LIMONEIRA COMPANY

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED APRIL 30, ~~2018~~2019



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM TO

Commission File Number: 001-34755

LIMONEIRA COMPANY

(Exact name of Registrant as Specified in its Charter)



Delaware	77-0260692
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)



1141 Cummings Road, Santa Paula, CA	93060
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (805) 525-5541



Not Applicable (Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol (s)	Name of Each Exchange of Which Registered
Common Stock, $0.01 par value	LMNR	The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ý Yes ¨ No

Indicate by check mark whether the ~~Registrant~~registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting ~~company”~~company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:



¨ Large accelerated filer	ý Accelerated filer	¨ Emerging growth company
¨ Non-accelerated filer ~~(Do not check if a smaller reporting company)~~	¨ Smaller reporting company
¨ ~~Emerging growth company~~

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes ý No

As of May 31, ~~2018,~~2019, there were ~~14,532,952~~17,772,753 shares outstanding of the registrant’s common stock.

LIMONEIRA COMPANY

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements	4

Consolidated Balance Sheets – April 30, ~~2018~~2019 and October 31, ~~2017~~2018		4

Consolidated Statements of Operations – three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018		5

Consolidated Statements of Comprehensive Income (Loss) – three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018		6

Consolidated Statements of Stockholders' Equity and Temporary Equity – six months ended April 30, 2019 and 2018		7

Consolidated Statements of Cash Flows – six months ended April 30, ~~2018~~2019 and ~~2017~~2018		78

Notes to Consolidated Financial Statements		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3227

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5752

Item 4.	Controls and Procedures	5752

PART II. OTHER INFORMATION		5853

Item 1.	Legal Proceedings	5853

Item 1A.	Risk Factors	5853

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5853

Item 3.	Defaults Upon Senior Securities	5853

Item 4.	Mine Safety Disclosures	5853

Item 5.	Other Information	5853

Item 6.	Exhibits	5954

SIGNATURES		6256

Cautionary Note on Forward-Looking Statements.

This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. Forward-looking statements in this Quarterly Report on Form 10-Q are subject to a number of risks and uncertainties, some of which are beyond the Company’s control. The potential risks and uncertainties that could cause our actual financial condition, results of operations and future performance to differ materially from those expressed or implied include:

changes in laws, regulations, rules, quotas, tariff, and import laws;

adverse weather conditions, natural disasters and other adverse natural conditions, including freezes, rains, fires and droughts that affect the production, transportation, storage, import and export of fresh produce;

market responses to industry volume pressures;

increased pressure from disease, insects and other pests;

disruption of water supplies or changes in water allocations;

product and raw materials supplies and pricing;

energy supply and pricing;

changes in interest and currency exchange rates;

availability of financing for development activities;

general economic conditions for residential and commercial real estate development;

political changes and economic crisis;

international conflict;

acts of terrorism;

labor disruptions, strikes, shortages or work stoppages;

loss of important intellectual property rights; and

other factors disclosed in our public filings with the Securities and Exchange ~~Commission.~~Commission (the "SEC").

The Company’s actual results, performance, prospects or opportunities could differ materially from those expressed in or implied by the forward-looking statements. Additional risks of which the Company is not currently aware or which the Company currently deems immaterial could also cause the Company’s actual results to differ, including those discussed in the section entitled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017.~~2018. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to update these forward-looking statements, even if our situation changes in the future.

The terms the “Company,” “Limoneira”, “we,” “our” and “us” as used throughout this Quarterly Report on Form 10-Q refer to Limoneira Company and its consolidated subsidiaries, unless otherwise indicated.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LIMONEIRA COMPANY

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

($ in thousands, except share amounts)


	April 30, 2018		October 31, 2017		April 30, 2019			October 31, 2018
Assets
Current assets:
Cash	$	493	$	492	$	1,491		$	609
Accounts receivable, net	17,239		10,953		19,960			14,116
Cultural costs	2,021		4,124		2,821			5,413
Prepaid expenses and other current assets	6,560		6,981		11,808			10,528
Income taxes receivable	570		570		—			378
Total current assets	26,883		23,120		36,080			31,044

Property, plant and equipment, net	190,029		188,225		230,592			225,681
Real estate development	93,098		81,082		16,156			107,162
Equity in investments	18,280		14,061		57,470			18,698
Investment in Calavo Growers, Inc.	28,110		22,110		23,953			24,250
Other assets	10,753		10,433		19,034			14,504
Total Assets	$	367,153	$	339,031
Total assets					$	383,285		$	421,339

Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,679	$	6,311	$	10,002		$	6,134
Growers payable	12,324		8,828		17,029			10,089
Accrued liabilities	6,250		5,177		4,828			7,724
Fair value of derivative instrument	40		268
Current portion of long-term debt	3,194		3,030		2,915			3,127
Total current liabilities	27,487		23,614		34,774			27,074
Long-term liabilities:
Long-term debt, less current portion	107,684		102,083		93,744			76,966
Deferred income taxes	22,555		31,415		24,751			25,372
Other long-term liabilities	4,329		3,920		3,347			3,647
Sale-leaseback deferral	38,821		30,396		—			58,330
Total liabilities	200,876		191,428		156,616			191,389
Commitments and contingencies (See Note 16)

Commitments and contingencies	—		—
Series B Convertible Preferred Stock – $100 par value (50,000 shares authorized: 14,790 shares issued and outstanding at April 30, 2018 and October 31, 2017, respectively) (8.75% coupon rate)	1,479		1,479
Series B-2 Convertible Preferred Stock – $100 par value (10,000 shares authorized: 9,300 shares issued and outstanding at April 30, 2018 and October 31, 2017, respectively) (4% dividend rate on liquidation value of $1,000 per share)	9,331		9,331
Series B Convertible Preferred Stock – $100.00 par value (50,000 shares authorized: 14,790 shares issued and outstanding at April 30, 2019 and October 31, 2018) (8.75% coupon rate)					1,479			1,479
Series B-2 Convertible Preferred Stock – $100.00 par value (10,000 shares authorized: 9,300 shares issued and outstanding at April 30, 2019 and October 31, 2018) (4% dividend rate on liquidation value of $1,000 per share)					9,331			9,331

Stockholders’ equity:
Series A Junior Participating Preferred Stock – $.01 par value (20,000 shares authorized: zero shares issued or outstanding at April 30, 2018 and October 31, 2017, respectively)	—		—
Common Stock – $.01 par value (39,000,000 shares authorized: 14,532,952 and 14,405,031 shares issued and outstanding at April 30, 2018 and October 31, 2017, respectively)	145		144
Series A Junior Participating Preferred Stock – $0.01 par value (20,000 shares authorized: zero issued or outstanding at April 30, 2019 and October 31, 2018)					—			—
Common Stock – $0.01 par value (39,000,000 shares authorized: 17,772,753 and 17,647,135 shares issued and outstanding at April 30, 2019 and October 31, 2018, respectively)					178			176
Additional paid-in capital	94,831		94,294		159,992			159,071
Retained earnings	47,849		34,692		59,757			50,354
Accumulated other comprehensive income	12,019		7,076
Accumulated other comprehensive (loss) income					(4,643		)	8,965
Noncontrolling interest	623		587		575			574
Total stockholders’ equity	155,467		136,793		215,859			219,140
Total Liabilities and Stockholders’ Equity	$	367,153	$	339,031
Total liabilities and stockholders’ equity					$	383,285		$	421,339

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except share amounts)


	Three Months Ended April 30,						Six Months Ended April 30,						Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Net revenues:
Agribusiness	$	41,865		$	35,417		$	72,198		$	62,186		$	40,823		$	41,865		$	81,623		$	72,198
Rental operations	1,270			1,476			2,530			2,799			1,212			1,270			2,430			2,530
Real estate development	—			—			—			—			—			—			—			—
Total net revenues	43,135			36,893			74,728			64,985			42,035			43,135			84,053			74,728
Costs and expenses:
Agribusiness	28,798			26,455			56,960			52,799			37,078			28,798			75,994			56,960
Rental operations	976			950			2,041			2,005			1,095			976			2,174			2,041
Real estate development	39			40			69			125			24			39			52			69
Impairments of real estate development assets	—			120			—			120
Selling, general and administrative	3,942			3,116			8,016			6,963			4,843			3,942			9,858			8,016
Total costs and expenses	33,755			30,681			67,086			62,012			43,040			33,755			88,078			67,086
Operating income	9,380			6,212			7,642			2,973
Operating (loss) income													(1,005		)	9,380			(4,025		)	7,642
Other income (expense):
Interest expense, net	(284		)	(417		)	(794		)	(851		)
Interest expense													(686		)	(284		)	(539		)	(794		)
Equity in earnings of investments	(126		)	(141		)	(83		)	(67		)	1,927			(126		)	1,969			(83		)
Unrealized gain (loss) on stock in Calavo Growers, Inc.													3,612			—			(298		)	—
Other income, net	16			40			257			327			56			16			360			257
Total other expense	(394		)	(518		)	(620		)	(591		)
Total other income (expense)													4,909			(394		)	1,492			(620		)

Income before income tax (provision) benefit	8,986			5,694			7,022			2,382
Income (loss) before income tax (provision) benefit													3,904			8,986			(2,533		)	7,022
Income tax (provision) benefit	(2,380		)	(2,158		)	8,207			(918		)	(1,084		)	(2,380		)	677			8,207
Net income	6,606			3,536			15,229			1,464
Net (income) loss attributable to noncontrolling interest	(7		)	4			(5		)	4
Net income attributable to Limoneira Company	6,599			3,540			15,224			1,468
Net income (loss)													2,820			6,606			(1,856		)	15,229
Net income attributable to noncontrolling interest													(5		)	(7		)	(22		)	(5		)
Net income (loss) attributable to Limoneira Company													2,815			6,599			(1,878		)	15,224
Preferred dividends	(126		)	(155		)	(251		)	(310		)	(126		)	(126		)	(251		)	(251		)
Net income attributable to common stock	$	6,473		$	3,385		$	14,973		$	1,158
Net income (loss) attributable to common stock													$	2,689		$	6,473		$	(2,129	)	$	14,973

Basic net income per common share	$	0.45		$	0.24		$	1.04		$	0.08
Basic net income (loss) per common share													$	0.15		$	0.45		$	(0.12	)	$	1.04

Diluted net income per common share	$	0.44		$	0.24		$	1.02		$	0.08

Dividends per common share	$	0.06		$	0.06		$	0.13		$	0.11
Diluted net income (loss) per common share													$	0.15		$	0.44		$	(0.12	)	$	1.02

Weighted-average common shares outstanding-basic	14,379,000			14,269,000			14,341,000			14,236,000			17,554,000			14,379,000			17,516,000			14,341,000
Weighted-average common shares outstanding-diluted	15,023,000			14,719,000			14,986,000			14,236,000			18,225,000			15,023,000			17,516,000			14,986,000

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(In thousands)

Three Months Ended April 30, Six Months Ended
April 30,
2018 2017 2018 2017
Net income $ 6,606
$ 3,536
$ 15,229
$ 1,464
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments 50
(226 ) 293
(226 )
Minimum pension liability adjustment, net of tax of $52, $82, $103 and $164 for the three and six months ended April 30, 2018 and 2017, respectively. 123
126
247
252
Unrealized holding gains on security available-for-sale, net of tax of $589, $1220, $1,758 and $762 for the three and six months ended April 30, 2018 and 2017, respectively. 1,421
1,870
4,242
1,173
Unrealized gains from derivative instrument, net of tax of $25, $71, $67 and $221 for the three and six months ended April 30, 2018 and 2017, respectively. 58
138
161
341
Total other comprehensive income, net of tax 1,652
1,908
4,943
1,540
Comprehensive income 8,258
5,444
20,172
3,004
Comprehensive income attributable to noncontrolling interest 13
4
36
4
Comprehensive income attributable to Limoneira Company $ 8,271
$ 5,448
$ 20,208
$ 3,008



	Three Months Ended April 30,					Six Months Ended April 30,
	2019			2018		2019			2018
Net income (loss)	$	2,820		$	6,606	$	(1,856	)	$	15,229
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(452		)	50		443			293
Minimum pension liability adjustment, net of tax of $28, $52, $55 and $103 for the three and six months ended April 30, 2019 and 2018, respectively.	72			123		146			247
Unrealized holding gains on security available-for-sale, net of tax of $0, $589, $0 and $1,758 for the three and six months ended April 30, 2019 and 2018, respectively.	—			1,421		—			4,242
Unrealized gains from derivative instrument, net of tax of $0, $25, $0 and $67 for the three and six months ended April 30, 2019 and 2018, respectively.	—			58		—			161
Total other comprehensive (loss) income, net of tax	(380		)	1,652		589			4,943
Comprehensive income (loss)	2,440			8,258		(1,267		)	20,172
Comprehensive (income) loss attributable to noncontrolling interest	13			13		1			36
Comprehensive income (loss) attributable to Limoneira Company	$	2,453		$	8,271	$	(1,266	)	$	20,208

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS (UNAUDITED)~~STOCKHOLDERS’ EQUITY AND TEMPORARY EQUITY

(In$ in thousands)

Six Months Ended
April 30,
2018 2017
Operating activities

Net income $ 15,229
$ 1,464
Adjustments to reconcile net income to net cash used in operating activities:

Depreciation and amortization 3,434
3,191
Impairments of real estate development assets —
120
Loss on disposals of assets 193
215
Gain on sales of real estate development assets (25 ) —
Stock compensation expense 939
880
Equity in earnings of investments 83
67
Cash distributions from equity investments —
134
Deferred income taxes (10,781 ) —
Accrued interest on note receivable (83 ) (12 )
Changes in operating assets and liabilities:

Accounts receivable (6,284 ) (5,408 )
Cultural costs 2,112
2,498
Prepaid expenses and other current assets (1,052 ) (524 )
Income taxes receivable —
2,810
Other assets 25
136
Accounts payable and growers payable 2,244
(627 )
Accrued liabilities 1,000
(2,440 )
Other long-term liabilities 49
43
Net cash provided by operating activities 7,083
2,547

Investing activities

Capital expenditures (5,420 ) (5,676 )
Purchase of real estate development parcel (1,444 ) —
Net proceeds from sales of real estate development assets 1,543
—
Business combination —
(5,800 )
Equity investment contributions (3,500 ) (4,450 )
Investments in mutual water companies (16 ) (29 )
Net cash used in investing activities (8,837 ) (15,955 )

Financing activities

Borrowings of long-term debt 41,801
66,866
Repayments of long-term debt (37,564 ) (51,094 )
Dividends paid – common (1,816 ) (1,570 )
Dividends paid – preferred (251 ) (310 )
Exchange of common stock (401 ) (294 )
Net cash provided by financing activities 1,769
13,598
Effect of exchange rate changes in cash (14 ) —
Net increase in cash 1
190
Cash at beginning of period 492
38
Cash at end of period $ 493
$ 228



	Stockholders’ Equity																			Temporary Equity
	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Noncontrolling						Series B Preferred		Series B-2 Preferred
	Shares		Amount		Capital			Earnings			Income (Loss)			Interest			Total			Stock		Stock
Balance at October 31, 2018	17,647,135		$	176	$	159,071		$	50,354		$	8,965		$	574		$	219,140		$	1,479	$	9,331
Dividends Common ($0.075 per share)	—		—		—			(1,332		)	—			—			(1,332		)	—		—
Dividends Series B ($2.19 per share)	—		—		—			(32		)	—			—			(32		)	—		—
Dividends Series B-2 ($10 per share)	—		—		—			(93		)	—			—			(93		)	—		—
Stock compensation	145,737		2		789			—			—			—			791			—		—
Exchange of common stock	(20,119	)	—		(305		)	—			—			—			(305		)	—		—
Net (loss) income	—		—		—			(4,693		)	—			17			(4,676		)	—		—
Other comprehensive income, net of tax											969			(12		)	957			—		—
Reclassification of unrealized gain on marketable securities upon adoption of ASU 2016-01	—		—		—			15,921			(15,921		)	—			—			—		—
Reclassification upon adoption of ASU 2018-02	—		—		—			(1,724		)	1,724			—			—			—		—
Balance at January 31, 2019	17,772,753		178		159,555			58,401			(4,263		)	579			214,450			1,479		9,331
Dividends Common ($0.075 per share)	—		—		—			(1,333		)	—			—			(1,333		)	—		—
Dividends Series B ($2.19 per share)	—		—		—			(33		)	—			—			(33		)	—		—
Dividends Series B-2 ($10 per share)	—		—		—			(93		)	—			—			(93		)	—		—
Stock compensation	—		—		437			—			—			—			437			—		—
Net (loss) income	—		—		—			2,815			—			5			2,820			—		—
Other comprehensive income, net of tax	—		—		—			—			(380		)	(9		)	(389		)	—		—
Balance at April 30, 2019	17,772,753		$	178	$	159,992		$	59,757		$	(4,643	)	$	575		$	215,859		$	1,479	$	9,331

	Stockholders’ Equity																			Temporary Equity
	Common Stock				Additional Paid-In			Retained			Accumulated Other Comprehensive			Noncontrolling						Series B Preferred		Series B-2 Preferred
	Shares		Amount		Capital			Earnings			Income (Loss)			Interest			Total			Stock		Stock
Balance at October 31, 2017	14,405,031		$	144	$	94,294		$	34,692		$	7,076		$	587		$	136,793		$	1,479	$	9,331
Dividends Common Stock ($0.0625 per share)	—		—		—			(908		)	—			—			(908		)	—		—
Dividends Series B ($2.19 per share)	—		—		—			(32		)	—			—			(32		)	—		—
Dividends Series B-2 ($10 per share)	—		—		—			(93		)	—			—			(93		)	—		—
Stock compensation	145,441		1		708			—			—			—			709			—		—
Exchange of common stock	(17,520	)	—		(401		)	—			—			—			(401		)	—		—
Net income	—		—		—			8,625			—			(2		)	8,623			—		—
Other comprehensive income, net of tax	—		—		—			—			3,291			25			3,316			—		—
Balance at January 31, 2018	14,532,952		145		94,601			42,284			10,367			610			148,007			1,479		9,331
Dividends Common Stock ($0.0625 per share)	—		—		—			(908		)	—			—			(908		)	—		—
Dividends Series B ($2.19 per share)	—		—		—			(33		)	—			—			(33		)	—		—
Dividends Series B-2 ($10 per share)	—		—		—			(93		)	—			—			(93		)	—		—
Stock compensation	—		—		230			—			—			—			230			—		—
Net income	—		—		—			6,599			—			7			6,606			—		—
Other comprehensive income, net of tax	—		—		—			—			1,652			6			1,658			—		—
Balance at April 30, 2018	14,532,952		$	145	$	94,831		$	47,849		$	12,019		$	623		$	155,467		$	1,479	$	9,331

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

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)



	Six Months Ended April 30,
	2019			2018
Operating activities
Net (loss) income	$	(1,856	)	$	15,229
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	4,247			3,434
(Gain) loss on disposals of assets	(11		)	193
Gain on sales of real estate development assets	—			(25		)
Stock compensation expense	1,228			939
Equity in earnings of investments	(1,969		)	83
Cash distributions from equity investments	282			—
Deferred income taxes	(642		)	(10,781		)
Accrued interest on notes receivable	(92		)	(83		)
Unrealized loss on stock in Calavo Growers, Inc.	298			—
Changes in operating assets and liabilities:
Accounts receivable	(5,838		)	(6,284		)
Cultural costs	2,608			2,112
Prepaid expenses and other current assets	(1,409		)	(1,052		)
Income taxes receivable	378			—
Other assets	(130		)	25
Accounts payable and growers payable	9,947			2,244
Accrued liabilities	(2,927		)	1,000
Other long-term liabilities	(96		)	49
Net cash provided by operating activities	4,018			7,083

Investing activities
Capital expenditures	(8,151		)	(5,420		)
Purchase of real estate development parcel	—			(1,444		)
Net proceeds from sales of real estate development assets	—			1,543
Agriculture property acquisition	(397		)	—
Payments to FGF Trapani (See Note 19)	(4,000		)	—
Collections of installments on note receivable	150			—
Equity investment contributions	(4,000		)	(3,500		)
Investments in mutual water companies	(16		)	(16		)
Net cash used in investing activities	(16,414		)	(8,837		)

Financing activities
Borrowings of long-term debt	58,340			41,801
Repayments of long-term debt	(41,844		)	(37,564		)
Dividends paid – common	(2,665		)	(1,816		)
Dividends paid – preferred	(251		)	(251		)
Exchange of common stock	(305		)	(401		)
Net cash provided by financing activities	13,275			1,769
Effect of exchange rate changes on cash	3			(14		)
Net increase in cash	882			1
Cash at beginning of period	609			492
Cash at end of period	$	1,491		$	493

LIMONEIRA COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED)

(In thousands)


	Six Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2019			2018
Supplemental disclosures of cash flow information
Cash paid during the period for interest (net of amounts capitalized)	$	1,150		$	1,102		$	1,327		$	1,150
Cash paid during the period for income taxes, net of (refunds)	$	100		$	(1,900	)	$	130		$	100
Non-cash investing and financing activities:
Unrealized holding gain on Calavo investment	$	(6,000	)	$	(1,935	)	$	—		$	(6,000	)
Increase in real estate development and sale-leaseback deferral	$	8,425		$	2,980
(Decrease) increase in real estate development and sale-leaseback deferral							$	(58,330	)	$	8,425
Reclassification from real estate development to equity in investments							$	(33,353	)	$	—
Increase in equity in investments and other long-term liabilities	$	750		$	—		$	—		$	750
Non-cash issuance of note receivable	$	3,000		$	—		$	—		$	3,000
Non-cash reduction of note receivable	$	68		$	—		$	—		$	68
Capital expenditures accrued but not paid at period-end	$	299		$	424		$	400		$	299
Accrued interest on notes receivable	$	83		$	12
Accrued contribution obligation of investment in water company	$	315		$	315		$	450		$	315
Accrued Series B-2 Convertible Preferred Stock dividends	$	31		$	31		$	31		$	31
Non-cash issuance of note payable	$	1,435		$	—		$	—		$	1,435

In December 2018, the Company terminated its lease agreement with the Joint Venture (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 Quarterly Report on Form 10-Q.

In February 2013, the Company entered into an option agreement for the purchase of a 7-acre parcel adjacent to its East Area II real estate development project. In February 2018, the Company exercised its option and purchased the property for $3,145,000, by making a cash payment of $1,444,000 and issuing a note payable for $1,435,000.

In November 2017, the holder of the note receivable from a 2004 sale of property completed the drilling of a water well at the Company’s La Campana Ranch. The fair value of the well drilling services was $68,000 and the Company recorded a non-cash reduction of the note receivable.

~~During 2017 certain shares of Series B Convertible Preferred Stock were converted into common stock as described in Note 21 - Series B and Series B-2 Preferred Stock.~~

In October 2017, the Company entered an agreement to sell its Centennial Square (“Centennial”) real estate development property for $3,250,000. This transaction closed in December 2017 with the Company receiving net proceeds of $179,000 and ~~issuing~~receiving a $3,000,000 promissory note secured by the property for the balance of the purchase price.

On June 20, 2017, the Company entered into a Master Loan Agreement with Farm Credit West, FLCA ("Farm Credit West") and repaid $68,572,000 of outstanding debt under the Rabobank revolving credit facility as further described in Note 13 - Long-Term Debt.

On February 24, 2017, the Company acquired 90% of the outstanding stock of Fruticola Pan de Azucar S.A. (“PDA”) for a purchase price of $5,706,000 in cash as further described in Note 3 - Acquisitions.

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

LIMONEIRA COMPANY

~~CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Preface~~

The preparation of the unaudited interim consolidated financial statements requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, revenue and expenses and certain financial statement disclosures. Actual results may differ from these estimates.

The unaudited interim consolidated financial statements for the three and six months ended April 30, 2018 and 2017 and balance sheet as of April 30, 2018 included herein have not been audited by an independent registered public accounting firm, but in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary to make a fair statement of the financial position at April 30, 2018 and the results of operations and the cash flows for the periods presented herein have been made. The results of operations for the three and six months ended April 30, 2018 are not necessarily indicative of the operating results expected for the full fiscal year.

The consolidated balance sheet at October 31, 2017 included herein has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements.

The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Although the Company believes the disclosures made are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules or regulations. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017.

~~LIMONEIRA COMPANY~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization and Basis of Presentation

Business

Limoneira Company ~~a Delaware corporation (the~~(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 and other international markets. The Company is a member of Sunkist Growers, Inc. (“Sunkist”), an agricultural marketing cooperative, and sells ~~a portion of~~ its oranges, specialty citrus and other crops to Sunkist-licensed and other third-party packinghouses.

The Company sells all 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. The Company’s avocados are packed by Calavo, which are then sold and distributed under Calavo brands to its customers.

Basis of Presentation and Preparation

The accompanying unaudited interim consolidated financial statements include the accounts of the Company and the accounts of all the subsidiaries and investments in which a controlling interest is held by the Company. ~~The~~Intercompany accounts and transactions have been eliminated. In the opinion of the Company, the unaudited interim consolidated financial statements ~~represent~~reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. The preparation of these unaudited interim consolidated financial statements and accompanying notes in conformity with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported. Actual results could differ materially from those estimates. Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. Because the consolidated ~~balance sheets, consolidated~~financial statements ~~of operations, consolidated statements of comprehensive income and consolidated statements of cash flows~~do not include all of the ~~Company~~information and its wholly-owned subsidiaries. The Company’s material subsidiaries include: Limoneira Mercantile, LLC, Windfall Investors, LLC (“Windfall”), Templeton Santa Barbara, LLC, Associated Citrus Packers, Inc. (“Associated”), Limoneira Chile, SpA, Limoneira EA1 Land, LLC and PDA, in which the Company hasnotes required by GAAP for a 90% ownership interest. All significant 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, ~~Consolidation,~~ ~~and the effect~~complete set of ~~variable interest entities, in its consolidation process. These unaudited~~ consolidated financial statements, they should be read in conjunction with the audited consolidated financial statements and notes ~~thereto~~ included in ~~this Quarterly~~the Company’s Annual Report on Form ~~10-Q.~~10-K.

2. Summary of Significant Accounting Policies

~~Foreign Currency Translation~~

Revenue Recognition

~~PDA’s functional currency is~~

On November 1, 2018, the Chilean Peso. Its balance sheet is translated to U.S. dollars at exchange rates in effect at the balance sheet date and its income statement is 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.

~~Recent~~Company adopted Financial Accounting ~~Pronouncements~~

~~FASB~~ Standards Board (“FASB”) – Accounting Standards Update (“ASU”) ~~2014-09, Revenue from Contracts with Customers (Topic 606).~~

~~In May 2014, the FASB issued~~ ASU 2014-09, Revenue from Contracts with Customers (Topic 606)~~. This ASU affects any entity~~, that ~~either enters into contracts with customers to transfer goods or services or enters into contracts for~~amends the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance ~~included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. In addition, the existing requirements~~ for the recognition of revenue from contracts with customers. The results for the reporting period beginning after November 1, 2018 are presented in accordance with the new standard which was adopted using the modified-retrospective method and applied to those contracts that were not completed as of November 1, 2018. There was no net effect of applying the standard and therefore no cumulative adjustment to retained earnings was necessary at the date of initial application.

As a ~~gain or loss on~~result comparative information has not been restated and the ~~transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within~~results for the ~~scope of Topic 360, Property, Plant, and Equipment, and tangible assets within the scope of Topic 350, Intangibles – Goodwill and Other) are amended~~reporting periods before November 1, 2018 continue to be ~~consistent with~~reported under the ~~guidance on recognition~~accounting standards and ~~measurement (including the constraint on revenue)~~policies in ~~this ASU.~~effect for those periods.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply 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 determined 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

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

~~Recognize~~Revenue Recognition (continued)

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 ~~(or as) the entity~~it satisfies a performance ~~obligation.~~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.

~~In March 2016,~~Upon adoption, the ~~FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies~~Company changed the ~~implementation~~accounting of certain brokered fruit sales. Under previous guidance, the Company was considered an agent and recorded revenues for certain brokered fruit sales and the costs of such fruit on ~~principal versus agent considerations.~~

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU 2016-10 clarifies the implementation guidance on identifying performance obligations. These ASUs apply to all companies that enter into contracts with customers to transfer goods or services.

~~In May 2016, the FASB issued, ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. ASU 2016-12 provides clarifying guidance~~a net basis in ~~certain narrow areas and adds some practical expedients.~~

~~The two permitted transition methods under~~its consolidated statement of operations. Under the new revenue recognition standard, the Company is considered a principal in the transaction and revenues are recorded on a gross basis in the ~~full retrospective method,~~Company’s consolidated statement of operations with the related cost of such fruit included in ~~which case~~agribusiness costs and expenses.

This change resulted in the ~~standard~~recognition of additional agribusiness revenue and agribusiness costs and expenses of $162,000 and $168,000, respectively, during the three months ended April 30, 2019 and $456,000 and $420,000, respectively, during the six months ended April 30, 2019. Had it used the previous revenue recognition guidance, the Company would ~~be applied~~have recorded insignificant net agribusiness revenue for the three and six months ended April 30, 2019. No cumulative adjustment to ~~each prior reporting period presented and the cumulative~~retained earnings was necessary as there is no net effect of applying the ~~standard would be~~standard.

