our overall
financial performance for a particular fiscal year as well as achievements (or
failures) outside the scope of such criteria. Such criteria may
include the company’s pre-tax earnings and cash provided from operations, the
monetization or disposition of material non-performing assets, positive exposure
of the company and its activities to the investment community, improving the
company’s organizational strength, achieving milestones in real estate
development projects, capital infusions to the company and other unspecified
special achievements. Notwithstanding that our compensation committee
typically considers, among other things, pre-determined objective criteria in
determining whether to award Mr. Edwards a cash-based annual incentive bonus,
and, if so, the amount of such bonus, our compensation committee is not
obligated to make an award if such criteria is
satisfied. Furthermore, our compensation committee is also permitted
to make an award to Mr. Edwards even if such criteria is not
satisfied. Whether a cash-based annual incentive bonus is awarded to
Mr. Edwards, and if awarded, the amount of such award, in respect of a fiscal
year is determined by our compensation committee and approved by our board of
directors and paid in the following fiscal year.
In determining the amount of
cash-based incentive bonus to award to Mr. Edwards, if any, for fiscal 2009 our
compensation committee considered, among other things, the Company’s overall
financial performance in fiscal 2009, and particularly that the company did not
achieve pre-tax earnings and cash provided from operations greater than 110% of
the average of the preceding four years. As a result, our
compensation committee determined to not award a cash bonus to Mr. Edwards for
fiscal 2009.
Per the
terms of the Management Incentive Plan, Messrs. Teague, Delmatoff and Dinkler
are eligible to receive an annual cash-based incentive bonus in an amount up to
a target percentage of his base salary based on the achievement of both
pre-determined operating results and individual goals, subject to the discretion
of our compensation committee. The target percentage is based on a
graduated scale beginning at 5% of a participant’s annual
salary. Sixty percent of the annual cash-based incentive bonus is
based upon the achievement of pre-determined operating results and 40% is based
upon the achievement of individual goals recommended by the President and Chief
Executive Officer and approved by our compensation committee.
Any
bonuses earned under the program in respect of a fiscal year are paid in the
following fiscal year. For fiscal 2009, Messrs. Teague, Delmatoff and
Dinkler were eligible to receive a cash-based incentive bonus in an amount up to
5% of their respective base salaries if the Company achieved pre-tax earnings of
at least $4 million and their respective individual goals were
achieved. The maximum amount of the cash-based incentive
bonus for fiscal 2009 increased by 2.5% for each additional increment
of pre-tax earnings over $4 million, with each of Messrs. Teague, Delmatoff and
Dinkler each being eligible to receive a cash bonus in an amount up to 100% of
their respective base salaries if the company achieved pre-tax earnings equal to
$13.5 million and their respective individual goals were
achieved. Based on our overall financial performance in fiscal 2009,
our compensation committee did not award a cash bonus to any of Messrs. Teague,
Delmatoff and Dinkler for fiscal 2009.
Annual Performance Equity-Based
Incentive Bonuses. It is our objective to have a substantial
portion of each named executive officer’s compensation contingent upon overall
corporate and segment performance as well as upon his own level of performance
and contribution towards such corporate performance. Our compensation
committee believes that equity-based annual incentives for the achievement of
defined objectives create value for the company and aligns the executive’s
compensation with the interests of our shareholders. Per the terms of
the Limoneira Company Stock Grant Performance Bonus Plan, which we refer to as
the Stock Grant Performance Bonus Plan, the compensation committee has
established overall corporate and segment performance goals with a view
towards establishing such goals that are challenging to achieve, and, at the end
of that year, determines the level of attainment of those established goals and
the contribution of each executive towards achieving them, with each executive’s
contribution to the segment performance goals for the segment for which he has
primary responsibility being of particular relevance. Each of Messrs.
Edwards, Teague and Delmatoff are eligible to receive a number of shares of our
common stock not to exceed an aggregate fair market value of 133% of their then
current base salary and Mr. Dinkler is eligible to receive a number of shares of
our common stock not to exceed an aggregate fair market value of 25% of his then
current base salary if we
achieve pre-tax earnings and cash provided from operations greater than 110% of
the average for the preceding four years. Seventy percent of the
equity-based incentive bonus is based upon increasing our pre-tax earnings to an
amount greater than 110% of the average for the preceding four years and 30% is
based upon increasing cash provided from operations to an amount greater than
110% of the average for the preceding four years. In the event
that such overall corporate and/or segment performance goals are not attained,
the compensation committee, in its sole discretion, may nevertheless grant such
shares for special achievements that fall outside of the established performance
goals. Based upon our overall financial performance in fiscal 2009,
our compensation committee did not award an equity-based incentive bonus to any
of Messrs. Edwards, Teague, Delmatoff and Dinkler. Market Price of
and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
- - Securities Authorized for Issuance Under Equity Compensation Plans - Limoneira
Company Stock Grant Performance Bonus Plan” for more information about the Stock
Grant Performance Bonus Plan.
47
Pursuant
to a recommendation by the compensation committee and approval of the board of
directors, in fiscal 2008 and 2009 the company made loans to each of Mr.
Edwards, Mr. Teague and Mr. Delmatoff in amounts sufficient to enable them to
pay their income tax liabilities associated with grants of stock pursuant to our
equity-based incentive bonus program. The company made three loans to
each of Mr. Edwards, Mr. Teague and Mr. Delmatoff, each in connection with
grants of stock for fiscal 2007 and 2008, in an aggregate principal amount of
approximately $796,070 to Mr. Edwards, approximately $446,873 to Mr. Teague, and
approximately $341,495 to Mr. Delmatoff. Each loan
was evidenced by a promissory note that bore interest at the mid-term
Applicable Federal Rate then in effect and all principal and interest was due
and payable 24 months from the date of the applicable promissory
note. Each promissory note was secured by a number of shares of our
common stock having a value equal to 120% of the amount of the applicable loan
on the day it was made. Based on the recommendation of our
compensation committee, on December 15, 2009 the board of directors approved the
forgiveness of approximately $341,174 of principal and accrued interest on the
loans made to Mr. Edwards, approximately $199,823 of principal and accrued
interest on the loans made to Mr. Teague, and approximately $145,745 of
principal and accrued interest on the loans made to Mr.
Delmatoff. Additionally, each of Mr. Edwards, Mr. Teague and Mr.
Delmatoff received a payment of approximately $299,528, $175,431, and $127,955,
respectively, relating to their federal, state and payroll taxes attributable to
such loan forgiveness.. The unpaid principal and accrued balance of
each loan made to Messrs. Edwards, Teague and Delmatoff that was not forgiven
was satisfied by the delivery of a number of shares of our common stock with a
value equal to each applicable unpaid balance, based upon a fair market value of
$150.98 per share. The amounts of the loan forgiveness were recorded by
the company as compensation expense in the first quarter of 2010.
Retirement
Plans. The compensation committee believes that retirement
programs are important to the company as they contribute to the company’s
ability to be competitive with its peers and reward our executive officers based
on long-term performance of the company and, therefore, are an important piece
of the overall compensation package for the named executive
officers. For most of our employees, including our named executive
officers, we provide a 401(k) plan; others are participants in our defined
benefit pension plan.
Until
April 28, 2004, our employees and executive officers were eligible to
participate in a traditional defined benefit pension plan that was maintained by
the company. At that time, plan participation and benefits payable
under that plan were frozen and, since that time, no new participants have been
added to that plan. The only named executive officers who are
participants in our defined benefit pension plan are Harold Edwards, Don
Delmatoff and Peter Dinkler. At normal retirement age, Harold
Edwards’s anticipated monthly payment under this plan would be $81, Don
Delmatoff’s anticipated monthly payment under this plan would be $450 and Peter
Dinkler’s anticipated monthly payments would be $4,450.
The
company sponsors a defined contribution retirement plan maintained under section
401(k) of the Internal Revenue Code. Under the terms of such plan,
eligible employees may elect to defer, beginning after one month of employment,
up to that amount of their annual earnings permitted to be deferred under the
applicable provisions of the Internal Revenue Code. In addition to
any deferral contributions made by our employees, the company contributes to the
account of each eligible employee with at least one year of qualifying service a
matching contribution of up to 4% such employee’s annual compensation plus such
employee’s allocable share of any discretionary employer profit-sharing
contribution. Participant deferral contributions and employer
matching contributions are 100% vested at the time of contribution, and employer
discretionary profit-sharing contributions vest at a rate of 20% per year of
service beginning after two years of service, becoming 100% vested upon
completion of six years of service. During 2009, there were no
changes made to our defined contribution plan related to company contributions,
contribution limitations, vesting schedules or eligibility
requirements.
Nonqualified Deferred
Compensation. None of our named executive officers participate
in or have account balances in nonqualified defined contribution or other
deferred compensation plans maintained by the company.
Change in Control
Benefits. None of our named executive officers are covered by
any plan or arrangement or have any agreement with us pursuant to which they
would receive payments upon a change in control.
Separation or Severance
Benefits. None of our named executive officers are covered by
any plan or arrangement or have any agreement with us pursuant to which they
would receive payments upon their separation of service or termination from
employment with the company.
Perquisites and Other Personal
Benefits. The compensation committee reviews annually the
perquisites that named executive officers receive. The primary
personal benefits for our named executive officers are health and welfare
benefits, including, medical, dental, vision and life insurance, in which the
named executive officers participate on the same terms as other company
employees. In addition, company vehicles are provided to the named
executive officers, as well as to other members of management.
48
Employment
Agreements. As of the end of our 2009 fiscal year, the company
was not party to any employment agreements with any of our named executive
officers.
49
Summary
Compensation Table
The
following table sets forth information regarding the total compensation received
or earned by our named executive officers during fiscal 2009. This
table should be read in conjunction with the Compensation Discussion and
Analysis, which sets forth the objectives and other information regarding our
executive compensation program.
|
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Stock
Awards
($)(1)
|
Non-Equity
Incentive
Plan
Compensation(2)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)(3)
|
All
Other
Compensation
($)(4)
|
Total
($)
|
|||||||||||||||||||
|
Harold
Edwards,
President
and
Chief
Executive
Officer(4)
|
2009
|
$ | 449,423 | $ | 598,478 | $ | 0 | $ | 1,771 | $ | 19,928 | $ | 1,069,600 | |||||||||||||
|
Don
Delmatoff,
Vice
President of
Finance
&
Administration,
Chief
Financial
Officer
and
Secretary
|
2009
|
$ | 215,000 | $ | 285,979 | $ | 0 | $ | 15,756 | $ | 20,137 | $ | 536,872 | |||||||||||||
|
Alex
Teague,
Senior
Vice
President
|
2009
|
$ | 258,654 | $ | 332,516 | $ | 0 |
—
|
$ | 20,099 | $ | 611,269 | ||||||||||||||
|
Peter
Dinkler,
Vice
President of
Lemon
Packing
|
2009
|
$ | 110,742 | $ | 27,647 | $ | 0 | $ | 161,778 | $ | 9,607 | $ | 309,744 | |||||||||||||
|
(1)
|
The
value of stock awards is the aggregate grant date fair value computed in
accordance with FASB ASC 718. Shares granted during 2009
vested, in part, in 2009, with the remainder to vest, in part, in each of
2010 and 2011.
|
| (2) |
Amounts
shown for fiscal 2009 reflect that no annual cash-based incentive bonuses
were earned for fiscal 2009. In fiscal 2009, the company paid the
following annual cash-based incentive bonuses earned in respect of fiscal
2008: (i) Mr. Edwards was paid $150,159 in respect of fiscal 2008, (ii)
Mr. Delmatoff was paid $95,756 in respect to fiscal 2008, (iii) Mr. Teague
was paid $112,500 in respect of fiscal 2008, and (iv) Mr. Dinkler was paid
$47,841 in respect of fiscal 2008.
|
|
(3)
|
The
change in pension value is based upon the change in the present value of
the accrued benefit from 2008 to 2009. This change can be
impacted by, among other things, changes in the assumptions used for the
discount rate, long-term rate of return and mortality tables
used.
|
|
(4)
|
All
Other Compensation consists of, for each of our named executive officers,
profit sharing and matching contributions under our 401(k) plan and
personal usage of company vehicles.
|
|
(5)
|
Mr.
Edwards does not receive any additional compensation for being a director
of the Company.
|
Grants
of Plan-Based Awards in Fiscal Year 2009
The
following table provides information about grants of equity and non-equity
plan-based awards to the named executive officers in the fiscal year ended
October 31, 2009:
50
|
Estimated
Possible Payouts Under
Non-Equity
Incentive Plan Awards(2)(7)
|
Estimated
Possible
Payouts
Under
Equity
Incentive Plan
Awards(4)(5)(7)
|
|||||||||||||||||||
|
Name
|
Grant
Date
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Maximum
(#)
|
All
Other
Stock
Awards:
Number
of
Shares
of
Stock
(#)
|
Grant
Date
Fair
Value
of
Stock
and
Option
Awards
($)(6)
|
|||||||||||||
|
Harold
Edwards
|
---
|
N/A(3)
|
N/A(3)
|
N/A(3)
|
---
|
---
|
---
|
|||||||||||||
|
12/24/2008(1)
|
---
|
---
|
---
|
47,840
|
---
|
598,478
|
||||||||||||||
|
Don
Delmatoff
|
---
|
10,750
|
43,000
|
215,000
|
---
|
---
|
---
|
|||||||||||||
|
12/24/2008(1)
|
---
|
---
|
---
|
22,860
|
---
|
285,979
|
||||||||||||||
|
Alex
Teague
|
---
|
12,500
|
50,000
|
250,000
|
---
|
---
|
---
|
|||||||||||||
|
12/24/2008(1)
|
---
|
---
|
---
|
26,580
|
---
|
332,516
|
||||||||||||||
|
Peter
Dinkler
|
---
|
5,537
|
22,148
|
110,742
|
---
|
---
|
---
|
|||||||||||||
|
12/24/2008(1)
|
---
|
---
|
---
|
2,210
|
---
|
27,647
|
||||||||||||||
|
(1)
|
For
performance beginning November 1, 2007, ending October 31, 2008. The
grant date for each award is the grant date determined for financial
reporting purposes pursuant to FASB ASC Topic 718 (pre-codification FAS
123R), which is the date the board of directors approved each
award.
|
|
(2)
|
These
columns show the potential payments for each of our named executive
officers under the Management Incentive Plan in fiscal 2009, for fiscal
2008 performance. No other non-equity incentive plan awards
were granted in fiscal 2009.
|
|
(3)
|
Pursuant
to the terms of the Management Incentive Plant, after the end of each
fiscal year our compensation committee may award Mr. Edwards an annual
discretionary cash-based incentive bonus for performance in such fiscal
year. Whether a cash-based incentive bonus is awarded, as well
as the amount of any such bonus, is entirely within the discretion of our
compensation committee. Moreover, as a result of such annual
cash-based bonus being discretionary, there is no minimum (threshold),
target or maximum range for the amount of such bonus, and the bonus is not
contingent upon the company or Mr. Edwards achieving any pre-determined
objective or subjective criteria.
|
|
(4)
|
On
December 24, 2008, we granted our named executive officers, 4,784; 2,286;
2,658; and 221 shares, respectively, of restricted shares of our Common
Stock under the Stock Grant Performance Bonus Plan at a grant date fair
value per share of $125.10 in respect fiscal 2008 performance. No
other grants of equity incentive plan awards were made during fiscal
2009. The number of shares included in the table for each
executive officer has been adjusted to reflect the stock split
approved by our stockholders on March 23, 2010. The restricted stock
vests, ratably, one-third on the date of grant, one-third on the first
anniversary of the date of grant and one-third on the second anniversary
of the date of grant. Upon termination of employment of any
named executive officer, any unvested shares of such terminated officer on
the date of his termination revert to the
company.
|
|
(5)
|
All
such shares, whether vested or unvested, are considered issued and
outstanding on the date of grant, and our named executive officers have
voting right with respect to, and receive any dividends on, such shares
granted to them. Upon termination of employment, any dividends
received by the terminated named executive officer on unvested shares are
for the benefit of, and are to be repaid by such named executive officer,
to the company.
|
|
(6)
|
The
value of stock awards is the aggregate grant date fair value computed in
accordance with FASB ASC Topic
718.
|
|
(7)
|
The
grant date for each award in respect of fiscal 2008 occurred in fiscal
2009 and is the grant date determined for financial reporting purposes
pursuant to FASB ASC Topic 718 (pre-codification FAS 123R), which is the
date the board of directors approved each award. Similarly, if
awards in respect of fiscal 2009 had been awarded, the grant date for such
awards would have been in fiscal 2010. Specifically, because
the key terms and conditions of the awards are subject to approval by the
board of directors, and the fact that the company is not obligated in any
respect to issue and/or pay any awards until such approval has been
provided, the awards are not deemed granted under FASB ASC Topic 718
(pre-codification FAS 123R) until such approval has been
obtained.
|
Outstanding
Equity Awards at 2009 Fiscal Year End
The
following table summarizes the total outstanding equity awards as of October 31,
2009 for each named executive officer.
|
Name
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested (#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)(1)
|
||||||
|
Harold
Edwards(2)
|
31,890 | $ | 446,460 | |||||
|
Don
Delmatoff(3)
|
15,240 | $ | 213,360 | |||||
|
Alex
Teague(4)
|
17,720 | $ | 248,080 | |||||
|
Peter
Dinkler(5)
|
1,470 | $ | 20,580 | |||||
|
(1)
|
Based
on a fair market value of our Common Stock on October 31, 2009, the last
day of our fiscal 2009 year, of $140.00 per
share.
|
|
(2)
|
On
12/24/08, we granted to Mr. Edwards 4,784 shares of restricted stock, 1/3
of which shares vested on the date of grant and 1/3 or which vest on each
of 2/1/10 and 2/1/11. The
number of shares included in the table has been adjusted to reflect the
stock split approved by our stockholders on March 23, 2010.
|
|
(3)
|
On
12/24/08, we granted to Mr. Delmatoff 2,286 shares of restricted stock,
1/3 of which shares vested on the date of grant and 1/3 or which vest on
each of 2/1/10 and 2/1/11. The
number of shares included in the table has been adjusted to reflect the
stock split approved by our stockholders on March 23, 2010.
|
|
(4)
|
On
12/24/08, we granted to Mr. Teague 2,658 shares of restricted stock, 1/3
of which shares vested on the date of grant and 1/3 or which vest on each
of 2/1/10 and 2/1/11. The
number of shares included in the table has been adjusted to reflect the
stock split approved by our stockholders on March 23, 2010.
|
|
(5)
|
On
12/24/08, we granted to Mr. Dinkler 221 shares of restricted stock, 1/3 of
which shares vested on the date of grant and 1/3 or which vest on each of
2/1/10 and 2/1/11. The
number of shares included in the table has been adjusted to reflect the
stock split approved by our stockholders on March 23, 2010.
|
Option
Exercises and Stock Vested in 2009
The
following table sets forth information about the exercise of stock options and
vesting of restricted stock held by our named executive officers during
2009.
51
|
Stock Awards
|
||||||||
|
Name
|
Number of
Shares
Acquired on
Vesting (#)(1)
|
Value Realized
on Vesting
($)(2)
|
||||||
|
Harold
Edwards
|
15,950 | $ | 199,534 | |||||
|
Don
Delmatoff
|
7,620 | $ | 95,326 | |||||
|
Alex
Teague
|
8,860 | $ | 110,839 | |||||
| Peter Dinkler | 740 | $ | 9,257 | |||||
|
(1)
|
The
number of shares included in the table has been adjusted to reflect the
stock split approved by our stockholders on March 23, 2010.
|
|
(2)
|
Based
on a fair market value of our Common Stock on December 24, 2008, the date
of vesting, of $125.10 per share.
|
Pension
Benefits in Fiscal Year 2009
The
company’s defined benefit pension plan is a tax-qualified retirement plan that
covers eligible employees of the company. Effective April 28, 2004,
participation in such plan was frozen so that anyone who was hired by the
company on or after April 29, 2004 is ineligible to participate in such
plan. Under the plan, age 65 is considered normal retirement
age. Participating employees may retire with benefits as early as age
55 provided they then have at least five years of qualifying
service. Normal retirement benefits for a participant are calculated
based on such participant’s highest average pay over any five consecutive
calendar years of employment. The maximum benefit is payable to
employees who retire at age 65 with 30 or more years of service and is equal to
65% of such highest average pay less 60% of the applicable participant’s
estimated annual Social Security benefit. For participating employees
who retire at age 65 with less than 30 years of service, their retirement
benefit is equal to such maximum benefit amount multiplied by a fraction the
numerator of which is total years of qualifying service and the denominator of
which is 30. For participating employees who elect to retire prior to
age 65, the benefits under the company’s defined benefit pension plan that would
otherwise be payable to them at age 65 are actuarially reduced to account for
the longer period they are expected to be receiving payments.
Benefits
are paid in the form of a life annuity, with married employees having the option
to elect to receive benefit payments in the form of a 50% joint and survivor
annuity. Additionally, participating retiring employees
may elect a 10-year certain and life optional form of payment, a contingent
annuity with a 10-year certain and life optional form of payment or a 100%, 75%
or 50% joint and survivor optional form of payment naming someone other than his
or her spouse as joint annuitant.
|
Name
|
Plan
Name
|
Number
of Years
Credited
Service
(#)
|
Present
Value
of Accumulated
Benefit
($)(1)
|
Payments
During
Last
Fiscal
Year
($)
|
||||||||||
|
Harold
Edwards
|
Limoneira
Company Retirement Plan (2)
|
0.5 | $ | 3,295 | — | |||||||||
|
Don
Delmatoff
|
Limoneira
Company Retirement Plan (2)
|
4.33 | $ | 49,898 | — | |||||||||
|
Peter
Dinkler
|
Limoneira
Company Retirement Plan (2)
|
35.24 | $ | 640,960 | — | |||||||||
52
|
(1)
|
Liabilities
shown in this column are computed using the projected unit credit method
reflecting average salary and service as of the fiscal year
end. The material assumptions used to determine these
liabilities can be found in the fiscal year end FAS Disclosures Actuarial
Valuation Report, except we assumed no pre-retirement decrements and that
retirement occurs at the plan’s earliest unreduced retirement
age.
|
|
(2)
|
The
plan’s benefit formula is integrated with Social Security and is based on
the participant’s years of service for the Company and “Final Average
Compensation.” Compensation is limited to the applicable
Internal Revenue Code section 401(a)(17) limit. The plan
benefit is limited to the applicable Internal Revenue Code section 415(b)
limit. Only employees hired before June 30, 2004 are eligible
to participate in the plan. In addition, eligibility for the
plan occurs no later than the completion of 500 Hours of Service in the
first 12 months of employment. Effective June 30, 2004, the
plan was frozen. Additional Benefit Service cannot be earned
after June 30, 2004. Early retirement age is the first day of
any month after age 55, provided the participant ha earned five years of
vesting service at the time of
retirement.
|
Director
Compensation Table
The following table summarizes the
compensation paid by us to directors who are not named executive officers for
the fiscal year ended October 31, 2009:
|
Name
|
Fees
Earned or
Paid
in Cash ($)
|
Stock
Awards ($)
|
Total ($)
|
|||||||||
|
John
W. Blanchard
|
$ | 23,000 | $ | 20,000 | $ | 43,000 | ||||||
|
Lecil
E. Cole
|
$ | 26,000 | $ | 20,000 | $ | 46,000 | ||||||
|
Gordon
E. Kimball
|
$ | 22,400 | $ | 20,000 | $ | 42,400 | ||||||
|
John
W.H. Merriman
|
$ | 24,800 | $ | 20,000 | $ | 44,800 | ||||||
|
Ronald
Michaelis
|
$ | 22,400 | $ | 20,000 | $ | 42,400 | ||||||
|
Allan
M. Pinkerton
|
$ | 21,800 | $ | 20,000 | $ | 41,800 | ||||||
|
Robert
M. Sawyer
|
$ | 21,800 | $ | 20,000 | $ | 41,800 | ||||||
|
Alan
M. Teague
|
$ | 50,000 | $ | 20,000 | $ | 70,000 | ||||||
All of the members of the compensation
committee are independent directors under the listing standards of the NASDAQ
Stock Market and under the company’s corporate governance
requirements. Other than our investment in Charlie Kimball Racing as
described below and in “Item 7. Certain Relationships and Related
Transactions, and Director Independence - Contractual Arrangements with Related
Parties,” no member of the compensation committee has had any relationship with
the company requiring the disclosure under Item 404 of Regulation S-K under the
Exchange Act.
|
ITEM
7.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Policy
for Approval of Related Person Transactions
Any
transaction required to be disclosed pursuant to Item 404 of Regulation S-K,
which we refer to as related party transactions, must be reviewed and approved
for potential conflict of interest by our audit and finance committee, which is
comprised entirely of independent directors. The company may not
enter into or engage in any related party transaction with a related party
without such approval. Details of related party transactions will be
publicly disclosed as required by applicable law.
53
Contractual
Arrangements with Related Parties
Calavo
Growers, Inc. Office Lease
Since
2007, we have leased office space to Calavo and have received annual rental
income from Calavo in the amount of $0.22 million for each of 2009, 2008 and
2007. Calavo is the beneficial owner of approximately 15.4% of
our issued and outstanding common stock.
Calavo
Growers, Inc. Marketing Agreement
We market
our avocados through Calavo, which owns approximately 15.4% of our outstanding
common stock and is an affiliate of our director Lecil E. Cole, pursuant to a
marketing agreement. During the fiscal year ended October 31, 2009,
Calavo paid us approximately $2.7 million with respect to avocados we marketed
through Calavo.
Investment
in Charlie Kimball Racing
Since
2007, we have made three investments of $100,000, for a total of $300,000, in
Charlie Kimball Racing. Charlie Kimball is a formula car driver and
the son of Gordon Kimball, one of our directors. Pursuant to the
terms of the investments, each investment is to be used by Charlie Kimball to
further his career goal of becoming a Formula One driver and winning the Formula
One World Championship. The terms of the investments provide that
each $100,000 investment will be repaid upon the first to occur of any of the
following: (a) Charlie Kimball enters university as a full time student, which
we refer to as the student trigger; (b) Charlie Kimball reaches the position of
a full time salaried driver in the Formula One World Championship, which we
refer to as the F1 trigger; and (c) we exercise the option to have our
investment repaid, which may not occur prior to January 23, 2010, which we refer
to as the investor trigger. For each $100,000 investment, we will be
repaid the following amounts: (x) in the event of the student trigger, we will
be repaid the amount of our investment; (y) in the event of the F1 trigger, we
will be repaid twice our investment in three equal annual installments beginning
120 days following the day the F1 trigger occurs; and (z) in the event of the
investor trigger, we will be repaid the amount of our investment within one year
after the investor trigger is exercised with an additional $25,000 payment if
Charlie Kimball is a professional (salaried) racing driver on the day the
investor trigger is exercised.
Director
Independence
Our
common stock is not currently listed on any national exchange, or quoted on any
inter-dealer quotation service, that imposes independence requirements on our
board of directors or any committee thereof. Following the
effectiveness of this registration statement and after addressing any comments
from the Division of Corporation Finance of the SEC, we expect that our common
stock will be accepted for listing on the NASDAQ Stock Market under the ticker
symbol “LMNR.” The Rules of the NASDAQ Stock Market require that a majority of
our board of directors be independent. Our board of directors has
reviewed the materiality of any relationship that each of our directors has with
the company, either directly or indirectly. Based on this review, our
board of directors has determined that the following directors are “independent
directors” within the meaning of NASDAQ Stock Market Marketplace Rule
4200(a)(15): John W. Blanchard, Gordon E. Kimball, John W. H.
Merriman, Ronald L. Michaelis, Allan M. Pinkerton, Keith W. Renken and Robert M.
Sawyer.
|
ITEM
8.
|
LEGAL
PROCEEDINGS
|
We are
from time to time involved in legal proceedings arising in the normal course of
business. Other than proceedings incidental to our business, we are
not a party to, nor is any of our property the subject of, any material pending
legal proceedings and no such proceedings are, to our knowledge, threatened
against us.
|
ITEM
9.
|
MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
|
Market
Information
Our
common stock is currently quoted under the symbol “LMNR.PK” on the PinkSheets, a
centralized quotation service that collects and publishes market maker quotes
for over-the-counter securities. There is no assurance that our
common stock will continue to be traded on the PinkSheets or that any liquidity
exists for our stockholders.
54
Market
Price
The
following table shows the high and low per share price quotations of our common
stock as reported by the PinkSheets for the periods presented. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and have not been adjusted to reflect the ten-for-one stock split
approved
by our stockholders on March 23, 2010. The PinkSheets market
is extremely limited and the prices quoted by brokers are not a reliable
indication of the value of our common stock. Furthermore, since
limited or no public information was available about our business, operating
results or financial condition during the time the trades occurred, the trading
prices set forth below might not reflect the historical value of our company on
a per share basis, nor be an accurate indication of the prices at which shares
may be traded in the future. On April 15, 2010, the last sale price
of our common stock as reported by the Pink Sheets was $17.26 per share, which
sale price reflects the ten-for-one stock split.
|
High
|
Low
|
|||||||
|
2010
|
||||||||
|
First
quarter ended January 31, 2010
|
$ | 154.95 | $ | 135.00 | ||||
|
2009
|
||||||||
|
Fourth
quarter ended October 31, 2009
|
$ | 160.00 | $ | 127.00 | ||||
|
Third
quarter ended July 31, 2009
|
$ | 155.00 | $ | 125.00 | ||||
|
Second
quarter ended April 30, 2009
|
$ | 150.00 | $ | 102.00 | ||||
|
First
quarter ended January 31, 2009
|
$ | 175.00 | $ | 115.00 | ||||
|
2008
|
||||||||
|
Fourth
quarter ended October 31, 2008
|
$ | 280.00 | $ | 144.00 | ||||
|
Third
quarter ended July 31, 2008
|
$ | 290.00 | $ | 237.00 | ||||
|
Second
quarter ended April 30, 2008
|
$ | 259.00 | $ | 205.00 | ||||
|
First
quarter ended January 31, 2008
|
$ | 300.00 | $ | 200.00 | ||||
Outstanding
Options and Convertible Securities
As of
March 30, 2010, there were no shares of our common stock subject to outstanding
common stock options and 375,000 shares of our common stock issuable upon
conversion of our outstanding preferred stock. Please see
“Description of Securities” above for additional details of our
options and convertible securities.
Holders
On March
24, 2010, there were approximately 384 holders of our common
stock. The number of registered holders includes banks and brokers
who act as nominees, each of whom may represent more than one shareholder.
Dividends
The
following table presents cash dividends per share declared and paid in the
periods shown. The amount of the cash dividend per share has not been adjusted
to reflect the ten-for-one stock split approved
by our stockholders on March 23, 2010.
|
Dividend
|
||||
|
2010
|
||||
|
First
Quarter Ended January 31, 2010
|
$ | 0.3125 | ||
|
2009
|
||||
|
Fourth
Quarter Ended October 31, 2009
|
$ | 0.3125 | ||
|
Third
Quarter Ended April 30, 2009
|
- | |||
|
Second
Quarter Ended July 31, 2009
|
- | |||
|
First
Quarter Ended January 31, 2009
|
$ | 0.3125 | ||
|
2008
|
||||
|
Fourth
Quarter Ended October 31, 2008
|
$ | 2.3125 | ||
|
Third
Quarter Ended April 30, 2008
|
$ | 0.3125 | ||
|
Second
Quarter Ended July 31, 2008
|
$ | 0.3125 | ||
|
First
Quarter Ended January 31, 2008
|
$ | 0.3125 | ||
55
We expect
to continue to pay quarterly dividends at a rate similar to the fourth quarter
of 2009, to the extent permitted by our business and other factors beyond
management’s control.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table sets forth information as of October 31, 2009 about our common
stock that may be issued to employees and directors under our equity
compensation plans.
|
Plan
Category
|
Number
of Securities to be
Issued
Upon Exercise of
Outstanding
Options,
Warrants
and Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and Rights
|
Number
of Securities
Remaining
Available for
Future
Issuance Under
Equity
Compensation
Plans
|
|||||
|
Equity
compensation plans approved
by
security holders(1)
|
—
|
—
|
1,000,000 | |||||
|
Equity
compensation plans not approved
by
security holders(2)
|
—
|
—
|
—
|
|||||
|
(1)
|
The
plan in this category includes the Limoneira Company 2010 Omnibus
Incentive Plan which was approved by the company’s board of directors on
January 26, 2010 and was approved by the company’s stockholders at our
annual meeting on March 23, 2010.
|
|
(2)
|
The
plan in this category includes the Limoneira Company Stock Grant
Performance Bonus plan. No further grants will be made under the Limoneira
Company Stock Grant Performance Bonus plan and all outstanding awards
granted under such plan will continue unaffected.
|
Summary
of Equity-Based Incentive Plans
The
following is a summary of the material terms of the 2010 Omnibus Incentive Plan
and the Stock Grant Performance Bonus Plan. The 2010 Omnibus
Incentive Plan was approved by our board of directors on January 26, 2010 and
the company’s stockholders at our annual meeting on March 23,
2010. No further grants will be made under the Stock Grant
Performance Bonus Plan and all outstanding awards granted under such plan will
continue unaffected. For more information we refer you to the full
text of the Stock Grant Performance Bonus Plan and the 2010 Omnibus Incentive
Plan, each of which is filed as an exhibit to this registration statement.
