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 an agribusiness and real estate development company founded and based inSanta Paula, California , committed to responsibly using and managing our approximately 15,700 acres of land, water resources and other assets to maximize long-term stockholder value. Our current operations consist of fruit production, sales and marketing, real estate development and capital investment activities. We are one 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 other specialty citrus and other crops. We have agricultural plantings throughoutVentura ,Tulare ,San Bernardino andSan Luis Obispo Counties inCalifornia ,Yuma County inArizona and La Serena,Chile , which collectively consist of approximately 6,200 acres of lemons, 900 acres of avocados, 1,600 acres of oranges and 1,000 acres of specialty citrus and other crops. We also operate our own packinghouses inSanta Paula andOxnard, California andYuma, Arizona , where we process and pack 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 in PDA, a lemon and orange orchard and 100% interest inSan Pablo , a lemon and orange orchard, all of which are located near La Serena,Chile . We have a 51% interest in a joint venture,Trapani Fresh , a lemon growing, packing, marketing and selling operation 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 and we use ground water from theCadiz Valley Basin inSan Bernardino County . We also use 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 . For more than 100 years, we have been making strategic investments inCalifornia agribusiness and real estate development. We currently have three real estate development projects inCalifornia . These projects include multi-family housing and single-family homes comprised of approximately 260 completed rental units and another approximately 1,500 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 segments, fresh lemons, lemon packing, avocados and other agribusiness, and currently generates the majority of our revenue from its farming, harvesting and lemon packing and sales operations; our rental operations division generates revenue from our housing, organic recycling and commercial and leased land operations; and our real estate development division primarily generates revenues from the sale of real estate development projects. From a general view, 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 2019 Highlights and Recent Developments"
34
--------------------------------------------------------------------------------Results of Operations
The following table shows the results of operations for ($ in thousands):
Years Ended October 31,
2019 2018 2017
Net revenues:
Agribusiness $ 166,549 97% $ 124,344 96% $ 115,869 96%
Rental operations 4,849 3% 5,048 4% 5,440 4%
Total net revenues 171,398 100% 129,392 100% 121,309 100%
Costs and expenses:
Agribusiness 152,372 86% 98,083 83% 91,162 83%
Rental operations 4,311 3% 4,085 3% 3,932 4%
Real estate development 128 - 127 - 285 -
Impairment of real estate development
assets - - 1,558 1% 120 -
Gain on sale of property (1,069 ) (1)% - - - -
Selling, general and administrative 21,170 12% 16,053 13% 13,947 13%
Total costs and expenses 176,912 100% 119,906 100% 109,446 100%
Operating (loss) income:
Agribusiness 14,177 26,261 24,707
Rental operations 538 963 1,508
Real estate development (128 ) (1,685 ) (405 )
Gain on sale of property 1,069 - - 1,069,000
Selling, general and administrative (21,170 ) (16,053 ) (13,947 )
Operating (loss) income (5,514 ) 9,486 11,863
Other (expense) income:
Interest expense, net (2,134 ) (1,122 ) (1,778 )
Equity in earnings of investments 3,073 583 49
(Loss) gain on sale of stock in
Calavo Growers, Inc. (63 ) 4,223 -
Net unrealized loss on stock in
Calavo Growers, Inc. (2,054 ) - -
Other income, net 129 313 492
Total other (expense) income (1,049 ) 3,997 (1,237 )
(Loss) income before income tax
benefit (provision) (6,563 ) 13,483 10,626
Income tax benefit (provision) 1,097 6,729 (4,077 ) Net (loss) income (5,466 ) 20,212
6,549
(Income) loss attributable to noncontrolling interest (477 ) (24 ) 46 Net (loss) income attributable to Limoneira Company$ (5,943 ) $ 20,188 $ 6,595 Non-GAAP Financial Measures Due to significant depreciable assets associated with the nature of our operations and interest costs associated with our capital structure, management believes that earnings before interest, income taxes, depreciation and amortization ("EBITDA") and adjusted EBITDA, which excludes unrealized loss on stock in Calavo, LLCB earnings in equity investment, sale 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 withU.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 toLimoneira Company which management considers to be the most directly comparable financial measure calculated and presented in accordance with GAAP as follows (in thousands): 35 --------------------------------------------------------------------------------
Years Ended October 31,
2019 2018 2017
Net (loss) income attributable to
$ 6,595 Interest expense, net 2,134 1,122
1,778
Income tax (benefit) provision (1,097 ) (6,729 )
4,077
Depreciation and amortization 8,633 7,275
6,467
EBITDA 3,727 21,856
18,917
Unrealized loss on stock in Calavo Growers, Inc. 2,054 -
-
LLCB earnings in equity investments (2,870 ) -
-
Gain on sale of two property assets (991 ) -
-
Impairments of real estate development assets - 1,558 120 Adjusted EBITDA$ 1,920 $ 23,414 $ 19,037
Fiscal Year 2019 Compared to Fiscal Year 2018
Revenues
Total revenues for fiscal year 2019 was$171.4 million compared to$129.4 million for fiscal year 2018. The 32% increase of$42.0 million was primarily the result of increased agribusiness revenues, as detailed below ($ in thousands): Agribusiness Revenues for the Years Ended October 31, 2019 2018 Change Lemons$ 149,971 $ 103,830 $ 46,141 44% Avocados 5,391 6,576 (1,185 ) (18)% Navel and Valencia 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
lemons sold in fiscal year 2019. During fiscal years 2019 and 2018, fresh
lemon sales were
million and 3.3 million cartons of fresh lemons sold at average per carton
prices of
included
and
included
million of brokered fruit sales, of which
of FASB ASU 2014-19. Lemon revenues in fiscal year 2018 included
shipping and handling,
lemon sales. Other lemon sales in fiscal year 2018 included
lemon sales in
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. The
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, respectively, at average per pound
prices of
were primarily related to lower supply of fruit in the marketplace. Fiscal
year 2019 avocados revenues included approximately $2.3 million of crop
insurance.