Agribusiness revenue - Revenue from lemon sales is generally recognized at a point in time when the ~~earliest period shown, or~~customer takes control of the ~~modified retrospective method, in~~fruit from the Company’s packinghouse, which ~~case~~aligns with the ~~cumulative effect~~transfer of ~~applying~~title to the standard would be recognized at the date of initial application. The Company currently anticipates adopting the standard in the first quarter of its fiscal year ending October 31, 2019 and anticipates using the modified retrospective method.customer. The Company has ~~inventoried~~elected to treat any shipping and ~~evaluated its current revenue streams~~handling costs incurred after control of the goods has been transferred to the customer as agribusiness costs.

The Company’s avocados, oranges, specialty citrus and ~~related contracts with customers.~~other specialty crops are packed and sold by Calavo and other third-party packinghouses. The Company ~~continues~~delivers all of its avocado production from its orchards to ~~evaluate~~Calavo. These avocados are then packed by Calavo at its packinghouse and sold and distributed under Calavo brands to its customers primarily in the ~~effect this ASU may~~United States and Canada. The Company’s arrangements with other third-party packinghouses related to its oranges, specialty citrus and other specialty crops are similar to its arrangement with Calavo. The Company’s arrangements with its third-party packinghouses are such that the Company is the producer and supplier of the product and the third-party packinghouses are the Company’s customers.

The revenues the Company recognizes related to the fruits sold to the third-party packinghouses are based on the volume and quality of the fruits delivered, the market price for such fruit, less the packinghouses’ charges to pack and market the fruit. Such packinghouse charges include the grading, sizing, packing, cooling, ripening and marketing of the related fruit. The Company 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. Such third-party packinghouse charges are recorded as a reduction of revenue as they are not for distinct services. The identifiable benefit the Company receives from the third-party packinghouses for packaging and marketing services cannot be sufficiently separated from the third-party packinghouses’ purchase of the Company’s products. In addition, the Company is not able to reasonably estimate the fair value of the benefit received from the third-party packinghouses for such services and as such, these costs are characterized as a reduction of revenue in the Company’s consolidated statements of operations.

Revenue from the sales of certain of the Company’s agricultural products is recorded based on estimated proceeds provided by certain of the Company’s sales and marketing partners (Calavo and other third-party packinghouses) due to the time between when the product is delivered by the Company and the closing of the pools for such fruits at the end of each month or harvest period. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. The Company

estimates the variable consideration using the most likely amount method, with the most likely amount being the quantities actually shipped extended by the prices reported by Calavo and other third-party packinghouses. Revenue is recognized at time of delivery to

the packinghouses relating to fruits that are in pools that have not yet closed at month end if: (a) the related fruits have been delivered

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Revenue Recognition (continued)

to and accepted by Calavo and other third-party packinghouses (i.e., Calavo and other third-party packinghouses obtain control) and (b) sales price information has been provided by Calavo and other third-party packinghouses (based on ~~its~~the marketplace activity for the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. In such instances the Company has the present right to payment and Calavo and other third-party packinghouses have the present right to direct the use of, and obtain substantially all of the remaining benefits from, the delivered fruit. The Company does not expect that there is a high likelihood that a significant reversal in the amount of cumulative revenue recognized in the early periods of the pool will occur once the final pool prices have been reported by the packinghouses. Historically, the revenue that is recorded based on the sales price information provided to the Company by Calavo and other third-party packinghouses at the time of delivery, have not materially differed from the actual amounts that are paid after the monthly or harvest period pools are closed.

The Company has entered into brokerage arrangements with third-party international packinghouses. In certain of these arrangements, the Company has the exclusive ability to direct the use of and obtains substantially all of the remaining benefits from the fruit, and is therefore acting as a principal. As such, the Company records the related revenue and costs of the fruit gross in the consolidated ~~financial statements.~~statement of operations.

Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment.

~~FASB ASU 2015-11, Inventory (Topic 330): Simplifying~~Rental Revenue - Minimum rental revenues are generally recognized on a straight-line basis over the ~~Measurement~~respective initial lease term. Contingent rental revenues are contractually defined as to the percentage of ~~Inventory~~rent received by the Company and are based on fees collected by the lessee. Such revenues are recognized when actual results, based on collected fees reported by the tenant, are received. The Company's rental arrangements generally require payment on a monthly or quarterly basis.

Real Estate Development Revenue -The ~~amendments~~Company recognizes revenue on real estate development projects with customers at a point in time (i.e., the closing) when the Company satisfies the single performance obligation and transfers control of such real estate to a buyer. The transaction price, which is the amount of consideration the Company receives upon delivery of the completed real estate to the buyer, is allocated to this ~~ASU do not apply to inventory that~~single obligation and is ~~measured using last-in, first-out~~received at closing. Real estate development projects with non-customers are accounted for in accordance with Accounting Standards Code (“~~LIFO”~~ASC”) or610-20, Other Income - Gains and Losses from the ~~retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost.~~Derecognition of Nonfinancial Assets.

An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method.Recent Accounting Pronouncements

~~The amendments in this ASU more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.~~

The amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company’s adoption of this ASU had no impact on its consolidated financial statements.

FASB ASU 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

The amendments in ASU 2016-01, among other things, require equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets (i.e., securities or loans and receivables). Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate fair value that is required to be disclosed for financial instruments measured at amortized cost.

ASU 2016-01 is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. ~~Early~~The Company’s adoption ~~is permitted. The Company is evaluating the effect~~of this ASU ~~may have~~ on ~~its consolidated~~November 1, 2018 resulted in a cumulative-effect adjustment to the statement of financial ~~statements.~~

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

position, with the Company reclassifying unrealized holding gains of $15,921,000, net of taxes, in Calavo common stock to retained earnings from accumulated other comprehensive income ("AOCI") at the date of adoption. In addition, the change in the fair value of Calavo common stock has been disclosed as a separate line item in the statement of operations subsequent to the adoption of ASU 2016-01.

~~2. Summary of Significant Accounting Policies (continued)~~

FASB ASU 2016-02, Leases (Topic ~~832)~~842)

Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

A lease liability, which is a ~~lessee‘s~~lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and

A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.

The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The ASU will be effective for the Company beginning in the first quarter of its fiscal year ending October 31, ~~2019.~~2020. The Company is evaluating the effect this ASU may have on its consolidated financial ~~statements;~~statements, however it expects to apply the practical expedients provided in the ~~ASU and to record right-of-use assets and lease obligations for its operating leases that exist on the date of adoption.~~ASU. Note 20 – Commitments and Contingencies inof the ~~Notes~~notes to ~~Consolidated Financial Statements~~consolidated financial statements included in the ~~Company’s fiscal year 2017~~Company's 2018 Annual Report on Form 10-K describes its operating lease arrangements as of October 31, ~~2017.~~

~~FASB ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships~~

The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria remain intact.

The Company adopted this ASU during the quarter ended July 31, 2017 in connection with the refinancing of its line of credit arrangements and related interest rates swap as described in Note 13 – Long-Term Debt and Note 14 – Derivative Instrument and Hedging Activities.

~~FASB ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~

The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.

The amendments are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted. The Company’s early adoption of this ASU on November 1, 2016 resulted in a cumulative effect provision of $21,000 recognized in fiscal year 2017. The Company has also elected to account for forfeitures as they occur using the modified retrospective approach. In addition, the Company is now required to present excess tax benefits (provisions) as operating activity (combined with other income tax cash flows) on the statements of cash flows rather than as financing activity and has elected to adopt this change prospectively.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~2. Summary of Significant Accounting Policies (continued)~~2018.

FASB ASU 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The amendment requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

The amendment is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. ~~Early~~The Company’s adoption ~~is permitted as~~ of ~~the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The Company is evaluating the effect~~ this ASU ~~may have~~during the first quarter of fiscal year 2019 had no material impact on its consolidated financial statements.

~~FASB ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities~~

These amendments refine and expand hedge accounting for both financial and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes. It also makes certain targeted improvements to simplify the application of hedge accounting guidance.

The amendment is effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption, including adoption in an interim period, is permitted. The Company is evaluating the effect this ASU may have on its consolidated financial statements.

FASB ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

~~These amendments provide~~This amendment provides financial statement preparers with an option to reclassify stranded tax effects within AOCI to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the "2017 Act") (or portion thereof) is recorded.

The amendment is effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Organizations should apply the proposed ~~amendments~~amendment either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the ~~Tax Cuts and Jobs~~2017 Act is recognized. The Company early adopted this ASU on November 1, 2018, and as a result recorded a cumulative-effect reclassification in the statement of financial position to retained earnings from AOCI at the date of adoption of $1,724,000 related to the investment in Calavo and pension liability.

FASB ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

This amendment adds, removes and clarifies the disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

2. Summary of Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

For public business entities, the amendments are effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is evaluating the effect of this ~~ASU. It could~~ASU may have ~~a significant effect~~ on ~~the Company’s~~its consolidated financial statements.

SEC Amendments to Certain Disclosure Requirements

In August 2018, the SEC adopted amendments to certain disclosure requirements for a number of SEC rules, including Rule 3-04 of Regulation S-X. Rule 3-04 requires that a public registrant’s Form 10-Q include a reconciliation of changes in stockholders’ equity for each period for which a statement of comprehensive income is required to be filed. These amendments are effective for interim periods beginning after November 5, 2018, therefore the Company has included a separate statement of stockholders’ equity and temporary equity in this Quarterly Report on Form 10-Q.

3. Acquisitions

~~Business Combination~~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.

San Pablo

On ~~February 24, 2017 (the “Acquisition Date”),~~July 18, 2018, the Company completed the acquisition of ~~90%~~San Pablo ranch and related assets in La Serena, Chile, for $13,000,000. The San Pablo ranch consists of 3,317 acres on two parcels, including 247 acres producing lemons, 61 acres producing oranges, the opportunity to immediately plant 120 acres for lemon production, as well as the potential for approximately 500 acres of avocado production. This acquisition was accounted for as an asset purchase and is included in property, plant and equipment in the Company’s consolidated balance sheet. In addition, transaction costs of $111,000 were capitalized as part of total acquisition costs.

Below is a summary of the ~~outstanding stock~~fair value of ~~PDA, a privately-owned Chilean corporation, for $5,800,000 in cash (the “Acquisition”). PDA also had approximately $1,700,000 in long-term debt~~the net assets acquired on the ~~Acquisition Date, which was assumed by the Company~~acquisition date based on a third-party valuation (in thousands):



Cultural costs	$	579
Land and land improvements	9,114
Buildings and equipment	207
Orchards	2,058
Water rights	1,153
Total assets acquired	$	13,111

The unaudited, pro forma consolidated statement of operations as if San Pablo had been included in the ~~Acquisition. A holdback of 10%~~consolidated results of the purchase proceeds to be paid to the seller was withheld for a six-month period to allow for potential contingencies as defined in the purchase agreement. PDA is a 200-acre lemon and orange orchard located near La Serena, Chile. PDA’s total assets of $9,451,000 on the Acquisition Date included a 13% equity interest in Rosales S.A. (“Rosales”) in which the Company owns a 35% equity investment. After the Acquisition, the Company owns 47% of Rosales and PDA’s 10% stockholder owns the remaining 53% of Rosales. Rosales packs and sells all of PDA’s citrus production. PDA had approximately $450,000 of net income on approximately $1,900,000 in sales for the year ended ~~December~~October 31, ~~2016. Transactions costs incurred~~2018 results in ~~connection with~~revenue of $130,262,000 and net income of $18,785,000.

Business Combinations

Oxnard Lemon

On July 24, 2018, the ~~Acquisition~~Company and Oxnard Lemon Associates, Ltd., a California limited partnership (“Seller”), entered into an Asset Purchase Agreement (the “Purchase Agreement”). Pursuant to the Purchase Agreement, on July 26, 2018 (the “Initial Closing Date”), the Company acquired certain tangible assets of seller, including a packinghouse and related land (“Oxnard Lemon”), for a purchase price of $24,750,000 (the “Initial Acquisition”). Pursuant to the Purchase Agreement, the closing on the purchase and sale of the intangible assets of Seller, including Seller’s trade names, trademarks and copyrights, took place on October 31, 2018 (the “Final Closing Date”), at which point an additional $250,000 in ~~2017 were approximately $57,000, which were included~~purchase price was paid to Seller by the Company. The aggregate purchase price for the tangible assets and the intangible assets provided in ~~selling, general and administrative expense.~~the Purchase Agreement was $25,000,000. Additionally, the Purchase

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

3. Acquisitions

~~Business Combination~~ (continued)

~~In August 2017,~~Business Combinations

Agreement provided that Seller lease back the tangible assets from the Company until the Final Closing Date, pursuant to a ~~third-party valuation~~lease executed on the Initial Closing Date. Transaction costs of ~~the fair value of the net assets was finalized, which resulted~~$142,000 were included in ~~a $193,000 increase in investment in Rosales with a corresponding decrease in goodwill~~selling, general and increase in deferred income taxes. Additionally, a $94,000 reduction in the purchase price was agreed upon per the terms of the purchase agreement with corresponding decreases in goodwill and noncontrolling interest. The Company received the $94,000 in August 2017. administrative expense.

Below is a summary of the fair value of the net assets acquired on the ~~Acquisition Date~~acquisition date based on ~~the~~a third-party valuation ~~which is considered a Level 3 fair value measurement under FASB ASC 820, Fair Value Measurements and Disclosures~~ (in thousands):

Cultural costs $ 473
Other current assets 166
Land and land improvements 2,748
Buildings and equipment 206
Orchards 2,876
Investment in Rosales 1,021
Water rights 1,120
Deposit for land purchase 645
Goodwill 196
Total assets acquired 9,451

Current liabilities (122 )
Current and long-term debt (1,964 )
Deferred income taxes (1,026 )
Noncontrolling interest (633 )
Net cash paid $ 5,706



Land and land improvements	$	7,294
Buildings and equipment	14,866
Customer relationships and trade names	2,270
Goodwill	570
Total assets acquired	$	25,000

The unaudited, pro forma consolidated statement of operations as if Oxnard Lemon had been included in the consolidated results of the Company for the year ended October 31, 2018 in revenue of $142,253,000 and net income of $19,728,000.

4. Fair Value Measurements

Under the FASB ASC 820, Fair Value Measurement and Disclosures, a fair value measurement is determined based on the assumptions that a market participant would use in pricing an asset or liability. A three-tiered hierarchy draws distinctions between market participant assumptions based on (i) observable inputs such as quoted prices in active markets (Level 1), (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2) and (iii) unobservable inputs that require the Company to use present value and other valuation techniques in the determination of fair value (Level 3).

The following table sets forth the Company’s financial assets and liabilities as of April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, which are measured on a recurring basis during the period, segregated by level within the fair value hierarchy (in thousands):



April 30, 2019	Level 1		Level 2		Level 3		Total
Assets at fair value:
Equity securities	$	23,953	$	—	$	—	$	23,953

April 30, 2018 Level 1 Level 2 Level 3 Total
Assets at fair value:

Available-for-sale securities $ 28,110
$ —
$ —
$ 28,110
Liabilities at fair value:

Derivative $ —
$ 40
$ —
$ 40
Loan guarantee $ —
$ —
$ 750
$ 750



October 31, 2018	Level 1		Level 2		Level 3		Total
Assets at fair value:
Equity securities	$	24,250	$	—	$	—	$	24,250

October 31, 2017 Level 1 Level 2 Level 3 Total
Assets at fair value:

Available-for-sale securities $ 22,110
$ —
$ —
$ 22,110
Liabilities at fair value:

Derivative $ —
$ 268
$ —
$ 268

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~4. Fair Value Measurements (continued)~~

~~Available-for-sale~~Equity securities consist of marketable securities in Calavo common stock. ~~The~~At April 30, 2019 and October 31, 2018, the Company ~~currently owns 300,000~~owned 250,000 shares, representing approximately ~~1.7%~~1.4% of Calavo’s outstanding common stock. These securities are measured at fair value by quoted market ~~prices.~~ prices and changes in fair value are included in the statement of operations subsequent to the adoption of ASU 2016-01.

With the adoption of FASB ASU 2016-01 on November 1, 2018, changes in the fair value of the marketable securities result in gains or losses recognized in net income. The Company recorded an unrealized gains (losses) of $3,612,000 and $(298,000) during the three and six months ended April 30, 2019, respectively, which is included in other income (expense) in the consolidated statements of operations. The Company recorded unrealized holding gains of $2,010,000 ($1,421,000 net of tax) and $6,000,000 ($4,242,000 net of tax), during the three and six months ended April 30, 2018, which were included in AOCI in the consolidated balance sheet.

Calavo’s stock price at April 30, ~~2018~~2019 and October 31, ~~2017~~2018 was ~~$93.70~~$95.81 and ~~$73.70~~$97.00 per share, respectively.

~~The derivative consists~~ Prior to the adoption of ~~an interest rate swap, the~~ASU 2016-01, these equity securities were classified as available-for-sale securities and changes in fair value were recorded in AOCI net of ~~which is estimated using industry-standard valuation models. Such models project future cash flows and discount the future amounts to a present value using market-based observable inputs~~tax.

The loan guarantee consists of its fair value estimated using industry-standard valuation models. Such models project future cash flows and discounted projected payments on such obligations at guaranteed and non-guaranteed rates. The difference between the guaranteed versus the non-guaranteed values of the loan is the value of the loan guarantee.

~~5. Accounts Receivable~~

The Company grants credit in the course of its operations to customers, cooperatives, companies and lessees of the Company’s facilities. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. The Company provides allowances on its receivables, as required, based on accounts receivable aging and certain other factors. As of April 30, 2018 and October 31, 2017 the allowances totaled $401,000 and $577,000, respectively.

LIMONEIRA COMPANY

5. Concentrations

Lemons procured from third-party growers were 59% and 43% of lemon supply in the three months ended April 30, ~~2018.~~2019 and 2018, respectively. Lemons procured from third-party growers were 59% and 47% of lemon supply in the six months ended April 30, 2019 and 2018, respectively, of which one third-party grower was 7%10% of lemon ~~supply.~~supply at April 30, 2019. The Company sells all of its avocado production to ~~Calavo.~~Calavo and the majority of its oranges and specialty citrus to a third-party packing house.

7.6. Prepaid Expenses and Other Current Assets

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


	April 30, 2018		October 31, 2017		April 30, 2019		October 31, 2018
Prepaid insurance	$	741	$	609	$	779	$	647
Prepaid supplies	1,412		806		1,165		1,196
Lemon supplier advances	94		271		508		170
Note receivable, net	2,892		—		2,552		2,797
Deferred lease expense, water assessments and other	1,421		958
Real estate development for sale	—		4,337
Real estate development held for sale					5,024		5,024
Water assessment fees and other					1,780		694
	$	6,560	$	6,981	$	11,808	$	10,528

8.7. Real Estate Development

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

April 30,
2018 October 31,
2017
East Areas I and II $ 86,516
$ 74,500
Templeton Santa Barbara, LLC 6,582
6,582
$ 93,098
$ 81,082



	April 30, 2019		October 31, 2018
East Area I	$	—	$	91,357
Retained Property - East Area I	10,613		10,408
East Area II	5,543		5,397
	$	16,156	$	107,162

East Area I, Retained Property and East Area II

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~8. Real Estate Development (continued)~~

~~East Areas I and 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. During the three months ended April 30, 2018 and 2017, the Company capitalized $8,827,000 and $1,516,000, respectively, of costs related to these real estate development projects. During the six months ended April 30, 2018 and 2017, the Company capitalized $12,016,000 and $3,712,000, respectively, of costs related to these real estate development projects. Additionally, in relation to these projects, the Company incurred expenses of $12,000 and zero in the three months ended April 30, 2018 and 2017, respectively, and $13,000 and $37,000 in the six months ended April 30, 2018 and 2017, respectively.

On November 10, 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 (the “LLC” or “Joint Venture”) as the development entity, contributed its East Area I property to the LLC and sold a 50% interest in the LLC to Lewis for $20,000,000, comprised of a $2,000,000 deposit received in September 2015 and $18,000,000 received on the Transaction Date. The Company received net cash of approximately $18,800,000 after transaction costs of approximately $1,200,000, which were expensed in the first quarter of fiscal year 2016. In addition, on the Transaction Date, the Company incurred a Success Fee with Parkstone Companies, Inc., in the amount of $2,100,000, which was paid on January 28, 2016 and capitalized as a component of the Company’s investment in the East Area I property.

On the Transaction Date, the LLC and Lewis also entered into a limited liability company agreement (the “LLC Agreement”) providing for the admittance of Lewis as a 50% member of the Joint Venture. The LLC Agreement provides that Lewis will serve as the manager of the Joint Venture with the right to manage, control, and conduct its day-to-day business and development activities. Certain major decisions, which are enumerated in the LLC Agreement, require approval by an executive committee comprised of two representatives appointed by Lewis and two representatives appointed by the Company.

Pursuant to the LLC Agreement, the Joint Venture will own, develop, subdivide, entitle, maintain, improve, hold for investment, market and dispose of the Joint Venture’s property in accordance with the business plan and budget approved by the executive committee.

Further, on the Transaction Date, the Joint Venture and the Company entered into a Lease Agreement (the "Lease Agreement"), pursuant to which the Joint Venture will lease certain of the contributed East Area I property back to the Company for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture requires the property for development. The Lease will terminate in stages corresponding to the Joint Venture's development of the property, which is to occur in stages pursuant to a phased master development plan. In any event, the Lease will terminate five years from the Transaction Date.$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~~transferred certain contributed East Area I property, which is entitled for commercial development, back to the Company (the "Retained Property") and ~~arrange~~arranged for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by the Company. In August 2018, the Retained Property, was transferred back to the Company. The net carrying value of the Retained Property as of April 30, 2019 and October 31, 2018 was $10,613,000 and $10,408,000, respectively, and classified as real estate development.

Further, on the Transaction Date, the Joint Venture and the Company entered into a Lease Agreement (the "Lease Agreement"), pursuant to which the Joint Venture would lease certain of the contributed East Area I property back to the Company for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture required the property for development. In December 2018, the Company terminated the Lease Agreement pursuant to the terms therein.

The Company’s sale of an interest in the LLC in which the Company’s contributed property comprises the LLC’s primary asset, combined with the Lease Agreement iswas considered a sale-leaseback transaction under FASB ASC 840, Leases, because of the Company’s continuing involvement in the property in the form of its agricultural operations. Accordingly, the property ~~continues to be~~was carried on

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. Real Estate Development (continued)

East Area I, Retained Property and East Area II (continued)

the consolidated balance sheet as real estate development, rather than being classified as an equity investment and a sale-leaseback deferral ~~has~~had been recorded for the $20,000,000 payment made by Lewis for the purchase of the LLC interest. Lease expense associated with the Lease Agreement iswas not required under sale-leaseback accounting since the Company iswas treated as though it ~~continues~~continued to own the property. During the three ~~months ended April 30, 2018~~ and 2017, the Company recorded $5,699,000 and $1,147,000, respectively, of real estate development costs and corresponding increases in the sale-leaseback deferral to recognize real estate development costs capitalized by the LLC. During the six months ended April 30, 2018, ~~and 2017,~~ the Company recorded ~~$8,425,000~~$5,699,000 and ~~$2,980,000,~~$8,425,000, respectively, of real estate development costs and corresponding increases in the sale-leaseback deferral to recognize real estate development costs capitalized by the LLC. There ~~are~~were no repayment requirements for the sale-leaseback ~~deferral and as~~deferral. When the Lease Agreement iswas terminated in ~~connection with the staged development~~December 2018 control of the property atransferred to the Joint Venture and therefore, the Company reduced the sale lease-back deferral and corresponding ~~amount of~~ real estate development by $58,330,000 and ~~the sale-leaseback deferral will be adjusted~~reclassified $33,353,000 to equity in investments onupon derecognition of the ~~consolidated balance sheet.~~

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~8. Real Estate Development (continued)~~

~~East Areas I and II (continued)~~

~~In connection with~~real estate development. As the ~~LLC Agreement,~~fair value of the ~~Company was reimbursed $250,000 by~~Company’s ownership interest in the Joint Venture ~~in January 2018 for Initial Public Safety Facility Payments made to~~approximated the ~~City of Santa Paula in October 2015. This amount was included in prepaid expenses and other current assets~~Company’s historical basis in the ~~consolidated balance sheets as~~real estate development at the inception of ~~October 31, 2017. Additionally,~~ the ~~Company leases office space to Lewis and received rental income of $11,000 and $8,000 for the six months ended April 30, 2018 and 2017, respectively.~~Joint Venture, no gain or loss was recorded.

The Company ~~determined~~made contributions to the Joint Venture to be a Variable Interest Entity (“VIE”) under ASC 810, because the Joint Venture will require additional subordinated financial support to finance its operations. The Company further determined that it is not the primary beneficiary of ~~the VIE, as the Company~~$4,000,000 and ~~Lewis have joint control over all significant decisions affecting the Joint Venture’s economic performance.~~

Accordingly, contributions made by the Company to the LLC, the Company’s proportionate share of Joint Venture’s results of operations and distributions received by the Company from the LLC will be accounted for under the equity method. The Company made no contributions to the LLC in the three months ended April 30, 2018 or 2017. The Company made contributions of $3,500,000 ~~and $4,450,000 to the LLC~~ in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Additionally, the Company recorded equity ~~losses~~income, net of ~~zero~~amortization of basis differences, of $2,270,000 for both the three and ~~$54,000 in the~~ six months ended April 30, ~~2018 and 2017, respectively, related to the Joint Venture.~~

In January 2018, the Joint Venture 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 matures in January 2020, with an option to extend the maturity date until 2021, subject to certain conditions. The interest rate on the Loan is LIBOR plus 2.85%, payable monthly. The Loan contains certain customary default provisions and the Joint Venture may prepay any amounts outstanding under the Loan without penalty.

In February 2018, the obligations under the Loan were guaranteed by certain principals from Lewis and by the Company. The guarantee shall continue in effect until all of the Loan obligations are fully and finally paid and the guarantors are jointly and severally liable for all Loan obligations in the event of default by the Joint Venture. The Joint Venture recorded the Loan balance of $8,717,000 as of April 30, 2018. The $750,000 fair value of the guarantee at April 30, 2018 was recorded in the Company’s consolidated balance sheets and was included in other long-term liabilities with a corresponding increase in equity in investments. Additionally, a Reimbursement Agreement was executed between the Lewis guarantors and the Company which provides for unpaid liabilities of the Joint Venture to be shared pro-rata by the Lewis guarantors and the Company in proportion to their percentage interest in the Joint Venture.

In connection with facilitating the annexation of East Area I property into the City of Santa Paula, during February 2014 the Company entered into a Capital Improvement Cost Sharing Agreement for Improvements to Santa Paula Creek Channel (the “Cost Sharing Agreement”) with the Ventura County Watershed Protection District (the “District”). The Cost Sharing Agreement requires the Company to reimburse the District 28.5% of the costs of the improvements, up to a maximum of $5,000,000. Additionally, the Company is required to pay the cost of preparing a study to determine a feasible scope of work and budget for the improvements. No cost reimbursements have been incurred to date in relation to the Cost Sharing Agreement.2019.

In February ~~2013,~~and March 2019, the Company ~~entered into an option agreement for~~announced that its Joint Venture with Lewis closed the ~~purchase~~sales of the initial residential lots representing a ~~7-acre parcel adjacent to its East Area II real estate development project. The Company made a $75,000 initial option payment in 2013 and four additional annual option payments~~total of $50,000 each from 2014 to 2017. In February 2018, the Company exercised its option and purchased the property for $3,145,000, by making a cash payment of $1,444,000 and issuing a note payable for $1,435,000. The $275,000 of option payments were applied to the purchase price and the Company incurred $9,000 of transaction costs. The note payable is due in five years, with interest-only, monthly payments at interest rates ranging from 5.0% to 7.0%.174 residential units.

Templeton Santa Barbara, LLC

The ~~three~~ real estate development parcels within the Templeton Santa Barbara, LLC project are described as ~~Centennial,~~ The Terraces at Pacific Crest (“Pacific Crest”), and Sevilla. The net carrying values of Pacific Crest and Sevilla atwere $2,481,000 and $2,543,000, respectively, as of April 30, ~~2018 were $3,250,000~~2019 and ~~$3,332,000, respectively. The net carrying values of Centennial, Pacific Crest and Sevilla as of~~ October 31, ~~2017 were $2,983,000, $3,250,000 and $4,686,000, respectively.~~2018. These projects were idle during the six months ended April 30, ~~2018~~2019 and ~~2017~~2018 and, as such, no costs were ~~capitalized. Additionally, in relation to these projects, the Company incurred~~capitalized and expenses ~~of $27,000 and $41,000 in the three months ended April 30, 2018 and 2017, respectively, and $56,000 and $88,000 in the six months ended April 30, 2018 and 2017, respectively.~~

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~8. Real Estate Development (continued)~~

~~Templeton Santa Barbara, LLC (continued)~~

In October 2017, the Company entered an agreement to sell Centennial for $3,250,000. This transaction closed in December 2017 with the Company receiving net proceeds of $179,000 and issuing a $3,000,000 promissory note secured by the property for the balance of the purchase price. The promissory note matures June 2018 but provides for potential extensions to December 2019. After transaction costs, the sale resulted in a gain of $194,000, to be recognized under the installment method, with $15,000 recognized in the six months ended April 30, 2018 and $179,000 deferred until repayment of the promissory note. In May 2018, per the terms of the promissory note, the holder of the note made a non-refundable $100,000 payment to the Company, extending the due date to September 15, 2018.were insignificant.