Limoneira
Company Stock Grant Performance Bonus Plan
The
purpose of the Stock Grant Performance Bonus Plan is to recognize outstanding
performance by the chief executive officer, senior vice president, chief
financial officer and certain other persons holding managerial positions with
the company. The compensation committee establishes the overall
corporate and segment performance goals with a view towards establishing such
goals that are challenging to achieve, and, at the end of the year, determines
the level of attainment of those established goals and the contribution of each
participant towards achieving them. Based on such level of attainment
and contribution, the Stock Grant Performance Bonus Plan authorizes (i) the
issuance to our chief executive officer, senior vice president and chief
financial officer of a number of our shares of common stock not to exceed an
aggregate fair market value of 133% of their then current base salary, and (ii)
the issuance to certain other persons holding managerial positions with the
company of a number of our shares of common stock not to exceed an aggregate
fair market value of 25% of their then current base salary. The fair
market value of shares of common stock issued under the Stock Grant Performance
Bonus Plan is established by using the most recent trading price of our common
stock on the PinkSheets.
56
All
awards granted pursuant to the Stock Grant Performance Bonus Plan vest in the
grantee one-third as of the date of the issuance, one-third on the first
anniversary of the grant date and one-third on the second anniversary of the
date of the grant. If a grantee’s employment is terminated by the
company, other than for cause, any unvested shares granted to the grantee shall
immediately become fully vested. If a grantee’s employment with the
company is terminated for cause or a grantee terminates his employment with the
company, any shares granted to such employee that have not vested shall
immediately be canceled.
All
shares of common stock issued pursuant to the Stock Grant Performance Bonus Plan
are subject to a right of first refusal by the company during the first two
years following the issuance of such shares.
Limoneira
Company 2010 Omnibus Incentive Plan
Overview. The
purposes of the 2010 Omnibus Incentive Plan are to promote the interests of the
company and its stockholders by (i) attracting and retaining employees and
directors of, and consultants to, the company and its affiliates, as defined
below; (ii) motivating such individuals by means of performance-related
incentives to achieve longer-range performance goals; and (iii) enabling such
individuals to participate in the long-term growth and financial success of the
company.
The 2010
Omnibus Incentive Plan authorizes the grant of nonqualified stock options,
incentive stock options, stock appreciation rights, or SARs, restricted stock,
restricted stock units, or RSUs, performance awards, other stock-based awards
and performance compensation awards to any employee of, or consultant to, the
company or any of its affiliates (including any prospective employee), or
nonemployee director who is a member of the company’s board of directors or the
board of directors of an affiliate of the company. The number of
shares of common stock issuable pursuant to all awards granted under the 2010
Omnibus Incentive Plan shall not exceed 1,000,000 (after adjusting for the stock
split approved by our stockholders on March 23, 2010). The number of
shares issued or reserved pursuant to the 2010 Omnibus Incentive Plan (or
pursuant to outstanding awards) is subject to adjustment as a result of mergers,
consolidations, reorganizations, stock splits, stock dividends and other changes
in our common stock. Shares subject to awards that have been expired
or have been forfeited or cancelled, or settled in cash do not count as shares
issued under the 2010 Omnibus Incentive Plan. However, (i) if shares
are tendered or otherwise used in payment of the exercise price of any option,
the total number of shares covered by the option being exercised shall count as
shares issued under the 2010 Omnibus Incentive Plan; (ii) shares withheld by the
company to satisfy a tax withholding obligation shall count as shares issued
under the 2010 Omnibus Incentive Plan; and (iii) the number of shares covered by
a SAR, to the extent it is exercised and settled in shares, and whether or not
shares are actually issued to the participant upon exercise of the SAR, shall be
considered issued or transferred pursuant to the 2010 Omnibus Incentive
Plan. If, under the 2010 Omnibus Incentive Plan a participant has
elected to give up the right to receive compensation in exchange for shares
based on fair market value, shares will not count as shares issued under the
2010 Omnibus Incentive Plan.
Administration. The
2010 Omnibus Incentive Plan is administered by the company’s compensation
committee. The compensation committee has the full power and
authority to determine the individuals to whom awards may be granted under the
2010 Omnibus Incentive Plan, the type or types of awards to be granted to a
participant, and the other terms and conditions applicable to
awards. The compensation committee is also authorized to interpret
the 2010 Omnibus Incentive Plan, to establish, amend and rescind any rules and
regulations relating to the 2010 Omnibus Incentive Plan and to make any other
determinations that it deems necessary or desirable for the administration of
the 2010 Omnibus Incentive Plan. All designations, determinations,
interpretations, and other decisions under or with respect to the 2010 Omnibus
Incentive Plan or any award are within the sold discretion of the compensation
committee, may be made at any time and are final, conclusive and binding upon
all persons, including the company, any affiliate any participant, any holder or
beneficiary of any award, and any stockholder.
Options. The
compensation committee will determine the participants to whom options will be
granted, the number of shares to be covered by each option, the exercise price
thereof and the conditions and limitations applicable to the exercise of the
option. Incentive stock options may be granted only to employees and
are subject to certain other restrictions. To the extent an option
intended to be an incentive stock option does not so qualify, it will be treated
as a nonqualified option. Each option is exercisable at such times
and subject to such terms and conditions as the compensation committee
determines and payment of the exercise price may be in cash, shares or a
combination thereof, as determined by the compensation committee, including an
irrevocable commitment by a broker to pay over such amount from a sale of the
shares issuable under an option.
57
Stock Appreciation
Rights. The compensation committee will determine the
participants to whom SARS will be granted, the number of shares to be covered by
each SAR, the grant price and the conditions and limitations applicable to the
exercise thereof. Generally, each SAR will entitle a participant upon
exercise to an amount equal to the excess of the fair market value of a share on
the date of exercise of the SAR over the grant price. The
compensation committee will determine whether an SAR will be settled in cash,
shares or a combination of cash and shares.
Restricted Stock and Restricted
Stock Units. The compensation committee may award shares of
restricted stock and RSUs. Restricted stock awards consist of shares
of stock that are transferred to the participant subject to restrictions that
may result in forfeiture if specified conditions are not
satisfied. RSUs result in the transfer of shares of cash or stock to
the participant only after specified conditions are satisfied. The
compensation committee will determine the participants to whom shares of
restricted stock and/or the number of restricted stock units to be granted to
each participant, the duration of the period during which, and the conditions,
if any, under which, the restricted stock and restricted stock units may be
forfeited to the company.
Performance
Awards. The compensation committee may award performance
awards that consist of a right which is (i) denominated in cash or shares, (ii)
valued, as determined by the compensation committee, in accordance with the
achievement of such performance goals during performance periods established by
the compensation committee, and (iii) payable at such time and in such form as
determined by the compensation committee. Performance awards may be
paid in a lump sum or in installments following the close of the applicable
performance periods.
Other Stock-Based
Awards. The compensation committee may grant participants
other stock-based awards which will consist of any right which is (i) not an
award described above and (ii) an award of shares or an award denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or
related to, shares. The compensation committee will determine the
terms and conditions of any such other stock-based award, including the price,
if any, at which securities may be purchased pursuant to any other stock-based
award granted under the 2010 Omnibus Incentive Plan.
Performance
Criteria. The compensation committee has the authority to
determine the performance criteria used to establish performance
goals. The performance goals may vary from participant to
participant, group to group, and period to period.
Transferability. Awards
granted under the 2010 Omnibus Incentive Compensation Plan are not transferable
other than by will or by the laws of descent and distribution.
Effectiveness of the 2010 Omnibus
Incentive Plan;
Amendment and Termination. The 2010 Omnibus Incentive
Plan became effective when it was approved by the company’s
stockholders on March 23, 2010. The 2010 Omnibus Incentive Plan will
remain available for the grant of awards until the tenth anniversary of the
effective date. The board of directors may amend, alter or
discontinue the 2010 Omnibus Incentive Plan in any respect at any time, but no
amendment may diminish any of the rights of a participant under any awards
previously granted, without his or her consent. In addition,
stockholder approval is required for any amendment that (i) would materially
increase the benefits accruing the participants under the plan, (ii) would
materially increase the number of securities which may be issued under the plan,
(iii) would materially modify the requirements for participation in the plan, or
(iv) must otherwise be approved by the company’s stockholders in order to comply
with applicable law or the rules of a national securities exchange upon which
the shares are traded.
|
ITEM
10.
|
RECENT
SALES OF UNREGISTERED SECURITIES
|
None.
58
|
ITEM
11.
|
DESCRIPTION
OF REGISTRANT’S SECURITIES TO BE
REGISTERED
|
General
Our
certificate of incorporation authorizes us to issue 19,900,000 shares of
common stock, par value $0.01 per share, 50,000 shares of Series B
Convertible Preferred Stock, par value $100 per share and 50,000 shares of
Series A Junior Participating Preferred Stock, par value $0.01 per share. The
following description of our capital stock is a summary and is qualified by the
provisions of our certificate of incorporation and bylaws, a copy of which are
exhibits to this registration statement. This registration statement
is registering only common stock, and the following is a summary of the material
terms of all our capital stock.
Common
Stock
We have
19,900,000 authorized shares of common stock, par value $0.01 per
share. On March 31, 2010, there were 1,119,446 shares of our common
stock outstanding (11,194,460 shares outstanding after giving effect to the
stock split approved by our stockholders on March 23, 2010). Holders of
our common stock are entitled to one vote for each share held of record on each
matter submitted to a vote of stockholders. Holders of our common
stock do not have cumulative voting rights, which means that the holders of more
than on-half of our outstanding shares of common stock can elect all of our
directors, if they choose to do so. In this event, the holders of the
remaining shares of common stock would not be able to elect any
directors. Subject to the prior rights of any class or series of
preferred stock which may from time to time be outstanding, if any, holders of
our common stock are entitled to receive ratably, dividends when, as, and if
declared by our board of directors out of funds legally available for that
purpose and, upon our liquidation, dissolution or winding up, are entitled to
share ratably in all assets remaining after payment of liabilities and payment
of accrued dividends and liquidation preferences on any preferred
stock. Holders of our common stock have no preemptive rights and have
no rights to convert their common stock into any other
securities. Our outstanding common stock is duly authorized and
validly issued, fully paid and nonassessable. In the event we were to
elect to sell additional shares of common stock, holders of our common stock
would have no right to purchase additional shares. As a result, the
common stockholders’ percentage equity interest would be diluted.
Preferred
Stock
We have
100,000 authorized shares of preferred stock, par value $0.01 per share, of
which 50,000 shares have been designated Series B Convertible Preferred Stock,
par value $100 per share and 50,000 shares have been designated Series A Junior
Participating Preferred Stock, par value $0.01 per share. We may
issue preferred stock in one or more series and having the rights, privileges,
and limitations, including voting rights, conversion rights, liquidation
preferences, dividend rights and preferences and redemption rights, as may, from
time to time, be determined by our board of directors. Preferred
stock may be issued in the future in connection with acquisitions, financing, or
other matters, as our board of directors deems appropriate. In the
event that we determine to issue any shares of preferred stock, a certificate of
designation containing the rights, privileges, and limitations of the series of
preferred stock will be filed with the Delaware Secretary of
State. The effect of this preferred stock designation power is that
our board of directors alone, subject to federal securities laws, applicable
blue sky laws, and Delaware law, may be able to authorize the issuance of
preferred stock which could have the effect of delaying, deferring, or
preventing a change in control without further action by our stockholders, and
may adversely affect the voting and other rights of the holders of our common
stock. The issuance of preferred stock with voting and conversion
rights may also adversely affect the voting power of the holders of our common
stock, including the loss of voting controls to others. Below is a
description of each class of preferred stock outstanding as of December 31,
2009.
Series
B Convertible Preferred Stock
On May
21, 1997, our board of directors designated 30,000 shares of preferred
stock as Series B Convertible Preferred Stock, par value $100.00 per
share. As of December 31, 2009, there were 30,000 shares of our
Series B Convertible Preferred Stock, par value $100 per share, issued and
outstanding. Our Series B Convertible Preferred Stock has the
following rights, preferences, privileges, and restrictions:
59
Conversion. Each
share of our Series B Convertible Preferred Stock is convertible into common
stock at a price of $8.00 per share of common stock. Shares of our
Series B Convertible Preferred Stock may be converted into common stock at the
option of the holder at any time.
Dividends. Holders
of our Series B Convertible Preferred 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 commencing July 1, 1997.
Liquidation
Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the company, the holders of shares of
our Series B Convertible Preferred Stock are entitled to be paid out of the
assets available for distribution, before any payment is made to the holders of
our common stock or any other series or class of our shares ranking junior to
the Series B Convertible Preferred Stock, an amount equal to $100.00 per share,
plus an amount equal to all accrued and unpaid dividends.
Voting
Rights. Each share of Series B Convertible Preferred Stock is
entitled to ten votes on all matters submitted to a vote of our
stockholders.
Redemption. We
may, at the option of our board of directors, redeem the Series B Convertible
Preferred 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
$100.00 per share plus accrued and unpaid dividends.
Series
A Junior Participating Preferred Stock
On
October 31, 2006, our board of directors designated 20,000 shares
of preferred stock as Series A Junior Participating Preferred Stock, par
value $0.01 per share. As of December 31, 2009, there were no shares
of our Series A Participating Preferred Stock issued and
outstanding. Our Series A Junior Preferred Stock has the following
rights, preferences, privileges, and restrictions:
Conversion. Shares
of Series A Junior Participating Preferred Stock are not
convertible.
Dividends. Holders
of our Series A Junior Participating Preferred Stock are entitled to receive
cash dividends equal to the greater of (a) $1.00 or (b) 100 times the aggregate
per share amount of all cash dividends and 100 times the aggregate per share
amount of all non-cash dividends, other than a dividend payable in our common
stock, declared on our common stock. Such dividends are payable
quarterly on the first day of January, April, July and October in each year
commencing on the first quarterly dividend payment date after the first issuance
of a share or fraction of a share of Series A Junior Participating Preferred
Stock.
Liquidation
Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the company, the holders of shares of
our Series A Junior Participating Preferred Stock are entitled to be paid out of
the assets available for distribution, before any payment is made to the holders
of our common stock or any other series or class of our shares ranking junior to
the Series A Junior Participating Preferred Stock, an amount equal to $100.00
per share, plus an amount equal to all accrued and unpaid
dividends. Following the payment in full of such liquidation
preference, no additional distributions may be made to the holders of shares of
Series A Junior Participating Preferred Stock unless the holders of our common
stock have received an amount per share equal to a specified quotient, and, upon
payment in full to the holders of our common stock of an amount equal to such
quotient, holders of Series A Junior Participating Preferred Stock and our
common stock are entitled to receive their ratable and proportionate share of
the remaining assets to be distributed in a specified ratio.
Voting
Rights. Each share of Series A Junior Participating Preferred
Stock is entitled to ten votes on all matters submitted to a vote of our
stockholders.
Redemption. Shares
of Series A Junior Participating Preferred Stock are not
redeemable.
60
Anti-Takeover
Effects
Certificate
of Incorporation and Bylaws.
Various
provisions of our certificate of incorporation and bylaws, which are summarized
in the following paragraphs, may be deemed to have an anti-takeover effect and
may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
No Cumulative
Voting. The Delaware General Corporation Law, which we refer
to as the DGCL, provides that stockholders are denied the right to cumulate
votes in the election of directors unless our certificate of incorporation
provides otherwise. Our certificate of incorporation does not
expressly address cumulative voting.
No Stockholder Action by Written
Consent: Calling of Special Meetings of Stockholders. Our
certificate of incorporation prohibits stockholder action by written
consent. Our bylaws provide that special meetings of our stockholders
may be called only by our board of directors, a committee of the board of
directors or one or more stockholders holding shares that in the aggregate are
entitled to cast ten percent of the votes at that meeting.
Classified Board of
Directors. Our certificate of incorporation divides our board
of directors into three classes of directors who are elected for three-year
terms. Therefore, the full board of directors is not subject to
re-election at each annual meeting of our stockholders.
Limits on Ability of Stockholders to
Elect and Remove Directors. Our board of directors has the
sole right to elect a director to fill a vacancy created by the expansion of the
board of directors or the resignation, death or removal of a director, which
prevents stockholders from being able to fill vacancies on our board of
directors. In addition, directors may only be removed by the action
of the holders of at least two-thirds of the outstanding shares of our capital
stock, voting together as a single class.
Authorized But Unissued
Shares. Our authorized but unissued shares of common stock and
preferred stock will be available for future issuance without the approval of
holders of common stock. We may use these additional shares for a
variety of corporate purposes, including future offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
Supermajority Requirement for
Amendment of Bylaws. Under our bylaws, the holders of at least
two-thirds of the outstanding shares of our capital stock, voting together as a
single class, must act to amend our bylaws by stockholder action. The
board of directors also has the ability to amend the bylaws without stockholder
consent.
Business Combinations and other
Significant Corporate Transactions with Substantial
Stockholders. Our certificate of incorporation requires the
affirmative vote of 66 2/3% of the total voting power of all outstanding
securities entitled to vote generally in the election of directors to approve
certain business combinations and other significant corporate transactions if a
substantial stockholder (as defined in our certificate of incorporation) or an
affiliate of a substantial stockholder (as defined in our certificate of
incorporation) is a party to the transaction. Two-thirds of the board
of directors may, in all such cases, determine not to require such 66 2/3%
affirmative vote.
Rights
Agreement
On
December 20, 2006, our board of directors adopted a stockholder rights plan and
entered into a rights agreement with The Bank of New York, as rights agent. The
purpose of the stockholder rights plan is to enhance the ability of our board of
directors to protect our stockholders’ interests by encouraging potential
acquirers to negotiate with our board of directors prior to attempting a
takeover bid and to provide our board of directors with adequate time to
consider any and all alternatives to such a bid. The rights plan may discourage,
delay or prevent a change in control of the company. It will not interfere with
any merger or other business combination approved by our board of
directors.
61
Under the
stockholder rights plan, each of our stockholders of record on December 20, 2006
received a purchase right for each outstanding share of common stock that the
stockholder owned, which we refer to as rights. The holder of a right
does not have the powers and privileges of a stockholder with respect to the
right. The rights trade with our common stock and become exercisable only under
the circumstances described below.
In
general, the rights will become exercisable when the first of the following
events happens:
|
|
·
|
ten
calendar days after a public announcement that a person or group has
acquired beneficial ownership of 20% or more of our outstanding shares of
common stock; or
|
|
|
·
|
ten
business days, or a later date if determined by our board of directors,
after the beginning of, or an announcement of an intention to make, a
tender offer or exchange offer that would result in a person or group
beneficially owning 20% or more of our outstanding shares of common
stock.
|
If the
rights become exercisable, the holder of a right will be able to purchase one
one-thousandth of a Series A Junior Participating Preferred Share at an exercise
price of $1,200.00 per one one-thousandth of a preferred share, subject to
adjustment to prevent dilution.
Once
a person or group acquires 20% or more of our outstanding shares of common
stock, all holders of rights except that person or group may, upon payment of
the exercise price, and in lieu of acquiring preferred shares, purchase, with
respect to each right, a number of shares of common stock having a market value
equal to two times the $1,200.00 exercise price. In other words, each right will
entitle the holder of the right to acquire shares of common stock at a 50%
discount to the then prevailing market price of our shares of common
stock.
In
addition, if at any time following the public announcement that a person or
group has acquired beneficial ownership of 20% or more of our outstanding shares
of common stock:
|
|
·
|
we
enter into a merger or other business combination transaction in which we
are not the surviving entity;
|
|
|
·
|
we
enter into a merger or other business combination transaction in which we
are the surviving entity, but all or part of our shares of common stock
are exchanged for securities of another entity, cash or other property;
or
|
|
|
·
|
we
sell or otherwise transfer 50% or more of our assets, cash flow or earning
power;
|
then
each holder of a right, other than rights held by the person or group who
triggered the event, will be entitled to receive, upon exercise, shares of
common stock of the acquiring company equal to two times the $1,200.00 exercise
price of the right, effectively a 50% discount to the market price of such
shares.
At any
time after a person or group has acquired beneficial ownership of 20% or more of
our outstanding shares of common stock and prior to such person or group
acquiring 50% or more of our outstanding shares of common stock, our board of
directors may, at its option, exchange all or any part of the then outstanding
and exercisable rights for our shares of common stock at an exchange ratio of
one share of common stock for each right.
We may
redeem all, but not less than all, of the rights at a price of $.01 per right at
any time before the earlier of:
|
|
·
|
at
any time until 10 days following the time at which any person or group has
acquired beneficial ownership of 20% or more of our outstanding shares of
common stock; or
|
|
|
·
|
the
expiration date of the rights
agreement.
|
The
rights will expire at the close of business on December 19, 2016, unless we
redeem or exchange them before that date.
62
The above
description of our rights plan is not intended to be a complete description. For
a full description of the rights plan, you should read the rights agreement. The
rights agreement is included as an exhibit to this registration statement on
Form 10.
Transfer
Agent and Registrar.
The
Transfer Agent and Registrar for our common stock is Bank of New York
Mellon.
|
ITEM
12.
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
Section
102 of the DGCL allows a corporation to eliminate the personal liability of
directors of a corporation to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, except where the director
breached the duty of loyalty, failed to act in good faith, engaged in
intentional misconduct or knowingly violated a law, authorized the payment of a
dividend or approved a stock repurchase or redemption in violation of Delaware
corporate law or obtained an improper personal benefit.
Section
145 of the DGCL provides for the indemnification of officers, directors and
other corporate agents in terms sufficiently broad to indemnify such persons
under circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act. Our certificate of
incorporation and bylaws provide for indemnification of our officers, directors,
employees and agents to the extent and under the circumstances permitted under
the DGCL.
Our
certificate of incorporation includes a provision that eliminates the personal
liability of directors for monetary damages for actions taken as a director,
except for liability:
|
|
·
|
for
breach of duty of loyalty;
|
|
|
·
|
for
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of law;
|
|
|
·
|
under
Section 174 of the Delaware General Corporation Law (unlawful payment of
dividends or unlawful stock purchase or redemption);
or
|
|
|
·
|
for
transactions from which the director derived improper personal
benefit.
|
Our
bylaws provide that we must indemnify our directors and officers to the fullest
extent authorized by the Delaware General Corporation Law. We are
also expressly authorized to carry directors’ and officers’ insurance providing
indemnification for our directors, officers and certain employees for some
liabilities. We believe that these indemnification provisions and
insurance are useful to attract and retain qualified directors and
officers.
The
limitation of liability and indemnification provisions in our certificate of
incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duty. These
provisions may also have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders.
There is
currently pending no material litigation or proceeding involving any of our
directors, officers or employees for which indemnification is
sought.
|
ITEM
13.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
See “Item
15 – Financial Statements and Exhibits” contained in this registration statement
on Form 10.
|
ITEM
14.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
63
|
ITEM
15.
|
FINANCIAL
STATEMENTS AND EXHIBITS
|
(a) Financial
Statements
Please
see the following financial statements set forth below beginning on page F-1 of
this registration statement on Form 10.
|
Page
|
Description
|
|
|
F-1
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
Consolidated
Statements of Operations for the Years Ended October 31, 2009, 2008 and
2007
|
|
|
F-3
|
Consolidated
Balance Sheets at October 31, 2009 and 2008
|
|
|
F-4
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended October 31,
2009, 2008 and 2007
|
|
|
F-5
|
Consolidated
Statements of Cash Flows for the Years Ended October 31, 2009, 2008 and
2007
|
|
|
F-7
|
Notes
to Consolidated Financial Statements
|
|
| F- 55 | Preface | |
| F- 56 |
Consolidated
Condensed Statements of Operations (unaudited) for the Three Months Ended
January 31, 2010 and 2009
|
|
| F- 57 |
Consolidated
Condensed Balance Sheets (unaudited) at January 31, 2010 and October
31, 2009
|
|
| F-58 |
Consolidated
Condensed Statements of Comprehensive Loss (unaudited) for the Three
Months Ended January 31, 2010 and 2009
|
|
| F- 59 |
Consolidated
Condensed Statements of Cash Flows (unaudited) for the Three Months
Ended January 31, 2010 and 2009
|
|
| F- 60 |
Notes
to Unaudited Interim Consolidated Condensed Financial
Statements
|
|
| F-81 | Windfall Investors, LLC Independent Auditors’ Report | |
|
F-82
|
Windfall
Investors, LLC Balance Sheet at December 31, 2008
|
|
|
F-83
|
Windfall
Investors, LLC Statement of Income and Members’ Deficit for the Year Ended
December 31, 2008
|
|
|
F-84
|
Windfall
Investors, LLC Statement of Cash Flows for the Year Ended December 31,
2008
|
|
|
F-85
|
|
Windfall
Investors, LLC Notes to Financial Statements
|
| F-90 |
Windfall
Investors, LLC Balance Sheet (unaudited) at September 30,
2009
|
|
| F-91 |
Windfall
Investors, LLC Statement of Income (unaudited) for the Nine Months Ended
September 30, 2009
|
|
| F-92 |
Windfall
Investors, LLC Statement of Cash Flows (unaudited) for the Nine Months
Ended September 30,
2009
|
(b) Exhibits. The
following documents are filed as exhibits hereto:
|
Exhibit No.
|
Description
|
|
|
3.1
|
Restated
Certificate of Incorporation of Limoneira Company, dated July 5,
1990
|
|
|
3.2
|
Certificate
of Merger of Limoneira Company and The Samuel Edwards Associates into
Limoneira Company, dated October 31, 1990
|
|
|
3.3
|
Certificate
of Merger of McKevett Corporation into Limoneira Company dated December
31, 1994
|
|
|
3.4
|
Certificate
of Designation, Preferences and Rights of $8.75 Voting Preferred Stock,
$100.00 Par Value, Series B of Limoneira Company, dated May 21,
1997
|
|
|
3.5
|
Amended
Certificate of Designation, Preferences and Rights or $8.75 Voting
Preferred Stock, $100.00 Par Value, Series B of Limoneira Company, dated
May 21, 1997
|
|
|
3.6
|
Agreement
of Merger Between Ronald Michaelis Ranches, Inc. and Limoneira Company,
dated June 24, 1997
|
|
|
3.7
|
Certificate
of Amendment of Certificate of Incorporation of Limoneira Company, dated
April 22, 2003
|
|
|
3.8
|
Certificate
of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock, $.01 Par Value, of Limoneira Company, dated November 21,
2006
|
|
| 3.9 |
Certificate
of Amendment of Certificate of Incorporation of Limoneira Company, dated
March 24, 2010
|
|
|
3.10
|
Bylaws
of Limoneira Company
|
|
|
3.11
|
Amendment
of Bylaws of Limoneira Company, effective as of December 15, 2009
|
|
|
4.1
|
Specimen
Certificate representing shares of Common Stock, par value $0.01 per
share
|
64
|
4.2
|
Rights
Agreement dated December 20, 2006 between Limoneira Company and The Bank
of New York, as Rights Agent
|
|
|
10.1
|
Sunkist
Growers, Inc. Commercial Packinghouse License Agreement dated as of
October 1, 2008, by and among Sunkist Growers, Inc., Ventura County Fruit
Exchange and Limoneira Company
|
|
|
10.2
|
Avocado
Marketing Agreement effective February 8, 2003, by and between Calavo
Growers, Inc. and Limoneira Company, as amended
|
|
|
10.3
|
Stock
Purchase Agreement dated as of June 1, 2005, between Limoneira Company and
Calavo Growers, Inc.
|
|
|
10.4
|
Standstill
Agreement dated June 1, 2005, between Limoneira Company and Calavo
Growers, Inc.
|
|
|
10.5
|
Standstill
Agreement dated June 1, 2005 between Calavo Growers, Inc. and Limoneira
Company
|
|
|
10.6
|
Lease
Agreement dated as of February 15, 2005, between Limoneira Company and
Calavo Growers, Inc.
|
|
|
10.7
|
Amended
and Restated Line of Credit Agreement dated as of December 15, 2008, by
and between Limoneira Company and Rabobank, N.A.
|
|
|
10.8
|
Amendment
to Amended and Restated Line of Credit Agreement dated May 12, 2009,
between Limoneira Company and Rabobank, N.A.
|
|
|
10.9
|
Revolving
Equity Line of Credit Promissory Note and Loan Agreement dated October 28,
1997, between Limoneira Company and Farm Credit West, FLCA (as successor
by merger to Central Coast Federal Land Bank
Association)
|
|
|
10.10
|
Promissory
Note and Loan Agreement dated April 23, 2007, between Farm Credit West,
FLCA and Limoneira Company
|
|
|
10.11
|
Master
Loan Agreement dated as of September 23, 2005, among Farm Credit West,
PCA, Windfall Investors, LLC and Limoneira Company
|
|
|
10.12
|
Promissory
Note and Loan Agreement dated as of September 23, 2005, among Farm Credit
West, PCA, Windfall, LLC and Limoneira Company
|
|
|
10.13
|
Promissory
Note and Supplement to Master Loan Agreement dated as of September 23,
2005, among Farm Credit West, PCA, Windfall LLC and Limoneira
Company
|
|
|
10.14
|
Limoneira
Company Management Incentive Plan 2008-2009
|
|
|
10.15
|
Limoneira
Stock Grant Performance Bonus Plan
|
|
|
10.16
|
Limoneira
Company 2010 Omnibus Incentive Plan
|
|
|
10.17
|
First
Amendment to Lease and Option Agreement dated January 1, 1992, by and
between Phila M. Caldwell and Gordon B. Crary, Jr., as Trustees of the
Caldwell Survivor’s Trust UTA Dated 9/29/86 (T.I.N. ###-##-####), and the
Caldwell Marital Trust UTA Dated 9/29/86 (T.I.N. 95-6915674) and the Santa
Paula Land Company, Inc.
|
|
|
10.18
|
Lease
and Option Agreement dated January 1, 1992, by and between Phila M.
