LIMONEIRA COMPANY The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying Notes to Consolidated Financial Statements (Part II, Item 8 of this Form 10-K). This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those presented under "Risk Factors" included in Item 1A and elsewhere in this Annual Report on Form 10-K. This section generally discusses the results of operations for fiscal year 2021 compared to fiscal year 2020. For discussion related to the results of operations and changes in financial condition for fiscal year 2020 compared to fiscal year 2019 refer to Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in our fiscal year 2020 Form 10-K, which was filed with theUnited States Securities and Exchange Commission (SEC) onJanuary 14, 2021 . OverviewLimoneira Company , aDelaware corporation, is 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 have three business divisions: agribusiness, rental operations and real estate development. The agribusiness division is comprised of four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness, which includes oranges, specialty citrus and other crops. The agribusiness division includes our core operations of farming, harvesting, lemon packing and lemon sales operations. The rental operations division includes our residential and commercial rentals comprised of 256 completed rental units, leased land operations and organic recycling. The real estate development division includes our investments in real estate development projects. Generally, we see our Company as a land and farming company that generates annual cash flows to support our progress into diversified real estate development activities. As real estate developments are monetized, our agriculture business will then be able to expand more rapidly into new regions and markets.
Recent Developments - Refer to Part I, Item 1 "Fiscal Year 2021 Highlights and Recent Developments"
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--------------------------------------------------------------------------------Results of Operations
The following table shows the results of operations for ($ in thousands):
Years Ended October 31,
2021 2020 2019
Revenues:
Agribusiness $ 161,381 97% $ 159,937 97% $ 166,549 97%
Other operations 4,646 3% 4,622 3% 4,849 3%
Total net revenues 166,027 100% 164,559 100% 171,398 100%
Costs and expenses:
Agribusiness 148,492 86% 157,281 86% 152,372 86%
Other operations 4,332 3% 4,504 2% 4,439 3%
Loss (gain) on disposal of assets 109 - 502 - (1,069) (1)%
Selling, general and administrative 19,427 11% 21,280 12% 21,170 12%
Total costs and expenses 172,360 100% 183,567 100% 176,912 100%
Operating loss:
Agribusiness 12,889 2,656 14,177
Other operations 314 118 410
Loss (gain) on disposal of assets (109) (502) 1,069
Selling, general and administrative (19,427) (21,280) (21,170)
Operating loss (6,333) (19,008) (5,514)
Other income (expense):
Interest income 379 362 207
Interest expense, net of patronage dividends (1,501) (2,048) (2,341)
Equity in earnings of investments, net 3,203 339 3,073
Loss on stock in Calavo Growers, Inc. - (6,299) (2,117)
Other income, net 89 219 129
Total other income (expense) 2,170 (7,427) (1,049)
Loss before income tax benefit (4,163) (26,435) (6,563)
Income tax benefit 266 8,494 1,097
Net loss (3,897) (17,941) (5,466)
Loss (income) attributable to noncontrolling
interest 456 1,506 (477)
Net loss attributable to Limoneira Company $ (3,441) $ (16,435) $ (5,943)
Non-GAAP Financial Measures
Due to significant depreciable assets associated with the nature of our
operations and interest costs associated with our capital structure, management
believes that earnings before interest, income taxes, depreciation and
amortization ("EBITDA") and adjusted EBITDA, which excludes loss on stock in
Calavo Growers, Inc. ("Calavo") and loss (gain) on disposal of assets, is an
important measure to evaluate our results of operations between periods on a
more comparable basis. Adjusted EBITDA in previous periods also excluded LLCB
earnings in equity investment which is no longer excluded due to management's
anticipation of future cash distributions related to the investment in LLCB.
Adjusted EBITDA for prior periods has been restated to conform to the current
presentation. Such measurements are not prepared in accordance with U.S.
generally accepted accounting principles ("GAAP") and should not be construed as
an alternative to reported results determined in accordance with GAAP. The
non-GAAP information provided is unique to us and may not be consistent with
methodologies used by other companies.