In ~~August 2017,~~October 2018, the Company ~~entered an agreement~~began negotiations to sell ~~the commercial portion~~its Pacific Crest and Sevilla properties for a combined total price of ~~its Sevilla project for $1,452,000. This transaction closed in November 2017 with~~$5,200,000. As a result, the Company ~~receiving net proceeds~~recorded impairment charges on Pacific Crest and Sevilla of ~~$1,364,000. The Company recognized~~$769,000 and $789,000, respectively, in October 2018. These negotiations have not resulted in a ~~gain of $10,000 after transaction costs.~~

~~In December 2017,~~sale and the Company ~~entered an agreement to sell Pacific Crest for $3,500,000. After transaction costs, the Company expects to recognize a gain of $40,000. To date, this transaction has not closed.~~is actively marketing these properties.

At April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, the ~~$3,250,000~~$2,481,000 carrying value of Pacific Crest and the ~~$3,332,000~~$2,543,000 carrying value ~~of Sevilla were classified as real estate development. At October 31, 2017, the $2,983,000 carrying value of Centennial and the $1,354,000 carrying value of the commercial portion~~ of Sevilla were classified as held for sale and included in prepaid expenses and other current assets.

9.8. Equity in Investments

Equity in investments consist of the following (in thousands):


	April 30, 2018		October 31, 2017		April 30, 2019		October 31, 2018
Limoneira Lewis Community Builders, LLC	$	13,884	$	9,634	$	53,416	$	14,060
Limco Del Mar, Ltd.	2,087		1,968		2,001		1,935
Rosales	1,794		1,944		1,543		2,191
Romney Property Partnership	515		515		510		512
	$	18,280	$	14,061	$	57,470	$	18,698

The Rosales equity investment includes the Company’s 35% interest acquired in fiscal year 2014 and an additional 12% interest acquired with the purchase of PDA ~~as described~~ in ~~Note 3 - Acquisitions.~~fiscal year 2017. The Company’s investment in Rosales is accounted for using the equity method of accounting based on the sum of its direct and indirect ownership.

The Limoneira Lewis Community Builders, LLC investment balance includes the ~~fair~~ value ~~loan guarantee corresponding~~of the Company's ownership interest in the Joint Venture as described in Note 7 - Real Estate Development.

LIMONEIRA COMPANY

8. Equity in Investments (continued)

Unconsolidated Significant Subsidiary

The LLC investment balance includes the value of the Company's ownership interest in the LLC. In accordance with Rule 10-01(b)(1) of Regulation S-X, which applies for interim reports on Form 10-Q, the Company must determine if its equity method investees are considered, “significant subsidiaries”. In evaluating its investments, there are two tests utilized to determine if equity method investees are considered significant subsidiaries: the income test and the investment astest. Rule 10-01(b)(1) of ~~April 30, 2018.~~Regulation S-X requires summarized income statement information of an equity method investee in an interim report if either of the two tests exceed 20%. During the current quarter, this threshold was met for the LLC and thus requires summarized income statement information in this Quarterly Report on Form 10-Q.

The following is unaudited summarized financial information for the LLC (in thousands):



	Six Months Ended April 30,
	2019		2018
Revenues	$	30,354	$	—
Cost of land sold	22,005		—
Operating expenses	107		83
Net income (loss)	$	8,242	$	(83	)
Net income (loss) attributable to Limoneira Company	$	3,481	$	(83	)

9. Other Assets

Other assets consist of the following (in thousands):



	April 30, 2019		October 31, 2018
Investments in mutual water companies	$	5,486	$	5,026
Acquired water and mineral rights	3,841		3,783
Deposit for land purchase	608		593
Deferred lease assets and other	335		396
Notes receivable	815		566
Revolving funds and memberships	244		267
Acquired trade names, trademarks and customer relationships	2,270		2,442
Goodwill	1,435		1,431
Payments to FGF Trapani	4,000		—
	$	19,034	$	14,504

10. ~~Investment in Calavo Growers, Inc.~~Accrued Liabilities

In June 2005, the Company entered into a stock purchase agreement with Calavo. Pursuant to this agreement, the Company purchased 1,000,000 shares, or approximately 6.9%, of Calavo’s common stock for $10,000,000 and Calavo purchased 1,728,570 shares, or approximately 15.1%,

Accrued liabilities consist of the Company’s common stock for $23,450,000. Under the terms of the agreement, the Company received net cash consideration of $13,450,000. The Company has classified its marketable securities investment as available-for-sale.following (in thousands):

In fiscal year 2009, the Company sold 335,000 shares of Calavo stock for a total of $6,079,000, recognizing a gain of $2,729,000. In fiscal year 2013, the Company sold 165,000 shares to Calavo for a total of $4,788,000, recognizing a gain of $3,138,000. In fiscal year 2015, the Company sold 140,000 shares for a total of $6,433,000, recognizing a gain of $5,033,000. In June and July 2016, the Company sold 60,000 shares, in aggregate, for a total of $4,019,000, recognizing a gain of $3,419,000. These gains are included in other income in the consolidated financial statements of operations. The Company continues to own 300,000 shares of Calavo common stock.



	April 30, 2019		October 31, 2018
Compensation	$	2,258	$	2,784
Property taxes	21		785
Interest	342		297
Deferred rental income and deposits	460		497
Lease expense	78		378
Lemon supplier payables	53		1,214
Capital expenditures and other	1,616		1,769
	$	4,828	$	7,724

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

~~10. Investment in Calavo Growers, Inc. (continued)~~

Additionally, changes in the fair value of the available-for-sale securities result in unrealized holding gains or losses for the remaining shares held by the Company. The Company recorded unrealized holding gains of $2,010,000 ($1,421,000 net of tax) and $3,090,000 ($1,870,000 net of tax), during the three months ended April 30, 2018 and 2017, respectively. The Company recorded unrealized holding gains and of $6,000,000 ($4,242,000 net of tax) and $1,935,000 ($1,173,000) net of tax), during the six months ended April 30, 2018 and 2017, respectively.

11. ~~Other Assets~~

~~Other assets consist of the following (in thousands):~~

April 30,
2018 October 31, 2017
Investments in mutual water companies $ 5,013
$ 4,686
Acquired water and mineral rights 2,714
2,655
Deposit for land purchase 677
645
Deferred lease assets and other 425
448
Note receivable 569
625
Revolving funds and memberships 267
265
Acquired trade names and trademarks, net 202
233
Goodwill 886
876
$ 10,753
$ 10,433

~~12. Accrued Liabilities~~

~~Accrued liabilities consist of the following (in thousands):~~

April 30,
2018 October 31, 2017
Compensation $ 1,884
$ 2,367
Income taxes 2,493
—
Property taxes 29
599
Interest 364
327
Deferred income and deposits 626
636
Lease expense 121
137
Lemon supplier payables —
166
Capital expenditures and other 733
945
$ 6,250
$ 5,177

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~13.~~ Long-Term Debt

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


	April 30, 2018			October 31, 2017		April 30, 2019		October 31, 2018
Farm Credit West revolving and non-revolving lines of credit: the interest rate is variable based on the one-month London Interbank Offered Rate (“LIBOR”), which was 1.90% at April 30, 2018, plus 1.85%. Interest is payable monthly and the principal is due in full on July 1, 2022.	$	80,054		$	74,556
Farm Credit West term loan: the interest rate is variable and was 4.20% at April 30, 2018. The loan is payable in quarterly installments through November 2022.	2,880			3,155
Farm Credit West term loan: the interest rate is variable and was 4.20% at April 30, 2018. The loan is payable in monthly installments through October 2035.	1,144			1,167
Farm Credit West revolving and non-revolving lines of credit: the interest rate of the revolving line of credit is variable based on the one-month London Interbank Offered Rate (“LIBOR”), which was 2.50% at April 30, 2019, plus 1.60%. Effective July 1, 2018, the interest rate for the $40.0 million outstanding balance of the non-revolving line of credit was fixed at 4.77%. Interest is payable monthly and the principal is due in full on July 1, 2022.						$	69,142	$	50,888
Farm Credit West term loan: the interest rate is variable and was 4.95% at April 30, 2019. The loan is payable in quarterly installments through November 2022.						2,321		2,602
Farm Credit West term loan: the interest rate is variable and was 4.95% at April 30, 2019. The loan is payable in monthly installments through October 2035.						1,100		1,122
Farm Credit West term loan: the interest rate is fixed at 4.70%. The loan is payable in monthly installments though March 2036.	9,340			9,504		9,000		9,172
Farm Credit West term loan: the interest rate is fixed at 3.62% until March 2021, becoming variable for the remainder of the loan. The loan is payable in monthly installments though March 2036.	6,947			7,083		6,666		6,808
Wells Fargo term loan: the interest rate is fixed at 3.58%. The loan is payable in monthly installments through January 2023.	7,054			7,730		5,667		6,367
Banco de Chile term loan: the interest rate is fixed at 6.48%. The loan is payable in annual installments through January 2025.	2,197			2,106		1,470		1,857
Note Payable: the interest rate ranges from 5.0% to 7.0%, and was 5.0% at April 30, 2018. The loan includes interest-only monthly payments and principal is due in February 2023.	1,435		—	—
Note Payable: the interest rate ranges from 5.00% to 7.00% and was 5.50% at April 30, 2019. The loan includes interest-only monthly payments and principal is due in February 2023.						1,435		1,435
Subtotal	111,051			105,301		96,801		80,251
Less deferred financing costs, net of accumulated amortization	173			188		142		158
Total long-term debt, net	110,878			105,113		96,659		80,093
Less current portion	3,194			3,030		2,915		3,127
Long-term debt, less current portion	$	107,684		$	102,083	$	93,744	$	76,966

On June 20, 2017, the Company entered into a Master Loan Agreement (the “Loan Agreement”) with Farm Credit West, FLCA (“Farm Credit West”) which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the “Supplements”). Proceeds from the Supplements were used to pay down all the remaining outstanding indebtedness under the revolving credit facility the Company had with Rabobank, N.A. On January 29, 2018, the Company amended the Revolving Credit Supplement to increase the borrowing capacity from $60,000,000 to $75,000,000. The Supplements provide aggregate borrowing capacity of $115,000,000 comprised of $75,000,000 under the Revolving Credit Supplement and $40,000,000 under the Non-Revolving Credit Supplement. ~~In May 2018, the Company entered into a Conversion Agreement with Farm Credit West which will fix the interest rate on the Non-Revolving Credit Supplement at 4.77% effective July 1, 2018.~~ The ~~agreement provides for a fee equal to 0.50% of any amounts prepaid under the Non-Revolving Credit Supplement. The Company may prepay any amounts under the Revolving Credit Supplement without penalty.~~

~~The interest rate for any amount outstanding under the Supplements is~~borrowing capacity based on the one-month London Interbank Offered Rate (“LIBOR”) rate plus an applicable margin, which is subject to adjustment on a monthly basis. The applicable margin ranges from 1.60% to 2.35% depending on the ratio of current assets plus the remaining available commitment divided by current liabilities. On July 1, 2018, and on each one-year anniversary thereafter, we have the option to convert the interest rate in use under each Supplement from the preceding LIBOR-based calculation to a variable interest rate, or the reverse, as applicable. Any amounts outstanding under the Supplements are due and payable in full on July 1, 2022.collateral value was $115,000,000 at April 30, 2019.

All indebtedness under the Loan Agreements, including any indebtedness under the Supplements, is secured by a first lien on 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 Loan Agreement includes customary default provisions that provide should an event of default occur, Farm Credit West, at its option, may declare all or any portion of the indebtedness under the Loan Agreement to be immediately due and payable without demand, notice of non-payment, 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.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~13. Long-Term Debt (continued)~~

The Loan Agreement 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 covenant that it will maintain a debt service coverage ratio greater than 1.25:1.0 measured annually at October 31.

~~The Farm Credit West credit facility provides for maximum borrowings of $115,000,000 and the borrowing capacity based on collateral value was $115,000,000 at April 30, 2018.~~

In fiscal year 2017, the Company paid and capitalized debt financing costs of $108,000 related to the Loan Agreement and expensed $45,000 of capitalized debt financing costs related to the Rabobank revolving credit facility.

The Banco de Chile term loan was assumed with the acquisition of PDA in February 2017. The interest rate is fixed at 6.48%. The loan is payable in eight annual principal and interest payments beginning January 2018. This loan is unsecured.

In February 2013, the Company entered into an option agreement for the purchase of a 7-acre parcel adjacent to its East Area II real estate development project. The Company made a $75,000 initial option payment in 2013 and four additional annual option payments of $50,000 each from 2014 to 2017. In February 2018, the Company exercised its option and purchased the property for $3,145,000, by making a cash payment of $1,444,000 and issuing a note payable for $1,435,000. The $275,000 of option payments were applied to the purchase price and the Company incurred $9,000 of transaction costs. The note payable is due in five years, with interest-only, monthly payments at interest rates ranging from 5.0% to 7.0%.

Interest is capitalized on non-bearing orchards, real estate development projects and significant construction in progress. The Company capitalized interest of ~~$372,000~~$344,000 and ~~$409,000~~$372,000 during the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively,~~$611,000 and $949,000 ~~and $873,000~~ during the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Capitalized interest is included in property, plant and equipment and real estate development 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 net of amortization is included in long-term debt on the Company’s consolidated balance sheet at April 30, 2018.

~~14. Derivative Instrument and Hedging Activities~~

~~The Company enters into interest rate swaps to minimize the risks and costs associated with its financing activities. Derivative financial instruments are as follows (in thousands):~~

Notional Amount Fair Value Liability
April 30,
2018 October 31, 2017 April 30,
2018 October 31, 2017
Pay fixed-rate, receive floating-rate forward interest rate swap, beginning July 2013 until June 2018 $ 40,000
$ 40,000
$ 40
$ 268

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

~~14. Derivative Instrument and Hedging Activities (continued)~~

In November 2011, the Company entered into a forward interest rate swap agreement with Rabobank International, Utrecht to fix the interest rate at 4.30% on $40,000,000 of its outstanding borrowings under the Rabobank line of credit beginning July 2013 until June 2018. In connection with the paydown of the Rabobank debt noted above, on June 20, 2017 the Company entered into a novation agreement with Rabobank International, Utrecht and CoBank, ACB (“CoBank”). The agreement provides for the prior interest rate swap agreement with Rabobank to now be in place with CoBank. The critical terms of the swap agreement have not changed and counterparty risk has not significantly changed.

This interest rate swap qualifies as a cash flow hedge and the fair value liability is included in fair value of derivative instrument and related accumulated other comprehensive income at April 30, 2018 and October 31, 2017.

~~15.~~12. Basic and Diluted Net (Loss) Income per Share

Basic net income (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 conversion of preferred stock. Diluted net income (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 computations for basic and diluted net (loss) income per common share are as follows (in thousands, except per share amounts):

Three Months Ended April 30, Six Months Ended April 30,
2018 2017 2018 2017
Basic net income per common share:

Numerator: Net income for basic EPS $ 6,463
$ 3,385
$ 14,954
$ 1,158
Denominator: Weighted average common shares-basic 14,379
14,269
14,341
14,236
Basic net income per common share $ 0.45
$ 0.24
$ 1.04
$ 0.08



	Three Months Ended April 30,						Six Months Ended April 30,
	2019			2018			2019			2018
Basic net income (loss) per common share:
Net income (loss) applicable to common stock	$	2,689		$	6,473		$	(2,129	)	$	14,973
Effect of unvested, restricted stock	(16		)	(10		)	(33		)	(19		)
Numerator: Net income (loss) for basic EPS	2,673			6,463			(2,162		)	14,954
Denominator: Weighted average common shares-basic	17,554			14,379			17,516			14,341
Basic net income (loss) per common share	$	0.15		$	0.45		$	(0.12	)	$	1.04

Diluted net income per common share:

Numerator: Net income for diluted EPS $ 6,598
$ 3,478
$ 15,224
$ 1,158
Denominator: Weighted average common shares–basic 14,379
14,269
14,341
14,236
Effect of dilutive unvested, restricted stock and preferred stock 644
450
645
—
Weighted average common shares–diluted 15,023
14,719
14,986
14,236
Diluted net income per common share $ 0.44
$ 0.24
$ 1.02
$ 0.08



Diluted net income (loss) per common share:
Numerator: Net income (loss) for diluted EPS	$	2,815	$	6,599	$	(2,162	)	$	15,224
Weighted average common shares–basic	17,554		14,379		17,516			14,341
Effect of dilutive unvested, restricted stock and preferred stock	671		644		—			645
Denominator: Weighted average common shares–diluted	18,225		15,023		17,516			14,986
Diluted net income (loss) per common share	$	0.15	$	0.44	$	(0.12	)	$	1.02

Diluted (losses) earnings per common share are computed using the more dilutive method of either the two-class method or the treasury 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 two-class method.~~share. The Company’s unvested, restricted stock awards qualify as participating shares. The Company excluded 140,000 and 94,000, ~~and 93,000,~~unvested, restricted shares, as calculated under the treasury stock method, from its computation of diluted (losses) earnings per share for the three months ended April 30, 2019 and 2018, respectively, and 219,000 and 93,000 for the six months ended April 30, 2019 and 2018, respectively.

~~16.~~13. Related-Party Transactions

The Company rents certain of its residential housing assets to employees on a month-to-month basis. The Company recorded ~~$178,000~~$182,000 and ~~$180,000~~$178,000 of rental revenue from employees in the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively. The Company recorded~~$360,000 and $355,000 ~~and $368,000 of rental revenue from employees~~ in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. There were no rental payments due from employees at April 30, ~~2018~~2019 or October 31, ~~2017.~~2018.

The Company has representation on the boards of directors of the mutual water companies in which the Company has investments. The Company recorded capital contributions and purchased water and water delivery services from such mutual water companies, in aggregate, of ~~$166,000~~$81,000 and ~~$80,000~~$166,000 in the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively. The Company recorded capital contributions~~$858,000 and ~~purchased water and water delivery services from such mutual water companies, in aggregate, of~~ $886,000 ~~and $718,000~~ in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Capital contributions are included in other assets in the Company’s consolidated balance sheets and purchases of water and water delivery services are included in agribusiness expense in the Company’s consolidated statements of operations. ~~Payments~~Water payments due to the mutual water companies were, in aggregate, ~~$361,000~~$681,000 and ~~$141,000~~$142,000 at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~16. Related-Party Transactions (continued)~~

The Company has representation on the board of directors of a non-profit cooperative association that provides pest control services for the agricultural industry. The Company purchased services and supplies of ~~$508,000~~$540,000 and ~~$409,000~~$508,000 from the association in the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively. The Company purchased services~~$856,000 and ~~supplies of~~ $815,000 ~~and $981,000 from the association~~ in the six months ended April 30, 2019 and 2018, ~~and 2017, respectively. Such amounts~~respectively, which are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to the ~~association~~cooperative were ~~$107,000~~$185,000 and ~~$180,000~~$142,000 at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. Related-Party Transactions (continued)

The Company has an investment in and representation on the board of directors of Calavo and Calavo has an investment in and had representation on the board of directors of the Company. The Company recorded dividend income of ~~$285,000~~$250,000 and ~~$270,000~~$285,000 in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, on its investment in Calavo, which is included in other income (expense), net in the Company’s consolidated statements of operations. The Company paid $255,000 and $216,000 of dividends to Calavo for the six months ended April 30, 2019 and 2018, respectively. The Company had $540,000 and $935,000 ofin avocado sales to Calavo for ~~both~~ the three months ended April 30, 2019 and 2018, respectively, and $543,000 and $935,000 for the six months ended April 30, 2019 and 2018, respectively. ~~The Company had $2,029,000 of avocado sales to Calavo for both the three and six months ended April 30, 2017, respectively. Such amounts~~which are included in agribusiness revenues in the ~~Company’s~~Company's consolidated statements of operations. There were ~~$749,000~~$467,000 and zero amounts receivable by the Company from Calavo at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively. ~~Additionally, the~~The Company leases office space to Calavo and received rental income of ~~$73,000~~$80,000 and ~~$71,000~~$73,000 in the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$145,000~~$159,000 and ~~$142,000~~$145,000 in the six months ended April 30, 2019 and 2018, ~~and 2017, respectively. Such amounts are~~respectively, which is included in rental operations revenues in the Company’s consolidated statements of operations. The Company purchased ~~$4,000~~$1,000 and ~~zero~~$4,000 of storage services from Calavo in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Amounts due to Calavo at April 30, ~~2018~~2019 and October 31, ~~2017~~2018 were ~~$1,000~~zero and ~~$163,000,~~$3,000, respectively.

Certain members of the Company’s board of directors market lemons through the ~~Company pursuant to its customary marketing agreements.~~Company. The aggregate amount of lemons procured from entities owned or controlled by members of the board of directors was ~~$1,158,000~~$232,000 and ~~$701,000~~$1,158,000 in the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$1,386,000~~$609,000 and ~~$976,000~~$1,386,000 in the six months ended April 30, 2019 and 2018, ~~and 2017, respectively. Such amounts~~respectively, which are included in agribusiness expense in the Company’s consolidated statements of operations. Payments due to these board members were ~~$831,000~~$500,000 and ~~$636,000~~$487,000 at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively. Additionally, the Company leases approximately 31 acres of orchards from entities affiliated with a member on the board of directors and incurred $23,000 and $11,000 of lease expense related to these leases in ~~each of~~ the six months ended April 30, 2019 and 2018, ~~and 2017.~~respectively.

On July 1, 2013, the Company and Cadiz Real Estate LLC (“Cadiz”), a wholly-owned subsidiary of Cadiz Inc., entered into a long-term lease agreement (the “Lease”) for a minimum of 320 acres, with options to lease up to an additional 960 acres, located within 9,600 zoned agricultural acres owned by Cadiz in eastern San Bernardino County, California. The initial term of the Lease runs for 20 years and the annual base rental rate is equal to the sum of $200 per planted acre and 20% of gross revenues from the sale of harvested lemons (less operating expenses) not to exceed $1,200 per acre per year. A member of the Company’s board of directors serves as the CEO, President and a member of the board of directors of Cadiz Inc. Additionally, this board member is an attorney with a law firm that provided services of ~~$10,000~~$12,000 and ~~$24,000~~$10,000 to the Company during the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$19,000~~$14,000 and ~~$41,000~~$19,000 during the six months ended April 30, 2019 and 2018, respectively. Payments due to the law firm were zero and ~~2017,~~$67,000 at April 30, 2019 and October 31, 2018, respectively. The Company incurred lease and farming expenses of ~~$50,000~~$22,000 and ~~$68,000~~$50,000 in the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$86,000~~$88,000 and ~~$96,000~~$86,000 in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, which are recorded in agribusiness expense in the Company’s consolidated statements of operations.

On February 5, 2015, the Company entered into a Modification of Lease Agreement (the “Amendment”) with Cadiz. The Amendment, among other things, increased by 200 acres the amount of property leased by the Company under the lease agreement dated July 1, 2013. In connection with the Amendment, the Company paid a total of $1,212,000 to acquire existing lemon trees and irrigations systems from Cadiz and a Cadiz tenant. In February 2016, Cadiz assigned this lease to Fenner Valley Farms, LLC (“Fenner”), a subsidiary of Water Asset Management, LLC (“WAM”). An entity affiliated with WAM is the holder of 9,300 shares of Limoneira Company Series B-2 convertible preferred stock. ~~Payments~~Amounts due to Fenner were $80,000 and ~~$61,000~~$100,000 at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively.

The Company has representation on the board of directors of Colorado River Growers, Inc. (“CRG”), a non-profit cooperative association of fruit growers engaged in the agricultural harvesting business in Yuma County, Arizona. The Company paid harvest costs to CRG of zero ~~and $68,000~~ in the three months ended April 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The Company paid harvest costs to CRG of ~~$2,451,000~~$3,841,000 and ~~$2,825,000~~$2,451,000 in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Such amounts are included in agribusiness expense in the Company’s consolidated statements of operations. Additionally, Associated provided harvest management and administrative services to CRG in the amounts of zero ~~in both~~during the three months ended April 30, ~~2018~~2019 and ~~2017.~~

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~16. Related-Party Transactions (continued)~~

2018. Associated provided harvest management and administrative services to CRG in the amounts of $306,000 and $218,000 ~~and $303,000 in~~during the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Such amounts are included in agribusiness revenues in the Company’s consolidated statements of operations. There was zero and ~~$209,000~~$232,000 due to Associated from CRG at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively, which is included in accounts receivable, net in the Company’s consolidated balance sheets.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

13. Related-Party Transactions (continued)

The Company has representation on the board of directors of Yuma Mesa Irrigation and Drainage District (“YMIDD”). In December 2013, Associated entered into an agreement, as amended in December 2014 and 2015, with YMIDD to participate in a Pilot Fallowing Program in which Associated agreed to forego its water allocation for approximately 300 acres of land in exchange for $750 per acre through December 31, 2016. In relation to this program, during the six months ended April 30, 2018 and 2017 the Company recorded revenues of zero and $34,000, respectively. These amounts are included in other income, net in the Company’s consolidated statements of operations. Additionally, the Company purchased water in the amounts of $65,000 and $52,000 from YMIDD during the three months ended April 30, 2018 and 2017, respectively. The Company purchased water in the amounts of ~~$149,000~~$53,000 and ~~$67,000~~$65,000 during the three months ended April 30, 2019 and 2018, respectively, and $85,000 and $149,000 from YMIDD during the six months ended April 30, 2019 and 2018, ~~and 2017, respectively. Such amounts are~~respectively, which is included in agribusiness expenses in the Company’s consolidated statements of operations. There were no amounts ~~receivable from YMIDD at April 30, 2018 and October 31, 2017. Amounts~~ due to YMIDD at April 30, ~~2018 and~~2019 or October 31, ~~2017 were zero and $10,000, respectively.~~2018.

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. The Company provides Del Mar with farm management, orchard land development and accounting services and received expense reimbursements of ~~$43,000~~$45,000 and ~~$35,000~~$43,000 in the three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and ~~$95,000~~$80,000 and ~~$69,000~~$95,000 in the six months ended April 30, 2019 and 2018, ~~and 2017.~~respectively. The Company procures lemons from Del Mar and fruit proceeds ~~due~~(due from) payable to Del Mar were ~~$334,000~~$(2,000) and ~~$912,000~~$709,000 at April 30, ~~2018~~2019 and October 31, ~~2017,~~2018, respectively, and are included in grower’s payable in the Company’s consolidated balance sheets. ~~In the three months ended April 30, 2018 and 2017, the~~The Company received no cash distributions and recorded equity in ~~losses~~(losses) earnings of this investment of ~~$45,000~~$(139,000) and ~~$46,000, respectively. In~~$(45,000) in the three months ended April 30, 2019 and 2018, respectively, and $66,000 and $118,000, in the six months ended April 30, ~~2018~~2019 and ~~2017, the Company received no cash distributions and recorded equity in earnings of this investment of $118,000 and $137,000,~~2018, respectively.

On August 14, 2014, the Company’s wholly owned subsidiary, Limoneira Chile SpA, invested approximately $1,750,000 for a 35% interest in Rosales, a citrus packing, marketing and sales business located in La Serena, Chile. The Company purchased an additional 12% interest in Rosales with the February 2017 acquisition of PDA. The Company recognized ~~$782,000~~zero and ~~$362,000~~$782,000 of lemon sales to Rosales in the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively. The Company recognized~~$521,000 and $923,000 ~~and $610,000 of lemon sales to Rosales~~ in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Additionally, ~~PDA~~San Pablo recognized ~~$421,000 and $233,000 of~~aggregate lemon and orange sales of $720,000 and $780,000 to Rosales for the three and six months ended April 30, 2019, respectively. PDA recognized aggregate lemon and orange sales of $685,000 and $421,000 to Rosales in the three months ended April 30, 2019 and 2018, respectively, and ~~2017, respectively. PDA recognized~~$765,000 and $703,000 ~~and $223,000 of lemon and orange sales to Rosales~~ in the six months ended April 30, 2019 and 2018, ~~and 2017, respectively. Such amounts~~respectively, which are recorded in agribusiness revenues in the Company’s consolidated statements of operations. ~~Amounts due~~The aggregate amount of lemons and oranges procured from Rosales ~~were $163,000 and $101,000 at April 30, 2018 and October 31, 2017, respectively. The Company recorded equity in (gain) losses of this investment of $(3,000) and $43,000~~was zero in the three months ended April 30, 2019 and 2018 and ~~2017,~~$359,000 and zero in the six months ended April 30, 2019 and 2018, respectively. Amounts due from (payable to) Rosales were $234,000 and $(65,000) at April 30, 2019 and October 31, 2018, respectively. The Company recorded equity in (losses) earnings of this investment of $(119,000) and $3,000 in the three months ended April 30, 2019 and 2018, respectively, and amortization of fair value basis differences of $85,000 ~~and $52,000~~ in the three months ended April 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The Company recorded equity in losses of this investment of ~~$33,000~~$(196,000) and ~~$46,000~~$(33,000) in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and amortization of fair value basis differences of $169,000 ~~and $104,000~~ in the six months ended April 30, ~~2018~~2019 and ~~2017, respectively.~~2018. The Company received $283,000 and zero cash distributions from this equity investment ~~of zero and $134,000~~ in the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

~~17.~~14. Income Taxes

The Company’s estimated annual effective blended tax rate for fiscal year ~~2018~~2019 is approximately ~~27.1%~~28.2%. ~~As such, a (116.8)%~~A 26.7% estimated effective blended tax rate, after ~~tax reform and stock compensation~~ discrete items, was utilized by the Company in the ~~three~~six months ended April 30, ~~2018~~2019 to calculate its income tax provision. The discrete driver of the significant increase in the estimated effective blended tax rate in the six months ended April 30, 2018 is the approximately $10.0 million decrease in deferred tax liabilities, related to the change in federal tax rate per the Tax Cuts and Jobs Act of 2017, from 34% to 21%.

