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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K). This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under “Risk Factors” included in Item 1A and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of operations for fiscal year 2021 compared to fiscal year 2020. For discussion related to the results of operations and changes in financial condition for fiscal year 2020 compared to fiscal year 2019 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2020 Form 10-K, which was filed with the United States Securities and Exchange Commission (SEC) on January 14, 2021.

Overview

Limoneira Company, a Delaware corporation, is the successor to several businesses with operations in California since 1893. We are primarily an agribusiness company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately 15,400 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, rental operations, real estate and capital investment activities.

We have three business divisions: agribusiness, rental operations and real estate development. The agribusiness division is comprised of four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, which includes oranges, specialty citrus and other crops. The agribusiness division includes our core operations of farming, harvesting, lemon packing and lemon sales operations. The rental operations division includes our residential and commercial rentals comprised of 256 completed rental units, leased land operations and organic recycling. The real estate development division includes our investments in real estate development projects. Generally, we see our Company as a land and farming company that generates annual cash flows to support our progress into diversified real estate development activities. As real estate developments are monetized, our agriculture business will then be able to expand more rapidly into new regions and markets.

Recent Developments – Refer to Part I, Item 1 “Fiscal Year 2021 Highlights and Recent Developments”

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Results of Operations

The following table shows the results of operations for ($ in thousands):

Years Ended October 31,

Revenues:

Costs and expenses:

Loss (gain) on disposal of assets 109 — 502 — (1,069) (1)%

Operating loss:

Loss (gain) on disposal of assets (109) (502) 1,069

Other income (expense):

Interest expense, net of patronage dividends (1,501) (2,048) (2,341)

Loss on stock in Calavo Growers, Inc. — (6,299) (2,117)

Loss (income) attributable to noncontrolling interest 456 1,506 (477)

Net loss attributable to Limoneira Company $ (3,441) $ (16,435) $ (5,943)

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, income taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA, which excludes loss on stock in Calavo Growers, Inc. ("Calavo") and loss (gain) on disposal of assets, is an important measure to evaluate our results of operations between periods on a more comparable basis. Adjusted EBITDA in previous periods also excluded LLCB earnings in equity investment which is no longer excluded due to management’s anticipation of future cash distributions related to the investment in LLCB. Adjusted EBITDA for prior periods has been restated to conform to the current presentation. 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 us and may not be consistent with methodologies used by other companies.

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EBITDA and adjusted EBITDA are summarized and reconciled to net loss attributable to Limoneira Company which management considers to be the most directly comparable financial measure calculated and presented in accordance with GAAP as follows (in thousands):

Years Ended October 31,

Net loss attributable to Limoneira Company $ (3,441) $ (16,435) $ (5,943)

Interest expense, net of patronage dividends 1,501 2,048 2,341

Loss on stock in Calavo Growers, Inc. — 6,299 2,054

Loss (gain) on disposal of assets 109 502 (991)

Fiscal Year 2021 Compared to Fiscal Year 2020

Revenues

Total revenues for fiscal year 2021 were $166.0 million compared to $164.6 million for fiscal year 2020. The 1% increase of $1.5 million was primarily the result of increased lemons and specialty citrus and other crops agribusiness revenues, partially offset by decreased avocados and oranges agribusiness revenues, as detailed below ($ in thousands):

Agribusiness Revenues for the Years Ended October 31,

•Lemons: The increase in fiscal year 2021 was primarily the result of increased brokered fruit and other lemon sales, partially offset by decreased fresh lemon sales, compared to fiscal year 2020. Brokered fruit and other lemon sales for fiscal years 2021 and 2020 were $36.0 million and $18.9 million, respectively. The increase in brokered fruit in fiscal year 2021 was primarily the result of higher volume and higher prices of brokered fruit sales, compared to fiscal year 2020. During fiscal years 2021 and 2020, brokered fruit sales were $29.3 million and $12.2 million on 1.4 million and 0.6 million cartons of brokered fruit sold at average per carton prices of $21.63 and $19.82, respectively. The decrease in fresh lemon sales in fiscal year 2021 was primarily the result of lower volume, partially offset by higher prices of fresh lemons sold, compared to fiscal year 2020. During fiscal years 2021 and 2020, fresh lemon sales were $85.9 million and $101.1 million on 4.4 million and 5.5 million cartons of fresh lemons packed and sold at average per carton prices of $19.60 and $18.32, respectively. Lemon revenues in fiscal years 2021 and 2020 included shipping and handling of $17.5 million and $13.4 million and lemon by-products of $3.5 million and $4.1 million, respectively.

•Avocados: The decrease in fiscal year 2021 was primarily the result of lower volume, partially offset by higher prices of avocados sold, compared to fiscal year 2020. The California avocado crop typically experiences alternating years of high and low production due to plant physiology. During fiscal years 2021 and 2020, 5.7 million and 8.0 million pounds of avocados were sold at average per pound prices of $1.20 and $1.10, respectively. Higher prices in fiscal year 2021 were primarily related to lower supply of fruit in the marketplace.

•Oranges: The decrease in fiscal year 2021 was primarily due to lower prices and volume of oranges sold, compared to fiscal year 2020. During fiscal years 2021 and 2020, sales consisted of 545,000 and 743,000 40-pound carton equivalents of oranges sold at average per carton prices of $8.04 and $10.39, respectively.

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•Specialty citrus and other crops: The increase in fiscal year 2021 was primarily the result of higher volume of wine grapes sold, compared to fiscal year 2020. In fiscal year 2021, we sold approximately 2,164 tons of wine grapes for $3.0 million compared to approximately 1,610 tons of wine grapes for $1.5 million in fiscal year 2020.

Other operations revenue in fiscal year 2021 was similar to fiscal year 2020.

Costs and Expenses

Total costs and expenses for fiscal year 2021 were $172.4 million compared to $183.6 million for fiscal year 2020. This 6% decrease of $11.2 million was primarily attributable to decreases in our agribusiness costs and selling, general and administrative expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and suppliers and depreciation and amortization expense. These costs are discussed further below ($ in thousands):

Agribusiness Costs and Expenses for the Years Ended October 31,

•Packing costs: Packing costs consist of the costs to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. Lemon packing costs were $36.0 million and $42.6 million in fiscal years 2021 and 2020, respectively. The decrease in fiscal year 2021 was primarily attributable to lower volume of fresh lemons packed and sold, partially offset by higher average per carton costs, compared to fiscal year 2020. In fiscal years 2021 and 2020, we packed and sold 4.4 million and 5.5 million cartons of lemons at average per carton costs of $8.22 and $7.71, respectively. The increase in average per carton costs in fiscal year 2021, compared to fiscal year 2020, was primarily due to decreased volume of lemons packed and sold. Additionally, in fiscal years 2021 and 2020, packing costs included $2.7 million and $3.0 million of shipping costs, respectively.

•Harvest costs: The decrease in fiscal year 2021 was primarily attributable to decreased volume of lemons, avocados and oranges harvested compared to fiscal year 2020.

•Growing costs: Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. The decrease in fiscal year 2021 compared to fiscal year 2020 reflects farm management decisions based on weather, harvest timing and crop conditions.

•Third-party grower and supplier costs: We sell fruit that we grow and fruit that we procure from other growers and suppliers. The cost of procuring fruit from others is referred to as third-party grower and supplier costs. The increase in fiscal year 2021 was primarily due to increased volume of fruit procured from suppliers, partially offset by decreased volume of fruit procured from third party growers, compared to fiscal year 2020. In fiscal years 2021 and 2020, costs for purchased, packed fruit for resale increased by $9.8 million; we incurred costs of $25.2 million and $15.5 million, respectively. During fiscal years 2021 and 2020, of the 4.4 million and 5.5 million lemon cartons sold, 2.3 million (52%) and 3.3 million (60%) were procured from third-party growers at average per carton prices of $13.83 and $11.71, respectively: a decrease of $7.3 million.

•Depreciation and amortization: Depreciation and amortization expense in fiscal year 2021 was $0.3 million lower than fiscal year 2020.

Other operations expenses for fiscal years 2021 and 2020 were $4.3 million and $4.5 million, respectively.

Loss on disposal of assets for fiscal years 2021 and 2020 were $0.1 million and $0.5 million, respectively.

Selling, general and administrative expenses for fiscal year 2021 were $19.4 million compared to $21.3 million for fiscal year 2020. The $1.9 million decrease was primarily the result of:

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•$0.7 million decrease in hardware, software and training costs associated with an ERP implementation

•$0.6 million decrease in selling expenses; and

•$0.5 million decrease in other selling, general and administrative expenses, including certain corporate overhead expenses.

Other Income (Expense)

Other income (expense), for fiscal year 2021 was $2.2 million compared to $(7.4) million for fiscal year 2020. The $9.6 million increase in other income (expense) was primarily the result of:

•$0.5 million decrease in interest expense as a result of increased amounts capitalized;

•$2.9 million increase in equity in earnings of investments primarily from LLCB; and

•$6.3 million decrease in the loss on stock in Calavo.

Income Taxes

We recorded for fiscal years 2021 and 2020 income tax benefit of $0.3 million and $8.5 million on pre-tax loss of $4.2 million and $26.4 million, respectively. The tax provision recorded for fiscal year 2021 differs from the U.S. federal statutory tax rate of 21% due primarily to foreign jurisdictions which are taxed at different rates, state taxes, nondeductible tax items and valuation allowances on certain deferred tax assets of foreign subsidiaries. Our effective tax rate for fiscal years 2021 and 2020 was 6.4% and 32.2%, respectively.

Loss (Income) Attributable to Noncontrolling Interest

Loss (income) attributable to noncontrolling interest primarily represents 10% and 49% of the net losses of PDA and Trapani Fresh, respectively.

