LIMONEIRA COMPANY You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our consolidated financial statements and notes thereto that appear elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under "Risk Factors" included in Item 1A and elsewhere in this Annual Report.
Overview
Limoneira Company was incorporated inDelaware in 1990 as the successor to several businesses with operations inCalifornia since 1893. We are primarily an agribusiness company founded and based inSanta Paula, California , committed to responsibly using and managing our approximately 15,400 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, rental operations, real estate and capital investment activities. We are one ofCalifornia's oldest citrus growers. According to Sunkist, we are one of the largest growers of lemons inthe United States and, according to theCalifornia Avocado Commission , one of the largest growers of avocados inthe United States . In addition to growing lemons and avocados, we grow oranges and a variety of specialty citrus and other crops. We have agricultural plantings throughoutVentura ,Tulare ,San Luis Obispo andSan Bernardino Counties inCalifornia ,Yuma County inArizona ,La Serena, Chile , and Jujuy,Argentina , which collectively consist of approximately 6,000 acres of lemons, 900 acres of avocados, 1,400 acres of oranges and 900 acres of specialty citrus and other crops. We also operate our own packinghouses inSanta Paula andOxnard, California andYuma, Arizona , where we process, pack and sell lemons that we grow, as well as lemons grown by others. We have a 47% interest in Rosales, a citrus packing, marketing and sales business, a 90% interest inFruticola Pan de Azucar S.A. ("PDA"), a lemon and orange orchard and 100% interest inSan Pablo , a lemon and orange orchard, all of which are located nearLa Serena, Chile . We have a 51% interest in a joint venture,Trapani Fresh , a lemon growing, packing, marketing and selling business inArgentina . 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 adjudicatedSanta Paula Basin (aquifer) and the un-adjudicatedFillmore and Paso Robles Basins (aquifers). We use ground water from theSan Joaquin Valley Basin and water from water districts and irrigation districts inTulare County , which is inCalifornia's San Joaquin Valley . We also use ground water from theCadiz Valley Basin inCalifornia's San Bernardino County and surface water inArizona from theColorado River through the Yuma MesaIrrigation and Drainage District . We use ground water provided by wells and surface water for our PDA andSan Pablo farming operations inChile and ourTrapani Fresh farming operations inArgentina . For more than 100 years, we have been making strategic investments inCalifornia agriculture and real estate. We currently have an interest in three real estate development projects inCalifornia . These projects include multi-family housing and single-family homes comprised of 256 completed rental units and another approximately 1,150 units in various stages of planning and development. We have three business divisions: agribusiness, rental operations and real estate development. Our agribusiness division is comprised of four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, and includes our core operations of 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 investments in real estate development projects. Generally, we see our Company as a land and farming company that generates annual cash flows to support our progress into diversified real estate development activities. As real estate developments are monetized, our agriculture business will then be able to expand more rapidly into new regions and markets.
Recent Developments - Refer to Part I, Item 1 "Fiscal Year 2020 Highlights and Recent Developments"
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--------------------------------------------------------------------------------Results of Operations
The following table shows the results of operations for ($ in thousands):
Years Ended October 31,
2020 2019 2018
Revenues:
Agribusiness $ 159,937 97% $ 166,549 97% $ 124,344 96%
Other operations 4,622 3% 4,849 3% 5,048 4%
Total net revenues 164,559 100% 171,398 100% 129,392 100%
Costs and expenses:
Agribusiness 157,281 86% 152,372 86% 98,083 83%
Other operations 4,504 2% 4,439 3% 4,212 3%
Impairment of real estate development assets - - - - 1,558 1%
Loss (gain) on sale and disposal of property
assets 502 - (1,069) (1)% - -
Selling, general and administrative 21,280 12% 21,170 12% 16,053 13%
Total costs and expenses 183,567 100% 176,912 100% 119,906 100%
Operating (loss) income:
Agribusiness 2,656 14,177 26,261
Other operations 118 410 (722)
Loss (gain) on sale and disposal of property
assets (502) 1,069 -
Selling, general and administrative (21,280) (21,170) (16,053)
Operating (loss) income (19,008) (5,514) 9,486
Other (expense) income:
Interest income 362 207 201
Interest expense (2,048) (2,341) (1,323)
Equity in earnings of investments, net 339 3,073 583
(Loss) gain on stock in Calavo Growers, Inc. (6,299) (2,117) 4,223
Other income, net 219 129 313
Total other (expense) income (7,427) (1,049) 3,997
(Loss) income before income tax benefit
(provision) (26,435) (6,563) 13,483
Income tax benefit 8,494 1,097 6,729
Net (loss) income (17,941) (5,466) 20,212
Loss (income) attributable to noncontrolling
interest 1,506 (477) (24)
Net (loss) income attributable to Limoneira
Company $ (16,435) $ (5,943) $ 20,188
Non-GAAP Financial Measures
Due to significant depreciable assets associated with the nature of our
operations and interest costs associated with our capital structure, management
believes that earnings before interest, income taxes, depreciation and
amortization ("EBITDA") and adjusted EBITDA, which excludes loss on stock in
Calavo, LLCB earnings in equity investment, sale and disposal of property assets
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 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):
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Years Ended October 31,
2020 2019 2018
Net (loss) income attributable to Limoneira Company $ (16,435) $ (5,943) $ 20,188
Interest income (362) (207) (201)
Interest expense 2,048 2,341 1,323
Income tax benefit (8,494) (1,097) (6,729)
Depreciation and amortization 10,097 8,633 7,275
EBITDA (13,146) 3,727 21,856
Loss on stock in Calavo Growers, Inc. 6,299 2,054 -
LLCB earnings in equity investments, net (326) (2,870) -
Loss (gain) on sale and disposal of property assets 502 (991)
-
Impairment of real estate development assets - - 1,558
Adjusted EBITDA $ (6,671) $ 1,920 $ 23,414 Fiscal Year 2020 Compared to Fiscal Year 2019
Revenues
Total revenues for fiscal year 2020 was
Agribusiness
Revenues for the Years Ended
2020 2019 Change
Lemons $ 137,563 $ 149,971 $ (12,408) (8)%
Avocados 8,806 5,391 3,415 63%
Oranges 7,722 6,022 1,700 28%
Specialty citrus and other crops 5,846 5,165 681 13%
Agribusiness revenues $ 159,937 $ 166,549 $ (6,612) (4)%
•Lemons: The decrease in fiscal year 2020 was primarily the result of lower
prices partially offset by higher volume of fresh lemons sold compared to fiscal
year 2019. During fiscal years 2020 and 2019, fresh lemon sales were $101.1
million and $110.1 million on 5.5 million and 5.2 million cartons of fresh
lemons sold at average per carton prices of $18.32 and $21.00 , respectively.
COVID-19 related food service closures reduced the demand for lemons in the food
service marketplace and created an over-supply in the retail marketplace. This
oversupply of lemons resulted in lower average per carton prices in fiscal year
2020 compared to fiscal year 2019. Lemon revenues in fiscal years 2020 and 2019
included $13.4 million and $15.6 million shipping and handling, $4.1 million and
$10.8 million lemon by-products and $18.9 million and $13.5 million other lemon
sales, respectively.
•Avocados: The increase in fiscal year 2020 was primarily the result of higher
volume partially offset by lower prices of avocados sold compared to fiscal year
2019. The California avocado crop typically experiences alternating years of
high and low production due to plant physiology. During fiscal years 2020 and
2019, 8.0 million and 1.8 million pounds of avocados were sold at average per
pound prices of $1.10 and $1.72 , respectively. Lower prices in fiscal year 2020
were primarily related to higher supply of fruit in the marketplace. Fiscal year
2019 avocados revenues included approximately $2.3 million of crop insurance.
•Oranges: The increase in fiscal year 2020 was primarily due to higher prices
partially offset by lower volume of oranges sold compared to fiscal year 2019.
