Edgar Filing: Limoneira CO

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, 2011

¨	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 May 31, 2011, there were 11,200,814 shares outstanding of the registrant’s common stock.

LIMONEIRA COMPANY

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			4

Item 1.		Financial Statements (unaudited)	4

	Consolidated Balance Sheets - April 30, 2011 and October 31, 2010		4

	Consolidated Statements of Operations - three and six months ended April 30, 2011 and 2010		5

	Consolidated Statements of Comprehensive (Loss) Income - three and six months ended April 30, 2011 and 2010		6

	Consolidated Statements of Cash Flows - six months ended April 30, 2011 and 2010		7

	Notes to Consolidated Financial Statements		10

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.		Controls and Procedures	41

PART II. OTHER INFORMATION			42

Item 1.		Legal Proceedings	42

Item 1A.		Risk Factors	42

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.		Defaults Upon Senior Securities	42

Item 4.		[Removed and Reserved]	42

Item 5.		Other Information	42

Item 6.		Exhibits	43

SIGNATURES			44

Cautionary Note on Forward-Looking Statements.

This Quarterly Report on Form 10-Q contains both historical and 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 and in our Annual Report on Form 10-K for the fiscal year ended October 31, 2010. 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.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Limoneira Company and Subsidiaries

Consolidated Balance Sheets (unaudited)

	April 30, 2011			October 31, 2010
Assets
Current assets:
Cash	$	11,000		$	262,000
Accounts receivable, net		5,021,000			3,393,000
Notes receivable – related parties		-			33,000
Notes receivable		-			161,000
Cultural costs		550,000			1,059,000
Prepaid expenses and other current assets		2,078,000			1,244,000
Income taxes receivable		2,400,000			1,241,000
Total current assets		10,060,000			7,393,000
Property, plant, and equipment, net		51,445,000			53,283,000
Real estate development		69,947,000			68,412,000
Equity in investments		8,867,000			9,057,000
Investment in Calavo Growers, Inc.		13,965,000			14,564,000
Notes receivable – related parties		91,000			60,000
Notes receivable		2,335,000			2,154,000
Other assets		4,640,000			4,515,000
Total assets	$	161,350,000		$	159,438,000

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,469,000		$	2,031,000
Growers payable		2,486,000			871,000
Accrued liabilities		2,417,000			2,810,000
Current portion of long-term debt		638,000			626,000
Total current liabilities		8,010,000			6,338,000
Long-term liabilities:
Long-term debt, less current portion		91,075,000			85,312,000
Deferred income taxes		8,501,000			8,444,000
Other long-term liabilities		6,279,000			7,248,000
Total long-term liabilities		105,855,000			101,004,000
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, 2011 and October 31, 2010) (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, 2011 and October 31, 2010)		-			-
Common Stock – $.01 par value (19,900,000 shares authorized:
11,200,814 and 11,194,460 shares issued and outstanding at April 30, 2011 and October 31, 2010, respectively)		112,000			112,000
Additional paid-in capital		34,464,000			34,735,000
Retained earnings		10,622,000			15,044,000
Accumulated other comprehensive loss		(713,000	)		(795,000	)
Total stockholders’ equity		47,485,000			52,096,000
Total liabilities and stockholders’ equity	$	161,350,000		$	159,438,000

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

Limoneira Company and Subsidiaries

Consolidated Statements of Operations (unaudited)

	Three months ended April 30,						Six months ended April 30,
	2011			2010			2011			2010
Revenues:
Agribusiness	$	11,463,000		$	12,202,000		$	16,338,000		$	17,474,000
Rental		996,000			962,000			1,966,000			1,917,000
Real estate development		51,000			45,000			107,000			180,000
Total revenues		12,510,000			13,209,000			18,411,000			19,571,000
Costs and expenses:
Agribusiness		9,740,000			8,737,000			17,378,000			15,562,000
Rental		532,000			584,000			1,092,000			1,091,000
Real estate development		367,000			396,000			657,000			723,000
Impairments of real estate development assets		1,196,000			-			1,196,000			-
Selling, general and administrative		2,220,000			2,467,000			5,170,000			5,951,000
Total costs and expenses		14,055,000			12,184,000			25,493,000			23,327,000
Operating (loss) income		(1,545,000	)		1,025,000			(7,082,000	)		(3,756,000	)
Other income (expense):
Interest expense		(268,000	)		(391,000	)		(622,000	)		(819,000	)
Interest income (expense) from derivative instruments		38,000			(564,000	)		515,000			(564,000	)
Gain on sale of Rancho Refugio/Caldwell Ranch		1,351,000			-			1,351,000			-
Interest income		27,000			29,000			56,000			58,000
Other (expense) income, net		(34,000	)		(3,000	)		303,000			352,000
Total other income (expense)		1,114,000			(929,000	)		1,603,000			(973,000	)
(Loss) income before income tax benefit (provision) and equity in (losses) earnings of investments		(431,000	)		96,000			(5,479,000	)		(4,729,000	)
Income tax benefit (provision)		197,000			(48,000	)		1,909,000			1,661,000
Equity in (losses) earnings of investments		(30,000	)		64,000			(21,000	)		48,000
Net (loss) income		(264,000	)		112,000			(3,591,000	)		(3,020,000	)
Preferred dividends		(65,000	)		(65,000	)		(131,000	)		(131,000	)
Net (loss) income applicable to common stock	$	(329,000	)	$	47,000		$	(3,722,000	)	$	(3,151,000	)

Basic net (loss) income per common share	$	(0.03	)	$	0.00		$	(0.33	)	$	(0.28	)

Diluted net (loss) income per common share	$	(0.03	)	$	0.00		$	(0.33	)	$	(0.28	)

Dividends per common share	$	0.03		$	0.03		$	0.06		$	0.06

Weighted-average common shares outstanding-basic		11,217,000			11,194,000			11,205,000			11,194,000
Weighted-average common shares outstanding-diluted		11,217,000			11,194,000			11,205,000			11,194,000

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

Limoneira Company and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income (unaudited)

	Three months ended April 30,					Six months ended April 30,
	2011			2010		2011			2010

Net (loss) income	$	(264,000	)	$	112,000	$	(3,591,000	)	$	(3,020,000	)
Other comprehensive (loss) income, net of tax:
Minimum pension liability adjustment		135,000			87,000		270,000			188,000
Unrealized holding (losses) gains on available-for-sale securities		(833,000	)		265,000		(362,000	)		(204,000	)
Unrealized gains on derivative instruments		81,000			108,000		174,000			94,000
Total other comprehensive (loss) income, net of tax		(617,000	)		460,000		82,000			78,000
Comprehensive (loss) income	$	(881,000	)	$	572,000	$	(3,509,000	)	$	(2,942,000	)

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

Limoneira Company and Subsidiaries

Consolidated Statements of Cash Flows (unaudited)

	Six months ended April 30,
	2011			2010
Operating activities
Net loss	$	(3,591,000	)	$	(3,020,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,100,000			1,158,000
Gain on sale of Rancho Refugio/Caldwell Ranch		(1,351,000	)		-
Impairments of real estate development assets		1,196,000			-
Stock compensation expense		503,000			242,000
Expense related to officers’ notes receivable forgiveness		-			687,000
Equity in losses (earnings) of investments		21,000			(48,000	)
Amortization of deferred financing costs		10,000			14,000
Non-cash interest (income) expense on derivative instruments		(515,000	)		564,000
Accrued interest on notes receivable		(46,000	)		(46,000	)
Changes in operating assets and liabilities:
Accounts and notes receivable		(2,400,000	)		(2,725,000	)
Cultural costs		509,000			329,000
Prepaid expenses and other current assets		(734,000	)		(590,000	)
Income taxes receivable		(1,159,000	)		(1,669,000	)
Other assets		(113,000	)		(5,000	)
Accounts payable and growers payable		1,858,000			1,741,000
Accrued liabilities		(461,000	)		(703,000	)
Other long-term liabilities		330,000			(4,000	)
Net cash used in operating activities		(4,843,000	)		(4,075,000	)

Investing activities
Capital expenditures		(3,157,000	)		(2,857,000	)
Acquisition of Rancho Refugio/Caldwell Ranch		(6,510,000	)		-
Net proceeds from sale of Rancho Refugio/Caldwell Ranch		9,297,000			-
Cash distributions from equity investments		257,000			72,000
Equity investment contributions		(88,000	)		(17,000	)
Investments in water companies		(128,000	)		(105,000	)
Other		19,000			6,000
Net cash used in investing activities		(310,000	)		(2,901,000	)