Caldwell and Gordon B. Crary, Jr., as Trustees of the Caldwell Survivor’s
Trust UTA Dated 9/29/86, and the Caldwell Marital Trust UTA Dated 9/29/86
and the Santa Paula Land Company, Inc.
|
|
|
10.19
|
Guaranty
of Lease dated July 30, 1992 by Limoneira Company
|
|
|
10.20
|
Pre-Annexation
and Development Agreement dated March 3, 2008, by and between the City of
Santa Paula and Limoneira Company
|
|
|
10.21
|
Letter
dated December 8, 2009 from Rabobank, N.A. to Limoneira
Company
|
|
|
10.22
|
Request
and Agreement for Extension dated and effective November 1, 2009 by and
between Windfall Investors, LLC and Farm Credit West, PCA
|
|
|
10.23
|
Request
and Agreement for Extension dated and effective March 1, 2010 by and
between Windfall Investors, LLC and Farm Credit West, PCA
|
|
|
10.24
|
Judgment,
dated March 7, 1996, United Water Conservation
Dist. v. City of San Beunaventura, et al., Case No. 115611,
Superior Court of the State of California, Ventura County
|
|
|
10.25
|
Confirmation
of a Swap Transaction dated August 21, 2008, by and between Rabobank
International, Utrecht and Limoneira Company
|
|
|
10.26
|
Confirmation
of a Swap Transaction dated October 10, 2008, by and between Rabobank
International, Utrecht and Limoneira Company
|
|
|
10.27
|
Confirmation
of a Swap Transaction dated November 13, 2008, by and between Rabobank
International, Utrecht and Limoneira Company
|
|
|
21.1
|
|
Subsidiaries
of Limoneira
Company
|
65
SIGNATURES
Pursuant
to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
|
LIMONEIRA
COMPANY
|
|
|
Date: May
21, 2010
|
By: /s/ Harold S. Edwards
|
|
Harold
S. Edwards
|
|
|
President
and Chief Executive Officer
|
66
INDEX
TO FINANCIAL STATEMENTS
LIMONEIRA
CORPORATION
|
|
Page No.
|
| Audited Consolidated Financial Statements – Limoneira Company | |
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Statements of Operations for the Years Ended October 31, 2009, 2008 and
2007
|
F-2
|
|
Consolidated
Balance Sheets at October 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Stockholders’ Equity for the Years Ended October 31,
2009, 2008 and 2007
|
F-4
|
|
Consolidated
Statements of Cash Flows for the Years Ended October 31, 2009, 2008 and
2007
|
F-5
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
Unaudited
Consolidated Condensed Financial Statements – Limoneira Company
|
|
| Preface |
F-55
|
|
Consolidated
Condensed Statements of Operations (unaudited) for the Three months ended
January 31, 2010 and 2009
|
F-56
|
|
Consolidated
Condensed Balance Sheets (unaudited) at January 31, 2010 and October 31,
2009
|
F-57
|
|
Consolidated
Condensed Statements of Comprehensive Loss (unaudited) for the Three
months ended January 31, 2010 and 2009
|
F-58
|
|
Consolidated
Condensed Statements of Cash Flows (unaudited) for the Three months ended
January 31, 2010 and 2009
|
F-59
|
|
Notes
to Unaudited Interim Consolidated Condensed Financial Statements
|
F-60
|
|
Audited
Financial Statements – Windfall Investors, LLC
|
|
|
Independent
Auditors’ Report
|
F-81
|
|
Balance
Sheet at December 31, 2008
|
F-82
|
|
Statement
of Income and Members’ Deficit for the Year Ended December 31, 2008
|
F-83
|
|
Statement
of Cash Flows for the Year Ended December 31, 2008
|
F-84
|
|
Notes
to Financial Statements
|
F-85
|
|
Unaudited
Financial Statements – Windfall Investors, LLC
|
|
|
Balance
Sheet (unaudited) at September 30, 2009
|
F-90
|
|
Statement
of Income and Members’ Deficit (unaudited) for the Nine Month Ended
September 30, 2009
|
F-91
|
|
Statement
of Cash Flows (unaudited) for the Nine Month Ended September 30, 2009
|
F-92
|
Report
of Independent Registered Public Accounting Firm
The
Board of Directors and Stockholders of Limoneira Company
We conducted our audits in accordance with the standards
of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. We were not engaged to perform an audit of the Company’s internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Limoneira Company at October 31, 2009 and 2008, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 31, 2009, in conformity with U.S. generally accepted
accounting principles.
|
/s/
Ernst & Young LLP
|
Los
Angeles, California
February
12, 2010
except for the paragraph in Note 1 and Note 21 related to the
Company's capital structure
changes, as to which the date is March 24, 2010
F-1
Limoneira
Company
Consolidated
Statements of Operations
|
Year
Ended October 31
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues:
|
||||||||||||
|
Agriculture
|
$ | 31,033,000 | $ | 49,794,000 | $ | 44,751,000 | ||||||
|
Rental
|
3,766,000 | 3,718,000 | 3,516,000 | |||||||||
|
Other
|
39,000 | - | - | |||||||||
|
Total
revenues
|
34,838,000 | 53,512,000 | $ | 48,267,000 | ||||||||
|
Costs
and expenses:
|
||||||||||||
|
Agriculture
|
27,281,000 | 34,805,000 | 32,036,000 | |||||||||
|
Rental
|
2,061,000 | 2,236,000 | 2,073,000 | |||||||||
|
Other
|
318,000 | 991,000 | 1,160,000 | |||||||||
|
Selling,
general and administrative
|
6,469,000 | 8,292,000 | 9,627,000 | |||||||||
|
Asset
impairments
|
6,203,000 | 1,341,000 | - | |||||||||
|
Loss
on sale of assets
|
10,000 | 11,000 | 56,000 | |||||||||
|
Total
cost and expenses
|
42,342,000 | 47,676,000 | 44,952,000 | |||||||||
|
Operating
(loss) income
|
(7,504,000 | ) | 5,836,000 | 3,315,000 | ||||||||
|
Other
income (expense):
|
||||||||||||
|
Gain
on sale of stock in Calavo Growers, Inc.
|
2,729,000 | - | - | |||||||||
|
Other
income (loss), net
|
256,000 | 403,000 | (34,000 | ) | ||||||||
|
Interest
income
|
225,000 | 902,000 | 2,300,000 | |||||||||
|
Interest
expense
|
(692,000 | ) | (1,419,000 | ) | (2,102,000 | ) | ||||||
|
Total
other income (expense)
|
2,518,000 | (114,000 | ) | 164,000 | ||||||||
|
(Loss)
income from continuing operations before income
|
||||||||||||
|
taxes
and equity (losses) earnings
|
(4,986,000 | ) | 5,722,000 | 3,479,000 | ||||||||
|
Income
tax benefit (provision)
|
2,291,000 | (2,128,000 | ) | (1,177,000 | ) | |||||||
|
Equity
in (losses) earnings of investments
|
(170,000 | ) | 153,000 | 89,000 | ||||||||
|
(Loss)
income from continuing operations
|
(2,865,000 | ) | 3,747,000 | 2,391,000 | ||||||||
|
Loss
from discontinued operations, net of income taxes
|
(12,000 | ) | (252,000 | ) | (245,000 | ) | ||||||
|
Net
(loss) income
|
(2,877,000 | ) | 3,495,000 | 2,146,000 | ||||||||
|
Preferred
dividends
|
(262,000 | ) | (262,000 | ) | (262,000 | ) | ||||||
|
Net
(loss) income applicable to common stock
|
$ | (3,139,000 | ) | $ | 3,233,000 | $ | 1,884,000 | |||||
|
Per
common share-basic:
|
||||||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | 0.31 | $ | 0.19 | |||||
|
Discontinued
operations
|
(0.00 | ) | (0.02 | ) | (0.02 | ) | ||||||
|
Basic
net (loss) income per share
|
$ | (0.28 | ) | $ | 0.29 | $ | 0.17 | |||||
|
|
||||||||||||
|
Per
common share-diluted:
|
||||||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | 0.31 | $ | 0.19 | |||||
|
Discontinued
operations
|
(0.00 | ) | (0.02 | ) | (0.02 | ) | ||||||
|
Diluted
net (loss) income per share
|
$ | (0.28 | ) | $ | 0.29 | $ | 0.17 | |||||
|
Dividends
per common share
|
$ | 0.06 | $ | 0.33 | $ | 0.23 | ||||||
|
Weighted-average
shares outstanding-basic
|
11,242,000 | 11,128,000 | 11,068,000 | |||||||||
|
Weighted-average
shares outstanding-diluted
|
11,254,000 | 11,158,000 | 11,068,000 | |||||||||
See
Notes to Consolidated Financial Statements. All shares and per share
amounts have been adjusted to reflect capital structure changes effective
as of March 24, 2010.
F-2
Consolidated
Balance Sheets
|
October
31
|
||||||||
|
2009
|
2008
|
|||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 603,000 | $ | 90,000 | ||||
|
Accounts
receivable
|
3,735,000 | 2,846,000 | ||||||
|
Notes
receivable - related parties
|
1,519,000 | - | ||||||
|
Notes
receivable
|
- | 1,300,000 | ||||||
|
Inventoried
cultural costs
|
858,000 | 1,146,000 | ||||||
|
Prepaid
expenses and other current assets
|
894,000 | 1,104,000 | ||||||
|
Income
taxes receivable
|
- | 1,191,000 | ||||||
|
Current
assets of discontinued operations
|
9,000 | 16,000 | ||||||
|
Total
current assets
|
7,618,000 | 7,693,000 | ||||||
|
Property,
plant and equipment, net
|
53,817,000 | 51,590,000 | ||||||
|
Real
estate development
|
53,125,000 | 57,412,000 | ||||||
|
Assets
held for sale
|
6,774,000 | 6,270,000 | ||||||
|
Equity
in investments
|
1,635,000 | 1,698,000 | ||||||
|
Investment
in Calavo Growers, Inc.
|
11,870,000 | 10,150,000 | ||||||
|
Notes
receivable - related parties
|
284,000 | 1,456,000 | ||||||
|
Notes
receivable
|
2,000,000 | 350,000 | ||||||
|
Other
assets
|
4,307,000 | 3,914,000 | ||||||
|
Non-current
assets of discontinued operations
|
438,000 | 457,000 | ||||||
|
Total
Assets
|
$ | 141,868,000 | $ | 140,990,000 | ||||
|
Liabilities
and Stockholders' Equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 970,000 | $ | 2,311,000 | ||||
|
Growers
payable
|
988,000 | 808,000 | ||||||
|
Accrued
liabilities
|
2,764,000 | 3,818,000 | ||||||
|
Current
portion of long-term debt
|
465,000 | 382,000 | ||||||
|
Current
liabilities of discontinued operations
|
2,000 | 26,000 | ||||||
|
Total
current liabilities
|
5,189,000 | 7,345,000 | ||||||
|
Long-term
liabilities:
|
||||||||
|
Long-term
debt, less current portion
|
69,251,000 | 65,200,000 | ||||||
|
Deferred
income taxes
|
8,764,000 | 11,541,000 | ||||||
|
Other
long-term liabilities
|
6,903,000 | 2,118,000 | ||||||
|
Total
long-term liabilities
|
84,918,000 | 78,859,000 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Series
B Convertible Preferred Stock – $100.00 par value (50,000 shares
authorized: 30,000 shares issued and out- standing at October 31, 2009 and
2008) (8.75% coupon rate)
|
3,000,000 | 3,000,000 | ||||||
|
Series
A Junior Participating Preferred Stock – $.01 par value (50,000 shares
authorized: -0- issued or outstanding at October 31, 2009 and 2008)
|
- | - | ||||||
|
Common
Stock – $.01 par value (19,900,000 shares authorized: 11,262,880 and
11,132,760 shares issued and outstanding at October 31, 2009 and 2008,
respectively)
|
113,000 | 113,000 | ||||||
|
Additional
paid-in capital
|
34,718,000 | 34,109,000 | ||||||
|
Retained
earnings
|
16,386,000 | 20,226,000 | ||||||
|
Accumulated
other comprehensive loss
|
(2,456,000 | ) | (2,662,000 | ) | ||||
|
Total
stockholders' equity
|
51,761,000 | 54,786,000 | ||||||
|
Total
Liabilities and Stockholders' Equity
|
$ | 141,868,000 | $ | 140,990,000 | ||||
See
Notes to Consolidated Financial Statements. All shares and per share
amounts have been adjusted to reflect the capital structure
changes effective as of March 24, 2010.
F-3
Limoneira
Company
Consolidated
Statements of Stockholders’ Equity
|
Accumulated
|
||||||||||||||||||||||||||||||||
|
Series
B Convertible
|
Additional
|
Other
|
||||||||||||||||||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Paid-In
|
Retained
|
Comprehensive
|
||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Earnings
|
Income
(Loss)
|
Total
|
|||||||||||||||||||||||||
|
Balance
at November 1, 2006
|
30,000 | $ | 3,000,000 | 11,062,880 | $ | 113,000 | $ | 31,581,000 | $ | 21,274,000 | $ | (3,427,000 | ) | $ | 52,541,000 | |||||||||||||||||
|
Dividends
– common
|
- | - | - | - | - | (2,491,000 | ) | - | (2,491,000 | ) | ||||||||||||||||||||||
|
Dividends
– preferred
|
- | - | - | - | - | (262,000 | ) | - | (262,000 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 75,000 | - | 3,187,000 | - | - | 3,187,000 | ||||||||||||||||||||||||
|
Repurchase
of common stock
|
- | - | (4,500 | ) | - | (113,000 | ) | - | - | (113,000 | ) | |||||||||||||||||||||
|
Comprehensive
income:
|
||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 2,146,000 | - | 2,146,000 | ||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax provision of $857,000
|
- | - | - | - | - | - | 1,286,000 | 1,286,000 | ||||||||||||||||||||||||
|
Unrealized
holding gain of security available-for-sale, net of tax provision of
$5,239,000
|
- | - | - | - | - | - | 7,920,000 | 7,920,000 | ||||||||||||||||||||||||
|
Total
comprehensive income
|
11,352,000 | |||||||||||||||||||||||||||||||
|
Balance
at October 31, 2007
|
30,000 | $ | 3,000,000 | 11,133,380 | $ | 113,000 | $ | 34,655,000 | $ | 20,667,000 | $ | 5,779,000 | $ | 64,214,000 | ||||||||||||||||||
|
Dividends
- common
|
- | - | - | - | - | (3,619,000 | ) | - | (3,619,000 | ) | ||||||||||||||||||||||
|
Dividends
- preferred
|
- | - | - | - | - | (262,000 | ) | - | (262,000 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 45,240 | - | 600,000 | - | - | 600,000 | ||||||||||||||||||||||||
|
Repurchase
of common stock
|
- | - | (45,860 | ) | - | (1,146,000 | ) | - | - | (1,146,000 | ) | |||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 3,495,000 | - | 3,495,000 | ||||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax benefit of $253,000
|
- | - | - | - | - | - | (381,000 | ) | (381,000 | ) | ||||||||||||||||||||||
|
Unrealized
holding loss of security available-for-sale, net of tax benefit of
$5,083,000
|
- | - | - | - | - | - | (7,677,000 | ) | (7,677,000 | ) | ||||||||||||||||||||||
|
Unrealized
loss resulting from changes in fair values of derivative instruments, net
of tax benefit of $254,000
|
- | - | - | - | - | - | (383,000 | ) | (383,000 | ) | ||||||||||||||||||||||
|
Cumulative
effect adjustment for uncertainty in income taxes
|
- | - | - | - | - | (55,000 | ) | - | (55,000 | ) | ||||||||||||||||||||||
|
Total
comprehensive loss
|
(5,001,000 | ) | ||||||||||||||||||||||||||||||
|
Balance
at October 31, 2008
|
30,000 | $ | 3,000,000 | 11,132,760 | $ | 113,000 | $ | 34,109,000 | $ | 20,226,000 | $ | (2,662,000 | ) | $ | 54,786,000 | |||||||||||||||||
|
Dividends
- common
|
- | - | - | - | - | (701,000 | ) | - | (701,000 | ) | ||||||||||||||||||||||
|
Dividends
- preferred
|
- | - | - | - | - | (262,000 | ) | - | (262,000 | ) | ||||||||||||||||||||||
|
Stock
compensation expense
|
- | - | 130,480 | - | 614,000 | - | - | 614,000 | ||||||||||||||||||||||||
|
Repurchase
of common stock
|
- | - | (360 | ) | - | (5,000 | ) | - | - | (5,000 | ) | |||||||||||||||||||||
|
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | (2,877,000 | ) | - | (2,877,000 | ) | ||||||||||||||||||||||
|
Minimum
pension liability adjustment, net of tax benefit of $1,276,000
|
- | - | - | - | - | - | (1,915,000 | ) | (1,915,000 | ) | ||||||||||||||||||||||
|
Unrealized
holding gain of security available-for-sale, net of tax provision of
$2,028,000
|
- | - | - | - | - | - | 3,042,000 | 3,042,000 | ||||||||||||||||||||||||
|
Unrealized
loss resulting from changes in fair values of derivative instruments, net
of tax benefit of $614,000
|
- | - | - | - | - | - | (921,000 | ) | (921,000 | ) | ||||||||||||||||||||||
|
Total
comprehensive loss
|
(2,671,000 | ) | ||||||||||||||||||||||||||||||
|
Balance
at October 31, 2009
|
30,000 | $ | 3,000,000 | 11,262,880 | $ | 113,000 | $ | 34,718,000 | $ | 16,386,000 | $ | (2,456,000 | ) | $ | 51,761,000 | |||||||||||||||||
See
Notes to Consolidated Financial Statements. All shares and per share amounts
have been adjusted to reflect the capital structure changes effective as of
March 24, 2010.
F-4
Limoneira
Company
Consolidated
Statements of Cash Flows
|
Years Ended October 31
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Operating
activities
|
||||||||||||
|
Net
(loss) income
|
$ | (2,877,000 | ) | $ | 3,495,000 | $ | 2,146,000 | |||||
|
Less:
Net of income tax from discontinued operations
|
(12,000 | ) | (252,000 | ) | (245,000 | ) | ||||||
|
Net
(loss) income from continuing operations
|
(2,865,000 | ) | 3,747,000 | 2,391,000 | ||||||||
|
Adjustments
to reconcile net (loss) income to net cash (used in) provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
2,323,000 | 2,434,000 | 2,267,000 | |||||||||
|
Loss
on disposal/sale of fixed assets
|
10,000 | 11,000 | 56,000 | |||||||||
|
Write-off
of intangible asset
|
- | 34,000 | - | |||||||||
|
Impairments
of real estate development
|
6,203,000 | 1,341,000 | - | |||||||||
|
Orchard
write-offs
|
69,000 | 1,172,000 | 383,000 | |||||||||
|
Gain
on sale of stock in Calavo Growers, Inc.
|
(2,729,000 | ) | - | - | ||||||||
|
Stock
compensation expense
|
770,000 | 600,000 | 3,187,000 | |||||||||
|
Equity
in earnings (losses) of investments
|
170,000 | (153,000 | ) | (89,000 | ) | |||||||
|
Deferred
income taxes
|
(2,226,000 | ) | 406,000 | 164,000 | ||||||||
|
Amortization
of deferred financing costs
|
25,000 | - | - | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
and notes receivable
|
(1,211,000 | ) | (122,000 | ) | 137,000 | |||||||
|
Inventoried
cultural costs
|
288,000 | 32,000 | (183,000 | ) | ||||||||
|
Prepaid
expenses and other current assets
|
210,000 | (467,000 | ) | 473,000 | ||||||||
|
Income
taxes receivable
|
987,000 | (1,186,000 | ) | (5,000 | ) | |||||||
|
Other
assets
|
(135,000 | ) | (29,000 | ) | 28,000 | |||||||
|
Accounts
payable and growers payable
|
(1,429,000 | ) | 40,000 | (475,000 | ) | |||||||
|
Accrued
liabilities
|
(1,054,000 | ) | (67,000 | ) | 1,934,000 | |||||||
|
Other
long-term liabilities
|
(403,000 | ) | (878,000 | ) | (602,000 | ) | ||||||
|
Net
cash (used in) provided by operating activities from continuing operations
|
(997,000 | ) | 6,915,000 | 9,666,000 | ||||||||
|
Net
cash (used in) operating activities from discontinued operations
|
(5,000 | ) | (156,000 | ) | (329,000 | ) | ||||||
|
Net
cash (used in) provided by operating activities
|
(1,002,000 | ) | 6,759,000 | 9,337,000 | ||||||||
|
Investing
activities
|
||||||||||||
|
Capital
expenditures
|
(7,159,000 | ) | (29,206,000 | ) | (8,919,000 | ) | ||||||
|
Net
proceeds from sale of fixed assets
|
26,000 | 19,000 | 4,000 | |||||||||
|
Net
proceeds from sale of stock in Calavo Growers, Inc.
|
6,079,000 | - | - | |||||||||
|
Cash
distributions from equity investments
|
79,000 | 623,000 | 362,000 | |||||||||
|
Equity
investment contributions
|
- | (30,000 | ) | (526,000 | ) | |||||||
|
Issuance
of notes receivable
|
(375,000 | ) | (540,000 | ) | (23,195,000 | ) | ||||||
|
Collection
of note receivable
|
- | - | ||||||||||
|
Investments
in mutual water companies and water rights
|
(30,000 | ) | (117,000 | ) | 4,264,000 | |||||||
|
Other
|
(100,000 | ) | (100,000 | ) | (1,692,000 | ) | ||||||
|
Net
cash used in investing activities from continuing operations
|
(1,480,000 | ) | (29,351,000 | ) | (29,702,000 | ) | ||||||
|
Net
cash (used in) provided by investing activities from discontinued
operations
|
(5,000 | ) | 213,000 | 194,000 | ||||||||
|
Net
cash used in investing activities
|
(1,485,000 | ) | (29,138,000 | ) | (29,508,000 | ) | ||||||
|
Financing
activities
|
||||||||||||
|
Borrowings
of long-term debt
|
27,921,000 | 62,093,000 | 27,470,000 | |||||||||
|
Repayments
of long-term debt
|
(23,787,000 | ) | (34,986,000 | ) | (3,510,000 | ) | ||||||
|
Dividends
paid-Common
|
(701,000 | ) | (3,619,000 | ) | (2,491,000 | ) | ||||||
|
Dividends
paid-Preferred
|
(262,000 | ) | (262,000 | ) | (262,000 | ) | ||||||
|
Repurchase
of common shares
|
(5,000 | ) | (1,146,000 | ) | (113,000 | ) | ||||||
|
Payments
of debt financing costs
|
(166,000 | ) | - | - | ||||||||
|
Net
cash provided by financing activities from continuing operations
|
3,000,000 | 22,080,000 | 21,094,000 | |||||||||
|
Net
cash used in financing activities from discontinued operations
|
- | (97,000 | ) | (441,000 | ) | |||||||
|
Net
cash provided by financing activities
|
3,000,000 | 21,983,000 | 20,653,000 | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
513,000 | (396,000 | ) | 482,000 | ||||||||
|
Cash
and cash equivalents at beginning of year
|
90,000 | 486,000 | 4,000 | |||||||||
|
Cash
and cash equivalents at end of year
|
$ | 603,000 | $ | 90,000 | $ | 486,000 | ||||||
F-5
Limoneira
Company
Consolidated
Statements of Cash Flows (continued)
|
Years Ended October 31
|
||||||||||||
|
|
2009
|
2008
|
2007
|
|||||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Cash
paid during the year for interest
|
$ | 3,000,000 | $ | 2,548,000 | $ | 2,557,000 | ||||||
|
Cash
paid during the year for income taxes, net of (refunds) received
|
$ | (987,000 | ) | $ | 2,935,000 | $ | 131,000 | |||||
|
Non-cash
investing, financing and other comprehensive income (loss) transactions:
|
||||||||||||
|
Minimum
pension liability adjustment, net of tax benefit
|
$ | 1,915,000 | $ | 381,000 | $ | (1,286,000 | ) | |||||
|
Unrealized
holding (gain) loss on security, net of tax benefit
|
$ | (3,042,000 | ) | $ | 7,677,000 | $ | (7,920,000 | ) | ||||
|
Unrealized
loss from derivatives, net of tax benefits
|
$ | 921,000 | $ | 383,000 | $ | - | ||||||
|
Write-off
of intangible asset
|
$ | - | $ | 34,000 | $ | - | ||||||
|
Conversion
of note receivable and interest from Templeton Santa Barbara, LLC to
controlling equity interest
|
$ | - | $ | 22,656,000 | $ | - | ||||||
|
Capital
expenditures accrued but not paid at year-end
|
$ | 242,000 | $ | 600,000 | $ | - | ||||||
See
Notes to Consolidated Financial Statements. All shares and per share amounts
have been adjusted to reflect the capital structure changes effective as of
March 24, 2010.
F-6
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements
1.
Business
Limoneira
Company, a Delaware Company (the Company), engages primarily in growing citrus
and avocados, picking and hauling citrus, packing lemons, and housing rentals
and other real estate operations. The Company is also engaged in real estate
development.
The
Company markets its agricultural products primarily through Sunkist Growers,
Inc. (Sunkist) and Calavo Growers, Inc. (Calavo).
Most of
the Company’s citrus production is marketed and sold under the Sunkist brand to
the food service industry, wholesalers and retail operations throughout North
America, Asia, and certain other countries primarily through Sunkist, an
agricultural marketing cooperative of which the Company is a member. As an
agricultural cooperative, Sunkist coordinates the sales and marketing of the
Company’s citrus products which are processed through the Company’s
packinghouse.
The
Company provides all of its avocado production to Calavo, a packing and
marketing company listed on NASDAQ under the symbol CVGW. Calavo’s customers
include many of the largest retail and food service companies in the United
States and Canada. The Company’s avocados are packed by Calavo, sold and
distributed under its own brands to its customers primarily in the United States
and Canada.
Effective
March 24, 2010, the Company amended our certificate of incorporation
to increase the authorized number of shares of common stock, and effected a
ten-for-one split of our common stock. All references in the
accompanying consolidated financial statements to (i) the value and number of
shares of the Company’s common stock, (ii) the authorized number of shares of
the Company’s common stock and preferred stock, and (iii) loss per share and
dividends per share have been retroactively adjusted to reflect these changes.
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 a
controlling interest is held by the Company. All significant intercompany
transactions have been eliminated. The financial statements represent the
consolidated financial position, results of operations and cash flows of
Limoneira Company and its wholly owned subsidiaries: Limoneira Land Company,
Limoneira Company International Division, LLC, Limoneira Mercantile, LLC, and
Templeton Santa Barbara, LLC. All variable interest entities for which the
Company is considered the primary beneficiary are consolidated. These variable
interest entities are 6037 East Donna Circle, LLC and 6146 East Cactus Wren
Road, LLC. All significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
F-7
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
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
– 20
|
|
|
Buildings
and building improvements
|
10
– 50
|
|
|
Equipment
|
5
– 20
|
|
|
Orchards
|
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. Development costs consist primarily of the
maintenance costs of orchards such as cultivation, pruning, irrigation, labor,
spraying and fertilization, and interest costs during the development period.
The Company ceases the capitalization of costs and commences depreciation when
the orchards become commercially productive.
F-8
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Capitalized
Interest
Capitalized
interest is recorded on non-bearing orchards, real estate development projects,
and significant construction in progress using the average interest rate during
the fiscal year. Interest of $2,252,000 and $1,292,000 was capitalized during
the years ended October 31, 2009 and 2008, respectively, and is included in
property, plant, and equipment and real estate development assets in the
Company’s consolidated balance sheets.
Real
Estate Development
Expenditures
for real estate development projects are capitalized at cost and include, but
are not limited to, land purchases, interest, professional fees, and
construction costs. Capitalization of interest ceases when a project is
substantially complete and available for sale. Other costs related to real
estate development projects, but which are expensed as incurred, include
campaign costs and certain consulting fees.
Marketable
Securities
The
Company considers investments not qualifying as cash equivalents, but are
readily marketable, to be marketable securities. The Company classifies all
marketable securities as available-for-sale. The Company’s investments in
marketable securities are stated at fair value with unrealized gains (losses),
net of tax, reported as a component of accumulated other comprehensive income
(loss) in the Company’s consolidated statements of stockholders’
equity.
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, 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.
Intangible
Assets
Intangible
assets consist primarily of acquired water and mineral rights and a patent. 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.
F-9
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Long-Lived
Assets
The
Company evaluates long-lived assets, including its 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
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 fair value. Assets held for sale are carried at the
lower of cost or fair value less cost to sell.
The
Company wrote down the carrying value of certain of its real estate development
projects in fiscal years 2009 and 2008. See Note 5.
Fair
Values of Financial Instruments
The fair
values of financial instruments are based on level one indicators, or quoted
market prices, where available, or are estimated using the present value or
other valuation techniques. Estimated fair values are significantly affected by
the assumptions used.
The
carrying amounts of cash and cash equivalents, accounts receivable, notes
receivable, accounts payable, and growers 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 average maturities, the fair value of long-term debt is
approximately equal to its carrying amount as of October 31, 2009, and $278,000
greater than its carrying amount as of October 31, 2008.
Concentrations
of Credit Risk
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. Accounts receivable are stated at their estimated fair values in the
Company’s consolidated balance sheets.
F-10
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Sales to
customers through the Sunkist network accounted for approximately 64% of the
Company’s revenues during fiscal year 2009, approximately 75% during fiscal year
2008, and approximately 73% during fiscal year 2007.
The
Company maintains its cash and cash equivalents 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. The Company believes the risk is not
significant.
Derivative
Financial Instruments
The
Company uses derivative financial instruments for purposes other than trading to
manage its exposure to interest rates as well as to maintain an appropriate mix
of fixed and floating-rate debt. Contract terms of a hedge instrument closely
mirror those of the hedged item, providing a high degree of risk reduction and
correlation. Contracts that are effective at meeting the risk reduction and
correlation criteria are recorded using hedge accounting. If a derivative
instrument is a hedge, depending on the nature of the hedge, changes in the fair
value of the instrument will be either offset against the change in the fair
value of the hedged assets, liabilities or firm commitments through earnings or
be recognized in other comprehensive income until the hedged item is recognized
in earnings. The ineffective portion of an instrument’s change in fair value
will be immediately recognized in earnings. Instruments that do not meet the
criteria for hedge accounting, or contracts for which the Company has not
elected hedge accounting, are valued at fair value with unrealized gains or
losses reported in earnings during the period of change.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is reported in the Company’s consolidated statements of
stockholders’ equity as a component of retained earnings and consists of net
income (loss) and other gains and losses affecting stockholders’ equity that,
under U.S. GAAP, are excluded from net income (loss).
Basic
and Diluted Net Income per Share
Basic net
income per common share is calculated using the weighted-average number of
common shares outstanding during the period without consideration of the
dilutive effect of share-based compensation. Diluted net income per common share
is calculated using the diluted weighted-average number of common shares.
Diluted weighted-average shares include weighted-average shares outstanding plus
the dilutive effect of share-based compensation calculated using the treasury
stock method of 10,000 for fiscal year 2009, 30,000 for fiscal year 2008, and
zero for fiscal year 2007. The Series B convertible preferred shares (see Note
18) are anti-dilutive for fiscal years 2009, 2008, and 2007.
F-11
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Revenue
Recognition
Sales of
products and related costs of products are recognized when (i) persuasive
evidence of an arrangement exists, (ii) delivery has occurred, (iii) selling
price is fixed or determinable, and (iv) collectability is reasonably
assured.
Revenue from the sales of
certain of the Company’s agricultural products is recorded based on estimated
proceeds provided by certain of the Company’s sales and marketing partners
(Calavo and other third-party packinghouses) due to the timing differences
between when the product is delivered by the Company and the closing of the
pools for such fruits at the end of each month. Calavo and other third-party
packinghouses are agricultural cooperatives or function in a similar
manner as an agricultural cooperative. As such, the Company applies specific
authoritative agriculture revenue recognition guidance related to transactions
between patrons and agriculture marketing cooperatives to record revenue at time
of delivery to the packinghouses relating to fruits that are in pools that have
not yet closed at month end if (a) the related fruits have been delivered to and
accepted by Calavo and other third-party packinghouses (i.e. title has
transferred to Calavo and other third-party packinghouses) and (b) sales price
information has been provided by Calavo and other third-party packinghouses
(based on the marketplace activity for the related fruit) to estimate with
reasonable certainty the final selling price for the fruit upon the closing of
the pools. Historically, the revenue that is recorded based on the sales price
information provided to the Company by Calavo and other third-party
packinghouses at the time of delivery, have not materially differed from the
actual amounts that are paid after the monthly pools are closed.
For citrus products
processed through the Company’s packinghouse and sold by Sunkist on the
Company’s behalf, the Company has (i) the general and physical inventory risk,
(ii) the discretion in supplier selection, and (iii) is involved in the
determination of the product that is ultimately sold to the customer. In
addition, Sunkist earns a fixed amount per carton sold for its sales and
marketing services. The sales and marketing services received from Sunkist are
an identifiable benefit to the Company as these benefits enable the
Company to effectively market and sell its citrus product (for which the Company
is charged a fixed amount per carton sold through by Sunkist) and can be
sufficiently separable from the purchase of the citrus products by the
end-customer. In addition, the Company has the ability to enter into
an exchange transaction with a party other than Sunkist in order to receive the
similar sales and marketing services that Sunkist currently provides. Lastly,
the Company is able to reasonably estimate that the fair value of the sales and
marketing services received from Sunkist approximates the per carton fee charged
by Sunkist since Sunkist, an agricultural marketing cooperative of which the
Company is a member, charges standard per carton fees to all members within its
cooperative and such fees are based on sales and marketing expenses incurred by
Sunkist for which the Company has an adequate level of visibility as a
cooperative member. As such, the Company records the
revenues related to these citrus sales on a gross basis with the amounts paid to
Sunkist for the sales and marketing services it renders being recorded in
agriculture
cost and expenses in the Company’s consolidated statement of
operations.
The Company’s avocados,
oranges, specialty citrus and other specialty crops are packed and sold through
by Calavo and other third-party packinghouses. Specifically, the Company
delivers all of its avocado production from its orchards to Calavo. These
avocados are then packed by Calavo at its own packinghouse, and then sold and
distributed under its own brands to its customers primarily in the United States
and Canada. The Company’s arrangements with other third-party packinghouses
related to its oranges, specialty citrus and other specialty crops are similar
to its arrangement with Calavo.
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 revenues the Company
recognizes related to the fruits sold to the third-party packinghouses are based
on the volume and quality of the fruits delivered, the market price for such
fruit, less the packinghouses’ charges to pack and market the fruit. Such
packinghouse charges include the grading, sizing, packing, cooling, ripening and
marketing of the related fruit. The Company bears inventory
risk until product is delivered to the third-party packinghouses at which time
title to the product is transferred to the third-party packinghouses and revenue
is recognized. The third-party packinghouses are (a) the primary
obligor in the arrangements with their end customers, (b) have general inventory
risk once the Company delivers the product to the packinghouse and (c) bear the
credit risk related to sales to their end-customer. The Company is
charged by the third-party packinghouse for packaging and marketing services and
records revenues net of such charges. Such third-party packinghouse charges are
recorded as a reduction of revenue based on the application of specific
authoritative revenue recognition guidance related to a “Vendor’s Income
Statement Characterization of Consideration Given to a Customer”. The
identifiable benefit the Company receives from the third-party packinghouses for
packaging and marketing services cannot be sufficiently separated from the
third-party packinghouses’ purchase of the
Company’s products. In addition, the Company is not able to
reasonably estimate the fair value of the benefit received from the third-party
packinghouses for such services and as such, these costs are characterized as a
reduction of revenue in the Company’s consolidated statement of operations.
For
rental revenue, minimum rent revenues are generally recognized on a
straight-line basis over the respective initial lease term. Contingent rental
revenues are contractually defined as to the percentage of rent to be received
by the Company and are tied to fees collected by the lessee. The Company’s
contingent rental arrangements generally require payment on a monthly basis with
the payment based on the previous month’s activity. The Company accrues
contingent rental revenues based upon estimates and adjusts to actual as the
Company receives payments. Organic recycling percentage rents range from 5% to
10%.
Advertising
Expense
Advertising
costs are expensed as incurred. Such costs in fiscal years 2009, 2008 and 2007
were $57,000, $153,000, and $110,000, respectively.
Cultural
Costs
Costs of
bringing crops to harvest are inventoried when incurred. Such costs are expensed
when the crops are sold and are recorded in agriculture cost and expenses in the
Company’s consolidated statement of operations. Costs during the current
year related to the next year’s crop are inventoried and carried in inventory
until the matching crop is harvested and sold.
F-12
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Leases
The
Company records rent expense for its operating leases on a straight-line basis
from the lease commencement date as defined in the lease agreement until the end
of the base lease term.