During fiscal years 2020 and 2019, sales consisted of 743,000 and 907,000
40-pound carton equivalents of oranges sold at average per carton prices of
$10.39 and $6.64 , respectively.
•Specialty citrus and other crops: The increase in fiscal year 2020 was
primarily the result of higher prices partially offset by lower volume of
specialty citrus sold compared to fiscal year 2019. In fiscal years 2020 and
2019, we sold 333,000 and 358,000 40-pound carton equivalents of specialty
citrus at an average per carton price of
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Rental operations revenue was $4.6 million in fiscal year 2020 compared to $4.8
million in fiscal year 2019. The decrease in fiscal year 2020 was primarily due
to decreased revenues from residential rental units leased to employees, former
employees and non-employees compared to fiscal year 2019.
Real estate development revenue was zero in both fiscal years 2020 and 2019.
Costs and Expenses
Total costs and expenses for fiscal year 2020 were$183.6 million compared to$176.9 million for fiscal year 2019. This 4% increase of$6.7 million was primarily attributable to increases in our agribusiness expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and depreciation and amortization expense. These costs are discussed further below ($ in thousands): Agribusiness Costs and
Expenses for the Years Ended
2020 2019 Change
Packing costs $ 45,545 $ 41,018 $ 4,527 11%
Harvest costs 20,714 19,272 1,442 7%
Growing costs 27,861 26,962 899 3%
Third-party grower costs 54,218 57,497 (3,279) (6)%
Depreciation and amortization 8,943 7,623 1,320 17%
Agribusiness costs and expenses $ 157,281 $ 152,372 $ 4,909 3%
•Packing costs: Packing costs consist of the costs to pack lemons for sale such
as labor and benefits, cardboard cartons, fruit treatments, packing and shipping
supplies and facility operating costs. Lemon packing costs were $42.6 million
and $37.7 million in fiscal years 2020 and 2019, respectively. The increase in
fiscal year 2020 was primarily attributable to higher average per carton costs
and higher volume of fresh lemons packed and sold compared to fiscal year 2019.
In fiscal years 2020 and 2019, we packed and sold 5.5 million and 5.2 million
cartons of lemons at average per carton costs of $7.71 and $7.20 , respectively.
The increase in average per carton costs in fiscal year 2020 compared to fiscal
year 2019 was primarily due to decreased percentage of the crop that went to the
fresh market. Additionally, in fiscal years 2020 and 2019, packing costs
included $3.0 million and $3.2 million of shipping costs.
•Harvest costs: The increase in fiscal year 2020 was primarily attributable to
increased volume of lemons and avocados harvested partially offset by decreased
volume of oranges harvested compared to fiscal year 2019.
•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 fiscal year
2020 was primarily due to net increased costs for cultivation compared to fiscal
year 2019. These net increases reflect farm management decisions based on
weather, harvest timing and crop conditions.
•Third-party grower costs: We sell lemons that we grow and lemons that we
procure from other growers. The cost of procuring lemons from other growers is
referred to as third-party grower costs. The decrease in fiscal year 2020 was
primarily due to lower prices of third-party grower lemons sold, partially
offset by increased volume compared to fiscal year 2019. During fiscal years
2020 and 2019, of the 5.5 million and 5.2 million cartons sold, 3.3 million
(60%) and 3.1 million (60%) were procured from third-party growers at average
per carton prices of $11.71 and $15.52 , respectively. Additionally, in fiscal
years 2020 and 2019 we incurred $15.5 million and $9.0 million , respectively of
costs for purchased, packed fruit for resale.
•Depreciation and amortization expense in fiscal year 2020 was $1.3 million
higher than fiscal year 2019 primarily due to the acquisition of Trapani Fresh
in May 2019 .
Other operations expenses were
Loss (gain) on sales of property assets for fiscal years 2020 and 2019 were
Selling, general and administrative expenses for fiscal year 2020 were$21.3 million compared to$21.2 million for fiscal year 2019. This 1% increase of$0.1 million was primarily attributable to the following: 38 -------------------------------------------------------------------------------- •$0.9 million increase in training, depreciation and other costs associated with an ERP implementation; and •$0.8 million decrease in other selling, general and administrative expenses, including certain corporate overhead expenses.
Other (Expense) Income
Other (expense) income, for fiscal year 2020 was
•$0.3 million decrease in interest expense as a result of lower interest rates; •$2.7 million decrease in equity in earnings of investments primarily from LLCB; and •$4.2 million increase in the loss on sales of stock in Calavo.
Income Taxes
We recorded an income tax benefit of$8.5 million for fiscal year 2020 on pre-tax loss of$26.4 million compared to an income tax benefit of$1.1 million for fiscal year 2019 on pre-tax loss of$6.6 million . The tax provision recorded for the fiscal year 2020 differs from theU.S. federal statutory tax rate of 21% due primarily to a$1.9 million discrete benefit related to the CARES Act. Our effective tax rate for fiscal years 2020 and 2019 was 32.2% and 17.1%, respectively.
Net (Loss) Income Attributable to Noncontrolling Interest
Net (loss) income attributable to noncontrolling interest primarily
represents 10% of the net income of PDA and 49% of the net loss of
Fiscal Year 2019 Compared to Fiscal Year 2018
Revenues
Total revenues for fiscal year 2019 was
Agribusiness
Revenues for the Years Ended
2019 2018 Change
Lemons $ 149,971 $ 103,830 $ 46,141 44%
Avocados 5,391 6,576 (1,185) (18)%
Oranges 6,022 8,884 (2,862) (32)%
Specialty citrus and other crops 5,165 5,054 111 2%
Agribusiness revenues $ 166,549 $ 124,344 $ 42,205 34%
•Lemons: The increase in fiscal year 2019 was primarily the result of higher
volume partially offset by lower prices of fresh lemons sold compared to fiscal
year 2018. A portion of the increased revenue was the result of fresh lemon
sales of $14.7 million by Trapani Fresh on 746,000 cartons of fresh lemons sold
in fiscal year 2019. During fiscal years 2019 and 2018, fresh lemon sales were
$110.1 million and $83.9 million on 5.2 million and 3.3 million cartons of fresh
lemons sold at average per carton prices of $21.00 and $25.42 , respectively.
Lemon revenues in fiscal year 2019 included $15.6 million shipping and handling,
$10.8 million lemon by-products and $13.5 million other lemon sales. Other lemon
sales in fiscal year 2019 included $2.9 million of lemon sales in Chile by PDA
and San Pablo and $9.5 million of brokered fruit sales, of which $8.8 million is
due to the adoption of FASB ASU 2014-19. Lemon revenues in fiscal year 2018
included $9.0 million shipping and handling, $4.4 million lemon by-products and
$6.5 million other lemon sales. Other lemon sales in fiscal year 2018 included
$2.3 million of lemon sales in Chile by PDA and $1.1 million of commissions
earned on 912,000 cartons of brokered fruit sales.
•Avocados: The decrease in fiscal year 2019 was the result of lower volume
partially offset by higher prices of avocados sold compared to fiscal year 2018.
The California avocado crop typically experiences alternating years of high and
low production due to plant physiology. During fiscal years 2019 and 2018, 1.8
million and 6.3 million pounds of avocados were sold at average per pound prices
of $1.72 and $1.04 , respectively. Higher prices in fiscal year 2019 were
primarily related to lower supply of fruit in the marketplace. Fiscal year 2019
avocados revenues included approximately $2.3 million of crop insurance.
39
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•Oranges: The decrease in fiscal year 2019 was primarily due to lower prices
partially offset by higher volume of oranges sold compared to fiscal year 2018.
During fiscal years 2019 and 2018, sales consisted of 907,000 and 712,000
40-pound carton equivalents of oranges sold at average per carton prices of
$6.64 and $12.48 , respectively. Oranges revenues in fiscal years 2019 and 2018
included $0.3 million of orange sales in Chile .