• Navel and
due to lower prices partially offset by higher volume of oranges sold. 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
• 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
36--------------------------------------------------------------------------------
approximately 1,300 tons of wine grapes for
Rental operations revenue was$4.8 million in fiscal year 2019 compared to$5.0 million in fiscal year 2018. The decrease in fiscal year 2019 was primarily due to decreased revenues from land leased to third-party agricultural tenants.
Real estate development revenue was zero in both fiscal years 2019 and 2018.
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$57.0 million was primarily attributable to increases in our agribusiness, real estate development and selling, general and administrative costs and expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and depreciation expense. These costs are discussed further below ($ in thousands): Agribusiness Costs and Expenses for the Years Ended October 31, 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 7,623 6,244
1,379 22%
Agribusiness costs and expenses
• 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
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
million cartons of lemons sold at average per carton costs of
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
facility. Additionally, packing costs include
in fiscal year 2019 compared to
• 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
costs compared to the same period in 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. Of the 5.2 million and 3.3
million cartons sold during fiscal years 2019 and 2018, respectively, 3.1
million (60%) and 1.5 million (45%) were procured from third-party growers at
average per carton prices of
in fiscal year 2019 we incurred
fruit for resale compared to
• Depreciation expense in fiscal year 2019 was
year 2018 primarily due to the acquisitions of
Trapani Fresh and an increase in assets placed into service. 37
-------------------------------------------------------------------------------- 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:
•
•
primarily associated with our acquisition of
•
in personnel; and
•
including certain corporate overhead expenses.
Other (Expense) Income
Other (expense) income, for fiscal year 2019 was
•
•
LLCB;
•
•
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 is 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 Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest primarily represents 10% of
the net income of PDA and 49% of the net income of
Fiscal Year 2018 Compared to Fiscal Year 2017
Revenues
Total revenues for fiscal year 2018 was$129.4 million compared to$121.3 million for fiscal year 2017. The 7% increase of$8.1 million was primarily the result of increased agribusiness revenues, as detailed below ($ in thousands): Agribusiness Revenues for the Years Ended October 31, 2018 2017 Change Lemons$ 103,830 $ 94,199 $ 9,631 10% Avocados 6,576 9,522 (2,946 ) (31)% Navel and Valencia oranges 8,884 7,099 1,785 25% Specialty citrus and other crops 5,054 5,049 5 -% Agribusiness revenues$ 124,344 $ 115,869 $ 8,475 7%
• Lemons: The increase in fiscal year 2018 was primarily the result of higher
prices and volume of fresh lemons sold compared to fiscal year 2017. During
fiscal years 2018 and 2017, fresh lemon sales were
million, respectively, on 3.3 million and 3.2 million cartons of fresh lemons
sold at average per carton prices of $25.42 and $23.91 , respectively.
38-------------------------------------------------------------------------------- Lemon revenues in fiscal year 2018 include$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 include$2.3 million of lemon sales inChile by PDA andSan Pablo and$1.1 million of commissions earned on 0.9 million cartons of brokered fruit sales. Lemon revenues in fiscal year 2017 include$8.8 million shipping and handling,$5.4 million lemon by-products and$3.5 million other lemon sales. Other lemon sales in fiscal year 2017 include$0.8 million of lemon sales inChile by PDA and$0.3 million of commissions earned on 0.3 million cartons of brokered fruit sales.
• Avocados: The decrease in fiscal year 2018 was primarily due to lower prices.
The
and low production due to plant physiology. During fiscal years 2018 and
2017, 6.3 million pounds of avocados were sold each year at average per pound
prices of
the result of higher supply of imported fruit in the marketplace.
• Navel and
due to higher prices for oranges sold partially offset by lower volume.
During fiscal years 2018 and 2017, orange sales were
million, respectively, on 712,000 and 893,000 40-pound carton equivalents of
oranges sold at average per carton prices of
Orange revenues in fiscal year 2018 and 2017 include
million, respectively, of orange sales in
• Specialty citrus and other crops: The slight increase in fiscal year 2018 was
primarily the result of higher specialty citrus revenues offset by lower
volume of pistachios and wine grapes sold compared to fiscal year 2017. In
fiscal year 2018, we sold approximately 600 tons of wine grapes for
million compared to approximately 800 tons of wine grapes for
fiscal year 2017.