Segment Results of Operations

We operate in four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness. Our reportable operating segments are strategic business units with different products and services, distribution processes and customer bases. We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. Each segment is subject to review and evaluations related to current market conditions, market opportunities and available resources. See Note 22 - Segment Information of the notes to consolidated financial statements included in this Annual Report for additional information regarding our operating segments.

Segment information for fiscal year 2021 (in thousands):

Segment information for fiscal year 2020 (in thousands):

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Fiscal Year 2021 Compared to Fiscal Year 2020

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

Fresh Lemons

Fresh lemons segment revenue is comprised of sales of fresh lemons, lemon by-products and brokered fruit other lemon revenue. For fiscal year 2021, our fresh lemons segment revenue was $125.4 million compared to $124.2 million for fiscal year 2020. The 1% increase of $1.3 million was primarily the result of higher prices partially offset by lower volume of fresh lemons sold, as discussed earlier.

Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs, cost of fruit we procure from third-party growers and suppliers, transportation costs and packing service charges incurred from the lemon packing segment to pack lemons for sale. For fiscal year 2021, our fresh lemon costs and expenses were $116.1 million compared to $125.3 million for fiscal year 2020. The 7% decrease of $9.2 million primarily consisted of the following:

•Harvest costs for fiscal year 2021 were $2.8 million lower than fiscal year 2020.

•Growing costs for fiscal year 2021 were $0.7 million higher than fiscal year 2020.

•Third-party grower and supplier costs for fiscal year 2021 were $4.4 million higher than fiscal year 2020.

•Transportation costs for fiscal year 2021 were $0.2 million lower than fiscal year 2020.

•Intersegment costs and expenses for fiscal year 2021 were $11.2 million lower than fiscal year 2020.

Lemon Packing

Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For fiscal year 2021, our lemon packing segment revenue was $43.2 million compared to $50.2 million for fiscal year 2020. The 14% decrease of $7.1 million was primarily due to decreased volume of lemons packed.

Costs and expenses associated with our lemon packing segment consist of the cost to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. For fiscal year 2021, our lemon packing costs and expenses were $36.0 million compared to $42.6 million for fiscal year 2020. The 15% decrease of $6.5 million was primarily due to decreased volume of lemons packed.

Lemon packing segment operating income per carton sold was $1.63 and $1.39 for fiscal years 2021 and 2020, respectively.

The lemon packing segment included $25.6 million and $36.8 million of intersegment revenues for fiscal years 2021 and 2020, respectively, which were charged to the fresh lemons segment to pack lemons for sale. Such intersegment revenues and expenses are eliminated in our consolidated financial statements.

Avocados

For fiscal year 2021, our avocados segment revenue was $6.8 million compared to $8.8 million for fiscal year 2020, a 23% decrease of $2.0 million.

Cost and expenses associated with our avocados segment include harvest costs and growing costs. For fiscal year 2021, our avocado costs and expenses were $4.2 million compared to $5.2 million for fiscal year 2020. The 19% decrease of $1.0 million primarily consisted of the following:

•Harvest costs for fiscal year 2021 were $0.4 million lower than fiscal year 2020.

•Growing costs for fiscal year 2021 were $0.5 million lower than fiscal year 2020.

Other Agribusiness

For fiscal year 2021, our other agribusiness segment revenue was $11.6 million compared to $13.6 million for fiscal year 2020. The 14% decrease of $1.9 million primarily consisted of the following:

•Orange revenue for fiscal year 2021 was $3.3 million lower than fiscal year 2020.

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•Specialty citrus and other crop revenue for fiscal year 2021 was $1.4 million higher than fiscal year 2020.

Costs and expenses associated with our other agribusiness segment include harvest, growing and purchased fruit costs. Our other agribusiness costs and expenses for fiscal year 2021 were $9.2 million compared to $12.1 million for fiscal year 2020. The 24% decrease of $3.0 million primarily consisted of the following:

•Harvest costs for fiscal year 2021 were $0.3 million lower than fiscal year 2020.

•Growing costs for fiscal year 2021 were $0.8 million lower than fiscal year 2020.

•Purchased fruit costs for fiscal year 2021 were $1.9 million lower than fiscal year 2020.

Total agribusiness depreciation and amortization for fiscal year 2021 was $8.6 million compared to $8.9 million in fiscal year 2020. The 4% decrease of $0.3 million was primarily due to reduced amortization as a result of selling and licensing certain intangible assets of Trapani Fresh to FGF in March 2021.

Corporate and Other

Our corporate and other operations had rental revenues of approximately $4.6 million in fiscal years 2021 and 2020.

Costs and expenses in our corporate and other operations were approximately $22.7 million and $25.1 million in fiscal years 2021 and 2020, respectively, and include rental operations costs and selling, general and administrative expenses not allocated to the operating segments. Depreciation and amortization expenses were approximately $1.2 million in fiscal years 2021 and 2020. Additionally, loss on disposal of assets for fiscal years 2021 and 2020 was $0.1 million and $0.5 million, respectively.

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash and cash flows generated from our operations and use of our revolving credit facility. Our liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events and demand for our products. Typically, our first and last fiscal quarters coincide with the fall and winter months during which we are growing crops that are harvested and sold in the spring and summer, which are our second and third quarters. To meet working capital demand and investment requirements of our agribusiness and real estate development projects and to supplement operating cash flows, we utilize our revolving credit facility to fund agricultural inputs and farm management practices until sufficient returns from crops allow us to repay amounts borrowed. Raw materials needed to propagate the various crops grown by us consist primarily of fertilizer, herbicides, insecticides, fuel and water, all of which are readily available from local sources.

Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term fixed rate and variable rate debt and related interest payments, operating and finance leases and our noncontributory, defined benefit pension plan (“the Plan”). In fiscal year 2021, we decided to terminate the Plan effective December 31, 2021. The liabilities disclosed as of October 31, 2021, reflect an estimate of the additional cost to pay lump sums to a portion of the active and vested terminated participants and purchase annuities for all remaining participants from an insurance company. See Notes 12, 13 and 17 to the consolidated financial statements included in this Annual Report for amounts outstanding on October 31, 2021, related to debt, leases and the Plan. Purchase obligations consist of contracts primarily related to packing supplies and pollination services, the majority of which are due in the next three years.

We believe that the cash flows from operations and available borrowing capacity from our existing credit facilities will be sufficient to satisfy our capital expenditures, debt service, working capital needs and other contractual obligations for the next twelve months. In addition, we have the ability to control a portion of our investing cash flows to the extent necessary based on our liquidity demands.

Cash Flows from Operating Activities

For the fiscal years ended October 31, 2021, 2020 and 2019, net cash provided by (used in) operating activities was $9.6 million, $(11.3) million and $1.4 million, respectively. Our cash flow provided by operating activities is primarily from agricultural sales and rental operations. Cash flow used in operations generally consists of agribusiness costs, rental operation costs, selling, general and administrative expenses. The significant components of our cash flows provided by operating activities are as follows:

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•Net loss was $(3.9) million and $(17.9) million for fiscal years 2021 and 2020, respectively. The components of net loss in fiscal year 2021 compared to fiscal year 2020 consist of an decrease in operating loss of $12.7 million, an increase in total other income (expense) of $9.6 million and a decrease in income tax benefit of $8.2 million.

•The adjustments to reconcile net loss to net cash provided by (used in) operating activities provided $10.2 million of cash in fiscal year 2021 compared to providing $17.6 million of cash in fiscal year 2020, primarily due to significant changes in loss on stock in Calavo, equity in earnings of investments, net and deferred income taxes.

•The changes in operating assets and liabilities, net of business combinations provided $3.3 million of operating cash in fiscal year 2021 compared to using $11.0 million of operating cash in fiscal year 2020, primarily due to significant changes in accounts receivable and receivables/other from related parties, cultural costs, income tax receivable, and accounts payable and growers and suppliers payable.

Cash Flows from Investing Activities

For the years ended October 31, 2021, 2020 and 2019, net cash (used in) provided by investing activities was $(10.2) million, $3.8 million and $(23.7) million, respectively, and is primarily comprised of capital expenditures, business acquisitions, sales of assets and investments.

•Capital expenditures for fiscal year 2021 were comprised of $9.8 million for property, plant and equipment primarily related to orchard and real estate development projects. Additionally, in fiscal year 2021 we invested $0.7 million in mutual water companies and water rights.

•Capital expenditures for fiscal year 2020 were comprised of $10.6 million for property, plant and equipment primarily related to orchard and real estate development projects. Additionally, in fiscal year 2020, we received proceeds from sale of stock in Calavo of $11.0 million, proceeds from sales of property assets of $6.3 million and contributed $2.8 million to LLCB for the development of our East Area I real estate development project.

Cash Flows from Financing Activities

For the years ended October 31, 2021, 2020 and 2019 net cash provided by financing activities was $0.5 million, $7.4 million and $22.4 million, respectively.

•The $0.5 million of cash provided by financing activities for fiscal year 2021 is primarily comprised of net borrowings of long-term debt in the amount of $7.1 million. Additionally, we paid common and preferred dividends, in aggregate, of $5.8 million and paid $0.7 million for the exchange of common stock related to our employees restricted stock awards.

•The $7.4 million of cash provided by financing activities for fiscal year 2020 is primarily comprised of net borrowings of long-term debt in the amount of $17.0 million. Additionally, we paid common and preferred dividends, in aggregate, of $5.9 million and purchases of shares of our common stock of $3.5 million under our share repurchase program in fiscal year 2020.

Transactions Affecting Liquidity and Capital Resources

Credit Facilities and Long-Term Debt

We finance our working capital and other liquidity requirements primarily through cash from operations and our Farm Credit West Credit Facility, which includes the MLA, Supplements and Revolving Equity Line of Credit (the "RELOC"). In addition, we have the Farm Credit West term loans, Banco de Chile term loans and COVID-19 loans, and a note payable to the sellers of a land parcel. Additional information regarding these loans and the note payable can be found in Note 12 to the consolidated financial statements included in this Annual Report.

