cvgw_Current folio_10Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


 

FORM 10-Q

 

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

 

For the quarterly period ended April 30, 2016

 

OR

 

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

 

Commission file number: 000-33385

 

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

 

California

33-0945304

(State of incorporation)

(I.R.S. Employer Identification No.)

 

1141-A Cummings Road

Santa Paula, California   93060

(Address of principal executive offices) (Zip code)

 

(805) 525-1245

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     

Yes    No

 

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

 

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

 

Large accelerated filer  

Accelerated filer 

Non-accelerated filer

Smaller Reporting Company

 

(Do not check if a smaller reporting company)

 

 

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

 

Registrant's number of shares of common stock outstanding as of April 30, 2016 was 17,435,408

 


 

 

 


 

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CAUTIONARY STATEMENT

 

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains forward-looking statements that involve risks, uncertainties and assumptions. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo Growers, Inc. and its consolidated subsidiaries (Calavo, the Company, we, us or our) may differ materially from those expressed or implied by such forward-looking statements and assumptions.  All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, margins, expenses, earnings, earnings per share, tax provisions, cash flows, currency exchange rates, the impact of acquisitions or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance; any statements regarding pending investigations, claims or disputes; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the impact of macroeconomic trends and events; the competitive pressures faced by Calavo's businesses; the development and transition of new products and services (and the enhancement of existing products and services) to meet customer needs; integration and other risks associated with business combinations; the hiring and retention of key employees; the resolution of pending investigations, claims and disputes; and other risks that are described herein, including, but not limited to, the items discussed in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended October 31, 2015, and those detailed from time to time in our other filings with the Securities and Exchange Commission. Calavo assumes no obligation and does not intend to update these forward-looking statements.

 

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CALAVO GROWERS, INC.

 

INDEX

 

 

    

PAGE

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

Item 1. 

Financial Statements (unaudited):

 

 

 

 

 

Consolidated Condensed Balance Sheets – April 30, 2016 and October 31, 2015

 

 

 

 

Consolidated Condensed Statements of Income – Three Months and Six Months Ended April 30, 2016 and 2015

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income – Three Months and Six Months Ended April 30, 2016 and 2015

 

 

 

 

Consolidated Condensed Statements of Cash Flows – Three Months and Six Months Ended April 30, 2016 and 2015

 

 

 

 

Notes to Consolidated Condensed Financial Statements

 

 

 

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations

17 

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

24 

 

 

 

Item 4. 

Controls and Procedures

24 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

Item 1. 

Legal Proceedings

25 

 

 

 

Item 1A. 

Risk Factors

25 

 

 

 

Item 6. 

Exhibits

25 

 

 

 

 

Signatures

26 

 

 

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PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS 

 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

April 30, 

 

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

Assets

    

 

    

    

 

    

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,888

 

$

7,171

 

Accounts receivable, net of allowances of $2,468 (2016) $2,312 (2015)

 

 

75,888

 

 

58,606

 

Inventories, net

 

 

29,849

 

 

26,351

 

Prepaid expenses and other current assets

 

 

14,540

 

 

15,763

 

Advances to suppliers

 

 

 —

 

 

2,820

 

Income taxes receivable

 

 

 —

 

 

6,111

 

Total current assets

 

 

128,165

 

 

116,822

 

Property, plant, and equipment, net

 

 

75,299

 

 

69,448

 

Investment in Limoneira Company

 

 

30,924

 

 

27,415

 

Investment in unconsolidated entities

 

 

19,761

 

 

19,720

 

Deferred income taxes

 

 

17,462

 

 

19,277

 

Goodwill

 

 

18,262

 

 

18,262

 

Other assets

 

 

14,220

 

 

14,001

 

 

 

$

304,093

 

$

284,945

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Payable to growers

 

$

19,613

 

$

3,924

 

Trade accounts payable

 

 

21,285

 

 

19,600

 

Accrued expenses

 

 

22,776

 

 

21,311

 

Income taxes payable

 

 

1,358

 

 

 —

 

Short-term borrowings

 

 

31,990

 

 

36,910

 

Dividend payable

 

 

 —

 

 

13,907

 

Current portion of long-term obligations

 

 

642

 

 

2,206

 

Total current liabilities

 

 

97,664

 

 

97,858

 

Long-term liabilities:

 

 

 

 

 