•Specialty citrus and other crops: The slight increase in fiscal year 2019 was
primarily the result of higher volume of wine grapes and pistachios sold offset
by lower specialty citrus revenues compared to fiscal year 2018. In fiscal year
2019, we sold approximately 1,300 tons of wine grapes for $1.3 million compared
to approximately 600 tons of wine grapes for $0.9 million in fiscal year 2018.
Corporate and other operations revenue was
Costs and Expenses
Total costs and expenses for fiscal year 2019 were$176.9 million compared to$119.9 million for fiscal year 2018. This 48% increase of$57.0 million was primarily attributable to increases in our agribusiness, real estate development and selling, general and administrative costs and expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and depreciation and amortization expense. These costs are discussed further below ($ in thousands): Agribusiness Costs and
Expenses for the Years Ended
2019 2018 Change
Packing costs $ 41,018 $ 23,071 $ 17,947 78%
Harvest costs 19,272 13,512 5,760 43%
Growing costs 26,962 23,523 3,439 15%
Third-party grower costs 57,497 31,733 25,764 81%
Depreciation and amortization 7,623 6,244 1,379 22%
Agribusiness costs and expenses $ 152,372 $ 98,083 $ 54,289 55%
•Packing costs: Packing costs consist of the costs to pack lemons for sale such
as labor and benefits, cardboard cartons, fruit treatments, packing and shipping
supplies and facility operating costs. Lemon packing costs were $37.7 million
and $21.4 million in fiscal years 2019 and 2018, respectively. The increase in
fiscal year 2019 was primarily attributable to higher average per carton costs
and higher volume of fresh lemons packed and sold compared to fiscal year 2018.
In fiscal year 2019, we packed and sold 5.2 million cartons of lemons at average
per carton costs of $7.20 compared to 3.3 million cartons of lemons sold at
average per carton costs of $6.48 in fiscal year 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 $5.8 million of operating costs
incurred at the Oxnard Lemon facility. Additionally, packing costs included $3.2
million of shipping costs in fiscal year 2019 compared to $1.7 million in fiscal
year 2018.
•Harvest costs: The increase in fiscal year 2019 was primarily attributable to
increased volume of lemons and Navel oranges and specialty citrus harvested
partially offset by decreased volume of avocados harvested compared to fiscal
year 2018.
•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 fiscal year
2019 is primarily due to net increased costs for fertilization and soil
amendments and pruning in addition to San Pablo and Trapani Fresh growing costs
compared to fiscal year 2018. These net increases reflect farm management
decisions based on weather, harvest timing and crop conditions.
•Third-party grower costs: We sell lemons that we grow and lemons that we
procure from other growers. The cost of procuring lemons from other growers is
referred to as third-party grower costs. The increase is primarily due to higher
volume of third-party grower lemons sold. During fiscal years 2019 and 2018, of
the 5.2 million and 3.3 million cartons sold, 3.1 million (60%) and 1.5 million
(45%) were procured from third-party growers at average per carton prices of
$15.52 and $20.89 , respectively.
40
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Additionally, in fiscal year 2019 we incurred
•Depreciation and amortization expense in fiscal year 2019 was$1.4 million higher than fiscal year 2018 primarily due to the acquisitions ofSan Pablo , Oxnard Lemon andTrapani Fresh and an increase in assets placed into service. Real estate development expenses for fiscal year 2019 were$0.1 million compared to$1.7 million in fiscal year 2018. Real estate development costs and expenses in fiscal year 2018 include$1.6 million impairment on Pacific Crest andSevilla real estate development projects. Gain on sales of property for fiscal year 2019 includes$1.1 million for the sale of two properties. Selling, general and administrative expenses for fiscal year 2019 were$21.2 million compared to$16.1 million for fiscal year 2018. This 32% increase of$5.1 million was primarily attributable to the following: •$3.2 million inTrapani Fresh selling, general and administrative expenses; •$0.8 million increase in legal, consulting and other administrative expenses primarily associated with our acquisition ofTrapani Fresh inMay 2019 ; •$0.4 million increase in lemon selling expenses primarily due to an increase in personnel; and •$0.7 million increase in other selling, general and administrative expenses, including certain corporate overhead expenses.
Other (Expense) Income
Other (expense) income, for fiscal year 2019 was
•$1.0 million increase in interest expense as a result of higher debt; •$2.5 million increase in equity in earnings of investments primarily from LLCB; •$4.3 million decrease in the gain on sales of stock in Calavo; and •$2.1 million in unrealized loss on stock in Calavo in fiscal year 2019.
Income Taxes
We recorded an income tax benefit of$1.1 million for fiscal year 2019 on pre-tax loss of$6.6 million compared to an income tax benefit of$6.7 million for fiscal year 2018 on pre-tax income of$13.5 million . Our effective tax rate was 17.1% for fiscal year 2019 compared to an effective tax rate of (49.9)% for fiscal year 2018. Our effective tax rate in fiscal year 2018 was primarily due to the approximate$10.3 million decrease in deferred tax liabilities related to the change in the federal tax rate from the Tax Cuts and Jobs Act of 2017. No such tax rate changes occurred in fiscal year 2019.
Net (Loss) Income Attributable to Noncontrolling Interest
Net (loss) income attributable to noncontrolling interest primarily
represents 10% of the net income of PDA and 49% of the net income of
Segment Results of Operations
We operate in four reportable operating segments: fresh lemons, lemon packing,
avocados and other agribusiness. Our reportable operating segments are strategic
business units with different products and services, distribution processes and
customer bases. We evaluate the performance of our operating segments separately
to monitor the different factors affecting financial results. Each segment is
subject to review and evaluations related to current market conditions, market
opportunities and available resources. See Note 22 - Segment Information of the
notes to consolidated financial statements included in this Annual Report for
additional information regarding our operating segments.
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--------------------------------------------------------------------------------Segment information for fiscal year 2020 (in thousands):
Fresh Lemon Other Total Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness and Other Total
Revenues from external customers
-
$ 4,622 $ 164,559 Intersegment revenues - 36,820 (36,820) - - - - - Total net revenues 124,150 50,233 (36,820) 8,806 13,568 159,937 4,622 164,559 Costs and expenses 125,305 42,563 (36,820) 5,168 12,122 148,338 25,132 173,470 Depreciation and amortization - - - - - 8,943 1,154 10,097
Operating (loss) income
- $ 3,638 $ 1,446 $ 2,656 $ (21,664) $ (19,008) Segment information for fiscal year 2019 (in thousands):
Fresh Lemon Other Total Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness and Other Total
Revenues from external customers
-
$ 4,849 $ 171,398 Intersegment revenues - 30,073 (30,073) - - - - - Total net revenues 134,342 45,702 (30,073) 5,391 11,187 166,549 4,849 171,398 Costs and expenses 120,998 37,639 (30,073) 3,150 13,035 144,749 23,530 168,279 Depreciation and amortization - - - - - 7,623 1,010 8,633 Operating income (loss)$ 13,344 $ 8,063 $ -$ 2,241 $ (1,848) $ 14,177 $ (19,691) $ (5,514)
Segment information for fiscal year 2018 (in thousands):
Fresh Lemon Other Total Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness and Other TotalRevenues from external customers$ 94,840 $ 8,990 $ -$ 6,576 $ 13,938 $ 124,344 $ 5,048 $ 129,392 Intersegment revenues - 19,971 (19,971) - - - - - Total net revenues 94,840 28,961 (19,971) 6,576 13,938 124,344 5,048 129,392 Costs and expenses 74,809 23,071 (19,971) 4,399 9,531 91,839 20,792 112,631 Depreciation and amortization - - - - - 6,244 1,031 7,275 Operating income (loss)$ 20,031 $ 5,890 $ -$ 2,177 $ 4,407 $ 26,261 $ (16,775) $ 9,486
Fiscal Year 2020 Compared to Fiscal Year 2019
The following analysis should be read in conjunction with the previous section "Results of Operations."