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EBITDA and adjusted EBITDA are summarized and reconciled to net loss
attributable to
Years Ended October 31,
2021 2020 2019
Net loss attributable to
(379) (362) (207)
Interest expense, net of patronage dividends 1,501 2,048
2,341 Income tax benefit (266) (8,494) (1,097) Depreciation and amortization 9,812 10,097 8,633 EBITDA 7,227 (13,146) 3,727 Loss on stock in Calavo Growers, Inc. - 6,299
2,054
Loss (gain) on disposal of assets 109 502 (991) Adjusted EBITDA$ 7,336 $ (6,345) $ 4,790
Fiscal Year 2021 Compared to Fiscal Year 2020
Revenues
Total revenues for fiscal year 2021 were$166.0 million compared to$164.6 million for fiscal year 2020. The 1% increase of$1.5 million was primarily the result of increased lemons and specialty citrus and other crops agribusiness revenues, partially offset by decreased avocados and oranges agribusiness revenues, as detailed below ($ in thousands): Agribusiness
Revenues for the Years Ended
2021 2020 Change
Lemons $ 142,962 $ 137,563 $ 5,399 4%
Avocados 6,784 8,806 (2,022) (23)%
Oranges 4,382 7,722 (3,340) (43)%
Specialty citrus and other crops 7,253 5,846 1,407 24%
Agribusiness revenues $ 161,381 $ 159,937 $ 1,444 1%
•Lemons: The increase in fiscal year 2021 was primarily the result of increased
brokered fruit and other lemon sales, partially offset by decreased fresh lemon
sales, compared to fiscal year 2020. Brokered fruit and other lemon sales for
fiscal years 2021 and 2020 were $36.0 million and $18.9 million , respectively.
The increase in brokered fruit in fiscal year 2021 was primarily the result of
higher volume and higher prices of brokered fruit sales, compared to fiscal year
2020. During fiscal years 2021 and 2020, brokered fruit sales were $29.3 million
and $12.2 million on 1.4 million and 0.6 million cartons of brokered fruit sold
at average per carton prices of $21.63 and $19.82 , respectively. The decrease in
fresh lemon sales in fiscal year 2021 was primarily the result of lower volume,
partially offset by higher prices of fresh lemons sold, compared to fiscal year
2020. During fiscal years 2021 and 2020, fresh lemon sales were $85.9 million
and $101.1 million on 4.4 million and 5.5 million cartons of fresh lemons packed
and sold at average per carton prices of $19.60 and $18.32 , respectively. Lemon
revenues in fiscal years 2021 and 2020 included shipping and handling of $17.5
million and $13.4 million and lemon by-products of $3.5 million and $4.1
million , respectively.
•Avocados: The decrease in fiscal year 2021 was primarily the result of lower
volume, partially offset by higher prices of avocados sold, compared to fiscal
year 2020. The California avocado crop typically experiences alternating years
of high and low production due to plant physiology. During fiscal years 2021 and
2020, 5.7 million and 8.0 million pounds of avocados were sold at average per
pound prices of $1.20 and $1.10 , respectively. Higher prices in fiscal year 2021
were primarily related to lower supply of fruit in the marketplace.
•Oranges: The decrease in fiscal year 2021 was primarily due to lower prices and
volume of oranges sold, compared to fiscal year 2020. During fiscal years 2021
and 2020, sales consisted of 545,000 and 743,000 40-pound carton equivalents of
oranges sold at average per carton prices of $8.04 and $10.39 , respectively.
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•Specialty citrus and other crops: The increase in fiscal year 2021 was
primarily the result of higher volume of wine grapes sold, compared to fiscal
year 2020. In fiscal year 2021, we sold approximately 2,164 tons of wine grapes
for $3.0 million compared to approximately 1,610 tons of wine grapes for $1.5
million in fiscal year 2020.
Other operations revenue in fiscal year 2021 was similar to fiscal year 2020.