 

 

Long-term obligations, less current portion

 

 

519

 

 

586

 

Deferred income taxes

 

 

234

 

 

234

 

Total long-term liabilities

 

 

753

 

 

820

 

Commitments and contingencies

 

 

 

 

 

 

 

Noncontrolling interest, Calavo Salsa Lisa

 

 

285

 

 

285

 

Shareholders' equity:

 

 

 

 

 

 

 

Common stock ($0.001 par value, 100,000 shares authorized; 17,435 (2016) and 17,385 (2015) shares issued and outstanding

 

 

17

 

 

17

 

Additional paid-in capital

 

 

148,193

 

 

147,063

 

Accumulated other comprehensive income

 

 

4,647

 

 

2,419

 

Noncontrolling interest

 

 

1,025

 

 

1,011

 

Retained earnings

 

 

51,509

 

 

35,472

 

Total shareholders' equity

 

 

205,391

 

 

185,982

 

 

 

$

304,093

 

$

284,945

 

 

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

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

 

 

April 30, 

 

April 30, 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

    

$

220,303

    

$

221,589

    

$

424,878

    

$

416,380

 

Cost of sales

 

 

193,496

 

 

198,614

 

 

377,073

 

 

375,600

 

Gross margin

 

 

26,807

 

 

22,975

 

 

47,805

 

 

40,780

 

Selling, general and administrative

 

 

11,658

 

 

9,986

 

 

22,579

 

 

19,496

 

Operating income

 

 

15,149

 

 

12,989

 

 

25,226

 

 

21,284

 

Interest expense

 

 

(185)

 

 

(236)

 

 

(402)

 

 

(459)

 

Other income, net

 

 

273

 

 

309

 

 

514

 

 

426

 

Income before provision for income taxes

 

 

15,237

 

 

13,062

 

 

25,338

 

 

21,251

 

Provision for income taxes

 

 

5,561

 

 

4,590

 

 

9,286

 

 

7,480

 

Net income

 

 

9,676

 

 

8,472

 

 

16,052

 

 

13,771

 

Less: Net income (loss) attributable to noncontrolling interest

 

 

13

 

 

 —

 

 

(14)

 

 

 —

 

Net income attributable to Calavo Growers, Inc.

 

$

9,689

 

$

8,472

 

$

16,038

 

$

13,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Calavo Growers, Inc.’s net income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.56

 

$

0.49

 

$

0.93

 

$

0.80

 

Diluted

 

$

0.56

 

$

0.49

 

$

0.92

 

$

0.79

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computation:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

17,348

 

 

17,300

 

 

17,335

 

 

17,298

 

Diluted

 

 

17,445

 

 

17,382

 

 

17,415

 

 

17,343

 

 

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

 

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Six months ended

 

 

 

April 30, 

 

April 30, 

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

    

$

9,676

    

$

8,472

    

$

16,038

    

$

13,771

 

Other comprehensive income (loss), before tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses) arising during period

 

 

9,179

 

 

3,699

 

 

3,509

 

 

(4,702)

 

Income tax (expense) benefit related to items of other comprehensive income (loss)

 

 

(3,350)

 

 

(1,295)

 

 

(1,281)

 

 

1,646

 

Other comprehensive income (loss), net of tax

 

 

5,829

 

 

2,404

 

 

2,228

 

 

(3,056)

 

Comprehensive income

 

 

15,505

 

 

10,876

 

 

18,266

 

 

10,715

 

Less: Net income (loss) attributable to noncontrolling interest

 

 

13

 

 

 —

 

 

(14)

 

 

 —

 

Comprehensive income – Calavo Growers, Inc.

 

$

15,518

 

$

10,876

 

$

18,252

 

$

10,715

 

 

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

 

 

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CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities:

    

 

    

    

 

    

 

Net income

 

$

16,052

 

$

13,771

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,286

 

 

3,965

 

Provision for losses on accounts receivable

 

 

 —

 

 

30

 

Loss (income) from unconsolidated entities

 

 

(39)

 

 

20

 

Stock compensation expense

 

 

1,019

 

 

719

 

Deferred income taxes

 

 

597

 

 

 —

 

Effect on cash of changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(17,282)

 

 

(23,905)

 

Inventories, net

 

 

(3,498)

 

 

(70)

 

Prepaid expenses and other current assets

 