Fresh Lemons
Fresh lemons segment revenue is comprised of sales of fresh lemons, lemon
by-products and other lemon revenue such as purchased, packed fruit for resale.
For fiscal year 2020, our fresh lemons segment revenue was
Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs, cost of fruit we procure from third-party growers, transportation costs and packing service charges incurred from the lemon packing segment to pack lemons for sale. For fiscal year 2020, our fresh lemon costs and expenses were$125.3 million compared to$121.0 million for fiscal year 2019. The 4% increase of$4.3 million primarily consisted of the following: •Harvest costs for fiscal year 2020 were$0.7 million higher than fiscal year 2019. •Growing costs for fiscal year 2020 were$2.3 million higher than fiscal year 2019. •Third-party grower costs for fiscal year 2020 were$5.2 million lower than fiscal year 2019. •Transportation costs for fiscal year 2020 were$0.2 million lower than fiscal year 2019. •Intersegment costs and expenses for fiscal year 2020 were$6.7 million higher than fiscal year 2019. Lemon Packing Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For fiscal year 2020, our lemon packing segment revenue was$50.2 million compared to$45.7 million for fiscal year 2019. The 10% increase of$4.5 million was primarily due to increased volume of lemons packed and sold. 42 -------------------------------------------------------------------------------- Costs and expenses associated with our lemon packing segment consist of the cost to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. For fiscal year 2020, our lemon packing costs and expenses were$42.6 million compared to$37.6 million for fiscal year 2019. The 13% increase of$4.9 million was primarily due to increased volume of lemons packed and decreased fresh utilization.
Lemon packing segment operating income per carton sold was
The lemon packing segment included$36.8 million and$30.1 million of intersegment revenues for fiscal years 2020 and 2019, respectively, that are charged to the fresh lemons segment to pack lemons for sale. Such intersegment revenues and expenses are eliminated in our consolidated financial statements.
Avocados
For fiscal year 2020, our avocados segment revenue was
Cost and expenses associated with our avocados segment include harvest costs and growing costs. For fiscal year 2020, our avocado costs and expenses were$5.2 million compared to$3.2 million for fiscal year 2019. The 64% increase of$2.0 million primarily consists of the following: •Harvest costs for fiscal year 2020 were$0.9 million higher than fiscal year 2019. •Growing Costs for fiscal year 2020 were$1.2 million higher than fiscal year 2019. Other Agribusiness For fiscal year 2020, our other agribusiness segment revenue was$13.6 million compared to$11.2 million for fiscal year 2019. The 21% increase of$2.4 million primarily consisted of the following: •Orange revenue in fiscal year 2020 was$1.7 million higher than fiscal year 2019. •Specialty citrus and other crop revenue for fiscal year 2020 was$0.7 million higher than fiscal year 2019. Costs and expenses associated with our other agribusiness segment include harvest, growing and purchased fruit costs. Our other agribusiness costs and expenses for fiscal year 2020 were$12.1 million compared to$13.0 million for fiscal year 2019. The 7% decrease of$0.9 million primarily consisted of the following: •Harvest costs for fiscal year 2020 were$0.2 million lower than fiscal year 2019. •Growing costs for fiscal year 2020 were$2.6 million lower than fiscal year 2019. •Purchased fruit costs for fiscal year 2020 were$1.9 million higher than fiscal year 2019. Fresh lemons, lemon packing, avocados and other agribusiness depreciation and amortization for fiscal year 2020 were$8.9 million compared to$7.6 million in fiscal year 2019. The 17% increase of$1.3 million was primarily due to the acquisition ofTrapani Fresh and an increase in assets placed into service.
Corporate and Other
Our corporate and other segment had revenues of approximately$4.6 million and$4.8 million in fiscal years 2020 and 2019, respectively. The$0.2 million decrease in fiscal year 2020 was primarily due to decreased revenues from residential rental units leased to employees, former employees and non-employees compared to fiscal year 2019. Costs and expenses in our corporate and other segment were approximately$25.1 million and$23.5 million in fiscal years 2020 and 2019, respectively. Depreciation expense was approximately$1.2 million and$1.0 million in fiscal years 2020 and 2019, respectively.
Additionally, loss (gain) on sales of property assets for fiscal years 2020 and
2019 were
43
--------------------------------------------------------------------------------Selling, general and administrative expenses
Selling, general and administrative expenses include corporate and other costs and expenses not allocated to the operating segments. Selling, general and administrative expenses for fiscal year 2020 were$0.1 million lower than fiscal year 2019.
Fiscal Year 2019 Compared to Fiscal Year 2018
The following analysis should be read in conjunction with the previous section "Results of Operations."
Fresh Lemons Fresh lemons segment revenue is comprised of sales of fresh lemons, lemon by-products and other lemon revenue such as purchased, packed fruit for resale. For fiscal year 2019, our fresh lemons segment revenue was$134.3 million compared to$94.8 million for fiscal year 2018, a 42% increase of$39.5 million , primarily the result of higher volume andTrapani Fresh revenue of fresh lemons sold, partially offset by lower prices of fresh lemons sold, as discussed earlier. Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs, cost of fruit we procure from third-party growers and packing service charges incurred from the lemon packing segment to pack lemons for sale. For fiscal year 2019, our fresh lemon costs and expenses were$121.0 million compared to$74.8 million for fiscal year 2018. The 62% increase of$46.2 million primarily consisted of the following: •Harvest costs for fiscal year 2019 were$5.6 million higher than fiscal year 2018. •Growing costs for fiscal year 2019 were$1.3 million higher than fiscal year 2018. •Third-party grower costs for fiscal year 2019 were$25.8 million higher than fiscal year 2018. •Transportation costs for fiscal year 2019 were$3.3 million higher than fiscal year 2018. •Intersegment costs and expenses for fiscal year 2019 were$10.1 million higher than fiscal year 2018. Lemon Packing Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For fiscal year 2019, our lemon packing segment revenue was$45.7 million compared to$29.0 million for fiscal year 2018, a 58% increase of$16.7 million primarily due to increased volume of lemons packed and increased shipping and handling revenues. Costs and expenses associated with our lemon packing segment consist of the cost to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. For fiscal year 2019, our lemon packing costs and expenses were$37.6 million compared to$23.1 million for fiscal year 2018. The 63% increase of$14.6 million was primarily due to increased volume of lemons packed and increased shipping costs.
Lemon packing segment operating income per carton sold was
The lemon packing segment included$30.1 million and$20.0 million of intersegment revenues for fiscal years 2019 and 2018, respectively, that are charged to the fresh lemons segment to pack lemons for sale. Such intersegment revenues and expenses are eliminated in our consolidated financial statements.
Avocados
For fiscal year 2019, our avocados segment revenue was
Cost and expenses associated with our avocados segment include harvest costs and growing costs. For fiscal year 2019, our avocado costs and expenses were$3.2 million compared to$4.4 million for fiscal year 2018. The 28% decrease of$1.2 million primarily consists of the following: •Harvest costs for fiscal year 2019 were$0.8 million lower than fiscal year 2018. •Growing Costs for fiscal year 2019 were$0.5 million lower than fiscal year 2018. 44 --------------------------------------------------------------------------------
Other Agribusiness
For fiscal year 2019, our other agribusiness segment revenue was$11.2 million compared to$13.9 million for fiscal year 2018. The 20% decrease of$2.8 million primarily consisted of the following: •Orange revenue in fiscal year 2019 was$2.9 million lower than fiscal year 2018. •Specialty citrus and other crop revenue for fiscal year 2019 was$0.1 million higher than fiscal year 2018. Costs and expenses associated with our other agribusiness segment include harvest and growing costs. Our other agribusiness costs and expenses for fiscal year 2019 were$13.0 million compared to$9.5 million for fiscal year 2018. The 37% increase of$3.5 million primarily consisted of the following: •Harvest costs for fiscal year 2019 were$0.6 million higher than fiscal year 2018. •Growing costs for fiscal year 2019 were$2.9 million higher than fiscal year 2018. Fresh lemons, lemon packing, avocados and other agribusiness depreciation and amortization for fiscal year 2019 were$7.6 million compared to$6.2 million in fiscal year 2018. The 22% increase of$1.4 million was primarily due to the acquisitions ofSan Pablo , Oxnard Lemon andTrapani Fresh and an increase in assets placed into service.