Costs and Expenses
Total costs and expenses for fiscal year 2021 were$172.4 million compared to$183.6 million for fiscal year 2020. This 6% decrease of$11.2 million was primarily attributable to decreases in our agribusiness costs and selling, general and administrative expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and suppliers and depreciation and amortization expense. These costs are discussed further below ($ in thousands): Agribusiness Costs and
Expenses for the Years Ended
2021 2020 Change
Packing costs $ 38,754 $ 45,545 $ (6,791) (15)%
Harvest costs 17,227 20,714 (3,487) (17)%
Growing costs 27,195 27,861 (666) (2)%
Third-party grower and supplier costs 56,690 54,218 2,472 5%
Depreciation and amortization 8,626 8,943 (317) (4)%
Agribusiness costs and expenses $ 148,492 $ 157,281 $ (8,789) (6)%
•Packing costs: Packing costs consist of the costs to pack lemons for sale such
as labor and benefits, cardboard cartons, fruit treatments, packing and shipping
supplies and facility operating costs. Lemon packing costs were $36.0 million
and $42.6 million in fiscal years 2021 and 2020, respectively. The decrease in
fiscal year 2021 was primarily attributable to lower volume of fresh lemons
packed and sold, partially offset by higher average per carton costs, compared
to fiscal year 2020. In fiscal years 2021 and 2020, we packed and sold 4.4
million and 5.5 million cartons of lemons at average per carton costs of $8.22
and $7.71 , respectively. The increase in average per carton costs in fiscal year
2021, compared to fiscal year 2020, was primarily due to decreased volume of
lemons packed and sold. Additionally, in fiscal years 2021 and 2020, packing
costs included $2.7 million and $3.0 million of shipping costs, respectively.
•Harvest costs: The decrease in fiscal year 2021 was primarily attributable to
decreased volume of lemons, avocados and oranges harvested compared to fiscal
year 2020.
•Growing costs: Growing costs, also referred to as cultural costs, consist of
orchard maintenance costs such as cultivation, fertilization and soil
amendments, pest control, pruning and irrigation. The decrease in fiscal year
2021 compared to fiscal year 2020 reflects farm management decisions based on
weather, harvest timing and crop conditions.
•Third-party grower and supplier costs: We sell fruit that we grow and fruit
that we procure from other growers and suppliers. The cost of procuring fruit
from others is referred to as third-party grower and supplier costs. The
increase in fiscal year 2021 was primarily due to increased volume of fruit
procured from suppliers, partially offset by decreased volume of fruit procured
from third party growers, compared to fiscal year 2020. In fiscal years 2021 and
2020, costs for purchased, packed fruit for resale increased by $9.8 million ; we
incurred costs of $25.2 million and $15.5 million , respectively. During fiscal
years 2021 and 2020, of the 4.4 million and 5.5 million lemon cartons sold, 2.3
million (52%) and 3.3 million (60%) were procured from third-party growers at
average per carton prices of $13.83 and $11.71 , respectively: a decrease of $7.3
million .
•Depreciation and amortization: Depreciation and amortization expense in fiscal
year 2021 was
Other operations expenses for fiscal years 2021 and 2020 were
Loss on disposal of assets for fiscal years 2021 and 2020 were
Selling, general and administrative expenses for fiscal year 2021 were
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•$0.7 million decrease in hardware, software and training costs associated with
an ERP implementation
•$0.6 million decrease in selling expenses; and
•$0.5 million decrease in other selling, general and administrative expenses,
including certain corporate overhead expenses.
Other Income (Expense)
Other income (expense), for fiscal year 2021 was
•$0.5 million decrease in interest expense as a result of increased amounts capitalized; •$2.9 million increase in equity in earnings of investments primarily from LLCB; and •$6.3 million decrease in the loss on stock in Calavo.