The Company has no uncertain tax positions as of April 30, ~~2018.~~2019. The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. The Company has not accrued any interest and penalties associated with uncertain tax positions as of April 30, ~~2018.~~

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~17. Income Taxes (continued)~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code (“IRC”). Except for certain provisions, the act is effective for tax years beginning on or after January 1, 2018. As a fiscal year U.S. taxpayer, the majority of the provisions will apply to the Company’s 2019 fiscal year, such as eliminating the domestic production activities deduction, creating new taxes on certain foreign sourced income and introducing new limitations on certain business deductions. For fiscal year 2018 and effective in the first fiscal quarter, the most significant impacts include: lowering of the U.S. federal corporate income tax rate; remeasuring certain net deferred tax liabilities; and immediate expensing of certain capital expenditures. Changes effective fiscal year 2018 include, but not limited to, a corporate tax rate decrease from 34% to 21%, the transition of U.S. international taxation from a worldwide system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.2019.

The Company ~~has calculated its best estimate of~~applied the ~~impact of the Act on its quarter-end income tax provision~~guidance in accordance with its understanding of the Act and guidance available as of the date of this filing and as a result of the corporate tax rate reduction, the Company has decreased its deferred tax liability balance as of April 30, 2018 by approximately $10,000,000.

The Company is able to claim bonus depreciation to accelerate the expensing of the cost of certain qualified property acquired and placed in service after September 27, 2017 and before January 1, 2024. For the first five-year period (through 2022), the Company can deduct 100% of the cost of qualified property. Starting in 2023, the additional bonus depreciation is gradually phased out by 20% each year through 2027.

Deemed repatriation of foreign earnings is the one-time mandatory transition tax imposed on cumulative foreign earnings. The Company does not believe that there is an impact due to its current foreign earnings deficit. However, the Company will continue to evaluate its foreign earnings during the fiscal year.

The Act eliminates or reduces certain deductions, including Section 199 Domestic Production Activities Deduction. However, the Company’s fiscal year began before the Act was effective, and the Company will be able to claim the Section 199 deduction for fiscal year 2018. After fiscal year 2018, the Company will no longer be able to claim the Section 199 deduction.

Due to uncertainties which currently exist in the interpretation of the provisions of the Act regarding IRC Section 162(m), the Company has not evaluated the potential impacts of IRC Section 162(m) as amended by the Act on its financial statements.

~~On December 22, 2017,~~ Staff Accounting Bulletin No. 118 (“SAB 118”) ~~was issued to address the application of U.S. GAAP in situations~~ when ~~a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the~~ accounting for ~~certain~~the enactment-date effects of the 2017 Act throughout fiscal year 2018. At January 31, 2019, the Company completed its evaluation for all of the enactment-date income tax effects of the ~~Act. In accordance with SAB 118, the Company has determined that the approximately $10,000,000 of deferred tax benefit recorded in connection with the re-measurement of certain deferred tax assets~~2017 Act and ~~liabilities and zero additional taxable income recorded in connection with the transition tax~~no material adjustments noted to be made on the ~~mandatory deemed repatriation of foreign earnings is a~~ provisional ~~amount and a reasonable estimate~~amounts recorded at ~~April 30,~~January 31, 2018. Additional work is necessary to do a more detailed analysis of historic earnings as well as potential correlative adjustments. Any subsequent adjustments to these amounts will be recorded during the remainder of the fiscal year ended October 31, 2018, as they are identified.

~~18.~~15. Retirement Plans

The Limoneira Company Retirement Plan (the “Plan”) is a noncontributory, defined benefit, single employer pension plan, which provides retirement benefits for all eligible ~~employees of the Company.~~employees. Benefits paid by the Plan are calculated based on years of service, highest five-year average earnings, primary Social Security benefit and retirement age. Effective June 2004, the Company froze the Plan and no additional benefits accrued to participants subsequent to that date. ~~The Plan is administered by Wells Fargo Bank and Mercer Human Resource Consulting.~~

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

15. Retirement Plans (continued)

The Plan is funded consistent with the funding requirements of federal law and regulations. There were funding contributions of $150,000 ~~and $150,000~~ during ~~the~~both three months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and $300,000 ~~and $425,000~~ during ~~the~~both six months ended April 30, 2019 and 2018, ~~and 2017,~~ respectively.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~18. Retirement Plans (continued)~~

The components of net periodic pension cost for the Plan for the three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018 were as follows (in thousands):


	Three Months Ended April 30,						Six Months Ended April 30,						Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Administrative expenses	$	63		$	76		$	126		$	152		$	47		$	63		$	94		$	126
Interest cost	192			194			385			388			207			192			414			385
Expected return on plan assets	(268		)	(263		)	(536		)	(526		)	(272		)	(268		)	(544		)	(536		)
Prior service cost	11			11			22			22			11			11			22			22
Recognized actuarial loss	175			208			350			416			100			175			201			350
Net periodic benefit cost	$	173		$	226		$	347		$	452		$	93		$	173		$	187		$	347

~~19. Other Long-Term Liabilities~~16. Commitments and Contingencies

~~Other long-term liabilities consist of the following (in thousands):~~

April 30,
2018 October 31, 2017
Minimum pension liability $ 3,556
$ 3,858
Loan guarantee 750
—
Deferred gain and other 23
62
$ 4,329
$ 3,920

~~20. Contingencies~~

The Company is from time to time involved in various lawsuits and legal proceedings that arise in the ordinary course of business. At this time, the Company is not aware of any pending or threatened litigation against it that it expects will have a material adverse effect on its business, financial condition, liquidity, ~~and/~~or operating results. Legal claims are inherently uncertain, however, and it is possible that the Company’s business, financial condition, liquidity and/or operating results could be adversely affected in the future by legal proceedings.

~~21. Series B and Series B-2 Preferred Stock~~

~~Series B Convertible Preferred Stock~~

~~In 1997, in connection with the acquisition of Ronald Michaelis Ranches, Inc., the Company issued 30,000 shares of Series B Convertible Preferred Stock at $100.00 par value (the “Series B Stock”).~~

Dividends: The holders of shares of Series B Stock are entitled to receive cumulative cash dividends at an annual rate of 8.75% of par value. Such dividends are payable quarterly on the first day of January, April, July and October in each year commencing July 1, 1997.

~~Voting Rights: Each holder of Series B Stock is entitled to ten votes on all matters submitted to a vote of the stockholders of the Company.~~

Redemption: The Company, at the option of the board of directors, may redeem the Series B Stock, as a whole or in part, at any time or from time to time on or after August 1, 2017 and before July 31, 2027, at a redemption price equal to the par value thereof, plus accrued and unpaid dividends thereon to the date fixed for redemption. Redemption by the Company of a portion of the Series B Stock totaling 14,790 shares is subject to certain conditions agreed upon between the Company and the holders of this portion of the Series B Stock.17. Stock-based Compensation

Conversion: The holders of Series B Stock have the right, at their option, to convert such shares into shares of Common Stock of the Company at any time prior to redemption. The conversion price is $8.00 per share of Common Stock. Pursuant to the terms of the Certificate of Designation, Preferences and Rights of the Series B Stock, the conversion price shall be adjusted to reflect any dividends paid in Common Stock of the Company, the subdivision of the Common Stock of the Company into a greater number of shares of Common Stock of the Company or upon the advice of legal counsel.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~21. Series B and Series B-2 Preferred Stock (continued)~~

~~Series B Convertible Preferred Stock (continued)~~

Put: The holders of Series B Stock may at any time after July 1, 2017 and before June 31, 2027 cause the Company to repurchase such shares at a repurchase price equal to the par value thereof, plus accrued and unpaid dividends thereon to the date fixed for repurchase. The put features of a portion of the Series B Stock totaling 14,790 shares are subject to certain conditions agreed upon between the Company and the holders of this portion of the Series B Stock.

Because the Series B Stock may be redeemed by holders of the shares at their discretion beginning July 1, 2017, the redemption is outside of the control the Company and accordingly, the Series B Stock has been classified as temporary equity.

~~In fiscal year 2017, a total of 14,210 shares of Series B preferred stock were converted into 177,624 shares of common stock. In fiscal year~~ ~~2016, 500 shares of Series B preferred stock were converted into 6,250 shares of common stock. In fiscal year~~ ~~2015, 500 shares of Series B preferred stock were converted into 6,250 shares of common stock.~~

~~Series B-2 Convertible Preferred Stock~~

During March and April of 2014, pursuant to a Series B-2 Stock Purchase Agreement dated March 21, 2014, the Company issued an aggregate of 9,300 shares of Series B-2, 4% voting preferred stock with a par value of $100.00 per share (the “Series B-2 Preferred Stock”) to WPI-ACP Holdings, LLC (“WPI”), an entity affiliated with WAM for total proceeds of $9,300,000. The transactions were exempt from the registration requirements of the Securities Act of 1933, as amended. The Series B-2 Preferred Stock has the following rights, preferences, privileges, and restrictions:

Conversion: Each share of the Series B-2 Preferred Stock is convertible into common stock at a conversion price equal to the greater of (a) the then-market price of the Company’s common stock based upon the closing price of the Company’s common stock on the NASDAQ Stock Market, LLC or on such other principal market on which the Company’s common stock may then be trading and (b) $15.00 per share of common stock. Shares of the Series B-2 Preferred Stock may be converted into common stock (i) at any time prior to the redemption thereof, or (ii) in the event the Option Agreement (as defined below) is terminated without all of the shares of Series B-2 Preferred Stock having been redeemed, within 30 calendar days following such termination.

Dividends: The holder of shares of the Series B-2 Preferred Stock is entitled to receive cumulative cash dividends at an annual rate of 4% of the liquidation value of $1,000 per share. Such dividends are payable quarterly on the first day of January, April, July and October in each year commencing July 1, 2014.

Liquidation Rights: In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holder of shares of the Series B-2 Preferred Stock is entitled to be paid out of the assets available for distribution, before any payment is made to the holders of the Company’s common stock or any other series or class of the Company’s shares ranking junior to the Series B-2 Preferred Stock, an amount equal to the liquidation value of $1,000 per share, plus an amount equal to all accrued and unpaid dividends.

~~Voting Rights: Each share of Series B-2 Preferred Stock is entitled to one vote on all matters submitted to a vote of the Company’s stockholders.~~

Redemption: The Company may redeem shares of Series B-2 Preferred Stock only (i) from WPI or its designee and (ii) upon, and to the extent of, an election to exercise the option pursuant to the Option Agreement, described below, at a redemption price equal to the liquidation value of $1,000 per share plus accrued and unpaid dividends.

Because the Series B-2 Preferred Stock may be redeemed by WPI at its discretion with the exercise of the Option Agreement, the redemption is outside of the control the Company and accordingly, the Series B-2 Preferred Stock has been classified as temporary equity.

In connection with the sale of the Series B-2 Preferred Stock, Associated and another affiliate of WAM (“WPI-ACP”), entered into a series of agreements related to the future ownership and disposition of farmland with associated Colorado River water rights and other real estate that is held by Associated in Yuma, Arizona. The agreements allow the parties to explore strategies that will make the highest and best use of those assets, including but not limited to the sale or lease of assets or the expansion of a fallowing and water savings program in which a portion of Associated’s property is currently enrolled.

~~LIMONEIRA COMPANY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)~~

~~21. Series B and Series B-2 Preferred Stock (continued)~~

~~Series B-2 Convertible Preferred Stock (continued)~~

The net proceeds of any monetization event would be shared equally by the parties. The agreements entered into include a Water Development Agreement and an Option Agreement. Pursuant to the Water Development Agreement, Associated granted WPI-ACP exclusive rights to develop water assets attributable to the real estate owned by Associated for the mutual benefit of Associated and WAM. Pursuant to the Option Agreement, Associated granted WPI-ACP an option to purchase an undivided interest of up to one-half of the real estate owned by Associated in Yuma County, Arizona (the “Property”) and the water rights associated therewith until January 1, 2026. The purchase price for the Property subject to the Option Agreement will be paid via the redemption by the Company of a proportionate percentage of the Series B-2 Preferred Stock. Unless and until a definitive agreement or definitive agreements with respect to Associated’s real estate and water rights is entered into that would cause the cessation of farming operations, Associated expects to continue farming the Property and recognize all results of operations and retain all proceeds from such operations.

~~22. Stock-based Compensation~~

The Company has a stock-based compensation plan (the “Stock Plan”) that allows for the grant of common stock of the Company to members of management based on achievement of certain annual financial performance and other criteria. The number of shares granted is based on a percentage of the employee’s base salary divided by the stock price on the grant date. Shares granted under the Stock Plan ~~generally~~ vest over ~~a two-year period.~~two to five-year periods.

In December ~~2017, 41,291~~2018, 40,094 shares of common stock with a per share value of ~~$22.86~~$18.74 were granted to management under the Stock Plan for fiscal year ~~2017~~2018 performance, resulting in a total compensation expense of approximately ~~$944,000,~~$751,000, with ~~$605,000~~$343,000 recognized in the year ended October 31, ~~2017~~2018 and the balance to be recognized over the next two years as the shares vest. In addition, 90,000 shares of common stock with a per share value of ~~$22.19~~$19.84 were granted to key executives under the Stock Plan, resulting in a total compensation expense of approximately ~~$1,997,000,~~$1,786,000, to be recognized equally over the next ~~five~~three years as the shares vest. ~~In December 2016, 44,688 shares of common stock with a per share value of $19.92 were granted to management under the Stock Plan for fiscal year~~ ~~2016~~ performance, resulting in total compensation expense of approximately $890,000, with $544,000 recognized in the year ended October 31, 2016 and the balance to be recognized over the next two years as the shares vest. In December 2015, 27,424 shares of common stock with a per share value of $15.29 were granted to management under the Stock Plan for fiscal year ~~2015~~ ~~performance, resulting in total compensation expense of approximately $410,000, with $130,000 recognized in the year ended~~ ~~October 31, 2015~~ ~~and the balance recognized over the next two years as the shares vested.~~

~~Stock-based compensation expense is recognized over the performance and vesting periods as summarized below ($ in thousands):~~

Three Months Ended
April 30, Six Months Ended
April 30,
Performance Year Shares Granted 2018 2017 2018 2017
2015 27,424 $ —
$ 36
$ —
$ 72
2016 44,688 25
64
50
128
2017 41,291 68
193
136
357
2018 90,000 138
—
444
—
$ 231
$ 293
$ 630
$ 557

~~During the three months ended January 31,~~ ~~2018~~ and 2017 members of management exchanged 17,520 and 14,773 shares, respectively of common stock with fair value of $401,000 and $294,000, respectively, at the date of the exchanges, for the payment of payroll taxes associated with the vesting of shares under the Company’s stock-based compensation programs.

During January ~~2018~~2019 and ~~2017,~~2018, 15,642 and 14,033 ~~and 18,956~~ shares, respectively, of common stock were granted to the Company’s non-employee directors under the Company’s stock-based compensation plans. The Company recognized ~~$309,000~~$339,000 and ~~$323,000~~$309,000 of stock-based compensation to non-employee directors during the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

~~23.~~18. Segment Information

The Company operates in six reportable operating segments: fresh lemons, lemon packing, avocados, other agribusiness, rental operations and real estate development. The reportable operating segments of the Company are strategic business units with different products and services, distribution processes and customer bases. The fresh lemons segment includes sales, farming and harvesting expenses and third-party grower costs relative to fresh lemons. The lemon packing segment includes packing revenues and shipping and handling revenues relative to lemon packing. The lemon packing segment expenses are comprised of lemon packing costs. The lemon packing segment revenues include intersegment revenues between fresh lemons and lemon packing. The intersegment revenues are included gross in the segment note and a separate line item is shown as an elimination. The avocados segment includes sales, farming and harvest costs. The other agribusiness segment includes sales, farming and harvesting of oranges, specialty citrus and other crops. The rental operations segment includes housing and commercial rental operations, leased land and organic recycling. The real estate development segment includes real estate development operations.

The Company does not separately allocate depreciation and amortization to its fresh lemons, lemon packing, avocados and other agribusiness segments. No asset information is provided for reportable operating segments as these specified amounts are not included in the measure of segment profit or loss reviewed by the Company’s chief operating decision maker. The Company measures operating performance, including revenues and operating income, of its ~~reportable~~ operating segments and allocates resources based on its evaluation. The Company does not allocate selling, general and administrative expense, other income, interest expense and income taxes, or specifically identify them to its ~~reportable~~ operating segments. The Company earns packing revenue for packing lemons grown on its orchards and lemons procured from third-party growers. Intersegment revenues represent packing revenues related to lemons grown on the Company’s orchards.

Segment information for the three months ended April 30, 2019 (in thousands):



	Fresh Lemons⁽¹⁾		Lemon Packing		Eliminations			Avocados			Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	32,428	$	3,954	$	—		$	540		$	3,901	$	40,823	$	1,212	$	—		$	—		$	42,035
Intersegment revenue	—		8,157		(8,157		)	—			—		—		—		—			—			—
Total net revenues	32,428		12,111		(8,157		)	540			3,901		40,823		1,212		—			—			42,035
Costs and expenses	27,915		10,664		(8,157		)	921			3,875		35,218		901		24			4,776			40,919
Depreciation and amortization	—		—		—			—			—		1,860		194		—			67			2,121
Operating income (loss)	$	4,513	$	1,447	$	—		$	(381	)	$	26	$	3,745	$	117	$	(24	)	$	(4,843	)	$	(1,005	)

Segment information for the three months ended April 30, 2018 (in thousands):


	Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	30,561	$	3,008	$	—		$	935	$	7,361	$	41,865	$	1,270	$	—		$	—		$	43,135	$	30,561	$	3,008	$	—		$	935	$	7,361	$	41,865	$	1,270	$	—		$	—		$	43,135
Intersegment revenue	—		7,152		(7,152		)	—		—		—		—		—			—			—		—		7,152		(7,152		)	—		—		—		—		—			—			—
Total net revenues	30,561		10,160		(7,152		)	935		7,361		41,865		1,270		—			—			43,135		30,561		10,160		(7,152		)	935		7,361		41,865		1,270		—			—			43,135
Costs and expenses	22,601		7,170		(7,152		)	875		3,808		27,302		781		39			3,889			32,011		22,601		7,170		(7,152		)	875		3,808		27,302		781		39			3,889			32,011
Depreciation and amortization	—		—		—			—		—		1,496		195		—			53			1,744		—		—		—			—		—		1,496		195		—			53			1,744
Operating income	$	7,960	$	2,990	$	—		$	60	$	3,553	$	13,067	$	294	$	(39	)	$	(3,942	)	$	9,380
Operating income (loss)																								$	7,960	$	2,990	$	—		$	60	$	3,553	$	13,067	$	294	$	(39	)	$	(3,942	)	$	9,380

Segment information for the ~~three~~six months ended April 30, ~~2017~~2019 (in thousands):


	Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons⁽¹⁾		Lemon Packing		Eliminations			Avocados			Other Agribusiness			Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	23,402	$	2,768	$	—		$	2,029	$	7,218	$	35,417	$	1,476	$	—		$	—		$	36,893	$	66,921	$	8,057	$	—		$	543		$	6,102		$	81,623	$	2,430	$	—		$	—		$	84,053
Intersegment revenue	—		5,787		(5,787		)	—		—		—		—		—			—			—		—		15,201		(15,201		)	—			—			—		—		—			—			—
Total net revenues	23,402		8,555		(5,787		)	2,029		7,218		35,417		1,476		—			—			36,893		66,921		23,258		(15,201		)	543			6,102			81,623		2,430		—			—			84,053
Costs and expenses	18,325		6,240		(5,787		)	830		5,476		25,084		763		160			3,060			29,067		59,997		19,448		(15,201		)	1,637			6,385			72,266		1,785		52			9,728			83,831
Depreciation and amortization	—		—		—			—		—		1,371		187		—			56			1,614		—		—		—			—			—			3,728		389		—			130			4,247
Operating income	$	5,077	$	2,315	$	—		$	1,199	$	1,742	$	8,962	$	526	$	(160	)	$	(3,116	)	$	6,212
Operating income (loss)																								$	6,924	$	3,810	$	—		$	(1,094	)	$	(283	)	$	5,629	$	256	$	(52	)	$	(9,858	)	$	(4,025	)

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

~~23.~~18. Segment Information (continued)

Segment information for the six months ended April 30, 2018 (in thousands):

Fresh
Lemons
Lemon
Packing
Eliminations

Avocados
Other
Agribusiness
Total
Agribusiness
Rental
Operations
Real Estate
Development
Corporate
and Other
Total
Revenues from external customers $ 55,537
$ 5,841
$ —
$ 935
$ 9,885
$ 72,198
$ 2,530
$ —
$ —
$ 74,728
Intersegment revenue —
12,076
(12,076 ) —
—
—
—
—
—
—
Total net revenues 55,537
17,917
(12,076 ) 935
9,885
72,198
2,530
—
—
74,728
Costs and expenses 45,491
12,894
(12,076 ) 1,579
6,129
54,017
1,651
69
7,915
63,652
Depreciation and amortization —
—
—
—
—
2,943
390
—
101
3,434
Operating income $ 10,046
$ 5,023
$ —
$ (644 ) $ 3,756
$ 15,238
$ 489
$ (69 ) $ (8,016 ) $ 7,642

~~Segment information for the six months ended April 30, 2017 (in thousands):~~


	Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons		Lemon Packing		Eliminations			Avocados			Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	46,714	$	5,445	$	—		$	2,029	$	7,998	$	62,186	$	2,799	$	—		$	—		$	64,985	$	55,537	$	5,841	$	—		$	935		$	9,885	$	72,198	$	2,530	$	—		$	—		$	74,728
Intersegment revenue	—		10,946		(10,946		)	—		—		—		—		—			—			—		—		12,076		(12,076		)	—			—		—		—		—			—			—
Total net revenues	46,714		16,391		(10,946		)	2,029		7,998		62,186		2,799		—			—			64,985		55,537		17,917		(12,076		)	935			9,885		72,198		2,530		—			—			74,728
Costs and expenses	39,574		11,971		(10,946		)	1,510		7,984		50,093		1,629		245			6,854			58,821		45,491		12,894		(12,076		)	1,579			6,129		54,017		1,651		69			7,915			63,652
Depreciation and amortization	—		—		—			—		—		2,706		376		—			109			3,191		—		—		—			—			—		2,943		390		—			101			3,434
Operating income	$	7,140	$	4,420	$	—		$	519	$	14	$	9,387	$	794	$	(245	)	$	(6,963	)	$	2,973
Operating income (loss)																								$	10,046	$	5,023	$	—		$	(644	)	$	3,756	$	15,238	$	489	$	(69	)	$	(8,016	)	$	7,642

The following table sets forth revenues by category, by segment for the three and six months ended April 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):


	Three Months Ended April 30,						Six Months Ended April 30,						Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Fresh lemons(1)	$	30,561		$	23,402		$	55,537		$	46,714		$	32,428		$	30,561		$	66,921		$	55,537
Lemon packing	10,160			8,555			17,917			16,391			12,111			10,160			23,258			17,917
Intersegment revenue	(7,152		)	(5,787		)	(12,076		)	(10,946		)	(8,157		)	(7,152		)	(15,201		)	(12,076		)
Lemon revenues	33,569			26,170			61,378			52,159			36,382			33,569			74,978			61,378

Avocados	935			2,029			935			2,029			540			935			543			935

Navel and Valencia oranges	5,223			4,918			6,566			5,421			1,991			5,223			2,937			6,566
Specialty citrus and other crops	2,138			2,300			3,319			2,577			1,910			2,138			3,165			3,319
Other agribusiness revenues	7,361			7,218			9,885			7,998			3,901			7,361			6,102			9,885
Agribusiness revenues	41,865			35,417			72,198			62,186			40,823			41,865			81,623			72,198

Residential and commercial rentals	878			888			1,728			1,782			885			878			1,762			1,728
Leased land	326			371			654			742			224			326			493			654
Organic recycling and other	66			217			148			275			103			66			175			148
Rental operations revenues	1,270			1,476			2,530			2,799			1,212			1,270			2,430			2,530

Real estate development revenues	—			—			—			—			—			—			—			—
Total net revenues	$	43,135		$	36,893		$	74,728		$	64,985		$	42,035		$	43,135		$	84,053		$	74,728

⁽¹⁾ During the first quarter of fiscal 2019, the Company adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of certain brokered fruit sales revenue received and the related cost of fruit incurred by the Company. The adoption of this guidance resulted in revenue within the Company’s fresh lemon segment of $162,000 and $456,000, during the three and six months ended April 30, 2019, respectively. See Note 2 - Summary of Significant Accounting Policies for additional information.

LIMONEIRA COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

~~24.~~19. Subsequent Events

The Company has evaluated events subsequent to April 30, ~~2018~~2019 through the date of this filing, ~~date~~ to assess the need for potential recognition or disclosure in this Quarterly Report on Form 10-Q. Based upon this evaluation, except as described below or in the ~~Notes~~notes to ~~Consolidated Financial Statements,~~the interim consolidated financial statements, it was determined that no other subsequent events occurred that require recognition or disclosure in the unaudited consolidated financial statements.

Acquisition

On May 30, 2019, the Company acquired a 51% interest in a joint venture formed with FGF Trapani (“FGF”), a multi-generational, family owned citrus operation in Argentina, and acquired a 51% interest in an Argentine Trust that holds a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. The joint venture will control the trust and operate under the name Trapani Fresh to grow, pack, market and sell fresh citrus.

Total consideration paid for the Company’s interest in Trapani Fresh was $15,000,000. $7,500,000 of consideration was paid to FGF on May 30, 2019. The remaining $7,500,000 of consideration was advanced to FGF as prepayments for the 25% interest in Santa Clara retained by FGF. $4,000,000 was advanced in February 2019 and $3,500,000 was advanced in May 2019. Title to this 25% of Santa Clara will transfer to Trapani Fresh by 2024. These advances will be accounted for as an acquisition of property by the Company in May 2019. The Company is currently evaluating the accounting treatment for its 51% interest in Trapani Fresh and anticipates that it will consolidate Trapani Fresh as a business combination and reflect FGF’s 49% interest in Trapani Fresh as a non-controlling interest in its consolidated financial statements.

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

Overview

Limoneira Company was incorporated in Delaware in 1990 as the successor to several businesses with operations in California since 1893. We are an agribusiness and real estate development company founded and based in Santa Paula, California, committed to responsibly using and managing our approximately ~~11,200~~15,700 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, real estate development and capital investment activities.

We are one of California’s oldest citrus growers. According to Sunkist Growers, Inc. (“Sunkist”), we are one of the largest growers of lemons in the United States and, according to the California Avocado Commission, one of the largest growers of avocados in the United States. In addition to growing lemons and avocados, we grow oranges and a variety of other specialty citrus and other crops. We have agricultural plantings throughout Ventura, Tulare, San Bernardino and San Luis Obispo Counties in California, Yuma County in Arizona and La Serena, Chile, which collectively consist of approximately ~~4,800~~6,200 acres of lemons, 900 acres of avocados, ~~1,500~~1,600 acres of oranges and 1,000 acres of specialty citrus and other crops. We also operate our own packinghouses in Santa Paula, California and Yuma, Arizona, where we process and pack lemons that we grow, as well as lemons grown by others. We have a 47% interest in Rosales S.A. (“Rosales”), a citrus packing, marketing and sales business, ~~and~~ a 90% interest in Fruticola Pan de Azucar S.A. (“PDA”), a lemon and orange orchard ~~both~~and 100% interest in Agricola San Pablo, SpA ("San Pablo"), a lemon and orange orchard, all of which are located near La Serena, Chile. We have a 51% interest in a lemon growing, packing, marketing and selling operation in Argentina

Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own. Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the un-adjudicated Fillmore and Paso Robles Basins (aquifers). We use ground water from the San Joaquin Valley Basin and water from water districts and irrigation districts in Tulare County, which is in California’s San Joaquin Valley and we use ground water from the Cadiz Valley Basin in San Bernardino County. We also use surface water in Arizona from the Colorado River through the Yuma Mesa Irrigation and Drainage District (“YMIDD”). We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in ~~Chile.~~Chile and our Trapani Fresh farming operations in Argentina.