In June 2021, we entered into the MLA with Lender dated June 1, 2021, together with the Supplements and a Fixed Interest Rate Agreement. The MLA governs the terms of the Supplements. The MLA amends and restates the previous Master Loan Agreement between our Company and the Lender, dated June 19, 2017, and extends the principal repayment to July 1, 2026.

The Supplements and RELOC provide aggregate borrowing capacity of $130.0 million comprised of $75.0 million under the Revolving Credit Supplement, $40.0 million under the Non-Revolving Credit Supplement and $15.0 million under the RELOC. As of October 31, 2021, our outstanding borrowings under the Farm Credit West Credit Facility were $111.3 million and we had $18.7 million of availability.

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The MLA subjects us to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets of our business. We are also subject to a financial covenant that requires us to maintain compliance with a specified debt service coverage ratio on an annual basis. In December 2021, the Lender modified the covenant to defer measurement at October 31, 2021 and revert to a debt service coverage ratio of 1.25:1.0 measured as of October 31, 2022.

In August 2021, we entered into the FCW term loan with the Lender and used the proceeds to pay off the Wells Fargo term loan. The FCW term loan has a fixed interest rate of 3.19% and is payable in monthly installments through September 2026.

In fiscal years 2021 and 2020 we received annual patronage dividends of $1.2 million and $1.6 million, respectively, from Farm Credit West.

Treasury Stock

In fiscal year 2021, our Company's Board of Directors approved a share repurchase program authorizing us to repurchase up to $10.0 million of our outstanding shares of common stock through September 2022; no shares have been repurchased under this program. In fiscal year 2020, we repurchased 250,977 shares for $3.5 million under a program which expired in March 2021.

Dividends

The holders of the Series B Convertible Preferred Stock (the “Series B Stock”) and the Series B-2 Preferred Stock (the “Series B-2 Preferred Stock”) are entitled to receive cumulative cash dividends. Such preferred dividends paid totaled $0.5 million in each of the fiscal years 2021 and 2020.

Cash dividends declared in each of the fiscal years 2021 and 2020 totaled $0.30 per common share and such dividends paid totaled $5.3 million and $5.4 million for fiscal years 2021 and 2020, respectively.

Real Estate Development Activities and Related Capital Resources

As noted under “Transactions Affecting Liquidity and Capital Resources,” we have the ability to control a portion of our investing cash flows to the extent necessary based upon our liquidity demands. In order for our real estate development operations to reach their maximum potential benefit to us, however, we will need to be successful over time in identifying other third party sources of capital to collaborate with us to move those development projects forward. While we are frequently in discussions with potential external sources of capital in respect to all of our development projects, current market conditions for California real estate projects make it difficult to predict the timing and amounts of future capital that will be required to complete the development of our projects.

In November 2015, we entered into a joint venture with Lewis for the residential development of our East Area I real estate development project. To consummate the transaction, we formed LLCB as the development entity, contributed our East Area I property to the joint venture and sold a 50% interest in the joint venture to Lewis for $20.0 million. We expect to receive approximately $100.0 million from LLCB over the estimated 10 to 12-year life of the project including $20.0 million received on the consummation of LLCB. LLCB's partners will share in capital contributions to fund project costs until loan proceeds and/or revenues are sufficient to fund the project. Since inception each partner has made funding contributions of $21.4 million, including $2.8 million in fiscal year 2020. The first phase of the project broke ground to commence mass grading in November 2017. Project plans currently include approximately 1,500 residential units and site improvements to be completed. Lot sales representing 232 and 144 residential units closed in fiscal years 2021 and 2020, respectively, and 586 residential units have closed from the project's inception to October 31, 2021.

Trend Information

The commodity pricing for our fresh produce, and therefore our revenues and margins, is significantly impacted by consumer demand. The worldwide fresh produce industry has historically enjoyed consistent underlying demand and favorable growth dynamics. In recent years, the market for fresh produce has increased faster than the rate of population growth, supported by ongoing trends including greater consumer demand for healthy, fresh and convenient foods, increased retailer square footage devoted to fresh produce, and greater emphasis on fresh produce as a differentiating factor in attracting customers. Health-conscious consumers are driving much of the growth in demand for fresh produce. Over the past several decades, the benefits of natural,

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preservative-free and organic foods have become an increasingly significant element of the public dialogue on health and nutrition. As a result, consumption of fresh fruit and vegetables has markedly increased. Conversely, a decrease in demand, as was seen during the COVID-19 pandemic as a result of restaurant closures, has the impact of reducing our pricing and therefore our revenues and margins.

Off-Balance Sheet Arrangements

As discussed in Note 7 – Real Estate Development and Note 8 – Equity in Investments of the notes to consolidated financial statements included in this Annual Report, we have investments in joint ventures and partnerships that are accounted for using the equity method of accounting.

Critical Accounting Estimates

The preparation of our consolidated financial statements in accordance with GAAP requires us to develop critical accounting policies and make certain estimates, assumptions and judgments that may affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates and judgments on historical experience, available relevant data and other information that we believe to be reasonable under the circumstances, and we continue to review and evaluate these estimates. Actual results may materially differ from these estimates under different assumptions or conditions as new or additional information become available in future periods. For further information on significant accounting policies, see discussion in Note 2 to the consolidated financial statements included in this Annual Report.

Impairment of Real Estate Development Projects – We evaluate our real estate development projects, held either by us or as included specifically within our investment in LLCB, for impairment on an ongoing basis. Our evaluation for impairment involves an initial assessment of each real estate development project to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of, or investment in, real estate development are no longer recoverable. Possible indications of impairment may include events or changes in circumstances affecting the entitlement process, zoning, government regulation, geographical demand for new housing or commercial property, and market conditions related to residential or commercial land lots. When events or changes in circumstances exist, we further evaluate the real estate development for impairment by a) comparing undiscounted future cash flows expected to be generated over the life of the real estate development to the respective carrying amount for its own real estate development or b) determining if its equity in investment has incurred an other-than-temporary decline.

We make significant judgments in evaluating each real estate development project, as held by us or within our investment in LLCB, for possible indications of impairment. These judgments may relate to the identification of appropriate and comparable market prices, the consideration of changes to legal factors or the business climate, the likelihood of successfully completing the entitlement process, changes in zoning or government regulation, and demand for new housing. Changes in these judgments could have a significant impact on real estate development or equity in investments. For fiscal years 2021, 2020 and 2019, no impairment loss has been recognized on any real estate development and no other-than-temporary-impairment has been recognized on our equity in LLCB.

The impairment calculation for real estate developments held by us compares the carrying value of the asset to the asset’s estimated future cash flows (undiscounted). If the estimated future cash flows are less than the carrying value of the asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, which may be based on estimated future cash flows (discounted). We recognize an impairment loss equal to the amount by which the asset’s carrying value exceeds the asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset will be its new cost basis. Restoration of a previously recognized impairment loss is prohibited. If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed to impairment losses that could be material to our results of operations.

Whenever events or changes in circumstances indicate that the carrying amount of our equity investment in LLCB might not be recoverable, then we determine whether an impairment is other-than-temporary. If we conclude the impairment is other-than-temporary, we determine the estimated fair value of the investment by performing a discounted cash flow or market approach analysis and recognize an other-than-temporary impairment to reduce the investment to its estimated fair value.

We believe that the accounting estimate related to impairment of real estate development projects held by us, or other-than-temporary impairment of our equity investment in LLCB, is a critical accounting estimate because it is very susceptible to change from period to period; it requires management to make assumptions about future prices, production, and costs, and the potential impact of a loss from impairment could be material to our earnings. Management’s assumptions regarding future cash flows from

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real estate development projects or return on equity of our investment in LLCB have fluctuated in the past due to changes in prices, production and costs and are expected to continue to do so in the future as market conditions change.

Recent Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in this Annual Report for information concerning recent accounting pronouncements.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Borrowings under the Farm Credit West Credit Facility and Farm Credit West Term Loans are or will be subject to variable interest rates. These variable interest rates subject us to the risk of increased interest costs associated with any upward movements in interest rates. For the Farm Credit West Credit Facility and Farm Credit West Term Loans, our borrowing interest rate is an internally calculated rate based on Farm Credit West’s internal monthly operations and their cost of funds and generally follows the changes in the 90-day treasury rates in increments divisible by 0.25%. At October 31, 2021, our total debt outstanding under the Farm Credit West Credit Facility and the Farm Credit West Term Loans was $111.3 million and $18.2 million, respectively.

From time to time we enter into interest rate swap agreements to manage risks and costs associated with our financing activities.

Based on our level of borrowings at October 31, 2021, a 100 basis points increase in interest rates would increase our interest expense $0.7 million for fiscal year 2022 and an annual average of $0.8 million for the three subsequent fiscal years. Additionally, a 100 basis points increase in the interest rate would decrease our net income by $0.5 million for fiscal year 2022 and an annual average of $0.6 million for the three subsequent fiscal years. Refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for additional information.

42

Item 8. Financial Statements and Supplementary Data

Limoneira Company

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm 44

Consolidated Financial Statements of Limoneira Company

Notes to Consolidated Financial Statements 52

All schedules are omitted for the reason that they are not applicable or the required information is included in the Consolidated Financial Statements or the notes thereto.