Financing activities
Borrowings of long-term debt		17,156,000			15,710,000
Repayments of long-term debt		(11,381,000	)		(8,494,000	)
Dividends paid – Common		(700,000	)		(702,000	)
Dividends paid – Preferred		(131,000	)		(131,000	)
Repurchase of common stock		(42,000	)		-
Net cash provided by financing activities		4,902,000			6,383,000

Net decrease in cash		(251,000	)		(593,000	)
Cash at beginning of period		262,000			607,000
Cash at end of period	$	11,000		$	14,000

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

Limoneira Company and Subsidiaries

Consolidated Statements of Cash Flows (unaudited) (continued)

	Six months ended April 30,
	2011			2010

Supplemental disclosures of cash flow information
Cash paid during the period for interest	$	1,900,000		$	1,910,000
Cash paid during the period for income taxes, net of (refunds) received	$	(750,000	)	$	93,000
Non-cash investing and financing transactions:
Unrealized holding loss on investment in Calavo Growers, Inc.	$	599,000		$	339,000
Exchange of stock on officers’ notes receivable forgiveness	$	-		$	1,228,000
Capital expenditures accrued but not paid at period-end	$	117,000		$	-
Accrued interest on note receivable	$	46,000		$	46,000

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 (“Windfall Investors”). In conjunction with obtaining Windfall's 85% interest in Windfall 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 Windfall Investors and any secured and unsecured financing for Windfall Investors.

The fair value of non-cash assets acquired and liabilities assumed at the date of the acquisition is summarized in Note 3.

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

Limoneira Company and Subsidiaries

Consolidated Financial Statements (unaudited)

Preface

The preparation of the unaudited interim consolidated 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 financial statements for the three and six months ended April 30, 2011 and 2010 and balance sheet as of April 30, 2011 included herein have not been audited by an independent registered public accounting firm, but in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary to make a fair statement of the financial position at April 30, 2011 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, 2011 are not necessarily indicative of the operating results expected for the full fiscal year.

The consolidated balance sheet at October 31, 2010 included herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

The unaudited interim consolidated 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 U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules or regulations. These unaudited interim consolidated financial statements should be read in conjunction with the October 31, 2010 consolidated financial statements and notes thereto included in the Company’s Form 10-K.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

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 leasing operations. The Company is also engaged in real estate development.

Prior to November 1, 2010, most of the Company’s citrus production had been marketed and sold under the Sunkist brand primarily through Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative of which the Company is a member. As an agricultural cooperative, Sunkist coordinated the sales and marketing of the Company’s citrus products which are processed through the Company’s and other third-party packinghouses. Commencing November 1, 2010 the Company began marketing and selling its lemons directly to its foodservice, wholesale and retail customers throughout North America, Asia and other international markets. The Company continues to sell certain of its other citrus products to Sunkist.

The Company sells all of its avocado production to Calavo Growers, Inc. (“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 Calavo brands to its customers primarily in the United States and Canada.

The unaudited interim 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. The unaudited interim condensed financial statements represent the consolidated balance sheets, consolidated statement of operations, consolidated statement of comprehensive loss and consolidated statement of cash flows of Limoneira Company and its wholly-owned subsidiaries. The Company’s subsidiaries include: Limoneira Land Company, Limoneira Company International Division, LLC, Limoneira Mercantile, LLC, Windfall Investors, LLC and Templeton Santa Barbara, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. The Company considers the criteria established under FASB ASC 810, Consolidations, in its consolidation process.

2. Summary of Significant Accounting Policies

Recently Adopted Accounting Pronouncements

Financial Accounting Standards Board - Accounting Standards Update (“FASB ASU”) 2009-17, Consolidations (Topic 810).

This ASU replaces the quantitative-based risks and rewards calculation for determining which enterprise, if any, is the primary beneficiary and is required to consolidate a Variable Interest Entity (“VIE”) with a qualitative approach focused on identifying which enterprise has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the entity. In addition, ASU 2009-17 requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE and requires enhanced disclosures about an enterprise’s involvement with a VIE. ASU 2009-17 was effective for the Company’s fiscal year beginning November 1, 2010 and as a result, the Company analyzed its variable interest in H.M. East Ridge, LLC (“East Ridge”). The Company determined that East Ridge is a VIE, but because the Company is not the primary beneficiary it is not required to consolidate East Ridge in its financial statements.

Recent Accounting Pronouncements

Financial Accounting Standards Board - Accounting Standards Update (“FASB ASU”) 2010-20, Receivables (Topic 310).

This ASU is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposure and evaluating the adequacy of its allowance for credit losses. The ASU requires an entity to provide disclosures that facilitate financial statement users’ evaluation of the nature of credit risk inherent in an entity’s portfolio of receivables, how the risk is analyzed in arriving at an allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. The ASU was issued July 2010 and is effective for interim and annual reporting periods on or after June 15, 2011, as amended by ASU 2011-01. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

2. Summary of Significant Accounting Policies (continued)

Financial Accounting Standards Board - Accounting Standards Update (“FASB ASU”) 2011-04, Fair Value Measurement (Topic 820).

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which amends ASC 820, Fair Value Measurement. The amended guidance changes the wording used to describe many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011 and is applied prospectively. The provisions are effective for the Company’s first quarter of fiscal year ending January 31, 2012. The Company does not expect the adoption of these provisions to have a significant effect on its consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior year’s consolidated financial statements to conform to the 2011 presentation. The significant reclassifications to the consolidated balance sheet as of October 31, 2010 were comprised of $161,000 of current assets of discontinued operations to notes receivable and $253,000 of non-current assets of discontinued operations to deferred income taxes. Reclassifications to the consolidated statements of operations of agribusiness costs to selling, general and administrative expenses for the three and six months ended April 30, 2010 were $54,000 and $122,000, respectively.

3. Business Combination

In September 2005, the Company, along with Windfall, LLC (“Windfall”), formed a partnership, Windfall Investors, LLC (“Windfall Investors”). Windfall Investors purchased a 724-acre ranch in Creston, California (“Windfall Farms”) for $12,000,000 with the proceeds from loans provided by Farm Credit West (“FCW”). The Company and Windfall each made initial capital contributions to Windfall Investors of $300 (15% ownership interest) and $1,700 (85% ownership interest), respectively.

Prior to November 15, 2009, the Company had a variable interest in Windfall Investors (which was deemed to be a VIE). However, the Company was not required to consolidate Windfall Investors since the Company was not the primary beneficiary of Windfall Investors due to the Company not being required to absorb a majority of Windfall Investor’s expected losses or receive a majority of Windfall Investor’s expected residual returns. The Company accounted for its 15% ownership interest in Windfall Investors as an equity method investment since the Company had significant influence, but less than a controlling interest in Windfall Investors. The Company was also required to record a negative equity method investment balance (which was subsequently reclassified to other-long term liabilities) for Windfall Investors since the Company had previously guaranteed Windfall 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 Windfall Investors. In conjunction with obtaining Windfall’s 85% interest in Windfall 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 Windfall Investors and any secured and unsecured financing for Windfall Investors. The Company has accounted for its acquisition of Windfall’s 85% interest in Windfall Investors as a business combination under FASB ASC 805, Business Combinations.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

3. Business Combination (continued)

The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of the acquisition. The Company 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 re-measured its previously held non-controlling equity interest in Windfall Investors to fair value on the November 15, 2009 acquisition date of Windfall Investors. The Company calculated that its acquisition date fair value of its previous equity interest in Windfall Investors was approximately $1,700,000. The Company did not recognize any gain or loss as a result of re-measuring the fair value equity interest held in Windfall Investors just prior to the business combination as the fair value approximated the carrying value of the non-controlling interest previously accounted for under the equity method of accounting.

4. Fair Value Measurements

Under the FASB ASC 820, Fair Value Measurement and Disclosures, 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).

