Unassociated Document
 
   
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2010
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM              TO             
 
Commission File Number: 001-34755
 
Limoneira Company
(Exact 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)
(Zip Code)
 
Registrant’s telephone number, including area code: (805) 525-5541
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).      ¨  Yes    ¨  No
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. (Check one):
¨  Large accelerated filer
¨  Accelerated filer
x  Non-accelerated filer
¨  Smaller reporting company
   
 
(Do not check if a smaller reporting company)            
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
 
As of Friday June 11, 2010, there were 11,194, 460 shares outstanding of the registrant’s common stock.

 
 
 
LIMONEIRA COMPANY
 
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
3
Item 1.        Financial Statements (unaudited)
3
Consolidated Condensed Statement of Operations – three and six months ended April 30, 2010 and 2009
3
Consolidated Condensed Balance Sheets – April 30, 2010 and October 31, 2009
4
Consolidated Condensed Statements of Comprehensive Income (Loss) – three and six months ended April 30, 2010 and 2009
5
Consolidated Condensed Statements of Cash Flows – six months ended April 30, 2010 and 2009
6
Notes to Consolidated Condensed Financial Statements
9
Item 2.       Management’s Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3.       Quantitative and Qualitative Disclosures About Market Risk
36
Item 4.       Controls and Procedures
37
PART II. OTHER INFORMATION
37
Item 1.       Legal Proceedings
37
Item 1A.    Risk Factors
37
Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds
45
Item 3.       Defaults Upon Senior Securities
45
Item 4.       [Removed and Reserved]
45
Item 5.       Other Information
45
Item 6.       Exhibits
45
SIGNATURES
46
 
CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains statements relating to our future results (including certain projections and business trends) that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the “safe harbor” created by those sections.  Forward-looking statements frequently are identifiable by the use of words such as “believe,” “anticipate,” “expect,” “intend,” “will,” and other similar expressions.  Our actual results may differ materially from those projected as a result of certain risks and uncertainties.  These risks and uncertainties include, but are not limited to: increased competition, conducting substantial amounts of business internationally, pricing pressures on agricultural products, adverse weather and growing conditions confronting avocado growers, new governmental regulations, as well as other risks and uncertainties, including but not limited to those set forth in this Quarterly Report on Form 10-Q in Part II, Item 1A entitled Risk Factors, and those detailed from time to time in our other filings with the Securities and Exchange Commission.  These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise.
 
2
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Limoneira Company and Subsidiaries
 
Consolidated Condensed Statement of Operations (unaudited)

 
Three months ended
April 30
    
Six months ended
April 30
  
 
2010
    
2009
    
2010
    
2009
  
Revenues:
                              
Agriculture
$
12,202,000
    
$
6,797,000
    
$
17,474,000
    
$
10,802,000
  
Rental
  
962,000
      
955,000
      
1,917,000
      
   1,866,000
  
Other
  
45,000
      
8,000
      
180,000
      
8,000
  
Total revenues
  
13,209,000
      
7,760,000
      
19,571,000
      
12,676,000
  
Costs and expenses:
                              
Agriculture
  
8,791,000
      
6,995,000
      
15,684,000
      
13,633,000
  
Rental
  
584,000
      
480,000
      
1,091,000
      
1,061,000
  
Other
  
396,000
      
58,000
      
723,000
      
141,000
  
Selling, general and administrative
  
2,413,000
      
1,784,000
      
5,829,000
      
3,262,000
  
Loss on sale of assets
  
-
      
3,000
      
-
      
3,000
  
Total cost and expenses
  
12,184,000
      
9,320,000
      
23,327,000
      
18,100,000
  
Operating income (loss)
  
1,025,000
      
(1,560,000
)
    
(3,756,000
)
    
(5,424,000
)
Other income (expense):
                              
Other income (expense), net
  
1,000
      
        (22,000
)
    
364,000
      
314,000
  
Interest income
  
29,000
      
86,000
      
58,000
      
123,000
  
Interest expense
  
(955,000
)
    
(88,000
)
    
(1,383,000
)
    
(301,000
)
Total other income (expense)
  
(925,000
)
    
24,000
      
(961,000
)
    
136,000
  
Income (loss) from continuing operations before income tax (provision) benefit and equity in investments
  
100,000
      
(1,584,000
)
    
(4,717,000
) 
    
(5,288,000
)
Income tax (provision) benefit
  
(48,000
)
    
739,000
      
1,661,000
      
2,391,000
  
Equity in earnings (losses) of investments
  
64,000
      
(75,000
)
    
48,000
      
(99,000
)
Income (loss) from continuing operations
  
116,000
      
(920,000
)
    
(3,008,000
) 
    
(2,996,000
)
Loss from discontinued operations, net of income taxes
  
(4,000
)
    
(5,000
)
    
(12,000
) 
    