43

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Limoneira Company

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Limoneira Company and subsidiaries (the "Company") as of October 31, 2021 and 2020, the related consolidated statements of operations, comprehensive (loss) income, stockholders' equity and temporary equity, and cash flows, for each of the three years in the period ended October 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, based on our audits and the report of the other auditors, the financial statements present fairly, in all material respects, the financial position of the Company as of October 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We did not audit the financial statements of Limoneira Lewis Community Builders, LLC (“LLCB”), the Company's investment in which is accounted for by use of the equity method. The accompanying consolidated financial statements of the Company include, before the basis difference and related amortization discussed in Note 8, its equity investment in LLCB of $51,416,000 and $46,908,000 as of October 31, 2021 and 2020, respectively, and its equity earnings in LLCB of $4,508,000, $1,386,000 and $4,368,000 for the years ended October 31, 2021, 2020 and 2019, respectively. The financial statements of LLCB were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the Company’s equity investment and equity earnings in LLCB, is based on the report of the other auditors.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 31, 2021, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Real Estate Development – Impairment Indicators – Refer to Notes 2, 5, 7 and 8 to the financial statements

Critical Audit Matter Description

The Company’s evaluation of real estate development, as held by the Company or as included specifically within its investment in Limoneira Lewis Community Builders, LLC (“LLCB”), for impairment involves an initial assessment of each real estate

44

development to determine whether events or changes in circumstances exist that may indicate that the carrying amounts of, or investment in, real estate development are no longer recoverable. Possible indications of impairment may include events or changes in circumstances affecting the entitlement process, zoning, government regulation, geographical demand for new housing or commercial property, and market conditions related to pricing of residential or commercial land lots. When events or changes in circumstances exist, the Company further evaluates the real estate development for impairment by a) comparing undiscounted future cash flows expected to be generated over the life of the real estate development to the respective carrying amount for its own real estate development or b) determining if its equity in investment has incurred an other-than-temporary decline.

The Company makes significant judgments in evaluating real estate development for possible indications of impairment. These judgments may relate to the identification of appropriate and comparable market prices, the consideration of changes to legal factors or the business climate, the likelihood of successfully completing the entitlement process, changes in zoning or government regulation, and demand for new housing. Changes in these judgments could have a significant impact on real estate development. Real estate development assets were $22,828,000, and equity in investment in LLCB was $60,216,000 as of October 31, 2021. For the year ended October 31, 2021, no impairment loss has been recognized on any real estate development and no other-than-temporary-impairment has been recognized on the Company’s equity in LLCB.

We identified the management judgments used in the determination of impairment indicators for real estate development as a critical audit matter due to their significance and because of the subjectivity used by management when determining whether events or changes in circumstances have occurred indicating that the carrying amounts of, or investment in, real estate development may not be recoverable. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately identified impairment indicators.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the evaluation of real estate development for possible indications of impairment included the following, among others:

•We tested the effectiveness of the controls over management’s identification of possible circumstances that may indicate that real estate development is no longer recoverable, including controls over management’s evaluation of the entitlement process, litigation, changes in zoning, government regulation, geographical demand for new housing or commercial property and market conditions related to pricing of residential or commercial land lots.

▪We evaluated management’s impairment analysis by:

◦Searching for adverse asset-specific and/or market conditions by reviewing publicly available information on home values and land values in the surrounding regions of the development, periodicals and news information relating to the Southern California housing market, other independent market data, including considerations of the demand for housing in the market and changes to comparable home prices

◦Obtaining information from legal counsel and performing inquiries with management in order to evaluate any changes in the status of litigation matters affecting the development properties and the potential impact on the ability to recover the accumulated costs, including any relevant government regulations and/or other matters impacting the entitlement process

◦With the assistance of our fair value specialists, we evaluated comparable land sales for both commercial and residential lots in the area as well as cost to develop residential lot information and compared it to information used by management

◦Developing an independent expectation of impairment indicators and comparing such expectation to management’s analysis

/s/ Deloitte & Touche LLP

Los Angeles, California

January 10, 2022

We have served as the Company’s auditor since 2019.

45

LIMONEIRA COMPANY

CONSOLIDATED BALANCE SHEETS

($ in thousands, except share amounts)

October 31,

Assets

Current assets:

Prepaid expenses and other current assets 10,709 10,688

Receivables/other from related parties 5,958 2,294

Income taxes receivable — 5,911

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of long-term debt 2,472 3,277

Long-term liabilities:

Commitments and contingencies — —

Stockholders' equity:

Accumulated other comprehensive loss (5,733) (7,548)

Total liabilities and stockholders' Equity $ 392,276 $ 389,600

See Notes to Consolidated Financial Statements.

46

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except share amounts)

Years Ended October 31,

Net revenues:

Costs and expenses:

Other income (expense):

Interest expense, net of patronage dividends (1,501) (2,048) (2,341)

Loss on stock in Calavo Growers, Inc. — (6,299) (2,117)

Loss (income) attributable to noncontrolling interest 456 1,506 (477)

Net loss attributable to Limoneira Company (3,441) (16,435) (5,943)

Net loss applicable to common stock $ (3,942) $ (16,936) $ (6,444)

Basic net loss per common share $ (0.23) $ (0.96) $ (0.37)

Diluted net loss per common share $ (0.23) $ (0.96) $ (0.37)

See Notes to Consolidated Financial Statements.

47

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

Years Ended October 31,

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments (685) (707) (1,103)

Residual state tax effects on sale of equity securities — 140 —

Total other comprehensive income (loss), net of tax 1,815 (293) (1,710)

Comprehensive loss attributable to noncontrolling interest 445 1,536 438

See Notes to Consolidated Financial Statements.

48

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY

($ in thousands)

Stockholders’ Equity Temporary Equity

Shares Amount Capital Earnings Income (Loss) Stock Interest Total Stock Stock

Dividends - common ($0.30 per share) — — — (5,331) — — — (5,331) — —

Dividends - Series B ($8.75 per share) — — — (129) — — — (129) — —

Dividends - Series B-2 ($40 per share) — — — (372) — — (372) — —

Exchange of common stock (36,692) — (606) — — — — (606) — —

Acquired noncontrolling interest — — — — — — 14,410 14,410 — —

Other comprehensive loss, net of tax — — — — (1,710) — (39) (1,749) — —

Reclassification upon adoption of ASU 2018-02 — — — (1,411) 1,411 — — — — —

Dividends - common ($0.30 per share) — — — (5,356) — — — (5,356) — —

Dividends - Series B ($8.75 per share) — — — (129) — — — (129) — —

Dividends - Series B-2 ($40 per share) — — — (372) — — — (372) — —

Exchange of common stock (11,314) — (213) — — — — (213) — —

Noncontrolling interest adjustment — — — — — — (145) (145) — —

Other comprehensive loss, net of tax — — — — (293) — (30) (323) — —

Dividends - common ($0.30 per share) — — — (5,303) — — — (5,303) — —

Dividends - Series B ($8.75 per share) — — — (129) — — — (129) — —

Dividends - Series B-2 ($40 per share) — — — (372) — — — (372) — —

Exchange of common stock (46,993) (1) (700) — — — — (701) — —

Noncontrolling interest adjustment — — — — — — (1,331) (1,331) — —

Other comprehensive (loss) income, net of tax — — — — 1,815 — 11 1,826 — —

See Notes to Consolidated Financial Statements

49

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Years Ended October 31,

Operating activities

Non-cash lease expense 520 470 —

Equity in earnings of investments, net (3,203) (339) (3,073)

Cash distributions from equity investments 219 — 351

Loss on stock in Calavo Growers, Inc. — 6,299 2,117

Changes in operating assets and liabilities, net of business combinations:

Prepaid expenses and other current assets (1,021) (44) (2,548)

Accounts payable and growers and suppliers payable 5,389 (5,545) 3,392

Accrued liabilities and payables to related parties (730) (685) 1,459

Net cash provided by (used in) operating activities 9,605 (11,317) 1,365

Investing activities

Net proceeds from sales of real estate development assets — — 2,886

Agriculture property acquisition — — (397)

Business combination — — (15,000)

Net proceeds from sale of stock in Calavo Growers, Inc. — 11,048 4,785

Loan to Limoneira Lewis Community Builders, LLC — (1,800) —

Collection on loan and note receivable 25 1,800 150

Equity investment contributions — (2,800) (4,000)

Cash distribution from equity investment 106 — 283

Investments in mutual water companies and water rights (653) (64) (472)

50

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Years Ended October 31,

Financing activities

Principal paid on finance lease (18) — —

Purchase of treasury stock — (3,493) —

Payments of deferred financing costs — (66) (35)

Effect of exchange rate changes on cash 36 (5) (137)

Net (decrease) increase in cash (62) (115) 7

Supplemental disclosures of cash flow information

Non-cash investing and financing activities:

Non-cash reduction of note receivable $ — $ — $ 89

Capital expenditures accrued but not paid at year-end $ 657 $ 4,269 $ 1,333

In December 2018, the Company terminated its lease agreement with LLCB (as defined herein) that is developing the East Area I real estate development project. As a result, the Company reduced its sale lease-back deferral and corresponding real estate development by $58,330,000 and reclassified $33,353,000 of the Company’s basis in the joint venture from real estate development to equity in investments as further described in Note 7 - Real Estate Development and Note 8 - Equity in Investments of the notes to consolidated financial statements included in this Annual Report.

See Notes to Consolidated Financial Statements.

51

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Limoneira Company (together with its consolidated subsidiaries, the “Company”)engages primarily in growing citrus and avocados, picking and hauling citrus, and packing, marketing and selling lemons. The Company is also engaged in residential rentals and other rental operations and real estate development activities.

The Company markets and sells lemons directly to food service, wholesale and retail customers throughout the United States, Canada, Asia, Europe and other international markets. The Company is a member of Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative, and sells its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.

The Company sells the majority of its avocado production to Calavo Growers, Inc. (“Calavo”), a packing and marketing company listed on the NASDAQ Global Select Market under the symbol CVGW. Calavo’s customers include many of the largest retail and food service companies in the United States and Canada. Calavo packs the Company's avocados, which are then sold and distributed under Calavo brands to its customers.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which the Company holds a controlling interest. The consolidated financial statements represent the consolidated balance sheets, statements of operations, statements of comprehensive loss, statements of stockholders’ equity and temporary equity and statements of cash flows of Limoneira Company and consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Company considers the criteria established under the Financial Accounting Standards Board (“FASB”) – Accounting Standards Code (“ASC”) 810, Consolidations, and the effect of variable interest entities, in its consolidation process.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounts Receivable

The Company grants credit in the course of its operations to cooperatives, companies and lessees of the Company’s facilities. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides allowances on its receivables as required based on accounts receivable aging and other factors. At October 31, 2021 and 2020 the allowances totaled $444,000 and $812,000, respectively. For fiscal years 2021, 2020 and 2019, credit losses were insignificant.