 

(3,851)

 

 

(1,381)

 

Advances to suppliers

 

 

2,820

 

 

3,182

 

Income taxes receivable/payable

 

 

7,580

 

 

623

 

Other assets

 

 

31

 

 

25

 

Payable to growers

 

 

15,686

 

 

18,419

 

Trade accounts payable and accrued expenses

 

 

2,944

 

 

(638)

 

Net cash provided by operating activities

 

 

26,345

 

 

14,760

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Acquisitions of property, plant, and equipment

 

 

(9,198)

 

 

(6,663)

 

Proceeds received for repayment of San Rafael note

 

 

28

 

 

 —

 

Proceeds received for repayment of loan to Agricola Don Memo

 

 

4,000

 

 

 —

 

Net cash used in investing activities

 

 

(5,170)

 

 

(6,663)

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Payment of dividend to shareholders

 

 

(13,907)

 

 

(12,970)

 

Proceeds from revolving credit facility

 

 

106,380

 

 

141,470

 

Payments on revolving credit facility

 

 

(111,300)

 

 

(132,220)

 

Payments on long-term obligations

 

 

(1,631)

 

 

(2,087)

 

Proceeds from stock option exercises

 

 

 —

 

 

235

 

Net cash used in financing activities

 

 

(20,458)

 

 

(5,572)

 

Net increase in cash and cash equivalents

 

 

717

 

 

2,525

 

Cash and cash equivalents, beginning of period

 

 

7,171

 

 

6,744

 

Cash and cash equivalents, end of period

 

$

7,888

 

$

9,269

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

Construction in progress included in trade accounts payable and accrued expenses

 

$

143

 

$

 —

 

Unrealized holding gains (losses)

 

$

3,509

 

$

(4,702)

 

 

 

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

 

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CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

1. Description of the business

 

Business

 

Calavo Growers, Inc. (Calavo, the Company, we, us or our), is a global leader in the avocado industry and an expanding provider of value-added fresh food.  Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to food distributors, produce wholesalers, supermarkets, and restaurants on a worldwide basis.  We procure avocados principally from California and Mexico.  Through our various operating facilities, we (i) sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas, (ii) process and package fresh cut fruit and vegetables, salads, wraps, sandwiches, fresh snacking products and a variety of behind-the-glass deli items and (iii) produce and package guacamole and salsa. 

 

The accompanying unaudited consolidated condensed financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows.  The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year.  These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015.

 

Recently Issued Accounting Standards 

 

In March 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU"), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU will be effective for us beginning the first day of our 2017 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.

 

In February 2016, the FASB issued an ASU, which requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset, and for operating leases, the lessee would recognize a straight-line total lease expense. The guidance also requires qualitative and specific quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities, including significant judgments and changes in judgments. This ASU will be effective for us beginning the first day of our 2019 fiscal year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.

 

In January 2016, the FASB issued an ASU, which requires equity investments (except those accounted for under the equity method of accounting) to be measured at fair value with changes in fair value recognized in net income. The guidance is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows.

 

In November 2015, the FASB issued an ASU, which amends the existing accounting standards for income taxes. The amendment required companies to report their deferred tax liabilities and deferred tax assets each as a single non-current

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item on their classified balance sheets. The Company elected to adopt the amendments in the first quarter of fiscal year 2016 and applied them prospectively to the current period presented, as permitted by the standard. The adoption of the amendments had no impact on the Company's net earnings or cash flow from operations for any period presented.

 

In July 2015, the FASB issued an ASU for measuring inventory.  The core principal of the guidance is that an entity should measure inventory at the lower of cost and net realizable value.  Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance is effective for us on a prospective basis beginning on the first day of our fiscal 2017 year. Early adoption is permitted. We are evaluating the impact of adoption of this ASU on our financial condition, result of operations and cash flows, but do not expect the adoption of this ASU to have a significant effect.

 

In May 2014, the FASB amended the existing accounting standards for revenue recognition. The amendments are based on the principle that revenue should be recognized 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. We are required to adopt the amendments in the first quarter of fiscal 2018. Early adoption is not permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. We do not expect the adoption of these amendments to have a material impact on our financial statements.