Recently
Adopted Accounting Pronouncements
In
October 2009, the Company adopted Financial Accounting Standards Board
Accounting Standard Codification (FASB ASC) 105 (SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles). FASB ASC 105 (SFAS No. 168) established the FASB
Accounting Standards Codification (the Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial standards in conformity
with U.S. GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. FASB ASC 105 (SFAS No. 168) is effective for financial
statements issued for interim and annual periods after September 15, 2009.
On the effective date of FASB ASC 105 (SFAS No. 168), all then-existing
non-SEC accounting and reporting standards are superseded, with the exception of
certain as the promulgations listed in FASB ASC 105 (SFAS No. 168). The
adoption of FASB ASC 105 (SFAS No. 168) had no effect on the Company’s
consolidated financial statements, since the purpose of the Codification is not
to create new accounting and reporting guidance. Rather, the Codification is
meant to simplify user access to all authoritative U.S. GAAP. References to U.S.
GAAP in our financial statements have been updated, as appropriate, to cite the
Codification of FASB ASC 105 (SFAS No. 168).
F-13
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
In
October 2009, the Company adopted FASB ASC 855 (SFAS No. 165, Subsequent Events). FASB ASC
855 (SFAS No. 165) established accounting and reporting standards for events
that occur after the balance sheet date but before financial statements are
issued or are available to be issued. In addition, FASB ASC 855 (SFAS 165)
requires the disclosure of the date through which an entity has evaluated
subsequent events and the basis for selecting that date, that is, whether that
date represents the date the financial statements were issued or were available
to be issued. FASB ASC 855 (SFAS No. 165) is effective for fiscal years and
interim periods ending after June 15, 2009. The adoption of FASB ASC 855
(SFAS No. 165) did not have a material impact on the Company’s consolidated
financial statements.
In
November 2008, the Company adopted FASB ASC 820 (SFAS No. 157, Fair Value Measurements), for
its financial assets and liabilities. FASB ASC 820 (SFAS No. 157) provides
a framework for measuring fair value and requires expanded disclosures regarding
fair value measurements. FASB ASC 820 (SFAS No. 157) defines fair value as
the price that would be received for an asset or the exit price that would be
paid to transfer a liability in the principal or most advantageous market in an
orderly transaction between market participants on the measurement date. FASB
ASC 820 (SFAS No. 157) also establishes a fair value hierarchy which
requires an entity to maximize the use of observable inputs, where
available.
The
following summarizes the three levels of inputs required by the standard that
the Company uses to measure fair value:
|
|
·
|
Level
1: Quoted prices in active markets for identical assets or
liabilities.
|
|
|
·
|
Level
2: Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the related
assets or liabilities.
|
|
|
·
|
Level
3: Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
|
FASB ASC
820 (SFAS No. 157) requires the use of observable market inputs (quoted
market prices) when measuring fair value and requires a Level 1 quoted price to
be used to measure fair value whenever possible.
F-14
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
The
Company’s adoption of FASB ASC 820 (SFAS No. 157) did not have a material
impact on its financial position, results of operations or
liquidity.
In
accordance with FASB ASC 820 (FSP FAS No. 157-2, Effective Date of FASB Statement No.
157), the Company elected to defer, until November 2009, the
adoption of FASB ASC 820 (SFAS No. 157) for all nonfinancial assets and
liabilities that are not recognized or disclosed at fair value in the financial
statements on a recurring basis. The adoption of FASB ASC 820 (SFAS
No. 157) for those assets and liabilities within the scope of FASB ASC 820
(FSP FAS No. 157-2) is not expected to have a material impact on the
Company’s financial position, results of operations, or liquidity.
In
November 2008, the Company adopted FASB ASC 825 (SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB
Statement No. 115), which permits entities to choose to measure many
financial instruments and certain other items at fair value. The Company already
records its marketable securities at fair value in accordance with FASB ASC 320
(SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities). The adoption of
FASB ASC 825 (SFAS No. 159) did not have an impact on the Company’s
consolidated financial statements, as management did not elect the fair value
option for any other financial instruments or certain other assets and
liabilities.
In
March 2008, the Company adopted FASB ASC 815 (SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities). FASB ASC 815 (SFAS No. 161)
requires expanded disclosures regarding the location and amount of derivative
instruments in an entity’s financial statements, how derivative instruments and
related hedged items are accounted for under FASB ASC 815 (SFAS No. 161)
and how derivative instruments and related hedged items affect an entity’s
financial position, operating results and cash flows. The adoption of FASB ASC
815 (SFAS No. 161) did not have an impact on the Company’s consolidated
financial statements and related disclosures.
F-15
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
Recently
Issued Accounting Standards
In
August 2009, the FASB issued Accounting Standards Update No. 2009-5,
Measuring Liabilities at
Fair Value
(ASU No. 2009-05). ASU No. 2009-05 amends ASC 820, Fair Value Measurements.
Specifically, ASU No. 2009-05 provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following methods: 1) a valuation technique that uses a) the quoted
price of the identical liability when traded as an asset or b) quoted prices for
similar liabilities or similar liabilities when traded as assets and/or 2) a
valuation technique that is consistent with the principles of ASC 820. ASU No.
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to adjust to include inputs relating to the
existence of transfer restrictions on that liability. ASU No. 2009-05 is
effective for the first reporting period after its issuance, which will require
the Company to adopt these provisions in the first quarter of fiscal 2010. The
Company does not believe that the adoption of ASU No. 2009-05 will have a
material impact on its consolidated financial statements.
In
June 2009, the FASB issued Financial Accounting Standard No. 166,
Accounting for Transfers of
Financial Assets — an amendment of FASB Statement No. 140 (SFAS
No. 166). SFAS No. 166 clarifies the information that an entity must
provide in its financial statements surrounding a transfer of financial assets
and the effect of the transfer on its financial position, financial performance,
and cash flows. This Statement is effective as of the beginning of the annual
period beginning after November 15, 2009. The Company does not believe that
the adoption of SFAS No. 166 will have a material impact on its
consolidated financial statements.
In
June 2009, the FASB issued Financial Accounting Standard No. 167,
Amendments to FASB
Interpretation No. 46(R) (SFAS No. 167). SFAS No. 167
clarifies and improves financial reporting by entities involved with variable
interest entities. This Statement is effective as of the beginning of the annual
period beginning after November 15, 2009. The Company does not believe that
the adoption of SFAS No. 167 will have a material impact on its
consolidated financial statements.
In
December 2008, the FASB issued FASB ASC 810 (SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No.
51), which changes the accounting and reporting for minority interests.
Minority interests will be re-characterized as noncontrolling interests and will
be reported as a component of equity separate from the parent’s equity, and
purchases or sales of equity interests that do not result in a change in control
will be accounted for as equity transactions. In addition, net income
attributable to the noncontrolling interest will be included in consolidated net
income on the face of the income statement and, upon a loss of control, the
interest sold, as well as any interest retained, will be recorded at fair value
with any gain or loss recognized in earnings. The Company will adopt FASB ASC
810 (SFAS No. 160) no later than the first quarter of fiscal 2010. The
Company does not believe that the adoption of FASB ASC 810 (SFAS No. 160)
will have a material impact on its consolidated financial
statements.
F-16
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
2.
Summary of Significant Accounting Policies (continued)
In
December 2008, the FASB issued FASB ASC 805 (SFAS No. 141R (revised
2008), Business
Combinations), which replaces SFAS No. 141. The statement retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. The Company will adopt FASB ASC 805 (SFAS
No. 141R) no later than the first quarter of fiscal 2010 and it will apply
prospectively to business combinations completed on or after that
date.
In
April 2008, the FASB issued FASB ASC 350-30 (FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets). FASB ASC 350-30 (FSP FAS No. 142-3) amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
ASC 350 (SFAS No. 142). This change is intended to improve the consistency
between the useful life of a recognized intangible asset under FASB ASC 350
(SFAS No. 142) and the period of expected cash flows used to measure the
fair value of the asset under FASB ASC 805 (SFAS No. 141R) and other
generally accepted accounting principles. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FASB ASC 350-30 (FSP FAS No. 142-3) is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years, which will require the Company to adopt these
provisions in the first quarter of fiscal 2010. The Company does not believe
that the adoption of FASB ASC 350-30 (FSP FAS No. 142-3) will have a
material impact on its consolidated financial statements.
3.
Fair Value Measurements
Under the
FASB ASC 820 (SFAS No. 157) hierarchy, an entity is required to maximize
the use of quoted market prices and minimize the use of unobservable inputs. The
following table sets forth the Company’s financial assets and liabilities as of
October 31, 2009, that are measured on a recurring basis during the period,
segregated by level within the fair value hierarchy:
F-17
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
3. Fair Value Measurements
(continued)
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Assets
at fair value:
|
||||||||||||||||
|
Available-
for -sale securities
|
$ | 11,870,000 | $ | – | $ | – | $ | 11,870,000 | ||||||||
|
Liabilities
at fair value:
|
||||||||||||||||
|
Derivatives
|
– | 2,171,000 | – | 2,171,000 | ||||||||||||
Available-for-sale
securities consist of marketable securities in Calavo Growers, Inc. common
stock. The Company currently own approximately 4.6% of Calavo’s outstanding
common stock. These securities are measured at fair value by quoted market
prices. Calavo’s stock price at October 31, 2009 and 2008, equaled $17.85
per share and $10.15 per share. See Note 7.
Derivatives
consist of interest rate swaps whose fair values are estimated using
industry-standard valuation models. Such models project future cash flows and
discount the future amounts to a present value using market-based observable
inputs. See Note 12.
4.
Property, Plant, and Equipment
Property,
plant, and equipment consist of the following at October 31:
|
2009
|
2008
|
|||||||
|
Land
|
$ | 25,186,000 | $ | 24,064,000 | ||||
|
Land
improvements
|
11,810,000 | 11,810,000 | ||||||
|
Buildings
and building improvements
|
13,503,000 | 11,752,000 | ||||||
|
Equipment
|
21,329,000 | 21,087,000 | ||||||
|
Orchards
|
21,372,000 | 18,375,000 | ||||||
|
Construction
in progress
|
1,171,000 | 3,186,000 | ||||||
| 94,371,000 | 90,274,000 | |||||||
|
Less
accumulated depreciation
|
(40,554,000 | ) | (38,684,000 | ) | ||||
| $ | 53,817,000 | $ | 51,590,000 | |||||
Depreciation
expense was $2,310,000, $2,421,000 and $2,257,000 for fiscal years 2009, 2008,
and 2007, respectively, and amortization expense was $13,000, $13,000, and
$10,000 for fiscal years 2009, 2008, and 2007, respectively.
F-18
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
5.
Real Estate Development Assets/Assets Held for Sale
Real
estate development assets consist of the following at October 31:
|
2009
|
2008
|
|||||||
|
East
Areas 1 and 2:
|
||||||||
|
Land
and land development costs
|
$ | 37,788,000 | $ | 35,604,000 | ||||
|
Templeton
Santa Barbara, LLC:
|
||||||||
|
Land
and land development costs
|
15,337,000 | 16,090,000 | ||||||
|
Arizona
Development Projects:
|
||||||||
|
Land
and land development costs
|
– | 5,718,000 | ||||||
|
Total
included in real estate development asset
|
$ | 53,125,000 | $ | 57,412,000 | ||||
Assets
held for sale consist of the following at October 31:
|
2009
|
2008
|
|||||||
|
Templeton
Santa Barbara, LLC and Arizona Development Project:
|
||||||||
|
Land
and land development costs
|
$ | 6,774,000 | $ | 6,270,000 | ||||
|
Total
included in assets held for sale
|
$ | 6,774,000 | $ | 6,270,000 | ||||
East
Areas 1 and 2
In fiscal
year 2005, the Company began capitalizing the costs of two real estate projects
east of Santa Paula, California, for the development of 550 acres of land into
residential units, commercial buildings, and civic facilities. The initial net
book value of the land associated with this project was $8,253,000. During
fiscal years 2009 and 2008, the Company capitalized $2,184,000 and $1,756,000,
respectively, of costs related to these real estate development projects.
Additionally, in relation to this project, the Company has incurred expenses of
$110,000, $966,000, and $1,160,000 in fiscal years 2009, 2008, and 2007,
respectively. During fiscal year 2008, the Company purchased a 63-acre parcel of
land within the project boundary for $22,000,000, which is included in real
estate development assets in the Company’s consolidated balance sheets at
October 31, 2009 and 2008.
F-19
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
5.
Real Estate Development Assets/Assets Held for Sale (continued)
Templeton
Santa Barbara, LLC
In
December 2006, the Company entered into an agreement with Templeton Santa
Barbara, LLC (Templeton) whereby the Company provided a $20,000,000 loan to
Templeton (the Bridge Loan). Templeton used these funds to purchase four
residential development parcels in Santa Maria, California (Templeton project).
The Company obtained the funds for the Bridge Loan through a term loan allowed
under its credit arrangement with City National Bank (the Term Loan). The Term
Loan matured on April 30, 2008 (see Note 11). Interest on the Bridge Loan was
equal to the Prime rate plus 2%. The $20,000,000 principal balance on the Bridge
Loan was due and payable on March 31, 2008, with the remaining outstanding
balance due on October 31, 2009. Under the terms of the agreement with
Templeton, the Company had the option to participate in the Templeton project as
a 20% equity partner or participate as a lender receiving a preferred interest
rate.
In
December 2008, the Company amended its credit arrangement with City National
Bank to extend the maturity date of the Term Loan issued to the Company under
that credit arrangement from December 31, 2007 to April 30, 2008. The Company
then entered into an agreement (the Agreement) with Templeton to extend the due
date of the $20,000,000 Bridge Loan issued to Templeton by the Company from
December 31, 2007 to March 31, 2008. Interest payable to the Company by
Templeton during the extension period was at a rate of Prime plus 2%. The
Agreement called for Templeton to exercise its “best efforts” to sell and/or
refinance the Templeton project using the proceeds from the Bridge Loan. The
Agreement also prioritized the use of all funds received upon the sale or
refinance of the Templeton project as well as defined the Company’s
participation in the ultimate disposition of the Templeton project.
At March
31, 2008, Templeton was unable to meet its obligation under the terms of the
Agreement with the Company. As a result, the Company assumed a 75% controlling
interest in the Templeton project and began consolidating all of the activities
of the Templeton project beginning in April 2008. The $2,656,000 interest
recognized on the Bridge Loan balance at March 31, 2008, was capitalized into
the development costs associated with the Templeton project. The Term Loan was
repaid by the Company in fiscal 2008 with proceeds from the Rabobank credit
facility (see Note 11). Templeton’s minority interest basis in the Templeton
project was zero at October 31, 2008. Templeton assigned its remaining 25%
interest in the Templeton project to the Company in March 2009.
F-20
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
5.
Real Estate Development Assets/Assets Held for Sale (continued)
The
Company wrote down the carrying value of its Templeton project by $4,659,000 in
fiscal year 2009 and $1,341,000 in fiscal year 2008 based on the results of
independent appraisals which indicated that the fair value of the land and
land development costs related to the Templeton project was less than
its carrying value at October 31, 2009 and 2008, respectively.
In
October 2008, the Company received an offer from a third party to purchase one
of the four real estate development parcels within the Templeton project. The
net carrying value (inclusive of impairment charges) related to this particular
real estate development parcel was $6,270,000 and was recorded in assets held
for sale in the Company’s consolidated balance sheet at October 31, 2008. The
sale of this real estate development parcel fell out of escrow during fiscal
2009 and is no longer being held for sale. As such, the net carrying value
(inclusive of impairment charges) of this real estate development parcel is
included in real estate development assets in the Company’s consolidated balance
sheet at October 31, 2009.
In
September 2009, another of the four real estate development parcel within the
Templeton project went into escrow. The net carrying value (inclusive of
impairment charges) related to this particular real estate development parcel is
$3,476,000 and is recorded in assets held for sale in the Company’s Consolidated
Balance Sheet at October 31, 2009.
The three
real estate development parcels not included in assets held for sale are
included in real estate development assets in the Company’s October 31, 2009 and
2008 Consolidated Balance Sheets.
Arizona
Development Projects
In fiscal
year 2007, the Company and Bellagio Builders, LLC, an Arizona limited liability
company, formed a limited liability company, 6037 East Donna Circle, LLC (Donna
Circle), with the sole business purpose of constructing and marketing an
approximately 7,500 square foot luxury home in Paradise Valley, Arizona (Donna
Circle project). In February 2007, Donna Circle obtained an unsecured,
non-revolving line of credit for $3,200,000 with Mid-State Bank (the DC Line).
The DC Line called for monthly, interest only payments with all unpaid principal
due at maturity in February 2009. The interest rate for the DC Line was 7%. All
principal and interest under the DC Line was guaranteed by the Company. As such,
the Company was required to consolidate the activities of the Donna Circle
project since the Company was the primary beneficiary in Donna Circle (which is
deemed to be variable interest entity).The DC Line was repaid by the Company in
fiscal year 2008 with proceeds from the Rabobank credit facility (see Note
11).
F-21
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
5.
Real Estate Development Assets/Assets Held for Sale (continued)
Donna
Circle used proceeds of $1,368,000 from the DC Line to purchase property in
Paradise Valley, Arizona, for the construction of a luxury home. Additionally,
Donna Circle used proceeds of $1,621,000 from borrowings for site preparation,
architect fees, and construction of the project. Total capitalized costs of
$2,989,000 are included in real estate development assets in the Company’s
consolidated balance sheet at October 31, 2008.
In
December 2008, the Donna Circle project was completed (after incurring an
additional $407,000 of capitalized costs during fiscal 2009) and the property
was listed for sale with a real estate broker. As such, the real estate
development assets related to the Donna Circle project were classified by the
Company as assets held for sale at that time. In June 2009, the Company decided
not to sell Donna Circle and instead, executed a two-year lease agreement for
the Donna Circle property with a third party (Renters) whereby the Company is to
receive approximately $7,600 a month in rental fees for a 24-month period
(beginning in July 2009). Based on the terms of the lease agreement, the Renters
have the option to extend the lease for 12 months (after the initial 24-month
rental period) at $8,000 per month and may purchase the home during the option
period for approximately $3,800,000. As such, the Company reclassified its
capitalized real estate development assets from asset held for sale to property,
plant, and equipment in the Company’s consolidated balance sheet at October 31,
2009, as the Donna Circle property is being held and used by the Company to
generate rental income. The Company recognized $39,000 in rental income related
to its Donna Circle property in fiscal year 2009. Such amounts are included in
other revenues in the Company’s consolidated statement of operations for the
year ended October 31, 2009.
The net
carrying value related to Donna Circle is $2,750,000 at October 31, 2009,
consisting of capitalized land costs with a basis of $1,121,000 and capitalized
building costs of $1,629,000, net of (a) fiscal year 2009 depreciation expense
on the capitalized building costs of $43,000 and (b) a fiscal year 2009
impairment charge of $603,000 (which was allocated pro-rata between the
Company’s basis in the capitalized land and building costs for the Donna Circle
property). The fiscal 2009 impairment charge was the result of an independent
appraisal which indicated that the fair value of the Donna Circle project
was less than its carrying value at October 31, 2009.
In fiscal
year 2007, the Company and Bellagio Builders, LLC, an Arizona limited liability
company, formed a limited liability company, 6146 East Cactus Wren Road, LLC
(Cactus Wren) with the sole business purpose of constructing and marketing an
approximately 9,500 square-foot luxury home in Paradise Valley, Arizona (Cactus
Wren project). In March 2007, Cactus Wren obtained an unsecured, non-revolving
line of credit for $3,900,000 with Mid-State Bank (the CW Line). The CW Line
called for monthly, interest only payments with all unpaid principal due at
maturity in March 2009. The interest rate for the CW Line was 7%. All principal
and interest under the CW Line was guaranteed by the Company. As such, the
Company was required to consolidate the activities of the Cactus Wren project
since the Company was the primary beneficiary in Cactus Wren (which is deemed to
be variable interest entity).The CW Line was repaid by the Company in fiscal
year 2008 with proceeds from the Rabobank credit facility (see Note
11).
F-22
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
5.
Real Estate Development Assets/Assets Held for Sale (continued)
Cactus
Wren used proceeds of $1,640,000 from the CW Line to purchase property in
Paradise Valley, Arizona, for the construction of a luxury home. Additionally,
Cactus Wren used proceeds of $2,599,000 from borrowings for site preparation,
architect fees, and construction of the project. Total capitalized costs of
$2,729,000 are included in real estate development assets in the Company’s
consolidated balance sheet at October 31, 2008.
In June
2009, the Cactus Wren project was completed (after incurring an additional
$1,510,000 of capitalized costs during fiscal year 2009) and the property was
listed for sale with a real estate broker. The property remains unsold at
October 31, 2009. As such, the real estate development assets related to the
Cactus Wren project is classified by the Company as assets held for sale in the
Company’s consolidated balance sheet at October 31, 2009.
The net
carrying value related to Cactus Wren is $3,298,000 at October 31, 2009,
consisting of capitalized land and land development costs, net of a fiscal year
2009 impairment charge of $941,000. The fiscal year 2009 impairment charge was
the result of an independent appraisal which indicated that the fair value
of the Cactus Wren project was less than its carrying value at October 31,
2009.
6.
Equity 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 22.1% interest as a limited partner. Based on the terms of the
partnership agreement, the Company may be removed 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.
F-23
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
6.
Equity Investments (continued)
The
Company provided Del Mar with farm management, orchard land development, and
accounting services, which resulted in cash receipts of $134,000, $136,000, and
$128,000 in fiscal years 2009, 2008, and 2007, respectively. The Company also
performed contract lemon packing services for Del Mar in the amount of $425,000,
$415,000, and $528,000 in fiscal years 2009, 2008, and 2007, respectively. Fruit
proceeds due to Del Mar were $125,000 and $354,000 at October 31, 2009 and 2008,
respectively.
Vista
Pointe, LLC
The
Company and Priske Jones, Inc. each owned a 50% interest in Vista Pointe, LLC,
which was formed in 1996 for the purpose of developing 9 estate lots and 28
single-family homes in Santa Paula, CA. Since the Company had significant
influence, but less than a controlling interest, the Company’s investment in
Vista Pointe, LLC was accounted for using the equity method of accounting. In
fiscal 2009, the 10-year liability period for construction defects expired, and
Vista Pointe, LLC was liquidated. Prior to its liquidation, Vista Pointe, LLC
distributed $7,000 to the Company during fiscal year 2009. The remaining $6,000
equity investment balance was written off by the Company during fiscal year
2009.
Windfall
Investors, LLC
In
September 2005, the Company, along with Windfall, LLC (Windfall), formed a
partnership, Windfall Investors, LLC (Investors). Also, in September of 2005,
Investors purchased a 724-acre ranch in Creston, California (the Ranch), for
$12,000,000.
The
Company and Windfall each made initial capital contributions to Investors of
$300 (15% ownership interest) and $1,700 (85% ownership interest), respectively.
To fund the purchase of the Ranch, Investors secured a long-term loan from Farm
Credit West (the Bank) for $9,750,000 (term loan). The remaining $2,250,000 of
the purchase was provided from an $8,000,000 revolving line of credit (revolving
line of credit) provided to Investors by the Bank under an agreement entered
into between Investors and the Bank in September 2005. In May 2008, the Bank
agreed to increase the total line of credit available to Investors from
$8,000,000 to $10,500,000. The total indebtedness outstanding under the term
loan and the revolving line of credit are guaranteed, jointly and severally, by
the Company and Windfall. At October 31, 2009 and 2008, there was $19,186,000
and $18,056,000, respectively, outstanding under the term loan and the revolving
line of credit.
F-24
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
6.
Equity Investments (continued)
In fiscal
2008, the Company and Windfall amended its Operating Agreement for Investors.
Effective January 1, 2007, net profits or net losses from operation of the
Ranch’s equestrian facilities were agreed to be shared by the Company and
Windfall 0% and 100%, respectively. Net profits or net losses from the sale or
disposition of the Ranch were agreed to be shared by the Company and Windfall
15% and 85%, respectively.
The
Company has a variable interest in Investors (which is deemed to be a variable
interest entity). However, the Company is not required to consolidate Investors
since the Company is not the primary beneficiary of Investors due to the Company
not being required to absorb a majority of Investor’s expected losses or receive
a majority of Investor’s expected residual returns.
Since the
Company has significant influence, but less than a controlling interest, the
Company accounts for its investment in Investors using the equity method of
accounting. See Note 21 for details on the subsequent event transaction related
to Investors.
Romney
Property Partnership
In May
2007, the Company and an individual formed the Romney Property Partnership
(Romney) for the purpose of owning an office building and adjacent lot in Santa
Paula, California. The Company paid $489,000 in 2007 for 75% interest in Romney
and contributed an additional $30,000 to the partnership during fiscal 2008. 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 and the individual
75% and 25%, respectively.
F-25
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
6.
Equity Investments (continued)
The
following are condensed (unaudited) financial statements of the equity method
investees for the years ended October 31, 2009, 2008, and 2007,
respectively:
|
Vista
|
||||||||||||||||||||
|
Del Mar
|
Pointe
|
Investors
|
Romney
|
Total
|
||||||||||||||||
|
2009
|
||||||||||||||||||||
|
Assets
|
$ | 1,656,000 | $ | – | $ | 12,435,000 | $ | 680,000 | $ | 14,771,000 | ||||||||||
|
Liabilities
|
$ | – | $ | – | $ | 19,492,000 | $ | – | $ | 19,492,000 | ||||||||||
|
Equity
(deficit)
|
1,656,000 | – | (7,057,000 | ) | 680,000 | (4,721,000 | ) | |||||||||||||
|
Total
liabilities and equity
|
$ | 1,656,000 | $ | – | $ | 12,435,000 | $ | 680,000 | $ | 14,771,000 | ||||||||||
|
Revenues
|
$ | 846,000 | $ | – | $ | 660,000 | $ | 16,000 | $ | 1,522,000 | ||||||||||
|
Expenses
|
735,000 | 10,000 | 1,948,000 | 19,000 | 2,712,000 | |||||||||||||||
|
Net
income (loss)
|
$ | 111,000 | $ | (10,000 | ) | $ | (1,288,000 | ) | $ | (3,000 | ) | $ | (1,190,000 | ) | ||||||
|
2008
|
||||||||||||||||||||
|
Assets
|
$ | 1,857,000 | $ | 10,000 | $ | 12,616,000 | $ | 683,000 | $ | 15,166,000 | ||||||||||
|
Liabilities
|
$ | – | $ | – | $ | 18,385,000 | $ | – | $ | 18,385,000 | ||||||||||
|
Equity
(deficit)
|
1,857,000 | 10,000 | (5,769,000 | ) | 683,000 | (3,219,000 | ) | |||||||||||||
|
Total
liabilities and equity
(deficit)
|
$ | 1,857,000 | $ | 10,000 | $ | 12,616,000 | $ | 683,000 | $ | 15,166,000 | ||||||||||
|
Revenues
|
$ | 2,430,000 | $ | – | $ | 968,000 | $ | 21,000 | $ | 3,419,000 | ||||||||||
|
Expenses
|
698,000 | 2,000 | 2,879,000 | 19,000 | 3,598,000 | |||||||||||||||
|
Net
income (loss)
|
$ | 1,732,000 | $ | (2,000 | ) | $ | (1,911,000 | ) | $ | 2,000 | $ | (179,000 | ) | |||||||
|
2007
|
||||||||||||||||||||
|
Assets
|
$ | 2,781,000 | $ | 12,000 | $ | 13,056,000 | $ | 652,000 | $ | 16,501,000 | ||||||||||
|
Liabilities
|
$ | – | $ | – | $ | 16,914,000 | $ | – | $ | 16,914,000 | ||||||||||
|
Equity
(deficit)
|
2,781,000 | 12,000 | (3,858,000 | ) | 652,000 | (413,000 | ) | |||||||||||||
|
Total
liabilities and equity
(deficit)
|
$ | 2,781,000 | $ | 12,000 | $ | 13,056,000 | $ | 652,000 | $ | 16,501,000 | ||||||||||
|
Revenues
|
$ | 2,172,000 | $ | – | $ | 1,638,000 | $ | 12,000 | $ | 3,822,000 | ||||||||||
|
Expenses
|
648,000 | 2,000 | 3,424,000 | 11,000 | 4,085,000 | |||||||||||||||
|
Net
income (loss)
|
$ | 1,524,000 | $ | (2,000 | ) | $ | (1,786,000 | ) | $ | 1,000 | $ | (263,000 | ) | |||||||
F-26
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
6.
Equity Investments (continued)
Limoneira
Company’s investment and equity in (losses) earnings of the equity method
investees are as follows:
|
Vista
|
|||||||||||||||||||||
|
Del Mar
|
Pointe
|
Investors
|
Romney
|
Total
|
|||||||||||||||||
|
Investment
balance October 31, 2006
|
$ | 1,352,000 | $ | 13,000 | $ | (1,036,000 | ) | $ | – | $ | 329,000 | ||||||||||
|
Equity
earnings (losses)
|
357,000 | – | (268,000 | ) | – | 89,000 | |||||||||||||||
|
Cash
distribution
|
(362,000 | ) | – | – | – | (362,000 | ) | ||||||||||||||
|
Investment
contributions
|
37,000 | – | – | 489,000 | 526,000 | ||||||||||||||||
|
Investment
balance October 31, 2007
|
1,384,000 | 13,000 | (1,304,000 | ) | 489,000 | 582,000 | |||||||||||||||
|
Equity
earnings (losses)
|
405,000 | – | (252,000 | ) | – | 153,000 | |||||||||||||||
|
Cash
distribution
|
(623,000 | ) | – | – | – | (623,000 | ) | ||||||||||||||
|
Investment
contributions
|
– | – | – | 30,000 | 30,000 | ||||||||||||||||
|
Investment
balance October 31, 2008
|
1,166,000 | 13,000 | (1,556,000 | ) | 519,000 | 142,000 | |||||||||||||||
|
Equity
earnings (losses)
|
26,000 | (6,000 | ) | (186,000 | ) | (4,000 | ) | (170,000 | ) | ||||||||||||
|
Cash
distribution
|
(72,000 | ) | (7,000 | ) | – | – | (79,000 | ) | |||||||||||||
|
Investment
balance October 31, 2009
|
$ | 1,120,000 | $ | – | $ | (1,742,000 | ) | $ | 515,000 | $ | (107,000 | ) | |||||||||
The
Company’s equity method investment balances in Del Mar, Vista Pointe and Romney
are included in equity in investments in the Company’s consolidated balance
sheets at October 31, 2009 and 2008, respectively.
The
Company is required to record a negative equity method investment balance (which
is subsequently reclassified to other-long term liabilities) for Investors since
the Company has guaranteed Investor’s outstanding indebtedness under its term
loan and revolving line of credit. The Company’s negative equity method
investment balance for Investors is included in other long-term liabilities in
the Company’s consolidated balance sheets at October 31, 2009 and 2008,
respectively.
F-27
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
7.
Investment in Calavo Growers, Inc.
In June
2005, the Company entered into a stock purchase agreement with Calavo. Pursuant
to this agreement, the Company purchased 1,000,000 shares, or approximately
6.9%, of Calavo’s common stock for $10,000,000 and Calavo purchased 172,857
shares, or approximately 15.1%, of the Company’s common stock for $23,450,000.
Under the terms of the agreement, the Company received net cash consideration of
$13,450,000. The Company has classified its marketable securities investment as
available-for-sale.
In fiscal
year 2009, the Company sold 335,000 shares of Calavo stock for a total of
$6,079,000; recognizing a total gain of $2,729,000 which was recorded in other
income (expense) in the Company’s consolidated statement of operations for the
year ended October 31, 2009. Additionally, the changes in the fair value of the
available-for-sale securities result in unrealized holding gains or losses for
the remaining shares held by the Company. In fiscal year 2009, the Company
recorded a total unrealized holding gain of $5,070,000 due to the increase in
the market value of the Company’s remaining 665,000 shares of Calavo common
stock at October 31, 2009. In fiscal year 2008, the Company recorded a total
unrealized holding loss of $12,760,000 due to the decrease in the market value
of its 1,000,000 shares of Calavo common stock at October 31, 2008.
8.
Notes Receivable
In fiscal
year 2004, the Company sold a parcel of land in Morro Bay, California. The sale
was recognized under the installment method and the resulting gain on sale of
$161,000 was deferred. In connection with the sale, the Company recorded a note
receivable of $4,263,000. Principal of $2,963,000 and interest was paid in April
2005 and $112,000 of the deferred gain was recognized as income at that time.
The remaining $49,000 balance of the deferred gain is included in accrued
liabilities in the Company’s consolidated balance sheets at October 31, 2009 and
2008. The remaining principal balance of $1,300,000 and the related accrued
interest was initially payable in April 2009 and was recorded in current notes
receivable in the Company’s consolidated balance sheet at October 31, 2008.
However, the Company and the buyer of the Morro Bay land executed a note
extension agreement in March 2009. Based on the terms of the note extension
agreement, the remaining principal balance of $1,300,000 and the related accrued
interest is now required to be paid in full on April 1, 2014, and is being
recorded in noncurrent notes receivable in the Company’s consolidated balance
sheet at October 31, 2009. Interest continues to accrue at 7.0% on the principal
balance of the note.
F-28
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
8.