Concentrations and Geographic Information

The Company sells the majority of its avocado production to Calavo. Sales of avocados to Calavo were $6,594,000, $8,806,000 and $3,080,000 in fiscal years 2021, 2020 and 2019, respectively. The Company sells the majority of its oranges and specialty citrus to a third-party packinghouse.

Concentrations of credit risk with respect to revenues and trade receivable are limited due to a large, diverse customer base. Two customers each represented 10% of revenue for the year ended October 31, 2021 and one customer represented 10% of revenue for the year ended October 31, 2020. No individual customer represented more than 10% of accounts receivable, net as of October 31, 2021 and one customer represented more than 10% of accounts receivable, net as of October 31, 2020.

Lemons procured from third-party growers were approximately 52%, 60% and 60% of the Company's lemon supply in fiscal years 2021, 2020 and 2019, respectively. One third-party grower was 46% and 39% of grower payable at October 31, 2021 and 2020, respectively.

The Company maintains its cash in federally insured financial institutions. The account balances at these institutions periodically exceed Federal Deposit Insurance Corporation (“FDIC”) insurance coverage and, as a result, there is a concentration of risk related to amounts on deposit in excess of FDIC insurance coverage.

52

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Concentrations and Geographic Information (continued)

During fiscal years 2021, 2020 and 2019, the Company had approximately $2,976,000, $3,521,000 and $3,204,000, respectively, of total sales in Chile by Fruticola Pan de Azucar S.A. (“PDA”) and Agricola San Pablo SpA. ("San Pablo").

During fiscal years 2021, 2020 and 2019, the Company had approximately $3,633,000, $14,150,000 and $14,651,000, respectively, of total sales in Argentina by Trapani Fresh.

The majority of the Company's avocados, oranges and specialty citrus and other crops are sold to packinghouses and processors located in the United States. Most of its long-lived assets are located within the United States. Long-lived assets, net of accumulated depreciation, located in Chile were $14,322,000 and $15,261,000 as of October 31, 2021 and 2020, respectively, and located in Argentina were $19,700,000 and $18,576,000 as of October 31, 2021 and 2020, respectively.

Cultural Costs

Growing costs, also referred to as cultural costs, consist of orchard maintenance costs such as cultivation, fertilization and soil amendments, pest control, pruning and irrigation. Harvest costs are comprised of labor and equipment expenses incurred to harvest and deliver crops to the packinghouses.

Certain of the Company's crops have distinct growing periods and distinct harvest and selling periods, each of which lasts approximately four to eight months. During the growing period, cultural costs are capitalized as they are associated with benefiting and preparing the crops for the harvest and selling period. During the harvest and selling period, harvest costs and cultural costs are expensed when incurred and capitalized cultural costs are amortized as components of agribusiness costs and expenses.

Due to climate, growing conditions and the types of crops grown, certain of the Company's other crops may be harvested and sold on a year-round basis. Accordingly, the Company does not capitalize cultural costs associated with these crops and therefore such costs, as well as harvest costs associated with these crops, are expensed to operations when incurred as components of agribusiness costs and expenses.

Most cultural costs, including amortization of capitalized cultural costs, and harvest costs are associated with and charged to specific crops. Certain other costs, such as property taxes, indirect labor, including farm supervision and management, and irrigation that benefit multiple crops are allocated to crops on a per acre basis.

Income Taxes

Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Property, Plant and Equipment

Property, plant and equipment is stated at original cost, net of accumulated depreciation. Depreciation is computed using the straight-line method at rates based upon the estimated useful lives of the related assets as follows (in years):

Land improvements 10 – 30

Buildings and building improvements 10 – 50

Equipment 5 – 20

Orchards and vineyards 20 – 40

53

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Property, Plant and Equipment (continued)

Costs of planting and developing orchards are capitalized until the orchards become commercially productive. Planting costs consist primarily of the costs to purchase and plant nursery stock. Orchard development costs consist primarily of maintenance costs of orchards such as cultivation, pruning, irrigation, labor, pest control and fertilization, and interest costs during the development period. The Company ceases the capitalization of costs and commences depreciation when the orchards become commercially productive and orchard maintenance costs are accounted for as cultural costs as described above.

Capitalized Interest

Interest is capitalized on real estate development projects and significant construction in progress using the weighted average interest rate during the fiscal year. Capitalized interest is included in property, plant, and equipment and real estate development assets in the Company’s consolidated balance sheets.

Real Estate Development Costs

The Company capitalizes the planning, entitlement, construction, development costs and interest associated with its various real estate projects. Costs that are not capitalized, which include property maintenance and repairs, general and administrative and marketing expenses, are expensed as incurred. A real estate development project is considered substantially complete upon the cessation of construction and development activities. Once a project is substantially completed, future costs are expensed as incurred. The Company capitalized costs related to its real estate projects of $1,192,000 and $4,034,000 in fiscal years 2021 and 2020, respectively.

Equity in Investments

Investments in unconsolidated joint ventures in which the Company has significant influence but less than a controlling interest, or is not the primary beneficiary if the joint venture is determined to be a Variable Interest Entity (“VIE”), are accounted for under the equity method of accounting and, accordingly, are adjusted for capital contributions, distributions and the Company’s equity in net earnings or loss of the respective joint venture.

Equity Securities

The Company’s equity securities, are stated at fair value with unrealized gains (losses) reported in net income. The Company had no equity securities as of October 31, 2021 and 2020.

Long-Lived and Intangible Assets

Intangible assets consist primarily of customer relationships, trade names and trademarks and a non-competition agreement. The Company’s definite-life intangible assets are being amortized on a straight-line basis over their estimated lives ranging from eight to ten years. Acquired water and mineral rights are indefinite-life assets not subject to amortization. Assets held for sale are carried at the lower of cost or fair value less estimated cost to sell.

The Company evaluates long-lived assets, including its property and equipment, real estate development projects and definite-life intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated fair value or undiscounted future cash flows from the use of an asset are less than the carrying value of that asset, a write-down is recorded to reduce the carrying value of the asset to its estimated fair value. The Company evaluates its indefinite-life intangible assets annually or whenever events or changes in circumstances indicate an impairment of the assets’ value may exist.

COVID-19 Pandemic

There is uncertainty around the breadth and duration of the Company's business disruptions related to the COVID-19 pandemic. The decline in demand for the Company's products beginning the second quarter of fiscal year 2020, which it believes was due to the COVID-19 pandemic, negatively impacted its sales and profitability for the last three quarters of fiscal year 2020 and all of fiscal year 2021. The Company also expects COVID-19 to have some impact to its sales and profitability in future periods. The duration of these trends and the magnitude of such impacts are uncertain and therefore cannot be estimated at this time, as they are influenced by a number of factors, many of which are outside management’s control. The full impact of the COVID-19 pandemic on the Company's results of operations, financial condition, or liquidity, including its ability to comply with debt covenants, for fiscal year 2022 and beyond, is driven by estimates that contain uncertainties.

54

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Goodwill

Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. Goodwill impairment is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. Goodwill impairment testing involves significant judgment and estimates.

Fair Values of Financial Instruments

Accounts receivable, note receivable, accounts payable, growers and suppliers payable and accrued liabilities reported on the Company’s consolidated balance sheets approximate their fair values due to the short-term nature of the instruments.

Based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities, the fair value of long-term debt is approximately equal to its carrying amount as of October 31, 2021 and 2020.

Business Combination and Asset Acquisition

Business combinations are accounted for under the acquisition method in accordance with ASC 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any noncontrolling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. An asset acquisition is accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business combination and are considered a component of the cost of the acquisition in an asset acquisition.

Comprehensive Loss

Comprehensive loss represents all changes in a company’s net assets, except changes resulting from transactions with stockholders. Other comprehensive income or loss primarily includes foreign currency translation items, defined benefit pension items and unrealized gains or losses on available-for-sale securities. Accumulated other comprehensive income (loss) is reported as a component of the Company's stockholders' equity.

The following table summarizes the changes in other comprehensive income (loss) by component (in thousands):

Minimum pension liability adjustments:

Available-for-sale securities:

55

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

The following table summarizes the changes in accumulated other comprehensive income (loss) by component (in thousands):

Foreign Currency

San Pablo and PDA’s functional currency is the Chilean Peso. Their balance sheets are translated to U.S. dollars at exchange rates in effect at the balance sheet date and their income statements are translated at average exchange rates during the reporting period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss).

Aggregate foreign exchange transaction losses realized for the Company's foreign subsidiaries was approximately $646,000 for fiscal year 2021 and are included in selling, general and administrative expenses in the consolidated statements of operations.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from contracts with customers, and recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To achieve that core principle, the Company applies the following steps:

•Identify the contract(s) with a customer;

•Identify the performance obligations in the contract;

•Determine the transaction price;

•Allocate the transaction price to the performance obligations in the contract;

•Recognize revenue when (or as) the entity satisfies a performance obligation.

The Company determines the appropriate method by which it recognizes revenue by analyzing the nature of the products or services being provided as well as the terms and conditions of contracts or arrangements entered into with its customers. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A contract's transaction price is allocated to each distinct good or service (i.e., performance obligation) identified in the contract and each performance obligation is valued based on its estimated relative standalone selling price.

The Company recognizes the majority of its revenue at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as allowances for estimated customer discounts or concessions, where applicable. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period.

Agribusiness revenue - Revenue from lemon sales is generally recognized at a point in time when the customer takes control of the fruit from the Company’s packinghouse, which aligns with the transfer of title to the customer. The Company has elected to treat any shipping and handling costs incurred after control of the goods has been transferred to the customer as agribusiness costs.