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

4. Fair Value Measurements (continued)

The following table sets forth the Company’s financial assets and liabilities as of April 30, 2011, 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	$	13,965,000	$	–	$	–	$	13,965,000
Liabilities at fair value:
Derivatives	$	–	$	2,646,000	$	–	$	2,646,000

Available-for-sale securities consist of marketable securities in Calavo common stock. The Company currently owns approximately 4.5% of Calavo’s outstanding common stock. These securities are measured at fair value by quoted market prices. Calavo’s stock price at April 30, 2011 and October 31, 2010 was $21.00 per share and $21.90 per share, respectively.

Derivatives consist of an interest rate swap, the fair value of which 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.

5. Accounts Receivable

The Company grants credit in the course of its operations to customers, cooperatives, companies and lessees of the Company’s facilities. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides allowances on its receivables, as required, based on accounts receivable aging and certain other factors. As of April 30, 2011 and October 31, 2010 the allowances totaled $145,000 and $122,000, respectively.

The Company has no significant concentrations of credit risk at April 30, 2011. The Company sells all of its avocado production to Calavo.

6. Real Estate Development Assets

Real estate development assets consist of the following:

	April 30, 2011		October 31, 2010

East Areas 1 and 2	$	42,399,000	$	40,401,000
Templeton Santa Barbara, LLC		9,325,000		10,318,000
Windfall Investors, LLC		18,223,000		17,693,000
Total included in real estate development assets	$	69,947,000	$	68,412,000

East Areas 1 and 2

In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings, and civic facilities. During the three months ended April 30, 2011 and 2010, the Company capitalized $1,323,000 and $822,000, respectively, of costs related to these projects. During the six months ended April 30, 2011 and 2010, the Company capitalized $1,998,000 and $1,332,000, respectively, of costs related to these projects. Additionally, in relation to these projects, the Company has incurred net expenses of $41,000 and $16,000 in the three months ended April 30, 2011 and 2010, respectively, and $56,000 and $25,000 in the six months ended April 30, 2011 and 2010, respectively.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

6. Real Estate Development Assets (continued)

Templeton Santa Barbara, LLC

The four real estate development parcels within the Templeton Santa Barbara, LLC project (“Templeton Project”) are described as Centennial Square (“Centennial”), The Terraces at Pacific Crest (“Pacific Crest”), Sevilla and East Ridge. The carrying value of Centennial at April 30, 2011 was $2,433,000, net of a second quarter 2011 impairment charge of $261,000. The carrying value of Pacific Crest at April 30, 2011 was $2,800,000, net of a second quarter 2011 impairment charge of $336,000. The carrying value of Sevilla at April 30, 2011 was $4,092,000, net of a second quarter 2011 impairment charge of $396,000. The fiscal year 2011 impairment charges were based on results from independent appraisals which indicated that the fair values of the projects were less than the carrying values at April 30, 2011.

During the three months ended April 30, 2011 and 2010, the Company capitalized zero and $51,000, respectively, of costs related to these real estate development projects. During the six months ended April 30, 2011 and 2010, the Company capitalized zero and $208,000, respectively, of costs related to these real estate development projects. Additionally, in relation to these projects, the Company has incurred net expenses of $83,000 and $79,000 in the three months ended April 30, 2011 and 2010, respectively, and $117,000 in each of the six months ended April 30, 2011 and 2010.

In February 2010, the Company and HM Manager, LLC formed a limited liability company, HM East Ridge, LLC (“East Ridge”), for the purpose of developing the East Ridge parcel. The Company’s initial capital contribution into East Ridge was the land parcel with a net carrying value of $7,207,000. The Company has made $88,000 of cash contributions to East Ridge during the six months ended April 30, 2011 for property taxes. Since the Company has significant influence on, but less than a controlling interest in, East Ridge, the Company is accounting for its investment in East Ridge using the equity method of accounting and the investment is included in equity in investments in the Company’s April 30, 2011 and October 31, 2010 consolidated balance sheets.

Windfall Investors, LLC

On November 15, 2009, the Company acquired Windfall Investors as described in Note 3, which included $16,842,000 of real estate development assets. During the three months ended April 30, 2011 and 2010, the Company capitalized $245,000 and $162,000, respectively, of costs related to this real estate development project. During the six months ended April 30, 2011 and 2010, the Company capitalized $530,000 and $231,000, respectively, of costs related to this real estate development project. Additionally, in relation to this project, the Company has incurred net expenses of $195,000 and $249,000, in the three months ended April 30, 2011 and 2010, respectively, and $352,000 and $396,000 in the six months ended April 30, 2011 and 2010, respectively.

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 purpose of constructing and marketing an approximately 7,500 square foot luxury home in Paradise Valley, Arizona. In fiscal year 2009, Donna Circle was completed, and the Company executed a two-year lease agreement for the property with a third party. This lease agreement expired in March 2011, and the property was being refurbished and prepared for sale at April 30, 2011.

In May 2011, the Company sold the Donna Circle property for $2,275,000 cash, realizing net cash of $2,080,000 after selling and other transaction costs. The carrying value of the property at April 30, 2011 was $2,080,000, net of a second quarter 2011 impairment charge of $203,000. The impairment charge was the result of a decrease in the selling price which indicated that the fair value of the Donna Circle property was less than its carrying value at April 30, 2011. The property is classified as property, plant and equipment at April 30, 2011 and October 31, 2010.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (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. In fiscal year 2009, the Company sold 335,000 shares of Calavo stock for a total of $6,079,000, recognizing a gain of $2,729,000. 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 and six months ended April 30, 2011, the Company recorded total unrealized holding losses of $1,383,000 and $599,000, respectively, due to the change in the market value of the Company’s remaining 665,000 shares of Calavo common stock at April 30, 2011. In the three and six months ended April 30, 2010, the Company recorded total unrealized holding gains (losses) of $386,000 and ($339,000), respectively, due to the change in the market value of the Company’s remaining 665,000 shares of Calavo common stock at April 30, 2010.

8. Notes Receivable – Related Parties

In connection with the Company’s stock grant program, the Company has recorded total notes receivable and accrued interest from related parties of $91,000 and $93,000 at April 30, 2011 and October 31, 2010, respectively. Interest income on notes receivable from related parties was not significant during the three and six month periods ended April 30, 2011 and 2010.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

9. Long-Term Debt

Long-term debt is comprised of the following:

	April 30, 2011		October 31, 2010
Rabobank revolving credit facility secured by property with a net book value of $12,260,000 at April 30, 2011 and October 31, 2010. The interest rate is variable based on the one-month London Interbank Offered Rate (LIBOR), which was 0.24% at April 30, 2011 plus 1.50%. Interest is payable monthly and the principal is due in full in June 2013.	$	62,328 ,000	$	56,952,000

Farm Credit West term loan secured by property with a net book value of $11,644,000 at April 30, 2010 and $11,650,000 at October 31, 2010. The interest rate is variable and was 3.25% at April 30, 2011. The loan is payable in quarterly installments through November 2022.		6,435,000		6,658,000

Farm Credit West term loan secured by property with a net book value of $11,644,000 at April 30, 2011 and $11,650,000 at October 31, 2010. The interest rate is variable and was 3.25% at April 30, 2011. The loan is payable in monthly installments through May 2032.		907,000		922,000

Farm Credit West non-revolving line of credit secured by property with a net book value of $3,826,000 at April 30, 2011and $3,814,000 at October 31, 2010. The interest rate is variable and was 3.50% at April 30, 2011. Interest is payable monthly and the principal is due in full in May 2013.		12,966,000		12,257,000

Farm Credit West term loan secured by property with a net book value of $18,223,000 at April 30, 2011 and $17,693,000 at October 31, 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.		9,077,000		9,149,000

Subtotal		91,713,000		85,938,000
Less current portion		638,000		626,000
Total long-term debt, less current portion	$	91,075,000	$	85,312,000

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, there was a total of $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 June 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 that expires in May 2013. The Company incurred $21,000 of costs with Farm Credit West for this refinancing. Such costs were capitalized and are being amortized using the straight-line method over the term of the credit agreement.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

10. 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, 2011		October 31, 2010		April 30, 2011		October 31, 2010
Pay fixed-rate, receive floating-rate interest rate swap, maturing June 2013	$	42,000,000	$	42,000,000	$	2,646,000	$	3,450,000

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 3.63%, 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 cancellation or amendment of these interest rate swaps.