Rental operations revenue was $5.0 million in fiscal year 2018 compared to $5.4
million in fiscal year 2017. The decrease in fiscal year 2018 was primarily due
to decreased revenues from land leased to third-party agricultural tenants.
Real estate development revenue was zero in both fiscal years 2018 and 2017.
Costs and Expenses
Total costs and expenses for fiscal year 2018 were$119.9 million compared to$109.4 million for fiscal year 2017. This 10% increase of$10.5 million was primarily attributable to increases in our agribusiness, real estate development and selling, general and administrative costs and expenses. Costs associated with our agribusiness division include packing costs, harvest costs, growing costs, costs related to the lemons we procure from third-party growers and depreciation expense. These costs are discussed further below ($ in thousands): Agribusiness Costs and Expenses for the Years Ended October 31, 2018 2017 Change Packing costs $ 23,071$ 23,778 $ (707 ) (3)% Harvest costs 13,512 13,717 (205 ) (1)% Growing costs 23,523 21,345 2,178 10% Third-party grower costs 31,733 26,833 4,900 18% Depreciation 6,244 5,489 755 14% Agribusiness costs and expenses $ 98,083$ 91,162 $
6,921 8%
• 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
The decrease in fiscal year 2018 was primarily attributable to lower average
per carton costs partially offset by higher volume of fresh lemons packed and
sold compared to fiscal year 2017. In fiscal year 2018, we packed and sold
3.3 million cartons of lemons at average per carton costs of
to 3.2 million cartons of lemons sold at average per carton costs of
fiscal year 2017. Additionally, packing costs include
shipping costs in fiscal year 2018 compared to
2017. Further, in fiscal year 2017 we incurred
service charges from an independent packinghouse to have a portion of our
oranges and specialty citrus packed in
• Harvest costs: The decrease in fiscal year 2018 was primarily attributable to
decreased volume of Navel oranges and specialty citrus harvested partially
offset by increased volume of lemons harvested compared to fiscal year 2017.
39
--------------------------------------------------------------------------------• 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
2018 is primarily due to net increased costs of
fertilization and soil amendments, and irrigation plus
costs compared to the same period in fiscal year 2017. 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 price and volume of third-party grower lemons sold. Of the 3.3 million
and 3.2 million cartons sold during fiscal years 2018 and 2017, respectively,
1.5 million (45%) and 1.4 million (44%) were procured from third-party
growers at average per carton prices of
Additionally, in fiscal year 2018 we incurred
purchased, packed fruit for resale compared to
2017.
• Depreciation expense in fiscal year 2018 was
year 2017 primarily due to the acquisitions of
an increase in assets placed into service.
Real estate development expenses for fiscal year 2018 were$1.7 million compared to$0.4 million in fiscal year 2017. Real estate development costs and expenses in fiscal year 2018 include$1.6 million impairment on our Pacific Crest andSevilla real estate development projects. Real estate development costs and expenses in fiscal year 2017 include$0.1 million impairment on our Pacific Crest real estate development project. Selling, general and administrative expenses for fiscal year 2018 were$16.1 million compared to$13.9 million for fiscal year 2017. This 15% increase of$2.1 million was primarily attributable to the following:
•
primarily associated with our acquisitions in
•
compensation;
•
increase in personnel; and
•
expenses, including certain corporate overhead expenses.
Other (Expense) Income
Other (expense) income, for fiscal year 2018 was$4.0 million of income compared to$1.2 million of expense for fiscal year 2017. The$5.2 million increase in income is primarily the result of:
•
levels;
•
Limco Del Mar, Ltd. and Rosales; and
•
Income Taxes
We recorded an income tax benefit of$6.7 million for fiscal year 2018 on pre-tax income of$13.5 million compared to an income tax provision of$4.1 million for fiscal year 2017 on pre-tax income of$10.6 million . Our effective tax rate is (49.9)% for fiscal year 2018 compared to an effective rate of 38.4% for fiscal year 2017. The decrease in our effective tax rate in fiscal year 2018 is primarily due to the approximately$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.
Net Income Attributable to Noncontrolling Interest
Net income attributable to noncontrolling interest represents 10% of the net income of PDA.