56

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

The Company’s avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. The Company’s arrangements with its third-party packinghouses are such that the Company is the producer and supplier of the product and the third-party packinghouses are the Company’s customers. The Company controls the product until it is delivered to the third-party packinghouses at which time control of the product is transferred to the third-party packinghouses and revenue is recognized.

Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment. The Company recorded agribusiness revenues from crop insurance proceeds of $2,311,000 in fiscal year 2019. No proceeds were received in fiscal years 2021 and 2020.

Advertising Expense

Advertising costs are expensed as incurred. Advertising costs were $178,000 and $239,000 in fiscal years 2021 and 2020, respectively, and were not material in fiscal year 2019.

Leases

Accounting for Leases as a Lessee - In its ordinary course of business, the Company enters into leases as a lessee generally for agricultural land and packinghouse equipment. The Company determines if an arrangement is a lease or contains a lease at inception. Operating and finance leases are included in other assets, accrued liabilities and other long-term liabilities on its consolidated balance sheets. Lease right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis. Lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses either its incremental borrowing rate based on the information available at commencement date, or the rate implicit in the lease, if known, in determining the present value of future payments.

Operating lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet as the Company has elected to recognize lease expense for these leases on a straight-line basis over the lease term. The Company has material leases with related parties which are further described in Note 15 - Related-Party Transactions.

Certain of the Company’s agricultural land agreements contain variable costs based on a percentage of the operating results of the leased property. Such variable lease costs are expensed as incurred. These land agreements also contain costs for non-lease components, such as water usage, which the Company accounts for separately from the lease components. For all other agreements, the Company generally combines lease and non-lease components in calculating the ROU assets and lease liabilities. See Note 13 - Leases for additional information.

Accounting for Leases as a Lessor - Leases in which the Company acts as the lessor include land, residential and commercial units and are all classified as operating leases. Certain of the Company’s contracts contain variable income based on a percentage of the operating results of the leased asset. Certain of the Company’s contracts contain non-lease components such as water, utilities and common area services. The Company has elected to not separate lease and non-lease components for its lessor arrangements and the combined component is accounted for entirely under ASC 842, Leases. The underlying asset in an operating lease arrangement is carried at depreciated cost within property, plant, and equipment, net on the consolidated balance sheets. Depreciation is calculated using the straight-line method over the useful life of the underlying asset. The Company recognizes operating lease revenue on a straight-line basis over the lease term.

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 preferred stock. Diluted net loss per common share is calculated using the weighted-average number of common shares outstanding during the period plus the dilutive effect of conversion of unvested, restricted stock and preferred stock. The Series B and Series B-2 convertible preferred shares were anti-dilutive for fiscal years ended October 31, 2021, 2020 and 2019.

Diluted net loss per common share is calculated using the more dilutive method of either the two-class method or the treasury stock method. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends as participating shares are included in computing earnings per share using the treasury stock method. The Company’s unvested, restricted stock awards qualify as participating shares.

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2. Summary of Significant Accounting Policies (continued)

Defined Benefit Retirement Plan

The Company sponsors a defined benefit retirement plan that was frozen in June 2004, and no future benefits have been accrued to participants subsequent to that time. Ongoing accounting for this plan under FASB ASC 715, Compensation – Retirement Benefits, provides guidance as to, among other things, future estimated pension expense, pension liability and minimum funding requirements. This information is provided to the Company by third-party actuarial consultants. In developing this data, certain estimates and assumptions are used, including among other things, discount rate, long-term rate of return and mortality tables.

In fiscal year 2021, the Company decided to terminate the Plan effective December 31, 2021. The liabilities disclosed as of October 31, 2021, reflect an estimate of the additional cost to pay lump sums to a portion of the active and vested terminated participants and purchase annuities for all remaining participants from an insurance company.

During 2021, the Society of Actuaries (SOA) released a new mortality improvement scale table, referred to as MP-2021, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year 2021, the assumed discount rate to measure the pension obligation decreased to 2.6%. The Company used the latest mortality tables released by the SOA through October 2021 to measure its pension obligation as of October 31, 2021 and combined with the assumed discount rate and other demographic assumptions, its pension liability decreased by approximately $2,699,000 as of October 31, 2021. Further changes in any of these estimates could materially affect the amounts recorded that are related to the Company's defined benefit retirement plan.

Recent Accounting Pronouncements

FASB ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and related ASUs

This amendment requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses.

ASU 2016-13 is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted this ASU effective November 1, 2020 and the adoption did not have a material impact on its consolidated financial statements.

FASB ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity

This amendment simplifies accounting for convertible instruments by removing major separation models currently required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.

ASU 2020-06 is effective for public business entities that meet the definition of a SEC filer for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2020. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

3. Acquisitions

Agriculture Property Acquisition

In January 2019, the Company purchased land for use as a citrus orchard for a cash purchase price of $397,000. The acquisition was for 26 acres of agricultural property adjacent to the Company’s orchards in Lindsay, California. This agriculture property acquisition is included in property, plant and equipment on the Company’s consolidated balance sheet.

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3. Acquisitions (continued)

Trapani Fresh Business Combination

On May 30, 2019, the Company acquired a 51% interest in a joint venture, Trapani Fresh, formed with FGF Trapani ("FGF"), a multi-generational, family owned citrus operation in Argentina. To consummate the transaction, the Company formed a subsidiary under the name Limoneira Argentina S.A.U. (“Limoneira Argentina”) as the managing partner and acquired a 51% interest in an Argentine Trust that held a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. Trapani Fresh controls the trust and grows fresh citrus.

Total consideration paid for the Company’s interest in Trapani Fresh was $15,000,000 and transaction costs of approximately $654,000 were included in selling, general and administrative expense during fiscal year 2019. The Company consolidated Trapani Fresh and accounted for the acquisition of Trapani Fresh as a business combination, resulting in FGF’s 49% interest in Trapani Fresh being accounted for as a noncontrolling interest.

In February 2020, FGF agreed to a decrease in the purchase consideration of $152,000 to reflect profits that Limoneira Argentina would have received had the transaction been consummated at the beginning of the 2019 lemon export season. The Company recorded a receivable from FGF, a decrease in noncontrolling interest and a decrease in goodwill.

Below is a summary of the fair value of the net assets acquired on the acquisition date based on a third-party valuation which was updated during the second quarter of fiscal year 2020 (in thousands):

Cultural costs $ 3,270

Land and land improvements 9,520

Buildings and building improvements 870

Total assets acquired 29,113

Noncontrolling interest (14,265)

Goodwill of $123,000 relates to synergies of the operations, was allocated to the fresh lemons segment and was not deductible for tax purposes. Revenue of $14,651,000 and net income of $999,000 of Trapani Fresh were included in the Company’s consolidated statement of operations from the acquisition date to the period ended October 31, 2019. The unaudited, pro forma consolidated statement of operations as if Trapani Fresh had been included in the consolidated results of the Company for the year ended October 31, 2019 would have resulted in revenues of $177,625,000 and net loss of $6,092,000.

In June 2021, the Company entered into an agreement, effective March 1, 2021, to sell and license certain assets of Trapani Fresh to FGF. These assets consist of packing supplies and certain intangible assets related to the packing, marketing, and selling business of Trapani Fresh. The total consideration to be received is approximately $3,900,000 over an 8-year term in 16 equal installments. Payments to be received are secured by FGF’s interest in land parcels at the Santa Clara ranch and consist of a $1,200,000 note receivable and $2,700,000 of royalty payments. There was no material gain or loss recognized on the transaction. In August 2021, the Company entered into several additional agreements whereby the additional 25% interest in Santa Clara was transferred into the trust resulting in the trust now holding a 100% interest in Santa Clara. Trapani Fresh owns and operates the 1,200-acre Santa Clara ranch and now sells the lemons it grows to FGF, who packs, markets, and sells the fruit to its export customers. As a result of this transaction, Trapani Fresh now recognizes lemon revenues at the market price less packinghouse charges to harvest, pack and market the fruit.

4. Fair Value Measurements

Under the FASB ASC 820, Fair Value Measurements 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).

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4. Fair Value Measurements (continued)

At October 31, 2019, the Company owned equity securities consisting of marketable securities in Calavo common stock of 200,000 shares representing approximately 1.1% of Calavo’s outstanding common stock at a stock price of $86.73 per share. These securities were measured at fair value by quoted market prices and changes in fair value were included in the statement of operations. In fiscal year 2020, the Company sold all 200,000 shares of Calavo common stock for a total of $11,048,000, recognizing a loss of $6,299,000. In fiscal year 2019, the Company sold 50,000 shares of Calavo common stock for a total of $4,785,000, recognizing a loss of $2,117,000.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following at October 31 (in thousands):

Prepaid supplies and insurance $ 2,521 $ 2,080

Note receivable and related interest 2,438 2,490

Real estate development held for sale 2,543 2,543

Lemon supplier advances and other 2,298 1,708

6. Property, Plant and Equipment

Property, plant and equipment consists of the following at October 31 (in thousands):

Depreciation expense was $8,883,000, $9,098,000 and $7,944,000 for fiscal years 2021, 2020 and 2019, respectively.

In August 2020, the Company sold property located in Lindsay, California. The Company received net proceeds of $6,011,000 after transaction and other costs, and recorded a loss of approximately $424,000, which is included in loss (gain) on disposal of assets in the consolidated statements of operations.

In September 2019, the Company sold its multi-use Mercantile property consisting of a retail convenience store, gas station, car wash and quick serve restaurant located in Santa Paula, California. The Company received net proceeds of $4,000,000 and recognized a gain of approximately $586,000, which is included in loss (gain) on disposal of assets in the consolidated statement of operations.