Notes Receivable (continued)
In
connection with the lease of a retail facility, the Company recorded a note
receivable in May 2007 of $350,000. The note bears interest at the Prime rate
plus 2.00%, payable monthly. This note is unsecured and matures in May 2012. The
note receivable balance was $350,000 at October 31, 2009 and 2008, respectively
and is being recorded in noncurrent notes receivable in the Company’s
consolidated balance sheets.
In
connection with Company’s stock grant program (see Note 18), the Company has
recorded total notes receivable and accrued interest from related parties of
$1,803,000 and $1,456,000 at October 31, 2009 and 2008, respectively. These
notes were issued in connection with payments made by the Company on behalf of
its employees for payroll taxes on stock compensation. These notes bear interest
at the mid-term applicable federal rate then in effect, with principal and
accrued interest due and payable within 24 months from the date of the note. A
portion of the notes receivable and accrued interest balance related to three
employees (the Officers) became due in November and December 2009. As such, the
total $1,519,000 notes receivable and accrued interest due to be paid by the
Officers within one year at October 31, 2009 is recorded in current notes
receivable – related parties in the Company’s consolidated balance sheet at
October 31, 2009. The remaining $284,000 notes receivable and accrued interest
balance from employees that are not due to be paid within one year at October
31, 2009 is recorded in noncurrent notes receivable – related parties in the
Company’s consolidated balance sheet at October 31, 2009. See Note 21 for
details on the subsequent event related to these Officers notes receivable
balances.
9.
Other Assets
Other
assets at October 31 are comprised of the following:
|
2009
|
2008
|
|||||||
|
Investments
in mutual water companies
|
$ | 1,205,000 | $ | 1,175,000 | ||||
|
Acquired
water and mineral rights
|
1,536,000 | 1,536,000 | ||||||
|
Definite-lived
intangibles and other assets
|
1,052,000 | 628,000 | ||||||
|
Revolving
funds and memberships
|
514,000 | 575,000 | ||||||
| $ | 4,307,000 | $ | 3,914,000 | |||||
F-29
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
9.
Other Assets (continued)
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. Since the Company does not have the
ability to control or exercise significant influence over the operating and
financial policies of each of these not-for-profit mutual water companies, the
Company is accounting for such investments at historical
cost.
Acquired
Water and Mineral Rights
Acquired
water and mineral rights are indefinite-life intangible assets not subject to
amortization. No impairments were identified for these indefinite-life
intangible assets for the years ended October 31, 2009 and 2008,
respectively.
In July
2007, the Company entered into an agreement to purchase 300 membership shares
from a member of the Santa Paula Basin Pumpers Association (SPBPA) for
$1,500,000. The $1,500,000 acquisition price resulted from a bargained exchange
transaction that was conducted at arm’s length. As such, the Company recorded
its SPBPA acquired water rights at its acquisition price and is included in
other assets in the Company’s consolidated balance sheets. The Company’s
acquisition of the 300 membership shares of SPBPA constitutes a purchase of
water rights with an indefinite life as the water rights go into perpetuity. The
Company also acquired other water rights from an unrelated third party in the
amount of $12,000, which is being accounted for consistently with the SPBPA
acquired water rights.
The
Company’s ownership of mineral rights consists of oil and gas deposits located
within the Company’s Ventura County property boundaries. Similar to its acquired
water rights, the Company’s acquired mineral rights have an indefinite life as
the mineral rights go into perpetuity. The $24,000 acquisition price resulted
from a bargained exchange transaction that was conducted at arm’s length. As
such, the Company recorded its acquired mineral rights at its acquisition price
and is included in other assets in the Company’s consolidated balances
sheets.
Definite-Lived
Intangibles and Other Assets
In fiscal
2003, the Company paid $150,000 to obtain certain propagation rights (Patent)
for an agricultural variety. During fiscal years 2005 and 2006, the
Company incurred an additional $72,000 in costs related to the
Patent. The Patent was issued in fiscal year 2007 and is being
amortized over its legal life of 17 years. The gross carrying value
of the Patent was $222,000 as of October 31, 2009 and 2008, respectively. The
related accumulated amortization was $34,000 and $21,000 at October 31, 2009 and
2008, respectively. The Company recorded amortization expense of
$13,000 for fiscal years 2009 and 2008, respectively.
F-30
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
9.
Other Assets (continued)
The
Company expects to amortize $13,000 each year for fiscal years 2010 through 2014
related to its Patent. The remaining amounts in other assets consist primarily
of deferred borrowing costs (see Note 11), amounts invested in the racing career
of Charlie Kimball (see Note 13), deferred rent asset (See Note 17) and prepaid
pollination equipment (see Note 17).
Revolving
Funds and Memberships
Revolving
funds and memberships represent the Company’s investments in various cooperative
associations. The Company pays to Sunkist and certain other cooperatives an
annual assessment based on sales volume or other criteria. These funds are
typically held for five years at which time they are refunded to the Company.
Revolving funds related to the Company’s fruit packed at outside packinghouses
are withheld from payments made to the Company during the year and also
refunded, typically in five years.
10.
Discontinued Operations
In
December 2005, Limoneira Company International Division, LLC entered into an
agreement whereby it acquired substantially all of the assets, liabilities, and
operations of Movin’ Mocha (Mocha), a California general partnership. The
initial purchase price of $1,000,000 was payable $500,000 at closing, $250,000
on the first anniversary of the closing and $250,000 on the second anniversary
of the closing. Mocha owned and operated coffee houses and coffee carts in seven
locations in the Modesto-Fresno corridor. Additionally, Mocha owned and operated
a bakery facility.
In
October 2006, the Company decided, that because of continuing operational losses
in its retail coffee and coffee distribution businesses, it would exit the
coffee business. In connection with that decision, the Company approved a plan
to exit the retail coffee and coffee distribution business. Sales and operating
losses for fiscal year 2009 were $8,000 and $22,000, respectively. Sales and
operating losses for fiscal year 2008 were $181,000 and $418,000, respectively.
Sales and operating losses for fiscal 2007 were $1,101,000 and $408,000,
respectively. During fiscal year 2007, as a result of an arbitration agreement,
the Company finalized the purchase of Mocha with a cash payment of $650,000. The
remaining balances due on the purchase price, plus interest, were paid in full
and the retail coffee and coffee distribution business incurred an additional
charge to income of $75,000 related to the final settlement. Additionally, in
fiscal year 2007 the Company wrote down the carrying value of a retail building
by $100,000. In fiscal year 2008, the Company ceased operations in all of
Mocha’s retail facilities, sold the business along with certain assets, and then
proceeded to sell or dispose of all of the remaining assets. At October 31,
2008 the purchaser of one of Mocha’s retail buildings was in default on a note
to the Company and the Company initiated the process of foreclosure
procedures.
F-31
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
10.
Discontinued Operations (continued)
As a
result, the retail coffee and coffee distribution business incurred a charge to
income of $86,000 in fiscal year 2008. The foreclosure was finalized in fiscal
year 2009, at which time the ownership rights to the building reverted back to
the Company.
The
assets and liabilities of the coffee business at October 31 are comprised of the
following:
|
2009
|
2008
|
|||||||
|
Cash
|
$ | 4,000 | $ | 1,000 | ||||
|
Accounts
receivable
|
3,000 | 14,000 | ||||||
|
Prepaid
expenses
|
2,000 | 1,000 | ||||||
|
Deferred
taxes
|
277,000 | 301,000 | ||||||
|
Notes
receivable
|
161,000 | 156,000 | ||||||
|
Total
assets
|
$ | 447,000 | $ | 473,000 | ||||
|
Accounts
payable
|
$ | 2,000 | $ | 5,000 | ||||
|
Accrued
liabilities
|
– | 21,000 | ||||||
|
Total
liabilities
|
$ | 2,000 | $ | 26,000 | ||||
F-32
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
11.
Long-Term Debt
Long-term
debt at October 31 is comprised of the following:
|
2009
|
2008
|
|||||||
|
Rabobank
revolving credit facility secured by property with a net book value of
$12,260,000. The interest rate is variable based on the one-month London
Interbank Offered Rate plus 1.50%. Interest is payable monthly and the
principal is due in full in June 2013.
|
$ | 61,671,000 | $ | 57,123,000 | ||||
|
Central
Coast Federal Land Bank Association loan secured by property with a net
book value of $11,674,000. The interest rate is variable and was 3.25% at
October 31, 2009. The loan is payable in quarterly installments through
November 2022.
|
7,094,000 | 7,483,000 | ||||||
|
Central
Coast Federal Land Bank Association loan secured by property with a net
book value of $11,674,000. The interest rate is variable and was 3.25% at
October 31, 2009. The loan is payable in monthly installments through May
2032.
|
951,000 | 976,000 | ||||||
|
Subtotal
|
69,716,000 | 65,582,000 | ||||||
|
Less
current portion
|
465,000 | 382,000 | ||||||
|
Total
long-term debt, less current position
|
$ | 69,251,000 | $ | 65,200,000 | ||||
In
October 2001, the Company entered into a credit arrangement with City National
Bank whereby it could borrow up to $10,000,000 on an unsecured line of credit,
which was renewed in March 2004 and May 2006, and increased to $15,000,000 in
March 2007. There were no amounts outstanding at October 31, 2008, under this
arrangement. Additionally, the credit arrangement allowed for an additional
$5,000,000 to be made available to the Company for equipment acquisition loans.
Loans for equipment expenditures were payable in 16 substantially equal
quarterly installments. There were no amounts outstanding at October 31, 2008,
under this arrangement. The credit arrangement also allowed for a $20,000,000
term loan, with interest payable monthly and principal payable in full on April
30, 2008. This credit arrangement expired in fiscal year 2008.
F-33
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
11.
Long-Term Debt (continued)
In August
2008, the Company entered into a credit arrangement with Rabobank whereby it
could borrow up to $80,000,000 on a secured line of credit. The initial
agreement was superseded by amended agreements in December 2008 and May 2009.
All outstanding amounts due under the credit arrangement with City National Bank
were repaid with proceeds from the Rabobank credit facility and the City
National Bank credit facility which was allowed to expire.
In fiscal
year 2009, the Company incurred $124,000 of costs to Rabobank and other third
parties in conjunction with finalizing its debt agreement with Rabobank. Such
costs were capitalized and are being amortized using the straight-line method
over the terms of the amended Rabobank credit agreement. Included in other
assets in the Company’s consolidated balance sheet was $101,000 of capitalized
deferred borrowing costs at October 31, 2009. Accumulated amortization related
to the capitalized deferred borrowing costs was $23,000 as of October 31, 2009.
The amortization of the deferred borrowing costs is recorded as interest expense
in the Company’s consolidated statement of operations for the year ended October
31, 2009.
The
Company, under the terms of the Rabobank credit arrangement, is subject to an
annual financial covenant. At October 31, 2009, the Company was out of
compliance with its annual financial covenant for which a covenant waiver was
received from Rabobank for the year ended October 31, 2009. Under the terms of
the credit arrangement with Rabobank, the financial covenant is not subsequently
measured again until October 31, 2010. The Company anticipates being in
compliance with its annual financial covenant at October 31,
2010.
In
January 2009, the Company and Farm Credit West (FCW) entered into an agreement
whereby FCW agreed to convert the fixed interest portion of the two Central
Coast Federal Land Bank Association loans to variable rates. The Company
incurred $42,000 of costs to FCW for this rate conversion. Such costs were
capitalized and are being amortized using the straight-line method over the
terms of the FCW credit agreement. Included in other assets in the consolidated
balance sheet was $40,000 of capitalized deferred borrowing costs at October 31,
2009. Accumulated amortization related to the capitalized deferred borrowing
costs was $2,000 as of October 31, 2009. The amortization of the deferred
borrowing costs is recorded as interest expense in the consolidated statement of
operations for the year ended October 31, 2009
F-34
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
11.
Long-Term Debt (continued)
Principal
payments on the Company’s long-term debt are due as follows:
|
2010
|
$ | 465,000 | ||
|
2011
|
480,000 | |||
|
2012
|
496,000 | |||
|
2013
|
62,183,000 | |||
|
2014
|
529,000 | |||
|
Thereafter
|
5,563,000 | |||
|
Total
|
$ | 69,716,000 |
Beginning
in fiscal year 2004, the Company utilizes standby letters of credit to satisfy
workers’ compensation insurance security deposit requirements. At October 31,
2009, these outstanding letters of credit totaled $472,000.
12.
Derivative Instruments and Hedging Activities
The
Company enters into interest rate swaps to minimize the risks and costs
associated with its financing activities. Derivative financial instruments
designated for hedging at October 31 are as follows:
|
Notional Amount
|
Fair Value Net Liability
|
||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as
cash
flow hedge, maturing 2013
|
$ | 22,000,000 | $ | 22,000,000 | $ | 1,678,000 | $ | 541,000 | |||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as
cash
flow hedge, maturing 2010
|
10,000,000 | 10,000,000 | 287,000 | 96,000 | |||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as
cash
flow hedge, maturing 2010
|
10,000,000 | – | 206,000 | – | |||||||||||||
|
Total
|
$ | 42,000,000 | $ | 32,000,000 | $ | 2,171,000 | $ | 637,000 | |||||||||
F-35
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
12.
Derivative Instruments and Hedging Activities (continued)
These
interest rate derivatives qualify as cash flow hedges. Therefore, the fair value
adjustments to the underlying debt are deferred and included in accumulated
other comprehensive income (loss) in the Company’s consolidated balance sheets
at October 31, 2009 and 2008.
13. Related-Party
Transactions
The
Company rents certain of its residential housing assets to its employees,
including its agribusiness employees. The Company records the rental income
generated from these employees in rental revenues in the Company’s consolidated
statements of operations.
A member
of the Company’s Board of Directors is currently a Director of a mutual water
company in which the Company is an investor. The mutual water company provided
water to the Company, for which the Company paid $267,000 and $228,000 in fiscal
years 2009 and 2008, respectively. Water payments due to the mutual water
company were $51,000 and $54,000 at October 31, 2009 and 2008,
respectively.
The
Company has invested in the career of Charlie Kimball, a Formula 1 racing
driver, who is related to a member of the Company’s Board of Directors. Recorded
in other assets in the Company’s consolidated balance sheets are total
investments made to Charlie Kimball of $300,000 and $200,000 as of October 31,
2009 and 2008, respectively.
The
amount invested by the Company is to be used by Charlie Kimball to further his
career goal of becoming a Formula One driver. The terms of the investments
provide that each $100,000 investment will be repaid to the Company upon the
first to occur of any of the following: (a) Charlie Kimball enters university as
a full-time student, which the Company refers to as the student trigger; (b)
Charlie Kimball reaches the position of a full-time salaried driver in the
Formula One World Championship, which the Company refers to as the F1 trigger;
and (c) the Company exercises the option to have its investment repaid, which
may not occur prior to January 23, 2010, which is referred to as the investor
trigger. For each $100,000 investment, the Company will be repaid the following
amounts: (x) in the event of the student trigger, the Company will be repaid the
amount of its investment; (y) in the event of the F1 trigger, the Company will
be repaid twice its investment in three equal annual installments beginning 120
days following the day the F1 trigger occurs; and (z) in the event of the
investor trigger, the Company will be repaid the amount of its investment within
one year after the investor trigger is exercised with an additional $25,000
payment if Charlie Kimball is a professional (salaried) racing driver on the day
the investor trigger is exercised.
F-36
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
13.
Related Party Transactions (continued)
In fiscal
years 2009, 2008, and 2007, the Company recorded dividend income of $350,000,
$350,000, and $320,000, respectively, on its investment in Calavo; which is
included in other income (loss), net in the Company’s consolidated statements of
operations. Sales of the Company’s avocados by Calavo totaled $4,026,000,
$3,502,000, and $3,185,000 for fiscal years 2009, 2008 and 2007, respectively.
Such amounts are included in agriculture revenues in the Company’s consolidated
statements of operations. There were no amounts that were receivable by the
Company from Calavo at October 31, 2009 or 2008. Additionally, the Company
leases office space to Calavo and received annual rental income of $229,000,
$220,000, and $220,000 in fiscal years 2009, 2008, and 2007, respectively. Such
amounts are included in rental revenues in the Company’s consolidated
statements of operations.
14.
Income Taxes
The
components of the provisions for income taxes (from continuing operations) for
fiscal years 2009, 2008, and 2007 are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 459,000 | $ | 1,347,000 | $ | 663,000 | ||||||
|
State
|
225,000 | 528,000 | 208,000 | |||||||||
|
Total
current provision
|
684,000 | 1,875,000 | 871,000 | |||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
(2,306,000 | ) | 182,000 | 230,000 | ||||||||
|
State
|
(669,000 | ) | 71,000 | 76,000 | ||||||||
|
Total
deferred (benefit) provision
|
(2,975,000 | ) | 253,000 | 306,000 | ||||||||
|
Total
(benefit) provision
|
$ | (2,291,000 | ) | $ | 2,128,000 | $ | 1,177,000 | |||||
The
income tax provision differs from the amount which would result from the
statutory federal income tax rate primarily as a result of dividend exclusions,
the domestic production activities deduction, and state income
taxes.
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.
F-37
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
14.
Income Taxes (continued)
The
components of deferred income tax assets (liabilities) at October 31, 2009 and
2008, are as follows:
|
2009
|
2008
|
|||||||
|
Current deferred
income tax assets:
|
||||||||
|
Labor
accruals
|
$ | 196,000 | $ | 150,000 | ||||
|
Property
taxes
|
(201,000 | ) | (191,000 | ) | ||||
|
State
income taxes
|
65,000 | 175,000 | ||||||
|
Prepaid
insurance
|
93,000 | (6,000 | ) | |||||
|
Total
current deferred income tax assets:
|
153,000 | 128,000 | ||||||
|
Noncurrent deferred
income tax liabilities:
|
||||||||
|
Depreciation
|
(2,986,000 | ) | (2,926,000 | ) | ||||
|
Amortization
|
(2,000 | ) | (1,000 | ) | ||||
|
Impairment
of real estate development
|
3,005,000 | 534,000 | ||||||
|
Derivative
instruments
|
865,000 | 254,000 | ||||||
|
Pension
|
1,736,000 | (30,000 | ) | |||||
|
Other
|
171,000 | 312,000 | ||||||
|
Calavo
stock
|
(2,076,000 | ) | (57,000 | ) | ||||
|
Book
and tax basis difference of acquired assets
|
(9,477,000 | ) | (9,627,000 | ) | ||||
| Total noncurrent deferred income tax liabilities | (8,764,000 | ) | (11,541,000 | ) | ||||
|
Deferred
tax asset related to loss on discontinued operations
|
277,000 | 301,000 | ||||||
|
Net deferred
income tax liabilities
|
$ | (8,334,000 | ) | $ | (11,112,000 | ) | ||
The
current deferred income tax asset is being recorded in prepaid expenses and
other current assets in the Company’s consolidated balance sheets at
October 31, 2009 and 2008. The deferred tax asset related to loss on
discontinued operations is included in noncurrent assets of discontinued
operations in the Company’s consolidated balance sheets at October 31, 2009 and
2008.
The
income tax provision differs from that computed using the federal statutory rate
applied to income before taxes as follows for fiscal years 2009, 2008, and
2007:
F-38
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
14.
Income Taxes (continued)
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
|||||||||||||||||||
|
Provision
at statutory rates
|
$ | (1,753,000 | ) | (34.0 | )% | $ | 2,006,000 | 34.0 | % | $ | 1,218,000 | 34.0 | % | |||||||||||
|
State
income tax, net of federal benefit
|
(299,000 | ) | (5.6 | )% | 387,000 | 6.6 | % | 211,000 | 5.9 | % | ||||||||||||||
|
Dividend
exclusion
|
(83,000 | ) | (1.6 | )% | (94,000 | ) | (1.6 | )% | (93,000 | ) | (2.6 | )% | ||||||||||||
|
Production
deduction
|
(127,000 | ) | (2.5 | )% | (204,000 | ) | (3.5 | )% | (33,000 | ) | (0.9 | )% | ||||||||||||
|
Change
in unrecognized tax benefits
|
(144,000 | ) | (2.8 | )% | 11,000 | 0.2 | % | – | – | |||||||||||||||
|
Other
nondeductible items
|
115,000 | 2.2 | % | 22,000 | 0.4 | % | (126,000 | ) | (3.5 | )% | ||||||||||||||
|
Total
income tax (benefit) provision
|
$ | (2,291,000 | ) | (44.3 | )% | $ | 2,128,000 | 36.1 | % | $ | 1,177,000 | 32.9 | % | |||||||||||
On
November 1, 2007, the Company adopted the provisions related to uncertain tax
positions. The Company recorded a cumulative effect adjustment of $55,000
including interest and penalties, which was accounted for as an adjustment to
the beginning balance of retained earnings.
A tabular
reconciliation of the total amounts of unrecognized tax benefits at the
beginning and end of fiscal years 2009 and 2008 are as
follows:
|
2009
|
2008
|
|||||||
|
Unrecognized
tax benefits at the beginning of
the year
|
$ | 164,000 | $ | 164,000 | ||||
|
Increases
in tax positions taken in the prior year
|
– | – | ||||||
|
Decreases
in tax positions taken in the prior year
|
– | – | ||||||
|
Increases
in tax positions for current year
|
– | – | ||||||
|
Settlements
|
– | – | ||||||
|
Lapse
in statute of limitations
|
(126,000 | ) | – | |||||
|
Unrecognized
tax benefits at the end of the
year
|
$ | 38,000 | $ | 164,000 | ||||
Approximately
$33,000 of the unrecognized tax liabilities at October 31, 2009, if recognized,
would affect the effective tax rate. The Company does not expect its
unrecognized tax benefits to change significantly over the next 12
months.
The
Company files income tax returns in the U.S. and California. The Company is no
longer subject to U.S. income tax examinations for the fiscal years prior to
fiscal year October 31, 2006, and is no longer subject to state income tax
examinations for years prior to October 31, 2005. The Company’s policy is to
recognize interest expense and penalties related to income tax matters as a
component of income tax expense. There was $10,000 of accrued interest and
penalties associated with uncertain tax positions as of October 31,
2009.
F-39
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
15.
Retirement Plans
Effective
December 31, 1991, the Company merged the Limoneira Hourly and Piece Rated
Pension Plan and their salaried plan, into the Sunkist Retirement Plan, Plan L
(the Plan). All participants became members of the Plan at that time, and all
assets became part of the Sunkist Retirement Plan L Trust. Until January 2006,
the Plan was administered by the Sunkist Retirement Investment Board. Since
January 2006, the Plan has been administered by City National Bank and Mercer
Human Resource Consulting.
The Plan
is a noncontributory, defined benefit, single employer pension plan, which
provides retirement benefits for all eligible employees of the Company. Since
Limoneira Company’s Defined Benefit Pension Plan is a single employer plan
within the Sunkist Master Trust, its liability was not commingled with that of
the other plans holding assets in the Master Trust. Limoneira Company has an
undivided interest in its assets. Benefits paid by the Plan are calculated based
on years of service, highest five-year average earnings, primary Social Security
benefit, and retirement age.
The Plan
is funded consistent with the funding requirements of federal law and
regulations. There were funding contributions of $300,000 and $1,200,000,
respectively, for fiscal years 2009 and 2008. Plan assets are invested in a
group trust consisting primarily of stocks (domestic and international), bonds,
real estate trust funds, short-term investment funds and cash. The
weighted-average asset allocations at October 31, 2009 and 2008, by asset
category, are as follows:
|
2009
|
2008
|
|||||||
|
Asset
category:
|
||||||||
|
Equity
|
51 | % | 49 | % | ||||
|
Fixed
income
|
47 | 47 | ||||||
|
Cash
|
2 | 4 | ||||||
|
Total
|
100 | % | 100 | % | ||||
The
investment policy 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 Company’s plan funding at a reasonable level. The primary
asset classes utilized to attain these objectives are equity securities, fixed
income securities and all other, with target allocations of 60%, 35%, and 5%,
respectively.
F-40
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
15.
Retirement Plans (continued)
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 periodic benefit
cost.
The net
periodic pension costs for the Company’s Defined Benefit Pension Plan for fiscal
years 2009 and 2008 were as follows:
|
2009
|
2008
|
|||||||
|
Service
cost
|
$ | 87,000 | $ | 85,000 | ||||
|
Interest
cost
|
888,000 | 847,000 | ||||||
|
Expected
return on plan assets
|
(1,026,000 | ) | (969,000 | ) | ||||
|
Recognized
actuarial loss
|
21,000 | 358,000 | ||||||
|
Net
periodic pension cost
|
$ | (30,000 | ) | $ | 321,000 | |||
Following
is a summary of the Plan’s funded status as of October 31, 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Change
in benefit obligation:
|
||||||||
|
Benefit
obligation at beginning of year
|
$ | 11,175,000 | $ | 13,963,000 | ||||
|
Service
cost
|
87,000 | 85,000 | ||||||
|
Interest
cost
|
888,000 | 847,000 | ||||||
|
Benefits
paid
|
(957,000 | ) | (884,000 | ) | ||||
|
Actuarial
loss (gain)
|
3,852,000 | (2,836,000 | ) | |||||
|
Benefit
obligation at end of year
|
$ | 15,045,000 | $ | 11,175,000 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 11,250,000 | $ | 13,794,000 | ||||
|
Actual
return on plan assets
|
1,666,000 | (2,860,000 | ) | |||||
|
Employer
contributions
|
300,000 | 1,200,000 | ||||||
|
Benefits
paid
|
(957,000 | ) | (884,000 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | 12,259,000 | $ | 11,250,000 | ||||
|
Funded
status:
|
||||||||
|
(Unfunded)
funded status at end of year
|
$ | (2,786,000 | ) | $ | 75,000 | |||
F-41
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
15.
Retirement Plans (continued)
|
2009
|
2008
|
|||||||
|
Amounts
recognized in statements of financial position:
|
||||||||
|
Noncurrent
assets
|
$ | – | $ | 75,000 | ||||
|
Current
liabilities
|
– | – | ||||||
|
Noncurrent
liabilities
|
(2,786,000 | ) | – | |||||
|
Net
amount recognized in statement of financial
position
|
$ | (2,786,000 | ) | $ | 75,000 | |||
|
Additional
year-end information:
|
||||||||
|
Accumulated
benefit obligation
|
$ | 15,045,000 | $ | 11,175,000 | ||||
|
Projected
benefit obligation
|
15,045,000 | 11,175,000 | ||||||
|
Fair
value of plan assets
|
12,259,000 | 11,250,000 | ||||||
|
Weighted-average
assumptions as of October 31, 2009 and 2008, used to determine benefit
obligations:
|
||||||||
|
Discount
rate
|
5.75 | % | 8.25 | % | ||||
|
Expected
long-term return on plan assets
|
7.50 | % | 7.50 | % | ||||
|
Weighted-average
assumption used to determine net periodic benefit cost:
|
||||||||
|
Discount
rate
|
8.25 | % | 6.25 | % | ||||
|
Expected
long-term return on plan assets
|
7.50 | % | 7.50 | % | ||||
The
Company expects to contribute $1,200,000 to the Plan in fiscal year 2010.
Additionally, the following benefit payments are expected to be paid as
follows:
|
2010
|
$ | 857,000 | ||
|
2011
|
882,000 | |||
|
2012
|
894,000 | |||
|
2013
|
915,000 | |||
|
2014
|
942,000 | |||
|
2015-2019
|
5,267,000 | |||
|
Total
|
$ | 9,757,000 |
F-42
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
15.
Retirement Plans (continued)
Effective
June 30, 2004, the Company froze the Plan and no additional benefit will accrue
to participants subsequent to that date. Freezing the Plan resulted in a
curtailment gain and related reduction in the projected benefit obligation of
$840,000.
Additionally
in 2004, the Company replaced its existing qualified cash or deferred
compensation plan maintained under Section 401(k) of the Internal Revenue Code
(IRC) with a new plan also maintained under Section 401(k) of the IRC. Under
this new plan, the Company, beginning in January 2005, began contributing an
amount equal to 4% of an employees’ annual earnings beginning after one year of
employment. Employees may elect to defer up to 100% of their annual earnings
subject to IRC limits. The Company makes additional “dollar for dollar” matching
contribution on these deferrals up to 4% of an employee’s annual earnings.
Employees are 100% vested in the Company’s contribution after six years of
employment. Participants vest in any matching contribution at a rate of 20% per
year beginning after one year of employment. During fiscal years 2009 and 2008,
the Company contributed to the new plan and recognized expenses of $486,000 and
$463,000, respectively.
16. Rental
Operating Leases
The
Company rents certain of its assets under net operating lease agreements
ranging from one month to 20 years. The cost of the land subject to such leases
was $1,658,000 at October 31, 2009. The total cost and accumulated depreciation
of buildings, equipment, and building improvements subject to such leases was
$7,870,000 and $3,185,000, respectively, at October 31, 2009. The Company
recognized rental income from its rental operating lease activities of
$3,557,000 in fiscal year 2009, $3,550,000 in fiscal year 2008, and $3,358,000
in fiscal year 2007. The Company also recognized contingent rental income
related to its organic recycling business of $209,000 in fiscal year 2009,
$168,000 in fiscal year 2008, and $158,000 in fiscal year 2007. Such amounts are
included in rental revenues in the Company’s consolidated statements of
operations. The future minimum lease payments to be received by Company related
to these net operating lease agreements as of October 31, 2009, are as
follows:
|
2010
|
$ | 1,549,000 | ||
|
2011
|
1,431,000 | |||
|
2012
|
1,329,000 | |||
|
2013
|
438,000 | |||
|
2014
|
400,000 | |||
|
Thereafter
|
2,020,000 | |||
|
Total
|
$ | 7,167,000 |
F-43
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
17.
Commitments and Contingencies
Operating
Leases
The
Company has entered into three operating leases for agricultural land totaling
480 acres for purposes of expanding the Company’s production of citrus and
avocados. One lease provides for an adjustment to rent for inflation. The
Company also has operating leases for pollinating equipment, packinghouse
equipment, and photovoltaic generators (see below). Total lease expense for
fiscal years 2009, 2008 and 2007 was $1,681,000, $449,000, and $377,000,
respectively. In addition, the Company has made prepayments for the lease of the
pollination equipment totaling $159,000. These prepayments are included in other
assets in the Company’s consolidated balance sheets at October 31, 2009 and
2008, respectively, and will be expensed over the last year of the lease based
on the terms of the arrangement with the lessor.
During
fiscal year 2008, the Company entered into a contract with Perpetual Power, LLC
(Perpetual) to install a 1,000 KW photovoltaic generator in order to provide
electrical power for the Company’s lemon packinghouse operations. The facility
became operational in October 2008. Farm Credit West provided financing for the
generator and upon completion of the construction Perpetual sold the generator
to Farm Credit West. The Company then signed a 10-year operating lease agreement
with Farm Credit West. During the 10-year lease term, Perpetual will warrant
that the generator is free from defects in material and workmanship. At the end
of the 10 year lease term, the Company will have an option to purchase the
generator from Farm Credit West.
Additionally
in fiscal year 2008, the Company entered into a contract with Perpetual to
install a second 1,000 KW photovoltaic generator in order to provide electrical
power for the Company’s farming operations in Ducor, California. Farm Credit
West provided the financing for the generator and when construction was
completed, Perpetual sold the generator to Farm Credit West. The Company then
entered into a 10-year operating lease agreement with Farm Credit West for this
facility. The generator in Ducor, California became operational in December
2008. Included in other assets in the Company’s consolidated balance sheet at
October 31, 2009, is $195,000 of deferred rent asset related to the Company’s
Ducor solar lease as the minimum lease payments exceed the straight-line rent
expense during the earlier terms of the lease.
F-44
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
17.
Commitments and Contingencies (continued)
Minimum
future lease payments are as follows:
|
2010
|
$ | 1,620,000 | ||
|
2011
|
1,561,000 | |||
|
2012
|
1,462,000 | |||
|
2013
|
1,339,000 | |||
|
2014
|
853,000 | |||
|
Thereafter
|
3,341,000 | |||
|
Total
|
$ | 10,176,000 |
Litigation
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.
18.
Stockholders’ Equity
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 par
value (the Series B Stock).
Dividends:
The holders of shares of Series B Stock shall be 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 commencing July 1, 1997.
Voting
Rights: Each share of Series B Stock shall be 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 July
1, 2017 and before June 30, 2027, at a redemption price equal to the par value
thereof, plus accrued and unpaid dividends thereon to the date fixed for
redemption.
F-45
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
18.
Stockholders’ Equity (continued)
Conversion:
The holders of Series B Stock shall 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.
The
Company is not mandatorily required to redeem the Series B Stock and the
redemption of the Series B Stock is within the control of the Company. The
Series B Stock is not redeemable at a fixed date or at the option of the Series
B Stock shareholders. In addition, the Series B Stock is redeemable upon the
occurrence of an event that is solely within the control of the Company. Lastly,
any potential settlement of the Series B Stock between the Company and the
Series B Stock shareholders would be required to be settled in cash. As such,
the Company has recorded its $3,000,000 equity contribution related to its
Series B Stock in stockholders’ equity in the Company’s consolidated balance
sheets.
Series A
Junior Participating Preferred Stock:
On
October 31, 2006, the Company designated 20,000 shares of preferred
stock as Series A Junior Participating Preferred Stock at $.01 par value (the
Series A Stock). Additionally, on October 31, 2006, the Company declared a
dividend to be distributed on December 20, 2006, to each holder of record of the
Company’s Common Stock the right to purchase one one-hundredth of a share of
Series A Stock. If a triggering event occurs, the Board of Directors has the
option to allow rights holders to exercise their rights (see Shareholder Rights
Agreement below).