(6,000
)
Net income (loss)
  
112,000
      
(925,000
)
    
(3,020,000
) 
    
(3,002,000
)
Preferred dividends
  
(65,000
)
    
(65,000
)
    
(131,000
) 
    
(131,000
)
Net income (loss) applicable to common stock
$
47,000
    
$
(990,000
)
  
$
(3,151,000
) 
  
$
(3,133,000
)
Per common share basic:
                              
Continuing operations
$
0.00
    
$
(0.09
)
  
$
(0.28
) 
  
$
(0.28
)
Discontinued operations
  
(0.00
)
    
(0.00
)
    
(0.00
)
    
(0.00
)
Basic net income (loss) per share
$
0.00
    
$
(0.09
)
  
$
(0.28
) 
  
$
(0.28
)
Per common share-diluted:
                              
Continuing operations
$
0.00
    
$
(0.09
)
  
$
(0.28
) 
  
$
(0.28
)
Discontinued operations
  
(0.00
)
    
(0.00
)
    
(0.00
)
    
(0.00
)
Diluted net income (loss) per share
$
0.00
    
$
(0.09
)
  
$
(0.28
) 
  
$
(0.28
)
Dividends per common share
$
0.03
    
$
-
    
$
0.06
    
$
0.03
  
Weighted-average shares outstanding-basic
  
11,194,000
      
11,263,000
      
11,194,000
      
11,224,000
  
Weighted-average shares outstanding-diluted
  
11,194,000
      
11,263,000
      
11,194,000
      
11,247,000
  

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
 
3
 
Limoneira Company and Subsidiaries
 
Consolidated Condensed Balance Sheets (unaudited)

   
April 30
2010
    
October 31
2009
  
             
Assets
            
Current assets:
            
Cash and cash equivalents
  
$
11,000
    
$
603,000
  
Accounts receivable
    
6,981,000
      
3,735,000
  
Notes receivable – related parties
    
–
      
1,519,000
  
Inventoried cultural costs
    
529,000
      
858,000
  
Prepaid expenses and other current assets
    
1,618,000
      
894,000
  
Income taxes receivable
    
1,669,000
      
-
  
Current assets of discontinued operations
    
5,000
      
9,000
  
Total current assets
    
10,813,000
      
7,618,000
  
Property, plant, and equipment, net
    
53,964,000
      
53,817,000
  
Real estate development
    
64,531,000
      
53,125,000
  
Assets held for sale
    
6,774,000
      
6,774,000
  
Equity in investments
    
8,834,000
      
1,635,000
  
Investment in Calavo Growers, Inc.
    
11,531,000
      
11,870,000
  
Notes receivable – related parties
    
94,000
      
284,000
  
Notes receivable
    
2,109,000
      
2,000,000
  
Other assets
    
4,471,000
      
4,307,000
  
Noncurrent assets of discontinued operations
    
438,000
      
438,000
  
Total assets
  
$
163,559,000
    
$
141,868,000
  
                 
Liabilities and stockholders’ equity
                
Current liabilities:
                
Accounts payable
  
$
1,048,000
    
$
970,000
  
Growers payable
    
2,616,000
      
988,000
  
Accrued liabilities
    
2,947,000
      
2,764,000
  
Current portion of long-term debt
    
613,000
      
465,000
  
Current liabilities of discontinued operations
    
-
      
2,000
  
Total current liabilities
    
7,224,000
      
5,189,000
  
Long-term liabilities:
                
Long-term debt, less current portion
    
95,609,000
      
69,251,000
  
Deferred income taxes
    
8,469,000
      
8,764,000
  
Other long-term liabilities
    
5,172,000
      
6,903,000
  
Total long-term liabilities
    
109,250,000
      
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 April 30, 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 April 30, 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 April 30, 2010 and October 31, 2009, respectively)
    
112,000
      
113,000
  
Additional paid-in capital
    
33,817,000
      
34,718,000
  
Retained earnings
    
12,534,000
      
16,386,000
  
Accumulated other comprehensive loss
    
(2,378,000
)
    
(2,456,000
)
Total stockholders’ equity
    
47,085,000
      
51,761,000
  
Total liabilities and stockholders’ equity
  
$
163,559,000
    
$
141,868,000
  

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 
4
 

Limoneira Company and Subsidiaries
 
Consolidated Condensed Statements of Comprehensive Income (Loss) (unaudited)

 
Three months ended
April 30
    
Six months ended
April 30
  
 
2010
  
2009
    
2010
    
2009
  
                             
Net income (loss)
$
112,000
  
$
(925,000
)
  
$
(3,080,000
)
  
$
(3,002,000
)
Other comprehensive income (loss), net of tax:
                            
Minimum pension liability adjustment, net of tax
  
87,000
    
3,000
      
188,000
      
6,000
  
Unrealized holding gains (losses) of security available-for-sale, net of tax
  
265,000
    
1,119,000
      
(204,000
)
    