These interest rate swaps previously qualified as cash flow hedges and were accounted for as hedges under the short-cut method. On the amendment date of the swap agreements, the fair value liability and the related accumulated other comprehensive loss balance was $2,015,000. The accumulated other comprehensive loss balance is being amortized and included in interest income (expense) from derivative instruments over the remaining period of the original swap agreements. Amortization for the three and six month periods ended April 30, 2011 was $135,000 and $289,000, respectively. The remaining accumulated other comprehensive loss balance is $1,174,000, net of amortization of $841,000 at April 30, 2011.

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 qualified for hedge accounting as of April 30, 2010. Therefore, mark to market adjustments to the underlying fair value liability is being recorded in interest income (expense) from derivative instruments and the net liability balance continues to be recorded in other long-term liabilities in the Company’s consolidated balance sheets. The mark to market adjustments recognized by the Company during the three and six month periods ended April 30, 2011 resulted in non-cash interest income of $173,000 and $804,000, respectively. The mark to market adjustments recognized by the Company during the three and six month periods ended April 30, 2010 resulted in non-cash interest expense of $564,000.

11. 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 stock-based compensation. Diluted net loss per common share is calculated using the weighted-average number of common shares outstanding plus the dilutive effect of stock-based compensation calculated using the treasury stock method. The Series B convertible preferred shares are anti-dilutive.

12. Related-Party Transactions

The Company rents certain of its residential housing assets to employees. The Company recorded $141,000 and $145,000 of rental income from employees in the three months ended April 30, 2011 and 2010, respectively. The Company recorded $262,000 and $267,000 of rental income from employees in the six months ended April 30, 2011 and 2010, respectively. There were no rental payments due from employees at April 30, 2011 and October 31, 2010.

The Company’s has representation on the Boards of Directors of the mutual water companies in which the Company has investments. The Company purchased water and water delivery services from the mutual water companies, in aggregate, of $84,000 and $48,000 in the three months ended April 30, 2011 and 2010, respectively. The Company purchased water and water delivery services from the mutual water companies, in aggregate, of $400,000 and $315,000 in the six months ended April 30, 2011 and 2010, respectively. Such amounts are included in agribusiness expense in the Company’s consolidated statements of operations. Water payments due to the mutual water companies were, in aggregate, $15,000 and $49,000 at April 30, 2011 and October 31, 2010, respectively, and are included in accounts payable in the Company’s consolidated balance sheets.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

12. Related-Party Transactions (continued)

The Company has a presence on the Board of Directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies of $114,000 and $127,000 from the association in the three months ended April 30, 2011 and 2010, respectively. The Company purchased services and supplies of $477,000 from the association in each of the six months ended April 30, 2011 and 2010. Such amounts are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to the association were $23,000 and $69,000 at April 30, 2011 and October 31, 2010, respectively, and are included in accounts payable in the Company’s consolidated balance sheets.

The Company has invested $300,000 in the career of Charlie Kimball, an IndyCar Series race car driver, who is related to a member of the Company’s Board of Directors. The Company exercised repayment options in fiscal year 2010, whereby $200,000 of the total $300,000 of investment is to be repaid no later than August 2011 and is included in prepaid expenses and other current assets at April 30, 2011 and October 31, 2010. Included in other assets in the Company’s consolidated balance sheets is the long-term investment of $100,000 at October 31, 2010. The Company exercised its repayment option in January 2011 whereby the remaining $100,000 of the investment is to be repaid no later than January 2012. This balance is included in the prepaid expense and other current assets at April 30, 2011.

The Company has periodically enlisted the services of a general contractor who is related to a member of management. The general contractor provided services of zero and $68,000 during the three months ended April 30, 2011 and 2010, respectively. The general contractor provided services of zero and $183,000 during the six months ended April 30, 2011 and 2010, respectively. Payments due to the general contractor were zero and $62,000 at April 30, 2011 and October 31, 2010, respectively, and are included in accounts payable in the Company’s consolidated balance sheets.

In the six months ended April 30, 2011 and 2010, the Company recorded dividend income of $366,000 and $333,000, respectively, on its investment in Calavo; which is included in other (expense) income, net in the Company’s consolidated statements of operations. The Company sold avocados to Calavo totaling $369,000 and $2,654,000 for the three months ended April 30, 2011 and 2010, respectively, and $375,000 and $2,879,000 for the six months ended April 30, 2011 and 2010, respectively. Such amounts are included in agribusiness revenues in the Company’s consolidated statements of operations. There was $107,000 receivable by the Company from Calavo at April 30, 2011 and no amounts were receivable at October 31, 2010. Additionally, the Company leases office space to Calavo and received rental income of $62,000 and $57,000 in the three month periods ended April 30, 2011 and 2010, respectively. The Company received rental income from Calavo of $122,000 and $114,000 in the six month periods ended April 30, 2011 and 2010, respectively. Such amounts are included in rental revenues in the Company’s consolidated statements of operations.

13. Income Taxes

The Company’s projected annual effective tax rate for fiscal year 2011 is approximately 34.7%. As such, a 42.7% effective tax rate, after certain discrete items, was utilized by the Company for the second quarter of fiscal year 2011 to calculate its income tax provision.

There has been no material change to the Company’s uncertain tax position for the three and six month periods ended April 30, 2011. 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 not accrued any interest and penalties associated with uncertain tax positions as of April 30, 2011 and October 31, 2010.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

14. Retirement Plans

Effective December 31, 1991, the Company merged the Limoneira Hourly and Piece Rated Pension Plan and its 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. The Plan is 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 $121,000 and $300,000 during each of the six month periods ended April 30, 2011 and 2010.

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:

	2011			2010

Service cost	$	37,000		$	37,000
Interest cost		213,000			210,000
Expected return on plan assets		(248,000	)		(255,000	)
Recognized actuarial loss		224,000			156,000
Net periodic pension cost	$	226,000		$	148,000

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

	2011			2010

Service cost	$	74,000		$	74,000
Interest cost		425,000			420,000
Expected return on plan assets		(497,000	)		(509,000	)
Recognized actuarial loss		449,000			313,000
Net periodic pension cost	$	451,000		$	298,000

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

15. Stock-based Compensation

As of April 30, 2011, there are 15,310 shares of common stock issued to employees in connection with a discontinued stock option plan. Such shares are subject to repurchase by the Company with an estimated repurchase price value of $28,000 at April 30, 2011. The Company has determined that the terms of the shares outstanding subject to repurchase constitute a liability due to the repurchase right. In March 2011, the Company repurchased 36,120 shares for approximately $42,000 in accordance with this repurchase obligation. Additionally, reductions of stock-based compensation of approximately $4,000 and $82,000 were recorded in the six month periods ended April 30, 2011 and 2010, respectively, to reflect the fair value of the repurchase obligation. The repurchase obligation of $28,000 and $74,000 is included in other long-term liabilities in the Company’s consolidated balance sheets at April 30, 2011 and October 31, 2010, respectively.

In connection with the Company’s stock-based compensation plans, $1,519,000 of notes receivable from three officers of the Company were included in “current notes receivable – related parties” in the Company’s consolidated balance sheet at October 31, 2009. In December 2009, the officers’ notes receivable and accrued interest were reduced by $1,020,000 through the exchange of 6,756 shares of Company stock with a fair market value of $150.98 per share (at the date 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 six months ended April 30, 2010. The Company also recognized compensation expense of $603,000 during the six months ended April 30, 2010 representing additional compensation paid by the Company to the officers relating to the officers’ payroll taxes on the notes receivable forgiveness.

In December 2009, 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-based compensation plans. The $208,000 note receivable balance was subsequently reduced to zero through the exchange of 1,400 shares of Company stock with a fair market value of approximately $149.00 per share (at the date of the exchange) that were held by the officers of the Company.

In December 2010, members of management exchanged 17,709 shares of Company stock with a fair market value of $27.76 per share (at the date of the exchange) for the payment of payroll taxes associated with the vesting of shares under the Company’s stock-based compensation plans.

In January 2011, 62,287 shares of common stock were issued to management under the Company’s stock-based compensation plans for fiscal year 2010 financial performance. This resulted in total compensation expense of approximately $1,773,000, with $591,000 recognized in the year-ended October 31, 2010 and the balance to be recognized equally over the next two years as the shares vest. The Company recognized $101,000 and $117,000 of stock-based compensation to management during the three months ended April 30, 2011 and 2010, respectively. The Company recognized $327,000 and $234,000 of stock-based compensation to management during the six months ended April 30, 2011 and 2010, respectively.