Segment Results of Operations
We operate in six reportable operating segments: fresh lemons, lemon packing,
avocados, other agribusiness, rental operations and real estate development. Our
reportable operating segments are strategic business units with different
products and services, distribution processes and customer bases. We evaluate
the performance of our operating segments separately to monitor the
40
--------------------------------------------------------------------------------
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 23 - 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 2019 (in thousands):
Fresh Lemon Other Total Rental Real Estate Corporate
Lemons (1) Packing Eliminations Avocados Agribusiness Agribusiness Operations Development and Other Total
Revenues from
external
customers $ 134,342 $ 15,629 $ - $ 5,391 $ 11,187 $ 166,549 $ 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 3,552 128 19,850 168,279Depreciation and amortization - - - - - 7,623 759 - 251 8,633 Operating income (loss)$ 13,344 $ 8,063 $ - $
2,241
Segment information for fiscal year 2018 (in thousands):
Fresh Lemon Other Total Rental Real Estate Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness Operations Development and Other Total Revenues 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 3,307 1,685 15,800 112,631 Depreciation and amortization - - - - - 6,244 778 - 253 7,275 Operating income$ 20,031 $ 5,890 $ -$ 2,177 $ 4,407 $ 26,261 $ 963 $ (1,685 ) $ (16,053 ) $ 9,486
Segment information for fiscal year 2017 (in thousands):
Fresh Lemon Other Total Rental Real Estate Corporate
Lemons Packing Eliminations Avocados Agribusiness Agribusiness Operations Development and Other Total Revenues from external customers$ 85,439 $ 8,760 $ -$ 9,522 $ 12,148 $ 115,869 $ 5,440 $ - $ -$ 121,309 Intersegment revenues - 19,156 (19,156 ) - - - - - - - Total net revenues 85,439 27,916 (19,156 ) 9,522 12,148 115,869 5,440 - 121,309 Costs and expenses 67,414 21,567 (19,156 ) 4,136 11,712 85,673 3,170 405 13,731 102,979 Depreciation and amortization - - - - - 5,489 762 - 216 6,467 Operating income$ 18,025 $ 6,349 $ -$ 5,386 $ 436$ 24,707 $ 1,508 $ (405 ) $ (13,947 ) $ 11,863 (1) During the first quarter of fiscal 2019, we adopted a comprehensive new revenue recognition standard using a modified retrospective method that does not restate prior periods to be comparable to the current period presentation. The adoption of this guidance primarily impacted the presentation of certain brokered fruit sales revenue received and the related cost of fruit incurred by us. The adoption of this guidance resulted in additional revenue and costs and expenses within our fresh lemon segment of$8.8 million , respectively, during the fiscal year 2019. Refer to Note 2 - Summary of Significant Accounting Policies for more information regarding the impact from the adoption of this new standard.
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. 41 -------------------------------------------------------------------------------- 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
2018.
• Growing costs for fiscal year 2019 were
2018.
• Third-party grower costs for fiscal year 2019 were
fiscal year 2018.
• Transportation costs for fiscal year 2019 were
fiscal year 2018.
• Intersegment costs and expenses for fiscal year 2019 were
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
Costs 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 consisted of the following:
• Avocado harvest costs for fiscal year 2019 were
fiscal year 2018.
• Growing costs for fiscal year 2019 were
2018.
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:
• Navel and
than fiscal year 2018.
• Specialty citrus and other crop revenue for fiscal year 2019 was
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
2018.
• Growing costs for fiscal year 2019 were
2018.
42-------------------------------------------------------------------------------- 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. Rental Operations Our rental 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 rental operations segment were approximately
Real Estate Development
Our real estate development segment had revenues of zero for both fiscal years 2019 and 2018.
Costs and expenses in our real estate development segment were approximately$0.1 million and$1.7 million in fiscal years 2019 and 2018, respectively. 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
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
Fiscal Year 2018 Compared to Fiscal Year 2017
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 brokerage commissions. For fiscal year 2018, our fresh lemons segment revenue was$94.8 million compared to$85.4 million for fiscal year 2017, an 11% increase of$9.4 million , primarily due to higher price and 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 packing service charges incurred from the lemon packing segment to pack lemons for sale. For fiscal year 2018, our fresh lemon costs and expenses were$74.8 million compared to$67.4 million for fiscal year 2017. The 11% increase of$7.4 million primarily consisted of the following:
• Harvest costs for fiscal year 2018 were
2017.
• Growing costs for fiscal year 2018 were
2017.
• Third-party grower costs for fiscal year 2018 were
fiscal year 2017.
• Intersegment costs and expenses for fiscal year 2018 were
than fiscal year 2017.
Lemon Packing
Lemon packing segment revenue is comprised of intersegment packing revenue and
shipping and handling revenue. For fiscal year 2018, our lemon packing segment
revenue was $29.0 million compared to $27.9 million for fiscal year 2017, a 4%
increase of $1.0 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 2018, our lemon packing costs and expenses were $23.1 million
compared to $21.6 million for fiscal year 2017. The 7% increase of $1.5 million
was primarily due to increased volume of lemons packed and increased shipping
costs.
43--------------------------------------------------------------------------------
Lemon packing segment operating income per carton sold was
The lemon packing segment included$20.0 million and$19.2 million of intersegment revenues for fiscal years 2018 and 2017, 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 2018, our avocados segment revenue was
Costs and expenses associated with our avocados segment include harvest costs and growing costs. For fiscal year 2018, our avocado costs and expenses were$4.4 million compared to$4.1 million for fiscal year 2017. The 6% increase of$0.3 million primarily consisted of the following:
• Avocado harvest costs for fiscal year 2018 were similar to fiscal year 2017.
• Growing costs for fiscal year 2018 were
2017.