2,261,000
  
Unrealized gains (losses) resulting from changes in fair values of derivative instruments, net of tax
  
108,000
    
1,000
      
94,000
      
(901,000
)
Total other comprehensive income, net of tax
  
460,000
    
1,123,000
      
78,000
      
1,366,000
  
Comprehensive income (loss)
$ 
572,000
  
$
198,000
    
$
(2,942,000
)
  
$
(1,636,000
)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 
5
 

Limoneira Company and Subsidiaries
 
Consolidated Condensed Statements of Cash Flows (unaudited)

   
Six months ended
  
   
April 30
2010
  
April 30
2009
  
Operating activities
            
Net loss
  
$
(3,020,000
)
  
$
(3,002,000
) 
Less: Net loss from discontinued operations
    
(12,000
)
    
(6,000
)
Net loss from continuing operations
    
(3,008,000
)
    
(2,996,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
                
Depreciation and amortization
    
1,158,000
      
1,153,000
  
Loss on disposal/sale of fixed assets
    
-
      
3,000
  
Orchard write-offs
    
-
      
23,000
  
Stock compensation expense
    
242,000
      
450,000
  
Expense related to Officers notes receivable forgiveness and payroll taxes
    
687,000
      
-
  
Equity in (earnings) losses of investments
    
(48,000
) 
    
99,000
  
Amortization of deferred financing costs
    
14,000
      
8,000
  
Non-cash interest expense on derivatives (Note 11)
    
564,000
      
-
  
Changes in operating assets and liabilities:
                
Accounts and notes receivable
    
(2,725,000
)
    
(1,915,000
)
Inventoried cultural costs
    
329,000
      
688,000
  
Prepaid and other current assets
    
(592,000
) 
    
(130,000
)
Income taxes receivable
    
(1,669,000
 )
    
(1,159,000
)
Other assets
    
(5,000
)
    
(22,000
)
Accounts payable and growers payable
    
1,507,000
      
(551,000
) 
Accrued liabilities and payroll taxes
    
(468,000
)
    
(2,404,000
)
Other long-term liabilities
    
(4,000
)
    
(315,000
)
Net cash used in operating activities from continuing operations
    
(4,018,000
)
    
(7,068,000
) 
Net cash used in operating activities from discontinued operations
    
(10,000
) 
    
(8,000
) 
Net cash used in operating activities
    
(4,028,000
)
    
(7,076,000
)
                 
Investing activities
                
Capital expenditures
    
(2,857,000
)
    
(4,265,000
)
Net proceeds from sale of assets
    
13,000
      
23,000
  
Cash distributions from equity investments
    
72,000
      
72,000
  
Equity investment contributions
    
(17,000
)
    
-
  
Issuance of notes receivable
    
(46,000
)
    
(325,000
)
Investments in water companies
    
(105,000
)
    
(15,000
)
Other
    
(7,000
)
    
(100,000
)
Net cash used in investing activities from continuing operations
    
(2,947,000
)
    
(4,610,000
)
Net cash used in investing activities from discontinued operations
    
-
      
(5,000
)
Net cash used in investing activities
    
(2,947,000
)
    
(4,615,000
)
                 
Financing activities
                
Borrowings of long-term debt
    
15,710,000
      
17,186,000
  
Repayments of long-term debt
    
(8,494,000
)
    
(4,980,000
)
Dividends paid – Common
    
(702,000
)
    
(348,000
)
Dividends paid – Preferred
    
(131,000
)
    
(131,000
)
Payments of debt financing costs
    
-
      
(105,000
) 
Net cash provided by financing activities from continuing operations
    
6,383,000
      
11,622,000
  
                 
Net decrease in cash and cash equivalents
    
(592,000
)
    
(69,000
)
Cash and cash equivalents at beginning of period
    
603,000
      
90,000
  
Cash and cash equivalents at end of period
  
$
11,000
    
$
21,000
  

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 
6
 
 
Limoneira Company and Subsidiaries

Consolidated Condensed Statements of Cash Flows (unaudited) (continued)

   
Six months ended
  
   
April 30
2010
    
April 30
2009
  
             
Supplemental disclosures of cash flow information
            
Cash paid during the period for interest
  
$
1,910,000
    
$
1,533,000
  
Cash paid during the period for income taxes, net of (refunds) received
  
$
93,000
    
$
(1,235,000
) 
Non-cash investing, financing, and other comprehensive income (loss) transactions:
                
Minimum pension liability adjustment, net of tax
  
$
(188,000
) 
  
$
(6,000
) 
Unrealized holding loss (gain) on security, net of tax
  
$
204,000
    
$
(2,261000
) 
Unrealized (gain) loss from derivatives, net of tax
  
$
(94,000
) 
  
$
901,000
  
 
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 fair value of non-cash assets acquired and liabilities assumed at the date of the acquisition.  We obtained third-party valuations for the long-term assets acquired:

   
At November 15
2009
  
Current assets
  
$
218,000
  
Property, plant and equipment
    
262,000
  
Real estate development
    
16,842,000
  
Deferred income taxes
    
345,000
  
Other assets
    
32,000
  
Total assets acquired
  
$
$17,699,000
  
         
Current liabilities
    
(152,000
)
Current portion of long-term debt
    
(10,141,000
)
Long-term debt
    
(9,148,000
)
Net liabilities assumed
  
$
(1,742,000
)

The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.