Corporate and Other Operations
Our corporate and other operations segment had revenues of approximately$4.8 million and$5.0 million in fiscal years 2019 and 2018, respectively. The$0.2 million decrease in fiscal year 2019 was primarily due to decreased revenues from land leased to third-party agricultural tenants. Costs and expenses in our corporate and other operations segment were approximately$23.5 million and$20.8 million in fiscal years 2019 and 2018, respectively. Depreciation expense was similar in fiscal year 2019 compared to fiscal year 2018 at$1.0 million . We recorded no impairment charge in fiscal year 2019 compared to$1.6 million in fiscal year 2018. Additionally, in fiscal year 2019 we sold two properties and recognized a gain on sales of property of approximately$1.1 million .
Selling, general and administrative expenses
Selling, general and administrative expenses include corporate and other costs
and expenses not allocated to the operating segments. Selling, general and
administrative expenses for fiscal year 2019 were
Quarterly Results of Operations
The following table presents our operating results for each of the fiscal quarters in the periods endedOctober 31, 2020 andOctober 31, 2019 , respectively (in thousands, except per share amounts). The information for each of these quarters is derived from our unaudited interim financial statements and should be read in conjunction with the audited consolidated financial statements included in this Annual Report. All necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present our unaudited quarterly results. As with any agribusiness enterprise, our agribusiness operations are highly seasonal in nature. The harvest and sale of our lemons, avocados, oranges and specialty citrus and other crops occurs in all quarters, but is generally more concentrated during the third quarter. 45 --------------------------------------------------------------------------------
Three Months Ended 2020
Statement of Operations Data: Oct. 31, Jul. 31, Apr. 30, Jan. 31,
Revenues $ 29,773 $ 53,559 $ 39,571 $ 41,656
Costs and expenses 39,296 51,745 42,404 50,122
Operating (loss) income (9,523) 1,814 (2,833) (8,466)
Other (loss) income, net (626) 751 (5,978) (1,574)
(Loss) income before income tax benefit (provision) (10,149) 2,565 (8,811) (10,040)
Income tax benefit (provision) 2,618 (765) 3,505 3,136
Net (loss) income (7,531) 1,800 (5,306) (6,904)
(Income) loss attributable to noncontrolling interest 97 509 423 477
Net (loss) income attributable to
Net (loss) income per common share: Basic$ (0.43) $ 0.12 $ (0.29) $ (0.37) Diluted$ (0.43) $ 0.12 $ (0.29) $ (0.37) Number of shares used in per common share computations: Basic 17,617 17,623 17,634 17,579 Diluted 17,617 18,497 17,634 17,579 Three Months Ended 2019 Statement of Operations Data: Oct. 31, Jul. 31, Apr. 30, Jan. 31, Revenues$ 36,476 $ 50,869 $ 42,035 $ 42,018 Costs and expenses 40,083 48,751 43,040 45,038 Operating (loss) income (3,607) 2,118 (1,005) (3,020) Other (loss) income, net (487) (2,054) 4,909 (3,417) (Loss) income before income tax benefit (provision) (4,094) 64 3,904 (6,437) Income tax benefit (provision) 881 (461) (1,084) 1,761 Net (loss) income (3,213) (397) 2,820 (4,676)
Loss (income) attributable to noncontrolling interest 138
(593) (5) (17)
Net (loss) income attributable to
Net (loss) income per common share: Basic$ (0.18) $ (0.06) $ 0.15 $ (0.28) Diluted$ (0.18) $ (0.06) $ 0.15 $ (0.28) Number of shares used in per common share computations: Basic 17,597 17,554 17,554 17,488 Diluted 17,597 17,554 18,225 17,488 The following information compares our fourth quarter endedOctober 31, 2020 to the fourth quarter endedOctober 31, 2019 . Information concerning comparisons of our first, second and third quarters can be found in our quarterly reports on Form 10-Q. •Total revenues decreased$6.7 million in the three months endedOctober 31, 2020 compared to the three months endedOctober 31, 2019 primarily due to decreased lemon and orange crop revenues of$3.0 million and$1.7 million , respectively. In addition, avocado revenues decreased$1.8 million primarily due to$2.3 million insurance revenue received in fiscal year 2019. During the fourth quarter of fiscal years 2020 and 2019, we sold 787,000 and 793,000 cartons of fresh lemons, at an average per carton price of$17.00 and$21.46 , respectively. The decrease in orange revenues in the fourth quarter of fiscal year 2020 compared to the fourth quarter of fiscal year 2019 was primarily due to lower brokered fruit sales. During the 46 -------------------------------------------------------------------------------- fourth quarter of fiscal year 2020, we sold 487,000 pounds of avocados at an average per pound price of$0.99 , compared to no sales for the fourth quarter of fiscal year 2019. •Total costs and expenses decreased$0.8 million in the three months endedOctober 31, 2020 compared to the three months endedOctober 31, 2019 . Decreases in agribusiness costs and selling, general and administrative expenses of$1.7 million and$0.6 million , respectively were partially offset by the change in loss (gain) on the sale and disposal of property assets of$1.6 million . The decrease in agribusiness costs was primarily due to decreased harvest costs and cultural costs of$0.6 million and$1.3 million , respectively.
•Total other loss increased
•Income tax benefit increased$1.7 million in the three months endedOctober 31, 2020 compared to the three months endedOctober 31, 2019 primarily due to the increase in pre-tax loss of$6.1 million . Liquidity and Capital Resources
Overview
Our liquidity and capital position fluctuates during the year depending on seasonal production cycles, weather events and demand for our products. Typically, our first and last fiscal quarters coincide with the fall and winter months during which we are growing crops that are harvested and sold in the spring and summer, which are our second and third quarters. To meet working capital demand and investment requirements of our agribusiness and real estate development divisions and to supplement operating cash flows, we utilize our revolving credit facility to fund agricultural inputs and farm management practices until sufficient returns from crops allow us to repay amounts borrowed. Raw materials needed to propagate the various crops grown by us consist primarily of fertilizer, herbicides, insecticides, fuel and water, all of which are readily available from local sources.
Cash Flows from Operating Activities
For the fiscal years endedOctober 31, 2020 , 2019 and 2018, net cash (used in) provided by operating activities was$(11.3) million ,$1.4 million and$18.4 million , respectively. The significant components of our cash flows provided by operating activities are as follows: •Net (loss) income was$(17.9) million ,$(5.5) million and$20.2 million for fiscal years 2020, 2019 and 2018, respectively. The components of net loss in fiscal year 2020 compared to fiscal year 2019 consist of an increase in operating loss of$13.5 million , an increase in total other expense of$6.4 million and an increase in income tax benefit of$7.4 million . The components of net income in fiscal 2019 compared to fiscal year 2018 consist of a decrease in operating income of$15.0 million , an increase in total other expense of$5.0 million and a decrease in income tax benefit of$5.6 million . •The adjustments to reconcile net (loss) income to net cash (used in) provided from operating activities provided$17.6 million of cash in fiscal year 2020 compared to providing$7.6 million of cash in fiscal year 2019, primarily due to significant changes in depreciation and amortization, loss on stock in Calavo and equity in earnings of investments. The adjustments to reconcile net (loss) income to net cash provided from operating activities provided$7.6 million of cash in fiscal year 2019 compared to using$1.3 million of cash in fiscal year 2018 primarily due to an increase in loss (gain) on sale and disposals of property assets, a decrease in deferred taxes and an increase in loss on stock in Calavo. •The changes in operating assets and liabilities, net of business combinations used$11.0 million of operating cash in fiscal year 2020 compared to using$0.8 million of operating cash in fiscal year 2019, primarily due to significant changes in accounts receivable, prepaid expenses and other current assets, income tax receivable, accounts payable and growers payable and accrued liabilities. The changes in operating assets and liabilities, net of business combinations used$0.8 million of operating cash in fiscal year 2019 compared to using$0.5 million of operating cash in fiscal year 2018, primarily due to a decrease in cultural costs, an increase in prepaid expenses and other current assets, a net increase in accounts and growers payable and a decrease in accrued liabilities.