Dividends:
The holders of shares of Series A Stock shall be entitled to receive cash
dividends in an amount per share equal to the greater of (a) $1.00 or (b) 100
times the aggregate per share amount of all cash dividends and 100 times the
aggregate per share amounts of all non-cash dividends, other than a dividend
payable in Common Stock, declared on the Common Stock. Such dividends are
payable quarterly on the fifteenth day of January, April, July and October in
each year commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of shares of the Series A
Stock.
F-46
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
18.
Stockholders’ Equity (continued)
Voting
Rights: Each share of Series A Stock shall be entitled to one hundred votes on
all matters submitted to a vote of the stockholders of the Company.
Redemption:
The shares of Series A Stock shall not be redeemable.
Conversion:
The shares of Series A Stock shall not be convertible.
Stock
Option Plan/Stock Grant Program:
In 2002,
the Company adopted a stock grant program for key employees, which replaced its
stock option and stock appreciation rights plan for key employees. As of October
31, 2009 and 2008, there were no stock options outstanding. There are currently
51,430 shares outstanding that are subject to repurchase by the Company with an
estimated repurchase price value of $156,000 at October 31, 2009. The Company
has determined that the terms of the shares outstanding subject to repurchase
constitute a liability due to the repurchase right. This repurchase obligation
is included in other long-term liabilities in the Company’s consolidated balance
sheet at October 31, 2009.
In August
2007, the Company adopted a stock grant performance bonus program (the Program)
for senior management. In fiscal 2008, 3,750 shares of common stock (37,500
shares after adjusting for the stock split that became effective on March 24,
2010) were granted to senior management in recognition of the achievement of
certain performance goals during fiscal year 2007. In fiscal year 2007, 7,500
shares of common stock (75,000 shares after adjusting for the stock split that
became effective on March 24, 2010) were granted to senior management in
recognition of performance in years prior to fiscal year 2007. All shares
granted under the Program were fully vested as of the date of issuance. In
fiscal year 2007, the Company recognized compensation expense of $3,187,000 in
connection with the grants. This expense was included in selling, general and
administrative expense in the Company’s consolidated statement of operations
during fiscal year 2007. A mark-to-market reduction of expenses of approximately
$78,000 was recorded in fiscal year 2008 for the shares granted in fiscal year
2008 but having been authorized in fiscal year 2007.
Shares
issued under the Program are subject to a right-of-first refusal by the Company
during the first two years following issuance of such shares. The Company, upon
request by the grantee, in its sole discretion, may repurchase from the grantee
a number of shares granted that, when multiplied by the repurchase price will
enable the grantee to pay the state and federal income tax liabilities
associated with the compensation to the employee in connection with the grant.
Alternatively, the Company, in its sole discretion, can make loans to the
grantees in amounts sufficient to pay the income tax liabilities associated with
the grants. Each loan is evidenced by a promissory note bearing interest at the
mid-term applicable federal rate then in effect, with principal and accrued
interest due and payable within 24 months from the date of the note. The notes
are secured by delivery to the Company of a share certificate having a value
equal to 120% of the amount of the loan.
F-47
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
18.
Stockholders’ Equity (continued)
On an
ongoing basis, the Board of Directors establishes performance goals during the
first quarter of a fiscal year, and at the end of that fiscal year, a
determination is made as to the level of attainment of those established goals.
Based on that level of attainment, up to 3,750 (37,500
shares after adjusting for the stock split that became effective on March 24,
2010) shares may be granted. In lieu of not attaining the performance
goals, the Board of Directors, in its sole discretion, may grant the shares for
special achievements that fall outside of the established performance goals.
Additionally, the Board of Directors may in the future amend the Program to,
among other things, increase or decrease the shares available to be granted
under the Program, terminate the Program, or include additional participants in
the Program.
During
fiscal year 2008, the Company adopted a compensation program for its Board of
Directors providing for, among other things, stock-based compensation. In fiscal
year 2009, 1,086 (10,860
shares after adjusting for the stock split that became effective on March 24,
2010) shares were granted to the Board of Directors and the Company
recognized $168,000 of expense in connection with these grants. In fiscal year
2008, 774 (7,740
shares after adjusting for the stock split that became effective on March 24,
2010) shares were granted to the Board of Directors and the Company
recognized $180,000 of expense in connection with these grants.
Additionally
in fiscal year 2008, the Company adjusted its stock grant performance bonus
program to include additional members of management. In December 2008,
11,962 (119,620
shares after adjusting for the stock split that became effective on March 24,
2010) shares were issued to management, with one-third of the shares
vesting as of the December 2008 issue date and the remaining shares vesting in
fiscal years 2009, 2010, and 2011. In fiscal year 2009, the Company recognized
$446,000 of expense in connection with the vesting of these shares. In fiscal
year 2008, the Company recognized $498,000 of expense in connection with the
program for the achievement of certain performance goals during fiscal year
2008.
F-48
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
18.
Stockholders’ Equity (continued)
Shareholder
Rights Agreement:
During
fiscal year 2007, the Company entered into a shareholder rights agreement with
The Bank of New York acting as rights agent. In connection with this agreement,
on October 31, 2006, the Company’s Board of Directors adopted a resolution
creating a series of 20,000 shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock, $.01 Par Value. There were no shares of
this stock issued and/or outstanding at October 31, 2008 and 2007, respectively.
Also in connection with this agreement, on October 31, 2006, the Company’s Board
of Directors authorized and declared a dividend distribution of one “Right” (as
defined by the agreement) for each share of common stock outstanding on December
20, 2006. Each “Right” represents the right to purchase one one-hundredth of a
share of the above referenced Junior Preferred Stock. If a triggering event (as
defined by the agreement) occurs, the Board of Directors has the option to allow
rights holders to exercise their rights under the agreement.
19.
Segment Information
During
fiscal year 2009, the Company operated and tracked results in three reportable
operating segments; agri-business, rental operations, and real estate
development. The reportable operating segments of the Company are strategic
business units with different products and services, distribution processes and
customer bases. The agri-business segment includes farming and citrus packing
operations. The rental operations segment includes housing and
commercial rental operations, leased land, and organic recycling. The real
estate development segment includes real estate development operations. The
Company measures operating performance, including revenues and earnings, of its
operating segments and allocates resources based on its evaluation. The Company
does not allocate selling, general and administrative expense, other income
(expense), interest expense, income tax expense and assets, or specifically
identify them to its operating segments. Revenues from Sunkist represent
$22,252,000 of the Company’s agri-business revenues for fiscal year
2009.
Segment
information for year ended October 31, 2009:
|
Agri-business
|
Rental
Operations
|
Real Estate
Development
|
Corporate and
Other
|
Total
|
||||||||||||||||
|
Revenues
|
$ | 31,033,000 | $ | 3,766,000 | $ | 39,000 | $ | – | $ | 34,838,000 | ||||||||||
|
Costs
and expenses
|
27,281,000 | 2,061,000 | 318,000 | 6,469,000 | 36,129,000 | |||||||||||||||
|
Impairment
charges
|
– | – | 6,203,000 | – | 6,203,000 | |||||||||||||||
|
Loss
on sale of assets
|
– | – | – | 10,000 | 10,000 | |||||||||||||||
|
Operating
income (loss)
|
$ | 3,752,000 | $ | 1,705,000 | $ | (6,482,000 | ) | $ | (6,479,000 | ) | $ | (7,504,000 | ) | |||||||
F-49
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
19.
Segment Information (continued)
Segment
information for year ended October 31, 2008:
|
Agri-business
|
Rental
Operations
|
Real Estate
Development
|
Corporate and
Other
|
Total
|
||||||||||||||||
|
Revenues
|
$ | 49,794,000 | $ | 3,718,000 | $ | – | $ | – | $ | 53,512,000 | ||||||||||
|
Costs
and expenses
|
34,805,000 | 2,236,000 | 991,000 | 8,292,000 | 46,324,000 | |||||||||||||||
|
Impairment
charges
|
– | – | 1,341,000 | – | 1,341,000 | |||||||||||||||
|
Loss
on sale of assets
|
– | – | – | 11,000 | 11,000 | |||||||||||||||
|
Operating
income (loss)
|
$ | 14,989,000 | $ | 1,482,000 | $ | (2,332,000 | ) | $ | (8,303,000 | ) | $ | 5,836,000 | ||||||||
Segment
information for year ended October 31, 2007:
|
Agri-business
|
Rental
Operations
|
Real Estate
Development
|
Corporate and
Other
|
Total
|
||||||||||||||||
|
Revenues
|
$ | 44,751,000 | $ | 3,516,000 | $ | – | $ | – | $ | 48,267,000 | ||||||||||
|
Costs
and expenses
|
32,036,000 | 2,073,000 | 1,160,000 | 9,627,000 | 44,896,000 | |||||||||||||||
|
Impairment
charges
|
– | – | – | – | – | |||||||||||||||
|
Loss
on sale of assets
|
– | – | – | 56,000 | 56,000 | |||||||||||||||
|
Operating
income (loss)
|
$ | 12,715,000 | $ | 1,443,000 | $ | (1,160,000 | ) | $ | (9,683,000 | ) | $ | 3,315,000 | ||||||||
The
following table sets forth revenues by category, by segment for fiscal years
2009, 2008 and 2007:
|
2009
|
2008
|
2007
|
||||||||||
|
Lemons
|
$ | 22,252,000 | $ | 40,290,000 | $ | 35,345,000 | ||||||
|
Avocados
|
4,026,000 | 3,502,000 | 3,185,000 | |||||||||
|
Navel
oranges
|
1,933,000 | 2,412,000 | 3,184,000 | |||||||||
|
Valencia
oranges
|
688,000 | 663,000 | 776,000 | |||||||||
|
Specialty
citrus and other crops
|
2,134,000 | 2,927,000 | 2,261,000 | |||||||||
|
Agri-business
revenues
|
31,033,000 | 49,794,000 | 44,751,000 | |||||||||
|
Rental
operations
|
2,130,000 | 2,140,000 | 2,095,000 | |||||||||
|
Leased
land
|
1,427,000 | 1,410,000 | 1,263,000 | |||||||||
|
Organic
recycling
|
209,000 | 168,000 | 158,000 | |||||||||
|
Rental
operations revenues
|
3,766,000 | 3,718,000 | 3,516,000 | |||||||||
|
Real
estate operations
|
39,000 | – | – | |||||||||
|
Real
estate revenues
|
39,000 | – | – | |||||||||
|
Total
revenues
|
$ | 34,838,000 | $ | 53,512,000 | $ | 48,267,000 | ||||||
F-50
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
20.
Fruit Growers Supply Cooperative
Limoneira
Company is a member of Fruit Growers Supply (FGS), a cooperative. FGS sells
supplies to non-members. The profits made by these transactions are allocated to
all members based on carton purchases. The profits are then distributed to the
members through a dividend five to seven years after they are allocated.
Limoneira Company currently has been allocated $1,227,000 for future payments;
however, the allocation of profits is subject to approval by the FGS Board of
Directors and members may receive amounts less than those originally allocated.
The Company will record the amounts ultimately disbursed by FGS as reductions of
carton purchases when received. The Company received dividends of $123,000 and
$62,000 in fiscal years 2009 and 2008, respectively.
21.
Subsequent Events
The
Company has evaluated events subsequent to October 31, 2009, to assess the
need for potential recognition or disclosure in this report. Based upon this
evaluation, it was determined that no other subsequent events occurred that
require recognition or disclosure in the consolidated financial statements other
than the following subsequent events:
On
November 15, 2009, the Company and Windfall entered into an agreement whereby
Windfall irrevocably assigned to the Company its entire 85% interest in
Investors. In conjunction with obtaining Windfall’s 85% interest in Investors,
the Company agreed to release Windfall and its individual members from any and
all liabilities including any losses with respect to Windfall’s previous
interest in Investors and any secured and unsecured financing for Investors. The
Company has accounted for its acquisition of Windfall’s 85% interest in
Investors utilizing the business combination guidance noted in FASB ASC 805,
Business
Combinations.
F-51
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
21.
Subsequent Events (continued)
The
following unaudited pro forma condensed consolidated balance sheet presented
below illustrates the combined balance sheet of the Company as if the
acquisition of the Company’s interest in Investors as described above occurred
at October 31, 2009:
|
Limoneira
Company
10/31/2009
|
Windfall
Investors, LLC
10/31/2009
|
Pro Forma
Adjustments
|
Pro Forma
Balance Sheet
|
|||||||||||||
|
Assets
|
||||||||||||||||
|
Current
assets
|
$ | 7,618,000 | $ | 500,000 | $ | – | $ | 8,118,000 | ||||||||
|
Property,
plant and equipment, net
|
53,817,000 | – | – | 53,817,000 | ||||||||||||
|
Real
estate development
|
53,125,000 | 11,890,000 | 5,634,000 | (1) | 70,649,000 | |||||||||||
|
Assets
held for sale
|
6,774,000 | – | – | 6,774,000 | ||||||||||||
|
Equity
in investments
|
1,635,000 | – | – | 1,635,000 | ||||||||||||
|
Investment
in Calavo Growers, Inc.
|
11,870,000 | – | – | 11,870,000 | ||||||||||||
|
Notes
receivable
|
2,284,000 | – | – | 2,284,000 | ||||||||||||
|
Other
assets
|
4,307,000 | 45,000 | – | 4,352,000 | ||||||||||||
|
Non-current
assets of discontinued operations
|
438,000 | – | – | 438,000 | ||||||||||||
|
Total
assets
|
$ | 141,868,000 | $ | 12,435,000 | $ | 5,634,000 | $ | 159,937,000 | ||||||||
|
Liability
and stockholders’ equity
|
||||||||||||||||
|
Current
liabilities
|
$ | 5,189,000 | $ | 10,468,000 | $ | – | $ | 15,657,000 | ||||||||
|
Long-term
liabilities
|
84,918,000 | 9,024,000 | (1,423,000 | )(2) | 92,519,000 | |||||||||||
|
Stockholders’
equity:
|
||||||||||||||||
|
Series
B Convertible Preferred Stock
|
3,000,000 | – | – | 3,000,000 | ||||||||||||
|
Series
A Junior Participating Preferred Stock
|
– | – | – | – | ||||||||||||
|
Common
stock
|
11,000 | – | – | 11,000 | ||||||||||||
|
Additional
paid-in capital
|
34,820,000 | – | – | 34,820,000 | ||||||||||||
|
Retained
earnings
|
16,386,000 | (7,057,000 | ) | 7,057,000 | (3) | 16,386,000 | ||||||||||
|
Accumulated
other comprehensive income (loss)
|
(2,456,000 | ) | – | – | (2,456,000 | ) | ||||||||||
|
Total
stockholders’ equity
|
51,761,000 | (7,057,000 | ) | 7,057,000 | 51,761,000 | |||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 141,868,000 | $ | 12,435,000 | $ | 5,634,000 | $ | 159,937,000 | ||||||||
Pro forma
adjustments to the condensed consolidated Balance Sheet at October 31, 2009,
include:
|
(1)
|
Adjustment
to reflect the estimated fair value on October 31, 2009, of the real
estate development assets acquired.
|
|
(2)
|
Adjustments
to eliminate Limoneira Company’s equity in losses (net of income taxes)
of Windfall Investors, LLC as of October 31,
2009.
|
|
(3)
|
Adjustments
to eliminate Windfall Investors, LLC accumulated deficits as of October
31, 2009.
|
The
Company remeasured its previously held noncontrolling equity interest in
Investors at fair value on the November 15, 2009 acquisition date of
Investors. In remeasuring its previously held noncontrolling
interest, the Company considered the fair value of the assets and liabilities of
Windfall as of the acquisition date and also considered whether there was a
control premium that would not have been present in the previous noncontrolling
interest.
The
Company calculated that its acquisition date fair value of its previous equity
interest in Investors was approximately $1,700,000. The Company did
not recognize any gain or loss as a result of remeasuring the fair value of its
equity interest held in Investors just prior to the business combination as the
fair value approximated the carrying value of the noncontrolling interest
previously accounted for under the equity method of accounting.
F-52
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
21.
Subsequent Events (continued)
The
following unaudited pro forma condensed consolidated statement of operations
presented below illustrates the results of operations of the Company as if the
acquisition of Investors on November 15, 2009, had occurred at November 1,
2008:
|
Year Ended October 31, 2009
|
||||||||||||||||
|
Limoneira
Company
Year Ending
10/31/2009
|
Windfall Investors,
LLC 12 months
ended 10/31/2009
|
Pro Forma
Adjustments
|
Pro Forma
Statement of
Operations
|
|||||||||||||
|
Revenues
|
$ | 35,188,000 | $ | 660,000 | $ | – | $ | 35,848,000 | ||||||||
|
Costs
and expenses
|
39,613,000 | 848,000 | – | 40,461,000 | ||||||||||||
|
Operating
(loss) income
|
(4,425,000 | ) | (188,000 | ) | – | (4,613,000 | ) | |||||||||
|
Other
income (expense):
|
||||||||||||||||
|
Other
income (loss), net
|
(94,000 | ) | – | – | (94,000 | ) | ||||||||||
|
Interest
income
|
225,000 | – | – | 225,000 | ||||||||||||
|
Interest
expense
|
(692,000 | ) | (1,100,000 | ) | – | (1,792,000 | ) | |||||||||
|
Total
other expense
|
(561,000 | ) | (1,100,000 | ) | – | (1,661,000 | ) | |||||||||
|
Loss
from continuing operations before income
taxes and equity earnings
|
(4,986,000 | ) | (1,288,000 | ) | – | (6,274,000 | ) | |||||||||
|
Income
tax benefit
|
2,291,000 | – | 515,000 | (1) | 2,806,000 | |||||||||||
|
Equity
in earnings (losses) of investments
|
(170,000 | ) | – | 186,000 | (2) | 16,000 | ||||||||||
|
(Loss)
income from continuing operations
|
(2,865,000 | ) | (1,288,000 | ) | 701,000 | (3,452,000 | ) | |||||||||
|
Loss
from discontinued operations, net of income
taxes
|
(12,000 | ) | – | – | (12,000 | ) | ||||||||||
|
Net
(loss) income
|
(2,877,000 | ) | (1,288,000 | ) | 701,000 | (3,464,000 | ) | |||||||||
|
Preferred
dividends
|
(262,000 | ) | – | – | (262,000 | ) | ||||||||||
|
Net
(loss) income applicable to common stock
|
$ | (3,139,000 | ) | $ | (1,288,000 | ) | $ | 701,000 | $ | (3,726,000 | ) | |||||
|
Basic
net loss per share
|
$ | (0.28 | ) | $ | (0.33 | ) | ||||||||||
|
Diluted
net loss per share
|
$ | (0.28 | ) | $ | (0.33 | ) | ||||||||||
|
Weighted-average
shares outstanding-basis
|
11,242,000 | 11,242,000 | ||||||||||||||
|
Weighted-average
shares outstanding-diluted
|
11,254,000 | 11,254,000 | ||||||||||||||
Pro forma
adjustments to the condensed consolidated statement of operations for the year
ended October 31, 2009 include:
|
(1)
|
Adjustment
to reflect the tax benefit of the Windfall Investors, LLC pre-tax net loss
based on Limoneira Company’s tax structure and an estimated tax rate of
40%.
|
|
(2)
|
Adjustment
to eliminate Limoneira Company’s equity in losses of Windfall Investors,
LLC for the year ended October 31,
2009.
|
F-53
LIMONEIRA
COMPANY
Notes to
Consolidated Financial Statements (continued)
21.
Subsequent Events (continued)
Other
Subsequent Events
At
October 31, 2009, the Company had recorded notes receivable and accrued interest
related to three employees (the Officers) totaling $1,707,000; of which
$1,519,000 was recorded in current notes receivable – related parties and
$188,000 was recorded in noncurrent notes receivable –related parties in the
Company’s consolidated balance sheet. These notes were issued in connection with
payments made by the Company on behalf of the Officers for payroll taxes on
stock compensation. Subsequent to October 31, 2009, the Officers notes
receivable and accrued interest were paid down by $1,020,000 through
the repurchase of 6,758 Company shares with a fair market value of
$150.98 per share (at the time of the exchange) that were held by the Officers
to the Company. The remaining Officers notes receivable and accrued interest of
$687,000 was forgiven by the Company resulting in compensation expense recorded
in fiscal year 2010.
The
revolving line of credit for Investors matured in November 2009 and the maturity
date was subsequently extended by Farm Credit West until March, 1, 2010. The
Company is in the process of refinancing the revolving line of credit on a
long-term basis through amendment to the Farm Credit West agreement or
alternatively through its existing facility with Rabobank.
On
January 4, 2010, the Company paid a $0.3125 per share dividend in the aggregate
amount of $352,000 to stockholders of record on December 15, 2009.
In
December 2009, the Company’s Board of Directors approved the Limoneira Company
2010 Omnibus Incentive Plan. The purposes of the 2010 Omnibus Incentive Plan are
to promote the interests of the Company and its stockholders by (i) attracting
and retaining employees and directors of, and consultants to, the Company and
its affiliates, as defined; (ii) motivating such individuals by means of
performance-related incentives to achieve longer-range performance goals; and
(iii) enabling such individuals to participate in the long-term growth and
financial success of the Company. The 2010 Omnibus Incentive Plan will become
effective when it is approved by the Company’s stockholders.
In
February 2010, the Company and HM Manager, LLC formed a limited liability
company, HM East Ridge, LLC, for the purpose of developing one of the four
Templeton land parcels. The Company made a capital contribution of land into HM
Eastridge, LLC. Since the Company has significant influence, but less than a
controlling interest, the Company plans on accounting for its investment in HM
Eastridge, LLC using the equity method of accounting.
On March
23, 2010, the Company’s stockholders approved the Limoneira Company 2010 Omnibus
Incentive Plan.
Effective
March 24, 2010, the Company amended our certificate of incorporation
to increase the authorized number of shares of common stock, and effected a
ten-for-one split of our common stock. All references in the
accompanying consolidated financial statements to (i) the value and number of
shares of the Company’s common stock, (ii) the authorized number of shares of
the Company’s common stock and preferred stock, and (iii) loss per share and
dividends per share have been retroactively adjusted to reflect these changes.
F-54
LIMONEIRA
COMPANY
UNAUDITED
INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JANUARY
31, 2010 AND 2009
Preface
The
preparation of the unaudited interim consolidated condensed financial statements
requires management to make use of estimates and assumptions that affect the
reported amount of assets and liabilities, revenue and expenses and certain
financial statement disclosures. Actual results may differ from these estimates.
The
unaudited interim consolidated condensed financial statements for the
three months ended January 31, 2010 and 2009 and balance sheet as of January 31,
2010 included herein have not been audited by an independent registered public
accounting firm, but in our opinion, all adjustments (which include only normal
recurring adjustments) necessary to make a fair statement of the financial
position at January 31, 2010 and the results of operations and the cash flows
for the periods presented herein have been made. The results of operations for
the three months ended January 31, 2010 are not necessarily indicative of the
operating results expected for the full fiscal year.
The
unaudited interim consolidated condensed financial statements included herein
have been prepared pursuant to the rules and regulations of the
U.S. Securities and Exchange Commission, or SEC. Although we believe the
disclosures made are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
in the United States have been condensed or omitted pursuant to such rules or
regulations. These interim consolidated condensed financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included elsewhere in this registration statement.
F-55
Consolidated
Condensed Statements of Operations (unaudited)
|
Three
months ended January 31
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues:
|
||||||||
|
Agriculture
|
$ | 5,272,000 | $ | 4,005,000 | ||||
|
Rental
|
955,000 | 911,000 | ||||||
|
Other
|
135,000 | – | ||||||
|
Total
revenues
|
6,362,000 | 4,916,000 | ||||||
|
Costs
and expenses:
|
||||||||
|
Agriculture
|
6,893,000 | 6,639,000 | ||||||
|
Rental
|
507,000 | 580,000 | ||||||
|
Other
|
327,000 | 83,000 | ||||||
|
Selling,
general, and administrative
|
3,416,000 | 1,478,000 | ||||||
|
Total
cost and expenses
|
11,143,000 | 8,780,000 | ||||||
|
Operating
loss
|
(4,781,000 | ) | (3,864,000 | ) | ||||
|
Other
income (expense):
|
||||||||
|
Other
|
||||||||
|
Other
income (expense), net
|
363,000 | 336,000 | ||||||
|
Interest
income
|
29,000 | 37,000 | ||||||
|
Interest
expense
|
(428,000 | ) | (213,000 | ) | ||||
|
Total
other income (expense)
|
(36,000 | ) | 160,000 | |||||
|
Loss
from continuing operations before income
|
||||||||
|
tax
benefit and equity in losses of investments
|
(4,817,000 | ) | (3,704,000 | ) | ||||
|
Income
tax benefit
|
1,709,000 | 1,652,000 | ||||||
|
Equity
in losses of investments
|
(16,000 | ) | (24,000 | ) | ||||
|
Loss
from continuing operations
|
(3,124,000 | ) | (2,076,000 | ) | ||||
|
Loss
from discontinued operations, net of income taxes
|
(8,000 | ) | (1,000 | ) | ||||
|
Net
loss
|
(3,132,000 | ) | (2,077,000 | ) | ||||
|
Preferred
dividends
|
(66,000 | ) | (66,000 | ) | ||||
|
Net
loss applicable to common stock
|
$ | (3,198,000 | ) | $ | (2,143,000 | ) | ||
|
Per
common share-basic:
|
||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | (0.19 | ) | ||
|
Discontinued
operations
|
(0.00 | ) | (0.00 | ) | ||||
|
Basic
net loss per share
|
$ | (0.28 | ) | $ | (0.19 | ) | ||
|
Per
common share-diluted:
|
||||||||
|
Continuing
operations
|
$ | (0.28 | ) | $ | (0.19 | ) | ||
|
Discontinued
operations
|
(0.00 | ) | (0.00 | ) | ||||
|
Diluted
net loss per share
|
$ | (0.28 | ) | $ | (0.19 | ) | ||
|
Dividends
per common share
|
$ | 0.03 | $ | 0.03 | ||||
|
Weighted-average
shares outstanding – basic
|
11,246,000 | 11,195,000 | ||||||
|
Weighted-average
shares outstanding – diluted
|
11,246,000 | 11,234,000 | ||||||
See
Notes to Consolidated Condensed Financial Statements.
F-56
Limoneira
Company
Consolidated
Condensed Balance Sheets (unaudited)
|
January
31, 2010 |
October
31, 2009 |
|||||||
|
Assets
|
||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | - | $ | 603,000 | ||||
|
Accounts
receivable
|
6,545,000 | 3,735,000 | ||||||
|
Notes
receivable – related parties
|
- | 1,519,000 | ||||||
|
Inventoried
cultural costs
|
562,000 | 858,000 | ||||||
|
Prepaid
expenses and other current assets
|
1,328,000 | 894,000 | ||||||
|
Income
taxes receivable
|
1,709,000 | - | ||||||
|
Current
assets of discontinued operations
|
5,000 | 9,000 | ||||||
|
Total
current assets
|
10,149,000 | 7,618,000 | ||||||
|
Property,
plant, and equipment, net
|
54,039,000 | 53,817,000 | ||||||
|
Real
estate development
|
71,392,000 | 53,125,000 | ||||||
|
Assets
held for sale
|
6,774,000 | 6,774,000 | ||||||
|
Equity
in investments
|
1,636,000 | 1,635,000 | ||||||
|
Investment
in Calavo Growers, Inc.
|
11,145,000 | 11,870,000 | ||||||
|
Notes
receivable-related parties
|
92,000 | 284,000 | ||||||
|
Notes
receivable
|
2,086,000 | 2,000,000 | ||||||
|
Other
assets
|
4,486,000 | 4,307,000 | ||||||
|
Noncurrent
assets of discontinued operations
|
438,000 | 438,000 | ||||||
|
Total
assets
|
$ | 162,237,000 | $ | 141,868,000 | ||||
|
Liabilities
and stockholders’ equity
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 679,000 | $ | 970,000 | ||||
|
Growers
payable
|
1,966,000 | 988,000 | ||||||
|
Accrued
liabilities
|
3,325,000 | 2,764,000 | ||||||
|
Current
portion of long-term debt
|
10,999,000 | 465,000 | ||||||
|
Current
liabilities of discontinued operations
|
- | 2,000 | ||||||
|
Total
current liabilities
|
16,969,000 | 5,189,000 | ||||||
|
Long-term
liabilities:
|
||||||||
|
Long-term
debt, less current portion
|
84,762,000 | 69,251,000 | ||||||
|
Deferred
income taxes
|
8,868,000 | 8,764,000 | ||||||
|
Other
long-term liabilities
|
4,876,000 | 6,903,000 | ||||||
|
Total
long-term liabilities
|
98,506,000 | 84,918,000 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders’
equity:
|
||||||||
|
Series
B Convertible Preferred Stock – $100.00 par value (50,000 shares
|
||||||||
|
authorized:
30,000 shares issued and outstanding at January 31, 2010
|
||||||||
|
and
October 31, 2009) (8.75% coupon rate)
|
3,000,000 | 3,000,000 | ||||||
|
Series
A Junior Participating Preferred Stock – $.01 par value (50,000 shares
|
||||||||
|
authorized:
0 issued or outstanding at January 31, 2010 and October 31, 2009)
|
– | – | ||||||
|
Common
Stock – $.01 par value (19,900,000 shares authorized:
|
||||||||
|
11,194,460
and 11,262,880 shares issued and outstanding at January 31,
|
||||||||
|
2010
and October 31, 2009, respectively)
|
113,000 | 113,000 | ||||||
|
Additional
paid-in capital
|
33,651,000 | 34,718,000 | ||||||
|
Retained
earnings
|
12,836,000 | 16,386,000 | ||||||
|
Accumulated
other comprehensive loss
|
(2,838,000 | ) | (2,456,000 | ) | ||||
|
Total
stockholders’ equity
|
46,762,000 | 51,761,000 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 162,237,000 | $ | 141,868,000 | ||||
See
Notes to Consolidated Condensed Financial Statements.
F-57
Limoneira
Company
Consolidated
Condensed Statements of Comprehensive Loss (unaudited)
|
Three
months ended January 31
|
||||||||
|
2010
|
2009
|
|||||||
|
Net
loss
|
$ | (3,132,000 | ) | $ | (2,077,000 | ) | ||
|
Other
comprehensive (loss) income:
|
||||||||
|
Minimum
pension liability adjustment, net of tax
|
101,000 | 3,000 | ||||||
|
Unrealized
holding (losses) gains of security available-for-sale, net of tax
|
(469,000 | ) | 1,142,000 | |||||
|
Unrealized
losses resulting from changes in fair values of
derivative instruments, net of tax
|
(14,000 | ) | (902,000 | ) | ||||
|
Total
other comprehensive (loss) income, net of tax
|
(382,000 | ) | 243,000 | |||||
|
Comprehensive
loss
|
$ | (3,514,000 | ) | $ | (1,834,000 | ) | ||
See
Notes to Consolidated Condensed Financial Statements.