 
7
 
 
Limoneira Company and Subsidiaries

Unaudited Consolidated Condensed Financial Statements

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 and six months ended April 30, 2010 and 2009 and balance sheet as of April 30, 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 April 30, 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 and six months ended April 30, 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 the 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 unaudited interim consolidated condensed financial statements should be read in conjunction with the October 31, 2009 consolidated financial statements and notes thereto included in the Company’s General Form for Registration of Securities on Form 10, as amended.

 
8
 

Limoneira Company and Subsidiaries
 
Notes to Unaudited 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.

The results of operations for interim periods are not necessarily indicative of the results that may be expected for the full year.  These statements should be read in conjunction with the October 31, 2009 consolidated financial statements and notes thereto included in the Company’s General Form for Registration of Securities on Form 10, as amended.

2. Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In April 2009, as amended in February 2010, the Company adopted Accounting Standards Update No. 2010-09, Subsequent Events (ASU No. 2010-09), which establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. In particular, this accounting guidance sets forth:

·
The period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.
 
·
The circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements.
 
·
The disclosures that an entity should make about events or transactions that occurred after the balance sheet date.

Our adoption of this accounting guidance did not have a material impact on our financial position, results of operations or liquidity.

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, effective the first quarter of fiscal 2010, did not have a material impact on the Company’s financial position, results of operations or liquidity.

 
9
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

2. Summary of Significant Accounting Policies (Continued)

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), effective 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), effective 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.

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), effective the first quarter of fiscal 2010, did not have a material impact on the Company’s financial position, results of operations or liquidity.
 
Recently Issued Accounting Pronouncements

In June 2009, the FASB issued the Accounting Standards Update No. 2009-16, revising the guidance for the accounting of transfers of financial assets. This guidance is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This accounting guidance will be effective for financial statements issued for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted. The Company does not believe that adoption of this guidance will have a material impact on its financial position and results of operations.

In June 2009, the FASB issued the Accounting Standards Update No. 2009 -17, revising the guidance for the accounting of variable interest entities, which replaces the quantitative-based risks and rewards approach with a qualitative approach that focuses on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance. This accounting guidance also requires an ongoing reassessment of whether an entity is the primary beneficiary and requires additional disclosures about an enterprise’s involvement in variable interest entities. This accounting guidance will be effective for financial statements issued for fiscal years beginning after November 15, 2009, and interim periods within those fiscal years. Early adoption is not permitted.  The Company does not believe that adoption of this guidance will have a material impact on its financial position and results of operations.

 
10
 
 
Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

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).

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of the acquisition. We obtained third-party valuations for the long-term assets acquired:

At November 15, 2009
  
Current assets
   $ 218,000  
Property, plant and equipment
     262,000  
Real estate development
     16,842,000  
Deferred income taxes
     345,000  
Other assets
     32,000  
Total assets acquired
     17,699,000  
         
Current liabilities
     (152,000 )
Current portion of long-term debt
     (10,141,000 )
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.

 
11
 
 
Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

3. Business Combination (continued)

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 and are recorded in agricultural costs 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, which traditionally occurs during the first and second quarters of each year. During the three months ended April 30, 2010, the Company expensed $33,000 of the $858,000 of cultural costs carried in inventory at October 31, 2009 and during the three months ended April 30, 2009, the Company expensed $300,000 of the $1,146,000 of cultural costs carried in inventory at October 31, 2008. During the six months ended April 30, 2010, the Company expensed $329,000 of the $858,000 cultural costs carried in inventory at October 31, 2009 and during the six months ended April 30, 2009 the Company expensed $688,000 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 April 30, 2010, that are measured on a recurring basis during the period, segregated by level within the fair value hierarchy:
 
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Assets at fair value:
                        
Available- for -sale securities
  
$
 11,531,000
    
$
 –
    
$
 –
    
$
 11,531,000
  
Liabilities at fair value:
                                
Derivatives
    
–
      
2,579,000
      
–
      
2,579,000
  
 
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 April 30, 2010 and October 31, 2009 equaled $17.34 per share and $17.85 per share, respectively (see Note 7).
 