Income Taxes
We recorded for fiscal years 2021 and 2020 income tax benefit of$0.3 million and$8.5 million on pre-tax loss of$4.2 million and$26.4 million , respectively. The tax provision recorded for fiscal year 2021 differs from theU.S. federal statutory tax rate of 21% due primarily to foreign jurisdictions which are taxed at different rates, state taxes, nondeductible tax items and valuation allowances on certain deferred tax assets of foreign subsidiaries. Our effective tax rate for fiscal years 2021 and 2020 was 6.4% and 32.2%, respectively.
Loss (Income) Attributable to Noncontrolling Interest
Loss (income) attributable to noncontrolling interest primarily represents 10%
and 49% of the net losses of PDA and
Segment Results of Operations
We operate in four reportable operating segments: fresh lemons, lemon packing, avocados and other agribusiness. Our reportable operating segments are strategic business units with different products and services, distribution processes and customer bases. We evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. Each segment is subject to review and evaluations related to current market conditions, market opportunities and available resources. See Note 22 - Segment Information of the notes to consolidated financial statements included in this Annual Report for additional information regarding our operating segments.
Segment information for fiscal year 2021 (in thousands):
Fresh Lemon Other Total Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness and Other Total
Revenues from external customers
-
$ 4,646 $ 166,027 Intersegment revenues - 25,637 (25,637) - - - - - Total net revenues 125,448 43,151 (25,637) 6,784 11,635 161,381 4,646 166,027 Costs and expenses 116,117 36,018 (25,637) 4,211 9,157 139,866 22,682 162,548 Depreciation and amortization - - - - - 8,626 1,186 9,812 Operating income (loss)$ 9,331 $ 7,133 $ -$ 2,573 $ 2,478 $ 12,889 $ (19,222) $ (6,333)
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)
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Fiscal Year 2021 Compared to Fiscal Year 2020
The following analysis should be read in conjunction with the previous section "Results of Operations."
Fresh Lemons Fresh lemons segment revenue is comprised of sales of fresh lemons, lemon by-products and brokered fruit other lemon revenue. For fiscal year 2021, our fresh lemons segment revenue was$125.4 million compared to$124.2 million for fiscal year 2020. The 1% increase of$1.3 million was primarily the result of higher prices partially offset by lower volume of fresh lemons sold, as discussed earlier. Costs and expenses associated with our fresh lemons segment include harvest costs, growing costs, cost of fruit we procure from third-party growers and suppliers, transportation costs and packing service charges incurred from the lemon packing segment to pack lemons for sale. For fiscal year 2021, our fresh lemon costs and expenses were$116.1 million compared to$125.3 million for fiscal year 2020. The 7% decrease of$9.2 million primarily consisted of the following: •Harvest costs for fiscal year 2021 were$2.8 million lower than fiscal year 2020. •Growing costs for fiscal year 2021 were$0.7 million higher than fiscal year 2020. •Third-party grower and supplier costs for fiscal year 2021 were$4.4 million higher than fiscal year 2020. •Transportation costs for fiscal year 2021 were$0.2 million lower than fiscal year 2020. •Intersegment costs and expenses for fiscal year 2021 were$11.2 million lower than fiscal year 2020. Lemon Packing Lemon packing segment revenue is comprised of intersegment packing revenue and shipping and handling revenue. For fiscal year 2021, our lemon packing segment revenue was$43.2 million compared to$50.2 million for fiscal year 2020. The 14% decrease of$7.1 million was primarily due to decreased volume of lemons packed. Costs and expenses associated with our lemon packing segment consist of the cost to pack lemons for sale such as labor and benefits, cardboard cartons, fruit treatments, packing and shipping supplies and facility operating costs. For fiscal year 2021, our lemon packing costs and expenses were$36.0 million compared to$42.6 million for fiscal year 2020. The 15% decrease of$6.5 million was primarily due to decreased volume of lemons packed.
Lemon packing segment operating income per carton sold was
The lemon packing segment included$25.6 million and$36.8 million of intersegment revenues for fiscal years 2021 and 2020, respectively, which were charged to the fresh lemons segment to pack lemons for sale. Such intersegment revenues and expenses are eliminated in our consolidated financial statements.