 

2.  Information regarding our operations in different segments

 

We report our operations in three different business segments: (1) Fresh products, (2) Calavo Foods, and (3) RFG.  These three business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. The Fresh products segment includes all operations that involve the distribution of avocados and other fresh produce products.  The Calavo Foods segment represents all operations related to the purchase, manufacturing, and distribution of prepared products, including guacamole and salsa. The RFG segment represents all operations related to the manufacturing and distribution of fresh-cut fruit, ready-to-eat vegetables, recipe-ready vegetables and deli products.  Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate.  We do not allocate assets, or specifically identify them to, our operating segments. The following table sets forth sales by product category, by segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  April 30, 2016

 

Three months ended  April 30, 2015

 

 

    

    

 

    

    

 

    

 

 

    

 

 

    

    

 

    

    

 

    

 

 

    

 

 

 

 

 

Fresh

 

Calavo

 

    

 

 

    

 

 

Fresh

 

Calavo

 

    

 

 

    

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

products

 

Foods

 

RFG

 

Total

 

Third-party sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avocados

 

$

108,197

 

$

 

$

 

$

108,197

 

$

125,744

 

$

 —

 

$

 

$

125,744

 

Tomatoes

 

 

15,765

 

 

 

 

 

 

15,765

 

 

9,606

 

 

 —

 

 

 

 

9,606

 

Papayas

 

 

2,226

 

 

 

 

 

 

2,226

 

 

1,898

 

 

 —

 

 

 

 

1,898

 

Other fresh products

 

 

299

 

 

 

 

 

 

299

 

 

742

 

 

 —

 

 

 

 

742

 

Food service

 

 

 

 

12,431

 

 

 

 

12,431

 

 

 —

 

 

12,126

 

 

 

 

12,126

 

Retail and club

 

 

 

 

5,258

 

 

79,762

 

 

85,020

 

 

 —

 

 

5,458

 

 

69,468

 

 

74,926

 

Total gross sales

 

 

126,487

 

 

17,689

 

 

79,762

 

 

223,938

 

 

137,990

 

 

17,584

 

 

69,468

 

 

225,042

 

Less sales incentives

 

 

(498)

 

 

(2,336)

 

 

(801)

 

 

(3,635)

 

 

(137)

 

 

(2,691)

 

 

(625)

 

 

(3,453)

 

Net sales

 

$

125,989

 

$

15,353

 

$

78,961

 

$

220,303

 

$

137,853

 

$

14,893

 

$

68,843

 

$

221,589

 

 

 

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Six months ended April 30, 2016

 

Six months ended April 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fresh

    

Calavo

    

 

 

    

 

 

    

Fresh

    

Calavo

    

 

 

    

 

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

products

 

Foods

 

RFG

 

Total

 

Third-party sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avocados

 

$

203,421

 

$

 

$

 

$

203,421

 

$

228,169

 

$

 

$

 

$

228,169

 

Tomatoes

 

 

31,794

 

 

 

 

 

 

31,794

 

 

15,659

 

 

 

 

 

 

15,659

 

Papayas

 

 

4,441

 

 

 

 

 

 

4,441

 

 

4,418

 

 

 

 

 

 

4,418

 

Other fresh products

 

 

418

 

 

 

 

 

 

418

 

 

1,964

 

 

 

 

 

 

1,964

 

Food service

 

 

 

 

25,069

 

 

 

 

25,069

 

 

 

 

23,648

 

 

 

 

23,648

 

Retail and club

 

 

 

 

10,580

 

 

156,545

 

 

167,125

 

 

 

 

11,120

 

 

138,620

 

 

149,740

 

Total gross sales

 

 

240,074

 

 

35,649

 

 

156,545

 

 

432,268

 

 

250,210

 

 

34,768

 

 

138,620

 

 

423,598

 

Less sales incentives

 

 

(939)

 

 

(4,808)

 

 

(1,643)

 

 

(7,390)

 

 

(708)

 

 

(5,252)

 

 

(1,258)

 

 

(7,218)

 

Net sales

 

$

239,135

 

$

30,841

 

$

154,902

 

$

424,878

 

$

249,502

 

$

29,516

 

$

137,362

 

$

416,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fresh

    

Calavo

    

 

 

    

 

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(All amounts are presented in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  April 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

125,989

 

$

15,353

 

$

78,961

 

$

220,303

 

Cost of sales

 

 

111,928

 

 

8,764

 

 

72,804

 

 

193,496

 

Gross margin

 