For more than 100 years, we have been making strategic investments in California agribusiness and real estate development. We currently have three ~~active~~ real estate development projects in California. These projects include multi-family housing and single-family homes comprised of approximately ~~245~~260 completed rental units and another approximately ~~1,700~~1,500 units in various stages of planning and development.

Business Division Summary

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, and includes our farming, harvesting, lemon packing and lemon sales operations. The rental operations division includes our residential and commercial rentals, leased land operations and organic recycling. The real estate development division includes our real estate projects and development. Financial information and discussion of our six reportable segments, which includes fresh lemons, lemon packing, avocados, other agribusiness, rental operations and real estate development, are contained in the notes to the accompanying consolidated financial statements of this Quarterly Report on Form 10-Q.

Agribusiness Division

The agribusiness division is comprised of four of our reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, which represented approximately 96%, ~~95%~~96% and 95% of our fiscal year 2018, 2017 ~~2016~~ and ~~2015~~2016 consolidated revenues, respectively, of which fresh lemons and lemon packing combined represented ~~78%~~80%, ~~76%~~78% and ~~79%~~76% of our fiscal year 2018, 2017 ~~2016~~ and ~~2015~~2016 consolidated revenues, respectively.

Our lemon farming is included in our “fresh lemons” and “lemon packing” reportable operating segments within our financial statements. We are one of the largest growers of lemons and avocados in the United States. We market and sell lemons directly to our food service, wholesale and retail customers throughout the United States, Canada, Asia, Australia and certain other international markets. During the six months ended April 30, ~~2018,~~2019, lemon sales were comprised of approximately ~~76%~~73% in domestic and Canadian sales, ~~20%~~21% in sales to domestic exporters and 4%6% in international sales. Additionally, we had approximately $1.5 million of lemon and orange sales in Chile by PDA and San Pablo in the six months ended April 30, 2019. We sell a portion of our oranges and specialty citrus to ~~Sunkist-licensed~~Sunkist-

licensed and other third-party packinghouses. We sell our pistachios to a roaster, packager and marketer of ~~nuts;~~nuts, and our wine grapes are sold to various wine producers.

Historically, our agribusiness operations have been seasonal in nature with quarterly revenue fluctuating depending on the timing and variety of crops being harvested. Cultural costs in our agribusiness tend to be higher in the first and second quarters and lower in the third and fourth quarters because of the timing of expensing cultural costs in the current year that were inventoried in the prior year. Our harvest costs generally increase in the second quarter and peak in the third quarter coinciding with the increasing production and revenue.

Fluctuations in price are a function of global supply and demand with weather conditions, such as unusually low temperatures, typically having the most dramatic effect on the amount of lemons supplied in any individual growing season. We believe we have a competitive advantage by maintaining our own lemon packing operations, even though a significant portion of the costs related to these operations are fixed. As a result, cost per carton is a function of fruit throughput. While we regularly monitor our costs for redundancies and opportunities for cost reductions, we also supplement the number of lemons we pack in our packinghouse with additional lemons procured from other growers. Because the fresh utilization rate for our lemons, or percentage of lemons we harvest and pack that are sold to the fresh market, is directly related to the quality of lemons we pack and, consequently, the price we receive per 40-pound box, we only pack lemons from other growers if we determine their lemons are of good quality.

Our avocado producing business is important to us yet faces constraints on growth as there is little additional land that can be cost-effectively acquired to support new avocado orchards in Southern California. Also, avocado production is cyclical as avocados typically bear fruit on a bi-annual basis with large crops in one year followed by smaller crops the next year. While our avocado production can be volatile, the profitability and cash flow realized from our avocados frequently offsets occasional losses in other crops we grow and helps to diversify our fruit production base.

In addition to growing lemons and avocados, we grow oranges, specialty citrus and other crops, typically utilizing land not suitable for growing high quality lemons. We regularly monitor the demand for the fruit we grow in the ever-changing marketplace to identify trends. For instance, while per capita consumption of oranges in the United States has been decreasing since 2000 primarily as a result of consumers increasing their consumption of mandarin oranges and other specialty citrus, the international market demand for U.S. oranges has increased. As a result, we have focused our orange production on high quality late season Navel oranges primarily for export to Japan, China and Korea, which are typically highly profitable niche markets. We produce our specialty citrus and other crops in response to consumer trends we identify and believe that we are a leader in the niche production and sale of certain of these high margin fruits. We carefully monitor the respective markets of specialty citrus and other crops and we believe that demand for the types and varieties of specialty citrus and other crops that we grow will continue to increase throughout the world.

Rental Operations Division

Our rental operations division is provided for in our financial statements as its own reportable operating segment and includes our residential and commercial rentals, leased land operations and organic recycling. Our rental operations division represented approximately 4%, 5%4% and 5% of our consolidated revenues in fiscal years 2018, 2017 ~~2016~~ and ~~2015,~~2016, respectively. Our residential rental units generate reliable cash flows which we use to partially fund the operations of all three of our business divisions and provide affordable housing to many of our employees, including our agribusiness employees, a unique employment benefit that helps us maintain a dependable, long-term employee base. In addition, our leased land business provides us with a typically profitable diversification. Revenue from our rental operations segment is generally level throughout the year.

Real Estate Development Division

Our real estate development division is provided for in our financial statements as its own reportable operating segment and includes our real estate development operations. The real estate development division had no significant revenue in fiscal years 2018, 2017 ~~2016~~ or ~~2015.~~2016. We recognize that long-term strategies are required for successful real estate development activities. Our goal is to redeploy real estate earnings and cash flow into the expansion of our agribusiness and other income producing real estate. For real estate development projects and joint ventures, it is not unusual for the timing and amounts of revenues and costs, partner contributions and distributions, project loans and other financing assumptions and project cash flows to be impacted by government approvals, project revenue and cost estimates and assumptions, economic conditions, financing sources and product demand as well as other factors. Such factors could affect our results of operations, cash flows and liquidity.

Water Resources

Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own. Water for our farming operations is sourced from the existing water resources associated with our land, which includes rights to water in the adjudicated Santa Paula Basin (aquifer) and the un-adjudicated Fillmore and Paso Robles Basins (aquifers). We use ground water from the San Joaquin Valley Basin and water from local water and irrigation districts in Tulare County, which is in California’s San Joaquin Valley. We also use ground water from the Cadiz Valley Basin in California’s San Bernardino County and surface water in Arizona from the Colorado River through the YMIDD. We use ground and surface water for our PDA and San Pablo farming operations in ~~Chile.~~Chile and our Trapani Fresh farming operations in Argentina.

California has historically experienced periods of below average precipitation. Recent precipitation has brought relief to California’s drought conditions, although the last few years have been among the most severe droughts on record. Rainfall, snow levels and water content of snow pack had previously been significantly below historical averages. These conditions resulted in reduced water levels in streams, rivers, lakes, aquifers and reservoirs. The governor of California declared a drought State of Emergency in February 2014, which was lifted in April 2017. Federal officials oversee the Central Valley Project, California’s largest water delivery system and 100% of the contracted amount of water was provided to San Joaquin Valley farmers in 2018 and 2017 compared to 75% in 2016 and zero ~~in 2015.~~for 2015 and 2014.

Depending on the location of our agricultural operations, we obtain our water from aquifers, water delivered by water federal, state and local water and irrigation districts and rainfall. Our water resources include water rights, usage rights and pumping rights to the water in aquifers under, and canals that run through, the land we own.

Water for our farming operations located in Ventura County, California is sourced from the existing water resources associated with our land, which includes approximately 8,600 acre feet of adjudicated water rights in Santa Paula Basin (aquifer) and the un-adjudicated Fillmore Basin.

We use a combination of ground water provided by wells and water from various local water and irrigation districts in Tulare County, California that is in the agriculturally productive San Joaquin Valley.

We use ground water provided by wells that derive water from the Cadiz Valley Basin at the Cadiz Ranch in San Bernardino, California.

Our Windfall Investors, LLC (“Windfall”) property located in San Luis Obispo County, California, obtains water from wells deriving water from the Paso Robles Basin.

Our Associated Citrus Packers, Inc. (“Associated”) farming operations in Yuma, Arizona sources water from the Colorado River through the YMIDD, where we have access to approximately 11,700 acre feet of Class 3 Colorado River water rights.

We use ground water provided by wells and surface water for our PDA and San Pablo farming operations in La Serena, ~~Chile.~~Chile and our Trapani Fresh farming operations in Argentina.

Recent Developments

On November 10, 2015, we entered into a joint venture with The Lewis Group of Companies (“Lewis”) for the residential development of our East Area I real estate development project. To consummate the transaction, we formed Limoneira Lewis Community Builders, LLC (the "LLC" or "Joint Venture") as the development entity. The first phase of the project broke ground to commence mass grading on November 8, 2017. Project plans include approximately 632 residential units in Phase 1. Grading began in November 2017 and Phase 1 site improvements have ~~begun. The lot bidding process with home builders has begun and initial closings of lots sales are anticipated to begin in the first quarter of fiscal year 2019.~~

To consummate the joint venture transaction, we formed Limoneira Lewis Community Builders, LLC (the “Joint Venture”) 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, comprised of a $2.0 million deposit received in September 2015 and $18.0 million received on November 10, 2015. We expect to receive approximately $100.0 million from the Joint Venture over the estimated 7 to 10-year life of the project, including Lewis’ $20.0 million investment in the Joint Venture.been substantially completed. The Joint Venture ~~partners will share~~received lot deposits from national homebuilders in ~~capital contributions~~fiscal year 2018 and initial lot sales representing a total of 174 residential units closed in February and March 2019. For further information see Note 7 – Real Estate Development of the notes to fund project costs until loan proceeds and/or revenues are sufficient to fund the project. These funding requirements are currently estimated to total $10.0 to $15.0 million for each Joint Venture partnerconsolidated financial statements included in this Quarterly Report on Form 10-Q

Late in the ~~first two to three years of the project and we funded $3.5 million in the first~~third quarter of fiscal year 2018, ~~and $7.5 million~~Ventura County experienced record high temperatures. We expect that the effect of these high temperatures will result in lower avocado crop volume in fiscal year ~~2017. We also entered a lease agreement with the Joint Venture~~2019 compared to ~~lease back a portion of the contributed property, which allows us to continue farming the property during the phased build-out of the project.~~

On February 24, 2017, we completed the acquisition of 90% of the outstanding stock of PDA, a privately-owned Chilean corporation, for $5.7 million in cash. PDA also had approximately $1.7 million in long-term debt on the acquisition date, which we assumed in the acquisition. PDA is a 200-acre lemon and orange orchard located near La Serena, Chile. PDA’s total assets of approximately $9.5fiscal year 2018.

~~million on the acquisition date included a 13% equity interest in Rosales, in which~~In October 2018, we ~~owned a 35% equity investment. After the acquisition, we own 47%~~sold 50,000 shares of ~~Rosales and PDA’s 10% stockholder owns the remaining 53%~~Calavo Growers, Inc. (“Calavo”) common stock at an average price of Rosales. Rosales packs and sells all of PDA’s citrus production. PDA had approximately $450,000 of net income on approximately $1.9 million in sales for the year ended December 31, 2016. The results of operations of PDA are included in our consolidated results of operations$94.47 per share. Net proceeds from the ~~acquisition date.~~

On June 20, 2017, we entered into a Master Loan Agreement (the “Loan Agreement”) with Farm Credit West, FLCA (“Farm Credit West”) which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the “Supplements”). Proceeds from the Supplementssale were used to pay down all the remaining outstanding indebtedness under the revolving credit facility we had with Rabobank, N.A. On January 29, 2018 we amended the Revolving Credit Supplement to increase the borrowing capacity from $60.0 million to $75.0 million. The Supplements provide aggregate borrowing capacity of $115.0 million comprised of $75.0 million under the Revolving Credit Supplement and $40.0 million under the Non-Revolving Credit Supplement. In May 2018, we locked the interest rate on the Non-Revolving Supplement at 4.77%, effective July 1, 2018.

In August 2017, we entered an agreement to sell the commercial portion of our Sevilla property for approximately $1.5 million. This transaction closed in November 2017, we received net proceeds of $1.4$4.7 million and we recognized a gain of ~~approximately $10,000.~~$4.2 million. We continue to own 250,000 shares of Calavo common stock. With the adoption of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2016-01 on November 1, 2018, changes in the fair value of the equity securities result in gains or losses recognized in net income. The Company

recorded unrealized gains (losses) of $3.6 million and $(0.3) million during the three and six months ended April 30, 2019, which is included in other income (expense) in the consolidated statements of operations.

In October ~~2017,~~2018, we ~~entered an agreement~~began negotiations to sell both our Centennial property for approximately $3.3 million. This transaction closed December 2017 and we received net proceeds of $0.2 million and issued a $3.0 million promissory note secured by the property for the balance of the purchase price. The promissory note matures in June 2018 but provides for potential extensions to December 2019. After transaction costs, the sale resulted in a gain of $0.2 million, most of which has been deferred until repayment of the promissory note. In May 2018, per the terms of the promissory note, the holder of the note made a non-refundable $0.1 million payment to us, extending the due date to September 15, 2018.

~~In December 2017, we entered an agreement to sell our~~ Terraces at Pacific Crest (“("Pacific ~~Crest”~~Crest") property and the remaining residential portion of our Sevilla property for ~~$3.5~~$5.2 million. ~~After transaction costs, we expect to recognize~~As a ~~gain of $40,000. To date, this transaction has not closed.~~

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Act”) was signed into law making significant changes to the Internal Revenue Code (“IRC”). Changes include, but are not limited to, a corporate tax rate decrease from 34% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide system to a territorial system, and a one-time transition taxresult, based on the ~~mandatory deemed repatriation~~estimated selling prices, we recorded an impairment charge of ~~cumulative foreign earnings as of December 31, 2017. We~~$1.6 million in fiscal year 2018. These negotiations have ~~calculated our best estimate of the impact of the Act on our quarter-end income tax provision~~not resulted in ~~accordance with our understanding of the Act and guidance available as of the date of this filing and as~~ a ~~result of the rate reduction, we have decreased our deferred tax liability balance as of April 30, 2018 by approximately $10.0 million.~~

In January 2018, the Joint Venture entered into a $45.0 million unsecured Line of Credit Loan Agreement and Promissory Note (the “Loan”) with Bank of America, N.A. to fund early development activities. The Loan matures in January 2020, with an option to extend the maturity date until 2021, subject to certain conditions. The interest rate on the Loan is LIBOR plus 2.85%, payable monthly. The Loan contains certain customary default provisions and the Joint Venture may prepay any amounts outstanding under the Loan without penalty. In February 2018, the obligations under the Loan were guaranteed by certain principals from Lewis and by the Company.

In February 2013, we entered into an option agreement for the purchase of a 7-acre parcel adjacent to its East Area II real estate development project. We made a $75,000 initial option payment in 2013 and four additional annual option payments of $50,000 each from 2014 to 2017. In February 2018, we exercised our option and purchased the property for $3.1 million, by making a cash payment of $1.4 million and issuing a note payable for $1.4 million. The $0.3 million of option payments were applied to the purchase pricesale and we ~~incurred $9,000 of transaction costs. The note payable is due in five years, with interest-only, monthly payments at interest rates ranging from 5% to 7%.~~are actively marketing the properties.

For fiscal year ~~2017,~~2018, we declared cash dividends to our stockholders totaling $0.25 per common share in the aggregate amount of $4.0 million compared to a total of $0.22 per common share in the aggregate amount of ~~approximately~~ $3.2 ~~million compared to a total of $0.20 per common share in the aggregate amount of approximately $2.8~~ million for fiscal year ~~2016.~~2017. On ~~March 26, 2018,~~April 15, 2019, we declared a cash dividend ~~$0.0625~~$0.075 per common share which was paid on April ~~18, 2018,~~19, 2019, in the aggregate amount of ~~approximately $0.9~~$1.3 million to common stockholders of record as of April ~~6, 2018.~~8, 2019. This ~~represents~~represented a ~~14%~~20% increase in our dividend compared to ~~2017.~~2018.

On May 30, 2019, we acquired a 51% interest in a joint venture formed with FGF Trapani (“FGF”), a multi-generational, family owned citrus operation in Argentina, and acquired a 51% interest in an Argentine Trust that holds a 75% interest in Finca Santa Clara (“Santa Clara”), a ranch with approximately 1,200 acres of planted lemons. The joint venture will control the trust and operate under the name Trapani Fresh to grow, pack, market and sell fresh citrus.

Total consideration paid for our interest in Trapani Fresh was $15.0 million. $7.5 million of consideration was paid to FGF on May 30, 2019. The remaining $7.5 million of consideration was advanced to FGF as prepayments for the 25% interest in Santa Clara retained by FGF. $4 million was advanced in February 2019 and $3.5 million was advanced in May 2019. Title to this 25% of Santa Clara will transfer to Trapani Fresh by 2024. These advances will be accounted for as an acquisition of property by our Company in May 2019. We are currently evaluating the accounting treatment for our 51% interest in Trapani Fresh and anticipate that we will consolidate Trapani Fresh as a business combination and reflect FGF’s 49% interest in Trapani Fresh as a non-controlling interest in our consolidated financial statements.

Results of Operations

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


	Three Months Ended April 30,						Six Months Ended April 30,						Three Months Ended April 30,						Six Months Ended April 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenues:
Agribusiness	$	41,865		$	35,417		$	72,198		$	62,186		$	40,823		$	41,865		$	81,623		$	72,198
Rental operations	1,270			1,476			2,530			2,799			1,212			1,270			2,430			2,530
Real estate development	—			—			—			—			—			—			—			—
Total net revenues	43,135			36,893			74,728			64,985			42,035			43,135			84,053			74,728
Costs and expenses:
Agribusiness	28,798			26,455			56,960			52,799			37,078			28,798			75,994			56,960
Rental operations	976			950			2,041			2,005			1,095			976			2,174			2,041
Real estate development	39			40			69			125			24			39			52			69
Impairments of real estate development assets	—			120			—			120
Selling, general and administrative	3,942			3,116			8,016			6,963			4,843			3,942			9,858			8,016
Total costs and expenses	33,755			30,681			67,086			62,012			43,040			33,755			88,078			67,086
Operating income:
Agribusiness	13,067			8,962			15,238			9,387			3,745			13,067			5,629			15,238
Rental operations	294			526			489			794			117			294			256			489
Real estate development	(39		)	(160		)	(69		)	(245		)	(24		)	(39		)	(52		)	(69		)
Selling, general and administrative	(3,942		)	(3,116		)	(8,016		)	(6,963		)	(4,843		)	(3,942		)	(9,858		)	(8,016		)
Operating income	9,380			6,212			7,642			2,973
Operating (loss) income													(1,005		)	9,380			(4,025		)	7,642
Other income (expense):
Interest expense, net	(284		)	(417		)	(794		)	(851		)
Interest expense													(686		)	(284		)	(539		)	(794		)
Equity in earnings of investments	(126		)	(141		)	(83		)	(67		)	1,927			(126		)	1,969			(83		)
Unrealized gain (loss) on stock in Calavo Growers, Inc.													3,612			—			(298		)	—
Other income, net	16			40			257			327			56			16			360			257
Total other expense	(394		)	(518		)	(620		)	(591		)	4,909			(394		)	1,492			(620		)
Income before income tax (provision) benefit	8,986			5,694			7,022			2,382
Income (loss) before income tax (provision) benefit													3,904			8,986			(2,533		)	7,022
Income tax (provision) benefit	(2,380		)	(2,158		)	8,207			(918		)	(1,084		)	(2,380		)	677			8,207
Net income	6,606			3,536			15,229			1,464
(Income) loss attributable to noncontrolling interest	(7		)	4			(5		)	4
Net income attributable to Limoneira Company	$	6,599		$	3,540		$	15,224		$	1,468
Net income (loss)													2,820			6,606			(1,856		)	15,229
Net income attributable to noncontrolling interest													(5		)	(7		)	(22		)	(5		)
Net income (loss) attributable to Limoneira Company													$	2,815		$	6,599		$	(1,878	)	$	15,224

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 unrealized gain (loss) on stock in Calavo, LLC earnings in equity investment and impairments on real estate development assets when applicable, is an important measure to evaluate our results of operations between periods on a more comparable basis. Such measurements are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and should not be construed as an alternative to reported results determined in accordance with GAAP. The non-GAAP information provided is unique to us and may not be consistent with methodologies used by other companies.

EBITDA and adjusted EBITDA are summarized and reconciled to net income (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):


	Three Months Ended April 30,				Six Months Ended April 30,						Three Months Ended April 30,					Six Months Ended April 30,
	2018		2017		2018				2017		2019			2018		2019			2018
Net income attributable to Limoneira Company	$	6,599	$	3,540	$	15,224			$	1,468
Interest expense, net	284		417		794				851
Net income (loss) attributable to Limoneira Company											$	2,815		$	6,599	$	(1,878	)	$	15,224
Interest expense											686			284		539			794
Income tax provision (benefit)	2,380		2,158		(8,207		)		918		1,084			2,380		(677		)	(8,207		)
Depreciation and amortization	1,744		1,614		3,434			—	3,191		2,121			1,744		4,247			3,434
EBITDA	$	11,007	$	7,729	$	11,245			$	6,428	$	6,706		$	11,007	$	2,231		$	11,245
Impairments of real estate development assets	—		120		—				120
Unrealized (gain) loss on stock in Calavo Growers, Inc.											(3,612		)	—		298			—
LLC earnings in equity investment											(2,270		)	—		(2,270		)	—
Adjusted EBITDA	$	11,007	$	7,849	$	11,245			$	6,548	$	824		$	11,007	$	259		$	11,245

~~Second Quarter of Fiscal Year 2018~~Three Months Ended April 30, 2019 Compared to the ~~Second Quarter of Fiscal Year 2017~~Three Months Ended April 30, 2018

Revenues

Total ~~revenue~~net revenues for the second quarter of fiscal year ~~2018~~2019 was ~~$43.1~~$42.0 million compared to ~~$36.9~~$43.1 million for the second quarter of fiscal year ~~2017.~~2018. The ~~17% increase~~3% decrease of ~~$6.2~~$1.1 million was primarily the result of ~~increased~~decreased agribusiness revenues, as detailed below ($ in thousands):


	Agribusiness Revenues for the Three Months Ended April 30,								Agribusiness Revenues for the Three Months Ended April 30,
	2018		2017		Change				2019		2018		Change
Lemons	$	33,569	$	26,170	$	7,399		28%	$	36,382	$	33,569	$	2,813		8%
Avocados	935		2,029		(1,094		)	(54)%	540		935		(395		)	(42)%
Navel and Valencia oranges	5,223		4,918		305			6%	1,991		5,223		(3,232		)	(62)%
Specialty citrus and other crops	2,138		2,300		(162		)	(7)%	1,910		2,138		(228		)	(11)%
Agribusiness revenues	$	41,865	$	35,417	$	6,448		18%	$	40,823	$	41,865	$	(1,042	)	(2)%

Lemons: The increase in the second quarter of fiscal year ~~2018~~2019 was primarily the result of ~~higher~~increased volume of lemon by-products compared to the same period in fiscal year 2018. Additionally, lower fresh lemon prices ~~and~~were partially offset by increased volume of fresh lemons sold compared to the same period in fiscal year ~~2017.~~2018. During the second ~~quarters~~quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, fresh lemon sales were ~~$27.1~~$26.3 million and ~~$20.6~~$27.1 million, respectively, on ~~1,157,000~~1,300,000 and ~~958,000~~1,157,000 cartons of lemons sold at average per carton prices of $20.26 and $23.42, ~~and $21.50,~~ respectively. ~~Additionally, lemon~~Lemon revenues included $4.0 million shipping and handling, $4.3 million lemon by-products and $1.8 million other lemon sales in the second quarter of fiscal year 2019 compared to $3.0 million shipping and handling, $2.2 million lemon by-products and $1.3 million other lemon sales during the same period in fiscal year 2018. Other lemon sales in the second quarter of fiscal year ~~2018~~2019 included $1.0 million in Chile by PDA and San Pablo compared to ~~$2.8~~$0.4 million ~~shipping and handling, $1.8 million lemon by-product and $1.0 million other lemon sales during~~in Chile by PDA in the ~~same period in~~second quarter of fiscal year ~~2017.~~2018.

Avocados: The decrease in the second quarter of fiscal year ~~2018~~2019 was primarily the result of lower volume partially offset by higher prices ~~and volume~~ of avocados sold compared to the same period in fiscal year ~~2017.~~2018. During the second quarter of fiscal year ~~2018,~~2019 0.4 million pounds of avocados were sold at an average per pound price of $1.27 compared to 1.0 million pounds of avocados were sold at an average per pound price of $0.94 ~~compared to 1.3 million pounds of avocados were sold at an average per pound price of $1.56~~ during the same period in fiscal year ~~2017.~~2018. The ~~lower~~higher prices in fiscal year ~~2018~~2019 are the result of ~~higher~~lower supply in the marketplace.

Navel and Valencia oranges: The ~~increase~~decrease in the second quarter of fiscal year ~~2018~~2019 was primarily attributable to ~~higher~~lower prices ~~partially offset by~~and lower volume of oranges sold compared to the same period in fiscal year ~~2017.~~2018. In the second quarter of fiscal year ~~2018, 471,000~~2019, 361,000 40-pound carton equivalents of oranges were sold at average per carton prices of ~~$11.09~~$5.52 compared to ~~522,000~~471,000 40-pound carton equivalents sold at average per carton prices of ~~$9.42~~$11.09 in the second quarter of fiscal year ~~2017.~~2018. Orange sales in the second quarter of fiscal year 2019 were zero in Chile by PDA and San Pablo compared to $0.1 million in Chile by PDA in the second quarter of fiscal year 2018.

Specialty citrus and other crops: The decrease in the second quarter of fiscal year ~~2018~~2019 was primarily the result of lower ~~volume~~prices partially offset by higher ~~prices for~~volume of specialty citrus sold compared to the same period in fiscal year ~~2017.~~2018. During the second quarter of fiscal year ~~2018, 193,000~~2019, 272,000 40-pound carton equivalents of specialty citrus were sold at an average per carton price of ~~$11.08~~

$7.02 compared to ~~211,000~~193,000 40-pound carton equivalents sold at an average per carton price of ~~$10.90~~$11.08 during the same period in fiscal year ~~2017.~~

2018.

Costs and Expenses

Our total costs and expenses in the second quarter of fiscal year ~~2018~~2019 were ~~$33.8~~$43.0 million compared to ~~$30.7~~$33.8 million in the second quarter of fiscal year ~~2017,~~2018, for a ~~10%~~28% increase of ~~$3.1~~$9.2 million. This increase was primarily attributable to increases in our agribusiness and selling, general and administrative costs and expenses. Costs and expenses associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the fruit we procure and sell for third-party growers and depreciation ~~expense. These costs are discussed further~~and amortization expense, as detailed below ($ in thousands):


	Agribusiness Costs and Expenses for the Three Months Ended April 30,								Agribusiness Costs and Expenses for the Three Months Ended April 30,
	2018		2017		Change				2019		2018		Change
Packing costs	$	7,170	$	7,743	$	(573	)	(7)%	$	10,664	$	7,170	$	3,494		49%
Harvest costs	4,828		5,296		(468		)	(9)%	4,672		4,828		(156		)	(3)%
Growing costs	5,857		5,575		282			5%	6,665		5,857		808			14%
Third-party grower costs	9,447		6,470		2,977			46%	13,217		9,447		3,770			40%
Depreciation and amortization	1,496		1,371		125			9%	1,860		1,496		364			24%
Agribusiness costs and expenses	$	28,798	$	26,455	$	2,343		9%	$	37,078	$	28,798	$	8,280		29%

Packing costs: Packing costs primarily 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 ~~$6.6~~$9.9 million and ~~$5.7~~$6.6 million in the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, respectively. During the second quarter of fiscal year ~~2018,~~2019, we packed and sold ~~1,157,000~~1,300,000 cartons of lemons at average per carton costs of ~~$5.68~~$7.60 compared to ~~958,000~~1,157,000 cartons of lemons sold at average per carton costs of ~~$5.99~~$5.68 during the same period in fiscal year ~~2017.~~2018. The increase in average per carton costs in fiscal year 2019 compared to fiscal year 2018 is primarily due to increased volume of lemon by-products and $2.2 million of operating costs incurred at the Oxnard Lemon facility. Additionally, packing costs included ~~$0.6~~$0.8 million of shipping costs in the second quarter of fiscal ~~years 2018~~year 2019 compared to ~~$0.5~~$0.6 million in the second quarter of fiscal year ~~2017. Further,~~2018.