Avocados
For fiscal year 2021, our avocados segment revenue was
Cost and expenses associated with our avocados segment include harvest costs and growing costs. For fiscal year 2021, our avocado costs and expenses were$4.2 million compared to$5.2 million for fiscal year 2020. The 19% decrease of$1.0 million primarily consisted of the following: •Harvest costs for fiscal year 2021 were$0.4 million lower than fiscal year 2020. •Growing costs for fiscal year 2021 were$0.5 million lower than fiscal year 2020. Other Agribusiness For fiscal year 2021, our other agribusiness segment revenue was$11.6 million compared to$13.6 million for fiscal year 2020. The 14% decrease of$1.9 million primarily consisted of the following:
•Orange revenue for fiscal year 2021 was
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•Specialty citrus and other crop revenue for fiscal year 2021 was
Costs and expenses associated with our other agribusiness segment include harvest, growing and purchased fruit costs. Our other agribusiness costs and expenses for fiscal year 2021 were$9.2 million compared to$12.1 million for fiscal year 2020. The 24% decrease of$3.0 million primarily consisted of the following: •Harvest costs for fiscal year 2021 were$0.3 million lower than fiscal year 2020. •Growing costs for fiscal year 2021 were$0.8 million lower than fiscal year 2020. •Purchased fruit costs for fiscal year 2021 were$1.9 million lower than fiscal year 2020. Total agribusiness depreciation and amortization for fiscal year 2021 was$8.6 million compared to$8.9 million in fiscal year 2020. The 4% decrease of$0.3 million was primarily due to reduced amortization as a result of selling and licensing certain intangible assets ofTrapani Fresh to FGF inMarch 2021 .
Corporate and Other
Our corporate and other operations had rental revenues of approximately
Costs and expenses in our corporate and other operations were approximately$22.7 million and$25.1 million in fiscal years 2021 and 2020, respectively, and include rental operations costs and selling, general and administrative expenses not allocated to the operating segments. Depreciation and amortization expenses were approximately$1.2 million in fiscal years 2021 and 2020. Additionally, loss on disposal of assets for fiscal years 2021 and 2020 was$0.1 million and$0.5 million , respectively.
Liquidity and Capital Resources
Overview
Our primary sources of liquidity are cash and cash flows generated from our
operations and use of our revolving credit facility. Our liquidity and capital
position fluctuates during the year depending on seasonal production cycles,
weather events and demand for our products. Typically, our first and last fiscal
quarters coincide with the fall and winter months during which we are growing
crops that are harvested and sold in the spring and summer, which are our second
and third quarters. To meet working capital demand and investment requirements
of our agribusiness and real estate development projects and to supplement
operating cash flows, we utilize our revolving credit facility to fund
agricultural inputs and farm management practices until sufficient returns from
crops allow us to repay amounts borrowed. Raw materials needed to propagate the
various crops grown by us consist primarily of fertilizer, herbicides,
insecticides, fuel and water, all of which are readily available from local
sources.
Material contractual obligations arising in the normal course of business
primarily consist of purchase obligations, long-term fixed rate and variable
rate debt and related interest payments, operating and finance leases and our
noncontributory, defined benefit pension plan ("the Plan"). In fiscal year 2021,
we decided to terminate the Plan effective December 31, 2021 . The liabilities
disclosed as of October 31, 2021 , reflect an estimate of the additional cost to
pay lump sums to a portion of the active and vested terminated participants and
purchase annuities for all remaining participants from an insurance company. See
Notes 12, 13 and 17 to the consolidated financial statements included in this
Annual Report for amounts outstanding on October 31, 2021 , related to debt,
leases and the Plan. Purchase obligations consist of contracts primarily related
to packing supplies and pollination services, the majority of which are due in
the next three years.
We believe that the cash flows from operations and available borrowing capacity
from our existing credit facilities will be sufficient to satisfy our capital
expenditures, debt service, working capital needs and other contractual
obligations for the next twelve months. In addition, we have the ability to
control a portion of our investing cash flows to the extent necessary based on
our liquidity demands.