7. Real Estate Development

Real estate development assets are comprised primarily of land and land development costs and consist of the following at October 31 (in thousands):

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7. Real Estate Development (continued)

East Area I, Retained Property and East Area II

In fiscal year 2005, the Company began capitalizing the costs of two real estate development projects east of Santa Paula, California, for the development of 550 acres of land into residential units, commercial buildings and civic facilities. In November 2015 (the "Transaction Date"), the Company entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of its East Area I real estate development project. To consummate the transaction, the Company formed Limoneira Lewis Community Builders, LLC (“LLCB”) as the development entity, contributed its East Area I property to LLCB and sold a 50% interest in LLCB to Lewis for $20,000,000.

The Company and the joint venture also entered into a Retained Property Development Agreement on the Transaction Date (the "Retained Property Agreement"). Under the terms of the Retained Property Agreement, the joint venture will transfer certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. The balance in Retained Property and East Area II includes estimated costs incurred by and reimbursable to LLCB of $5,771,000 and $5,300,000 at October 31, 2021 and 2020, respectively, which is included in payables to related parties.

In January 2018, LLCB entered into a $45,000,000 unsecured Line of Credit Loan Agreement and Promissory Note (the “Loan”) with Bank of America, N.A. to fund early development activities. The Loan, as modified and extended, matures February 22, 2023. The interest rate on the Loan is LIBOR plus 2.85%, and is payable monthly. The Loan contains certain customary default provisions and LLCB may prepay any amounts outstanding under the Loan without penalty. The joint venture had an outstanding balance of zero as of October 31, 2021. The Loan has a one year extension option through February 22, 2024 subject to terms and conditions as defined in the agreement, with the maximum borrowing amount reduced to $35,000,000 during the extension period.

In February 2018, certain principals from Lewis and by the Company guaranteed the obligations under the Loan. The guarantee shall continue in effect until all of the Loan obligations are fully paid and the guarantors are jointly and severally liable for all Loan obligations in the event of default by LLCB. The $1,080,000 estimated value of the guarantee was recorded in the Company’s consolidated balance sheets and is included in other long-term liabilities with a corresponding value in equity in investments. The extension had no impact on the Company's guarantee value. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company, which provides for unpaid liabilities of LLCB to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in the joint venture.

In February 2020, the Company and Lewis each loaned $1,800,000 to LLCB at an interest rate of 4.6%, which was repaid in June 2020.

Through October 31, 2021, the joint venture has closed sales of the initial residential lots representing 586 residential units.

Other Real Estate Development Projects

The remaining real estate development parcel within the Templeton Santa Barbara, LLC project is described as Sevilla. In fiscal year 2020, the Company entered into an agreement to sell its Sevilla property for $2,700,000, which is expected to close in the second quarter of fiscal year 2022. After transaction and other costs, the Company expects to receive cash proceeds of approximately $2,550,000 and recognize an immaterial gain upon closing. At October 31, 2021 and 2020, the $2,543,000 carrying value of the property was classified as held for sale and included in prepaid expenses and other current assets.

During December 2017, the Company sold its Centennial property with a net book value of $2,983,000 for $3,250,000. The Company received cash and a $3,000,000 promissory note secured by the property for the balance of the purchase. The promissory note was originally scheduled to mature in December 2019 but has been periodically extended with principal payments totaling $400,000 received through October 31, 2021. In November 2021, the promissory note was further extended to June 30, 2022 upon making a principal paydown of $250,000, which was paid in November 2021, and revising the interest rate to 4.00% per annum, with an option to further extend the maturity date of the promissory note to September 30, 2022 upon making an additional principal paydown of $250,000. At October 31, 2021, the net carrying value of the note was $2,600,000 and classified in prepaid expenses and other current assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. Equity in Investments

Limco Del Mar, Ltd.

The Company has a 1.3% interest in Limco Del Mar, Ltd. (“Del Mar”) as a general partner and a 26.8% interest as a limited partner. Based on the terms of the partnership agreement, the Company may be removed as general partner without cause from the partnership upon the vote of the limited partners owning an aggregate of 50% or more interest in the partnership. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Del Mar is accounted for using the equity method of accounting.

The Company provides Del Mar with farm management, orchard land development and accounting services and received expense reimbursements of $200,000, $210,000 and $159,000 in fiscal years 2021, 2020 and 2019, respectively. Del Mar markets lemons through the Company pursuant to its customary marketing agreements and the amount of lemons procured from Del Mar was $1,681,000, $1,037,000 and $1,674,000 in fiscal years 2021, 2020 and 2019, respectively. Fruit proceeds due to Del Mar were $694,000 and $334,000 at October 31, 2021 and 2020, respectively, and are included in grower’s payable in the accompanying consolidated balance sheets.

Romney Property Partnership

In May 2007, the Company and an individual formed the Romney Property Partnership (“Romney”) for the purpose of owning and leasing an office building and adjacent lot in Santa Paula, California. The Company paid $489,000 in 2007 for 75% interest in Romney. The terms of the partnership agreement affirm the status of the Company as a noncontrolling investor in the partnership since the Company cannot exercise unilateral control over the partnership. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Romney is accounted for using the equity method of accounting. Net profits, losses and cash flows of Romney are shared by the Company, which receives 75% and the individual, who receives 25%.

Rosales S.A.

The Company currently has a 47% equity interest in Rosales S.A, (“Rosales”) of which 35% was acquired in fiscal 2014 and an additional 12% interest was acquired with the purchase of PDA in fiscal 2017. Rosales is a citrus packing, marketing and sales business located in La Serena, Chile. In addition, the Company has the right to acquire the interest of the majority shareholder of Rosales upon death or disability of Rosales’ general manager for the fair value of the interest on the date of the event as defined in the shareholders’ agreement. Since the Company has significant influence, but less than a controlling interest, the Company’s investment in Rosales is accounted for using the equity method of accounting.

Rosales’ functional currency is the Chilean Peso. The following financial information has been translated to U.S. dollars. In addition, as a result of the Company’s acquisition of its equity interest, basis differences were identified between the historical cost of the net assets of Rosales and the proportionate fair value of the net assets acquired. Such basis differences aggregated to $1,683,000 on the acquisition date and are primarily comprised of intangible assets, including $343,000 of equity method goodwill. An additional $925,000 of basis differences were identified with the February 2017 PDA acquisition, including $143,000 of equity method goodwill. The $2,122,000 in basis differences exclusive of goodwill is being amortized over the estimated life of the underlying intangible assets as a reduction in the equity investment and an expense included in equity in earnings (losses) of investments. Amortization amounted to $180,000, $180,000 and $298,000 for fiscal years 2021, 2020 and 2019, respectively, and is estimated to be approximately $118,000 $87,000 and $76,000 per year for years ending October 31, 2022 through October 31, 2024, respectively, and immaterial thereafter.

The Company recognized $3,405,000, $3,975,000 and $3,741,000 of lemon sales to Rosales in fiscal years 2021, 2020 and 2019, respectively. In fiscal years 2021, 2020 and 2019, the aggregate amount of lemons and oranges procured from Rosales was $5,304,000, $3,190,000 and $4,315,000, respectively. Amounts due from (to) Rosales were $1,570,000 and $(954,000) at October 31, 2021 and 2020, respectively, and are included in receivables/other from related parties and payables to related parties, respectively.

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8. Equity in Investments (continued)

Limoneira Lewis Community Builders, LLC (“LLCB”)

As described in Note 7 – Real Estate Development, the Company has a joint venture with Lewis for the residential development of its East Area I real estate development project. In addition to the assessment performed by the Company of its investment in LLCB under the requirements of Regulation S-X Rule 4-08(g), the Company also assessed its investment in LLCB under the requirements of Regulation S-X Rule 3-09(b). LLCB was deemed significant for the years ended October 31, 2021 and 2019 but was not deemed significant for the year ended October 31, 2020. Therefore, the audited financial statements of LLCB for the years ended October 31, 2021, 2020 and 2019 are provided as exhibits to this document to comply with this rule. Additionally, there is a basis difference between the Company’s historical investment in the project and the amount recorded in members’ capital by LLCB of $51,416,000 as of October 31, 2021. The basis difference of $8,801,000 at October 31, 2021 is primarily comprised of capitalized interest, amounts related to the loan guarantee and certain other costs incurred by Limoneira Company during the development period. This basis difference is being amortized as lots are sold utilizing the relative sales value method and the amount amortized in fiscal years 2021, 2020 and 2019 totaled $1,434,000, $1,060,000 and $1,498,000, respectively. The Company's share of LLCB's net income for fiscal years 2021, 2020 and 2019 prior to basis amortization was $4,508,000, $1,386,000 and $4,368,000, respectively.

The following is financial information of the equity method investees for fiscal years 2021, 2020 and 2019 (in thousands):

2021 Del Mar Romney Rosales LLCB

Current liabilities $ — $ — $ 2,362 $ 4,708

Non-current liabilities $ — $ — $ 2,083 $ —

Non-current liabilities $ — $ — $ 1,449 $ —

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. Equity in Investments (continued)

The Company’s investment and equity in earnings (losses) of the equity method investees are as follows (in thousands):

Del Mar Romney Rosales LLCB Total

Investment contributions — — — 4,000 4,000

Capitalized interest adjustment — — — (267) (267)

Reclassification of sale and leaseback deferral — — — 33,353 33,353

Investment contributions — — — 2,800 2,800

Foreign currency adjustments — — (148) — (148)

Foreign currency adjustments — — (20) — (20)

9. Goodwill and Intangible Assets, Net

A summary of the change in the carrying amount of goodwill is as follows (in thousands):

Goodwill Carrying Amount

Trapani Fresh purchase price adjustment (297)

Foreign currency translation adjustment (7)

Foreign currency translation adjustment (8)

See Note 3 - Acquisitions for additional information regarding the Trapani Fresh purchase price adjustment.