In January 2011, management exchanged 9,871 shares with a fair market value of $28.40 per share (at the date of the exchange) for the payment of payroll taxes associated with the January 2011 stock issuance. In February 2011, management exchanged 217 shares with a fair market value of $22.56 per share (at the date of the exchange) for the payment of payroll taxes in connection with the January 2011 stock issuance.

In January 2011, 7,983 shares of common stock were granted to the Company’s non-employee directors under the Company’s stock-based compensation plans for fiscal year 2011 compensation. The Company recognized zero and $45,000 of stock-based compensation to non-employee directors during the three months ended April 30, 2011 and 2010, respectively. The Company recognized $180,000 and $90,000 of stock-based compensation to non-employee directors during the six months ended April 31, 2011 and 2010, respectively.

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

16. Segment Information

The Company operates in three reportable operating segments: agribusiness, 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 agribusiness segment includes farming and lemon packing operations. The rental operations segment includes residential 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 liabilities, or specifically identify them to its operating segments.

Segment information for the three months ended April 30, 2011:

	Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total

Revenues	$	11,463,000	$	996,000	$	51,000		$	–		$	12,510,000
Costs and expenses		9,740,000		532,000		367,000			2,220,000			12,859,000
Impairment of real estate assets		–		–		1,196,000			–			1,196,000
Operating income (loss)	$	1,723,000	$	464,000	$	(1,512,000	)	$	(2,220,000	)	$	(1,545,000	)

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

	Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total

Revenues	$	12,202,000	$	962,000	$	45,000		$	–		$	13,209,000
Costs and expenses		8,737,000		584,000		396,000			2,467,000			12,184,000
Operating income (loss)	$	3,465,000	$	378,000	$	(351,000	)	$	(2,467,000	)	$	1,025,000

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

	April 30, 2011		April 30, 2010
Agribusiness:
Lemons	$	8,817,000	$	7,875,000
Avocados		369,000		2,654,000
Navel and Valencia oranges		849,000		845,000
Specialty citrus and other crops		1,428,000		828,000
Agribusiness revenues		11,463,000		12,202,000

Rental operations:
Residential and commercial		565,000		541,000
Leased land		386,000		370,000
Organic recycling		45,000		51,000
Rental operations revenues		996,000		962,000

Real estate development revenues		51,000		45,000
Total revenues	$	12,510,000	$	13,209,000

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

16. Segment Information (continued)

Segment information for the six months ended April 30, 2011:

	Agribusiness			Rental Operations		Real Estate Development			Corporate and Other			Total

Revenues	$	16,338,000		$	1,966,000	$	107,000		$	–		$	18,411,000
Costs and expenses		17,378,000			1,092,000		657,000			5,170,000			24,297,000
Impairment of real estate assets		–			–		1,196,000			–			1,196,000
Operating income (loss)	$	(1,040,000	)	$	874,000	$	(1,746,000	)	$	(5,170,000	)	$	(7,082,000	)

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

	Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total

Revenues	$	17,474,000	$	1,917,000	$	180,000		$	–		$	19,571,000
Costs and expenses		15,562,000		1,091,000		723,000			5,951,000			23,327,000
Operating income (loss)	$	1,912,000	$	826,000	$	(543,000	)	$	(5,951,000	)	$	(3,756,000	)

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

	April 30, 2011		April 30, 2010
Agribusiness:
Lemons	$	11,908,000	$	11,264,000
Avocados		375,000		2,879,000
Navel and Valencia oranges		1,793,000		1,571,000
Specialty citrus and other crops		2,262,000		1,760,000
Agribusiness revenues		16,338,000		17,474,000

Rental operations:
Residential and commercial		1,115,000		1,071,000
Leased land		761,000		751,000
Organic recycling		90,000		95,000
Rental operations revenues		1,966,000		1,917,000

Real estate development revenues		107,000		180,000
Total revenues	$	18,411,000	$	19,571,000

Limoneira Company and Subsidiaries

Notes to Consolidated Financial Statements (unaudited) (continued)

17. Sale of Rancho Refugio/Caldwell Ranch

On February 3, 2011, the Company completed the exercise of the purchase option contained in its lease of the Rancho Refugio/Caldwell Ranch, which allowed the Company to acquire the property for a purchase price of $6,510,000. Concurrently with the close of its purchase option, the Company sold the property for $10,000,000 to Rancho Guacamole, LLC, a California limited liability company. The gain on the sale was $1,351,000, net of the $6,510,000 purchase price, $1,436,000 remaining capitalized in leasehold improvements and $703,000 of selling and transaction costs. The net cash realized from the transaction was $2,787,000.

The Company has entered into a lemon packing, marketing and sales agreement with the purchaser, for which it will earn fees for packing, marketing and sales of lemons produced on the property and another contiguous property owned by the purchaser. Based on the most recent five-year averages, the sale of the property will result in an annual reduction in lemon and avocado production and related agribusiness revenues, agribusiness costs and expenses and operating income of approximately $1,300,000, $1,000,000 and $300,000, respectively. The reduction in agribusiness revenues and operating income as a result of the sale of the Rancho Refugio/Caldwell Ranch will be partially off-set by fees from the lemon packing, marketing and sales agreement with the purchaser.

18. Subsequent Events

The Company has evaluated events subsequent to April 30, 2011 to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except for the sale of the Company’s Donna Circle property disclosed in Note 6, no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, rental operations and real estate development company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 6,850 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. (“Sunkist”), 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 specialty citrus and other crops. We have agricultural plantings throughout Ventura and Tulare counties in California, which plantings consist of approximately 1,750 acres of lemons, 1,250 acres of avocados, 1060 acres of oranges and 400 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 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 un-adjudicated 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 agribusiness and development real estate. We currently have six active real estate development projects in California. Our real estate developments range from apartments to single-family homes and include approximately 200 completed units and another approximately 2,000 units in various stages of planning and development.

Business Segment Summary

We have three business segments: agribusiness, rental operations and real estate development. Our agribusiness segment currently generates the majority of our revenue from its farming and lemon packing operations; our rental operations segment generates revenue from our housing, organic recycling and commercial and leased land operations and our real estate development segment generates revenue from the sale of real estate development projects. Generally, 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 development projects are monetized, our agribusiness will then be able to expand more rapidly into new regions and markets.

Agribusiness

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 87%, 89% and 93% of our fiscal year 2010, 2009 and 2008 consolidated revenues, respectively. Prior to November 1, 2010, our lemons were primarily marketed by Sunkist, with the vast majority of our domestic lemon and specialty citrus orders processed through the Sunkist network. On November 1, 2010, the Company began marketing and selling its lemons directly to its food service, wholesale and retail customers throughout North America, Asia and certain other international markets. Our other citrus products are processed and sold through Sunkist and another third-party packinghouse.

During the three months ended April 30, 2011, total lemon sales of approximately $8.8 million were comprised of approximately $6.8 million (78%) in domestic sales, $1.8 million (20%) in sales to domestic exporters and 0.2 million (2%) in international sales. During the six months ended April 30, 2011, total lemon sales of approximately $11.9 million were comprised of approximately $8.7 million (73%) in domestic sales, $2.7 million (23%) in sales to domestic exporters and $0.5 million (4%) in international sales.

Historically our agricultural operations have been seasonal in nature with the least amount of our annual revenue being generated in our first quarter, increasing in the second quarter, peaking in the third quarter and declining in the fourth quarter. Growing costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue.

Fluctuations in price are a function of global supply and demand with weather conditions, such as unusually low or high 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 operating our own lemon packing operation, even 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 third-party 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 third-party growers if we determine their lemons are of high 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.

Rental Operations

Our rental operations segment represented approximately 7%, 11% and 7% of our fiscal year 2010, 2009 and 2008 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. Revenue from our rental operations segment is generally level throughout the year.

Real Estate Development

Our real estate development segment represented 6% of our fiscal year 2010 consolidated revenues and did not generate any significant revenues in fiscal year 2009 or 2008. 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

In March 2011, the Ventura County Local Area Formation Committee (“LAFCO”) approved conditions that will allow for the annexation and incorporation of East Area 1 into the City of Santa Paula. Per the Pre-Annexation and Development Agreement between the City of Santa Paula and the Company, a $500,000 Development Agreement Contribution was made to the City of Santa Paula and was capitalized as a cost of these real estate development projects.