Cash Flows from Operating Activities
For the fiscal years endedOctober 31, 2021 , 2020 and 2019, net cash provided by (used in) operating activities was$9.6 million ,$(11.3) million and$1.4 million , respectively. Our cash flow provided by operating activities is primarily from agricultural sales and rental operations. Cash flow used in operations generally consists of agribusiness costs, rental operation costs, selling, general and administrative expenses. The significant components of our cash flows provided by operating activities are as follows: 37 -------------------------------------------------------------------------------- •Net loss was$(3.9) million and$(17.9) million for fiscal years 2021 and 2020, respectively. The components of net loss in fiscal year 2021 compared to fiscal year 2020 consist of an decrease in operating loss of$12.7 million , an increase in total other income (expense) of$9.6 million and a decrease in income tax benefit of$8.2 million .
•The adjustments to reconcile net loss to net cash provided by (used in)
operating activities provided
•The changes in operating assets and liabilities, net of business combinations provided$3.3 million of operating cash in fiscal year 2021 compared to using$11.0 million of operating cash in fiscal year 2020, primarily due to significant changes in accounts receivable and receivables/other from related parties, cultural costs, income tax receivable, and accounts payable and growers and suppliers payable.
Cash Flows from Investing Activities
For the years endedOctober 31, 2021 , 2020 and 2019, net cash (used in) provided by investing activities was$(10.2) million ,$3.8 million and$(23.7) million , respectively, and is primarily comprised of capital expenditures, business acquisitions, sales of assets and investments. •Capital expenditures for fiscal year 2021 were comprised of$9.8 million for property, plant and equipment primarily related to orchard and real estate development projects. Additionally, in fiscal year 2021 we invested$0.7 million in mutual water companies and water rights. •Capital expenditures for fiscal year 2020 were comprised of$10.6 million for property, plant and equipment primarily related to orchard and real estate development projects. Additionally, in fiscal year 2020, we received proceeds from sale of stock in Calavo of$11.0 million , proceeds from sales of property assets of$6.3 million and contributed$2.8 million to LLCB for the development of our East Area I real estate development project.
Cash Flows from Financing Activities
For the years ended
•The$0.5 million of cash provided by financing activities for fiscal year 2021 is primarily comprised of net borrowings of long-term debt in the amount of$7.1 million . Additionally, we paid common and preferred dividends, in aggregate, of$5.8 million and paid$0.7 million for the exchange of common stock related to our employees restricted stock awards. •The$7.4 million of cash provided by financing activities for fiscal year 2020 is primarily comprised of net borrowings of long-term debt in the amount of$17.0 million . Additionally, we paid common and preferred dividends, in aggregate, of$5.9 million and purchases of shares of our common stock of$3.5 million under our share repurchase program in fiscal year 2020.
Transactions Affecting Liquidity and Capital Resources
Credit Facilities and Long-Term Debt
We finance our working capital and other liquidity requirements primarily through cash from operations and our Farm Credit West Credit Facility, which includes the MLA, Supplements and Revolving Equity Line of Credit (the "RELOC"). In addition, we have theFarm Credit West term loans, Banco de Chile term loans and COVID-19 loans, and a note payable to the sellers of a land parcel. Additional information regarding these loans and the note payable can be found in Note 12 to the consolidated financial statements included in this Annual Report. InJune 2021 , we entered into the MLA with Lender datedJune 1, 2021 , together with the Supplements and a Fixed Interest Rate Agreement. The MLA governs the terms of the Supplements. The MLA amends and restates the previousMaster Loan Agreement between our Company and the Lender, datedJune 19, 2017 , and extends the principal repayment toJuly 1, 2026 . The Supplements and RELOC provide aggregate borrowing capacity of$130.0 million comprised of$75.0 million under the Revolving Credit Supplement,$40.0 million under the Non-Revolving Credit Supplement and$15.0 million under the RELOC. As ofOctober 31, 2021 , our outstanding borrowings under theFarm Credit West Credit Facility were$111.3 million and we had$18.7 million of availability. 38 -------------------------------------------------------------------------------- The MLA subjects us to affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets of our business. We are also subject to a financial covenant that requires us to maintain compliance with a specified debt service coverage ratio on an annual basis. InDecember 2021 , the Lender modified the covenant to defer measurement atOctober 31, 2021 and revert to a debt service coverage ratio of 1.25:1.0 measured as ofOctober 31, 2022 . InAugust 2021 , we entered into the FCW term loan with the Lender and used the proceeds to pay off the Wells Fargo term loan. The FCW term loan has a fixed interest rate of 3.19% and is payable in monthly installments throughSeptember 2026 .