Cash Flows from Investing Activities
For the years endedOctober 31, 2020 , 2019 and 2018, net cash provided by (used in) investing activities was$3.8 million ,$(23.7) million and$(50.8) million , respectively, and is primarily comprised of capital expenditures, business acquisitions, sales of assets and investments. 47 -------------------------------------------------------------------------------- •Capital expenditures for fiscal year 2020 were comprised of$10.6 million for property, plant and equipment primarily related to orchard and real estate development projects. Additionally, in fiscal year 2020, we received proceeds from sale of stock in Calavo of$11.0 million , proceeds from sales of property assets of$6.3 million and contributed$2.8 million to the Joint Venture for the development of our East Area I real estate development project. •Capital expenditures for fiscal year 2019 were comprised of$14.1 million for property, plant and equipment primarily related to orchard and vineyard development and the purchase of a photovoltaic solar array and$1.8 million for real estate development projects. Additionally, in fiscal year 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$15.0 million for the Trapani Fresh joint venture formation inArgentina . Further, we sold 50,000 shares of stock in Calavo for$4.8 million and sold property assets and a real estate development parcel for$4.0 million and$2.9 million , respectively. •Capital expenditures for fiscal year 2018 were comprised of$12.2 million for property, plant and equipment primarily related to orchard and vineyard development and$1.7 million for real estate development projects. Additionally, in fiscal year 2018, we purchasedSan Pablo for$13.1 million , Oxnard Lemon for$25.0 million , a real estate development parcel for$1.4 million and contributed$3.5 million to the Joint Venture for the development of our East Area I real estate development project. Further, we sold 50,000 shares of stock in Calavo for$4.7 million and a real estate development parcel for$1.5 million .
Cash Flows from Financing Activities
For the years ended
•The$7.4 million of cash provided by financing activities for fiscal year 2020 is primarily comprised of net borrowings of long-term debt in the amount of$17.0 million . Additionally, we paid common and preferred dividends, in aggregate, of$5.9 million and purchases of shares of our common stock of$3.5 million under our share repurchase program in fiscal year 2020.
•The
•The$32.5 million of cash provided by financing activities for fiscal year 2018 is primarily comprised of net proceeds from our public offering of common stock of$64.1 million partially offset by net repayments of long-term debt in the amount of$26.4 million . Additionally, we paid common and preferred dividends, in aggregate, of$4.5 million in fiscal year 2018.
Transactions Affecting Liquidity and Capital Resources
Our Company andFarm Credit West , FLCA ("Farm Credit West") are parties to that certain Master Loan Agreement (the "Loan Agreement"), datedJune 20, 2017 , which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (together, the "Supplements"). OnJune 30, 2020 , we entered into a Conversion Agreement withFarm Credit West to convert term loans to fixed interest rate loans effectiveJuly 1, 2020 . No changes were made to the outstanding principal balances on the term loans and no cash repayments of principal we made by us. The rates are subject to a prepayment restriction period for a portion of the fixed rate term that will expire onJanuary 1, 2021 , after which we may prepay any amounts without penalty. InMarch 2020 , we entered into a revolving equity line of credit promissory note and loan agreement withFarm Credit West for a$15.0 million Revolving Equity Line of Credit (the "RELOC") secured by a first lien on theWindfall Investors, LLC property. The RELOC matures in 2043 and features a 3-year draw period followed by 20 years of fully amortized loan payments. The interest rate is variable with monthly interest-only payments during the 3-year draw period and monthly principal and interest payments thereafter. The Supplements and RELOC provide aggregate borrowing capacity of$130.0 million comprised of$75.0 million under the Revolving Credit Supplement,$40.0 million under the Non-Revolving Credit Supplement and$15.0 million under the RELOC. The borrowing capacity based on collateral value was$130.0 million atOctober 31, 2020 . 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 48 -------------------------------------------------------------------------------- 1.60% to 2.35% depending on the ratio of current assets plus the remaining available commitment divided by current liabilities. OnJuly 1 of each year, 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 onJuly 1, 2022 . All indebtedness under the Loan Agreement and RELOC withFarm Credit West , including any indebtedness under the Supplements, is secured by a first lien on certain of our agricultural properties inTulare andVentura counties inCalifornia 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. Under the Loan Agreement, we are required to comply with a minimum debt service coverage ratio (as calculated in accordance with the Loan Agreement) of 1.25:1.0 measured as ofOctober 31 each year. InMay 2020 , the Loan Agreement was amended to adjust the debt service ratio to 1.00:1.0 forOctober 31, 2020 . InAugust 2020 ,Farm Credit West modified the covenant to defer measurement atOctober 31, 2020 and revert to a debt service coverage ratio of 1.25:1.0 measured as ofOctober 31, 2021 . We expect to be in compliance with these covenants in fiscal year 2021. We expect to be in compliance with these covenants in 2021. InFebruary 2020 , we received an annual patronage dividend of$1.0 million fromFarm Credit West , of which$0.7 million was recorded as a reduction in interest expense and$0.3 million reduced our real estate development assets. InJuly 2020 ,Farm Credit West declared an additional annual cash patronage dividend of$0.6 million received inAugust 2020 , of which we recorded$0.4 million as a reduction in interest expense and$0.2 million reduction in our real estate development assets as ofOctober 31, 2020 . InApril 2020 , we entered into a Promissory Note withCity National Bank for a$3.6 million loan (the "PPP Loan") pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan had a two-year term, an interest rate of 1.0% per annum, and was able to be prepaid at any time prior to maturity with no prepayment penalties. InApril 2020 , we returned the$3.6 million in proceeds from the PPP Loan. We finance our working capital and other liquidity requirements primarily through cash from operations and our Farm Credit West Credit Facility, which includes the Loan Agreement, Supplements and RELOC. In addition, we haveFarm 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, theFarm Credit West term loans, the Wells Fargo term loan, the Banco de Chile term loan and the note payable can be found in the notes to consolidated financial statements included in this Annual Report. 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 fiscal year 2021. 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 ofOctober 31, 2020 , our outstanding borrowings under theFarm Credit West Credit Facility were$102.3 million and we had$27.7 million of availability. TheFarm Credit West revolving line of credit balance of$62.3 million currently bears interest at a variable rate equal to the one-month LIBOR plus 1.60%. The interest rate resets on the first of each month and was 1.75% atOctober 31, 2020 . We have the ability to prepay any amounts outstanding under theFarm Credit West revolving line of credit without penalty. 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.
Farm Credit West Term Loans
As of
49
--------------------------------------------------------------------------------
•Term Loan Maturing November 2022 . As of October 31, 2020 , we had $1.4 million
outstanding under the Farm Credit West Term Loan that matures in November 2022 .
On July 1, 2020 , the term loan was converted to a fixed rate of 2.48% and is
payable in quarterly installments through November 2022 . This term loan is
secured by certain of our agricultural properties.
•Term Loan Maturing October 2035 . As of October 31, 2020 , Windfall had $1.0
million outstanding under the Farm Credit West Term Loan that matures in October
2035 . On July 1, 2020 , the term loan was converted to a fixed rate of 3.24% and
is payable in monthly installments through October 2035 . This term loan is
secured by the Windfall Farms property.