Other Agribusiness
For fiscal year 2018, our other agribusiness segment revenue was $13.9 million
compared to $12.1 million for fiscal year 2017. The 15% increase of $1.8 million
primarily consisted of the following:
• Navel and
than in fiscal year 2017.
• Specialty citrus and other crop revenue for fiscal year 2018 was similar to
fiscal year 2017.
Costs and expenses associated with our other agribusiness segment include
harvest and growing costs. Our other agribusiness costs and expenses for fiscal
year 2018 were $9.5 million compared to $11.7 million for fiscal year 2017. The
19% decrease of $2.2 million primarily consisted of the following:
• Orange and specialty citrus packing service charges for fiscal year 2018 were
zero compared to
contracted with an independent packinghouse to pack a portion of our oranges
and specialty citrus in
• Harvest costs for fiscal year 2018 were
2017.
• Growing costs for fiscal year 2018 were
2017.
Fresh lemons, lemon packing, avocados and other agribusiness depreciation and
amortization for fiscal year 2018 were $6.2 million compared to $5.5 million in
fiscal year 2017. The 14% increase of $0.8 million was primarily due to the
acquisitions of San Pablo and Oxnard Lemon and an increase in assets placed into
service.
Rental Operations
Our rental operations segment had revenues of approximately $5.0 million and
$5.4 million in fiscal years 2018 and 2017, respectively. The $0.4 million
decrease in fiscal year 2018 was primarily due to decreased revenues from land
leased to third-party agricultural tenants.
Costs and expenses in our rental operations segment were approximately
Real Estate Development
Our real estate development segment had revenues of zero for both fiscal years 2018 and 2017.
Costs and expenses in our real estate development segment were approximately$1.7 million and$0.4 million in fiscal years 2018 and 2017, respectively. We recorded impairment charges of$1.6 million in fiscal year 2018 compared to$0.1 million in fiscal year 2017. 44 --------------------------------------------------------------------------------
Selling, general and administrative expenses
Selling, general and administrative expenses include corporate and other costs
and expenses not allocated to the operating segments. Selling, general and
administrative expenses for fiscal year 2018 were
Quarterly Results of Operations
The following table presents our operating results for each of the fiscal quarters in the periods endedOctober 31, 2019 andOctober 31, 2018 , respectively (in thousands, except per share amounts). The information for each of these quarters is derived from our unaudited interim financial statements and should be read in conjunction with the audited consolidated financial statements included in this Annual Report. All necessary adjustments, which consist only of normal and recurring accruals, have been included to fairly present our unaudited quarterly results. As with any agribusiness enterprise, our agribusiness operations are highly seasonal in nature. The harvest and sale of our lemons, avocados, oranges and specialty citrus and other crops occurs in all quarters, but is generally more concentrated during the third quarter. Three Months Ended 2019 Statement of Operations Data: Oct. 31, Jul. 31, Apr. 30, Jan. 31, Revenues$ 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 Limoneira Company$ (3,075 ) $ (990 ) $
2,815
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 45
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Three Months Ended 2018
Statement of Operations Data: Oct. 31, Jul. 31, Apr. 30, Jan. 31,
Revenues $ 14,714 $ 39,950 $ 43,135 $ 31,593
Costs and expenses 24,295 28,525 33,755 33,331
Operating (loss) income (9,581 ) 11,425 9,380 (1,738 )
Other income (loss), net 4,728 (111 ) (394 ) (226 )
(Loss) income before income tax
benefit (provision) (4,853 ) 11,314 8,986 (1,964 )
Income tax benefit (provision) 1,636 (3,114 ) (2,380 ) 10,587
Net (loss) income (3,217 ) 8,200 6,606 8,623
(Income) loss attributable to
noncontrolling interest (20) 1 (7) 2
Net (loss) income attributable to
Limoneira Company $ (3,237 ) $ 8,201 $
6,599
Net (loss) income per common share: Basic (0.19 ) 0.51 0.45 0.59 Diluted (0.19 ) 0.50 0.44 0.58 Number of shares used in per common share computations: Basic 17,528 15,947 14,379 14,466 Diluted 17,528 16,551 15,023 14,984 The following information compares our fourth quarter endedOctober 31, 2019 to the fourth quarter endedOctober 31, 2018 . Information concerning comparisons of our first, second and third quarters can be found in our quarterly reports on Form 10-Q.
• Total revenues increased
primarily due to increased lemon and orange crop revenues of
and
insurance revenue. During the fourth quarter of fiscal year 2019, we sold
793,000 cartons of fresh lemons, including 498,000 cartons procured from
third-party growers, at an average per carton price of
239,000 cartons of fresh lemons, including 150,000 cartons procured from
third party growers, at an average per carton price of
quarter of fiscal year 2018. The increase in orange revenues in the fourth
quarter of fiscal year 2019 compared to the fourth quarter of fiscal year
2018 was primarily due to higher brokered fruit sales.