F-58
Limoneira
Company
Consolidated
Condensed Statements of Cash Flows (unaudited)
|
Three
months ended January 31
|
||||||||
|
2010
|
2009
|
|||||||
|
Operating
activities
|
||||||||
|
Net
loss
|
$ | (3,132,000 | ) | $ | (2,077,000 | ) | ||
|
Less:
Net loss from discontinued operations
|
(8,000 | ) | (1,000 | ) | ||||
|
Net
loss from continuing operations
|
(3,124,000 | ) | (2,076,000 | ) | ||||
|
Adjustments
to reconcile net loss
|
||||||||
|
to
net cash used in operating activities:
|
||||||||
|
Depreciation
and amortization
|
587,000 | 578,000 | ||||||
|
Stock
compensation expense
|
162,000 | 154,000 | ||||||
|
Expense
related to Officers notes receivable forgiveness and payroll taxes
|
687,000 | - | ||||||
|
Equity
in losses of investments
|
16,000 | 23,000 | ||||||
|
Amortization
of deferred financing costs
|
7,000 | - | ||||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
and notes receivable
|
(2,287,000 | ) | (1,415,000 | ) | ||||
|
Inventoried
cultural costs
|
296,000 | 388,000 | ||||||
|
Prepaid
expenses and other current assets
|
(329,000 | ) | (17,000 | ) | ||||
|
Income
taxes receivable
|
(1,709,000 | ) | (1,649,000 | ) | ||||
|
Other
assets
|
(37,000 | ) | (29,000 | ) | ||||
|
Accounts
payable and growers payable
|
488,000 | (1,189,000 | ) | |||||
|
Accrued
liabilities
|
(93,000 | ) | (1,663,000 | ) | ||||
|
Other
long-term liabilities
|
(152,000 | ) | (299,000 | ) | ||||
|
Net
cash used in operating activities from continuing operations
|
(5,488,000 | ) | (7,194,000 | ) | ||||
|
Net
cash used in operating activities from discontinued operations
|
(6,000 | ) | (3,000 | ) | ||||
|
Net
cash used in operating activities
|
(5,494,000 | ) | (7,197,000 | ) | ||||
|
Investing
activities
|
||||||||
|
Capital
expenditures
|
(1,304,000 | ) | (2,403,000 | ) | ||||
|
Equity
investment contributions
|
(17,000 | ) | - | |||||
|
Issuance
of notes receivable
|
(23,000 | ) | (284,000 | ) | ||||
|
Investments
in mutual water companies and water rights
|
(95,000 | ) | (5,000 | ) | ||||
|
Other
|
(7,000 | ) | (100,000 | ) | ||||
|
Net
cash used in investing activities from continuing operations
|
(1,446,000 | ) | (2,792,000 | ) | ||||
|
Net
cash used in investing activities from discontinued operations
|
- | (5,000 | ) | |||||
|
Net
cash used in investing activities
|
(1,446,000 | ) | (2,797,000 | ) | ||||
|
Financing
activities
|
||||||||
|
Borrowings
of long-term debt
|
8,494,000 | 11,474,000 | ||||||
|
Repayments
of long-term debt
|
(1,739,000 | ) | (1,093,000 | ) | ||||
|
Dividends
paid – Common
|
(352,000 | ) | (348,000 | ) | ||||
|
Dividends
paid – Preferred
|
(66,000 | ) | (66,000 | ) | ||||
|
Payments
of debt financing costs
|
- | (42,000 | ) | |||||
|
Net
cash provided by financing activities
|
6,337,000 | 9,925,000 | ||||||
|
Net
decrease in cash and cash equivalents
|
(603,000 | ) | (69,000 | ) | ||||
|
Cash
and cash equivalents at beginning of period
|
603,000 | 90,000 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | - | $ | 21,000 | ||||
|
Supplemental
disclosures of cash flow information
|
||||||||
|
Cash
paid during the period for interest
|
$ | 1,077,000 | $ | 875,000 | ||||
|
Cash
paid during the period for income taxes, net of (refunds) received in
period
|
$ | 623,000 | $ | - | ||||
|
Non-cash
investing, financing, and other comprehensive income (loss) transactions:
|
||||||||
|
Unrealized
holding loss (gain) on security, net of tax benefit
|
$ | 480,000 | $ | (1,142,000 | ) | |||
|
Unrealized
loss from derivatives, net of tax benefits
|
$ | 15,000 | $ | 902,000 | ||||
|
Capital
expenditures accrued but not paid at period-end
|
$ | 105,000 | $ | 57,000 | ||||
On
November 15, 2009, the Company and Windfall, LLC (Windfall) entered into an
agreement whereby Windfall irrevocably assigned to the Company its entire 85%
interest in Windfall Investors, LLC (Investors). In conjunction with obtaining
Windfall's 85% interest in Investors, the Company agreed to release Windfall and
its individual members from any and all liabilities including any losses with
respect to Windfall’s previous interest in Investors and any secured and
unsecured financing for Investors.
The
following table summarizes the estimated fair value of non-cash assets acquired
liabilities assumed at the date of the acquisition.
|
At
November 15,
|
||||
|
2009
|
||||
|
Current
assets
|
$ | 246,000 | ||
|
Property,
plant and equipment
|
186,000 | |||
|
Real
estate development
|
17,531,000 | |||
|
Other
assets
|
50,000 | |||
|
Total
assets acquired
|
$ | 18,013,000 | ||
|
Current
liabilities
|
(152,000 | ) | ||
|
Current
portion of long-term debt
|
(10,141,000 | ) | ||
|
Deferred
tax liability
|
(314,000 | ) | ||
|
Long-term
debt
|
(9,148,000 | ) | ||
|
Net
liabilities assumed
|
$ | (1,742,000 | ) | |
See
Notes to Consolidated Condensed Financial Statements.
F-59
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1.
Business
Limoneira
Company, a Delaware Company (the Company), engages primarily in growing citrus
and avocados, picking and hauling citrus, packing lemons, and housing rentals
and other real estate operations. The Company is also engaged in real estate
development.
The
Company markets its agricultural products primarily through Sunkist Growers,
Inc. (Sunkist) and Calavo Growers, Inc. (Calavo).
Most of
the Company’s citrus production is marketed and sold under the Sunkist brand to
the food service industry, wholesalers and retail operations throughout North
America, Asia, and certain other countries primarily through Sunkist, an
agricultural marketing cooperative of which the Company is a member. As an
agricultural cooperative, Sunkist coordinates the sales and marketing of the
Company’s citrus products which are processed through the Company’s
packinghouse.
The
Company provides all of its avocado production to Calavo, a packing and
marketing company listed on NASDAQ under the symbol CVGW. Calavo’s customers
include many of the largest retail and food service companies in the United
States and Canada. The Company’s avocados are packed by Calavo, sold and
distributed under its own brands to its customers primarily in the United States
and Canada.
The
unaudited interim consolidated condensed financial statements include the
accounts of the Company and the accounts of all the subsidiaries and investments
in which a controlling interest is held by the Company. All significant
intercompany transactions have been eliminated. The unaudited interim condensed
financial statements represent the consolidated financial position, results of
operations and cash flows of Limoneira Company and its wholly-owned
subsidiaries; Limoneira Land Company, Limoneira Company International Division,
LLC, Limoneira Mercantile, LLC, Templeton Santa Barbara, LLC and Windfall
Investors, LLC (see Note 3). All variable interest entities for which the
Company is considered the primary beneficiary are consolidated. These variable
interest entities are 6037 East Donna Circle, LLC and 6146 East Cactus Wren
Road, LLC. All significant inter-company accounts and transactions have been
eliminated in consolidation.
2.
Recently Adopted Accounting Pronouncements
In
August 2009, the FASB issued Accounting Standards Update No. 2009-5,
Measuring Liabilities at
Fair Value
(ASU No. 2009-05). ASU No. 2009-05 amends ASC 820, Fair Value Measurements.
Specifically, ASU No. 2009-05 provides clarification that in circumstances in
which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following methods: 1) a valuation technique that uses a) the quoted
price of the identical liability when traded as an asset or b)
quoted prices for similar liabilities or similar liabilities when traded as
assets and/or 2) a valuation technique that is consistent with the principles of
ASC 820. ASU No. 2009-05 also clarifies that when estimating the fair value of a
liability, a reporting entity is not required to adjust to include inputs
relating to the existence of transfer restrictions on that liability. The
Company’s adoption of the provisions of ASU No. 2009-05 during the first quarter
of fiscal 2010 did not have a material impact on the Company’s financial
position, results of operations or liquidity.
In
December 2008, the FASB issued FASB ASC 810 (SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51) which changes
the accounting and reporting for minority interests. Minority interests will be
re-characterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. The Company’s adoption of the provisions of FASB ASC 810
(SFAS No. 160) during the first quarter of fiscal 2010 did not have a
material impact on the Company’s financial position, results of operations or
liquidity.
In
December 2008, the FASB issued FASB ASC 805 (SFAS No. 141R (revised
2008), Business
Combinations), which replaces SFAS No. 141. The statement retains
the purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. The Company adopted FASB ASC 805 (SFAS
No. 141R) during the first quarter of fiscal 2010 and utilized provisions
noted in the guidance to account for its business combination of Windfall
Investors, LLC. See Note 3.
F-60
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
2.
Recently Adopted Accounting Pronouncements (Continued)
In
April 2008, the FASB issued FASB ASC 350-30 (FSP FAS No. 142-3, Determination of the Useful Life of
Intangible Assets). FASB ASC 350-30 (FSP FAS No. 142-3) amends the
factors that should be considered in developing renewal or extension assumptions
used to determine the useful life of a recognized intangible asset under FASB
ASC 350 (SFAS No. 142). This change is intended to improve the consistency
between the useful life of a recognized intangible asset under FASB ASC 350
(SFAS No. 142) and the period of expected cash flows used to measure the
fair value of the asset under FASB ASC 805 (SFAS No. 141R) and other
generally accepted account principles. The requirement for determining useful
lives must be applied prospectively to intangible assets acquired after the
effective date and the disclosure requirements must be applied prospectively to
all intangible assets recognized as of, and subsequent to, the effective date.
FASB ASC 350-30 (FSP FAS No. 142-3) is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim
periods within those fiscal years. The Company’s adoption of the provisions of
FASB ASC 350-30 (FSP FAS No. 142-3) during the first quarter of fiscal 2010 did
not have a material impact on the Company’s financial position, results of
operations or liquidity.
3.
Business Combination
In
September 2005, the Company, along with Windfall, LLC (Windfall), formed a
partnership, Windfall Investors, LLC (Investors). Also, in September of 2005,
Investors purchased a 724-acre ranch in Creston, California (the Windfall
Ranch), for $12,000,000.
The
Company and Windfall each made initial capital contributions to Investors of
$300 (15% ownership interest) and $1,700 (85% ownership interest), respectively.
To fund the purchase of the Windfall Ranch, Investors secured a long-term loan
from Farm Credit West (the Bank) for $9,750,000 (term loan). The remaining
$2,250,000 of the purchase was provided from an $8,000,000 revolving line of
credit (revolving line of credit) provided to Investors by the Bank under an
agreement entered into between Investors and the Bank in September 2005. In May
2008, the Bank agreed to increase the total line of credit available to
Investors from $8,000,000 to $10,500,000. The total indebtedness outstanding
under the term loan and the revolving line of credit are guaranteed, jointly and
severally, by the Company and Windfall. At October 31, 2009, there was
$19,186,000, outstanding under the term loan and the revolving line of credit.
Prior to
November 15, 2009, the Company had a variable interest in Investors (which was
deemed to be a variable interest entity). However, the Company was not required
to consolidate Investors since the Company was not the primary beneficiary of
Investors due to the Company not being required to absorb a majority of
Investor’s expected losses or receive a majority of Investor’s expected residual
returns.
Prior to
November 15, 2009, the Company accounted for its 15% ownership interest in
Investors as an equity method investment since the Company had significant
influence, but less than a controlling interest in Investors. The Company was
also required to record a negative equity method investment balance (which was
subsequently reclassified to other-long term liabilities) for Investors since
the Company had previously guaranteed Investor’s outstanding indebtedness under
its term loan and revolving line of credit.
On
November 15, 2009, the Company and Windfall entered into an agreement whereby
Windfall irrevocably assigned to the Company its entire 85% interest in
Investors. In conjunction with obtaining Windfall’s 85% interest in Investors,
the Company agreed to release Windfall and its individual members from any and
all liabilities including any losses with respect to Windfall’s previous
interest in Investors and any secured and unsecured financing for Investors. The
Company has accounted for its acquisition of Windfall’s 85% interest in
Investors utilizing the business combination guidance noted in FASB ASC 805
(SFAS No. 141R).
F-61
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
3.
Business Combination (continued)
The
following table summarizes the estimated fair value of the assets acquired and
liabilities assumed at the date of the acquisition. Such estimates are
preliminary and are subject to change upon finalization of certain valuation and
income tax analyses:
|
At
November 15, 2009
|
||||
|
Current
assets
|
$ | 246,000 | ||
|
Property,
plant and equipment
|
186,000 | |||
|
Real
estate development
|
17,531,000 | |||
|
Other
assets
|
50,000 | |||
|
Total
assets acquired
|
18,013,000 | |||
|
Current
liabilities
|
(152,000 | ) | ||
|
Current
portion of long-term debt
|
(10,141,000 | ) | ||
|
Deferred
income taxes
|
(314,000 | ) | ||
|
Long-term
debt, less current portion
|
(9,148,000 | ) | ||
|
Net
liabilities assumed
|
$ | (1,742,000 | ) | |
The
Company remeasured its previously held noncontrolling equity interest in
Investors at fair value on the November 15, 2009 acquisition date of
Investors. In remeasuring its previously held noncontrolling
interest, the Company considered the fair value of the assets and liabilities of
Windfall as of the acquisition date and also considered whether there was a
control premium that would not have been present in the previous noncontrolling
interest.
The
Company calculated that its acquisition date fair value of its previous equity
interest in Investors was approximately $1,700,000. The Company did
not recognize any gain or loss as a result of remeasuring the fair value of its
equity interest held in Investors just prior to the business combination as the
fair value approximated the carrying value of the noncontrolling interest
previously accounted for under the equity method of accounting.
4.
Seasonality
Cultural
Costs
Costs of
bringing crops to harvest are inventoried when incurred. Such costs are expensed
when the crops are sold. Costs during the current year related to the next
year’s crop are inventoried and carried in inventory until the matching crop is
harvested and sold, which traditionally occurs during the first and second
quarters of each year. During the three months ended January 31, 2010, the
Company expensed $296,000 of the $858,000 of cultural costs carried in inventory
at October 31, 2009. During the three months ended January 31, 2009, the Company
expensed $388,000 of the $1,146,000 of cultural costs carried in inventory at
October 31, 2008.
5.
Fair Value Measurements
Under the
FASB ASC 820 (SFAS No. 157), a fair value measurement is determined based
on the assumptions that a market participant would use in pricing an asset or
liability. A three-tiered hierarchy draws distinctions between market
participant assumptions based on (i) observable inputs such as quoted prices in
active markets (Level 1), (ii) inputs other than quoted prices in active markets
that are observable either directly or indirectly (Level 2) and (iii)
unobservable inputs that require the Company to use present value and other
valuation techniques in the determination of fair value (Level 3). The following
table sets forth the Company’s financial assets and liabilities as of
January 31, 2010, that are measured on a recurring basis during the period,
segregated by level within the fair value hierarchy:
F-62
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
5. Fair Value Measurements
(continued)
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
|
Assets
at fair value:
|
||||||||||||||||
|
Available-
for -sale securities
|
$
|
11,145,000
|
$
|
–
|
$
|
–
|
$
|
11,145,000
|
||||||||
|
Liabilities
at fair value:
|
||||||||||||||||
|
Derivatives
|
–
|
2,193,000
|
–
|
2,193,000
|
||||||||||||
Available-for-sale
securities consist of marketable securities in Calavo Growers, Inc. common
stock. The Company currently own approximately 4.6% of Calavo’s outstanding
common stock. These securities are measured at fair value by quoted market
prices. Calavo’s stock price at January 31, 2010 and October 31, 2009
equaled $16.76 per share and $17.85 per share, respectively. See Note 7.
Derivatives
consist of interest rate swaps whose fair values are estimated using
industry-standard valuation models. Such models project future cash flows and
discount the future amounts to a present value using market-based observable
inputs. See Note 11.
6.
Real Estate Development Assets/Assets Held for Sale
Real
estate development assets consist of the following:
|
January 31,
2010
|
October 31,
2009
|
|||||||
|
East
Areas 1 and 2:
|
||||||||
|
Land
and land development costs
|
$
|
38,298,000
|
$
|
37,788,000
|
||||
|
Templeton
Santa Barbara, LLC:
|
||||||||
|
Land
and land development costs
|
15,494,000
|
15,337,000
|
||||||
|
Windfall
Investors, LLC:
|
||||||||
|
Land
and land development costs
|
17,600,000
|
–
|
||||||
|
Total
included in real estate development asset
|
$
|
71,392,000
|
$
|
53,125,000
|
||||
Assets
held for sale consist of the following:
|
January 31,
2010
|
October 31,
2009
|
|||||||
|
Templeton
Santa Barbara, LLC and Arizona Development Project:
|
||||||||
|
Land
and land development costs
|
$
|
6,774,000
|
$
|
6,774,000
|
||||
|
Total
included in assets held for sale
|
$
|
6,774,000
|
$
|
6,774,000
|
||||
East
Areas 1 and 2
In fiscal
year 2005, the Company began capitalizing the costs of two real estate projects
east of Santa Paula, California, for the development of 550 acres of land into
residential units, commercial buildings, and civic facilities. The initial net
book value of the land associated with this project was $8,253,000. During
fiscal year 2008, the Company purchased a 63-acre parcel of land within the
project boundary for $22,000,000, which is included in real estate development
assets in the Company’s consolidated balance sheets at January 31, 2010 and
October 31, 2009. During the three months ended January 31, 2010 and January 31,
2009, the Company capitalized $510,000 and $454,000, respectively, of costs
related to these real estate development projects. Additionally, in relation to
this project, the Company has incurred expenses of $9,000 and $82,000 in the
three months ended January 31, 2010 and 2009, respectively.
F-63
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
6.
Real Estate Development Assets/Assets Held for Sale (continued)
Templeton
Santa Barbara, LLC
In
December 2006, the Company entered into an agreement with Templeton Santa
Barbara, LLC (Templeton) whereby the Company provided a $20,000,000 loan to
Templeton (the Bridge Loan). Templeton used these funds to purchase four
residential development parcels in Santa Maria, California (Templeton project).
The Company obtained the funds for the Bridge Loan through a term loan allowed
under its credit arrangement with City National Bank (the Term Loan). The Term
Loan matured on April 30, 2008 (see note 10). Interest on the Bridge Loan was
equal to the Prime rate plus 2%. The $20,000,000 principal balance on the Bridge
Loan was due and payable on March 31, 2008, with the remaining outstanding
balance due on October 31, 2009. Under the terms of the agreement with
Templeton, the Company had the option to participate in the Templeton project as
a 20% equity partner or participate as a lender receiving a preferred interest
rate.
In
December 2008, the Company amended its credit arrangement with City National
Bank to extend the maturity date of the Term Loan issued to the Company under
that credit arrangement from December 31, 2007 to April 30, 2008. The Company
then entered into an agreement (the Agreement) with Templeton to extend the due
date of the $20,000,000 Bridge Loan issued to Templeton by the Company from
December 31, 2007 to March 31, 2008. Interest payable to the Company by
Templeton during the extension period was at a rate of Prime plus 2%. The
Agreement called for Templeton to exercise its “best efforts” to sell and/or
refinance the Templeton project using the proceeds from the Bridge Loan. The
Agreement also prioritized the use of all funds received upon the sale or
refinance of the Templeton project as well as defined the Company’s
participation in the ultimate disposition of the Templeton project.
At March
31, 2008, Templeton was unable to meet its obligation under the terms of the
Agreement with the Company. As a result, the Company assumed a 75% controlling
interest in the Templeton project and began consolidating all of the activities
of the Templeton project beginning in April 2008. The $2,656,000 interest
recognized on the Bridge Loan balance at March 31, 2008, was capitalized into
the development costs associated with the Templeton project. The Term Loan was
repaid by the Company in fiscal 2008 with proceeds from the Rabobank credit
facility (see Note 10). Templeton’s minority interest basis in the Templeton
project was zero at October 31, 2008. Templeton assigned its remaining 25%
interest in the Templeton project to the Company in March 2009.
F-64
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
6.
Real Estate Development Assets/Assets Held for Sale (continued)
The
Company wrote down the carrying value of its Templeton project by $4,659,000 in
fiscal year 2009 and $1,341,000 in fiscal year 2008 based on the results of
independent appraisals which indicated that the fair value of the land and
land development costs related to the Templeton project was less than
its carrying value at October 31, 2009 and 2008, respectively.
In
October 2008, the Company received an offer from a third party to purchase one
of the four real estate development parcels within the Templeton project. The
net carrying value (inclusive of impairment charges) related to this particular
real estate development parcel was $6,270,000 and was recorded in assets held
for sale in the Company’s consolidated balance sheet at October 31, 2008. The
sale of this real estate development parcel fell out of escrow during fiscal
2009 and is no longer being held for sale. As such, the net carrying value
(inclusive of impairment charges) of this real estate development parcel is
included in real estate development assets in the Company’s consolidated balance
sheets at January 31, 2010 and October 31, 2009.
In
September 2009, another of the four real estate development parcels within the
Templeton project went into escrow. The net carrying value (inclusive of
impairment charges) related to this particular real estate development parcel is
$3,476,000 and is recorded in assets held for sale in the Company’s consolidated
balance sheets at January 31, 2010 and October 31, 2009.
The three
real estate development parcels not included in assets held for sale are
included in real estate development assets in the Company’s January 31, 2010 and
October 31, 2009 consolidated balance sheets.
Arizona
Development Projects
In fiscal
year 2007, the Company and Bellagio Builders, LLC, an Arizona limited liability
company, formed a limited liability company, 6037 East Donna Circle, LLC (Donna
Circle), with the sole business purpose of constructing and marketing an
approximately 7,500 square foot luxury home in Paradise Valley, Arizona (Donna
Circle project). In February 2007, Donna Circle obtained an unsecured,
non-revolving line of credit for $3,200,000 with Mid-State Bank (the DC Line).
The DC Line called for monthly, interest only payments with all unpaid principal
due at maturity in February 2009. The interest rate for the DC Line was 7%. All
principal and interest under the DC Line was guaranteed by the Company. As such,
the Company was required to consolidate the activities of the Donna Circle
project since the Company was the primary beneficiary in Donna Circle (which is
deemed to be variable interest entity).The DC Line was repaid by the Company in
fiscal year 2008 with proceeds from the Rabobank credit facility (see Note 10).
F-65
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
6.
Real Estate Development Assets/Assets Held for Sale (continued)
Donna
Circle used proceeds of $1,368,000 from the DC Line to purchase property in
Paradise Valley, Arizona, for the construction of a luxury home. Additionally,
Donna Circle used proceeds of $1,621,000 from borrowings for site preparation,
architect fees, and construction of the project. Total capitalized costs of
$2,989,000 are included in real estate development assets in the Company’s
consolidated balance sheet at October 31, 2008.
In
December 2008, the Donna Circle project was completed (after incurring an
additional $407,000 of capitalized costs during fiscal 2009) and the property
was listed for sale with a real estate broker. As such, the real estate
development assets related to the Donna Circle project were classified by the
Company as assets held for sale at that time. In June 2009, the Company decided
not to sell Donna Circle and instead, executed a two-year lease agreement for
the Donna Circle property with a third party (Renters) whereby the Company is to
receive approximately $7,600 a month in rental fees for a 24-month period
(beginning in July 2009). Based on the terms of the lease agreement, the Renters
have the option to extend the lease for 12 months (after the initial 24-month
rental period) at $8,000 per month and may purchase the home during the option
period for approximately $3,800,000. As such, the Company reclassified its
capitalized real estate development assets from asset held for sale to property,
plant, and equipment in the Company’s consolidated balance sheet at October 31,
2009, as the Donna Circle property is being held and used by the Company to
generate rental income. The Company recognized $23,000 in rental income related
to its Donna Circle property in the three months ended January 31, 2010. Such
amounts are included in other revenues in the Company’s consolidated statement
of operations for the three months ended January 31, 2010.
The net
carrying value related to Donna Circle is $2,747,000 at January 31, 2010,
consisting of capitalized land costs with a basis of $1,121,000 and capitalized
building costs of $1,626,000, net of (a) accumulated depreciation on the
capitalized building costs of $46,000 and (b) a fiscal year 2009 impairment
charge of $603,000 (which was allocated pro-rata between the Company’s basis in
the capitalized land and building costs for the Donna Circle property). The
fiscal 2009 impairment charge was the result of an independent appraisal which
indicated that the fair value of the Donna Circle project was less than its
carrying value at October 31, 2009.
In fiscal
year 2007, the Company and Bellagio Builders, LLC, an Arizona limited liability
company, formed a limited liability company, 6146 East Cactus Wren Road, LLC
(Cactus Wren) with the sole business purpose of constructing and marketing an
approximately 9,500 square-foot luxury home in Paradise Valley, Arizona (Cactus
Wren project). In March 2007, Cactus Wren obtained an unsecured, non-revolving
line of credit for $3,900,000 with Mid-State Bank (the CW Line). The CW Line
called for monthly, interest only payments with all unpaid principal due at
maturity in March 2009. The interest rate for the CW Line was 7%. All principal
and interest under the CW Line was guaranteed by the Company. As such, the
Company was required to consolidate the activities of the Cactus Wren project
since the Company was the primary beneficiary in Cactus Wren (which is deemed to
be variable interest entity). The CW Line was repaid by the Company in fiscal
year 2008 with proceeds from the Rabobank credit facility (see Note 10).
F-66
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
6.
Real Estate Development Assets/Assets Held for Sale (continued)
Cactus
Wren used proceeds of $1,640,000 from the CW Line to purchase property in
Paradise Valley, Arizona, for the construction of a luxury home. Additionally,
Cactus Wren used proceeds of $2,599,000 from borrowings for site preparation,
architect fees, and construction of the project.
In June
2009, the Cactus Wren project was completed and the property was listed for sale
with a real estate broker. The property remains unsold at January 31, 2009. As
such, the real estate development assets related to the Cactus Wren project is
classified by the Company as assets held for sale in the Company’s consolidated
balance sheet at January 31, 2010.
The net
carrying value related to Cactus Wren is $3,298,000 at January 31, 2010,
consisting of capitalized land and land development costs, net of a fiscal year
2009 impairment charge of $941,000. The fiscal year 2009 impairment charge was
the result of an independent appraisal which indicated that the fair value
of the Cactus Wren project was less than its carrying value at October 31, 2009.
Windfall
Ranch Development Project
As of the
November 15, 2010 acquisition date (see Note 3), the preliminary fair value
estimate of the Windfall Ranch’s land and land development costs acquired was
$17,531,000 which the Company recorded as real estate development assets.
Subsequent to its acquisition, the Company capitalized an additional $69,000 of
costs related to its real estate development of the Windfall Ranch during the
three months ended January 31, 2010.
The
Company is currently marketing for sale certain parcels of 724 acres of Windfall
Ranch. However, the Company is not classifying any of its real estate
development assets related to Windfall Ranch as asset held for sale at January
31, 2010 since certain of the criterions required for an asset held for sale
classification have not been met at January 31, 2010.
7.
Investment in Calavo Growers, Inc.
In June
2005, the Company entered into a stock purchase agreement with Calavo. Pursuant
to this agreement, the Company purchased 1,000,000 shares, or approximately
6.9%, of Calavo’s common stock for $10,000,000 and Calavo purchased 172,857
shares, or approximately 15.1%, of the Company’s common stock for $23,450,000.
Under the terms of the agreement, the Company received net cash consideration of
$13,450,000. The Company has classified its marketable securities investment as
available-for-sale.
In fiscal
year 2009, the Company sold 335,000 shares of Calavo stock for a total of
$6,079,000; recognizing a total gain of $2,729,000 which was recorded in other
income (expense) in the Company’s consolidated statement of operations for the
year ended October 31, 2009. Additionally, the changes in the fair value of the
available-for-sale securities result in unrealized holding gains or losses for
the remaining shares held by the Company. In the three months ended January 31,
2010, the Company recorded a total unrealized holding loss of $725,000 due to
the decrease in the market value of the Company’s remaining 665,000 shares of
Calavo common stock at January 31, 2010.
8.
Notes Receivable
In fiscal
year 2004, the Company sold a parcel of land in Morro Bay, California. The sale
was recognized under the installment method and the resulting gain on sale of
$161,000 was deferred. In connection with the sale, the Company recorded a note
receivable of $4,263,000. Principal of $2,963,000 and interest was paid in April
2005 and $112,000 of the deferred gain was recognized as income at that time.
The remaining $49,000 balance of the deferred gain is included in accrued
liabilities in the Company’s consolidated balance sheets at October 31, 2009.
The remaining principal balance of $1,300,000 and the related accrued interest
was initially payable in April 2009 and was recorded in current notes receivable
in the Company’s consolidated balance sheet at October 31, 2008. However, the
Company and the buyer of the Morro Bay land executed a note extension agreement
in March 2009. Based on the terms of the note extension agreement, the remaining
principal balance of $1,300,000 and the related accrued interest is now required
to be paid in full on April 1, 2014, and is being recorded in noncurrent notes
receivable in the Company’s consolidated balance sheets at January 31, 2010 and
October 31, 2009. Interest continues to accrue at 7.0% on the principal balance
of the note.
F-67
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
8.
Notes Receivable (continued)
In
connection with the lease of a retail facility, the Company recorded a note
receivable in May 2007 of $350,000. The note bears interest at the Prime rate
plus 2.00%, payable monthly. This note is unsecured and matures in May 2012. The
note receivable balance was $350,000 at January 31, 2010 and October 31, 2009,
respectively and is being recorded in noncurrent notes receivable in the
Company’s consolidated balance sheets.
In
connection with Company’s stock grant program, the Company has recorded total
notes receivable and accrued interest from related parties of $92,000 and
$1,803,000 at January 31, 2010 and October 31, 2009, respectively. These notes
were issued in connection with payments made by the Company on behalf of its
employees for payroll taxes on stock compensation. These notes bear interest at
the mid-term applicable federal rate then in effect, with principal and accrued
interest due and payable within 24 months from the date of the note. A portion
of the notes receivable and accrued interest balance related to three employees
(the Officers) became due in November and December 2009. As such, the total
$1,519,000 notes receivable and accrued interest due to be paid by the Officers
within one year at October 31, 2009 is recorded in current notes receivable –
related parties in the Company’s consolidated balance sheet at October 31, 2009.
The remaining $284,000 notes receivable and accrued interest balance from
employees that are not due to be paid within one year at October 31, 2009 is
recorded in noncurrent notes receivable – related parties in the Company’s
consolidated balance sheet at October 31, 2009.
In
December 2010, the Officers notes receivable and accrued interest were paid down
by $1,020,000 through the repurchase of 6,758 of Company shares with a fair
market value of $150.98 per share (at the time of the exchange) that were held
by the Officers of the Company. The remaining Officers notes receivable and
accrued interest of $687,000 was forgiven by the Company resulting in
compensation expense recorded in the three months ended January 31, 2010. The
Company also recorded compensation expense of $603,000 during the three months
ended January 31, 2010 representing additional compensation to be
paid by the Company to the Officers relating to the Officers payroll
taxes on the notes receivable forgiveness.
In
December 2010, the Company issued new notes to the Officers totaling $208,000 in
connection with payments made by the Company on behalf of the Officers for
payroll taxes associated with the vesting of shares under the Company’s stock
grant bonus program. The $208,000 note receivable balance was subsequently paid
down through the repurchase of 1,398 Company shares with a fair market value of
$150.98 (at the time of the exchange) that were held by the Officers of the
Company.
The
Company’s $92,000 notes receivable and accrued interest balance from employees
that are not due to be paid within one year at January 31, 2010 is recorded in
noncurrent notes receivable - related parties in the Company’s consolidated
balance sheet at January 31, 2010.
9.
Discontinued Operations
In
December 2005, Limoneira Company International Division, LLC entered into an
agreement whereby it acquired substantially all of the assets, liabilities, and
operations of Movin’ Mocha (Mocha), a California general partnership. The
initial purchase price of $1,000,000 was payable $500,000 at closing, $250,000
on the first anniversary of the closing and $250,000 on the second anniversary
of the closing. Mocha owned and operated coffee houses and coffee carts in seven
locations in the Modesto-Fresno corridor. Additionally, Mocha owned and operated
a bakery facility.
In
October 2006, the Company decided, that because of continuing operational losses
in its retail coffee and coffee distribution businesses, it would exit the
coffee business. In connection with that decision, the Company approved a plan
to exit the retail coffee and coffee distribution business. Sales and operating
losses for the three months ended January 31, 2010 were $2,000 and $8,000,
respectively. Sales and operating losses for the three months ended January 31,
2009 were $3,000 and $1,000, respectively. During fiscal year 2007, as a result
of an arbitration agreement, the Company finalized the purchase of Mocha with a
cash payment of $650,000. The remaining balances due on the purchase price, plus
interest, were paid in full and the retail coffee and coffee distribution
business incurred an additional charge to income of $75,000 related to the final
settlement. Additionally, in fiscal year 2007 the Company wrote down the
carrying value of a retail building by $100,000. In fiscal year 2008, the
Company ceased operations in all of Mocha’s retail facilities, sold the business
along with certain assets, and then proceeded to sell or dispose of all of the
remaining assets. At October 31, 2008 the purchaser of one of Mocha’s
retail buildings was in default on a note to the Company and the Company
initiated the process of foreclosure procedures. As a result, the
retail coffee and coffee distribution business incurred a charge to income of
$86,000 in fiscal year 2008.
F-68
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
9.
Discontinued Operations (continued)
The
assets and liabilities of the coffee business are comprised of the following:
|
January 31,
2010
|
October 31,
2009
|
|||||||
|
Cash
|
$
|
–
|
$
|
4,000
|
||||
|
Accounts
receivable
|
–
|
3,000
|
||||||
|
Prepaid
expenses
|
–
|
2,000
|
||||||
|
Deferred
income taxes
|
277,000
|
277,000
|
||||||
|
Notes
receivable
|
161,000
|
161,000
|
||||||
|
Total
assets
|
$
|
438,000
|
$
|
447,000
|
||||
|
Accounts
payable
|
$
|
–
|
$
|
2,000
|
||||
|
Accrued
liabilities
|
–
|
–
|
||||||
|
Total
liabilities
|
$
|
–
|
$
|
2,000
|
||||
F-69
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
10.
Long-Term Debt
Long-term
debt is comprised of the following:
|
January 31,
2010
|
October 31,
2009
|
|||||||
|
Rabobank
revolving credit facility secured by property with a net book value of
$12,260,000 at January 31, 2010 and October 31, 2009. The interest rate is
variable based on the one-month London Interbank Offered Rate plus 1.50%.
Interest is payable monthly and the principal is due in full in June 2013.
|
$
|
68,185,000
|
$
|
61,671,000
|
||||
|
Central
Coast Federal Land Bank Association loan secured by property with a net
book value of $11,659,000 at January 31, 2010 and $11,674,000 at October
31, 2009. The interest rate is variable and was 3.25% at January 31, 2010.
The loan is payable in quarterly installments through November 2022.
|
6,986,000
|
7,094,000
|
||||||
|
Central
Coast Federal Land Bank Association loan secured by property with a net
book value of $11,659,000 at January 31, 2010 and $11,674,000 at October
31, 2009. The interest rate is variable and was 3.25% at January 31, 2010.