Derivatives consist of an interest rate swap whose fair value is 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).

 
12
 
 
 Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

6. Real Estate Development Assets/Assets Held for Sale
 
Real estate development assets consist of the following:
 
   
April 30,
2010
    
October 31,
2009
  
East Areas 1 and 2:
            
Land and land development costs
  
$
 39,120,000
    
$
 37,788,000
  
Templeton Santa Barbara, LLC:
                
Land and land development costs
    
8,338,000
      
15,337,000
  
Windfall Investors, LLC:
                
Land and land development costs
    
17,073,000
      
–
  
Total included in real estate development asset
  
$
 64,531,000
    
$
 53,125,000
  

Assets held for sale consist of the following:

   
April 30,
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 April 30, 2010 and October 31, 2009. During the three months ended April 30, 2010 and April 30, 2009, the Company capitalized $822,000 and $296,000, respectively, of costs related to these real estate projects. During the six months ended April 30, 2010 and April 30, 2009, the Company capitalized $1,332,000 and $750,000, respectively, of costs related to these real estate development projects. Additionally, in relation to this project, the Company has incurred expenses of $16,000 and $14,000 in the three months ended April 30, 2010 and 2009, respectively. The Company has incurred expenses related to this project of $25,000 and $96,000 in the six months ended April 30, 2010 and 2009, respectively. 
 
Templeton Santa Barbara, LLC
 
In September 2009, one of the four real estate development parcels within the Templeton project went into escrow. The sale of this real estate development parcel fell out of escrow in March 2010 but the parcel is still being actively marketed for sale. As such, the net carrying value (inclusive of all previous 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 April 30, 2010 and October 31, 2009.

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’s capital contribution into HM East Ridge, LLC, is one of the real estate development parcels with a net carrying value (inclusive of all previous impairment charges) of $7,207,000. Since the Company has significant influence, but less than a controlling interest, the Company is accounting for its investment in HM East Ridge, LLC using the equity method of accounting and the investment is included in equity in investments in the Company’s April 30, 2010 consolidated balance sheets.

 
13
 
 
Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

6. Real Estate Development Assets/Assets Held for Sale (continued)

Windfall Ranch Development Project

As of the November 15, 2010 acquisition date (see Note 3), based on the results of a third-party appraisal the fair value of the Windfall Ranch’s land and land development costs acquired was $16,842,000 which the Company recorded as real estate development assets.  Subsequent to its acquisition, the Company capitalized an additional $162,000 of costs related to its real estate development of the Windfall Ranch during the three months ended April 30, 2010 and $231,000 during the six months ended April 30, 2010.

The Company is currently marketing for sale certain parcels of the 724 acres of Windfall Ranch. However, the Company is not classifying any of its real estate development assets related to Windfall Ranch as assets held for sale at April 30, 2010 since certain of the criterions required for an asset held for sale classification have not been met at April 30, 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.
 
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 April 30, 2010, the Company recorded a total unrealized holding gain of $386,000 due to the increase in the market value of the Company’s remaining 665,000 shares of Calavo common stock at April 30, 2010. In the six months ended April 30, 2010, the Company recorded a total unrealized holding loss of $339,000 due to the decrease in the market value of the Company’s remaining 665,000 shares of Calavo common stock at April 30, 2010. 
 
8. Notes Receivable
 
In connection with Company’s stock grant program, the Company has recorded total notes receivable and accrued interest from related parties of $94,000 and $1,803,000 at April 30, 2010 and October 31, 2009, respectively.

The Company’s $94,000 notes receivable and accrued interest balance from employees that are not due to be paid within one year at April 30, 2010 is recorded in noncurrent notes receivable - related parties in the Company’s consolidated balance sheet at April 30, 2010.
 
9. Discontinued Operations
 
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 April 30, 2010 were zero and $11,000, respectively. Sales and operating losses for the three months ended April 30, 2009 were zero and $9,000, respectively. Sales and operating losses for the six months ended April 30, 2010 were $3,000 and $19,000, respectively. Sales and operating losses for the six months ended April 30, 2009 were $3,000 and $10,000, respectively.

 
14
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

10. Long-Term Debt

Long-term debt is comprised of the following:

   
April 30,
2010
    
October 31,
2009
  
Rabobank revolving credit facility secured by property with a net book value of $12,260,000 at April 30, 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.
   $ 68,691,000     $ 61,671,000  
Central Coast Federal Land Bank Association loan secured by property with a net book value of $11,656,000 at April 30, 2010 and $11,674,000 at October 31, 2009. The interest rate is variable and was 3.25% at April 30, 2010. The loan is payable in quarterly installments through November 2022.
     6,878,000       7,094,000  
Central Coast Federal Land Bank Association loan secured by property with a net book value of $11,656,000 at April 30, 2010 and $11,674,000 at October 31, 2009. The interest rate is variable and was 3.25% at April 30, 2010. The loan is payable in monthly installments through May 2032.
     936,000       951,000  
Farm Credit West non-revolving line of credit. The interest rate is variable and was 3.50% at April 30, 2010. Interest is payable monthly and the principal is due in full in May 2013.
     10,499,000       –  
Farm Credit West term loan secured by property with a net book value of $17,073,000 at April 30, 2010. 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.
     9,218,000       –  
Subtotal
     96,222,000       69,716,000  
Less current portion
     613,000       465,000  
Total long-term debt, less current portion
   $ 95,609,000     $ 69,251,000  