• Total costs and expenses increased
primarily due to increases in agribusiness costs of
increase in agribusiness costs is primarily due to increased third-party
grower, packinghouse and harvest costs and expenses of
million and
to higher volume of lemon cartons packed and sold and the acquisitions of
Oxnard Lemon and Trapani Fresh .
• Total other income decreased $5.2 million in the three months ended
October 31, 2019 compared to the three months ended October 31, 2018
primarily due to the $4.2 million gain on the sale of stock in Calavo in
fiscal year 2018.
• Income tax benefit decreased $0.8 million in the three months ended
October 31, 2019 compared to the three months ended October 31, 2018
primarily due to the decrease in pre-tax loss of $0.8 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 and non-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,
which are readily available from local sources.
46
--------------------------------------------------------------------------------Cash Flows from Operating Activities
For the fiscal years endedOctober 31, 2019 , 2018 and 2017, net cash provided by operating activities was$1.4 million ,$18.4 million and$18.5 million , respectively. The significant components of our cash flows provided by operating activities are as follows:
• Net (loss) income was
fiscal years 2019, 2018 and 2017, respectively. The components of net income
in fiscal year 2019 compared to fiscal year 2018 consist of a decrease in
operating income of
million and a decrease in income tax benefit of
of net income in fiscal year 2018 compared to fiscal year 2017 consist of a
decrease in operating income of
income of $5.2 million and an increase in income tax benefit of $10.8
million .
• The adjustments to reconcile net (loss) income to net cash provided from
operating activities provided
compared to using
an increase in gain from disposals of assets, a decrease in deferred taxes, a
decrease in loss on sale of stock in Calavo and an increase in unrealized
loss on stock in Calavo. The adjustments to reconcile net income to net cash
provided from operating activities used
2018 compared to providing
primarily due to a decrease in deferred taxes and an increase in loss on sale
of stock in Calavo.
• The changes in operating assets and liabilities, net of business combinations
used
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. The changes in operating assets and liabilities, net of
business combinations used
compared to providing
primarily due to an increase in accounts receivable, an increase in cultural
costs, an increase in income taxes receivable and an increase in accrued
liabilities.
Cash Flows from Investing Activities
For the years endedOctober 31, 2019 , 2018 and 2017, net cash used in investing activities was$23.7 million ,$50.8 million and$26.4 million , respectively, and is primarily comprised of capital expenditures, business acquisitions, sales of assets and investments.
• Capital expenditures for fiscal year 2019 were comprised of
property, plant and equipment primarily related to orchard and vineyard
development and the purchase of a photovoltaic solar array and
for real estate development projects. Additionally, in fiscal year 2019, we
purchased an agriculture property for
to the Joint Venture for the development of our East Area I real estate
development project and paid
venture formation 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
property, plant and equipment primarily related to orchard and vineyard
development and
Additionally, in fiscal year 2018, we purchased
Oxnard Lemon for
million and contributed
of our East Area I real estate development project. Further, we sold 50,000
shares of stock in Calavo for
parcel for
• Capital expenditures for fiscal year 2017 were comprised of
property, plant and equipment primarily related to orchard and vineyard
development and
Additionally, in fiscal year 2017, we purchased PDA for
contributed
Area I real estate development project.
Cash Flows from Financing Activities
For the years ended
• The
2019 is primarily comprised of net borrowings of long-term debt in the amount
of $28.9 million . Additionally, we paid common and preferred dividends, in
aggregate, of $5.8 million in fiscal year 2019.
47--------------------------------------------------------------------------------
• 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
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.
• The
2017 is primarily comprised of net borrowings of long-term debt in the amount
of $12.5 million partially offset by common and preferred dividends, in
aggregate, of $3.7 million in fiscal year 2017.
Transactions Affecting Liquidity and Capital Resources
OnSeptember 26, 2019 , the Company andFarm Credit West , FLCA ("Farm Credit West") entered into Rate Lock Agreements ("Rate Lock Agreements") which fixed the interest rates effectiveOctober 1, 2019 for term loans noted below. Conversion Agreements were also signed as ofOctober 1, 2019 documenting the key terms of the modified lending arrangements. No changes were made to the outstanding principal balances on the loans and no cash repayments of principal were made by us. The rates are subject to a prepayment restriction period for a portion of the fixed rate term that will expire onMarch 1, 2020 , after which we may prepay any amounts without penalty. We paid and capitalized debt financing costs of$35,000 related to the Rate Lock Agreements. OnJune 20, 2017 , we entered into a Master Loan Agreement (the "Loan Agreement") withFarm Credit West which includes a Revolving Credit Supplement and a Non-Revolving Credit Supplement (the "Supplements"). Proceeds from the Supplements were used to pay down all the remaining outstanding indebtedness under the revolving credit facility we had withRabobank, N.A. OnJanuary 29, 2018 we amended the Revolving Credit Supplement to increase the borrowing capacity from$60.0 million to$75.0 million . The Supplements provide aggregate borrowing capacity of$115.0 million comprised of$75.0 million under the Revolving Credit Supplement and$40.0 million under the Non-Revolving Credit Supplement. The borrowing capacity based on collateral value was$115.0 million atOctober 31, 2019 . All indebtedness under the Loan Agreement, 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. 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 . We were not in compliance with covenants atOctober 31, 2019 , but the non-compliance was waived byFarm Credit West and Wells Fargo. We expect to be in compliance with these covenants in fiscal year 2020. We finance our working capital and other liquidity requirements primarily through cash from operations and our Farm Credit West Credit Facility. In addition, we have the Farm Credit West Term Loans, the Wells Fargo Term Loan and the Banco de Chile term loan. Additional information regarding theFarm Credit West Credit Facility, the Farm 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 2020. 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, 2019 , our outstanding borrowings under theFarm Credit West Credit Facility were$82.8 million and we had$32.2 million of availability. TheFarm Credit West revolving line of credit balance of$42.8 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 3.90% atOctober 31, 2019 . We have the ability to prepay any amounts outstanding under theFarm Credit West revolving line of credit 48 --------------------------------------------------------------------------------
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
• Term Loan Maturing
outstanding under the Farm Credit West Term Loan that matures in November
2022. On
3.76% and is payable in quarterly installments through
term loan is secured by certain of our agricultural properties.