The loan is payable in monthly installments through May 2032.
|
944,000
|
951,000
|
||||||
|
Farm
Credit West revolving line of credit. The interest rate is variable and
was 3.50% at January 31, 2010. Interest is payable monthly and the
principal is due in full in May 2010.
|
10,394,000
|
–
|
||||||
|
Farm
Credit West term loan secured by property with an appraised value of
$17,531,000 at November 15, 2009. The interest rate is fixed at 6.73%
until November 2011, becoming variable for the remainder of the loan. The
loan is payable in monthly installments through October 2035.
|
9,252,000
|
–
|
||||||
|
Subtotal
|
95,761,000
|
69,716,000
|
||||||
|
Less
current portion
|
10,999,000
|
465,000
|
||||||
|
Total
long-term debt, less current portion
|
$
|
84,762,000
|
$
|
69,251,000
|
||||
F-70
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
10.
Long-Term Debt (continued)
In August
2008, the Company entered into a credit arrangement with Rabobank whereby it
could borrow up to $80,000,000 on a secured line of credit. The initial
agreement was superseded by amended agreements in December 2008 and May 2009.
All outstanding amounts due under the previous credit arrangement were repaid
with proceeds from the Rabobank credit facility.
In fiscal
year 2009, the Company incurred $124,000 of costs to Rabobank and other third
parties in conjunction with finalizing its debt agreement with Rabobank. Such
costs were capitalized and are being amortized using the straight-line method
over the terms of the amended Rabobank credit agreement. Included in other
assets in the Company’s consolidated balance sheets was $95,000 and $101,000 of
capitalized deferred borrowing costs at January 31, 2010 and October 31, 2009,
respectively. Accumulated amortization related to the capitalized deferred
borrowing costs was $29,000 as of January 31, 2010. The amortization of the
deferred borrowing costs is recorded as interest expense in the Company’s
consolidated statement of operations for the three months ended January 31,
2010.
The
Company, under the terms of the Rabobank credit arrangement, is subject to an
annual financial covenant. At October 31, 2009, the Company was out of
compliance with its annual financial covenant for which a covenant waiver was
received from Rabobank for the year ended October 31, 2009. Under the terms of
the credit arrangement with Rabobank, the financial covenant is not subsequently
measured again until October 31, 2010. The Company anticipates being in
compliance with its annual financial covenant at October 31, 2010.
In
January 2009, the Company and Farm Credit West (FCW) entered into an agreement
whereby FCW agreed to convert the fixed interest portion of the two Central
Coast Federal Land Bank Association loans to variable rates. The Company
incurred $42,000 of costs to FCW for this rate conversion. Such costs were
capitalized and are being amortized using the straight-line method over the
terms of the FCW credit agreement. Included in other assets in the consolidated
balance sheets was $39,000 and $40,000 of capitalized deferred borrowing costs
at January 31, 2010 and October 31, 2009, respectively. Accumulated amortization
related to the capitalized deferred borrowing costs was $3,000 as of January 31,
2010. The amortization of the deferred borrowing costs is recorded as interest
expense in the consolidated statement of operations for the three months ended
January 31, 2010.
In
November 2009, the Company assumed the long-term debt of Windfall Investors, LLC
with the acquisition of the business (see Note 3). The debt is held by FCW and
consists of a secured long-term loan with an original principal balance of
$9,750,000 and a revolving line of credit of $10,500,000. At the time of the
acquisition on November 15, 2009, there was $19,290,000 outstanding under the
term loan and the revolving line of credit. The due date for the revolving line
of credit was originally November 2010 and has been extended until May 2010 (see
Note 17).
F-71
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
11.
Derivative Instruments and Hedging Activities
The
Company enters into interest rate swaps to minimize the risks and costs
associated with its financing activities. Derivative financial instruments
designated for hedging are as follows:
|
Notional Amount
|
Fair Value Net Liability
|
|||||||||||||||
|
January 31,
2010
|
October 31,
2009
|
January 31,
2010
|
October 31,
2009
|
|||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing 2013
|
$
|
22,000,000
|
$
|
22,000,000
|
$
|
1,768,000
|
$
|
1,678,000
|
||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing November 2010
|
10,000,000
|
10,000,000
|
240,000
|
287,000
|
||||||||||||
|
Pay
fixed-rate, receive floating-rate interest rate swap designated as cash
flow hedge, maturing November 2010
|
10,000,000
|
10,000,000
|
184,000
|
206,000
|
||||||||||||
|
Total
|
$
|
42,000,000
|
$
|
42,000,000
|
$
|
2,192,000
|
$
|
2,171,000
|
||||||||
F-72
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
11.
Derivative Instruments and Hedging Activities (continued)
These
interest rate derivatives qualify as cash flow hedges. Therefore, the fair value
adjustments to the underlying debt are deferred and included in accumulated
other comprehensive income (loss) and the net liability balance is being
recorded in accrued liabilities in the Company’s consolidated balance sheets at
January 31, 2010 and October 31, 2009.
12.
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 share-based compensation. Diluted net loss per common share is
calculated using the diluted weighted-average number of common shares. Diluted
weighted-average shares include weighted-average shares outstanding plus the
dilutive effect of share-based compensation calculated using the treasury stock
method of zero for the three months ended January 31, 2010 and 39,000 for the
three months ended January 31, 2009. The Series B convertible preferred shares
are anti-dilutive for the three months ended January, 31 2010 and January 31,
2009, respectively. Basic and diluted net loss per share was calculated after
giving effect to the ten-for-one stock split (see Note 17).
13.
Related-Party Transactions
The
Company rents certain of its residential housing assets to its employees,
including its agribusiness employees. The Company records the rental income
generated from these employees in rental revenues in the Company’s consolidated
statements of operations.
A member
of the Company’s Board of Directors is currently a Director of a mutual water
company in which the Company is an investor. The mutual water company provided
water to the Company, for which the Company paid $92,000 and $56,000 in the
three months ended January 31, 2010 and 2009, respectively. Water payments due
to the mutual water company were $17,000 and $51,000 at January 31, 2010 and
October 31, 2009, respectively.
The
Company has invested in the career of Charlie Kimball, a Formula 1 racing
driver, who is related to a member of the Company’s Board of Directors. Recorded
in other assets in the Company’s consolidated balance sheets are total
investments made to Charlie Kimball of $300,000 as of January 31, 2010 and
October 31, 2009.
The
amount invested by the Company is to be used by Charlie Kimball to further his
career goal of becoming a Formula One driver. The terms of the investments
provide that each $100,000 investment will be repaid to the Company upon the
first to occur of any of the following: (a) Charlie Kimball enters university as
a full-time student, which the Company refers to as the student trigger; (b)
Charlie Kimball reaches the position of a full-time salaried driver in the
Formula One World Championship, which the Company refers to as the F1 trigger;
and (c) the Company exercises the option to have its investment repaid, which
may not occur prior to January 23, 2010, which is referred to as the investor
trigger. For each $100,000 investment, the Company will be repaid the following
amounts: (x) in the event of the student trigger, the Company will be repaid the
amount of its investment; (y) in the event of the F1 trigger, the Company will
be repaid twice its investment in three equal annual installments beginning 120
days following the day the F1 trigger occurs; and (z) in the event of the
investor trigger, the Company will be repaid the amount of its investment within
one year after the investor trigger is exercised with an additional $25,000
payment if Charlie Kimball is a professional (salaried) racing driver on the day
the investor trigger is exercised. None of the triggers had been exercised as of
January 31, 2010.
F-73
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
13.
Related Party Transactions (continued)
In the
quarters ended January 31, 2009 and 2008, the Company recorded dividend income
of $333,000 and $350,000, respectively, on its investment in Calavo; which is
included in other income (loss), net in the Company’s consolidated statements of
operations. Sales of the Company’s avocados by Calavo totaled $225,000 and
$5,000 for the three months ended January 31, 2010 and 2009, respectively. Such
amounts are included in agriculture revenues in the Company’s consolidated
statements of operations. There was $219,000 receivable by the Company from
Calavo at January 31, 2010 and no amounts were receivable at October 31, 2009.
Additionally, the Company leases office space to Calavo and received rental
income of $57,000 in each of the three month periods ended January 31, 2010 and
2009. Such amounts are included in rental revenues in the Company’s
consolidated statements of operations.
14. Income Taxes
The
Company’s projected annual effective tax rate for fiscal 2010 is approximately
35.3%. As such, the 35.3% effective tax rate was utilized by the
Company for the first quarter of fiscal 2010 to calculate its income tax
provision (benefit).
There has
been a no material changes to the Company’s uncertain tax position for the three
month period ended January 31, 2010. The Company does not expect its
unrecognized tax benefits to change significantly over the next 12 months.
The
Company’s policy is to recognize interest expense and penalties related to
income tax matters as a component of income tax expense. The Company
has accrued approximately $13,000 of interest and penalties associated with
uncertain tax positions as of January 31, 2010.
15. Retirement
Plans
Effective
December 31, 1991, the Company merged the Limoneira Hourly and Piece Rated
Pension Plan and their salaried plan, into the Sunkist Retirement Plan, Plan L
(the Plan). All participants became members of the Plan at that time, and all
assets became part of the Sunkist Retirement Plan L Trust. Until January 2006,
the Plan was administered by the Sunkist Retirement Investment Board. Since
January 2006, the Plan has been administered by City National Bank and Mercer
Human Resource Consulting.
The Plan
is a noncontributory, defined benefit, single employer pension plan, which
provides retirement benefits for all eligible employees of the Company. Since
Limoneira Company’s Defined Benefit Pension Plan is a single employer plan
within the Sunkist Master Trust, its liability was not commingled with that of
the other plans holding assets in the Master Trust. Limoneira Company has an
undivided interest in its assets. Benefits paid by the Plan are calculated based
on years of service, highest five-year average earnings, primary Social Security
benefit, and retirement age.
The Plan
is funded consistent with the funding requirements of federal law and
regulations. There were funding contributions of $300,000 during each of the
three month periods ended January 31, 2010 and 2009.
F-74
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
15.
Retirement Plans (continued)
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 periodic benefit cost.
The net
periodic pension costs for the Company’s Defined Benefit Pension Plan for the
quarters ending January 31 were as follows:
|
2010
|
2009
|
|||||||
|
Service
cost
|
$
|
37,000
|
$
|
22,000
|
||||
|
Interest
cost
|
210,000
|
222,000
|
||||||
|
Expected
return on plan assets
|
(255,000
|
)
|
(256,000
|
)
|
||||
|
Recognized
actuarial loss
|
156,000
|
5,000
|
||||||
|
Net
periodic pension cost
|
$
|
148,000
|
$
|
(7,000
|
)
|
|||
F-75
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
16.
Segment Information
The
Company operates and tracks results in three reportable operating segments;
agri-business, rental operations, and real estate development. The
reportable operating segments of the Company are strategic business units with
different products and services, distribution processes and customer bases. The
agri-business segment includes farming and citrus packing operations.
The rental operations segment includes housing and commercial rental
operations, leased land, and organic recycling. The real estate development
segment includes real estate development operations. The Company measures
operating performance, including revenues and earnings, of its operating
segments and allocates resources based on its evaluation. The Company does not
allocate selling, general and administrative expense, other income (expense),
interest expense, income tax expense and assets, or specifically identify them
to its operating segments. Revenues from Sunkist represent $3,389,000 of the
Company’s agri-business revenues for the three months ended January 31, 2010 and
$3,236,000 of the Company’s agri-business revenues for the three months ended
January 31, 2009.
Segment
information for the three months ended January 31, 2010:
|
Agri-business
|
Rental
Operations
|
Real Estate
Development
|
Corporate and
Other
|
Total
|
||||||||||||||||
|
Revenues
|
$
|
5,272,000
|
$
|
955,000
|
$
|
135,000
|
$
|
–
|
$
|
6,362,000
|
||||||||||
|
Costs
and expenses
|
6,893,000
|
507,000
|
327,000
|
3,416,000
|
11,143,000
|
|||||||||||||||
|
Impairment
charges
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Loss
on sale of assets
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Operating
income (loss)
|
$
|
(1,621,000
|
)
|
$
|
448,000
|
$
|
(192,000
|
)
|
$
|
(3,416,000
|
)
|
$
|
(4,781,000
|
)
|
||||||
F-76
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
16.
Segment Information (continued)
Segment
information for the three months ended January 31, 2009:
|
Agri-business
|
Rental
Operations
|
Real Estate
Development
|
Corporate and
Other
|
Total
|
||||||||||||||||
|
Revenues
|
$
|
4,005,000
|
$
|
911,000
|
$
|
–
|
$
|
–
|
$
|
4,916,000
|
||||||||||
|
Costs
and expenses
|
6,639,000
|
580,000
|
83,000
|
1,478,000
|
8,780,000
|
|||||||||||||||
|
Impairment
charges
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Loss
on sale of assets
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||
|
Operating
income (loss)
|
$
|
(2,634,000
|
)
|
$
|
331,000
|
$
|
(83,000
|
)
|
$
|
(1,478,000
|
)
|
$
|
(3,864,000
|
)
|
||||||
The
following table sets forth revenues by category, by segment for the three months
ended:
|
January 31,
2010
|
January 31,
2009
|
|||||||
|
Lemons
|
$
|
3,389,000
|
$
|
3,236,000
|
||||
|
Avocados
|
225,000
|
5,000
|
||||||
|
Navel
oranges
|
577,000
|
301,000
|
||||||
|
Valencia
oranges
|
149,000
|
126,000
|
||||||
|
Specialty
citrus and other crops
|
932,000
|
337,000
|
||||||
|
Agri-business
revenues
|
5,272,000
|
4,005,000
|
||||||
|
Rental
operations
|
530,000
|
514,000
|
||||||
|
Leased
land
|
381,000
|
360,000
|
||||||
|
Organic
recycling
|
44,000
|
37,000
|
||||||
|
Rental
operations revenues
|
955,000
|
911,000
|
||||||
|
Real
estate operations
|
135,000
|
–
|
||||||
|
Real
estate revenues
|
135,000
|
–
|
||||||
|
Total
revenues
|
$
|
6,362,000
|
$
|
4,916,000
|
||||
F-77
LIMONEIRA
COMPANY
NOTES
TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
17.
Subsequent Events
The
Company has evaluated events subsequent to January 31, 2010 to assess the
need for potential recognition or disclosure. Based upon this evaluation, it was
determined that no subsequent events occurred that require recognition in the
financial statements (other than the March 24, 2010 capital structure changes as
described below) and that the following items represents events that merit
disclosure herein:
The
revolving line of credit for Investors matured in November 2009 and the maturity
date was subsequently extended by Farm Credit West until March, 1, 2010. Farm
Credit West subsequently extended the maturity date to May 1,
2010. The Company is in the process of refinancing the revolving line
of credit on a long-term basis through amendment to the Farm Credit West
agreement or alternatively through its existing facility with Rabobank.
In
February 2010, the Company and HM Manager, LLC formed a limited liability
company, HM East Ridge, LLC, for the purpose of developing one of the four
Templeton land parcels. The Company made a capital contribution of land into HM
Eastridge, LLC. Since the Company has significant influence, but less than a
controlling interest, the Company plans on accounting for its investment in HM
Eastridge, LLC using the equity method of accounting.
On March
23, 2010, the Company’s stockholders approved the Limoneira Company 2010 Omnibus
Incentive Plan.
Effective
March 24, 2010, the Company amended our certificate of incorporation
to increase the authorized number of shares of common stock, and effected a
ten-for-one split of our common stock. All references in the
accompanying unaudited interim consolidated condensed financial statements to
(i) the value and number of shares of the Company’s common stock, (ii) the
authorized number of shares of the Company’s common stock and preferred stock,
and (iii) loss per share and dividends per share have been retroactively
adjusted to reflect these changes.
F-78
Windfall
Investors, LLC
Financial
Statements
Year
Ended December 31, 2008
F-79
WINDFALL INVESTORS,
LLC
FINANCIAL
STATEMENTS
YEAR ENDED DECEMBER 31,
2008
TABLE OF
CONTENTS
|
PAGE
|
||
|
Independent
Auditors’ Report
|
F-81
|
|
|
Balance
Sheet
|
F-82
|
|
|
Statement
of Income and Members’ Deficit
|
F-83
|
|
|
Statement
of Cash Flows
|
F-84
|
|
|
Notes
to Financial Statements
|
F-85-F-89
|
F-80
Independent
Auditors’ Report
Board of
Directors
Windfall
Investors, LLC
Santa
Paula, CA 93060
We have
audited the accompanying balance sheet of Windfall Investors, LLC as of December
31, 2008, and the related statements of income and members’ deficit, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Windfall Investors, LLC as of
December 31, 2008, and the results of their operations and cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
Glenn,
Burdette, Phillips & Bryson
Certified
Public Accountants
A
Professional Corporation
San Luis
Obispo, California
January
29, 2010
F-81
WINDFALL INVESTORS,
LLC
BALANCE
SHEET
DECEMBER 31,
2008
|
ASSETS
|
||||
|
Current Assets
|
||||
|
Cash
and cash equivalents
|
$ | 17,409 | ||
|
Trade
receivables, net
|
106,730 | |||
|
Inventory
|
52,270 | |||
|
Prepaid
expenses and other current assets
|
28,023 | |||
|
Deferred
crop costs
|
45,100 | |||
|
Current
portion of note receivable
|
8,989 | |||
|
Total
current assets
|
258,521 | |||
|
Property, Plant, and Equipment,
Net
|
12,321,390 | |||
|
Other Assets, Net
|
66,744 | |||
|
Total
Assets
|
$ | 12,646,655 | ||
|
LIABILITIES AND MEMBERS’
DEFICIT
|
||||
|
Current Liabilities
|
||||
|
Accounts
payable
|
$ | 144,164 | ||
|
Accrued
liabilities
|
6,839 | |||
|
Deposits
|
2,550 | |||
|
Lines
of credit
|
8,956,814 | |||
|
Current
portion of notes payable
|
135,150 | |||
|
Total
current liabilities
|
9,245,517 | |||
|
Long-Term Liabilities
|
||||
|
Notes
payable, net of current portion
|
9,262,778 | |||
|
Total
long-term liabilities
|
9,262,778 | |||
|
Members' Deficit
|
(5,861,640 | ) | ||
|
Total
Liabilities and Members' Deficit
|
$ | 12,646,655 | ||
The
accompanying notes are an integral part of these financial
statements.
F-82
WINDFALL INVESTORS,
LLC
STATEMENT OF INCOME AND
MEMBERS’ DEFICIT
YEAR ENDED DECEMBER 31,
2008
|
Revenues
|
$ | 823,253 | ||
|
Cost of Revenues
|
252,251 | |||
|
Gross
Profit
|
571,002 | |||
|
Operating Expenses
|
1,575,655 | |||
|
Loss
from operations
|
(1,004,653 | ) | ||
|
Other Income (Expense)
|
||||
|
Interest
expense
|
(1,105,267 | ) | ||
|
Loss
from sale of assets
|
(74,688 | ) | ||
|
Other
income, net
|
195,922 | |||
|
Total
other income (expense)
|
(984,033 | ) | ||
|
Net
loss before provision for income taxes
|
(1,988,686 | ) | ||
|
Provision
for income taxes
|
6,800 | |||
|
Net
Loss
|
(1,995,486 | ) | ||
|
Members' Deficit - Beginning of
Year
|
(3,866,154 | ) | ||
|
Members' Deficit - End of
Year
|
$ | (5,861,640 | ) |
The
accompanying notes are an integral part of these financial
statements.
F-83
WINDFALL INVESTORS,
LLC
STATEMENT OF CASH
FLOWS
YEAR ENDED DECEMBER 31,
2008
|
Cash Flows From Operating
Activities
|
||||
|
Net
loss
|
$ | (1,995,486 | ) | |
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||
|
Depreciation
and amortization
|
175,585 | |||
|
Bad
debt expense
|
536,004 | |||
|
Impairment
of other assets
|
43,226 | |||
|
Loss
on sale of assets
|
74,688 | |||
|
Change
in assets and liabilities:
|
||||
|
Increase
in trade receivables
|
(98,700 | ) | ||
|
Increase
in inventory
|
(13,918 | ) | ||
|
Decrease
in prepaid expenses and other current assets
|
74,279 | |||
|
Increase
in deferred crop costs
|
(45,100 | ) | ||
|
Decrease
in accounts payable
|
(104,957 | ) | ||
|
Increase
in accrued liabilities
|
3,599 | |||
|
Increase
in deposits
|
2,550 | |||
|
Total
adjustments
|
647,256 | |||
|
Net
cash used by operating activities
|
(1,348,230 | ) | ||
|
Cash Flows From Investing
Activities
|
||||
|
Purchases
of fixed assets
|
(73,272 | ) | ||
|
Purchases
of other assets
|
(75,000 | ) | ||
|
Proceeds
from sale of other assets
|
52,925 | |||
|
Net
cash used by investing activities
|
(95,347 | ) | ||
|
Cash Flows From Financing
Activities
|
||||
|
Changes
in note receivable
|
(5,383 | ) | ||
|
Repayments
under notes payable
|
(120,603 | ) | ||
|
Advances
on lines of credit, net
|
1,582,634 | |||
|
Net
cash provided by financing activities
|
1,456,648 | |||
|
Net
increase in cash
|
13,071 | |||
|
Cash and Cash Equivalents - Beginning of
Year
|
4,338 | |||
|
Cash and Cash Equivalents - End of
Year
|
$ | 17,409 | ||
|
Schedule of Payments for Interest and
Taxes
|
||||
|
Payments
for interest
|
$ | 1,105,267 | ||
|
Payments
for income taxes
|
$ | 6,800 | ||
The
accompanying notes are an integral part of these financial
statements.
F-84
WINDFALL INVESTORS,
LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2008
Note 1 - Summary of
Significant Accounting Policies
|
A.
|
Nature of
Business
|
Windfall
Investors, LLC (the Company) is a farming operation located in Paso Robles,
California. The Company also provides services for horse training and
boarding.
|
B.
|
Inventory
|
Inventories are stated at lower of cost
(first-in, first-out) or market.
|
C.
|
Property, Plant and
Equipment
|
Property,
plant and equipment are stated at cost with depreciation provided on the
straight-line basis over the estimated useful lives ranging from five to
thirty-nine years.
|
D.
|
Income
Taxes
|
The
Company has been formed as a Limited Liability Company (LLC) with taxation
treatment as a partnership. As such, income or losses will be passed
through the Company to its members for purposes of income
taxation. Under current California law, an LLC is subject to an
annual $800 LLC tax as well as an LLC fee based on gross
receipts. The LLC fee for the year ended December 31, 2008 was
$6,800.
On July
13, 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation 48 (FIN 48), Accounting for Uncertainty in Income
Taxes: An Interpretation of FASB Statement No. 109 (SFAS 109, Accounting for
Income Taxes). FIN 48 clarifies SFAS 109 to indicate a
criterion that an individual tax position would have to meet for some or all of
the income tax benefit to be recognized in the financial
statements. Originally effective for fiscal years beginning after
December 15, 2006, the FASB subsequently issued two deferrals for nonpublic
enterprises, including pass-through entities and not-for-profit organizations,
the most recent being FASB Staff Position 48-3 (FSP 48-3) in December
2008. FSP 48-3 deferred the effective date of FIN 48 until years
beginning after December 15, 2008.
|
E.
|
Fair Value
Measurements
|
In
September 2006, the FASB issued SFAS 157, Fair Value
Measurements. SFAS 157 defines fair value, establishes a
framework for measuring fair value under GAAP, and expands disclosures about
fair value measurements. SFAS 157 emphasizes that fair value is a
market-based measurement, not an entity-specific measurement, and states that a
fair value measurement should be determined based on assumptions that market
participants would use in pricing the asset or liability. The Company
has adopted this standard.
F-85
WINDFALL INVESTORS,
LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2008
PAGE 2
Note 1 - Summary of
Significant Accounting Policies (Continued)
|
F.
|
Concentrations
|
The
Company maintains cash balances at a financial institution covered under Federal
Deposit Insurance Corporation (FDIC). As of October 3, 2008, the FDIC
increased coverage up to $250,000 and fully insured non-interest bearing
accounts. The Company did not have any uninsured cash at December 31,
2008.
Approximately
38% of the Company’s accounts receivables at December 31, 2008 were from two
customers.
Approximately
28% of the Company’s sales during the year ended December 31, 2008 were from
three customers.
|
G.
|
Use of
Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain 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 reported period. Actual results could differ from those
estimates.
|
H.
|
Allowance for Doubtful
Accounts
|
It is the
policy of management to review the outstanding accounts receivable at year-end,
as well as historical bad debt write-offs, and establish an allowance for
doubtful accounts for estimated uncollectible amounts. The Company
has not recorded an allowance for doubtful accounts as of December 31,
2008.
|
I.
|
Cash and Cash
Equivalents
|
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. The Company has no cash equivalents at December 31,
2008.
|
J.
|
Revenue and Cost
Recognition
|
The
Company’s revenue is recognized on the accrual basis as earned based on date of
delivery. Expenditures are recorded on the accrual basis whereby
expenses are recorded when incurred, rather than when paid.
|
K.
|
Deferred Crop
Costs
|
Costs
associated with the following year’s crop are deferred at year-end and are
reversed into cost of sales the following year.
F-86
WINDFALL INVESTORS,
LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2008
PAGE 3
Note 1 - Summary of
Significant Accounting Policies (Continued)
|
L.
|
Other
Assets
|
|
|
Other
assets include horses and related costs that are used for training and
breeding, which are amortized on a straight-line basis over seven years,
and loan costs, which are amortization over term of the
loan. Amortization expense for the year ended December 31, 2008
totaled $28,275.
|
Note 2 - Stock in Credit
Association
The
Company holds stock in the farm credit association with which the Company has
loans. The farm credit association requires that borrowers invest in
the credit association in order to obtain a loan. The investment is
offset dollar for dollar by a stock loan from the credit association, which is
adjusted by the association as the outstanding loan balance is paid
down.
Note 3 - Note
Receivable
The
Company advances from time to time amounts under a note receivable arrangement
with a related party. The note receivable does not bear interest and
is due upon demand. The balance outstanding on the note was $8,989 as
of December 31, 2008 and has been classified as current in the financial
statements.
Note 4 -
Inventory
Inventory
consists of finished goods at December 31, 2008.
Note 5 - Property, Plant and
Equipment
Property,
plant and equipment are summarized by major classification as
follows:
|
2008
|
||||
|
Land
|
$ | 11,025,220 | ||
|
Buildings
and building improvements
|
1,125,815 | |||
|
Irrigation
|
105,336 | |||
|
Farming
and transportation equipment
|
412,205 | |||
|
Office
equipment
|
3,432 | |||
| 12,672,008 | ||||
|
Accumulated
depreciation
|
(350,618 | ) | ||
| $ | 12,321,390 | |||
Depreciation
expense totaled $147,310 for the year ended December 31, 2008.
F-87
WINDFALL INVESTORS,
LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2008
PAGE 4
Note 6 - Lines of
Credit
The
Company has a two revolving lines of credit with Farm Credit West with a total
credit line of $10,500,000. The lines of credit are unsecured and are
guaranteed by a member of the Company. The lines of credit allow for
borrowings based on either a fixed rate of interest (6.67% at December 31, 2008)
or a variable rate of interest based on the prime rate less .75% (2.25% at
December 31, 2008). Total outstanding on the lines of credit as of
December 31, 2008 was $8,956,814. The lines of credit mature on March
1, 2010.
Note 7 - Notes
Payable
Notes
payable at December 31, 2008 consist of the following:
|
Note
payable to Farm Credit West, with a fixed interest rate of
6.73%; due October 2035, with monthly payments
of $63,092, including interest; secured by real property of the
Company and guaranteed by members of the Company.
|
$ | 9,391,753 | ||
|
Note
payable to a related party due upon demand; secured by related party
accounts receivable
|
6,175 | |||
|
Total
notes payable
|
$ | 9,397,928 | ||
|
Less
current portion of notes payable
|
135,150 | |||
|
Notes
payable, net of current portion
|
$ | 9,262,778 |
The
aggregate maturities of long-term debt are as follows for the year ending
December 31:
|
Year Ending December 31,
|
||||
|
2009
|
$ | 135,150 | ||
|
2010
|
137,927 | |||
|
2011
|
147,502 | |||
|
2012
|
157,741 | |||
|
2013
|
168,690 | |||
|
Thereafter
|
8,650,918 | |||
| $ | 9,397,928 | |||
F-88
WINDFALL INVESTORS,
LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2008
PAGE 5
Note 8 - Related Party
Transactions
In March
of 2005, Windfall, LLC, a member of Windfall Investors, LLC, formed Creston Ag.,
LLC for the purpose of providing agricultural-related labor and management
services to the agricultural industry. During 2008, Creston Ag., LLC
provided labor and payroll tax services to the Company totaling
$305,122. As discussed in Note 7, the amount due to Creston Ag., LLC
at December 31, 2008 was $6,175 and is secured by a note receivable from the
Creston Ag., LLC totaling $8,989 at December 31, 2008 (see Note 8).
The
Company has also made advances to a related party, Templeton Enterprises, which
totaled $11,612 at December 31, 2008, and are included in accounts
receivable.
F-89
WINDFALL INVESTORS,
LLC
BALANCE SHEET
(unaudited)
SEPTEMBER 30,
2009
|
ASSETS
|
||||
|
Current Assets
|
||||
|
Cash
and cash equivalents
|
$ | 30,057 | ||
|
Trade
receivables, net
|
127,329 | |||
|
Inventory
|
- | |||
|
Prepaid
expenses and other current assets
|
11,158 | |||
|
Deferred
crop costs
|
45,100 | |||
|
Current
portion of note receivable
|
8,589 | |||
|
Total
current assets
|
222,233 | |||
|
Property, Plant and Equipment,
Net
|
12,177,048 | |||
|
Other Assets, Net
|
54,178 | |||
|
Total
Assets
|
$ | 12,453,459 | ||
|
LIABILITIES AND MEMBERS'
DEFICIT
|
||||
|
Current Liabilities
|
||||
|
Accounts
payable
|
$ | 139,687 | ||
|
Accrued
Liabilities
|
53,020 | |||
|
Deposits
|
6,250 | |||
|
Lines
of credit
|
9,773,309 | |||
|
Current
portion of notes payable
|
135,150 | |||
|
Total
current liabilities
|
10,107,416 | |||
|
Long-Term Liabilities
|
||||
|
Notes
payable, net of current portion
|
9,160,689 | |||
|
Total
long-term liabilities
|
9,160,689 | |||
|
Members' Deficit
|
(6,814,645 | ) | ||
|
Total
Liabilities and Members' Deficit
|
$ | 12,453,459 | ||
F-90
WINDFALL INVESTORS,
LLC
STATEMENT OF INCOME
(unaudited)
NINE MONTHS ENDED SEPTEMBER
30, 2009
|
Revenues
|
$ | 424,934 | ||
|
Cost of Revenues
|
84,211 | |||
|
Gross
Profit
|
340,724 | |||
|
Operating Expenses
|
546,760 | |||
|
Loss
from operations
|
(206,036 | ) | ||
|
Other Income (Expenses)
|
||||
|
Interest
expense
|
(814,386 | ) | ||
|
Loss
from disposal of assets
|
(17,978 | ) | ||
|
Other
income, net
|
89,745 | |||
|
Total
other income (expense)
|
(742,619 | ) | ||
|
Net
loss before provision for income taxes
|
(948,656 | ) | ||
|
Provision
for income taxes
|
(4,350 | ) | ||
|
Net
Loss
|
(953,006 | ) | ||
|
Members' Deficit - Beginning of
Year
|
(5,861,640 | ) | ||
|
Members' Deficit - Nine months ended September
2009
|
$ | (6,814,645 | ) |
F-91
STATEMENT OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED SEPTEMBER
30, 2009
|
Cash Flows From Operating
Activities
|
||||
|
Net
loss
|
$ | (953,006 | ) | |
|
Adjustments
to reconcile net loss to net cash used by operating activities:
|
||||
|
Depreciation
and amortization
|
128,077 | |||
|
Loss
on disposal of assets
|
17,978 | |||
|
Change
in assets and liabilities
|
||||
|
Increase
in trade receivables
|
(20,599 | ) | ||
|
Decrease
in inventory
|
52,270 | |||
|
Decrease
in prepaid expenses and other current assets
|
16,865 | |||
|
Decrease
in accounts payable
|
(4,477 | ) | ||
|
Increase
in accrued liabilities
|
46,181 | |||
|
Increase
in deposits
|
3,700 | |||
|
Other
|
11,272 | |||
|
Total
adjustments
|
251,267 | |||
|
Net
cash used by operating activities
|
(701,739 | ) | ||
|
Cash Flows From Investing
Activities
|
||||
|
Purchases
of fixed assets
|
(419 | ) | ||
|
Net
cash used by investing activities
|
(419 | ) | ||
|
Cash Flows From Financing
Activities
|
||||
|
Changes
in note receivable
|
400 | |||
|
Repayments
under notes payable
|
(102,089 | ) | ||
|
Advances
on lines of credit, net
|
816,495 | |||
|
Net
cash provided by financing activities
|
714,806 | |||
|
Net
Increase in cash
|
12,648 | |||
|
Cash and Cash Equivalents - Beginning of
Year
|
17,409 | |||
|
Cash and Cash Equivalents - End of
Year
|
$ | 30,057 | ||
F-92