In fiscal years 2021 and 2020 we received annual patronage dividends of
Treasury Stock
In fiscal year 2021, our Company's Board of Directors approved a share
repurchase program authorizing us to repurchase up to
Dividends
The holders of the Series B Convertible Preferred Stock (the "Series B Stock") and the Series B-2 Preferred Stock (the "Series B-2 Preferred Stock") are entitled to receive cumulative cash dividends. Such preferred dividends paid totaled$0.5 million in each of the fiscal years 2021 and 2020. Cash dividends declared in each of the fiscal years 2021 and 2020 totaled$0.30 per common share and such dividends paid totaled$5.3 million and$5.4 million for fiscal years 2021 and 2020, respectively.
Real Estate Development Activities and Related Capital Resources
As noted under "Transactions Affecting Liquidity and Capital Resources," we have the ability to control a portion of our investing cash flows to the extent necessary based upon our liquidity demands. In order for our real estate development operations to reach their maximum potential benefit to us, however, we will need to be successful over time in identifying other third party sources of capital to collaborate with us to move those development projects forward. While we are frequently in discussions with potential external sources of capital in respect to all of our development projects, current market conditions forCalifornia real estate projects make it difficult to predict the timing and amounts of future capital that will be required to complete the development of our projects. InNovember 2015 , we entered into a joint venture with Lewis for the residential development of our East Area I real estate development project. To consummate the transaction, we formed LLCB as the development entity, contributed our East Area I property to the joint venture and sold a 50% interest in the joint venture to Lewis for$20.0 million . We expect to receive approximately$100.0 million from LLCB over the estimated 10 to 12-year life of the project including$20.0 million received on the consummation of LLCB. LLCB's partners will share in capital contributions to fund project costs until loan proceeds and/or revenues are sufficient to fund the project. Since inception each partner has made funding contributions of$21.4 million , including$2.8 million in fiscal year 2020. The first phase of the project broke ground to commence mass grading inNovember 2017 . Project plans currently include approximately 1,500 residential units and site improvements to be completed. Lot sales representing 232 and 144 residential units closed in fiscal years 2021 and 2020, respectively, and 586 residential units have closed from the project's inception toOctober 31, 2021 . Trend Information The commodity pricing for our fresh produce, and therefore our revenues and margins, is significantly impacted by consumer demand. The worldwide fresh produce industry has historically enjoyed consistent underlying demand and favorable growth dynamics. In recent years, the market for fresh produce has increased faster than the rate of population growth, supported by ongoing trends including greater consumer demand for healthy, fresh and convenient foods, increased retailer square footage devoted to fresh produce, and greater emphasis on fresh produce as a differentiating factor in attracting customers. Health-conscious consumers are driving much of the growth in demand for fresh produce. Over the past several decades, the benefits of natural, 39 -------------------------------------------------------------------------------- preservative-free and organic foods have become an increasingly significant element of the public dialogue on health and nutrition. As a result, consumption of fresh fruit and vegetables has markedly increased. Conversely, a decrease in demand, as was seen during the COVID-19 pandemic as a result of restaurant closures, has the impact of reducing our pricing and therefore our revenues and margins.