• Term Loan Maturing
million outstanding under the Farm Credit West Term Loan that matures in
of 4.14% and is payable in monthly installments through
term loan is secured by the
• Term Loan Maturing
outstanding under the Farm Credit West Term Loan that matures in
On
is payable in monthly installments through
secured by certain of our agricultural properties.
• Term Loan Maturing
outstanding under the Farm Credit West Term Loan that matures in
This loan bears interest at a fixed rate of 3.62% until
variable for the remainder of the loan at a variable rate equal to an
internally calculated rate based on
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
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, 2019 , we had$5.0 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 . The loan is secured by certain equipment associated with our new lemon packing facilities. The loan contains affirmative and restrictive covenants including, among other customary covenants, financial reporting requirements, requirements to maintain and repair any collateral, restrictions on the sale of assets, restrictions on the use of proceeds, prohibitions on the incurrence of additional debt and restrictions on the purchase or sale of major assets. The Company is also subject to a covenant that it will maintain a debt service coverage ratio greater than 1.25:1.0 measured annually atOctober 31 , with which we were not in compliance atOctober 31, 2019 . The non-compliance was waived by Wells Fargo. We expect to be in compliance with these covenants in fiscal year 2020.
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.
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 5.5% atOctober 31, 2019 . 49
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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 3.58% to 6.48%
at
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. OnNovember 10, 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 7 to 10-year life of the project. 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. These funding requirements are currently estimated to total$15.0 to$20.0 million for each Joint Venture partner in the first three to four years of the project and we funded$4.0 million in fiscal year 2019,$3.5 million in fiscal year 2018, and$7.5 million in fiscal year 2017. We also entered into a lease agreement with the Joint Venture to lease back a portion of the contributed property, which allowed us to continue farming the property during the phased build-out of the project. We terminated this lease inDecember 2018 . We are planning approximately 632 units in Phase 1 of the project. Grading began inNovember 2017 . The Joint Venture received lot deposits from national homebuilders in fiscal year 2018 and initial lot sales representing a total of 210 residential units closed in fiscal year 2019. The Joint Venture closed an additional 33 lots in the first quarter of fiscal year 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 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 4.2 pounds in 2018, and since 2000, has averaged 3.3 pounds per capita versus 2.7 pounds per capita in the 1990s. Approximately 72% 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. 50 -------------------------------------------------------------------------------- According to theUSDA ,U.S. per capita consumption of avocados was 8.0 pounds in 2018, and since 2000, has averaged 4.7 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 2019 crop produced approximately 217 million pounds compared to 338 million pounds in 2018, 215 million pounds in 2017 and the ten year average of 355 million pounds. Navel oranges comprise most ofCalifornia's orange crop, accounting for approximately 80% over the past three growing seasons.Valencia oranges account for a vast majority of the remainder ofCalifornia's orange crop. WhileCalifornia produces approximately 40% of the nation's oranges, its crop accounts for approximately 90% 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 believe the residential real estate market is recovering in the locations that we own real estate development property following the well-known economic downturn of the recent past. We incurred impairment charges on one of our real estate development projects in fiscal years 2018 and 2017 and future impairment is possible. No impairment charges were recorded in fiscal year 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) $ 64,799 $ 3,023 $ 46,200 $ 2,534 $ 13,042
Variable rate debt
(principal) 44,278 - 42,843 1,435 -
Operating lease obligations 3,141 688 783 288 1,382
Other 1,029 325 650 54 -
Total contractual
obligations $ 113,247 $ 4,036 $ 90,476 $ 4,311 $ 14,424
Interest payments on fixed
and variable rate debt $ 20,238 $ 4,650 $ 9,043 $ 1,450 $ 5,095
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 2020. 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.