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 Farm Credit West 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 $19,289,000 outstanding under the term loan and the revolving line of credit. The due date for the revolving line of credit was originally November 2009 and was extended until March 2010. Farm Credit West subsequently extended the maturity date to May 2010 and then further extended the maturity date to June 1, 2010. In May 2010, the Company refinanced the revolving line of credit on a long-term basis through the establishment of a $13,000,000 non-revolving line of credit with Farm Credit West (see Note 18).
 
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 are as follows:
 
   
Notional Amount
    
Fair Value Net Liability
  
   
April 30,
2010
    
October 31,
2009
    
April 30,
2010
    
October 31,
2009
  
Pay fixed-rate, receive floating-rate interest rate swap, maturing 2013
  
$
42,000,000
    
$
22,000,000
    
$
2,579,000
    
$
1,678,000
  
Pay fixed-rate, receive floating-rate interest rate swap designated as cash flow hedge, cancelled April 2010
    
-
      
10,000,000
      
-
      
287,000
  
Pay fixed-rate, receive floating-rate interest rate swap designated as cash flow hedge, cancelled April 2010
    
-
      
10,000,000
      
-
      
206,000
  
Total
  
$
42,000,000
    
$
42,000,000
    
$
2,579,000
    
$
2,171,000
  

In April 2010, the Company cancelled two interest rate swaps with notional amounts of $10,000,000 each and amended the remaining interest rate swap from a notional amount of $22,000,000 to a notional amount of $42,000,000. This remaining interest rate swap was also amended to a pay-fixed rate of 4.25%, which is 62 basis points lower than the original pay-fixed rate. The receive floating-rate and maturity date of the amended interest rate swap remain unchanged. The Company did not incur any out-of-pocket fees related to the

 
15
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

11. Derivative Instruments and Hedging Activities (continued)

cancellation or amendment of these interest rate swaps.  These interest rate swaps previously qualified as cash flow hedges, and were accounted for as accounting hedges under the short-cut method. The fair value adjustments to the underlying debt previously deferred and recorded in other comprehensive income (loss) totaled $2,015,000 at April 30, 2010 and will be amortized over the swaps’ original remaining terms.

As a result of the re-negotiated terms of the derivatives above, the remaining interest rate swap with a notional amount of $42,000,000 no longer qualifies as an accounting hedge as of April 30, 2010.  Therefore, the fair value adjustments to the underlying debt will be recorded in earnings and the net liability balance will continue to be recorded in other long-term liabilities in the Company’s consolidated balance sheets. The fair value adjustment recognized by Company on April 30, 2010 resulted in a non-cash charge to interest expense of $564,000.
 
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 April 30, 2010 and April 30, 2009. 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 six months ended April 30, 2010 and 23,000 for the six months ended April 30, 2009. The Series B convertible preferred shares are anti-dilutive for the three and six month periods ended April, 30 2010 and April 30, 2009, respectively. Basic and diluted net loss per share was calculated after giving effect to the ten-for-one stock split (see Note 16).

13. Related-Party Transactions
 
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 $101,000 and $66,000 in the three months ended April 30, 2010 and 2009, respectively. The mutual water company provided water to the Company, for which the Company paid $193,000 and $122,000 in the six months ended April 30, 2010 and 2009, respectively. Water payments due to the mutual water company were $10,000 and $51,000 at April 30, 2010 and October 31, 2009, respectively.
 
In the six months ended April 30, 2010 and 2009, 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 $2,654,000 and $98,000 for the three months ended April 30, 2010 and 2009, respectively. Sales of the Company’s avocados by Calavo totaled $2,879,000 and $103,000 for the six months ended April 30, 2010 and 2009, respectively. Such amounts are included in agriculture revenues in the Company’s consolidated statements of operations. There was $1,455,000 receivable by the Company from Calavo at April 30, 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 April 30, 2010 and 2009. The Company received rental income from Calavo of $114,000 in each of the six month periods ended April 30, 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 34.1%.  As such, the 29.3% effective tax rate was utilized by the Company for the second 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 six month period ended April 30, 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 April 30, 2010.

 
16
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed 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 during each of the six month periods ended April 30, 2010 and 2009. 
 