Off-Balance Sheet Arrangements
As discussed in Note 7 - Real Estate Development and Note 8 - Equity in Investments of the notes to consolidated financial statements included in this Annual Report, we have investments in joint ventures and partnerships that are accounted for using the equity method of accounting.
Critical Accounting Estimates
The preparation of our consolidated financial statements in accordance with GAAP
requires us to develop critical accounting policies and make certain estimates,
assumptions and judgments that may affect the reported amounts of assets,
liabilities, revenues and expenses. We base our estimates and judgments on
historical experience, available relevant data and other information that we
believe to be reasonable under the circumstances, and we continue to review and
evaluate these estimates. Actual results may materially differ from these
estimates under different assumptions or conditions as new or additional
information become available in future periods. For further information on
significant accounting policies, see discussion in Note 2 to the consolidated
financial statements included in this Annual Report.
Impairment of Real Estate Development Projects - We evaluate our real estate
development projects, held either by us or as included specifically within our
investment in LLCB, for impairment on an ongoing basis. Our evaluation for
impairment involves an initial assessment of each real estate development
project to determine whether events or changes in circumstances exist that may
indicate that the carrying amounts of, or investment in, real estate development
are no longer recoverable. Possible indications of impairment may include events
or changes in circumstances affecting the entitlement process, zoning,
government regulation, geographical demand for new housing or commercial
property, and market conditions related to residential or commercial land lots.
When events or changes in circumstances exist, we further evaluate the real
estate development for impairment by a) comparing undiscounted future cash flows
expected to be generated over the life of the real estate development to the
respective carrying amount for its own real estate development or b) determining
if its equity in investment has incurred an other-than-temporary decline.
We make significant judgments in evaluating each real estate development
project, as held by us or within our investment in LLCB, for possible
indications of impairment. These judgments may relate to the identification of
appropriate and comparable market prices, the consideration of changes to legal
factors or the business climate, the likelihood of successfully completing the
entitlement process, changes in zoning or government regulation, and demand for
new housing. Changes in these judgments could have a significant impact on real
estate development or equity in investments. For fiscal years 2021, 2020 and
2019, no impairment loss has been recognized on any real estate development and
no other-than-temporary-impairment has been recognized on our equity in LLCB.
The impairment calculation for real estate developments held by us compares the
carrying value of the asset to the asset's estimated future cash flows
(undiscounted). If the estimated future cash flows are less than the carrying
value of the asset, we calculate an impairment loss. The impairment loss
calculation compares the carrying value of the asset to the asset's estimated
fair value, which may be based on estimated future cash flows (discounted). We
recognize an impairment loss equal to the amount by which the asset's carrying
value exceeds the asset's estimated fair value. If we recognize an impairment
loss, the adjusted carrying amount of the asset will be its new cost basis.
Restoration of a previously recognized impairment loss is prohibited. If actual
results are not consistent with our assumptions and judgments used in estimating
future cash flows and asset fair values, we may be exposed to impairment losses
that could be material to our results of operations.
Whenever events or changes in circumstances indicate that the carrying amount of
our equity investment in LLCB might not be recoverable, then we determine
whether an impairment is other-than-temporary. If we conclude the impairment is
other-than-temporary, we determine the estimated fair value of the investment by
performing a discounted cash flow or market approach analysis and recognize an
other-than-temporary impairment to reduce the investment to its estimated fair
value.
We believe that the accounting estimate related to impairment of real estate
development projects held by us, or other-than-temporary impairment of our
equity investment in LLCB, is a critical accounting estimate because it is very
susceptible to change from period to period; it requires management to make
assumptions about future prices, production, and costs, and the potential impact
of a loss from impairment could be material to our earnings. Management's
assumptions regarding future cash flows from
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real estate development projects or return on equity of our investment in LLCB
have fluctuated in the past due to changes in prices, production and costs and
are expected to continue to do so in the future as market conditions change.
Recent Accounting Pronouncements
See Note 2 - Summary of Significant Accounting Policies of the notes to consolidated financial statements included in this Annual Report for information concerning recent accounting pronouncements.
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