On March 22, 2011, the Company declared a $0.03125 per share dividend paid on April 15, 2011 in the aggregate amount of $350,000 to common shareholders of record on April 4, 2011.

In May 2011, the Company sold its Donna Circle property for $2,275,000 cash, realizing net cash of $2,080,000 after selling and other transaction costs. The carrying value of the property at April 30, 2011 was $2,080,000, net of a second quarter 2011 impairment charge of $203,000. The impairment charge was the result of a decrease in the selling price which indicated that the fair value of the Donna Circle property was less than its carrying value at April 30, 2011. The property is classified as property, plant and equipment at April 30, 2011 and October 31, 2010.

Results of Operations

The following table shows the results of operations for the three and six months ended April 30, 2011 and 2010:

	Quarter Ended April 30,						Six Months Ended April 30,
	2011			2010			2011			2010
Revenues:
Agribusiness	$	11,463,000		$	12,202,000		$	16,338,000		$	17,474,000
Rental		996,000			962,000			1,966,000			1,917,000
Real estate development		51,000			45,000			107,000			180,000
Total revenues		12,510,000			13,209,000			18,411,000			19,571,000
Costs and expenses:
Agribusiness		9,740,000			8,737,000			17,378,000			15,562,000
Rental		532,000			584,000			1,092,000			1,091,000
Real estate development		367,000			396,000			657,000			723,000
Impairments of real estate development assets		1,196,000			-			1,196,000			-
Selling, general and administrative		2,220,000			2,467,000			5,170,000			5,951,000
Total costs and expenses		14,055,000			12,184,000			25,493,000			23,327,000
Operating (loss) income:
Agribusiness		1,723,000			3,465,000			(1,040,000	)		1,912,000
Rental		464,000			378,000			874,000			826,000
Real estate development		(1,512,000	)		(351,000	)		(1,746,000	)		(543,000	)
Selling, general and administrative		(2,220,000	)		(2,467,000	)		(5,170,000	)		(5,951,000	)
Operating (loss) income		(1,545,000	)		1,025,000			(7,082,000	)		(3,756,000	)
Other income (expense):
Interest expense		(268,000	)		(391,000	)		(622,000	)		(819,000	)
Interest income (expense) from derivative instruments		38,000			(564,000	)		515,000			(564,000	)
Gain on sale of Rancho Refugio/Caldwell Ranch		1,351,000			-			1,351,000			-
Interest income and other		(7,000	)		26,000			359,000			410,000
Total other income (expense)		1,114,000			(929,000	)		1,603,000			(973,000	)
Income tax benefit (provision)		197,000			(48,000	)		1,909,000			1,661,000
Equity in (losses) earnings of investments		(30,000	)		64,000			(21,000	)		48,000
Net (loss) income	$	(264,000	)	$	112,000		$	(3,591,000	)	$	(3,020,000	)

Non-GAAP Financial Measures

Due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure, management believes that earnings before interest expense, income taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, which excludes impairments on real estate development assets, is an important measure to evaluate the Company’s results of operations between periods on a more comparable basis. Such measurements are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should not be construed as an alternative to reported results determined in accordance with GAAP. The non-GAAP information provided is unique to the Company and may not be consistent with methodologies used by other companies. EBITDA and adjusted EBITDA are summarized and reconciled to net loss which management considers to be the most directly comparable financial measure calculated and presented in accordance with GAAP as follows:

	Quarter ended April 30,					Six Months Ended April 30,
		2011			2010		2011			2010
Net (loss) income	$	(264,000	)	$	112,000	$	(3,591,000	)	$	(3,020,000	)
Total interest expense, net		230,000			955,000		107,000			1,383,000
Income taxes		(197,000	)		48,000		(1,909,000	)		(1,661,000	)
Depreciation and amortization		532,000			571,000		1,100,000			1,158,000
EBITDA		301,000			1,686,000		(4,293,000	)		(2,140,000	)
Impairments of real estate development assets		1,196,000			-		1,196,000			-
Adjusted EBITDA	$	1,497,000		$	1,686,000	$	(3,097,000	)	$	(2,140,000	)

Second Quarter Fiscal Year 2011 Compared to Second Quarter Fiscal Year 2010

Revenues

Total revenue for the second quarter of fiscal year 2011 was $12.5 million compared to $13.2 million for the second quarter of fiscal year 2010. The 5% decrease of $0.7 million was primarily the result of agricultural revenues, as detailed below:

Lemon revenue for the second quarter of fiscal year 2011 was $8.8 million compared to $7.9 million for the second quarter of fiscal year 2010. The 11% increase of $0.9 million was primarily a result of increased sales prices for lemon by-products in fiscal year 2011. In the second quarter of fiscal year 2011, $0.9 million of lemon by-products were sold compared to $0.2 million in the second quarter of fiscal year 2010. Additionally, during the three months ended April 30, 2011 and 2010 fresh lemon sales were $7.9 million and $7.7 million, respectively, on 586,000 and 413,000 cartons of lemons sold at average per carton prices of $13.48 and $18.64.

Avocado revenue for the second quarter of fiscal year 2011 was $0.4 million compared to $2.7 million for the second quarter of fiscal year 2010. The $2.3 million decrease was primarily due to decreased harvest volume in fiscal year 2011. The California avocado crop typically experiences alternating years of high and low production due to plant physiology. Additionally, fruit development on the tree was slower in the second quarter of fiscal year 2011 compared to the second quarter of fiscal year 2010. In the second quarter of fiscal year 2011, 0.3 million pounds of avocados were harvested and sold at an average price per pound of $1.23 compared to 3.7 million pounds of avocados harvested and sold at an average price per pound of $0.73 in the second quarter of fiscal year 2010.

Specialty citrus and other crop revenues for the second quarter of fiscal year 2011 were $1.4 million compared to $0.8 million for the second quarter of fiscal year 2010. The $0.6 million increase was due to higher harvest volume and sales prices in fiscal year 2011 compared to fiscal year 2010.

Costs and Expenses

Total costs and expenses for the second quarter of fiscal year 2011 were $14.1 million compared to $12.2 million for the second quarter of fiscal year 2010, for a 16% increase of $1.9 million. Of this increase, $1.0 million was attributable to increases in our agribusiness costs and $1.2 million was attributable to impairments of real estate development assets. These increases were offset by a $0.3 million decrease in selling, general and administrative expenses.

Packing costs during the second quarter of fiscal year 2011 were $2.8 million compared to $2.4 million in the second quarter of fiscal year 2010. This 17% increase of $0.4 million is primarily attributable to increased volume in fiscal year 2011. We packed and sold 585,000 cartons of lemons in the second quarter of fiscal year 2011 compared to 413,000 cartons in the same period of fiscal year 2010. Partially offsetting the increased costs from higher volume, there were no fees paid to Sunkist for sales and marketing services in the second quarter of fiscal year 2011 compared to $0.3 million of fees in the second quarter of fiscal year 2010. This is due to our decision to market and sell lemons directly to our customers beginning in fiscal year 2011.

Harvest costs for the second quarter of fiscal year 2011 were $1.8 million compared to $2.1 million for the second quarter of fiscal year 2010. This 14% decrease of $0.3 million primarily resulted from lower harvest volume of avocados in the second quarter of fiscal year 2011 compared to the second quarter of fiscal year 2010.

Costs related to the lemons we process and sell for third-party growers were $2.6 million in the second quarter of fiscal year 2011 compared to $1.7 million in the second quarter of fiscal year 2010. The 53% increase of $0.9 million was attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold, which directly correlates to amounts expensed and paid to third-party growers.

Selling, general and administrative expenses for the three months ended April 30, 2011 were $2.2 million compared to $2.5 million for the three months ended April 30, 2010. This 12% decrease of $0.3 million was primarily attributable to the following:

We incurred incremental costs of $0.6 million during the second quarter of fiscal year 2010 associated with the filing of our Form 10 and our compliance with other obligations associated with the Securities Exchange Act of 1934. Comparatively, there were $0.1 million of costs associated with our compliance with other obligations associated with the Security Exchange Act of 1934 during the second quarter of fiscal year 2011.