$

14,061

 

$

6,589

 

$

6,157

 

$

26,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended  April 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

137,853

 

$

14,893

 

$

68,843

 

$

221,589

 

Cost of sales

 

 

126,954

 

 

9,280

 

 

62,380

 

 

198,614

 

Gross margin

 

$

10,899

 

$

5,613

 

$

6,463

 

$

22,975

 

 

For the three months ended April 30, 2016 and 2015, inter-segment sales and cost of sales of $1.3 million and $0.5 million between Fresh products and RFG were eliminated.  For the three months ended April 30, 2016 and 2015, inter-segment sales and cost of sales of $0.6 million and $0.5 million between Calavo Foods and RFG were eliminated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Fresh

    

Calavo

    

 

 

    

 

 

 

 

 

products

 

Foods

 

RFG

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(All amounts are presented in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

239,135

 

$

30,841

 

$

154,902

 

$

424,878

 

Cost of sales

 

 

214,579

 

 

18,744

 

 

143,750

 

 

377,073

 

Gross margin

 

$

24,556

 

$

12,097

 

$

11,152

 

$

47,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended April 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

249,502

 

$

29,516

 

$

137,362

 

$

416,380

 

Cost of sales

 

 

229,886

 

 

20,310

 

 

125,404

 

 

375,600

 

Gross margin

 

$

19,616

 

$

9,206

 

$

11,958

 

$

40,780

 

 

For the six months ended April 30, 2016 and 2015, inter-segment sales and cost of sales of $1.4 million and $0.7 million between Fresh products and RFG were eliminated.  For the six months ended April 30, 2016 and 2015, inter-segment sales and cost of sales of $1.3 million and $0.7 million between Calavo Foods and RFG were eliminated.

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3.Inventories

 

Inventories consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

April 30, 

 

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Fresh fruit

    

$

14,820

    

$

11,939

 

Packing supplies and ingredients

 

 

7,133

 

 

6,347

 

Finished prepared foods

 

 

7,896

 

 

8,065

 

 

 

$

29,849

 

$

26,351

 

 

Inventories are stated at the lower of cost or market. We periodically review the value of items in inventory and record any necessary reserves of inventory based on our assessment of market conditions.  No inventory reserve was considered necessary as of April 30, 2016 and October 31, 2015.

 

4.Related party transactions

 

Certain members of our Board of Directors market California avocados through Calavo pursuant to marketing agreements substantially similar to the marketing agreements that we enter into with other growers.  During the three months ended April 30, 2016 and 2015, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $3.3 million and $5.7 million.  During the six months ended April 30, 2016 and 2015, the aggregate amount of avocados procured from entities owned or controlled by members of our Board of Directors was $3.4 million and $6.3 million.  Amounts payable to these Board members were $2.2 million as of April 30, 2016.  We did not have any amounts payable to these Board members as of October 31, 2015.

 

During the three and six months ended April 30, 2016 and 2015, we received $0.1 million as dividend income from Limoneira Company (Limoneira).  In addition, we lease office space from Limoneira and paid rental expenses of $0.1 million for the three and six months ended April 30, 2016 and 2015. Harold Edwards, who is a member of our Board of Directors, is the Chief Executive Officer of Limoneira Company. We have a 12% ownership interest in Limoneira. Additionally, our Chief Executive Officer is a member of the Limoneira Board of Directors.

 

We currently have a member of our Board of Directors who also serves as a partner in the law firm of TroyGould PC, which frequently represents Calavo as legal counsel. During the three and six months ended April 30, 2016 and 2015, Calavo Growers, Inc. paid fees totaling approximately $0.1 million to TroyGould PC.

 

In December 2014, Calavo formed a wholly owned subsidiary Calavo Growers De Mexico, S. de R.L. de C.V. (Calavo Sub).  In July 2015, Calavo Sub entered into a Shareholder Agreement with Grupo Belo del Pacifico, S.A. de C.V., (Belo) a Mexican Company owned by Agricola Belher, and formed Agricola Don Memo, S.A. de C.V. (Don Memo). Belo and Calavo Sub have an equal one-half ownership interest in Don Memo in exchange for $2 million each.  Pursuant to a management service agreement, Belo, through its officers and employees, has day-to-day power and authority to manage the operations. Belo is entitled to a management fee, as defined, which is payable annually in July of each year.  Additionally, Calavo Sub is entitled to commission, for the sale of produce in the Mexican National Market, United States, Canada, and any other overseas market.