Harvest costs: The increase in the second quarter of fiscal year ~~2017, we incurred $1.5 million of packing service charges from an independent packinghouse to have a portion of our oranges and specialty citrus packed in Limoneira branded cartons.~~

~~Harvest costs: The decrease in the second quarter of fiscal year 2018~~2019 is primarily attributable to increased volume of lemons harvested partially offset by decreased volume of avocados ~~oranges~~ and ~~specialty citrus~~oranges harvested.

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 increase in the second quarter of fiscal year ~~2018 is~~2019 was primarily due to net increased ~~costs~~cost of ~~$0.3~~$0.8 million for cultivation, fertilization and soil amendments, ~~pruning~~pest control and ~~irrigation plus PDA growing~~San Pablo cultural costs compared to the same period in fiscal year ~~2017. These net increases~~2018. Growing costs reflect farm management decisions based on weather, harvest timing and crop conditions.

Third-party grower costs: We sell fruit that we grow and fruit that we procure from other growers. The cost of procuring fruit from other growers is referred to as third-party grower costs. The increase in the second quarter of fiscal year ~~2018~~2019 is primarily attributable to higher volume partially offset by lower price ~~and volume~~ of third-party grower fruit sold. Of the ~~1,157,000~~1,300,000 and ~~958,000~~1,157,000 cartons of lemons packed and sold during the second quarter of fiscal years 2019 and 2018, respectively, 770,000 (59%) and ~~2017, respectively,~~ 493,000 (43%) ~~and 371,000 (39%)~~cartons were procured from third-party growers at average per carton prices of ~~$19.19~~$17.01 and ~~$17.44,~~$19.19, respectively.

Depreciation and amortization expense for the second quarter of fiscal year ~~2018~~2019 was approximately ~~$0.1~~$0.4 million higher than the second quarter of fiscal year ~~2017~~2018 primarily due to the acquisitions of Oxnard Lemon and San Pablo and an increase in assets placed into service.

Selling, general and administrative costs and expenses were $4.8 million in the three months ended April 30, 2019 compared to $3.9 million in the three months ended April 30, ~~2018~~2018. The $0.9 million increase is primarily attributable to an increase in administration personnel, salaries and benefits, increased incentive compensation and increased professional fees associated with our strategic initiatives as of April 30, 2019 compared to ~~$3.1 million in~~April 30, 2018.

Other Income (Expense)

Other income, net for the three months ended April 30, ~~2017. The $0.8~~2019 is comprised primarily of $3.6 million ~~increase is primarily attributable to increased lemon selling expenses due to an increase~~unrealized gain on equity securities and $1.9 million of equity in ~~personnel, increased legal and consulting fees for our strategic initiatives and increased incentive compensation as a result~~earnings of ~~projected improved operating results as~~investments partially offset by $0.7 million of ~~April 30, 2018 compared to April 30, 2017.~~

~~Other Income (Expense)~~

interest expense, net. Other expense, net for the three months ended April 30, 2018 is comprised primarily of $0.3 million of ~~net~~ interest expense, net and $0.1 million of equity in losses of investments. Other expense, net for the three months ended April 30, 2017 is comprised primarily of $0.4 million of net interest expense and $0.1 million of equity in losses of investments. The $0.1 million decrease in expense was primarily due to a decrease in net interest expense in the second quarter of fiscal year 2018 compared to the same period in fiscal year 2017.

Interest is capitalized on real estate development projects and significant construction in progress using the weighted average interest rate during the fiscal year. We capitalized $0.3 million and $0.4 million of interest in the second quarter of fiscal years 2019 and 2018, ~~and 2017.~~respectively. Interest capitalization is discontinued when a project is substantially complete. Under the equity method of accounting used for our Limoneira/Lewis Joint Venture, interest capitalization ~~will cease~~ceased upon the commencement of lot ~~sales.~~sales in February 2019.

Income Taxes

We recorded an estimated income tax provision of $1.1 million in the second quarter of fiscal year 2019 on pre-tax income of $3.9 million compared to an estimated income tax provision of $2.4 million in the second quarter of fiscal year 2018 on pre-tax income of $9.0 ~~million compared to an estimated income tax provision of $2.2 million in the second quarter of fiscal year 2017 on pre-tax income of $5.7~~ million. Our projected annual effective blended tax rate for fiscal year ~~2018~~2019 is approximately ~~27.1%~~28.2%.

Net ~~(Income) Loss~~Income Attributable to Noncontrolling Interest

Net ~~(income) loss~~income attributable to noncontrolling interest represents 10% of the net ~~(income) loss~~income of PDA.

Six Months Ended April 30, ~~2018~~2019 Compared to the Six Months Ended April 30, ~~2017~~2018

Revenues

Total ~~revenue~~net revenues for the six months ended April 30, ~~2018~~2019 was ~~$74.7~~$84.1 million compared to ~~$65.0~~$74.7 million for the six months ended April 30, ~~2017.~~2018. The ~~15%~~12% increase of ~~$9.7~~$9.4 million was primarily the result of increased agribusiness revenues, as detailed below ($ in thousands):


	Agribusiness Revenues for the Six Months Ended April 30,								Agribusiness Revenues for the Six Months Ended April 30,
	2018		2017		Change				2019		2018		Change
Lemons	$	61,378	$	52,159	$	9,219		18%	$	74,978	$	61,378	$	13,600		22%
Avocados	935		2,029		(1,094		)	(54)%	543		935		(392		)	(42)%
Navel and Valencia oranges	6,566		5,421		1,145			21%	2,937		6,566		(3,629		)	(55)%
Specialty citrus and other crops	3,319		2,577		742			29%	3,165		3,319		(154		)	(5)%
Agribusiness revenues	$	72,198	$	62,186	$	10,012		16%	$	81,623	$	72,198	$	9,425		13%

Lemons: The increase in the first six months of fiscal year ~~2018~~2019 was primarily the result of higher volume partially offset by lower prices ~~and volume~~ of fresh lemons sold compared to the same period in fiscal year ~~2017.~~2018. During the first six months of fiscal years ~~2018~~2019 and ~~2017,~~2018, fresh lemon sales were ~~$51.1~~$57.2 million and ~~$41.6~~$51.1 million, respectively, on ~~2,069,000~~2,572,000 and ~~1,867,000~~2,069,000 cartons of lemons sold at average per carton prices of $22.26 and $24.70, ~~and $22.28,~~ respectively. ~~Additionally, lemon~~Lemon revenues included ~~$5.8~~$8.1 million shipping and handling, ~~$2.7~~$6.3 million lemon by-products and ~~$1.8~~$3.3 million other lemon sales in the first six months of fiscal year ~~2018~~2019 compared to ~~$5.4~~$5.8 million shipping and handling, ~~$3.5~~$2.7 million lemon by-product and ~~$1.7~~$1.8 million other lemon sales during the same period in fiscal year ~~2017.~~2018. Other lemon sales in the first six months of fiscal year 2019 include $1.4 million in Chile by PDA and San Pablo compared to $0.4 million in Chile by PDA in the first six months of fiscal year 2018.

Avocados: The decrease in the first six months of fiscal ~~years 2018~~year 2019 was primarily the result of lower volume offset partially by higher prices ~~and volume~~ of avocados sold compared to the same period in fiscal year ~~2017. In~~2018. During the first six months of fiscal year ~~2018,~~2019 0.4 million pounds of avocados were sold at an average per pound price of $1.27 compared to 1.0 million pounds of avocados were sold at an average per pound price of $0.94 ~~compared to 1.3 million pounds sold at an average per pound price of $1.56.~~during the same period in fiscal year 2018. The ~~lower~~higher prices in fiscal year ~~2018~~2019 are the result of ~~higher~~lower supply in the marketplace.

Navel and Valencia oranges: The ~~increase~~decrease in the first six months of fiscal year ~~2018~~2019 was primarily attributable to ~~higher~~lower volume and prices of oranges sold compared to the same period in fiscal year ~~2017.~~2018. In the first six months of fiscal year ~~2018, 575,000~~2019, 486,000 40-pound carton equivalents of oranges were sold at average per carton prices of ~~$11.42~~$6.04 compared to ~~576,000~~575,000 40-pound carton equivalents sold at average per carton prices of ~~$9.41~~$11.42 in the same period of fiscal year 2018. Orange sales in the first six months

of fiscal year 2019 included $0.2 million in Chile by PDA and San Pablo compared to $0.3 million in Chile by PDA in the first six months of fiscal year ~~2017.~~2018.

Specialty citrus and other crops: The ~~increase~~decrease in the first six months of fiscal year ~~2018~~2019 was primarily the result of ~~higher~~lower prices ~~and~~partially offset by higher volume of specialty citrus sold compared to the same period in fiscal year ~~2017.~~2018. During the first six months of fiscal year ~~2018, 276,000~~2019, 353,000 40-pound carton equivalents of specialty citrus were sold at an average per carton price of ~~$12.02~~$8.97 compared to ~~236,000~~276,000 40-pound carton equivalents sold at an average per carton price of ~~$10.92~~$12.02 during the same period in fiscal year ~~2017.~~

2018.

Costs and Expenses

Our total costs and expenses in the first six months ~~ended April 30, 2018~~of fiscal year 2019 were ~~$67.1~~$88.1 million compared to ~~$62.0~~$67.1 million in the first six months ~~ended April 30, 2017,~~of fiscal year 2018, for ~~an 8%~~a 31% increase of ~~$5.1~~$21.0 million. This increase was primarily attributable to increases in our agribusiness and selling, general and administrative costs and expenses. Costs and expenses associated with our agribusiness include packing costs, harvest costs, growing costs, costs related to the fruit we procure and sell for third-party growers and depreciation ~~expense. These costs are discussed further~~and amortization expense, as detailed below ($ in thousands):


	Agribusiness Costs and Expenses for the Six Months Ended April 30,								Agribusiness Costs and Expenses for the Six Months Ended April 30,
	2018		2017		Change				2019		2018		Change
Packing costs	$	12,894	$	13,902	$	(1,008	)	(7)%	$	19,448	$	12,894	$	6,554	51%
Harvest costs	8,101		8,677		(576		)	(7)%	9,237		8,101		1,136		14%
Growing costs	12,695		11,946		749			6%	14,278		12,695		1,583		12%
Third-party grower costs	20,327		15,568		4,759			31%	29,303		20,327		8,976		44%
Depreciation and amortization	2,943		2,706		237			9%	3,728		2,943		785		27%
Agribusiness costs and expenses	$	56,960	$	52,799	$	4,161		8%	$	75,994	$	56,960	$	19,034	33%

Packing costs: Packing costs primarily 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 ~~$12.0~~$18.2 million and ~~$11.2~~$12.0 million in the first six months of fiscal years ~~2018~~2019 and ~~2017,~~2018, respectively. During the first six months of fiscal year ~~2018,~~2019, we packed and sold ~~2,069,000~~2,572,000 cartons of lemons at average per carton costs of ~~$5.80~~$7.06 compared to ~~1,867,000~~2,069,000 cartons of lemons sold at average per carton costs of ~~$6.00~~$5.80 during the same period in fiscal year ~~2017.~~2018. The increase in average per carton costs in fiscal year 2019 compared to fiscal year 2018 is primarily due to $3.4 million of operating costs incurred at the Oxnard Lemon facility, partially offset by decreased average per carton costs incurred at our Santa Paula facility. Additionally, packing costs included ~~$0.9~~$1.3 million of shipping costs in the first six months of fiscal ~~years 2018~~year 2019 compared to ~~$0.8~~$0.9 million ~~in the six months of fiscal year 2017. Further,~~ in the first six months of fiscal year ~~2017, we incurred $1.9 million of packing service charges from an independent packinghouse to have a portion of our oranges and specialty citrus packed in Limoneira branded cartons.~~2018.

Harvest costs: The ~~decrease~~increase in the first six months of fiscal year ~~2018~~2019 is primarily attributable to increased volume of lemons harvested partially offset by decreased volume of avocados ~~harvested partially offset by increased volume of specialty citrus~~and oranges harvested.

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 increase in the first six months of fiscal year ~~2018 is~~2019 was primarily due to net increased costs of ~~$0.7~~$1.6 million primarily for cultivation, fertilization and soil amendments, pest control, ~~pruning~~ and ~~irrigation plus PDA growing~~San Pablo cultural costs compared to the same period inof fiscal year ~~2017. These net increases~~2018. Growing costs reflect farm management decisions based on weather, harvest timing and crop conditions.

Third-party grower costs: We sell fruit that we grow and fruit that we procure from other growers. The cost of procuring fruit from other growers is referred to as third-party grower costs. The increase in the first six months of fiscal year ~~2018~~2019 is primarily attributable to higher volume partially offset by lower price ~~and volume~~ of third-party grower fruit sold. Of the ~~2,069,000~~2,572,000 and ~~1,867,000~~2,069,000 cartons of lemons packed and sold during the first six months of fiscal years 2019 and 2018, respectively, 1,527,000 (59%) and ~~2017, respectively,~~ 976,000 (47%) ~~and 835,000 (45%)~~cartons were procured from third-party growers at average per carton prices of ~~$20.81~~$18.92 and ~~$18.53,~~$20.81, respectively.

Depreciation and amortization expense for the first six months of fiscal year ~~2018~~2019 was approximately ~~$0.2~~$0.8 million higher than the first six months of fiscal year ~~2017~~2018 primarily due to the acquisitions of Oxnard Lemon and San Pablo and an increase in assets placed into service.

Selling, general and administrative costs and expenses were $9.9 million in the six months ended April 30, 2019 compared to $8.0 million in the six months ended April 30, ~~2018 compared to $7.0 million in six months ended April 30, 2017.~~2018. The ~~$1.1~~$1.9 million increase is primarily attributable to ~~increased lemon selling expenses due to~~ an increase in administration personnel, salaries and benefits, increased ~~legal~~incentive compensation and ~~consulting~~increased professional fees ~~for~~associated with our strategic initiatives ~~and increased incentive compensation as a result of projected improved operating results~~ as of April 30, ~~2018~~2019 compared to April 30, ~~2017.~~2018.

Other Income (Expense)

Other income, net for the six months ended April 30, 2019 is comprised primarily of $2.0 million of equity in earnings of investments partially offset by $0.5 million of interest expense, net. Other expense, net for the six months ended April 30, 2018 is comprised primarily of $0.8 million of ~~net~~ interest expense, net partially offset by $0.3 million of dividend income received from Calavo Growers, Inc. (“Calavo”). Other expense, net for the six months ended April 30, 2017 is comprised primarily of $0.9 million of net interest expense offset by $0.3 million of dividend income received from Calavo.

Interest is capitalized on real estate development projects and significant construction in progress using the weighted average interest rate during the fiscal year. We capitalized ~~$1.0~~$0.6 million and ~~$0.9~~$1.0 million of interest in the first six months ~~ended April 30,~~of fiscal years 2019 and 2018, ~~and 2017,~~ respectively. Interest capitalization is discontinued when a project is substantially complete. Under the equity method of accounting used for our Limoneira/Lewis Joint Venture, interest capitalization ~~will cease~~ceased upon the commencement of lot ~~sales.~~sales in February 2019.

Income Taxes

We recorded an estimated income tax benefit of ~~$8.2~~$0.7 million in the first six months ~~ended April 30, 2018~~of fiscal year 2019 on pre-tax ~~income~~loss of ~~$7.0~~$2.5 million compared to an estimated income tax ~~provision~~benefit of ~~$0.9~~$8.2 million in the first six months ~~ended April 30, 2017~~of fiscal year 2018 on pre-tax income of ~~$2.4~~$7.0 million. The discrete driver of the ~~significant increase in~~ estimated income tax benefit ~~in the six months ended April 30, 2018 compared to the same period in~~of fiscal year ~~2017 is~~2018 was the approximately $10.0 million decrease in deferred tax liabilities related to the change in the federal tax rate from the Tax Cuts and Jobs Act of 2017 (the "2017 Act") from 34% to 21%. Our projected annual effective blended tax rate for fiscal year ~~2018~~2019 is approximately ~~27.1%~~28.2%.

Net ~~(Income) Loss~~Income Attributable to Noncontrolling Interest

Net ~~(income) loss~~income attributable to noncontrolling interest represents 10% of the net ~~(income) loss~~income of PDA.

Segment Results of Operations

We operate in six reportable operating ~~segments;~~segments: fresh lemons, lemon packing, avocados, other agribusiness, rental operations and real estate development. 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 2318 - Segment Information of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information regarding our operating segments.

Three Months Ended April 30, ~~2018~~2019 Compared to the Three Months Ended April 30, ~~2017~~2018

The following table shows the segment results of operations for the three months ended April 30, ~~2018~~2019 (in thousands):


	Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons⁽¹⁾		Lemon Packing		Eliminations			Avocados			Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	30,561	$	3,008	$	—		$	935	$	7,361	$	41,865	$	1,270	$	—		$	—		$	43,135	$	32,428	$	3,954	$	—		$	540		$	3,901	$	40,823	$	1,212	$	—		$	—		$	42,035
Intersegment revenue	—		7,152		(7,152		)	—		—		—		—		—			—			—		—		8,157		(8,157		)	—			—		—		—		—			—			—
Total net revenues	30,561		10,160		(7,152		)	935		7,361		41,865		1,270		—			—			43,135		32,428		12,111		(8,157		)	540			3,901		40,823		1,212		—			—			42,035
Costs and expenses	22,601		7,170		(7,152		)	875		3,808		27,302		781		39			3,889			32,011		27,915		10,664		(8,157		)	921			3,875		35,218		901		24			4,776			40,919
Depreciation and amortization	—		—		—			—		—		1,496		195		—			53			1,744		—		—		—			—			—		1,860		194		—			67			2,121
Operating income	$	7,960	$	2,990	$	—		$	60	$	3,553	$	13,067	$	294	$	(39	)	$	(3,942	)	$	9,380
Operating income (loss)																								$	4,513	$	1,447	$	—		$	(381	)	$	26	$	3,745	$	117	$	(24	)	$	(4,843	)	$	(1,005	)

The following table shows the segment results of operations for the three months ended April 30, ~~2017~~2018 (in thousands):


	Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons		Lemon Packing		Eliminations			Avocados		Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	23,402	$	2,768	$	—		$	2,029	$	7,218	$	35,417	$	1,476	$	—		$	—		$	36,893	$	30,561	$	3,008	$	—		$	935	$	7,361	$	41,865	$	1,270	$	—		$	—		$	43,135
Intersegment revenue	—		5,787		(5,787		)	—		—		—		—		—			—			—		—		7,152		(7,152		)	—		—		—		—		—			—			—
Total net revenues	23,402		8,555		(5,787		)	2,029		7,218		35,417		1,476		—			—			36,893		30,561		10,160		(7,152		)	935		7,361		41,865		1,270		—			—			43,135
Costs and expenses	18,325		6,240		(5,787		)	830		5,476		25,084		763		160			3,060			29,067		22,601		7,170		(7,152		)	875		3,808		27,302		781		39			3,889			32,011
Depreciation and amortization	—		—		—			—		—		1,371		187		—			56			1,614		—		—		—			—		—		1,496		195		—			53			1,744
Operating income	$	5,077	$	2,315	$	—		$	1,199	$	1,742	$	8,962	$	526	$	(160	)	$	(3,116	)	$	6,212
Operating income (loss)																								$	7,960	$	2,990	$	—		$	60	$	3,553	$	13,067	$	294	$	(39	)	$	(3,942	)	$	9,380

⁽¹⁾ During the first quarter of fiscal 2019, we adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of certain brokered fruit sales revenue received and the related cost of fruit incurred by us. The adoption of this guidance resulted in revenue within our fresh lemon segment of $162,000, as well as costs and expenses within that segment, during the three months ended April 30, 2019. Refer to Note 2 - Summary of Significant Accounting Policies for more information regarding the impact from the adoption of this new standard.

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

Fresh Lemons

For the second quarter of fiscal year ~~2018,~~2019, our fresh lemons segment ~~revenue was $30.6~~total net revenues were $32.4 million compared to ~~$23.4~~$30.6 million for the second quarter of fiscal year ~~2017;~~2018; a ~~31%~~6% increase of ~~$7.2~~$1.8 million, primarily due to higher ~~prices and~~ volume of ~~fresh lemons~~lemon by-products sold.

Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs and costs of fruit we procure from third-party growers. For the second quarter of fiscal year ~~2018,~~2019, our fresh lemons costs and expenses were ~~$22.6~~$27.9 million compared to ~~$18.3~~$22.6 million for the second quarter of fiscal year ~~2017.~~2018. The ~~23%~~24% increase of ~~$4.3~~$5.3 million primarily consisted of the following:

Harvest costs for the second quarter of fiscal year ~~2018~~2019 were $0.1 million ~~higher~~lower than the second quarter of fiscal year ~~2017.~~2018.

Growing costs for the second quarter of fiscal year ~~2018~~2019 were ~~$0.1~~$0.6 million ~~lower~~higher than the second quarter of fiscal year ~~2017.~~2018.

Third-party grower costs for the second quarter of fiscal year ~~2018~~2019 were ~~$2.9~~$3.8 million higher than the second quarter of fiscal year ~~2017.~~2018.

Intersegment costs and expenses for the second quarter of fiscal year ~~2018~~2019 were ~~$1.4~~$1.0 million higher than the second quarter of fiscal year ~~2017.~~2018.

Lemon Packing

Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, our lemon packing segment revenues were $12.1 million and $10.2 million, ~~and $8.6 million,~~ respectively.

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 the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, our lemon packing costs and expenses were ~~$7.2~~$10.7 million and ~~$6.2~~$7.2 million, respectively.

For the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, lemon packing segment operating income per carton sold was ~~$2.58~~$1.11 and ~~$2.42,~~$2.58, respectively.

In the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, the lemon packing segment included ~~$7.2~~$8.2 million and ~~$5.8~~$7.2 million, respectively, of intersegment revenues that 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 the second quarter of fiscal year ~~2018,~~2019, our ~~avocado~~avocados segment revenue was ~~$0.9~~$0.5 million compared to ~~$2.0~~$0.9 million for the second quarter of fiscal year ~~2017.~~2018.

Costs and expenses associated with our avocados segment include harvest and growing costs. For the second quarters of fiscal years ~~2018~~2019 and ~~2017,~~2018, our avocados segment costs and expenses were $0.9 million and ~~$0.8 million, respectively, and~~ primarily consisted of the following:

~~Avocado harvest~~Harvest costs for the second quarter of fiscal year ~~2018~~2019 were ~~similar to~~$0.1 million lower than the second quarter of fiscal year ~~2017.~~2018.

Growing costs for the second quarter of fiscal year ~~2018~~2019 were $0.1 million higher than the second quarter of fiscal year ~~2017.~~2018.

Other Agribusiness

For the second quarter of fiscal year ~~2018~~2019, our other agribusiness segment ~~revenue was $7.4~~total net revenues were $3.9 million compared to ~~$7.2~~$7.4 million for the second quarter of fiscal year ~~2017.~~2018. The ~~2% increase~~47% decrease of ~~$0.1~~$3.5 million primarily consisted of the following:

Navel and Valencia orange revenues for the second quarter of fiscal year ~~2018~~2019 were ~~$0.3~~$3.2 million ~~higher~~lower than the second quarter of fiscal year ~~2017.~~

2018.

Specialty citrus and other crop revenues for the second quarter of fiscal year ~~2018~~2019 were $0.2 million lower than the second quarter of fiscal year ~~2017.~~2018.

Costs and expenses associated with our other agribusiness segment include ~~orange and specialty citrus packing service charges,~~ harvest costs and growing costs. For the second quarter of fiscal year ~~2018,~~2019, our other agribusiness costs and expenses were ~~$3.8~~$3.9 million compared to ~~$5.5~~$3.8 million for the second quarter of fiscal year ~~2017.~~2018. The ~~30% decrease~~2% increase of ~~$1.7~~$0.1 million primarily consisted of the following:

Orange and specialty citrus packing service charges for the second quarter of fiscal year 2018 were zero compared to $1.5 million in the second quarter of fiscal year 2017. In fiscal year 2017, we contracted with an independent packinghouse to pack a portion of our oranges and specialty citrus in Limoneira branded cartons.

Harvest costs for the second quarter of fiscal year ~~2018~~2019 were ~~$0.5 million lower than~~similar to the second quarter of fiscal year ~~2017.~~2018.

Growing costs for the second quarter of fiscal year ~~2018~~2019 were ~~$0.4~~$0.1 million higher than the second quarter of fiscal year ~~2017.~~2018.

Total agribusiness depreciation and amortization expenses for the second quarter of fiscal year ~~2018~~2019 were ~~$0.1~~$0.4 million higher than the second quarter of fiscal year ~~2017.~~2018.

Rental Operations

~~For~~Our rental operations segment had total net revenues of $1.2 million and $1.3 million for the second quarter of fiscal years ~~2018~~2019 and ~~2017, our rental operations segment had revenues of $1.3 million and $1.5 million,~~2018, respectively.

Costs and expenses in our rental operations segment for the second quarter of fiscal year ~~2018~~2019 were $0.1 million higher than the second quarter of fiscal year 2018. Depreciation and amortization expenses for the second quarter of fiscal year 2019 were similar to the second quarter of fiscal year ~~2017. Depreciation expense was similar quarter to quarter~~2018 at approximately $0.2 million.

Real Estate Development

For the second quarter of fiscal years ~~2018~~2019 and ~~2017,~~2018, our real estate development segment total net revenues were zero.

Costs and expenses in our real estate development segment for the second quarter of fiscal year ~~2018~~2019 were ~~approximately $0.1 million lower than~~similar to the second quarter of fiscal year ~~2017.~~2018.

Selling, General and Administrative Expenses

Selling, general and administrative costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Selling, general and administrative costs and expenses for the second quarter of fiscal year ~~2018~~2019 were ~~$0.8~~$0.9 million higher than the second quarter of fiscal year ~~2017.~~2018. Depreciation expense for the second quarter of fiscal year 2019 was similar to the second quarter ~~to quarter~~of fiscal year 2018 at approximately $0.1 million.

Six Months Ended April 30, ~~2018~~2019 Compared to the Six Months Ended April 30, ~~2017~~2018

The following table shows the segment results of operations for the six months ended April 30, ~~2018~~2019 (in thousands):


	Fresh Lemons		Lemon Packing		Eliminations			Avocados			Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total		Fresh Lemons⁽¹⁾		Lemon Packing		Eliminations			Avocados			Other Agribusiness			Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	55,537	$	5,841	$	—		$	935		$	9,885	$	72,198	$	2,530	$	—		$	—		$	74,728	$	66,921	$	8,057	$	—		$	543		$	6,102		$	81,623	$	2,430	$	—		$	—		$	84,053
Intersegment revenue	—		12,076		(12,076		)	—			—		—		—		—			—			—		—		15,201		(15,201		)	—			—			—		—		—			—			—
Total net revenues	55,537		17,917		(12,076		)	935			9,885		72,198		2,530		—			—			74,728		66,921		23,258		(15,201		)	543			6,102			81,623		2,430		—			—			84,053
Costs and expenses	45,491		12,894		(12,076		)	1,579			6,129		54,017		1,651		69			7,915			63,652		59,997		19,448		(15,201		)	1,637			6,385			72,266		1,785		52			9,728			83,831
Depreciation and amortization	—		—		—			—			—		2,943		390		—			101			3,434		—		—		—			—			—			3,728		389		—			130			4,247
Operating income	$	10,046	$	5,023	$	—		$	(644	)	$	3,756	$	15,238	$	489	$	(69	)	$	(8,016	)	$	7,642
Operating income (loss)																									$	6,924	$	3,810	$	—		$	(1,094	)	$	(283	)	$	5,629	$	256	$	(52	)	$	(9,858	)	$	(4,025	)

The following table shows the segment results of operations for the three months ended April 30, 2018 (in thousands):



	Fresh Lemons		Lemon Packing		Eliminations			Avocados			Other Agribusiness		Total Agribusiness		Rental Operations		Real Estate Development			Corporate and Other			Total
Revenues from external customers	$	55,537	$	5,841	$	—		$	935		$	9,885	$	72,198	$	2,530	$	—		$	—		$	74,728
Intersegment revenue	—		12,076		(12,076		)	—			—		—		—		—			—			—
Total net revenues	55,537		17,917		(12,076		)	935			9,885		72,198		2,530		—			—			74,728
Costs and expenses	45,491		12,894		(12,076		)	1,579			6,129		54,017		1,651		69			7,915			63,652
Depreciation and amortization	—		—		—			—			—		2,943		390		—			101			3,434
Operating income (loss)	$	10,046	$	5,023	$	—		$	(644	)	$	3,756	$	15,238	$	489	$	(69	)	$	(8,016	)	$	7,642

⁽¹⁾ During the first quarter of fiscal 2019, we adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of certain brokered fruit sales revenue received and the related cost of fruit incurred by us. The adoption of this guidance resulted in revenue within our fresh lemon segment of $456,000, as well as costs and expenses within that segment, during the six months ended April 30, ~~2017 (in thousands):~~2019. Refer to Note 2 - Summary of Significant Accounting Policies for more information regarding the impact from the adoption of this new standard.