•Term Loan Maturing March 2036 . As of October 31, 2020 , we had $8.4 million
outstanding under the Farm Credit West Term Loan that matures in March 2036 . On
July 1, 2020 , the term loan was converted to a fixed rate of 3.24% 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 October 31, 2020 , we had $6.2 million
outstanding under the Farm Credit West Term Loan that matures in March 2036 . On
July 1, 2020 , this loan was converted to a fix rate of 2.77% until July 1, 2025 ,
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 ofOctober 31, 2020 , we had$3.5 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 throughJanuary 2023 . Certain equipment associated with our new lemon packing facilities secure this loan. 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 we will maintain a debt service coverage ratio greater than 1.25:1.0 measured annually atOctober 31 , with which we were not in compliance atOctober 31, 2020 . The non-compliance was waived by Wells Fargo. We expect to be in compliance with these covenants in fiscal year 2021.
Banco de Chile Term Loan
Through the acquisition of PDA inFebruary 2017 , we assumed a$1.7 million term loan with Banco de Chile that matures inJanuary 2025 . This term loan bears interest at a fixed rate of 6.48% and is payable in eight annual installments which began inJanuary 2018 . This loan is unsecured and contains certain pre-payment limitations.
Banco de Chile Small Business Guarantee Fund Loans
In July andSeptember 2020 , PDA andSan Pablo entered into term loan agreements for an aggregate amount of approximately$0.5 million . These small business loans are guaranteed by the Chilean government in response to economic instability caused by the COVID-19 pandemic. The unsecured loans mature in July andSeptember 2024 , bear interest at fixed rates of 3.48% and 2.90% and are payable in monthly installments beginning February andApril 2021 , respectively.
Note Payable
InFebruary 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 secured by first deed of trust, payable to the sellers. The note is due inFebruary 2023 , with interest-only, monthly payments at interest rates ranging from 5.0% to 7.0% and was 6.0% atOctober 31, 2020 . 50 --------------------------------------------------------------------------------
Public Offering of Common Stock
InJune 2018 , we completed the sale of an aggregate of 3,136,000 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 ofJune 25, 2018 . Upon completion of the offering and issuance of common stock, we had 17,669,000 shares of common stock outstanding. The net proceeds from the sale of shares, after deducting underwriting discounts and our expenses related to the offering, were approximately$64.1 million . In June andJuly 2018 , we used the offering proceeds to pay down debt, purchaseSan Pablo ranch and purchase Oxnard Lemon's packinghouse, related land and certain other assets.
Interest Rate Swaps
From time to time, we enter into interest rate swap agreements to manage the risks and costs associated with our financing activities.
Our debt bears interest at fixed and variable rates, ranging from 1.75% to 6.48%
at
Treasury Stock
OnMarch 12, 2020 , the Board of Directors of our Company approved a share repurchase program authorizing us to repurchase up to$10.0 million of our outstanding shares of common stock throughMarch 2021 . Under the share repurchase program, purchases of shares of common stock may be made from time to time in the open market or in privately negotiated transactions. The share repurchase program may be modified, suspended or discontinued at any time and does not commit us to repurchase shares of our common stock. During fiscal year 2020, we repurchased 250,977 shares under the share repurchase program for approximately$3.5 million .
Real Estate Development Activities and Related Capital Resources
As noted under "Transactions Affecting Liquidity and Capital Resources," we have the ability to control a portion of our investing cash flows to the extent necessary based upon our liquidity demands. In order for our real estate development operations to reach their maximum potential benefit to us, however, we will need to be successful over time in identifying other third party sources of capital to partner with us to move those development projects forward. While we are frequently in discussions with potential external sources of capital in respect to all of our development projects, current market conditions forCalifornia real estate projects, while improving, continue to be challenging and make it difficult to predict the timing and amounts of future capital that will be required to complete the development of our projects. InNovember 2015 , 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 LLCB as the development entity, contributed our East Area I property to the Joint Venture and sold a 50% interest in the Joint Venture to Lewis for$20.0 million . We expect to receive approximately$100.0 million from the Joint Venture over the estimated 10 to 12-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 loan proceeds and/or revenues are sufficient to fund the project. Since inception each Joint Venture partner has made funding contributions of$21.4 million , including$2.8 million ,$4.0 million and$3.5 million in fiscal years 2020, 2019 and 2018, respectively. The first phase of the project broke ground to commence mass grading inNovember 2017 . Project plans include approximately 1,500 residential units with 632 residential units in Phase 1 and site improvements substantially completed. Lot sales representing a total of 144 and 210 residential units closed in fiscal years 2020 and 2019, respectively. The Joint Venture closed on an additional 44 units in the first quarter of fiscal year 2021 and 354 residential units have closed from the projects inception toOctober 31, 2020 .
Trend Information
Agribusiness Division
The worldwide fresh produce industry has historically enjoyed consistent
underlying demand and favorable growth dynamics. In recent years, the market for
fresh produce has increased faster than the rate of population growth, supported
by ongoing trends including greater consumer demand for healthy, fresh and
convenient foods, increased retailer square footage devoted to fresh produce,
and greater emphasis on fresh produce as a differentiating factor in attracting
customers. Health-conscious consumers are driving much of the growth in demand
for fresh produce. Over the past several decades, the benefits of natural,
preservative-free and
51
--------------------------------------------------------------------------------organic foods have become an increasingly significant element of the public dialogue on health and nutrition. As a result, consumption of fresh fruit and vegetables has markedly increased.
According to theUSDA ,U.S. per capita consumption of fresh lemons was 4.9 pounds in 2019, and since 2000, has averaged 3.4 pounds per capita versus 2.7 pounds per capita in the 1990s. Approximately 73% of theCalifornia crop has gone into the fresh market in the past decade. The fresh market is significantly more profitable than the processed market and the amount of production sold in the fresh market is referred to as fresh utilization. Our fresh utilization has historically been comparable to theCalifornia industry average and we expect that our fresh utilization will increase due to increased flexibility to sell lemons directly to food service wholesale and retail customers and increased customer interaction resulting from our direct lemon sales strategy. According to theUSDA ,U.S. per capita consumption of avocados was 7.9 pounds in 2019, and since 2000, has averaged 4.9 pounds per capita versus 1.6 pounds per capita in the 1990's. A growing Hispanic population, an increasing awareness of healthier foods and the acceptance of mono-unsaturated fats has helped to spur demand for avocados.California is the largestU.S. producer of avocados producing approximately 87% of the nation's avocados. According to theCalifornia Avocado Commission , the 2020 crop produced approximately 376 million pounds compared to 217 million pounds in 2019, 338 million pounds in 2018 and the ten year average of 339 million pounds. Navel oranges comprise most ofCalifornia's orange crop, accounting for approximately 82% over the past three growing seasons.Valencia oranges account for a vast majority of the remainder ofCalifornia's orange crop. WhileCalifornia produces approximately 44% of the nation's oranges, its crop accounts for approximately 91% of those going to the fresh market. The share ofCalifornia's crop going to fresh market, as opposed to the processed market (i.e., juices, oils and essences) varies by season, depending on the quality of the crop.
Real Estate Development Division
We incurred impairment charges on one of our real estate development projects in fiscal years 2018 and future impairment is possible. No impairment charges were recorded in fiscal year 2020 or 2019. Due to these factors, we anticipate maintaining a cautious and patient perspective with respect to our real estate development activities. However, interest rates are also at historically low levels, which provide a favorable buying opportunity for potential home buyers. Additionally, we believe that our real estate development properties have certain unique characteristics and are located in desirable locations, particularly East Area I, and as economic or real estate market conditions improve or other factors arise, we will take advantage of such opportunities to develop our properties.