Goodwill is tested for impairment on an annual basis or when an event or changes in circumstances indicate that its carrying value may not be recoverable. The Company concluded that no potential impairment indicators existed during any interim period and performed its annual assessment of goodwill impairment as of July 31, 2021 with no impairment noted. The Company did not incur any goodwill impairment losses in fiscal years 2021, 2020 or 2019, as the estimated fair values of its reporting units were in excess of their carrying values.

As of October 31, 2021, the Company has allocated goodwill to its reportable segments as follows: Fresh Lemons $957,000 and Lemon Packing $570,000.

During the fiscal year ended October 31, 2021, the Company acquired additional water rights in Chile for $186,000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. Goodwill and Intangible Assets, Net (continued)

Intangible assets consisted of the following as of October 31, 2021 and 2020 (in thousands):

Intangible assets:

Amortization expense totaled $929,000, $999,000, and $689,000 for the years ended October 31, 2021, 2020 and 2019, respectively.

Estimated future amortization expense of intangible assets for each of the next five fiscal years and thereafter are as follows (in thousands):

10. Other Assets

Investments in Mutual Water Companies

The Company’s investments in various not-for-profit mutual water companies provide the Company with the right to receive a proportionate share of water from each of the not-for-profit mutual water companies that have been invested in and do not constitute voting shares and/or rights. Amounts included in other assets in the consolidated balance sheets as of October 31, 2021 and 2020 were $5,994,000 and $5,563,000, respectively.

11. Accrued Liabilities

Accrued liabilities consist of the following at October 31 (in thousands):

Lemon and orange supplier payables — 1,346

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. Long-Term Debt

Long-term debt is comprised of the following at October 31 (in thousands):

Less deferred financing costs, net of accumulated amortization 131 176

In August 2021, the Company entered into an equipment finance agreement (the "FCW term loan") with Farm Credit West, PCA (the “Lender”) and used the proceeds to pay off the Wells Fargo term loan. The FCW term loan has a fixed interest rate of 3.19% and is payable in monthly installments through September 2026. There were no unamortized debt financing costs related to the Wells Fargo term loan and no capitalized financing costs related to the FCW term loan.

In June 2021, the Company entered into a Master Loan Agreement (the “MLA”) with Lender dated June 1, 2021, together with a revolving credit facility supplement (the “Revolving Credit Supplement”), a non-revolving credit facility supplement (the “Non-Revolving Credit Supplement,” and together with the Revolving Credit Supplement, the “Supplements”) and an agreement to convert to fixed interest rate for a period of time as described in the table above ("Fixed Interest Rate Agreement"). The MLA governs the terms of the Supplements. The MLA amends and restates the previous Master Loan Agreement between the Company and the Lender, dated June 19, 2017 and extends the principal repayment to July 1, 2026. Debt financing costs related to the MLA agreement were immaterial.

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12. Long-Term Debt (continued)

In June 2020, the Company and Farm Credit West entered into a Conversion Agreement to convert the term loans noted above to fixed interest rate loans effective July 1, 2020. No changes were made to the outstanding principal balances on the term loans and the Company made no cash repayments of principal. The rates were subject to a prepayment restriction period for a portion of the fixed rate term that expired on January 1, 2021. The Company may prepay any amounts without penalty.

In March 2020, the Company entered into a revolving equity line of credit promissory note and loan agreement with Farm Credit West for a $15,000,000 Revolving Equity Line of Credit (the "RELOC") secured by a first lien on the Windfall Investors, LLC property. The RELOC matures in 2043 and features a 3-year draw period followed by 20 years of fully amortized loan payments. The interest rate is variable with monthly interest-only payments during the 3-year draw period and monthly principal and interest payments thereafter.

The Supplements and RELOC provide aggregate borrowing capacity of $130,000,000 comprised of $75,000,000 under the Revolving Credit Supplement, $40,000,000 under the Non-Revolving Credit Supplement and $15,000,000 under the RELOC. As of October 31, 2021, the Company's outstanding borrowings under the revolving and non-revolving lines of credit were $111,293,000 and it had $18,707,000 of availability. For amounts outstanding under both Supplements, interest will begin to be charged on the date the Lender disburses principal and will continue until the outstanding indebtedness under the Supplements is paid in full with interest.

The initial interest rate in effect under the Revolving Credit Supplement was 1.69% per annum, and was automatically adjusted commencing July 1, 2021 and on the first day of each month thereafter. The interest rate for any amount outstanding under the Revolving Credit Supplement will be based on the one-month LIBOR rate plus or minus an applicable margin. The applicable margin will range from 1.75% to 2.35% depending on the ratio of current assets, plus the remaining available commitment divided by current liabilities. On July 1, 2022, and on each one-year anniversary thereafter, the Company has the option to convert the interest rate in use under the Revolving Credit Supplement from the preceding LIBOR-based calculation to a variable interest rate. Any amounts outstanding under the Revolving Credit Supplement will be due and payable in full on July 1, 2026. The Company may prepay any amounts outstanding under the Revolving Credit Supplement without penalty.

The initial interest rate in effect under the Non-Revolving Credit Supplement is a fixed interest rate of 4.77% through July 1, 2022 and then will convert to a fixed interest rate of 3.57% per year until July 1, 2025 (the “Fixed Rate Term”). Thereafter, the interest rate will convert to a variable interest rate established by the Lender corresponding to the corresponding interest rate group. Any amount outstanding under the Non-Revolving Credit Supplement is due and payable in full on July 1, 2026. The Company may not prepay any amounts under the outstanding Non-Revolving Credit Supplement during the Fixed Rate Term. Thereafter, the Company may prepay any amounts outstanding under the Non-Revolving Credit Supplement, provided that a fee equal to 0.50% of the amount prepaid and any other cost or loss suffered by the Lender must be paid with any prepayment.

All indebtedness under the MLA and RELOC, including any indebtedness under the Supplements, is secured by a first lien on Company-owned stock or participation certificates, Company funds maintained with Lender, Lender’s unallocated surplus, and certain of the Company’s agricultural properties in Tulare and Ventura counties in California and certain of the Company’s building fixtures and improvements and investments in mutual water companies associated with the pledged agricultural properties. The MLA includes customary default provisions that provide should an event of default occur, the Lender, at its option, may declare all or any portion of the indebtedness under the MLA to be immediately due and payable without demand, notice of nonpayment, protest or prior recourse to collateral, and terminate or suspend the Company’s right to draw or request funds on any loan or line of credit.

The MLA subjects the Company to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets of the Company’s business. The Company is also subject to a financial covenant that requires it to maintain compliance with a specified debt service coverage ratio on an annual basis. In December 2021, the Lender modified the covenant to defer measurement at October 31, 2021 and revert to a debt service coverage ratio of 1.25:1.0 measured as of October 31, 2022.

The Company received annual cash patronage dividends from Farm Credit West of $1,170,000, $1,566,000 and $853,000 in fiscal years 2021, 2020 and 2019, respectively.

In August 2021, PDA and San Pablo entered into term loan agreements for an aggregate amount of approximately $652,000. These small business loans are guaranteed by the Chilean government in response to economic instability caused by the COVID-19 pandemic. The unsecured loans mature in August 2025 and September 2026, bear interest at fixed rates of 3.48% and 4.26%, respectively, and are payable in monthly installments beginning September 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. Long-Term Debt (continued)

In July and September 2020, PDA and San Pablo entered into term loan agreements for an aggregate amount of approximately $522,000. These small business loans are guaranteed by the Chilean government in response to economic instability caused by the COVID-19 pandemic. The unsecured loans mature in July 2024 and September 2024, bear interest at fixed rates of 3.48% and are payable in monthly installments beginning February 2021 and April 2021, respectively.

Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of $1,110,000, $921,000 and $1,369,000 during the fiscal years ended 2021, 2020 and 2019, respectively. Capitalized interest is included in property, plant and equipment and real estate development assets in the Company’s consolidated balance sheets.

The Company incurs certain loan fees and costs associated with its new or amended credit arrangements. Such costs are capitalized as deferred financing costs and amortized as interest expense using the straight-line method over the terms of the credit agreements. The balance of deferred financing costs was $131,000 and $176,000, net of amortization at October 31, 2021 and 2020, respectively, and was included in long-term debt on the Company’s consolidated balance sheet.

Principal payments on the Company’s long-term debt are due as follows (in thousands):

13. Leases

Lessor Arrangements

The Company enters into leasing transactions in which it rents certain of its assets and the Company is the lessor. These lease contracts are typically classified as operating leases with remaining terms ranging from one month to 21 years, with various renewal terms available. All of the residential rentals have month-to-month lease terms.

The following table presents the components of the Company’s operating lease portfolio included in property, plant and equipment, net as of October 31 (in thousands):

Buildings, equipment and building improvements 18,712 18,516

Less: accumulated depreciation (6,331) (5,691)

Property, plant and equipment, net under operating leases $ 15,897 $ 16,347

Depreciation expense for assets under operating leases was approximately $669,000 and $664,000 for the fiscal years 2021 and 2020, respectively.

The Company’s rental operations revenue consists of the following (in thousands):

Year ended October 31,

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LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. Leases (continued)

Lessor Arrangements (continued)

The future minimum lease payments to be received by the Company related to these operating lease agreements as of October 31, 2021 are as follows (in thousands):

The Company’s rental operations revenue included contingent rental revenue of $355,000 for fiscal year 2019.

Lessee Arrangements

The Company enters into leasing transactions in which the Company is the lessee. These lease contracts are classified as either operating or finance leases. The Company’s lease contracts are generally for agricultural land and packinghouse equipment with remaining lease terms ranging from one to 16 years, with various term extensions available. The Company’s lease agreements do not contain any residual value guarantees or material restrictive covenants. Leases with an initial term of 12 months or less are not recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Operating lease costs were $606,000 and $559,000 and variable lease costs were $288,000 and immaterial, for the fiscal years 2021 and 2020, respectively, which are primarily included in agribusiness costs and expenses in the Company’s consolidated statements of operations. Finance lease costs and short term lease costs were immaterial for both years.