The $0.5 million decrease noted above was partially offset by a $0.1 million increase in selling expenses due to our decision to market and sell lemons directly to our customers beginning in fiscal year 2011. During the second quarter of fiscal year 2010, we incurred $0.3 million of fees with Sunkist for sales and marketing services, which were included in packing costs. There were no such fees in fiscal year 2011.

Additionally, the decrease noted above was partially offset by $0.1 million of additional labor and benefits due to an increase in salaries and personnel associated with being a public company.

Other Income/Expense

Other income (expense) for the second quarter of fiscal year 2011 was $1.1 million of income compared to $0.9 million of expense for the second quarter of fiscal year 2010. The $2.0 million increase in net other income is primarily due to a $1.4 million gain on the February 2011 sale of Rancho Refugio/Caldwell Ranch and fair value adjustments on our interest rate swap.

Income Taxes

The Company recorded an estimated income tax benefit of $0.2 million in the second quarter of fiscal year 2011 on a pre-tax loss of $0.5 million compared to an estimated income tax provision of $48,000 on pre-tax earnings of $160,000 in the second quarter of fiscal year 2010.

Our projected annual effective tax rate for fiscal year 2011 is 34.7% at April 30, 2011, resulting in a 42.7% effective tax rate, after certain discrete items, for the second quarter of fiscal year 2011. In comparison, our projected annual effective tax rate was 34.1% at April 30, 2010, resulting in a 29.3% effective tax rate, after certain discrete items, for the second quarter of fiscal year 2010.

Six Months Ended April 30, 2011 Compared to the Six Months Ended April 30, 2010

Revenues

Total revenue for the six months ended April 30, 2011 was $18.4 million compared to $19.6 million for the six months ended April 30, 2010. The $1.2 million decrease was primarily the result of decreased agricultural revenue, as detailed below:

Lemon revenue was $11.9 million for the six months ended April 30, 2011 compared to $11.3 million for the six months ended April 30, 2010. The $0.6 million increase was primarily a result of increased sales prices for lemon by-products in fiscal year 2011. In the first six months of fiscal year 2011, $1.1 million of lemon by-products were sold compared to $0.2 million in the first six months of fiscal 2010. Offsetting this increase, during the six months ended April 30, 2011 and 2010 fresh lemon sales were $10.8 million and $11.1 million, respectively, on 761,000 and 600,000 cartons of lemons sold at average per carton prices of $14.19 and $18.50.

Avocado revenue for the six months ended April 30, 2011 was $0.4 million compared to $2.9 million for the six months ended April 30, 2010. The $2.5 million decrease was primarily due to decreased harvest volume in fiscal year 2011. The California avocado crop typically experiences alternating years of high and low production due to plant physiology. Additionally, fruit development on the tree was slower in the first six months of fiscal year 2011 compared to the first six months of fiscal year 2010. In the six months ended April 30, 2011, 0.4 million pounds of avocados were harvested and sold at an average price per pound of $1.00 compared to 4.1 million pounds of avocados harvested and sold at an average price per pound of $0.70 in the same period in fiscal year 2010.

Navel and Valencia orange revenues for the six months ended April 30, 2011 were $1.8 million compared to $1.6 million for the six months ended April 30, 2010. This 13% increase of $0.2 million in the six months ended April 30, 2011 was primarily attributable to a higher harvest volume partially offset by lower prices compared to the same period in fiscal year 2010.

Specialty citrus and other crop revenues in the six months ended April 30, 2011 were $2.3 million compared to $1.8 million in the six months ended April 30, 2010. The 28% increase of $0.5 million was due to higher harvest volume and sales prices in fiscal year 2011 compared to fiscal year 2010.

Costs and Expenses

Total costs and expenses for the six months ended April 30, 2011 were $25.5 million compared to $23.3 million for the six months ended April 30, 2010, for a 9% increase of $2.2 million. Of this increase, $1.8 million was attributable to increases in our agribusiness costs and $1.2 million was attributable to impairments of real estate development assets. These increases were offset by a $0.8 million decrease in selling, general and administrative expenses.

Packing costs during the six months ended April 30, 2011 were $4.6 million compared to $3.6 million in the same period of fiscal year 2010. This 28% increase of $1.0 million is primarily attributable to increased volume in fiscal year 2011. We packed and sold 761,000 cartons of lemons in the first six months of fiscal year 2011 compared to 600,000 cartons in the same period of fiscal year 2010. Partially offsetting the increased costs from higher volume, there were no fees paid to Sunkist for sales and marketing services in the six months ended April 30, 2011 compared to $0.4 million of fees for the same period in fiscal year 2010. This is due to our decision to market and sell lemons directly to our customers beginning in fiscal year 2011.

Harvest costs for the six months ended April 30, 2011 were $2.9 million compared to $2.7 million in the same period of fiscal year 2010. This 7% increase of $0.2 million resulted from higher harvest volumes of Navel oranges, Valencia oranges and specialty citrus in the first six months of fiscal year 2011 compared to the first six months of fiscal year 2010. The increase in production of these three citrus varieties was partially offset by decreased harvest volume of avocados during the six months ended April 30, 2011 compared to the same period of fiscal year 2010.

Costs related to the lemons we process and sell for third-party growers were $4.3 million in the first six months of fiscal year 2011 compared to $3.7 million in the first six months of fiscal year 2010. The 16% increase of $0.6 million was attributable to a higher percentage of third-party grower lemons relative to the total volume of cartons sold, which directly correlates to amounts expensed and paid to third-party growers.

Selling, general and administrative expenses for the six months ended April 30, 2011 were $5.2 million compared to $6.0 million for the six months ended April 30, 2010. This 13% decrease of $0.8 million was primarily attributable to the following:

We incurred a $1.3 million charge associated with the forgiveness of notes receivable from three of our senior executive officers in the first six months of fiscal year 2010. There was no such charge in the first six months of fiscal year 2011.

We incurred incremental costs of $0.9 million during the first six months of fiscal year 2010 associated with the filing of our Form 10 and our compliance with other obligations associated with the Securities Exchange Act of 1934. Comparatively, there were $0.4 million of costs associated with our compliance with other obligations associated with the Security Exchange Act of 1934 during the first six months of fiscal year 2011.

The decreases noted above were partially offset by a $0.3 million increase in selling expenses due to our decision to market and sell lemons directly to our customers beginning in fiscal year 2011. During the six months ended April 30, 2010, we incurred $0.4 million of fees to Sunkist for sales and marketing services, which were included in packing costs. There were no such fees in fiscal year 2011.

Additionally, the decreases noted above were partially offset by $0.3 million of additional labor and benefits due to an increase in salaries and personnel associated with being a publicly traded company, $0.2 million increase in stock grant expenses due to final vesting of 2008 stock grants and added vesting of 2010 stock grants and $0.2 million of net increases in other selling, general and administrative costs.

Other Income/Expense

Other income (expense) for the six months ended April 30, 2011 was $1.6 million of income compared to $1.0 million of expense for the six months ended April 30, 2010. The $2.6 million increase in net other income is primarily due to a $1.4 million gain on the February 2011 sale of Rancho Refugio/Caldwell Ranch and fair value adjustments on our interest rate swap.

Income Taxes

The Company recorded an estimated income tax benefit of $1.9 million in the first six months of fiscal year 2011 on a pre-tax loss of $5.5 million compared to an estimated income tax benefit of $1.7 million on a pre-tax loss of $4.7 million in the first six months of fiscal year 2010.

Our estimated effective tax rate is 34.7% after certain discrete items, for the first six months of fiscal year 2011 compared to an estimated effective rate of 35.6% for the first six months of fiscal year 2010. The primary reason for this decrease in the estimated effective tax rate is due to an increase in the allowable domestic production deduction in fiscal year 2011 over fiscal year 2010.