Contractual Obligations and Off-Balance Sheet Arrangements
The following table presents our contractual obligations at
Payments due by Period
Total < 1 year 1-3 years 3-5 years 5+ years
Fixed rate debt (principal) $ 62,338 $ 3,277
63,686 - 62,251 - 1,435
Operating lease obligations 2,649 509 540 285 1,315
Other 665 307 358 - -
Total contractual obligations $ 129,338 $ 4,093 $ 109,661 $ 2,897 $ 12,687
Interest payments on fixed and variable
rate debt $ 14,244 $ 3,819 $ 7,440 $ 848 $ 2,137
We believe that the cash flows from operations and borrowing capacity from
existing and available credit facilities will be sufficient to satisfy our
future capital expenditure, debt service, working capital and other contractual
obligations for fiscal year 2021. In addition, we have the ability to control 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 accompanying notes to consolidated financial statements included in this Annual Report. The table above assumes that long-term debt is held to maturity.
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The above table assumes that our fixed rate and long-term debt is held to maturity.
Preferred Stock Dividends
In 1997, in connection with the acquisition ofRonald Michaelis Ranches, Inc. , we issued 30,000 shares of Series B Convertible Preferred Stock at$100 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 and totaled$0.1 million in each of the fiscal years 2020, 2019 and 2018, respectively. In 2014, we issued, in aggregate, 9,300 shares of Series B-2 Preferred Stock at$100 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 and totaled$0.4 million in each of the fiscal years 2020, 2019 and 2018, respectively.
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 our Company. EffectiveJune 2004 , we 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 zero,$0.6 million and$0.6 million in fiscal years 2020, 2019 and 2018, respectively and we do not plan to contribute to the Plan in fiscal year 2021. Operating Lease Obligations We have numerous operating lease commitments with remaining terms ranging from less than one year to 17 years. We lease machinery and equipment for our packing operations and other land for our agricultural operations. Further information regarding our Company leases can be found in Note 13, "Leases" of the notes to consolidated financial statements included in this Annual Report.
Real Estate Development Activities, Capital Expenditures and Related Capital Resources
OnNovember 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 LLCB as the development entity, contributed our East Area I property to the Joint Venture and sold a 50% interest in the Joint Venture to Lewis for$20.0 million .
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
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 andLimoneira entered into a lease agreement (the "Lease Agreement"), pursuant to which the Joint Venture leased certain of the contributed East Area I property back toLimoneira for continuation of agricultural operations, and certain other permitted uses, on the property until the Joint Venture required the property for development.Limoneira terminated this Lease Agreement per the agreement in fiscal year 2019.Limoneira and the Joint Venture entity 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 toLimoneira (the "Retained Property") and arrange for the design and construction of certain improvements to the Retained Property, subject to certain reimbursements byLimoneira . InAugust 2018 , the Retained Property was transferred back toLimoneira . 53 -------------------------------------------------------------------------------- We expect to receive approximately$100.0 million from the Joint Venture over the estimated 10 to 12-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. Since inception, each Joint Venture partner has made funding contributions of$21.4 million , including$2.8 million ,$4.0 million and$3.5 million in fiscal years 2020, 2019 and 2018, respectively. InJanuary 2018 , the Joint Venture entered into a$45.0 million unsecured Line of Credit Loan Agreement and Promissory Note (the "Loan") withBank of America, N.A . to fund early development activities. The Loan matures inJanuary 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. InFebruary 2018 , the obligations under the Loan were guaranteed by certain principals from Lewis and by us. The Joint Venture recorded a$30.4 million outstanding loan balance atOctober 31, 2020 related to this Loan. As noted above under "Transactions Affecting Liquidity and Capital Resources," we have the ability to control the timing of a portion of our investing cash flows to the extent necessary based upon our liquidity demands. In order for our real estate development operations to reach their maximum potential benefit to our Company, however, we will need to be successful over time in identifying other third-party sources of capital to partner with us to move those development projects forward. While we are frequently engaged in discussions with several external sources of capital in respect of all of our development projects, current market conditions forCalifornia real estate projects, while improving, continue to be challenging and make it difficult to predict the timing and amounts of future capital that will be required to complete the development of our projects.
Off-Balance Sheet Arrangements
As discussed in Note 7 - Real Estate Development and Note 8 - Equity in Investments of the notes to consolidated financial statements included in this Annual Report, we have investments in joint ventures and partnerships that are accounted for using the equity method of accounting.
Inflation
Historically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, including inArgentina , could have an adverse impact on our business, financial condition and results of operations. Critical Accounting Policies 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. Revenue Recognition - OnNovember 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 afterNovember 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 ofNovember 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 result, comparative information has not been restated and the results for the reporting periods beforeNovember 1, 2018 continue to be reported under the accounting standards and policies in 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. 54 -------------------------------------------------------------------------------- We determined 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 conditions of contracts or arrangements entered into with its customers. We account 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. We recognize the majority of its revenue at a point in time when it satisfies a performance obligation and transfers control of the product to the respective customer. The amount of revenue that is recognized is based on the transaction price, which represents the invoiced amount and includes estimates of variable consideration such as allowances for estimated customer discounts or concessions, where applicable. The amount of variable consideration included in the transaction price may be constrained and is included only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized under the contract will not occur in a future period. 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 the Company's 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 within the fresh lemons segment of$8.8 million for the year endedOctober 31, 2019 . Had we used the previous revenue recognition guidance, we would have recorded insignificant net agribusiness revenue for these transactions for the year endedOctober 31, 2019 . No cumulative adjustment to retained earnings was necessary, as there is no net effect to the consolidated statement of operations. Agribusiness revenue - Revenue from lemon sales is generally recognized at a point in time when the customer takes control of the fruit from our packinghouse, which aligns with the transfer of title to the customer. We have elected to treat any shipping and handling costs incurred after control of the goods has been transferred to the customer as agribusiness costs. Our avocados, oranges, specialty citrus and other specialty crops are packed and sold by Calavo and other third-party packinghouses. We deliver the majority 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 inthe United States andCanada . Our Company's arrangements with other third-party packinghouses related to our 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, 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 control 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 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 the Company's consolidated statements of operations. Revenue from the sales of certain of our agricultural products is recorded based on estimated proceeds provided by certain of the 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 55 -------------------------------------------------------------------------------- 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 or harvest period pools are closed. Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment. We recorded agribusiness revenues from crop insurance proceeds of zero,$2.3 million and$0.1 million in fiscal years 2020, 2019 and 2018, respectively. Rental Operations 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 Costs - We capitalize the planning, entitlement, construction and development costs and interest 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. 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 our products are excluded from revenues.
Foreign Currency Translation - PDA andSan Pablo's functional currency is the Chilean Peso. Their balance sheets are translated toU.S. dollars at exchange rates in effect at the balance sheet date and their income statements are translated at average exchange rates during the reporting period. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income. Income Taxes - Deferred income tax assets and liabilities are computed annually for differences between the financial statement and income tax basis 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. 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 in fiscal year 2018. There were no impairment charges recorded in fiscal years 2020 or 2019. 56 -------------------------------------------------------------------------------- Defined Benefit Retirement Plan - As discussed in the notes to our consolidated financial statements, we sponsor a defined benefit retirement plan that was frozen inJune 2004 , and no future benefits have been accrued to participants subsequent to that time. Ongoing accounting for this plan under FASB ASC 715, Compensation - Retirement Benefits, provides guidance as to, among other things, future estimated pension expense, pension liability and minimum funding requirements. This information is provided to 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 on assets and mortality tables. During 2020, theSociety of Actuaries (SOA) released a new mortality improvement scale table, referred to as MP-2020, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year 2020, the assumed discount rate to measure the pension obligation decreased to 2.5%. We used the latest mortality tables released by the SOA throughOctober 2020 to measure our pension obligation as ofOctober 31, 2020 and combined with the assumed discount rate and other demographic assumptions, our pension liability increased by approximately$0.5 million as ofOctober 31, 2020 . 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
See Note 2, "Summary of Significant Accounting Policies" of the notes to consolidated financial statements included in this Annual Report for information concerning recent accounting pronouncements.
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