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 three months ended April 30 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
)

The net periodic pension costs for the Company’s Defined Benefit Pension Plan for the six months ended April 30 were as follows:

   
2010
    
2009
  
             
Service cost
  
$
 74,000
    
$
 43,000
  
Interest cost
    
420,000
      
444,000
  
Expected return on plan assets
    
(509,000
)
    
(513,000
)
Recognized actuarial loss
    
313,000
      
11,000
  
Net periodic pension cost
  
$
298,000
    
$
(15,000
)

16. Stockholder’s Equity

In 2002, the Company adopted a stock grant program for key employees that replaced its stock option and stock appreciation rights plan for key employees. As of October 31, 2009 there were no stock options outstanding. There are currently 51,430 shares outstanding that are subject to repurchase by the Company which had 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 and the liability is measured each year at fair market value as defined in the plan. The $156,000 repurchase obligation is included in other long-term liabilities in the Company’s consolidated balance sheets at October 31, 2009. A mark-to-market reduction of stock-based compensation of approximately $82,000 was recorded in the three months ended April 30, 2010. The remaining $74,000 repurchase obligation is included in other long-term liabilities in the Company’s consolidated balance sheets at April 30, 2010.

 
17
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

16. Stockholder’s Equity (continued)

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 number of shares of common stock, and affected a ten-for-one stock 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.

In April 2010, the Company paid a $0.03125 per common share dividend in the aggregate amount of $350,000 to common shareholders of record on March, 23, 2010. Additionally in April 2010, the Company paid a $2.1875 per preferred share dividend in the aggregate amount of $65,000 to preferred shareholders of record on March 23, 2010.  

17. 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 $7,875,000 of the Company’s agri-business revenues for the three months ended April 30, 2010 and $5,296,000 of the Company’s agri-business revenues for the three months ended April 30, 2009. Revenues from Sunkist represent $11,264,000 of the Company’s agri-business revenues for the six months ended April 30, 2010 and $8,532,000 of the Company’s agri-business revenues for the six months ended April 30, 2009.

Segment information for the three months ended April 30, 2010:

   
Agri-business
    
Rental
Operations
    
Real Estate
Development
    
Corporate and
Other
    
Total
  
                               
Revenues
  
$
 12,202,000
    
$
 962,000
    
$
 45,000
    
$
 –
    
$
 13,209,000
  
Costs and expenses
    
8,791,000
      
584,000
      
396,000
      
2,413,000
      
12,184,000
  
Impairment charges
    
–
      
–
      
–
      
–
      
–
  
Loss on sale of assets
    
–
      
–
      
–
      
–
      
–
  
Operating income (loss)
  
$
3,411,000
    
$
378,000
    
$
(351,000
)
  
$
(2,413,000
)
  
$
1,025,000
  

Segment information for the three months ended April 30, 2009:

   
Agri-business
    
Rental
Operations
    
Real Estate
Development
    
Corporate and
Other
    
Total
  
                               
Revenues
  
$
 6,797,000
    
$
 955,000
    
$
 8,000
    
$
 –
    
$
 7,760,000
  
Costs and expenses
    
6,995,000
      
480,000
      
58,000
      
1,784,000
      
9,318,000
  
Impairment charges
    
–
      
–
      
–
      
–
      
–
  
Loss on sale of assets
    
–
      
–
      
–
      
3,000
      
3,000
  
Operating income (loss)
  
$
(198,000
)
  
$
475,000
    
$
(50,000
)
  
$
(1,787,000
)
  
$
(1,560,000
)

 
18
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

17. Segment Information (continued)

The following table sets forth revenues by category, by segment for the three months ended:

   
April 30,
2010
    
April 30,
2009
  
             
Lemons
   $ 7,875,000     $ 5,296,000  
Avocados
     2,654,000       98,000  
Navel oranges
     845,000       592,000  
Valencia oranges
     –       65,000  
Specialty citrus and other crops
     828,000       746,000  
Agri-business revenues
     12,202,000       6,797,000  
                 
Rental operations
     541,000       543,000  
Leased land
     370,000       364,000  
Organic recycling
     51,000       48,000  
Rental operations revenues
     962,000       955,000  
                 
Real estate operations
     45,000       8,000  
Real estate revenues
     45,000       8,000  
Total revenues
   $ 13,209,000     $ 7,760,000  

Segment information for the six months ended April 30, 2010:

   
Agri-business
    
Rental
Operations
    
Real Estate
Development
    
Corporate and
Other
    
Total
  
                               
Revenues
  
$
 17,474,000
    
$
 1,917,000
    
$
 180,000
    
$
 –
    
$
 19,571,000
  
Costs and expenses
    
15,684,000
      
1,091,000
      
723,000
      
5,829,000
      
23,327,000
  
Impairment charges
    
–
      
–
      
–
      
–
      
–
  
Loss on sale of assets
    
–
      
–
      
–
      
–
      
–
  
Operating income (loss)
  