Interest Payments on Fixed and Variable Debt
The above table assumes that our fixed rate and long-term debt is held to
maturity and the interest rates on our variable rate debt remain unchanged for
the remaining life of the debt from those in effect at
Preferred Stock Dividends
51
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In 1997, in connection with the acquisition of Ronald Michaelis Ranches, Inc. ,
we issued 30,000 shares of Series B Convertible Preferred Stock at $100 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 , $0.1 million and $0.2 million for fiscal years 2019, 2018
and 2017, 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 2019, 2018 and 2017,
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 the Company. EffectiveJune 2004 , the Company froze the Plan and no additional benefits accrued to participants subsequent to that date. We may make discretionary contributions to the Plan and we may be required to make contributions to adhere to applicable regulatory funding provisions, based in part on the Plan's asset valuations and underlying actuarial assumptions. We made funding contributions of$0.6 million ,$0.6 million and$0.7 million in fiscal years 2019, 2018 and 2017, respectively and we plan to contribute approximately$0.6 million to the Plan in fiscal year 2020.
Operating Lease Obligations
We have numerous operating lease commitments with remaining terms ranging from less than one year to eighteen years.
InOctober 2018 , the Company purchased a 1,000 KW photovoltaic generator for$1,125,000 that was previously under a 10-year operating lease agreement withFarm Credit West . InDecember 2018 , the Company purchased another 1,000 KW photovoltaic generator for$1,275,000 that was previously under a 10-year operating lease agreement withFarm Credit West . We lease machinery and equipment for our packing operations and other land for our agricultural operations under leases with annual lease commitments that are individually immaterial.
Real Estate Development Activities, Capital Expenditures and Related Capital Resources
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 . We expect to receive approximately$100.0 million from the Joint Venture over the estimated 6 to 9-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 52 -------------------------------------------------------------------------------- fund project costs until project loan proceeds and or revenues are sufficient to fund the project. These funding requirements are currently estimated to total$15.0 to$20.0 million for each Joint Venture partner in the first three to four years of the project. We funded$4.0 million ,$3.5 million and$7.5 million in fiscal years 2019, 2018 and 2017, 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 the Company. The Joint Venture recorded a$43.2 million outstanding loan balance atOctober 31, 2019 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.
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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 $8,827,000
for the year ended October 31, 2019 . Had we used the previous revenue
recognition guidance, the Company would have recorded insignificant net
agribusiness revenue for these transactions for the year ended October 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 the Company's
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 all of our
avocado production from our orchards to Calavo. These avocados are then packed
by Calavo at its packinghouse and sold and distributed under Calavo brands to
its customers primarily in the United States and Canada . Our Company's
arrangements with other third-party packinghouses related to its oranges,
specialty citrus and other specialty crops are similar to its 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
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--------------------------------------------------------------------------------price information provided to the Company by Calavo and other third-party packinghouses at the time of delivery, have not materially differed from the actual amounts that are paid after the monthly or harvest period pools are closed.
We have entered into brokerage arrangements with third-party international packinghouses. In certain of these arrangements, we have the exclusive ability to direct the use of and obtains substantially all of the remaining benefits from the fruit, and therefore is acting as a principal. As such, we record the related revenue and costs of the fruit gross in the consolidated statement of operations. Revenue from crop insurance proceeds is recorded when the amount can be reasonably determined and upon establishment of the present right to payment. We recorded agribusiness revenues from crop insurance proceeds of$2.3 million ,$0.1 million and$0.1 million in fiscal years 2019, 2018 and 2017, 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 Revenue - We recognize revenue on real estate development projects with customers at a point in time (i.e., the closing) when we satisfy the single performance obligation and transfers control of such real estate to a buyer. The transaction price, which is the amount of consideration we receive upon delivery of the completed real estate to the buyer, is allocated to this single obligation and is received at closing. Real estate development projects with non-customers are accounted for in accordance with Accounting Standards Code ("ASC") 610-20, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets. Incidental operations may occur during the holding or development period of real estate development projects to reduce holding or development costs. Incremental revenue from incidental operations in excess of incremental costs from incidental operations is accounted for as a reduction of development costs. Incremental costs from incidental operations in excess of incremental revenue from incidental operations are charged to operations. Real Estate Development Costs - We capitalize the planning, entitlement, construction and development costs 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. For fiscal year 2019, we capitalized approximately$1.8 million of costs related to our real estate projects and expensed approximately$0.1 million of costs. 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.Trapani Fresh's functional currency is theU.S. Dollar. 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 55 --------------------------------------------------------------------------------
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 and$0.1 million in fiscal years 2018 and 2017, respectively. There were no impairment charges recorded in fiscal year 2019. 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 and mortality tables. During 2019, theSociety of Actuaries (SOA) released a new mortality improvement scale table, referred to as MP-2019, which is believed to better reflect mortality improvements and is to be used in calculating defined benefit pension obligations. In addition, during fiscal year 2019, the assumed discount rate to measure the pension obligation decreased to 3.0%. We used the latest mortality tables released by the SOA throughOctober 2019 to measure our pension obligation as ofOctober 31, 2019 and combined with the assumed discount rate and other demographic assumptions, our pension liability increased by approximately$0.6 million as ofOctober 31, 2019 . 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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