Fresh
Lemons
Lemon
Packing
Eliminations

Avocados
Other
Agribusiness
Total
Agribusiness
Rental
Operations
Real Estate
Development
Corporate
and Other
Total
Revenues from external customers $ 46,714
$ 5,445
$ —
$ 2,029
$ 7,998
$ 62,186
$ 2,799
$ —
$ —
$ 64,985
Intersegment revenue —
10,946
(10,946 ) —
—
—
—
—
—
—
Total net revenues 46,714
16,391
(10,946 ) 2,029
7,998
62,186
2,799
—
—
64,985
Costs and expenses 39,574
11,971
(10,946 ) 1,510
7,984
50,093
1,629
245
6,854
58,821
Depreciation and amortization —
—
—
—
—
2,706
376
—
109
3,191
Operating income $ 7,140
$ 4,420
$ —
$ 519
$ 14
$ 9,387
$ 794
$ (245 ) $ (6,963 ) $ 2,973

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

Fresh Lemons

For the six months ended April 30, ~~2018,~~2019, our fresh lemons segment ~~revenue was $55.5~~total net revenues were $66.9 million compared to ~~$46.7~~$55.5 million for the six months ended April 30, ~~2017; representing~~2018, a ~~19%~~20% increase of ~~$8.8~~$11.4 million, primarily due to higher ~~prices and~~ volume of fresh lemons sold.

Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs and costs of fruit we procure from third-party growers. For the six months ended April 30, ~~2018,~~2019, our fresh lemons costs and expenses were ~~$45.5~~$60.0 million compared to ~~$39.6~~$45.5 million for the six months ended April 30, ~~2017.~~2018. The ~~15%~~32% increase of ~~$5.9~~$14.5 million primarily consisted of the following:

Harvest costs for the six months ended April 30, ~~2018~~2019 were ~~$0.2~~$1.1 million ~~lower~~higher than the six months ended April 30, ~~2017.~~2018.

Growing costs for the six months ended April 30, ~~2018~~2019 were ~~$0.2~~$1.3 million higher than the six months ended April 30, ~~2017.~~2018.

Third-party grower costs for the six months ended April 30, ~~2018~~2019 were ~~$4.7~~$9.0 million higher than the six months ended April 30, ~~2017.~~2018.

Intersegment costs and expenses for the six months ended April 30, ~~2018~~2019 were ~~$1.2~~$3.1 million higher than the six months ended April 30, ~~2017~~2018.

Lemon Packing

Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, our lemon packing segment revenues were $23.3 million and $17.9 million, ~~and $16.4 million,~~ respectively.

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 the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, our lemon packing costs and expenses were ~~$12.9~~$19.4 million and ~~$12.0~~$12.9 million, respectively.

For the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, lemon packing segment operating income per carton sold was ~~$2.43~~$1.48 and ~~$2.37,~~$2.43, respectively.

In the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, the lemon packing segment included ~~$12.1~~$15.2 million and ~~$10.9~~$12.1 million, respectively, of intersegment revenues that 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 the six months ended April 30, ~~2018,~~2019 our ~~avocado~~avocados segment revenue was ~~$0.9~~$0.5 million compared to ~~$2.0~~$0.9 million for the six months ended April 30, ~~2017.~~2018.

Costs and expenses associated with our avocados segment include harvest and growing costs. For both of the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, our avocados segment costs and expenses were $1.6 million and ~~$1.5 million, respectively,~~ primarily consisted of the following:

~~Avocado harvest~~Harvest costs for the six months ended April 30, ~~2018~~2019 were ~~similar to~~$0.1 million lower than the six months ended April 30, ~~2017.~~2018.

Growing costs for the six months ended April 30, ~~2018~~2019 were $0.1 million higher than the six months ended April 30, ~~2017.~~2018.

Other Agribusiness

For the six months ended April 30, ~~2018~~2019, our other agribusiness segment ~~revenue was $9.9~~total net revenues were $6.1 million compared to ~~$8.0~~$9.9 million for the six months ended April 30, ~~2017.~~2018. The ~~24% increase~~38% decrease of ~~$1.9~~$3.8 million primarily consisted of the following:

Navel and Valencia orange revenues for the six months ended April 30, ~~2018~~2019 were ~~$1.1~~$3.6 million ~~higher~~lower than the six months ended April 30, ~~2017.~~2018.

Specialty citrus and other crop revenues for the six months ended April 30, ~~2018~~2019 were ~~$0.7~~$0.2 million ~~higher~~lower than the six months ended April 30, ~~2017.~~2018.

Costs and expenses associated with our other agribusiness segment include ~~orange and specialty citrus packing service charges,~~ harvest costs and growing costs. For the six months ended April 30, ~~2018,~~2019, our other agribusiness costs and expenses were ~~$6.1~~$6.4 million compared to ~~$8.0~~$6.1 million for the six months ended April 30, ~~2017.~~2018. The ~~23% decrease~~4% increase of ~~$1.9~~$0.3 million primarily consisted of the following:

Orange and specialty citrus packing service charges for the six months ended April 30, 2018 were zero compared to $1.9 million in the six months ended April 30, 2017. In fiscal year 2017, we contracted with an independent packinghouse to pack a portion of our oranges and specialty citrus in Limoneira branded cartons.

Harvest costs for the six months ended April 30, ~~2018~~2019 were ~~$0.4~~$0.1 million ~~lower~~higher than the six months ended April 30, ~~2017.~~2018.

Growing costs for the six months ended April 30, ~~2018~~2019 were ~~$0.4~~$0.2 million higher than the six months ended April 30, ~~2017.~~2018.

Total agribusiness depreciation and amortization expenses for the six months ended April 30, ~~2018~~2019 were ~~$0.2~~$0.8 million higher than the six months ended April 30, ~~2017.~~2018.

Rental Operations

~~For~~Our rental operations segment had total net revenues of $2.4 million and $2.5 million for the six months ended April 30, ~~2018~~2019 and ~~2017, our rental operations segment had revenues of $2.5 million and $2.8 million,~~2018, respectively.

Costs and expenses in our rental operations segment for the six months ended April 30, ~~2018~~2019 were $0.1 million higher than the six months ended April 30, 2018. Depreciation and amortization expense for the six months ended April 30, 2019 was similar to the six months ended April 30, ~~2017. Depreciation expense was similar quarter to quarter~~2018 at approximately $0.4 million.

Real Estate Development

For the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, our real estate development segment total net revenues were zero.

Costs and expenses in our real estate development segment for the six months ended April 30, ~~2018~~2019 were ~~$0.2 million lower than~~similar to the six months ended April 30, ~~2017.~~2018.

Selling, General and Administrative Expenses

Selling, general and administrative costs and expenses include selling, general and administrative costs and other costs not allocated to the operating segments. Selling, general and administrative costs and expenses for the six months ended April 30, ~~2018~~2019 were ~~$1.1~~$1.8 million higher than the six months ended April 30, ~~2017.~~2018. Depreciation and amortization expense for the six months ended April 30, 2019 was similar ~~quarter~~ to ~~quarter~~the six months ended April 30, 2018 at approximately $0.1 million.

Seasonal Operations

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

Results of Operations for the Trailing Twelve Months Ended April 30, ~~2018~~2019 and ~~2017~~2018

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


	Trailing twelve months ended April 30,						Trailing twelve months ended April 30,
	2018			2017			2019			2018
Revenues:
Agribusiness	$	125,881		$	118,803		$	133,769		$	125,881
Rental operations	5,171			5,583			4,948			5,171
Real estate development	—			36			—			—
Total revenues	131,052			124,422			138,717			131,052
Costs and expenses:
Agribusiness	95,323			89,693			117,117			95,323
Rental operations	3,968			3,800			4,218			3,968
Real estate development	229			675			110			229
Impairment of real estate development assets							1,558			—
Selling, general and administrative	15,000			13,974			17,895			15,000
Total costs and expenses	114,520			108,142			140,898			114,520
Operating income	16,532			16,280
Other (expense) income:
Interest expense, net	(1,721		)	(1,697		)
Operating (loss) income							(2,181		)	16,532
Other income (expense):
Interest expense							(867		)	(1,721		)
Equity in earnings of investments	33			596			2,635			33
Gain on sale of stock in Calavo Growers, Inc.	—			3,419			4,223			—
Gain on sale of conservation easement	—			995
Other (expense) income, net	422			409
Total other (expense) income	(1,266		)	3,722
Income before income tax benefit (provision)	15,266			20,002
Income tax benefit (provision)	5,048			(7,790		)
Unrealized gain (loss) on stock in Calavo Growers, Inc.							(298		)	—
Other income, net							416			422
Total other income (expense)							6,109			(1,266		)
Income before income tax (provision) benefit							3,928			15,266
Income tax (provision) benefit							(801		)	5,048
Net income	20,314			12,212			3,127			20,314
Loss attributable to noncontrolling interest	37			4
(Income) loss attributable to noncontrolling interest							(41		)	37
Net income attributable to Limoneira Company	$	20,351		$	12,216		$	3,086		$	20,351

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

Total revenues increased ~~$6.6~~$7.7 million in the twelve months ended April 30, ~~2018~~2019 compared to the twelve months ended April 30, ~~2017~~2018 primarily due to increased agribusiness revenues, particularly increased lemon sales.

Total costs and expenses increased ~~$6.4~~$26.4 million in the twelve months ended April 30, ~~2018~~2019 compared to the twelve months ended April 30, ~~2017~~2018 primarily due to increases in our agribusiness costs, real estate impairments and selling, general and administrative ~~costs and~~ expenses. The increase in agribusiness costs is associated with increased agribusiness production and the increase in selling, general and administrative expenses is primarily attributable to increased personnel and higher salaries, benefits and incentive compensation.

Total other income ~~decreased $5.0~~increased $7.4 million in the twelve months ended April 30, ~~2018~~2019 compared to the twelve months ended April 30, ~~2017~~2018 primarily due to ~~$0.6~~a $0.9 million decrease in net interest expense, $2.6 million increase in equity in earnings of investments and ~~$4.4~~$4.2 million ~~combined decrease in gains~~gain on ~~the~~ sale of stock in ~~Calavo and a conservation easement.~~Calavo.

Income tax benefit ~~increased $12.8~~decreased $5.8 million in the twelve months ended April 30, ~~2018~~2019 compared to the twelve months ended April 30, ~~2017~~2018 primarily due to the approximately $10.0 million decrease in deferred tax liabilities related to the change in the federal corporate tax rate from the ~~Tax Cuts and Jobs~~2017 Act offset by the effect of ~~2017.~~earnings before income taxes.

Liquidity and Capital Resources

Overview

Our Company’s liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events and demand for our products. Typically, our second and third quarters tend to generate greater operating income than our first and fourth quarters due to the volume of fruit harvested.

To meet working capital demand and investment requirements of our agribusiness and real estate development segments 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.

Cash Flows from Operating Activities

For the six months ended April 30, ~~2018,~~2019, net cash provided by operating activities was ~~$7.1~~$4.0 million compared to net cash provided by operating activities of ~~$2.5~~$7.1 million for the six months ended April 30, ~~2017.~~2018. The significant components of our Company’s cash flows provided by operating activities as included in the unaudited consolidated statements of cash flows are as follows:

Net ~~income~~loss for the six months ended April 30, ~~2018~~2019 was ~~$15.2~~$1.9 million compared to net income of ~~$1.5~~$15.2 million for the six months ended April 30, ~~2017.~~2018. The ~~increase~~decrease in net income of ~~$13.8~~$17.1 million in the six months ended April 30, ~~2018~~2019 compared to the same period in fiscal year ~~2017~~2018 was primarily attributable to ~~an increase~~a decrease in operating income of ~~$4.7~~$11.7 million and ~~an increase~~a decrease in income tax benefit of ~~$9.1~~$7.5 million, offset by an increase in other income of $2.1 million.

Depreciation and amortization expenses increased ~~$0.2~~$0.8 million in the six months ended April 30, ~~2018~~2019 compared to the same period in fiscal year ~~2017~~2018 primarily due to the ~~acquisition~~acquisitions of ~~PDA~~San Pablo and Oxnard Lemon in ~~February 2017~~July 2018 and an increase in assets placed into service.

~~Loss~~The gain on disposals of assets was ~~$0.2 million~~$11,000 in ~~both~~the six months ended April 30, 2019 compared to a loss on disposals of assets of $0.2 million in the six months ended April 30, 2018. Fiscal year 2018 ~~and 2017, respectively,~~loss was primarily the result of expenses incurred from orchard disposals related to the December 2017 Southern California wildfires and our ongoing orchard redevelopment plans.

Stock compensation expense was $1.2 million and $0.9 million in ~~both~~the six months ended April 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and was comprised primarily of vesting and expense recognition of the ~~2015,~~ 2016, 2017, 2018 and ~~2018~~2019 grants to management under our stock-based compensation plan plus non-employee directors’ stock-based compensation.

Accounts receivable, net balance at April 30, 2019 was $20.0 million compared to $14.1 million at October 31, 2018, resulting in a corresponding decrease in operating cash flows of approximately $5.8 million in the six months ended April 30, 2019. Accounts receivable, net balance at April 30, 2018 was $17.2 million compared to $11.0 million at October 31, 2017, resulting in a corresponding decrease in operating cash flows of $6.3 million in the six months ended April 30, 2018. Accounts receivable, net balance at April 30, 2017 was $14.8 million compared to $9.3 million at October 31, 2016, resulting in a corresponding increase in operating cash flows of $5.4 million. The ~~$6.3~~$5.8 million decrease in operating cash flows in the

six months ended April 30, ~~2018~~2019 compared to the ~~$5.4~~$6.3 million ~~increase~~decrease in operating cash flows during same period in fiscal year ~~2017~~2018 was primarily due to fluctuations in price and volume related to agribusiness revenues.

Cultural costs provided ~~$2.1~~$2.6 million of operating cash flows in the six months ended April 30, ~~2018~~2019 compared to ~~$2.5~~providing $2.1 million of operating cash flows during the same period in fiscal year ~~2017.~~2018. This ~~decrease~~increase in operating cash flows ~~cash~~ was primarily due to ~~increased~~an initial higher amount of capitalized cultural costs carried at ~~our Windfall Farms~~the beginning of fiscal year 2019 and ~~PDA ranches in~~the related amortization of such costs during the six months ended April 30, ~~2018~~2019 compared to the same period in fiscal year ~~2017.~~2018.

Income taxes receivable balance was zero and $0.4 million at April 30, 2019 and October 31, 2018, respectively. Income taxes receivable balance was $0.6 million at April 30, 2018 and October 31, 2017. Income taxes receivable balance at April 30, 2017 was zero compared to $2.8 million at October 31, 2016, resulting in a corresponding increase in operating cash flows of $2.8 million for the six months ended April 30, 2017.

Accounts payable and growers payable provided ~~$2.2~~$9.9 million and ~~used $0.6~~$2.2 million of operating cash flows in the six months ended April 30, 2019 and 2018, respectively. The $9.9 million of cash provided in the six months ended April 30, 2019 was primarily the result of $3.9 million increase in accounts payable, $6.9 million increase in growers payable offset by $0.4 million of capital expenditures accrued but not paid at period end and ~~2017, respectively.~~$0.5 million accrued contribution obligation of investment in mutual water company. The $2.2 million of cash provided inby the six months ended April 30, 2018 was primarily the result of $3.5 million increase in growers payable, offset by $0.6 million decrease in accounts payable, $0.3 million of capital expenditures accrued but not paid at period end and $0.3 million accrued contribution obligation of investment in mutual water company. The $0.6 million of cash used in the six months ended April 30, 2017 was primarily the result of a $1.5 million increase in accounts payable, $1.3 million decrease in growers payable, $0.4 million of capital expenditures accrued but not paid at period end and $0.3 million accrued contribution obligation of investment in mutual water company.

Accrued liabilities ~~provided $1.0~~used $2.9 million of operating cash flows in the six months ended April 30, ~~2018~~2019 compared to ~~a use of $2.4~~$1.0 million of operating cash flows provided during the same period in fiscal year ~~2017.~~2018. The operating cash ~~provided~~used in the six months ended April 30, 2019 was primarily due to payments for incentive compensation, property taxes and lemon suppliers. The operating cash flows used in the six months ended April 30, 2018 was primarily comprised of accrued income taxes offset by payments for incentive compensation and property taxes. ~~The $2.4 million of~~

Other long-term liabilities operating cash flows ~~used~~ in the six months ended April 30, ~~2017 were primarily comprised~~2019 represented $0.2 million of ~~payments~~non-cash pension expense offset by $0.3 million of pension contributions for ~~incentive compensation, property taxes and lemon suppliers.~~

the period. Other long-term liabilities operating cash flows in the six months ended April 30, 2018 represented $0.3 million of non-cash pension expense offset by $0.3 million of pension contributions for the period. ~~Other long-term liabilities operating cash flows in the six months ended April 30, 2017 represented $0.4 million of pension contributions offset by $0.4 million of non-cash pension expense.~~

Cash Flows from Investing Activities

For the six months ended April 30, ~~2018,~~2019, net cash used in investing activities was ~~$8.8~~$16.4 million compared to net cash used in investing activities of ~~$16.0~~$8.8 million during the same period in fiscal year ~~2017.~~2018. Net cash used in investing activities was primarily comprised of capital expenditures, ~~asset sales~~an agriculture property acquisition and investments.

Capital expenditures were $8.2 million in the six months ended April 30, 2019, comprised of $7.9 million for property, plant and equipment primarily related to orchard and vineyard development and the purchase of a photovoltaic solar array and $0.3 million for real estate development projects. Additionally, in the six months ended April 30, 2019, we purchased an agriculture property for $0.4 million, contributed $4.0 million to the Joint Venture for the development of our East Area I real estate development project and paid $4.0 million to FGF towards the joint venture formation in Argentina.

Capital expenditures were $5.4 million in the six months ended April 30, 2018, comprised of $4.9 million for property, plant and equipment primarily related to orchard and vineyard development and $0.6 million for real estate development projects. Additionally, in the six months ended April 30, 2018, we ~~purchased a real estate development parcel,~~ contributed $3.5 million to the Joint Venture for the development of our East Area I real estate development project and received combined net proceeds of $1.5 million from the sale of the commercial portion of Sevilla and the sale of ~~Centennial.~~

Capital expenditures were $5.7 million in the six months ended April 30, 2017, comprised of $5.1 million for property, plant and equipment primarily related to orchard and vineyard development and $0.6 million for real estate development projects. Additionally, in the six months ended April 30, 2017, we purchased PDA for $5.7 million and contributed $4.5 million to our Joint Venture for the development of our East Area I real estate development project.Centennial Square ("Centennial").

Cash Flows from Financing Activities

For the six months ended April 30, ~~2018,~~2019, net cash provided by financing activities was ~~$1.8~~$13.3 million compared to net cash provided by financing activities of ~~$13.6~~$1.8 million during the same period in fiscal year ~~2017.~~2018.

The ~~$1.8~~$13.3 million of cash provided by financing activities during the six months ended April 30, 2019 was primarily comprised of net borrowings of long-term debt in the amount $16.5 million partially offset by common and preferred dividends, in aggregate, of $2.9 million. The $1.8 million of net cash provided by financing activities in the six months ended April 30, 2018 was primarily comprised of net borrowings of long-term debt in the amount of $4.2 million partially offset by common and preferred dividends, in aggregate, of $2.1 million. The $13.6 million of net cash provided by financing activities in the six months ended April 30, 2017 was primarily comprised of net borrowings of long-term debt in the amount of $15.8 million partially offset by common and preferred dividends, in aggregate, of $1.9 million.

Transactions Affecting Liquidity and Capital Resources

On June 20, 2017, we entered into a Master Loan Agreement (the “Loan Agreement”) with Farm Credit West, FLCA (“Farm Credit West”) which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the “Supplements”). Proceeds from the Supplements were used to pay down all the remaining outstanding indebtedness under the revolving credit facility we had with Rabobank, N.A. On January 29, 2018, we amended the Revolving Credit Supplement to increase the borrowing capacity from $60.0 million to $75.0 million. The Supplements provide aggregate borrowing capacity of $115.0 million, comprised of $75.0 million under the Revolving Credit Supplement and $40.0 million under the Non-Revolving Credit Supplement. In May 2018, we locked the interest rate on the Non-Revolving Credit Supplement at 4.77%, effective July ~~1,2018.~~1, 2018.

The interest rate for any amount outstanding under the Supplements is based on the one-month London Interbank Offered Rate (“LIBOR”) rate plus an applicable margin, which is subject to adjustment on a monthly basis. The applicable margin ranges from 1.60% to 2.35% depending on the ratio of current assets plus the remaining available commitment divided by current liabilities. On July 1, 2018, and on each one-year anniversary thereafter, we have the option to convert the interest rate in use under each Supplement from the preceding LIBOR-based calculation to a variable interest rate, or the reverse, as applicable. Any amounts outstanding under the Supplements are due and payable in full on July 1, 2022.

All indebtedness under the Loan Agreement, including any indebtedness under the Supplements, is secured by a first lien on certain of our agricultural properties in Tulare and Ventura counties in California and certain of our building fixtures and improvements and investments in mutual water companies associated with the pledged agricultural properties. The Loan Agreement includes customary default provisions that provide that should an event of default occur, Farm Credit West, at its option, may declare all or any portion of the indebtedness under the Loan Agreement to be immediately due and payable without demand, notice of non-payment, protest or prior recourse to collateral, and terminate or suspend our right to draw or request funds on any loan or line of credit.

The Loan Agreement 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 covenant that we will maintain a debt service coverage ratio greater than 1.25:1.0 measured annually at October 31, with which we were in compliance at October 31, ~~2017.~~2018.

We finance our working capital and other liquidity requirements primarily through cash from operations and our Farm Credit West Credit Facility. In addition, we have the Farm Credit West Term Loans, the Wells Fargo term loan, the Banco de Chile term loan and a note payable to the sellers of a land parcel. Additional information regarding the Farm Credit West Credit Facility, the Farm Credit West Term Loans, the Wells Fargo ~~Term Loan,~~term loan, the Banco de Chile term loan and the note payable can be found in the ~~Notes~~notes to ~~Consolidated Financial Statements~~consolidated financial statements included in this Quarterly Report on Form 10-Q.

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 remainder of fiscal year ~~2018.~~2019. In addition, we have the ability to control a portion of our investing cash flows to the extent necessary based on our liquidity demands.

Farm Credit West Credit Facility

As of April 30, ~~2018,~~2019, our outstanding borrowings under the Farm Credit West Credit Facility were ~~$80.1~~$69.1 million and we had ~~$34.9~~$45.9 million of availability. The Farm Credit West ~~Credit Facility~~revolving line of credit balance of $29.1 million currently bears interest at a variable rate equal to the one-month LIBOR plus ~~1.85%~~1.60%. The interest rate resets on the first of each month and was ~~3.75%~~4.10% at April 30, ~~2018. Any~~2019. We have the ability to prepay any amounts ~~prepaid~~outstanding under the ~~Non-Revolving~~Farm Credit ~~Supplement are subject to a fee to 0.50%~~West revolving line of ~~such amounts prepaid.~~credit without penalty. The line of credit provides for maximum borrowings of $115.0 million and the borrowing capacity based on collateral value was $115.0 million at April 30, ~~2018.~~2019.

We have the option of fixing the interest rate under the Farm Credit West Credit Facility on any portion of outstanding borrowings using interest rate swaps. Effective July 2013, we fixed the interest rate at 4.30% utilizing an interest rate swap on $40.0 million of the Rabobank Credit Facility. In connection with the paydown of the Rabobank debt noted above, on June 20, 2017, we entered into a novation agreement with Rabobank International, Utrecht and CoBank, ACB (“CoBank”). The agreement ~~provides~~provided for the prior interest rate swap agreement with Rabobank to ~~now~~ be in place with CoBank. ~~The critical terms of the swap agreement have not changed and counterparty risk has not significantly changed. Additional information regarding the~~This interest rate swap ~~can be found in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.~~expired June 30, 2018.

Farm Credit West Term Loans

As of April 30, ~~2018,~~2019, we had an aggregate of approximately ~~$20.3~~$19.1 million outstanding under Farm Credit West Term Loans, which are further discussed here:

Term Loan Maturing November 2022. As of April 30, ~~2018,~~2019, we had ~~$2.9~~$2.3 million outstanding under the Farm Credit West Term Loan that matures in November 2022. This term loan bears interest at a variable rate equal to 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% and is payable in quarterly installments through November 2022. The interest rate resets monthly and was ~~4.20%~~4.95% at April 30, ~~2018.~~2019. This term loan is secured by certain of our agricultural properties.

Term Loan Maturing October 2035. As of April 30, ~~2018,~~2019, Windfall had $1.1 million outstanding under the Farm Credit West Term Loan that matures in October 2035. This term loan bears interest at a variable rate equal to 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% and is payable in monthly installments through October 2035. The interest rate resets monthly and was ~~4.20%~~4.95% at April 30, ~~2018.~~2019. This term loan is secured by the Windfall Farms property.

Term Loan Maturing March 2036. As of April 30, ~~2018,~~2019, we had ~~$9.3~~$9.0 million outstanding under the Farm Credit West Term Loan that matures in March 2036. This loan bears interest at a fixed rate of 4.70% and is payable in monthly installments through March 2036. This term loan is secured by certain of our agricultural properties.

Term Loan Maturing March 2036. As of April 30, ~~2018,~~2019, we had ~~$6.9~~$6.7 million outstanding under the Farm Credit West Term Loan that matures in March 2036. This loan bears interest at a fixed rate of 3.62% until March 2021, becoming variable for the remainder of the loan at a variable rate equal to 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%. This term loan is payable in monthly installments through March 2036 and is secured by certain of our agricultural properties.

The Farm Credit West Term Loans contain various conditions, covenants and requirements with which our Company and Windfall must comply. In addition, our Company and Windfall are subject to limitations on, among other things, selling, abandoning or ceasing business operations; merging or consolidating with a third party; disposing of a substantial portion of assets by sale, transfer, gifts or lease except for inventory sales in the ordinary course of business; obtaining credit or loans from other lenders other than trade credit customary in the business; becoming a guarantor or surety on or otherwise liable for the debts or obligations of a third party; and mortgaging, pledging, leasing for over a year, or otherwise making or allowing the filing of a lien on any collateral.

Wells Fargo Term Loan

As of April 30, ~~2018,~~2019, we had ~~$7.1~~$5.7 million outstanding under the Wells Fargo term loan. This term loan bears interest at a fixed rate of 3.58% and is payable in monthly installments through January 2023. The loan is secured by certain equipment associated with our new lemon packing facilities. The loan contains affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets. We are also subject to a covenant that our Company will maintain a debt service coverage ratio, as defined in the loan agreement, of less than 1.25 to 1.0 measured annually at October 31, with which we were in compliance at October 31, ~~2017.~~2018.

Banco de Chile Term Loan

Through the acquisition of PDA in February 2017, we assumed a $1.7 million term loan with Banco de Chile that matures in January 2025. This term loan bears interest at a fixed rate of 6.48% and is payable in eight annual installments ~~beginning~~which began in January 2018. This loan is unsecured and contains certain pre-payment limitations.

Note Payable

In February 2018, we exercised an option to purchase a 7-acre parcel adjacent to our East Area II real estate development project. In connection with this purchase, we issued a note payable for $1.4 million ~~promissory note~~ secured by first deed of trust, payable to the sellers. The note is due in ~~five years,~~February 2023, with interest-only, monthly payments at interest rates ranging from 5.0% to 7.0% and was ~~5.0%~~5.50% at April 30, ~~2018.~~2019.

Public Offering of Common Stock

In June 2018, we completed the sale of an aggregate of 3,136,362 shares of our common stock, at a price of $22.00 per share, to a limited number of institutional and other investors in a registered offering under the shelf registration statement. The offering represented 18% of our outstanding common stock on an after-issued basis as of June 25, 2018. Upon completion of the offering and issuance of common stock, we had 17,669,314 shares of common stock outstanding. The net proceeds from the sale of shares, after deducting underwriting discounts and our estimated expenses related to the offering, were approximately $64.1 million. In June and July 2018, we used the offering proceeds to pay down debt, purchase the San Pablo ranch and purchase Oxnard Lemon's packinghouse, related land and certain other assets.

Interest Rate Swap

WeFrom time to time we enter into interest rate swap agreements to manage the risks and costs associated with our financing activities. At April 30, 2018, we had an interest rate swap agreement that locks in the interest rate on $40.0 million of our $111.1 million in debt at 4.30% until June 2018. Additional information regarding the interest rate swap can be found in the notes to the unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~The remaining $71.1 million of~~Our debt bears interest at fixed and variable rates, ranging from 3.58% to 6.48% at April 30, ~~2018.~~2019.

Contractual Obligations

We believe that the cash flows from our agribusiness and rental operations business segments as well as available borrowing capacity from our existing credit facilities will be sufficient to satisfy our future capital expenditure, debt service, working capital and other contractual obligations for the remainder of fiscal year ~~2018.~~2019. In addition, we have the ability to control the timing of a portion of our investing cash flows to the extent necessary based on our liquidity demands.