$
1,790,000
    
$
826,000
    
$
(543,000
)
  
$
(5,829,000
)
  
$
(3,756,000
)

Segment information for the six months ended April 30, 2009:

   
Agri-business
    
Rental
Operations
    
Real Estate
Development
    
Corporate and
Other
    
Total
  
                               
Revenues
  
$
 10,802,000
    
$
 1,866,000
    
$
 8,000
    
$
 –
    
$
 12,676,000
  
Costs and expenses
    
13,633,000
      
1,061,000
      
141,000
      
3,262,000
      
18,097,000
  
Impairment charges
    
–
      
–
      
–
      
–
      
–
  
Loss on sale of assets
    
–
      
–
      
–
      
3,000
      
3,000
  
Operating income (loss)
  
$
(2,831,000
)
  
$
805,000
    
$
(133,000
)
  
$
(3,265,000
)
  
$
(5,424,000
)

 
19
 

Limoneira Company and Subsidiaries

Notes to Unaudited Consolidated Condensed Financial Statements (continued)

17. Segment Information (continued)

The following table sets forth revenues by category, by segment for the six months ended:

   
April 30,
2010
    
April 30,
2009
  
             
Lemons
   $ 11,264,000     $ 8,532,000  
Avocados
     2,879,000       103,000  
Navel oranges
     1,422,000       893,000  
Valencia oranges
     149,000       191,000  
Specialty citrus and other crops
     1,760,000       1,083,000  
Agri-business revenues
     17,474,000       10,802,000  
                 
Rental operations
     1,071,000       1,057,000  
Leased land
     751,000       724,000  
Organic recycling
     95,000       85,000  
Rental operations revenues
     1,917,000       1,866,000  
                 
Real estate operations
     180,000       8,000  
Real estate revenues
     180,000       8,000  
Total revenues
   $ 19,571,000     $ 12,676,000  

18. Subsequent Events

The revolving line of credit for Investors matured in November 2009 and the maturity date was extended by Farm Credit West until March, 1, 2010. Farm Credit West subsequently extended the maturity date to May 1, 2010 and then further extended the maturity date to June 1, 2010.  In May 2010, the Company refinanced the outstanding line of credit balance of $10,500,000 plus accrued interest on a long-term basis through the establishment of a $13,000,000 non-revolving line of credit with Farm Credit West. The non-revolving line of credit is secured by property with a net book value of $1,145,000 and matures in May 2013.   Details related to this arrangement can be found in our Form 8-K with a report date of May 27, 2010, which was filed on June 1, 2010.
 
On June 1, 2010, the Company paid a $0.03125 per share dividend in the aggregate amount of $350,000 to common shareholders of record on May 18, 2010.

The Company has evaluated events subsequent to April 30, 2010 to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q.  Based upon this evaluation, it was determined that no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated condensed financial statements.

 
20
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Note on Forward-Looking Statements.
 
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 Quarterly Report on Form 10-Q.  The following discussion and analysis contains forward-looking statements.  Forward-looking statements in this 10-Q are subject to a number of risks and uncertainties, some of which are beyond the Company’s control.  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 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 current exchange rates;
 
 
·
availability of financing for land development activities;
 
 
·
political changes and economic crises;
 
 
·
international conflict;
 
 
·
acts of terrorism;
 
 
·
labor disruptions, strikes or work stoppages;
 
 
·
loss of important intellectual property rights; and
 
 
·
other factors disclosed in our public filings with the Securities and Exchange Commission.
 
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 section entitled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.  Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.  You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q.  We undertake no obligation to update these forward-looking statements, even if our situation changes in the future.
 
The terms the “Company,” “we,” “our” and “us” as used throughout this Quarterly Report on Form 10-Q refer to Limoneira Company and its consolidated subsidiaries, unless otherwise indicated.

Significant Accounting Estimates

The unaudited consolidated condensed financial statements are prepared in conformity with U.S. GAAP.  The preparation of these unaudited condensed consolidated financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented.  Actual results could differ from those estimates and assumptions.  Our significant accounting policies and estimates are described more fully in the General Form for Registration of Securities on Form 10, as amended.  There have been no changes in our accounting policies in the current period that had a material impact on our unaudited consolidated condensed financial statements.

 
21
 

Recent Accounting Pronouncements

Please see note 2 to the unaudited consolidated condensed financial statements for the period ended April 30, 2010 elsewhere in this Quarterly Report on Form 10-Q for information concerning the Company’s Recent Accounting Pronouncements.

Overview

Limoneira Company was incorporated in Delaware in 1990 as the successor to several businesses with operations in California since 1893.  We are an agribusiness and real estate development company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 7,300 acres of land, water resources and other assets to maximize long-term shareholder 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.  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 special