 

We loaned a total of $4.0 million to Don Memo since its formation. These monies, effectively a bridge loan, were replaced with a new loan to Don Memo from Bank of America, N.A. (BoA) during our first fiscal quarter of 2016 and our bridge loan was repaid from the proceeds of the new loan. Also, in January 2016, Calavo and BoA, entered into a Continuing and Unconditional Guaranty agreement (the Guaranty). Under the terms of the Guaranty, Calavo unconditionally guarantees and promises to pay BoA any and all Indebtedness, as defined therein, of our unconsolidated subsidiary Don Memo to BoA. Belo has also entered into a similar guarantee with BoA. These guarantees relate to a new loan in the amount of $4.5 million loan from BoA to Don Memo that closed in January 2016.

 

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Additionally, $2.0 million, representing Calavo Sub’s 50% ownership in Don Memo, is included in investment in unconsolidated entities on our balance sheet.  We make advances to Don Memo for operating purposes, provide additional advances as shipments are made during the season, and return the proceeds from tomato sales under this program to Don Memo, net of our commission and aforementioned advances. As of April 30, 2016 and October 31, 2015, we advanced $0.7 million and $1.8 million to Don Memo, which is recorded in advances to suppliers and netted with payable to growers. During the three and six months ended April 30, 2016, we incurred $0.2 million and $2.1 million to Don Memo pursuant to our consignment agreement.

 

We had grower advances due from Belher of $3.3 million and $3.0 million as of April 30, 2016 and October 31, 2015.  In addition, we had infrastructure advances due from Belher of $1.8 million as of April 30, 2016 and October 31, 2015.  Of these infrastructure advances $1.0 million was recorded as receivable in prepaid and other current assets.  The remaining $0.8 million of these infrastructure advances are recorded in other assets. During the three months ended April 30, 2016 and 2015, we incurred $13.4 million and $8.7 million to Belher pursuant to our consignment agreement. During the six months ended April 30, 2016 and 2015, we incurred $25.5 million and $14.1 million to Belher pursuant to our consignment agreement.

 

In August 2015, we entered into Shareholder’s Agreement with various partners and created Avocados de Jalisco, S.A.P.I. de C.V. (“Avocados de Jalisco”).  Avocados de Jalisco is a Mexican corporation created to engage in procuring, packing and selling avocados.  This entity is approximately 80% owned by Calavo and was consolidated in our financial statements.  Avocados de Jalisco is currently building a packinghouse located in Jalisco, Mexico and such packinghouse is expected to be operational in the third quarter of 2016.  As of April 30, 2016 and October 31, 2015, we have made preseason advances of approximately $0.2 million and $0.3 million to various partners of Avocados de Jalisco.

The three previous owners and current executives of RFG have a majority ownership of certain entities that provide various services to RFG.  RFG’s California operating facility leases a building from LIG partners, LLC (LIG) pursuant to an operating lease.  RFG’s Texas operating facility leases a building from THNC, LLC (THNC) pursuant to an operating lease.  Additionally, RFG sells cut produce and purchases raw materials, obtains transportation services, and shares costs for certain utilities with Third Coast Fresh Distribution (Third Coast).  LIG, THNC and Third Coast are majority owned by entities owned by three employees of Calavo (former/current executives of RFG). See the following tables for the related party activity and balances for fiscal year 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

Three months ended  April 30,

 

(in thousands)

    

2016

    

2015

 

Rent paid to LIG

 

$

131

 

$

131

 

Rent paid to THNC, LLC

 

$

76

 

$

76

 

Sales to Third Coast

 

$

-

 

$

109

 

Purchases from Third Coast

 

$

-

 

$

58

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended  April 30,

 

(in thousands)

    

2016

    

2015

 

Rent paid to LIG

 

$

262

 

$

262

 

Rent paid to THNC, LLC

 

$

152

 

$

152

 

Sales to Third Coast

 

$

-

 

$

238

 

Purchases from Third Coast

 

$

-

 

$

117

 

 

 

 

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5.Other assets

 

Other assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

    

April 30, 

    

October 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Intangibles, net

 

$

3,962

 

$

4,613

 

Mexican IVA (i.e. value-added) taxes receivable