Fixed Rate and Variable Rate Debt

Details of amounts included in long-term debt can be found above and in the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Preferred Stock Dividends

In 1997, in connection with the acquisition of Ronald Michaelis Ranches, Inc., we issued 30,000 shares of Series B Convertible Preferred Stock at ~~$100~~$100.00 par value (the “Series B Stock”), of which 14,790 shares are currently outstanding. The holders of the Series B Stock are entitled to receive cumulative cash dividends at an annual rate of 8.75% of par value. Such dividends are payable quarterly on the first day of January, April, July and October in each year commencing July 1, 1997 and total $0.1 million annually.

During March and April 2014, we issued, in aggregate, 9,300 shares of Series B-2 Convertible Preferred Stock at ~~$100~~$100.00 par value (the “Series B-2 Preferred Stock”). The holders of the Series B-2 Preferred Stock are entitled to receive cumulative cash dividends at an annual rate of 4% of the liquidation value of $1,000 per share. Such dividends are payable quarterly on the first day of January, April, July and October in each year commencing July 1, 2014 and total $0.4 million annually.

Defined Benefit Pension Plan

We have a noncontributory, defined benefit, single employer pension plan (the “Plan”), which provides retirement benefits for all eligible employees of the Company. Effective June 2004, the Company froze the Plan and no additional benefits accrued to participants subsequent to that date. We may make discretionary contributions to the Plan and we may be required to make contributions to adhere to applicable regulatory funding provisions, based in part on the Plan’s asset valuations and underlying actuarial assumptions. We made funding contributions of $0.6 million, $0.7 million ~~$0.5 million~~ and ~~$0.4~~$0.5 million in fiscal years 2018, 2017 ~~2016~~ and ~~2015,~~2016, respectively, and we plan to contribute approximately $0.6 million to the Plan in fiscal year ~~2018.~~2019.

Operating Lease Obligations

We have numerous operating lease commitments with remaining terms ranging from less than one year to ten years. In fiscal year 2008, we installed a one mega-watt photovoltaic solar array on one of our agricultural properties located in Ventura County that produces a significant portion of the power to run our lemon packinghouse. The construction of this array was financed by Farm Credit Leasing and we have a long-term lease with Farm Credit Leasing for this array. Annual payments for this lease ~~are~~were $0.5 million, however the operating lease agreement terminated and at the ~~end of~~solar array was purchased in fiscal year 2018 ~~we have an option to purchase the array~~ for $1.1 million. In fiscal year 2009, we entered into a similar transaction with Farm Credit Leasing for a second photovoltaic array at one of our agricultural properties located in the San Joaquin Valley to supply a significant portion of the power to operate four deep water well pumps located on our property. Annual lease payments for this facility ~~range~~ranged from $0.3 million to $0.8 million, however, the operating lease agreement terminated and at the ~~beginning~~solar array was purchased in the first quarter of fiscal year 2019 ~~we have the option to purchase the array~~ for $1.3 million.

We lease approximately 80 acres of lemons in Lindsay, California at a base rent of $500 per acre plus 50% of the operating profit of the leased acreage as defined in the lease. The lease expires in December 2021 and includes four five-year renewal options. Estimated aggregate lease expense is approximately $0.1 million per year.

On July 1, 2013, we entered into a lease agreement with Cadiz, Inc. (“Cadiz”) to develop new lemon orchards on Cadiz’s agricultural property in eastern San Bernardino County, California (the “Cadiz Ranch”). Under the terms of the lease agreement, we have the right to lease and plant up to 1,280 acres of lemons over the next five years at the Cadiz Ranch operations in the Cadiz Valley and have leased 320 acres initially, subject to a mutually agreed upon planting schedule. The lease agreement provides options to plant up to 960 additional acres (320 acres in Option 1 and 640 acres in Option 2) by 2019. The annual rental payment includes a base rent of $200 per planted acre and a lease payment equal to 20% of net cash flow from the harvested crops grown on Cadiz property. Pursuant to the terms of the lease agreement, the annual rental payment will not exceed a total of $1,200 per acre. We incurred approximately $0.1 million of lease expense in fiscal years 2018, 2017 ~~2016~~ and ~~2015,~~2016, respectively.

On February 3, 2015, we entered into a Modification of Lease Agreement (the “Amendment”) with Cadiz. The Amendment, among other things, increased by 200 acres the amount of property leased by our Company under the lease agreement dated July 1, 2013. In connection with the Amendment, we paid a total of $1.2 million to acquire existing lemon trees and irrigation systems from Cadiz and a Cadiz tenant. In February 2016, Cadiz assigned this lease to Fenner Valley Farms, LLC, a subsidiary of Water Asset Management, LLC (“WAM”). An entity affiliated with WAM is the holder of 9,300 shares of our Series B-2 Preferred Stock.

We lease machinery and equipment for our packing operations and other land for our agricultural operations under leases with annual lease commitments that are individually immaterial.

Real Estate Development Activities, Capital Expenditures and Related Capital Resources

On November 10, 2015 (the “Transaction Date”), we entered into the Joint Venture with Lewis for the residential development of our East Area I real estate development project. To consummate the transaction, we formed Limoneira Lewis Community Builders, LLC ~~(“the Joint~~(the "LLC" or “Joint Venture”) 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, comprised of a $2.0 million deposit received in September 2015 and $18.0 million received on the Transaction Date. We received net cash of approximately $18.8 million after transaction costs of approximately $1.2 million, which were expensed in the first quarter of fiscal year 2016. In addition, on the Transaction Date, we incurred a Success Fee with Parkstone Companies, Inc., in the amount of $2.1 million, which was capitalized as a component of our investment in the Joint Venture.

The Joint Venture agreement provides that Lewis will serve as the manager of the Joint Venture with the right to manage, control and conduct its day-to-day business and development activities. Certain major decisions, which are enumerated in the Joint Venture agreement, require approval by an executive committee comprised of two representatives appointed by Lewis and two representatives appointed by Limoneira.

Pursuant to the Joint Venture agreement, the Joint Venture will own, develop, subdivide, entitle, maintain, improve, hold for investment, market and dispose of the Joint Venture’s property in accordance with the business plan and budget approved by the executive committee.

Further, on the Transaction Date, the Joint Venture and Limoneira entered into a lease agreement (the "Lease Agreement"), pursuant to which the Joint Venture ~~will~~would lease certain of the contributed East Area I property back to Limoneira for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture ~~requires~~required the property for development. The Lease

Agreement ~~will~~was set to terminate in stages corresponding to the Joint Venture's development of the property ~~which is to occur in stages~~ pursuant to a phased master development plan. ~~The Joint Venture is required to provide~~ Limoneira ~~with written notice 180 days prior~~terminated this Lease Agreement pursuant to the ~~termination~~terms therein during the first quarter of ~~any portion of the Lease Agreement. In any event, the Lease Agreement will terminate five years from the Transaction Date.~~fiscal year 2019.

Limoneira 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 Limoneira (the "Retained Property") and arrange for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements by Limoneira. In August 2018, the Retained Property was transferred back to Limoneira.

We expect to receive approximately $100.0 million from the Joint Venture over the estimated 7 to 10-year life of the project including $20.0 million received on the consummation of the Joint Venture. The Joint Venture partners will share in capital contributions to fund project costs until project loan proceeds and or revenues are sufficient to fund the project. These funding requirements are currently estimated to total ~~$10.0~~$15.0 to ~~$15.0~~$20.0 million for each Joint Venture partner in the first ~~two~~three to ~~three~~four years of the ~~project and we~~project. We funded ~~$3.5~~$4.0 million in the first ~~quarter~~six months of fiscal year 2019, $3.5 million in fiscal year 2018, ~~and~~ $7.5 million in fiscal year ~~2017.~~2017 and $2.3 million in fiscal year 2016.

In January 2018, the Joint Venture entered into athe $45.0 million ~~unsecured Line of Credit~~ Loan ~~Agreement and Promissory Note (the “Loan”)~~ with Bank of America, N.A. to fund early development activities. The Loan matures in January 2020, with an option to extend the maturity date until 2021, subject to certain conditions. The interest rate on the Loan is LIBOR plus 2.85%, payable monthly. The Loan contains certain customary default provisions and the Joint Venture may prepay any amounts outstanding under the Loan without penalty. In February 2018, the obligations under the Loan were guaranteed by certain principals from Lewis and by the Company. The Joint Venture recorded ~~an $8.7~~a $25.8 million outstanding loan balance at April 30, ~~2018~~2019 related to this ~~loan.~~Loan.

Off-Balance Sheet Arrangements

As discussed above and in Note 7 – Real Estate Development and Note 8 – Equity Investments in the Notes to Consolidated Financial Statements included in our fiscal year ~~2017~~2018 Annual Report on Form 10-K, we have investments in joint ventures and partnerships that are accounted for using the equity method of accounting.

~~Recent Accounting Pronouncements~~

Please see Note 2 – Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.

Critical Accounting Policies and Estimates

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

Foreign Currency Translation- ~~PDA’s~~– PDA and San Pablo’s functional currency is the Chilean Peso. ~~Its~~Our balance ~~sheet is~~sheets are translated to U.S. dollars at exchange rates in effect at the balance sheet ~~date~~dates and ~~its~~their income ~~statement is~~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.

Revenue Recognition- – On November 1, 2018, we adopted FASB ASU 2014-09, Revenue from Contracts with Customers (Topic 606), that amends the guidance for the recognition of revenue from contracts with customers. The results for the reporting period beginning after November 1, 2018 are presented in accordance with the new standard which was adopted using the modified-retrospective method and applied to those contract that were not completed as of November 1, 2018. As a ~~general policy,~~result, comparative information has not been restated and the results for the reporting periods before November 1, 2018 continue to be reported under the accounting standards and policies in effect for those periods.

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.

We determine the appropriate method by which we recognize revenue by analyzing the nature of the products or services being provided as well as the terms and ~~related costs~~conditions of contracts or arrangements entered into with our customers. We account for a contract when it has approval and commitment from both parties, the rights of the parties are ~~recognized when (i) persuasive evidence~~identified, payment terms are identified, the contract has commercial substance and collectability of ~~an arrangement exists, (ii) delivery has occurred, (iii) selling~~consideration is probable. A contracts transaction price is ~~fixed~~allocated to each distinct good or ~~determinable and (iv) collectability is reasonably assured. We record a sales allowance~~service (i.e., performance obligation) identified in the ~~period~~contract and each performance obligation is valued based on its estimated relative standalone selling price.

We recognize the majority of our 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 ~~a provision~~allowances for estimated customer discounts or concessions, where applicable. The amount of variable consideration included in the transaction price may be constrained and ~~concessions.~~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.

Upon adoption, we changed the accounting of certain brokered fruit sales. Under previous guidance, we were considered an agent and recorded revenues for certain brokered fruit sales and the costs of such fruit on a net basis in its consolidated statement of operations. Under the new revenue recognition standard, we are considered a principal in the transaction and revenues are recorded on a gross basis in our consolidated statement of operations with the related cost of such fruit included in agribusiness costs and expenses. This change resulted in the recognition of additional agribusiness revenue and agribusiness costs and expenses of $162,000 and $168,000, respectively, during the three months ended April 30, 2019 and $456,000 and $420,000, respectively, during the six months ended April 30, 2019. Had we used the previous revenue recognition guidance, we would have recorded insignificant net agribusiness revenue for the three and six months ended April 30, 2019. No cumulative adjustment to retained earnings was necessary as there is no net effect of applying the standard.

Agribusiness ~~Revenue -~~revenue – Revenue from lemon sales is generally recognized ~~FOB shipping~~at a point in time when the customer takes ~~possession~~control of the fruit from ~~our packinghouse. Revenue from~~ the ~~sales~~Company’s packinghouse which aligns with the transfer of ~~certain of our agricultural products is recorded based on estimated proceeds provided by certain of our sales and marketing partners (Calavo and other third-party packinghouses) due~~title to the ~~time between when the product is delivered by us~~customer. We have elected to treat any shipping and ~~the closing~~handling costs incurred after control of the pools for such fruits at the end of each month. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. As such, we apply specific authoritative agriculture revenue recognition guidance related to transactions between patrons and agriculture marketing cooperatives to record revenue at time of deliverygoods has been transferred to the packinghouses relating to fruits that are in pools that have not yet closed at month end if (i) the related fruits have been delivered to and accepted by Calavo and other third-party packinghouses (i.e., title has transferred to Calavo and other third-party packinghouses) and (ii) sales price information has been provided by Calavo and other third-party packinghouses (based on the marketplace activity for the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. Historically, the revenue that is recorded based on the sales price information provided to us by Calavo and other third-party packinghouses at the time of delivery have not materially differed from the actual amounts that are paid after the monthly pools are closed. We also earn commissions on certain brokered fruit sales, which totaled $324,000, $263,000 and $114,000 in fiscal years 2017, 2016 and 2015, respectively.customer as agribusiness costs.

Our avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. ~~Specifically, we~~We deliver all of our avocado production from our orchards to Calavo. These avocados are then packed by Calavo at its packinghouse and sold and distributed under Calavo brands to its customers primarily in the United States and Canada. Our Company’s arrangements with other third-party packinghouses related to ~~our~~its oranges, specialty citrus and other specialty crops are similar to our arrangement with Calavo.

Our arrangements with our third-party packinghouses are such that we are the producer and supplier of the product and the third-party packinghouses are our customers.

The revenues we recognize related to the fruits sold to the third-party packinghouses are based on the volume and quality of the fruits delivered, ~~and~~ the market price for such fruit, less the packinghouses’ charges to pack and market the fruit. Such packinghouse charges include the grading, sizing, packing, cooling, ripening and marketing of the related fruit. We ~~bear inventory risk~~control the product until ~~the product~~it is delivered to the third-party packinghouses at which time ~~title and inventory risk to~~control of the product is transferred to the third-party packinghouses and revenue is recognized. Such third-party packinghouse charges are recorded as a reduction of revenue ~~based on the application of specific authoritative revenue recognition guidance related to a “Vendor’s Income Statement Characterization of Consideration Given to a Customer.”~~as they are not for distinct services. The identifiable benefit we receive from the third-party packinghouses for packaging and marketing services cannot be sufficiently separated from the third-party packinghouses’ purchase of our products. In addition, we are not able to reasonably estimate the fair value of the benefit received from the third-party packinghouses for such services and as such, these costs are characterized as a reduction of revenue in our consolidated statements of operations.

Revenue from the sales of certain of our agricultural products is recorded based on estimated proceeds provided by certain of our sales and marketing partners (Calavo and other third-party packinghouses) due to the time between when the product is delivered by us and the closing of the pools for such fruits at the end of each month or harvest period. Calavo and other third-party packinghouses are agricultural cooperatives or function in a similar manner as an agricultural cooperative. We estimate the variable consideration using the most likely amount method, with the most likely amount being the quantities actually shipped extended by the prices reported by Calavo and other third-party packinghouses. Revenue is recognized at time of delivery to the packinghouses relating to fruits that are in pools that have not yet closed at month end if: (a) the related fruits have been delivered to and accepted by Calavo and other third-party packinghouses (i.e., Calavo and other third-party packinghouses obtain control) and (b) sales price information has been provided by Calavo and other third-party packinghouses (based on the marketplace activity for the related fruit) to estimate with reasonable certainty the final selling price for the fruit upon the closing of the pools. In such instances we have the present right to payment and Calavo and other third-party packinghouses have the present right to direct the use of, and obtain substantially all of the remaining benefits from, the delivered fruit. We do not expect that there is a high likelihood that a significant reversal in the amount of cumulative

revenue recognized in the early periods of the pool will occur once the final pool prices have been reported by the packinghouses. Historically, the revenue that is recorded based on the sales price information provided to the Company by Calavo and other third-party packinghouses at the time of delivery, have not materially differed from the actual amounts that are paid after the monthly or harvest period pools are closed.

We have entered into brokerage arrangements with third-party international packinghouses. In certain of these arrangements, we have the exclusive ability to direct the use of, and obtain substantially all of the remaining benefits from the fruit, and are therefore acting as a principal. As such, we record the related revenue and costs of the fruit gross in the consolidated statement of operations.

Revenue from crop insurance proceeds is recorded when the amount ~~of and the right to receive the payment~~ can be reasonably ~~determined. We recorded agribusiness revenues from crop insurance proceeds~~determined and upon establishment of ~~$74,000, $83,000 and $9,000 in fiscal years 2017, 2016 and 2015, respectively.~~the present right to payment.

Rental Revenue -– Minimum rental revenues are generally recognized on a straight-line basis over the respective initial lease term. Contingent rental revenues are contractually defined as to the percentage of rent received by us and are based on fees collected by the lessee. Such revenues are recognized when actual results, based on collected fees reported by the tenant, are received. Our rental arrangements generally require payment on a monthly or quarterly basis.

Real Estate Development Revenue -– We recognize revenue on real estate development projects with customers at a point in time (i.e., the closing) when we satisfy the single performance obligation and transfers control of such real estate to a buyer. The transaction price, which is the amount of consideration we receive upon delivery of the completed real estate to the buyer, is allocated to this single obligation and is received at closing. Real estate development projects with non-customers are accounted for in accordance with ~~FASB~~ ASC ~~360-20,~~610-20, ~~Real Estate Sales~~Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets, which provides for profit to be recognized in full when real estate is sold, provided that a sale has been consummated and profit is determinable, collection of sales proceeds is estimable with the seller’s receivable not subject to subordination, risks and rewards of ownership have been transferred to the buyer and the earnings process is substantially complete with no significant seller activities or obligations required after the date of sale. To the extent the above conditions are not met, a portion or all of the profit is deferred..

Incidental operations may occur during the holding or development period of real estate development projects to reduce holding or development costs. Incremental revenue from incidental operations in excess of incremental costs from incidental operations is accounted for as a reduction of development costs. Incremental costs from incidental operations in excess of incremental revenue from incidental operations are charged to operations.

Real Estate Development Costs -– We capitalize the planning, entitlement, construction and development costs associated with our 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. Costs incurred to sell the real estate are evaluated for capitalization in accordance with ASC 340-40, and incremental costs of obtaining a contract and costs to fulfill a contract are capitalized only if the costs relate directly to a specifically identified contract, enhance resources to satisfy performance obligations in the future and are expected to be recovered. For fiscal year 2018, we capitalized approximately $32.7 million of costs related to our real estate projects and expensed approximately $1.7 million of costs.

Financing and payment –Our payment terms vary by the type and location of our customer and the products or services offered. Payment terms differ by jurisdiction and customer but payment is generally required in a term ranging from 30 to 60 days from date of shipment or satisfaction of the performance obligation. We do not provide financing with extended payment terms beyond generally standard commercial payment terms for the applicable industry.

Practical expedients and exemptions –Taxes collected from customers and remitted to government authorities and that are related to the sales of the Company’s products are excluded from revenues.

We do not disclose the value of unsatisfied performance obligations for (i) contracts with original expected lengths of one year or less or (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for the services performed.

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.

Business Combinations and Asset Acquisitions – 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 under the ASC are accounted for as asset acquisitions. Asset acquisitions are 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.

Derivative Financial Instruments - We use derivative financial instruments for purposes other than trading to manage our exposure to interest rates as well as to maintain an appropriate mix of fixed and floating-rate debt. Contract terms of our hedge instruments closely mirror those of the hedged item, providing a high degree of risk reduction and correlation. Contracts that are effective at meeting the risk reduction and correlation criteria are recorded using hedge accounting. If a derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the instrument will be either offset against the change in the fair value of the hedged assets, liabilities or firm commitments through earnings or be recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of an instrument’s change in fair value will be immediately recognized in earnings. Instruments that do not meet the criteria for hedge accounting, or contracts for which we have not elected hedge accounting, are valued at fair value with unrealized gains or losses reported in earnings during the period of change.

Impairment of Long-Lived Assets We evaluate our long-lived assets including our real estate development projects for impairment when events or changes in circumstances indicate the carrying value of these assets may not be recoverable. As a result of various factors, in recent years, we recorded impairment charges of $1.6 million, $0.1 million and zero in fiscal years 2018, 2017 and 2016, respectively.

Defined Benefit Retirement Plan As discussed in the notes to our consolidated financial statements, we sponsor a defined benefit retirement plan that was frozen in June 2004, and no future benefits accrued to participants subsequent to that time. Ongoing accounting for this plan under FASB ASC 715 ~~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 us 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. During ~~2017,~~2018, the Society of Actuaries (“SOA”) released a new mortality improvement scale table, referred to as ~~MP-2017,~~MP-2018, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year ~~2017,~~2018, the assumed discount rate to measure the pension obligation ~~remained unchanged at 3.6%~~increased to 4.4%. The Company used the latest mortality tables released by the SOA through October 31, ~~2017~~2018 to measure its pension obligation as of October 31, ~~2017~~2018 and combined with the assumed discount rate and other demographic assumptions, its pension ~~obligation~~liability decreased by approximately ~~$1.8~~$1.5 million as of October 31, ~~2017 with a corresponding increase in other comprehensive income recognized net of tax.~~2018. Further changes in any of these estimates could materially affect the amounts recorded that are related to our defined benefit retirement plan.

Recent Accounting Pronouncements

Please See Note 2 – "Summary of Significant Accounting Policies" of the notes to consolidated financial statements included in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in the disclosures discussed in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017~~2018 as filed with the Securities and Exchange Commission ~~(the “SEC”~~("SEC") on January ~~8, 2018.~~14, 2019.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. As of April 30, ~~2018,~~2019, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q or, to our knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Controls. Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time involved in legal proceedings arising in the normal course of business. Other than proceedings incidental to our business, we are not a party to, nor is any of our property the subject of, any material pending legal proceedings and no such proceedings are, to our knowledge, ~~threatened against us.~~contemplated by governmental authorities.

Item 1A. Risk Factors

There have been no material changes in the disclosures discussed in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended October 31, ~~2017,~~2018, as filed with the SEC on January ~~8, 2018.~~14, 2019.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibit Number	Exhibit
3.1	Restated Certificate of Incorporation of Limoneira Company, dated July 5, 1990 (Incorporated by reference to exhibit 3.1 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.2	Certificate of Merger of Limoneira Company and The Samuel Edwards Associates into Limoneira Company, dated October 31, 1990 (Incorporated by reference to exhibit 3.2 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.3	Certificate of Merger of McKevett Corporation into Limoneira Company dated December 31, 1994 (Incorporated by reference to exhibit 3.3 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.4	Agreement of Merger Between Ronald Michaelis Ranches, Inc. and Limoneira Company, dated June 24, 1997 (Incorporated by reference to exhibit 3.6 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.5	Certificate of Amendment of Certificate of Incorporation of Limoneira Company, dated April 22, 2003 (Incorporated by reference to exhibit 3.7 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.6	Certificate of Amendment of Certificate of Incorporation of Limoneira Company, dated March 24, 2010 (Incorporated by reference to exhibit 3.9 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

3.7	Certificate of Amendment of ~~Certification~~Certificate of Incorporation of Limoneira Company, dated March 29, 2017 (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed March 31, 2017 (File No. 001-34755))

3.8	Amended and Restated Bylaws of Limoneira Company (Incorporated by reference to exhibit 3.10 to the Company’s Annual Report on Form 10-K, filed January 14, 2013 (File No. 001-34755))

3.8.1	Amendment to Amended and Restated Bylaws of Limoneira Company (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed September 25, 2013 (File No. 001-34755))

3.8.2	Amendment to Amended and Restated Bylaws of Limoneira Company (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed December 18, 2014 (File No. 001-34755))

3.8.3	Amendment to Amended and Restated Bylaws of Limoneira Company (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed January 25, 2017 (File No. 001-34755))

3.8.4	Amendment to Amended and Restated Bylaws of Limoneira Company (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed July 26, 2017 (File No. 001-34755))

4.1	Specimen Certificate representing shares of Common Stock, par value $0.01 per share (Incorporated by reference to exhibit 4.1 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

4.2	Rights Agreement dated December 20, 2006 between Limoneira Company and The Bank of New York, as Rights Agent (Incorporated by reference to exhibit 4.2 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

4.3	Certificate of Designation, Preferences and Rights of $8.75 Voting Preferred Stock, $100.00 Par Value, Series B of Limoneira Company, dated May 21, 1997 (Incorporated by reference to exhibit 3.4 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))



Exhibit Number	Exhibit
4.4	Amended Certificate of Designation, Preferences and Rights of $8.75 Voting Preferred Stock, $100.00 Par Value, Series B of Limoneira Company, dated May 21, 1997 (Incorporated by reference to exhibit 3.5 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

4.5	Certificate of Designation, Preferences and Rights of Series A Junior Participating Preferred Stock, $.01 Par Value, of Limoneira Company, dated November 21, 2006 (Incorporated by reference to exhibit 3.8 to the Company’s Registration Statement on Form 10, and amendments thereto, declared effective April 13, 2010 (File No. 000-53885))

4.6	Certificate of Designation, Preferences and Rights of 4% Voting Preferred Stock, $100.00 Par Value, Series B-2 of Limoneira Company, dated March 20, 2014 (Incorporated by reference to exhibit 3.1 to the Company’s Current Report on Form 8-K, filed March 24, 2014 (File No. 001-34755))

~~10.1~~	Line of Credit Loan Agreement, by and between Limoneira Lewis Community Builders, LLC and Bank of America, N.A., dated February 22, 2018. (Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K, filed March 2, 2018 (File No. 001-34755))

~~10.2~~	Unsecured Line of Credit Promissory Note, by and between Limoneira Lewis Community Builders, LLC and Bank of America, N.A., dated February 22, 2018 (Incorporated by reference to exhibit 10.2 to the Company’s Current Report on Form 8-K, filed March 2, 2018 (File No. 001-34755))

~~10.3~~	Guaranty Agreement, by and among Richard A. Lewis, individually and as Trustee of the Richard A. Lewis Revocable Trust u/d/t dated August 16, 2004 , Robert E. Lewis, individually and as Trustee of the Robert E. Lewis Revocable Trust u/d/t dated August 17, 2004, Roger G. Lewis, individually and as Trustee of the Roger G. Lewis Revocable Trust u/d/t dated August 20, 2004, Randall W. Lewis, individually and as Trustee of the Randall W. Lewis Revocable Trust u/d/t dated September 1, 2006, and Limoneira Company, dated February 22, 2018 (Incorporated by reference to exhibit 10.3 to the Company’s Current Report on Form 8-K, filed March 2, 2018 (File No. 001-34755))

~~10.4†~~	Form of Restricted Share Award Agreement, under the Limoneira Company 2010 Amended and Restated Omnibus Incentive Plan (Incorporated by reference to exhibit 10.1 to the Company’s Current Report on Form 8-K, filed January 29, 2018 (File No. 001-34755))

31.1*	Certification of the Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)

31.2*	Certification of the Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a)

32.1*	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance Document

101.SCH*	XBRL Taxonomy Extension Schema Document

101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*	XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document



	*	Filed herewith,
	†	~~Denotes management contracts and compensatory plans or arrangements~~

		In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibit 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

LIMONEIRA COMPANY

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	LIMONEIRA COMPANY

June ~~11, 2018~~10, 2019	By:	/s/ HAROLD S. EDWARDS
		Harold S. Edwards
		Director, President and Chief Executive Officer
		(Principal Executive Officer)

June ~~11, 2018~~10, 2019	By:	/s/ MARK PALAMOUNTAIN
		Mark Palamountain
		Chief Financial Officer, Treasurer and Corporate Secretary
		(Principal Financial and Accounting Officer)

6256



Cultural costs	$	473
Other current assets	166
Land and land improvements	2,748
Buildings and equipment	206
Orchards	2,876
Investment in Rosales	1,021
Water rights	1,120
Deposit for land purchase	645
Goodwill	196
Total assets acquired	9,451

Current liabilities	(122		)
Current and long-term debt	(1,964		)
Deferred income taxes	(1,026		)
Noncontrolling interest	(633		)
Net cash paid	$	5,706



	April 30, 2018		October 31, 2017
East Areas I and II	$	86,516	$	74,500
Templeton Santa Barbara, LLC	6,582		6,582
	$	93,098	$	81,082



	Notional Amount				Fair Value Liability
	April 30, 2018		October 31, 2017		April 30, 2018		October 31, 2017
Pay fixed-rate, receive floating-rate forward interest rate swap, beginning July 2013 until June 2018	$	40,000	$	40,000	$	40	$	268



Diluted net income per common share:
Numerator: Net income for diluted EPS	$	6,598	$	3,478	$	15,224	$	1,158
Denominator: Weighted average common shares–basic	14,379		14,269		14,341		14,236
Effect of dilutive unvested, restricted stock and preferred stock	644		450		645		—
Weighted average common shares–diluted	15,023		14,719		14,986		14,236
Diluted net income per common share	$	0.44	$	0.24	$	1.02	$	0.08



	April 30, 2018		October 31, 2017
Minimum pension liability	$	3,556	$	3,858
Loan guarantee	750		—
Deferred gain and other	23		62
	$	4,329	$	3,920



		Three Months Ended April 30,				Six Months Ended April 30,
Performance Year	Shares Granted	2018		2017		2018		2017
2015	27,424	$	—	$	36	$	—	$	72
2016	44,688	25		64		50		128
2017	41,291	68		193		136		357
2018	90,000	138		—		444		—
		$	231	$	293	$	630	$	557