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. Each segment is subject to review and evaluations we for current market conditions, market opportunities and available resources. The following table shows the segment results of operations for the second quarter and six months ended April 30, 2011 and 2010:

	Quarter Ended April 30,												Six Months Ended April 30,
	2011						2010						2011						2010
	$			%			$			%			$			%			$			%
Revenues:
Agribusiness	$	11,463,000			91	%	$	12,202,000			92	%	$	16,338,000			89	%	$	17,474,000			89	%
Rental operations		996,000			8	%		962,000			7	%		1,966,000			10	%		1,917,000			10	%
Real estate development		51,000			1	%		45,000			1	%		107,000			1	%		180,000			1	%
Total revenues		12,510,000			100	%		13,209,000			100	%		18,411,000			100	%		19,571,000			100	%
Costs and expenses:
Agribusiness		9,740,000			69	%		8,737,000			72	%		17,378,000			68	%		15,562,000			67	%
Rental operations		532,000			4	%		584,000			5	%		1,092,000			5	%		1,091,000			5	%
Real estate development		1,563,000			11	%		396,000			3	%		1,853,000			7	%		723,000			3	%
Corporate and other		2,220,000			16	%		2,467,000			20	%		5,170,000			20	%		5,951,000			25	%
Total costs and expenses		14,055,000			100	%		12,184,000			100	%		25,493,000			100	%		23,327,000			100	%
Operating (loss) income
Agribusiness		1,723,000						3,465,000						(1,040,000	)					1,912,000
Rental operations		464,000						378,000						874,000						826,000
Real estate development		(1,512,000	)					(351,000	)					(1,746,000	)					(543,000	)
Corporate and other		(2,220,000	)					(2,467,000	)					(5,170,000	)					(5,951,000	)
Total operating (loss) income	$	(1,545,000	)				$	1,025,000					$	(7,082,000	)				$	(3,756,000	)

Second Quarter of Fiscal Year 2011 Compared to the Second Quarter of Fiscal Year 2010

The following analysis should be read in conjunction with the previous section “Results of Operations”.

Agribusiness

For the second quarter of fiscal year 2011 our agribusiness segment revenue was $11.5 million compared to $12.2 million for the second quarter of fiscal year 2010. The 6% decrease of $0.7 million primarily reflected lower avocado revenue for the fiscal year 2011 second quarter compared to the fiscal year 2010 second quarter. The decrease in agribusiness revenue primarily consists of the following:

Lemon revenue for the second quarter of fiscal year 2011 was $0.9 million higher than the second quarter of fiscal year 2010.

Avocado revenue for the second quarter of fiscal year 2011 was $2.3 million lower than the second quarter of fiscal year 2010.

Navel and Valencia orange revenues were similar quarter to quarter at approximately $0.8 million.

Specialty citrus and other crop revenues for the second quarter of fiscal year 2011 were $0.6 million higher than the second quarter of fiscal year 2010.

Costs associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the lemons we process and sell for third-party growers, and depreciation expense. For the second quarter of fiscal year 2011, our agribusiness costs and expenses were $9.7 million compared to $8.7 million for the second quarter of fiscal year 2010. The 11% increase of $1.0 million primarily consists of the following:

Packing costs for the second quarter of fiscal year 2011 were $0.4 million higher than the second quarter of fiscal year 2010.

Harvest costs for the second quarter of fiscal year 2011 were $0.3 million lower than the second quarter of fiscal year 2010.

Costs related to the lemons we process and sell for third-party growers for the second quarter of fiscal year 2011 were $0.9 million higher than the second quarter of fiscal year 2010.

Growing costs were similar quarter to quarter at approximately $2.2 million.

Depreciation expense was similar quarter to quarter at approximately $0.4 million.

Rental Operations

Our rental operations had revenues of $1.0 million in the second quarters of fiscal years 2011 and 2010. All three areas of this segment (residential and commercial rental operations, leased land and organic recycling) were similar quarter to quarter.

Expenses in our rental operations segment were approximately $0.4 million in the second quarters of fiscal years 2011 and 2010. Depreciation expense was similar quarter to quarter at approximately $0.1 million.

Real Estate Development

Our real estate development segment had no significant revenues in the second quarters of fiscal years 2011 and 2010.

Costs and expenses in our real estate development segment for the second quarter of fiscal year 2011 were $1.2 million higher than the second quarter of fiscal year 2010 due to impairment charges incurred in fiscal year 2011.

Corporate and Other

Corporate costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Corporate and other costs for the second quarter of fiscal year 2011 were $0.3 million lower than the second quarter of fiscal year 2010. Depreciation expense was similar quarter to quarter at approximately $0.1 million.

Six Months Ended April 30, 2011 Compared to the Six Months Ended April 30, 2010

The following analysis should be read in conjunction with the previous section “Results of Operations”.

Agribusiness

For the six months ended April 30, 2011, our agribusiness segment revenue was $16.3 million compared to $17.5 million for the six months ended April 30, 2010. The 7% decrease of $1.2 million primarily reflected lower avocado revenue for the fiscal year 2011 period compared to the fiscal year 2010 period. The decrease in agribusiness revenue primarily consists of the following:

Lemon revenue for the six months ended April 30, 2011 was $0.6 million higher than the six months ended April 30, 2010.

Avocado revenue for the six months ended April 30, 2011 was $2.5 million lower than the six months ended April 30, 2010.

Navel and Valencia orange revenues for the six months ended April 30, 2011 were $0.2 million higher than the six months ended April 30, 2010.

Specialty citrus and other crop revenues for the six months ended April 30, 2011 were $0.5 million higher than the six months ended April 30, 2010.

Costs associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the lemons we process and sell for third-party growers, and depreciation expense. For the six months ended April 30, 2011, our agribusiness costs and expenses were $17.4 million compared to $15.6 million for the six months ended April 30, 2010. The 12% increase of $1.8 million primarily consists of the following:

Packing costs for the six months ended April 30, 2011 were $1.0 million higher than the six months ended April 30, 2010.

Harvest costs for the six months ended April 30, 2011 were $0.2 million higher than the six months ended April 30, 2010.

Costs related to the lemons we process and sell for third-party growers for the six months ended April 30, 2011 were $0.6 million higher than the six months ended April 30, 2010.

Growing costs were similar period to period at approximately $4.9 million.

Depreciation expense was similar quarter to quarter at approximately $0.8 million.

Rental Operations

Our rental operations had revenues of approximately $1.9 million in the six months ended April 30, 2011 and 2010. All three areas of this segment (residential and commercial rental operations, leased land and organic recycling) were similar period to period.

Expenses in our rental operations segment were similar period to period at approximately $0.9 million. Depreciation expense was similar period to period at approximately $0.2 million.

Real Estate Development

Our real estate development segment had $0.1 million of revenue in the six months ended April 30, 2011 compared to $0.2 million in the six months ended April 30, 2010. The $0.2 million of revenue in the first six months of fiscal year 2010 included revenue related to incidental equestrian operations after the November 2009 acquisition of Windfall Investors. There was no such revenue in fiscal year 2011.

Corporate and Other

Corporate costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Corporate and other costs for the six months ended April 30, 2011 were $0.8 million lower than the six months ended April 20, 2010. Depreciation expense was similar period to period at approximately $0.1 million.

Seasonal Operations

Historically, our agricultural operations have been seasonal in nature with the least amount of our annual revenue being generated in our first quarter, increasing in the second quarter, peaking in the third quarter and declining in the fourth quarter. Cultural costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue. Due to this seasonality and to avoid the inference that interim results are indicative of the estimated results for a full fiscal year, we present supplemental information for 12-month periods ended at the interim date for the current and preceding years.

The following table shows the unaudited results of operations for the trailing twelve months:

	Twelve months ended April 30,
	2011			2010
Revenues:
Agribusiness	$	45,898,000		$	37,705,000
Rental		4,025,000			3,817,000
Real estate development		3,201,000			211,000
Total revenues		53,124,000			41,733,000
Costs and expenses:
Agribusiness		32,952,000			29,113,000
Rental		2,174,000			2,091,000
Real estate development		4,350,000			900,000
Impairments of real estate development assets		3,618,000			6,203,000
Selling, general and administrative		10,233,000			9,262,000
Total costs and expenses		53,327,000			47,569,000
Operating loss		(203,000	)		(5,836,000	)
Other (expense) income:
Interest expense		(1,435,000	)		(1,210,000	)
Interest expense from derivative instruments		(908,000	)		(564,000	)
Gain on sale of Ranch Refugio/Caldwell Ranch		1,351,000			-
Gain on sale of stock in Calavo Growers, Inc.		-			2,729,000
Interest income and other		351,000			448,000
Total other (expense) income		(641,000	)		1,403,000
Net loss before income taxes and equity in earnings (losses) in investments		(844,000	)		(4,433,000	)
Income tax benefit		320,000			1,561,000
Equity in earnings (losses) of investments		276,000			(23,000	)
Net loss